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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended June 30, 1996
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _______ to _______
Commission file number 0-27058
PAREXEL INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its Charter)
Massachusetts 04-2776264
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
195 West Street
Waltham, Massachusetts 02154
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 487-9900
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
(Title of class)
(Continued)
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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 if disclosure of delinquent filers pursuant to Item 405
of Regulation 5-K is not contained hereto, and will not be contained to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
State the aggregate market value of the voting stock held by non-affiliates of
the registrant:
The aggregate market value of Common Stock held by non-affiliates was
$387,890,464 as of September 20, 1996.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as the latest practicable date:
As of September 20, 1996, there were 8,448,868 shares of the
registrant's Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Specified portions of the Registrant's 1996 Annual Report to Stockholders for
the fiscal year ended June 30, 1996 are incorporated by reference into Parts II
and IV of this report.
Specified portions of the Registrant's Proxy Statement dated October 8, 1996 for
the annual meeting of stockholders to be held on November 14, 1996 are
incorporated by reference into Part III of this report.
(End of cover page)
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PAREXEL INTERNATIONAL CORPORATION
FORM 10-K ANNUAL REPORT
INDEX
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Page
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PART I.
Item 1. Business 3
Item 2. Properties 15
Item 3. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security Holders 15
PART II
Item 5. Market for Registrant's Common Equity and Related 16
Stockholder Matters
Item 6. Selected Financial Data 16
Item 7. Management's Discussion and Analysis of Financial 16
Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data 22
Item 9. Changes in and Disagreements with Accountants on 22
Accounting and Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant 22
Item 11. Executive Compensation 22
Item 12. Security Ownership of Certain Beneficial Owners 22
and Management
Item 13. Certain Relationships and Related Transactions 22
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 22
SIGNATURES 28
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PART I
ITEM 1. BUSINESS
GENERAL
PAREXEL is a leading contract research organization ("CRO"), providing
clinical research and development services to the worldwide pharmaceutical and
biotechnology industries. The Company complements the research and development
departments of pharmaceutical and biotechnology companies by offering high
quality clinical research services to the client and reducing drug development
time and cost. In addition, the Company's integrated services and extensive
information technology capabilities coupled with its broad experience and
expertise in global drug development provide clients with a variable cost
alternative to the fixed costs associated with internal drug development. The
Company offers a full complement of integrated product development services,
including designing, initiating and monitoring clinical trials, managing and
analyzing clinical data and consulting on regulatory affairs.
The Company, founded in 1983 as a regulatory consulting firm, has built its
business both through internal expansion and acquisitions. In 1988, the Company
acquired Consulting Statisticians Inc., a leading biostatistics and data
management provider specializing in the healthcare industry. In 1989, the
Company initiated its international expansion by acquiring the London-based
McDonnell Douglas Clinical Trials Analysis Division, a division of McDonnell
Douglas Information Systems Ltd., which provided biostatistics and data
management services in Europe. In 1990, the Company acquired Barnett Associates,
Inc. to expand its Information Products Division, through which the Company
offers a range of specialized clinical consulting and training services and
related products. In 1991, the Company acquired AFB Arzneimittelforschung GmbH
in Berlin, a European CRO based in Berlin, with offices in Frankfurt and Paris.
In June 1996, the Company acquired Sitebase Clinical Systems, Inc., a provider
of remote data entry software and Caspard Consultants, a Paris-based CRO. In
August, 1996, the Company acquired Lansal Clinical Pharmaceutics Limited, an
Israel-based CRO, and State and Federal Associates, Inc., a provider of
consulting services to the healthcare and pharmaceutical industries located in
Washington, D.C. The Company is headquartered in Waltham, Massachusetts and
opened offices in San Diego in 1990, Raleigh-Durham in 1994, Milan, Italy, Kobe,
Japan and Sydney, Australia in 1995 and Chicago and Madrid, Spain in 1996.
INDUSTRY OVERVIEW
The CRO industry provides independent product development services for the
pharmaceutical and biotechnology industries. Generally, CROs derive
substantially all of their revenue from the research and development
expenditures of pharmaceutical and biotechnology companies. The CRO industry has
evolved from providing limited clinical services in the 1970s to an industry
which currently offers a full range of services that encompass the clinical
research process, including pre-clinical evaluations, study design, clinical
trial management, data collection and
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biostatistical analysis and product registration support. All of these services
are provided in accordance with regulations which govern clinical trials and the
drug approval process.
The CRO industry is highly fragmented, with participants ranging from several
hundred small, limited-service providers to several large full-service CROs with
global operations. Although there are few barriers to entry for small,
limited-service providers, the Company believes there are significant barriers
to becoming a full-service CRO with global capabilities. Some of these barriers
include the development of broad therapeutic expertise and the infrastructure
and experience necessary to serve the global demands of clients, the ability to
simultaneously manage complex clinical trials in numerous countries, the
expertise to prepare regulatory submissions in multiple countries, and the
development and maintenance of the complex information technology systems
required to integrate these capabilities. In recent years, the CRO industry has
experienced consolidation due in part to the acquisition of smaller firms by
larger full-service CROs.
The CRO industry derives substantially all of its revenue from the
pharmaceutical and biotechnology industries. The Company believes that the
following trends will lead to further growth opportunities for full-service,
global CROs, although there can be no assurance that this growth will
materialize:
- Cost Containment Pressures. Recently, drug companies have been focusing
on more efficient ways of conducting business because of margin pressures
stemming from patent expirations, market acceptance of generic drugs and
impending regulatory pressures to reduce drug prices. The Company believes
that the pharmaceutical industry is responding by consolidating and reducing
jobs, centralizing the research and development process and outsourcing to
variable cost CROs, thereby reducing the fixed costs associated with
internal drug development.
- Globalization of Clinical Development and Regulatory Strategy.
Pharmaceutical and biotechnology companies increasingly are attempting to
maximize profits from a given drug by pursuing regulatory approvals in
multiple countries in parallel rather than sequentially, as was the practice
historically. The Company believes that the globalization of clinical
research and development activities has increased the demand for CRO
services. A pharmaceutical or biotechnology company seeking approvals in a
country in which it lacks experience or internal resources will frequently
turn to a CRO for assistance in interacting with regulators or in organizing
and conducting clinical trials. In addition, a company may turn to a CRO in
the belief that regulatory authorities who are not familiar with the company
may have more confidence in the results from tests independently conducted
by a CRO known to those authorities.
- Consolidation in the Pharmaceutical Industry. The pharmaceutical
industry is consolidating as pharmaceutical companies seek to obtain cost
reduction synergies through business combinations. Recent announced
consolidations include some of the largest multinational pharmaceutical
companies in the world, such as Glaxo-Wellcome, American Home
Products-American Cyanamid, Hoechst-Marion Merrill Dow, Upjohn-Pharmacia and
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Roche-Syntex. Once consolidated, many pharmaceutical companies aggressively
manage costs by reducing headcount and outsourcing to variable-cost CROs in an
effort to reduce the fixed costs associated with internal drug development. The
Company believes that full-service global CROs will benefit from this trend.
- Increasingly Complex and Stringent Regulation; Need for Technological
Capabilities. Increasingly complex and stringent regulatory requirements
throughout the world have increased the volume of data required for
regulatory filings and escalated the demands on data collection and analysis
during the drug development process. As regulatory requirements have become
more complex, the pharmaceutical and biotechnology industries are
increasingly outsourcing to CROs to take advantage of their data management
expertise, technological capabilities and global presence.
- Drug Development Pressures. The Company believes that research and
development expenditures have increased as a result of the constant pressure
to develop a pipeline of products, and to respond to the demand for products
for an aging population and for the treatment of chronic disorders and
life-threatening conditions such as infectious diseases, including AIDS.
- Biotechnology Industry Growth. The U.S. biotechnology industry has grown
rapidly over the last ten years and is introducing significant numbers of
new drug candidates which will require regulatory approval. Many
biotechnology companies do not have the necessary experience or resources to
conduct clinical trials. Accordingly, many of these companies have chosen to
outsource to CROs rather than expend significant time and resources to
develop an internal clinical development capability. Moreover, the
biotechnology industry is rapidly expanding into and within Europe,
providing significant growth opportunities for CROs with a global presence.
The development of therapies for chronic disorders, such as Alzheimer's
disease and arthritis, requires complex clinical trials to demonstrate the
therapy's effectiveness and determine whether the drug causes any long-term
side effects.
PAREXEL'S STRATEGY
PAREXEL's objective is to maintain and enhance its position as a leading CRO
by providing a full range of clinical services on a global basis. The Company
addresses all aspects of clinical research and development with a flexible
approach that allows its clients to use the Company's services on an individual
or bundled basis. The Company believes its expertise in conducting
scientifically demanding trials and its ability to coordinate complicated global
trials are significant competitive strengths. The Company will continue to
invest in improvements in information technology and will consider acquisitions
of complementary businesses in order to enhance its competitive position and its
level of service.
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Serve the Global Model of New Drug Development
The Company believes that its ability to conduct clinical trials worldwide
enhances its ability to serve the increasingly global model of drug development.
The Company has provided clinical research and development services to major
North American, European and Japanese pharmaceutical companies. The Company has
expanded geographically primarily through internal growth, supplemented by
strategic acquisitions, with a goal of serving all major client markets
worldwide and positioning the Company to serve developing markets. Since January
1, 1994, the Company has opened offices in Chicago, Kobe, Milan, Raleigh-Durham,
Sydney and Madrid. PAREXEL is conducting a number of multinational clinical
studies designed to pursue concurrent regulatory approvals in multiple
countries. The Company believes that the expertise developed by conducting
multi-jurisdictional clinical trials is a competitive advantage as
pharmaceutical companies increasingly pursue regulatory approvals in multiple
jurisdictions in parallel.
The Company believes that the efficient delivery of high-quality clinical
services requires adherence to standardized procedures on a worldwide basis. The
Company has devoted considerable resources to developing internal standard
operating procedures. These procedures, together with the Company's information
technology, enable the Company to reduce the time involved in preparing
regulatory submissions by concurrently compiling and analyzing large volumes of
data from multinational trials and preparing regulatory submissions for filings
on a global basis.
Address All Aspects of Clinical Research; Offer Flexible Menu of Services
The Company offers a full range of services that encompasses the clinical
research process. The Company believes that its knowledge and experience in all
stages of clinical research enhance its credibility with prospective clients.
The Company's full range of services and global experience complement the
research and development departments of pharmaceutical and biotechnology
companies. In order to meet the needs of specific clients, PAREXEL offers its
services on either an individual or a bundled basis. This approach allows the
Company to establish a relationship with a new client with the need for a
particular service which may in turn lead to larger, more comprehensive
projects. This flexibility allows PAREXEL to deliver its services by operating
autonomously or by working in close collaboration with its clients. In some
cases, the Company has taken advantage of the flexibility of its information
technology systems to gain direct access to client data on client systems. In
addition, the Company provides regulatory periodicals, training materials and
seminars and other complementary information products and services designed to
meet its clients' demands for increased productivity in clinical development.
Conduct Scientifically Demanding Trials
The Company provides its services in connection with scientifically and
clinically demanding trials in a wide range of therapeutic areas, such as trials
involving the testing of drugs developed by biotechnology companies and drugs
addressing complex diseases such as AIDS, cancer and
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Alzheimer's. The Company's leadership in AIDS is evidenced by the selection of
PAREXEL as the CRO for the Intercompany Collaborative for AIDS Drug Development,
a consortium including 18 global leaders in AIDS research. Other therapeutic
categories in which the Company has expertise include neurology, oncology,
gastroenterology, endocrinology, cardiology, hematology, immunology,
rheumatology and the study of pulmonary, reproductive and infectious diseases.
The Company believes that as trials involve increasingly complex therapeutic
areas, CROs with a broad range of experience have a competitive advantage over
other companies with more limited capabilities.
Continue Investment in Information Technology
The Company believes that superior information technology is essential to
enable a CRO to provide project services concurrently in multiple countries,
expand its geographic operations to meet the global needs of the pharmaceutical
and biotechnology industries and provide innovative services designed to
expedite the clinical trials process. The Company has an extensive and effective
global information technology network and believes that its information
technology provides it with a significant competitive advantage. The Company's
information technology supports its global organizational structure by enabling
all offices to exchange information with each other so that several offices
worldwide can work simultaneously on a project. The global information
technology network also allows the Company to track the progress of ongoing
client projects and predict more accurately and quickly its future personnel
needs to meet client contract commitments. In addition, the Company's open and
flexible information technology system can be adapted to the multiple needs of
different clients and regulatory systems. This enables the Company to respond
quickly to client inquiries on the progress of projects and, in some cases, to
gain direct access to client data on client systems.
SERVICES
The Company provides a full range of clinical research and development
services, including clinical trials management, clinical data management,
biostatistical analysis, study design and regulatory affairs services, including
product registrations with regulatory authorities for its clients. The Company
provides services individually or as an integrated package of two or more
services. The Company's full range of services and global experience complement
the research and development departments of the Company's clients. In addition,
the Company's Information Products Division ("IPD") offers specialized clinical
consulting and training services and related products.
Clinical Trials Management Services
PAREXEL offers complete services for the design, initiation and management of
clinical trial programs, a critical element in obtaining regulatory approval for
drugs. The Company has performed services in connection with trials in most
therapeutic areas, including neurology, oncology, gastroenterology,
endocrinology, cardiology, hematology, immunology, rheumatology and the study of
pulmonary, reproductive and infectious diseases. PAREXEL's multi-disciplinary
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clinical trials group examines a product's existing preclinical and clinical
data to design clinical trials to provide evidence of the product's safety and
efficacy.
PAREXEL can manage every aspect of clinical trials, including design,
placement, initiation, monitoring, report preparation and strategy development.
See "Government Regulation -- New Drug Development-An Overview." Most of the
Company's clinical trials management projects involve Phase II or III clinical
trials, which are generally much larger and more complex than Phase I trials.
Clinical trials are monitored for and with strict adherence to good clinical
practices ("GCP"). The design of efficient Case Report Forms ("CRF"), detailed
operations manuals and site visits by PAREXEL's clinical research associates
ensure that clinical investigators and their staff follow the established
protocols of the studies. The Company has adopted standard operating procedures
which are intended to satisfy regulatory requirements and serve as a tool for
controlling and enhancing the quality of PAREXEL's worldwide clinical services.
Clinical trials represent one of the most expensive and time-consuming parts
of the overall drug development process. The information generated during these
trials is critical for gaining marketing approval from the FDA or other
regulatory agencies. PAREXEL's clinical trials management group assists clients
with one or more of the following steps:
- Study Protocol Design. The protocol defines the medical issues the study
seeks to examine and the statistical tests that will be conducted.
Accordingly, the protocol defines the frequency and type of laboratory and
clinical measures that are to be tracked and analyzed. The protocol also
defines the number of patients required to produce a statistically valid
result, the period of time over which they must be tracked and the
frequency and dosage of drug administration. The study's success depends on
the protocol's ability to predict correctly the requirements of the
regulatory authority.
- Case Report Forms Design. Once the study protocol has been finalized,
CRFs must be developed. The CRF may change at different stages of a trial.
The CRFs for one patient in a given study may consist of 100 or more pages.
- Site and Investigator Recruitment. The drug is administered to patients
by physicians, referred to as investigators, at hospitals, clinics or other
locations, referred to as sites. Potential investigators may be identified
by the drug sponsor or the CRO. The trial's success depends on the
successful identification and recruitment of investigators with an adequate
base of patients who satisfy the requirements of the study protocol. The
Company has access to several thousand investigators who have conducted
clinical trials for the Company.
- Patient Enrollment. The investigators find and enroll patients suitable
for the study. The speed with which trials can be completed is
significantly affected by the rate at which patients are enrolled.
Prospective patients are required to review information about the drug and
its possible side effects, and sign an informed consent form to record
their knowledge and acceptance of potential side effects. Patients also
undergo a medical examination to
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determine whether they meet the requirements of the study protocol.
Patients then receive the drug and are examined by the investigator as
specified by the study protocol.
- Study Monitoring and Data Collection. As patients are examined and tests
are conducted in accordance with the study protocol, data are recorded on
CRFs and laboratory reports. The data are collected from study sites by
specially trained persons known as monitors. Monitors visit sites regularly
to ensure that the CRFs are completed correctly and that all data specified
in the protocol are collected. The monitors take completed CRFs to the
study coordinating site, where the CRFs are reviewed for consistency and
accuracy before their data are entered into an electronic database. The
Company's study monitoring and data collection services comply with the
FDA's adverse events reporting guidelines.
- Report Writing. The findings of statistical analysis of data collected
during the trial together with other clinical data are included in a final
report generated for inclusion in a regulatory document.
- Medical Services. Throughout the course of a clinical trial, PAREXEL's
physicians can provide a wide range of medical research and consulting
services, including medical monitoring of clinical trials.
Clinical Data Management and Biostatistical Services
PAREXEL's data management professionals assist in the design of CRFs, as well
as training manuals for investigators, to ensure that data are collected in an
organized and consistent format. Databases are designed according to the
analytical specifications of the project and the particular needs of the client.
Prior to data entry, PAREXEL personnel screen the data to detect errors,
omissions and other deficiencies in completed CRFs. The Company provides clients
with data abstraction, data review and coding, data entry, database verification
and editing and problem data resolution.
The Company has extensive experience in the United States and Europe in the
creation of scientific databases for all phases of the drug development process,
including the creation of customized databases to meet client-specific formats,
integrated databases to support New Drug Application submissions and databases
in strict accordance with FDA and European specifications. For example, the
Company recently completed, in support of a New Drug Application filing, an
expanded access program with over 2,000 investigators enrolling over 11,000
patients at sites located in 26 countries, including 17 in Europe, five in South
America, two in Central America, the United States and Australia. Over 300,000
pages of CRF data were collected from these sites and merged into one integrated
database.
PAREXEL's biostatistics professionals assist clients with all phases of drug
development, including biostatistical consulting, database design, data analysis
and statistical reporting. These professionals develop and review protocols,
design appropriate analysis plans and design report formats to address the
objectives of the study protocol as well as the client's individual objectives.
Working with the programming staff, biostatisticians perform appropriate
analyses
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and produce tables, graphs, listings and other applicable displays of results
according to the analysis plan. Frequently, biostatisticians represent clients
during panel hearings at the FDA.
Regulatory Affairs Services
PAREXEL provides comprehensive regulatory product registration services for
pharmaceutical and biotechnology products in major jurisdictions in Europe and
North America, including regulatory strategy formulation, document preparation
and liaison with the FDA and other regulatory agencies. In addition, the Company
provides the services of qualified experts to assist with good manufacturing
practices ("GMP") compliance in existing manufacturing plants and to assure that
new facilities are built to conform to GMP. PAREXEL's staff provides on-site GMP
training sessions and conducts internal and external quality control and quality
assurance audits.
PAREXEL works closely with clients to devise regulatory strategies and
comprehensive product development programs. The Company's regulatory affairs
experts review existing published literature, assess the scientific background
of a product, assess the competitive and regulatory environment, identify
deficiencies and define the steps necessary to obtain registration in the most
expeditious manner. Through this service, the Company helps its clients
determine the feasibility of developing a particular product or product line.
Information Products Division
The Company's Information Products Division offers a range of specialized
clinical consulting and training services and related products through Barnett
International Corporation, a subsidiary of the Company, and through IPD's
publications group. Barnett International Corporation is a leader in providing
training, conferences, education and management consulting services to the
worldwide clinical research community, with extensive experience in organization
structure, curriculum design and human resource management in clinical research.
The publications group produces several publications covering regulatory issues,
including the monthly U.S. Regulatory Reporter (launched in 1984), books such as
New Drug Development: A Regulatory Overview and Biologics Development: A
Regulatory Overview, and reports such as CANDA: A Regulatory, Technology, and
Strategy Report and GCPs in the U.S., E.C., and Nordic Council: An International
Comparative Report.
Note 13 entitled "Geographic Information" to the Company's Consolidated
Financial Statements contains information concerning foreign and domestic
operations of PAREXEL.
INFORMATION SYSTEMS
The Company is committed to investing in information technology designed to
help the Company provide high quality services in a cost effective manner and to
manage its internal resources. The Company believes it is one of the few CROs
that has an extensive and effective global information technology network. The
Company has built on its network by developing a
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number of proprietary information systems that address critical aspects of its
business, including time management, budgeting and forecasting and on-line
clinical information management. The Company recently augmented its systems
capabilities with the acquisition of Sitebase Clinical Systems, a leading
provider of remote data entry technology. RDE technology has important
implications for CROs, including enhancing the accuracy and timeliness of
clinical data, thereby shortening customers' time-to-market.
The Company's information systems group has 45 employees responsible for
technology procurement, applications development and management of the Company's
worldwide computer network. The wide area network links ten local area networks,
interconnecting approximately 1,300 computers worldwide. The Company's
information systems are designed to work in support of and reinforce that
Company's standard operating procedures. The Company's information technology
system is open and flexible, allowing it to be adapted to the multiple needs of
different clients and regulatory systems. This system also enables the Company
to respond quickly to client inquiries on the progress of projects and, in some
cases, to gain direct access to client data on client systems.
SALES AND MARKETING
PAREXEL's marketing strategy is to focus on prospective clients whose clinical
development projects are large and complex and to develop close relationships
with key decision-makers throughout its clients' drug development organizations.
The Company's client relations professionals, senior executives and project team
leaders all share responsibility for the maintenance of key client relationships
and business development activities. The Company believes that its emphasis on
developing close relationships with its clients leaves it well positioned to
benefit from the trend among pharmaceutical companies to concentrate their
outsourcing among fewer CROs. The Company's core marketing activities are
complemented by the industry conferences and publications offered by the
Company's IPD. Although the IPD activities are conducted as independent business
activities, the Company believes that the IPD offerings enhance the Company's
market position in the drug development community.
The Company's marketing activities are coordinated by PAREXEL's client service
executives in each of the Company's U.S. locations as well as the Company's
locations in Australia, France, Germany, Italy, Japan, Spain and the United
Kingdom. Most of the Company's business development personnel have technical or
scientific backgrounds and many are physicians, pharmacologists, statisticians
and regulatory affairs professionals. The Company coordinates its worldwide
marketing efforts through a computerized system that is integrated into each of
the Company's locations.
CLIENTS
PAREXEL has served most of the leading U.S., European and Japanese
pharmaceutical companies. PAREXEL's clients also include companies which develop
biotechnology and other emerging technologies.
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The Company has in the past derived, and may in the future derive, a
significant portion of its net revenue from a relatively limited number of major
projects or clients. In fiscal 1994, 1995 and 1996, no single customer accounted
for more than 10% of consolidated net revenue. In fiscal 1994, 1995 and 1996,
the Company's top five customers accounted for 29.8%, 25.2% and 32.0%,
respectively, of the Company's consolidated net revenue. The loss of business
from a significant client could materially and adversely affect the Company's
net revenue.
COMPETITION
The Company primarily competes against in-house departments of
pharmaceutical companies, full service CROs, and, to a lesser extent,
universities and teaching hospitals. Some of these competitors have
substantially greater capital, technical and other resources than the Company.
CROs generally compete on the basis of previous experience, medical and
scientific expertise in specific therapeutic areas, the quality of contract
research, the ability to organize and manage large-scale trials on a global
basis, the ability to manage large and complex medical databases, the ability to
provide statistical and regulatory services, the ability to recruit
investigators, the ability to integrate information technology with systems to
improve the efficiency of contract research, an international presence with
strategically located facilities, financial viability and price. PAREXEL
believes that it competes favorably in these areas.
The CRO industry is highly fragmented, with participants ranging from
several hundred small, limited-service providers to several large, full-service
CROs with global operations. PAREXEL believes that it is the fourth largest
full-service CRO, based on estimated annual net revenue. The three largest CROs
are Corning Lab Services, Inc., a subsidiary of Corning, Inc., Applied
Bioscience International, Inc. and Quintiles Transnational Corporation. In
addition, the fifth largest CRO is ClinTrials Research, Inc. The trend toward
CRO industry consolidation has resulted in heightened competition among the
larger CROs for clients and acquisition candidates. In addition, consolidation
within the pharmaceutical industry as well as a trend toward the concentration
by pharmaceutical companies of outsourcing among fewer CROs has led to
heightened competition for CRO contracts.
GOVERNMENT REGULATION
The clinical investigation of new drugs is highly regulated by
government agencies. The standard for the conduct of clinical research and
development studies comprises GCP, which stipulates procedures designed to
ensure the quality and integrity of data obtained from clinical testing and to
protect the rights and safety of clinical subjects. While GCP has not been
formally adopted by the FDA nor, with certain exceptions, by similar regulatory
authorities in other countries, some provisions of GCP have been included in
regulations adopted by the FDA. Furthermore, in practice, the FDA and many other
regulatory authorities require that study results submitted to such authorities
be based on studies conducted in accordance with GCP.
The FDA's regulatory requirements have served as the model for much of
the regulation for new drug development worldwide. As a result, similar
regulatory requirements exist in the other countries in which the Company
operates. The Company's regulatory capabilities include
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knowledge of the specific regulatory requirements in various countries, and the
Company has managed simultaneous regulatory submissions in more than one country
for a number of drug sponsors. Beginning in 1991, the FDA and corresponding
regulatory agencies of Canada, Japan and Western Europe commenced discussions to
develop harmonized standards for preclinical and clinical studies and the format
and content of applications for new drug approvals. Data from multinational
studies adhering to GCP are now generally acceptable to the FDA, Canadian and
Western European regulators.
The services provided by PAREXEL are ultimately subject to FDA regulation in
the U.S. and comparable agencies in other countries. The Company is obligated to
comply with FDA requirements governing such activities as obtaining patient
informed consents, verifying qualifications of investigators, reporting
patients' adverse reactions to drugs and maintaining thorough and accurate
records. The Company must maintain source documents for each study for specified
periods, and such documents may be reviewed by the study sponsor and the FDA
during audits. Non-compliance with GCP can result in the disqualification of
data collected during a clinical trial.
BACKLOG
Backlog consists of anticipated net revenue from letter agreements or
contracts that have been signed but not yet completed. Once work under a
contract or letter agreement commences, revenue is generally recognized over the
life of the contract, which usually lasts for 12 months or more. Backlog
excludes anticipated net revenues for projects for which the Company has
commenced work but for which a definitive contract or letter agreement has not
been executed. Backlog at June 30, 1996 was approximately $110 million, as
compared with approximately $81 million at June 30, 1995.
The Company believes that its backlog as of any date is not necessarily a
meaningful predictor of future results. Clinical studies under contracts
included in backlog are subject to termination or delay. Clients terminate or
delay contacts for a variety of reasons including, among others, the failure of
products being tested to satisfy safety requirements, unexpected or undesirable
clinical results of the product, the clients' decision to forego a particular
study, insufficient patient enrollment or investigator recruitment or production
problems resulting in shortages of the drug. Most of the Company's contracts are
terminable upon 60 to 90 days' notice by the client. The Company typically is
entitled to receive certain fees for winding down a study which is terminated or
delayed and, in some cases, a termination fee.
POTENTIAL LIABILITY AND INSURANCE
PAREXEL's clinical research services center on the testing of new drugs on
human volunteers pursuant to a study protocol. Clinical research involves a risk
of liability for personal injury or death to patients due, among other reasons,
to possible unforeseen adverse side effects or improper administration of the
new drug. Many of these patients are already seriously ill and are at risk of
further illness or death. The Company has not experienced any claims to date
arising out of any clinical trial managed or monitored by it.
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<PAGE> 15
The Company believes that the risk of liability to patients in clinical trials
is mitigated by various regulatory requirements, including the role of
institutional review boards ("IRBs") and the need to obtain each patient's
informed consent. The FDA requires each human clinical trial to be reviewed and
approved by the IRB at each study site. An IRB is an independent committee that
includes both medical and non-medical personnel and is obligated to protect the
interests of patients enrolled in the trial. After the trial begins, the IRB
monitors the protocol and measures designed to protect patients, such as the
requirement to obtain informed consent.
To reduce its potential liability, PAREXEL seeks to obtain indemnity
provisions in its contracts with clients and with investigators hired by the
Company on behalf of its clients. These indemnities generally do not, however,
protect PAREXEL against certain of its own actions such as those involving
negligence. Moreover, these indemnities are contractual arrangements that are
subject to negotiation with individual clients, and the terms and scope of such
indemnities can vary from client to client and from study to study. Finally, the
financial performance of these indemnities is not secured, so that the Company
bears the risk that an indemnifying party may not have the financial ability to
fulfill its indemnification obligations. PAREXEL could be materially and
adversely affected if it were required to pay damages or incur defense costs in
connection with a claim that is outside the scope of an indemnity or where the
indemnity, although applicable, is not performed in accordance with its terms.
The Company currently maintains an errors and omissions professional liability
insurance policy. There can be no assurance that this insurance coverage will be
adequate, or that insurance coverage will continue to be available on terms
acceptable to the Company.
INTELLECTUAL PROPERTY
The Company believes that factors such as its ability to attract and retain
highly-skilled professional and technical employees and its project management
skills and experience are significantly more important to its business than are
any intellectual property rights developed by it. PAREXEL has developed certain
computer software and related methodologies that the Company has sought to
protect through a combination of contracts, copyrights and trade secrets;
however, the Company does not consider the loss of exclusive rights to any of
this software or methodology to be material to the Company's business.
EMPLOYEES
As of June 30, 1996, the Company had approximately 1,300 full and part-time
employees, of which over 120 hold Ph.D. or M.D. degrees and over 225 others hold
masters degrees. Approximately 63% of the full-time employees are located in
North America and 36% are located in Europe. The Company believes that its
relations with its employees are good.
The success of the Company's business depends on its ability to attract and
retain a qualified professional, scientific and technical staff. The level of
competition among employers for skilled personnel, particularly those with
Ph.D., M.D. or equivalent degrees, is high. The Company
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<PAGE> 16
believes that its multinational presence, which allows for international
transfers, is an advantage in attracting employees. In addition, the Company
believes that the wide range of clinical trials in which it participates allows
the Company to offer a broad experience to clinical researchers. While the
Company has not experienced any significant difficulties in attracting or
retaining qualified staff to date, there can be no assurance the Company will be
able to avoid such difficulties in the future.
ITEM 2. PROPERTIES
PAREXEL leases all but one of its facilities. The Company's principal
executive offices are located in Waltham, Massachusetts, where it leases
approximately 83,000 square feet under leases that expire in August 2001. The
Company also maintains North American offices in Chicago, Philadelphia,
Raleigh-Durham, San Diego, and Washington, D.C. The Company's European
subsidiaries maintain offices in Berlin, Frankfurt, London, Milan, Paris,
Madrid, and Tel Aviv. The Company's Japanese subsidiary is located in Kobe. The
Company's Australian subsidiary is located in Sydney.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in a proceeding initiated by a former shareholder
of a business which was subsequently acquired by the Company captioned Tallon v.
Harwood, Barnett, Barnett Associates, Inc. and PAREXEL International
Corporation, 92-3496. The proceeding was filed on March 3, 1992 in the Court of
Common Pleas, Delaware County, Pennsylvania. The plaintiff, whose shares were
acquired by the other two shareholders of the acquired business approximately
three months prior to the acquisition of the business by PAREXEL, is seeking
unspecified monetary damages based on a claim that his shares were purchased at
an unfairly low price. The Company has filed an answer specifically denying the
material allegations raised in the plaintiff's complaint and raising various
affirmative defenses. The Company believes that resolution of this matter will
not have a material adverse effect on the financial position, results of
operations or business of the Company.
The Company is not a party to, and is not aware of, any proceeding involving
any material claims arising out of any clinical trial that it managed or
monitored.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended June 30, 1996.
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<PAGE> 17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
This information is incorporated by reference from page 34, "Quarterly
Operating Results and Common Stock Information (Unaudited)" of the Company's
1996 Annual Report to Stockholders included as Exhibit 13.1.
ITEM 6. SELECTED FINANCIAL DATA
This information is incorporated by reference from page 35, "Selected
Financial Data," of the Company's 1996 Annual Report to Stockholders included as
Exhibit 13.1.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This information is incorporated by reference from pages 14-18,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," of the Company's 1996 Annual Report to Stockholders included as
Exhibit 13.1.
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<PAGE> 18
RISK FACTORS
In addition to the other information in this report, the following risk factors
should be considered carefully in evaluating the company and its business.
Information provided by the Company from time may contain certain
"forward-looking" information, as that term is defined by (i) the Private
Securities Litigation Reform Act of 1995 (the "Act") and (ii) in releases made
by the Securities and Exchange Commission (the "SEC"). These risk factors are
being provided pursuant to the provisions of the Act and with the intention of
obtaining the benefits of the "safe harbor" provisions of the Act.
Loss or Delay of Large Contracts
Most of the Company's contracts are terminable upon 60 to 90 days' notice by
the client. Clients terminate or delay contracts for a variety of reasons,
including, among others, the failure of products being tested to satisfy safety
requirements, unexpected or undesired clinical results of the product, the
client's decision to forego a particular study, insufficient patient enrollment
or investigator recruitment or production problems resulting in shortages of the
drug. In addition, the Company believes that several factors, including the
potential adverse impact of health care reform, have caused pharmaceutical
companies to apply more stringent criteria to the decision to proceed with
clinical trials and therefore may result in a greater willingness of these
companies to cancel contracts with CROs. The loss or delay of a large contract
or the loss or delay of multiple contracts could have a material adverse effect
on the financial performance of the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on pages 13-17 of the
Company's Annual Report to Stockholders included as Exhibit 13.1 of this Form
10-K.
Variability of Quarterly Operating Results
The Company's quarterly operating results have been subject to variation, and
will continue to be subject to variation, depending upon factors such as the
initiation and progress of significant projects, exchange rate fluctuations, the
mix of services offered, the opening of new offices, the costs associated with
integrating acquisitions and the startup costs incurred in connection with the
introduction of new products and services. In addition, during the third quarter
of fiscal 1993 and 1995, the Company's results of operations were affected by a
non-cash restructuring charge and a non-cash write-down due to the impairment of
long-lived assets, respectively. See "Risks Associated with Acquisitions."
Because a high percentage of the Company's operating costs are relatively fixed,
variations in the initiation, completion, delay or loss of contracts, or in the
progress of clinical trials can cause material adverse variations in quarterly
operating results. See Note entitled "Quarterly Operating Results and Common
Stock Information (Unaudited)" to the Company's Consolidated Financial
Statements on page 34 of the Company's 1996 Annual Report to Stockholders
included as Exhibit 13.1 of this Form 10-K.
Dependence on Certain Industries and Clients
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<PAGE> 19
The Company's revenues are highly dependent on research and development
expenditures by the pharmaceutical and biotechnology industries. The Company's
operations could be materially and adversely affected by general economic
downturns in its clients' industries, the impact of the current trend toward
consolidation in these industries or any decrease in research and development
expenditures. Furthermore, the Company has benefited to date from the increasing
tendency of pharmaceutical and biotechnology companies to outsource large
clinical research projects. A reversal or slowing of this trend would have a
material adverse effect on the Company. In fiscal 1994, 1995 and 1996, the
Company's top five clients accounted for 29.8%, 25.2% and 32.0%, respectively,
of the Company's consolidated net revenue. The loss of business from a
significant client could have a material adverse effect on the Company. See
"Business - Clients" which appears on page 11 of this Form 10-K
Dependence on Government Regulation
The Company's business depends on the comprehensive government regulation of
the drug development process. In the United States, the general trend has been
in the direction of continued or increased regulation, although the FDA recently
announced regulatory changes intended to streamline the approval process for
biotechnology products by applying the same standards as are in effect for
conventional drugs. In Europe, the general trend has been toward coordination of
common standards for clinical testing of new drugs, leading to changes in the
various requirements currently imposed by each country. Changes in regulation,
including a relaxation in regulatory requirements or the introduction of
simplified drug approval procedures, as well as anticipated regulation, could
materially and adversely affect the demand for the services offered by the
Company. In addition, failure on the part of the Company to comply with
applicable regulations could result in the termination of ongoing research or
the disqualification of data, either of which could have a material adverse
effect on the Company. See "Business - Government Regulations" which appears on
page 12 of this Form 10-K.
Potential Adverse Impact of Health Care Reform
Numerous governments have recently undertaken efforts to control growing
health care costs through legislation, regulation and voluntary agreements with
medical care providers and pharmaceutical companies. In the last several years,
several comprehensive health care reform proposals were introduced in the U.S.
Congress. The intent of the proposals was, generally, to expand health care
coverage for the uninsured and reduce the growth of total health care
expenditures. While none of the proposals were adopted, health care reform may
again be addressed by the U.S. Congress. Implementation of government health
care reform may adversely affect research and development expenditures by
pharmaceutical and biotechnology companies, resulting in a decrease of the
business opportunities available to the Company. Management is unable to predict
the likelihood of health care reform proposals being enacted into law or the
effect such law would have on the Company. See Item "Business - Industry
Overview" which appears on page 3 of this Form 10K.
Many European governments have also reviewed or undertaken health care reform.
For example, German health care reform legislation implemented in January 1993
contributed to an
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<PAGE> 20
estimated 15% decline in German pharmaceutical industry sales in calendar 1993
and led several clients to cancel contracts with the Company. Subsequent to
these events, in the third quarter of fiscal 1993, the Company restructured its
German operations and incurred a restructuring charge of approximately $3.3
million. In addition, in the third quarter of fiscal 1995, the Company's results
of operations were affected by a non-cash write-down due to the impairment of
long-lived assets of PAREXEL GmbH, the Company's German subsidiary, of
approximately $11.3 million. The Company cannot predict the impact that any
pending or future health care reform proposals may have on the Company's
business in Europe. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" on pages 13-17 of the Company's Annual
Report to Stockholders included as Exhibit 13.1 of this Form 10-K.
Competition; CRO Industry Consolidation
The Company primarily competes against in-house departments of pharmaceutical
companies, full service CROs and, to a lesser extent, universities and teaching
hospitals. Some of these competitors have substantially greater capital,
technical and other resources than the Company. CROs generally compete on the
basis of previous experience, medical and scientific expertise in specific
therapeutic areas, the quality of contract research, the ability to organize and
manage large-scale trials on a global basis, the ability to manage large and
complex medical databases, the ability to provide statistical and regulatory
services, the ability to recruit investigators, the ability to integrate
information technology with systems to improve the efficiency of contract
research, an international presence with strategically located facilities,
financial viability and price. There can be no assurance that the Company will
be able to compete favorably in these areas. See "Business - Competition" which
appears on page 12 of this Form 10-K.
The CRO industry is highly fragmented, with participants ranging from several
hundred small, limited-service providers to several large, full-service CROs
with global operations. The trend toward CRO industry consolidation has resulted
in heightened competition among the larger CROs for clients and acquisition
candidates. In addition, consolidation within the pharmaceutical industry as
well as a trend by pharmaceutical companies of outsourcing among fewer CROs has
led to heightened competition for CRO contracts.
Risks Associated with Acquisitions
The Company has made a number of acquisitions and will continue to review
future acquisition opportunities. Revenue derived from acquired businesses has
contributed significantly to the Company's growth. No assurances can be given
that acquisition candidates will continue to be available on terms and
conditions acceptable to the Company. Acquisitions involve numerous risks,
including, among other things, difficulties and expenses incurred in connection
with the acquisitions and the subsequent assimilation of the operations and
services or products of the acquired companies, the diversion of management's
attention from other business concerns and the potential loss of key employees
of the acquired company. Acquisitions of foreign companies also may involve the
additional risks of assimilating differences in foreign business practices and
overcoming language barriers. In the event that the operations of an acquired
business do not live up to expectations, the Company may be required
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<PAGE> 21
to restructure the acquired business or write-off the value of some or all of
the assets of the acquired business. In fiscal 1993 and 1995, the Company's
results of operations were materially and adversely affected by write-offs
associated with the Company's acquired German operations. There can be no
assurance that any acquisition will be successfully integrated into the
Company's operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations"on pages 13-17 of the Company's 1996 Annual
Report to Stockholders included as Exhibit 13.1 of this Form 10-K.
Management of Business Expansion; Need for Improved Systems; Assimilation of
Foreign Operations
The Company's business and operations have experienced substantial expansion
over the past 10 years. The Company believes that such expansion places a strain
on operational, human and financial resources. In order to manage such
expansion, the Company must continue to improve its operating, administrative
and information systems, accurately predict its future personnel and resource
needs to meet client contract commitments, track the progress of ongoing client
projects and attract and retain qualified management, professional, scientific
and technical operating personnel. Expansion of foreign operations also may
involve the additional risks of assimilating differences in foreign business
practices, hiring and retaining qualified personnel, and overcoming language
barriers. In the event that the operation of an acquired business does not live
up to expectations, the Company may be required to restructure the acquired
business or write-off the value of some or all of the assets of the acquired
business. Failure by the Company to meet the demands of and to manage expansion
of its business and operations could have a material adverse effect on the
Company's business. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" on pages 13-17 of the Company's 1996 Annual
Report to Stockholders included as Exhibit 13.1 of this Form 10-K.
Dependence on Personnel
The Company relies on a number of key executives, including Josef H. von
Rickenbach, its President, Chief Executive Officer and Chairman, upon whom the
Company maintains key man life insurance. Although the Company has entered into
agreements containing non-competition restrictions with its senior officers, the
Company does not have employment agreements with most of these persons and the
loss of the services of any of the Company's key executives could have a
material adverse effect on the Company. The Company's performance also depends
on its ability to attract and retain qualified professional, scientific and
technical operating staff. The level of competition among employers for skilled
personnel, particularly those with M.D., Ph.D. or equivalent degrees, is high.
There can be no assurance the Company will be able to continue to attract and
retain qualified staff. See "Business - Employees" which appears on page 14 of
this Form 10-K.
Potential Liability; Possible Insufficiency of Insurance
Clinical research services involve the testing of new drugs on human
volunteers pursuant to a study protocol. Such testing involves a risk of
liability for personal injury or death to patients due to, among other reasons,
possible unforeseen adverse side effects or improper administration of the new
drug. Many of these patients are already seriously ill and are at risk of
further illness
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or death. The Company could be materially and adversely affected if it were
required to pay damages or incur defense costs in connection with a claim that
is outside the scope of an indemnity or insurance coverage, or if the indemnity,
although applicable, is not performed in accordance with its terms or if the
Company's liability exceeds the amount of applicable insurance. In addition,
there can be no assurance that such insurance will continue to be available on
terms acceptable to the Company. See "Business - Potential Liability and
Insurance" which appears on page 13 of this Form 10-K.
Adverse Effect of Exchange Rate Fluctuations
Approximately 36.0%, 40.2% and 38.4% of the Company's net revenue for fiscal
1994, 1995 and 1996, respectively, were derived from the Company's operations
outside of North America. Since the revenue and expenses of the Company's
foreign operations are generally denominated in local currencies, exchange rate
fluctuations between local currencies and the United States dollar will subject
the Company to currency translation risk with respect to the results of its
foreign operations. To the extent the Company is unable to shift to its clients
the effects of currency fluctuations, these fluctuations could have a material
adverse effect on the Company's results of operations. The Company does not
currently hedge against the risk of exchange rate fluctuations.
Potential Volatility of Stock Price
The market price of the Company's Common Stock could be subject to wide
fluctuations in response to quarter-to-quarter variations in operating results,
changes in earnings estimates by analysts, market conditions in the industry,
prospects of health care reform, changes in government regulation and general
economic conditions. In addition, the stock market has from time to time
experienced significant price and volume fluctuations that have been unrelated
to the operating performance of particular companies. These market fluctuations
may adversely affect the market price of the Company's Common Stock. Because the
Company's Common Stock currently trades at a relatively high price-earnings
multiple, due in part to analysts' expectations of continued earnings growth,
even a relatively small shortfall in earnings from, or a change in, analysts'
expectations may cause an immediate and substantial decline in the Company's
stock price. Investors in the Company's Common Stock must be willing to bear the
risk of such fluctuations in earnings and stock price.
Anti-Takeover Provisions; Possible Issuance of Preferred Stock
The Company's Restated Articles of Organization and Restated By-Laws contain
provisions that may make it more difficult for a third party to acquire, or may
discourage a third party from acquiring, the Company. These provisions could
limit the price that certain investors might be willing to pay in the future for
shares of the Company's Common Stock. In addition, shares of the Company's
Preferred Stock may be issued in the future without further stockholder approval
and upon such terms and conditions, and having such rights, privileges and
preferences, as the Board of Directors may determine. The rights of the holders
of Common Stock will be subject to, and may be adversely affected by, the rights
of any holders of Preferred Stock that may be issued in the future. The issuance
of Preferred Stock, while providing desirable flexibility in
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connection with possible acquisitions and other corporate purposes, could
adversely affect the market price of the Common Stock and could have the effect
of making it more difficult for a third party to acquire, or discouraging a
third party from acquiring, a majority of the outstanding voting stock of the
Company. The Company has no present plans to issue any shares of Preferred
Stock.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary financial information are
incorporated by reference from pages 19-33 of the Company's 1996 Annual Report
to Stockholders included as Exhibit 13.1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to this item may be found under the captions
"Elections of Directors" and "Executive Officers" in the Proxy Statement for the
Company 1996 Annual Meeting of Stockholders. Such information is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to this item may be found under the captions
"Directors' Compensation" and "Executive Compensation" in the Proxy Statement
for the Company 1996 Annual Meeting of Stockholders. Such information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information with respect to this item may be found under the caption
"Security Ownership of Certain Beneficial Owners and Management" in the Proxy
Statement for the Company 1996 Annual Meeting of Stockholders. Such information
is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to this item may be found under the caption
"Certain Relationships and Related Transactions" in the Proxy Statement for the
Company 1996 Annual Meeting of Stockholders. Such information is incorporated
herein by reference.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(A) The following documents are filed as part of this report.
(1) Financial Statements. The following financial statements and
supplementary data included in the 1996 Annual Report to
Stockholders, filed as Exhibit 13.1 to this report, are
incorporated by reference into Item 8 of this report.
<TABLE>
<CAPTION>
Annual Report to
Financial Statements Form 10-K Page Stockholders Page
-------------------- -------------- -----------------
<S> <C> <C>
Report of Independent Accountants 22 33
Consolidated Balance Sheet at June 30, 1995 22 20
and 1996
Consolidated Statement of Operations for each of 22 19
the three years in the period ended June 30, 1996
Consolidated Statement of Stockholders' Equity for 22 21
each of the three years ended June 30, 1996
Consolidated Statement of Cash Flows for each of 22 22
the three years ended June 30, 1996
Notes to Consolidated Financial Statements 22 23-32
</TABLE>
(2) Financial Statement Schedules:
For the three years ended June 30, 1996:
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not
applicable or the required information is shown in the
Consolidated Financial Statements or the Notes thereto.
(3) Exhibits
Exhibit No. Description
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3.1 -- Amended and Restated Articles of Organization of the
Company (filed as exhibit 3.1 to the Registrant's Registration
Statement on Form S-1 (File No. 333-1188) and incorporated
herein by this reference).
3.2 -- Amended and Restated By-laws of the Company (filed as
exhibit 3.2 to the Registrant's Registration Statement on Form
S-1 (File No. 333-1188) and incorporated herein by this
reference).
4.1 -- Specimen certificate representing the Common Stock of the
Company (filed as exhibit 4.1 to the Registrant's Registration
Statement on Form S-1 (File No.33- 97406) and incorporated
herein by this reference).
4.2 -- Stock Purchase Agreement dated as of May 24, 1996 between
the Company, Sitebase Clinical Systems, Inc., Raymond A.
Konisky and Karen A. Konisky. (filed as exhibit 4.2 to the
Registrant's Registration Statement on Form S-1 (File No.
333-06953) and incorporated herein by this reference)
4.3 -- Registration Rights Agreement dated as of June 28, 1996
between the Company, Raymond A. Konisky and Karen A. Konisky.
(filed as exhibit 4.3 to the Registrant's Registration
Statement on Form S-1 (File No. 333-06953) and incorporated
herein by this reference).
10.1 -- Stock Restriction and Registration Rights Agreement dated
as of June 15, 1990 among the Company and Samuel T. Barnett
and Frederic Harwood (filed as exhibit 10.1 to the
Registrant's Registration Statement on Form S-1 (File No.
33-97406) and incorporated herein by this reference).
10.2 -- Stock Purchase, Restriction and Registration Rights
Agreement dated as of March 11, 1991 between the Company and
Prof. Dr. Werner M. Herrmann (filed as exhibit 10.2 to the
Registrant's Registration Statement on Form S-1 (File No. 33-
97406) and incorporated herein by this reference).
10.3 -- Investment Agreement dated as of December 26, 1990 among
the Company and the stockholders named therein (filed as
exhibit 10.3 to the Registrant's Registration Statement on
Form S-1 (File No. 33-97406) and incorporated herein by this
reference).
10.4 -- Investment Agreement dated as of March 31, 1992 among the
Company and the stockholders named therein (filed as exhibit
10.4 to the Registrant's Registration Statement on Form S-1
(File No. 33-97406) and incorporated herein by this
reference).
10.5 -- Sales Contract dated March 11, 1991 among Prof. Dr. Werner
M. Herrmann, Josef H. von Rickenbach and William T. Sobo with
respect to the sale by Prof. Dr. Herrmann of a majority
interest in AFB Arzneimittelforschung GmbH (filed
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<PAGE> 26
as exhibit 10.5 to the Registrant's Registration Statement on
Form S-1 (File No. 33- 97406) and incorporated herein by this
reference).
10.6 -- Employment Agreement dated June 30, 1993 between
AFB-PAREXEL GmbH Independent Pharmaceutical Research
Organization and Prof. Dr. med. Werner M. Herrmann (filed as
exhibit 10.6 to the Registrant's Registration Statement on
Form S-1 (File No. 33-97406) and incorporated herein by this
reference).
10.7 -- Letter Agreement dated June 30, 1993 between the Company
and Prof. Dr. Werner M. Herrmann (filed as exhibit 10.7 to the
Registrant's Registration Statement on Form S-1 (File No.
33-97406) and incorporated herein by this reference).
10.8 -- Employment Agreement dated July 2, 1987 between Dr.
Veronica G.H. Jordan and the Company (filed as exhibit 10.8 to
the Registrant's Registration Statement on Form S-1 (File No.
33-97406) and incorporated herein by this reference).
10.9 -- Form of Stock Option Agreement of the Company (filed as
exhibit 10.9 to the Registrant's Registration Statement on
Form S-1 (File No. 333-1188) and incorporated herein by this
reference).
10.10 -- 1986 Incentive Stock Option Plan of the Company (filed as
exhibit 10.10 to the Registrant's Registration Statement on
Form S-1 (File No. 33-97406) and incorporated herein by this
reference).
10.11 -- 1987 Stock Plan of the Company (filed as exhibit 10.11 to
the Registrant's Registration Statement on Form S-1 (File No.
33-97406) and incorporated herein by this reference).
10.12 -- 1989 Stock Plan of the Company (filed as exhibit 10.12 to
the Registrant's Registration Statement on Form S-1 (File No.
33-97406) and incorporated herein by this reference).
10.13 -- 1995 Stock Plan of the Company (filed as exhibit 10.13 to
the Registrant's Registration Statement on Form S-1 (File No.
33-97406) and incorporated herein by this reference).
10.14 -- 1995 Non-Employee Director Stock Option Plan of the Company
(filed as exhibit 10.14 to the Registrant's Registration
Statement on Form S-1 (File No. 33-97406) and incorporated
herein by this reference).
10.15 -- 1995 Employee Stock Purchase Plan of the Company (filed as
exhibit 10.15 to the Registrant's Registration Statement on
Form S-1 (File No. 33-97406) and incorporated herein by this
reference).
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<PAGE> 27
10.16 -- Corporate Plan for Retirement of the Company (filed as
exhibit 10.16 to the Registrant's Registration Statement on
Form S-1 (File No. 33-97406) and incorporated herein by this
reference).
10.17 -- Loan and Security Agreement dated as of July 31, 1992
between the Company, Barnett International Corporation and The
First National Bank of Boston, as amended (filed as exhibit
10.17 to the Registrant's Registration Statement on Form S-1
(File No. 333-06953) and incorporated herein by this
reference).
10.18 -- Line of Credit Agreement between PAREXEL GmbH and Deutsche
Bank Berlin, dated January 23, 1995 (filed as exhibit 10.24 to
the Registrant's Registration Statement on Form S-1 (File No.
33-97406) and incorporated herein by this reference).
10.19 -- First Amendment dated as of January 3, 1992 to the Lease
dated June 14, 1991 between 200 West Street Limited
Partnership and the Company (filed as exhibit 10.25 to the
Registrant's Registration Statement on Form S-1 (File No.
33-97406) and incorporated herein by this reference).
10.20 -- Second Amendment dated as of June 28, 1993 to the lease
dated June 14, 1991 between 200 West Street Limited
Partnership and the Company (filed as exhibit 10.28 to the
Registrant's Registration Statement on Form S-1 (File No.
33-97406) and incorporated herein by this reference).
10.21 -- Letter of employment dated July 6, 1993 between Barry R.
Philpott and the Company (filed as exhibit 10.29 to the
Registrant's Registration Statement on Form S-1 (File No.
33-97406) and incorporated herein by this reference).
10.22 -- Credit Agreement dated December 30, 1994 between PAREXEL
GmbH and The First National Bank of Boston (filed as exhibit
10.30 to the Registrant's Registration Statement on Form S-1
(File No. 33-97406) and incorporated herein by this
reference).
10.23 -- Collateral Agreement dated December 30, 1994 between
PAREXEL GmbH and The First National Bank of Boston (filed as
exhibit 10.31 to the Registrant's Registration Statement on
Form S-1 (File No. 33-97406) and incorporated herein by this
reference).
11.1 -- Statement re computation of per share earnings.
13.1 -- Specified portions of the Registrant's 1996 Annual Report
to Stockholders.
21.1 -- List of subsidiaries of the Company.
23.1 -- Consent of Price Waterhouse LLP.
27.1 -- Financial Data Schedule.
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<PAGE> 28
(B) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended
June 30, 1996.
27
<PAGE> 29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized in the city of Waltham,
Massachusetts, on the 27th day of September, 1996.
PAREXEL INTERNATIONAL CORPORATION
By: /s/ JOSEF H. VON RICKENBACH
-----------------------------------
Josef H. von Rickenbach
President, Chief Executive Officer
and Chairman
<TABLE>
<CAPTION>
Signatures Title(s) Date
---------- -------- ----
<S> <C> <C>
/s/ JOSEF H. VON RICKENBACH President, Chief Executive Officer September 27, 1996
- ---------------------------------------
Josef H. von Rickenbach and Chairman (principal executive
officer)
/s/ WILLIAM T. SOBO, JR Senior Vice President, Chief Financial September 27, 1996
- ---------------------------------------
William T. Sobo, Jr Officer and Treasurer (principal
financial and accounting officer)
/s/ A. DANA CALLOW, JR. Director September 27, 1996
- ---------------------------------------
A. Dana Callow, Jr.
/s/ PATRICK J. FORTUNE Director September 27, 1996
- ---------------------------------------
Patrick J. Fortune
/s/ WERNER M. HERRMANN Director September 27, 1996
- ---------------------------------------
Werner M. Herrmann
/s/ PETER BARTON HUTT Director September 27, 1996
- ---------------------------------------
Peter Barton Hutt
/s/ JAMES SAALFIELD Director September 27, 1996
- ---------------------------------------
James Saalfield
</TABLE>
28
<PAGE> 30
Schedule II
PAREXEL INTERNATIONAL CORPORATION
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
Description Balance at Charged to Balance at
beginning of costs and Charged to Deductions end of
period expenses other accounts and write-offs period
--------------- ------------- -------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL
ACCOUNTS
Year ended June 30, 1994 $ 242,000 $ 349,000 -- $ (11,000) $ 580,000
Year ended June 30, 1995 580,000 1,021,000 -- (327,000) 1,274,000
Year ended June 30, 1996 1,274,000 515,000 -- (290,000) 1,499,000
DEFERRED TAX ASSET
VALUATION ALLOWANCE
Year ended June 30, 1994 -- -- $6,659,000(1) (588,000) 6,071,000
Year ended June 30, 1995 6,071,000 -- 1,620,000 (200,000) 7,491,000
Year ended June 30, 1996 7,491,000 -- -- (1,565,000) 5,926,000
</TABLE>
- --------------
(1) Recorded in connection with the adoption of Statement of Financial
Accounting Standards No. 109 on July 1, 1993.
29
<PAGE> 1
EXHIBIT 11.1
PAREXEL INTERNATIONAL CORPORATION
STATEMENT RE COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Year ended June 30,
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Net income (loss) $2,423 $(10,630) $4,599
Net interest income pursuant to APB 15, paragraph 38(b) 123 -- --
------ -------- ------
Net income (loss) attributable to common shares $2,546 $(10,630) $4,599
====== ======== ======
Weighted average common shares outstanding:
a. Shares attributable to common stock outstanding 750 842 6,452
b. Shares attributable to convertible preferred stock
outstanding 4,200 -- --
c. Shares attributable to common stock options and
preferred stock warrants pursuant to APB 15,
paragraph 38(b) 796 -- 328
d. Shares attributable to common stock options
pursuant to SAB 83 1 1 --
------ -------- ------
Weighted average common shares outstanding 5,747 843 6,780
====== ======== ======
Net income (loss) per share $ 0.44 $ (12.61) $ 0.68
====== ======== ======
</TABLE>
30
<PAGE> 1
EXHIBIT 13.1
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company provides a full spectrum of clinical research and development
services on a contract basis to the pharmaceutical, biotechnology and medical
device industries. These services are provided to clients on a global basis and
include: (i) designing, initiating and monitoring clinical trials; (ii) managing
and analyzing clinical data; and (iii) industry consulting services including
regulatory affairs, medical writing, performance improvement, training and
health economics.
The Company, founded in 1983 as a regulatory consulting firm, has built its
business both through internal expansion and acquisitions. In 1988, the Company
acquired Consulting Statisticians, Inc., a biostatistics and data management
provider specializing in the healthcare industry. In 1989, the Company initiated
its international expansion by acquiring the London-based McDonnell Douglas
Clinical Trials Analysis Division, a division of McDonnell Douglas Informations
Systems Ltd., which provided biostatistics and data management services in
Europe. In 1990, PAREXEL acquired Barnett Associates, Inc. to expand the
Company's Information Products Division, which offers a range of specialized
clinical consulting and training services and related products. In 1991, the
Company acquired AFB Arzneimittelforschung GmbH in Berlin, a European contract
research organization (CRO) based in Berlin with offices in Frankfurt and Paris.
In June 1996, the Company aquired Caspard Consultants, a Paris-based CRO, and in
August 1996 acquired Lansal Pharmaceutics Limited, the largest and oldest CRO in
Israel. These acquisitions augment the Company's existing clinical operations
and are in line with management's focused international expansion efforts. In
June 1996, the Company acquired Sitebase Clinical Systems, a provider of remote
data entry (RDE) technology. This acquisition positions the Company as a leading
provider of RDE technology which is expected to enhance the quality and
timeliness of clinical trial data. In August 1996, the Company also acquired
State & Federal Associates, Inc., a Washington D.C.-based provider of consulting
services to the healthcare and pharmaceutical industries. The acquisition
broadens the Company's portfolio of consulting services, specifically in the
area of health economics. These acquisitions are each being accounted for as
poolings of interest. The aggregate financial results of the acquired companies
are not material to the Company's financial position and results of operations
and, therefore, prior periods have not been restated. See Note 4 to the
Consolidated Financial Statements for additional information regarding these
transactions.
The Company's clinical research and development services contracts are generally
fixed price, with some variable components, and range in duration from a few
months to several years. A portion of the fee is typically required to be paid
at the time the contract is entered into and the balance in installments over
the contract's duration, in some cases on a milestone achievement basis. Revenue
from the contracts is generally recognized on a percentage of completion basis
as work is performed. Most of the Company's contracts are terminable upon 60 to
90 days' notice by the client. Clients terminate or delay contracts for a
variety of reasons, including, among others, the failure of products being
tested to satisfy safety requirements, unexpected or undesired clinical results
of the product, the client's decision to forego a particular study, insufficient
patient enrollment or investigator recruitment or production problems resulting
in shortages of the drug. As is customary in the industry, the Company routinely
subcontracts with third party investigators in connection with clinical trials
and with other third party service providers for laboratory analysis and other
specialized services. These and other reimbursable costs are paid by the Company
and reimbursed by clients and, in accordance with industry practice, are
included in revenue. Reimbursed costs vary from contract to contract.
Accordingly, the Company views net revenue, which consists of gross revenue less
reimbursed costs, as its primary measure of revenue growth.
Direct costs consist of compensation and related fringe benefits for
project-related employees, other project-related costs not reimbursed and
allocated facilities and information systems costs. Selling, general and
administrative expenses consist of compensation and related fringe benefits for
selling and administrative employees, professional services and advertising
costs, as well as allocated costs related to facilities and information systems.
14 PAREXEL INTERNATIONAL CORPORATION
<PAGE> 2
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS
OF OPERATIONS
GLOBAL OPERATIONS
The following table sets forth, for fiscal year ended June 30, 1994, 1995 and
1996, net revenue by geographic region as well as the percentage of total net
revenue represented by each region (in thousands).
<TABLE>
<CAPTION>
% OF % OF % OF
1994 TOTAL 1995 TOTAL 1996 TOTAL
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
North America $ 37,111 64.0% $ 35,037 59.8% $ 54,179 61.6%
Europe 20,891 36.0 23,443 40.0 32,834 37.3
Asia-Pacific - - 93 0.2 993 1.1
- -------------------------------------------------------------------------------------------------------
Total $ 58,002 100.0% $ 58,573 100.0% $ 88,006 100.0%
- -------------------------------------------------------------------------------------------------------
</TABLE>
The Company's foreign subsidiaries generally enter into contracts denominated in
the local currency of the foreign subsidiary. Because the foreign subsidiaries
expenses are generally paid in the local currency, such foreign subsidiaries'
local currency earnings are not materially affected by fluctuations in exchange
rates. However, changes in the exchange rates between these local currencies and
the U.S. dollar will affect the translation of such subsidiaries' financial
results into U.S. dollars for purposes of reporting the Company's consolidated
financial results. In cases where the Company contracts for a multi-country
clinical trial and a significant portion of the contract expenses are in a
currency other than the contract currency, the Company seeks to contractually
shift to its client the effect of fluctuations in the relative values of the
contract currency and the currency in which the expenses are incurred. To the
extent the Company is unable to shift to its clients the effects of currency
fluctuations, these fluctuations could have a material effect on the Company's
results of operations. The Company does not currently hedge against the risk of
exchange rate fluctuations.
As the Company conducts operations on a global basis, the Company's effective
tax rate has depended, and will depend, on the distribution of its revenue among
geographic locations with varying tax rates. The Company's results of operations
may be affected by changes in the tax rates of the various jurisdictions. In
particular, as the geographic mix of the Company's results of operations among
various tax jurisdictions changes the Company's effective tax rate may vary
significantly from period to period.
Impact of German Operations
The Company's operations from fiscal 1993 through fiscal 1995 were adversely
affected by its German operations. In the wake of uncertainty caused by German
healthcare reform in 1993, the Company's German operations experienced a sudden
decline in demand for services and an associated decline in net revenue. In
response to this revenue decline, the Company consolidated certain facilities
and reduced personnel costs in Germany and, as a result, incurred a $3.3 million
restructuring charge in the quarter ending March 31, 1993, consisting of $2.4
million, $600,000 and $300,000 for facilities, wages and severance and other
operating costs, respectively. As a result of the restructuring, the Company
reduced annual facility, personnel and other operating costs by an estimated
$1.0 million, $1.0 million and $150,000 respectively.
While the fiscal 1993 restructuring temporarily improved operating margins in
fiscal 1994, changes in drug development regulations in Germany and Europe
significantly impacted revenues in fiscal 1995. As a result of this development,
and in light of past history of poor operating performance, the Company
reassessed the recoverability of long-lived assets acquired in the 1991
acquisition of PAREXEL GmbH. As a result of this reassessment, the Company
recorded an $11.3 million non-cash charge reflecting the excess of book value of
PAREXEL GmbH over their fair value. Of the $11.3 million charge, $9.9 million
consisted of goodwill and other intangible assets. See Note 3 entitled
Impairment of Long-Lived Assets to the Consolidated Financial Statements for
additional information regarding this matter.
PAREXEL INTERNATIONAL CORPORATION 15
<PAGE> 3
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth for the fiscal years indicated certain financial
data as a percentage of net revenue and the percentage change in these items
compared to the prior comparable period.
<TABLE>
<CAPTION>
PERCENTAGE OF NET REVENUE PERCENTAGE
YEAR ENDED JUNE 30, INCREASE (DECREASE)
1994 1995 1996 1994 to 1995 1995 to 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenue 100.0% 100.0% 100.0% 1.0% 50.3%
Costs and expenses:
Direct costs 65.9 71.9 68.3 10.2 42.7
Selling, general and administrative 23.5 22.7 21.6 (2.5) 43.1
Depreciation and amortization 4.2 3.9 2.7 (7.6) 4.1
Impairment of long-lived assets -- 19.2 -- * *
- ---------------------------------------------------------------------------------------------------------------
Income (loss) from operations 6.4% (17.7)% 7.4% * *
- ---------------------------------------------------------------------------------------------------------------
* not meaningful
</TABLE>
Fiscal Year Ended June 30, 1996 Compared to Fiscal Year Ended June 30, 1995
Net revenue increased by $29.4 million, or 50.3%, from $58.6 million for fiscal
1995 to $88.0 million for fiscal 1996. This net revenue growth was primarily
attributable to an increase in the number and average contract value of clinical
research projects serviced by the Company, many of which have a multi-national
scope.
Direct costs increased by $18.0 million, or 42.7%, from $42.1 million for fiscal
1995 to $60.1 million for fiscal 1996. This increase in direct costs was due to
the increase in the number of project-related personnel, facilities, and
information system costs necessary to support the increased level of operations.
Direct costs as a percentage of net revenue decreased from 71.9% for fiscal 1995
to 68.3% for fiscal 1996, primarily due to improved workforce and facility
utilization.
Selling, general and administrative expenses increased by $5.7 million, or
43.1%, from $13.3 million for fiscal 1995 to $19.0 million for fiscal 1996. This
increase was primarily due to increased costs associated with additional
administrative personnel, greater hiring and selling costs, and additional
facilities to support the Company's growth and operation as a publicly held
company. Selling, general and administrative expenses as a percentage of net
revenue decreased from 22.7% for fiscal 1995 to 21.6% for fiscal 1996, primarily
due to leveraging of infrastructure over an expanded revenue base.
Depreciation and amortization expense increased $92,000, or 4.1%, from $2.2
million for fiscal 1995 to $2.3 million for fiscal 1996. The change resulted
from an increase in depreciation associated with increased capital expenditures,
offset by a decrease in depreciation and amortization due to the write-down of
impaired long-lived assets of the Company's German operations. Depreciation and
amortization expense in fiscal 1995 includes approximately $588,000 related to
long-lived assets which were written-down and did not recur in fiscal 1996.
Income from operations for fiscal 1996 was $6.5 million, compared to a loss from
operations of $10.4 million for fiscal 1995. Results for fiscal 1995 included an
$11.3 million non-cash charge related to the write-down of impaired long-lived
assets of the Company's German operations. Income from operations for fiscal
1995, excluding the impact of the asset impairment charge, was approximately
$303,000.
Interest income increased by $1.1 million from $213,000 for fiscal 1995 to $1.3
million for fiscal 1996. This increase resulted from higher average balances of
cash and investments due primarily to proceeds from the Company's public
offerings in November 1995 and March 1996.
The Company's effective income tax rate was 39.9% for fiscal 1996. The effective
tax rate in fiscal 1995, excluding the effect of the $11.3 million non-cash,
non-deductible write-down due to the impairment of long-lived assets, would have
been 89.4%. The effective income tax rate may vary with changes in the mix of
taxable income from the different geographic jurisdictions in which the Company
operates.
16 PAREXEL INTERNATIONAL CORPORATION
<PAGE> 4
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS
OF OPERATIONS
Fiscal Year Ended June 30, 1995 Compared to Fiscal Year Ended June 30, 1994
Net revenue increased by $571,000, or 1.0%, from $58.0 million for fiscal 1994
to $58.6 million for fiscal 1995. This increase was due to an increase of $2.6
million in net revenue from European operations, partially offset by a decrease
of $2.1 million in net revenue from North American operations. The increase in
European net revenue was primarily due to the weakening of the dollar and, to a
lesser extent, to an increase in clinical research contract volume in all areas
in Europe other than Germany, which experienced a decline in net revenue. The
decline in net revenue from North America was primarily due to reduced revenues
from the Company's data management operation, which substantially completed work
on a number of large contracts during fiscal 1994 that were not replaced in
fiscal 1995.
Direct costs increased by $3.9 million, or 10.2%, from $38.2 million for fiscal
1994 to $42.1 million for fiscal 1995. Substantially all of the increase in
direct costs was due to increased expenses associated with European operations.
The increase in direct costs in Europe was primarily due to the hiring of
additional project-related personnel and expansion of facilities in the United
Kingdom and France. The weakening of the dollar also contributed to the increase
of direct costs in Europe. Direct costs as a percentage of net revenue increased
from 65.9% in fiscal 1994 to 71.9% in fiscal 1995. This increase was primarily
due to the increased costs incurred in Europe, where direct costs increased as a
percentage of net revenue from 65.5% in fiscal 1994 to 75.4% in fiscal 1995 and
to a decline in net revenue in North America, where direct costs remained flat
against lower net revenue, resulting in an increase in direct costs as a
percentage of net revenue from 66.2% in fiscal 1994 to 69.8% in fiscal 1995.
Selling, general and administrative expenses decreased by $337,000, or 2.5%,
from $13.6 million in fiscal 1994 to $13.3 million in fiscal 1995. The decrease
in selling, general and administrative expenses was primarily due to savings in
Europe as a result of a more effective deployment of employee and facility
resources in the United Kingdom and Germany, partially offset by the weakness of
the dollar. Due to these factors, selling, general and administrative expenses
as a percentage of net revenue decreased from 23.5% for fiscal 1994 to 22.7% in
fiscal 1995.
Depreciation and amortization expenses decreased by $184,000, or 7.6%, from
$2.4 million in fiscal 1994 to $2.3 million in fiscal 1995. This decrease was
primarily due to a reduction in depreciation and amortization expense from fully
amortized intangible assets and the write-down of impaired long-lived assets,
offset in part by the weakness of the dollar. Fiscal 1995 includes only six
months of depreciation and amortization, or approximately $588,000, resulting
from the 1991 acquisition of PAREXEL GmbH, due to the impairment charge in the
third quarter.
Other income (expense), net changed from an expense of $375,000 in fiscal 1994
to income of $14,000 in fiscal 1995. The change was primarily due to the
incurrence in fiscal 1994 of approximately $450,000 related to the Company's
postponed fiscal 1994 initial public offering.
The effective tax rate in fiscal 1995, excluding the effect of the $11.3
million non-cash, non-deductible write-down due to the impairment of long-lived
assets, would have been 89.4%, compared to an effective rate of 45.0% in fiscal
1994. In fiscal 1994, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," the cumulative effect of which
increased net income by $500,000 in fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has primarily financed its operations and
growth, including acquisition costs, with cash flow from operations and the
proceeds from the sale of equity securities. Investing activities primarily
reflect capital expenditures for information systems enhancements and net
purchases of marketable securities.
The Company's clinical research and development contracts are generally fixed
price with some variable components, and range in duration from a few months to
several years. The cash flows from contracts typically consists of a down
payment required to be paid at the time the contract is entered into and the
balance in installments over the contract's duration, in some cases on a
milestone achievement basis. Revenue from contracts is generally recognized on a
percentage completion basis as the work is performed. Accordingly, cash receipts
do not necessarily correspond to costs incurred and revenue
PAREXEL INTERNATIONAL CORPORATION 17
<PAGE> 5
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS
OF OPERATIONS
recognized on contracts. The Company's cash flow is influenced by the changes in
levels of billed and unbilled accounts receivable, net of amounts advance billed
representing unearned revenue. As a result, the number of days outstanding in
accounts receivable, net of advance billings, and the related dollar values of
these accounts can vary due to the achievement of contractual milestones and the
timing and size of cash receipts. The number of days revenue outstanding, net of
advance billings, was 47 days at June 30, 1996, up from 40 days at June 30,
1995. Accounts receivable, net of the allowance for doubtful accounts, increased
from $24.7 million at June 30, 1995 to $39.3 million at June 30, 1996 while
advance billings increased from $14.0 million at June 30, 1995 to $20.0 million
at June 30, 1996, both consistent with the growth in revenues in fiscal 1996.
Unrestricted cash and cash equivalents increased by $10.9 million during fiscal
1996 as a result of $6.5 million and $40.5 million in cash provided by operating
and financing activities, respectively, offset by $32.8 million in cash used for
investing activities and an $155,000 unfavorable effect of exchange rate
changes. Net cash provided by operating activities resulted primarily from net
income, excluding non-cash expenses, of $6.9 million and increases in advance
billings, accounts payable and other current liabilities of $6.4 million, $4.6
million and $3.3 million, respectively. Cash used by operating activities
included an increase in accounts receivable of $15.1 million.
Financing activities consisted primarily of net proceeds of approximately $21.2
million from the Company's initial public offering of 1,600,000 shares of common
stock in November 1995, and net proceeds of approximately $15.7 million from the
Company's follow-on public offering of 500,000 shares of common stock in March
1996.
Investing activities consisted of net purchases of marketable securities of
$27.8 million and capital expenditures. The Company has invested approximately
$5.0 million in fiscal 1996 for capital expenditures related to facility
expansion and investments in information technology and expects to invest
approximately $8 million to $10 million in the next twelve months.
The Company has domestic and foreign lines of credit with banks totalling
approximately $6.4 million, and a capital lease line of credit with a U.S. bank
for $2.4 million. At June 30, 1996 the Company had approximately $7.6 million in
available credit under these arrangements.
The Company's primary short-term and long-term cash needs are for the payment
of the salaries and fringe benefits, hiring and recruiting expenses, business
development costs, capital expenditures and facility-related expenses. The
Company believes that its existing capital resources, together with cash flows
from operations and borrowing capacity under existing lines of credit, will be
sufficient to meet its foreseeable cash needs. In the future the Company will
consider acquiring businesses to enhance its service offerings, therapeutic base
and global presence. Any such acquisitions may require additional external
financing, and the Company may from time to time seek to obtain funds from
public or private issuances of equity or debt securities. There can be no
assurance that such financing will be available on terms acceptable to the
Company.
The statements included in Management's Discussion and Analysis of Financial
Condition and Results of Operations include forward-looking statements which
involve risks and uncertainties. The Company's actual experience may differ
materially from that discussed above. Factors that might cause such a difference
include, but are not limited to, the loss or delay of large contracts; the
Company's dependence on certain industries and clients and government regulation
of such industries and clients; competition or consolidation within the
industry, as well as those discussed in "Risk Factors" in the Company's Annual
Report on Form 10-K.
INFLATION
The Company believes the effects of inflation generally do not have a material
adverse impact on its operations or financial conditions.
RECENTLY ISSUED ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board issued Statement No.
123, "Accounting for Stock-Based Compensation" (FAS 123). The Company has
elected to adopt FAS 123 in fiscal 1997 through disclosure only.
18 PAREXEL INTERNATIONAL CORPORATION
<PAGE> 6
CONSOLIDATED STATEMENT
OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30,
(in thousands, except per share data) 1994 1995 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $ 69,646 $ 79,928 $ 121,869
Reimbursed costs (11,644) (21,355) (33,863)
- ------------------------------------------------------------------------------------------------------------------
NET REVENUE 58,002 58,573 88,006
- ------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Direct costs 38,244 42,140 60,141
Selling, general and administrative 13,631 13,294 19,027
Depreciation and amortization 2,435 2,251 2,343
Impairment of long-lived assets -- 11,253 --
- ------------------------------------------------------------------------------------------------------------------
54,310 68,938 81,511
- ------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS 3,692 (10,365) 6,495
Interest income 250 213 1,297
Interest expense (71) (172) (162)
Other income (expense), net (375) 14 22
- ------------------------------------------------------------------------------------------------------------------
(196) 55 1,157
- ------------------------------------------------------------------------------------------------------------------
Income (loss) before provision for income taxes and
cumulative effect of accounting change 3,496 (10,310) 7,652
Provision for income taxes 1,573 320 3,053
- ------------------------------------------------------------------------------------------------------------------
Net income (loss) before cumulative
effect of accounting change 1,923 (10,630) 4,599
Cumulative effect of change
in accounting for income taxes 500 -- --
- ------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 2,423 $(10,630) $ 4,599
- ------------------------------------------------------------------------------------------------------------------
Net income (loss) per share:
Before cumulative effect of accounting change $ 0.35 $ (12.61) $ 0.68
Cumulative effect of change in accounting for income taxes 0.09 -- --
- ------------------------------------------------------------------------------------------------------------------
Net income (loss) per share $ 0.44 $ (12.61) $ 0.68
- ------------------------------------------------------------------------------------------------------------------
Weighted average common and common
equivalent shares outstanding 5,747 843 6,780
- ------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
PAREXEL INTERNATIONAL CORPORATION 19
<PAGE> 7
CONSOLIDATED
BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30,
(in thousands, except share data) 1995 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents:
Unrestricted $ 5,315 $ 16,243
Restricted 1,360 858
Marketable securities 1,500 29,319
Accounts receivable, net 24,675 39,277
Other current assets 4,003 6,905
- ---------------------------------------------------------------------------------------------------------------
Total current assets 36,853 92,602
Property and equipment, net 4,671 8,193
Other assets 1,726 1,606
- ---------------------------------------------------------------------------------------------------------------
$ 43,250 $ 102,401
- ---------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 692 $ 762
Accounts payable 2,466 7,003
Advance billings 14,032 20,008
Other current liabilities 8,089 11,401
- ---------------------------------------------------------------------------------------------------------------
Total current liabilities 25,279 39,174
Long-term debt 633 360
Other liabilities 1,814 1,655
- ---------------------------------------------------------------------------------------------------------------
Total liabilities 27,726 41,189
- ---------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Stockholders' equity:
Convertible preferred stock - $.01 par value 23,683 --
Common stock - $.01 par value; shares authorized:
6,684,077 at June 30, 1995 and 25,000,000 at June 30, 1996;
shares issued: 858,364 at June 30, 1995 and 7,827,110 at
June 30, 1996; shares outstanding: 843,658 at June 30, 1995
and 7,812,404 at June 30, 1996 9 78
Additional paid-in capital 406 66,291
Accumulated deficit (8,826) (5,199)
Stock subscriptions receivable (157) --
Cumulative translation adjustment 409 42
- ---------------------------------------------------------------------------------------------------------------
Total stockholders' equity 15,524 61,212
- ---------------------------------------------------------------------------------------------------------------
$ 43,250 $ 102,401
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
20 PAREXEL INTERNATIONAL CORPORATION
<PAGE> 8
CONSOLIDATED STATEMENT OF
STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK RETAINED
----------------------- ------------------------------------
ADDITIONAL EARNINGS
NUMBER ISSUANCE NUMBER PAR PAID-IN (ACCUMULATED
(in thousands, except shares) OF SHARES PRICE, NET OF SHARES VALUE CAPITAL DEFICIT)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1993 2,101,044 $ 22,550 721,045 $ 7 $ 203 $ (619)
Issuance of convertible preferred
stock upon exercise of warrants 226,700 1,133
Issuance of common stock upon
exercise of stock options 102,000 1 75
Income tax benefit from exercise
of stock options 80
Proceeds from stock subscriptions
receivable
Foreign currency translation
Net income 2,423
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1994 2,327,744 23,683 823,045 8 358 1,804
Issuance of common stock upon
exercise of stock options 21,986 1 65
Repurchase of common shares (1,373) (17)
Proceeds from stock subscriptions
receivable
Foreign currency translation
Net loss (10,630)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1995 2,327,744 23,683 843,658 9 406 (8,826)
Issuance of convertible preferred
stock upon exercise of warrants 176,887 1,769
Proceeds from stock subscriptions
receivable
Conversion of preferred stock
into common upon initial
public offering (2,504,631) (25,452) 4,478,008 44 25,408
Payment of accrued preferred
stock dividends (940)
Net proceeds from public offerings 2,100,000 21 36,866
Issuance of common stock upon
exercise of stock options 309,920 3 408
Acquisitions (Note 4) 80,818 1 145 (76)
Income tax benefit from exercise
of stock options 3,058
Net unrealized gain on marketable
securities 44
Foreign currency translation
Net income 4,599
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1996 -- -- 7,812,404 $78 $ 66,291 $ (5,199)
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
STOCK CUMULATIVE TOTAL
SUBSCRIPTIONS TRANSLATION STOCKHOLDERS'
RECEIVABLE ADJUSTMENT EQUITY
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE AT JUNE 30, 1993 $(148) $(146) $ 21,847
Issuance of convertible preferred
stock upon exercise of warrants (33) 1,100
Issuance of common stock upon
exercise of stock options 76
Income tax benefit from exercise
of stock options 80
Proceeds from stock subscriptions
receivable 18 18
Foreign currency translation (308) (308)
Net income 2,423
- ---------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1994 (163) (454) 25,236
Issuance of common stock upon
exercise of stock options 66
Repurchase of common shares (17)
Proceeds from stock subscriptions
receivable 6 6
Foreign currency translation 863 863
Net loss (10,630)
- ---------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1995 (157) 409 15,524
Issuance of convertible preferred
stock upon exercise of warrants 1,769
Proceeds from stock subscriptions
receivable 157 157
Conversion of preferred stock
into common upon initial
public offering _
Payment of accrued preferred
stock dividends (940)
Net proceeds from public offerings 36,887
Issuance of common stock upon
exercise of stock options 411
Acquisitions (Note 4) 70
Income tax benefit from exercise
of stock options 3,058
Net unrealized gain on marketable
securities 44
Foreign currency translation (367) (367)
Net income 4,599
- ---------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1996 -- $ 42 $ 61,212
- ---------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
PAREXEL INTERNATIONAL CORPORATION 21
<PAGE> 9
CONSOLIDATED STATEMENT
OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30,
(in thousands) 1994 1995 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,423 $(10,630) $ 4,599
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Depreciation and amortization 2,435 2,251 2,343
Restructuring transactions (1,959) (683) (135)
Impairment of long-lived assets -- 11,253 --
Change in assets and liabilities, net of effects from acquisitions:
Restricted cash (282) (929) 502
Accounts receivable, net (6,309) (281) (15,086)
Other current assets (366) (1,395) 54
Other assets (531) (79) (144)
Accounts payable (1,573) 256 4,605
Advance billings 350 3,953 6,383
Other current liabilities 1,867 1,932 3,347
Other liabilities (239) 56 (18)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities (4,184) 5,704 6,450
- ----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities (2,787) (3,510) (131,903)
Proceeds from sale of marketable securities 4,303 2,710 104,128
Cash related to acquisition activities (100) -- 52
Purchase of property and equipment (1,979) (1,460) (5,039)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (563) (2,260) (32,762)
- ----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible preferred stock 1,100 -- 1,769
Proceeds from issuance of common stock 76 66 37,298
Cash received from stock subscriptions 18 6 157
Payments to acquire treasury stock -- (17) --
Repayments of long-term debt (510) (684) (889)
Dividends on convertible preferred stock -- -- (940)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 684 (629) 37,395
- ----------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on unrestricted cash and cash equivalents (24) 134 (155)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in unrestricted cash and cash equivalents (4,087) 2,949 10,928
Unrestricted cash and cash equivalents at beginning of period 6,453 2,366 5,315
- ----------------------------------------------------------------------------------------------------------------------------
Unrestricted cash and cash equivalents at end of period $ 2,366 $ 5,315 $ 16,243
- ----------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 83 $ 179 $ 165
Income taxes $ 1,237 $ 565 $ 1,649
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
Property and equipment acquired under capital lease obligations $ 666 $ 1,265 $ 536
Income tax benefit from exercise of stock options $ 80 -- $ 3,058
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
22 PAREXEL INTERNATIONAL CORPORATION
<PAGE> 10
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF THE BUSINESS
PAREXEL International Corporation (the Company) is a leading contract research
organization (CRO), providing clinical research and development services to the
worldwide pharmaceutical, biotechnology and medical device industries. The
Company designs, initiates and monitors clinical trials, manages and analyzes
clinical data, assists with regulatory affairs and offers other related services
and products.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of PAREXEL
International Corporation and its wholly-owned domestic and foreign
subsidiaries. The Company's German and French subsidiaries operate on a fiscal
year which ends May 31. All significant intercompany accounts and transactions
have been eliminated.
Accounting Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses, and
disclosure of contingent assets and liabilities. Actual results may differ from
those estimates.
Revenue
Fixed price contract revenue is recognized using the percentage of completion
method based on the ratio that costs incurred to date bear to estimated total
costs at completion. Revenue from other contracts is recognized as services are
provided. Revenue related to contract modifications is recognized when
realization is assured and the amounts are reasonably determinable. Adjustments
to contract cost estimates are made in the periods in which the facts which
require the revisions become known. When the revised estimate indicates a loss,
such loss is provided for currently in its entirety. "Unbilled accounts
receivable" represents revenue recognized in excess of amounts billed. "Advance
billings" represents amounts billed in excess of revenue recognized.
Investigator Fees
Investigator fees are accrued as investigator services are rendered. The timing
of payments to investigators is determined by reference to predetermined
contractual arrangements, which may differ from the accrual of the expense.
Payments to investigators in excess of amounts accrued are classified as prepaid
expenses included in other current assets and accrued expenses in excess of
amounts paid are classified as other current liabilities.
Cash, Cash Equivalents, Marketable Securities and Financial Instruments
The Company considers all highly liquid debt instruments purchased with original
maturities of three months or less to be cash equivalents for purposes of the
statement of cash flows. Marketable securities include securities purchased with
original maturities of greater than three months. Cash equivalents and
marketable securities are classified as available-for-sale and are carried at
fair market value, and any unrealized gains or losses are recorded as part of
stockholders' equity. Restricted cash consists of advances and deposits from
customers subject to certain restrictions.
The Company occasionally purchases securities with seven-day put options which
allow the Company to sell the underlying securities in seven days at par value.
The Company uses these derivative financial instruments on a limited basis to
shorten contractual maturity dates, thereby managing interest rate risk. At June
30, 1996, approximately $1.0 million of securities were subject to seven-day put
options. The Company does not hold derivative instruments for trading purposes.
PAREXEL INTERNATIONAL CORPORATION 23
<PAGE> 11
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Concentration of Credit Risk
Financial instruments which potentially expose the Company to concentrations of
credit risk include trade accounts receivable. However, such risk is limited due
to the large number of clients and their international dispersion. In addition,
the Company maintains reserves for potential credit losses and such losses, in
the aggregate, have not exceeded management expectations. No single customer
accounted for more than 10% of the Company's consolidated net revenue for the
years ended June 30, 1994, 1995 or 1996.
Property and Equipment
Property and equipment is stated at cost. Depreciation is provided on the
straight-line method over the estimated useful lives of the assets ranging from
three to five years. Leasehold improvements are amortized over the lesser of the
estimated useful lives of the improvements or the remaining lease term. Repair
and maintenance costs are charged to expense as incurred.
Intangible Assets
Intangible assets consist principally of goodwill, customer lists, covenants not
to compete, and other intangible assets attributable to businesses acquired.
Goodwill represents the excess of the cost of businesses acquired over the fair
value of the related net assets at the date of acquisition. Goodwill and other
intangible assets are amortized using the straight-line method over five to ten
years.
Impairment of Long-Lived Assets
The Company periodically assesses the recoverability of the carrying amount of
long-lived assets, including intangible assets. A loss is recognized when
expected future cash flows (undiscounted and without interest) are less than the
carrying amount of the asset. The amount of the impairment loss is determined as
the difference by which the carrying amount of the asset exceeds the fair value
of the asset.
Income Taxes
Effective July 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (FAS 109) prospectively. FAS
109 requires the recognition of deferred tax assets (representing future tax
benefits) attributable to deductible temporary differences between financial
statement and income tax bases of assets and liabilities and to operating loss
carryforwards to the extent that realization of these benefits is more likely
than not. The cumulative effect of the Company's adoption of FAS 109 increased
net income by $500,000 for the year ended June 30, 1994, and primarily related
to the future tax benefit of temporary differences within the North American
operations.
Foreign Currency
Assets and liabilities of the Company's international operations are translated
into U.S. dollars at exchange rates in effect at the balance sheet date. Income
and expense items are translated at average exchange rates for the period.
Accumulated net translation adjustments are included in stockholders' equity.
Realized gains and losses recorded in the statement of operations were not
material.
Net Income (Loss) Per Share
Net income (loss) per share is calculated based on the weighted average number
of common shares and common equivalent shares assumed outstanding during the
period. Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83, certain common and common equivalent shares issued by the Company during
the twelve months immediately preceding the initial filing of the registration
statement relating to the Company's initial public offering have been included
in the calculation of weighted average shares, using the treasury stock method
and an assumed initial public offering price of $14 per share, as if these
shares were outstanding for all periods prior to the initial public offering.
24 PAREXEL INTERNATIONAL CORPORATION
<PAGE> 12
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Recently Issued Accounting Standards
In October 1995, the Financial Accounting Standards Board issued Statement No.
123, "Accounting for Stock-Based Compensation" (FAS 123). The Company has
elected to adopt FAS 123 in fiscal 1997 through disclosure only.
NOTE 3 - IMPAIRMENT OF LONG-LIVED ASSETS
In fiscal 1991, PAREXEL acquired AFB Arzneimittelforschung GmbH, (which was
subsequently renamed PAREXEL GmbH), a contract research organization
headquartered in Germany, in exchange for $3.9 million of cash, Convertible
Preferred Stock then valued at $1.3 million and the assumption of $16.1 million
of liabilities. Since it was acquired, PAREXEL GmbH's financial performance has
fallen below management's expectations and experienced a declining revenue base.
In fiscal 1993, the Company recorded a charge aggregating $3.3 million with
respect to a plan to restructure its German operations. The plan primarily
involved the physical consolidation of several operating groups within two
facilities and a reduction in employee headcount. The charge included lease
abandonment costs, write-offs of leasehold improvements, severance payments and
other expenses directly associated with the restructuring plan. There were no
material changes in estimates included in this charge, and at June 30, 1996
these actions were complete.
As a result of the restructuring effort in fiscal 1993, management budgeted
positive operating results that supported the realization of the related net
assets. However, in the third quarter of fiscal 1995, PAREXEL GmbH's operations
suffered a further decline in net revenue resulting in a net loss for the
period. Also during the third quarter, drug development regulations in Germany
and Europe were modified, and further changes were being contemplated, all of
which were expected to have a detrimental impact on PAREXEL GmbH's operations.
Considering the cumulative impact of the above-described factors, management
updated its assessment of the realizability of the long-lived assets of PAREXEL
GmbH as of the third quarter of fiscal 1995.
In accordance with its accounting policy for impaired long-lived assets,
management prepared a forecast of PAREXEL GmbH's expected future cash flows on
an undiscounted basis and without interest charges. This forecast was based on
assumptions developed by management using PAREXEL GmbH's historical experience
as well as the best estimate of future trends and events. In the short-term,
management had forecasted declining revenue in certain of PAREXEL GmbH's
operations in recognition of the current business environment within Germany. In
the longer-term, management's assumptions reflected a stabilization of the
revenue base, followed by a period of moderate revenue and expense growth
(approximately 4% annually). The sum of the forecasted cash flows from
management's model was less than the carrying amount of PAREXEL's investment in
PAREXEL GmbH.
To assess the fair value of PAREXEL GmbH, the Company retained a valuation
expert. A discounted cash flow valuation technique was utilized with a discount
rate of approximately 19.5% based upon PAREXEL GmbH's calculated cost of
capital. The results of this calculation indicated a de minimus valuation and
accordingly, in the third quarter of fiscal 1995, the Company recorded an
impairment loss on long-lived assets of $11.3 million; comprising $8.7 million
in goodwill, $1.4 million in fixed assets and $1.2 million in identifiable
intangible assets.
PAREXEL INTERNATIONAL CORPORATION 25
<PAGE> 13
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 4 - ACQUISITIONS
On June 28, 1996, the Company acquired, in separate transactions, Sitebase
Clinical Systems, Inc., (Sitebase), a provider of remote data entry technology,
and Caspard Consultants (Caspard), a Paris-based biostatistical and data
management consulting company. The Company issued a total of 80,818 shares of
common stock in exchange for all of the outstanding shares of Sitebase and
Caspard. Both of these transactions are being accounted for as poolings of
interest. The aggregate historical results of operations and financial position
of Sitebase and Caspard are not material to the Company's consolidated financial
statements. Therefore, prior period amounts have not been restated and results
of operations have been included since the date of acquisition.
On August 16, 1996, the Company acquired Lansal Clinical Pharmaceutics Limited
(Lansal), a contract research organization in Israel. On August 22, 1996, the
Company acquired State and Federal Associates, Inc. (S&FA), a strategic
healthcare consulting organization located in Washington D.C. Both of these
transactions are being accounted for as poolings of interest. The Company issued
504,152 shares of common stock in exchange for all of the outstanding shares of
Lansal and S&FA. The aggregate historical results of operations and financial
position of Lansal and S&FA are not material to the Company's consolidated
financial statement. Therefore, prior period amounts will not be restated and
results of operations will be included prospectively from the date of
acquisition.
Pro forma results of the Company, assuming the above acquisitions were made at
the beginning of each period presented, would not be materially different from
the actual results reported.
NOTE 5 - INVESTMENTS
Available-for-sale securities included in cash and cash equivalents as of June
30, 1995 and 1996 consisted of the following:
<TABLE>
<CAPTION>
(in thousands) 1995 1996
- -----------------------------------------------------------
<S> <C> <C>
Money market $ - $ 2,492
Municipal securities - 10,000
Repurchase agreements 2,191 1,141
- -----------------------------------------------------------
$2,191 $13,633
- -----------------------------------------------------------
</TABLE>
Available-for-sale securities included in marketable securities at June 30, 1995
consisted of $1.5 million of municipal securities (which are carried at fair
market value which approximates cost). Available-for-sale securities included in
marketable securities at June 30, 1996 consisted of the following:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED FAIR
(in thousands) COST GAINS LOSSES VALUE
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal securities $16,972 $ 3 $(34) $16,941
Federal Government securities 10,344 66 (1) 10,409
Corporate debt securities 1,959 10 - 1,969
- ------------------------------------------------------------------------------
$29,275 $79 $(35) $29,319
- ------------------------------------------------------------------------------
</TABLE>
The contractual maturity of available-for-sale securities at June 30, 1996 was
$39.5 million within one year, $2.8 million over one year and less than five
years, and $700,000 over five years. Proceeds from the maturities and sales of
available-for-sale securities amounted to approximately $568.1 million for the
year ended June 30, 1996 and $2.7 million for the year ended June 30, 1995.
Purchases amounted to approximately $607.4 million for the year ended June 30,
1996 and $3.5 million for the year ended June 30, 1995. Gains and losses
realized upon the sale of securities (the cost of which is based upon the
specific identification method) were not significant.
26 PAREXEL INTERNATIONAL CORPORATION
<PAGE> 14
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 6 - ACCOUNTS RECEIVABLE
Accounts receivable at June 30, 1995 and 1996 consisted of the following:
<TABLE>
<CAPTION>
(in thousands) 1995 1996
- ---------------------------------------------------------------------------
<S> <C> <C>
Billed $14,081 $21,286
Unbilled 11,868 19,490
Allowance for doubtful accounts (1,274) (1,499)
- ---------------------------------------------------------------------------
$24,675 $39,277
- ---------------------------------------------------------------------------
</TABLE>
NOTE 7 - PROPERTY AND EQUIPMENT
Property and equipment at June 30, 1995 and 1996 consisted of the following:
<TABLE>
<CAPTION>
(in thousands) 1995 1996
- ---------------------------------------------------------------------------
<S> <C> <C>
Computer and office equipment $ 6,807 $10,527
Computer software 1,061 1,725
Furniture and fixtures 2,117 3,058
Leasehold improvements 394 652
10,379 15,962
- ---------------------------------------------------------------------------
Less accumulated depreciation and amortization 5,708 7,769
- ---------------------------------------------------------------------------
$ 4,671 $ 8,193
- ---------------------------------------------------------------------------
</TABLE>
Included in the above amounts is computer and office equipment acquired under
capital lease obligations of approximately $3.0 million and $3.6 million at June
30, 1995 and 1996, respectively. Accumulated depreciation on computer and office
equipment under capital leases totalled approximately $1.3 million and $1.8
million at June 30, 1995 and 1996, respectively.
Depreciation and amortization expense relating to property and equipment was
approximately $1.5 million, $1.7 million and $2.1 million for the years ended
June 30, 1994, 1995 and 1996, respectively, of which $286,000, $427,000 and
$634,000 related to amortization of property and equipment under capital leases.
NOTE 8 - OTHER CURRENT LIABILITIES
Other current liabilities at June 30, 1995 and 1996 consisted of the following:
<TABLE>
<CAPTION>
(in thousands) 1995 1996
- ---------------------------------------------------------------------------
<S> <C> <C>
Accrued compensation and withholdings $2,068 $ 4,281
Accrued investigator fees 1,608 1,565
Other 4,413 5,555
- ---------------------------------------------------------------------------
$8,089 $11,401
- ---------------------------------------------------------------------------
</TABLE>
NOTE 9 - CREDIT ARRANGEMENTS
The Company has domestic and foreign line of credit arrangements with banks
totalling approximately $6.4 million. The lines are collateralized by accounts
receivable, are payable on demand and bear interest at the local bank base or
money market rate, plus 1% to 3% (resulting in interest rates ranging from 5.5%
to 9.25% at June 30, 1996). The lines of credit expire at various dates through
December 1996 and are renewable. There were no amounts outstanding under these
lines of credit at June 30, 1996.
PAREXEL INTERNATIONAL CORPORATION 27
<PAGE> 15
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
The Company has a $2.4 million capital lease line of credit with a U.S. bank for
the financing of property and equipment. This line is collateralized by property
and equipment. Borrowings under this line are payable over a three-year term
with interest fixed at the five-year U.S. Treasury note rate plus 2.5% (for a
total interest rate of 9.2% at June 30, 1996) and are included in long-term
debt. This line of credit expires on November 30, 1998 and is renewable
annually. Available capacity under this line was approximately $1.2 million at
June 30, 1996.
Long-term debt at June 30, 1995 and 1996 consisted of borrowings under the
capital lease line. The fair value of debt is estimated based on the market
value for similar debt and approximates carrying value at June 30, 1995 and
1996. Aggregate lease obligations bear a weighted average interest rate of
approximately 7.9% at June 30, 1996. Long-term debt matures as follows: $762,000
in fiscal 1997, $333,000 in fiscal 1998 and $27,000 in fiscal 1999.
NOTE 10 - STOCKHOLDERS' EQUITY
On November 22, 1995 the Company sold 1.6 million shares of common stock to the
public in the Company's initial public offering at a price of $15 per share.
Proceeds to the Company, net of offering expenses, amounted to $21.2 million.
Upon closing of the initial public offering, the Company received $157,000 in
repayment of stock subscriptions receivable, $1.8 million of proceeds from the
exercise of preferred stock warrants and all of the preferred stock
automatically converted into a total of 4,478,008 shares of common stock. In
addition, the Company paid cumulative dividends to preferred stockholders of
approximately $940,000.
On March 1, 1996, an additional 500,000 shares of the Company's common stock
were sold by the Company to the public at a price per share of $33.75. Proceeds
to the Company, net of offering expenses, amounted to $15.7 million.
At June 30, 1996 there were 5,000,000 shares of preferred stock, $0.01 per
share, authorized, but none were issued or outstanding. Preferred stock may be
issued at the discretion of the Board of Directors of the Company (without
stockholder approval) with such designations, rights and preferences, including
voting rights, dividend rights and rates and terms of redemption, as the Board
of Directors may determine from time to time.
At June 30, 1994, the Company held 13,333 shares of common stock in treasury, at
a cost per share of $0.01. During the year ended June 30, 1995, 1,373 common
shares were repurchased at a cost per share of $12.50. There were 14,706 shares
of common stock held in treasury at June 30, 1995 and 1996.
NOTE 11 - STOCK AND EMPLOYEE BENEFIT PLANS
Common Stock Options
The Company's 1986 Incentive Stock Option Plan, 1987 Stock Plan and 1989 Stock
Plan (collectively, the Plans) provide for the granting of incentive and
non-qualified stock options for the purchase of shares of common stock, and
awards and sales of common stock, to directors, officers, employees and
consultants, depending upon the provisions of the plan. An aggregate of 638,000
shares of common stock was originally reserved for issuance under the Plans. In
September 1995 the Company adopted the 1995 Stock Plan (the 1995 Plan), which
provides for the issuance of options to purchase up to 500,000 shares of common
stock to employees, officers, consultants and advisors of the Company. The
Compensation Committee of the Company's Board of Directors determines the type
of grant, option exercise price per share, the vesting period (generally four to
five years), and the expiration date at the date of grant.
In September 1995, the Company adopted the 1995 Non-Employee Director Stock
Option Plan (Director Plan). The Director Plan provides for the grant of options
to purchase up to 300,000 shares of common stock of the Company to non-employee
directors. An aggregate of 86,500 options were granted on November 21, 1995, the
effective date of the Company's initial public offering, at an exercise price
equal to the initial public offering price of $15.00 per share. The options
became exercisable on the first succeeding June 30th after the effective date.
All other options become exercisable in three equal annual installments
beginning on the first anniversary of the date of grant, subject to specified
meeting attendance requirements.
28 PAREXEL INTERNATIONAL CORPORATION
<PAGE> 16
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
In addition to plan options granted, the Company granted at various dates prior
to 1989 options to purchase an aggregate of 86,300 shares of common stock at
prices ranging from $0.35 to $0.75 not pursuant to any plan. During the year
ended June 30, 1994, the Company granted additional options to purchase 40,000
shares of common stock not pursuant to any plan. These options vest over a three
year period and have an exercise price of $12.50 per share.
Aggregate stock option activity during fiscal 1994, 1995 and 1996 was as
follows:
<TABLE>
<CAPTION>
OPTIONS EXERCISE PRICE
- ----------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at June 30, 1993 741,022 $ 0.25 -- $12.50
Granted 95,300 12.50
Canceled (11,500) 0.60 -- 12.50
Exercised (102,000) 0.60 -- 0.75
- ----------------------------------------------------------------------------------
Outstanding at June 30, 1994 722,822 $ 0.25 -- $12.50
Granted 12,000 12.50
Canceled (75,383) 3.00 -- 12.50
Exercised (21,986) 3.00
- ----------------------------------------------------------------------------------
Outstanding at June 30, 1995 637,453 $ 0.25 -- $12.50
Granted 419,000 12.50 -- 47.50
Canceled (26,073) 3.00 -- 15.00
Exercised (309,920) 0.25 -- 10.00
- ----------------------------------------------------------------------------------
Outstanding at June 30, 1996 720,460 $ 0.35 -- $47.50
- ----------------------------------------------------------------------------------
Exercisable at June 30, 1996 393,757 $ 0.35 -- $19.38
- ----------------------------------------------------------------------------------
Available for future grant at June 30, 1996 408,667
- ----------------------------------------------------------------------------------
</TABLE>
All of the foregoing options were granted with an exercise price equal to fair
market value at the time of grant.
Employee Stock Purchase Plan
In September 1995, the Company adopted the 1995 Employee Stock Purchase Plan
(the Purchase Plan). Under the Purchase Plan, employees have the opportunity to
purchase common stock at 85% of the average market value on the first or last
day of the plan period (as defined by the Purchase Plan), whichever is lower, up
to specified limits. An aggregate of 300,000 shares may be issued under the
Purchase Plan.
401(k) Plan
The Company sponsors an employee savings plan (the Plan) as defined by Section
401(k) of the Internal Revenue Code of 1986, as amended. The Plan covers
substantially all employees in the U.S. who elect to participate. Participants
have the opportunity to invest on a pre-tax basis in a variety of mutual fund
options. Effective July 1, 1992, the Company matches 100% of each participants'
voluntary contributions up to 3% of gross salary per payroll period. Company
contributions vest to the participants in 20% increments for each year of
employment, and become fully vested after five years of continuous employment.
Company contributions to the Plan were $327,000 and $526,000 for the years ended
June 30, 1995 and 1996, respectively.
PAREXEL INTERNATIONAL CORPORATION 29
<PAGE> 17
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 12 - INCOME TAXES
Domestic and foreign income (loss) before income taxes for the years ended June
30, 1994, 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
(in thousands) 1994 1995 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $2,702 $ 350 $5,526
Foreign 794 (10,660) 2,126
- ------------------------------------------------------------------------------------------------
$3,496 $(10,310) $7,652
- ------------------------------------------------------------------------------------------------
</TABLE>
The provision for income taxes for the years ended June 30, 1994, 1995 and 1996
are as follows:
<TABLE>
<CAPTION>
(in thousands) 1994 1995 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 881 $ 274 $2,202
State 421 192 636
Foreign 361 78 427
- ------------------------------------------------------------------------------------------------
1,663 544 3,265
- ------------------------------------------------------------------------------------------------
Deferred:
Federal (55) (164) (157)
State (18) (55) (52)
Foreign (17) (5) (3)
(90) (224) (212)
- ------------------------------------------------------------------------------------------------
$1,573 $ 320 $3,053
- ------------------------------------------------------------------------------------------------
</TABLE>
Income taxes are greater than the amount of income tax determined by applying
the applicable U.S. federal statutory income tax rate to income before income
taxes as a result of the following differences:
<TABLE>
<CAPTION>
(in thousands) 1994 1995 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax expense (benefit) at the 34% federal statutory rate $1,189 $(3,505) $2,602
State income taxes, net of federal benefit 282 92 460
Foreign rate differential 105 (108) (234)
Non-deductible amortization of intangible assets 305 169 45
Non-deductible impairment of assets - 3,348 -
Foreign operating losses without current benefit - 334 26
Temporary items without current benefit (reversals) (341) - -
Other 33 (10) 154
- ------------------------------------------------------------------------------------------------
$1,573 $ 320 $3,053
- ------------------------------------------------------------------------------------------------
</TABLE>
Temporary items without current benefit relate primarily to book and tax
differences between the deductibility of restructuring charges incurred in
fiscal 1993.
Provision has not been made for U.S. or additional foreign taxes on
undistributed earnings of foreign subsidiaries as those earnings have been
permanently reinvested. Such taxes, if any, are not expected to be significant.
30 PAREXEL INTERNATIONAL CORPORATION
<PAGE> 18
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Significant components of the Company's net deferred tax asset as of June 30,
1995 and 1996 are as follows:
<TABLE>
<CAPTION>
(in thousands) 1995 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Foreign loss carryforwards $ 6,891 $ 6,048
Facility and other restructuring costs 763 -
Accrued expenses 445 497
Property and equipment 703 486
Allowance for doubtful accounts 417 491
Other 118 477
- -------------------------------------------------------------------------------
Gross deferred tax assets 9,337 7,999
Deferred tax asset valuation allowance (7,491) (5,926)
- -------------------------------------------------------------------------------
Total deferred tax assets 1,846 2,073
- -------------------------------------------------------------------------------
Deferred tax liabilities:
Deferred contract profit (463) (274)
Other (289) (292)
- -------------------------------------------------------------------------------
Total deferred tax liabilities (752) (566)
- -------------------------------------------------------------------------------
$ 1,094 $ 1,507
- -------------------------------------------------------------------------------
</TABLE>
The net deferred tax assets are included in the consolidated balance sheet as of
June 30, 1995 and 1996 as follows:
<TABLE>
<CAPTION>
(in thousands) 1995 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Other current assets $ 716 $1,255
Other assets 378 252
- -------------------------------------------------------------------------------
$1,094 $1,507
- -------------------------------------------------------------------------------
</TABLE>
The net deferred tax asset includes the tax effect of approximately $12 million
of pre-acquisition and post-acquisition foreign tax loss carryforwards available
to offset future liabilities for foreign income tax. Substantially all of the
foreign tax losses are carried forward indefinitely, subject to certain
limitations. A valuation allowance has been established for the future foreign
income tax benefits primarily related to income tax loss carryforwards and
temporary differences based on management's assessment that it is more likely
than not that such benefits will not be realized. The ultimate realization of
these loss carryforwards is primarily dependent upon the generation of
sufficient taxable income in respective foreign jurisdictions, primarily
Germany.
PAREXEL INTERNATIONAL CORPORATION 31
<PAGE> 19
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 13 - GEOGRAPHIC INFORMATION
The Company's operations involve a single industry segment providing clinical
research and development services. The principal financial information by
geographic area for the years ended June 30, 1994, 1995 and 1996 is as follows:
<TABLE>
<CAPTION>
(in thousands) 1994 1995 1996
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Net revenue
North America $37,111 $ 35,037 $ 54,179
Europe 20,891 23,443 32,834
Asia-Pacific - 93 993
- ---------------------------------------------------------------------------
$58,002 $ 58,573 $ 88,006
- ---------------------------------------------------------------------------
Income (loss) from operations
North America $ 3,908 $ 1,166 $ 5,405
Europe (216) (11,531) 1,266
Asia-Pacific - - (176)
- ---------------------------------------------------------------------------
$ 3,692 $(10,365) $ 6,495
- ---------------------------------------------------------------------------
Identifiable assets
North America $21,349 $ 25,288 $ 77,493
Europe 24,587 17,927 24,752
Asia-Pacific - 35 156
- ---------------------------------------------------------------------------
$45,936 $ 43,250 $102,401
- ---------------------------------------------------------------------------
</TABLE>
NOTE 14 - LEASES
The Company leases its facilities under operating leases which include renewal
and escalation clauses. Total rent expense was approximately $3.7 million, $4.3
million and $5.1 million for years ended June 30, 1994, 1995 and 1996,
respectively. Future minimum lease commitments due under non-cancelable
operating leases and capital lease obligations at each fiscal year end are as
follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
(in thousands) LEASES LEASES
- --------------------------------------------------------------------
<S> <C> <C>
1997 $ 823 $ 6,170
1998 347 6,146
1999 28 5,642
2000 - 4,013
2001 - 3,699
Thereafter - 1,520
- --------------------------------------------------------------------
Total obligations 1,198 $27,190
- --------------------------------------------------------------------
Less amount representing interest 76
- --------------------------------------------------------------------
$1,122
- --------------------------------------------------------------------
</TABLE>
NOTE 15 - RELATED PARTY TRANSACTIONS
Certain of the Company's Directors are affiliated with certain of the Company's
customers. Net revenue recognized from these customers was $2.3 million, $3.0
million and $8.1 million in fiscal 1994, 1995 and 1996, respectively. Amounts
included in accounts receivable at June 30, 1995 and 1996 were $1.2 million and
$1.9 million respectively. Related party amounts included in accounts receivable
are on standard terms and manner of settlement.
32 PAREXEL INTERNATIONAL CORPORATION
<PAGE> 20
REPORT OF INDEPENDENT
ACCOUNTANTS
To the Board of Directors and Stockholders of PAREXEL International Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of PAREXEL
International Corporation and its subsidiaries at June 30, 1995 and 1996, and
the results of their operations and their cash flows for each of the three years
in the period ended June 30, 1996, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Boston, Massachusetts
August 22, 1996
PAREXEL INTERNATIONAL CORPORATION 33
<PAGE> 21
QUARTERLY OPERATING RESULTS
AND COMMON STOCK INFORMATION
(UNAUDITED)
The following is a summary of unaudited quarterly results of operations for the
years ended June 30, 1996 and 1995:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30, 1996
FIRST SECOND THIRD FOURTH
(in thousands, except per share amounts) QUARTER QUARTER QUARTER QUARTER
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenue $17,973 $ 20,616 $ 22,507 $ 26,910
Income from operations 1,159 1,445 1,736 2,155
Net income 742 956 1,297 1,604
Net income per share $ 0.14 $ 0.15 $ 0.17 $ 0.20
Range of common stock prices (1) na $18.75 - 36.00(2) $26.00 - 44.50 $37.50 - 55.75
</TABLE>
(1) The range of common stock prices is based on the high and low sales price
on the Nasdaq National Market for the periods indicated.
(2) Stock prices for the Second Quarter of fiscal 1996 represent the period
from the date of the Company's initial offering, November 22, 1995,
through December 31, 1995.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30, 1995
FIRST SECOND THIRD FOURTH
(in thousands, except per share amounts) QUARTER QUARTER QUARTER QUARTER
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenue $13,176 $14,281 $ 14,824 $16,292
Income (loss) from operations (1,449) 473 (10,370)(3) 981
Net income (loss) (971) 295 (10,637) 683
Net income (loss) per share $ (1.16) $ 0.06 $ (12.59) $ 0.13
</TABLE>
(3) Includes an $11.3 million non-cash charge due to the write-off of impaired
long-lived assets of the Company's German operations.
The Company's common stock is quoted on the Nasdaq National Market under the
symbol "PRXL".
34 PAREXEL INTERNATIONAL CORPORATION
<PAGE> 22
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
(in thousands, except per share data and number of employees) 1992 1993 1994 1995 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net revenue $45,407 $54,000 $58,002 $ 58,573 $ 88,006
Income (loss) from operations 3,172 298 (1) 3,692 (10,365)(3) 6,495
Net income (loss) 1,536 (2,157) 2,423 (2) (10,630) 4,599
Net income (loss) per share $ 0.33 $ (2.97) $ 0.44 $ (12.61) $ 0.68
FINANCIAL POSITION
Cash, cash equivalents and marketable securities $11,131 $ 8,669 $ 3,066 $ 6,815 $ 45,562
Working capital 5,884 7,161 10,885 11,574 53,428
Total assets 44,390 45,457 45,936 43,250 102,401
Long-term debt 790 222 391 633 360
Stockholders' equity 21,807 21,847 25,236 15,524 61,212
OTHER DATA
Investment in property and equipment $ 1,474 $ 1,699 $ 1,979 $ 1,460 $ 5,039
Depreciation and amortization $ 2,299 $ 2,511 $ 2,435 $ 2,251 $ 2,343
Number of employees 647 641 723 726 1,344
Average common and common equivalent shares(4) 5,236 727 5,747 843 6,780
</TABLE>
(1) Income from operations includes a $3.3 million charge in connection with a
restructuring of operations in Germany. See Note 3 entitled "Impairment of
Long-Lived Assets" to Consolidated Financial Statements for a description of
this matter.
(2) Net income includes $500,000 related to the cumulative effect of adopting
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes".
(3) Loss from operations includes an $11.3 million non-cash charge due to the
write-down of impaired long-lived assets of the Company's German operations.
Income from operations on a pro forma basis excluding the impaact of this
charge was $303,000. See Note 3 entitled "Impairment of Long-Lived Assets"
to Consolidated Financial Statements for a description of this matter.
(4) For the years ended June 30, 1993 and 1995, weighted average common shares
outstanding exclude common share equivalents (primarily convertible
preferred stock), the inclusion of which would have been anti-dilutive.
PAREXEL INTERNATIONAL CORPORATION 35
<PAGE> 1
EXHIBIT 21.1
PAREXEL INTERNATIONAL CORPORATION
LIST OF SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
PAREXEL
Ownership(1)
------------
<S> <C>
Barnett International Corporation, a Massachusetts corporation 100%
PAREXEL International Holding Corporation, a Delaware corporation 100%
PAREXEL International Securities Corporation, a Massachusetts corporation 100%
PAREXEL International Inc., a Delaware corporation 100%
PAREXEL Unternehmens beteilung GmbH, a corporation organized under the
laws of Germany 100%
PAREXEL GmbH Independent Pharmaceutical Research Organization, a
corporation organized under the laws of Germany 100%
PAREXEL International Limited, a corporation organized under the laws of the
United Kingdom 100%
AFB CLINLAB Laborleistungs - Organisationgesellschaft mbH, a
corporation organized under the laws of Germany 100%
PAREXEL International, a corporation organized under the laws of France 100%
PAREXEL International SRL, a corporation organized under the laws of Italy 100%
PAREXEL International Pty Ltd, a corporation organized under the laws of
Australia 100%
PAREXEL International S.L., a corporation organized under the laws of Spain 100%
State and Federal Associates, Inc., a Virginia corporation 100%
PAREXEL International (Lansel) Limited, a corporation organized under the
laws of Brazil 100%
Caspard Consultants, a corporation organized under the laws of France 100%
Sitebase Clinical Systems, Inc., a Massachusetts Corporation 100%
</TABLE>
- ------------------
(1) Direct and indirect
31
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-80301) of PAREXEL International corporation of
our report dated August 22, 1996 appearing on page 33 of the Annual Report to
Shareholders which is incorporated in this Annual Report on Form 10-K. We also
consent to the application of such report to the Financial Statement Schedule
for the three years ended June 30, 1996 listed under Item 14(a) of PAREXEL
International Corporation's Annual Report on From 10-K for the year ended June
30, 1996 when such schedule is read in conjunction with the financial
statements referred to in our report. The audit referred to in such report also
included this Financial Statement Schedule.
PRICE WATERHOUSE LLP
Boston, Massachusetts
September 27, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 17101
<SECURITIES> 29319
<RECEIVABLES> 40776
<ALLOWANCES> (1499)
<INVENTORY> 0
<CURRENT-ASSETS> 92602
<PP&E> 15962
<DEPRECIATION> 7769
<TOTAL-ASSETS> 102401
<CURRENT-LIABILITIES> 39174
<BONDS> 0
0
0
<COMMON> 78
<OTHER-SE> 61134
<TOTAL-LIABILITY-AND-EQUITY> 102401
<SALES> 0
<TOTAL-REVENUES> 88006
<CGS> 0
<TOTAL-COSTS> 60141
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 515
<INTEREST-EXPENSE> 162
<INCOME-PRETAX> 7652
<INCOME-TAX> 3053
<INCOME-CONTINUING> 4599
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4599
<EPS-PRIMARY> 0.68
<EPS-DILUTED> 0.68
</TABLE>
