<PAGE> 1
FILED PURSUANT TO RULE 424(B)(1)
REGISTRATION NO. 333-14585
PROSPECTUS
1,275,000 SHARES
[PAREXEL LOGO]
COMMON STOCK
------------------------
Of the 1,275,000 shares of Common Stock offered hereby 1,066,900 are being
sold by PAREXEL International Corporation ("PAREXEL" or the "Company") and
208,100 are being sold by the Selling Stockholders. See "Principal and Selling
Stockholders." The Company will not receive any of the proceeds from the sale of
the shares by the Selling Stockholders.
The Company's Common Stock is quoted on the Nasdaq National Market under
the symbol "PRXL." The last sale price for the Common Stock on December 5, 1996,
as reported on the Nasdaq National Market, was $48.25 per share. See "Price
Range of Common Stock and Dividend Policy."
SEE "RISK FACTORS" ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
===============================================================================
<TABLE>
<CAPTION>
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UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
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<S> <C> <C> <C> <C>
Per Share..................... $48.00 $2.13 $45.87 $45.87
Total(3)...................... $61,200,000 $2,715,750 $48,938,703 $9,545,547
======================================================================================================
<FN>
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company, estimated at $500,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 191,250 shares of Common Stock solely to cover
over-allotments, if any. See "Underwriting." If all such shares are
purchased, the total Price to Public, Underwriting Discounts and
Commissions, and Proceeds to Company will be $70,380,000, $3,123,113 and
$57,711,341, respectively.
</TABLE>
------------------------
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about
December 11, 1996, at the office of Smith Barney Inc., 333 West 34th Street, New
York, NY 10001.
------------------------
SMITH BARNEY INC.
WILLIAM BLAIR & COMPANY
LEHMAN BROTHERS
ADAMS, HARKNESS & HILL, INC.
December 6, 1996
<PAGE> 2
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), a Registration Statement on Form S-1 (including all amendments
thereto, the "Registration Statement") under the Securities Act of 1933, as
amended, with respect to the Common Stock offered hereby. As permitted by the
rules and regulations of the Commission, this Prospectus omits certain
information contained in the Registration Statement. For further information
with respect to the Company and the Common Stock offered hereby, reference is
hereby made to the Registration Statement and to the exhibits and schedules
filed therewith. Statements contained in this Prospectus regarding the contents
of any agreement or other document filed as an exhibit to the Registration
Statement are not necessarily complete, and in each instance reference is made
to the copy of such agreement filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference. In
addition, the Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the Commission.
The Registration Statement, including the exhibits and schedules thereto, as
well as the Company's periodic reports, proxy statements and other information,
may be inspected at the public reference facilities maintained by the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's
Regional Offices located at Seven World Trade Center, 13th Floor, New York, New
York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of all or any part thereof may be obtained upon payment of the prescribed
fees from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. In addition, the Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
PAREXEL is a registered service mark of the Company.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SEE "UNDERWRITING."
2
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including Risk Factors and Consolidated Financial Statements and
Notes thereto, appearing elsewhere in this Prospectus. This Prospectus contains
certain "forward-looking" information, as that term is defined by (i) the
Private Securities Litigation Reform Act of 1995 (the "Act") and (ii) releases
made by the Securities and Exchange Commission. Such information involves risks
and uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors." Unless otherwise indicated, all information in this Prospectus assumes
no exercise of the Underwriters' over-allotment option.
THE COMPANY
PAREXEL International Corporation ("PAREXEL" or the "Company") is a leading
contract research organization ("CRO"), providing clinical research and
development services to the worldwide pharmaceutical and biotechnology
industries. The Company believes it is the fourth largest CRO, based on
estimated annual net revenue, and one of only a few CROs capable of providing a
full range of clinical services on a global basis. 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 clinical research and
development services, including designing, initiating and monitoring clinical
trials, managing and analyzing clinical data and consulting on regulatory
affairs.
PAREXEL's integrated information systems and worldwide network of offices
enable the Company to provide high-quality comprehensive services on a global
basis. The Company has provided clinical research and development services in
North America since 1985, in Europe since 1989, in Japan since May 1995 and in
Australia since December 1995. The Company derived 61.6% and 66.2% of net
revenue from its North American operations and 37.3% and 32.5% of net revenue
from its European operations in the fiscal year ended June 30, 1996 and the
three months ended September 30, 1996, respectively. During fiscal 1996, the
Company provided services to each of the 20 largest pharmaceutical companies, as
ranked by estimated worldwide 1995 research and development expenditures, and to
seven of the ten largest biotechnology companies, as ranked by December 1995
market capitalization. During fiscal 1996, the Company performed services for
over 250 clients, including 53 biotechnology companies, involving over 1,000
projects.
The CRO industry derives substantially all of its revenue from the
pharmaceutical and biotechnology industries. In 1995, the global pharmaceutical
and biotechnology industries spent an estimated $33.0 billion on research and
development, of which the Company estimates $15.2 billion was spent on the type
of services offered by the Company. Of this amount, $2.6 billion was outsourced
to CROs. The Company believes that the following trends will cause the CRO
industry to continue to grow: (i) many pharmaceutical companies, in response to
margin pressures, are seeking to reduce the high fixed costs associated with
peak-load staffing for drug development by relying on a combination of internal
resources and CROs; (ii) 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, by
outsourcing to CROs with global capabilities; (iii) as consolidation in the
pharmaceutical industry continues, many pharmaceutical companies aggressively
manage costs by reducing jobs and outsourcing to variable-cost CROs in an effort
to reduce the fixed costs associated with internal drug development; (iv) as
regulatory requirements in many jurisdictions have become more complex, the
pharmaceutical and biotechnology industries are increasingly outsourcing to
certain CROs to take advantage of their data management expertise and global
presence; (v) the worldwide research and development expenditures for new drugs,
including amounts spent on services of the type provided by CROs, have
experienced substantial growth in recent years as a result of pressures to
develop new drugs for an aging population and for the treatment of life
threatening diseases and chronic disorders; and (vi) the growth of the
biotechnology industry has increased the demand for expertise and
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services provided by outside sources, including CROs. There can be no assurance,
however, that these trends will result in growth in the CRO industry.
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. PAREXEL continues to devote
significant resources to developing information systems designed to allow the
Company to more effectively manage its business operations and deliver services
to its clients. The Company will continue to invest in improvements in
information technology and consider acquisitions of complementary businesses in
order to enhance its competitive position and its level of service.
RECENT EVENTS
In June 1996, the Company acquired Caspard Consultants, a Paris-based CRO,
and in August 1996 acquired Lansal Clinical Pharmaceutics Limited, a Tel
Aviv-based CRO. 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, Inc., a
provider of remote data entry ("RDE") technology. RDE technology is expected to
enhance the quality and timeliness of clinical trial data. In August 1996, the
Company also acquired State and Federal Associates, Inc. ("S&FA"), 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 historical
financial results of the acquired companies are not material to the Company's
financial position and results of operations. Therefore, prior periods have not
been restated and results of operations have been included since the date of
acquisition.
In addition, during fiscal 1996 the Company opened offices in Chicago and
Madrid, Spain.
<TABLE>
THE OFFERING
<S> <C>
Common Stock Offered by the Company....................... 1,066,900 shares
Common Stock Offered by the Selling Stockholders.......... 208,100 shares
Common Stock Outstanding Immediately after the Offering... 9,515,868 shares(1)
Use of Proceeds........................................... Working capital and general
corporate purposes, including
possible acquisitions.
Nasdaq National Market Symbol............................. PRXL
<FN>
- ---------------
(1) Based on shares outstanding as of October 15, 1996. Excludes 776,710
additional shares of Common Stock issuable upon exercise of stock options
at a weighted average exercise price per share of $23.74. See
"Capitalization" and Note 11 of Notes to Consolidated Financial Statements
of the Company.
</TABLE>
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4
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SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FOR THE YEAR ENDED JUNE 30, SEPTEMBER 30,
----------------------------------------------- -----------------
1992 1993 1994 1995 1996 1995 1996
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue........................................... $45,407 $54,000 $58,002 $58,573 $88,006 $17,973 $33,030
------- ------- ------- ------- ------- ------- -------
Costs and expenses:
Direct costs........................................ 29,772 36,106 38,244 42,140 60,141 12,465 22,821
Selling, general and administrative................. 10,164 11,831 13,631 13,294 19,027 3,834 6,617
Depreciation and amortization....................... 2,299 2,511 2,435 2,251 2,343 515 883
Facility and other restructuring charges............ -- 3,254(1) -- -- -- -- --
Impairment of long-lived assets..................... -- -- -- 11,253(2) -- -- --
------- ------- ------- ------- ------- ------- -------
Total costs and expenses...................... 42,235 53,702 54,310 68,938 81,511 16,814 30,321
------- ------- ------- ------- ------- ------- -------
Income (loss) from operations......................... 3,172 298 3,692 (10,365) 6,495 1,159 2,709
Other income (expense), net........................... 138 (520) (196) 55 1,157 98 364
------- ------- ------- ------- ------- ------- -------
Income (loss) before provision for income taxes and
cumulative effect of accounting change.............. 3,310 (222) 3,496 (10,310) 7,652 1,257 3,073
======= ======= ======= ======= ======= ======= =======
Net income (loss)..................................... 1,536 (2,157) 2,423 (10,630) 4,599 742 1,936
======= ======= ======= ======= ======= ======= =======
Net income (loss) per share........................... $ 0.33 $ (2.97) $ 0.44 $(12.61) $ 0.68 $ 0.14 $ 0.22
======= ======= ======= ======= ======= ======= =======
PRO FORMA DATA:
Income from operations (3)............................ $ 3,172 $ 3,552 $ 3,692 $ 888 $ 6,495 $ 1,159 $ 2,709
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
---------------------------
ACTUAL AS ADJUSTED(4)
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<S> <C> <C>
BALANCE SHEET DATA:
Working capital.................................................. $ 54,416 $102,855
Total assets..................................................... 107,670 156,109
Long-term debt, less current maturities.......................... 304 304
Stockholders' equity............................................. 66,372 114,811
<FN>
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(1) Represents a charge incurred in connection with a restructuring of
operations in Germany because of a decline in net revenue from those
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Note 3 of Notes to Consolidated Financial
Statements of the Company.
(2) Represents a non-cash charge primarily due to the write-down of intangible
assets of the Company's German operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 3 of
Notes to Consolidated Financial Statements of the Company.
(3) Excludes facility and other restructuring charges incurred in fiscal 1993
and the impairment loss from the write-down of long-lived assets incurred in
fiscal 1995.
(4) Adjusted to give effect to the sale of 1,066,900 shares of Common Stock by
the Company in this offering at the public offering price of $48.00 per
share, after deducting the underwriting discount and estimated offering
expenses. See "Use of Proceeds," "Capitalization" and Note 10 of Notes to
Consolidated Financial Statements of the Company.
</TABLE>
5
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RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing the shares of Common Stock offered hereby.
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."
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 "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Quarterly Results."
DEPENDENCE ON CERTAIN INDUSTRIES AND CLIENTS
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.
The Company believes that concentrations of business in the CRO industry
are not uncommon. The Company has experienced such concentration in the past and
may experience such concentration in future years. No client accounted for 10%
or more of consolidated net revenue in fiscal 1994, 1995 or 1996. 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 -- Industry Overview" and "-- Clients and Marketing."
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
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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 -- Industry Overview" and "-- Government
Regulation."
POTENTIAL ADVERSE IMPACT OF HEALTH CARE REFORM
Numerous governments have periodically 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 was 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 "Business -- Industry Overview."
Many European governments have also reviewed or undertaken health care
reform. For example, German health care reform legislation (the "Seehofer
Gesetz"), which was implemented on January 1, 1993, contributed to an 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."
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."
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.
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
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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. 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. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Global Operations." 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.
RISKS ASSOCIATED WITH ACQUISITIONS
The Company has made a number of acquisitions, including four since June 1,
1996, and will continue to review future acquisition opportunities. 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
difficulty of operating new (albeit related) businesses, 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
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."
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. In addition, the cost of recruiting skilled personnel
has increased and there can be no assurance that such costs will not continue to
rise. See "Business -- Employees."
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 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."
ADVERSE EFFECT OF EXCHANGE RATE FLUCTUATIONS
Approximately 36.0%, 40.2%, 38.4% and 33.8% of the Company's net revenue
for fiscal 1994, 1995 and 1996 and the three months ended September 30, 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
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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.
VOLATILITY OF STOCK PRICE
The market price of the Company's Common Stock is 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 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. See "Description of Capital Stock."
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THE COMPANY
The Company was incorporated in The Commonwealth of Massachusetts in 1983.
Unless the context otherwise requires, the terms "PAREXEL" and "the Company"
refer to PAREXEL International Corporation and its subsidiaries. The Company's
principal executive offices are located at 195 West Street, Waltham,
Massachusetts 02154, and its telephone number is (617) 487-9900.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,066,900 shares of
Common Stock offered by the Company hereby are estimated to be $48.4 million
($57.2 million if the Underwriters' over-allotment option is exercised in full)
at the public offering price of $48.00 per share and after deducting the
underwriting discounts and estimated offering expenses. The Company will not
receive any proceeds from the sale of Common Stock by the Selling Stockholders.
To further the Company's strategy of providing a full range of drug
development services on a global basis, the Company intends to use the net
proceeds of this offering approximately as follows: $25.0 million to $35.0
million to expand services or enhance therapeutic expertise through internal
growth and acquisitions and geographic expansion, $10.0 million to $15.0 million
for capital expenditures, primarily for information technology, expansion of
existing facilities or the opening or acquisition of new facilities, and the
remainder for working capital and other general corporate purposes. The Company
may vary the use of proceeds among the categories listed above because the
Company's ability to use the proceeds in the approximate amounts listed is
dependent on a number of factors including its ability to locate and retain
qualified staff in the areas of its planned geographic and specialty expansion,
its ability to locate and acquire attractive acquisition candidates, and the
patterns of market demand for its services. Pending such uses, the Company
intends to invest the net proceeds from this offering in investment grade,
interest-bearing securities.
As part of its business strategy, the Company regularly reviews acquisition
candidates in the ordinary course of business and, in addition to acquisitions
already made, the Company continually is evaluating new acquisition
opportunities. No binding agreements or firm commitments currently exist to make
any acquisition, and no portion of the net proceeds has been allocated for any
specific acquisition.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is quoted on the Nasdaq National Market under
the symbol "PRXL." Public trading of the Common Stock commenced on November 22,
1995. Prior to that time, there was no public market for the Company's Common
Stock. The following table sets forth the high and low sale prices for the
Common Stock as reported by Nasdaq for the periods indicated:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
FISCAL YEAR ENDED JUNE 30, 1996:
Second quarter (from November 22, 1995).................... $36 $18 3/4
Third quarter.............................................. 44 1/2 26
Fourth quarter............................................. 55 3/4 37 1/2
FISCAL YEAR ENDED JUNE 30, 1997:
First quarter.............................................. $63 $31
Second quarter (through December 5, 1996).................. 63 3/4 45 3/4
</TABLE>
On December 5, 1996, the last reported sale price of the Common Stock on
the Nasdaq National Market, was $48.25 per share. As of December 5, 1996, there
were approximately 68 stockholders of record of the Common Stock. The Company
believes that most of its stock (other than shares held by its officers and
directors) is held in street names through one or more nominees.
In November 1995, in connection with its initial public offering, the
Company paid a cash dividend of approximately $940,000 on certain series of its
Preferred Stock, which were subsequently converted into Common Stock. The
Company has never paid or declared any dividends on its Common Stock and does
not anticipate paying any cash dividends in the foreseeable future. The Company
currently intends to retain future earnings to fund the development and growth
of its business.
10
<PAGE> 11
CAPITALIZATION
The following table sets forth the actual and as adjusted capitalization of
the Company as of September 30, 1996. The as adjusted column sets forth the
actual capitalization as of September 30, 1996, as adjusted to give effect to
the sale of 1,066,900 shares of Common Stock by the Company pursuant to this
offering at the public offering price of $48.00 per share and the application of
the net proceeds therefrom. See "Use of Proceeds" and "Description of Capital
Stock." This table should be read in conjuction with the Company's Consolidated
Financial Statements and the Notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, excluding current maturities.................. $ 304 $ 304
------- --------
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized,
no shares outstanding actual or as adjusted.............. -- --
Common stock, $.01 par value, 25,000,000 shares authorized,
8,448,968 shares outstanding actual, 9,515,868 shares
outstanding as adjusted(1)............................... 84 95
Additional paid-in capital.................................. 68,510 116,938
Accumulated deficit......................................... (2,209) (2,209)
Cumulative translation adjustment........................... (13) (13)
------- --------
Total stockholders' equity.......................... 66,372 114,811
------- --------
Total capitalization................................ $66,676 $115,115
======= ========
<FN>
- ---------------
(1) Outstanding shares excludes 776,710 shares of Common Stock issuable as of
September 30, 1996 upon exercise of stock options at a weighted average
exercise price per share of $23.74. See "Management -- Options" and Note 11
of Notes to Consolidated Financial Statements of the Company. On November
14, 1996, the stockholders of the Company voted to increase the authorized
Common Stock to 50,000,000 shares.
</TABLE>
11
<PAGE> 12
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
The selected consolidated financial data set forth below at and for each of
the years in the five-year period ended June 30, 1996 are derived from financial
statements that have been audited by Price Waterhouse LLP, independent
accountants. The audited balance sheet at June 30, 1995 and 1996 and the related
statements of operations, of stockholders' equity, and of cash flows for each of
the three years in the period ended June 30, 1996 and related notes thereto
appear elsewhere in this Prospectus. The balance sheet data at September 30,
1995 and 1996 and the statement of operations data for the three months ended
September 30, 1995 and 1996 are derived from unaudited financial statements. The
unaudited financial statements include all adjustments, consisting only of
normal recurring adjustments, that the Company considers necessary for a fair
presentation of the financial position and results of operations for these
periods. Operating results for the three months ended September 30, 1996 are not
necessarily indicative of the results that may be expected for the fiscal year
ended June 30, 1997. The data set forth below should be read in conjunction
with, and are qualified by reference to, "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Company's financial
statements and related notes included elsewhere in this Prospectus.
<CAPTION>
THREE MONTHS
ENDED
FOR THE YEAR ENDED JUNE 30, SEPTEMBER 30,
--------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1995 1996
------- -------- -------- -------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.............................................. $53,292 $ 65,294 $ 69,646 $ 79,928 $121,869 $24,369 $ 43,152
Reimbursed costs..................................... (7,885) (11,294) (11,644) (21,355) (33,863) (6,396) (10,122)
------- -------- -------- -------- -------- ------- --------
Net revenue.......................................... 45,407 54,000 58,002 58,573 88,006 17,973 33,030
------- -------- -------- -------- -------- ------- --------
Costs and expenses:
Direct costs....................................... 29,772 36,106 38,244 42,140 60,141 12,465 22,821
Selling, general and administrative................ 10,164 11,831 13,631 13,294 19,027 3,834 6,617
Depreciation and amortization...................... 2,299 2,511 2,435 2,251 2,343 515 883
Facility and other restructuring charges........... -- 3,254(1) -- -- -- -- --
Impairment of long-lived assets.................... -- -- -- 11,253(2) -- -- --
------- -------- -------- -------- -------- ------- --------
Total costs and expenses..................... 42,235 53,702 54,310 68,938 81,511 16,814 30,321
------- -------- -------- -------- -------- ------- --------
Income (loss) from operations........................ 3,172 298 3,692 (10,365) 6,495 1,159 2,709
Other income (expense), net.......................... 138 (520) (196) 55 1,157 98 364
------- -------- -------- -------- -------- ------- --------
Income (loss) before provision for income taxes and
cumulative effect of accounting change............. 3,310 (222) 3,496 (10,310) 7,652 1,257 3,073
Provision for income taxes........................... 1,774 1,935 1,573 320 3,053 515 1,137
------- -------- -------- -------- -------- ------- --------
Net income (loss) before cumulative effect of
accounting change.................................. 1,536 (2,157) 1,923 (10,630) 4,599 742 1,936
Cumulative effect of change in method of accounting
for income taxes................................... -- -- 500 -- -- -- --
------- -------- -------- -------- -------- ------- --------
Net income (loss).................................... $ 1,536 $ (2,157) $ 2,423 $(10,630) $ 4,599 $ 742 $ 1,936
======= ======== ======== ======== ======== ======= ========
Net income (loss) per share.......................... $ 0.33 $ (2.97) $ 0.44 $ (12.61) $ 0.68 $ 0.14 $ 0.22
======= ======== ======== ======== ======== ======= ========
Weighted average common shares
outstanding........................................ 5,236 727(3) 5,747 843(3) 6,780 5,734 8,628
======= ======== ======== ======== ======== ======= ========
BALANCE SHEET DATA (AT PERIOD END):
Working capital...................................... $ 5,884 $ 7,161 $ 10,885 $ 11,574 $ 53,428 $12,144 $ 54,416
Total assets......................................... 44,390 45,457 45,936 43,250 102,401 45,961 107,670
Long-term debt, less current maturities.............. 790 222 391 633 360 719 304
Stockholders' equity................................. 21,807 21,847 25,236 15,524 61,212 16,119 66,372
<FN>
- ---------------
(1) Represents a charge incurred in connection with a restructuring of
operations in Germany because of a decline in revenues from those
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Note 3 of Notes to Consolidated Financial
Statements of the Company.
(2) Represents a non-cash charge primarily due to the write-down of intangible
assets of the Company's German operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 3 of
Notes to Consolidated Financial Statements of the Company.
(3) 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. See
Note 2 of Notes to Consolidated Financial Statements of the Company.
</TABLE>
12
<PAGE> 13
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 and biotechnology 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 CRO based
in Berlin with offices in Frankfurt and Paris. 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 Madrid,
Spain; and Chicago in 1996.
In June 1996, the Company acquired Caspard Consultants, a Paris-based CRO,
and in August 1996 acquired Lansal Clinical Pharmaceutics Limited, a CRO based
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, Inc., a provider of
remote data entry ("RDE") technology. This acquisition positions the Company as
a 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 and Federal Associates, Inc. (S&FA), 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 historical financial
results of the acquired companies are not material to the Company's financial
position and results of operations. Therefore, prior periods have not been
restated and results of operations have been included since the date of
acquisition. See Note 4 of Notes to Consolidated Financial Statements of the
Company.
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. Although 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, the loss or delay of a large contract or the loss
or delay of multiple contracts could have a material adverse effect on the
Company. 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 have resulted in a greater willingness of these companies to
cancel contracts with CROs. 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
13
<PAGE> 14
revenue. Reimbursed costs vary from contract to contract. Accordingly, the
Company views net revenue, which consists of revenue less reimbursed costs, as
its primary measure of revenue growth.
Direct costs consist of compensation and related fringe benefits for
project-related employees, recruiting-related expenses 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.
A key component of the Company's strategy is its investment in technology,
both client-oriented and internal management-oriented. These systems provide
increased standardization of operating processes and contract management
throughout the Company's worldwide operations. Integral to the system are: (i)
periodic monitoring and reviewing of contract progress; (ii) increased
visibility and periodic reviewing of hourly billing by employees and utilization
of project resources resulting in more efficient resource deployment; (iii)
integrated revenue recognition and billing subsystems; (iv) proposal and budget
generation; (v) management of clinical data; and (vi) forecasting of project
revenues and resource requirements.
GLOBAL OPERATIONS
<TABLE>
The following table sets forth, for the periods indicated, net revenue by
geographic region as well as the percentage of total net revenue represented by
such region.
<CAPTION>
FOR THE YEAR ENDED JUNE 30, THREE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------------- ----------------------------------------
1994 % OF TOTAL 1995 % OF TOTAL 1996 % OF TOTAL 1995 % OF TOTAL 1996 % OF TOTAL
------- ---------- ------- ---------- ------- ---------- ------- ---------- ------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenue:
North America.......... $37,111 64.0% $35,037 59.8% $54,179 61.6% $11,003 61.2% $21,864 66.2%
Europe................. 20,891 36.0 23,443 40.0 32,834 37.3 6,833 38.0 10,719 32.5
Asia-Pacific........... -- -- 93 0.2 993 1.1 137 0.8 447 1.3
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total............ $58,002 100.0% $58,573 100.0% $88,006 100.0% $17,973 100.0% $33,030 100.0%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
The Company's foreign subsidiaries generally enter into contracts
denominated in the local currency of the foreign subsidiary. Because the foreign
subsidiary's 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 geographic distribution
of its revenue among locations with varying tax rates. The Company's results of
operations will 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 health care 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,
14
<PAGE> 15
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 the fair value. Of the $11.3 million charge, $9.9 million
consisted of goodwill and other intangible assets. See Note 3 of Notes to
Consolidated Financial Statements of the Company.
RESULTS OF OPERATIONS
<TABLE>
The following table sets forth for the periods indicated certain financial
data as a percentage of net revenue and the percentage change in these items
compared to the prior comparable period. The trends illustrated in the following
table may not be indicative of future results.
<CAPTION> PERCENTAGE INCREASE
PERCENTAGE OF NET REVENUE (DECREASE)
----------------------------------------------- ------------------------------
THREE MONTHS
FISCAL YEAR ENDED FISCAL FISCAL THREE
ENDED JUNE 30, SEPTEMBER 30, 1994 1995 MONTHS
--------------------------- ---------------- TO TO 1995 TO
1994 1995 1996 1995 1996 1995 1996 1996
------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenue...................... 100.0% 100.0% 100.0% 100.0% 100.0% 1.0% 50.3% 83.8%
Costs and expenses:
Direct costs................... 65.9 71.9 68.3 69.4 69.1 10.2 42.7 83.1
Selling, general and
administrative............... 23.5 22.7 21.6 21.3 20.0 (2.5) 43.1 72.6
Depreciation and
amortization................. 4.2 3.9 2.7 2.9 2.7 (7.6) 4.1 71.5
Impairment of long-lived
assets....................... -- 19.2 -- -- -- * * --
----- ----- ----- ----- ----- ---- ---- -----
Income (loss) from
operations..................... 6.4% (17.7)% 7.4% 6.4% 8.2% * * 133.7%
===== ===== ===== ===== ===== ==== ==== =====
<FN>
- ---------------
* not meaningful
</TABLE>
Three Months Ended September 30, 1996 Compared to Three Months Ended September
30, 1995
Net revenue increased by $15.1 million, or 83.8%, from $18.0 million for
the three months ended September 30, 1995 to $33.0 million for the three months
ended September 30, 1996. This net revenue growth was primarily attributable to
an increase in the volume of clinical research projects serviced by the Company,
particularly in the areas of data management and biostatistical analysis and, to
a lesser extent, clinical monitoring services.
Direct costs increased by $10.4 million, or 83.1%, from $12.5 million for
the three months ended September 30, 1995 to $22.8 million for the three months
ended September 30, 1996. This increase in direct costs was due to the increase
in the number of project-related personnel, hiring, facilities and information
system costs necessary to support the increased level of operations. Direct
costs as a percentage of net revenue decreased slightly from 69.4% for the three
months ended September 30, 1995 to 69.1% for the three months ended September
30, 1996.
Selling, general and administrative expenses increased by $2.8 million, or
72.6%, from $3.8 million for the three months ended September 30, 1995 to $6.6
million for the three months ended September 30, 1996. This increase was
primarily due to increased administrative personnel, hiring and facilities
costs, in line with management's objective of increasing infrastructure to
accommodate the Company's growth. Selling, general and administrative expenses
as a percentage of net revenue decreased from 21.3% for the three months ended
15
<PAGE> 16
September 30, 1995 to 20.0% for the three months ended September 30, 1996
primarily due to leveraging of infrastructure over an expanding revenue base.
Depreciation and amortization expense increased by $368,000, or 71.5%, from
$515,000 for the three months ended September 30, 1995 to $883,000 for the three
months ended September 30, 1996. The increase is primarily due to increased
capital spending on computer equipment to support the increase in project
related personnel.
Income from operations for the three months ended September 30, 1996
increased by $1.6 million, or 133.7%, from $1.2 million for the three months
ended September 30, 1995 to $2.7 million for the three months ended September
30, 1996.
Interest income increased by $343,000 from $90,000 for the three months
ended September 30, 1995 to $433,000 for the three months ended September 30,
1996. This increase resulted from higher average balances of cash, cash
equivalents and marketable securities due primarily to proceeds from the
Company's public offerings in fiscal 1996.
The Company's effective income tax rate was 37.0% for the three months
ended September 30, 1996, compared to 41.0% for the three months ended September
30, 1995. The effective income tax rate varies with changes in the mix of
taxable income from the different jurisdictions in which the Company operates.
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 the 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.
16
<PAGE> 17
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.
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, 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 a decline in net
revenue 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.
Quarterly Results
The Company's quarterly operating results have been subject to variation,
and will continue to be subject to variation, depending on factors such as the
initiation and progress of significant projects, exchange rate fluctuations, the
opening of new offices, the costs associated with integrating acquisitions and
the start-up costs
17
<PAGE> 18
incurred in connection with the introduction of new products and services. In
addition, during the third quarter of fiscal 1995, the Company's results of
operations were affected by a write-down due to the impairment of long-lived
assets. Because a high percentage of the Company's operating costs are
relatively fixed in the short term, variations in the initiation, completion,
delay or loss of contracts or progress of clinical trials can cause material
adverse variations in quarterly operating results.
<TABLE>
The following table presents unaudited quarterly operating results for the
Company for each of the ten most recent fiscal quarters in the period ended
September 30, 1996. In the opinion of the Company, this information has been
prepared on the same basis as the consolidated financial statements appearing
elsewhere in this Prospectus and reflects all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of results for
operations for those periods. This quarterly financial data should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus. The operating results for any quarter
are not necessarily indicative of the results of any future period.
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1994 1994 1994 1995 1995 1995 1995 1996 1996 1996
-------- --------- -------- -------- -------- --------- -------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenue........ $15,172 $13,176 $14,281 $ 14,824 $16,292 $17,973 $20,616 $22,507 $26,910 $33,030
------- ------- ------- -------- ------- ------- ------- ------- ------- -------
Costs and expenses:
Direct costs..... 10,223 10,573 10,000 10,230 11,337 12,465 14,409 15,154 18,113 22,821
Selling, general
and
administrative... 3,850 3,384 3,099 3,279 3,532 3,834 4,244 5,001 5,948 6,617
Depreciation and
amortization... 580 668 709 432 442 515 518 616 694 883
Impairment of
long-lived
assets......... -- -- -- 11,253 -- -- -- -- -- --
------- -------- ------- -------- ------- ------- ------- ------- ------- -------
Total costs
and
expenses.. 14,653 14,625 13,808 25,194 15,311 16,814 19,171 20,771 24,755 30,321
------- -------- ------- -------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations....... $ 519 $(1,449) $ 473 $(10,370) $ 981 $ 1,159 $ 1,445 $ 1,736 $ 2,155 $ 2,709
======= ======== ======= ======== ======= ======= ======= ======= ======= =======
Net income
(loss)........... $ 95 $ (971) $ 295 $(10,637) $ 683 $ 742 $ 956 $ 1,297 $ 1,604 $ 1,936
======= ======== ======= ======== ======= ======= ======= ======= ======= =======
</TABLE>
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 of completion basis as the work is performed. Accordingly, cash
receipts do not necessarily correspond to costs incurred and revenue 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 40 days at June 30, 1995, 47 days at June 30, 1996 and 65
days at September 30, 1996. The increase in days revenue outstanding from June
30, 1996 to September 30, 1996 was primarily due to the timing of the
achievement of project milestones and related billings, as well as a decline in
the amounts billed to clients in advance of revenue earned. 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 and $49.6 million at September 30,
1996 while advance billings increased from $14.0 million at June 30, 1995 to
$20.0 million at June 30, 1996 and decreased to $18.5 million at September 30,
1996.
Unrestricted cash and cash equivalents decreased by $7.0 million during the
three months ended September 30, 1996 as a result of $6.1 million and $1.3
million in cash used by operating and financing
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<PAGE> 19
activities, respectively, offset by $518,000 in cash provided by investing
activities. Net cash used by operating activities resulted from net income,
excluding non-cash expenses, of $2.8 million and an increase in accounts payable
of $1.6 million being more than offset by increases in restricted cash of
$512,000 and billed and unbilled receivables of $7.7 million and decreases in
advance billings of $1.7 million and other current liabilities of $858,000. Cash
provided by investing activities consisted of net proceeds from sales of
marketable securities of $2.9 million and the net cash balances of acquired
companies of $251,000 nearly offset by capital expenditures of $2.7 million.
Cash used by financing activities reflects repayments of long-term debt of $2.8
million partially offset by net proceeds from the exercise of stock options of
$1.4 million. Debt repayments included $2.3 million to retire third-party debt
of S&FA assumed during the acquisition.
Unrestricted cash and cash equivalents decreased by $10.9 million during
fiscal 1996 as a result of $6.5 million and $37.4 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 made approximately $5.0 million of capital expenditures in
fiscal 1996 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 line of credit arrangements with banks
totalling approximately $7.5 million and a capital lease line of credit with a
U.S. bank for $2.4 million. At September 30, 1996 the Company had approximately
$9.0 million in available credit under these arrangements.
The Company's primary cash needs on both a short-term and long-term basis
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 its existing lines
of credit, will be sufficient to meet its foreseeable cash needs. In the future,
the Company will continue to consider acquiring businesses to enhance its
service offerings, therapeutic base and global presence. Any such acquisitions
may require additional external financings 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 financings will be available on
terms acceptable to the Company.
The foregoing statements 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, those discussed in "Risk Factors" as well as future
events that have the effect of reducing the Company's available cash balances,
such as unexpected operating losses or capital expenditures or cash expenditures
related to possible future acquisitions.
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.
19
<PAGE> 20
BUSINESS
PAREXEL is a leading contract research organization ("CRO"), providing
clinical research and development services to the worldwide pharmaceutical and
biotechnology industries. The Company believes it is the fourth largest CRO,
based on estimated annual net revenue, and one of only a few CROs capable of
providing a full range of clinical services on a global basis. 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 clinical
research and 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 Informations 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.
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 Madrid, Spain and Chicago in 1996.
In June 1996, the Company acquired Caspard Consultants, a Paris-based CRO,
and in August 1996 acquired Lansal Clinical Pharmaceutics Limited, a CRO based
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, Inc., a provider of
remote data entry ("RDE") technology. This acquisition positions the Company as
a 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 and Federal Associates, Inc. (S&FA), a Washington D.C.-based provider of
consulting services to the health care and pharmaceutical industries. The
acquisition broadens the Company's portfolio of consulting services,
specifically in the area of health economics.
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 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.
20
<PAGE> 21
The CRO industry derives substantially all of its revenue from the
pharmaceutical and biotechnology industries. The global pharmaceutical and
biotechnology industries spent an estimated $33 billion in 1995 on research and
development, of which the Company estimates $15.2 billion was spent on the type
of services offered by the Company. Of this amount, approximately $2.6 billion
was outsourced to CROs. 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. The CRO industry, by
specializing in clinical trials management, is often able to perform the
needed services with a higher level of expertise or specialization, more
quickly and at a lower cost than the client could perform the services
internally. The Company believes that some large pharmaceutical companies,
rather than utilizing many CRO service providers, are selecting a limited
number of full-service, global CROs to serve as their primary CROs.
- Globalization of Clinical Development and Regulation 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. Recently 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,
Roche-Syntex and Sandoz-Ciba Geigy. 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. In recent years, 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. Further, the FDA encourages the use of computer-assisted
filings in an effort to expedite the approval 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. The development of therapies for chronic disorders, such
as Alzheimer's disease, diabetes and arthritis, requires complex clinical
trials to
21
<PAGE> 22
demonstrate the therapy's effectiveness and determine whether the drug
causes any long-term side effects.
- 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.
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 continues to devote
significant resources to developing information systems designed to allow the
Company to more effectively manage its business operations and deliver services
to its clients. The Company will continue to invest in improvements in
information technology and consider acquisitions of complementary businesses in
order to enhance its competitive position and its level of service.
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 established a presence in Kobe, Japan; Milan, Italy;
Raleigh-Durham; Sydney, Australia; Madrid, Spain; Tel Aviv, Israel; Washington,
D.C. and Chicago. 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.
22
<PAGE> 23
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 Alzheimer's. The Company's
leadership in AIDS-related therapeutic areas 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. For example, the system enables 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. This
system also enables the Company to respond quickly to client inquires 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
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.
23
<PAGE> 24
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 staffs 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 CRO generally solicits the
investigators' participation in the study. 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 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 is entered into an electronic
database. The Company believes RDE technology will significantly enhance
both the quality and timeliness of clinical data collection with
significant efficiency savings. 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.
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<PAGE> 25
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 use of RDE technology to
gather and report clinical monitoring information is expected to expedite data
exchange while minimizing data collection errors as a result of real time data
integrity verification. 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 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 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.
Health Economics
The Company, through its subsidiary PAREXEL/S&FA, provides health economics
services that enable regulators, health care providers and third parties to
assess the pricing and cost effectiveness of new medical therapies. PAREXEL/S&FA
provides empirical economic data and demonstration of cost effectiveness in
development programs. PAREXEL/S&FA economists document critical economic
advantages of the new drug design and execute an integrated research program to
support both regulatory approval and post-approval pricing, marketing and
reimbursement strategies, marketing analyses and hotline services.
Market Analysis and Hotline Services
PAREXEL/S&FA has extensive experience providing pre-launch payment and
utilization planning and computing services to pharmaceutical and biotechnology
clients. These services are complemented by launch
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support and post-launch reimbursement consulting as well as reimbursement
hotline services. The PAREXEL/S&FA hotline capability also services indigent
patient programs and expanded access programs.
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
International Pharmaceutical Product Registration, Medical Devices -- Obtaining
FDA Market Clearance, Drug Formularies and the Pharmaceutical Industries, A
Practical Guide to the EMEA, New Drug Development: A Regulatory Overview and
Biologics Development: A Regulatory Overview. Other publications include the
Worldwide Pharmaceutical Regulation series and PAREXEL's Pharmaceutical R&D
Source Book 1996.
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 a few CROs that
has an extensive and effective global information technology network. The
Company has built on its network by developing a number of proprietary
information systems that address critical aspects of its business. These systems
track all aspects of the Company's projects utilizing:
- PROGEN[Trademark] -- A dynamic proposal and budget generation system
first developed and implemented globally in fiscal 1991. PROGEN generates
accurate and timely resource budgets in response to client requests for
proposals and also enables the Company to efficiently project staffing
requirements.
- TIMS[Trademark] -- An on-line time information management system,
implemented in North America in January 1994 and globally in January
1995. TIMS records and tracks all hours spent by employees and enables
managers to compare such information with the PROGEN resource budget.
- FORE[Trademark] -- An on-line revenue and resource forecasting system
implemented in January 1995 in North America and in June 1995 in Europe.
FORE tracks actual resource utilization for and progress of client
projects and allows management to efficiently deploy future resources to
match the progress of each project.
- CIMS[Trademark] -- An on-line clinical information management system
introduced in fiscal 1993 in North America and in fiscal 1995 in Europe.
CIMS allows each clinical project manager to monitor and control the
progress of an entire clinical trial, including providing real-time
access to information on site recruitment, tracking of patient
information, monitor information, investigator payments and drug
shipments, as well as participate in a Company-wide integrated reporting
system.
- DEMS[Trademark] -- A flexible, multi-user clinical trials data-entry and
data management system implemented in March 1995 in North America and
August 1995 in Europe. DEMS encompasses data-entry, verification and
validation and provides for real-time CRF tracking and coding of clinical
data and promotes standardization of clinical data management processes
at all of the Company's worldwide locations.
Although the Company began to implement its information systems in 1990,
the Company's current information systems were not completely adopted until
fiscal 1995. The Company recently augmented its information technology
capabilities with the acquisition of Sitebase Clinical Systems, Inc., a provider
of RDE technology which involves entry of data onto electronic case report forms
at the investigational site. 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 52 employees responsible for technology procurement, applications
development and management of the Company's worldwide computer network. The wide
area network links 18 local area networks, interconnecting approxi-
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mately 1,600 computers worldwide. The Company's information systems are designed
to work in support of and reinforce the 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. During fiscal 1996, the Company
provided services to each of the 20 largest pharmaceutical companies, as ranked
by estimated worldwide 1995 research and development expenditures revenue, and
seven of the ten largest biotechnology companies, as ranked by December 1995
market capitalization. During fiscal 1996, the Company performed services for
over 250 clients, including 53 biotechnology companies, involving over 1,000
projects.
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. Concentrations of business in the CRO industry are not
uncommon and the Company is likely to experience such concentration in future
years. In fiscal 1994, 1995 and 1996, and the three months ended September 30,
1996, no single customer accounted for more than 10% of consolidated net
revenue. In fiscal 1994, 1995 and 1996, and the three months ended September 30,
1996, the Company's top five customers accounted for 29.8%, 25.2%, 32.0% and
34.8%, 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.
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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. Other large CROs
include ClinTrials Research, Inc., Corning Pharmaceutical Services, Inc., a
subsidiary of Corning, Inc., Pharmaceutical Product Development, Inc. and
Quintiles Transnational Corporation. 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
New Drug Development -- An Overview
Before a new drug may be marketed in North America or Europe, the drug must
undergo extensive testing and regulatory review in order to determine that the
drug is safe and effective. The stages of this development process are as
follows:
- Preclinical Research (1 to 3.5 years). In vitro ("test tube") and animal
studies to establish the relative toxicity of the drug over a wide range
of doses and to detect any potential to cause birth defects or cancer. If
results warrant continuing development of the drug, the manufacturer will
file for an IND (Investigational New Drug Application), upon which the
FDA may grant permission to begin human trials.
- Clinical Trials (3.5 to 6 years)
- Phase I (6 months to 1 year). Basic safety and pharmacology testing
in 20 to 80 human subjects, usually healthy volunteers, includes
studies to determine how the drug works, how it is affected by other
drugs, where it goes in the body, how long it remains active, and
how it is broken down and eliminated from the body.
- Phase II (1 to 2 years). Basic efficacy (effectiveness) and
dose-range testing in 100 to 200 afflicted volunteers to help
determine the best effective dose, confirm that the drug works as
expected, and provide additional safety data.
- Phase III (2 to 3 years). Efficacy and safety studies in hundreds
or thousands of patients at many investigational sites (hospitals
and clinics) can be placebo-controlled trials, in which the new
drug is compared with a "sugar pill," or studies comparing the new
drug with one or more drugs with established safety and efficacy
profiles in the same therapeutic category.
- TIND (May span late Phase II, Phase III, and FDA review). When results
from Phase II or Phase III show special promise in the treatment of a
serious condition for which existing therapeutic options are limited or
of minimal value, the FDA may allow the manufacturer to make the new drug
available to a larger number of patients through the regulated mechanism
of a TIND (Treatment Investigational New Drug). Although less
scientifically rigorous than a controlled clinical trial, a TIND may
enroll and collect a substantial amount of data from tens of thousands of
patients.
- NDA Preparation and Submission. Upon completion of Phase III trials, the
manufacturer assembles the statistically analyzed data from all phases of
development into a single large document, the New Drug Application (NDA),
which today comprises, on average, roughly 100,000 pages.
- FDA Review & Approval (1 to 1.5 years). Careful scrutiny of data from
all phases of development (including a TIND) to confirm that the
manufacturer has complied with regulations and that the drug is safe and
effective for the specific use (or "indication") under study.
- Post-Marketing Surveillance and Phase IV Studies. Federal regulation
requires the manufacturer to collect and periodically report to FDA
additional safety and efficacy data on the drug for as long as the
manufacturer markets the drug (post-marketing surveillance). If the drug
is marketed outside the U.S., these reports must include data from all
countries in which the drug is sold. Additional studies (Phase IV) may be
undertaken after initial approval to find new uses for the drug, to test
new dosage
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formulations, or to confirm selected non-clinical benefits, e.g.,
increased cost-effectiveness or improved quality of life.
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 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 September 30, 1996 was approximately $132 million, as
compared with approximately $90 million at September 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 contracts 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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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 September 30, 1996, the Company had approximately 1,600 employees, of
which over 120 hold Ph.D. or M.D. degrees and over 225 others hold masters
degrees. Approximately 67% of the full-time employees are located in North
America and 32% 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 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.
FACILITIES
PAREXEL leases all but one of its facilities. The Company's principal
executive offices are located in Waltham, Massachusetts, where it leases
approximately 100,000 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.
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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.
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MANAGEMENT
<TABLE>
EXECUTIVE OFFICERS AND DIRECTORS
The current executive officers and directors of the Company are as follows:
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
Josef H. von Rickenbach................ 42 President, Chief Executive Officer and
Chairman of the Board
William T. Sobo, Jr. .................. 40 Senior Vice President, Chief Financial
Officer, Treasurer and Clerk
Barry R. Philpott...................... 48 President, European Operations and
Chief Administrative Officer
R. Adrian Otte, M.D. .................. 40 Senior Vice President
Paule Dapres, M.D. .................... 52 Senior Vice President
Taylor J. Crouch....................... 37 Senior Vice President
Veronica G.H. Jordan, Ph.D. ........... 46 Senior Vice President
A. Dana Callow, Jr.(1)(2)(3)........... 44 Director
Patrick J. Fortune(1).................. 49 Director
Prof. Dr. med. Werner M. Herrmann...... 55 Director and Chief Scientific Officer
Peter Barton Hutt...................... 61 Director
James A. Saalfield(2)(3)............... 50 Director
<FN>
- ---------------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
(3) Member of Stock Option Committee.
</TABLE>
JOSEF H. VON RICKENBACH co-founded PAREXEL in 1983 and has served as a
director since then. Prior to his involvement with PAREXEL, he was European Area
Manager with ERCO (now ENSECO), Inc., a diversified testing and technical
consulting company. Mr. von Rickenbach has worked for Schering-Plough, Inc., and
3M (East), a division of Minnesota Mining and Manufacturing, Inc. Mr. von
Rickenbach received an M.B.A. from the Harvard University Graduate School of
Business Administration and has an undergraduate degree from the Lucerne College
of Economics and Administration.
WILLIAM T. SOBO, JR. is responsible for all financial and administrative
activities of the Company. Prior to joining PAREXEL in 1987, Mr. Sobo was a
supervisor at Coopers & Lybrand in the emerging business/ middle market group
and also served as the controller for a regional financial consulting firm. Mr.
Sobo is a Certified Public Accountant and received an M.B.A. from Boston
University and a B.S. from the Wharton School at the University of Pennsylvania.
BARRY R. PHILPOTT is responsible for the general management of PAREXEL's
European operations, based in London, England. Prior to joining PAREXEL in 1993,
Mr. Philpott served in several senior management positions with EG&G Inc., a
diversified technology company based in Massachusetts, most recently as General
Manager of its Worldwide Optical & Analytical Division. Previous to this
position he was the President and Managing Director of EG&G Applied Research
Corp.
R. ADRIAN OTTE, M.D., is responsible for the Company's medical monitoring
and medical writing services for ongoing clinical trials. Prior to joining
PAREXEL's operation in Germany as Vice President, Clinical Research Europe and
General Manager of PAREXEL's Central European Region, Dr. Otte served in several
senior management positions, most recently as Head of Clinical Research, at
Duphar BV, Holland. Dr. Otte received his medical degree at the Welsh National
School of Medicine and is a Fellow of the Faculty of Pharmaceutical Medicine.
PAULE DAPRES, M.D. is responsible for the Company's European clinical
operations. Prior to joining PAREXEL in 1992, Dr. Dapres served in several
senior management positions at Schering Plough, Inc. Dr. Dapres received her
M.D. degree from the University of Paris.
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<PAGE> 33
TAYLOR J. CROUCH is responsible for the Company's client relations
activities, including proposal preparation, contract negotiations and account
management, and is responsible for the Company's worldwide marketing activities.
Prior to joining PAREXEL's operation in Germany as Vice President, Client
Relations and Marketing in 1991, Mr. Crouch served in several senior management
positions, most recently as Marketing Operations Manager, at Schering-Plough,
Inc. in Germany. Mr. Crouch received an M.B.A. from the University of Chicago.
VERONICA G.H. JORDAN, PH.D., is responsible for client relations and
marketing activities at PAREXEL. Before joining PAREXEL in 1987, Dr. Jordan was
Director of Marketing and Business Development at Biogen, Inc. Previously, Dr.
Jordan worked at Clinical Assays, a division of Baxter Travenol. Dr. Jordan has
a Ph.D. from Oxford University and a B.S. from Cambridge University.
A. DANA CALLOW, JR. was elected a director of the Company in June 1986.
Since December 1982, Mr. Callow has been a general partner of the general
partner of several of Boston Capital Ventures' limited partnerships including
Boston Capital Ventures International Limited Partnership, Boston Capital
Ventures Limited Partnership, Boston Capital Ventures II Limited Partnership and
Boston Capital Ventures III, Limited Partnership. Mr. Callow is a director of a
number of privately held companies, including Tektagen Incorporated and ILEX
Oncology, Inc.
PATRICK J. FORTUNE, PH.D. was elected a director of the Company in June
1996. Mr. Fortune is Vice President, Information Technology and Chief
Information Officer of Monsanto Company. From 1994 to October 1995, Mr. Fortune
was President and Chief Operating Officer, Chief Information Officer and a
member of the Board of Directors of Coram Healthcare Corporation. From 1991 to
1994, Mr. Fortune was Corporate Vice President, Information Management at
Bristol-Myers Squibb. Prior to that, Mr. Fortune was Senior Vice President and
General Manager of Packaging Corporation of America, a subsidiary of Tenneco and
held several management positions with Baxter International Inc., including
Corporate Vice President, Vice President, Research and Development and Vice
President, Information Services. Mr. Fortune has been named as a party in four
class action or derivative lawsuits, generally alleging violations of certain
anti-fraud provisions of federal securities law, filed in late 1995 against
Coram Healthcare Corporation and its other officers and directors. These actions
are currently pending and no determination can be made regarding their outcome.
PROF. DR. MED. WERNER M. HERRMANN is Chief Scientific Officer for PAREXEL
and was elected a director of the Company in April 1991. Dr. Herrmann founded a
Berlin-based provider of clinical and biostatistical and clinical data
management services in 1982, which was acquired by PAREXEL and renamed PAREXEL
GmbH Independent Pharmaceutical Research Organization ("PAREXEL GmbH"). Prior to
1982, Dr. Herrmann was head of the Psychiatry and Neurology Branch, Department
of Experimental and Clinical Pharmacology, Institute for Drugs, Federal Health
Office, Berlin, Germany, from 1979 to 1982. Dr. Herrmann is a Full Professor at
the Department of Psychiatry, Free University of Berlin.
PETER BARTON HUTT was elected a director of the Company in March 1989. Mr.
Hutt is a partner in the Washington, D.C. law firm of Covington & Burling,
specializing in food and drug law and in government regulation of health and
safety. He is a director of several pharmaceutical and drug development
companies, including IDEC Pharmaceuticals, Inc., Emisphere Technologies, Inc.,
Interneuron Pharmaceuticals, Inc., Vivus, Inc., Sparta, Inc. and Cell Genesys,
Inc. From 1971 to 1975, Mr. Hutt was Chief Counsel for the FDA.
JAMES A. SAALFIELD was elected a director of the Company in January 1993.
Mr. Saalfield is a retired general partner of Fleet Venture Partners I, II, III
and IV and managing general partner of Dean's Hill L.P. and The Still River Fund
and President of The Still River Management Company. Mr. Saalfield served as the
senior vice president of Fleet Venture Resources, Inc. and senior vice president
of Fleet Growth Resources, Inc. from 1985 to 1993. Mr. Saalfield is a director
of a number of companies, including KVH Industries Inc., a data acquisition and
distribution company, Physiometrix Inc., a medical device company, and a number
of private companies.
Each director holds office until that director's successor has been duly
elected and qualified. Upon the closing of the Company's initial public
offering, the Company's Board of Directors was divided into three
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<PAGE> 34
classes, with staggered three-year terms. Messrs. Herrmann and Fortune serve in
the class whose term expires in 1996; Messrs. Saalfield and Hutt serve in the
class whose term expires in 1997; and Messrs. von Rickenbach and Callow serve in
the class whose term expires in 1998. Upon the expiration of the term of each
class of directors, persons comprising such class of persons will be elected for
a three-year term at the next succeeding annual meeting of stockholders.
Mr. Callow, a director, was granted a non-qualified option to purchase
100,000 shares of Common Stock in March 1989 at an exercise price of $0.75 per
share. This option was exercised in full in March 1994 and the shares
transferred to Boston Capital Ventures International Limited Partnership and
Boston Capital Ventures Limited Partnership. Mr. Hutt, a director, was granted a
non-qualified option to purchase 17,500 shares of Common Stock in March 1989 at
an exercise price of $0.75 per share and a non-qualified option to purchase
10,000 shares of Common Stock in March 1994 at an exercise price of $12.50 per
share. Messrs. Callow and Saalfield, current non-employee directors of the
Company, were each granted a non-qualified option to purchase 10,000 shares of
Common Stock in May 1994 at an exercise price of $12.50 per share. Mr. Hutt's
March 1994 option was initially exercisable as to 3,333 shares, with the
remaining shares vesting in two installments in March 1995 and March 1996,
subject to specified meeting attendance requirements. The May 1994 options
granted to Messrs. Callow and Saalfield become exercisable in three equal annual
installments, beginning on the first anniversary of the date of grant, subject
to specified meeting attendance requirements.
The Company's 1995 Non-Employee Director Stock Option Plan (the "Director
Plan") provides for the grant of options to purchase a maximum of 300,000 shares
of Common Stock of the Company to non-employee directors of the Company. Under
the Director Plan, each non-employee director who was a member of the Board of
Directors on the effective date of the Company's initial public offering
received options under the Director Plan. In addition, each non-employee
director first elected to the Board of Directors after the effective date of the
Company's initial public offering will receive an option for 10,000 shares on
the date of his or her election. The Director Plan further provides for an
automatic grant of an option for 10,000 shares on the first business day of July
of each year, to each non-employee director who has continuously served for the
lesser of (i) the previous full year or (ii) since the last annual meeting of
stockholders at which directors were elected. The exercise price per share for
all options granted under the Director Plan will be equal to the market price of
the Common Stock as of the date of grant. The options granted annually will
become exercisable in three equal annual installments beginning on the first
anniversary of the date of grant, subject to specified meeting attendance
requirements. Options to purchase an aggregate of 126,500 shares of Common Stock
have been granted to date under the Director Plan. The only cash compensation
payable to non-employee directors is $1,500 per day of in person Board meetings
(with not more than one $1,500 payment being made for any one day). Outside
directors are reimbursed for their reasonable out-of-pocket expenses incurred in
attending meetings of the Board of Directors and Board committees.
Executive officers of the Company are elected by the Board of Directors on
an annual basis and serve until their successors have been duly elected and
qualified. There are no family relationships among any of the executive officers
or directors of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. von Rickenbach, the President, Chief Executive Officer, and Chairman of
the Company, served as a member of the Compensation Committee of the Board of
Directors until July 1, 1996.
34
<PAGE> 35
EXECUTIVE COMPENSATION
<TABLE>
The following table summarizes the compensation paid or accrued by the
Company for services rendered for fiscal 1995 and 1996 to each of the Company's
executive officers or former executive officers whose total salary and bonus
exceeded $100,000 during fiscal 1996. The Company did not grant any restricted
stock awards or stock appreciation rights or make any long-term incentive plan
payouts during fiscal 1996. The Company does not have a defined benefit or
actuarial plan.
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION AWARDS
---------------------------------- SECURITIES
FISCAL OTHER ANNUAL UNDERLYING/ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS COMPENSATION OPTIONS(#) COMPENSATION
- --------------------------- ------ --------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Josef H. von Rickenbach................ 1996 $199,188 $ 0 $ 5,144(2) 50,000 $38,825(3)
President, Chief Executive Officer 1995 183,545 0 26,973(4) 0 3,450
and Chairman
Barry R. Philpott...................... 1996 162,530 50,694 12,151(2) 15,000 13,002(5)
President, European Operations 1995 146,300 0 -- 0 11,704(5)
John G. Lee, Ph.D.(6).................. 1996 151,249 52,186 -- 10,000 10,483(7)
Senior Vice President 1995 139,135 0 -- 0 2,964(5)
R. Adrian Otte, M.D. .................. 1996 152,079 40,220 -- 12,000 12,454(8)
Senior Vice President 1995 129,539 10,125 -- 5,000 3,675(5)
Taylor J. Crouch....................... 1996 150,968 16,171 0 12,000 3,570(5)
Senior Vice President 1995 131,176 0 0 0 2,758(5)
<FN>
- ---------------
(1) Includes commissions.
(2) Automobile allowance.
(3) Includes $3,222 contributions to defined contribution plans and $35,603 for
unused paid vacation.
(4) Includes $11,084 automobile allowance and $15,889 related to interest on
stock subscriptions receivable.
(5) Contributions to defined contribution plans.
(6) In a letter dated September 4, 1996, Dr. Lee resigned as an employee of the
Company effective September 30, 1996.
(7) Includes $3,861 contributions to defined contribution plans and $6,622 for
unused paid vacation.
(8) Includes $3,806 contributions to defined contribution plans and $8,648 for
unused paid vacation.
</TABLE>
35
<PAGE> 36
OPTIONS
<TABLE>
The following table sets forth certain information regarding options
granted during the fiscal year ended June 30, 1996 by the Company to the
executives named in the Summary Compensation Table above.
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
PERCENT OF ANNUAL RATE OF
TOTAL STOCK PRICE
OPTIONS APPRECIATION FOR
GRANTED TO OPTION TERM(1)
OPTIONS EMPLOYEES IN EXERCISE OR EXPIRATION --------------------
NAME GRANTED(#) FISCAL YEAR BASE PRICE DATE 5% 10%
---- ---------- ------------ ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Josef H. von Rickenbach....... 30,000 9.3% $15.00 11/22/2003 $214,855 $514,615
20,000 6.2 37.50 4/19/2004 358,092 857,692
Barry R. Philpott............. 5,000 1.6 15.00 11/22/2003 35,809 85,769
10,000 3.1 37.50 4/19/2004 179,046 428,846
John G. Lee, Ph.D.(2)......... 5,000 1.6 15.00 11/22/2003 35,809 85,769
5,000 1.6 37.50 4/19/2004 89,523 214,423
R. Adrian Otte, M.D. ......... 2,000 0.6 15.00 11/22/2003 14,324 34,308
10,000 3.1 37.50 4/19/2004 179,046 428,846
Taylor J. Crouch.............. 2,000 0.6 15.00 11/22/2003 14,324 34,308
10,000 3.1 37.50 4/19/2004 179,046 428,846
<FN>
- ---------------
(1) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the date the respective options were granted to
their expiration dates. These numbers are calculated based on rules
promulgated by the Securities and Exchange Commission and do not represent
an estimate by the Company of its future stock price growth. Actual gains,
if any, on stock option exercises and Common Stock holdings are dependent
on the timing of such exercise and the future performance of Common Stock.
There can be no assurances that the rates of appreciation assumed in this
table can be achieved or that the amounts reflected will be received by the
individuals.
(2) In a letter dated September 4, 1996, Dr. Lee resigned as an employee of the
Company effective September 30, 1996.
</TABLE>
36
<PAGE> 37
The following table sets forth information concerning the value of
unexercised options as of June 30, 1996 held by the executives named in the
Summary Compensation Table above. No options were exercised during the year
ended June 30, 1996 by such executives.
<TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<CAPTION>
VALUE OF UNEXERCISED,
NUMBER OF UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT FISCAL
SHARES VALUE FISCAL YEAR-END YEAR-END(2)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE(#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Josef H. von Rickenbach... 40,000 $1,396,000 50,000 20,000 $1,950,500 $215,000
Barry R. Philpott......... 0 -- 6,000 19,000 214,500 416,750
John G. Lee, Ph.D.(3)..... 10,000 349,000 50,000 10,000 2,382,500 220,000
R. Adrian Otte, M.D. ..... 0 -- 4,000 18,000 143,000 388,500
Taylor J. Crouch.......... 0 -- 4,800 13,200 183,600 219,900
<FN>
- ---------------
(1) Amounts disclosed in this column do not reflect amounts actually received by
the Named Executive Officers but are calculated based on the difference
between the fair market value of Common Stock on the date of exercise and
exercise price of the options. Named Executive Officers will receive cash
only if and when they sell the Common Stock issued upon exercise of the
options and the amount of cash, if any, received by such individuals is
dependent on the price of the Company's Common Stock at the time of such
sale.
(2) Value is based on the difference between the option exercise price and the
fair market value at 1996 year-end ($48.25 per share) multiplied by the
number of shares underlying the option.
(3) In a letter dated September 4, 1996, Dr. Lee resigned as an employee of the
Company effective September 30, 1996.
</TABLE>
In September 1995, the Company adopted its 1995 Stock Plan which provides
for the issuance of a maximum of 500,000 shares of Common Stock pursuant to the
grant of incentive stock options to officers and other employees and the grant
of non-qualified stock options or stock awards to employees, consultants,
directors and officers of the Company. On November 14, 1996, the stockholders of
the Company voted to increase the maximum number of shares of Common Stock
issuable pursuant to the 1995 Stock Plan to 1,000,000 shares. As of October 15,
1996, options to purchase 411,350 shares have been granted under the 1995 Stock
Plan at a weighted average exercise price of $34.42.
In September 1995, the Company adopted its 1995 Employee Stock Purchase
Plan (the "1995 Purchase Plan") which provides for the issuance of a maximum of
300,000 shares of Common Stock pursuant to the exercise of nontransferable
options granted to participating employees. All employees of the Company, except
employees who by participating would own five percent or more of the Company's
Common Stock, whose customary employment is more than 20 hours per week and more
than five months in any calendar year are eligible to participate in the 1995
Purchase Plan. To participate in the 1995 Purchase Plan, an employee must
authorize the Company to deduct an amount (not less than one percent nor more
than ten percent of a participant's total compensation) from his or her pay
during six-month periods commencing on September 1 and March 1 of each year
(each a "Plan Period"), but in no case shall an employee be entitled to purchase
more than 500 shares in any Plan Period. The exercise price for the option for
each Plan Period is 85% of the lesser of the average market price of the Common
Stock on the first or last business day of the Plan Period. If an employee is
not a participant on the last business day of the Plan Period, such employee is
not entitled to exercise his or her option, and the amount of his or her
accumulated payroll deductions will be refunded without interest. An employee's
rights under the 1995 Purchase Plan terminate upon his or her voluntary
withdrawal from the plan at any time or upon termination of employment. As of
October 15, 1996,
37
<PAGE> 38
approximately 530 employees were enrolled in the 1995 Purchase Plan and options
to purchase an aggregate of 57,479 shares of Common Stock had been exercised
pursuant to the 1995 Purchase Plan.
EMPLOYMENT AGREEMENTS
The Company is party to an employment agreement dated July 2, 1987 with Dr.
Veronica G.H. Jordan. Currently, Dr. Jordan is paid an annual base salary of
$80,000. The employment agreement with Dr. Jordan may be terminated for cause
upon the unanimous action of the Company's Board of Directors.
The Company and Barry R. Philpott are parties to a letter agreement of
employment dated July 6, 1993. Mr. Philpott's current annual base salary is
[British Sterling Pound]120,000 (approximately $190,000). The Company may
terminate Mr. Philpott's employment upon two months' notice and upon payment of
severance benefits equal to one month's base salary per full year of service,
with a maximum payment equal to six months' base salary.
The executive officers of the Company are bound by the terms of a Key
Employee Confidentiality and Invention Agreement, pursuant to which confidential
information proprietary to the Company obtained during the term of employment by
the Company may not be disclosed by the employee during or subsequent to such
term of employment, and pursuant to which the employee agrees not to compete
with the business of the Company during and for one year subsequent to the term
of employment.
In connection with the acquisition by the Company of PAREXEL GmbH, Dr.
Herrmann entered into an employment agreement with PAREXEL GmbH, dated March 11,
1991. The employment agreement was amended as of June 30, 1993. Dr. Herrmann
also entered into an employment agreement with the Company on June 30, 1993. The
employment agreements with Dr. Herrmann expire on June 30, 1997. The employment
agreement with the Company provides for a monthly base salary of approximately
DM 11,400 (approximately $6,900).
38
<PAGE> 39
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On September 1, 1993, the Company loaned $33,500 to Mr. von Rickenbach for
the purchase of 6,700 shares of the Company's Series D Convertible Preferred
Stock. The principal amount of the loan, plus interest accruing at a rate of
5.32% from the date thereof, was paid in full upon the closing of the Company's
initial public offering in November 1995.
The Company has adopted a policy whereby all future transactions between
the Company and its officers, directors and affiliates will be on terms no less
favorable to the Company than could be obtained from unrelated third parties and
will be approved by a majority of the disinterested members of the Company's
Board of Directors.
39
<PAGE> 40
PRINCIPAL AND SELLING STOCKHOLDERS
<TABLE>
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of October 15, 1996 (unless otherwise
indicated): (i) by each person who is known by the Company to own beneficially
more than 5% of the outstanding shares of Common Stock; (ii) by each director
and each executive officer or former executive officer of the Company named in
the Summary Compensation Table; (iii) by each Selling Stockholder; and (iv) by
all current directors and executive officers of the Company as a group. Unless
otherwise indicated below, to the knowledge of the Company, all persons listed
below have sole voting and investment power with respect to their shares of
Common Stock, except to the extent authority is shared by spouses under
applicable law.
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO OWNED AFTER THIS
THIS OFFERING(1) NUMBER OF OFFERING(1)
DIRECTORS, EXECUTIVE OFFICERS AND ----------------- SHARES BEING -----------------
5% STOCKHOLDERS NUMBER PERCENT OFFERED NUMBER PERCENT
- --------------------------------- ------ ------- ------------ ------ -------
<S> <C> <C> <C> <C> <C>
INVESCO PLC and certain affiliates(2)............ 614,500 7.3 -- 614,500 6.5
11 Devonshire Square
London EC2M 4YR
ENGLAND
Josef H. von Rickenbach(3)....................... 402,390 4.7 30,000 372,390 3.9
Werner M. Herrmann............................... 88,493 1.0 -- 88,493 *
A. Dana Callow, Jr.(4)........................... 77,748 * 15,000 62,748 *
John G. Lee(5)................................... 48,000 * -- 48,000 *
Peter Barton Hutt(6)............................. 36,166 * 3,600 32,566 *
James A. Saalfield(7)............................ 18,666 * -- 18,666 *
Barry R. Philpott(8)............................. 8,400 * -- 8,400 *
Taylor J. Crouch(9).............................. 7,750 * -- 7,750 *
R. Adrian Otte(10)............................... 6,500 * -- 6,500 *
Patrick J. Fortune............................... 0 * -- 0 *
All current executive officers and
directors as a group (12 persons)(11).......... 766,213 8.8 48,600 717,613 7.4
OTHER SELLING STOCKHOLDERS
Martin J. Miller................................. 339,091 4.0 125,000 214,091 2.2
Veronica G. H. Jordan(12)........................ 65,000 * 5,000 60,000 *
William T. Sobo, Jr.(13)......................... 51,150 * 5,000 46,150 *
Howard M. Tag(14)................................ 41,952 * 15,700 26,252 *
Peter B. Malamis(15)............................. 24,274 * 7,500 16,774 *
Laurie G. Hughes(16)............................. 3,963 * 1,300 2,663 *
<FN>
- ---------------
* Less than 1% of the outstanding Common Stock.
(1) The number of shares of Common Stock deemed outstanding prior to this
offering includes: (i) 8,448,968 shares of Common Stock outstanding as of
October 15, 1996; and (ii) shares issuable pursuant to options held by the
respective person or group which may be exercised within 60 days after
October 15, 1996 ("presently exercisable" stock options), as set forth
below. The number of shares of Common Stock deemed outstanding after this
offering includes an additional 1,066,900 shares of Common Stock which are
being offered for sale by the Company in this offering.
(2) Ownership is stated as of April 5, 1996. Shares are held by INVESCO on
behalf of other persons have the right to receive, or the power to direct
the receipt of, dividends from, or the proceeds from the sale of, the
Company's Common Stock. INVESCO disclaims beneficial ownership of such
shares.
(3) Includes 321,183 shares of Common Stock owned by The Josef H. von
Rickenbach GRAT dated November 17, 1995. Includes 30,000 shares of Common
Stock issuable pursuant to presently exercisable stock options.
(4) Includes 44,166 shares of Common Stock issuable pursuant to presently
exercisable stock options. The shares to be offered may be offered by Mr.
Callow or by a charitable remainder unitrust.
</TABLE>
40
<PAGE> 41
(5) Includes 44,750 shares of Common Stock issuable pursuant to presently
exercisable stock options. In a letter dated September 4, 1996, Dr. Lee
resigned as an employee of the Company effective September 30, 1996.
(6) Includes 36,166 shares of Common Stock issuable pursuant to presently
exercisable stock options.
(7) Includes 16,666 shares of Common Stock issuable pursuant to presently
exercisable stock options.
(8) Includes 6,000 shares of Common Stock issuable pursuant to presently
exercisable stock options.
(9) Includes 5,300 shares of Common Stock issuable pursuant to presently
exercisable stock options.
(10) Includes 4,000 shares of Common Stock issuable pursuant to presently
exercisable stock options.
(11) Includes 209,548 shares of Common Stock issuable pursuant to presently
exercisable stock options.
(12) Includes 11,250 shares of Common Stock issuable pursuant to presently
exercisable stock options.
(13) Includes 50,000 shares of Common Stock issuable pursuant to presently
exercisable stock options.
(14) Includes 5,200 shares of Common Stock issuable pursuant to presently
exercisable stock options.
(15) Includes 13,900 shares of Common Stock issuable pursuant to presently
exercisable stock options.
(16) Includes 1,000 shares of Common Stock issuable pursuant to presently
exercisable stock options.
41
<PAGE> 42
DESCRIPTION OF CAPITAL STOCK
The current authorized capital stock of the Company is 25,000,000 shares of
Common Stock, par value $.01 per share, and 5,000,000 shares of Preferred Stock,
par value $.01 per share. On November 14, 1996, the stockholders of the Company
voted to increase the authorized Common Stock to 50,000,000 shares.
COMMON STOCK
Immediately after this offering, there will be 9,515,868 shares of Common
Stock outstanding.
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders. Holders of Common Stock do not have
cumulative voting rights. Accordingly, holders of a majority of the shares of
Common Stock entitled to vote in any election of directors may elect all of the
directors standing for election. Holders of Common Stock are entitled to receive
ratably such dividends, if any, as may be declared by the Board of Directors out
of funds legally available therefor, subject to any preferential dividend rights
of any outstanding Preferred Stock. Upon the liquidation, dissolution or winding
up of the Company, the holders of Common Stock are entitled to receive ratably
the net assets of the Company available after the payment of all debts and other
liabilities and subject to the prior rights of any outstanding Preferred Stock.
Holders of the Common Stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of Common Stock are, and the shares
offered by the Company in this offering will be, when issued and paid for, fully
paid and nonassessable. The rights, preferences and privileges of holders of
Common Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of Preferred Stock which the Company may
designate and issue in the future. There are no shares of Preferred Stock
outstanding.
PREFERRED STOCK
The Board of Directors is authorized, subject to certain limitations
prescribed by law, without further stockholder approval, to issue from time to
time up to an aggregate of 5,000,000 shares of Preferred Stock in one or more
series and to fix or alter the designations, preferences, rights and any
qualifications, limitations or restrictions of the shares of each such series
thereof, including the dividend rights, dividend rates, conversion rights,
voting rights, terms of redemption (including sinking fund provisions),
redemption price or prices, liquidation preferences and the number of shares
constituting any series or designations of such series. The issuance of
Preferred Stock may have the effect of delaying, deferring or preventing a
change of control of the Company. The Company has no present plans to issue any
shares of Preferred Stock.
MASSACHUSETTS LAW AND CERTAIN PROVISIONS OF THE COMPANY'S RESTATED
ARTICLES OF ORGANIZATION AND BY-LAWS
The Company believes that it has more than 200 beneficial stockholders,
thus making it subject to Chapter 110F of the Massachusetts General Laws, an
anti-takeover law. In general, this statute prohibits a publicly held
Massachusetts corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person becomes an interested stockholder, unless (i)
the interested stockholder obtains the approval of the board of directors prior
to becoming an interested stockholder, (ii) the interested stockholder acquires
90% of the outstanding voting stock of the corporation (excluding shares held by
certain affiliates of the corporation) at the time it becomes an interested
stockholder, or (iii) the business combination is approved by both the board of
directors and the holders of two-thirds of the outstanding voting stock of the
corporation (excluding shares held by the interested stockholder). An
"interested stockholder" is a person who, together with its affiliates and
associates, owns (or at any time within the prior three years did own) 5% or
more of the outstanding voting stock of the corporation. A "business
combination" includes a merger, a stock or asset sale, and certain other
transactions resulting in a financial benefit to the interested stockholder. The
Company may at any time elect not to be governed by Chapter 110F by vote of a
majority of its stockholders, but such an amendment would not be
42
<PAGE> 43
effective for twelve months and would not apply to a business combination with
any person who became an interested stockholder prior to the adoption of the
amendment.
The Massachusetts Business Corporation Law generally requires that
publicly-held Massachusetts corporations have a classified board of directors
consisting of three classes as nearly equal in size as possible, unless those
corporations elect to opt out of the statute's coverage. By vote of the Board of
Directors, the Company has elected to opt out of the classified board provisions
of this statute and has adopted separate classified Board provisions in its
Restated Articles of Organization. See "Management -- Executive Officers and
Directors."
The Company's By-Laws include a provision that excludes the Company from
the applicability of Massachusetts General Laws Chapter 110D, entitled
"Regulation of Control Share Acquisitions." In general, this statute provides
that any stockholder of a corporation subject to this statute who acquires 20%
or more of the outstanding voting stock of a corporation may not vote such stock
unless the stockholders of the corporation so authorize. The Board of Directors
may amend the Company's By-Laws at any time to subject the Company to this
statute prospectively.
The Company's By-Laws require that nominations for the Board of Directors
made by a stockholder comply with certain notice procedures. A notice by a
stockholder of a planned nomination must be given not less than 60 and not more
than 90 days prior to a scheduled meeting, provided that if less than 70 days'
notice is given of the date of the meeting, a stockholder will have ten days
within which to give such notice. The stockholder's notice of nomination must
include particular information about the stockholder, the nominee and any
beneficial owner on whose behalf the nomination is made. The Company may require
any proposed nominee to provide such additional information as is reasonably
required to determine the eligibility of the proposed nominee.
The By-Laws also require that a stockholder seeking to have any business
conducted at a meeting of stockholders give notice to the Company not less than
60 and not more than 90 days prior to the scheduled meeting, provided that if
less than 70 days' notice is given of the date of the meeting, a stockholder
will have ten days within which to give such notice. The notice from the
stockholder must describe the proposed business to be brought before the meeting
and include information about the stockholder making the proposal, any
beneficial owner on whose behalf the proposal is made, and any other stockholder
known to be supporting the proposal. The By-Laws require the Company to call a
special stockholders' meeting at the request of stockholders holding at least
33 1/3% of the voting power of the Company.
The Company's Restated Articles of Organization include provisions
eliminating the personal liability of the Company's directors for monetary
damages resulting from breaches of their fiduciary duty to the extent permitted
by the Massachusetts Business Corporation Law. Additionally, the Company's
Restated Articles of Organization provide that the Company shall indemnify each
person who is or was a director or officer of the Company, and each person who
is or was serving or has agreed to serve at the request of the Company as a
director or officer of, or in a similar capacity with, another organization or
in any capacity with respect to any employee benefit plan of the Company,
against all liabilities, costs and expenses reasonably incurred by any such
persons in connection with the defense or disposition of or otherwise in
connection with or resulting from any action, suit or other proceeding in which
they may be involved by reason of being or having been such a director or
officer, or by reason of any action taken or not taken in such capacity, except
with respect to any matter as to which such person shall have been finally
adjudicated by a court of competent jurisdiction not to have acted in good faith
in the reasonable belief that his or her action was in the best interests of the
Company or, to the extent such matter relates to service with respect to an
employee benefit plan, in the best interests of the participants or
beneficiaries of such employee benefit plan.
The Restated Articles of Organization provide that certain transactions,
such as the sale, lease or exchange of all or substantially all of the Company's
property and assets and the merger or consolidation of the Company into or with
any other corporation, may be authorized by the approval of the holders of a
majority of the shares of each class of stock entitled to vote thereon, rather
than by two-thirds as otherwise provided by statute, provided that the
transactions have been authorized by a majority of the members of the Board of
43
<PAGE> 44
Directors and the requirements of any other applicable provisions of the
Restated Articles of Organization have been met.
Certain of the provisions of the Restated Articles of Organization and
By-Laws discussed above would discourage or make more difficult a proxy contest
or the assumption of control by a holder of a substantial block of the Company's
stock. Such provisions could also have the effect of discouraging a third party
from making a tender offer or otherwise attempting to obtain control of the
Company, even though such an attempt might be beneficial to the Company and its
stockholders. In addition, since the Restated Articles of Organization and
By-Laws are designed to discourage accumulations of large blocks of the
Company's stock by purchasers whose objective is to have stock repurchased by
the Company at a premium, such provisions could tend to reduce the temporary
fluctuations in the market price of the Company's stock which are caused by such
accumulations. Accordingly, stockholders could be deprived of certain
opportunities to sell their stock at a temporarily higher market price.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Boston EquiServe
Limited Partnership.
44
<PAGE> 45
UNDERWRITING
<TABLE>
Under the terms and subject to the conditions contained in the Underwriting
Agreement dated the date hereof, each Underwriter named below has severally
agreed to purchase, and the Company and the Selling Stockholders have agreed to
sell to such Underwriter, shares of Common Stock which equal the number of
shares set forth opposite the name of such Underwriter below.
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ----------
<S> <C>
Smith Barney Inc. ........................................................ 510,000
William Blair & Company, L.L.C. .......................................... 382,500
Lehman Brothers Inc. ..................................................... 255,000
Adams, Harkness & Hill, Inc. ............................................. 127,500
---------
Total........................................................... 1,275,000
=========
</TABLE>
The Underwriters are obligated to take and pay for all shares of Common
Stock offered hereby (other than those covered by the over-allotment option
described below) if any such shares are taken.
The Underwriters, for whom Smith Barney Inc., William Blair & Company,
L.L.C., Lehman Brothers Inc. and Adams, Harkness & Hill, Inc. are acting as
Representatives, propose initially to offer part of the shares of Common Stock
directly to the public at the public offering price set forth on the cover page
hereof and part to certain dealers at a price that represents a concession not
in excess of $1.27 per share under the public offering price. The Underwriters
may allow, and such dealers may reallow, a concession not in excess of $0.10 per
share to other Underwriters or to certain other dealers. After the initial
offering of the shares to the public, the offering price and such concessions
may be changed by the Underwriters.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an aggregate of 191,250
additional shares of Common Stock at the public offering price set forth on the
cover page hereof less underwriting discounts and commissions. The Underwriters
may exercise such option to purchase additional shares solely for the purpose of
covering over-allotments, if any, incurred in connection with the sale of the
shares offered hereby. To the extent such option is exercised, each Underwriter
will become obligated, subject to certain conditions, to purchase approximately
the same percentage of such additional shares as the number set forth next to
such Underwriter's name in the preceding table bears to the total number of
shares in such table.
The Company, the Selling Stockholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
The Company, its executive officers and directors and the Selling
Stockholders, holding in the aggregate approximately 10.0% of the Company's
outstanding Common Stock, after giving effect to this offering, have agreed
that, for a period of 90 days after the date of this Prospectus, they will not,
without the prior written consent of Smith Barney Inc., offer, sell, contract to
sell or otherwise dispose of any shares of Common Stock or any securities
convertible into, or exercisable or exchangeable for, Common Stock except, in
the case of the Company, in certain limited circumstances.
The Underwriters and certain selling group members that currently act as
market makers for the Common Stock may engage in "passive market making" in the
Common Stock in accordance with Rule 10b-6A under the Exchange Act. Rule 10b-6A
permits, upon the satisfaction of certain conditions, underwriters and selling
group members participating in a distribution that are also market makers in the
security being distributed to engage in limited market making transactions
during the period when Rule 10b-6 under the Exchange Act would otherwise
prohibit such activity. In general, under Rule 10b-6A, any Underwriter or
selling group member engaged in passive market making in the Common Stock (i)
may not effect transactions in, or display bids for, the Common Stock at a price
that exceeds the highest bid for the Common Stock displayed by a market maker
that is not participating in the distribution of the Common Stock, (ii) may not
have net daily purchases of the Common Stock that exceed 30% of the average
daily trading volume in such stock for the two full consecutive calendar months
immediately preceding the filing
45
<PAGE> 46
date of the registration statement of which this Prospectus forms a part and
(iii) must identify its bid or bids as made by a passive market maker.
The Common Stock is quoted on the Nasdaq National Market under the symbol
"PRXL."
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Stockholders by Testa, Hurwitz & Thibeault,
LLP, Boston, Massachusetts. Certain legal matters relating to this offering will
be passed upon for the Underwriters by Ropes & Gray, Boston, Massachusetts.
EXPERTS
The consolidated financial statements as of June 30, 1995 and 1996 and for
each of the three years in the period ended June 30, 1996 included in this
Prospectus and the financial statement schedule included in the Registration
Statement have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
46
<PAGE> 47
PAREXEL INTERNATIONAL CORPORATION
<TABLE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<S> <C>
Report of independent accountants..................................................... F-2
Consolidated statement of operations for the three years ended June 30, 1996 and
unaudited for the three months ended September 30, 1995 and 1996.................... F-3
Consolidated balance sheet at June 30, 1995 and 1996 and unaudited at
September 30, 1996.................................................................. F-4
Consolidated statement of stockholders' equity for the three years ended June 30,
1996 and unaudited for the three months ended September 30, 1996.................... F-5
Consolidated statement of cash flows for the three years ended June 30, 1996 and
unaudited for the three months ended September 30, 1995 and 1996.................... F-6
Notes to consolidated financial statements............................................ F-7
</TABLE>
F-1
<PAGE> 48
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.
PRICE WATERHOUSE LLP
Boston, Massachusetts
August 22, 1996
F-2
<PAGE> 49
PAREXEL INTERNATIONAL CORPORATION
<TABLE>
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)
<CAPTION>
THREE MONTHS ENDED
FOR THE YEAR ENDED JUNE 30, SEPTEMBER 30,
------------------------------- -------------------
1994 1995 1996 1995 1996
-------- -------- --------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue.................................... $ 69,646 $ 79,928 $121,869 $24,369 $43,152
Reimbursed costs........................... (11,644) (21,355) (33,863) (6,396) (10,122)
-------- -------- -------- ------- -------
Net revenue................................ 58,002 58,573 88,006 17,973 33,030
-------- -------- -------- ------- -------
Costs and expenses:
Direct costs............................. 38,244 42,140 60,141 12,465 22,821
Selling, general and administrative...... 13,631 13,294 19,027 3,834 6,617
Depreciation and amortization............ 2,435 2,251 2,343 515 883
Impairment of long-lived assets.......... -- 11,253 -- -- --
-------- -------- -------- ------- -------
54,310 68,938 81,511 16,814 30,321
-------- -------- -------- ------- -------
Income (loss) from operations.............. 3,692 (10,365) 6,495 1,159 2,709
Interest income............................ 250 213 1,297 90 433
Interest expense........................... (71) (172) (162) (36) (55)
Other income (expense), net................ (375) 14 22 44 (14)
-------- -------- -------- ------- -------
(196) 55 1,157 98 364
-------- -------- -------- ------- -------
Income (loss) before provision for income
taxes and cumulative effect of
accounting change........................ 3,496 (10,310) 7,652 1,257 3,073
Provision for income taxes................. 1,573 320 3,053 515 1,137
-------- -------- -------- ------- -------
Net income (loss) before cumulative effect
of accounting change..................... 1,923 (10,630) 4,599 742 1,936
Cumulative effect of change in accounting
for income taxes......................... 500 -- -- -- --
-------- -------- -------- ------- -------
Net income (loss).......................... $ 2,423 $(10,630) $ 4,599 $ 742 $ 1,936
======== ======== ======== ======= =======
Net income (loss) per share:
Before cumulative effect of accounting
change................................ $ 0.35 $ (12.61) $ 0.68 $ 0.14 $ 0.22
Cumulative effect of change in
accounting for income taxes........... 0.09 -- -- -- --
-------- -------- -------- ------- -------
Net income (loss) per share................ $ 0.44 $ (12.61) $ 0.68 $ 0.14 $ 0.22
======== ======== ======== ======= =======
Weighted average common and common
equivalent shares outstanding............ 5,747 843 6,780 5,734 8,628
======== ======== ======== ======= =======
</TABLE>
F-3
<PAGE> 50
PAREXEL INTERNATIONAL CORPORATION
<TABLE>
CONSOLIDATED BALANCE SHEET
(in thousands, except share data)
<CAPTION>
JUNE 30,
-------------------- SEPTEMBER 30,
1995 1996 1996
---- ---- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents:
Unrestricted.................................... $ 5,315 $ 16,243 $ 9,281
Restricted...................................... 1,360 858 1,370
Marketable securities.............................. 1,500 29,319 26,425
Accounts receivable, net........................... 24,675 39,277 49,596
Other current assets............................... 4,003 6,905 6,960
------- -------- --------
Total current assets....................... 36,853 92,602 93,632
Property and equipment, net.......................... 4,671 8,193 12,210
Other assets......................................... 1,726 1,606 1,828
------- -------- --------
$43,250 $102,401 $107,670
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt............... $ 692 $ 762 $ 774
Accounts payable................................... 2,466 7,003 9,014
Advance billings................................... 14,032 20,008 18,482
Other current liabilities.......................... 8,089 11,401 10,946
------- -------- --------
Total current liabilities.................. 25,279 39,174 39,216
Long-term debt....................................... 633 360 304
Other liabilities.................................... 1,814 1,655 1,778
------- -------- --------
Total liabilities.......................... 27,726 41,189 41,298
------- -------- --------
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 and September 30, 1996; shares
issued: 858,364 at June 30, 1995, 7,827,110 at
June 30, 1996 and 8,463,674 at September 30,
1996; shares outstanding: 843,658 at June 30,
1995, 7,812,404 at June 30, 1996 and 8,448,968
at September 30, 1996........................... 9 78 84
Additional paid-in capital......................... 406 66,291 68,510
Accumulated deficit................................ (8,826) (5,199) (2,209)
Stock subscriptions receivable..................... (157) -- --
Cumulative translation adjustment.................. 409 42 (13)
------- -------- --------
Total stockholders' equity................. 15,524 61,212 66,372
------- -------- --------
$43,250 $102,401 $107,670
======= ======== ========
</TABLE>
F-4
<PAGE> 51
PAREXEL INTERNATIONAL CORPORATION
<TABLE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands, except number of shares)
<CAPTION>
CONVERTIBLE COMMON STOCK
PREFERRED STOCK -------------------------------- RETAINED
----------------------- ADDITIONAL EARNINGS STOCK
NUMBER ISSUANCE NUMBER PAR PAID-IN (ACCUMULATED SUBSCRIPTIONS
OF SHARES PRICE, NET OF SHARES VALUE CAPITAL DEFICIT) RECEIVABLE
---------- ---------- ---------- ----- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1993............... 2,101,044 $ 22,550 721,045 $ 7 $ 203 $ (619) $(148)
Issuance of convertible preferred stock
upon exercise of warrants............ 226,700 1,133 (33)
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........................... 18
Foreign currency translation...........
Net income............................. 2,423
---------- -------- --------- --- ------- -------- -----
BALANCE AT JUNE 30, 1994............... 2,327,744 23,683 823,045 8 358 1,804 (163)
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........................... 6
Foreign currency translation...........
Net loss............................... (10,630)
---------- -------- --------- --- ------- -------- -----
BALANCE AT JUNE 30, 1995............... 2,327,744 23,683 843,658 9 406 (8,826) (157)
Issuance of convertible preferred stock
upon exercise of warrants............ 176,887 1,769
Proceeds from stock subscriptions
receivable........................... 157
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) --
Issuance of common stock upon exercise
of stock options (unaudited)......... 132,412 1 1,428
Acquisitions (Note 4) (unaudited)...... 504,152 5 41 1,024
Income tax benefit from exercise of
stock options (unaudited)............ 750
Net unrealized gain on marketable
securities (unaudited)............... 30
Foreign currency translation
(unaudited)..........................
Net income (unaudited)................. 1,936
---------- -------- --------- --- ------- -------- -----
BALANCE AT SEPTEMBER 30, 1996
(UNAUDITED).......................... -- $ -- 8,448,968 $84 $68,510 $ (2,209) $ --
========== ======== ========= === ======= ======== =====
<CAPTION>
CUMULATIVE TOTAL
TRANSLATION STOCKHOLDERS'
ADJUSTMENT EQUITY
----------- ------------
<S> <C> <C>
BALANCE AT JUNE 30, 1993............... $(146) $ 21,847
Issuance of convertible preferred stock
upon exercise of warrants............ 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
Foreign currency translation........... (308) (308)
Net income............................. 2,423
----- --------
BALANCE AT JUNE 30, 1994............... (454) 25,236
Issuance of common stock upon exercise
of stock options..................... 66
Repurchase of common shares............ (17)
Proceeds from stock subscriptions
receivable........................... 6
Foreign currency translation........... 863 863
Net loss............................... (10,630)
----- --------
BALANCE AT JUNE 30, 1995............... 409 15,524
Issuance of convertible preferred stock
upon exercise of warrants............ 1,769
Proceeds from stock subscriptions
receivable........................... 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
Issuance of common stock upon exercise
of stock options (unaudited)......... 1,429
Acquisitions (Note 4) (unaudited)...... 1,070
Income tax benefit from exercise of
stock options (unaudited)............ 750
Net unrealized gain on marketable
securities (unaudited)............... 30
Foreign currency translation
(unaudited).......................... (55) (55)
Net income (unaudited)................. 1,936
----- --------
BALANCE AT SEPTEMBER 30, 1996
(UNAUDITED).......................... $ (13) $ 66,372
====== ========
</TABLE>
F-5
<PAGE> 52
PAREXEL INTERNATIONAL CORPORATION
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<CAPTION>
THREE MONTHS
ENDED
FOR THE YEAR ENDED JUNE 30, SEPTEMBER 30,
------------------------------- --------------------
1994 1995 1996 1995 1996
------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................ $ 2,423 $(10,630) $ 4,599 $ 742 $ 1,936
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Depreciation and amortization.................. 2,435 2,251 2,343 515 883
Restructuring transactions..................... (1,959) (683) (135) (40) --
Impairment of long-lived assets................ -- 11,253 -- -- --
Change in assets and liabilities, net of
effects from acquisitions:
Restricted cash.............................. (282) (929) 502 (9) (512)
Accounts receivable, net..................... (6,309) (281) (15,086) (5,602) (7,713)
Other current assets......................... (366) (1,395) 54 704 257
Other assets................................. (531) (79) (144) 66 (71)
Accounts payable............................. (1,573) 256 4,605 873 1,638
Advance billings............................. 350 3,953 6,383 2,222 (1,710)
Other current liabilities.................... 1,867 1,932 3,347 (840) (858)
Other liabilities............................ (239) 56 (18) 11 35
------- -------- -------- -------- --------
Net cash provided (used) by operating activities... (4,184) 5,704 6,450 (1,358) (6,115)
------- -------- -------- -------- --------
Cash flows from investing activities:
Purchases of marketable securities............... (2,787) (3,510) (131,903) (1,300) (10,849)
Proceeds from sale of marketable securities...... 4,303 2,710 104,128 1,500 13,773
Cash related to acquisition activities........... (100) -- 52 -- 251
Purchase of property and equipment............... (1,979) (1,460) (5,039) (262) (2,657)
------- -------- -------- -------- --------
Net cash provided (used) by investing activities... (563) (2,260) (32,762) (62) 518
------- -------- -------- -------- --------
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 -- 1,429
Cash received from stock subscriptions........... 18 6 157 -- --
Payments to acquire treasury stock............... -- (17) -- -- --
Repayments of long-term debt..................... (510) (684) (889) (202) (2,755)
Dividends on convertible preferred stock......... -- -- (940) -- --
------- -------- -------- -------- --------
Net cash provided (used) by financing activities... 684 (629) 37,395 (202) (1,326)
------- -------- -------- -------- --------
Effect of exchange rate changes on unrestricted
cash and cash equivalents........................ (24) 134 (155) (76) (39)
------- -------- -------- -------- --------
Net increase (decrease) in unrestricted cash and
cash equivalents................................. (4,087) 2,949 10,928 (1,698) (6,962)
Unrestricted cash and cash equivalents at beginning
of period........................................ 6,453 2,366 5,315 5,315 16,243
------- -------- -------- -------- --------
Unrestricted cash and cash equivalents at end of
period........................................... $ 2,366 $ 5,315 $ 16,243 $ 3,617 $ 9,281
======= ======== ======== ======= ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest....................................... $ 83 $ 179 $ 165 $ 35 $ 55
Income taxes................................... $ 1,237 $ 565 $ 1,649 $ 315 $ 391
Supplemental disclosure of noncash financing
activities:
Property and equipment acquired under capital
lease obligations.............................. $ 666 $ 1,265 $ 536 $ 410 $ --
Income tax benefit from exercise of stock
options........................................ $ 80 -- $ 3,058 $ -- $ 750
</TABLE>
F-6
<PAGE> 53
PAREXEL INTERNATIONAL CORPORATION
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
F-7
<PAGE> 54
PAREXEL INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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
F-8
<PAGE> 55
PAREXEL INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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.
Interim Financial Data (Unaudited)
The interim financial data at and for the three months ended September 30,
1995 and 1996 included in the accompanying consolidated financial statements are
unaudited; however, in the opinion of the Company, the interim financial data
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair statement of the results for the interim periods. The
interim financial data are not necessarily indicative of the results of
operation for a full fiscal year.
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
F-9
<PAGE> 56
PAREXEL INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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 have not been
restated and results of operations have been included since 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
<TABLE>
Available-for-sale securities included in cash and cash equivalents as of
June 30, 1995 and 1996 consisted of the following:
<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>
<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:
<CAPTION>
UNREALIZED
AMORTIZED -------------- 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
F-10
<PAGE> 57
PAREXEL INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
losses realized upon the sale of securities (the cost of which is based upon the
specific identification method) were not significant.
NOTE 6 -- ACCOUNTS RECEIVABLE
<TABLE>
Accounts receivable at June 30, 1995 and 1996 consisted of the following:
<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
<TABLE>
Property and equipment at June 30, 1995 and 1996 consisted of the
following:
<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
F-11
<PAGE> 58
PAREXEL INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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 $15.00 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.
F-12
<PAGE> 59
PAREXEL INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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.
<TABLE>
Aggregate stock option activity during fiscal 1994, 1995 and 1996 was as
follows:
<CAPTION>
OPTIONS EXERCISE PRICE
------- --------------
<S> <C> <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.
F-13
<PAGE> 60
PAREXEL INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
NOTE 12 -- INCOME TAXES
<TABLE>
Domestic and foreign income (loss) before income taxes for the years ended
June 30, 1994, 1995 and 1996 are as follows:
<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>
<TABLE>
The provision for income taxes for the years ended June 30, 1994, 1995 and
1996 are as follows:
<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>
<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:
<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.
F-14
<PAGE> 61
PAREXEL INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
<TABLE>
Significant components of the Company's net deferred tax asset as of June
30, 1995 and 1996 are as follows:
<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>
<TABLE>
The net deferred tax assets are included in the consolidated balance sheet
as of June 30, 1995 and 1996 as follows:
<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.
F-15
<PAGE> 62
PAREXEL INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 -- GEOGRAPHIC INFORMATION
<TABLE>
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:
<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
<TABLE>
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:
<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.
F-16
<PAGE> 63
===============================================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES
OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE TO WHICH IT
RELATES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER
IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
PAGE
----
Additional Information................ 2
Prospectus Summary.................... 3
Risk Factors.......................... 6
The Company........................... 10
Use of Proceeds....................... 10
Price Range of Common Stock and
Dividend Policy..................... 10
Capitalization........................ 11
Selected Consolidated Financial
Data................................ 12
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 13
Business.............................. 20
Management............................ 32
Certain Relationships and Related
Transactions........................ 39
Principal and Selling Stockholders.... 40
Description of Capital Stock.......... 42
Underwriting.......................... 45
Legal Matters......................... 46
Experts............................... 46
Index to Consolidated Financial
Statements.......................... F-1
===============================================================================
===============================================================================
1,275,000 SHARES
[PAREXEL LOGO]
COMMON STOCK
---------------
PROSPECTUS
DECEMBER 6, 1996
---------------
SMITH BARNEY INC.
WILLIAM BLAIR & COMPANY
LEHMAN BROTHERS
ADAMS, HARKNESS & HILL, INC.
===============================================================================
