IQVIA HOLDINGS INC. - FORM 10-Q

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EX-32.1 - EX-32.1 - IQVIA HOLDINGS INC.	d690912dex321.htm
EX-31.2 - EX-31.2 - IQVIA HOLDINGS INC.	d690912dex312.htm
EX-32.2 - EX-32.2 - IQVIA HOLDINGS INC.	d690912dex322.htm
EX-31.1 - EX-31.1 - IQVIA HOLDINGS INC.	d690912dex311.htm
EX-10.2 - EX-10.2 - IQVIA HOLDINGS INC.	d690912dex102.htm
EXCEL - IDEA: XBRL DOCUMENT - IQVIA HOLDINGS INC.	Financial_Report.xls

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2014

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number: 001-35907

QUINTILES TRANSNATIONAL HOLDINGS INC.

(Exact name of registrant as specified in its charter)


North Carolina		27-1341991
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

4820 Emperor Blvd., Durham, North Carolina 27703

(Address of principal executive offices and Zip Code)

(919) 998-2000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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 definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date.


Class		Number of Shares Outstanding
Common Stock $0.01 par value		130,142,016 shares outstanding as of April 24, 2014

QUINTILES TRANSNATIONAL HOLDINGS INC.

FORM 10-Q

TABLE OF CONTENTS


		Page

PART I—FINANCIAL INFORMATION			3

Item 1.	Financial Statements (unaudited)		3

	Condensed Consolidated Statements of Income for the three months ended March 31, 2014 and 2013		3

	Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2014 and 2013		4

	Condensed Consolidated Balance Sheets as of March 31, 2014 and December 31, 2013		5

	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2014 and 2013		6

	Notes to Condensed Consolidated Financial Statements		7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		15

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		23

Item 4.	Controls and Procedures		23

PART II—OTHER INFORMATION			23

Item 1.	Legal Proceedings		23

Item 1A.	Risk Factors		23

Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities		24

Item 6.	Exhibits		24

SIGNATURES			25

EXHIBIT INDEX			26

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

QUINTILES TRANSNATIONAL HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(unaudited)


	Three Months Ended March 31,
	2014		2013
	(in thousands, except per share data)
Service revenues	$	1,005,288	$	927,435
Reimbursed expenses		302,558		301,406

Total revenues		1,307,846		1,228,841
Costs, expenses and other:
Costs of revenue, service costs		643,722		611,109
Costs of revenue, reimbursed expenses		302,558		301,406
Selling, general and administrative		219,242		199,302
Restructuring costs		1,008		1,859

Income from operations		141,316		115,165

Interest income		(1,255)		(452)
Interest expense		24,703		36,042
Other income, net		(4,844)		(2,382)

Income before income taxes and equity in earnings (losses) of unconsolidated affiliates		122,712		81,957
Income tax expense		37,389		32,118

Income before equity in earnings (losses) of unconsolidated affiliates		85,323		49,839
Equity in earnings (losses) of unconsolidated affiliates		4,891		(1,683)

Net income		90,214		48,156
Net (income) loss attributable to noncontrolling interests		(31)		153

Net income attributable to Quintiles Transnational Holdings Inc.	$	90,183	$	48,309


Earnings per share attributable to common shareholders:
Basic	$	0.69	$	0.42
Diluted	$	0.68	$	0.41

Weighted average common shares outstanding:
Basic		129,898		115,769
Diluted		133,040		118,740

The accompanying notes are an integral part of these condensed consolidated financial statements.

QUINTILES TRANSNATIONAL HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)


	Three Months Ended March 31,
	2014		2013
	(in thousands)
Net income	$	90,214	$	48,156

Unrealized gains on marketable securities, net of income taxes of $1,208 and $26		1,930		42

Unrealized gains (losses) on derivative instruments, net of income taxes of ($125) and ($1,197)		322		(3,196)

Foreign currency translation, net of income taxes of $0 and ($4,635)		303		(15,638)
Reclassification adjustments:

Gains on marketable securities included in net income, net of income taxes of ($1,927)		(3,077)		—

Losses on derivative instruments included in net income, net of income taxes of $794 and $1,368		375		2,546

Amortization of prior service costs and losses included in net income, net of income taxes of $72 and $101		120		166

Comprehensive income		90,187		32,076
Comprehensive (income) loss attributable to noncontrolling interests		(21)		151


Comprehensive income attributable to Quintiles Transnational Holdings Inc.	$	90,166	$	32,227

The accompanying notes are an integral part of these condensed consolidated financial statements.

QUINTILES TRANSNATIONAL HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


	March 31, 2014		December 31, 2013
	(unaudited)		(Note 1)
	(in thousands, except per share data)
ASSETS
Current assets:
Cash and cash equivalents	$	741,381	$	778,143
Restricted cash		3,373		2,712
Trade accounts receivable and unbilled services, net		948,453		924,205
Prepaid expenses		52,893		42,801
Deferred income taxes		92,856		92,115
Income taxes receivable		16,444		16,171
Other current assets and receivables		92,420		89,541

Total current assets		1,947,820		1,945,688


Property and equipment, net		195,852		199,578
Investments in debt, equity and other securities		37,628		40,349
Investments in and advances to unconsolidated affiliates		29,072		22,927
Goodwill		409,519		409,626
Other identifiable intangibles, net		289,094		298,054
Deferred income taxes		33,430		32,864
Deposits and other assets		119,477		117,711

Total assets	$	3,061,892	$	3,066,797


LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities:
Accounts payable and accrued expenses	$	768,868	$	861,805
Unearned income		511,441		538,585
Income taxes payable		46,697		35,778
Current portion of long-term debt and obligations held under capital leases		15,572		10,433
Other current liabilities		33,898		35,646

Total current liabilities		1,376,476		1,482,247

Long-term debt and obligations held under capital leases, less current portion		2,031,247		2,035,586
Deferred income taxes		35,565		37,541
Other liabilities		178,129		178,908

Total liabilities		3,621,417		3,734,282

Commitments and contingencies
Shareholders’ deficit:
Common stock and additional paid-in capital, 300,000 shares authorized, $0.01 par value, 130,049 and 129,652 shares issued and outstanding at March 31, 2014 and December 31, 2013, respectively		495,917		478,144
Accumulated deficit		(1,054,998)		(1,145,181)
Accumulated other comprehensive loss		(393)		(376)

Deficit attributable to Quintiles Transnational Holdings Inc.’s shareholders		(559,474)		(667,413)
Deficit attributable to noncontrolling interests		(51)		(72)

Total shareholders’ deficit		(559,525)		(667,485)

Total liabilities and shareholders’ deficit	$	3,061,892	$	3,066,797

The accompanying notes are an integral part of these condensed consolidated financial statements.

QUINTILES TRANSNATIONAL HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


	Three Months Ended March 31,
	2014		2013
	(in thousands)
Operating activities:
Net income	$	90,214	$	48,156

Adjustments to reconcile net income to cash used in operating activities:
Depreciation and amortization		29,088		24,640
Amortization of debt issuance costs and discount		1,595		2,875
Share-based compensation		7,221		4,473
Gain on disposals of property and equipment, net		(181)		(296)
(Earnings) loss from unconsolidated affiliates		(4,891)		1,683
Gain on investments, net		(5,268)		(12)
(Benefit from) provision for deferred income taxes		(1,587)		11,164
Excess income tax benefits on stock option exercises		(5,840)		(196)
Changes in operating assets and liabilities:
Change in accounts receivable, unbilled services and unearned income		(51,018)		(39,654)
Change in other operating assets and liabilities		(87,770)		(74,291)

Net cash used in operating activities		(28,437)		(21,458)

Investing activities:
Acquisition of property, equipment and software		(17,706)		(31,459)
Acquisition of business, net of cash acquired		(667)		—
Proceeds from disposition of property and equipment		418		659
Proceeds from sale of equity securities		5,861		60
Investments in and advances to unconsolidated affiliates, net of payments received		(1,224)		(4,377)
Change in restricted cash, net		(661)		(1,077)

Net cash used in investing activities		(13,979)		(36,194)

Financing activities:
Repayment of debt and principal payments on capital lease obligations		(334)		(34,304)
Exercise of stock options		5,916		149
Payroll taxes remitted on repurchase of stock options		(8,415)		—
Excess income tax benefits on stock option exercises		5,840		196

Net cash provided by (used in) financing activities		3,007		(33,959)

Effect of foreign currency exchange rate changes on cash		2,647		(21,824)


Decrease in cash and cash equivalents		(36,762)		(113,435)
Cash and cash equivalents at beginning of period		778,143		567,728

Cash and cash equivalents at end of period	$	741,381	$	454,293

The accompanying notes are an integral part of these condensed consolidated financial statements.

QUINTILES TRANSNATIONAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Quintiles Transnational Holdings Inc. and its subsidiaries (the “Company”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of the Company’s financial condition and results of operations have been included. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2014. As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the Company’s audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013. The balance sheet at December 31, 2013 has been derived from the audited consolidated financial statements of the Company but does not include all the disclosures required by GAAP.

Reclassifications

Certain prior period amounts have been reclassified to conform to current period presentation. These changes had no effect on previously reported total revenues, net income, comprehensive income, shareholders’ deficit or cash flows.

2. Employee Stock Compensation

The Company granted the following share-based awards:


	Three Months Ended March 31,
	2014		2013
Stock options		1,024,500		75,000
Stock appreciation rights		176,800		—

The Company had the following share-based awards outstanding:


	March 31, 2014		December 31, 2013
Stock options		10,578,160		10,100,160
Stock appreciation rights		430,450		258,025
Restricted stock units		57,167		57,167

The Company used the following assumptions when estimating the value of the share-based compensation for stock options and stock appreciation rights issued as follows:


	Three Months Ended March 31,
	2014	2013
Expected volatility	32 – 43%	34 – 47%
Weighted average expected volatility	38%	42%
Expected dividends	0.0%	5.45%
Expected term (in years)	3.7 – 6.7	3.4 – 6.4
Risk-free interest rate	0.99 – 2.21%	0.48 – 1.19%

In November 2013, the Company’s Board of Directors (the “Board”) approved an Employee Stock Purchase Plan (“ESPP”) which, subject to shareholder approval at the 2014 annual meeting, allows eligible employees to authorize payroll deductions of up to 10% of their base salary to be applied toward the purchase of full shares of the Company’s common stock on the last day of the offering period. Offering periods under the ESPP are six months in duration and will begin on each March 1 and September 1. The first offering period for the ESPP began March 1, 2014. Under the ESPP, shares will be purchased on the last day of each offering period at a discount of 15% of the closing price of the common stock on such date as reported on the New York Stock Exchange. As of March 31, 2014, there have been aggregate payroll contributions of approximately $407,000 related to the ESPP.

The Company recognized share-based compensation expense of $7.2 million and $4.5 million during the three months ended March 31, 2014 and 2013, respectively.

3. Concentration of Credit Risk

No customer accounted for 10% or more of consolidated service revenues for the three months ended March 31, 2014 or 2013.

4. Accounts Receivable and Unbilled Services

Accounts receivable and unbilled services consist of the following (in thousands):


	March 31, 2014		December 31, 2013
Trade:
Billed	$	435,068	$	408,959
Unbilled services		515,131		516,942

		950,199		925,901
Allowance for doubtful accounts		(1,746)		(1,696)

	$	948,453	$	924,205

5. Goodwill

The following is a summary of goodwill by segment for the three months ended March 31, 2014 (in thousands):


	Product Development		Integrated Healthcare Services		Consolidated
Balance as of December 31, 2013	$	351,144	$	58,482	$	409,626
Impact of foreign currency fluctuations and other		(652)		545		(107)

Balance as of March 31, 2014	$	350,492	$	59,027	$	409,519

6. Derivatives

As of March 31, 2014, the Company held the following derivative positions: (i) freestanding warrants to purchase shares of common stock of third parties, (ii) forward exchange contracts to protect against foreign exchange movements for certain forecasted foreign currency cash flows related to service contracts and (iii) interest rate swaps to hedge the exposure to variability in interest payments on variable interest rate debt. The Company does not use derivative financial instruments for speculative or trading purposes.

As of March 31, 2014, the Company had freestanding warrants to purchase shares of third parties’ common stock. No quoted price is available for the warrants. Accordingly, the Company uses various valuation techniques to value the warrants, including the present value of estimated expected future cash flows, option-pricing models and fundamental analysis. Factors affecting the valuation include the current price of the underlying common stock, the exercise price of the warrants, the expected time to exercise the warrants, the estimated price volatility of the underlying common stock over the life of the warrants and the restrictions on the transferability of or ability to exercise the warrants. The Company did not sell any warrants during the three months ended March 31, 2014 or 2013.

As of March 31, 2014, the Company had 14 open foreign exchange forward contracts to hedge certain forecasted foreign currency cash flow transactions occurring in 2014 with notional amounts totaling $70.6 million. As these contracts were executed to hedge the risk of the potential volatility in the cash flows resulting from fluctuations in currency exchange rates during the last nine months of 2014, these transactions are accounted for as cash flow hedges. As such, the effective portion of the gain or loss on the contracts is recorded as unrealized gains (losses) on derivatives included in the accumulated other comprehensive loss component of shareholders’ deficit. These hedges are highly effective. Upon expiration of the hedge instruments in 2014, the Company will reclassify the unrealized holding gains and losses on the derivative instruments included in accumulated other comprehensive loss into earnings.

On June 9, 2011, the Company entered into six interest rate swaps effective September 28, 2012 and expiring between September 30, 2013 and March 31, 2016 in an effort to limit its exposure to changes in the variable interest rate on its senior secured credit facilities. The critical terms of the interest rate swaps were substantially the same as those of the Company’s senior secured credit facilities, including quarterly interest settlements. These interest rate swaps are being accounted for as cash flow hedges as these transactions were executed to hedge the Company’s interest payments, and these hedges are deemed to be highly effective. As such, changes in the fair value of these derivative instruments are recorded as unrealized gains (losses) on derivatives included in the accumulated other comprehensive loss component of shareholders’ deficit. The fair value of these interest rate swaps represents the present value of the anticipated net payments the Company will make to the counterparty, which, when they occur, are reflected as interest expense on the condensed consolidated statements of income. These payments, together with the variable rate of interest incurred on the underlying debt, result in a fixed rate of interest of 2.55% plus the applicable margin on the affected borrowings ($945.0 million or 45.9% of the Company’s variable rate debt at March 31, 2014). The Company expects that $12.4 million of unrealized losses will be reclassified out of accumulated other comprehensive loss and will form the interest rate swap component of the 2.55% fixed rate of interest incurred over the next 12 months as the underlying net payments are settled.

The fair values of the Company’s derivative instruments designated as hedging instruments and the line items on the accompanying condensed consolidated balance sheets to which they were recorded are summarized in the following table (in thousands):


	Balance Sheet Classification	March 31, 2014		December 31, 2013
Foreign exchange forward contracts	Other current assets	$	3,141	$	3,950

Interest rate swaps	Other current liabilities	$	22,630	$	24,805

The fair values of the Company’s derivative instruments not designated as hedging instruments and the line items on the accompanying condensed consolidated balance sheets to which they were recorded are summarized in the following table (in thousands):


	Balance Sheet Classification	March 31, 2014	December 31, 2013
Warrants	Deposits and other assets	$ 474	$ 211

The effect of the Company’s cash flow hedging instruments on other comprehensive income (loss) is summarized in the following table (in thousands):


	Three Months Ended March 31,
	2014			2013
Foreign exchange forward contracts	$	(809	)	$	(2,391	)
Interest rate swaps		2,175			1,912

Total	$	1,366		$	(479	)

Gains from derivative instruments not designated as hedges impacting the Company’s condensed consolidated statements of income are summarized below (in thousands):


		Three Months Ended March 31,
	Income Statement Classification	2014		2013
Warrants	Other income, net	$	263	$	11

7. Fair Value Measurements

The Company records certain assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy that prioritizes the inputs used to measure fair value is described below. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

•

Level 1 — Quoted prices in active markets for identical assets or liabilities.

•

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

•

Level 3 — Unobservable inputs that are supported by little or no market activity. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

Recurring Fair Value Measurements

The following table summarizes the fair value of the Company’s financial assets and liabilities that are measured on a recurring basis as of March 31, 2014 (in thousands):


	Level 1		Level 2		Level 3		Total
Assets:
Marketable equity securities	$	4,946	$	—	$	—	$	4,946
Foreign exchange forward contracts		—		3,141		—		3,141
Warrants		—		—		474		474

Total	$	4,946	$	3,141	$	474	$	8,561

Liabilities:
Interest rate swaps	$	—	$	22,630	$	—	$	22,630
Contingent consideration		—		—		12,932		12,932

Total	$	—	$	22,630	$	12,932	$	35,562

Below is a summary of the valuation techniques used in determining fair value:

Marketable equity securities — The Company values marketable equity securities utilizing quoted market prices.

Warrants — The Company values warrants utilizing the Black-Scholes-Merton model.

Foreign exchange forward contracts — The Company values foreign exchange forward contracts using quoted market prices for identical instruments in less active markets or using other observable inputs.

Interest rate swaps — The Company values interest rate swaps using market inputs with mid-market pricing as a practical expedient for bid-ask spread.

Contingent consideration — The Company values contingent consideration related to business combinations using a weighted probability calculation of potential payment scenarios discounted at rates reflective of the risks associated with the expected future cash flows. Key assumptions used to estimate the fair value of contingent consideration include revenue, net new business and operating forecasts and the probability of achieving the specific targets.

The following table summarizes the changes in Level 3 financial assets and liabilities measured on a recurring basis for the three months ended March 31 (in thousands):


	Warrants – Deposits and Other Assets				Contingent Consideration – Accounts Payable and Accrued Expenses and Other Liabilities
	2014		2013		2014		2013
Balance as of January 1	$	211	$	29	$	13,014	$	3,521
Purchases and issuances		—		—		—		—
Revaluations included in earnings		263		11		(82)		(181)

Balance as of March 31	$	474	$	40	$	12,932	$	3,340

The revaluations for the warrants and the contingent consideration are recognized in other income, net on the accompanying condensed consolidated statements of income.

Non-recurring Fair Value Measurements

Certain assets are carried on the accompanying condensed consolidated balance sheets at cost and are not remeasured to fair value on a recurring basis. These assets include cost and equity method investments and loans that are written down to fair value for declines which are deemed to be other-than-temporary, definite-lived intangible assets which are tested for impairment annually and when a triggering event occurs, and goodwill and identifiable indefinite-lived intangible assets which are tested for impairment annually and when a triggering event occurs.

As of March 31, 2014, assets carried on the balance sheet and not remeasured to fair value on a recurring basis totaling approximately $760.4 million were identified as Level 3. These assets are comprised of cost and equity method investments of $61.8 million, goodwill of $409.5 million and other identifiable intangibles, net of $289.1 million.

The Company has unfunded cash commitments totaling approximately $33.0 million related to its cost and equity method investments as of March 31, 2014.

Other

The estimated fair value of the Company’s long-term debt, which is primarily based on rates in which the debt is traded among banks, was approximately $2.1 billion at both March 31, 2014 and December 31, 2013.

8. Noncontrolling Interests

Below is a summary of noncontrolling interests for the three months ended March 31 (in thousands):


	2014		2013
Balance as of January 1	$	(72)	$	479
Comprehensive income (loss):
Net income (loss)		31		(153)
Foreign currency adjustments, net of income tax		(10)		2

Balance as of March 31	$	(51)	$	328

9. Restructuring

In February 2014, the Board approved a restructuring plan of up to $13.0 million to better align resources with the Company’s strategic direction. These actions are expected to occur throughout 2014 and are expected to result in severance for approximately 400 positions, primarily in the Product Development segment. Since February 2014, the Company has recognized approximately $1.5 million of restructuring costs related to this plan, all of which were for activities in the Product Development segment. All of the restructuring costs are related to severance costs. Restructuring costs are not allocated to the Company’s reportable segments as they are not part of the segment performance measures regularly reviewed by management.

The following amounts were recorded for the February 2014 restructuring plan and the restructuring plans initiated in prior years (in thousands):


	Severance and Related Costs		Exit Costs		Total
Balance at December 31, 2013	$	5,276	$	198	$	5,474
Expense, net of reversals		1,008		—		1,008
Payments		(2,658)		(42)		(2,700)
Foreign currency translation		(14)		—		(14)

Balance at March 31, 2014	$	3,612	$	156	$	3,768

The Company expects the majority of the remaining restructuring accruals to be paid in 2014.

10. Employee Benefit Plans

Defined Benefit Plans

The following table summarizes the components of pension expense related to the Company’s defined benefit plans (in thousands):


	Three Months Ended March 31,
	2014		2013
Service cost	$	3,287	$	3,153
Interest cost		987		938
Expected return on plan assets		(928)		(692)
Amortization of prior service costs		20		89
Amortization of actuarial losses		172		178

	$	3,538	$	3,666

Other

As of March 31, 2014 and December 31, 2013, the Company has a severance accrual included in accounts payable and accrued expenses on the accompanying condensed consolidated balance sheets of $10.9 million and $14.1 million, respectively. The Company recognizes obligations associated with severance related to contractual termination benefits at fair value on the date that it is probable that the affected employees will be entitled to the benefit and the amount can reasonably be estimated. The severance accrual is related to cost reduction programs that will result in severance for approximately 270 positions, which are expected to lower operating costs and improve profitability by reducing excess capacity. These actions are expected to occur and be paid during 2014 and 2015. During the first quarter of 2014, the Company has recognized approximately $2.2 million of net reversals related to these cost reduction programs, primarily as a result of affected individuals transferring into other positions within the Company. Of the $2.2 million decrease from net reversals recognized for these cost reduction programs, approximately ($2.2) million, $131,000 and ($55,000) were related to activities in the Product Development segment, Integrated Healthcare Services segment and corporate activities, respectively.

The following amounts were recorded for the severance associated with cost reduction programs (in thousands):


Balance at December 31, 2013	$	14,056
Expense, net of reversals		(2,160)
Payments		(966)
Foreign currency translation		(1)

Balance at March 31, 2014	$	10,929

11. Income Taxes

The Company’s effective income tax rate was 30.5% and 39.2% for the first quarter of 2014 and 2013 respectively. The effective income tax rate for the first quarter of 2014 was positively impacted by the Company’s change in the assertion regarding the undistributed earnings of most of its foreign subsidiaries that are considered to be indefinitely reinvested outside of the United States. Prior to June 2013, the Company had not considered the majority of the undistributed earnings of its foreign subsidiaries to be indefinitely reinvested. Accordingly, the first quarter of 2013 was negatively impacted by income taxes imposed on most of the earnings of the foreign subsidiaries, as a deferred income tax liability was recorded for the anticipated income tax costs of repatriating those earnings in the future. The Company reevaluated this assertion following its initial public offering (“IPO”) in May 2013 as a portion of the IPO proceeds were used to pay down debt held in the United States as well as the fact the Company does not anticipate paying dividends in the foreseeable future, which had been significant in the past. With this reduction of debt and related interest expense and the change in approach relating to payment of dividends, the Company expects to be able to support the cash needs of its domestic subsidiaries without repatriating cash from the affected foreign subsidiaries. The Company expects to utilize the cash generated outside of the United States to fund growth outside of the United States.

12. Comprehensive Income

Below is a summary of the components of accumulated other comprehensive (loss) income for the three months ended March 31, 2014 and 2013 (in thousands):


	Foreign Currency Translation		Marketable Securities		Derivative Instruments		Defined Benefit Plans		Income Taxes		Accumulated Other Comprehensive (Loss) Income
Balance at December 31, 2013	$	(5,829)	$	5,708	$	(20,855)	$	(5,044)	$	25,644	$	(376)
Other comprehensive (loss) income before reclassifications		313		3,138		197		—		(1,083)		2,565
Reclassification adjustments		—		(5,004)		1,169		192		1,061		(2,582)

Balance at March 31, 2014	$	(5,516)	$	3,842	$	(19,489)	$	(4,852)	$	25,622	$	(393)


	Foreign Currency Translation		Marketable Securities		Derivative Instruments		Defined Benefit Plans		Income Taxes		Accumulated Other Comprehensive (Loss) Income
Balance at December 31, 2012	$	19,312	$	467	$	(33,542)	$	(8,235)	$	29,693	$	7,695
Other comprehensive income (loss) before reclassifications		(20,275)		68		(4,393)		—		5,806		(18,794)
Reclassification adjustments		—		—		3,914		267		(1,469)		2,712

Balance at March 31, 2013	$	(963)	$	535	$	(34,021)	$	(7,968)	$	34,030	$	(8,387)

Below is a summary of the reclassification adjustments from accumulated other comprehensive (loss) income into net income for the three months ended March 31, 2014 and 2013 (in thousands):


	Three Months Ended March 31,
	2014		2013
Marketable securities:
Marketable securities – gain included in other income, net	$	(5,004)	$	—

Total before income taxes		(5,004)		—
Income taxes		(1,927)		—

Total net of income taxes	$	(3,077)	$	—


Derivative instruments:
Interest rate swaps – increase to interest expense	$	3,080	$	3,006
Foreign exchange forward contracts – (increase) reduction to service revenues		(1,911)		908

Total before income taxes		1,169		3,914
Income taxes		794		1,368

Total net of income taxes	$	375	$	2,546


Defined benefit plans:
Amortization of prior service costs	$	20	$	89
Amortization of actuarial losses		172		178

Total before income taxes		192		267
Income taxes		72		101

Total net of income taxes	$	120	$	166

Amortization of prior service costs and actuarial losses are included in the computation of pension expense for the Company’s defined benefit plans. See Note 10 for additional information.

13. Segments

The following table presents the Company’s operations by reportable segment. The Company is managed through two reportable segments, Product Development and Integrated Healthcare Services. Product Development, which primarily serves biopharmaceutical customers engaged in research and development, provides clinical research and clinical trial services. Integrated Healthcare Services provides commercialization services to biopharmaceutical customers and research, analytics, real-world and late phase research, and other services to both biopharmaceutical customers and the broader healthcare market.

Certain costs are not allocated to the Company’s segments and are reported as general corporate and unallocated expenses. These costs primarily consist of share-based compensation and expenses for corporate overhead functions such as finance, human resources, information technology, facilities and legal. The Company does not allocate restructuring or impairment charges to its segments. Information presented below is in thousands:


	Three Months Ended March 31,
	2014		2013
Service revenues
Product Development	$	770,828	$	706,307
Integrated Healthcare Services		234,460		221,128

Total service revenues		1,005,288		927,435

Costs of revenue, service costs
Product Development		450,483		429,007
Integrated Healthcare Services		193,239		182,102

Total costs of revenue, service costs		643,722		611,109

Selling, general and administrative
Product Development		159,685		144,625
Integrated Healthcare Services		32,276		32,781
General corporate and unallocated		27,281		21,896

Total selling, general and administrative		219,242		199,302

Income from operations
Product Development		160,660		132,675
Integrated Healthcare Services		8,945		6,245
General corporate and unallocated		(27,281)		(21,896)
Restructuring costs		(1,008)		(1,859)

Total income from operations	$	141,316	$	115,165


	Three Months Ended March 31,
	2014		2013
Depreciation and amortization expense
Product Development	$	22,970	$	18,447
Integrated Healthcare Services		4,891		5,353
General corporate and unallocated		1,227		840

Total depreciation and amortization expense	$	29,088	$	24,640

14. Earnings Per Share

The following table shows the weighted average number of outstanding share-based awards not included in the computation of diluted earnings per share as the effect of including such share-based awards in the computation would be anti-dilutive (in thousands):


	Three Months Ended March 31,
	2014		2013
Weighted average shares subject to anti-dilutive share-based awards		766		1,631

Share-based awards will have a dilutive effect under the treasury method only when the respective period’s average market value of the Company’s common stock exceeds the exercise proceeds.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement for Forward-Looking Information

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

In addition to historical condensed consolidated financial information, the following discussion contains forward-looking statements that reflect, among other things, our current expectations and anticipated results of operations, all of which are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements, market trends, or industry results to differ materially from those expressed or implied by such forward-looking statements. Therefore, any statements contained herein that are not statements of historical fact may be forward-looking statements and should be evaluated as such. Without limiting the foregoing, the words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “should,” “targets,” “will” and the negative thereof and similar words and expressions are intended to identify forward-looking statements. Unless legally required, we assume no obligation to update any such forward-looking information to reflect actual results or changes in the factors affecting such forward-looking information.

We caution you that any such forward-looking statements are further qualified by important factors that could cause our actual operating results to differ materially from those in the forward-looking statements, including without limitation, that most of our contracts may be terminated on short notice, and we may be unable to maintain large customer contracts or to enter into new contracts; 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; the historical indications of the relationship of our backlog to revenues may not be indicative of their future relationship; we may be unable to maintain our information systems or effectively update them; customer or therapeutic concentration could harm our business; our business is subject to risks associated with international operations, including economic, political and other risks, such as compliance with a myriad of laws and regulations, complications from conducting clinical trials in multiple countries simultaneously and changes in exchange rates; the market for our services may not grow as we expect; government regulators or our customers may limit the scope of prescription or withdraw products from the market, and government regulators may impose new regulatory requirements or may adopt new regulations affecting the biopharmaceutical industry; we may be unable to successfully develop and market new services or enter new markets; our failure to perform services in accordance with contractual requirements, regulatory standards and ethical considerations may subject us to significant costs or liability, which could also damage our reputation and cause us to lose existing business or not receive new business; our services are related to treatment of human patients, and we could face liability if a patient is harmed; we may be unable to successfully identify, acquire and integrate businesses, services and technologies; and we have substantial indebtedness and may incur additional indebtedness in the future, which could adversely affect our financial condition. For a further discussion of the risks relating to our business, see “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

Overview

We are the world’s largest provider of biopharmaceutical development services and commercial outsourcing services. We are positioned at the intersection of business services and healthcare and generated $1.0 billion of service revenues in the first quarter of 2014, conduct business in approximately 100 countries and have approximately 29,000 employees. We use the breadth and depth of our service offerings, our global footprint and our therapeutic, scientific and analytics expertise to help our biopharmaceutical customers, as well as other healthcare customers, to be more successful in an increasingly complex healthcare environment. Our business is currently organized in two reportable segments, Product Development and Integrated Healthcare Services.

Product Development

Product Development provides services and expertise that allow biopharmaceutical companies to outsource the clinical development process from first-in-man trials to post-launch monitoring. Our comprehensive service offerings provide the support and functional expertise necessary at each stage of development, as well as the systems and analytical capabilities to help our customers improve product development efficiency and effectiveness. Product Development is comprised of clinical solutions and services and consulting. Clinical solutions and services provides services necessary to develop biopharmaceutical products. These services include project management and clinical monitoring functions for conducting multi-site trials (generally Phase II-IV) (collectively “core clinical”). These also include clinical trial support services that improve clinical trial decision-making, such as global laboratories, data management, biostatistical, safety and pharmacovigilance, early clinical development trials (generally Phase I), and strategic planning and design services, which help improve decisions and performance. Consulting provides strategy and management consulting services based on life science expertise and advanced analytics, as well as regulatory and compliance consulting services.

Integrated Healthcare Services

Integrated Healthcare Services provides the healthcare industry with both broad geographic presence and commercial capabilities. Our customized commercialization services are designed to accelerate the commercial success of biopharmaceutical and other health-related products. Integrated Healthcare Services provides a broad array of services including commercial services, such as providing contract pharmaceutical sales forces in key geographic markets, as well as a growing number of healthcare business services for the broader healthcare sector. Service offerings include commercial services (sales representatives, strategy, marketing communications and other areas related to commercialization), real-world and late phase research (drug therapy analysis, real-world research and evidence-based medicine, including research studies to prove a drug’s value) and other healthcare services (comparative and cost-effectiveness research capabilities, clinical management analytics, decision support services, medication adherence and health outcome optimization services, and web-based systems for measuring quality improvement).

Reimbursed Expenses

Reimbursed expenses may fluctuate from period-to-period due, in part, to where we are in the lifecycle of the many contracts that are in progress at a particular point in time. For instance, these pass-through costs tend to be higher during the early phases of clinical trials as a result of patient recruitment efforts. As reimbursed expenses are pass-through costs to our customers with little to no profit to us, we believe that the fluctuations in reimbursed expenses from period to period are not meaningful to our underlying performance, we do not provide analysis of the fluctuations in these items or their impact on our financial results.

Foreign Currency Fluctuations

The impact from foreign currency fluctuations and constant currency information assumes constant foreign currency exchange rates based on the rates in effect for the comparable prior-year period were used in translation. We believe that providing the impact of fluctuations in foreign currency rates on certain financial results can facilitate analysis of period-to-period comparisons of business performance.

Results of Operations

Backlog and Net New Business

We began 2014 with backlog (as defined under “Net New Business Reporting and Backlog” below) of $9,855 million, which was 13% higher than at the beginning of 2013. Backlog at March 31, 2014 was $10,066 million.

Net new business grew 2% in the first quarter of 2014 to $1,274 million from $1,245 million in first quarter of 2013, driven by growth in Integrated Healthcare Services, partially offset by a decline in Product Development. Integrated Healthcare Services’ net new business increased 58% to $269 million in the first quarter of 2014 as compared to $170 million for the same period in 2013, related to growth in commercial services in North America as well as an increase in new business from real-world and late phase research services. Product Development’s net new business decreased 6% to $1,005 million in the first quarter of 2014 as compared to $1,075 million for the same period in 2013, which was as a result of lower net new business from core clinical services, partially offset by net new business from a business combination completed in the third quarter of 2013. We experienced higher growth in net new business for functional resourcing business in core clinical services in the 2014 quarter.

Service Revenues


	Three Months Ended March 31,				Change
	2014		2013		$		%
	(dollars in thousands)
Service revenues	$	1,005,288	$	927,435	$	77,853		8.4	%

For the three months ended March 31, 2014, our service revenues increased $77.9 million, or 8.4%, as compared to the same period in 2013. This increase is comprised of constant currency service revenue growth of approximately $78.4 million, or 8.4%, partially offset by a negative impact of approximately $466,000 from the effects of foreign currency fluctuations. The constant currency service revenue growth, which includes the impact from a business combination completed in the third quarter of 2013, is comprised of a $60.8 million increase in Product Development and a $17.6 million increase in Integrated Healthcare Services.

Costs of Revenue, Service Costs


	Three Months Ended March 31,
	2014		2013
	(dollars in thousands)
Costs of revenue, service costs	$	643,722	$	611,109
% of service revenues		64.0%		65.9%

When compared to the same period in 2013, service costs in the first quarter of 2014 increased $32.6 million. The increase included a constant currency increase in expenses of approximately $41.4 million, or 6.8%, partially offset by a positive impact of approximately $8.8 million from the effects of foreign currency fluctuations. The constant currency service costs growth was due to incremental costs resulting from the business combination completed in the third quarter of 2013 and increases in compensation and related expenses due to (1) annual merit increases, (2) an increase in billable headcount needed to support our higher volume of revenue, and (3) a reduction of an accrual for statutory profit sharing of approximately $5.4 million in 2013 as a result of guidance handed down by an administrative court in France. These increases in compensation and related expenses were partially offset by efficiencies gained from restructuring activities taken in prior years.

Selling, General and Administrative


	Three Months Ended March 31,
	2014		2013
	(dollars in thousands)
Selling, general and administrative	$	219,242	$	199,302
% of service revenues		21.8%		21.5%

The $19.9 million increase in selling, general and administrative expenses in the first quarter of 2014 was caused by a constant currency increase of $21.8 million, or 11.0%, partially offset by a decrease of $1.9 million from a positive foreign currency impact. The constant currency increase was primarily due to (1) incremental costs from the business combination completed in the third quarter of 2013, (2) an increase in share-based compensation, (3) increases in compensation and related expenses resulting primarily from annual merit increases and an increase in headcount, and (4) an increase in marketing and information technology, or IT, costs.

Restructuring Costs


	Three Months Ended March 31,
	2014		2013
	(in thousands)
Restructuring costs	$	1,008	$	1,859

In February 2014, our Board of Directors, or our Board, approved a restructuring plan of up to $13.0 million to better align our resources with our strategic direction. We recognized $1.0 million of restructuring charges, net of reversals for changes in estimates, in the first quarter of 2014, which was primarily related to the February 2014 restructuring plan. These actions are expected to occur throughout 2014 and are expected to result in severance for approximately 400 positions, primarily in the Product Development segment. We believe that this plan will result in annual cost savings of approximately $20.0 to $25.0 million.

Interest Income and Interest Expense


	Three Months Ended March 31,
	2014			2013
	(in thousands)
Interest income	$	(1,255	)	$	(452	)
Interest expense	$	24,703		$	36,042

Interest income includes interest received from bank balances and investments.

Interest expense for the first quarter of 2014 was lower than the same period in 2013 primarily due to a decrease in the average debt outstanding as a result of (1) the repayment of the $300.0 million term loan, which Quintiles Transnational Holdings Inc. obtained in February 2012 and paid in full in May 2013, (2) the pay down of $50.0 million of outstanding indebtedness under our senior secured credit facilities in May 2013, and (3) the mandatory prepayment of $33.8 million of outstanding indebtedness under our senior secured credit facilities in the first quarter of 2013. In addition, the average rate of interest on the term loan under our senior secured credit facility in the first quarter of 2014 was 75 basis points lower than it was in the first quarter of 2013 due to the reduction in the interest rate pursuant to the terms and conditions in the credit agreement as well as from the refinancing transaction we completed in the fourth quarter of 2013.

Other Income, Net


	Three Months Ended March 31,
	2014		2013
	(in thousands)
Other income, net	$	(4,844)	$	(2,382)

Included in other income, net for the first quarter of 2014 were approximately $529,000 of foreign currency net losses as compared to $1.8 million of foreign currency net gains during the same period in 2013. In addition, the first quarter of 2014 included a gain from the sale of marketable equity securities of approximately $5.0 million.

Income Tax Expense


	Three Months Ended March 31,
	2014		2013
	(dollars in thousands)
Income tax expense	$	37,389	$	32,118
Effective income tax rate		30.5%		39.2%

The effective income tax rate for the first quarter of 2014 was positively impacted by our change in the assertion regarding the undistributed earnings of most of our foreign subsidiaries that are considered to be indefinitely reinvested outside of the United States. Prior to June 2013, we had not considered the majority of the undistributed earnings of our foreign subsidiaries to be indefinitely reinvested. Accordingly, the first quarter of 2013 was negatively impacted by income taxes imposed on most of the earnings of the foreign subsidiaries, as a deferred income tax liability was recorded each quarter for the anticipated income tax costs of repatriating those earnings in the future. We reevaluated this assertion following our initial public offering, or IPO, in May 2013 as a portion of the IPO proceeds were used to pay down debt held in the United States as well as the fact we do not anticipate paying dividends in the foreseeable future, which had been significant in the past. With this reduction of debt and related interest expense and the change in approach relating to payment of dividends, we expect to be able to support the cash needs of our domestic subsidiaries without repatriating cash from the affected foreign subsidiaries. We expect to utilize the cash generated outside of the United States to fund growth outside of the United States.

Equity in Earnings (Losses) of Unconsolidated Affiliates


	Three Months Ended March 31,
	2014		2013
	(in thousands)
Equity in earnings (losses) of unconsolidated affiliates	$	4,891	$	(1,683)

Equity in earnings (losses) of unconsolidated affiliates reflected earnings of $4.9 million during the first quarter of 2014 as compared to a loss of $1.7 million for the same period last year. The increase was primarily due to gains in our NovaQuest Pharma Opportunities Fund investment.

Segments

Service revenues and income from operations by segment are as follows (dollars in millions):


Three Months Ended March 31, 2014 and 2013
	Service Revenues				Income from Operations				Operating Profit Margin
	2014		2013		2014		2013		2014	2013
Product Development	$	770.8	$	706.3	$	160.6	$	132.7	20.8%	18.8%
Integrated Healthcare Services		234.5		221.1		9.0		6.2	3.8	2.8

Total segment		1,005.3		927.4		169.6		138.9	16.9%	15.0%
General corporate and unallocated expenses						(27.3)		(21.8)
Restructuring costs						(1.0)		(1.9)

Consolidated	$	1,005.3	$	927.4	$	141.3	$	115.2

Certain costs are not allocated to our segments and are reported as general corporate and unallocated expenses. These costs primarily consist of share-based compensation and expenses for corporate office functions such as senior leadership, finance, human resources, IT, facilities and legal.

Product Development


	Three Months Ended March 31,				Change
	2014		2013		$		%
	(dollars in millions)
Service revenues	$	770.8	$	706.3	$	64.5		9.1%
Costs of revenue, service costs		450.5		429.0		21.5		5.0
as a percentage of service revenues		58.4%		60.7%
Selling, general and administrative		159.7		144.6		15.1		10.4
as a percentage of service revenues		20.8%		20.5%

Segment income from operations	$	160.6	$	132.7	$	27.9		21.1%

as a percentage of service revenues		20.8%		18.8%

Service Revenues

Product Development’s service revenues were $770.8 million in the first quarter of 2014, an increase of $64.5 million, or 9.1%, over the same period in 2013. This increase was comprised of constant currency service revenue growth of $60.8 million, or 8.6%, and approximately $3.7 million due to the effect of foreign currency fluctuations. The constant currency service revenue growth was primarily a result of a volume-related increase of $29.5 million in clinical solutions and services and $32.7 million from a business acquired in the third quarter of 2013, which were partially offset by a decrease of $1.4 million from consulting services.

Our clinical solutions and services growth for the first quarter of 2014 was primarily related to core clinical in North America, an increase in global laboratories services as well as growth in clinical trial support services. This growth was due largely to execution on the higher backlog in place as we entered the quarter as a result of a consistent history of year-over-year growth in net new business. This growth was tempered by a decrease in service revenues from a large clinical solutions project which wound down in 2013.

Costs of Revenue, Service Costs

Product Development’s service costs increased approximately $21.5 million in the first quarter of 2014 over the same period in 2013. This increase was comprised of a $27.1 million constant currency increase, or 6.3%, partially offset by a reduction of $5.6 million from the positive effect of foreign currency fluctuations. The constant currency service costs growth was due to incremental costs resulting from the business combination completed in the third quarter of 2013 and increases in compensation and related expenses due to (1) annual merit increases, (2) an increase in billable headcount needed to support our higher volume of revenue, and (3) a reduction of an accrual for statutory profit sharing of approximately $5.4 million in 2013 as a result of guidance handed down by an administrative court in France. These increases in compensation and related expenses were partially offset by efficiencies gained from restructuring activities taken in prior years. As a percent of service revenues, Product Development’s service costs were 58.4% and 60.7% in the first quarter of 2014 and 2013, respectively. The decrease in service costs as a percentage of service revenues was primarily a result of a closer alignment of resources with project requirements.

Selling, General and Administrative

As a percent of service revenues, Product Development’s selling, general and administrative expenses were 20.8% and 20.5% in the first quarter of 2014 and 2013, respectively. Product Development’s selling, general and administrative expenses increased approximately $15.1 million in the first quarter of 2014 as compared to the same period in 2013. This increase was primarily caused by the impact from the business combination completed in the third quarter of 2013, increases in compensation and related expenses resulting from annual merit increases and an increase in headcount, and a growth related increase in IT costs. These increases were partially offset by a positive foreign currency impact of approximately $1.7 million.

Integrated Healthcare Services


	Three Months Ended March 31,				Change
	2014		2013		$		%
	(dollars in millions)
Service revenues	$	234.5	$	221.1	$	13.4		6.0%
Costs of revenue, service costs		193.2		182.1		11.1		6.1
as a percentage of service revenues		82.4%		82.4%
Selling, general and administrative		32.3		32.8		(0.5)		(1.5)
as a percentage of service revenues		13.8%		14.8%

Segment income from operations	$	9.0	$	6.2	$	2.8		43.2%

as a percentage of service revenues		3.8%		2.8%

Service Revenues

Integrated Healthcare Services’ service revenues were $234.5 million in the first quarter of 2014, an increase of $13.4 million, or 6.0%, over the same period in 2013. This increase is comprised of constant currency service revenue growth of $17.6 million, or 7.9%, partially offset by a negative impact of approximately $4.2 million due to the effect of foreign currency fluctuations. The increase in constant currency service revenues was driven by an increase in commercial services in Japan and North America as well as growth in real-world and late phase research services.

Costs of Revenue, Service Costs

Integrated Healthcare Services’ service costs increased approximately $11.1 million in the first quarter of 2014. This increase was comprised of a $14.3 million constant currency increase, or 7.9%, partially offset by a reduction of $3.2 million from the positive effect of foreign currency fluctuations. The constant currency increase was primarily due to increases in compensation and related expenses resulting from an increase in billable headcount needed to support the higher volume of revenue as well as annual merit increases in compensation.

Selling, General and Administrative

Integrated Healthcare Services’ selling, general and administrative expenses in the first quarter of 2014 were slightly lower as compared to the same period in 2013 due to lower compensation and related expenses primarily as a result of lower headcount.

Liquidity and Capital Resources

Overview

We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities. Our principal source of liquidity is operating cash flows. In addition to operating cash flows, other significant factors that affect our overall management of liquidity include: capital expenditures, acquisitions, debt service requirements, dividends, equity repurchases, adequacy of our revolving credit facility, and access to the capital markets.

We manage our worldwide cash requirements by monitoring the funds available among our subsidiaries and determining the extent to which those funds can be accessed on a cost effective basis. The repatriation of cash balances from certain of our subsidiaries could have adverse income tax consequences. During the second quarter of 2013, we changed our assertion regarding the earnings of most of our foreign subsidiaries and now consider them indefinitely reinvested outside of the United States. Making this assertion limits our ability to repatriate cash from our foreign subsidiaries for the foreseeable future. In making this assertion, we determined that the cash flows expected to be generated in the United States should be sufficient to fund our operating requirements and debt service obligations in the United States and that we intend to use the cash generated by the affected foreign subsidiaries to fund growth outside of the United States. A future distribution or change in this assertion could result in additional tax liability.

We had a cash balance of $741.4 million at March 31, 2014 ($289.9 million of which was in the United States), a decrease from $778.1 million at December 31, 2013.

On October 30, 2013, our Board approved an equity repurchase program authorizing the repurchase of up to $125.0 million of either our common stock or vested in-the-money employee stock options, or a combination thereof. We used $65.5 million in the fourth quarter of 2013 to purchase $59.1 million of stock options and $6.4 million of common stock. We have used and intend to continue to use cash on hand to fund the equity repurchase program. The equity repurchase program does not obligate us to repurchase any particular amount of common stock or vested in-the-money employee stock options, and it could be modified, suspended or discontinued at any time. Repurchases of vested in-the-money employee stock options were made through transactions between us and our employees (other than our executive officers, who were not eligible to participate in the program), and this aspect of the equity repurchase program expired in November 2013. The equity repurchase program for common stock does not have an end date. Additional information regarding our equity repurchase program is presented in Part II, Item 2 “Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities” of this Quarterly Report on Form 10-Q.

Based on our current operating plan, we believe that our available cash and cash equivalents, future cash flows from operations and our ability to access funds under our revolving credit facility, will enable us to fund our operating requirements and capital expenditures and meet debt obligations for at least the next 12 months. We regularly evaluate our debt arrangements, as well as market conditions, and from time to time we may explore opportunities to modify our existing debt arrangements or pursue additional financing arrangements that could result in the issuance of new debt securities by us or our affiliates. We may use our existing cash, cash generated from operations or dispositions of assets or businesses and/or proceeds from any new financing arrangements or issuances of debt or equity securities to repay or reduce some of our outstanding obligations, to repurchase shares from our shareholders or for other purposes. While our Board will review our dividend policy from time to time, we currently do not intend to pay dividends in the foreseeable future. As part of our ongoing business strategy, we also are continually evaluating new acquisition, expansion and investment possibilities or other strategic growth opportunities, as well as potential dispositions of assets or businesses, as appropriate, including dispositions that may cause us to recognize a loss on certain assets. Should we elect to pursue any such transaction, we may seek to obtain debt or equity financing to facilitate those activities. Our ability to enter into any such potential transactions and our use of cash or proceeds is limited to varying degrees by the terms and restrictions contained in our senior secured credit facilities. We cannot provide assurances that we will be able to complete any such alternative financing arrangements or other transactions on favorable terms or at all.

Long-Term Debt

As of March 31, 2014, we had $2.05 billion of total indebtedness. Additionally, our senior secured credit agreement provides for a $300 million revolving credit facility. There were no amounts drawn on this revolving credit facility in the first quarter of 2014. Our long-term debt arrangements contain usual and customary restrictive covenants, and as of March 31, 2014, we believe we were in compliance with these covenants.

See “Management’s Discussion and Analysis – Liquidity and Capital Resources” and Note 10 to our audited consolidated financial statements, each included in our Annual Report on Form 10-K for fiscal year ended December 31, 2013, for additional details regarding our credit arrangements.

Three months ended March 31, 2014 and 2013

Cash Flow from Operating Activities


	Three Months Ended March 31,
	2014		2013
	(in thousands)
Net cash used in operating activities	$	(28,437)	$	(21,458)

Cash used in operating activities increased by $7.0 million during the first three months of 2014 as compared to the same period in 2013. This increase in cash used in operations was primarily as a result of higher cash used in days sales outstanding, or DSO ($11.4 million), higher payments for income taxes ($12.3 million), and higher cash used for incentive compensation. This higher cash used reflects a five-day increase in DSO in the first three months of 2014 compared to a three-day increase in the first three months of 2013. The net impact on cash from the increase in DSO resulted from a trend we continue to experience toward longer payment terms on our contracts. DSO can shift significantly at each reporting period depending on the timing of cash receipts under contractual payment terms relative to the recognition of revenue over a project lifecycle. These higher uses in cash from operations were partially offset by the increase in net income and lower payments for interest ($9.0 million) in the first three months of 2014 as compared to the same period in 2013.

Cash Flow from Investing Activities


	Three Months Ended March 31,
	2014		2013
	(in thousands)
Net cash used in investing activities	$	(13,979)	$	(36,194)

Cash used in investing activities decreased by $22.2 million during the first three months of 2014 as compared to the same period in 2013. This decline in the use of cash in the first three months of 2014 was primarily related to lower cash used for the acquisition of property, equipment and software and an increase in proceeds from the sale of third-party securities.

Cash Flow from Financing Activities


	Three Months Ended March 31,
	2014		2013
	(in thousands)
Net cash provided by (used in) financing activities	$	3,007	$	(33,959)

Net cash provided by financing activities increased by $37.0 million to $3.0 million during the first three months of 2014, as compared to cash used of $34.0 million during the same period in 2013. The cash provided by financing activities in the first three months of 2014 was primarily related to the exercise of stock options and the excess income tax benefits on stock option exercises, partially offset by the remittance of payroll tax withheld on stock options repurchased in the fourth quarter of 2013. The cash used in financing activities in the first three months of 2013 was primarily a result of a mandatory prepayment of $33.8 million on our senior secured credit facilities as a result of excess cash flow (as defined in the credit agreement).

Net New Business Reporting and Backlog

Net new business is the value of services awarded during the period from projects under signed contracts, letters of intent and, in some cases, pre-contract commitments, which are supported by written communications and adjusted for contracts that were modified or canceled during the period. Net new business under sole provider arrangements is recorded over the life of the arrangement as projects are awarded. Under sole provider arrangements, we are considered the exclusive provider for the contracted service or services.

Consistent with our methodology for calculating net new business during a particular period, backlog represents, at a particular point in time, future service revenues from work not yet completed or performed under signed contracts, letters of intent and, in some cases, pre-contract commitments that are supported by written communications. Once work begins on a project, service revenues are recognized over the duration of the project. Included within backlog at March 31, 2014 is approximately $6,607 million of backlog that we do not expect to generate revenue in the next 12 months.

Backlog was as follows:


	March 31, 2014		December 31, 2013
	(in millions)
Backlog	$	10,066	$	9,855

Net new business was as follows:


	Three Months Ended March 31,
	2014		2013
	(in millions)
Net new business	$	1,274	$	1,245

Contractual Obligations and Commitments

We have various contractual obligations, which are recorded as liabilities in our consolidated financial statements. Other items, such as operating lease obligations, are not recognized as liabilities in our consolidated financial statements but are required to be disclosed.

There have been no material changes, outside of the ordinary course of business, to our contractual obligations as previously disclosed in our Annual Report on Form 10-K for fiscal year ended December 31, 2013.

Application of Critical Accounting Policies

There have been no material changes to our critical accounting policies as previously disclosed in our Annual Report on Form 10-K for fiscal year ended December 31, 2013.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to our quantitative and qualitative disclosures about market risk as compared to the quantitative and qualitative disclosures about market risk described in our Annual Report on Form 10-K for fiscal year ended December 31, 2013.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our CEO and CFO, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our CEO and CFO have concluded that as of such date, our disclosure controls and procedures were effective.

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

We are party to legal proceedings incidental to our business. While the outcome of these matters could differ from management’s expectations, we do not believe that the resolution of these matters is reasonably likely to have a material adverse effect to our financial statements.

Item 1A. Risk Factors

For a discussion of our potential risks and uncertainties, see the information under the heading “Risk Factors” in our Annual Report on Form 10-K for fiscal year ended December 31, 2013. There have been no significant changes from the risk factors previously disclosed in our Annual Report.

Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities

Recent Sales of Unregistered Securities

Not applicable.

Use of Proceeds from Registered Securities

Not applicable.

Purchases of Equity Securities by the Issuer

The following table summarizes the equity repurchase program activity for the three months ended March 31, 2014 and the approximate dollar value of shares that may yet be purchased pursuant to our equity repurchase program:


Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs
	(in thousands, except per share data)
January 1, 2014 – January 31, 2014		0	$	00.00		0	$	59,500
February 1, 2014 – February 28, 2014		0	$	00.00		0	$	59,500
March 1, 2014 – March 31, 2014		0	$	00.00		0	$	59,500

		0				0

On October 31, 2013, we announced that on October 30, 2013 our Board approved an equity repurchase program authorizing the repurchase of up to $125.0 million of either our common stock or vested in-the-money employee stock options, or a combination thereof. We have used and intend to continue to use cash on hand to fund the equity repurchase program. The equity repurchase program does not obligate us to repurchase any particular amount of common stock or vested in-the-money employee stock options, and it could be modified, suspended or discontinued at any time. The timing and amount of repurchases are determined by our management based on a variety of factors such as the market price of our common stock, our corporate requirements, and overall market conditions. Purchases of our common stock may be made in open market transactions effected through a broker-dealer at prevailing market prices, in block trades, or in privately negotiated transactions. We may also repurchase shares of our common stock pursuant to a trading plan meeting the requirements of Rule 10b5-1 under the Exchange Act, which would permit shares of our common stock to be repurchased when we might otherwise be precluded from doing so by law. Repurchases of vested in-the-money employee stock options were made through transactions between us and our employees (other than our executive officers, who were not eligible to participate in the program), and this aspect of the equity repurchase program expired in November 2013. The equity repurchase program for common stock does not have an end date.

Item 6. Exhibits

The exhibits in the accompanying Exhibit Index following the signature page are filed or furnished as a part of this report and are incorporated herein by reference.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Durham, State of North Carolina, on May 1, 2014.

QUINTILES TRANSNATIONAL HOLDINGS INC.

/s/ Kevin K. Gordon

Kevin K. Gordon

Executive Vice President and Chief Financial Officer

(On behalf of the Registrant and as Principal Financial Officer)

EXHIBIT INDEX

Incorporated by Reference

Exhibit
Number

Exhibit Description

Filed

Herewith

Form

File No.

Exhibit

Filing Date

10.1†

General Release and Severance Agreement, dated January 29, 2014, between John D. Ratliff and Quintiles Transnational Corp.

10-K/A

001-35907

10.64

February 21, 2014

10.2

Form of Award Agreement Awarding Incentive Stock Options to Employees under the Quintiles Transnational Holdings Inc. 2013 Stock Incentive Plan.

31.1

Certification of Chief Executive Officer, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of Executive Vice President and Chief Financial Officer, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

Certification of Executive Vice President and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101*

Interactive Data Files Pursuant to Rule 405 of Regulation S-T: (i) Consolidated Statements of Income, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements

†	Indicates management contract or compensatory plan or arrangement.

Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files in Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

Large accelerated filer

Accelerated filer

Non-accelerated filer

x (Do not check if a smaller reporting company)

Smaller reporting company