##### 



United States
Securities and Exchange Commission
 Washington, D.C. 20549
 Form 10-Q
 Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the Quarterly Period Ended June 30, 2005
 Commission file number 333-123250
 PHARMA SERVICES INTERMEDIATE HOLDING CORP.
 
  Delaware
    
    73-1678018(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)
 4709 Creekstone Dr., Suite 200Durham, NC
    
    27703-8411(Address of principal executive offices)
    
    (Zip Code)
 (Registrants telephone number, including area code)
  
  þ o
 o þ




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##### 



PagePart I.
    
    Financial InformationItem 1.
    
    Financial Statements (unaudited)Condensed consolidated balance sheets  June 30, 2005 and December 31, 2004
    
    
    3Condensed consolidated statements of operations  Three months ended June 30, 2005 and 2004; Six months ended June 30, 2005 and 2004
    
    
    4Condensed consolidated statements of cash flows  Six months ended June 30, 2005 and 2004
    
    
    5Notes to condensed consolidated financial statements  June 30, 2005
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    32Item 3.
    
    Quantitative and Qualitative Disclosure About Market Risk
    
    
    71Item 4.
    
    Controls and Procedures
    
    
    71Part II.
    
    Other InformationItem 1.
    
    Legal Proceedings
    
    
    71Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds  Not Applicable
    
    
    74Item 3.
    
    Defaults Upon Senior Securities  Not Applicable
    
    
    74Item 4.
    
    Submission of Matters to a Vote of Security Holders  Not Applicable
    
    
    74Item 5.
    
    Other Information  Not Applicable
    
    
    74Item 6.
    
    Exhibits
    
    
    74Signatures
    
    
    75Exhibit Index
    
    
    76
 2




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##### 



Part
I. Financial Information
 Item 1.
Financial Statements
 Pharma Services Intermediate Holding Corp. and Subsidiaries
 Condensed Consolidated Balance Sheets
 June 30,
    
    December 31,2005
    
    2004(unaudited)
    
    (Note 1)AssetsCurrent assets:Cash and cash equivalents
    
    $
    298,284
    
    
    $
    535,732Trade accounts receivable and unbilled services, net
    
    
    348,352
    
    
    
    300,407Investments in debt securities
    
    
    588
    
    
    
    569Prepaid expenses
    
    
    24,087
    
    
    
    20,424Other current assets and receivables
    
    
    58,808
    
    
    
    58,284Total current assets
    
    
    730,119
    
    
    
    915,416Property and equipment
    
    
    296,520
    
    
    
    359,073Less accumulated depreciation
    
    
    (86,893
    )
    
    
    (67,928
    )209,627
    
    
    
    291,145Intangibles and other assets:Investments in debt securities
    
    
    12,279
    
    
    
    11,552Investments in marketable equity securities
    
    
    33,014
    
    
    
    24,425Investments in non-marketable equity securities and loans
    
    
    55,985
    
    
    
    56,441Investments in unconsolidated affiliates
    
    
    120,065
    
    
    
    120,984Commercial rights and royalties
    
    
    128,565
    
    
    
    138,543Accounts receivable  unbilled
    
    
    53,434
    
    
    
    46,669Goodwill
    
    
    115,001
    
    
    
    116,013Other identifiable intangibles, net
    
    
    244,892
    
    
    
    274,457Deferred income taxes
    
    
    35,577
    
    
    
    2,877Deposits and other assets
    
    
    46,205
    
    
    
    54,927845,017
    
    
    
    846,888Total assets
    
    $
    1,784,763
    
    
    $
    2,053,449Liabilities and Shareholders EquityCurrent liabilities:Accounts payable and accrued expenses
    
    $
    320,352
    
    
    $
    348,213Credit arrangements
    
    
    19,323
    
    
    
    20,319Unearned income
    
    
    202,560
    
    
    
    199,450Other current liabilities and income taxes
    
    
    14,165
    
    
    
    32,347Total current liabilities
    
    
    556,400
    
    
    
    600,329Long-term liabilities:Credit arrangements, less current portion
    
    
    763,324
    
    
    
    910,793Deferred income taxes
    
    
    8,785
    
    
    
    41,898Payable to Parent Company
    
    
    128,470
    
    
    
    128,470Minority interest
    
    
    42,665
    
    
    
    43,347Other liabilities
    
    
    31,905
    
    
    
    21,142975,149
    
    
    
    1,145,650Total liabilities
    
    
    1,531,549
    
    
    
    1,745,979Shareholders equity:Common stock and additional paid-in capital,
100 shares issued and outstanding at
June 30, 2005 and December 31, 2004
    
    
    269,812
    
    
    
    269,812Accumulated deficit
    
    
    (44,547
    )
    
    
    (14,419
    )Accumulated other comprehensive income
    
    
    27,949
    
    
    
    52,077Total shareholders equity
    
    
    253,214
    
    
    
    307,470Total liabilities and shareholders equity
    
    $
    1,784,763
    
    
    $
    2,053,449
  3




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##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
 Condensed Consolidated Statements of Operations
 Three months
    
    Three months
    
    Six months
    
    Six monthsended
    
    ended
    
    ended
    
    endedJune 30, 2005
    
    June 30, 2004
    
    June 30, 2005
    
    June 30, 2004Net revenues
    
    $
    537,447
    
    
    $
    425,766
    
    
    $
    1,029,803
    
    
    $
    848,960Add: reimbursed service costs
    
    
    131,298
    
    
    
    82,306
    
    
    
    241,983
    
    
    
    164,765Gross revenues
    
    
    668,745
    
    
    
    508,072
    
    
    
    1,271,786
    
    
    
    1,013,725Costs, expenses and other:Costs of revenues
    
    
    468,973
    
    
    
    372,062
    
    
    
    905,606
    
    
    
    728,664Selling, general and administrative
    
    
    167,990
    
    
    
    159,027
    
    
    
    322,506
    
    
    
    314,688Interest expense (income), net
    
    
    16,362
    
    
    
    18,311
    
    
    
    37,755
    
    
    
    33,468Other expense (income), net
    
    
    2,764
    
    
    
    318
    
    
    
    2,888
    
    
    
    (2,873
    )Restructuring
    
    
    10,676
    
    
    
    
    
    
    
    19,679
    
    
    
    Impairments
    
    
    72,033
    
    
    
    881
    
    
    
    72,467
    
    
    
    881Transaction expense, net
    
    
    
    
    
    
    
    
    
    
    (2,666
    )
    
    
    Gain on sale of portion of an
investment in a subsidiary
    
    
    
    
    
    
    (24,688
    )
    
    
    
    
    
    
    (24,688
    )Non-operating gain on change of
interest transaction
    
    
    
    
    
    
    (10,030
    )
    
    
    
    
    
    
    (10,030
    )738,798
    
    
    
    515,881
    
    
    
    1,358,235
    
    
    
    1,040,110Loss before income taxes
    
    
    (70,053
    )
    
    
    (7,809
    )
    
    
    (86,449
    )
    
    
    (26,385
    )Income tax (benefit) expense
(includes $31,521 of income tax
benefit related to American Jobs
Creation Act of 2004 for the six
months ended June 30, 2005)
    
    
    (24,385
    )
    
    
    12,916
    
    
    
    (58,718
    )
    
    
    12,003Loss before minority interests and
equity in (losses) earnings of
unconsolidated affiliates
    
    
    (45,668
    )
    
    
    (20,725
    )
    
    
    (27,731
    )
    
    
    (38,388
    )Equity in (losses) earnings of
unconsolidated affiliates
    
    
    (329
    )
    
    
    45
    
    
    
    (528
    )
    
    
    (23
    )Minority interests
    
    
    (642
    )
    
    
    (99
    )
    
    
    (1,869
    )
    
    
    (145
    )Loss from continuing operations
    
    
    (46,639
    )
    
    
    (20,779
    )
    
    
    (30,128
    )
    
    
    (38,556
    )Income from discontinued operation
    
    
    
    
    
    
    8,214
    
    
    
    
    
    
    
    10,060Net loss
    
    $
    (46,639
    )
    
    $
    (12,565
    )
    
    $
    (30,128
    )
    
    $
    (28,496
    )
  4




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##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
 Condensed Consolidated Statements of Cash Flows
 Six months ended
    
    Six months endedJune 30, 2005
    
    June 30, 2004Operating activitiesNet loss
    
    $
    (30,128
    )
    
    $
    (28,496
    )Income from discontinued operation
    
    
    
    
    
    
    (10,141
    )Loss from continuing operations
    
    
    (30,128
    )
    
    
    (38,637
    )Adjustments to reconcile loss from continuing operations to net
cash (used in) provided by operating activities:Depreciation and amortization
    
    
    62,172
    
    
    
    66,882Amortization of debt issuance costs
    
    
    5,314
    
    
    
    1,829Amortization of commercial rights and royalties assets
    
    
    10,922
    
    
    
    4,317Restructuring charge accrual
    
    
    19,679
    
    
    
    Restructuring charge payments
    
    
    (15,707
    )
    
    
    (3,244
    )Impairment of long-lived assets
    
    
    72,467
    
    
    
    881Loss from sales and impairments of investments, net
    
    
    2,841
    
    
    
    3,795Loss on disposals of property and equipment, net
    
    
    519
    
    
    
    454Gain from sale of certain assets
    
    
    
    
    
    
    (5,114
    )Gain from sale of a portion of an investment in a subsidiary
    
    
    
    
    
    
    (24,688
    )Non-operating gain on change of interest transaction
    
    
    
    
    
    
    (10,030
    )(Benefit from) provision for deferred income tax expense
    
    
    (42,471
    )
    
    
    3,924Change in accounts receivable, unbilled services and unearned income
    
    
    (53,033
    )
    
    
    (63,397
    )Change in other operating assets and liabilities
    
    
    (26,212
    )
    
    
    (7,665
    )Other
    
    
    769
    
    
    
    Net cash provided by (used in) operating activities
    
    
    7,132
    
    
    
    (70,693
    )Investing activitiesAcquisition of property and equipment
    
    
    (25,980
    )
    
    
    (24,583
    )Payment of transaction costs in Transaction
    
    
    (2,849
    )
    
    
    (7,039
    )Acquisition of businesses, net of cash acquired
    
    
    (3,073
    )
    
    
    (252
    )Acquisition of commercial rights and royalties
    
    
    (20,944
    )
    
    
    (3,000
    )Proceeds from sale of certain assets
    
    
    
    
    
    
    9,068Proceeds from sale of minority interest in subsidiary
    
    
    
    
    
    
    35,976Proceeds from disposition of property and equipment
    
    
    3,621
    
    
    
    3,495Purchases of debt securities, net
    
    
    (732
    )
    
    
    (407
    )Purchases of equity securities and other investments
    
    
    (12,204
    )
    
    
    (7,736
    )Proceeds from sale of equity securities and other investments
    
    
    3,001
    
    
    
    27,930Other
    
    
    (141
    )
    
    
    250Net cash (used in) provided by investing activities
    
    
    (59,301
    )
    
    
    33,702Financing activitiesProceeds from issuance of debt
    
    
    
    
    
    
    124,705Debt issuance costs paid
    
    
    (3,272
    )
    
    
    (5,807
    )Principal payments on credit arrangements
    
    
    (160,834
    )
    
    
    (9,432
    )Intercompany with parent companies
    
    
    (288
    )
    
    
    (283
    )Dividend from discontinued operation
    
    
    
    
    
    
    7,929Proceeds from change in interest transaction
    
    
    
    
    
    
    41,773Dividend payable to parent company
    
    
    
    
    
    
    (119,269
    )Net cash (used in) provided by financing activities
    
    
    (164,394
    )
    
    
    39,616Effect of foreign currency exchange rate changes on cash
    
    
    (20,885
    )
    
    
    (926
    )(Decrease) increase in cash and cash equivalents
    
    
    (237,448
    )
    
    
    1,699Cash and cash equivalents at beginning of period
    
    
    535,732
    
    
    
    373,622Cash and cash equivalents at end of period
    
    $
    298,284
    
    
    $
    375,321
  5




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##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
 
          6




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##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
    June 30,
    
    December 31,2005
    
    2004Commercial rights and royalties
    
    $
    128,565
    
    
    $
    138,543Accounts receivable-unbilled
    
    
    53,434
    
    
    
    46,669Other long-term liabilities
    
    
    12,212
    
    
    
    
  TM TM
  7




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##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
   8




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##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
    9




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##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
 Ô Ô Ô Ô TM Ô Ô TM
 Ô Ô â Ô TM
 10




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##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
 TM TM TM TM TM
  11




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##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
    12




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##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
   13




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##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
   July 1, 2005throughDecember 31,2005
    
    2006
    
    2007
    
    2008
    
    2009
    
    TotalService commitments
    
    $
    66,916
    
    
    $
    121,559
    
    
    $
    108,899
    
    
    $
    89,640
    
    
    $
    68,307
    
    
    $
    455,321$
    66,916
    
    
    $
    121,559
    
    
    $
    108,899
    
    
    $
    89,640
    
    
    $
    68,307
    
    
    $
    455,321
   Fair MarketCost Basis
    
    ValueTotal Marketable Equity Securities
    
    $
    30,865
    
    
    $
    33,014
  14




---



##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
   Remaining FundingCompany
    
    Cost Basis
    
    CommitmentVenture capital funds
    
    $
    34,773
    
    
    $
    10,543Equity investments (twelve companies)
    
    
    12,853
    
    
    
    2,158Loans (three companies)
    
    
    8,359
    
    
    
    Total non-marketable equity securities and loans
    
    $
    55,985
    
    
    $
    12,701
  2005
    
    2006
    
    TotalVenture capital funds
    
    $
    4,100
    
    
    $
    6,443
    
    
    $
    10,543Equity investments
    
    
    2,158
    
    
    
    
    
    
    
    2,158Total remaining funding commitments
    
    $
    6,258
    
    
    $
    6,443
    
    
    $
    12,701
  15




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##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
      16




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##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
      As of June 30, 2005
    
    As of December 31, 2004Gross
    
    Accumulated


    
    Net
    
    Gross
    
    Accumulated
    
    NetAmount
    
    Amortization
    
    Amount
    
    Amount
    
    Amortization
    
    AmountIdentifiable intangible assets:Commercial rights and royalties,
licenses and customer
relationships
    
    $
    125,148
    
    
    $
    65,511
    
    
    $
    59,637
    
    
    $
    125,802
    
    
    $
    46,847
    
    
    $
    78,955Trademarks, trade names and other
    
    
    175,885
    
    
    
    23,827
    
    
    
    152,058
    
    
    
    169,496
    
    
    
    18,967
    
    
    
    150,529Software and related assets
    
    
    70,095
    
    
    
    36,898
    
    
    
    33,197
    
    
    
    73,051
    
    
    
    28,078
    
    
    
    44,973Total identifiable intangible assets
    
    $
    371,128
    
    
    $
    126,236
    
    
    $
    244,892
    
    
    $
    368,349
    
    
    $
    93,892
    
    
    $
    274,457
 17




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##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
  Product
    
    Commercial
    
    PharmaBioDevelopment
    
    Services
    
    Development
    
    ConsolidatedBalance as of December 31, 2004
    
    $
    70,943
    
    
    $
    43,657
    
    
    $
    1,413
    
    
    $
    116,013Impact of foreign currency fluctuations
    
    
    (978
    )
    
    
    (34
    )
    
    
    
    
    
    
    (1,012
    )Balance as of June 30, 2005
    
    $
    69,965
    
    
    $
    43,623
    
    
    $
    1,413
    
    
    $
    115,001
   Three months
    
    Three months
    
    Six months
    
    Six monthsended June 30,
    
    ended June 30,
    
    ended June 30,
    
    ended June 30,2005
    
    2004
    
    2005
    
    2004Marketable equity and derivative securities:Gross realized gains
    
    $
    
    
    
    $
    2,533
    
    
    $
    1,194
    
    
    $
    7,389Gross realized losses
    
    
    (455
    )
    
    
    (340
    )
    
    
    (1,043
    )
    
    
    (822
    )Impairment losses
    
    
    (449
    )
    
    
    (10,157
    )
    
    
    (1,322
    )
    
    
    (10,157
    )Non-marketable equity securities and loans:Gross realized gains
    
    
    21
    
    
    
    
    
    
    
    21
    
    
    
    Impairment losses
    
    
    
    
    
    
    (51
    )
    
    
    (1,691
    )
    
    
    (205
    )Total investment revenues
    
    $
    (883
    )
    
    $
    (8,015
    )
    
    $
    (2,841
    )
    
    $
    (3,795
    )
   18




---



##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
  Facility
    
    Interest Rates$75.0 million
    
    Either at LIBOR (3.49% at June 30, 2005) plus
2.50% or ABR (6.25% at June 30, 2005) plus
1.50%£1.5 million (approximately
$2.7 million) general
banking facility with a
United Kingdom bank used
for the issuance of
guarantees
    
    1% per annum for each guarantee issued
   As of
    
    As ofJune 30, 2005
    
    December 31, 200411.5% Senior Discount Notes due 2014
    
    $
    144,064
    
    
    $
    136,23110% Senior Subordinated Notes due 2013
    
    
    450,000
    
    
    
    450,000Senior Term
B Loan (Either at LIBOR (3.49% at June 30, 2005) plus 1.75%
or ABR (6.25% at June 30, 2005) plus 0.75%)
    
    
    154,575
    
    
    
    306,125Missouri tax incentive bonds due October 2009 (6.7% annual interest rate)
    
    
    2,977
    
    
    
    3,256Other notes payable
    
    
    3,004
    
    
    
    4,160754,620
    
    
    
    899,772Capital leases
    
    
    28,027
    
    
    
    31,340Total credit arrangements
    
    $
    782,647
    
    
    $
    931,112
  July 1, 2005 through December 31, 2005
    
    $
    2,6362006
    
    
    5,0052007
    
    
    4,1732008
    
    
    3,9022009
    
    
    144,5762010
    
    
    117Thereafter
    
    
    594,211$
    754,620
    19




---



##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
        20




---



##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
       21




---



##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
    Severance and related costs
    
    Exit costsBalance at
    
    
    
    
    
    
    
    
    
    Foreign
    
    
    
    
    
    
    
    
    
    Foreign
    
    Balance atDecember 31,
    
    
    
    
    
    
    
    
    
    Currency
    
    
    
    
    
    
    
    
    
    Currency
    
    June 30,2004
    
    Accrual
    
    Payments
    
    Translation
    
    Accrual
    

Payments
    
    Translation
    
    20052005 Plans
    
    $
    
    
    
    $
    9,145
    
    
    $
    (6,967
    )
    
    $
    (90
    )
    
    $
    9,343
    
    
    $
    (2,384
    )
    
    $
    (114
    )
    
    $
    8,9332004 Plans
    
    
    5,225
    
    
    
    918
    
    
    
    (5,351
    )
    
    
    (102
    )
    
    
    273
    
    
    
    (107
    )
    
    
    (15
    )
    
    
    8412003 Plans
    
    
    826
    
    
    
    
    
    
    
    (319
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5072002 Plans
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    52001 Plans
    
    
    4,556
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (559
    )
    
    
    
    
    
    
    3,9972000 Plans
    
    
    32
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23
    )
    
    
    
    
    
    
    9$
    10,646
    
    
    $
    10,063
    
    
    $
    (12,637
    )
    
    $
    (192
    )
    
    $
    9,616
    
    
    $
    (3,075
    )
    
    $
    (129
    )
    
    $
    14,292
   22




---



##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
       23




---



##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
     Three months
    
    Three months
    
    Six months
    
    Six monthsended
    
    ended
    
    ended
    
    endedJune 30,
    
    June 30,
    
    June 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Net loss
    
    $
    (46,639
    )
    
    $
    (12,565
    )
    
    $
    (30,128
    )
    
    $
    (28,496
    )Other comprehensive loss:Unrealized gains (losses) on marketable securities arising
during the period, net of income taxes of $1.9 million and
($1.6) million for the three months ended June 30, 2005 and
2004, respectively, and ($347,000) and ($235,000) for the
six months ended June 30, 2005 and 2004, respectively
    
    
    3,534
    
    
    
    (2,898
    )
    
    
    (726
    )
    
    
    (515
    )Unrealized (losses) gains on derivative instruments, net of
income taxes of ($17,000) and $523,000 for the three months
ended June 30, 2005 and 2004, respectively, and ($88,000)
and $378,000 for the six months ended June 30, 2005 and
2004, respectively
    
    
    (133
    )
    
    
    972
    
    
    
    (329
    )
    
    
    703Reclassification adjustment for gains (losses), net of
income taxes of $1.8 million for the three months ended
June 30, 2004, and ($9,000) and $1.1 million for the six
months ended June 30, 2005 and 2004, respectively, included
in net income (loss)
    
    
    
    
    
    
    3,434
    
    
    
    (16
    )
    
    
    2,001Foreign currency adjustment
    
    
    (10,203
    )
    
    
    463
    
    
    
    (24,017
    )
    
    
    (1,755
    )Other comprehensive income (loss) to non-controlling interest
    
    
    326
    
    
    
    (58
    )
    
    
    967
    
    
    
    (53
    )Comprehensive loss
    
    $
    (53,115
    )
    
    $
    (10,652
    )
    
    $
    (54,249
    )
    
    $
    (28,115
    )
 24




---



##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
    Product
    
    Commercial
    
    PharmaBioDevelopment
    
    Services
    
    Development
    
    Eliminations
    
    ConsolidatedService revenues:External
    
    $
    330,204
    
    
    $
    169,668
    
    
    $
    
    
    
    $
    
    
    
    $
    499,872Intersegment
    
    
    1,721
    
    
    
    23,612
    
    
    
    
    
    
    
    (25,333
    )
    
    
    Total net services
    
    
    331,925
    
    
    
    193,280
    
    
    
    
    
    
    
    (25,333
    )
    
    
    499,872Commercial rights and royalties
    
    
    
    
    
    
    
    
    
    
    38,458
    
    
    
    
    
    
    
    38,458Investment
    
    
    
    
    
    
    
    
    
    
    (883
    )
    
    
    
    
    
    
    (883
    )Total net revenues
    
    
    331,925
    
    
    
    193,280
    
    
    
    37,575
    
    
    
    (25,333
    )
    
    
    537,447Reimbursed service costs
    
    
    114,149
    
    
    
    17,980
    
    
    
    
    
    
    
    (831
    )
    
    
    131,298Gross revenues
    
    $
    446,074
    
    
    $
    211,260
    
    
    $
    37,575
    
    
    $
    (26,164
    )
    
    $
    668,745Contribution
    
    $
    164,757
    
    
    $
    78,158
    
    
    $
    (13,954
    )
    
    $
    
    
    
    $
    228,961
 25




---



##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
  Product
    
    Commercial
    
    PharmaBioDevelopment
    
    Services
    
    Development
    
    Eliminations
    
    ConsolidatedService revenues:External
    
    $
    268,363
    
    
    $
    150,263
    
    
    $
    
    
    
    $
    
    
    
    $
    418,626Intersegment
    
    
    
    
    
    
    8,596
    
    
    
    
    
    
    
    (8,596
    )
    
    
    Total net services
    
    
    268,363
    
    
    
    158,859
    
    
    
    
    
    
    
    (8,596
    )
    
    
    418,626Commercial rights and royalties
    
    
    
    
    
    
    
    
    
    
    15,155
    
    
    
    
    
    
    
    15,155Investment
    
    
    
    
    
    
    
    
    
    
    (8,015
    )
    
    
    
    
    
    
    (8,015
    )Total net revenues
    
    
    268,363
    
    
    
    158,859
    
    
    
    7,140
    
    
    
    (8,596
    )
    
    
    425,766Reimbursed service costs
    
    
    67,863
    
    
    
    14,488
    
    
    
    
    
    
    
    (45
    )
    
    
    82,306Gross revenues
    
    $
    336,226
    
    
    $
    173,347
    
    
    $
    7,140
    
    
    $
    (8,641
    )
    
    $
    508,072Contribution
    
    $
    128,353
    
    
    $
    61,310
    
    
    $
    (21,497
    )
    
    $
    
    
    
    $
    168,166
  Product
    
    Commercial
    
    PharmaBioDevelopment
    
    Services
    
    Development
    
    Eliminations
    
    ConsolidatedService revenues:External
    
    $
    639,065
    
    
    $
    328,877
    
    
    $
    
    
    
    $
    
    
    
    $
    967,942Intersegment
    
    
    3,138
    
    
    
    48,506
    
    
    
    
    
    
    
    (51,644
    )
    
    
    Total net services
    
    
    642,203
    
    
    
    377,383
    
    
    
    
    
    
    
    (51,644
    )
    
    
    967,942Commercial rights and royalties
    
    
    
    
    
    
    
    
    
    
    64,702
    
    
    
    
    
    
    
    64,702Investment
    
    
    
    
    
    
    
    
    
    
    (2,841
    )
    
    
    
    
    
    
    (2,841
    )Total net revenues
    
    
    642,203
    
    
    
    377,383
    
    
    
    61,861
    
    
    
    (51,644
    )
    
    
    1,029,803Reimbursed service costs
    
    
    210,704
    
    
    
    32,438
    
    
    
    
    
    
    
    (1,159
    )
    
    
    241,983Gross revenues
    
    $
    852,907
    
    
    $
    409,821
    
    
    $
    61,861
    
    
    $
    (52,803
    )
    
    $
    1,271,786Contribution
    
    $
    314,403
    
    
    $
    145,758
    
    
    $
    (36,043
    )
    
    $
    
    
    
    $
    424,118
  Product
    
    Commercial
    
    PharmaBioDevelopment
    
    Services
    
    Development
    
    Eliminations
    
    ConsolidatedService revenues:External
    
    $
    531,047
    
    
    $
    290,967
    
    
    $
    
    
    
    $
    
    
    
    $
    822,014Intersegment
    
    
    
    
    
    
    14,879
    
    
    
    
    
    
    
    (14,879
    )
    
    
    Total net services
    
    
    531,047
    
    
    
    305,846
    
    
    
    
    
    
    
    (14,879
    )
    
    
    822,014Commercial rights and royalties
    
    
    
    
    
    
    
    
    
    
    30,741
    
    
    
    
    
    
    
    30,741Investment
    
    
    
    
    
    
    
    
    
    
    (3,795
    )
    
    
    
    
    
    
    (3,795
    )Total net revenues
    
    
    531,047
    
    
    
    305,846
    
    
    
    26,946
    
    
    
    (14,879
    )
    
    
    848,960Reimbursed service costs
    
    
    135,724
    
    
    
    29,415
    
    
    
    
    
    
    
    (374
    )
    
    
    164,765Gross revenues
    
    $
    666,771
    
    
    $
    335,261
    
    
    $
    26,946
    
    
    $
    (15,253
    )
    
    $
    1,013,725Contribution
    
    $
    256,415
    
    
    $
    115,865
    
    
    $
    (22,156
    )
    
    $
    
    
    
    $
    350,124
 26




---



##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
 Three months
    
    Three months
    
    Six months
    
    Six monthsended
    
    ended
    
    ended
    
    endedJune 30, 2005
    
    June 30, 2004
    
    June 30, 2005
    
    June 30, 2004Depreciation and
amortization
expense:Product Development
    
    $
    20,405
    
    
    $
    21,182
    
    
    $
    40,476
    
    
    $
    42,772Commercial Services
    
    
    7,611
    
    
    
    7,823
    
    
    
    15,144
    
    
    
    16,007PharmaBio
Development
(included in
contribution)
    
    
    3,556
    
    
    
    1,015
    
    
    
    4,233
    
    
    
    1,819Corporate
    
    
    1,173
    
    
    
    3,151
    
    
    
    2,318
    
    
    
    6,284Total depreciation
and amortization
expense
    
    $
    32,745
    
    
    $
    33,171
    
    
    $
    62,171
    
    
    $
    66,882
    27




---



##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
     28




---



##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
     29




---



##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
   30




---



##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
   As of
    
    As ofJune 30, 2005
    
    December 31, 2004Current assets
    
    $
    53,406
    
    
    $
    47,040Property and equipment, net
    
    
    101,961
    
    
    
    171,505Intangible assets
    
    
    1,500
    
    
    
    1,900Current liabilities
    
    $
    36,003
    
    
    $
    28,264
  31




---



##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Cautionary Statement for Forward Looking Information
   32




---



##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
 Overview
   Results of Operations
  33




---



##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
 Three Months Ended June 30, 2005 and 2004
 Gross Revenues.
 Three months ended June 30,2005
    
    2004Service revenues   external
    
    $
    631,170
    
    
    $
    500,932Less: reimbursed service costs
    
    
    131,298
    
    
    
    82,306Net service revenues  external
    
    
    499,872
    
    
    
    418,626Net service revenues  intersegment
    
    
    25,333
    
    
    
    8,596Net service revenues  combined
    
    
    525,205
    
    
    
    427,222Commercial rights and royalties
    
    
    38,458
    
    
    
    15,155Investments
    
    
    (883
    )
    
    
    (8,015
    )Eliminations: service revenues  intersegment
    
    
    (25,333
    )
    
    
    (8,596
    )Total net revenues
    
    $
    537,447
    
    
    $
    425,766Reimbursed service costs
    
    
    131,298
    
    
    
    82,306Gross revenues
    
    $
    668,745
    
    
    $
    508,072
 
    
    Service Revenues  External.Service revenues  external were $631.2 million
for the second quarter of 2005 compared to $500.9 million for the second quarter of
2004. Service revenues  external less reimbursed service costs, or net service
revenues  external, for the second quarter of 2005 were $499.9 million, an increase of
$81.2 million or 19.4% over net service revenues  external of $418.6 million for the
second quarter of 2004. Net service revenues  external for the second quarter of 2005
were positively impacted by approximately $11.9 million due to the effect of the
weakening of the United States dollar relative to the euro, the British pound, the
South African rand and the Japanese yen. Our Commercial Services and Product
Development Groups experienced growth in the second quarter of 2005 compared to the
second quarter of 2004. Our Product Development Group experienced growth in both our
clinical development services, or CDS, and early development and laboratory services,
or EDLS. The growth in EDLS primarily consisted of Phase I and central laboratory
services. Net service revenues  external increased in the Asia Pacific region $16.2
million or 21.1% to $92.9 million for the second quarter of 2005 from the second
quarter of 2004 including a positive impact of approximately $2.9 million due to the
effect of foreign currency fluctuations. Our Commercial Services Group experienced
strong growth in the Asia Pacific region with revenues increasing $11.3 million or
29.3% to $50.1 million in the second quarter of 2005 compared to the second quarter of
2004. Net service revenues  external increased $49.2 million or 27.3% to $229.2
million for the second quarter of 2005 from the second quarter of 2004 in the Europe
region including a positive impact of approximately $8.3 million due to the effect of
foreign currency fluctuations. We experienced growth from both CDS and EDLS along with
an improvement in the business conditions for our Commercial Services Group in Europe.
Net service revenues  external increased in the Americas region $15.9 million or 9.8%
to $177.8 million for the second quarter of 2005 from the second quarter of 2004
including a positive impact of approximately $657,000 due to the effect of foreign
currency fluctuations. The growth in the Americas region is primarily from our Product
Development Group, including growth from both our CDS and EDLS businesses.
 34




---



##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
 
    
    Net Service Revenues  Intersegment.Net service revenues  intersegment represents
the revenues from services provided by our service segments, primarily commercial
services, to our PharmaBio Development Group under risk-based arrangements in which we
provide services to customers in exchange for royalties. Net service revenues -
intersegment increased to $25.3 million for the second quarter of 2005 versus $8.6
million for the second quarter of 2004 as a result of the incremental services provided
under our Cymbalta contract and our February 2004 contract with a large pharmaceutical
customer.
    
    Net Service Revenues  Combined.Net service revenues  combined for the second
quarter of 2005 were $525.2 million versus $427.2 million for the second quarter of 2004
for the reasons stated above.
    
    Commercial Rights and Royalties Revenues.Commercial rights and royalties revenues,
which include product revenues, royalties and commissions, for the second quarter of
2005 were $38.5 million, an increase of $23.3 million as compared to the second quarter
2004 commercial rights and royalties revenues of $15.2 million. Commercial rights and
royalties revenues were positively impacted by approximately $560,000 due to
the effect of foreign currency fluctuations primarily related to the weakening of the United
States dollar relative to the euro. Commercial rights and royalties revenues were
reduced by approximately $6.3 million for the second quarter of 2005 for the
amortization of the payments we made to our customers versus $1.5 million for the second
quarter of 2004. These payments are considered incentives and are amortized against
revenues over the service period of the contract. The increase in commercial rights and
royalties revenues is due to (1) our contract for CymbaltaTM, which
contributed $13.0 million of revenues in the second quarter of 2005; (2) our February
2004 contract with a large pharmaceutical customer which contributed $9.8 million of
revenues in the second quarter of 2005 primarily as a result of the milestone payment
received during the second quarter of 2005; (3) our contract with Cell Therapeutics,
Inc., or Cell Therapeutics, which contributed $1.3 million in the second quarter of
2005; and (4) an increase of approximately $357,000 in the revenues from miscellaneous
contracts and activities. These increases were partially offset by a decrease in
revenues from our contracts with Columbia Labs, Inc., or Columbia, to $343,000 in the
second quarter of 2005 as compared to $1.6 million in the second quarter of 2004.
Commercial rights and royalties revenues for the second quarter of 2005 were
attributable to the following: (1) approximately 33.7% to our CymbaltaTM
contract, (2) approximately 27.1% to our contracts with two large pharmaceutical
customers in Europe, (3) approximately 25.6% to our February 2004 contract with a large
pharmaceutical customer, (4) approximately 9.2% related to miscellaneous contracts and
activities, (5) approximately 3.5% related to our contract with Cell Therapeutics and
(6) approximately 0.9% to our contracts with Columbia.
    
    Investment Revenues.Investment revenues related to our PharmaBio Development
Groups financing arrangements, which include gains and losses from the sale of equity
securities and impairments from other-than-temporary declines in the fair values of our
direct and indirect investments, for the second quarter of 2005 were a loss of $883,000
versus a loss of $8.0 million for the second quarter of 2004. Investment revenues for
the second quarter of 2005 included $455,000 of net losses on marketable securities
versus net gains of $2.2 million for
 35




---



##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
 the second quarter of 2004. In addition, during the second quarter of 2005 and 2004, we
recognized $449,000 and $10.2 million, respectively, of impairment losses on investments
whose decline in fair value was considered to be other than temporary.
 Costs of Revenues.
 Three months ended June 30,2005
    
    2004Reimbursed service costs
    
    $
    131,298
    
    
    $
    82,306Service costs
    
    
    282,290
    
    
    
    237,559Commercial rights and royalties costs
    
    
    51,529
    
    
    
    28,637Depreciation and amortization
    
    
    29,189
    
    
    
    32,156Eliminations  intersegment costs
    
    
    (25,333
    )
    
    
    (8,596
    )$
    468,973
    
    
    $
    372,062
 
    
    Reimbursed Service Costs.Reimbursed service costs were $131.3 million and
$82.3 million for the second quarter of 2005 and 2004, respectively.
    
    Service Costs.Service costs, which include compensation and benefits for billable
employees, and certain other expenses directly related to service contracts, were
$282.3 million or 53.7% of net service revenues  combined for the second quarter of
2005 versus $237.6 million or 55.6% of net service revenues  combined for the second
quarter of 2004. Compensation and related expenses increased approximately $40.2
million primarily as a result of salary and wage increases including an increase in our
number of billable employees. Other expenses directly related to our service contracts
increased approximately $4.5 million. Service costs were negatively impacted by
approximately $6.3 million from the effect of foreign currency fluctuations.
    
    Commercial Rights and Royalties Costs.Commercial rights and royalties costs, which
include compensation and related benefits for employees, amortization of commercial
rights, infrastructure costs of the PharmaBio Development Group and other expenses
directly related to commercial rights and royalties, were $51.5 million for the second
quarter of 2005 versus $28.6 million for the second quarter of 2004. The increase in
commercial rights and royalties costs is primarily due to (1) an increase in costs
related to our Cymbalta contract of approximately $13.4 million to $18.1 million in
the second quarter of 2005, (2) an increase in costs related to our February 2004
contract with a large pharmaceutical customer of approximately $2.0 million to $8.7
million in the second quarter of 2005, (3) an increase in the amortization of
commercial rights of approximately $2.5 million primarily due to an impairment on an
intangible asset related to one of the contracts with a large pharmaceutical customer
in Europe and (4) costs of approximately $1.5 million related to our co-promotion
agreement with Yamanouchi Pharma Limited, or Yamanouchi.
 36




---



##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
 
    
    Depreciation and Amortization.Depreciation and amortization, which include
depreciation of our property and equipment and amortization of our definite-lived
intangible assets except commercial rights, decreased to $29.2 million for the second
quarter of 2005 versus $32.2 million for the second quarter of 2004. Amortization
expense decreased approximately $2.1 million as a result of a decrease in intangible
assets which are being amortized over their finite lives. We have approximately $109.7
million of intangible assets which have an indefinite life and therefore are not being
amortized. Depreciation expense decreased approximately $877,000.
    
    Eliminations  Intersegment Costs.Eliminations represent the services provided by
our service segments, primarily commercial services, to our PharmaBio Development Group
under risk-based arrangements in which we provide services to customers in exchange for
royalties. Eliminations increased to $25.3 million for the second quarter of 2005
versus $8.6 million for the second quarter of 2004 primarily as a result of the
incremental services provided under our Cymbalta contract and our February 2004
contract with a large pharmaceutical customer.
 Selling, general and administrative expenses.
   37




---



##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
     38




---



##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
     39




---



##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
       Total Net Revenues
    
    Contribution% of Net
    
    
    
    
    
    % of Net2005
    
    2004
    
    Growth %
    
    2005
    
    Revenues
    
    2004
    
    RevenuesProduct Development
    
    $
    331.9
    
    
    $
    268.4
    
    
    
    23.7
    %
    
    $
    164.8
    
    
    
    49.6
    %
    
    $
    128.4
    
    
    
    47.8
    %Commercial Services
    
    
    193.3
    
    
    
    158.9
    
    
    
    21.7
    
    
    
    78.2
    
    
    
    40.4
    
    
    
    61.3
    
    
    
    38.6PharmaBio Development
    
    
    37.6
    
    
    
    7.1
    
    
    
    426.3
    
    
    
    (14.0
    )
    
    
    (37.1
    )
    
    
    (21.5
    )
    
    
    (301.1
    )Eliminations
    
    
    (25.3
    )
    
    
    (8.6
    )
    
    
    (194.7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    537.4
    
    
    $
    425.8
    
    
    
    26.2
    %
    
    $
    229.0
    
    
    
    42.6
    %
    
    $
    168.2
    
    
    
    39.5
    %
 40




---



##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
 Product Development Group.
  Commercial Services Group. TM
  PharmaBio Development Group. TM
 41




---



##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
  Six Months Ended June 30, 2005 and 2004
 Gross Revenues.
 Six months ended June 30,2005
    
    2004Service revenues  external
    
    $
    1,209,925
    
    
    $
    986,779Less: reimbursed service costs
    
    
    241,983
    
    
    
    164,765Net service revenues  external
    
    
    967,942
    
    
    
    822,014Net service revenues  intersegment
    
    
    51,644
    
    
    
    14,879Net service revenues  combined
    
    
    1,019,586
    
    
    
    836,893Commercial rights and royalties
    
    
    64,702
    
    
    
    30,741Investments
    
    
    (2,841
    )
    
    
    (3,795
    )Eliminations: service revenues  intersegment
    
    
    (51,644
    )
    
    
    (14,879
    )Total net revenues
    
    $
    1,029,803
    
    
    $
    848,960Reimbursed service costs
    
    
    241,983
    
    
    
    164,765Gross revenues
    

    $
    1,271,786
    
    
    $
    1,013,725
 
    
    Service Revenues  External.Service revenues  external were $1.21 billion
for the first six months of 2005 compared to $986.8 million for the first six months of
2004. Net service revenues  external for the first six months of 2005 were $967.9
million, an increase of $145.9 million or 17.8% over net service revenues  external of
$822.0 million for the first six months of 2004. Net service revenues  external for
the first six months of 2005 were positively impacted by approximately $24.0 million
due to the effect of the weakening of the United States dollar relative to the euro,
the British pound, the South African rand and the Japanese yen. Our Commercial
Services and Product Development Groups experienced growth. Our Product Development
Group experienced growth in both CDS and EDLS. The growth in EDLS primarily consisted
of Phase I and central laboratory services. Net service revenues  external increased
in the Asia Pacific region $27.2 million or 17.7% to $181.3 million for the first six
months of 2005 from the first six months of 2004 including a positive impact of
approximately $6.4 million due to the effect of foreign currency fluctuations. Our
Commercial Services Group experienced strong growth in the Asia Pacific region. Net
service revenues  external increased $81.0 million or 22.6% to $439.0 million for the
first six months of 2005 from the first six months of 2004 in the Europe region
including a positive impact of approximately $16.7 million due to the effect of foreign
currency fluctuations. We experienced growth from our CDS and EDLS businesses, along
with an improvement in the
 42




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##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
 business conditions for our Commercial Services Group in Europe. Net service revenues -
external increased in the Americas region $37.7 million or 12.2% to $347.7 million for
the first six months of 2005 from the first six months of 2004 including a positive
impact of approximately $859,000 due to the effect of foreign currency fluctuations. The
increase in the Americas region is primarily from our Product Development Group,
including growth from both our CDS and EDLS businesses.
    
    Net Service Revenues  Intersegment.Net service revenues  intersegment increased
to $51.6 million for the first six months of 2005 versus $14.9 million for the first six
months of 2004 as a result of the incremental services provided under our Cymbalta
contract and our February 2004 contract with a large pharmaceutical customer.
    
    Net Service Revenues  Combined.Net service revenues  combined for the first six
months of 2005 were $1.02 billion versus $836.9 million for the first six months of 2004
for the reasons stated above.
    
    Commercial Rights and Royalties Revenues.Commercial rights and royalties revenues
for the first six months of 2005 were $64.7 million, an increase of $34.0 million as
compared to the first six months of 2004 commercial rights and royalties revenues of
$30.7 million. Commercial rights and royalties revenues were positively impacted by
approximately $1.4 million due to the effect of foreign currency fluctuations related to
the weakening of the United States dollar relative to the euro. Commercial rights and
royalties revenues were reduced by approximately $10.9 million for the first six months
of 2005 for the amortization of the payments we made to our customers versus $4.3
million for the first six months of 2004. These payments are considered incentives and
are amortized against revenues over the service period of the contract. The increase in
commercial rights and royalties revenues is due to (1) our contract for
CymbaltaTM, which contributed $22.8 million of revenues in the first six
months of 2005; (2) our February 2004 contract with a large pharmaceutical customer,
which contributed $11.5 million of revenues in the first six months of 2005; (3) a
slight increase in the revenues under our contracts in Europe with two large
pharmaceutical customers to $20.8 million in the first six months of 2005 as compared to
$20.4 million in the first six months of 2004; (4) our contract with Cell Therapeutics,
which contributed $2.2 million in the first six months of 2005; and (5) an increase of
approximately $943,000 in the revenues from miscellaneous contracts and activities.
These increases were partially offset by a decrease in revenues from our contracts with
Columbia to $854,000 in the first six months of 2005 as compared to $4.8 million in the
first six months of 2004. Commercial rights and royalties revenues for the first six
months of 2005 were attributable to the following: (1) approximately 35.2% to our
CymbaltaTM contract, (2) approximately 32.2% to our contracts with two large
pharmaceutical customers in Europe, (3) approximately 17.7% to our February 2004
contract with a large pharmaceutical customer, (4) approximately 10.1% related to
miscellaneous contracts and activities, (5) approximately 3.5% related to our contract
with Cell Therapeutics and (6) approximately 1.3% to our contracts with Columbia.
    
    Investment Revenues.Investment revenues related to our PharmaBio Development
Groups financing arrangements for the first six months of 2005 were a loss of $2.8
million versus a loss of $3.8 million for the first six months of 2004. Investment
revenues for the first six
 43




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Pharma Services Intermediate Holding Corp. and Subsidiaries
 months of 2005 included $151,000 of net gains on marketable securities versus $6.6
million for the first six months of 2004. In addition, during the first six months of
2005 and 2004, we recognized $3.0 million and $10.4 million, respectively, of impairment
losses on investments whose decline in fair value was considered to be other than
temporary.
 Costs of Revenues.
 Six months ended June 30,2005
    
    2004Reimbursed service costs
    
    $
    241,983
    
    
    $
    164,765Service costs
    
    
    559,425
    
    
    
    464,613Commercial rights and royalties costs
    
    
    97,904
    
    
    
    49,102Depreciation and amortization
    
    
    57,938
    
    
    
    65,063Eliminations  intersegment costs
    
    
    (51,644
    )
    
    
    (14,879
    )$
    905,606
    
    
    $
    728,664
 
    
    Reimbursed Service Costs.Reimbursed service costs were $242.0 million and
$164.8 million for the first six months of 2005 and 2004, respectively.
    
    Service Costs.Service costs were $559.4 million or 54.9% of net service revenues -
combined for the first six months of 2005 versus $464.6 million or 55.5% of net service
revenues  combined for the first six months of 2004. Compensation and related
expenses increased approximately $74.4 million primarily as a result of salary and wage
increases including an increase in our number of billable employees. Other expenses
directly related to our service contracts increased approximately $20.4 million.
Service costs were negatively impacted by approximately $12.7 million from the effect
of foreign currency fluctuations.
    
    Commercial Rights and Royalties Costs.Commercial rights and royalties costs were
$97.9 million for the first six months of 2005 versus $49.1 million for the first six
months of 2004. The increase in commercial rights and royalties costs is primarily due
to (1) an increase in costs related to our Cymbalta contract of approximately $29.5
million to $36.2 million in the first six months of 2005 and (2) an increase in costs
related to our February 2004 contract with a large pharmaceutical customer of
approximately $6.2 million to $13.7 million in the first six months of 2005.
    
    Depreciation and Amortization.Depreciation and amortization decreased to $57.9
million for the first six months of 2005 versus $65.1 million for the first six months
of 2004. Amortization expense decreased approximately $4.4 million as a result of a
decrease in intangible assets which are being amortized over their finite lives. We
have approximately $109.7 million of intangible assets which have an indefinite life
and therefore are not being amortized. Depreciation expense decreased approximately
$2.7 million.
    
    Eliminations  Intersegment Costs.Eliminations increased to $51.6 million for the
first six months of 2005 versus $14.9 million for the first six months of 2004
primarily as a result of the incremental services provided under our Cymbalta contract
and our February 2004 contract with a large pharmaceutical customer.
 44




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Pharma Services Intermediate Holding Corp. and Subsidiaries
 Selling, general and administrative expenses.
    45




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Pharma Services Intermediate Holding Corp. and Subsidiaries
       46




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Pharma Services Intermediate Holding Corp. and Subsidiaries
    47




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##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
        Total Net Revenues
    
    Contribution% of Net
    
    
    
    
    
    % of Net2005
    
    2004

    
    Growth %
    
    2005
    
    Revenues
    
    2004
    
    RevenuesProduct Development
    
    $
    642.2
    
    
    $
    531.0
    
    
    
    20.9
    %
    
    $
    314.4
    
    
    
    49.0
    %
    
    $
    256.4
    
    
    
    48.3
    %Commercial Services
    
    
    377.4
    
    
    
    305.8
    
    
    
    23.4
    
    
    
    145.8
    
    
    
    38.6
    
    
    
    115.9
    
    
    
    37.9PharmaBio Development
    
    
    61.9
    
    
    
    26.9
    
    
    
    129.6
    
    
    
    (36.0
    )
    
    
    (58.3
    )
    
    
    (22.2
    )
    
    
    (82.2
    )Eliminations
    
    
    (51.6
    )
    
    
    (14.9
    )
    
    
    (247.1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,029.8
    
    
    $
    849.0
    
    
    
    21.3
    %
    
    $
    424.1
    
    
    
    41.2
    %
    
    $
    350.1
    
    
    
    41.2
    %
 48




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Pharma Services Intermediate Holding Corp. and Subsidiaries
 Product Development Group.
  Commercial Services Group. TM
  PharmaBio Development Group. TM
 49




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##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
  EBITDA.
 Three months
    
    Three months
    
    Six months
    
    Six monthsended
    
    ended
    
    ended
    
    endedJune 30, 2005
    
    June 30, 2004
    
    June 30, 2005
    
    June 30, 2004Consolidated:Net revenues
    
    $
    537.4
    
    
    $
    425.8
    
    
    $
    1,029.8
    
    
    $
    849.0Reimbursed service costs
    
    
    131.3
    
    
    
    82.3
    
    
    
    242.0
    
    
    
    164.8Gross revenues
    
    
    668.7
    
    
    
    508.1
    
    
    
    1,271.8
    
    
    
    1,013.7Costs of revenues
    
    
    (469.0
    )
    
    
    (372.1
    )
    
    
    (905.6
    )
    
    
    (728.7
    )Selling, general and administrative expenses
    
    
    (168.0
    )
    
    
    (159.0
    )
    
    
    (322.5
    )
    
    
    (314.7
    )Other (expense) income, net
    
    
    (2.8
    )
    
    
    (0.3
    )
    
    
    (2.9
    )
    
    
    2.9Restructuring
    
    
    (10.7
    )
    
    
    
    
    
    
    (19.7
    )
    
    
    Impairments
    
    
    (72.0
    )
    
    
    (0.9
    )
    
    
    (72.5
    )
    
    
    (0.9
    )Transaction expenses, net
    
    
    
    
    
    
    
    
    
    
    2.7
    
    
    
    Gain on sale of portion of an investment in a subsidiary
    
    
    
    
    
    
    24.7
    
    
    
    
    
    
    
    24.7Non-operating gain on change of interest transaction
    
    
    
    
    
    
    10.0
    
    
    
    
    
    
    
    10.0Depreciation and amortization
    
    
    32.7
    
    
    
    33.2
    
    
    
    62.2
    
    
    
    66.9Equity in (losses) earnings of unconsolidated affiliates
    
    
    (0.3
    )
    
    
    0.0
    
    
    
    (0.5
    )
    
    
    (0.0
    )Minority interests
    
    
    (0.6
    )
    
    
    (0.1
    )
    
    
    (1.9
    )
    
    
    (0.1
    )Income from discontinued operation
    
    
    
    
    
    
    8.2
    
    
    
    
    
    
    
    10.1EBITDA
    
    $
    (21.9
    )
    
    $
    51.8
    
    
    $
    11.1
    
    
    $
    83.9Depreciation and amortization
    
    
    (32.7
    )
    
    
    (33.2
    )
    
    
    (62.2
    )
    
    
    (66.9
    )Interest expense, net
    
    
    (16.4
    )
    
    
    (18.3
    )
    
    
    (37.8
    )
    
    
    (33.5
    )Income tax benefit (expense)
    
    
    24.4
    
    
    
    (12.9
    )
    
    
    58.7
    
    
    
    (12.0
    )Net loss
    
    $
    (46.6
    )
    
    $
    (12.6
    )
    
    $
    (30.1
    )
    
    $
    (28.5
    )
  50




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Pharma Services Intermediate Holding Corp. and Subsidiaries
    51




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Pharma Services Intermediate Holding Corp. and Subsidiaries
 Liquidity and Capital Resources
   June 30, 2005
    
    December 31, 2004Trade service accounts receivable, net
    
    $
    176,939
    
    
    $
    151,981Unbilled services
    
    
    160,494
    
    
    
    138,347Unearned income
    
    
    (204,798
    )
    
    
    (202,148
    )Net service receivables outstanding
    
    $
    132,635
    
    
    $
    88,180Number of days of service revenues
outstanding
    
    
    19
    
    
    
    14
   TM
   52




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Pharma Services Intermediate Holding Corp. and Subsidiaries
         53




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Pharma Services Intermediate Holding Corp. and Subsidiaries
    July 1, 2005throughDecember 31,2005
    
    2006
    
    2007
    
    2008
    
    2009
    
    2010
    
    Thereafter
    
    TotalLong-term debt
    
    $
    29,400
    
    
    $
    58,287
    
    
    $
    57,228
    
    
    $
    56,762
    
    
    $
    207,898
    
    
    $
    57,718
    
    
    $
    897,401
    
    
    $
    1,364,694Obligations held under
capital leases
    
    
    7,499
    
    
    
    15,896
    
    
    
    4,762
    
    
    
    692
    
    
    
    417
    
    
    
    195
    
    
    
    49
    
    
    
    29,510Operating leases
    
    
    33,061
    
    
    
    51,703
    
    
    
    33,909
    
    
    
    20,707
    
    
    
    11,796
    
    
    
    5,417
    
    
    
    35,824
    
    
    
    192,417Service
agreements
    
    
    13,726
    
    
    
    1,806
    
    
    
    42
    
    
    
    41
    
    
    
    3
    
    
    
    1
    
    
    
    
    
    
    
    15,619Management fee agreement
    
    
    1,875
    
    
    
    3,750
    
    
    
    3,750
    
    
    
    3,750
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,125PharmaBio funding
commitments in various
commercial rights and
royalties:Service commitments
    
    
    66,916
    
    
    
    121,559
    
    
    
    108,899
    
    
    
    89,640
    
    
    
    68,307
    
    
    
    
    
    
    
    
    
    
    
    455,321PharmaBio funding
commitments to purchase
non-marketable equity
securities and loans:Venture capital funds
    
    
    4,100
    
    
    
    6,443
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,543Equity investments
    
    
    2,158
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,158Total
    
    $
    158,735
    
    
    $
    259,444
    
    
    $
    208,590
    
    
    $
    171,592
    
    
    $
    288,421
    
    
    $
    63,331
    
    
    $
    933,274
    
    
    $
    2,083,387
    54




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Pharma Services Intermediate Holding Corp. and Subsidiaries
  Recently Issued Accounting Standards
   55




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##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
       56




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##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
  
    
    the variable size and duration of projects,
    
    the loss or delay of projects, and
    
    a change in the scope of work during the course of a project.
     Our substantial debt could adversely affect our financial condition and prevent us from fulfilling
our obligations under our discount notes and Quintiles senior subordinated notes.
   
    
    increase our vulnerability to adverse general economic and industry conditions;
 57




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##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
 
    
    require us to dedicate a substantial portion of our cash flows from operations to payments on our indebtedness, thereby
reducing the availability of our cash flows to fund working capital, investments, capital expenditures, research and
development efforts and other general corporate purposes;
    
    limit our ability to make required payments under our existing contractual commitments;
    
    limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
    
    place us at a competitive disadvantage compared to our competitors that have less debt;
    
    increase our exposure to rising interest rates because a portion of our borrowings is at variable interest rates; and
    
    limit our ability to borrow additional funds on terms that are satisfactory to us or at all.
 The indenture governing the discount notes and our subsidiarys other debt obligations contain
covenants that limit our flexibility and prevent us from taking certain actions.
  
    
    incur additional debt;
    
    pay dividends on, redeem or repurchase capital stock;
    
    issue capital stock of restricted subsidiaries;
    
    make certain investments;
    
    enter into certain types of transactions with affiliates;
    
    engage in unrelated businesses;
    
    create liens; and
    
    sell certain assets or merge with or into other companies.
  58




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##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
  Despite our level of indebtedness, we and our parent company are able to incur more debt and
undertake additional obligations. Incurring such debt or undertaking such obligations could further
exacerbate the risks to our financial condition.
   Mitsuis ownership interest in our Japanese subsidiary could give rise to Mitsuis right to acquire
our entire interest in our Japanese subsidiary or to require us to buy out Mitsuis interest.
  59




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##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
 Changes in aggregate spending, research and development budgets and outsourcing trends in the
pharmaceutical and biotechnology industries could adversely affect our operating results and growth
rate.
  If we are unable to successfully develop and market potential new services, our growth could be
adversely affected.
  Operation of our information systems and evolution of the technology platform for our services pose
risks to our business.
  
    
    invasion, disruption, impairment or failure of data centers, telecommunications
facilities, or other key infrastructure platforms,
    
    failure or malfunction of or attacks on critical application systems or the hardware
they run on, or
    
    excessive costs, excessive delays or other deficiencies in systems development and
deployment.
 60




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##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
  We may not be able to derive the benefits we hope to achieve from Verispan, our joint venture with
McKesson.
  
    
    its ability to obtain continuous access to de-identified healthcare data from third parties in sufficient quantities to
support its informatics products;
    
    its ability to process and use the volume of data received from a variety of data providers;
    
    its ability to attract customers, besides us and McKesson, to purchase its products and services;
    
    the risk of changes in healthcare information privacy laws and regulations that could create a risk of liability,
increase the cost of Verispans business or limit its service offerings; and
    
    the risk that industry regulation may restrict Verispans ability to analyze and disseminate pharmaceutical and
healthcare data.
 61




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##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
   The potential loss or delay of our large contracts could adversely affect our results.
  Investments in our customers business or products and our related commercial rights strategies
could have a negative impact on our financial performance.
  62




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##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
  Our rights to market and sell certain pharmaceutical products expose us to product risks typically
associated with pharmaceutical companies.
   If we lose the services of key personnel, our business could be adversely affected.
  63




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##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
 Our insurance may not cover all of our indemnification obligations and other liabilities associated
with our operations.
     64




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##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
 We may be exposed to additional income tax liabilities.
  Changes in government regulation could decrease the need for the services we provide.
  Actions by government regulators or customers to limit the scope of prescription or withdraw
approved products from the market could result in a loss of revenue.
  Failure to comply with existing regulations could result in a loss of revenue.
  65




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##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
  Our product development services could result in potential liability to us.
     66




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##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
   Our commercialization services could result in potential liability to us.
  Exchange rate fluctuations may affect our results of operations and financial condition.
  
    
    Foreign Currency Translation Risk. The revenue and expenses of
our foreign operations are generally denominated in local
currencies.
    
    Foreign Currency Transaction Risk. Our service contracts may be
denominated in a currency other than the currency in which we
incur expenses related to such contracts.
  67




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##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
 We face other risks in connection with our international operations.
  
    
    foreign countries could enact legislation or impose regulations or other restrictions
which have an adverse effect on our ability to conduct business in that country;
    
    the regulatory or judicial authorities of foreign countries may not enforce legal rights
and recognize business procedures in a manner to which we are accustomed or would
reasonably expect;
    
    political changes and economic crises may lead to changes in the business environment in
which we operate; and
    
    natural disasters or international conflict, including terrorist acts, could interrupt
our services, endangering our personnel, causing project delays or loss of study material
or results, with a significant negative impact on our financial condition and results of
operations.
 New and proposed laws and regulations regarding confidentiality of patients information could
result in increased risks of liability or increased cost to us or could limit our service
offerings.
  68




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##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
  We may be adversely affected by customer or therapeutic concentration.
   If we are unable to submit electronic records to the FDA according to FDA regulations, our ability
to perform services for our customers which meet applicable regulatory requirements could be
adversely affected.
  69




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##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
 The proposed sale of our EDP business may fail to close, which could result in additional expense
to us.
  Compliance with changing regulation of corporate governance and public disclosure may result in
additional risks and expenses.
  70




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##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
 Item 3. Quantitative and Qualitative Disclosure about Market Risk
  Item 4. Controls and Procedures
  Part II Other Information
 Item 1. Legal Proceedings
  71




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##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
   72




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##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
   73




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##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 Item 3. Defaults upon Senior Securities
 Item 4. Submission of Matters to a Vote of Security Holders
 Item 5. Other Information
 Item 6. Exhibits
  2.01
    
    Purchase Agreement, dated July 18, 2005, by and among Aptuit, Inc., Quintiles
Transnational Corp., Quintiles, Inc., Quintiles Limited, Quintiles East Asia Private
Limited, Early Development and Packaging Services USA, L.L.C., Early Development and
Packaging Services (UK) Limited, and Quintiles Clinical Supplies Americas, Inc.
(incorporated herein by reference to Exhibit 2.01 to our Current Report on Form 8-K
dated July 18, 2005, as filed with the Securities and Exchange Commission on July 22,
2005).31.01
    
    Certification Pursuant to Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to
Section 302 of The Sarbanes-Oxley Act of 2002.31.02
    
    Certification Pursuant to Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to
Section 302 of The Sarbanes-Oxley Act of 2002.32.01
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of The Sarbanes-Oxley Act of 2002.32.02
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
 74




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##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
 SIGNATURES
  Pharma Services Intermediate Holding Corp.
 Date
August
12, 2005
    
    /s/ Dennis B. GillingsDennis B. Gillings,Executive Chairman and Chief Executive OfficerDate August
12, 2005
    
    /s/ John D. RatliffJohn D. Ratliff, Executive Vice Presidentand Chief Financial Officer
 75




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##### 



Pharma Services Intermediate Holding Corp. and Subsidiaries
  Exhibit
    
    Description2.01
    
    Purchase Agreement, dated July 18, 2005, by and among Aptuit, Inc., Quintiles Transnational
Corp., Quintiles, Inc., Quintiles Limited, Quintiles East Asia Private Limited, Early
Development and Packaging Services USA, L.L.C., Early Development and Packaging Services (UK)
Limited and Quintiles Clinical Supplies Americas, Inc. (incorporated herein by reference to
Exhibit 2.01 to our Current Report on Form 8-K dated July 18, 2005, as filed with the
Securities and Exchange Commission on July 22, 2005).31.01
    
    Certification Pursuant to Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of
The Sarbanes-Oxley Act of 2002.31.02
    
    Certification Pursuant to Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of
The Sarbanes-Oxley Act of 2002.32.01
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of The
Sarbanes-Oxley Act of 2002.32.02
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of The
Sarbanes-Oxley Act of 2002.
 76