Form S-4 Inventiv Health Inc

S-4 - Registration of securities, business combinations

Published: 2014-07-30 08:26:09
Submitted: 2014-07-30
d608685ds4.htm FORM S-4


ENT> S-4 1 d608685ds4.htm FORM S-4

Form S-4

Table of Contents

As filed with the Securities and Exchange Commission on July 29, 2014

Registration No. 333-            

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

INVENTIV HEALTH, INC.

(Exact name of registrant as specified in its charter)

(see table of additional registrants)

 

 

 

Delaware   8742   52-2181734

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

1 VAN DE GRAAFF DRIVE

BURLINGTON, MASSACHUSETTS 01803

(800) 416-0555

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

See Table of Additional Registrant Guarantors Continued on the Next Page

 

 

Eric M. Sherbet

General Counsel

inVentiv Health, Inc.

1 Van De Graaff Drive

Burlington, Massachusetts 01803

(800) 416-0555

(Name, address, including zip code Telephone Number, Including Area Code, of Agent For Service for all registrants)

 

 

With a copy to:

Matthew D. Bloch

Heather L. Emmel

Weil, Gotshal & Manges LLP

767 Fifth Avenue

New York, New York 10153

(212) 310-8000

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the Registration Statement becomes effective.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.  

¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer  
¨
   Accelerated filer  
¨
Non-accelerated filer  
x
   Smaller reporting company  
¨

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of each class of

securities to be registered

 

Amount

to be

registered

 

Proposed

maximum

offering price

per unit

 

Proposed

maximum

aggregate

offering price(1)

 

Amount of

registration fee

10% Senior Notes due 2018

  $825,000,000   100%   $825,000,000   $106,260

Guarantees of 10% Senior Notes due 2018(2)

  —     —     —     —  (3)

 

 

(1) Estimated solely for purposes of calculating the registration fee pursuant to Rule 457 under the Securities Act of 1933, as amended (the “Securities Act”).
(2) See inside facing page for table of additional registrant guarantors.
(3) Pursuant to Rule 457(n) under the Securities Act, no separate fee is payable for the registration of the Guarantees.

 

 

The registrants hereby amend this registration statement on such date or dates as may be necessary to delay its effective date until the registrants shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the SEC, acting pursuant to said Section 8(a), may determine.

 

 

 


Table of Contents

TABLE OF ADDITIONAL REGISTRANT GUARANTORS

 

Name of Additional Registrant

  

State or Other

Jurisdiction of

Incorporation or

Organization

  

Primary Standard

Industrial Classification

Code Number

  

I.R.S. Employer

Identification

Number

Addison Whitney LLC

   North Carolina    8742    26-0197972

Adheris, Inc.

   Delaware    8742    04-3140467

Adheris, LLC

   Delaware    8742    20-4457700

Allidura Communications, LLC

   Delaware    8742    27-0649070

Axcelo MSL Solutions, LLC

   Ohio    8742    26-3669968

BioSector 2 LLC

   New York    8742    75-3066394

Blue Diesel, LLC

   Ohio    8742    31-1555912

BrandTectonics, L.L.C.

   New York    8742    52-2181734

Cadent Medical Communications, LLC

   Ohio    8742    31-1736308

Campbell Alliance Group, Inc.

   North Carolina    8742    56-2029673

Campbell Alliance, Ltd.

   Delaware    8742    26-0609287

Chamberlain Communications Group LLC

   Delaware    8742    20-8484298

Chandler Chicco Agency, L.L.C.

   New York    8742    13-3837881

Chandler Chicco Companies LLC

   Delaware    8742    26-0381141

Chandler Chicco Productions LLC

   New York    8742    26-1901242

Encuity Research LLC

   Delaware    8742    38-3821966

Gerbig, Snell/Weisheimer Advertising, LLC

   Ohio    8742    31-1780437

Ignite Health LLC

   Delaware    8742    20-8522130

inChord Holding Corporation

   Delaware    8742    42-1679878

Interphaz Bioconsulting, LLC

   Ohio    8742    26-3669789

inVentiv Advance Insights, Inc.

   New Jersey    8742    22-2049410

inVentiv Clinical, LLC

   Delaware    8742    38-3668460

inVentiv Communications, Inc.

   Ohio    8742    31-0914291

inVentiv Digital + Innovation, LLC

   New York    8742    27-1623304

inVentiv Health Clinical Lab, Inc.

   New Jersey    8742    22-3144581

inVentiv Health Clinical SRE, LLC

   Delaware    8742    87-0735158

inVentiv Health Clinical SRS, LLC

   Florida    8742    26-3478160

inVentiv Health Clinical Staffing Services, LLC

   Delaware    8742    46-1741038

inVentiv Health Clinical, Inc.

   Delaware    8742    59-2407464

inVentiv Health Clinical, LLC

   Delaware    8742    41-1975147

inVentiv Medical Communications, LLC

   Ohio    8742    26-3669882

inVentiv Medical Management LLC

   Georgia    8742    26-0381227

inVentiv Patient Access Solutions, LLC

   New Jersey    8742    42-1634554

IVH Logistics Solutions, LLC

   Delaware    8742    04-3765587

IVH Research Associates, Inc.

   Colorado    8742    84-1035064

Litmus Medical Marketing Services LLC

   New York    8742    27-2900975

Medconference LLC

   Delaware    8742    20-5760122

Navicor Group, LLC

   Ohio    8742    20-1737119

Palio + Ignite, LLC

   Ohio    8742    26-1314006

ParagonRx International LLC

   Delaware    8742    27-1421367

Patient Marketing Group, LLC

   New Jersey    8742    26-3035724

PDGI Holdco, Inc.

   Delaware    8742    27-0181328


Table of Contents

Name of Additional Registrant

  

State or Other

Jurisdiction of

Incorporation or

Organization

  

Primary Standard

Industrial Classification

Code Number

  

I.R.S. Employer

Identification

Number

Pharma Holdings, Inc.

   Delaware    8742    22-3638617

Pharmaceutical Institute, Inc.

   North Carolina    8742    20-0849363

PharmaNet FAR, LLC

   Delaware    8742    45-1503093

PharmaNet Resource Solutions, LLC

   Delaware    8742    22-3638620

PharmaSoft, LLC

   Delaware    8742    20-1171878

PNET US, LLC

   Delaware    8742    22-3144581

Raven Holdco LLC

   Delaware    8742    37-1639576

South Florida Kinetics, Inc.

   Florida    8742    65-0576115

The Center for Biomedical Continuing Education, LLC

   Ohio    8742    31-1743386

The Selva Group, LLC

   Ohio    8742    20-3967895

Ventiv Commercial Services, LLC

   New Jersey    8742    52-2111058


Table of Contents

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED JULY 29, 2014

PRELIMINARY PROSPECTUS

INVENTIV HEALTH, INC.

OFFERS TO EXCHANGE

$435,000,000 aggregate principal amount of its 10% Senior Notes due 2018 and $390,000,000 aggregate

principal amount of its 10% Senior Notes due 2018, the issuance of which has been registered under the

Securities Act of 1933, as amended,

for

any and all of its outstanding $435,000,000 aggregate principal amount of its 10% Senior Notes due 2018

issued on August 4, 2010 and June 10, 2011 and

$390,000,000 aggregate principal amount of its 10% Senior Notes due 2018 issued on July 13, 2011,

respectively

 

 

We are offering to exchange, upon the terms and subject to the conditions set forth in this prospectus and the accompanying letter of transmittal, (i) $435 million aggregate principal amount of our new 10% Senior Notes due 2018 offered hereunder (the “initial exchange notes”), for all of our outstanding $275 million aggregate principal amount of 10% Senior Notes due 2018 issued on August 4, 2010 (the “outstanding 2010 notes”) and $160 million aggregate principal amount of 10% Senior Notes due 2018 issued on June 10, 2011 (the “outstanding i3 notes” and, collectively with the outstanding 2010 notes, the “initial outstanding notes”); and (ii) $390 million aggregate principal amount of our new 10% Senior Notes due 2018 offered hereunder (the “additional exchange notes” and collectively with the initial exchange notes, the “exchange notes”) for all of our outstanding $390 million aggregate principal amount of 10% Senior Notes due 2018 issued on July 13, 2011 (the “additional outstanding notes,” collectively with the initial outstanding notes, the “outstanding notes” and collectively with the exchange notes and the initial outstanding notes, the “notes”). The terms of the exchange notes are identical to the terms of the outstanding notes except that the exchange notes have been registered under the Securities Act of 1933, as amended (the “Securities Act”), and therefore are freely transferable. We will pay interest on the notes on February 15 and August 15 of each year. The notes will mature on August 15, 2018.

The principal features of the exchange offers are as follows:

 

    We will exchange all outstanding notes that are validly tendered and not validly withdrawn prior to the expiration of the exchange offers for an equal principal amount of exchange notes that are freely tradable, with holders of initial outstanding notes receiving initial exchange notes and holders of additional outstanding notes receiving additional exchange notes.

 

    You may withdraw tendered outstanding notes at any time prior to the expiration of the exchange offers.

 

    The exchange offers expire at 11:59 p.m., New York City time, on                     , 2014, unless extended.

 

    The exchange of outstanding notes for exchange notes pursuant to the exchange offers will not constitute a taxable exchange for U.S. federal income tax purposes.

 

    We will not receive any proceeds from the exchange offers.

 

    We do not intend to apply for listing of the exchange notes on any securities exchange or automated quotation system.

All untendered outstanding notes will continue to be subject to the restrictions on transfer set forth in the outstanding notes and in the indenture governing the notes which we refer to as the “indenture.” In general, the outstanding notes may not be offered or sold, unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. Other than in connection with the exchange offers, we do not currently anticipate that we will register the outstanding notes under the Securities Act.

 

 

You should consider carefully the risk factors beginning on page 15 of this prospectus before participating in the exchange offers.

Each broker-dealer that receives exchange notes for its own account pursuant to the exchange offers must acknowledge that it will deliver a prospectus in connection with any resale of such exchange notes. The letter of transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an “underwriter” within the meaning of the Securities Act. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of exchange notes received in exchange for outstanding notes where such outstanding notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. We have agreed that, for a period of 90 days after the expiration date (as defined herein), we will make this prospectus available to any broker-dealer for use in connection with any such resale. See “Plan of Distribution.”

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

The date of this prospectus is                     , 2014.


Table of Contents

TABLE OF CONTENTS

 

WHERE YOU CAN FIND MORE INFORMATION

  
  ii   

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING DISCLOSURE

  
  ii   

MARKET AND INDUSTRY DATA

  
  iv   

USE OF TRADEMARKS

  
  iv   

BASIS OF FINANCIAL INFORMATION

  
  iv   

SUMMARY

  
  1   

RISK FACTORS

  
  15   

THE EXCHANGE OFFERS

  
  30   

USE OF PROCEEDS

  
  40   

RATIO OF EARNINGS TO FIXED CHARGES

  
  41   

CAPITALIZATION

  
  42   

SELECTED CONSOLIDATED FINANCIAL DATA

  
  43   

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

  
  45   

BUSINESS

  
  73   

MANAGEMENT

  
  83   

EXECUTIVE COMPENSATION

  
  86   

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

  
  96   

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

  
  98   

DESCRIPTION OF OTHER INDEBTEDNESS

  
  100   

DESCRIPTION OF THE EXCHANGE NOTES

  
  105   

BOOK ENTRY, DELIVERY AND FORM

  
  168   

U.S. FEDERAL INCOME TAX CONSIDERATIONS

  
  170   

PLAN OF DISTRIBUTION

  
  171   

LEGAL MATTERS

  
  171   

EXPERTS

  
  171   

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

  
  F-1   

You should rely only on the information contained or incorporated by reference in this prospectus. We have not authorized any person to provide you with any information or represent anything about us or this offering that is not contained in this prospectus. If given or made, any such other information or representation should not be relied upon as having been authorized by us. We are offering to exchange the outstanding notes for the exchange notes only in places where the exchange offers are permitted. You should not assume that the information contained or incorporated by reference in this prospectus is accurate as of any date other than the date on the front cover of this prospectus or the date of any document incorporated by reference herein.

This prospectus contains summaries of the terms of several material documents. These summaries include the terms that we believe to be material, but we urge you to review these documents in their entirety. We will provide without charge to each person to whom a copy of this prospectus is delivered, upon written or oral request of that person, a copy of any and all of this information. Requests for copies should be directed to Investor Relations, inVentiv Health, Inc., 1 Van De Graaff Drive, Burlington, Massachusetts 01803. Our telephone number is (800) 416-0555. You should request this information at least five business days in advance of the date on which you expect to make your decision with respect to the exchange offers. In any event, you must request this information prior to                     , 2014, in order to receive the information prior to the expiration of the exchange offers.

 

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WHERE YOU CAN FIND ADDITIONAL INFORMATION

We and the guarantors have filed with the Securities and Exchange Commission, or the SEC, a registration statement on Form S-4 under the Securities Act with respect to the exchange notes being offered hereby. This prospectus, which forms a part of the registration statement, does not contain all of the information set forth in the registration statement. For further information with respect to us, the guarantors or the exchange notes, we refer you to the registration statement. Statements contained in this prospectus as to the contents of any contract or other documents are not necessarily complete. We are not currently subject to the informational requirements of the Securities Exchange Act of 1934, as amended, which we refer to as the “Exchange Act.” As a result of the offering of the exchange notes, we will become subject to the informational requirements of the Exchange Act, and, in accordance therewith, will file reports and other information with the SEC. The registration statement, such reports and other information can be inspected and copied at the Public Reference Room of the SEC located at Room 1580, 100 F Street, N.E., Washington D.C. 20549. Copies of such materials, including copies of all or any portion of the registration statement, can be obtained from the Public Reference Room of the SEC at prescribed rates. You can call the SEC at 1-800-SEC-0330 to obtain information on the operation of the Public Reference Room. Such materials may also be accessed electronically by means of the SEC’s home page on the Internet (http://sec.report).

Under the terms of the indenture relating to the notes, we have agreed that, whether or not we are required to do so by the rules and regulations of the SEC, for so long as any of the notes remain outstanding, we will furnish to the trustee and holders of the notes the information specified therein in the manner specified therein. See “Description of the Exchange Notes.”

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING DISCLOSURE

This prospectus contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements are only predictions and provide our current expectations or forecasts of future events and financial performance and may be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “anticipates,” “expects,” “plans,” “intends,” “may,” “will” or “should” or, in each case, their negative, or other variations or comparable terminology, though the absence of these words does not necessarily mean that a statement is not forward-looking.

Forward-looking statements are subject to many risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements. Forward-looking statements include all matters that are not historical facts and include statements concerning:

 

    our business strategy, outlook, objectives, plans, intentions and goals;

 

    our estimates regarding our liquidity, capital expenditures and sources of both, and our ability to fund our operations and planned capital expenditures for the foreseeable future;

 

    our belief that our growth and success will depend on our ability to continue to enhance the quality of our existing services, serve our clients throughout the evolution of a product, and to introduce new services on a timely and cost-effective basis, integrate new services with existing services, increase penetration with existing customers and recruit, motivate and retain qualified personnel;

 

    our expectations that pharmaceutical companies will increasingly outsource their clinical research, staffing, sales teams, advertising, marketing, sales, promotional, recruiting, patient initiatives and compliance and other services we offer;

 

    our belief that our clients are looking for service providers with global capabilities;

 

    our expectations regarding our pursuit of additional debt or equity sources to finance our internal growth initiatives or acquisitions;

 

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    our expectations regarding the impact of our acquisitions;

 

    our expectations regarding the synergies or cost savings related to our acquisitions;

 

    our expectations regarding the level of research and development spending by pharmaceutical and biotechnology companies; and

 

    our expectations regarding the impact of the adoption of certain accounting standards.

These forward-looking statements reflect our current views about future events and are subject to risks, uncertainties and assumptions. We wish to caution readers that certain important factors may have affected and could in the future affect our actual results and could cause actual results to differ significantly from those expressed in any forward-looking statement. The most important factors that could prevent us from achieving our goals, and cause the assumptions underlying forward-looking statements and the actual results to differ materially from those expressed in or implied by those forward-looking statements include, but are not limited to, the following:

 

    the impact of our substantial level of indebtedness on our ability to generate sufficient cash to fulfill our obligations under our existing debt instruments or our ability to incur additional indebtedness;

 

    the impact of customer project delays, cancellations and terminations;

 

    our ability to sufficiently increase our revenues and manage expenses and capital expenditures to permit us to fund our operations;

 

    our ability to continue to comply with the covenants and terms of our debt instruments and to access sufficient capital under our credit agreement or from other sources of debt or equity financing to fund our operations;

 

    the impact of our acquisition of Catalina Health Resource, LLC and any future acquisitions;

 

    our ability to successfully identify new businesses to acquire, conclude acquisition negotiations and integrate the acquired businesses into our operations, and achieve the resulting synergies;

 

    the impact of any change in our current credit ratings or the ratings of our debt securities on our relationships with customers, vendors and other third parties;

 

    the impact of any additional leverage we may incur on our ratings and the ratings of our debt securities;

 

    the impact of any default by any of our credit providers;

 

    our ability to accurately forecast costs to be incurred in providing services under fixed price contracts;

 

    our ability to accurately forecast insurance claims within our self-insured programs;

 

    the potential impact on pharmaceutical manufacturers, including pricing pressures, from healthcare reform initiatives or from changes in the reimbursement policies of third-party payers;

 

    our ability to grow our existing client relationships, obtain new clients and cross-sell our services;

 

    the potential impact of financial, economic, political and other risks, including interest rate and exchange rate risks, related to conducting business internationally;

 

    our ability to successfully operate new lines of business;

 

    our ability to manage our infrastructure and resources to support our growth including through outsourced service providers;

 

    any disruptions, impairments, or malfunctions affecting software as well as excessive costs or delays that may adversely impact our continued investment in and development of software;

 

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    the potential impact of government regulation on us and our clients, including the impact of the final HIPAA Privacy Rule on the willingness of pharmaceutical manufacturers to sponsor patient adherence programs;

 

    our ability to comply with all applicable laws as well as our ability to successfully adapt to any changes in applicable laws on a timely and cost effective basis;

 

    our ability to recruit, motivate and retain qualified personnel;

 

    the impact of impairment of goodwill and intangible assets and the factors leading to such impairments;

 

    consolidation in the pharmaceutical industry;

 

    changes in trends in the healthcare and pharmaceutical industries or in pharmaceutical outsourcing, including initiatives by our clients to perform services we offer internally;

 

    our ability to convert backlog into revenue;

 

    the potential liability associated with injury to clinical trial participants;

 

    the impact of the adoption of certain accounting standards; and

 

    our ability to maintain technological advantages in a variety of functional areas, including sales force automation, electronic claims surveillance and patient compliance.

These risks should be considered along with the “Risk Factors.” Except to the extent required by applicable laws or rules, we do not undertake to update any forward-looking statements or to publicly announce revisions to any of the forward-looking statements, whether as a result of new information, future events or otherwise

MARKET AND INDUSTRY DATA

Some of the market and industry data contained in this prospectus are based on independent industry publications or other publicly available information, while other information is based on internal studies and management estimates. Although we believe that these independent sources and our internal data are reliable as of their respective dates, the information contained in them has not been independently verified, and we cannot assure you as to the accuracy or completeness of this information. Unless otherwise indicated, all market share information contained in this prospectus is based upon data prepared by inVentiv.

USE OF TRADEMARKS

inVentiv Health, inVentiv Clinical, GSW Worldwide, Adheris, i3 and i3 Research are some of our registered and unregistered trademarks. This prospectus also includes other registered and unregistered trademarks of ours. All other trademarks, tradenames and service marks appearing in this prospectus are the property of their respective owners.

BASIS OF FINANCIAL INFORMATION

Our consolidated balance sheets, statements of operations, statements of comprehensive income (loss), cash flows and stockholders’ equity (deficit), and related notes included elsewhere in this prospectus are presented for two periods: Predecessor and Successor. As a result of the August 2010 Merger, a new basis of accounting was established as of August 4, 2010. The consolidated financial statements for all Predecessor periods were prepared using the historical basis of accounting for inVentiv.

 

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NON-GAAP FINANCIAL MEASURES

We have included certain supplemental non-GAAP financial measures of our performance in this prospectus, including, for example, EBITDA, Adjusted EBITDA and Pro Forma Adjusted EBITDA.

 

    EBITDA is defined as net income before interest expense, income tax provision, depreciation and amortization. We believe that the presentation of EBITDA enhances an investor’s understanding of our financial performance. We believe that EBITDA is a useful financial metric to assess our operating performance from period to period by excluding certain items that we believe are not representative of our core business. We believe that EBITDA will provide investors with a useful tool for assessing the comparability between periods of our ability to generate cash from operations sufficient to pay taxes, to service debt and to undertake capital expenditures. We use EBITDA for business planning purposes and in measuring our performance relative to that of our competitors.

 

    Adjusted EBITDA is defined as EBITDA adjusted to exclude certain items and to give effect to the Catalina Health acquisition made in October 2013. These adjustments include the impact of impairment losses, acquisition accounting, acquisition expenses, management fees and stock-based compensation, as well as other items permitted by our debt instruments. We believe that the inclusion of supplementary adjustments to EBITDA applied in presenting Adjusted EBITDA is appropriate to provide additional information to investors consistent with how management assesses the performance of our operations from period to period.

 

    Pro Forma Adjusted EBITDA is defined as Adjusted EBITDA of inVentiv presented on a pro forma basis to give effect to certain cost savings and synergies relating to actions taken or expected to be taken as permitted by our debt instruments. We believe that the inclusion of supplementary adjustments to EBITDA applied in presenting Pro Forma Adjusted EBITDA are appropriate to provide additional information to investors consistent with how management assesses the performance of our operations. No adjustments are presented for cost savings and synergies prior to the year ended December 31, 2013 as any benefit of prior actions is reflected in the results for the period in which such benefit was realized.

The terms EBITDA, Adjusted EBITDA and Pro Forma Adjusted EBITDA are not defined under GAAP, and are not measures of net income, operating income or any other performance measure derived in accordance with GAAP, and are subject to important limitations. Our use of the terms EBITDA, Adjusted EBITDA and Pro Forma Adjusted EBITDA vary from each other and from others in our industry. For additional information regarding our use of EBITDA, Adjusted EBITDA and Pro Forma Adjusted EBITDA, see “Summary—Summary Consolidated Financial Data.” EBITDA, Adjusted EBITDA and Pro Forma Adjusted EBITDA should not be considered as alternatives to net income, operating income or any other performance measures derived in accordance with GAAP as measures of operating performance or to operating cash flows as measures of liquidity.

Our measurement of EBITDA, Adjusted EBITDA and Pro Forma Adjusted EBITDA and the ratios related thereto may not be comparable to similarly titled measures of other companies and are not measures of performance calculated in accordance with GAAP.

EBITDA, Adjusted EBITDA and Pro Forma Adjusted EBITDA have important limitations as analytical tools and you should not consider them in isolation or as substitutes for analysis of our financial performance as reported under GAAP and should not be considered as alternatives to net income or any other performance measures derived in accordance with GAAP or as alternatives to cash flow from operating activities as measures of our liquidity. For example, EBITDA, Adjusted EBITDA and Pro Forma Adjusted EBITDA, among other things:

 

    exclude certain tax payments that may represent a reduction in cash available to us;

 

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    exclude certain non-recurring cash charges;

 

    do not reflect any cash capital expenditure requirements for the assets being depreciated and amortized that may have to be replaced in the future;

 

    do not reflect changes in, or cash requirements for, our working capital needs; and

 

    do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debt.

Because of these limitations, EBITDA, Adjusted EBITDA and Pro Forma Adjusted EBITDA should not be considered as measures of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using EBITDA, Adjusted EBITDA and Pro Forma Adjusted EBITDA only for supplemental purposes.

In addition, in calculating Adjusted EBITDA and Pro Forma Adjusted EBITDA, we add back certain items that are included in EBITDA and net income. Adjusted EBITDA and Pro Forma Adjusted EBITDA do not include stock-based employee compensation expense and also include estimates for cost savings and synergies in the amounts estimated by management.

EBITDA, Adjusted EBITDA and Pro Forma Adjusted EBITDA include additional adjustments and exclusions, and should be read in conjunction with the explanations and reconciliations set forth in “Summary—Summary Consolidated Financial Data.”

Please see the consolidated financial statements included elsewhere in this prospectus for our GAAP results.

 

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SUMMARY

This summary contains basic information about us and this exchange offer. Because it is a summary, it does not contain all of the information that you should consider before investing. You should read this entire prospectus carefully, including the section entitled “Risk Factors” and our consolidated financial statements and the notes thereto included elsewhere in this prospectus, before participating in the exchange offers. On August 4, 2010 inVentiv Acquisition, Inc. merged with and into inVentiv Health, Inc with inVentiv Health, Inc. being the surviving corporation, which we refer to as the “August 2010 Merger”. The terms “inVentiv,” “Company,” “we,” “us” and “our” refer to inVentiv Health, Inc. and its consolidated subsidiaries for periods prior to the August 2010 Merger described in this prospectus and to inVentiv Health, Inc. and its consolidated subsidiaries, for periods after giving effect to the August 2010 Merger described in this prospectus. Various financial terms, including “EBITDA,” “Adjusted EBITDA” and “Pro Forma Adjusted EBITDA” are described in the section entitled “Non-GAAP Financial Measures” and in this section under “—Summary Consolidated Financial Data.”

We are a global provider of outsourced services to the pharmaceutical, biotechnology, medical device and diagnostics, and healthcare industries. We are organized into three business segments: Clinical, Commercial and Consulting. We provide a broad range of clinical development, commercialization and consulting services that are critical to our clients’ ability to develop and successfully commercialize their products. Our portfolio of services meets the varied needs of our clients, who are increasingly outsourcing both their clinical research and development activities, as well as their commercialization activities.

Since being acquired through a take-private transaction by affiliates or co-investors of Thomas H. Lee Partners, L.P. (“Thomas H. Lee Partners”) and Liberty Lane IH LLC (“Liberty Lane”) in August of 2010 (the “August 2010 Merger”), we have executed on a strategy to transform our company into a global leader in pharmaceutical outsourcing services across the continuum of drug development and commercialization. In 2011, we announced a series of transactions that meaningfully enhanced our clinical and consulting capabilities. In February 2011, we acquired Campbell Alliance Group, Inc. (“Campbell”) to strengthen our consulting business. We also acquired two clinical research organizations (“CROs”): i3 clinical research business (“i3 Global”) in June 2011 and PDGI Holdco, Inc. (“PharmaNet”) in July 2011. Through these transactions, we significantly expanded the scale and increased the geographic footprint of our clinical business. Our global resources and reach allow us to meet our client’s development objectives and help them enter or expand into new and emerging markets. We believe the combination of our breadth of services, scale and global reach differentiates us from many of our competitors when clients are selecting partners for their outsourcing efforts.

In 2012 and 2013, we completed four tuck-in acquisitions that augmented our capabilities. In March 2012, we acquired Kforce Research, Inc. (“Kforce Clinical”), expanding our strategic resourcing capabilities within the Clinical business segment. In March 2012, we also acquired certain medical and promotional audit businesses of SDI Health LLC (collectively, “SDI Health”) from IMS Health, enhancing our market research capabilities within the Consulting business segment. In June 2012, we acquired the assets of Kazaam Web Concepts, LLC (“Kazaam Interactive”), bolstering our digital communications and social media capabilities within our Commercial business segment. In October 2013, we acquired Catalina Health Resource, LLC (“Catalina Health”), expanding our medication adherence capabilities in our Commercial business segment.

Our broad range of services and our global scale, represented by approximately 12,000 employees supporting clients in more than 70 countries, allow us to serve as a critical strategic partner for pharmaceutical, biotechnology, medical device and diagnostics, and healthcare companies in their dynamic and rapidly changing regulatory and commercial environments. We serve more than 550 client organizations, including all of the 20 largest global pharmaceutical companies.

 

 

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Industry Overview

inVentiv is a global provider of outsourced services to clients whose success depends on competence in fields as diverse as biology, sales, pharmacovigilance, marketing and intellectual property management. Market pressures have continued to increase on the pharmaceutical industry and companies have turned to outsourcing as a way to rationalize their cost structure, create operational and financial flexibility and navigate the increasing complexity of their industry. As pharmaceutical companies have realized the benefits of shifting functions such as marketing and sales to outsourced providers, they have increased the number of core functions that are outsourced, including clinical development.

Today, our clients face a variety of market forces, such as healthcare reform, tighter market access, increased regulatory complexity, expiring patents on their products, leading to increased market penetration by lower-cost generic drugs, enhanced focus on comparative effectiveness and challenges with treatment compliance. These factors motivate an increasing reliance on outsourced services for functions traditionally performed by fully integrated drug manufacturers. The size of our target market, which consists of clinical development and related services, contract sales and marketing services and consulting, is estimated at more than $50 billion.

We also benefit from strong levels of New Molecular Entity (“NME”) approvals, with many attributable to small and mid-tier pharmaceutical and biotechnology companies. These smaller companies either lack, or have chosen to not invest in developing, a full range of functional capabilities and prefer to employ high-quality, third-party service providers, such as inVentiv, to perform critical late-stage development and commercialization functions, including sales and marketing.

Our Competitive Strengths

Broad Suite of Outsourced Services

Our broad and integrated set of capabilities across all business segments allows us to provide comprehensive and innovative solutions that address some of our client’s most significant business challenges. We have one of the most comprehensive service offerings in the industry, organized into the Clinical, Commercial and Consulting segments which complements the development and commercial evolution of healthcare-related products. Our clients are increasingly looking to outsourced service providers with offerings such as clinical development, sales, marketing and business planning, to assist with activities traditionally performed internally by fully integrated manufacturers. The ability to offer such a broad suite of outsourced services is paramount to successfully responding to clients’ needs and positioning inVentiv as a partner of choice for clients seeking to consolidate service providers to improve organizational efficiency and gain greater flexibility. inVentiv has assembled and integrated a group of companies offering the services across and between our business segments that our clients most often require for the continuum of drug development and commercialization, from compound development and regulatory approval through global commercialization and ongoing brand management.

Scale and Global Reach

Our businesses include the largest, pure-play healthcare advertising and public relations network in the world, a leading contract sales organization (“CSO”) in North America, the second largest CSO in Japan and a CRO that is among the largest in the world.

Our Clinical, Commercial and Consulting business segments support clients in more than 70 countries. Our global resources and reach allow us to help our clients enter or expand in new and emerging markets, which

 

 

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allows us to meet client expectations and, we believe, differentiate us from many of our competitors when clients are considering consolidating their outsourcing efforts. A global footprint is often required to keep pace with the expansion of pharmaceutical, biotechnology, medical device and diagnostic, and healthcare companies.

Diversified Client and Project Base

We serve more than 550 client organizations, including all of the 20 largest global pharmaceutical companies, as well as numerous emerging and specialty biotechnology companies, medical device makers and diagnostic companies. Our diversified client base and broad scope of projects reduce our dependence on any individual client or contract.

We believe that our clients ascribe meaningful value to our ability to provide access to some of the industry’s leading experts, increased flexibility, greater control of fixed costs, enhanced time to market and economic efficiencies. They also appreciate the quality of our services and employees across our organization. As a result, our client relationships are not only diverse, they also are long-standing. These diverse, long-term, trusted relationships naturally create additional opportunities for organic growth through repeat and expanding business and also help inVentiv win new business.

Therapeutic Expertise

We have established specialized therapeutic teams, with operational and scientific expertise in key therapeutic areas. Our deep understanding of these therapeutic areas extends across all three of our business segments, allowing our clients to benefit from this expertise whether they are running a complex clinical trial for an orphan drug or working with sales teams specializing in cardiovascular disease, nurse educators familiar with pain management or marketing professionals with experience in the needs of people with diabetes.

Through our depth of experienced medical and scientific professionals, we possess significant knowledge across therapeutic areas that allows us to apply new insights and innovative science to clinical trials, as well as to the commercialization of branded products. Our teams include experienced clinical project managers and research associates, data management professionals, biostatisticians, business planning consultants and sales and marketing professionals.

Our Clinical, Commercial and Consulting business segments work across key therapeutic areas, with a particular focus on the fastest-growing areas including oncology, neurosciences and pain. Our strong global oncology project teams within the Clinical business segment have conducted hundreds of regional and global oncology trials involving tens of thousands of patients across many different therapeutic subsets of oncology. Our team of experts in neurosciences/pain has conducted a wide variety of analgesic-related studies for small and large targeted molecules. With significant unmet medical needs in the treatment of Alzheimer’s disease, cognitive disorders, stroke, and other major neurosciences/pain disorders, the demand for innovative therapies is strong and expected to grow.

Proven Management Team

Our management team includes key corporate, segment, divisional and business unit leaders who are seasoned executives with extensive experience in the industries we serve. Their experience spans pharmaceutical product development and product management, as well as significant experience managing pharmaceutical sales forces, developing marketing strategies and conducting clinical trials. Our corporate management has significant operational and financial experience in previous positions within the healthcare and professional services sectors, including a history of successfully integrating multiple acquisitions.

 

 

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Our Business Strategy

We intend to build upon our competitive strengths, delivering consistently high-quality service offerings and providing innovative solutions throughout the product lifecycle across our business segments on a global basis to meet the needs of our clients. Our goal is to be the outsourcing service provider of choice in the industries we serve. Key strategic elements to successfully achieving this goal include:

Capitalize on Our Broad Global Capabilities and Services

Our global footprint positions us to execute on global or multi-national projects and share our intellectual capital, coordinate opportunities and take advantage of our broad service capabilities between our business segments and across national borders. We have put into place the necessary processes and infrastructure to achieve this goal. We have the ability to leverage our existing relationships with clients operating outside the U.S. to penetrate additional global markets and expand our client base to foreign pharmaceutical companies operating in local markets.

Respond to Our Clients’ Changing Needs with Innovative Solutions

We intend to continue to be an outsourced service provider known for its client-centric approach, where the measure of success is not the particular services offered, but the results and outcomes achieved through performance of those services.

Understanding this evolving focus on outcomes and how they are weighed against costs, allows us to better align our services and processes and provide our clients with innovative solutions. As our clients increasingly move towards a more patient-centric model, our patient outcomes services help pharmaceutical and biotechnology clients assure that physicians and nurses understand how to deliver new therapies to help patients stay on their prescribed medications. Our Clinical business segment is developing processes that enhance predictability and help clients either move more quickly to successful drug development or terminate a project with lower chances of success faster. The communication and coordination between our business segments helps ensure, for example, that a client finding a differentiating benefit during a clinical trial can more quickly take advantage of that knowledge in planning for the commercialization of that product. Our goal is to offer clients outcomes rather than just services, and to continue to evolve this strategy as a differentiator for our business and an asset for clients seeking a strategic partner.

Continued Focus on Operational and Financial Improvements

Our goal is to be a highly efficient and effective organization, focused on achieving and maintaining excellence in every service we offer and in every market where we operate. To further this goal, we are focused on executing against three major objectives: (i) developing and providing integrated solutions across our businesses to help our clients address their most complex business challenges, (ii) delivering strong operational performance and (iii) improving the financial performance of our leading franchises.

We have established several strategic programs and implemented internal financial and operational processes to provide greater control, accountability and consistency across our organization. In addition, we have deployed new management tools and processes to enhance reporting and provide greater insight into business trends and client needs, and we have strengthened the control and accountability for our internal sales and marketing teams. We believe these initiatives, combined with continuing process improvement initiatives, will enable us to enhance our operational excellence and efficiencies and lead to further revenue opportunities.

 

 

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Recent Developments

On July 15, 2014, we commenced an offer to exchange from eligible holders up to $475 million of the initial outstanding notes for new 10%/12% Junior Lien PIK Notes due 2018 (the “PIK Exchange Offer”). The PIK Exchange Offer expires at 5:00 p.m. on August 12, 2014 unless otherwise extended. The consummation of the PIK Exchange Offer is subject to a number of conditions precedent, including, among others, that affiliates of Thomas H. Lee Partners, L.P. and certain co-investors shall have invested an aggregate of $50 million in the Company (the “New Money Investment”) and that each of our term loan facility and the asset-based revolving credit facility (the “ABL Facility”) shall have been amended to permit the PIK Exchange Offer and the New Money Investment and to extend maturities of certain outstanding term loans to 2018 (the “Credit Agreement Amendments”). On July 28, 2014, the Credit Agreement Amendments became effective.

The primary purpose of the foregoing transactions was to extend debt maturities and to provide the Company flexibility to reduce cash interest expense.

The Sponsor and Co-Investors

Thomas H. Lee Partners, L.P. is one of the world’s oldest and most experienced private equity firms. Thomas H. Lee Partners invests in growth-oriented companies, and focuses on global businesses headquartered primarily in North America. Since the firm’s founding in 1974, Thomas H. Lee Partners has acquired more than 100 portfolio companies and have completed over 200 add-on acquisitions, representing a combined value of more than $150 billion. The firm’s two most recent private equity funds comprise more than $14 billion of aggregate committed capital.

Liberty Lane Partners, LLC is an investment firm that seeks investments where the extensive operating, financial and development experience of its team can be leveraged to drive above-market returns. The firm takes a hands-on, focused approach to portfolio management and seeks a limited number of platform investments in the healthcare, life sciences and industrial markets. The firm was founded in 2006 by the former senior management team of Fisher Scientific International, Inc. and is headquartered in Hampton, New Hampshire. Liberty Lane and its affiliates are currently invested in four platform companies.

Corporate Information

We were incorporated in Delaware in 1999. inVentiv’s corporate headquarters is located at inVentiv Health, 1 Van De Graaff Drive, Burlington, MA 01803. Our telephone number is (800) 416-0555. Our website is www.inventivhealth.com. The information on our website is not deemed to be part of this prospectus, and you should not rely on it in connection with your decision whether or not to participate in the exchange offers.

 

 

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The Exchange Offers

On August 4, 2010, we completed the initial private offering of the outstanding notes in connection with the August 2010 Merger. On June 10, 2011 and July 13, 2011 we completed additional private offerings of the outstanding notes in connection with the i3 Global and PharmaNet acquisitions, respectively. We entered into registration rights agreements in connection with these private offerings, in which we agreed, among other things, to file the registration statement of which this prospectus is a part. The following is a summary of the exchange offers. For more information please see “The Exchange Offers.” The “Description of the Exchange Notes” section of this prospectus contains a more detailed description of the terms and conditions of the exchange notes.

 

Securities Offered

  $435,000,000 aggregate principal amount of 10% initial exchange notes due 2018; and

 

    $390,000,000 aggregate principal amount of 10% additional exchange notes due 2018.

 

Exchange Offers

The initial exchange notes are being offered in exchange for a like principal amount of initial outstanding notes, and the additional exchange notes are being offered in exchange for a like principal amount of the additional outstanding notes. The exchange offers will remain in effect for a limited time. We will accept any and all outstanding notes validly tendered and not withdrawn prior to 11:59 p.m., New York City time, on                     , 2014. Holders may tender some or all of their outstanding notes pursuant to the exchange offers. However, outstanding notes may be tendered only in a denomination equal to $2,000 and any integral multiples of $1,000 in excess of $2,000. The form and terms of the exchange notes are the same as the form and terms of the outstanding notes except that:

 

    the additional exchange notes (but not the initial exchange notes) will be treated as being issued with original issue discount for U.S. federal income tax purposes and, consequently, the initial exchange notes bear different CUSIP numbers than the additional exchange notes and therefore the initial exchange notes will not be fungible for trading purposes with the additional exchange notes;

 

    the exchange notes bear different CUSIP numbers than the outstanding notes;

 

    the exchange notes have been registered under the Securities Act and will not bear any legend restricting their transfer; and

 

    the holders of the exchange notes will not be entitled to certain rights under the registration rights agreements including the provisions for an increase in the interest rate on the outstanding notes in some circumstances relating to the timing of the exchange offers. See “Description of the Exchange Notes.”

 

Resale

Based upon interpretations by the Staff of the SEC set forth in no-action letters issued to unrelated third-parties, we believe that the exchange notes may be offered for resale, resold or otherwise

 

 

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transferred by you without compliance with the registration and prospectus delivery requirements of the Securities Act, unless you:

 

    are an “affiliate” of ours within the meaning of Rule 405 under the Securities Act;

 

    are a broker-dealer who purchased the notes directly from us for resale under Rule 144A, Regulation S or any other available exemption under the Securities Act;

 

    acquired the exchange notes other than in the ordinary course of your business;

 

    have an arrangement with any person to engage in the distribution of the exchange notes; or

 

    are prohibited by law or policy of the SEC from participating in the exchange offers.

 

  However, we have not submitted a no-action letter, and there can be no assurance that the SEC will make a similar determination with respect to the exchange offers. Furthermore, in order to participate in the exchange offers, you must make the representations set forth in the letter of transmittal that we are sending you with this prospectus.

 

Expiration Date

The exchange offers will expire at 11:59 p.m., New York City time, on                     , 2014, unless we decide to extend it. We do not currently intend to extend the expiration date.

 

Conditions to the Exchange Offers

The exchange offers are subject to certain customary conditions, some of which may be waived by us. See “The Exchange Offers—Conditions to the Exchange Offers.”

 

Procedures for Tendering Outstanding Notes

To participate in the exchange offers, you must properly complete and duly execute a letter of transmittal, which accompanies this prospectus, and transmit it, along with all other documents required by such letter of transmittal, to the exchange agent on or before the expiration date at the address provided on the cover page of the letter of transmittal.

 

  In the alternative, you can tender your outstanding notes by following the automatic tender offer program, or ATOP, procedures established by The Depository Trust Company, or DTC, for tendering notes held in book-entry form, as described in this prospectus, whereby you will agree to be bound by the letter of transmittal and we may enforce the letter of transmittal against you.

 

  If a holder of outstanding notes desires to tender such notes and the holder’s outstanding notes are not immediately available, or time will not permit the holder’s outstanding notes or other required documents to reach the exchange agent before the expiration date, or the procedure for book-entry transfer cannot be completed on a timely basis, a tender may be effected pursuant to the guaranteed delivery procedures described in this prospectus.

 

 

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For more details, please read “The Exchange Offers—Procedures for Tendering,” “The Exchange Offers—Book-Entry Transfer” and “The Exchange Offers—Guaranteed Delivery Procedures.”

 

Special Procedures for Beneficial Owners

If you are a beneficial owner of outstanding notes that are registered in the name of a broker, dealer, commercial bank, trust company or other nominee, and you wish to tender those outstanding notes in the exchange offers, you should contact the registered holder promptly and instruct the registered holder to tender those outstanding notes on your behalf. If you wish to tender on your own behalf, you must, prior to completing and executing the letter of transmittal and delivering your outstanding notes, either make appropriate arrangements to register ownership of the outstanding notes in your name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time and may not be able to be completed prior to the expiration date.

 

Withdrawal Rights

You may withdraw your tender of outstanding notes at any time prior to the 11:59 p.m., New York City time, on the expiration date of the exchange offers. Please read “The Exchange Offers—Withdrawal of Tenders.”

 

Acceptance of Outstanding Notes and Delivery of Exchange Notes

Subject to customary conditions, we will accept outstanding notes that are properly tendered in the exchange offers and not withdrawn prior to the expiration date. The exchange notes will be delivered as promptly as practicable following the expiration date.

 

Consequences of Failure to Exchange Outstanding Notes

If you do not exchange your outstanding notes in the exchange offers, you will no longer be able to require us to register the outstanding notes under the Securities Act, except in the limited circumstances provided under the registration rights agreements. In addition, you will not be able to resell, offer to resell or otherwise transfer the outstanding notes unless we have registered the outstanding notes under the Securities Act, or unless you resell, offer to resell or otherwise transfer them under an exemption from the registration requirements of, or in a transaction not subject to, the Securities Act.

 

Interest on the Exchange Notes and the Outstanding Notes

The exchange notes will bear interest from the most recent interest payment date to which interest has been paid on the outstanding notes. Holders whose outstanding notes are accepted for exchange will be deemed to have waived the right to receive interest accrued on the outstanding notes.

 

Broker-Dealers

Each broker-dealer that receives exchange notes for its own account in exchange for outstanding notes, where such outstanding notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such exchange notes. See “Plan of Distribution.”

 

 

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U.S. Federal Income Tax Considerations

The exchange of outstanding notes for exchange notes pursuant to the exchange offers will not constitute a taxable exchange for U.S. federal income tax purposes. The additional outstanding notes (but not the initial outstanding notes) were treated as being issued with original issue discount for U.S. federal income tax purposes, and the additional exchange notes will continue to be treated as being issued with original issue discount for U.S. federal income tax purposes. Please read “U.S. Federal Income Tax Considerations.”

 

Exchange Agent

Wilmington Trust, National Association as successor by merger to Wilmington Trust FSB, the trustee, which we refer to as “Wilmington Trust” or “trustee,” under the indenture governing the notes, or the “indenture,” is serving as exchange agent in connection with the exchange offers.

 

Use of Proceeds

The issuance of the exchange notes will not provide us with any new proceeds. We are making the exchange offers solely to satisfy certain of our obligations under our registration rights agreements.

 

Fees and Expenses

We will bear all expenses related to the exchange offers. Please read “The Exchange Offers—Fees and Expenses.”

 

Registration Rights; Additional Interest

We entered into a registration rights agreement in connection with each of the issuances of the outstanding notes. Under the registration rights agreement with respect to the outstanding 2010 notes and the outstanding i3 notes, we agreed to use reasonable best efforts to (i) file a registration statement related to the exchange of such outstanding notes for exchange notes with the SEC on or prior to the 270th day after August 4, 2010, in the case of the initial outstanding notes, and June 10, 2011, in the case of the outstanding i3 notes, (ii) cause such registration statement to become effective under the Securities Act on or prior to the earlier of the 90th day following such filing or the 360th day after August 4, 2010, in the case of the initial outstanding notes, and June 10, 2011, in the case of the outstanding i3 notes, and (iii) consummate the exchange offer on or prior to the 30th day after effectiveness. Under the registration rights agreement with respect to the additional outstanding notes, we agreed to consummate the exchange offer prior to the 360th day after July 13, 2011.

 

  Because we did not consummate the exchange offer prior to the 360th day after July 13, 2011, we are obligated to pay additional interest on the outstanding notes. We paid all accrued additional interest as of February 14, 2014 relating to the outstanding notes on February 15, 2014, the most recent scheduled semi-annual interest payment date, and plan to pay any additional accrued and unpaid interest on the initial outstanding notes on the next scheduled semi-annual interest payment date of August 15, 2014.

 

  See “The Exchange Offers—Registration Rights Agreements; Additional Interest” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition, Liquidity and Capital Resources—Senior Indenture and 10% Senior Notes Due 2018.”

 

 

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The Exchange Notes

 

Issuer

inVentiv Health, Inc. (formerly inVentiv Acquisition, Inc.)

 

Notes Offered

  Up to $435,000,000 aggregate principal amount of 10% initial exchange notes due 2018; and

 

    Up to $390,000,000 aggregate principal amount of 10% additional exchange notes due 2018.

 

  The exchange notes and the outstanding notes will be considered to be a single class for all purposes under the indenture, including waivers, amendments, redemptions and offers to purchase.

 

Maturity Dates

The exchange notes will mature on August 15, 2018.

 

Interest Rate

Interest on the exchange notes will be payable in cash and will accrue at a rate of 10% per annum.

 

Interest Payment Dates

August 15 and February 15

 

Guarantees

Each of our existing restricted subsidiaries that guarantees the credit facilities entered into by the Company on August 4, 2010, as amended from time to time (the “Senior Secured Credit Facilities”) and certain of our future domestic restricted subsidiaries will guarantee the exchange notes on a senior unsecured basis.

 

Ranking

The exchange notes and the guarantees thereof will be our and the guarantors’ general unsecured senior indebtedness and will rank:

 

    equally in right of payment with all of our and the guarantors’ existing and future unsubordinated unsecured indebtedness;

 

    effectively subordinated to any of our and the guarantors’ existing and future senior secured indebtedness to the extent of the value of the collateral securing such indebtedness, including borrowings under our Senior Secured Credit Facilities and to all liabilities of our subsidiaries that do not guarantee the notes; and

 

    senior to any of our and the guarantors’ future subordinated indebtedness, if any.

 

  As of March 31, 2014, we and the guarantors had $1,232.7 million of senior secured indebtedness, comprised of $625.6 million of our 9.0% senior secured notes due 2018 (the “Senior Secured Notes”), $576.3 million under our term loan facility and $30.8 million of capital leases and other financing arrangements. There were no outstanding borrowings under our ABL Facility. We and the guarantors had $117.0 million of borrowing capacity under our ABL Facility (less $13.8 million of letters of credit outstanding). As of March 31, 2014, our subsidiaries that will not guarantee the exchange notes had an immaterial portion of our total consolidated debt.

 

 

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Optional Redemption

We may redeem the exchange notes, in whole or in part, at any time prior to August 15, 2014 at a price equal to 100% of the aggregate principal amount of the exchange notes plus accrued and unpaid interest, if any, to the redemption date plus a “make whole” premium as described in “Description of the Exchange Notes—Optional Redemption.” We may redeem the exchange notes, in whole or in part, at any time on or after August 15, 2014, at the redemption prices specified in “Description of the Exchange Notes—Optional Redemption,” plus accrued and unpaid interest, if any, to the redemption date.

 

Change of Control

If we experience specific kinds of changes of control, we must offer to repurchase all of the exchange notes at a purchase price of 101% of their principal amount, plus accrued and unpaid interest, if any, to the repurchase date.

 

  We might not be able to pay the required price for the exchange notes presented to us at the time of a change of control because we might not have enough funds at such time.

 

Certain Covenants

The indenture governing the exchange notes will, among other things, limit our ability and the ability of our subsidiaries to:

 

    incur or guarantee additional indebtedness;

 

    incur liens;

 

    pay dividends on or make distributions in respect of our capital stock or make other restricted payments;

 

    make investments;

 

    consolidate, merge, sell or otherwise dispose of certain assets; and

 

    enter into transactions with our affiliates.

 

  These covenants are subject to important exceptions, limitations and qualifications as described in “Description of the Exchange Notes—Certain Covenants.”

 

Risk Factors

See “Risk Factors” and the other information in this prospectus for a discussion of some of the factors you should carefully consider before participating in the exchange offers.

 

 

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Summary Consolidated Financial Data

The following summary consolidated financial data for the years ended December 31, 2013, 2012 and 2011 as set forth herein have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The summary financial data as of March 31, 2014 and for the three months ended March 31, 2014 and 2013 have been derived from our unaudited condensed consolidated financial statements that are included elsewhere in this prospectus. We have prepared our unaudited condensed consolidated financial statements on the same basis as our audited consolidated financial statements. We have included in our unaudited consolidated financial statements all adjustments, consisting of only normal recurring adjustments, that we consider necessary for the fair presentation of our financial position and operating results for such periods. Historical results are not necessarily indicative of the results that may be expected for future periods and operating results for the three months ended March 31, 2014 are not necessarily indicative of the results that may be expected for the fiscal year ended December 31, 2014.

The summary consolidated financial data should be read in conjunction with “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the audited and unaudited consolidated financial statements and related notes included elsewhere in this prospectus.

 

     Three Months Ended
March 31,
    Year Ended December 31,  
(in millions)        2013             2014             2011             2012             2013      

Net revenues

   $ 408.8      $ 421.8      $ 1,414.0      $ 1,715.7      $ 1,644.6   

Reimbursed out-of-pocket expenses

     76.3        56.3        221.4        275.4        259.9   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

  
  485.1   
 
  478.1   
 
  1,635.4   
 
  1,991.1   
 
  1,904.5   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

  
 
 
 
 

Cost of revenues

  
  260.9   
 
  274.3   
 
  911.7   
 
  1,073.2   
 
  1,056.1   

Reimbursable out-of-pocket expenses

  
  76.3   
 
  56.3   
 
  221.4   
 
  275.4   
 
  259.9   

Selling, general and administrative expenses

  
  144.7   
 
  139.1   
 
  481.7   
 
  594.3   
 
  567.0   

Proceeds from purchase price finalization

  
  —     
 
  —     
 
  —     
 
  —     
 
  (14.2

Impairment of goodwill

  
  —     
 
  —     
 
  30.0   
 
  361.6   
 
  36.9   

Impairment of long-lived assets

  
  —     
 
  —     
 
  3.6   
 
  49.8   
 
  2.0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

  
  481.9   
 
  469.7   
 
  1,648.4   
 
  2,354.3   
 
  1,907.7   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

  
  3.2   
 
  8.4   
 
  (13.0
 
  (363.2
 
  (3.2

Loss on extinguishment of debt

  
  —     
 
  —     
 
  (2.7
 
  (18.6
 
  (0.8

Interest expense

  
  (51.5
 
  (52.6
 
  (123.5
 
  (185.9
 
  (209.3

Interest income

  
  0.1   
 
  0.1   
 
  0.1   
 
  0.4   
 
  0.1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income tax provision and income (loss) from equity investments

  
  (48.2
 
  (44.1
 
  (139.1
 
  (567.3
 
  (213.2

Income tax (provision) benefit

  
  (6.4
 
  (1.9
 
  32.9   
 
  0.4   
 
  (3.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income (loss) from equity investments

  
  (54.6
 
  (46.0
 
  (106.2
 
  (566.9
 
  (216.2

Income (loss) from equity investments

  
  —     
 
  —     
 
  —     
 
  —     
 
  —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from continuing operations

  
  (54.6
 
  (46.0
 
  (106.2
 
  (566.9
 
  (216.2

Net loss from discontinued operations, net of tax

  
  (1.3
 
  (2.7
 
  (33.5
 
  (10.5
 
  (20.2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

  
  (55.9
 
  (48.7
 
  (139.7
 
  (577.4
 
  (236.4

Less: Net income attributable to the noncontrolling

  
 
 
 
 

interest

  
  (0.3
 
  (0.5
 
  (1.3
 
  (1.4
 
  (1.2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to inVentiv Health, Inc.

  
$ (56.2
 
$ (49.2
 
$ (141.0
 
$ (578.8
 
$ (237.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Selected statement of cash flows data:

  
 
 
 
 

Cash provided by (used in) continuing operations:

  
 
 
 
 

Operating activities

  
$ (23.8
 
$ (33.1
 
$ 99.9   
 
$ (13.1
 
$ 22.6   

Investing activities

  
  (0.5
 
  (7.6
 
  (1,095.1
 
  (101.3
 
  (24.3

Financing activities

  
  (7.2
 
  (5.0
 
  1,058.3   
 
  148.2   
 
  (1.3

 

 

 

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(in millions)    March 31,
2014
 

Selected balance sheet data (at period end):

  

Cash and cash equivalents

   $ 66.7   

Total assets

     2,213.8   

Total debt

     2,043.9   

Total liabilities

     2,670.2   

Total stockholders’ deficit

     (456.4

 

     Three Months Ended
March 31,
     Year Ended December 31,  
(in millions)        2013              2014              2011              2012             2013      

Other financial data:

             

Capital Expenditures

   $ 3.9       $ 8.0       $ 22.9       $ 28.6      $ 35.7   

EBITDA(1)

     30.9         35.0         71.8         (247.5     102.9   

Adjusted EBITDA(1)

     41.4         43.7         216.8         219.3        182.5   

Pro Forma Adjusted EBITDA(1)

                206.0   

 

  (1) We report our financial results in accordance with GAAP. To supplement this information, we also use the following non-GAAP financial measures in this prospectus: EBITDA, Adjusted EBITDA and Pro Forma Adjusted EBITDA. EBITDA represents earnings before interest, tax, depreciation and amortization. Adjusted EBITDA is defined as EBITDA adjusted to exclude certain adjustments, including the impact of impairment losses, acquisition accounting, acquisition expenses, management fees and stock-based compensation as well as other items permitted by our debt instruments and to give effect to the Catalina Health acquisition made in October 2013. Pro Forma Adjusted EBITDA is defined as Adjusted EBITDA of inVentiv presented on a pro forma basis to give effect to certain cost savings and synergies relating to actions taken or expected to be taken as permitted by our debt instruments. We believe that the inclusion of supplementary adjustments to EBITDA applied in presenting Adjusted EBITDA and Pro Forma Adjusted EBITDA are appropriate to provide additional information to investors consistent with how management assesses the performance of our operations. No adjustments are presented for cost savings and synergies prior to the year ended December 31, 2013 as any benefit of prior actions is reflected in the results for the period in which such benefit was realized. Adjusted EBITDA and Pro Forma Adjusted EBITDA are not measures of net income, operating income or any other performance measure derived in accordance with GAAP, and are subject to important limitations. Our use of the terms Adjusted EBITDA and Pro Forma adjusted EBITDA may vary from how other companies use the term in our industry. See “Non-GAAP Financial Measures.” A reconciliation of net income (loss) from continuing operations, the most directly comparable GAAP measure, to EBITDA, and from EBITDA to Adjusted EBITDA and from Adjusted EBITDA to Pro Forma Adjusted EBITDA for the periods indicated is as follows:

 

     Three Months Ended
March 31,
    Year Ended December 31,  
(in millions)        2013             2014             2011             2012             2013      

Income (loss) from continuing operations

   $ (54.6   $ (46.0   $ (106.2   $ (566.9   $ (216.2

Income tax provision (benefit)

     6.4        1.9        (32.9     (0.4     3.0   

Interest expense

     51.5        52.6        123.5        185.9        209.3   

Loss on extinguishment of debt

     —          —          2.7        18.6        0.8   

Depreciation and amortization

     27.6        26.5        84.7        115.3        106.0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

  
$ 30.9   
 
$ 35.0   
 
$ 71.8   
 
$ (247.5
 
$ 102.9   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Impairment losses

  
  —     
 
  —     
 
  33.6   
 
  411.4   
 
  38.9   

Stock-based compensation

  
  0.5   
 
  0.3   
 
  7.7   
 
  2.9   
 
  (0.9

Impact of acquisition accounting adjustments(a)

  
  0.3   
 
  0.1   
 
  17.6   
 
  (1.8
 
  2.1   

Management fees

  
  0.8   
 
  0.7   
 
  3.0   
 
  3.3   
 
  2.8   

Foreign currency transaction (gains)/losses

  
  (0.2
 
  0.1   
 
  5.3   
 
  0.8   
 
  (0.1

Impact of unrestricted subsidiaries(b)

  
  1.5   
 
  0.9   
 
  3.9   
 
  7.4   
 
  4.7   

Other(c)

  
  0.6   
 
  1.6   
 
  7.0   
 
  —     
 
  6.0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Management Adjustments

  
  3.5   
 
  3.7   
 
  78.1   
 
  424.0   
 
  53.5   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

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     Three Months Ended
March 31,
     Year Ended December 31,  
(in millions)        2013              2014              2011              2012              2013      

Acquisition and related financing expense(d)

     0.5         0.1         27.7         2.2         2.2   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Transaction specific adjustments

  
  0.5   
  
  0.1   
  
  27.7   
  
  2.2   
  
  2.2   

Severance

  
  3.7   
  
  2.0   
  
  11.8   
  
  18.8   
  
  11.5   

Restructuring costs(e)

  
  2.8   
  
  2.9   
  
  18.4   
  
  16.9   
  
  10.8   

One time non-recurring items(f)

  
  —     
  
  —     
  
  9.0   
  
  4.9   
  
  1.6   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Prior Restructuring and Integration Adjustments

  
  6.5   
  
  4.9   
  
  39.2   
  
  40.6   
  
  23.9   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

  
$ 41.4   
  
$ 43.7   
  
$ 216.8   
  
$ 219.3   
  
$ 182.5   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Pro forma impact of synergies(g)

  
  
  
  
  
  23.5   
              

 

 

 

Pro Forma Adjusted EBITDA

  
  
  
  
  
$ 206.0   
              

 

 

 

 

(a) Represents non-cash adjustments resulting from the revaluation of certain items such as deferred revenue and deferred rent recognized in connection with our acquisitions.
(b) Represents financial results of our subsidiaries designated as unrestricted for purposes of our debt instruments.
(c) Represents third party costs for tax services, franchise taxes and certain non-cash items as well as the pro forma effect of $0.4 million and $1.2 million for the quarter ended March 31, 2013 and the year ended December 31, 2013, respectively, from the Catalina Health acquisition and does not include the pro forma effect of acquisitions completed during the years ended December 31, 2012 or 2011. The pro forma effect of acquisitions for the years ended December 31, 2012 and 2011 was $9.3 million and $74.3 million, respectively.
(d) Represents legal and advisory fees incurred in connection with our acquisitions.
(e) Represents costs in connection with facility, relocations, integrations and business optimization.
(f) Represents costs from third party advisors regarding financial infrastructure for tax and financial planning and analysis and the loss on sale of a business.
(g) Represents the estimated benefits from integration actions due to certain acquisitions and other cost saving activities for which an adjustment is made consistent with the terms of our debt instruments. Accordingly, estimated cost savings for actions taken and to be taken are reported on a twelve month run-rate basis, not on a quarterly basis.

 

 

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RISK FACTORS

You should carefully consider the risks described below before participating in the exchange offers. The risks described below are not the only ones facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business or results of operations in the future. Any of the following risks could materially adversely affect our business, financial condition or results of operations. In such case, you may lose all or part of your original investment in the notes.

Risks Related to the Exchange Offers

You may have difficulty selling the outstanding notes that you do not exchange.

If you do not exchange your outstanding notes for exchange notes in the exchange offers, you will continue to be subject to the restrictions on transfer of your outstanding notes described in the legend on your outstanding notes. The restrictions on transfer of your outstanding notes arise because we issued the outstanding notes under exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws. In general, you may only offer or sell the outstanding notes if they are registered under the Securities Act and applicable state securities laws, or offered and sold under an exemption from these requirements. Except as required by the registration rights agreements, we do not intend to register the outstanding notes under the Securities Act. The tender of outstanding notes under the exchange offers will reduce the total outstanding principal amount of the outstanding notes. Due to the corresponding reduction in liquidity, this may have an adverse effect upon, and increase the volatility of, the market price of any currently outstanding notes that you continue to hold following completion of the exchange offers. See “The Exchange Offers—Effect of Not Tendering.”

There is no public market for the exchange notes, and we do not know if a market will ever develop or, if a market does develop, whether it will be sustained.

The exchange notes are a new issue of securities for which there is no existing trading market. Accordingly, we cannot assure you that a liquid market will develop for the exchange notes, that you will be able to sell your exchange notes at a particular time or that the prices that you receive when you sell the exchange notes will be favorable.

We do not intend to apply for listing or quotation of the notes on any securities exchange or automated quotation system. The liquidity of any market for the exchange notes will depend on a number of factors, including:

 

    the number of holders of exchange notes;

 

    our operating performance and financial condition;

 

    our ability to complete the offers to exchange the outstanding notes for the exchange notes;

 

    the market for similar securities;

 

    the interest of securities dealers in making a market in the exchange notes; and

 

    prevailing interest rates.

We understand that one or more of the initial purchasers of the outstanding notes presently intend to make a market in the exchange notes. However, they are not obligated to do so, and any market-making activity with respect to the exchange notes may be discontinued at any time without notice. In addition, any market-making activity will be subject to the limits imposed by the Securities Act and the Exchange Act and may be limited during the exchange offers or the pendency of an applicable shelf registration statement. There can be no assurance that an active trading market will exist for the exchange notes or that any trading market that does develop will be liquid.

 

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You must comply with the exchange offers procedures in order to receive new, freely tradable exchange notes.

Delivery of exchange notes in exchange for outstanding notes tendered and accepted for exchange pursuant to the exchange offers will be made only after timely receipt by the exchange agent of book-entry transfer of outstanding notes into the exchange agent’s account at DTC, as depositary, including an agent’s message (as defined herein). We are not required to notify you of defects or irregularities in tenders of outstanding notes for exchange. Outstanding notes that are not tendered or that are tendered but we do not accept for exchange will, following consummation of the exchange offers, continue to be subject to the existing transfer restrictions under the Securities Act and, upon consummation of the exchange offers, certain registration and other rights under the registration rights agreement will terminate. See “The Exchange Offers—Procedures for Tendering” and “The Exchange Offers—Effect of Not Tendering.”

Some holders who exchange their outstanding notes may be deemed to be underwriters, and these holders will be required to comply with the registration and prospectus delivery requirements in connection with any resale transaction. If you exchange your outstanding notes in the exchange offers for the purpose of participating in a distribution of the exchange notes, you may be deemed to have received restricted securities and, if so, will be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction.

Risks Related to Our Indebtedness and the Notes

Our substantial level of indebtedness could materially adversely affect our ability to generate sufficient cash to fulfill our obligations under such indebtedness, our ability to react to changes in our business and our ability to incur additional indebtedness to fund future needs.

We have a substantial amount of indebtedness. As of March 31, 2014, we had total indebtedness of $2,043.9 million.

Our net interest expense for the three months ended March 31, 2014 was $52.5 million and for the year ended December 31, 2013 was $209.2 million. As of March 31, 2014, we had outstanding approximately $576.3 million in aggregate principal amount of indebtedness under our Senior Secured Credit Facilities, which bears interest at a floating rate. A change of 0.125% in floating rates above our 1.5% LIBOR floor would increase our estimated annual interest expense on our senior secured borrowings by $0.7 million.

Our substantial level of indebtedness will increase the possibility that we may be unable to generate cash sufficient to pay, when due, the principal of, interest on or other amounts due in respect of our indebtedness. Our substantial indebtedness, combined with our other financial obligations and contractual commitments, could have important consequences for our business. For example, it could:

 

    make it more difficult for us to satisfy our obligations with respect to our indebtedness, and any failure to comply with the obligations under any of our debt instruments, including restrictive covenants, could result in an event of default under the agreements governing such indebtedness;

 

    require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing funds available for working capital, capital expenditures, acquisitions, selling and marketing efforts, research and development and other purposes;

 

    increase our vulnerability to adverse economic and industry conditions, which could place us at a competitive disadvantage compared to our competitors that have relatively less indebtedness;

 

    limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate;

 

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    limit our ability to borrow additional funds, or to dispose of assets to raise funds, if needed, for working capital, capital expenditures, acquisitions, research and development and other corporate purposes; and

 

    prevent us from raising the funds necessary to repurchase all the Senior Secured Notes tendered to us upon the occurrence of certain changes of control, which would constitute a default under the indentures governing the Senior Secured Notes.

We, including our subsidiaries, have the ability to incur substantially more indebtedness, including senior secured indebtedness.

Subject to the restrictions in our Senior Secured Credit Facilities, the ABL Facility and the indentures governing the Senior Secured Notes and the notes, we, including our subsidiaries, may incur significant additional indebtedness. As of March 31, 2014, we had:

 

    $1,232.1 million senior secured debt, comprised of $576.3 million under our Senior Secured Credit Facilities, $30.8 million of capital leases and other financing arrangements, $625.0 million of Senior Secured Notes (excluding $0.6 million of unamortized premium received on issuance). There were no borrowings under our ABL Facility;

 

    $811.2 million of senior unsecured debts from the outstanding notes (net of unamortized original issue discount, which we refer to as “OID,” of $13.8 million);

 

    subject to certain conditions, the option to increase the amounts borrowed under our term loan facility by up to $300 million, which, if borrowed, would be senior secured indebtedness; and

 

    the capacity to borrow up to $117.0 million (less $13.8 million of letters of credit outstanding) under our ABL Facility, subject to certain limitations, which, if borrowed, would be senior secured indebtedness.

Although the terms of our Senior Secured Credit Facilities, the indentures governing the Senior Secured Notes and the notes and the credit agreement underlying the ABL Facility contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of important exceptions, and indebtedness incurred in compliance with these restrictions could be substantial. For example, the indentures governing the Senior Secured Notes and the notes allow us to classify and then reclassify subsequently incurred senior secured and senior unsecured debt among the various baskets and ratio-based incurrence tests contained in those indentures. We utilized this flexibility in connection with prior financings and reclassified borrowings under our term loan facility from a specific “credit facility” basket to ratio-based secured debt, thereby creating capacity for us to incur additional “credit facility” senior secured debt in the future (and we subsequently utilized a portion of that capacity to incur incremental indebtedness under the Senior Secured Credit Facilities). If we and our restricted subsidiaries incur significant additional indebtedness, the related risks that we face could increase.

Restrictions imposed by our debt instruments may limit our ability to operate our business and to finance our future operations or capital needs or to engage in other business activities.

The terms of our debt instruments restrict us and our subsidiaries from engaging in specified types of transactions. These covenants restrict our ability and the ability of our restricted subsidiaries, among other things, to:

 

    incur or guarantee additional indebtedness;

 

    pay dividends on our capital stock or redeem, repurchase or retire our capital stock or indebtedness;

 

    make investments, loans, advances and acquisitions;

 

    create restrictions on the payment of dividends or other amounts to us from our restricted subsidiaries;

 

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    engage in transactions with our affiliates;

 

    sell assets, including capital stock of our subsidiaries;

 

    consolidate or merge; and

 

    create liens.

In addition, our ABL Facility requires us to, under certain circumstances, comply with a fixed charge coverage ratio and certain cash management restrictions. Our ability to comply with this ratio can be affected by events beyond our control, and we may not be able to satisfy them. A breach of any of these covenants would be an event of default. In the event of a default under any of our Senior Secured Credit Facilities or our ABL Facility, the lenders could elect to declare all amounts outstanding under our Senior Secured Credit Facilities or our ABL Facility, respectively, to be immediately due and payable or terminate their commitments to lend additional money. If the indebtedness under our debt instruments were to be accelerated, our assets may not be sufficient to repay such indebtedness in full. See “Description of Other Indebtedness.”

We may not be able to generate sufficient cash to service all of our indebtedness, including the notes, and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

Our ability to make scheduled payments on or to refinance our debt obligations depends on our financial condition and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. We may not be able to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness, including the notes.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital or restructure or refinance our indebtedness. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. The terms of existing or future debt instruments and the indentures governing the Senior Secured Notes and the notes may restrict us from adopting some of these alternatives. In addition, any failure to make payments of interest and principal on our outstanding indebtedness on a timely basis would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness. In the absence of such operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. Our Senior Secured Credit Facilities, the ABL Facility and the indentures governing the Senior Secured Notes and the notes will restrict our ability to dispose of assets and use the proceeds from the disposition. We may not be able to consummate those dispositions or to obtain the proceeds that we could realize from them and these proceeds may not be adequate to meet any debt service obligations then due. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations.

Our ability to repay our debt, including the notes, is affected by the cash flow generated by our subsidiaries.

Our subsidiaries own substantially all of our assets and conduct substantially all of our operations. Accordingly, repayment of our indebtedness, including the notes, will be dependent on the generation of cash flow by our subsidiaries and their ability to make such cash available to us, by dividend, debt repayment or otherwise. Unless they are guarantors of the notes, our subsidiaries will not have any obligation to pay amounts due on the notes or to make funds available for that purpose. Our subsidiaries may not be able to, or may not be permitted to, make distributions to enable us to make payments in respect of our indebtedness, including the notes. Each subsidiary is a distinct legal entity and, under certain circumstances, legal and contractual restrictions

 

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may limit our ability to obtain cash from our subsidiaries. While the indenture governing the notes limits the ability of our subsidiaries to incur consensual restrictions on their ability to pay dividends or make other intercompany payments to us, these limitations are subject to certain qualifications and exceptions. In the event that we do not receive distributions from our subsidiaries, we may be unable to make required principal and interest payments on our indebtedness, including the notes.

Your right to receive payments on the notes is effectively junior to the right of lenders who have a security interest in our assets to the extent of the value of those assets.

Our obligations under the notes and our guarantors’ obligations under their guarantees of the notes are unsecured, but our obligations under our Senior Secured Credit Facilities and the Senior Secured Notes, in each case, and each guarantor’s obligations under its guarantee of our Senior Secured Credit Facilities and the Senior Secured Notes, in each case, are secured by a security interest in substantially all of our domestic tangible and intangible assets, including the stock of substantially all of our wholly-owned U.S. subsidiaries. If we are declared bankrupt or insolvent, or if we default under our Senior Secured Credit Facilities or the Senior Secured Notes, the lenders could declare all of the funds borrowed thereunder, together with accrued interest, immediately due and payable. If we were unable to repay such indebtedness, the lenders could foreclose on the pledged assets to the exclusion of holders of the notes, even if an event of default exists under the indenture governing the notes at such time. Furthermore, if the lenders foreclose and sell the pledged equity interests in any guarantor under the notes, then that guarantor will be released from its guarantee of the notes automatically and immediately upon such sale. In any such event, because the notes will not be secured by any of our assets or the equity interests in the guarantors, it is possible that there would be no assets remaining from which your claims could be satisfied or, if any assets remained, they might be insufficient to satisfy your claims in full. See “Description of Other Indebtedness.”

As of March 31, 2014, we have:

 

    $1,232.1 million of senior secured debt, comprised of $576.3 million under our Senior Secured Credit Facilities, $625.0 million of the Senior Secured Notes (excluding $0.6 million of unamortized premium received on issuance) and $30.8 million of capital leases and other financing arrangements. There were no borrowings under our ABL Facility;

 

    subject to certain conditions, the option to increase the amounts borrowed under our term loan facility by a total of up to $300.0 million, which, if borrowed, would be senior secured indebtedness; and

 

    the capacity to borrow an additional $117.0 million (less $13.8 million of letters of credit outstanding) under our ABL Facility, subject to certain limitations, which, if borrowed, would be senior secured indebtedness.

Subject to the limits set forth in the indenture governing the notes, we may also incur additional secured debt.

Claims of noteholders will be structurally subordinated to claims of creditors of certain of our subsidiaries that will not guarantee the notes.

The outstanding notes are not, and the exchange notes will not, be guaranteed by certain of our subsidiaries, including all of our non-U.S. subsidiaries or non-wholly owned subsidiaries. Accordingly, claims of holders of the notes and lenders under our Senior Secured Credit Facilities will be structurally subordinated to the claims of creditors of these non-guarantor subsidiaries, including trade creditors. All obligations of our non-guarantor subsidiaries will have to be satisfied before any of the assets of such subsidiaries would be available for distribution, upon a liquidation or otherwise, to us or a guarantor of the notes.

For the three months ended March 31, 2014, our non-guarantor subsidiaries accounted for approximately $124.5 million, or 29.5%, of our consolidated net revenues. As of March 31, 2014, our non-guarantor

 

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subsidiaries accounted for approximately $383.1 million, or 17.3%, of our consolidated total assets. Our debt instruments permit our non-guarantor subsidiaries to incur certain additional debt and do not limit their ability to incur other liabilities that are not considered indebtedness.

The lenders under our Senior Secured Credit Facilities have the discretion to release any guarantors under these facilities in a variety of circumstances, which would cause those guarantors to be released from their guarantees of the notes.

While any obligations under our Senior Secured Credit Facilities remain outstanding, any guarantee of the notes may be released without action by, or consent of, any holder of the notes or the trustee under the indenture governing the notes, at the discretion of lenders under our Senior Secured Credit Facilities, if the related guarantor is no longer a guarantor of obligations under our Senior Secured Credit Facilities or any other indebtedness. See “Description of the Exchange Notes.” The lenders under our Senior Secured Credit Facilities will have the discretion to release the guarantees under our Senior Secured Credit Facilities in a variety of circumstances. Any of our subsidiaries that are released as a guarantor of our Senior Secured Credit Facilities will automatically be released as a guarantor of the notes. You will not have a claim as a creditor against any subsidiary that is no longer a guarantor of the notes, and the indebtedness and other liabilities, including trade payables, whether secured or unsecured, of those subsidiaries will effectively be senior to claims of notes.

If we default on our obligations to pay our other indebtedness, we may not be able to make payments on the notes.

Any default under the agreements governing our indebtedness, including a default under our Senior Secured Credit Facilities, that is not waived by the required lenders, and the remedies sought by the holders of such indebtedness, could prevent us from paying principal, premium, if any, and interest on the notes and substantially decrease the market value of the notes. If we are unable to generate sufficient cash flow and are otherwise unable to obtain funds necessary to meet required payments of principal, premium, if any, and interest on our indebtedness, or if we otherwise fail to comply with the various covenants, including financial and operating covenants in the instruments governing our indebtedness (including covenants in our Senior Secured Credit Facilities and the indentures governing the notes and the Senior Secured Notes), we could be in default under the terms of the agreements governing such indebtedness, including our Senior Secured Credit Facilities and the indentures governing the Senior Secured Notes. In the event of such default,

 

    the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest;

 

    the lenders under our Senior Secured Credit Facilities could elect to terminate their commitments thereunder, cease making further loans and institute foreclosure proceedings against our assets; and

 

    we could be forced into bankruptcy or liquidation.

If our operating performance declines, we may in the future need to obtain waivers from the required lenders under our Senior Secured Credit Facilities to avoid being in default. If we breach our covenants under our Senior Secured Credit Facilities and seek a waiver, we may not be able to obtain a waiver from the required lenders. If this occurs, we would be in default under our Senior Secured Credit Facilities, the lenders could exercise their rights, as described above, and we could be forced into bankruptcy or liquidation.

We may not be able to repurchase the notes upon a change of control.

Upon the occurrence of specific kinds of change of control events, we will be required to offer to repurchase all outstanding notes at 101% of their principal amount plus accrued and unpaid interest, if any. The source of funds for any such purchase of the notes will be our available cash or cash generated from our operations or the operations of our subsidiaries or other sources, including borrowings, sales of assets or sales of equity. We may

 

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not be able to repurchase the notes upon a change of control because we may not have sufficient financial resources to purchase all of the notes that are tendered upon a change of control. Further, the terms of our Senior Secured Credit Facilities will provide that a change of control is an event of default thereunder that permits lenders to accelerate the maturity of borrowings thereunder. Any of our future debt agreements may contain similar provisions. Accordingly, we may not be able to satisfy our obligations to purchase the notes unless we are able to refinance or obtain waivers under our Senior Secured Credit Facilities. Our failure to repurchase the notes upon a change of control would cause a default under the indenture governing the notes and a cross default under our Senior Secured Credit Facilities.

Holders of the notes may not be able to determine when a change of control giving rise to their right to have the notes repurchased has occurred following a sale of “substantially all” of our assets.

The definition of change of control in the indenture governing the notes includes a phrase relating to the sale of “all or substantially all” of our assets. There is no precise established definition of the phrase “substantially all” under applicable law. Accordingly, the ability of a holder of notes to require us to repurchase its notes as a result of a sale of less than all our assets to another person may be uncertain.

Federal and state statutes allow courts, under specific circumstances, to void the notes and the guarantee of the notes by certain of our subsidiaries, and to require holders of notes to return payments received from us.

Our issuance of the notes and the guarantee of the notes by certain of our subsidiaries may be subject to review under the federal bankruptcy law and comparable provisions of state fraudulent transfer laws. While the relevant laws may vary from state to state, under such laws, the issuance of the notes or a guarantee could be voided, or claims in respect of the notes or a guarantee could be subordinated to all other debts of our company or that guarantor, as applicable, if, among other things, our company or the guarantor, at the time it incurred the indebtedness:

 

    received less than reasonably equivalent value or fair consideration for the incurrence of such indebtedness and was insolvent or rendered insolvent by reason of such incurrence;

 

    was engaged in a business or transaction for which its remaining assets constituted unreasonably small capital; or

 

    intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they mature.

In addition, any payment by us or that guarantor pursuant to the notes or a guarantee, as applicable, could be voided and required to be returned to us or the guarantor, as applicable, or to a fund for the benefit of the creditors of the guarantor.

The measures of insolvency for purposes of these fraudulent transfer laws will vary depending upon the law applied in any proceeding to determine whether a fraudulent transfer has occurred. Generally, however, our company or a guarantor would be considered insolvent if:

 

    the sum of its debts, including contingent liabilities, was greater than the fair saleable value of all of its assets;

 

    if the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or

 

    it could not pay its debts as they become due.

On the basis of historical financial information, recent operating history and other factors, we believe that our company and each guarantor will not be insolvent upon the consummation of the offering of the exchange

 

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notes, will not have unreasonably small capital for the business in which it is engaged and will not have incurred debts beyond its ability to pay such debts as they mature. We cannot assure you, however, as to what standard a court would apply in making these determinations or that a court would agree with our conclusions in this regard. Although the indenture governing the notes will contain a limitation on each guarantor’s liability under its guarantee to the maximum amount that would be enforceable under applicable law, a recent court decision found that a similar limitation was ineffective to preserve the enforceability of a guarantee.

If a court were to find that the issuance of the notes, the incurrence of a guarantee or the grant of security was a fraudulent transfer or conveyance, the court could void the payment obligations under the notes or such guarantee or subordinate the notes or such guarantee to presently existing and future indebtedness of ours or of the related guarantor, or require the holders of the notes to repay any amounts received with respect to such guarantee. In the event of a finding that a fraudulent transfer or conveyance occurred, you may not receive any repayment on the notes. Further, the avoidance of the notes could result in an event of default with respect to our and our subsidiaries’ other debt that could result in acceleration of such debt.

Finally, as a court of equity, the bankruptcy court may subordinate the claims in respect of the notes to other claims against us under the principle of equitable subordination, if the court determines that: (i) the holder of notes engaged in some type of inequitable conduct; (ii) such inequitable conduct resulted in injury to our other creditors or conferred an unfair advantage upon the holder of notes; and (iii) equitable subordination is not inconsistent with the provisions of the bankruptcy code.

We are indirectly owned and controlled by Thomas H. Lee Partners, and Thomas H. Lee Partners’ interests as equity holders may conflict with those of our creditors.

Thomas H. Lee Partners owns approximately 90% of our indirect parent’s equity and, accordingly, has the ability to control our policies and operations. Thomas H. Lee Partners has no liability for any obligations under the notes, and the interests of Thomas H. Lee Partners may not in all cases be aligned to your interests. For example, if we encounter financial difficulties or are unable to pay our debts as they mature, the interests of our equity holders might conflict with your interests as a noteholder. In addition, our equity holders may have an interest in pursuing acquisitions, divestitures, financings or other transactions that, in their judgment, could enhance their equity investments, even though such transactions might involve risks to you as a holder of the notes. Furthermore, Thomas H. Lee Partners may in the future own businesses that directly or indirectly compete with us. Thomas H. Lee Partners also may pursue acquisition opportunities that may be complementary to our business, and as a result, those acquisition opportunities may not be available to us. For information concerning our arrangements with Thomas H. Lee Partners, see “Certain Relationships and Related Party Transactions.”

If an active trading market does not develop for the notes, you may not be able to resell them.

Prior to this offering, there was no public market for the notes, and an active trading market may not develop for the notes. If no active trading market develops, you may not be able to resell your notes at their fair market value or at all. Future trading prices of the notes will depend on many factors, including, among other things, our ability to effect the exchange offers, prevailing interest rates, our operating results and the market for similar securities. We do not intend to apply for listing the notes on any securities exchange.

We may designate certain of our subsidiaries as non-restricted, in which case they would not be subject to the restrictive covenants in the indenture governing the notes.

Although some of our subsidiaries are currently restricted, we may designate certain subsidiaries as non-restricted in the future. Any such subsidiaries would not be subject to the restrictive covenants in the indenture governing the notes. This means that these entities would be able to engage in many of the activities that we and our restricted subsidiaries are prohibited or limited from doing under the terms of the indenture governing the notes, such as incurring additional debt, securing assets in priority to the claims of the holders of the notes,

 

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paying dividends, making investments, selling assets and entering into mergers or other business combinations. These actions could be detrimental to our ability to make payments of principal and interest when due and to comply with our other obligations under the notes, and could reduce the amount of our assets that would be available to satisfy your claims should we default on the notes.

Risks Related to Our Business

If expenditures for clinical development, commercialization and consulting services by companies in the pharmaceutical and biotechnology industries decline, our business could be adversely affected.

Our revenues are highly dependent on expenditures by companies in the pharmaceutical and biotechnology industries for clinical development, commercialization and consulting services. Any decline in aggregate demand for these services could negatively affect our businesses. In addition to any unfavorable general economic conditions, the following factors, among others, could cause such demand to decline:

 

    the ability and willingness of companies in the pharmaceutical industry to spend on research and development;

 

    the ability of biotechnology companies to raise capital to fund their research and development projects;

 

    governmental reform or private market initiatives intended to reduce the cost of pharmaceutical products or governmental, medical association or pharmaceutical industry initiatives designed to regulate the manner in which pharmaceutical manufacturers promote their products;

 

    further consolidation in the pharmaceutical industry, which could negatively affect certain of our business units by reducing overall outsourced expenditures if we are unsuccessful in winning business from the consolidated entity; and

 

    companies electing to perform clinical tasks, advertising, promotional, marketing, sales, compliance and other services internally based on industry and company-specific factors such as the rate of new product development and FDA approval of those products, the number of sales representatives or clinical professionals employed internally in relation to demand for or the need to promote new and existing products or develop new drug candidates and competition from other suppliers.

Our contracts may be delayed, reduced in scope or terminated for reasons beyond our control.

Many of our contracts may be delayed, reduced in scope or terminated upon short notice (generally 30 to 90 days) for reasons beyond our control. In addition, many of our pharmaceutical sales contracts provide our clients with the opportunity to internalize the sales forces under contract. Delays, reductions in scope and cancellations may occur for a variety of reasons, including:

 

    delays in, or the failure to obtain, required regulatory approvals;

 

    the failure of products to satisfy safety requirements;

 

    unexpected or undesired results of the products;

 

    insufficient patient enrollment;

 

    the client’s lack of available financing, budgetary limits or changing priorities;

 

    insufficient investigator recruitment; and

 

    the client’s decision to terminate the development of a product or to end a particular study.

The loss, reduction in scope or delay of a large contract or the loss or delay of multiple contracts could materially adversely affect our business, although our contracts often entitle us to receive reimbursement for the costs of winding down the terminated projects, as well as all fees earned by us up to the time of termination.

 

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Downgrades of our credit ratings could adversely affect us.

We can be adversely affected by downgrades of our credit ratings because ratings are a factor influencing our ability to access capital and the terms of any new indebtedness, including covenants and interest rates. Our clients and vendors may also consider our credit profile when negotiating contract terms, and if they were to change the terms on which they deal with us, it could have an adverse effect on our liquidity.

Certain vendors have the right to declare us in default of our agreements if any such vendor, including the lessors under our vehicle fleet leases, determines that a change in our financial condition poses a substantially increased credit risk. Upon default, the lessors can repossess the vehicles and require us to compensate them for any remaining lease payments in excess of the value of the repossessed vehicles. As of March 31, 2014, we had $28.1 million in capital lease obligations, primarily related to vehicles in our fleet program. In addition, a significant percentage of the leased vehicles are used by sales representatives in our selling solutions business, which may be negatively impacted if we lost the use of vehicles for any period of time.

Our financial results may be adversely affected if we underprice our contracts, overrun our cost estimates or fail to receive approval for or experience delays in documenting change orders.

Most of the contracts in our Clinical segment are either fee for service contracts or fixed-fee contracts. Our past financial results have been, and our future financial results may be, adversely impacted if we initially underprice our contracts or otherwise overrun our cost estimates and are unable to successfully negotiate a change order. Change orders typically occur when the scope of work we perform needs to be modified from that originally contemplated by our contract with the customer. Modifications can occur, for example, when there is a change in a key trial assumption or parameter or a significant change in timing. Where we are not successful in converting out-of-scope work into change orders under our current contracts, we bear the cost of the additional work. Such underpricing, significant cost overruns or delay in documentation of change orders could have a material adverse effect on our business, results of operations, financial condition or cash flows.

We operate in highly competitive industries and may face price pressure or other conditions that could adversely affect our business as a result.

Our competitors include a variety of companies providing services to the pharmaceutical, biotechnology, medical device and diagnostics, and healthcare industries, including full service and smaller specialty CROs, outsourced sales organizations, large global advertising holding companies and smaller specialized communications agencies, and medical cost containment consultants. Intense competition may lead to price pressure or other conditions that could adversely affect our business.

Pricing pressures on pharmaceutical manufacturers from recent and future health care reform initiatives or from changes in the reimbursement policies of third party payors may negatively impact our business.

Most of our revenues are generated from clients whose businesses are involved in the manufacture and commercialization of pharmaceutical products. Sales of pharmaceutical products are dependent, in large part, on the availability and extent of reimbursement from government health administration authorities, private health insurers and other organizations. Changes in government regulations or private third-party payors’ reimbursement policies may reduce reimbursement for pharmaceutical products and adversely affect demand for our services, resulting in a material adverse impact on our operating results.

The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (the “Affordable Care Act”) introduces an extensive set of new laws to the health care industry. While the Affordable Care Act will likely increase the number of patients who have insurance coverage for pharmaceutical products, it also made changes that adversely affect our clients’ business and therefore, our business, including increasing rebates required from manufacturers whose drugs are covered by state Medicaid programs, requiring discounts for drugs that are covered by Medicare Part D and imposing new fees on manufacturers of branded pharmaceuticals. In addition, regulations promulgated pursuant to the Affordable Care Act or new laws may create risks of liability or otherwise increase our costs.

 

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Managed care organizations continue to seek price discounts and, in some cases, to impose restrictions on the coverage of particular drugs. Government efforts to reduce Medicaid expenses may lead to increased use of managed care organizations by Medicaid programs. This may result in managed care organizations influencing prescription decisions for a larger segment of the population and a corresponding constraint on prices and reimbursement for pharmaceutical products. Such development could have an adverse impact on our operating results.

We may not be successful in managing our infrastructure and resources to support and grow our business.

Our ability to support and grow our business and implement our strategy depends to a significant degree on our ability to successfully leverage our existing infrastructure to perform services for our clients, develop and successfully implement new sales channels for the services we offer and to enhance and expand the range of services that we can deliver to our clients.

We are dependent on the proper functioning of our information systems in operating our business. Critical information systems used in daily operations perform billing and accounts receivable functions. Additionally, we rely on our information systems in managing our accounting and financial reporting. Our information systems are protected through physical and software safeguards and we have backup remote processing capabilities. However, they are still vulnerable to fire, storm, flood, power loss, telecommunications failures, physical or software break-ins and similar events. Potential data security incidents and breaches by employees and others with or without permitted access to our systems pose a risk that sensitive data may be exposed to unauthorized persons or to the public. Additionally, we utilize third parties, including cloud providers, to store, transfer or process data. While we have taken prudent measures to protect our data and information technology systems, there can be no assurance that our efforts will prevent outages or breaches in our systems that could adversely affect our reputation or business. In the event that critical information systems fail or are otherwise unavailable, these functions would have to be accomplished manually, which could temporarily impact our ability to identify business opportunities quickly, to maintain billing and clinical records reliably, to bill for services efficiently and to maintain our accounting and financial reporting accurately.

We cannot assure you that we will be able to manage or expand our operations effectively to address current or future demand and market conditions, or that we will be able to do so without incurring increased costs in order to maintain appropriate infrastructure and senior management capabilities. If we are unable to manage our infrastructure and resources effectively, our business, consolidated results of operations, consolidated financial position or liquidity could be materially and adversely affected.

Our services are subject to evolving industry standards and rapid technological changes.

The markets for our services are characterized by rapidly changing technology, evolving industry standards and frequent introduction of new and enhanced services. To succeed, we must continue to enhance our existing services; introduce new services on a timely and cost-effective basis to meet evolving client requirements; integrate new services with existing services; achieve market acceptance for new services; and respond to emerging industry standards and other technological changes.

Moreover, the introduction of new products and services embodying new technologies and the emergence of new industry standards could render existing products and services obsolete. Our continued success will depend on our ability to adapt to changing technologies, manage and process ever-increasing amounts of data and information and improve the performance, features and reliability of our existing products and services in response to changing client and industry demands. We may experience difficulties that could delay or prevent the successful design, development, testing, introduction or marketing of our products and services. New products and services, or enhancements to existing products and services, may not adequately meet the requirements of current and prospective clients or achieve any degree of significant market acceptance. If we fail to meet marketplace needs, other companies may provide competitive products and services, which could reduce demand for our offerings.

 

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The industries in which we operate are subject to a high degree of government regulation.

The pharmaceutical, biotechnology, medical device and diagnostics and healthcare industries in which we operate are subject to a high degree of governmental regulation, at the federal, state and international levels, and our clients are subject to extensive government regulation. Generally, compliance with these laws and regulations is the responsibility of those clients. However, several of our businesses are themselves subject to the direct effect of government regulation in several areas, including pharmaceutical, biotechnology and medical device promotions, sales and development regulations and information security and privacy laws. In addition, we may be liable under certain of our client contracts for the violation of government laws and regulations by our clients to the extent those violations result from, or relate to, the services we have performed for such clients. Further, regulation applicable to our business directly or indirectly through agreements with our clients is subject to continuing evolution and change. Failure to comply with such laws and regulations or significant changes in laws or regulations affecting our clients or the services we provide could result in the imposition of additional restrictions, create additional costs to us or otherwise negatively impact our business operations. See “Business—Government Regulation.”

We are in the process of integrating several acquisitions and may make future acquisitions, which will involve additional risks.

Acquisitions have been and may continue to be a significant component of our growth strategy. In 2012 and 2013, we acquired Kforce Clinical, SDI Health, Kazaam Interactive and Catalina Health. See “Business.” We have and will continue to seek to assess the need and opportunity to offer additional services through acquisitions of other companies.

Acquisitions involve numerous risks in addition to integration risk, including the following:

 

    increased risk to our financial position and liquidity through changes to our capital structure and assumption of acquired liabilities, including any indebtedness incurred to finance the acquisitions;

 

    diversion of management’s attention from normal daily operations of the business;

 

    insufficient revenues to offset increased expenses associated with acquisitions;

 

    assumption of liabilities and exposure to unforeseen liabilities of acquired companies, including liabilities for their failure to comply with healthcare and tax regulations;

 

    inability to achieve identified operating and financial synergies anticipated to result from an acquisition;

 

    difficulties integrating acquired personnel and distinct cultures into our business; and

 

    the potential loss of key employees or client projects of the acquired companies.

We may be adversely affected by client concentration.

For the three months ended March 31, 2014, one of our clients accounted for 12% of our revenues and our top 10 clients accounted for approximately 45% of our revenues. Our engagements with our larger clients are typically dispersed across a number of segments of the client’s organization, and serviced across all three of our business segments. These services are subject to review by different decision makers within client organizations, making it less likely that the entire client relationship would be terminated and potentially reducing the magnitude of the effects of the risk associated with consolidation in the pharmaceutical industry. In addition, our success depends in part on our ability to position ourselves as a partner of choice for clients seeking to consolidate service providers. Accordingly, while the loss of business from one project will not typically affect our business on other projects with the same client, if any large client decreases or terminates its relationship with us as a result of consolidation of service providers or otherwise, our business, consolidated results of operations, consolidated financial position or liquidity could be materially adversely affected. Consolidation of our clients through mergers and acquisitions may result in the termination or reduction in scope of our existing engagements if client decision makers change as a result of such activity. Consolidation can also result in pricing pressure as an individual client’s business grows.

 

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We may lose or fail to attract and retain key employees and management personnel.

Our key managerial and other employees are among our most important assets. An important aspect of our competitiveness is our ability to attract and retain key employees and management personnel. The loss of the services of our key executives could have a material adverse effect on us.

Our business is subject to international economic, political and other risks that could negatively affect our results of operations or financial position.

A significant portion of our revenue is derived from countries outside the U.S. We anticipate that revenue from non-U.S. operations will grow in the future. Accordingly, our business is subject to risks associated with doing business internationally, including:

 

    potential negative consequences from changes in tax laws affecting our ability to repatriate profits;

 

    unfavorable labor regulations;

 

    greater difficulties in managing and staffing foreign operations;

 

    the need to ensure compliance with the numerous regulatory and legal requirements applicable to our business in each of these jurisdictions and to maintain an effective compliance program to ensure compliance with these requirements, including compliance with applicable anti-bribery laws;

 

    currency fluctuations;

 

    changes in trade policies, regulatory requirements and other barriers; and

 

    longer payment cycles of foreign customers and difficulty collecting receivables in foreign jurisdictions.

Many of these factors are beyond our control. The realization of any of these or other risks associated with operating in foreign countries could have a material adverse effect on our business, results of operations or financial condition.

Exchange rate and interest rate fluctuations may affect our results of operations and financial condition.

We derive a large portion of our net revenue from international operations. Our financial statements are denominated in United States dollars; thus, factors associated with international operations, including changes in foreign currency exchange rates, could significantly affect our results of operations and financial condition. Exchange rate fluctuations between local currencies and the United States dollar create risk in several ways, including:

 

    Foreign Currency Translation Risk: The revenue and expenses of our foreign operations are generally denominated in local currencies; and

 

    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.

We will also be exposed to foreign currency gains and losses resulting from domestic transactions that are not denominated in United States dollars, and to fluctuations in interest rates related to our variable rate debt. In some cases, as part of our risk management strategies, we may choose to hedge our exposure to foreign currency exchange rate and interest rate changes. If we misjudge these risks, there could be a material adverse effect on our operating results and financial position. Furthermore, we will be exposed to gains and losses resulting from the effect that fluctuations in foreign currency exchange rates have on the reported results in our consolidated financial statements due to the translation of the statements of operations and balance sheets of our international subsidiaries into United States dollars. The reported revenues and expenses of our international subsidiaries would decrease if the United States dollar increased in value in relation to other currencies. Finally, changes in

 

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exchange rates for foreign currencies may reduce international demand for our products, increase our labor or supply costs in non-United States markets, or reduce the United States dollar value of revenue we receive from other markets. These and other economic factors could have an adverse effect on demand for our products and services and on our financial condition and operating results.

Our product development and commercialization services could result in potential liability to us.

We have contractual relationships with drug companies to perform a wide range of services to assist them in bringing new drugs to market. Our services include monitoring clinical trials, data and laboratory analysis, electronic data capture, patient recruitment and other related services. The process of bringing a new drug to market is time-consuming and expensive. If we do not perform our services to contractual or regulatory standards, the clinical trial process could be adversely affected. Additionally, if clinical trial services such as laboratory analysis or electronic data capture and related services do not conform to contractual or regulatory standards, trial participants or trial results could be affected. These events would create a risk of liability to us from our customers and the study participants. Similar risks apply to our product development services relating to medical devices.

We also contract with physicians to serve as investigators in conducting clinical trials. Such studies create risk of liability for personal injury to or death of clinical trial participants, particularly to clinical trial participants with life-threatening illnesses, resulting from adverse reactions to the drugs administered during testing. It is possible third parties could claim that we should be held liable for losses arising from any professional malpractice or error of the investigators with whom we contract or in the event of personal injury to or death of persons participating in clinical trials. We do not believe we are legally accountable for the medical care rendered by third-party investigators, and we would vigorously defend any such claims. However, such claims may still be brought against us, and it is possible we could be found liable for these types of losses.

Further, when we market and sell pharmaceutical products under contract for pharmaceutical companies, we could suffer liability for harm allegedly caused by those products, either as a result of a lawsuit to which we are joined, a lawsuit naming us, or an action launched by a regulatory body. While we are indemnified by pharmaceutical companies for harm caused by the products we market and sell on their behalf, and while we carry insurance to cover harm caused by our negligence in performing services, it is possible that we could nonetheless incur financial losses, regulatory penalties or both.

Our ability to perform clinical trials is dependent upon our ability to recruit suitable willing investigators and patients.

We contract with physicians located in hospitals, clinics and other such sites, who serve as investigators in conducting clinical trials to test new drugs on their patients. Investigators supervise administration of the study drug to patients during the course of a clinical trial. The availability of suitable patients for enrollment in studies is dependent upon many factors including, among others, the size of the patient population, the design of the study protocol, eligibility criteria, the referral practices of physicians, the perceived risks and benefits of the drug under study and the availability of alternative medication, including medication undergoing separate clinical trial. Insufficient patient enrollment or investigator recruitment may result in the termination or delay of a study, which could have an adverse impact on our results of operations of the Clinical segment.

We are subject to risks and requirements relating to our use of regulated materials, including biomedical waste and other hazardous materials.

We handle biomedical waste, hazardous materials, chemicals and various radioactive compounds. We are subject to a variety of federal, state, local and provincial laws and regulations governing the use, storage, handling and disposal of these materials and wastes, and worker health and safety. Failure to comply with such laws and regulations could result in fines or penalties, obligations to investigate or remediate contamination, or

 

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claims for property damage or personal injury. We believe that we operate in compliance with such laws, but we cannot eliminate the risk of accidental contamination or injury from these materials. In the event of such an accident, we could be held liable for any resulting damages and incur liabilities which may exceed our resources. In addition, we cannot predict the extent of the adverse effect on our business or the financial and other costs that might result from any new government requirements arising out of future legislative, administrative or judicial actions.

 

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THE EXCHANGE OFFERS

Purpose and Effect of the Exchange Offers

Concurrently with the sale of each of (i) $275 million of initial outstanding notes on August 4, 2010, (ii) $160 million of initial outstanding notes on June 10, 2011, and (iii) $390 million of additional outstanding notes on July 13, 2011, we entered into separate registration rights agreements with each of the purchasers thereof, that require us to prepare and file a registration statement under the Securities Act with respect to the exchange notes and, upon the effectiveness of the registration statement, to offer to the holders of the outstanding notes the opportunity to exchange their outstanding notes for a like principal amount of exchange notes. See “—Registration Rights Agreements; Additional Interest” below.

A copy of each registration rights agreement has been filed as an exhibit to the registration statement of which this prospectus is a part. Following the completion of the exchange offers, holders of outstanding notes not tendered will not have any further registration rights other than as set forth in the paragraphs below, and, subject to certain exceptions, the outstanding notes will continue to be subject to certain restrictions on transfer.

Subject to certain conditions, including the representations set forth below, the exchange notes will be issued without a restrictive legend and generally may be reoffered and resold without registration under the Securities Act. In order to participate in the exchange offers, a holder must represent to us in writing, or be deemed to represent to us in writing, among other things, that:

 

    the exchange notes acquired pursuant to the exchange offers are being acquired in the ordinary course of business of the person receiving such exchange notes, whether or not such recipient is such holder itself;

 

    at the time of the commencement or consummation of the exchange offers, neither such holder nor, to the knowledge of such holder, any other person receiving exchange notes from such holder has an arrangement or understanding with any person to participate in the distribution (within the meaning of the Securities Act) of the exchange notes in violation of the provisions of the Securities Act;

 

    neither the holder nor, to the knowledge of such holder, any other person receiving exchange notes from such holder is an “affiliate,” as defined in Rule 405 under the Securities Act, of ours or of any of the guarantors, if it is an affiliate, it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable;

 

    if such holder is not a broker-dealer, neither such holder nor, to the knowledge of such holder, any other person receiving exchange notes from such holder, is engaging in or intends to engage in a distribution of the exchange notes; and

 

    if such holder is a participating broker-dealer, such holder has acquired the exchange notes for its own account in exchange for the outstanding notes that were acquired as a result of market-making activities or other trading activities and that it will comply with the applicable provisions of the Securities Act (including, but not limited to, the prospectus delivery requirements thereunder). See “Plan of Distribution.”

Under certain circumstances specified in the registration rights agreements, we may be required to file a “shelf” registration statement covering resales of the outstanding notes pursuant to Rule 415 under the Securities Act. Based on an interpretation by the SEC’s staff set forth in no-action letters issued to third parties unrelated to us, we believe that, with the exceptions set forth below, the exchange notes issued in the exchange offers may be offered for resale, resold and otherwise transferred by the holder of exchange notes without compliance with the registration and prospectus delivery requirements of the Securities Act, unless the holder:

 

    is an “affiliate,” within the meaning of Rule 405 under the Securities Act, of ours;

 

    is a broker-dealer who purchased outstanding notes directly from us for resale under Rule 144A or Regulation S or any other available exemption under the Securities Act;

 

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    acquired the exchange notes other than in the ordinary course of the holder’s business;

 

    has an arrangement with any person to engage in the distribution of the exchange notes; or

 

    is prohibited by any law or policy of the SEC from participating in the exchange offers.

Any holder who tenders in the exchange offers for the purpose of participating in a distribution of the exchange notes cannot rely on this interpretation by the SEC’s staff and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction. Each broker-dealer that receives exchange notes for its own account in exchange for outstanding notes, where such outstanding notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such exchange note. See “Plan of Distribution.” Broker-dealers who acquired outstanding notes directly from us and not as a result of market-making activities or other trading activities may not rely on the staff’s interpretations discussed above, and must comply with the prospectus delivery requirements of the Securities Act in order to sell the outstanding notes.

Terms of the Exchange Offers

Upon the terms and subject to the conditions set forth in this prospectus and in the letter of transmittal, we will accept any and all outstanding notes validly tendered and not withdrawn prior to 11:59 p.m., New York City time, on                     , 2014, or such date and time to which we extend the exchange offers. We will issue $1,000 in principal amount of exchange notes in exchange for each $1,000 principal amount of outstanding notes accepted in the exchange offers, with holders of initial outstanding notes receiving initial exchange notes and holders of additional outstanding notes receiving additional exchange notes. Holders may tender some or all of their outstanding notes pursuant to the exchange offers. Outstanding notes may be tendered only in a denomination equal to $2,000 and any integral multiples of $1,000 in excess of $2,000.

The exchange notes will evidence the same debt as the outstanding notes and will be issued under the terms of, and entitled to the benefits of, the applicable indenture relating to the outstanding notes.

As of the date of this prospectus $825 million in aggregate principal amount of outstanding notes are outstanding, which is comprised of $435 million in aggregate principal amount of initial outstanding notes and $390 million in aggregate principal amount of additional outstanding notes. This prospectus, together with the letter of transmittal, is being sent to the registered holders of all outstanding notes. We intend to conduct the exchange offers in accordance with the applicable requirements of the Exchange Act and the rules and regulations of the SEC promulgated under the Exchange Act.

We will be deemed to have accepted validly tendered outstanding notes when, as and if we have given oral or written notice thereof to Wilmington Trust which is acting as the exchange agent. The exchange agent will act as agent for the tendering holders for the purpose of receiving the exchange notes from us. If any tendered outstanding notes are not accepted for exchange because of an invalid tender, the occurrence of certain other events set forth under the heading “—Conditions to the Exchange Offers,” any such unaccepted outstanding notes will be returned, without expense, to the tendering holder of those outstanding notes promptly after the expiration date unless the exchange offers are extended.

Holders who tender outstanding notes in the exchange offers will not be required to pay brokerage commissions or fees or, subject to the instructions in the letter of transmittal, transfer taxes with respect to the exchange of outstanding notes in the exchange offers. We will pay all charges and expenses, other than certain applicable taxes, applicable to the exchange offers. See “—Fees and Expenses.”

 

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Expiration Date; Extensions; Amendments

The expiration date shall be 11:59 p.m., New York City time, on                     , 2014, unless we, in our sole discretion, extend the exchange offers, in which case the expiration date shall be the latest date and time to which the exchange offers are extended. In order to extend the exchange offers, we will notify the exchange agent and each registered holder of any extension by oral or written notice prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date and will also disseminate notice of any extension by press release or other public announcement prior to 9:00 a.m., New York City time on such date. We reserve the right, in our sole discretion:

 

    to delay accepting any outstanding notes, to extend the exchange offers or, if any of the conditions set forth under “—Conditions to the Exchange Offers” shall not have been satisfied, to terminate the exchange offers, by giving oral or written notice of that delay, extension or termination to the exchange agent, or

 

    to amend the terms of the exchange offers in any manner.

Procedures for Tendering

When a holder of outstanding notes tenders, and we accept such notes for exchange pursuant to that tender, a binding agreement between us and the tendering holder is created, subject to the terms and conditions set forth in this prospectus and the accompanying letter of transmittal. Except as set forth below, a holder of outstanding notes who wishes to tender such notes for exchange must, on or prior to the expiration date:

 

    transmit a properly completed and duly executed letter of transmittal, including all other documents required by such letter of transmittal, to Wilmington Trust, which will act as the exchange agent, at the address set forth below under the heading “—Exchange Agent”;

 

    comply with DTC’s Automated Tender Offer Program, or ATOP, procedures described below; or

 

    if outstanding notes are tendered pursuant to the book-entry procedures set forth below, the tendering holder must transmit an agent’s message to the exchange agent as per DTC, Euroclear Bank S.A./N.V., as operator of the Euroclear system, which we refer to as Euroclear, or Clearstream Banking S.A., which we refer to as Clearstream, (as appropriate) procedures.

In addition, either:

 

    the exchange agent must receive the certificates for the outstanding notes and the letter of transmittal;

 

    the exchange agent must receive, prior to the expiration date, a timely confirmation of the book-entry transfer of the outstanding notes being tendered, along with the letter of transmittal or an agent’s message; or

 

    the holder must comply with the guaranteed delivery procedures described below.

The term “agent’s message” means a message, transmitted to DTC, Euroclear or Clearstream, as appropriate, and received by the exchange agent and forming a part of a book-entry transfer, or “book-entry confirmation,” which states that DTC, Euroclear or Clearstream, as appropriate, has received an express acknowledgement that the tendering holder agrees to be bound by the letter of transmittal and that we may enforce the letter of transmittal against such holder.

The method of delivery of the outstanding notes, the letters of transmittal and all other required documents is at the election and risk of the holders. If such delivery is by mail, we recommend registered mail, properly insured, with return receipt requested. In all cases, you should allow sufficient time to assure timely delivery. No letters of transmittal or outstanding notes should be sent directly to us.

 

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Signatures on a letter of transmittal or a notice of withdrawal must be guaranteed by an eligible institution unless the outstanding notes surrendered for exchange are tendered:

 

    by a registered holder of the outstanding notes; or

 

    for the account of an eligible institution

An “eligible institution” is a firm which is a member of a registered national securities exchange or a member of the Financial Industry Regulatory Authority, Inc., or a commercial bank or trust company having an office or correspondent in the United States.

If outstanding notes are registered in the name of a person other than the signer of the letter of transmittal, the outstanding notes surrendered for exchange must be endorsed by, or accompanied by a written instrument or instruments of transfer or exchange, in satisfactory form to the exchange agent and as determined by us in our sole discretion, duly executed by the registered holder with the holder’s signature guaranteed by an eligible institution.

We will determine all questions as to the validity, form, eligibility (including time of receipt) and acceptance of outstanding notes tendered for exchange in our sole discretion. Our determination will be final and binding. We reserve the absolute right to:

 

    reject any and all tenders of any outstanding note improperly tendered;

 

    refuse to accept any outstanding note if, in our judgment or the judgment of our counsel, acceptance of the outstanding note may be deemed unlawful; and

 

    waive any defects or irregularities or conditions of the exchange offers as to any particular outstanding note based on the specific facts or circumstances presented either before or after the expiration date, including the right to waive the ineligibility of any holder who seeks to tender outstanding notes in the exchange offers.

Notwithstanding the foregoing, we do not expect to treat any holder of outstanding notes differently from other holders to the extent they present the same facts or circumstances.

Our interpretation of the terms and conditions of the exchange offers as to any particular outstanding notes either before or after the expiration date, including the letter of transmittal and the instructions to it, will be final and binding on all parties. Holders must cure any defects and irregularities in connection with tenders of notes for exchange within such reasonable period of time as we will determine, unless we waive such defects or irregularities.

Neither we, the exchange agent nor any other person shall be under any duty to give notification of any defect or irregularity with respect to any tender of outstanding notes for exchange, nor shall any of us incur any liability for failure to give such notification.

If a person or persons other than the registered holder or holders of the outstanding notes tendered for exchange signs the letter of transmittal, the tendered outstanding notes must be endorsed or accompanied by appropriate powers of attorney, in either case signed exactly as the name or names of the registered holder or holders that appear on the outstanding notes.

If trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity sign the letter of transmittal or any outstanding notes or any power of attorney, these persons should so indicate when signing, and you must submit proper evidence satisfactory to us of those persons’ authority to so act unless we waive this requirement.

 

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By tendering, each holder will represent to us that the person acquiring exchange notes in the exchange offers, whether or not that person is the holder, is obtaining them in the ordinary course of its business, and at the time of the commencement of the exchange offers neither the holder nor, to the knowledge of such holder, that other person receiving exchange notes from such holder has any arrangement or understanding with any person to participate in the distribution (within the meaning of the Securities Act) of the exchange notes issued in the exchange offers in violation of the provisions of the Securities Act. If any holder or any other person receiving exchange notes from such holder is an “affiliate,” as defined under Rule 405 of the Securities Act, of us, or is engaged in or intends to engage in or has an arrangement or understanding with any person to participate in a distribution (within the meaning of the Securities Act) of the notes in violation of the provisions of the Securities Act to be acquired in the exchange offers, the holder or any other person:

 

    may not rely on applicable interpretations of the staff of the SEC; and

 

    must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction.

Each broker-dealer who acquired its outstanding notes as a result of market-making activities or other trading activities, and thereafter receives exchange notes issued for its own account in the exchange offers, must acknowledge that it will comply with the applicable provisions of the Securities Act (including, but not limited to, delivering this prospectus in connection with any resale of such exchange notes issued in the exchange offers). The letter of transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an “underwriter” within the meaning of the Securities Act. See “Plan of Distribution” for a discussion of the exchange and resale obligations of broker-dealers.

Acceptance of Outstanding Notes for Exchange; Delivery of Exchange Notes Issued in the Exchange Offers

Upon satisfaction or waiver of all the conditions to the exchange offers, we will accept, promptly after the expiration date, all outstanding notes properly tendered and will issue exchange notes registered under the Securities Act in exchange for the tendered outstanding notes. For purposes of the exchange offers, we shall be deemed to have accepted properly tendered outstanding notes for exchange when, as and if we have given oral or written notice to the exchange agent, with written confirmation of any oral notice to be given promptly thereafter, and complied with the applicable provisions of the registration rights agreements. See “—Conditions to the Exchange Offers” for a discussion of the conditions that must be satisfied before we accept any outstanding notes for exchange.

For each outstanding note accepted for exchange, the holder will receive an exchange note registered under the Securities Act having a principal amount equal to that of the surrendered outstanding note, with holders of initial outstanding notes receiving initial exchange notes and holders of additional outstanding notes receiving additional exchange notes. Registered holders of exchange notes issued in the exchange offers on the relevant record date for the first interest payment date following the consummation of the exchange offers will receive interest accruing from the most recent date to which interest has been paid or, if no interest has been paid, from the issue date of the outstanding notes. Holders of exchange notes will not receive any payment in respect of accrued interest on outstanding notes otherwise payable on any interest payment date, the record date for which occurs on or after the consummation of the exchange offers. Under the registration rights agreements, we may be required to make payments of additional interest to the holders of the outstanding notes under circumstances relating to the timing of the exchange offers. The holders of additional outstanding notes are entitled to different rights than the holders of initial outstanding notes, under the registration rights agreement related to such additional outstanding notes, to additional interest and may receive additional interest, if any, in different amounts and at different times than the holders of initial outstanding notes.

 

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In all cases, we will issue exchange notes for outstanding notes that are accepted for exchange only after the exchange agent timely receives:

 

    certificates for such outstanding notes or a timely book-entry confirmation of such outstanding notes into the exchange agent’s account at DTC, Euroclear or Clearstream, as appropriate;

 

    a properly completed and duly executed letter of transmittal or an agent’s message; and all other required documents.

If for any reason set forth in the terms and conditions of the exchange offers we do not accept any tendered outstanding notes, or if a holder submits outstanding notes for a greater principal amount than the holder desires to exchange, we will return such unaccepted or nonexchanged notes without cost to the tendering holder. In the case of outstanding notes tendered by book- entry transfer into the exchange agent’s account DTC, Euroclear or Clearstream, the nonexchanged notes will be credited to an account maintained with DTC, Euroclear or Clearstream.

We will return the outstanding notes or have them credited to DTC, Euroclear or Clearstream accounts, as appropriate, promptly after the expiration or termination of the exchange offers.

Book-Entry Transfer

The participant should transmit its acceptance to DTC, Euroclear or Clearstream, as the case may be, on or prior to the expiration date or comply with the guaranteed delivery procedures described below. DTC, Euroclear or Clearstream, as the case may be, will verify the acceptance and then send to the exchange agent confirmation of the book-entry transfer. The confirmation of the book-entry transfer will be deemed to include an agent’s message confirming that DTC, Euroclear or Clearstream, as the case may be, has received an express acknowledgment from the participant that the participant has received and agrees to be bound by the letter of transmittal and that we may enforce the letter of transmittal against such participant. Delivery of exchange notes issued in the exchange offers may be affected through book-entry transfer at DTC, Euroclear or Clearstream, as the case may be. However, the letter of transmittal or facsimile thereof or an agent’s message, with any required signature guarantees and any other required documents, must:

 

    be transmitted to and received by the exchange agent at the address set forth below under “—The Exchange Agent” on or prior to the expiration date; or

 

    comply with the guaranteed delivery procedures described below.

DTC’s ATOP program is the only method of processing the exchange offers through DTC. To accept the exchange offers through ATOP, participants in DTC must send electronic instructions to DTC through DTC’s communication system. In addition, such tendering participants should deliver a copy of the letter of transmittal to the exchange agent unless an agent’s message is transmitted in lieu thereof. DTC is obligated to communicate those electronic instructions to the exchange agent through an agent’s message. Any instruction through ATOP, such as an agent’s message, is at your risk and such instruction will be deemed made only when actually received by the exchange agent.

In order for an acceptance of the exchange offers through ATOP to be valid, an agent’s message must be transmitted to and received by the exchange agent prior to the expiration date, or the guaranteed delivery procedures described below must be complied with. Delivery of instructions to DTC does not constitute delivery to the exchange agent.

 

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Guaranteed Delivery Procedures

If a holder of outstanding notes desires to tender such notes and the holder’s outstanding notes are not immediately available, or time will not permit the holder’s outstanding notes or other required documents to reach the exchange agent before the expiration date, or the procedure for book-entry transfer cannot be completed on a timely basis, a tender may be effected if:

 

    the holder tenders the outstanding notes through an eligible institution;

 

    prior to the expiration date, the exchange agent receives from such eligible institution a properly completed and duly executed notice of guaranteed delivery, acceptable to us, by telegram, telex, facsimile transmission, mail or hand delivery, setting forth the name and address of the holder of the outstanding notes tendered, the certificate number of numbers of such outstanding notes and the amount of the outstanding notes being tendered. The notice of guaranteed delivery shall state that the tender is being made and guarantee that within three New York Stock Exchange trading days after the expiration date, the certificates for all physically tendered outstanding notes, in proper form for transfer, or a book- entry confirmation, as the case may be, together with a properly completed and duly executed letter of transmittal or agent’s message with any required signature guarantees and any other documents required by the letter of transmittal will be deposited by the eligible institution with the exchange agent; and

 

    the exchange agent receives the certificates for all physically tendered outstanding notes, in proper form for transfer, or a book-entry confirmation, as the case may be, together with a properly completed and duly executed letter of transmittal or agent’s message with any required signature guarantees and any other documents required by the letter of transmittal, within three New York Stock Exchange trading days after the expiration date.

Withdrawal of Tenders

You may withdraw tenders of your outstanding notes at any time prior to the expiration of the exchange offers.

For a withdrawal to be effective, you must send a written notice of withdrawal to the exchange agent at the address set forth below under “—Exchange Agent.” Any such notice of withdrawal must:

 

    specify the name of the person that has tendered the outstanding notes to be withdrawn; identify the outstanding notes to be withdrawn, including the principal amount of such outstanding notes; and

 

    where certificates for outstanding notes are transmitted, specify the name in which outstanding notes are registered, if different from that of the withdrawing holder.

If certificates for outstanding notes have been delivered or otherwise identified to the exchange agent, then, prior to the release of such certificates, the withdrawing holder must also submit the serial numbers of the particular certificates to be withdrawn and signed notice of withdrawal with signatures guaranteed by an eligible institution unless such holder is an eligible institution. If outstanding notes have been tendered pursuant to the procedure for book-entry transfer described above, any notice of withdrawal must specify the name and number of the account at DTC, Euroclear or Clearstream, as applicable, to be credited with the withdrawn notes and otherwise comply with the procedures of such facility.

We will determine all questions as to the validity, form and eligibility (including time of receipt) of notices of withdrawal and our determination will be final and binding on all parties. Any tendered notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the exchange offers. Any outstanding notes which have been tendered for exchange but which are not exchanged for any reason will be returned to the holder thereof without cost to such holder. In the case of outstanding notes tendered by book-entry transfer into the exchange agent’s account at DTC, Euroclear or Clearstream, as applicable, the outstanding notes

 

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withdrawn will be unlocked with DTC, Euroclear or Clearstream, as applicable, for the outstanding notes. The outstanding notes will be returned promptly after withdrawal, rejection of tender or termination of the exchange offers. Properly withdrawn outstanding notes may be re-tendered by following one of the procedures described under “—Procedures for Tendering” above at any time on or prior to 11:59 p.m., New York City time, on the expiration date.

Conditions to the Exchange Offers

Notwithstanding any other provision of the exchange offers, we may (a) refuse to accept any outstanding notes and return all tendered outstanding notes to the tendering holders, (b) extend the exchange offers and retain all outstanding notes tendered before the expiration of the exchange offers, subject, however, to the rights of holders to withdraw those outstanding notes, or (c) waive the unsatisfied conditions with respect to the exchange offers and accept all properly tendered outstanding notes that have not been withdrawn, if we determine, in our reasonable judgment, that (i) the exchange offers violate applicable law, any applicable interpretation of the staff of the SEC; (ii) an action or proceeding shall have been instituted or threatened in any court or by any governmental agency which might materially impair our ability to proceed with the exchange offers or a material adverse development shall have occurred in any existing action or proceeding with respect to us; or (iii) all governmental approvals that we deem necessary for the consummation of the exchange offers have not been obtained.

The foregoing conditions are for our sole benefit and may be asserted by us regardless of the circumstances giving rise to any such condition or may be waived by us in whole or in part at any time and from time to time. The failure by us at any time to exercise any of the foregoing rights shall not be deemed a waiver of any of those rights and each of those rights shall be deemed an ongoing right which may be asserted at any time and from time to time.

In addition, we will not accept for exchange any outstanding notes tendered, and no exchange notes will be issued in exchange for those outstanding notes, if at such time any stop order shall be threatened or in effect with respect to the registration statement of which this prospectus constitutes a part or the qualification of the indenture under the Trust Indenture Act of 1939. In any of those events we are required to use every reasonable effort to obtain the withdrawal of any stop order at the earliest possible time.

Effect of Not Tendering

Holders who desire to tender their outstanding notes in exchange for exchange notes registered under the Securities Act should allow sufficient time to ensure timely delivery. Neither the exchange agent nor we are under any duty to give notification of defects or irregularities with respect to the tenders of outstanding notes for exchange.

Outstanding notes that are not tendered or are tendered but not accepted will, following the consummation of the exchange offers, continue to accrue interest and to be subject to the provisions in the respective indenture regarding the transfer and exchange of the outstanding notes and the existing restrictions on transfer set forth in the legend on the outstanding notes and in the prospectus relating to the outstanding notes. After completion of the exchange offers, we will have no further obligation to provide for the registration under the Securities Act of those outstanding notes except in limited circumstances with respect to specific types of holders of outstanding notes and we do not intend to register the outstanding notes under the Securities Act. In general, outstanding notes, unless registered under the Securities Act, may not be offered or sold except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws.

 

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Exchange Agent

All executed letters of transmittal should be directed to the exchange agent. Wilmington Trust has been appointed as exchange agent for the exchange offers. Questions, requests for assistance and requests for additional copies of this prospectus or of the letter of transmittal should be directed to the exchange agent addressed as follows:

 

By Mail, Hand or Overnight Delivery:

 

Wilmington Trust, National Association

c/o Wilmington Trust Company

Corporate Capital Markets

Rodney Square North

1100 North Market Street

Wilmington, Delaware 19890-1626

  

By Facsimile:

 

(302) 636-4139

 

For Information or Confirmation by Telephone:

 

Sam Hamed

 

(302) 636-6181

Fees and Expenses

We will not make any payments to brokers, dealers or others soliciting acceptances of the exchange offers. The estimated cash expenses to be incurred in connection with the exchange offers will be paid by us and will include fees and expenses of the exchange agent, accounting, legal, printing and related fees and expenses.

Accounting Treatment

We will record the exchange notes at the same carrying value as the outstanding notes, as reflected in our accounting records on the date of the exchange. Accordingly, we will not recognize any gain or loss for accounting purposes as the terms of the exchange notes are substantially identical to those of the outstanding notes.

Transfer Taxes

Holders who tender their outstanding notes for exchange will not be obligated to pay any transfer taxes in connection with that tender or exchange, except that holders who instruct us to register exchange notes in the name of, or request that outstanding notes not tendered or not accepted in the exchange offers be returned to, a person other than the registered tendering holder will be responsible for the payment of any applicable transfer tax on those outstanding notes.

Registration Rights Agreements; Additional Interest

We entered into a registration rights agreement in connection with each of the issuances of the outstanding notes. Under the registration rights agreement with respect to the outstanding 2010 notes and the outstanding i3 notes, we agreed to use reasonable best efforts to (i) file a registration statement related to the exchange of such outstanding notes for exchange notes with the SEC on or prior to the 270th day after August 4, 2010, in the case of the initial outstanding notes, and June 10, 2011, in the case of the outstanding i3 notes, (ii) cause such registration statement to become effective under the Securities Act on or prior to the earlier of the 90th day following such filing or the 360th day after August 4, 2010, in the case of the initial outstanding notes, and June 11, 2011, in the case of the outstanding i3 notes and (iii) consummate the exchange offer on or prior to the 30th day after effectiveness. Under the registration rights agreement with respect to the additional outstanding notes, we agreed to consummate the exchange offer prior to the 360th day after July 13, 2011. Such registration rights agreements provides that additional interest will accrue on the principal amount of the notes at a rate of 0.25% per annum during the 90-day period immediately following the first registration default and will increase by 0.25% per annum at the end of each subsequent 90-day period until all such defaults are cured, but in no event will the penalty rate exceed 1.00% per annum.

 

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Because we did not consummate the exchange offer prior to the 30th day after July 13, 2011, we are obligated to pay additional interest on the outstanding notes until the registration statement is declared effective. For additional information, see “Selected Consolidated Financial Data” and “Description of the Exchange Notes.”

We paid all accrued additional interest as of February 14, 2014 relating to the outstanding notes on February 15, 2014, the most recent scheduled semi-annual interest payment date, and plan to pay any additional accrued and unpaid additional interest on the outstanding notes on the next semi-annual interest payment date of August 15, 2014. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition, Liquidity and Capital Resources—Senior Indenture and 10% Senior Notes Due 2018.”

The summary herein of certain provisions of the registration rights agreements does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the registration rights agreements, copies of which have been filed as an exhibit to the registration statement of which this prospectus forms a part.

 

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USE OF PROCEEDS

The exchange offers are intended to satisfy certain of our obligations under the registration rights agreements. We will not receive any proceeds from the issuance of the exchange notes in the exchange offers. In exchange for each of the exchange notes, we will receive outstanding notes in like principal amount. We will retire or cancel all of the outstanding notes tendered in the exchange offers. Accordingly, issuance of the exchange notes will not result in any change in our capitalization.

 

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RATIO OF EARNINGS TO FIXED CHARGES

 

Successor

        

Predecessor

Three Months
Ended
March 31,

  

Year Ended December 31,

  

For the Period
August 4,
2010 through
December 31,

2010

        

For the Period
January 1,
2010 through
August 3,

2010

  

Year Ended
December 31,

2009

2014

  

2013

  

2012

  

2011

           

—  

   —      —      —      —     
 
   1.8x    3.4x

For purposes of calculating the ratio of earnings to fixed charges, earnings represents income (loss) from continuing operations before income taxes, losses from equity method investments and noncontrolling interest plus fixed charges. Fixed charges consist of interest expense, net amortization of debt issuance premium and discount, amortization and write-off of deferred financing costs and the portion of operating rental expense which management believes is representative of the interest component of rent expense.

For the years ended December 31, 2013, 2012 and 2011 and for the period from August 4, 2010 through December 31, 2010 our earnings were insufficient to cover our fixed charges by $214.4 million, $568.7 million, $140.5 million and $14.5 million, respectively. For the three months ended March 31, 2014, our earnings were insufficient to cover our fixed charges by $44.6 million.

 

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CAPITALIZATION

The following table sets forth our cash and equivalents and capitalization as of March 31, 2014. You should read this section in conjunction with “Use of Proceeds,” “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Description of Other Indebtedness” and our consolidated financial statements and the related notes included elsewhere in this prospectus.

 

(in millions)    As of
March 31, 2014
 

Cash and cash equivalents(1)

   $ 66.7   
  

 

 

 

Debt (including current maturities):

  

Amounts drawn under our ABL Facility

  
$ —     

Term loan facility

  
  576.3   

9% Senior Secured Notes due 2018(2)

  
  625.6   

10% Senior Notes due 2018(3)

  
  811.2   

Obligations under capital leases and other financing arrangements

  
  30.8   
  

 

 

 

Total debt:

  
  2,043.9   
  

 

 

 

inVentiv stockholders’ deficit:

  

Common stock, $.01 par value, 1,000 shares authorized, issued and outstanding(4)

  
  —     

Additional paid-in capital

  
  569.6   

Accumulated other comprehensive loss

  
  (10.4

Accumulated deficit

  
  (1,017.2
  

 

 

 

inVentiv stockholders’ deficit

  
  (458.0
  

 

 

 

Noncontrolling interest

  
  1.6   
  

 

 

 

Total stockholders’ deficit

  
  (456.4
  

 

 

 

Total capitalization

  
$ 1,587.5   
  

 

 

 

 

(1) Cash and cash equivalents exclude approximately $2.2 million in restricted cash.
(2) The amount of our 9% Senior Secured Notes due 2018 includes approximately $0.6 million of unamortized premium received on issuance.
(3) The amount of our 10% Senior Notes due 2018 is net of approximately $13.8 million in unamortized original issue discount.
(4) Represents the common stock that is issued and outstanding to Holdings, which is the parent of the Company and a wholly owned subsidiary of inVentiv Group Holdings, Inc., or Group Holdings.

 

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SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data for the years ended December 31, 2013, 2012 and 2011 and as of December 31, 2013 and December 31, 2012 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The selected consolidated financial data for the period January 1, 2010 through August 3, 2010, the period August 4, 2010 through December 31, 2010 and the year ended December 31, 2009 and as of December 31, 2011, 2010 and 2009 have been derived from our consolidated financial statements not included in this prospectus. The selected consolidated financial data as of March 31, 2014 and for the three months ended March 31, 2014 and 2013 have been derived from our unaudited interim financial statements included elsewhere in this prospectus.

The selected consolidated financial information for inVentiv for the year ended December 31, 2010 is comprised of two periods: “Predecessor” and “Successor,” which relate to the period preceding the August 2010 Merger and the period succeeding the August 2010 Merger, respectively. Our results of operations for the post-merger and the pre-merger periods should not be considered representative of our future results of operations.

Please also refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and notes thereto included elsewhere in this prospectus.

 

    Successor     Predecessor  
(in millions),  

Three Months Ended

March 31,

   

Year Ended

December 31,

    August 4
through
December 31,
   

January 1

through

August 3,

    Year Ended
December 31,
 
      2014             2013         2013     2012     2011     2010     2010     2009  

Net revenues

  $ 421.8      $ 408.8      $ 1,644.6      $ 1,715.7      $ 1,414.0      $ 435.7      $ 541.1      $ 878.8   

Reimbursed out-of-pocket expenses

    56.3        76.3        259.9        275.4        221.4        66.2        86.7        134.4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

 
  478.1   
 
  485.1   
 
  1,904.5   
 
  1,991.1   
 
  1,635.4   
 
  501.9   
 
  627.8   
 
  1,013.2   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

 
 
 
 
 
 
 
 
 

Cost of revenues

 
  274.3   
 
  260.9   
 
  1,056.1   
 
  1,073.2   
 
  911.7   
 
  274.6   
 
  339.8   
 
  553.2   

Reimbursable out-of-pocket expenses

 
  56.3   
 
  76.3   
 
  259.9   
 
  275.4   
 
  221.4   
 
  72.9   
 
  90.1   
 
  139.1   

Selling, general and administrative expenses

 
  139.1   
 
  144.7   
 
  567.0   
 
  594.3   
 
  481.7   
 
  137.5   
 
  167.2   
 
  225.2   

Proceeds from purchase price finalization

 
  —     
 
  —     
 
  (14.2
 
  —     
 
  —     
 
  —     
 
  —     
 
  —     

Impairment of goodwill

 
  —     
 
  —     
 
  36.9   
 
  361.6   
 
  30.0   
 
  —     
 
  —     
 
  —     

Impairment of long-lived assets

 
  —     
 
  —     
 
  2.0   
 
  49.8   
 
  3.6   
 
  —     
 
  —     
 
  —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

 
  469.7   
 
  481.9   
 
  1,907.7   
 
  2,354.3   
 
  1,648.4   
 
  485.0   
 
  597.1   
 
  917.5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

 
  8.4   
 
  3.2   
 
  (3.2
 
  (363.2
 
  (13.0
 
  16.9  
 
  30.7  
 
  95.7   

Loss on extinguishment of debt

 
  —     
 
  —     
 
  (0.8
 
  (18.6
 
  (2.7
 
  —     
 
  —     
 
  —     

Interest expense

 
  (52.6
 
  (51.5
 
  (209.3
 
  (185.9
 
  (123.5
 
  (31.1
 
  (14.7
 
  (23.1

Interest income

 
  0.1   
 
  0.1   
 
  0.1   
 
  0.4   
 
  0.1   
 
  0.1  
 
  0.1  
 
  0.1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income tax (provision) benefit and income (loss) from equity investments

 
  (44.1
 
  (48.2
 
  (213.2
 
  (567.3
 
  (139.1
 
  (14.1
 
  16.1  
 
  72.7   

Income tax (provision) benefit

 
  (1.9
 
  (6.4
 
  (3.0
 
  0.4   
 
  32.9   
 
  3.9  
 
  (10.6
 
  (27.6
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income (loss) from equity investments

 
  (46.0
 
  (54.6
 
  (216.2
 
  (566.9
 
  (106.2
 
  (10.2
 
  5.5  
 
  45.1   

Income (loss) from equity investments

 
  —     
 
  —     
 
  —     
 
  —     
 
  —     
 
  —     
 
  (0.1
 
  (0.1
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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    Successor     Predecessor  
(in millions),  

Three Months Ended

March 31,

   

Year Ended

December 31,

    August 4
through
December 31,
   

January 1

through

August 3,

    Year Ended
December 31,
 
      2014             2013         2013     2012     2011     2010     2010     2009  

Income (loss) from continuing operations

    (46.0     (54.6     (216.2     (566.9     (106.2     (10.2     5.4       45.0   

Net income (loss) from discontinued operations, net of tax

    (2.7     (1.3     (20.2     (10.5     (33.5     —          0.2       2.7   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

 
  (48.7
 
  (55.9
 
  (236.4
 
  (577.4
 
  (139.7
 
  (10.2
 
  5.6  
 
  47.7   

Less: Net income attributable to noncontrolling interest

 
  (0.5
 
  (0.3
 
  (1.2
 
  (1.4
 
  (1.3
 
  (0.4
 
  (0.8
 
  (0.8
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to inVentiv Health, Inc.

 
$ (49.2
 
$ (56.2
 
$ (237.6
 
$ (578.8
 
$ (141.0
 
$ (10.6
 
$ 4.8  
 
$ 46.9   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Selected statement of cash flows data:

 
 
 
 
 
 
 
 
 

Net cash provided by (used in) continuing operations:

 
 
 
 
 
 
 
 
 

Operating activities

 
$ (33.1
 
$ (23.8
 
$ 22.6   
 
$ (13.1
 
$ 99.9   
 
$ 10.1  
 
$ 60.1  
 
$ 113.7   

Investing activities

 
  (7.6
 
  (0.5
 
  (24.3
 
  (101.3
 
  (1,095.1
 
  (884.3
 
  (60.8
 
  (62.5

Financing activities

 
  (5.0
 
  (7.2
 
  (1.3
 
  148.2   
 
  1,058.3   
 
  815.9  
 
  (25.9
 
  (19.4

 

    Successor     Predecessor  
(in millions),   March 31,     December 31,     December 31,  
  2014     2013     2012     2011     2010     2009  

Selected balance sheet data (at period end):

         
 
 

Cash and cash equivalents

  $ 66.7      $ 116.2      $ 129.4      $ 109.3      $ 51.0      $ 132.8   

Total assets

    2,213.8        2,274.0        2,442.3        2,835.5        1,503.6        1,030.0   

Total debt

    2,043.9        2,040.3        2,018.5        1,906.6        830.5        345.3   

Total liabilities

    2,670.2        2,682.1        2,603.7        2,512.3        1,119.4        600.7   

Total stockholders’ equity (deficit)

    (456.4     (408.0     (161.4     323.2        384.2        429.3   

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with the “Selected Consolidated Financial Data” and our consolidated financial statements and related notes included elsewhere in this prospectus. The following discussion and analysis of our financial condition and results of operations contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Disclosure” of this prospectus. Actual results may differ materially from those contained in any forward-looking statement. The terms “inVentiv,” “Company,” “we,” “us” and “our” refer to inVentiv Health, Inc. and its consolidated subsidiaries.

Our Business

We are a global provider of outsourced services to the pharmaceutical, biotechnology, medical device and diagnostics, and healthcare industries. We provide a broad range of clinical development, commercialization and consulting services that are critical to our clients’ ability to develop and successfully commercialize their products and services. Our portfolio of services meets the varied needs of our clients, who are increasingly outsourcing both their clinical research and development activities, as well as their sales and marketing activities.

Since being acquired through a take-private transaction by affiliates or co-investors of Thomas H. Lee Partners and Liberty Lane in August of 2010, we have executed on a strategy to transform our business into a global leader in pharmaceutical outsourcing services across the entire continuum of drug development and commercialization. In 2011, we announced three transactions that meaningfully enhance our clinical and consulting capabilities. In February 2011, we acquired Campbell to strengthen our consulting business. In June of 2011 we acquired i3 Global and in July of 2011, we acquired PharmaNet, two leading CROs. These transactions expanded the scale and increased the geographic footprint of our business. Our global resources and reach allow us to help our clients enter or expand into new and emerging markets.

In 2012 and 2013, we completed four tuck-in acquisitions that augmented our capabilities. In March 2012, we acquired Kforce Clinical, expanding our strategic resourcing capabilities within the Clinical business segment. In March 2012, we also acquired SDI Health, enhancing our market research capabilities within the Consulting business segment. In June 2012, we acquired the assets of Kazaam Interactive, bolstering our digital communications and social media capabilities within our Commercial business segment. In October 2013, we acquired Catalina Health, expanding our medication adherence capabilities in our Commercial business segment.

Our broad range of services and our global scale, represented by approximately 12,000 employees supporting clients in more than 70 countries, allow us to serve as a critical strategic partner for pharmaceutical, biotechnology, medical device and diagnostics, and healthcare companies seeking support in a rapidly changing regulatory and commercial environment. We serve more than 550 client organizations, including all of the 20 largest global pharmaceutical companies.

Our History

On August 4, 2010, we announced the completion of a merger (the “August 2010 Merger”) of inVentiv Acquisition, Inc., a Delaware corporation (“Mergerco”) an indirect wholly-owned subsidiary of inVentiv Group Holdings, Inc. (“Group Holdings” or “Parent”) with and into the Company, pursuant to the Agreement and Plan of Merger (the “Merger Agreement”), dated May 6, 2010, as amended by and among the Company, Group Holdings and Mergerco. As a result of the August 2010 Merger, the Company is a wholly owned subsidiary of Group Holdings, an entity controlled by affiliates of Thomas H. Lee Partners, certain co-investors, members of management and Liberty Lane (together, the “Investors”). The August 2010 Merger was financed by equity contributions from the Investors totaling $390.7 million, along with a $525 million senior term loan facility, a

 

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revolver facility providing financing of up to $75 million ($5 million of which was drawn at the closing of the August 2010 Merger) and the private placement of $275 million aggregate principal amount of 10% Senior Notes due 2018.

Acquisitions

Our acquisitions have historically been made at prices above the fair value of the acquired identifiable net assets, resulting in goodwill, due to the expectations of the synergies that will be realized by combining the businesses. These synergies include the elimination of redundant facilities, functions and staffing, the use of our existing infrastructure to expand revenue of the acquired businesses’ service offerings and the use of the commercial infrastructure of the acquired businesses to cost effectively expand revenue of our service offerings.

Acquisitions have been accounted for as business combinations using the acquisition method of accounting and the acquired companies’ results have been included in the accompanying financial statements from their respective dates of acquisition. Acquisition related costs are included in selling, general and administrative expenses (“SG&A”) in the consolidated statements of operations. Allocation of the purchase price for acquisitions was based on estimates of the fair value of the net assets acquired, and for acquisitions completed within the past year, is subject to adjustment upon finalization of the purchase price allocation. The final purchase price allocations may differ materially from the preliminary estimates. In addition, new information about facts and circumstances as of the acquisition date that arises may result in retrospective adjustment to the consolidated statements of operations in the period of acquisition. See Note 3 to our consolidated financial statements for the year ended December 31, 2013, for additional information related to these transactions.

Catalina Health Acquisition

On October 25, 2013, we completed the acquisition of Catalina Health, a provider of tailored, direct-to-patient medication adherence programs, for no cash consideration at closing. This acquisition expands our physician and pharmacy partner network and further streamlines the delivery of effective adherence communications. The purchase price is a 5 year contingent earnout obligation based on the combined performance, as defined by the agreement, of Catalina Health and our existing patient adherence business, which is included in our Commercial segment. The fair value of the contingent earnout was $5.4 million at December 31, 2013. The purchase price exceeded the preliminary fair value of the acquired net assets resulting in $7.3 million of goodwill, which is tax deductible.

Kazaam Acquisition

On June 5, 2012, we completed the acquisition of assets of Kazaam Interactive, a provider of interactive marketing strategy and solutions to healthcare agencies and brands, for $15.2 million in cash, net of a working capital adjustment, to enhance our broader digital strategy within the Commercial segment. The purchase price was funded with an equity contribution by certain Investors. The purchase price exceeded the fair value of the acquired net assets resulting in $6.4 million of goodwill, which is tax deductible.

Kforce Clinical Acquisition

On March 30, 2012, we completed the acquisition of Kforce Clinical, a provider of functional outsourcing solutions to pharmaceutical, biotech and medical device companies, from Kforce, Inc., for $57.3 million in cash, net of a working capital adjustment. We purchased Kforce Clinical to enhance our clinical service offerings and it is part of our Clinical segment. The purchase price was funded by short term borrowings and available cash on hand. The purchase price exceeded the fair value of the acquired net assets resulting in $26.3 million of goodwill, which is tax deductible.

 

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SDI Health Acquisition

On March 20, 2012, we completed the acquisition of SDI Health, for approximately $15.4 million in cash, net of a working capital adjustment. The SDI Health business was incorporated into our Consulting segment. The purchase price was funded by available cash on hand. The purchase price exceeded the fair value of the acquired net assets resulting in $11.3 million of goodwill, which is tax deductible.

Haas Acquisition

On December 5, 2011, we completed the acquisition of the remaining 80.1% interest in Haas and Health Partner Public Relations and SanCom Creative Communications Solutions GmbH (“Haas and Health”), a leading healthcare public relations firm in Germany, for approximately EUR 5.3 million (approximately $7.0 million at the date of the acquisition), which is part of our Commercial segment. The purchase price was funded by available cash on hand. In December 2008, we acquired a 19.9% interest in Haas and Health.

PharmaNet Acquisition

On July 13, 2011, we completed the acquisition of PharmaNet for approximately $594.3 million in cash. We purchased PharmaNet to enhance our clinical service offerings. The purchase price was funded with $245 million of incremental borrowings under our term loan facility, an additional $390 million of outstanding 10% senior notes due 2018 and cash received from investors of $50 million. The purchase price exceeded the fair value of the acquired net assets resulting in $394.3 million of goodwill, which is not tax deductible. Acquisition-related costs for PharmaNet were approximately $9.8 million, which were recorded in SG&A expenses in the consolidated statements of operations for the year ended December 31, 2011.

i3 Global Acquisition

On June 10, 2011, we completed the acquisition of i3 Global from UnitedHealth Group (“UHG”) for approximately $375.9 million in cash. The purchase price was funded with $210 million of incremental borrowings under our term loan facility, an additional $160 million of 10% senior notes due 2018, and cash received from investors of $25 million. The purchase price exceeded the fair value of the acquired net assets resulting in $186.5 million of goodwill, which is not tax deductible, however, we will benefit from approximately $30 million of historical tax basis goodwill that carried over. Acquisition-related costs for i3 Global were approximately $6.5 million, which were recorded in SG&A expenses in the consolidated statements of operations for the year ended December 31, 2011.

On July 12, 2011 and in connection with the i3 Global acquisition, we completed the acquisition of certain assets of a subsidiary of UHG located in India for approximately $6.1 million in cash. The purchase price exceeded the fair value of the acquired net assets resulting in $4.4 million of goodwill, which is tax deductible.

The purchase price of i3 Global was subject to post-closing adjustment based on the final determination of certain EBITDA and working capital calculations. On May 6, 2013, we and United Health Group finalized the purchase price, which resulted in a $14.2 million payment to us.

Campbell Acquisition

On February 11, 2011, we completed the acquisition of Campbell for approximately $122.2 million, consisting of cash consideration of $113.3 million and rollover equity of $8.9 million. The acquisition of Campbell enhanced our ability to offer consulting services to pharmaceutical clients with products in various stages of product development. The purchase price was funded with $105 million of incremental borrowings under our term loan facility, as well as cash on hand. The purchase price exceeded the fair value of the acquired net assets resulting in $78.3 million of goodwill, which is not tax deductible. Acquisition-related costs for Campbell were approximately $4.2 million for the year ended December 31, 2011 and are recorded in SG&A expenses in the consolidated statements of operations.

 

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During the first quarter of 2012, we finalized the purchase price allocation for Campbell, which included the settlement of the income tax refund from certain transaction related expenses incurred by Campbell, as well as the portion of the refund due to the Sellers pursuant to the Campbell Purchase Agreement. The amount due to the Sellers of approximately $4.8 million was paid in the first quarter of 2012.

In connection with the acquisition of Campbell, Group Holdings issued unsecured contingent installment notes (the “Campbell Notes”) to certain members of Campbell management (the “Holders”) in which approximately $13.0 million of pre-acquisition equity in Campbell was “rolled over” into the Campbell Notes. We account for the Campbell Notes as contingent consideration in which changes in fair value subsequent to the initial measurement are recorded in the consolidated statements of operations. The fair value is determined based upon significant inputs not observable in the market, including the fair value of the Campbell subsidiary and our best estimate as to the probable timing of settlement. The fair value of the Campbell Notes was $5.6 million and $5.9 million as of December 31, 2013 and 2012, respectively, and is included in other non-current liabilities in the consolidated balance sheets.

In March 2014, Group Holdings and the Holders agreed to an early termination of the Campbell Notes. In consideration of the termination of the Campbell Notes, Group Holdings agreed to pay the Holders a total of $5.25 million. Of this amount, $1.5 million was paid in March 2014 and $1.75 million and $2.0 million is payable in January 2015 and January 2016, respectively. If Group Holdings fails to pay either the January 2015 or January 2016 installments on a timely basis, interest will accrue on the outstanding amount at the rate of 12% per annum. In the event such amount remains past due for a period of twelve (12) months, all installment payments outstanding, and any interest accrued thereon, shall become immediately due and payable.

Acquisition Integration

We have undertaken certain activities to integrate our acquisitions that we believe will result in cost savings or synergies over the medium term from combining the businesses. These synergies include elimination of redundant facilities, functions and employees, use of our existing infrastructure to expand revenue of the acquired businesses’ service offerings and use of the commercial infrastructure of the acquired businesses to cost effectively expand revenue of our service offerings. These integration activities involve risks, particularly in the early stages, and expected savings and synergies may not occur immediately following the transaction, or at all.

As a result of the manner in which we financed these acquisitions, we have a substantial amount of indebtedness. Our substantial indebtedness and the terms thereof, including covenants and other operating restrictions, combined with our other financial obligations, contractual commitments and near-term trends affecting our business, could have important consequences for holders of our outstanding notes.

The risks related to the integration of our recent acquisitions and the additional leverage we have incurred in connection therewith include those outlined under “Cautionary Statement Regarding Forward-Looking Disclosure” and “Risk Factors” contained elsewhere in this Prospectus

Discontinued Operations

In 2012, we adopted a plan to sell our medical management and sample management businesses, which were small non-core businesses within the Commercial segment. On April 2, 2013, we completed the sale of our sample management business. The Company abandoned its medical management business in the second quarter of 2014.

The results of this business have been classified and presented as discontinued operations in the accompanying consolidated financial statements. The assets and liabilities associated with these businesses are presented in our consolidated balance sheets as assets and liabilities held for sale. The results of operations of these businesses are included in net loss from discontinued operations in the consolidated statements of

 

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operations for all periods presented. The cash flows of these businesses are also presented separately in our consolidated statements of cash flows. We recognized losses, net of tax, of $20.2 million, $10.5 million and $33.5 million, associated with these businesses for the years ended December 31, 2013, 2012 and 2011, respectively.

The pre-tax loss from discontinued operations include non-cash impairment charges of $12.8 million and $37.3 million for the years ended December 31, 2013 and 2011, respectively. There were no such charges for the year ended December 31, 2012. The 2013 charge consists entirely of impairment of long-lived assets. The 2011 charge consisted of $30.6 million relating to the impairment of goodwill and $6.7 million relating to the impairment of long-lived assets.

Business Segments

We are organized into three business segments: Clinical, Commercial and Consulting. Each business segment is comprised of multiple businesses that are also referred to as “business units,” that when combined establish us as a fully integrated biopharmaceutical services provider.

 

    Clinical. inVentiv Health Clinical is a top-tier global CRO. Our comprehensive offerings include Phase I through Phase IV clinical trial support, functional outsourcing, recruiting and staffing services to assist clients in the clinical development of pharmaceutical, biotechnology, medical device and diagnostic products. The scale of our Clinical segment allows us to customize our services to projects of any size, from small, early-phase studies to complex, multinational late-stage trials.

 

    Commercial. inVentiv Health Commercial is a premier provider of comprehensive sales and marketing programs to the pharmaceutical, biotechnology and healthcare industries. Our selling solution services include outsourced sales teams, support services and non-personal engagement solutions to help our clients accelerate the commercialization of their products. Our communications services include a broad array of advertising and public relations commercialization services. Our patient outcomes services include patient compliance, analytics, patient support programs and patient education.

 

    Consulting. inVentiv Health Consulting provides management consulting services to the pharmaceutical and biotechnology industries. Our Consulting segment’s expertise extends across a broad range of functions and disciplines, which is critical for strategic, cross-functional initiatives, including brand management, clinical development, commercial effectiveness, corporate development, medical affairs, pricing and market access, education and training, and market research and analytics.

We believe discussing the results of our three business segments provides the most relevant insight into the manner in which we operate our business. Accordingly, for purposes of our discussion and analysis, we have provided commentary for the results of our three business segments.

Material Trends Affecting our Business

Our business is related significantly to the clinical development and commercialization efforts of pharmaceutical and biotechnology companies and the degree to which these companies outsource services that have traditionally been performed internally. Increased competition among pharmaceutical and biotechnology companies as a result of patent expirations, market acceptance of generic drugs and efforts by governmental agencies and privately managed care organizations to reduce healthcare costs have also added to pricing pressures.

We aggressively pursue opportunities to enhance our business and market share with clients who seek the efficiencies and cost savings that can be attained by consolidating their outsourcing programs with a smaller number of larger high quality providers. We believe the pressures on our clients to reduce costs are likely to drive

 

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decisions to outsource a greater scope of commercialization and clinical development services, thereby increasing the overall size of the markets in which we operate. We believe that this business model will continue and be adopted by many companies, from early development stage companies to large well-established growth companies.

Pharmaceutical industry consolidation is likely to impact providers of outsourced clinical and commercialization services. However, the total number of clients and functional areas we cover has expanded substantially in recent years. Our engagements with our larger clients are typically dispersed across different functional areas of the client organization, and serviced across all three of our business segments. These services are subject to review by different decision makers within client organizations.

For the past several years, a significant component of our growth strategy has been the addition of business units through acquisitions. We have and will continue to seek to address the need to offer additional services through acquisitions of other companies. We believe these acquisitions will result in cost savings and synergies, however, we may experience difficulties in completing the integration processes as well as delays in the expected benefits in the short term, as a significant portion of the integration effort is concentrated in the periods leading up to and immediately following the acquisitions. The impact of the delays could exceed the benefits of cost savings and synergies in the short term.

Across all segments of the business, our engagements are typically comprised of numerous projects. The timing of project starts and completions are subject to various factors. Certain parts of our Clinical segment, the Phase II-IV business, have been and may continue to be negatively impacted by project delays. In addition, project start delays and wind downs, including downsizings and conversions of sales teams, have impacted our selling solutions and communications businesses, which are part of our Commercial segment. We have and will continue to take steps to enhance our new business development efforts and reduce operating expenses through cost savings to help mitigate the impact of lower than anticipated revenue levels. These steps may not necessarily be sufficient to offset the impact on our financial results of any revenue shortfall in near term quarterly periods and additional steps may be required.

Certain statements made by the Office of Civil Rights (“OCR”) of the U.S. Department of Health and Human Services (“HHS”) in connection with the announcement of the final amendments to the HIPAA Privacy Rule to implement the provisions of the HITECH Act (the “Final Rule”), which affected parties were required to comply with by September 23, 2013, may have caused uncertainty regarding whether certain prescription refill reminders issued under patient adherence programs, such as those we administer as part of our patient outcomes business, continue to qualify for exemption from the HIPAA Privacy Rule’s patient authorization requirements. On September 19, 2013, HHS issued guidance concerning the scope of the Final Rule as it pertains to refill reminders that addressed this uncertainty.

Results of Operations

Three Months Ended March 31, 2014 versus Three Months Ended March 31, 2013

Net revenues

 

     For the Three Months Ended March 31,     Change  
(in millions, except percentages)    2014     % of Total     2013     % of Total     $     %  

Net revenues:

            

Clinical

   $ 214.0        50.3   $ 213.6        52.1   $ 0.4        0.2

Commercial

     193.4        45.5     179.4        43.7     14.0        7.8

Consulting

     17.7        4.2     17.1        4.2     0.6        3.5

Inter-segment eliminations

     (3.3     —          (1.3     —          (2.0     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net revenues

  
$ 421.8   
 
  100.0
 
$ 408.8   
 
  100.0
 
$ 13.0   
 
  3.2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Net revenues increased by approximately $13.0 million to $421.8 million for the three months ended March 31, 2014, an increase of 3.2% from $408.8 million for the three months ended March 31, 2013, primarily due to an increase in net revenues in our Commercial segment. Approximately $13.5 million of the increase in net revenues in our Commercial segment was attributable to the first quarter 2014 net revenues of Catalina Health, which we acquired on October 25, 2013. Fluctuations of the U.S. Dollar exchange rate did not have a material impact on the consolidated net revenues.

Clinical net revenues were $214.0 million for the three months ended March 31, 2014 as compared to $213.6 million for the three months ended March 31, 2013. This is primarily attributed to increases in Phase II-IV and Strategic Resourcing Group, partially offset by a decrease in our Early Stage business from lower sample volume.

Commercial net revenues increased by approximately $14.0 million, or 7.8%, to $193.4 million for the three months ended March 31, 2014, from $179.4 million for the three months ended March 31, 2013. Approximately $13.5 million of the increase in net revenues in our Commercial segment was attributable to the first quarter 2014 net revenues of Catalina Health, which we acquired on October 25, 2013. Excluding the impact of our Catalina Health acquisition, net revenues for our Commercial segment increased approximately $0.5 million. The relatively flat results reflect an increase in our sales teams business from new project wins and international growth, an increase in our communications business, partially offset by a decrease in our patient outcomes business.

Consulting net revenues increased by approximately $0.6 million, or 3.5%, to $17.7 million for the three months ended March 31, 2014 from $17.1 million for the three months ended March 31, 2013.

Cost of revenues

 

     For the Three Months Ended March 31,     Change       Gross Margin    
(in millions, except percentages)    2014     % of Net
Revenues
    2013     % of Net
Revenues
    $     %     2014     2013  

Cost of revenues:

                

Clinical

   $ 138.3        64.6   $ 136.9        64.1   $ 1.4        1.0     35.4     35.9

Commercial

     128.9        66.6     115.1        64.2     13.8        12.0     33.4     35.8

Consulting

     10.1        57.1     10.3        60.2     (0.2     (1.9 %)      42.9     39.8

Inter-segment eliminations

     (3.0     —          (1.4     —          (1.6     —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of revenues

  
$ 274.3   
 
  65.0
 
$ 260.9   
 
  63.8
 
$ 13.4   
 
  5.1
 
  35.0
 
  36.2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of revenues increased $13.4 million, or 5.1%, to $274.3 million for the three months ended March 31, 2013 from $260.9 million in 2013, primarily due to increases in our Clinical and Commercial segments. Approximately $9.0 million of the increase in cost of revenues in our Commercial segment was attributable to the first quarter 2014 cost of revenues of Catalina Health, which we acquired on October 25, 2013. Our cost of revenues consists of payroll-related costs of client-serving personnel and internal support staff, third-party service providers and direct materials. Gross margin decreased to 35.0% for the three months ended March 31, 2014 compared to 36.2% in 2013.

Clinical cost of revenues increased $1.4 million, or 1.0%, to $138.3 million for the three months ended March 31, 2014 from $136.9 million for the three months ended March 31, 2013. Gross margin was relatively flat at 35.4% compared to 35.9% for the three months ended March 31, 2013.

Commercial cost of revenues increased $13.8 million, or 12.0%, to $128.9 million for the three months ended March 31, 2014 from $115.1 million for the three months ended March 31, 2013. Approximately $9.0 million of the increase in cost of revenues in our Commercial segment was attributable to the first quarter 2014

 

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cost of revenues of Catalina Health, which we acquired on October 25, 2013. Excluding the impact of our Catalina Health acquisition, cost of revenues for our Commercial segment increased $4.8 million, which is primarily due to increased revenues from our sales team business, partially offset by lower revenues from our patient outcomes business. Gross margin decreased to 33.4% for the three months ended March 31, 2014 compared to 35.8% for the three months ended March 31, 2013, due primarily to fees received in 2013 related to sales team conversions.

Consulting cost of revenues decreased $0.2 million, or 1.9%, to $10.1 million for the three months ended March 31, 2014 from $10.3 million for the three months ended March 31, 2013. Gross margin increased to 42.9% for the three months ended March 31, 2014 compared to 39.8% for the three months ended March 31, 2013, due to the positive impact from our prior cost saving actions.

Selling, General and Administrative (SG&A)

 

     For the Three Months Ended March 31,     Change  
(in millions, except percentages)    2014      % of Net
Revenues
    2013      % of Net
Revenues
    $     %  

SG&A:

              

Clinical

   $ 71.6         33.5   $ 71.0         33.2   $ 0.6        0.8

Commercial

     53.1         27.5     50.6         28.2     2.5        4.9

Consulting

     6.3         35.6     8.2         48.0     (1.9     (23.2 %) 

Corporate and other

     8.1         1.9     14.8         3.6     (6.7     (45.3 %) 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total SG&A

  
$ 139.1   
  
  33.0
 
$ 144.6   
  
  35.4
 
$ (5.5
 
  (3.8 %) 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

SG&A expenses decreased $5.5 million, or 3.8%, to $139.1 million for the three months ended March 31, 2014 from $144.6 million for the three months ended March 31, 2013, due to decreases in our Consulting segment and Corporate and other SG&A expenses, offset partially by an increases in SG&A in our Clinical and Commercial segments. Included in SG&A in our Commercial segment was $4.3 million related to the first quarter 2014 SG&A of Catalina Health, which we acquired on October 25, 2013.

Clinical SG&A expense increased $0.6 million, or 0.8%, to $71.6 million for the three months ended March 31, 2014 from $71.0 million for the three months ended March 31, 2013. The slight increase reflects $3.5 million of facility consolidation costs, partially offset by savings from facility optimization, lower severance and other cost saving actions.

Commercial SG&A expense increased $2.5 million, or 4.9%, to $53.1 million for the three months ended March 31, 2014 from $50.6 million for the three months ended March 31, 2013. Approximately $4.3 million of the increase in SG&A in our Commercial segment was attributable to first quarter 2014 SG&A of Catalina Health, which we acquired on October 25, 2013. Excluding the impact of our Catalina Health acquisition, SG&A for our Commercial segment decreased $1.8 million, which was due primarily to savings from facility optimization and less depreciation and amortization.

Consulting SG&A expense decreased $1.9 million, or 23.2%, to $6.3 million for the three months ended March 31, 2014 from $8.2 million for the three months ended March 31, 2013. The decrease is primarily the result of lower compensation costs from our prior cost saving actions.

Corporate and other SG&A expense decreased $6.7 million, or 45.3%, to $8.1 million for the three months ended March 31, 2014 from $14.8 million for the three months ended March 31, 2013. The decrease is primarily the result of lower compensation related costs and professional service fees from our prior cost savings actions.

 

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Interest Expense, Net

 

    For the Three Months Ended March 31,  
(in millions)       2014              2013      

Interest expense, net

  $  52.5       $  51.4   

Interest expense, net increased $1.1 million to $52.5 million for the three months ended March 31, 2014 from $51.4 million for the three months ended March 31, 2013. The higher interest expense primarily reflects a higher average debt balance for the three months ended March 31, 2014 compared to the three months ended March 31, 2013. Interest expense includes non-cash debt issuance costs and bond discount/premium amortization of $4.5 million and $4.1 million, for the three months ended March 31, 2014 and 2013, respectively, and penalty interest on the Senior Notes of $2.1 million and $1.8 million, for the three months ended March 31, 2014 and 2013, respectively.

(Provision) Benefit for Income Taxes

 

     For the Three Months Ended March 31,  
(in millions except percentages)    2014     Effective
Tax Rate
    2013     Effective
Tax Rate
 

(Provision) benefit for income taxes

   $ (1.9     (4.4 %)    $ (6.4     (13.4 %) 

We account for income taxes at each interim period using our estimated annual effective tax rate. Discrete items and changes in the estimate of the annual effective tax rate are recorded in the period they occur. The consolidated effective tax rate was approximately (4.4%) and (13.4%) for the three months ended March 31, 2014 and 2013, respectively. The income tax provision for the three months ended March 31, 2014 and 2013 reflects the impact on the estimated tax rate of an increase to the valuation allowance, taxable temporary differences from amortization of goodwill and the geographic mix of profits, which will result in foreign and state income tax expense.

We provide for a valuation allowance to reduce deferred tax assets to their estimated realizable value if, based on the weight of all available evidence, it is not more likely than not that a portion or all of the deferred tax assets will be realized. We do not expect to record significant tax benefits on future domestic net operating losses until circumstances justify the recognition of such benefits.

As a result of the domestic valuation allowance, taxable temporary differences from the amortization of goodwill are expected to result in $7.2 million of income tax expense for 2014, and are reflected in our estimated domestic annual effective tax rate. Goodwill is amortized for income tax purposes, but not for financial statement reporting purposes. This difference results in net deferred income tax expense since the taxable temporary difference cannot be scheduled to reverse during the loss carryforward period. We will record tax expense related to the amortization of our tax deductible goodwill during those future periods for which we maintain domestic valuation allowances, or until our estimated unamortized balance of $160.9 million at December 31, 2014 is fully amortized for tax purposes.

Year Ended December 31, 2013 versus Year Ended December 31, 2012

Net Revenues

 

     For the Year Ended December 31,     Change  
(in millions, except percentages)    2013(1)     % of Total     2012(2)     % of Total     $     %  

Net revenues

            

Clinical

   $ 861.7       52.2   $ 835.7        48.5   $ 26.0        3.1

Commercial

     717.9        43.5     809.1        46.9     (91.2     (11.3 %) 

Consulting

     70.6        4.3     79.8        4.6     (9.2     (11.5 %) 

Inter-segment eliminations

     (5.6     —          (8.9     —          3.3        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net revenues

  
$ 1,644.6  
 
  100.0
 
$ 1,715.7  
 
  100.0
 
$ (71.1
 
  (4.1 %) 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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(1) During 2013, we completed the acquisition of Catalina Health, which is reported in our Commercial segment.
(2) During 2012, we completed the acquisition of SDI Health, Kforce Clinical and Kazaam, which are reported in our Consulting, Clinical and Commercial segments, respectively. The SDI Health and Kazaam acquisitions are not material.

Net revenues decreased by approximately $71.1 million to $1,644.6 million during 2013, a decrease of 4.1% from $1,715.7 million during 2012, due to decreases in net revenues in our Commercial and Consulting segments, offset partially by an increase in net revenue in our Clinical segment. Approximately $11.7 million of the increase in net revenues in our Clinical segment was attributable to the first quarter 2013 net revenues of Kforce Clinical, which we acquired on March 30, 2012. The decrease in net revenues in our Commercial segment was partially offset by net revenues of $11.3 million related to Catalina Health, which we acquired on October 25, 2013. Approximately $15.6 million of the decrease in net revenues was as a result of the unfavorable impact of the strengthening in the exchange rate of the U.S. Dollar against most major foreign currencies period-over-period.

Clinical net revenues increased by approximately $26.0 million, or 3.1%, to $861.7 million during 2013 from $835.7 million in 2012. Approximately $11.7 million of the increase in net revenues in our Clinical segment was attributable to the first quarter 2013 net revenues of Kforce Clinical, which we acquired on March 30, 2012. Excluding the impact of our Kforce Clinical acquisition, net revenues for our Clinical segment increased approximately $14.3 million. The increase in net revenues is primarily due to higher study activity in our Phase II–IV business, partially offset by a $53.4 million impact from the anticipated wind down of a large staffing project in our Strategic Resourcing business and $4.3 million from unfavorable foreign currency impacts.

Commercial net revenues decreased by approximately $91.2 million, or 11.3%, to $717.9 million in 2013 from $809.1 million in 2012. The decrease in net revenues was partially offset by net revenues of $11.3 million from Catalina Health, which we acquired on October 25, 2013. Excluding the impact of the Catalina Health acquisition, net revenues for the Commercial segment decreased approximately $102.5 million. Our sales teams business was negatively impacted by $80.7 million due to unanticipated customer downsizing and conversion to in-sourcing of certain sales teams in the first half of 2013 and foreign currency, partially offset by new wins. Additionally, our communications business was negatively impacted by $22.1 million due primarily to project cancellations.

Consulting net revenues decreased by approximately $9.2 million, or 11.5%, to $70.6 million in 2013 from $79.8 million in 2012. The lower net revenues are partially the result of higher turnover in certain business development positions.

Cost of Revenues

 

     For the Year Ended December 31,     Change       Gross Margin    
(in millions, except percentages)    2013(1)     % of Net
Revenues
    2012(2)     % of Net
Revenues
    $     %     2013     2012  

Cost of revenues:

                

Clinical

   $ 557.6        64.7   $ 532.8        63.8   $ 24.8        4.7     35.3     36.2

Commercial

     462.6        64.4     507.8        62.8     (45.2     (8.9 %)      35.6     37.2

Consulting

     40.8        57.8     39.8        49.9     1.0        2.5     42.2     50.1

Inter-segment eliminations

     (4.9     —          (7.2     —          2.3        —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of revenues

  
$ 1,056.1   
 
  64.2
 
$ 1,073.2   
 
  62.6
 
$ (17.1
 
  (1.6 %) 
 
  35.8
 
  37.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) During 2013, we completed the acquisition of Catalina Health, which is reported in our Commercial segment.

 

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(2) During 2012, we completed the acquisition of SDI Health, Kforce Clinical and Kazaam Interactive, which are reported in our Consulting, Clinical and Commercial segments, respectively. The SDI Health and Kazaam Interactive acquisitions are not material.

Cost of revenues decreased $17.1 million, or 1.6%, to $1,056.1 million in 2013 from $1,073.2 million in 2012, due primarily to decreases in cost of revenues in our Commercial segment, offset partially by an increase in cost of revenues in our Clinical segment. Approximately $9.5 million of the increase in cost of revenues in our Clinical segment was attributable to the first quarter 2013 cost of revenues of Kforce Clinical, which we acquired on March 30, 2012. The cost of revenues decrease in our Commercial segment was partially offset by cost of revenues of $7.2 million related to Catalina Health, which we acquired on October 25, 2013. Our cost of revenues consists of payroll-related costs of client-serving personnel and internal support staff, third-party service providers and direct materials. Gross margin decreased to 35.8% in 2013 compared to 37.4% in 2012.

Clinical cost of revenues increased $24.8 million, or 4.7%, to $557.6 million in 2013 from $532.8 million in 2012. Approximately $9.5 million of the increase in cost of revenues in our Clinical segment was attributable to the first quarter 2013 cost of revenues of Kforce Clinical, which we acquired on March 30, 2012. Excluding the impact of the Kforce Clinical acquisition, cost of revenues for our Clinical segment increased approximately $15.3 million. The increase in cost of revenues is primarily due to higher compensation costs, as well as a slight increase in study activity costs after considering the $38.9 million impact from the anticipated wind down of a large staffing project in our Strategic Resourcing business. Gross margin decreased to 35.3% compared to 36.2% in 2012.

Commercial cost of revenues decreased $45.2 million, or 8.9%, to $462.6 million in 2013 from $507.8 million in 2012. The decrease in cost of revenues was partially offset by cost of revenues of $7.2 million related to Catalina Health, which we acquired on October 25, 2013. Excluding the impact of the Catalina Health acquisition, cost of revenues for the Commercial segment decreased $52.4 million. The decrease in cost of revenues is due to the impact of the lower revenue from our sales teams business and cost saving actions that we previously implemented. Gross margin decreased to 35.6% in 2013 compared to 37.2% in 2012.

Consulting cost of revenues increased $1.0 million, or 2.5%, to $40.8 million in 2013 from $39.8 million in 2012. Gross margin decreased to 42.2% in 2013 compared to 50.1% in 2012, as the decrease in revenue more than offset the benefits from our prior cost saving actions.

Selling, General and Administrative (SG&A)

 

     For the Year Ended December 31,     Change  
(in millions, except percentages)    2013(1)      % of Net
Revenues
    2012(2)      % of Net
Revenues
    $     %  

SG&A:

              

Clinical

   $ 279.7         32.5   $ 300.2         35.9   $ (20.5     (6.8 %) 

Commercial

     205.9         28.7     198.0         24.5     7.9        4.0

Consulting

     28.5         40.4     39.7         49.7     (11.2     (28.2 %) 

Corporate and other

     52.9         3.2     56.4         3.3     (3.5     (6.2 %) 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total SG&A

  
$ 567.0   
  
  34.5
 
$ 594.3   
  
  34.6
 
$ (27.3
 
  (4.6 %) 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

(1) During 2013, we completed the acquisition of Catalina Health, which is reported in our Commercial segment.
(2) During 2012, we completed the acquisition of SDI Health, Kforce Clinical and Kazaam Interactive, which are reported in our Consulting, Clinical and Commercial segments, respectively. The SDI Health and Kazaam Interactive acquisitions are not material.

 

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SG&A expenses decreased $27.3 million, or 4.6%, to $567.0 million in 2013 from $594.3 million in 2012, due to decreases in SG&A for the period in our Clinical and Consulting segments and Corporate and other SG&A expenses, offset partially by an increase in SG&A in our Commercial segment.

Clinical SG&A expense decreased $20.5 million, or 6.8%, to $279.7 million in 2013 from $300.2 million in 2012. The decrease in SG&A in our Clinical segment is offset by approximately $3.5 million attributable to the first quarter 2013 SG&A of Kforce Clinical, which we acquired on March 30, 2012. Excluding the impact of our Kforce Clinical acquisition, SG&A for our Clinical segment decreased approximately $24.0 million primarily as a result of savings from facility optimization, lower compensation and severance costs and less depreciation and amortization on a lower asset base. Non-cash amortization expense related to finite-lived intangible assets was $46.3 million in 2013 compared to $47.6 million in 2012.

Commercial SG&A expense increased $7.9 million, or 4.0%, to $205.9 million in 2013 from $198.0 million in 2012. Approximately $3.4 million of the increase in SG&A in our Commercial segment was attributable to the SG&A of Catalina Health, which we acquired on October 25, 2013. Excluding the impact of our Catalina Health acquisition, SG&A for our Commercial segment increased $4.5 million, which was due primarily to facility consolidation costs of $4.0 million and enhancements to our call center capabilities. Non-cash amortization expense related to finite-lived intangible assets was $19.3 million in 2013 compared to $22.6 million in 2012.

Consulting SG&A expense decreased $11.2 million, or 28.2%, to $28.5 million in 2013 from $39.7 million in 2012. The decrease is primarily the result of lower compensation costs from our prior cost saving actions. Non-cash amortization expense related to finite-lived intangible assets was $6.6 million in 2013 compared to $6.9 million in 2012.

Corporate and other SG&A expense decreased $3.5 million, or 6.2%, to $52.9 million in 2013 from $56.4 million in 2012. The decrease is primarily the result of lower acquisition and integration costs and benefits from our prior cost saving actions, partially offset by higher compensation costs.

Impairment

 

     For the Year Ended December 31,  
(in millions)        2013              2012      

Impairment

   $ 38.9       $ 411.4   

In the fourth quarter of 2013 and 2012, we performed our annual goodwill and indefinite-lived intangible asset impairment assessment. We concluded that the fair value of certain of our reporting units was less than the carrying value and recorded a goodwill and long-lived asset impairment charge of $36.9 million and $2.0 million, respectively, in 2013. We recorded a goodwill and long-lived asset impairment charge of $361.6 million and $49.8 million, respectively, in 2012. See Notes 5 and 6 to our consolidated financial statements for the year ended December 31, 2013 for additional information.

These non-cash impairment charges do not impact our liquidity, compliance with any covenants under our debt agreements or potential future results of operations. The impairment analysis requires significant judgments, estimates and assumptions. There is no assurance that the actual future earnings or cash flows of the reporting units will not decline significantly from the projections for those reporting units. Goodwill impairment charges may be recognized in future periods in one or more of the reporting units to the extent changes in factors or circumstances occur, including deterioration in the macroeconomic environment, industry, deterioration in our performance or our future projections, or changes in our plans for one or more reporting units.

 

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Debt Extinguishment

 

     For the Year Ended December 31,  
(in millions)        2013              2012      

Loss on extinguishment of debt

   $ 0.8       $ 18.6   

For the year ended December 31, 2013, we recognized a loss on extinguishment of debt of $0.8 million in connection with the execution of the ABL Facility. For the year ended December 31, 2012, we recognized a loss on extinguishment of debt of $18.6 million in connection with the issuance of the Senior Secured Notes and the partial repayment of the Senior Secured Credit Facilities term loans. See Note 9 to our consolidated financial statements for the year ended December 31, 2013 for additional information.

Interest Expense, Net

 

     For the Year Ended December 31,  
(in millions)        2013              2012      

Interest expense, net

   $ 209.2       $ 185.5   

Interest expense, net increased by $23.7 million to $209.2 million in 2013 from $185.5 million in 2012. The higher interest expense reflects both a higher average debt balance and higher average interest rates for 2013 compared to 2012. Interest expense for December 31, 2013 and 2012 includes non-cash debt issuance costs and bond discount amortization of $18.6 million and $19.3 million, respectively, and penalty interest on the Senior Notes of $8.0 million and $5.0 million, respectively.

(Provision) Benefit for Income Taxes

 

     For the Year Ended December 31,  
(in millions except percentages)    2013     Effective
Tax Rate
    2012      Effective
Tax Rate
 

(Provision) benefit for income taxes

   $ (3.0     (1.4 %)    $ 0.4         —  

The 2013 effective tax rate was (1.4%). Included in this rate is a $77.1 million net increase to the valuation allowance, $8.1 million of non-deductible impairments of goodwill and $6.7 million of taxable temporary differences from amortization of indefinite-lived intangible assets and goodwill. We will record tax expense related to the amortization of our tax deductible goodwill during those future periods for which we maintain a domestic valuation allowance or until our unamortized balance of $179.9 million at December 31, 2013 is fully amortized for tax purposes.

The 2012 effective tax rate was 0%. Included in this rate is a $111.5 million net increase to the valuation allowance, $100.8 million of non-deductible impairments of goodwill and $5.6 million of taxable temporary differences from amortization of indefinite-lived intangible assets and goodwill.

Year Ended December 31, 2012 versus Year Ended December 31, 2011

Net Revenues

 

     For the Year Ended December 31,     Change  
(in millions, except percentages)    2012(1)     % of
Total
    2011     % of
Total
    $     %  

Net revenues

            

Clinical

   $ 835.7       48.5   $ 515.2       36.2 %   $ 320.5       62.2

Commercial

     809.1        46.9     836.8        58.8     (27.7     (3.3 %) 

Consulting

     79.8        4.6     71.0        5.0     8.8        12.4

Inter-segment eliminations

     (8.9     —          (9.0     —          0.1        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net revenues

  
$ 1,715.7  
 
  100.0
 
$ 1,414.0  
 
  100.0
 
$ 301.7  
 
  21.3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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(1) During 2012, we completed the acquisition of SDI Health, Kforce Clinical and Kazaam Interactive. The SDI Health and Kazaam acquisitions are not material.

Net revenues increased by approximately $301.7 million to $1,715.7 million during 2012, an increase of 21.3% from $1,414.0 million during 2011. The increase reflects the full year impact in 2012 of our 2011 i3 Global and PharmaNet acquisitions along with the first quarter 2012 acquisition of Kforce Clinical, which generated $62.9 million of net revenue for the year ended December 31, 2012. The increase was partially offset by approximately $23.0 million, or 1.6%, due to the unfavorable impact of the strengthening in the exchange rate of the U.S. Dollar against most foreign currencies, in particular the Euro, period-over-period.

Clinical net revenues increased by approximately $320.5 million, or 62.2%, to $835.7 million during 2012 from $515.2 million in 2011. The increase reflects the full year impact in 2012 of our 2011 i3 Global and PharmaNet acquisitions, along with the first quarter 2012 acquisition of Kforce Clinical, which generated $62.9 million for the year ended December 31, 2012. Revenue from the acquisitions was partially offset by unfavorable foreign exchange movements. Our 2011 i3 Global and PharmaNet acquisitions have been fully integrated and are reported within our Clinical segment. Certain parts of our Clinical segment, the Phase II-IV business, were negatively impacted as a result of project timing. We accelerated and expanded synergy and cost savings activities in the fourth quarter of 2011 and the first quarter of 2012 to help mitigate the lower than anticipated revenue levels.

Commercial net revenues decreased by approximately $27.7 million, or 3.3%, to $809.1 million in 2012 from $836.8 million in 2011. The decrease reflects a continued decline in our patient outcomes and European communications businesses, which were negatively impacted by project delays and losses, partially offset by continued growth in Asia.

Consulting net revenues increased by approximately $8.8 million, or 12.4%, to $79.8 million in 2012 from $71.0 million in 2011 due primarily to the acquisition of SDI Health in the first quarter of 2012 as well as the full year impact of our February 2011 Campbell acquisition.

Cost of Revenues

 

     For the Year Ended December 31,     Change     Gross Margin  
(in millions, except percentages)    2012     % of Net
Revenues
    2011     % of Net
Revenues
    $     %     2012     2011  

Cost of revenues:

                

Clinical

   $ 532.8       63.8   $ 355.6       69.0   $ 177.2       49.8 %     36.2     31.0

Commercial

     507.8       62.8     528.2       63.1     (20.4     (3.9 %)      37.2     36.9

Consulting

     39.8       49.9     36.4       51.3     3.4       9.3 %     50.1     48.7

Inter-segment eliminations

     (7.2     —         (8.5     —         1.3       —         —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of revenues

  
$ 1,073.2  
 
  62.6
 
$ 911.7  
 
  64.5
 
$ 161.5  
 
  17.7 %
 
  37.4
 
  35.5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of revenues increased $161.5 million, or 17.7%, to $1,073.2 million in 2012 from $911.7 million in 2011. Our cost of revenues consists of payroll-related costs of client-serving personnel and internal support staff, third-party service providers and direct materials. The increase reflects the full year impact in 2012 of our 2011 Campbell, i3 Global and PharmaNet acquisitions along with the first quarter 2012 acquisition of Kforce Clinical, which represents $44.5 million for the year ended December 31, 2012. Gross margin of 37.4% in 2012 improved compared to 35.5% in 2011 as a result of lower compensation costs to better align capacity to demand.

Clinical cost of revenues increased $177.2 million, or 49.8%, to $532.8 million in 2012 from $355.6 million in 2011. The increase reflects the full year impact in 2012 of our 2011 i3 Global and PharmaNet acquisitions

 

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along with the first quarter 2012 acquisition of Kforce Clinical, which represents $44.5 million for the year ended December 31, 2012. Gross margin of 36.2% in 2012 improved compared to 31.0% in 2011, driven primarily by synergies as a result of our cost reduction actions and ongoing cost containment efforts. We continued to implement cost saving activities during 2012.

Commercial cost of revenues decreased $20.4 million, or 3.9%, to $507.8 million in 2012 from $528.2 million in 2011 which is in line with lower revenue. Gross margin of 37.2% in 2012 improved slightly compared to 36.9% in 2011 due to lower compensation costs.

Consulting cost of revenues increased $3.4 million, or 9.3%, to $39.8 million in 2012 from $36.4 million in 2011 due primarily to the SDI Health acquisition in the first quarter of 2012 and the full year impact in 2012 of the Campbell acquisition. Gross margin of 50.1% in 2012 improved compared to 48.7% in 2011 primarily due to lower compensation costs.

Selling, General and Administrative (SG&A)

 

     For the Year Ended December 31,     Change  
(in millions, except percentages)    2012      % of Net
Revenues
    2011      % of Net
Revenues
    $     %  

SG&A:

              

Clinical

   $ 300.2        35.9   $ 164.0         31.8   $ 136.2       83.0

Commercial

     198.0         24.5     185.3         22.1     12.7        6.9

Consulting

     39.7         49.7     35.7         50.3     4.0        11.2

Corporate and other

     56.4         3.3     96.7         6.8     (40.3     41.7
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total SG&A

  
$ 594.3  
  
  34.6
 
$ 481.7  
  
  34.1
 
$ 112.6  
 
  23.4
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

SG&A expenses increased $112.6 million, or 23.4%, to $594.3 million in 2012 from $481.7 million in 2011. The increase reflects the full year impact in 2012 of our 2011 Campbell, i3 Global and PharmaNet acquisitions along with the first quarter 2012 acquisition of Kforce Clinical, which accounts for $14.3 million of SG&A expenses and higher non-cash amortization and depreciation expense of $30.6 million.

Clinical SG&A expense increased $136.2 million, or 83.0%, to $300.2 million in 2012 from $164.0 million in 2011. The increase reflects the full year impact in 2012 of our 2011 i3 Global and PharmaNet acquisitions along with the first quarter 2012 acquisition of Kforce Clinical, which represents $14.3 million, investments in certain key leadership positions to drive operating performance improvement and higher non-cash amortization expense. Non-cash amortization expense related to finite-lived intangible assets was $47.6 million in 2012 compared to $23.7 million in 2011.

Commercial SG&A expense increased $12.7 million, or 6.9%, to $198.0 million in 2012 from $185.3 million in 2011. The increase reflects our strategic investments in personnel. Non-cash amortization expense related to finite-lived intangible assets was $22.6 million in 2012 compared to $23.8 million in 2011.

Consulting SG&A expense increased by $4.0 million, or 11.2%, to $39.7 million in 2012 from $35.7 million in 2011, due primarily to the SDI Health acquisition in the first quarter of 2012 and higher non-cash amortization expense. Non-cash amortization expense related to finite-lived intangible assets was $7.0 million in 2012 compared to $5.2 million in 2011.

Corporate and other SG&A expense decreased $40.3 million, or 41.7%, to $56.4 million in 2012 from $96.7 million in 2011. The decrease is primarily due to lower acquisition and integration expenses of $37.0 million, lower compensation costs and our cost containment efforts.

 

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Impairment

 

     For the Year Ended December 31,  
(in millions)        2012              2011      

Impairment

   $ 411.4       $ 33.7   

In the fourth quarter of 2011 and 2012, we performed our annual goodwill and indefinite-lived intangible asset impairment assessment. Across all segments of the business, our engagements are typically comprised of numerous projects. The timing of project starts and completions are subject to various factors. Certain parts of our Clinical segment, the Phase II-IV business, have been and may continue to be negatively impacted in the near term by project delays. In addition, project losses and delays have impacted our patient outcomes and communications businesses, which are part of our Commercial segment.

We concluded that the fair value of certain of our reporting units was less than the carrying value and recorded a goodwill and long-lived asset impairment charge of $361.6 million and $49.8 million, respectively, in 2012. We recorded a goodwill and long-lived asset impairment charge of $30.0 million and $3.6 million, respectively, in 2011. See Notes 6 and 7 to our consolidated financial statements for the year ended December 31, 2012 for additional information.

These non-cash impairment charges do not impact our liquidity, compliance with any covenants under our debt agreements or potential future results of operations. The impairment analysis requires significant judgments, estimates and assumptions. There is no assurance that the actual future earnings or cash flows of the reporting units will not decline significantly from the projections. Goodwill impairment charges may be recognized in future periods in one or more of the reporting units to the extent changes in factors or circumstances occur, including deterioration in the macroeconomic environment, industry, deterioration in our performance or our future projections, or changes in our plans for one or more reporting units.

Debt Extinguishment

 

     For the Year Ended December 31,  
(in millions)        2012              2011      

Loss on extinguishment of debt

   $ 18.6       $ 2.7   

For the year ended December 31, 2012, we recognized a loss on extinguishment of debt of $18.6 million in connection with the issuance of the Senior Secured Notes and the partial repayment of the Senior Secured Credit Facilities term loans. For the year ended December 31, 2011, we recognized a loss on extinguishment of debt of $2.7 million in connection with the Amendment No. 1 to the Senior Secured Credit Facilities. See Note 10 to our consolidated financial statements for the year ended December 31, 2012 for additional information.

Interest Expense, Net

 

     For the Year Ended December 31,  
(in millions)        2012              2011      

Interest expense, net

   $ 185.5       $ 123.5   

Interest expense, net increased by $62.0 million to $185.5 million in 2012 from $123.5 million in 2011. Interest expense increased reflecting both a higher average debt balance and higher interest rates for 2012 compared to 2011. We incurred additional interest expense related to the amortization of debt issuance costs from higher deferred debt financing cost balances of $11.9 million and $19.3 million for the years ended 2011 and 2012, respectively, and additional penalty interest expense on the Senior Notes of $1.3 million and $5.0 million for the years ended 2011 and 2012, respectively.

 

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Provision (Benefit) for Income Taxes

 

     For the Year Ended December 31,  
(in millions except percentages)    2012      Effective
Tax Rate
    2011      Effective
Tax Rate
 

Benefit for income taxes

   $ 0.4         —     $ 32.9         23.6

The 2012 effective tax rate was 0%. Included in this rate is a $111.5 million net increase to the valuation allowance, $100.8 million of non-deductible impairments of goodwill and $5.6 million of taxable temporary differences from amortization of indefinite-lived intangible assets and goodwill. We will record tax expense related to the amortization of our tax deductible goodwill during those future periods for which we maintain a domestic valuation allowance or until our unamortized balance of $220.5 million at December 31, 2012 is fully amortized for tax purposes.

The 2011 effective tax rate was 23.6%. Included in this rate were $13.5 million of net increase of valuation allowances, primarily related to foreign and state net operating losses, and $9.3 million of non-deductible impairments of goodwill, that decreased the effective rate of tax benefit.

Financial Condition, Liquidity and Capital Resources

We finance our operations, growth and business acquisitions with cash flow from operations and borrowings under our credit facilities. Investing activities primarily reflect the costs of acquisitions and capital expenditures. As of March 31, 2014, December 31, 2013, 2012 and 2011 we had unrestricted cash and cash equivalents of $66.7 million, $116.2 million, $129.4 million and $109.3 million, respectively. As of March 31, 2014, approximately $44.2 million is held by non U.S. subsidiaries and subject to their operating needs may be remitted without materially impacting future tax provisions.

Net Financial Liabilities, as shown below:

 

     As of March 31,     As of December 31,  
(in millions)    2014     2013     2012     2011  

Financial assets:

        

Cash and cash equivalents

   $ 66.7      $ 116.2      $ 129.4     $ 109.3  

Restricted cash

     2.2        2.0        2.2        1.3   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total financial assets

  
  68.9   
 
  118.2   
 
  131.6   
 
  110.6   

Financial liabilities:

  
 
 
 

Current portion of capital leases, debt and other financing arrangements

  
  13.0   
 
  10.5   
 
  11.1   
 
  18.2   

Long-term portion of Term Loan Facility

  
  576.3   
 
  576.3   
 
  576.3   
 
  1,062.5   

Senior Secured Notes

  
  625.6   
 
  625.6   
 
  600.0   
 
  —     

Senior Notes

  
  811.2   
 
  810.6   
 
  808.4   
 
  806.4   

Long-term portion of capital leases

  
  17.8   
 
  17.3   
 
  22.7   
 
  19.5   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total debt

  
  2,043.9   
 
  2,040.3   
 
  2,018.5   
 
  1,906.6   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net financial liabilities

  
$ (1,975.0
 
$ (1,922.1
 
$ (1,886.9 )
 
$ (1,796.0 )
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Liquidity and Capital Resources

 

     For the Three Months Ended
March 31,
    For the Year Ended
December 31,
 
(in millions)        2014             2013         2013     2012     2011  

Cash provided by (used in) continuing operations:

      

Operating activities

   $ (33.1   $ (23.8   $ 22.6      $ (13.1   $ 99.9   

Investing activities

     (7.6     (0.5     (24.3     (101.3     (1,095.1

Financing activities

     (5.0     (7.2     (1.3     148.2        1,058.3   

Cash Flows

For the Three Months Ended March 31, 2014 versus the Three Months Ended March 31, 2013

Cash used in continuing operations was $33.1 million for the three months ended March 31, 2014, compared to $23.8 million for the three months ended March 31, 2013. The increased use of cash was primarily due to higher debt service costs compared to the three months ended March 31, 2013 and timing of cash flows associated with certain accruals and other liabilities.

Cash used in continuing investing activities was $7.6 million for the three months ended March 31, 2014 compared to $0.5 million for the three months ended March 31, 2013. For the three months ended March 31, 2014 cash used in investing activities primarily related to our purchase of property and equipment. For the three months ended March 31, 2013, the primary use of cash related to our purchase of property and equipment, largely offset by proceeds from our fleet vehicle sales.

Cash used in financing activities was $5.0 million for the three months ended March 31, 2014, compared to $7.2 million for the three months ended March 31, 2013. Cash used for the three months ended March 31, 2014 primarily reflects payments on our capital lease obligations and partial settlement of an installment note related to our 2011 Campbell acquisition. Cash used for the three months ended March 31, 2013 relates to payments on our capital lease obligations.

For the Year December 31, 2013 versus the Year Ended December 31, 2012

Cash provided by continuing operations was $22.6 million during the year ended December 31, 2013, compared to cash used by continuing operations of $13.1 million during the year ended December 31, 2012. The increase in cash provided by continuing operations is primarily the result of improved working capital management, lower integration and acquisition costs and $14.2 million of proceeds from the i3 Global purchase price finalization, partially offset by higher debt service costs.

Cash used in continuing investing activities was $24.3 million during the year ended December 31, 2013 compared to $101.3 million during the year ended December 31, 2012. During 2013, the primary use of cash related to our purchase of property and equipment, partially offset by proceeds from our fleet vehicle sales. During 2012, the primary use of cash for investing activities related to our acquisitions of SDI Health, Kforce Clinical, and Kazaam Interactive and a $4.8 million working capital settlement related to our Campbell acquisition.

Cash used in financing activities was $1.3 million for the year ended December 31, 2013, compared to cash provided by financing activities of $148.2 million during the year ended December 31, 2012. During 2013, we received $25.6 million in proceeds from an additional Senior Secured Notes offering, which was offset primarily by capital lease repayments and debt issuance costs. For the year ended December 31, 2012, we received equity contributions from our Investors of $100.0 million including $15.0 million in connection with the Kazaam Interactive acquisition in June 2012, $35.0 million for general corporate purposes in August 2012 and $50.0 million in connection with the Senior Secured Notes offering in December 2012. During 2012, we borrowed $600.0 million to repay $488.9 million in partial satisfaction of our B1-2 and B3 term loans and $97.5 million outstanding under our Revolving Facility under the Senior Secured Credit Facilities.

 

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For the Year December 31, 2012 versus the Year Ended December 31, 2011

Cash used in operations was $13.1 million during the year ended December 31, 2012, compared with cash provided by operations of $99.9 million during the year ended December 31, 2011. This decrease was primarily the result of higher debt service costs, the payment timing of accrued payroll, accounts payable and accrued expenses partially offset by the timing of advance payments.

Cash used in investing activities was $101.3 million during the year ended December 31, 2012 compared to $1,095.1 million during the year ended December 31, 2011. During 2012, the primary use of cash related to the purchase price for our acquisitions and our property and equipment investments. During 2011, the primary use of cash related to our acquisition of Campbell for $113.3 million, i3 Global for $375.9 million and PharmaNet for $594.3 million.

Cash provided by financing activities was $148.2 million for the year ended December 31, 2012, compared to $1,058.3 million during the year ended December 31, 2011. For the year ended December 31, 2012, we received equity contributions from our Investors of $100.0 million. During 2012, we borrowed $600.0 million to repay $488.9 million in partial satisfaction of our B1-2 and B3 term loans and $97.5 million outstanding under our Revolving Facility under the Senior Secured Credit Facilities. For the year ended December 31, 2011, our financing activities are primarily related to the issuances of additional debt totaling $1,131.1 million and equity contributions from Investors of $75.1 million to fund our acquisition of Campbell, i3 Global and PharmaNet offset by the repayment of $52.4 million borrowed under our various debt agreements and debt issuance costs of $53.4 million.

Long-term Debt and Credit Facility

Senior Secured Credit Facilities

At March 31, 2014, we had $576.3 million outstanding under the Senior Secured Credit Facilities, which consists of $445.7 million outstanding under the B1-2 term loans and $130.6 million outstanding under the B3 term loans. We also had $625.0 million outstanding under the Senior Secured Notes, excluding $0.6 million of unamortized premium received on issuance, and $811.2 million outstanding under the Senior Notes, net of the $13.8 million original issuance discount that is to be accreted over the remaining term. Additionally, we had capitalized leases and other financing arrangements of $30.8 million outstanding as of March 31, 2014.

Borrowings under the Senior Secured Credit Facilities are secured by a senior lien on all of our and our domestic subsidiaries’ assets on par with the lien granted to the holders of our Senior Secured Notes and subject to a first priority lien on the current assets pledged pursuant to the ABL Facility. Amounts borrowed under the Senior Secured Credit Facilities are subject to interest at a rate per annum equal to an applicable margin plus, at our option, either (a) a base rate determined by reference to the highest of (i) the prime rate of Citibank, N.A., (ii) 2.5%, or (iii) the one month US Dollar LIBOR rate plus 1.0% or (b) a rate determined by reference to the highest of (i) the US Dollar LIBOR rate based on the term of the borrowing or (ii) 1.50%. As of March 31, 2014 and 2013, margins on Senior Secured term B1-2 loans were 6.00% for Eurodollar Rate loans and 5.00% for Base Rate loans. As of March 31, 2014 and 2013, margins on the Senior Secured term B3 loans were 6.25% for Eurodollar Rate loans and 5.25% for Base Rate loans.

Asset Based Revolving Credit Facility

On August 16, 2013, we, Citibank, N.A. and certain financial institutions entered into a credit agreement for our ABL Facility, which replaced the revolving credit facility that was previously part of the Senior Credit Facilities. Our ABL Facility contains customary covenants and restrictions on our and our subsidiaries’ activities, including but not limited to, limitations on the incurrence of additional indebtedness, liens, use of cash in certain circumstances, dividends, repurchase of capital stock, investments, loans, asset sales, distributions and acquisitions. The ABL Facility requires us to maintain a fixed-charge coverage ratio of at least 1.0 to 1.0 and

 

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requires certain cash management restrictions, in each case, if available borrowing capacity is less than the greater of 10% of the maximum amount that can be borrowed under the ABL Facility, accounting for the borrowing base at such time, and $12.0 million. The requirement to maintain a minimum fixed-charge coverage ratio was not in effect given our available borrowing capacity as of March 31, 2014. All obligations under the ABL Facility are secured by our wholly owned domestic subsidiaries (with certain agreed upon exceptions) and secured by a first priority lien on our and such domestic subsidiaries’ current assets and a second priority lien on all of our and such domestic subsidiaries’ other assets. The credit agreement governing our ABL Facility also contains events of default for breach of principal or interest payments, breach of certain representations and warranties, breach of covenants and other customary events of default. The available borrowing capacity varies monthly according to the levels of our eligible accounts receivable and unbilled receivables. As of March 31, 2014, we had approximately $13.8 million in letters of credit outstanding against the ABL Facility and we would have been able to borrow up to an additional $91.5 million without triggering the covenant described above.

Amounts borrowed under the ABL Facility are subject to interest at a rate per annum equal to an applicable margin plus, at our option, either (a) a base rate determined by reference to the highest of (i) the Federal Funds Rate plus 0.5%, (ii) the prime rate of Citibank, N.A., or (iii) the one month US Dollar LIBOR rate plus 1.0% or (b) the US Dollar LIBOR rate based on the term of the borrowing. The applicable margin percentage for asset based revolving loans is a percentage per annum and range from 1.0% to 1.5% for base rate loans or 2.0% to 2.5% for Eurodollar rate loans. The applicable margin percentages with respect to borrowings under the ABL Facility is subject to adjustments based on historical excess availability. As of March 31, 2014, the interest rate applicable to the ABL Facility was 4.25%.

We are also required to pay an unused line fee to the lenders under the ABL Facility on the committed but unutilized balance of the facility at a rate of .25% to .375% per annum, depending on utilization.

9% Senior Secured Notes due 2018

Our $625 million Senior Secured Notes (reflected as $625.6 million inclusive of original issuance premium at March 31, 2014) bear interest at a rate of 9% per annum and mature on January 15, 2018. Interest on the Senior Secured Notes is payable semi-annually on April 15 and October 15 of each year. The Senior Secured Notes are secured by a senior lien on all assets of the Company and its domestic subsidiaries on par with the lien granted pursuant to the Senior Secured Credit Facilities and subject to a first priority lien on the current assets pledged pursuant to the ABL Facility. The Senior Secured Notes are our and the guarantors’ secured senior obligations and rank equally in right of payment with all of our and the guarantors’ existing and future unsubordinated secured indebtedness and senior to any of our and the guarantors’ future subordinated indebtedness, if any. We are not obligated to file a registration statement related to the Senior Secured Notes.

10% Senior Notes due 2018

Our $825.0 million outstanding notes (reflected as $811.2 million net of original issuance discount at March 31, 2014) bear interest at a rate of 10% per annum and mature on August 15, 2018. Interest on the outstanding notes is payable semi-annually on February 15 and August 15 of each year. The outstanding notes are guaranteed, on an unsecured senior basis, by each of our domestic wholly-owned subsidiaries that guarantee the Senior Secured Credit Facilities. The outstanding notes are our and the guarantors’ unsecured senior obligations and rank equally in right of payment with all of our and the guarantors’ existing and future unsubordinated unsecured indebtedness and senior to any of our and the guarantors’ future subordinated indebtedness, if any.

We entered into registration rights agreements in connection with each of the issuances of the outstanding notes. Under the registration rights agreement with respect to the notes issued on August 4, 2010 in connection with the August 2010 Merger, we agreed to use reasonable best efforts to file a registration statement related to the exchange of such notes for exchange notes with the SEC on or prior to the 270th day after August 4, 2010, to

 

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cause such registration statement to become effective under the Securities Act on or prior to the earlier of the 90th day following such filing or the 360th day after August 4, 2010, and to consummate the exchange offer on or prior to the 30th day after effectiveness. The registration rights agreement provides that additional interest will accrue on the principal amount of the notes at a rate of 0.25% per annum during the 90-day period immediately following the first to occur of these events and will increase by 0.25% per annum at the end of each subsequent 90-day period until all such defaults are cured, but in no event will the penalty rate exceed 1.00% per annum. The registration rights agreements with respect to the additional notes issued on June 10, 2011 and July 13, 2011 contain similar requirements.

Non-Guarantor Subsidiaries

Our Senior Secured Credit Facilities, ABL Facility, Senior Secured Notes and outstanding notes are not guaranteed by certain of our subsidiaries, including all of our non-U.S. subsidiaries or non-wholly owned subsidiaries. Accordingly, claims of holders of the notes and lenders under our Senior Secured Credit Facilities will be structurally subordinated to the claims of creditors of these non-guarantor subsidiaries, including trade creditors. All obligations of our non-guarantor subsidiaries will have to be satisfied before any of the assets of such subsidiaries would be available for distribution, upon a liquidation or otherwise, to us or a guarantor of our indebtedness. For the three months ended March 31, 2014, our non-guarantor subsidiaries accounted for approximately $124.5 million, or 29.5%, of our consolidated net revenues. As of March 31, 2014, our non-guarantor subsidiaries accounted for approximately $383.1 million, or 17.3%, of our consolidated total assets.

Anticipated Cash Requirements

Our primary cash needs are for operating expenses, such as salaries and fringe benefits, hiring and recruiting, business development and facilities, business acquisitions, capital expenditures, and repayment of principal and interest on our borrowings. Our principal source of cash is from the performance of services under contracts with our clients. If we were unable to generate new contracts with existing and new clients, if the level of contract cancellations increased, or if contract delays lengthen or increase, our revenue and cash flow would be adversely affected. We expect to continue to acquire businesses to enhance our service and product offerings, expand our therapeutic expertise, and/or increase our global presence. Depending on their size, any future acquisitions may require additional external financing, and we may from time to time seek to obtain funds from public or private issuances of equity or debt securities. We may be unable to secure such financing under terms acceptable to us, as a result of our outstanding borrowings. In addition, the interest rates on our Senior Secured Credit Facilities are based on variable market indices, which are subject to a floor. As a result, the amount of interest payable on the Senior Secured Credit Facilities may increase if market interest rates increase above such floor. Interest rates on the ABL Facility are also based on variable market indices. Changes to these market indices will increase or decrease the amount of interest payable on the ABL Facility.

At March 31, 2014, we had cash and cash equivalents of $66.7 million and $91.5 million of unused availability under our ABL Facility prior to triggering of certain financial covenants and other restrictions to fund our general working capital needs. However, we cannot provide assurance that these sources of liquidity will be sufficient to fund all internal needs, investments and acquisition activities that we may wish to pursue. If we pursue significant internal growth initiatives or if we wish to acquire additional businesses in transactions that include cash payments as part of the purchase price, we may pursue additional debt or equity sources to finance such transactions and activities, depending on market conditions.

We and our subsidiaries, affiliates and significant shareholders may from time to time seek to retire or purchase our outstanding debt (including our outstanding notes) through cash purchases and/or exchanges, in open market purchases, privately negotiated transactions, by tender offer or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

 

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We believe that our current cash and equivalents, along with cash that will be provided by future operations and available credit under the Senior Secured Credit Facilities and the ABL Facility will be sufficient to fund our current operating requirements over the following twelve months.

Commitments and Contractual Obligations

A summary of our current contractual obligations and commercial commitments as of December 31, 2013 is as follows (amounts in thousands):

 

Contractual Obligations

   Total amounts
for all years
     Less than 1
year
     1-3 years      3-5 years      More than 5  

Long term debt obligations(a)

              

Principal payments

   $ 2,026.3       $ —         $ 445.7       $ 1,580.6       $ —     

Interest payments(b)

     792.8         183.1         356.5         253.2         —     

Capital lease obligations(c)

     26.8         8.9         14.8         3.1         —     

Other financing arrangements

     2.0         2.0         —           —           —     

Operating leases(d)

     279.6         50.3         81.0         58.6         89.7   

Acquisition contingent consideration accrued on the balance sheet(e)

     11.9         0.2         7.3         4.4         —     

Deferred compensation plan accrued on the balance sheet(f)

     10.6         —           —           —           10.6   

Other non-current liabilities(g)

     —           —           —           —           —     

Management Agreement with the Managers(h)

     —           —           —           —           —     

Management Agreement with Liberty Lane(i)

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total obligations

  
$ 3,150.0   
  
$ 244.5   
  
$ 905.3   
  
$ 1,899.9   
  
$ 100.3   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(a) These future commitments represent the principal and interest payments with respect to the Term Loan Facility, Senior Secured Notes and outstanding notes.
(b) Future interest payments on our variable debt are based on the effective interest rate at December 31, 2013. Future payments exclude penalty interest on the outstanding notes, which were $8.0 million in 2013.
(c) These future commitments include interest and lease administration fees of $1.0 million, which are not recorded on the consolidated balance sheets as of December 31, 2013, but will be recorded as incurred.
(d) Minimum lease payments have not been reduced by the minimum sublease payments of $13.8 million due in the future under noncancellable subleases.
(e) Represents management’s estimate of acquisition related contingent consideration if the acquired businesses achieve specified performance measurements.
(f) The deferred compensation plan (the “Plan”) liability is recorded in other non-current liabilities on the consolidated balance sheets. The obligations are payable upon retirement or termination of employment. We have established an irrevocable trust to hold assets to fund benefit obligations under the Plan, but cannot reasonably estimate the amount or timing of payments, if any, which we will make related to this liability.
(g) At December 31, 2013, we had $13.6 million of unrecognized tax benefits that we cannot reasonably estimate the amount or timing of payments, if any.
(h) On August 4, 2010, upon completion of the August 2010 Merger, we entered into a management agreement with THL Managers VI, LLC, pursuant to which THL Managers will provide us with management services. Pursuant to the THL Management Agreement, the THL Managers will receive an aggregate annual management fee in the amount per year equal to the greater of (a) $2.5 million, or (b) 1.5% of EBITDA. THL Managers may terminate the agreement at any time and the agreement will terminate automatically upon an initial public offering of common stock or a change in control. We cannot reasonably estimate the total amount of payments under the agreement given the agreement’s termination clauses and therefore have not included any amounts in the table above.
(i)

On August 4, 2010, we entered into a management agreement with Liberty Lane, subsequently amended December 5, 2012, pursuant to which Liberty Lane will provide us management services. Pursuant to the

 

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  agreement, Liberty Lane or its affiliates will receive an aggregate annual management fee in an amount per year equal to $0.8 million beginning January 1, 2013. Liberty Lane may terminate the agreement at any time and the agreement will terminate automatically upon a change in control. We cannot reasonably estimate the total amount of payments under the agreement given the agreement’s termination clauses and therefore have not included any amounts in the table above.

Quantitative and Qualitative Disclosures About Market Risk

Long-Term Debt Exposure

We will incur variable interest expense with respect to the loans under our Senior Secured Credit Facilities and outstanding borrowings under our ABL Facility. Based on our variable rate debt outstanding at March 31, 2014 and December 31, 2013, a hypothetical increase or decrease of 10% of current market rates would not have an effect on our interest expense since market rates are well below the minimum interest rate level we are required to pay pursuant to our Credit Agreement (i.e., 1.5% Eurodollar floor) and there are no outstanding borrowings under our ABL Facility.

Foreign Currency Exchange Rate Exposure

Our international expansion has resulted in increased foreign exchange rate exposure and we may become more susceptible to foreign currency exchange rate exposure as we continue to expand our international operations. We may enter into forward exchange contracts to mitigate this variability.

The financial statements of our subsidiaries expressed in foreign currencies are translated from the respective functional currencies to U.S. Dollars, with results of operations and cash flows translated at average exchange rates during the period, and assets and liabilities translated at end of the period exchange rates. At March 31, 2014, the accumulated other comprehensive loss related to foreign currency translations was approximately $10.5 million.

Off-Balance Sheet Arrangements

As of December 31, 2013 and 2012, we did not have any off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Critical Accounting Policies

During the preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, fair value measures, and related disclosures of assets and liabilities. Accounting estimates and assumptions discussed in this section do not reflect a comprehensive list of all of our accounting policies, but are those that we consider to be the most critical to an understanding of our financial statements because they involve significant judgments and uncertainties. Our critical accounting policies include:

Revenue Recognition

Our revenue arrangements are typically service-based contracts which may be on a fixed price or fee-for-service basis and may include variable components such as incentive fees and performance penalties. The duration of our contracts ranges from a few months to several years, depending on the arrangement. We

 

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recognize revenue when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) services have been rendered, (iii) fees are fixed or determinable, and (iv) collectability is reasonably assured. Our contracts do not generally contain a refund provision. We do not recognize revenue with respect to start-up activities including contract and scope negotiation, and feasibility analysis. The costs for these activities are expensed as incurred. Revenue related to changes in contract scope, which are subject to customer approval, are recognized when amounts are determinable and realization is reasonably assured.

We recognize revenue from our service contracts either using a fee-for-service method, proportional performance method, or completed contract method. For fee-for-service contracts, we record revenue as contractual items (i.e., “units”) are delivered to the customer, or, in the event the contract is time and materials based, when labor hours are incurred. We use the completed contract method when fees are not determinable until all services are delivered to the customer, or, when there is uncertainty with respect to our ability to deliver the services to the customer. We use the proportional performance method when our fees for a service obligation are fixed pursuant to the contractual terms. Revenue is recognized as services are performed and measured on a proportional performance basis, generally using output measures that are specific to the services provided. To measure performance on a given date, we compare effort expended through that date to estimated total effort to complete the contract. We believe the best indicator of effort expended to complete our performance requirement related to our contractual obligation are the actual units delivered to the customer, or the incurrence of labor hours when no other pattern of performance exists. In the event we use labor hours as the basis for determining proportional performance, we estimate the number of hours remaining to complete our service obligation. Actual hours incurred to complete the service requirement may differ from our estimate, and such differences are accounted for prospectively.

We enter into multiple element arrangements in which we are engaged to provide multiple services under one agreement. In such arrangements, we record revenue as each separate service, or element, is delivered to the customer. Such arrangements are predominantly within our Commercial segment where we are engaged to provide recruiting, deployment, and detailing services. These services may be sold individually or in combination with contractual fees that may be based on fixed fees for each element; variable fees for each element; or a combination of both fixed and variable fees. For the arrangements that include multiple elements, arrangement consideration is allocated to units of accounting based on the relative selling price. The best evidence of selling price of a unit of accounting is vendor-specific objective evidence (“VSOE”), which is the price we charge when the deliverable is sold separately. When VSOE is not available to determine selling price, we use relevant third-party evidence (“TPE”) of selling price, if available. When neither VSOE nor TPE of selling price exists, we use our best estimate of selling price considering all relevant information that is available without undue cost and effort.

Most contracts may be terminated with advance notice from a customer. In the event of termination, our contracts generally require payment for services rendered through the date of termination.

Deferred Revenue

In some cases, a portion of the contract fee is billed or paid at the time the contract is initiated or prior to the service being performed. In the event we bill or receive cash in advance of the services being performed, we record a liability denoted as deferred revenue in the accompanying consolidated balance sheets and recognize revenue as the services are performed. For the Commercial segment, we are entitled to additional compensation if certain performance-based milestones are achieved over the contract duration. As there is substantive uncertainty regarding the ability to realize such amounts at the onset of the arrangements, such revenues are deferred until we determine it has met the milestone and the other revenue recognition criteria described above.

Receivables, Billed and Unbilled

In general, prerequisites for billings and payments are established by contractual provisions including predetermined payment schedules, submission of appropriate billing detail or the achievement of contract

 

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milestones, depending on contract terms. Unbilled services represent services that have been rendered for which revenue has been recognized but amounts have not been billed. Billed receivables represent amounts we have invoiced our customer according to contractual terms.

We maintain an allowance for doubtful accounts for estimated losses inherent in accounts receivable. In establishing the required allowance, we consider historical losses and current market conditions, our clients’ financial condition, receivables in dispute, the receivables aging and payment patterns. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. If the financial condition of one or more of our clients deteriorates in the future, impacting the clients’ ability to make payments, an increase to our allowance might be required or our allowance may not be sufficient to cover actual write-offs.

Business Combinations

We account for business combinations in accordance with the acquisition method of accounting. The acquisition method of accounting requires that assets acquired and liabilities assumed be recorded at their fair values on the date of a business acquisition. The consolidated financial statements and results of operations reflect the operations of the acquired business from the date of the acquisition.

The judgments that we make in determining the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact net earnings in periods following a business combination. We generally use either the income, cost or market approach to determine the appropriate fair values. The income approach presumes that the value of an asset can be estimated by the net economic benefit to be received over the life of the asset, discounted to a present value. The cost approach presumes that an investor would pay no more for an asset than its replacement or reproduction cost. The market approach estimates value based on what other participants in the market have paid for reasonably similar assets. Although each valuation approach is considered in valuing the assets acquired, the approach ultimately selected for each asset or class of assets or liabilities assumed is based on the relevant characteristics and the availability of information.

We record contingent consideration resulting from a business combination at its fair value on the acquisition date. Each reporting period thereafter, we revalue these obligations and record increases or decreases in their fair value as an adjustment to SG&A expenses within the consolidated statements of operations. The changes in the fair value of the contingent consideration obligation are the result of updates in the achievement of financial targets and the weighted probability of achieving future financial targets.

Significant judgment is employed in determining the appropriateness of the valuation assumptions as of the acquisition date and for each subsequent period. Accordingly, any change in the valuation assumptions could have an impact on our financial statements. See Note 3 to our consolidated financial statements for the year ended December 31, 2013, for additional information.

Goodwill and Indefinite-lived Intangible Assets

Goodwill represents the amount of the purchase price in excess of the fair values assigned to the underlying identifiable net assets of acquired businesses. Goodwill and other indefinite-lived intangible assets, such as tradenames, are assessed for potential impairment on at least an annual basis or when management determines that the carrying value of goodwill or an indefinite-lived intangible asset may not be recoverable based upon the existence of certain indicators of impairment, such as a loss of a significant customer, a significant change to our regulatory environment that hinders the ability to conduct business, or a significant downturn in the economy.

As part of our annual goodwill impairment testing, the Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value.

 

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Reporting units are the level at which discrete financial information is available and reviewed by management on a regular basis. The qualitative assessment is also used as a basis for determining whether it is necessary to perform the quantitative test. Qualitative factors assessed at the reporting unit level include, but are not limited to, changes in industry and market structure, competitive environments, planned capacity and new service offerings, cost factors and financial performance of the reporting unit. If we choose not to complete a qualitative assessment for a given reporting unit or if the initial assessment indicates that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value, performance of the quantitative test is required.

For the annual goodwill impairment test at the reporting unit level we utilized a two-step quantitative test for all of our reporting units with goodwill. In the first step we compared the fair value of each reporting unit to its carrying value. We estimated the fair value of each individual reporting unit using the income approach (discounted cash flow method). The assumptions utilized in the evaluation of the impairment of goodwill under the income approach included a number of estimates and assumptions regarding future revenue, and contribution growth, changes in working capital, income tax rates, foreign currency exchange rates, capital expenditures, weighted average cost of capital (“WACC”) and expected long-term terminal growth rates applicable to each reporting unit.

The cash flows employed in the income approach were based on our most recent budgets, forecasts and business plans as well as various growth rate assumptions for an initial five year period plus a terminal value. The cash flows were discounted to their present value using a WACC ranging from 11%—12% in 2013, 10%—12% in 2012 and 11%—15% in 2011, and included a 3% long-term growth rate applied beyond the forecast period. The assumptions and rates used in our impairment tests require significant judgment, and variations in assumptions could result in materially different indications of fair value and, if applicable, the impairment amount.

If the carrying value of the reporting unit exceeds the fair value, the second step of the test is performed to measure the value of impairment loss, if any. The second step compares the implied fair value of reporting unit goodwill with the carrying value of that goodwill. To calculate the implied fair value of goodwill in this second step, we allocate the fair value of the reporting unit to the assets and liabilities of that reporting unit (including any previously unrecognized intangible assets) as if the reporting unit had been acquired in a current business combination and the fair value was the price paid to acquire the reporting unit. The excess of the fair value of the reporting unit over the amount assigned to the assets and liabilities of the reporting unit represents the implied fair value of goodwill. The step two assessment performed by the Company resulted in the carrying value of goodwill exceeding the implied fair value of goodwill for certain reporting units and therefore recognition of a pre-tax non-cash goodwill impairment charge of $36.9 million in 2013, $361.6 million in 2012 and $30.0 million in 2011. As of December 31, 2013, there was approximately $534.4 million of goodwill associated with seven reporting units for which current or prior year impairment charges have been taken and, as a result, the fair value of those reporting units does not significantly exceed the respective carrying values. If future cash flows are less than those forecasted, in our fair value estimates, additional impairment charges may be required.

Testing indefinite-lived intangible assets, other than goodwill, for impairment requires a one-step approach. If the carrying amount of indefinite-lived intangible assets exceeds the fair value, an impairment loss is recognized equal to the excess. The process of estimating the fair value of indefinite-lived intangible assets is subjective and requires the use of estimates. Such estimates include, but are not limited to, future operating performance and cash flows, royalty rate, terminal growth rate, and discount rate. Based on our analysis performed, we recorded an impairment charge of $3.6 million for the year ended December 31, 2012 related to our indefinite-lived intangible assets. There were no impairment charges related to our indefinite-lived intangible assets for the years ended December 31, 2013 and 2011.

These non-cash impairment charges do not impact our liquidity, compliance with any covenants under our debt agreements or potential future results of operations. Our historical operating results may not be indicative of our future operating results. See Note 5 and 6 to our consolidated financial statements for additional information related to our goodwill and indefinite-lived intangible assets.

 

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Long-lived Assets

We review our long-lived assets, including finite-lived intangible assets, property and equipment, for impairment whenever events or circumstances indicate that the carrying value of an asset may not be recoverable. Events or circumstances that would result in an impairment review primarily include operations reporting sustained losses or a significant change in the use of an asset. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Should we determine that the carrying values of held-for-use long-lived assets may not be recoverable, we will measure any impairment based on a projected discounted cash flow method. We may also estimate fair value based on market prices for similar assets, as appropriate. Significant judgments are required to estimate future cash flows, including the selection of appropriate discount rates, projected cash flows from the use of an asset and other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value for these assets.

As noted above, economic and market conditions that affected our reporting units required us to test for impairment of long-lived assets pertaining to those businesses during the years ended December 31, 2013, 2012 and 2011. We recorded an impairment charge of $2.0 million, $46.2 million and $3.6 million related to the carrying value of our finite-lived intangible and long lived assets for the years ended December 31, 2013, 2012 and 2011, respectively. See Note 6 to our consolidated financial statements for additional information related to our finite-lived intangible assets.

Income Taxes

Deferred tax assets and liabilities are determined based on the difference between the financial reporting and the tax bases of assets and liabilities and are measured using the tax rates and laws that are expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is established, when necessary, to reduce deferred income tax assets to the amount that is more likely than not to be realized. Realization is dependent on generating sufficient taxable income of a specific nature prior to the expiration of any loss carry forwards or capital losses. The asset may be reduced if estimates of future taxable income during the carry forward period decrease. We recorded a full valuation allowance against the domestic net deferred tax assets as it was deemed more likely than not that we will not realize the benefits of these domestic deferred tax assets based on our recent operating results and current projections of future losses. As of December 31, 2013 and 2012, we had a valuation allowance of $298.9 million and $207.5 million, respectively.

In addition, we maintain reserves for certain tax items, which are included in income taxes payable on our consolidated balance sheets. We periodically review these reserves to determine if adjustments to these balances are necessary. Income tax benefits are recognized if we believe that if a dispute arose with the taxing authority and were taken to a court of last resort, it is more likely than not (i.e., a probability greater than 50 percent) that the tax position would be sustained as filed based on the technical merits of a tax position. If a position is determined to be more likely than not of being sustained, we recognize the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with the taxing authority. We recognize interest and penalties related to uncertain tax positions in income tax expense.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2014-09 (“ASU 2014-09”), Revenue from Contracts with Customers (Topic 606) which provides guidance for revenue recognition. ASU 2014-09 will supersede the revenue recognition requirements in “Revenue Recognition (Topic 605)”, and most industry-specific guidance. ASU 2014-09 is effective for us beginning January 1, 2017, and early adoption is not permitted. We are currently evaluating the impact of adopting this accounting standard update on our consolidated financial statements.

 

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In April 2014, the FASB issued Accounting Standards Update 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (“ASU 2014-08”). ASU 2014-08 changes the criteria for reporting a discontinued operation. Under ASU 2014-08, a disposal of a part of an organization that has (or will have) a major effect on its operations and financial results is a discontinued operation. ASU 2014-08 will apply prospectively for all disposals or components of our business classified as held for sale during fiscal periods beginning after December 15, 2014. The adoption of ASU 2014-08 is not expected to have a material impact on our consolidated financial position or results of operations, although the impact will depend on the extent of any future discontinued operations.

In July 2013, the FASB issued Accounting Standards Update 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (“ASU 2013-11”). The amendments in ASU 2013-11 provide guidance on the financial statement presentation of unrecognized tax benefits when a net operating loss, or a tax credit carryforward exists. ASU 2013-11 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The adoption of ASU 2013-11 did not have a material impact on our consolidated financial position or results of operations.

In March 2013, the FASB issued Accounting Standards Update 2013-05, Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. The objective of ASU 2013-05 is to resolve the diversity in practice regarding the release into net income of the cumulative translation adjustment upon derecognition of a subsidiary. The amendments are effective for fiscal years beginning after December 15, 2013. The implementation of the amended accounting guidance did not have a material impact on our consolidated financial position or results of operations.

 

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BUSINESS

Overview

We are a global provider of outsourced services to the pharmaceutical, biotechnology, medical device and diagnostics, and healthcare industries. We are organized into three business segments: Clinical, Commercial and Consulting. We provide a broad range of clinical development, commercialization and consulting services that are critical to our clients’ ability to develop and successfully commercialize their products. Our portfolio of services meets the varied needs of our clients, who are increasingly outsourcing both their clinical research and development activities, as well as their commercialization activities.

Since being acquired through a take-private transaction by affiliates or co-investors of Thomas H. Lee Partners, L.P. and Liberty Lane IH LLC (“Liberty Lane”) in August of 2010 (the “August 2010 Merger”), we have executed on a strategy to transform our company into a global leader in pharmaceutical outsourcing services across the continuum of drug development and commercialization. In 2011, we announced a series of transactions that meaningfully enhanced our clinical and consulting capabilities. In February 2011, we acquired Campbell Alliance Group, Inc. (“Campbell”) to strengthen our consulting business. We also acquired two clinical research organizations (“CROs”): i3 clinical research business (“i3 Global”) in June 2011 and PDGI Holdco, Inc. (“PharmaNet”) in July 2011. Through these transactions, we significantly expanded the scale and increased the geographic footprint of our clinical business. Our global resources and reach allow us to meet our client’s development objectives and help them enter or expand into new and emerging markets. We believe the combination of our breadth of services, scale and global reach differentiates us from many of our competitors when clients are selecting partners for their outsourcing efforts.

In 2012 and 2013, we completed four tuck-in acquisitions that augmented our capabilities. In March 2012, we acquired Kforce Clinical Research, Inc. (“Kforce Clinical”), expanding our strategic resourcing capabilities within the Clinical business segment. In March 2012, we also acquired certain medical and promotional audit businesses of SDI Health LLC (collectively, “SDI Health”) from IMS Health, enhancing our market research capabilities within the Consulting business segment. In June 2012, we acquired the assets of Kazaam Web Concepts, LLC (“Kazaam Interactive”), bolstering our digital communications and social media capabilities within our Commercial business segment. In October 2013, we acquired Catalina Health Resource, LLC (“Catalina Health”), expanding our medication adherence capabilities in our Commercial business segment.

Our broad range of services and our global scale, represented by approximately 12,000 employees supporting clients in more than 70 countries, allow us to serve as a critical strategic partner for pharmaceutical, biotechnology, medical device and diagnostics, and healthcare companies in their dynamic and rapidly changing regulatory and commercial environments. We serve more than 550 client organizations, including all of the 20 largest global pharmaceutical companies.

Our Business Segments and Key Service Offerings

We are organized into three business segments: Clinical, Commercial and Consulting. Each business segment is comprised of multiple businesses that are also referred to as “business units,” that when combined establish us as a fully integrated biopharmaceutical services provider.

Clinical Segment

Our clinical offering includes a continuum of services spanning phases I-IV of clinical development, allowing us to respond to the changing needs of pharmaceutical, biotechnology, diagnostic and medical device clients. The capabilities and breadth of our Clinical business segment allow us to customize our services to projects of any size, from small, early-phase studies to complex, multinational, late-stage trials, and position us

 

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for top-tier strategic partnerships. In addition, our scalable and customer-focused strategic resourcing business enables us to meet clients’ strategic resourcing needs around the world. For the year ended December 31, 2013, this business segment generated total net revenues of $861.7 million.

 

    Clinical Research: We offer clinical research services through two businesses: Phase II-IV, which provides comprehensive services for clinical trials, and Early Stage, which provides services for Phase I trials and bioanalytical services. The Phase II-IV business provides services for a complete development project, including: oncology, neurosciences/pain, endocrinology and metabolic diseases, cardiology and respiratory, infectious diseases/vaccines and general medicine. The Early Stage business provides services that include Phase I first-in-man and proof of concept studies, bioequivalency and bioavailability studies, and bioanalytical services.

 

    Strategic Resourcing: We offer a variety of functional outsourcing, recruiting and staffing services. Functional Service Provider (“FSP”) teams are quality-driven, flexible, and deployable in any functional area, including data management, statistical analysis, clinical monitoring, medical writing and clinical operations. These FSP teams can be located remotely or within our clients’ facilities. Clients can fully replace or transition specific internal functions with our FSP teams to better manage fixed costs and increase flexibility through headcount reduction, while also gaining expertise and efficiencies. We also offer recruitment and temporary staffing solutions for clinical trial personnel on a global basis. Our extensive candidate database allows us to quickly fulfill almost any staffing need, from full teams to individual, specialized clinical research professionals.

Commercial Segment

Our Commercial business segment consists of our selling solutions, communications and patient outcomes businesses. We are a premier provider of comprehensive sales and marketing programs to the pharmaceutical, biotechnology and healthcare industries. We believe that there is a growing trend toward using sales and marketing service providers, such as inVentiv, that can offer specific healthcare commercialization expertise on a global basis. For the year ended December 31, 2013, our Commercial segment generated total net revenues of $717.9 million.

 

    Selling Solutions: We provide contract sales teams, support services and non-personal engagement solutions including tele-detailing and electronic detailing (e-detailing) to help our clients accelerate the commercialization of their products. We are one of the industry’s leading providers of outsourced sales services, and our sales teams are supported by industry-leading recruiting and training capabilities and complemented by highly qualified clinical and scientific professionals who serve as advocates and educators to sensitize markets to new and novel therapies. Services offered by this unit also include market research, commercial analytics, embedded partners, managed markets access, biotechnology/specialty managed markets and integrated commercialization. Our sales teams can be supported by our industry-leading communications services.

 

    Communications: We offer a broad array of advertising and public relations services to clients looking to commercialize their products throughout the world. Communications services are deployed throughout a product’s existence, beginning well before commercial launch, encompassing regulatory approval and market introduction, and continuing throughout the life of a product. Our communications business makes up one of the world’s largest global networks dedicated exclusively to healthcare, and provides advertising, public relations and public affairs, interactive digital strategies, and branding and identity consulting services, as well as medical communications and education services, to pharmaceutical, biotechnology, medical device and diagnostic and healthcare companies.

 

    Patient Outcomes: Our services include patient compliance, analytics, patient support programs and patient education to help clients maximize the revenue potential of their products while producing improved patient outcomes. Patient outcomes services are growing in importance as our clients’ face increasing obstacles to market access and growing interest by regulators in therapeutic compliance and comparative effectiveness.

 

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Consulting Segment

Our Consulting business segment offers specialized practices in business development, managed markets and brand management, including, strategic product launch planning. Our Consulting business segment focuses on addressing the needs of the pharmaceutical and biotechnology industries to support critical decision-making throughout the evolution of a product, from licensing, to product and portfolio strategy, to commercialization. Our Consulting professionals have a deep, functional knowledge of our clients’ core business, which produces value-added insights and mission-critical solutions, both creative and pragmatic.

Our Consulting business segment focuses on maximizing the commercial value of a client’s product pipeline, helping clinical leaders better and more strategically deploy resources and improve efficiency, as well as enhance the effectiveness of marketing and sales activities. For the year ended December 31, 2013, this segment generated total net revenues of $70.6 million.

Our Competitive Strengths

Broad Suite of Outsourced Services

Our broad and integrated set of capabilities across all business segments allows us to provide comprehensive and innovative solutions that address some of our client’s most significant business challenges. We have one of the most comprehensive service offerings in the industry, organized into the Clinical, Commercial and Consulting segments, which complements the development and commercial evolution of healthcare-related products. Our clients are increasingly looking to outsourced service providers with offerings such as clinical development, sales, marketing and business planning, to assist with activities traditionally performed internally by fully integrated manufacturers. The ability to offer such a broad suite of outsourced services is paramount to successfully responding to clients’ needs and positioning inVentiv as a partner of choice for clients seeking to consolidate service providers to improve organizational efficiency and gain greater flexibility. inVentiv has assembled and integrated a group of companies offering the services across and between our business segments that our clients most often require for the continuum of drug development and commercialization, from compound development and regulatory approval through global commercialization and ongoing brand management.

Scale and Global Reach

Our businesses include the largest, pure-play healthcare advertising and public relations network in the world, a leading contract sales organization (“CSO”) in North America, the second largest CSO in Japan and a CRO that is among the largest in the world.

Our Clinical, Commercial and Consulting business segments support clients in more than 70 countries. Our global resources and reach allow us to help our clients enter or expand in new and emerging markets, which allows us to meet client expectations and, we believe, differentiate us from many of our competitors when clients are considering consolidating their outsourcing efforts. A global footprint is often required to keep pace with the expansion of pharmaceutical, biotechnology, medical device and diagnostic, and healthcare companies.

Diversified Client and Project Base

We serve more than 550 client organizations, including all of the 20 largest global pharmaceutical companies, as well as numerous emerging and specialty biotechnology companies, medical device makers and diagnostic companies. Our diversified client base and broad scope of projects reduce our dependence on any individual client or contract.

We believe that our clients ascribe meaningful value to our ability to provide access to some of the industry’s leading experts, increased flexibility, greater control of fixed costs, enhanced time to market and

 

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economic efficiencies. They also appreciate the quality of our services and employees across our organization. As a result, our client relationships are not only diverse, they also are long-standing. These diverse, long-term, trusted relationships naturally create additional opportunities for organic growth through repeat and expanding business and also help inVentiv win new business.

Therapeutic Expertise

We have established specialized therapeutic teams, with operational and scientific expertise in key therapeutic areas. Our deep understanding of these therapeutic areas extends across all three of our business segments, allowing our clients to benefit from this expertise whether they are running a complex clinical trial for an orphan drug or working with sales teams specializing in cardiovascular disease, nurse educators familiar with pain management or marketing professionals with experience in the needs of people with diabetes.

Through our depth of experienced medical and scientific professionals, we possess significant knowledge across therapeutic areas that allows us to apply new insights and innovative science to clinical trials, as well as to the commercialization of branded products. Our teams include experienced clinical project managers and research associates, data management professionals, biostatisticians, business planning consultants and sales and marketing professionals.

Our Clinical, Commercial and Consulting business segments work across key therapeutic areas, with a particular focus on the fastest-growing areas including oncology, neurosciences and pain. Our strong global oncology project teams within the Clinical business segment have conducted hundreds of regional and global oncology trials involving tens of thousands of patients across many different therapeutic subsets of oncology. Our team of experts in neurosciences/pain has conducted a wide variety of analgesic-related studies for small and large targeted molecules. With significant unmet medical needs in the treatment of Alzheimer’s disease, cognitive disorders, stroke, and other major neurosciences/pain disorders, the demand for innovative therapies is strong and expected to grow.

Proven Management Team

Our management team includes key corporate, segment, divisional and business unit leaders who are seasoned executives with extensive experience in the industries we serve. Their experience spans pharmaceutical product development and product management, as well as significant experience managing pharmaceutical sales forces, developing marketing strategies and conducting clinical trials. Our corporate management has significant operational and financial experience in previous positions within the healthcare and professional services sectors, including a history of successfully integrating multiple acquisitions.

Our Business Strategy

We intend to build upon our competitive strengths, delivering consistently high-quality service offerings and providing innovative solutions throughout the product lifecycle across our business segments on a global basis to meet the needs of our clients. Our goal is to be the outsourcing service provider of choice in the industries we serve. Key strategic elements to successfully achieving this goal include:

Capitalize on Our Broad Global Capabilities and Services

Our global footprint positions us to execute on global or multi-national projects and share our intellectual capital, coordinate opportunities and take advantage of our broad service capabilities between our business segments and across national borders. We have put into place the necessary processes and infrastructure to achieve this goal. We have the ability to leverage our existing relationships with clients operating outside the U.S. to penetrate additional global markets and expand our client base to foreign pharmaceutical companies operating in local markets.

 

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Respond to Our Clients’ Changing Needs with Innovative Solutions

We intend to continue to be an outsourced service provider known for its client-centric approach, where the measure of success is not the particular services offered, but the results and outcomes achieved through performance of those services.

Understanding this evolving focus on outcomes and how they are weighed against costs, allows us to better align our services and processes and provide our clients with innovative solutions. As our clients increasingly move towards a more patient-centric model, our patient outcomes services help pharmaceutical and biotechnology clients assure that physicians and nurses understand how to deliver new therapies to help patients stay on their prescribed medications. Our Clinical business segment is developing processes that enhance predictability and help clients either move more quickly to successful drug development or terminate a project with lower chances of success faster. The communication and coordination between our business segments helps ensure, for example, that a client finding a differentiating benefit during a clinical trial can more quickly take advantage of that knowledge in planning for the commercialization of that product. Our goal is to offer clients outcomes rather than just services, and to continue to evolve this strategy as a differentiator for our business and an asset for clients seeking a strategic partner.

Continued Focus on Operational and Financial Improvements

Our goal is to be a highly efficient and effective organization, focused on achieving and maintaining excellence in every service we offer and in every market where we operate. To further this goal, we are focused on executing against three major objectives: (i) developing and providing integrated solutions across our businesses to help our clients address their most complex business challenges, (ii) delivering strong operational performance and (iii) improving the financial performance of our leading franchises.

We have established several strategic programs and implemented internal financial and operational processes to provide greater control, accountability and consistency across our organization. In addition, we have deployed new management tools and processes to enhance reporting and provide greater insight into business trends and client needs, and we have strengthened the control and accountability for our internal sales and marketing teams. We believe these initiatives, combined with continuing process improvement initiatives, will enable us to enhance our operational excellence and efficiencies and lead to further revenue opportunities.

Properties

We lease office facilities totaling approximately 2.2 million square feet, including our principal executive offices located in Burlington, Massachusetts, and our principal businesses are located in New Jersey and Ohio. 63 facilities totaling approximately 1.1 million square feet are leased by our Clinical segment, 40 facilities totaling 1.1 million square feet are leased by our Commercial segment and 7 facilities totaling 68,000 square feet are leased by our Consulting segment. We believe that our facilities are adequate for our present and reasonably anticipated business requirements.

 

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International Operations

The following is a summary of our non-U.S. operations.

 

Segment

  

Country or Territory

•   Clinical

   Argentina; Australia; Austria; Belgium; Brazil; Bulgaria; Canada; Chile; China; Costa Rica; Croatia; Czech Republic; Denmark; Finland; France; Germany; Hong Kong; Hungary; India; Ireland; Israel; Italy; Japan; Korea; Malaysia; Mexico; Netherlands; New Zealand; Peru; Philippines; Poland; Romania; Russia; Serbia; Slovak Republic; Singapore; South Africa; Spain; Sweden; Switzerland; Taiwan; Thailand; United Kingdom; Ukraine and Uruguay

•   Commercial

   Canada; China; France; Germany; Italy; Japan; Korea; Mexico; Netherlands; Spain; Switzerland and United Kingdom

•   Consulting

   Canada; Japan; Germany; Switzerland and United Kingdom

Foreign operations are accounted for using the functional currency of the country where the business is located, translated to U.S. dollars in our consolidated financial statements. These investments are accounted for using various methods depending on ownership percent and control. For investments below the 20% threshold where we do not have significant influence, we use the cost method of accounting.

Clients

We are a global provider of outsourced services to pharmaceutical, biotechnology, medical device and diagnostics, and healthcare industries.

We serve more than 550 client organizations, including all 20 of the largest global pharmaceutical companies, as well as numerous emerging and specialty biotechnology companies, medical device makers and diagnostic companies. Our diversified client base and broad scope of projects reduce our dependence on any individual client or contract, and contribute to the stability of our financial performance, which we view as a competitive strength.

Competition

We operate in highly competitive industries. Our competitors include a variety of companies providing services to the pharmaceutical, biotechnology, medical device and diagnostics, and healthcare industries, including full service and smaller specialty CROs, outsourced sales organizations, large global advertising holding companies and smaller specialized communications agencies. Each of our business segments faces distinct competitors within the markets they serve:

 

    Clinical: Our largest competitors include Quintiles Transnational Corp. (“Quintiles”), Covance Inc., Pharmaceutical Product Development, Inc., ICON PLC, PAREXEL International Corporation, INC Research, Inc. and PRA International, Inc.

 

    Commercial: Our largest competitors in the outsourced sales market are Quintiles, PDI, Inc., and UDG Healthcare PLC. Our primary competitors in the communications market are the large global advertising holding companies: WPP Group PLC, Omnicom Group Inc., Publicis Groupe S.A., Interpublic Group of Companies, Inc. and Havas SA.

 

    Consulting: Our consulting segment’s largest competitors are IMS Consulting, a division of IMS Health Incorporated, L.E.K. Consulting LLC, McKinsey & Company, Inc. and ZS Associates, Inc.

 

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We also compete in our addressable market with our customers’ decisions to perform internal clinical tasks, advertising, promotional, marketing, sales, compliance and other services we provide.

Seasonality

Our business is subject to some variability as a result of the ongoing startup and completion of contracts, periodic receipt of incentive fees and the ramp up of service revenues in certain contracts, and select businesses do have some degree of seasonality.

Backlog

Backlog represents anticipated service revenue from work not yet completed or performed under signed contracts, letters of intent, and pre-contract commitments that are supported by written communications. Once work commences, revenue is generally recognized over the life of the contract as services are provided. Included within backlog at December 31, 2013 is approximately $1.6 billion of backlog that we do not expect to generate revenue in the next 12 months.

Backlog was as follows:

 

     December 31,  
(in millions)    2013      2012  

Backlog

   $ 2,560.3       $ 2,016.4   

We believe that our backlog as of any date is not necessarily a meaningful predictor of future results. Projects included in backlog vary in size and duration, many of which are performed over several years, and are subject to cancellation, revision, or delay. Our customers may terminate, delay, or change the scope of projects for a variety of reasons including, among others, the failure of products being tested to satisfy safety and other regulatory requirements, unexpected or undesirable clinical results of the product, customer decisions to forego a particular study, insufficient patient enrollment or investigator recruitment, or production problems resulting in shortages of the drug. Projects that have been delayed remain in backlog, but the timing of the revenue generated may differ from the timing originally expected. Accordingly, historical indications of the relationship of backlog to revenues may not be indicative of the future relationship. If a customer cancels an order, we may be reimbursed for the costs we have incurred. Typically, however, we have no contractual right to the full amount of the revenue reflected in our backlog in the event of cancellation. Generally, our contracts can be terminated with thirty to sixty days notice by the customer. For more details regarding risks related to our backlog, see “Risk Factors—Our contracts may be delayed, reduced in scope or terminated for reasons beyond our control.”

Employees

We currently employ approximately 12,000 employees. Many aspects of our business are very labor intensive and the turnover rate of employees in our industry, and in corresponding segments of the pharmaceutical industry, is generally high, particularly with respect to sales force employees and clinical research associates. Certain non-U.S. employees of the Company are currently covered by collective bargaining agreements. We are unaware of any current efforts or plans to organize any of our U.S. employees. We believe that our relations with our employees are good.

Legal Proceedings

From time to time, we are involved in certain legal proceedings not described herein that are incidental to the normal conduct of our business. We do not believe that the outcome of any such proceedings, if decided adversely to our interests, would have a material adverse effect on our business, financial condition or results of operations.

 

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Government Regulation

The pharmaceutical, biotechnology, medical device and diagnostics and healthcare industries in which we operate are subject to a high degree of governmental regulation, at the federal, state and international levels, and our clients are subject to extensive government regulation. Generally, compliance with these laws and regulations is the responsibility of those clients. However, several of our businesses are themselves subject to the direct effect of government regulation. In addition, we may be liable under certain of our client contracts for the violation of government laws and regulations by our clients to the extent those violations result from, or relate to, the services we have performed for such clients. Further, many of our clients are parties to corporate integrity agreements (“CIAs”) with the federal government and our contracts with such clients may obligate us to comply with certain provisions of these CIAs. Failure to comply with such laws and regulations or such contractual obligations or significant changes in laws or regulations affecting our clients or the services we provide could result in the imposition of additional restrictions, create additional costs to us or otherwise negatively impact our business operations.

Regulation of Our Clinical Segment

The activities of our Clinical segment are subject to regulation by the U.S. Food and Drug Administration (“FDA”) and by the regulatory agencies located in other countries where the Clinical segment operates or will conduct clinical trials, including, but not limited to, Health Canada, the Department of Health in the United Kingdom and the European Medicines Agency (“EMA”). In providing CRO services, we may be subject to the same regulatory actions as the sponsor if we fail to comply with any obligation required of sponsors by regulations of the FDA or other regulatory agencies outside the United States. Under these regulations, we face a range of potential liabilities, including but not limited to liability arising from errors and omissions during a trial that impair the validity or usefulness of study data, risks associated with adverse effects resulting from the administration of drugs to clinical trial participants and collateral liability (for negligent selection or oversight) in regulatory actions against investigators and medical care providers. Our Clinical segment’s health care staffing services business is also regulated in many states as well as on an international level. For example, in some states, staffing companies must be registered to establish and advertise as a healthcare agency or must qualify for an exemption from registration.

Many regulatory authorities, including the FDA and those in the European Union (the “EU”) require that study results and data submitted to such authorities be based on studies conducted in accordance with what are called good clinical practices (“GCP”). GCP represent the global industry standards for the conduct of clinical research and development studies. GCP include:

 

    complying with specific regulations governing the selection of qualified investigators,

 

    obtaining specific written commitments from the investigators,

 

    ensuring the protection of human subjects by verifying that Institutional Review Board or independent Ethics Committee approval and patient informed consent are obtained,

 

    instructing investigators to maintain records and reports,

 

    verifying drug or device accountability,

 

    reporting of adverse events,

 

    adequate monitoring of the study for compliance with GCP requirements and

 

    permitting appropriate regulatory authorities access to data for their review.

Records for clinical studies must be maintained for specified periods for inspection by the FDA and other regulatory agencies. Significant material non-compliance with GCP requirements can result in the disqualification of data collected during the clinical trial. We are also obligated to comply with regulations issued by national and supra-national regulators such as the FDA and the EMA. By way of example, these regulations

 

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include the FDA’s regulations on electronic records and signatures (21 CFR Part 11) which set out requirements for data in electronic format regarding submissions made to the FDA, and the EMA’s Note for Guidance “Good Clinical Practice for Trials on Medicinal Products in the European Community.”

We write our standard operating procedures related to clinical studies in accordance with regulations and guidelines appropriate to the region where they will be used, thus helping to ensure compliance with GCP. Within Europe, we perform our work subject to the EMA’s Note for Guidance “Good Clinical Practice for Trials on Medicinal Products in the European Community.” All clinical trials (other than those defined as “non-interventional”) to be submitted to the EMA must meet the requirements of the International Conference on Harmonisation of good clinical practices. In addition, FDA regulations and guidelines serve as a basis for our North American standard operating procedures. Our offices in the Asia-Pacific region and in Canada have developed standard operating procedures in accordance with their local requirements and in harmony with those adopted by North American and European operations.

Regulation of Our Commercial Segment

Our Selling Solutions business, which is within our Commercial segment, provides contract sales services to the pharmaceutical industry and employs sales representatives who handle and distribute samples of pharmaceutical products. In the United States, the handling and distribution of prescription drug products are subject to regulation under the Prescription Drug Marketing Act and other applicable federal, state and local laws and regulations. These laws and regulations regulate the distribution of drug samples by mandating storage, hazard communication and employ right to know regulations, handling and disposal of medical specimens and hazardous waste and radioactive materials, as well as the safety and health of laboratory employees, solicitation and record-keeping requirements for drug samples and by banning the purchase or sale of drug samples. Further, companies holding or distributing controlled substances are subject to regulation by the United States Drug Enforcement Agency.

The Selling Solutions business is also subject to detailed and comprehensive regulation in each geographic market in which we operate. Such regulation relates, among other things, to the distribution of drug samples, the qualifications of sales representatives and the use of healthcare professionals in sales functions.

The Selling Solutions business’ delivery of outsourced sales teams subjects us to federal and state laws pertaining to healthcare fraud and abuse, which have been used to sanction entities for engaging in the off-label promotion and marketing of pharmaceutical products. The federal anti-kickback statute imposes both civil and criminal penalties for, among other things, offering or paying any remuneration to induce someone to refer patients to, or to purchase, lease or order (or arrange for or recommend the purchase, lease or order of) any item or service for which payment may be made by Medicare, Medicaid or other federal healthcare programs. Violations of the statute can result in numerous sanctions, including criminal fines, imprisonment and exclusion from participation in the Medicare and Medicaid programs. State anti-kickback laws are typically modeled on the federal anti-kickback statute, vary in scope and are often not clearly interpreted by courts and regulatory agencies. Many such laws apply, however, to all healthcare items or services, regardless of whether Medicare or Medicaid funds are involved.

inVentiv Communications, a business unit within our Commercial segment, is subject to all of the risks, including regulatory risks, that advertising companies generally experience as well as risks that relate specifically to the provision of advertising services to the pharmaceutical industry. Such regulatory risks may include enforcement by the FDA, the Federal Trade Commission as well as state agencies enforcing laws relating to drug advertising, false advertising, and unfair and deceptive trade practices. In addition to enforcement actions initiated by government, there has been an increasing tendency in the U.S. among pharmaceutical manufacturers to resort to the courts and industry and self-regulatory bodies to challenge comparative prescription drug advertising on the grounds that the advertising is false and deceptive. Through the years, there has been a continuing expansion of specific rules, prohibitions, media restrictions, labeling disclosures and warning requirements with respect to the advertising for certain products.

 

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Regulation of Patient Information

The confidentiality of patient-specific information and the circumstances under which such patient-specific records may be released for inclusion in our databases or used in other aspects of our business are heavily regulated. The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) and the regulations promulgated thereunder require the use of standard transactions, privacy and security standards and other administrative simplification provisions by covered entities, which includes many healthcare providers, health plans and healthcare clearinghouses. Additional legislation has been proposed from time to time at both the state and federal levels that may require us to implement security measures that could involve substantial expenditures or limit our ability to offer some of our products and services. Such legislation may restrict or negatively affect the portions of our Consulting segment that perform market research. The uncertainty of the regulatory environment is increased by the fact that we generate and receive data from many sources. As a result, there are many ways government might attempt to regulate our use of this data. Any such restriction could have a material adverse effect on our consolidated financial condition and results of operations.

In addition, privacy legislation in non-United States jurisdictions could have a limiting effect on some of our services, including, for example, the European Data Protection Directive (the “Directive”) which applies in each member state of the EU. The Directive seeks to protect the personal data of individuals and, among other things, places restrictions on the manner in which such personal data can be collected, processed and disclosed and the purposes for which such data can be used. Other countries have or are in the process of putting privacy laws into place affecting similar areas of our business. For instance, the Directive applies standards for the protection of all personal data, not just health information, in the EU and requires the EU member states to enact national laws implementing the Directive. Such legislation or regulations could materially affect our business.

Some of the services provided by inVentiv Patient Outcomes, a business unit within our Commercial segment, including patient compliance and medication adherence programs, reimbursement counseling, patient assistance programs, and relationship marketing services, involve access to individually identifiable health information and communications (e.g., refill reminders) with federal health care program beneficiaries and other direct consumers of health care products and services. These activities are subject to regulation under federal and state information privacy and security laws, including HIPAA and the rules promulgated thereunder by HHS, the federal anti-kickback statute and corresponding state anti-kickback laws. Although we believe that the activities of inVentiv Patient Outcomes currently comply with all applicable federal and state laws in all material respects, the interpretation of many of these laws is constantly evolving. For example, certain statements made by the OCR of HHS in connection with the announcement of the final amendments to the HIPAA Privacy Rule to implement the provisions of the Final Rule, which affected parties were required to comply with by September 23, 2013, may have caused uncertainty regarding whether certain prescription refill reminders issued under patient adherence programs, such as those we administer as part of our patient outcomes business, continue to qualify for exemption from the HIPAA Privacy Rule’s patient authorization requirements. On September 19, 2013, HHS issued guidance concerning the scope of the Final Rule as it pertains to refill reminders that addressed this uncertainty.

We could incur significant expenses or be prohibited from providing certain service offerings if inVentiv Patient Outcomes’ activities are determined to be non-compliant with any applicable laws and, depending on the extent and scope of any such regulatory developments, our consolidated financial condition and results of operations could be materially and adversely affected.

 

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MANAGEMENT

Directors and Executive Officers

Below is a list of the names, ages and positions, and a brief account of the business experience, of certain individuals who serve as the executive officers and directors of the Company.

 

Name

   Age   

Position with Company

Paul M. Meister

   61    Chairman and Chief Executive Officer

Michael Bell

   59    Chief Operating Officer

Jonathan E. Bicknell

   45    Interim Chief Financial Officer and Chief Accounting Officer

Raymond Hill

   51    Executive Vice President

Michael A. Griffith

   55    Executive Vice President

Andrew Suchoff

   47    Chief Human Resources Officer

Eric M. Sherbet

   50    General Counsel & Secretary

R. Blane Walter

   43    Vice Chairman and Director

Jeffrey McMullen

   63    Vice Chairman and Director, Chairman of inVentiv Health Clinical

Todd M. Abbrecht

   45    Director

Joshua M. Nelson

   41    Director

Alexandra L. DeLaite

   36    Director

Laura A. Grattan

   33    Director

Paul M. Meister

Paul M. Meister, Chairman and Chief Executive Officer of inVentiv, is also co-founder of Liberty Lane Partners, LLC, part of a private investment group that acquired inVentiv in August 2010. Mr. Meister was appointed Chairman in August 2010 and Chief Executive Officer in February 2011. Mr. Meister previously served as Chairman of the Board of Thermo Fisher Scientific Inc., a scientific instruments, equipment and supplies company, from November 2006 until April 2007. He previously served as Vice Chairman of Fisher Scientific International, Inc., a predecessor to Thermo Fisher, from March 2001 to November 2006 and as Vice Chairman and Chief Financial Officer of Fisher Scientific from March 1991 to March 2001. He is a Director for both Scientific Games Corporation and the LKQ Corporation.

Mr. Meister provides services to us as Chief Executive Officer under the Liberty Lane Managers’ management agreement. Under this agreement, Liberty Lane is obligated to cause Mr. Meister to devote such time and efforts to the performance of services as our Chief Executive Officer as Liberty Lane deems reasonably necessary or appropriate; provided, however, that no minimum number of hours is or will be required to be devoted by Mr. Meister on a weekly, monthly, annual or other basis. Further, nothing in the Liberty Lane Managers’ management agreement shall limit Liberty Lane’s right to assign additional duties to Mr. Meister, provided that such duties do not interfere with Mr. Meister’s obligations to the Company as Chief Executive Officer. Accordingly, Mr. Meister may assume duties and responsibilities in his capacity as chief executive officer of Liberty Lane in addition to his duties as Chief Executive Officer of the Company.

Michael Bell

Michael Bell was appointed Chief Operating Officer in May 2014. From 1998 until he joined the Company, Mr. Bell was Managing Director of Monitor Clipper Partners, a private equity firm where he invested in companies in the professional services, procurement outsourcing and pharmaceutical services industries. Mr. Bell also served as Senior Executive Vice President of John Hancock Financial Services, reporting to the Chairman and Chief Executive Officer, from 2001 until the business was sold to Manulife Financial in 2004. In 1983 Mr. Bell was a founder of the Monitor Group, a management consulting firm engaged across the healthcare delivery system, and was a member of the firm’s leadership team until 1998 when he joined Monitor Clipper Partners.

 

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Jonathan E. Bicknell

Jonathan E. Bicknell was appointed Interim Chief Financial Officer in August 2013, after joining the Company as Chief Accounting Officer in April 2012. Prior to joining the Company, Mr. Bicknell was with PriceWaterhouseCoopers, LLP (PwC) for nearly 18 years, most recently as a Partner in the Banking and Capital Markets group. During his tenure at PwC, he worked in both the Audit and Transaction Services groups, focusing on financial services as well as biotechnology and start up technology companies.

Raymond Hill

Raymond Hill was appointed Executive Vice President in December 2012. Mr. Hill most recently served as CEO of Pharmaceutical Product Development (PPD), a large, global CRO, from September 2011 until December 2011. Prior to PPD, Mr. Hill was president of the IMS Consulting Group, a leading pharmaceutical/biotech consulting company from November 2003 until May 2011. Before IMS, he was a partner and global head of AT Kearney’s pharmaceuticals and healthcare consulting practice.

Michael A. Griffith

Michael A. Griffith was appointed Executive Vice President in March 2014. Mr. Griffith oversees our Commercial and Consulting business segments. Prior to joining inVentiv, he was the Chief Executive Officer and a director at Laureate Biopharma, a contract manufacturing organization focused on the production and manufacture of biologic drugs from April 2010 until December 2013. Mr. Griffith was the founder of Aptuit, Inc., a global contract pharmaceutical research, development and manufacturing company, and from 2004 to 2008 served as the company’s CEO. He has served as a Director of Repligen Corporation, a life sciences company focused on the development, production and commercialization of products used to manufacture biological drugs, since April 2012.

Andrew Suchoff

Andrew Suchoff became our Chief Human Resource Officer in August 2013. From August 2011 to July 2013, he served as Managing Partner at TAG Global Systems, General Dynamic’s e-commerce partner and distributor of rugged mobile laptop accessories. From 2009 to July 2011, Mr. Suchoff was the Executive Vice President for Stream Global Services, a leading business process outsource provider. In 2008, Andrew was the Chief Human Resources Officer for Insulet Corporation, a publicly traded medical device company. From 2001 to 2007, he worked in senior HR leadership roles at Serono International, a global biotechnology company.

Eric M. Sherbet

Eric M. Sherbet was appointed General Counsel and Secretary in April 2011. Prior to joining the Company, Mr. Sherbet served as Vice President, Deputy General Counsel and Corporate Secretary of Foster Wheeler AG, a global engineering services, construction and power company from December 2007 until April 2011. From July 2000 until December 2007, he served in several senior legal and compliance roles at Avaya Inc., a global provider of enterprise communications systems, including Vice President, Corporate and Securities Law and Corporate Secretary and Vice President and General Auditor.

R. Blane Walter

R. Blane Walter, Vice Chairman, previously served as the Company’s Chief Executive Officer from 2008 until 2011 and has served as a Director of the Company since October 2005. Mr. Walter is currently a Partner at Talisman Capital Partners. Mr. Walter founded inChord Communications, Inc., an independently-owned, healthcare communications company, which was acquired by the Company in 2005.

 

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Jeffrey McMullen

Jeffrey McMullen, Vice Chairman of the Company and Chairman of inVentiv Health Clinical, previously served as the Chief Executive Officer of PharmaNet, which he co-founded in 1996. He served as President and CEO of PharmaNet Development Group, Inc. from December 2005 until his appointment to our board of directors in August 2012. Prior to that, Mr. McMullen held the positions of President and Chief Operating Officer from 2003-2005, Executive Vice President and Chief Operating Officer from 2001 to 2003 and Senior Vice President, Business Development from 1996 to 2001.

Todd M. Abbrecht

Todd M. Abbrecht is a Managing Director with Thomas H. Lee Partners and became a Director of the Company in August 2010. Prior to joining Thomas H. Lee Partners in 1992, Mr. Abbrecht was in the Mergers and Acquisitions department of Credit Suisse First Boston. Mr. Abbrecht previously served on the board of directors of Warner Chilcott plc and Dunkin’ Brands Group, Inc. Mr. Abbrecht currently serves as a director of Aramark, Fogo de Chão, Intermedix Corporation and Party City.

Joshua M. Nelson

Joshua M. Nelson is a Managing Director with Thomas H. Lee Partners and became a Director of the Company in August 2010. Prior to joining Thomas H. Lee Partners in 2003, Mr. Nelson worked at JPMorgan Partners, the private equity affiliate of JPMorgan Chase. Mr. Nelson also worked at McKinsey & Co. and The Beacon Group, LLC. Mr. Nelson is currently a director of 1-800 CONTACTS, Advanced BioEnergy, LLC, Hawkeye Energy Holdings and Party City.

Alexandra L. DeLaite

Alexandra L. DeLaite is a Director at Thomas H. Lee Partners and became a Director of the Company in August 2010. Prior to joining Thomas H. Lee Partners in 2007, Ms. DeLaite worked at AEA Investors LLC and at Goldman, Sachs & Co. in the Leveraged Finance and Corporate Finance groups. Ms. DeLaite serves on the board of Intermedix Corporation and Phillips Pet Food and Supplies.

Laura A. Grattan

Laura A. Grattan is a Principal at Thomas H. Lee Partners and became a Director of the Company in August 2010. Prior to joining Thomas H. Lee Partners in 2005, Ms. Grattan worked in the Private Equity Group at Goldman, Sachs & Co. Ms. Grattan serves on the board of West Corporation.

 

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EXECUTIVE COMPENSATION

Introduction

This section describes our executive compensation philosophy and objectives and each of the key elements of our compensation programs for fiscal year 2013 as they applied to the following individuals, who are referred to in this prospectus as the “named executive officers:”

 

    Paul M. Meister, Chairman and Chief Executive Officer

 

    Jonathan E. Bicknell, Interim Chief Financial Officer and Chief Accounting Officer

 

    Raymond Hill, Executive Vice President, inVentiv Health

 

    Eric Sherbet, General Counsel and Secretary

 

    Andrew Suchoff, Chief Human Resources Officer

 

    Joseph R. Massaro, Former Chief Financial Officer

 

    Steven Roycroft, Former Executive Vice President, Commercial and Consulting

Mr. Massaro’s employment with the Company terminated effective August 2, 2013 and Mr. Roycroft’s employment with the Company terminated effective November 14, 2013.

The compensation committee of the Holdings Board (the “Compensation Committee”), which is comprised of Messrs. Abbrecht, Meister and Nelson, is responsible for making compensation decisions for our named executive officers. Mr. Meister does not, however, participate in committee discussions or decisions regarding his compensation.

Compensation Discussion and Analysis

Compensation Philosophy

The Company’s compensation philosophy, as administered by the Compensation Committee, seeks to:

 

    align the interests of executive officers with the long-term interests of the Company’s stockholders;

 

    achieve an appropriate balance between fixed compensation, such as annual base pay, and variable compensation, such as short-term and long-term incentive plans;

 

    motivate executive officers to achieve specified performance targets on an annual basis;

 

    recognize and reward current year performance;

 

    establish retention incentives for executive officers; and

 

    establish competitive levels of annual and long-term incentive compensation.

The Compensation Process

The Compensation Committee typically reviews and approves bonus awards for the most recently completed fiscal year and base salaries and bonus targets for the current year in March of the current year and reviews and approves equity awards upon hire or promotion. For 2013, the Compensation Committee determined executive compensation for 2013 in a multi-step process:

 

    Base salary adjustments and awards under the 2013 Incentive Award Program described below were determined at a meeting of the Compensation Committee in March 2013 for all of our then named executive officers other than Mr. Meister, whose annual base salary and bonus target for 2013 was determined at a meeting of the Compensation Committee in November 2012.

 

    Discretionary bonus awards with respect to fiscal 2013 were determined at a meeting of the Compensation Committee in February 2014.

 

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    Equity incentive awards for Messrs. Hill and Suchoff were granted by the Compensation Committee in 2013 in connection with the commencement of their employment.

The Compensation Committee thus had the opportunity to consider overall compensation levels and make adjustments to those levels at several junctures during the compensation cycle.

Paul M. Meister, the Company’s Chairman and Chief Executive Officer, attended all meetings of the Compensation Committee as a member of the Committee (with the exception of those portions devoted to the deliberation and approval of his own compensation) and made recommendations to the Compensation Committee concerning the compensation and performance assessments of his direct reports, including the other named executive officers of the Company.

Neither the Company nor the Compensation Committee engaged a compensation consultant to advise on executive compensation matters during 2013 and did not use survey data to benchmark executive compensation for its named executive officers. The Company does not maintain security ownership guidelines for its named executive officers.

Compensation of our Chief Executive Officer

The Company is a party to a management agreement with an affiliate of Liberty Lane Partners, LLC, pursuant to which Liberty Lane and/or its affiliates provide management, advisory and consulting services to the Company and its subsidiaries, including the services of Paul M. Meister, our Chairman and Chief Executive Officer. Mr. Meister is the chief executive officer of Liberty Lane. The Company pays Liberty Lane an annual monitoring fee of $0.8 million as compensation for services rendered under the management agreement. The Company pays directly to Mr. Meister an annual base salary of $200,000 as a portion of the compensation paid by the Company for Mr. Meister’s services as our Chief Executive Officer. In addition, Mr. Meister is eligible for an annual bonus of $1.0 million under our annual bonus program. In light of the Company’s performance in 2013, Mr. Meister recommended to the Compensation Committee that he not receive a bonus for 2013 or an award under the 2013 Incentive Award program below. The Compensation Committee agreed with Mr. Meister’s recommendation and did not award him a bonus for 2013 or a 2013 Incentive Award.

Liberty Lane holds options to purchase 190,268 shares of the Company’s common stock with a weighted average exercise price of $114 per share. A total of 164,899 of these options vest in full if Thomas H. Lee Partners realizes cash proceeds of at least 3.25 times its initial investment and an additional 25,369 of these options vest if Thomas H. Lee Partners realizes cash proceeds of at least 5 times its initial investment.

Elements of Executive Compensation

The elements of the Company’s compensation programs as applied to our named executive officers during 2013 are described below. The specific elements of compensation provided to each named executive officer were determined within the framework of their offer letters, which are described in detail under “Executive Compensation—Executive Employment and Separation Agreements” below.

Base Salary

Base salaries were a key component of the compensation of our named executive officers for 2013. All of our named executive officers have offer letters that establish a base salary, subject to such increases as may be approved by the Compensation Committee. In determining whether to increase each officer’s base salary for fiscal 2013, the Compensation Committee considered the position, level and scope of responsibility of the officer and the performance of the Company during the preceding fiscal year.

None of our named executive officers received increases in their base salaries during 2013 except for Mr. Bicknell, who received a 2.5% cost of living salary increase, effective March 1, 2013.

 

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Annual Bonus

Our annual bonus program was another key component of our named executive officers’ compensation for 2013. Our named executive officers were eligible to earn annual bonuses for 2013 pursuant to the Company’s annual bonus plan (the “Annual Bonus Plan”). The goal of the Annual Bonus Plan is to motivate exemplary performance by the senior management team during the applicable annual period both as a group and on an individual basis. For 2013, awards were to be paid 50% in the form of cash and 50% in the form of restricted stock units that vest upon a change in control, if EBITDA and cash flow targets for inVentiv on a consolidated basis were achieved.

The Bonus targets for our named executive officers for 2013 were as follows:

 

Executive

   Target
($ or % of Base Salary)

Paul M. Meister

   $1,000,000

Jonathan E. Bicknell

   50%

Raymond Hill

   100%

Eric Sherbet

   60%

Andrew Suchoff

   60%

Joseph R. Massaro

   75%

Steven Roycroft

   100%

Because the requisite financial performance targets were not met for 2013, no bonus was earned by our named executive officers under the Annual Bonus Plan for 2013. The Compensation Committee awarded discretionary bonuses to Messrs. Bicknell, Sherbet and Suchoff of $103,000, $128,000 and $40,000, respectively, which amount is equal to approximately 50% of such executive’s target bonus for 2013. In approving these discretionary awards, the Compensation Committee considered the Company’s performance and the following individual contributions:

 

    Mr. Bicknell’s effective transition as interim Chief Financial Officer following Mr. Massaro’s departure;

 

    enhancements of the Human Resources function by Mr. Suchoff upon his hire in 2013, including the recruitment of several key Human Resources leaders; and

 

    continuing enhancements of inVentiv’s compliance program in 2013 by Mr. Sherbet.