39
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
(X)ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 0-27058
PAREXEL INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its Charter)
Massachusetts 04-2776269
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
195 West Street
Waltham, Massachusetts 02154
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
(781) 487-9900
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
(Title of class)
(Continued)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO .
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
State the aggregate market value of the voting stock held by
nonaffiliates of the registrant:
The aggregate market value of Common Stock held by nonaffiliates
was $893,059,139.25 as of September 24, 1998.
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest
practicable date:
As of September 24, 1998, there were 24,757,195 shares of the
registrant's Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Specified portions of the Registrant's 1998 Annual Report to
Stockholders for the fiscal year ended June 30, 1998 are
incorporated by reference into Parts II and IV of this report.
Specified portions of the Registrant's Proxy Statement dated
October 5, 1998 for the Annual Meeting of Stockholders to be held
on November 12, 1998 are incorporated by reference into Part III
of this report.
(End of cover page)
PAREXEL INTERNATIONAL CORPORATION
FORM 10-K ANNUAL REPORT
INDEX
Page
PART I.
Item 1. Business 4
Item 2. Properties 25
Item 3. Legal Proceedings 25
Item 4. Submission of Matters to a Vote of 26
Security Holders
PART II
Item 5. Market for Registrant's Common Equity 26
and Related
Stockholder Matters
Item 6. Selected Financial Data 26
Item 7. Management's Discussion and Analysis 26
of Financial
Condition and Results of Operations
Item 7A Quantitative and Qualitative 26
Disclosures About Market Risk
Item 8. Financial Statements and Supplementary 26
Data
Item 9. Changes in and Disagreements with 26
Accountants on
Accounting and Financial Disclosure
PART III
Item 10. Directors and Executive Officers of 27
the Registrant
Item 11. Executive Compensation 27
Item 12. Security Ownership of Certain 27
Beneficial Owners
and Management
Item 13. Certain Relationships and Related 27
Transactions
PART IV
Item 14. Exhibits, Financial Statement
Schedules, and
Reports on Form 8-K 27
SIGNATURES 31
PART I
ITEM 1.BUSINESS
General
PAREXEL International Corporation ("PAREXEL" or the "Company")
is a leading contract research and medical marketing services
organization providing a broad spectrum of services from first-in-
human clinical studies through product launch to the
pharmaceutical, biotechnology, and medical device industries
around the world. The Company's primary objective is to help
clients quickly obtain the necessary regulatory approvals of
their products and, ultimately, optimize the market penetration
of those products. Over the past fifteen years, PAREXEL has
developed significant expertise in disciplines supporting this
strategy. The Company's service offerings include: clinical
trials management, data management, biostatistical analysis,
medical marketing, clinical pharmacology, regulatory and medical
consulting, performance improvement, industry training and
publishing, and other drug development consulting services. The
Company believes that its integrated services, therapeutic area
depth, and sophisticated information technology, along with its
experience in global drug development and product launch
services, represent key competitive strengths.
The Company complements the research and development ("R&D")
and marketing functions of pharmaceutical and biotechnology
companies. Through its high quality clinical research and
product launch services, PAREXEL helps clients maximize the
return on their significant investments in research and
development by reducing the time and cost of clinically testing
their products and launching those products into the commercial
marketplace. Clients are provided with a variable cost
alternative to the fixed costs associated with internal drug
development and product marketing by outsourcing these types of
services. Clients no longer need to staff to peak periods and
can benefit from PAREXEL's technical resource pool, broad
therapeutic area expertise, global infrastructures designed to
expedite parallel, multi-country clinical trials, and other
advisory services focused on accelerating time-to-market. The
Company believes it is unique in its vision to tightly integrate
and build critical mass in the complementary businesses of
clinical research and medical marketing. The Company believes
there are significant synergies and efficiencies that can be
realized in the transition from research to marketing creating
opportunities to add value for clients in their efforts to get
more products than they can internally manage into a worldwide
market as expediently and cost effectively as possible.
The Company believes it is the third largest contract research
organization in the world (based upon annual net revenue).
Headquartered near Boston, Massachusetts, the Company has more
than 45 offices and 3,700 employees throughout 25 countries. The
Company has established footholds in the major health care
markets around the world, including the United States, Japan,
Germany, the United Kingdom ("U.K."), France, Italy, Spain,
Sweden, Australia, Israel, Norway, Holland, and Eastern Europe,
including Russia, Poland, Czech Republic, Lithuania and Hungary.
The Company believes it is the second largest clinical CRO in
both Europe and Japan. During fiscal 1998, PAREXEL derived 41%
of its revenue from its international operations, distinguishing
the Company from many of its competitors.
The Company, a Massachusetts corporation, was co-founded in
1983 as a regulatory consulting firm by Josef H. von Rickenbach,
Chairman of the Board, President, and Chief Executive Officer of
PAREXEL. Since that time, the Company has executed a focused
growth strategy embracing aggressive internal expansion, as well
as strategic acquisitions to expand or enhance the Company's
portfolio of services, geographic presence, therapeutic area
knowledge, information technology, and client relationships.
Acquisitions have been and will continue to be an important
component of PAREXEL's growth strategy.
During fiscal 1998, the Company significantly enhanced its
global competitive position through a number of acquisitions. In
March 1998, PAREXEL acquired several European-based companies,
significantly expanding its critical mass, presence, and
capabilities across Europe. These companies include: PPS Europe
Limited ("PPS") and Genesis Pharma Strategies Limited
("Genesis"), leading marketing and clinical communications firms
based in the U.K. and servicing the international pharmaceutical
industry; MIRAI, B.V. ("MIRAI"), a full-service, pan-European
contract research organization based in the Netherlands; and
LOGOS GmbH ("LOGOS"), a regulatory affairs consulting firm in
Freiberg, Germany, that specializes in dossier preparation and
marketing approval submissions. With these acquisitions, PAREXEL
has substantially reinforced its core clinical research and
consulting capabilities across Eastern, Central, and Northern
Europe, thereby solidifying its position of strength as one of
the few truly global contract research and medical marketing
organizations. In December 1997, the Company acquired Kemper-
Materson, Inc., ("KMI"), a leading regulatory consulting firm
based in Massachusetts, which enhances PAREXEL's ability to
provide expertise and technical advisory services within the
laboratory and manufacturing environments. All of these
acquisitions involved exchanges of PAREXEL common stock and were
accounted for as poolings of interests for financial reporting
purposes.
Industry Overview
The CRO industry provides independent product development and
related services on an outsourced basis to the pharmaceutical,
biotechnology, and medical device industries. Although
outsourcing by client companies is occurring throughout the
product life cycles of pharmaceutical and biological products,
CROs today still derive a significant portion 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 research, development and commercialization processes,
including discovery, pre-clinical evaluations, study design,
clinical trial management, data collection and management,
biostatistical analysis, clinical formulation, packaging,
manufacturing, laboratory testing, product registrations, medical
marketing, contract sales, and other services. CROs are required
to conduct services in accordance with strict regulations which
govern clinical trials and the drug approval process.
The CRO industry is fragmented, with participants ranging from
several hundred small, limited-service providers to several large
full-service CROs with global operations. 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 area knowledge and expertise in
other technical areas, 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, the development and maintenance of complex
information technology systems required to integrate these
capabilities, the establishment of solid working relationships
with repeat clients, a strong history of financial performance,
and capital funding to finance growth. In recent years, the CRO
industry has experienced consolidation reflected in the
acquisitions of smaller firms by larger, public CROs.
The CRO industry derives substantially all of its revenue from
the pharmaceutical and biotechnology industries. The global
pharmaceutical and biotechnology industries spent approximately
$40 billion in 1997 on research and development, with an equal or
greater amount spent on marketing and selling activities.
Approximately $4 billion or more is estimated to have been
outsourced to CROs, and the pharmaceutical outsourcing industry
is projected to be growing 20 - 25% annually.
The Company believes that there are a number of positive macro
trends driving the CRO industry's growth, including the
following:
Drug Development Pressures. The Company believes that
research and development expenditures have increased as a
result of the constant pressure to develop product pipelines,
and to respond to the demand for products for an aging
population and for the treatment of chronic disorders and life-
threatening conditions in such categories as infectious
disease, central nervous system, cardiology and oncology. The
development of therapies for chronic disorders, requires
complex clinical trials to demonstrate the therapy's safety and
effectiveness, and to determine if the drug causes any long-
term side effects.
Globalization of Clinical Development and Regulatory Strategy.
Pharmaceutical and biotechnology companies increasingly are
attempting to maximize profits from a given drug by pursuing
regulatory approvals in multiple countries simultaneously
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.
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 have made progress in attempting to harmonize 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.
Competitive Pressures. Drug companies have been focusing on
gaining market share and more efficient ways of conducting
business because of pressures stemming from patent expirations,
market acceptance of generic drugs, and efforts of regulatory
bodies and managed care to control drug prices. The Company
believes that the pharmaceutical industry is responding by
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.
Consolidation in the Pharmaceutical Industry. The
pharmaceutical industry is consolidating as pharmaceutical
companies seek to obtain cost reduction synergies through
business combinations. 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.
Growth of Biotechnology and Genomics Industries. The U.S.
biotechnology industry has grown rapidly over the last ten
years, and in recent years the genomics industry has emerged
with strong growth potential. These companies are introducing
significant numbers of new drug candidates which will require
regulatory approval and, oftentimes, do not have the necessary
experience or resources to conduct clinical trials,
registrations, and product launches. Accordingly, many of
these companies have chosen to outsource to CROs rather than
expend significant time and resources to develop the necessary
internal capabilities. 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 intention is to maintain and enhance its position as
a leading CRO by providing a full spectrum of integrated clinical
research and medical marketing services on a global basis across
key therapeutic areas. With an ongoing commitment to providing
excellent client service and advancing safe and effective drug
therapies, the Company draws on its specialized knowledge and
expertise to aid clients in the expedition of drug development
time, regulatory approval, and the market introduction of new
products. In so doing, PAREXEL helps clients achieve an
important objective, which is maximizing product revenues and
profits over limited patent lives.
Central to PAREXEL's success has been the Company's focused
strategy on building its platform of knowledge in the pursuit of
outstanding client service. This includes a focus on its core
clinical research business which has enjoyed significant growth;
a focus on continuous process improvement, efficiency gains and
leveraging internal expertise, resources and infrastructure; a
focus on managing the Company's strong internal growth while
augmenting the Company's knowledge base through strategic
acquisitions; a focus on deeply and broadly penetrating key
client accounts by offering a full spectrum of clinical
development and medical marketing services; and always, a focus
on outstanding quality and superior client service. During
fiscal 1998, we made substantial progress in executing our
consistently communicated strategy of adding breadth and depth of
service within our three strategic business units, pursuing
global expansion, and building on our therapeutic area,
regulatory, and information technology expertise.
The Company's service philosophy involves a flexible approach
which 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 innovative methodologies and sophisticated
information systems designed to allow the Company to more
effectively manage its business operations and deliver services
to its clients. The Company has executed a focused growth
strategy embracing aggressive internal expansion and strategic
acquisitions to expand or enhance the Company's portfolio of
services, geographic presence, therapeutic area knowledge,
information technology, and client relationships.
PAREXEL has extended its strategic vision beyond product
regulatory approval, to the rapid market penetration of clients'
products. It is management's belief that there are significant
efficiencies to be gained by tightening the integration between
the R&D functions and the marketing and sales functions within
client organizations, which will positively impact time-to-
market. Given PAREXEL's core competencies in clinical research,
the Company is well positioned to capitalize on peri-approval
outsourcing opportunities within the pharmaceutical and
biotechnology industries.
Serve the Global Model of New Drug Development
The Company believes that its ability to conduct clinical
trials and other services worldwide enhances its ability to serve
the increasingly global model of drug development. The Company
provides 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
and Tokyo, Japan; Milan, Italy; Raleigh-Durham, NC; Sydney,
Australia; Madrid, Spain; Tel Aviv, Israel; Washington, D.C.;
Chicago, IL; Sheffield, U.K.; Stockholm, Sweden; The Netherlands,
Norway, Poland, Lithuania, Hungary, Czechia, and Russia. During
fiscal 1998, the Company acquired MIRAI, a leader in managing
large, international, multi-center Phase II-IV clinical trials
for pharma, biotech, and medical device clients in key
therapeutic areas. MIRAI brings a well established presence and
reputation in attractive, new locations for the Company,
including Eastern Europe, Russia, and the Benelux, Nordic, and
Baltic countries and maintains a Phase I alliance with TOHO, one
of the largest Japanese pharmaceutical wholesalers and owner of
the Tokyo Research Center of Clinical Pharmacology, which
services to augment PAREXEL's Asia Pacific operations where we
currently have offices in Kobe/Osaka and Tokyo.
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 simultaneously in multiple
jurisdictions.
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, including many internal checks and balances. 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 and Product Launch
The Company offers a full range of services that encompass the
clinical research process, and will continue to build its medical
marketing services supporting the commercial launch phase. The
Company believes that its knowledge and experience in all stages
of clinical research, as well as peri- and post-approval services
surrounding product launch, enhance its marketability and
credibility with clients. The Company's full range of services
and global experience complement the R&D and marketing and sales
functions of pharmaceutical and biotechnology companies. In
order to meet the needs of specific clients, PAREXEL offers its
services on either an individual or a bundled basis. This
approach allows the Company to establish a relationship with a
new client with the need for a particular service, which may in
turn lead to larger, more comprehensive projects. This
flexibility allows PAREXEL to deliver its services by operating
autonomously or by working in close collaboration with its
clients. In some cases, the Company has taken advantage of the
flexibility of its information technology systems to gain direct
access to client data on client systems. In addition, the
Company provides regulatory periodicals, training materials and
seminars and other complementary information products and
services designed to meet its clients' demands for increased
productivity in clinical development.
Conduct Scientifically Demanding Trials
The Company provides its services in connection with
scientifically and clinically demanding trials in a wide range of
therapeutic areas, such as trials involving the testing of drugs
developed by biotechnology companies and drugs addressing complex
diseases such as HIV/AIDS, cancer and Alzheimer's. The Company's
leadership in HIV/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 central nervous system
("CNS"), 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 believes that there are outsourcing opportunities
throughout the drug development process, and the Company will
continue to actively seek ways to leverage its drug development
expertise throughout the product lifecycle to assist clients in
achieving their development and commercial goals. Today, the
Company provides a full continuum of outsourced services to the
pharmaceutical and biotechnology industries ranging from first-in-
human clinical studies through a product's launch into the
commercial marketplace.
Over the past fifteen years, PAREXEL has developed significant
expertise in disciplines which support clients' efforts to
accelerate the development and market introduction of their
products. Specifically, PAREXEL offers such services as:
clinical trials management, data management, biostatistical
analysis, medical marketing, clinical pharmacology, regulatory
and medical consulting, performance improvement, industry
training and publishing, and other drug development consulting
services. The Company's integrated services, therapeutic area
depth, and sophisticated information technology, along with its
experience in global drug development and product launch
services, represent key competitive strengths.
PAREXEL has internally organized its operations into three
interactive business units, namely: Contract Research Services,
Medical Marketing Services and the Consulting Group.
Contract Research Services ("CRS")
Clinical Trials Management, Biostatistical and Data
Management and related medical services comprise the Company's
Drug Development business unit, which represents approximately
65% of the Company's fiscal 1998 revenue base.
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, but not limited to, cardiovascular, central
nervous system, infectious disease, AIDS/HIV, neurology,
oncology, gastroenterology, endocrinology, hematology,
immunology, rheumatology, pulmonary, and reproductive 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
study and protocol design, placement, initiation, monitoring,
report preparation and strategy development. See "Government
Regulation." Most of the Company's clinical trials management
projects involve Phase II or III clinical trials, which are
generally larger, longer and more complex than Phase I trials.
Clinical trials are monitored for and with strict adherence to
good clinical practices ("GCP"). The design of efficient Case
Report Forms ("CRF"), detailed operations manuals and site visits
by PAREXEL's clinical research associates ensure that clinical
investigators and their staff follow the established protocols of
the studies. The Company has adopted standard operating
procedures which are intended to satisfy regulatory requirements
and serve as a tool for controlling and enhancing the quality of
PAREXEL's worldwide clinical services.
Clinical trials represent one of the most expensive and time-
consuming parts of the overall drug development process. The
information generated during these trials is critical for gaining
marketing approval from the FDA or other regulatory agencies.
PAREXEL's clinical trials management group assists clients with
one or more of the following steps:
Study Protocol Design. The protocol defines the medical
issues the study seeks to examine and the statistical tests
that will be conducted. Accordingly, the protocol defines
the frequency and type of laboratory and clinical measures
that are to be tracked and analyzed. The protocol also
defines the number of patients required to produce a
statistically valid result, the period of time over which
they must be tracked and the frequency and dosage of drug
administration. The study's success depends on the
protocol's ability to predict correctly the requirements of
the regulatory authorities.
Case Report Form Design. Once the study protocol has been
finalized, case report forms must be developed. The CRF is
the critical source document for collecting the necessary
clinical data as dictated by the study protocol. 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 and solicited by
the drug sponsor or the CRO. The trial's success depends on
the successful identification and recruitment of experienced
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. The Company will also
provide additional services at the clinical investigator site
to assist physicians and expedite the clinical research
process.
Patient Enrollment. The investigators, usually with the
assistance of CRO's, 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. Investigators are responsible for
administering drugs to patients, as well as examining
patients and conducting necessary tests.
Study Monitoring and Data Collection. As patients are
examined and tests are conducted in accordance with the study
protocol, data are recorded on CRFs. CRF's 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 remote
date entry ("RDE") and optical character recognition (OCR)
scanning technologies are significantly enhancing both the
quality and timeliness of clinical data collection with
significant efficiency savings. (See Advanced Technology
Group below.) The Company's study monitoring and data
collection services comply with the FDA's adverse events
reporting guidelines.
Clinical Data Management and Biostatistical Services.
(See below)
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 development
program, PAREXEL's physicians provide a wide range of medical
research and consulting services to improve the speed and
quality of clinical research, including medical supervision
of clinical trials, compliance with medical standards and
safety regulations, medical writing, medical imaging,
strategy development, and portfolio management.
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 in
compliance with the study protocol. 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 and OCR
technologies, to gather and report clinical data, expedites data
exchange while minimizing data collection errors as a result of
more timely 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 throughout the world 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.
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.
Advanced Technology Group
Information technology is integral to the clinical research
process. PAREXEL has technical experts which consult externally
with clients, as well as internally with Drug Development, on
ways to best utilize technology to expedite the development
process. The Company currently offers an impressive portfolio of
information technology tools including IRIS Electronic Data
Capture, Medical Imaging, Sitebase Remote Data Entry, IVRS,
Internet reporting, telemedicine applications, computer-based
training programs, and other similar products that can be
customized to our clients' needs. The Advanced Technology Group
continues to identify and support new technologies to benefit
clients as well as our internal process businesses.
Medical Marketing Services ("MMS")
During fiscal 1998, the Company significantly enhanced its
breadth of services in the medical marketing arena and added
managerial talent and depth through the acquisition of PPS. This
was an important step in the execution of PAREXEL's strategy to
assist clients in achieving optimal market penetration for their
products by providing customized, integrated and expertise-based
product development and product launch services around the world.
PPS, with its strong foothold in Europe, transforms our MMS
business into a global provider of product launch support
services to the international pharmaceutical industry. PPS has
nearly doubled the size of our MMS business to over $50 million
of annual revenue, making us one of the largest global medical
marketing services organizations in the world.
Various pressures on the pharmaceutical industry have
resulted in a greater focus on quickly moving more compounds from
clinical development into the marketplace in order to maximize
revenues and profits over limited patent lives. The move into
medical marketing services in response to client demand has been
a natural progression for PAREXEL, and one that draws upon the
Company's core competencies in clinical research.
The Company's experience indicates that clients need
assistance in creating awareness of products in the marketplace
and in addressing the technical aspects of launching their
products, especially managing the simultaneous launch of numerous
products. MMS provides comprehensive, value-added pre-and post-
launch services, including market development, product
management, and targeted communications support to leading
pharmaceutical and biotechnology companies throughout the U.S.
and Europe. It specializes in gathering, analyzing, and
interpreting scientific data for delivery of customized messages
to targeted audiences. Detailed services include market planning
and analysis, strategic consulting, product profiling and
positioning, branding, pricing and reimbursement consulting,
patient studies, health economics, scientific writing and
publishing of medical texts and journals, management of
international physician symposia, accredited continuing medical
education (CME) and training programs, promotional material
production, and multimedia communications including Intranet and
Internet development.
Consulting Group
The Company offers a number of consulting and advisory
services in support of the product development and product
marketing processes. This group brings together experts from
relevant disciplines focused on shaping meaningful solutions and
helping clients make the best business decisions with respect to
their product development and marketing strategies. This group
also serves as a valuable resource for the Company's internal
operations. PAREXEL's Consulting Group includes Regulatory
Affairs, Clinical Pharmacology and our Information Products
Division.
Regulatory Affairs
PAREXEL provides comprehensive regulatory product registration
services for pharmaceutical and biotechnology products in major
jurisdictions in North America, Europe, and Japan, including
regulatory strategy formulation, document preparation and review,
quality assurance, 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 and new manufacturing plants,
including system validation services. PAREXEL's staff provides on-
site GCP and 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.
Clinical Pharmacology
PAREXEL's clinical pharmacology services primarily include
Phase I investigations and trial facilities, both for volunteers
and patients. The Company's Clinical Pharmacology Unit in Berlin
is one of the world's leading units for combined kinetic and
dynamic studies. It provides state-of-the-art in- and out-
patient facilities, and is staffed with a team of clinical
pharmacology experts with extensive experience in both
pharmacokinetics and pharmacodynamics. PAREXEL also maintains a
clinical pharmacology research collaboration with Georgetown
University Medical Center, referred to as the Georgetown/PAREXEL
Clinical Pharmacology Research Unit ("CPRU"). This relationship
provides PAREXEL exclusive access to the CPRU for purposes of
conducting clinical pharmacology research employing a more
flexible, variable-cost business model.
Information Products Group
The Company's Information Products Group ("IPG") offers a wide
range of specialized clinical consulting, training, and
publication services to the health care industry.
PAREXEL/Barnett is a leader in providing conferences, educational
materials, and management consulting services to the clinical
research community, with extensive experience in organizational
structure, curriculum design, and human resource management. The
publications group produces several publications recognized
throughout the industry covering regulatory and drug development
matters.
PAREXEL/Barnett is also a leader in management consulting in
the clinical research area, offering a wide range of solutions
that help pharmaceutical and biotechnology companies improve
their own in-house clinical performance. These services include
performance benchmarking, process improvement, clinical research
capacity analysis, and operational support services.
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, such as project proposals/budget generations, time
information management, revenue and resource forecasting,
clinical data entry and management, and project management.
The Company's information systems group has hundreds of
employees responsible for technology procurement, applications
development and management of the Company's worldwide computer
network. The wide area network links numerous local area
networks, interconnecting over 3,700 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.
During fiscal 1998, the Company has been focused on
strengthening its global information technology infrastructure
and has made significant progress in the following areas:
upgrading our global wide area network, particularly across
Europe and Japan; upgrading our core data center hardware in
North America to support increasing business volume;
standardizing all worldwide desktops in terms of hardware and
software; rolling out our new Oracle-based financial system and
Clintrial supplemental tools; and preparing for the Year 2000.
The Company feels that these initiatives will help prepare the
organization for future workload demands and maintain our high
standards of client service.
Year 2000
Information systems are an integral part of the services the
Company provides. As such, the Company recognizes that it must
ensure that its service and operations will not be adversely
affected by Year 2000 software and equipment failures (the "Year
2000 Issue"), which can arise from the use of date-dependent
systems that utilize only two digits to represent the year
applicable to a transaction; for example, "98" to represent
"1998" rather than the full four digits. Computer systems so
engineered may not operate properly when the last two digits of
the year become "00" as will occur on January 1, 2000.
The Company has initiated a four-phase program, led by its Chief
Information Officer and a global, cross-functional team, to
assess and remediate the effect of the Year 2000 Issue on the
Company's operations. As part of this program, the Company is
contacting its clients, principal suppliers, and other vendors to
assess whether their Year 2000 Issues, if any, will affect the
Company. This Company-wide effort began in 1997; and many Year
2000 dependencies have already been identified and addressed
through planned systems and infrastructure evolution,
replacement, or elimination. The continuing program described
below is to assure that the Company identifies and addresses all
remaining Year 2000 systems and dependencies well in advance of
the millennium change.
The first phase of the program, conducting an inventory of all
systems and dependencies that may be affected by the Year 2000
Issue, is substantially complete. The second phase of the
program, the assessment and categorization of all the inventoried
systems and dependencies by level of priority reflecting their
potential impact on business continuation, is underway. Based on
this prioritization, the third phase will be to develop detailed
plans to address each Year 2000 Issue and a general contingency
plan in the event that any noncompliant critical systems remain
by January 1, 2000.
While the Company has not yet completed its full assessment of
the scope of the Year 2000 Issue facing its systems and
dependencies, based on our analysis to date, we do not believe
that the costs to be incurred will be material. However, until
the full analysis is complete, the Company is unable to provide
assurance whether or not future costs will be material.
Furthermore, as noted above, the Company is contacting its
principal clients, suppliers, and other vendors concerning the
state of their Year 2000 compliance. Until that effort is
completed, the Company cannot be assured that those other systems
are or will be Year 2000 compliant and is unable to estimate at
this time the impact on the Company if one or more of those
systems is not Year 2000 compliant. For the foregoing reasons,
the Company is not able to provide assurance at this time whether
the Year 2000 Issues will materially affect its future financial
results or financial condition.
Sales and Marketing
PAREXEL's marketing strategy is to maintain excellent service-
oriented relationships with its large and loyal client base,
while expanding its base through strong global development
initiatives. 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 marketing activities are coordinated by PAREXEL's
client service executives located near clients throughout the
world. In addition to significant selling experience, most of
the Company's business development personnel have technical or
scientific backgrounds in the pharmaceutical industry. The
Company coordinates its worldwide marketing efforts through a
computerized system that is integrated into each of the Company's
locations.
Clients
During fiscal 1998, the Company provided services to most of
the top 20 pharmaceutical and top 10 biotechnology companies.
The Company performed services for hundreds of clients on over
2,000 projects during the year.
The Company has in the past derived, and may in the future
derive, a significant portion of its net revenue from a core
group 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 1998,
one client accounted for 12% of net revenue; in fiscal 1997 and
1996, no single customer accounted for more than 10% of net
revenue. In fiscal 1998, 1997, and 1996, the Company's top five
customers accounted for 34%, 36%, and 29%, respectively, of the
Company's net revenue. The loss of business from a significant
client could materially and adversely affect the Company's net
revenue and results of operations.
Backlog
Backlog represents anticipated net revenue from awarded
projects, including signed contracts, letter agreements, and
certain verbal commitments, and signifies work not yet completed.
Once work commences, revenue is generally recognized over the
life of the contract, which usually lasts for twelve months or
more. Backlog at June 30, 1998, was approximately $285 million.
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.
Competition
The Company primarily competes against in-house departments of
pharmaceutical companies, full service CROs, and, to a lesser
extent, universities, teaching hospitals and other site
organizations. Some of these competitors have 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 services, 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 and
patients, the ability to integrate information technology with
systems to improve the efficiency of contract research, an
international presence with strategically located facilities,
financial viability and price. PAREXEL believes that it competes
favorably in these areas.
The CRO industry is 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 third largest full-service CRO in the
world, based on annual net revenue. Other large CROs include
Quintiles Transnational Corporation, Covance Inc., and
Pharmaceutical Product Development, Inc. The trend toward CRO
industry consolidation, as well as pharmaceutical companies
outsourcing to a fewer number of preferred CRO's, has resulted
in heightened competition among the larger CROs for clients and
acquisition candidates.
Intellectual Property
The Company believes that factors such as its ability to
attract and retain highly-skilled professional and technical
employees and its project management skills and experience are
significantly more important to its business than are any
intellectual property rights developed by it. PAREXEL has
developed certain computer software and related methodologies
that the Company has sought to protect through a combination of
contracts, copyrights and trade secrets; however, the Company
does not consider the loss of exclusive rights to any of this
software or methodology to be material to the Company's business.
Employees
As of June 30, 1998, the Company had approximately 3,700
employees. Approximately 54% of the employees are located in
North America and 46% are located throughout Europe and the
Asia/Pacific region. 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.
Government Regulation
Before a new drug may be approved and marketed, 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 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.
Treatment Investigational New Drug ("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.
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.
New Drug Application ("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 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 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.
Effective April 1, 1997, Japan officially adopted GCP and
legitimized the use of CROs in conducting clinical research.
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.
Potential Liability and Insurance
PAREXEL's clinical research services focus on the testing of
experimental 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. PAREXEL does not provide
healthcare services directly to patients. Rather, physician
investigators are responsible for administrating drugs and
evaluating patients. Many of these patients are already
seriously ill and are at risk of further illness or death. The
Company has not experienced any patient claims to date arising
out of any clinical trial managed or monitored by it.
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. 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 is generally
successful in incorporating indemnity provisions into 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 an uninsured 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.
RISK FACTORS
In addition to the other information in this Registration
Statement, the following risk factors should be considered
carefully in evaluating the Company and its business. Information
provided by the Company from time to time may contain certain
"forward-looking" information, as that term is defined by (i) the
Private Securities Litigation Reform Act of 1995 (the "Act") and
(ii) in releases made by the Securities and Exchange Commission
(the "SEC"). These risk factors are being provided pursuant to
the provisions of the Act and with the intention of obtaining the
benefits of the "safe harbor" provisions of the Act.
Loss or Delay of Large Contracts. Most of the Company's
contracts are terminable upon 60 to 90 days' notice by the
client. Clients terminate or delay contracts for a variety of
reasons, including, among others, the failure of products being
tested to satisfy safety requirements, unexpected or undesired
clinical results of the product, the client's decision to forego
a particular study, such as for economic reasons, insufficient
patient enrollment or investigator recruitment or production
problems resulting in shortages of the drug. In addition, the
Company believes that cost-containment and competitive pressures
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.
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, progress, or cancellation of significant
projects, exchange rate fluctuations, the mix of services
offered, the opening of new offices and other internal expansion
costs, the costs associated with integrating acquisitions and the
startup costs incurred in connection with the introduction of new
products and services. 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 client projects can cause material adverse variations
in quarterly operating 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 companies to
outsource large clinical research projects. A reversal or
slowing of this trend would have a material adverse effect on the
Company. In fiscal 1998, 1997, and 1996, the Company's top five
clients accounted for 34% 36%, and 29%, respectively, of the
Company's consolidated net revenue. In fiscal 1998, one client
accounted for 12% of consolidated net revenue; however, in
fiscal 1997 and 1996, no single customer accounted for more than
10% of net revenue. The loss of business from a significant
client could have a material adverse effect on the Company.
Management of Business Expansion. The Company's business and
operations have experienced substantial expansion over the past
15 years. The Company believes that such expansion places a
strain on operational, human and financial resources. In order
to manage such expansion, the Company must continue to improve
its operating, administrative and information systems, accurately
predict its future personnel and resource needs to meet client
contract commitments, track the progress of ongoing client
projects, and attract and retain qualified management,
professional, scientific and technical operating personnel.
Expansion of foreign operations also may involve the additional
risks of assimilating differences in foreign business practices,
hiring and retaining qualified personnel, and overcoming language
barriers. In the event that the operation of an acquired
business does not live up to expectations, the Company may be
required to restructure the acquired business or write-off the
value of some or all of the assets of the acquired business.
Failure by the Company to meet the demands of and to manage
expansion of its business and operations could have a material
adverse effect on the Company's business.
Risks Associated with Acquisitions. The Company has made a
number of acquisitions 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 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.
There can be no assurance that any acquisition will be
successfully integrated into the Company's operations.
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. Japan also legislated GCP and legitimatized the use of
CRO's in April 1997. Changes in regulation, including a
relaxation in regulatory requirements or the introduction of
simplified drug approval procedures, as well as anticipated
regulation, could materially and adversely affect the demand for
the services offered by the Company. In addition, failure on the
part of the Company to comply with applicable regulations could
result in the termination of ongoing research or the
disqualification of data, either of which could have a material
adverse effect on the Company.
Competition. The Company primarily competes against in-house
departments of pharmaceutical companies, full service CROs, and,
to a lesser extent, universities, teaching hospitals and other
site organizations. Some of these competitors have 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 services, 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 and
patients, the ability to integrate information technology with
systems to improve the efficiency of contract research, an
international presence with strategically located facilities,
financial viability and price. PAREXEL believes that it competes
favorably in these areas.
The CRO industry is fragmented, with participants ranging from
several hundred small, limited-service providers to several
large, full-service CROs with global operations. Large CROs
against whom PAREXEL competes include Quintiles Transnational
Corporation, Covance Inc., and Pharmaceutical Product
Development, Inc. The trend toward CRO industry consolidation has
resulted in heightened competition among the larger CROs for
clients and acquisition candidates. In addition, consolidation
within the pharmaceutical industry, as well as pharmaceutical
companies outsourcing to a fewer number of preferred CROs, has
led to heightened competition for CRO contracts.
Potential Volatility of Stock Price. The market price of the
Company's Common Stock could be subject to wide fluctuations in
response to quarter-to-quarter variations in operating results,
changes in earnings estimates by analysts, market conditions in
the industry, prospects of health care reform, changes in
government regulation and general economic conditions. In
addition, the stock market has from time to time experienced
significant price and volume fluctuations that have been
unrelated to the operating performance of particular companies.
These market fluctuations may adversely affect the market price
of the Company's Common Stock. Because the Company's Common
Stock currently trades at a relatively high price-earnings
multiple, due in part to analysts' expectations of continued
earnings growth, even a relatively small shortfall in earnings
from, or a change in, analysts' expectations may cause an
immediate and substantial decline in the Company's stock price.
Investors in the Company's Common Stock must be willing to bear
the risk of such fluctuations in earnings and stock price.
Potential Adverse Impact of Health Care Reform. Numerous
governments have undertaken efforts to control growing health
care costs through legislation, regulation and voluntary
agreements with medical care providers and pharmaceutical
companies. In the last several years, several comprehensive
health care reform proposals were introduced in the U.S.
Congress. The intent of the proposals was, generally, to expand
health care coverage for the uninsured and reduce the growth of
total health care expenditures. While none of the proposals were
adopted, health care reform may again be addressed by the U.S.
Congress. Implementation of government health care reform may
adversely affect research and development expenditures by
pharmaceutical and biotechnology companies, resulting in a
decrease of the business opportunities available to the Company.
Management is unable to predict the likelihood of health care
reform proposals being enacted into law or the effect such law
would have on the Company.
Many governments outside the U.S. have also reviewed or
undertaken health care reform. The Company cannot predict the
impact that any pending or future health care reform proposals
may have on the Company's business in other countries.
Dependence on Personnel; Ability to Attract and Retain 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 certain 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.
Potential Liability; Possible Insufficiency of Insurance.
Clinical research services involve the testing of experimental
drugs on consenting 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 by physicians. 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.
Adverse Effect of Exchange Rate Fluctuations. Approximately 41%
of the Company's net revenue for fiscal 1998, 42% for fiscal
1997, and 48% for fiscal 1996 were derived from the Company's
operations outside of North America. Since the revenue and
expenses of the Company's foreign operations are generally
denominated in local currencies, exchange rate fluctuations
between local currencies and the United States dollar will
subject the Company to currency translation risk with respect to
the results of its foreign operations. To the extent the Company
is unable to shift to its clients the effects of currency
fluctuations, these fluctuations could have a material adverse
effect on the Company's results of operations. The Company does
not currently hedge against the risk of exchange rate
fluctuations.
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.
ITEM 2.PROPERTIES
PAREXEL leases all but one of its facilities. The Company's
principal executive offices are located in Waltham,
Massachusetts. The Company also leases space in Lowell,
Massachusetts, and maintains other 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, Sheffield, Milan, Paris, Madrid,
Stockholm, and Tel Aviv. The Company's Japanese subsidiary is
located in Kobe, with a branch office in Tokyo, and its
Australian subsidiary is located in Sydney. The Company
considers all of its properties to be suitable and adequate for
its present needs.
ITEM 3. LEGAL PROCEEDINGS
No material legal proceedings are pending to which the Company,
its subsidiaries, or any of their properties are subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during
the fourth quarter of fiscal 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
This information is incorporated by reference from page 31
"Quarterly Operating Results and Common Stock Information
(Unaudited)" of the Company's 1998 Annual Report to Stockholders
included as Exhibit 13.1.
ITEM 6. SELECTED FINANCIAL DATA
This information is incorporated by reference from page 31
"Selected Financial Data," of the Company's 1998 Annual Report to
Stockholders included as Exhibit 13.1.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This information is incorporated by reference from pages 13-17,
"Management's Discussion and Analysis of Financial Condition and
Results of Operations," of the Company's 1998 Annual Report to
Stockholders included as Exhibit 13.1.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary financial
information are incorporated by reference from pages 18-30 of the
Company's 1998 Annual Report to Stockholders included as Exhibit
13.1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to this item may be found under the
captions "Elections of Directors" and "Executive Officers" in the
Proxy Statement for the Company's 1998 Annual Meeting of
Stockholders. Such information is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to this item may be found under the
captions "Directors' Compensation" and "Executive Compensation"
in the Proxy Statement for the Company's 1998 Annual Meeting of
Stockholders. Such information is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information with respect to this item may be found under the
caption "Security Ownership of Certain Beneficial Owners and
Management" in the Proxy Statement for the Company's 1998 Annual
Meeting of Stockholders. Such information is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to this item may be found under the
caption "Certain Relationships and Related Transactions" in the
Proxy Statement for the Company's 1998 Annual Meeting of
Stockholders. Such information is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(A) The following documents are filed as part of this report:
(1)Financial Statements. The following financial statements
and supplementary data included in the 1998 Annual Report to
Stockholders, filed as Exhibit 13.1 to this report, are
incorporated by reference into Item 8 of this report.
Annual
Financial Statements Form 10-K Report to
Page Stockholders
Page
Report of Independent Accountants 26 30
Consolidated Balance Sheets at 26 19
June 30, 1998 and 1997
Consolidated Statements of
Operations for each of the 26 18
Three years ended June 30, 1998
Consolidated Statements of
Stockholders' Equity for 26 20
Each of the three years ended
June 30, 1998
Consolidated Statements of Cash
Flows for each of the 26 21
Three years ended June 30, 1998
Notes to Consolidated Financial 26 22-29
Statements
Financial Statement Schedules:
(2)
For the three years ended June 30, 1998:
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not
applicable or the required information is shown in the
Consolidated Financial Statements or Notes thereto.
Exhibits
(3)
Exhibit Description
No.
(3) Exhibits
Exhibit Description
No.
3.1 -- Amended and Restated Articles of Organization of the
Company, as amended (filed as Exhibit 3.1 to the
Registrant's Quarterly Report on Form 10-Q for the
Quarter Ended December 31, 1996 and incorporated herein
by this reference).
3.2 -- Amended and Restated By-laws of the Company (filed as
Exhibit 3.2 to the Registrant's Registration Statement
on Form S-1 (File No. 333-1188) and incorporated herein
by this reference).
4.1 -- Specimen certificate representing the Common Stock of
the Company (filed as Exhibit 4.1 to the Registrant's
Registration Statement on Form S-1 (File No. 33- 97406)
and incorporated herein by this reference).
4.2 -- Purchase Agreement dated as of August 22, 1996 between
the Company and State and Federal Associates, Inc.,
S&FA of Alexandria Partnership, Martin J. Miller,
Howard Tag, Peter Malamis and Laurie Hughes (filed as
Exhibit 4.2 to the Registrant's Registration Statement
on Form S-3 (File No. 333-19751) and incorporated
herein by this reference).
4.3 -- Registration Rights Agreement dated as of August 22,
1996 between the Company and S&FA of Alexandria
Partnership, Martin J. Miller, Howard Tag, Peter
Malamis and Laurie Hughes (filed as Exhibit 4.3 the
Registrant's Registration Statement on Form S-3 (File
No. 333-19751) and incorporated herein by this
reference).
4.4 -- Agreement and Plan of Reorganization and Merger dated
as of February 28, 1997 among the Company, Rescon,
Inc., Rescon Acquisition Corporation, Walter Leroy
Hill, as Trustee of the Walter L. Hill Revocable Trust
and Walter Leroy Hill (filed as Exhibit 4.2 the
Registrant's Registration Statement on Form S-3 (File
No. 333-27487) and incorporated herein by this
reference).
4.5 -- Registration Rights Agreement dated as of February 28,
1997 among the Company, Walter Leroy Hill, and Walter
Leroy Hill as Trustee of the Walter L. Hill Revocable
Trust (filed as Exhibit 4.3 the Registrant's
Registration Statement on Form S-3 (File No. 333-27487)
and incorporated herein by this reference).
4.6 -- Share Purchase Agreement dated as of February 28, 1997
among the Company, Dr. Richard Kay and Janet Kay
(filed as Exhibit 4.4 the Registrant's Registration
Statement on Form S-3 (File No. 333-27487) and
incorporated herein by this reference).
4.7 -- Registration Rights Agreement dated as of February 28,
1997 among the Company, Dr. Richard Kay and Janet Kay
(filed as Exhibit 4.5 the Registrant's Registration
Statement on Form S-3 (File No. 333-27487) and
incorporated herein by this reference).
4.8 -- Share Purchase Agreement dated as of February 28, 1997
among the Company, Dr. Afron Lloyd Jones and Dr. Diana
Smith (filed as Exhibit 4.6 the Registrant's
Registration Statement on Form S-3 (File No. 333-27487)
and incorporated herein by this reference).
4.9 -- Registration Right Agreement dated as of February 28,
1997 among the Company, Dr. Afron Lloyd Jones and Dr.
Diana Smith (filed as Exhibit 4.7 the Registrant's
Registration Statement on Form S-3 (File No. 333-27487)
and incorporated herein by this reference).
4.10 -- Agreement and Plan of Reorganization and Merger dated
as of October 22, 1997 by and among the Company, Kemper-
Masterson, Inc., KMI Acquisition Corporation, Clarence
A. Kemper, P. Michael Masterson, Mark A. Lester, Ronald
F. Tetzlaff, Alan R. Parenteau, Jon Voss, Warren
Handren and David Hyde (filed as Exhibit 4.2 to
Registrant's Registration Statement on Form S-3 (File
No. 333-44541) and incorporated herein by reference).
4.11 -- Registration Rights Agreement dated as of December 1,
1997 by and among the Company and each of Clarence A.
Kemper, P. Michael Masterson, Mark A. Lester, Ronald F.
Tetzlaff, Alan R. Parenteau, Jon Voss, Warren Handren
and David Hyde (filed as Exhibit 4.3 to Registrant's
Registration Statement on Form S-3 (File No. 333-44541)
and incorporated herein by reference).
4.12 -- Share Acquisition Agreement dated as of March 1, 1998
by and among the Company and the former stockholders of
PPS Europe Ltd. (filed as Exhibit 4.5 to the Company's
Current Report on Form 8-K/A dated March 1, 1998 and
incorporated herein by reference).
4.13 -- Share Acquisition Agreement dated as of March 1, 1998
by and among the Company and the former stockholders of
Creative Communications Solutions Limited (filed as
exhibit 4.3 to the Registrant's Registration Statement
on Form S-3 (File No. 333-53941) and incorporated
herein by reference).
4.14 -- Share Acquisition Agreement dated as of March 1, 1998
by and among the Company and the former stockholders of
Genesis Pharma Strategies Ltd. (filed as exhibit 4.4 to
the Registrant's Registration Statement on Form S-3
(File No. 333-53941) and incorporated herein by
reference).
4.15 -- Sale and Purchase Agreement dated as of February 18,
1998 by and among the Company and the former
stockholders of MIRAI, B.V. (filed as exhibit 4.5 to
the Registrant's Registration Statement on Form S-3
(File No. 333-53941) and incorporated herein by
reference).
4.16 -- Registration Rights Agreement dated as of February 27,
1998 by and among the Company and the former
stockholders of PPS Europe Ltd. (filed as Exhibit 4.4
to the Company's Current Report on Form 8-K/A dated
March 1, 1998 and incorporated herein by reference).
4.17 -- Registration Rights Agreement dated as of February 27,
1998 by and among the Company and the former
stockholders of Creative Communications Solutions
Limited (filed as exhibit 4.8 to the Registrant's
Registration Statement on Form S-3 (File No. 333-53941)
and incorporated herein by reference).
4.18 -- Registration Rights Agreement dated as of February 27,
1998 by and among the Company and the former
stockholders of Genesis Pharma Strategies Ltd. (filed
as exhibit 4.9 to the Registrant's Registration
Statement on Form S-3 (File No. 333-53941) and
incorporated herein by reference).
4.19 -- Registration Rights Agreement dated as of February 27,
1998 by and among the Company and the former
stockholders of MIRAI, B.V. (filed as exhibit 4.10 to
the Registrant's Registration Statement on Form S-3
(File No. 333-53941) and incorporated herein by
reference).
4.20 Registration Rights Agreement by and among the Company
and the former stockholder of LOGOS GmbH (filed as
exhibit 4.11 to the Registrant's Registration Statement
on Form S-3 (File No. 333-53941) and incorporated
herein by reference).
10.1 -- Employment Agreement dated December 30, 1996 between
James M. Karis and the Company (filed as Exhibit 10.1
to the Registrant's Quarterly Report on Form 10-Q for
the Quarter Ended December 31, 1996 and incorporated
herein by this reference).
10.2 -- Agreement dated June 30, 1993 between Prof. Dr. med.
Werner M. Herrmann and PAREXEL GmbH Independent
Pharmaceutical Research Organization, as amended,as of
April 1, 1998 (filed as Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the
Quarter Ended March 31, 1998 and incorporated herein by
this reference).
10.3 -- Letter Agreement effective as of July 1, 1997 between
Prof. Dr. med. Werner M. Herrmann and the Company, as
amended as of April 1, 1998 (filed as Exhibit 10.2 to
the Registrant's Quarterly Report on Form 10-Q for the
Quarter Ended March 31, 1998 and incorporated herein by
this reference).
-- Letter Agreement between A. Joseph Eagle and PPS Europe
10.4 Limited dated as of April 17, 1997, as amended. (filed
as Exhibit 10.3. to the Registrant's Quarterly Report
on Form 10-Q for the Quarter Ended March 31, 1998 and
incorporated herein by this reference).
10.5 -- Form of Stock Option Agreement of the Company (filed as
Exhibit 10.9 to the Registrant's Registration Statement
on Form S-1 (File No. 333-1188) and incorporated herein
by this reference).
10.6 -- 1986 Incentive Stock Option Plan of the Company (filed
as Exhibit 10.10 to the Registrant's Registration
Statement on Form S-1 (File No. 33-97406) and
incorporated herein by this reference).
10.7 -- 1987 Stock Plan of the Company (filed as Exhibit 10.11
to the Registrant's Registration Statement on Form S-1
(File No. 33-97406) and incorporated herein by this
reference).
10.8 -- 1989 Stock Plan of the Company (filed as Exhibit 10.12
to the Registrant's Registration Statement on Form S-1
(File No. 33-97406) and incorporated herein by this
reference).
10.9 -- Second Amended and Restated 1995 Stock Plan of the
Company.
10.10-- 1995 Non-Employee Director Stock Option Plan of the
Company (filed as Exhibit 10.14 to the Registrant's
Registration Statement on Form S-1 (File No. 33-97406)
and incorporated herein by this reference).
10.11-- 1995 Employee Stock Purchase Plan of the Company (filed
as Exhibit 10.15 to the Registrant's Registration
Statement on Form S-1 (File No. 33-97406) and
incorporated herein by this reference).
10.12-- Corporate Plan for Retirement of the Company (filed as
Exhibit 10.16 to the Registrant's Registration
Statement on Form S-1 (File No. 33-97406) and
incorporated herein by this reference).
10.13-- Loan and Security Agreement dated as of July 31, 1992
between the Company, Barnett International Corporation
and The First National Bank of Boston, as amended
(filed as Exhibit 10.17 to the Registrant's
Registration Statement on Form S-1(File No. 333-06953)
and incorporated herein by this reference).
10.14-- Line of Credit Agreement between PAREXEL GmbH and
Deutsche Bank Berlin, dated January 23, 1995 (filed as
Exhibit 10.24 to the Registrant's Registration
Statement on Form S-1 (File No. 33-97406) and
incorporated herein by this reference).
10.15-- First Amendment dated as of January 3, 1992 to the
Lease dated June 14, 1991 between 200 West Street
Limited Partnership and the Company (filed as Exhibit
10.25 to the Registrant's Registration Statement on
Form S-1 (File No. 33-97406) and incorporated herein by
this reference).
10.16-- Second Amendment dated as of June 28, 1993 to the lease
dated June 14, 1991 between 200 West Street Limited
Partnership and the Company (filed as Exhibit 10.28 to
the Registrant's Registration Statement on Form S-1
(File No. 33-97406) and incorporated herein by this
reference).
10.17-- Letter of employment dated July 6, 1993 between Barry
R. Philpott and the Company (filed as Exhibit 10.29 to
the Registrant's Registration Statement on Form S-1
(File No. 33-97406) and incorporated herein by this
reference).
10.18-- Credit Agreement dated December 30, 1994 between
PAREXEL GmbH and The First National Bank of Boston
(filed as Exhibit 10.30 to the Registrant's
Registration Statement on Form S-1(File No. 33-97406)
and incorporated herein by this reference).
10.19-- Collateral Agreement dated December 30, 1994 between
PAREXEL GmbH and The First National Bank of Boston
(filed as Exhibit 10.31 to the Registrant's
Registration Statement on Form S-1 (File No. 33-97406)
and incorporated herein by this reference).
10.20-- 1998 Non-Qualified, Non-Officer Stock Option Plan
(filed as Exhibit 4.4 to the Registrant's Registration
Statement on Form S-8 (File No. 33-47033) and
incorporated herein by this reference).
11.1 -- Statement re computation of per share earnings.
13.1 -- Specified portions of the Registrant's 1998 Annual
Report to Stockholders.
21.1 -- List of subsidiaries of the Company.
23.1 -- Consent of PricewaterhouseCoopers L.L.P.
23.2 -- Consent of Grant Thornton
27.1 -- Financial Data Schedule.
(B) Reports on Form 8-K:
The Company filed a Current Report on Form 8-K dated
August 7, 1997 reporting financial results for the
quarter ended June 30, 1997.
The Company filed a Current Report on Form 8-K dated
October 23, 1997 reporting first quarter results and
agreement to acquire Kemper-Masterson, Inc.
The Company filed a Current Report on Form 8-K dated
January 27, 1998 reporting financial results for the
quarter ended December 31, 1997.
The Company filed a Current Report on Form 8-K dated
March 1, 1998 reporting the acquisition of all of the
outstanding shares of PPS Europe Ltd.
The Company filed a Current Report on Form 8-K dated
March 2, 1998 reporting the acquisition of PPS Europe
Limited and Genesis Pharma Strategies Limited
(collectively referred to as PPS).
The Company filed a Current Report on Form 8-K dated
April 27, 1998 reporting financial results for the
quarter ended March 31, 1998.
The Company filed a Amendment No. 1 to Current Report
on Form 8-K on Form 8-K/A dated March 1, 1998
regarding "shelf" resale registration rights with
respect to the shares of the Company's Common Stock
issued in connection with the acquisition
The Company filed a Current Report on Form 8-K dated
August 12, 1998 reporting financial results for the
quarter ended June 30, 1998
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized in the city of Waltham, Massachusetts,
on the xx day of September, 1998.
PAREXEL INTERNATIONAL CORPORATION
By:Josef H. von Rickenbach
President, Chief
Executive Officer
and Chairman
Signatures Title(s) Date
/s/Josef H. von
Rickenbach
Josef H. von Rickenbach President, Chief September 25, 1998
Executive Officer
and Chairman
(principal executive
officer)
/s/William T. Sobo, Jr.
William T. Sobo, Jr. Senior Vice September 25, 1998
President, Chief
Financial Officer,
Treasurer and Clerk
(principal financial
and accounting
officer)
/s/A. Dana Callow, Jr.
A. Dana Callow, Jr. Director September 25, 1998
Patrick J. Fortune Director September __, 1998
/s/Werner M. Herrmann
Werner M. Herrmann Director September 25, 1998
/s/James A. Saalfield
James A. Saalfield Director September 25, 1998
/s/Serge Okun
Serge Okun Director September 25, 1998
/s/A. Joseph Eagle
A. Joseph Eagle Director September 25, 1998
Schedule II
PAREXEL INTERNATIONAL CORPORATION
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
($ in thousands)
Balance Charge Balanc
at d to Charged Deductio e at
Description beginning costs to other ns and end of
of year and accounts write- year
expens offs
es
ALLOWANCE FOR DOUBTFUL
ACCOUNTS:
Year ended June 30, $1,737 $593 -- $(310) $2,020
1996
Year ended June 30, 2,020 1,718 329 (683) 3,384
1997
Year ended June 30, 3,384 1,924 -- (246) 5,062
1998
DEFERRED TAX ASSET
VALUATION ALLOWANCE:
Year ended June 30, $7,491 $147 -- $(1,565) $6,073
1996
Year ended June 30, 6,073 -- -- (2,569) 3,504
1997
Year ended June 30, 3,504 -- -- (891) 2,613
1998
EXHIBIT 21.1
PAREXEL INTERNATIONAL CORPORATION
LIST OF SUBSIDIARIES OF THE COMPANY
PAREXEL
OWNERSHIP(1)
Barnett International Corporation, a 100%
Massachusetts corporation
PAREXEL International Holding Corporation, a 100%
Delaware corporation
PAREXEL International Securities 100%
Corporation, a Massachusetts corporation
PAREXEL International Inc., a Delaware 100%
corporation
PAREXEL Government Services, Inc., a 100%
Delaware corporation
PAREXEL Unternehmens beteiligung GmbH, a 100%
corporation organized under the laws of
Germany
PAREXEL GmbH Independent Pharmaceutical 100%
Research Organization, a Corporation
organized under the laws of Germany
PAREXEL International Limited, a corporation 100%
organized under the laws of the United
Kingdom
AFB CLINLAB Laborleistungs - 100%
Organisationgesellschaft GmbH, a corporation
organized under the laws of Germany
PAREXEL International SARL, a corporation 100%
organized under the laws of France
PAREXEL International SRL, a corporation 100%
organized under the laws of Italy
PAREXEL International Pty Ltd., a 100%
corporation organized under the laws of
Australia
PAREXEL International S.L., a corporation 100%
organized under the laws of Spain
PAREXEL International Medical Marketing 100%
Services, Inc., a Virginia corporation
PAREXEL International (Lansal) Limited, a 100%
corporation organized under the laws of
Israel
Caspard Consultants, a corporation organized 100%
under the laws of France
Sitebase Clinical Systems, Inc., a 100%
Massachusetts corporation
PAREXEL S-Cubed Limited, a corporation 100%
organized under the laws of the United
Kingdom
PAREXEL ClinNet Limited, a corporation 100%
organized under the laws of the United
Kingdom
Pharmon, Ltd., a corporation organized under 100%
the laws of Liechentenstein
Rescon, Inc., a Virginia corporation 100%
PAREXEL ETT, S.L., a corporation organized 100%
under the laws of Spain
PAREXEL International KK, a corporation 100%
organized under the laws of Japan
KMI/PAREXEL, Inc., a corporation organized 100%
under the laws of Delaware
PAREXEL International Holding BV, a 100%
corporation organized under the law of the
Netherlands
PAREXEL International sp. z.o.o., a 100%
corporation organized under the laws of
Poland
PAREXEL MMS Europe Limited (and affiliates), 100%
a corporation organized under the laws of
the United Kingdom
Genesis Pharma Strategies Ltd., a 100%
corporation organized under the laws of the
United Kingdom
Creative Communication Solutions, Ltd., a 100%
corporation organized under the laws of the
United Kingdom
PPS International Communcations Ltd., a 100%
corporation organized under the laws of the
United Kingdom
Pharos Healthcare Communications Ltd., a 100%
corporation organized under the laws of the
United Kingdom
Pharos Healthcare Communications Inc., a 100%
Connecticut corporation
Centre for Bio-Medical Communications Inc., 100%
a New Jersey corporation
Cambridge Medical Publications Ltd., a 100%
corporation organized under the laws of the
United Kingdom
Mirai B.V. (and its twelve foreign 100%
subsidiaries), a corporation organized under
the laws of The Netherlands
Logos GmbH, a corporation organized under 100%
the laws of Germany
(1) Direct and indirect
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Prospectus constituting part of the Registration Statements on
Form S-3 (File Nos. 333-19751, 333-27487, 333-44541, 333-53941
and 333-60005) and the Registration Statements on Form S-8 (File
Nos. 33-80301, 333-16205 and 333-47033) of PAREXEL International
Corporation and its subsidiaries of our report dated August 11,
1998, appearing on page 30 of PAREXEL International Corporation's
Annual Report to stockholders, which is incorporated by reference
in this Annual Report on Form 10-K. We also consent to the
application of such report to the Financial Statement Schedule
for the three years ended June 30, 1998 listed under Item 14(a)
of this Annual Report on Form 10-K when such schedule is read in
conjunction with the financial statements referred to in our
report. The audits referred to in such report included this
Financial Statement Schedule.
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
September 25, 1998
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration
Statement on Form S-3 (File Nos. 333-19751, 333-27487, 333-44541,
333-53941 and 333-60005) and Form S-8 (File Nos. 33-80301, 333-
16205 and 333-47033) of our report dated February 6, 1998 on the
financial statements of PPS Europe Limited and Subsidiaries
included in this Form 10-K of PAREXEL International Corporation.
GRANT THORNTON
London, United Kingdom
September 24, 1998
EXHIBIT 10.9
PAREXEL INTERNATIONAL CORPORATION
SECOND AMENDED AND RESTATED 1995 STOCK PLAN
(as amended by the Board of Directors on July 8, 1997
and
approved by the Stockholders on November 13, 1997
and
as amended further by the Board of Directors on September 24,
1998)
1. Purpose.
A. This Amended and Restated 1995 Stock Plan (the
"Plan") is intended to provide incentives: (a) to the
officers and other employees of PAREXEL International
Corporation (the "Company"), and of any present or future
parent or subsidiary of the Company (collectively, "Related
Corporations"), by providing them with opportunities to
purchase stock in the Company pursuant to options granted
hereunder which qualify as "incentive stock options" ("ISOs")
under Section 422(b) of the Internal Revenue Code of 1986, as
amended (the "Code"); (b) to directors, officers, employees
and consultants of the Company and Related Corporations by
providing them with opportunities to purchase stock in the
Company pursuant to options granted hereunder which do not
qualify as ISOs ("Non-Qualified Options"); (c) to directors,
officers, employees and consultants of the Company and
Related Corporations by providing them with awards of stock
in the Company ("Awards"); and (d) to directors, officers,
employees and consultants of the Company and Related
Corporations by providing them with opportunities to make
direct purchases of stock in the Company ("Purchases").
B. Certain Definitions. Both ISOs and Non-Qualified
Options are referred to hereafter individually as an "Option"
and collectively as "Options." Options, Awards and
authorizations to make Purchases are referred to hereafter
collectively as "Stock Rights." As used herein, the terms
"parent" and "subsidiary" mean "parent corporation" and
"subsidiary corporation," respectively, as those terms are
defined in Section 424 of the Code.
2. Administration of the Plan.
A. Board or Committee Administration. The Plan shall
be administered by the Board or, subject to paragraph 2D
(relating to compliance with Section 162(m) of the Code), by
a committee appointed by the Board (the "Committee").
Hereinafter, all references in this Plan to the "Committee"
shall mean the Board if no Committee has been appointed.
With respect to Stock Rights granted pursuant to the Plan and
subject to ratification of the grant or authorization of each
Stock Right pursuant to the Plan by the Board (if so required
by applicable state law), and subject to the terms of the
Plan, the Committee shall have the authority to (i) determine
the employees of the Company and Related Corporations (from
among the class of employees eligible under paragraph 3 to
receive ISOs) to whom ISOs shall be granted, and determine
(from among the class of individuals and entities eligible
under paragraph 3 to receive Non-Qualified Options and Awards
and to make Purchases) to whom Non-Qualified Options, Awards
and authorizations to make Purchases may be granted;
(ii) determine the time or times at which Options or Awards
shall be granted or Purchases made; (iii) determine the
option price of shares subject to each Option, which price
shall not be less than the minimum price specified in
paragraph 14, and the purchase price of shares subject to
each Purchase; (iv) determine whether each Option granted
shall be an ISO or a Non-Qualified Option; (v) determine
(subject to paragraph 15) the time or times when each Option
shall become exercisable and the duration of the exercise
period; (vi) determine whether restrictions such as
repurchase options are to be imposed on shares subject to
Options, Awards and Purchases and the nature of such
restrictions, if any, and (vii) interpret the Plan and
prescribe and rescind rules and regulations relating to it.
If the Committee determines to issue a Non-Qualified Option,
it shall take whatever actions it deems necessary, under
Section 422 of the Code and the regulations promulgated
thereunder, to ensure that such Option is not treated as an
ISO. The interpretation and construction by the Committee of
any provisions of the Plan or of any Stock Right granted
under it shall be final unless otherwise determined by the
Board. The Committee may from time to time adopt such rules
and regulations for carrying out the Plan as it may deem
best. No member of the Board or the Committee shall be
liable for any action or determination made in good faith
with respect to the Plan or any Stock Right granted under it.
B. Committee Actions. The Committee may select one of
its members as its chairman, and shall hold meetings at such
time and places as it may determine. Acts by a majority of
the members of the Committee, or acts reduced to or approved
in writing by a majority of the members of the Committee (if
consistent with applicable state law), shall constitute the
valid acts of the Committee. From time to time the Board may
increase the size of the Committee and appoint additional
members thereof, remove members (with or without cause) and
appoint new members in substitution therefor, fill vacancies
however caused, or remove all members of the Committee and
thereafter directly administer the Plan.
C. Grant of Stock Rights to Board Members. In
addition to the Non-Qualified Options granted to non-employee
directors pursuant to the Plan, Stock Rights may be granted
pursuant to this Plan to members of the Board. Members of
the Board who either (i) are eligible to receive grants of
Stock Rights pursuant to the Plan or (ii) have been granted
Stock Rights may vote on any matters affecting the
administration of the Plan or the grant of any Stock Rights
pursuant to the Plan, except that no such member shall act
upon the granting to himself of Stock Rights, but any such
member may be counted in determining the existence of a
quorum at any meeting of the Board during which action is
taken with respect to the granting to him of Stock Rights.
D. Performance-Based Compensation. The Board, in its
discretion, may take such action as may be necessary to
ensure that Stock Rights granted under the Plan qualify as
"qualified performance-based compensation" within the meaning
of Section 162(m) of the Code and applicable regulations
promulgated thereunder ("Performance-Based Compensation").
Such action may include, in the Board's discretion, some or
all of the following (i) if the Board determines that Stock
Rights granted under the Plan generally shall constitute
Performance-Based Compensation, the Plan shall be
administered, to the extent required for such Stock Rights to
constitute Performance-Based Compensation, by a Committee
consisting solely of two or more "outside directors" (as
defined in applicable regulations promulgated under Section
162(m) of the Code), (ii) if any Non-Qualified Options with
an exercise price less than the fair market value per share
of Common Stock are granted under the Plan and the Board
determines that such Options should constitute
Performance-Based Compensation, such options shall be made
exercisable only upon the attainment of a pre-established,
objective performance goal established by the Committee, and
such grant shall be submitted for, and shall be contingent
upon shareholder approval and (iii) Stock Rights granted
under the Plan may be subject to such other terms and
conditions as are necessary for compensation recognized in
connection with the exercise or disposition of such Stock
Right or the disposition of Common Stock acquired pursuant to
such Stock Right, to constitute Performance-Based
Compensation.
3. Eligible Optionees. ISOs may be granted only to
employees of the Company or any Related Corporation. Non-
Qualified Options, Awards and authorizations to make Purchases
may be granted pursuant to Part I to any employee, officer or
director (whether or not also an employee) or consultant of the
Company or any Related Corporation. With respect to Stock Rights
granted pursuant to the Plan, the Committee may take into
consideration a recipient's individual circumstances in
determining whether to grant an ISO, a Non-Qualified Option, an
Award or an authorization to make a Purchase. Granting of any
Stock Right to any individual or entity shall neither entitle
that individual or entity to, nor disqualify him from,
participation in any other grant of Stock Rights.
4. Stock. The stock subject to Options, Awards and
Purchases shall be authorized but unissued shares of Common Stock
of the Company, par value $.01 per share (the "Common Stock"), or
shares of Common Stock reacquired by the Company in any manner.
The aggregate number of shares which may be issued pursuant to
the Plan, subject to adjustment as provided in paragraph 11 of
the Plan, is the sum of (x) 2,000,000, plus (y) a number equal to
600,000 minus the number of shares issued upon the exercise of
options granted under the 1995 Non-Employee Director Stock Option
Plan of the Company (the "Director Plan), subject to adjustment
as provided in paragraph 11. If any Stock Right granted under
the Plan shall expire or terminate for any reason without having
been exercised in full or shall cease for any reason to be
exercisable in whole or in part, the unpurchased shares subject
to such Stock Right shall again be available for grants of Stock
Rights under the Plan.
No employee of the Company or any Related Corporation may be
granted Options to acquire, in the aggregate, more than 998,000
shares of Common Stock under the Plan. If any Option granted
under the Plan shall expire or terminate for any reason without
having been exercised in full or shall cease for any reason to be
exercisable in whole or in part or shall be repurchased by the
Company, the shares subject to such Option shall be included in
the determination of the aggregate number of shares of Common
Stock deemed to have been granted to such employee under the
Plan.
5. Means of Exercising Stock Rights. A Stock Right (or
any part or installment thereof) shall be exercised by giving
written notice to the Company at its principal office address.
Such notice shall identify the Stock Right being exercised and
specify the number of shares as to which such Stock Right is
being exercised, accompanied by full payment of the purchase
price therefor either (a) in United States dollars in cash or by
check, (b) at the discretion of the Committee, through delivery
of shares of Common Stock owned by the optionee free and clear of
any restrictions (other than those arising under securities laws)
for at least six months having a fair market value equal as of
the date of the exercise to the cash exercise price of the Stock
Right, (c) at the discretion of the Committee and consistent with
applicable law, through the delivery of an assignment to the
Company of a sufficient amount of the proceeds from the sale of
the Common Stock acquired upon exercise of the Stock Right and an
authorization to the broker or selling agent to pay that amount
to the Company, which sale shall be at the participant's
direction at the time of exercise, or (d) at the discretion of
the Committee, by any combination of (a), (b) and (c) above. If
the Committee exercises its discretion to permit payment of the
exercise price of an ISO by means of the methods set forth in
clauses (b), (c) or (d) of the preceding sentence, such
discretion shall be exercised in writing at the time of the grant
of the ISO in question. The holder of a Stock Right shall not
have the rights of a shareholder with respect to the shares
covered by his Stock Right until the date of issuance of a stock
certificate to him for such shares. Except as expressly provided
in paragraph 11 below with respect to changes in capitalization
and stock dividends, no adjustment shall be made for dividends or
similar rights for which the record date is before the date such
stock certificate is issued. The stock certificates representing
such shares shall carry such appropriate legend, and such written
instructions shall be given to the Company's transfer agent, as
may be deemed necessary or advisable by counsel to the Company in
order to comply with the requirements of the Securities Act of
1933, as amended, (the "Act") or any state securities laws.
6. Application Of Funds. The proceeds received by the
Company from the sale of shares pursuant to Options granted and
Purchases authorized under the Plan shall be used for general
corporate purposes.
7. Withholding of Additional Income Taxes. Upon the
exercise of a Non-Qualified Option, the transfer of a Non-
Qualified Option pursuant to an arms-length transaction, the
grant of an Award, the making of a Purchase of Common Stock for
less than its fair market value, the making of a Disqualifying
Disposition (as described in paragraph 22), the vesting or
transfer of restricted stock or securities acquired on the
exercise of a Stock Right hereunder, or the making of a
distribution or other payment with respect to such stock or
securities, the Company may withhold taxes in respect of amounts
that constitute compensation includible in gross income. The
Committee in its discretion may condition (i) the exercise of an
Option, (ii) the transfer of a Non-Qualified Option, (iii) the
grant of an Award, (iv) the making of a Purchase of Common Stock
for less than its fair market value, or (v) the vesting or
transferability of restricted stock or securities acquired by
exercising a Stock Right, on the grantee's making satisfactory
arrangement for such withholding. Such arrangement may include
payment by the grantee in cash or by check of the amount of the
withholding taxes or, at the discretion of the Committee, by the
grantee's delivery of previously held shares of Common Stock held
by the grantee for at least six months or the withholding from
the shares of Common Stock otherwise deliverable upon exercise of
a Stock Right shares having an aggregate fair market value equal
to the amount of such withholding taxes.
8. Governmental and Securities Law Regulation.
A. The Company's obligation to sell and deliver shares
of the Common Stock under this Plan is subject to the
approval of any governmental authority required in connection
with the authorization, issuance or sale of such shares. The
Company shall have no obligation to deliver any stock
certificate or certificates upon exercise of an Option until
one of the following conditions shall be satisfied:
(i) The shares with respect to which the Option has
been exercised are at the time of the issue of such shares
effectively registered under applicable Federal and state
securities laws as now in force or hereafter amended; or
(ii) Counsel for the Company shall have given an
opinion that such shares are exempt from registration under
Federal and state securities laws as now in force or
hereafter amended; and the Company has complied with all
applicable laws and regulations with respect thereto,
including without limitation all regulations required by any
stock exchange upon which the Company's outstanding Common
Stock is then listed.
B. If in the opinion of legal counsel for the Company
the issuance or sale of any shares of Common Stock pursuant
to the exercise of an Option would not be lawful for any
reason, including without limitation the inability of the
Company to obtain from any governmental authority or
regulatory body having jurisdiction the authority deemed by
such counsel to be necessary to such issuance or sale, the
Company shall not be obligated to issue or sell any shares of
Common Stock pursuant to the exercise of an Option to an
optionee or any other authorized person unless a registration
statement that complies with the provisions of the Act in
respect of such shares of Common Stock is in effect at the
time thereof, or other appropriate action has been taken
under and pursuant to the terms and provisions of the Act, or
the Company receives evidence satisfactory to such counsel
that the issuance and sale of such shares of Common Stock, in
the absence of an effective registration statement or other
appropriate action, would not constitute a violation of the
Act or any applicable state securities law. The Company is
in no event obligated to register any such shares of Common
Stock, to comply with any exemption from registration
requirements or to take any other action which may be
required in order to permit, or to remedy or remove any
prohibition or limitation on, the issuance or sale of such
shares of Common Stock of any optionee or other authorized
person.
C. Government regulations may impose reporting or
other obligations on the Company with respect to the Plan.
For example, the Company may be required to send tax
information statements to employees and former employees that
exercise ISOs under the Plan, and the Company may be required
to file tax information returns reporting the income received
by grantees of Stock Rights in connection with the Plan.
D. If requested by the Company, an optionee shall
deliver to the Company written representations and warranties
upon exercise of the Option that are necessary to show
compliance with Federal and state securities laws, including
representations and warranties to the effect that a purchase
of shares under an Option granted pursuant to this Plan is
made for investment and not with a view to their distribution
(as that term is used in the Act.)
9. Compliance with Regulations. It is the Company's
intent that the Plan comply in all respects with Section 162(m)
of the Code and Rule 16b-3 under the Securities Exchange Act of
1934 (or any successor or amended version thereof) and any
applicable Securities and Exchange Commission interpretations
thereof ("Rule 16b-3"). If any provision of this Plan is deemed
not to be in compliance with Rule 16b-3, the provision shall be
null and void.
10. Governing Law; Construction. The validity and
construction of the Plan and the instruments evidencing Stock
Rights shall be governed by the laws of the Commonwealth of
Massachusetts, or the laws of any jurisdiction in which the
Company or its successors in interest may be organized. In
construing this Plan, the singular shall include the plural and
the masculine gender shall include the feminine and neuter,
unless the context otherwise requires.
11. Adjustments. Upon the occurrence of any of the
following events, an optionee's rights with respect to Options
granted to him shall be adjusted as hereinafter provided, unless
otherwise specifically provided in the written agreement between
the optionee and the Company relating to such Option:
A. Stock Dividends and Stock Splits. If the shares of
Common Stock shall be subdivided or combined into a greater
or smaller number of shares or if the Company shall issue any
shares of Common Stock as a stock dividend on its outstanding
Common Stock, the number of shares of Common Stock
deliverable upon the exercise of outstanding Options, as well
as any Non-Qualified Options to be granted under Part II,
shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in
the purchase price per share to reflect such subdivision,
combination or stock dividend.
B. Consolidations or Mergers. If the Company is to be
consolidated with or acquired by another entity in a merger,
sale of all or substantially all of the Company's assets or
otherwise (an "Acquisition"), the Committee or the board of
directors of any entity assuming the obligations of the
Company hereunder (the "Successor Board"), shall, as to
outstanding Options granted pursuant to the Plan, either
(i) make appropriate provision for the continuation of such
Options by substituting on an equitable basis for the shares
then subject to such Options the consideration payable with
respect to the outstanding shares of Common Stock in
connection with the Acquisition; or (ii) upon written notice
to the optionees, provide that all Options granted must be
exercised, to the extent then exercisable, within a specified
number of days of the date of such notice, at the end of
which period the Options shall terminate; or (iii) terminate
all Options granted in exchange for a cash payment equal to
the excess of the fair market value of the shares subject to
such Options (to the extent then exercisable) over the
exercise price thereof.
C. Recapitalization or Reorganization. In the event
of a recapitalization or reorganization of the Company (other
than a transaction described in subparagraph B above)
pursuant to which securities of the Company or of another
corporation are issued with respect to the outstanding shares
of Common Stock, an optionee upon exercising an Option shall
be entitled to receive for the purchase price paid upon such
exercise the securities he would have received if he had
exercised his Option prior to such recapitalization or
reorganization.
D. Modification of ISOs. Notwithstanding the
foregoing, any adjustments made pursuant to subparagraphs A,
B or C with respect to ISOs shall be made only after the
Committee, after consulting with counsel for the Company,
determines whether such adjustments would constitute a
"modification" of such ISOs (as that term is defined in
Section 424 of the Code) or would cause any adverse tax
consequences for the holders of such ISOs. If the Committee
determines that such adjustments made with respect to ISOs
would constitute a modification of such ISOs or would cause
adverse tax consequences to the holders, it may refrain from
making such adjustments.
E. Dissolution or Liquidation. In the event of the
proposed dissolution or liquidation of the Company, each
Option granted pursuant to this Plan will terminate
immediately prior to the consummation of such proposed action
or at such other time and subject to such other conditions as
shall be determined by the Committee.
F. Issuances of Securities. Except as expressly
provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of
stock of any class, shall affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of
shares subject to Options. No adjustments shall be made for
dividends paid in cash or in property other than securities
of the Company.
G. Fractional Shares. No fractional shares shall be
issued under the Plan and the optionee shall receive from the
Company cash in lieu of such fractional shares.
H. Adjustments. Upon the happening of any of the
events described in subparagraphs A, B or C above, the class
and aggregate number of shares set forth in paragraph 4
hereof that are subject to Stock Rights which previously have
been or subsequently may be granted shall also be
appropriately adjusted to reflect the events described in
such subparagraphs.
12. Term and Amendment of Plan. This Plan was initially
adopted by the Board on September 14, 1995 and approved by the
Stockholders of the Company on November 3, 1995, and amended and
restated by the Board on July 8, 1997 subject, with respect to
the validation of ISOs granted under the Plan, to approval of the
Plan by the stockholders of the Company at the next Annual
Meeting (or Special Meeting in Lieu of Annual Meeting) of
Stockholders. The Plan was further amended by the Board on
September __, 1998. The Plan shall expire at the end of the day
on September 13, 2005 (except as to Options outstanding on that
date). The Board may terminate or amend the Plan in any respect
at any time, except that, without the affirmative vote of the
holders of a majority of the shares of Common Stock present in
person or by proxy and voting on such matter obtained within 12
months before or after the Board adopts a resolution authorizing
any of the following actions: (a) the total number of shares
that may be issued under the Plan may not be increased (except by
adjustment pursuant to paragraph 11); (b) the benefits accruing
to participants under the Plan may not be materially increased;
(c) the requirements as to eligibility for participation in the
Plan may not be materially modified; (d) the provisions of
paragraph 3 regarding eligibility for grants of ISOs may not be
modified; (e) the provisions of paragraph 14 regarding the
exercise price at which shares may be offered pursuant to ISOs
may not be modified (except by adjustment pursuant to
paragraph 11); (f) the expiration date of the Plan may not be
extended; and (g) the Board may not take any action which would
cause the Plan to fail to comply with Rule 16b-3. Except as
otherwise provided in this paragraph 12, in no event may action
of the Board or stockholders alter or impair the rights of a
grantee, without his consent, under any Stock Right previously
granted to him.
13. Non-Formula Grant of Stock Rights.
Stock Rights may be granted at any time prior to September
14, 2005. The date of grant of a Stock Right will be the date
specified by the Committee at the time it grants the Stock Right;
provided, however, that such date shall not be prior to the date
on which the Committee acts to approve the grant.
14. Minimum Option Price; ISO Limitations.
A. Price for Non-Qualified Options. Subject to
paragraph 2D, the exercise price per share specified in the
agreement relating to each Non-Qualified Option shall in no
event be less than the minimum legal consideration required
therefor under the laws of the Commonwealth of Massachusetts
or the laws of any jurisdiction in which the Company or its
successors in interest may be organized.
B. Price for ISOs. The exercise price per share
specified in the agreement relating to each ISO granted under
the Plan shall not be less than the fair market value per
share of Common Stock on the date of such grant. In the case
of an ISO to be granted to an employee owning stock
possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or any
Related Corporation, the price per share specified in the
agreement relating to such ISO shall not be less than one
hundred ten percent (110%) of the fair market value per share
of Common Stock on the date of grant. For purposes of
determining stock ownership under this paragraph, the rules
of Section 424(d) of the Code shall apply.
C. $100,000 Annual Limitation on ISO Vesting. Each
eligible employee may be granted Options treated as ISOs only
to the extent that, in the aggregate under this Plan and all
incentive stock option plans of the Company and any Related
Corporation, ISOs do not become exercisable for the first
time by such employee during any calendar year with respect
to stock having a fair market value (determined at the time
the ISOs were granted) in excess of $100,000. The Company
intends to designate any Options granted in excess of such
limitation as Non-Qualified Options.
D. Determination of Fair Market Value. If, at the
time an Option is granted under the Plan, the Company's
Common Stock is publicly traded, "fair market value" shall be
determined as of the last business day for which the prices
or quotes discussed in this sentence are available prior to
the date such Option is granted and shall mean (i) the
average (on that date) of the high and low prices of the
Common Stock on the principal national securities exchange on
which the Common Stock is traded, if the Common Stock is then
traded on a national securities exchange; or (ii) the last
reported sale price (on that date) of the Common Stock on the
Nasdaq National Market, if the Common Stock is not then
traded on a national securities exchange; or (iii) the
closing bid price (or average of bid prices) last quoted (on
that date) by an established quotation service for over-the-
counter securities, if the Common Stock is not reported on
the Nasdaq National Market. However, if the Common Stock is
not publicly traded at the time an Option is granted under
the Plan, "fair market value" shall be deemed to be the fair
value of the Common Stock as determined by the Committee
after taking into consideration all factors which it deems
appropriate, including, without limitation, recent sale and
offer prices of the Common Stock in private transactions
negotiated at arm's length.
15. Option Duration. Subject to earlier termination as
provided in paragraphs 17 and 18, each Option shall expire on the
date specified by the Committee, but not more than (i) eight
years from the date of grant in the case of Options generally and
(ii) five years from the date of grant in the case of ISOs
granted to an employee owning stock possessing more than ten
percent (10%) of the total combined voting power of all classes
of stock of the Company or any Related Corporation, as determined
under paragraph 14B. Subject to earlier termination as provided
in paragraphs 17 and 18, the term of each ISO shall be the term
set forth in the original instrument granting such ISO, except
with respect to any part of such ISO that is converted into a Non-
Qualified Option pursuant to paragraph 21.
16. Exercise of Option. Subject to the provisions of
paragraphs 17 through 21, each Option shall be exercisable as
follows:
A. Vesting. The Option shall either be fully
exercisable on the date of grant or shall become exercisable
thereafter in such installments as the Committee may specify.
B. Full Vesting of Installments. Once an installment
becomes exercisable it shall remain exercisable until
expiration or termination of the Option, unless otherwise
specified by the Committee.
C. Partial Exercise. Each Option or installment may
be exercised at any time or from time to time, in whole or in
part, for up to the total number of shares with respect to
which it is then exercisable.
D. Acceleration of Vesting. The Committee shall have
the right to accelerate the date of exercise of any
installment of any Option; provided that the Committee shall
not, without the consent of an optionee, accelerate the
exercise date of any installment of any Option granted to any
employee as an ISO (and not previously converted into a Non-
Qualified Option pursuant to paragraph 21) if such
acceleration would violate the annual vesting limitation
contained in Section 422(d) of the Code, as described in
paragraph 14C.
17. Termination of Employment. If an ISO optionee
ceases to be employed by the Company and all Related Corporations
other than by reason of death or disability as defined in
paragraph 18, no further installments of his ISOs shall become
exercisable, and his ISOs shall terminate after the passage of
sixty (60) days from the date of termination of his employment,
but in no event later than on their specified expiration dates,
except to the extent that such ISOs (or unexercised installments
thereof) have been converted into Non-Qualified Options pursuant
to paragraph 21. For purposes of this paragraph 17, employment
shall be considered as continuing uninterrupted during any bona
fide leave of absence (such as those attributable to illness,
military obligations or governmental service) provided that the
period of such leave does not exceed 90 days or, if longer, any
period during which such optionee's right to reemployment is
guaranteed by statute or contract. A bona fide leave of absence
with the written approval of the Committee shall not be
considered an interruption of employment under this paragraph 17,
provided that such written approval contractually obligates the
Company or any Related Corporation to continue the employment of
the optionee after the approved period of absence. ISOs granted
under the Plan shall not be affected by any change of employment
within or among the Company and Related Corporations, so long as
the optionee continues to be an employee of the Company or any
Related Corporation. Nothing in the Plan shall be deemed to give
any grantee of any Stock Right the right to be retained in
employment or other service by the Company or any Related
Corporation for any period of time.
18. Death; Disability.
A. Death. If an ISO optionee ceases to be employed by
the Company and all Related Corporations by reason of his
death, any ISO of his may be exercised, to the extent of the
number of shares with respect to which he could have
exercised it on the date of his death, by his estate,
personal representative or beneficiary who has acquired the
ISO by will or by the laws of descent and distribution, at
any time prior to the earlier of the specified expiration
date of the ISO or 180 days from the date of the optionee's
death.
B. Disability. If an ISO optionee ceases to be
employed by the Company and all Related Corporations by
reason of his disability, he shall have the right to exercise
any ISO held by him on the date of termination of employment,
to the extent of the number of shares with respect to which
he could have exercised it on that date, at any time prior to
the earlier of the specified expiration date of the ISO or
180 days from the date of the termination of the optionee's
employment. For the purposes of the Plan, the term
"disability" shall mean "permanent and total disability" as
defined in Section 22(e)(3) of the Code or any successor
statute.
19. Transferability and Assignability. Except as set forth
below, (i) no Stock Right shall be assignable or transferable by
an optionee except by will or by the laws of descent and
distribution; and (ii) during the lifetime of the optionee each
Stock Right shall be exercisable only by him. Notwithstanding
the foregoing, the Committee may, in its discretion, authorize
all or a portion of any Non-Qualified Option to be transferable
by the optionee to (i) the spouse, children or grandchildren of
the optionee ("Immediate Family Members"), (ii) a trust or trusts
for the exclusive benefit of such Immediate Family Members, or
(iii) a partnership of which such Immediate Family Members are
the only partners, provided that (x) only the Committee may in
its discretion permit transfers to other persons or entities, (y)
the stock option agreement pursuant to which the Non-Qualified
Option is granted must be approved by the Committee, and must
expressly provide for transferability at the date of grant in a
manner consistent with the Plan, and (z) subsequent transfers of
the transferred Non-Qualified Option shall be prohibited except
in accordance with this paragraph. Following any such transfer,
the Non-Qualified Option shall continue to be subject to the same
terms and conditions as were applicable immediately prior to
transfer, provided that for purposes of paragraph 11, hereof, the
term "optionee" shall be deemed to refer to the transferee. The
events of termination of Business Relationship set forth in the
grantee's option agreement shall continue to be applied with
respect to the original optionee, following which the Non-
Qualified Option shall be exercisable by the transferee only to
the extent, and for the periods specified therein.
20. Terms and Conditions of Options. Options shall be
evidenced by instruments (which need not be identical) in such
forms as the Committee may from time to time approve. Such
instruments shall conform to the terms and conditions set forth
in paragraphs 14 through 19 hereof and may contain such other
provisions as the Committee deems advisable which are not
inconsistent with the Plan, including restrictions applicable to
shares of Common Stock issuable upon exercise of Options. The
Committee may specify that any Non-Qualified Option shall be
subject to the restrictions set forth herein with respect to
ISOs, or to such other termination and cancellation provisions as
the Committee may determine. The Committee may from time to time
confer authority and responsibility on one or more of its own
members and/or one or more officers of the Company to execute and
deliver such instruments. The proper officers of the Company are
authorized and directed to take any and all action necessary or
advisable from time to time to carry out the terms of such
instruments.
21. Conversion of ISOs into Non-Qualified Options.
The Committee, at the written request or with the written consent
of any optionee, may in its discretion take such actions as may
be necessary to convert such optionee's ISOs (or any installments
or portions of installments thereof) that have not been exercised
on the date of conversion into Non-Qualified Options at any time
prior to the expiration of such ISOs, regardless of whether the
optionee is an employee of the Company or a Related Corporation
at the time of such conversion. Such actions may include, but
shall not be limited to, extending the exercise period or
reducing the exercise price of the appropriate installments of
such ISOs. At the time of such conversion, the Committee (with
the consent of the optionee) may impose such conditions on the
exercise of the resulting Non-Qualified Options as the Committee
in its discretion may determine, provided that such conditions
shall not be inconsistent with this Plan. Nothing in this Part I
shall be deemed to give any optionee the right to have such
optionee's ISOs converted into Non-Qualified Options, and no such
conversion shall occur until and unless the Committee takes
appropriate action.
22. Notice to Company of Disqualifying Disposition. By
accepting an ISO, each optionee agrees to notify the Company in
writing immediately after he makes a Disqualifying Disposition
(as described in Sections 421, 422 and 424 of the Code and
regulations thereunder) of any stock acquired pursuant to the
exercise of ISOs granted under this Part I. A Disqualifying
Disposition is generally any disposition occurring within
two years of the date the ISO was granted or within one year of
the date the ISO was exercised, whichever period ends later.
EXHIBIT 13.1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
PAREXEL International Corporation (the "Company") is a
leading contract research and medical marketing services
organization providing a broad range of knowledge-based
product development and product launch services to the
worldwide pharmaceutical, biotechnology, and medical device
industries. The Company's primary objective is to help
clients quickly obtain the necessary regulatory approvals of
their products and, ultimately, optimize the market
penetration of those products. The Company's service
offerings include: clinical trials management, data
management, biostatistical analysis, medical marketing,
clinical pharmacology, regulatory and medical consulting,
performance improvement, industry training and publishing,
and other drug development consulting services. Founded in
1983, the Company has built its business through internal
expansion and acquisitions.
The Company's contracts are typically fixed price, multi-
year contracts that usually require a portion of the fee to
be paid at the time the contract is entered into and the
balance of the fee paid in installments during the
contract's duration. Net revenue from contracts is
generally recognized on a percentage-of-completion basis as
work is performed. Most of the Company's contracts are
terminable upon 60 to 90 days' notice by the client.
Clients terminate or delay contracts for a variety of
reasons, including, among others, the failure of products
being tested to satisfy safety requirements, unexpected or
undesired clinical results of the product, the client's
decision to forego a particular study, insufficient patient
enrollment or investigator recruitment, or production
problems resulting in shortages of the drug.
As is customary in the industry, the Company routinely
subcontracts with third party investigators in connection
with clinical trials and other third party service providers
for laboratory analysis and other specialized services.
These and other reimbursable costs, which vary from contract
to contract, are paid by the client. The Company recognizes
net revenue from its contracts, which excludes reimbursed
costs, on a percentage-of-completion basis as work is
performed. The Company views net revenue as its primary
measure of revenue growth.
Direct costs primarily consist of compensation and related
fringe benefits for project-related employees, other project-
related costs not reimbursed by the client, and allocated
facilities and information systems costs. Selling, general
and administrative expenses primarily 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.
Global Operations
The following table presents net revenue and the percentage
of total net revenue by geographic region for the three
years ended
June 30, 1998:
($ in thousands)1998% of Total 1997 % of Total 1996% of Total
North America$175,045 61% $ 118,525 58%$ 64,605 52%
Europe 106,619 37% 81,984 40% 59,455 47%
Asia/Pacific 3,778 2% 3,167 2% 993 1%
Total $285,442 100% $203,676 100%$125,053 100%
The Company's foreign subsidiaries generally enter into
contracts denominated in the local currency of the foreign
subsidiary. Because expenses of the foreign subsidiaries
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 the
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 that 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 results of operations may be affected by changes
in the tax rates of the various jurisdictions in which it
conducts such operations. In particular, from period to
period, 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.
Results of Operations
Impact of Acquisition-related and Other Charges
In December 1997, the Company acquired Kemper-Masterson,
Inc. ("KMI"); and in March 1998, the Company acquired, in
separate transactions, PPS Europe Limited ("PPS"), Genesis
Pharma Strategies Limited ("Genesis"), MIRAI B.V. ("MIRAI"),
and LOGOS GmbH ("LOGOS") in business combinations accounted
for as poolings of interests. The Company's historical
consolidated financial statements have been restated to
include the financial position and results of operations of
KMI, PPS, and MIRAI for all periods prior to the
acquisitions. As described in Note 3 and Note 6 to the
Consolidated Financial Statements, the Company's results of
operations for the year ended June 30, 1998, were
significantly impacted by certain acquisition-related and
other charges.
These charges included a $4.1 million charge and a $6.2
million charge recorded in the second and third fiscal
quarters of 1998, respectively, for legal, accounting, and
other transaction-related fees pertaining to the
acquisitions, noncash compensation expense related to
employee stock options previously granted by KMI and PPS,
and an accelerated compensation payment to a PPS executive
pursuant to a pre-existing employment agreement.
In addition to these transaction-related costs, the Company
also recorded a $1.6 million provision to increase the
allowance for doubtful accounts of PPS and MIRAI to conform
to the Company's policy and a $1.7 million charge resulting
from a change in estimate of the remaining service lives of
certain computer equipment arising from integration
activities and a company-wide program to upgrade and
standardize the Company's information technology platform.
The following table represents the effect of such charges:
For the years ended June 30,
As ReportedAcquisition Charges
Proforma As Reported
($ in thousands) 1998 1998 1998 1997 1996
Net revenue $285,442$ $- 285,442 $203,676 $125,053
Costs and expenses:
Direct costs 185,718 - 185,718 135,048 81,883
Selling, general 61,036 (1,610) 59,426 43,799 28,499
and administrative
Depreciation and
amortization 15,114 (1,684) 13,430 7,710 4,280
Acquisition-related
charges 10,273 (10,273) - - -
Income from operations $ 13,301 $(13,567)$ 26,868 $ 17,119 $ 10,391
Income from operations as 4.7% - 9.4% 8.4% 8.3%
Net income $ 9,319 $ (10,178)$ 19,497 $12,803 $ 6,655
Diluted earnings per share 0.38 $ (0.41) $ 0.79 $ 0.56 $ 0.39
Fiscal Year Ended June 30, 1998,
Compared to Fiscal Year Ended June 30, 1997
Net revenue increased by $81.8 million, or 40.1%, from
$203.7 million for fiscal 1997 to $285.4 million for fiscal
1998. For fiscal 1998, net revenue from North American,
European, and Asian operations increased by $56.5 million,
$24.6 million, and $0.6 million, respectively, over the
prior year. These increases were primarily attributable to
additional offerings in the Company's clinical research and
medical marketing services and the initiation of services
under contracts awarded subsequent to July 1, 1997. There
can be no assurance that the Company can sustain this rate
of increase in net revenue from continuing operations in
future periods. See "Risk Factors" in the Company's Annual
Report on Form 10K for the fiscal year ended June 30, 1998.
Direct costs increased by $50.7 million, or 37.5%, from
$135.0 million for fiscal 1997 to $185.7 million for fiscal
1998. This increase in direct costs was due to the increase
in the number of project-related personnel, hiring expenses,
facilities, and information system costs necessary to
support the increased level of operations. Direct costs as
a percentage of net revenue decreased from 66.3% in 1997 to
65.1% in fiscal 1998.
Selling, general and administrative expenses increased by
$17.2 million, from $43.8 million for fiscal 1997 to $61.0
million for fiscal 1998. This increase was due to increased
selling and administrative personnel, hiring, and facilities
costs, in line with increasing infrastructure to accommodate
the Company's growth, and a noncash charge of $1.6 million
recorded to increase the allowance for doubtful accounts of
recently acquired businesses to conform reserve estimates to
the Company's policies. Excluding this $1.6 million
adjustment, selling, general and administrative expenses
were $59.4 million, an increase of 35.7% over the prior
year. As a percentage of net revenue, selling, general and
administrative expenses excluding the $1.6 million charge
decreased from 21.5% for fiscal 1997 to 20.8% for fiscal
1998.
Depreciation and amortization expense increased by $7.4
million, from $7.7 million for fiscal 1997, to $15.1 million
for fiscal 1998. The increase was due to increased capital
spending on computer equipment and facilities to support the
increase in project-related personnel and a $1.7 million
noncash charge to reflect a reduction
in expected service lives of certain computer equipment as a
result of integration activities of acquired businesses and
the Company's program to upgrade and standardize its
information technology platform. Excluding this charge,
depreciation and amortization expense was $13.4 million, an
increase of $5.7 million, or 74.2%, over the prior year.
Income from operations for fiscal 1998 includes acquisition-
related charges of $10.3 million incurred during the second
and third quarters of fiscal 1998 as well as the $1.6
million charge to selling, general and administrative
expenses to increase the allowance for doubtful accounts of
acquired businesses (see Note 3 to the Consolidated
Financial Statements) and a $1.7 million charge to
depreciation incurred in the third quarter of fiscal 1998 to
reflect the change in useful lives of computer equipment.
Excluding the impact of all of these nonrecurring charges,
income from operations increased $9.7 million, or 56.9%,
from $17.1 million (or 8.4% of net revenue) for fiscal 1997
to $26.9 million (or 9.4% of net revenue) for fiscal 1998.
Interest income decreased by $0.5 million from $4.0 million
for fiscal 1997 to $3.5 million for fiscal 1998 primarily
due to a lower average balance of marketable securities and
the transition to tax-exempt securities, which have slightly
lower yields.
The Company's effective tax rate was 45.2% for fiscal 1998.
Excluding the effect of certain nondeductible permanent
acquisition-related charges, the effective income tax rate
for fiscal 1998, would have been 36.2% compared to 39.4% for
fiscal 1997. This decrease was due to changes in the mix of
taxable income from the different jurisdictions in which the
Company operates and the impact of tax-exempt interest
income from securities held by the Company.
Fiscal Year Ended June 30, 1997,
Compared to Fiscal Year Ended June 30, 1996
Net revenue increased by $78.6 million, or 62.9%, from
$125.1 million for fiscal 1996 to $203.7 million for fiscal
1997. This net revenue growth was primarily attributable to
an increase in the volume and average contract value of
contract services provided by the Company and initiation of
services under contracts awarded subsequent to July 1, 1996.
In fiscal 1997, net revenue from North American, European,
and Asian operations increased $53.9 million, $22.5 million,
and $2.2 million, respectively, over the prior year.
Direct costs increased by $53.2 million, or 64.9%, from
$81.9 million for fiscal 1996 to $135.0 million for fiscal
1997. 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. As a percentage
of net revenue, direct costs increased from 65.5% in fiscal
1996 to 66.3% in fiscal 1997.
Selling, general and administrative expenses increased by
$15.3 million, or 53.7%, from $28.5 million for fiscal 1996
to $43.8 million for fiscal 1997. This increase was due to
increased selling and administrative personnel hiring and
facilities costs, as a result of increasing infrastructure
to accommodate the Company's growth. As a percentage of net
revenue, selling, general and administrative expenses
decreased from 22.8% in fiscal 1996 to 21.5% in fiscal 1997.
Depreciation and amortization expense increased by $3.4
million, from $4.3 million for fiscal 1996 to $7.7 million
for fiscal 1997. This increase was primarily due to
increased capital spending on computer equipment and
facilities to support the increase in project-related
personnel required to support the increased level of
operations.
Income from operations increased $6.7 million, or 64.7%,
from $10.4 million for fiscal 1996 to $17.1 million for
fiscal 1997. As a percentage of net revenue, income from
operations increased to 8.4% for fiscal 1997, from 8.3% for
fiscal 1996.
Interest income increased $2.4 million in fiscal 1997 as a
result of higher average balances of cash and investments.
This increase was due to proceeds from the Company's public
offerings in 1996 and 1997 and cash generated from
operations.
The Company's effective income tax rate decreased from 40.5%
in fiscal 1996 to 39.4% in fiscal 1997. This decrease was
attributable to changes in the mix of taxable income from
the different geographic jurisdictions that the Company
operated in fiscal 1997 compared to fiscal 1996.
Liquidity and Capital Resources
Since its inception, the Company has financed its operations
and growth, including acquisition costs, with cash flows
from operations and the proceeds from the sale of equity
securities. Investing activities primarily reflect capital
expenditures for information systems enhancements and
leasehold improvements.
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 consist 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, usually on a milestone-achievement
basis. Revenue from contracts is 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 operating cash flow is influenced by changes
in the levels of billed and unbilled receivables and advance
billings. These account balances and the number of days
revenue outstanding in accounts receivable, net of advance
billings, can vary based on contractual milestones and the
timing and size of cash receipts. The number of days
revenue outstanding in accounts receivable, net of advance
billings, was 54 days at June 30, 1998, compared to 42 days
at June 30, 1997. This increase in days revenue outstanding
was primarily due to the timing of certain project milestone
billings and related payments, and a decrease in advance
billings. Accounts receivable, net of the allowance for
doubtful accounts, increased from $82.8 million at June 30,
1997, to $109.7 million at June 30, 1998. Advance billings
decreased from $46.2 million at June 30, 1997, to $45.3
million at June 30, 1998.
During fiscal 1998, unrestricted cash and cash equivalents
increased by $2.5 million as a result of $1.0 million and
$2.6 million in cash provided by investing activities and
financing activities, respectively, and a $0.7 million
adjustment for the elimination of net cash activities of
acquired companies for duplicated periods offset by $0.7
million of cash used in operating activities and a $1.1
million unfavorable effect of exchange rate changes. Net
cash used by operating activities of $0.7 million resulted
from net income excluding noncash expenses of $29.2 million,
a decrease in restricted cash of $1.2 million, and increases
in accounts payable and other current liabilities of $0.5
million and $5.0 million, respectively, offset by increases
in accounts receivable, prepaid expenses and other current
assets, and other assets of $26.8 million, $7.3 million, and
$1.6 million, respectively, and a decrease in advance
billings of $0.9 million. Net cash provided by investing
activities of $1.0 million consisted primarily of net
proceeds from sales of marketable securities of $30.1
million, partially offset by capital expenditures of $27.7
million related to facility expansions and investments in
information technology. The Company expects to continue to
make significant investments in facility expansion and
investments in information systems technology. Financing
activities consisted primarily of net proceeds from the
issuance of common stock of $4.9 million, partially offset
by repayments on lines of credit of $0.9 million and by
dividends of $1.3 million paid by acquired companies prior
to acquisition.
The Company has domestic and foreign lines of credit with
banks totaling approximately $14.8 million, and a capital
lease line of credit with a U.S. bank for $2.4 million. At
June 30, 1998, the Company had approximately $15.4 million
in available credit under these arrangements.
The Company's primary short-term and long-term cash needs
are for the payment of salaries and fringe benefits, hiring
and recruiting expenses, business development costs, capital
expenditures, and facility-related expenses. The Company
believes that its existing capital resources together with
cash flows from operations and borrowing capacity under
existing lines of credit will be sufficient to meet its
foreseeable cash needs. In the future, the Company will
consider acquiring businesses to enhance its service
offerings, therapeutic base, and global presence. Any such
acquisitions may require additional external financing, and
the Company may from time to time seek to obtain funds from
public or private issuances of equity or debt securities.
There can be no assurance that such financing will be
available on terms acceptable to the Company.
The statements included in Management's Discussion and
Analysis of Financial Condition and Results of Operations
include forward-looking statements which involve risks and
uncertainties. The Company's actual experience may differ
materially from that discussed above. Factors that might
cause such a difference include, but are not limited to, the
loss or delay of large contracts, the Company's dependence
on certain industries and clients and government regulation
of such industries and clients, competition or consolidation
within the industry, as well as those discussed in "Risk
Factors" and in the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1998.
Inflation
The Company believes the effects of inflation generally do
not have a material adverse impact on its operations or
financial condition.
Year 2000
Information systems are an integral part of the services the
Company provides. As such, the Company recognizes that it
must ensure that its service and operations will not be
adversely affected by Year 2000 software and equipment
failures (the "Year 2000 Issue"), which can arise from the
use of date-dependent systems that utilize only two digits
to represent the year applicable to a transaction; for
example, "98" to represent "1998" rather than the full four
digits. Computer systems so engineered may not operate
properly when the last two digits of the year become "00" as
will occur on January 1, 2000.
The Company has initiated a four-phase program, led by its
Chief Information Officer and a global, cross-functional
team, to assess and remediate the effect of the Year 2000
Issue on the Company's operations. As part of this program,
the Company is contacting its clients, principal suppliers,
and other vendors to assess whether their Year 2000 Issues,
if any, will affect the Company. This Company-wide effort
began in 1997; and many Year 2000 dependencies have already
been identified and addressed through planned systems and
infrastructure evolution, replacement, or elimination. The
continuing program described below is to assure that the
Company identifies and addresses all remaining Year 2000
systems and dependencies well in advance of the millennium
change.
The first phase of the program, conducting an inventory of
all systems and dependencies that may be affected by the
Year 2000 Issue, is substantially complete. The second
phase of the program, the assessment and categorization of
all the inventoried systems and dependencies by level of
priority reflecting their potential impact on business
continuation, is underway. Based on this prioritization,
the third phase will be to develop detailed plans to address
each Year 2000 Issue and a general contingency plan in the
event that any noncompliant critical systems remain by
January 1, 2000.
While the Company has not yet completed its full assessment
of the scope of the Year 2000 Issue facing its systems and
dependencies, based on our analysis to date, we do not
believe that the costs to be incurred will be material.
However, until the full analysis is complete, the Company is
unable to provide assurance whether or not future costs will
be material. Furthermore, as noted above, the Company is
contacting its principal clients, suppliers, and other
vendors concerning the state of their Year 2000 compliance.
Until that effort is completed, the Company cannot be
assured that those other systems are or will be Year 2000
compliant and is unable to estimate at this time the impact
on the Company if one or more of those systems is not Year
2000 compliant. For the foregoing reasons, the Company is
not able to provide assurance at this time whether the Year
2000 Issues will materially affect its future financial
results or financial condition.
Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings per Share," which replaced
primary and fully diluted earnings per share with basic and
diluted earnings per share. The Company adopted SFAS No.
128 in the second quarter of fiscal 1998 and restated all
previously reported earnings per share data.
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income," and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS
No. 130 establishes standards for reporting and display of
comprehensive income and its components in the consolidated
financial statements. SFAS No. 131 establishes standards for
reporting information on operating segments in interim and
annual financial statements. Both statements are effective
for the Company in fiscal 1999. The adoption of the new
standards will not have an effect on the Company's financial
position or results of operations but will result in
additional disclosures.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This
statement establishes new standards for the recognition of
gains and losses on derivative instruments and provides
guidance as to whether a derivative may be accounted for as
a hedging instrument. Gain or loss from hedging
transactions may be wholly or partially recorded in earnings
or comprehensive income as part of a cumulative translation
adjustment, depending upon the classification of the hedge
transaction. Gain or loss on a derivative instrument not
classified as a hedging instrument is recognized in earnings
in the period of change. SFAS No. 133 will be effective for
the Company beginning in fiscal 2000. The Company does not
believe adoption of SFAS No. 133 will have a material impact
on its financial position or its results of operations.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended June 30,
($ in thousands, except per share data) 1998 1997 1996
Net revenue $285,442 $203,676 $125,053
Costs and expenses:
Direct costs 185,718 135,048 81,883
Selling, general and administrative 61,036 43,799 28,499
Depreciation and amortization 15,114 7,710 4,280
Acquisition-related charges (Note 3) 10,273 - -
272,141 186,557 114,662
Income from operations 13,301 17,119 10,391
Interest income 3,511 4,040 1,646
Interest expense (195) (278) (201)
Other income (expense), net 382 241 (654)
3,698 4,003 791
Income before provision for income taxes 16,999 21,122 11,182
Provision for income taxes 7,680 8,319 4,527
Net income $ 9,319 $ 12,803 $ 6,655
Earnings per share:
Basic $ 0.39 $ 0.59 $ 0.42
Diluted $ 0.38 $ 0.56 $ 0.39
Shares used in computing earnings per share:
Basic 23,939 21,628 15,801
Diluted 24,825 22,822 17,255
The accompanying notes are an integral part of the
consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
June 30,
($ in thousands, except share data) 1998 1997
Assets
Current assets:
Cash and cash equivalents:
Unrestricted $ 39,155 $ 36,626
Restricted 786 1,967
Marketable securities 37,479 67,713
Accounts receivable, net 109,741 82,827
Prepaid expenses 11,895 8,882
Other current assets 10,674 6,378
Total current assets 209,730 204,393
Property and equipment, net 45,311 33,508
Other assets 6,717 2,643
Total assets $261,758$240,544
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable and current portion $1,413 $ 2,236
of long-term debt
Accounts payable 10,923 10,425
Advance billings 45,273 46,170
Other current liabilities 33,184 31,565
Total current liabilities 90,793 90,396
Long-term debt 36 136
Other liabilities 2,549 2,564
Total liabilities 93,378
93,096
Commitments (Note 15)
Stockholders' equity:
Preferred stock - $.01 par value; shares authorized:
5,000,000; none issued and outstanding - -
Common stock - $.01 par value; shares authorized:
50,000,000 at June 30, 1998 and 1997; shares issued:
24,657,637 at June 30, 1998, and 24,021,082
at June 30, 1997;
shares outstanding: 24,628,225 at June 30, 1998,
and 23,991,670 at June 30, 1997 246 240
Additional paid-in capital 149,921 136,549
Retained earnings 20,120 11,585
Cumulative translation adjustment (1,907) (926)
Total stockholders' equity 168,380 147,448
Total liabilities and stockholders' $261,758 $240,544
equity
The accompanying notes are an integral part of the
consolidated financial statements.
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Convertible Common Retained Total
Preferred Stock Stock Additional Earnings Stock Cumulative Stock- Total
Number Issuance Number Par Paid-In (Accumulated Subscriptions Translation holders'
of shares Price,Netof SharesValueCapital Deficit) Receivable Adjustment Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
($ in thousands, except share data)
Balance at June 30, 1995 2,327,744 $ 23,683 4,955,139$51 $ 4,237 $ (6,162) $(157) $ 320 $ 21,972
Convertible preferred stock
issued upon exercise of
warrants 176,887 1,769 1,769
Proceeds from stock subscriptions
receivable 157 157
Conversion of preferred stock
into common upon initial
public offering (2,504,631)(25,452)8,956,016 88 25,364
Payments of accrued
preferred stock dividends (940)
(940)
Net proceeds from public
offerings 4,200,000 42 36,845 36,887
Shares issued under stock
option plans 625,620 6 405 411
Deferred compensation 337 337
Income tax benefit from
exercise of stock options 3,058 3,058
Acquisitions (Note 3) 161,636 2 144 (76) 70
Dividends paid by acquired
companies (657) (657)
Net unrealized gain on marketable
securities 44 44
Foreign currency translation 25 25
Net income 6,655 6,655
Balance at June 30, 1996 - - 18,898,411 189 70,390 (1,136) - 345 69,788
Net proceeds from public offering 2,516,300 25 57,161 57,186
Shares issued under stock option
and purchase plans 1,364,898 14 3,354 3,368
Deferred compensation 1,048 1,048
Income tax benefit from exercise
of stock options 4,527 4,527
Income tax benefit from
building acquisition 320 320
Acquisitions (Note 3) 1,217,841 12 30 1,231 1,273
Dividends paid by acquired
companies (1,293) (1,293)
Elimination of KMI's net activity
duplicated for the six months
ended December 31, 1996 (Note 3) (5,780) (281) (117) (398)
Net unrealized gain on marketable
securities 97 97
Foreign currency translation
(1,271) (1,271)
Net income 12,803 12,803
Balance at June 30, 1997 - 23,991,670 240 136,549 11,585 - (926) 147,448
Shares issued under stock option
and purchase plans 420,120 4 7,803 7,807
Deferred compensation 2,198 2,198
Income tax benefit from exercise
of stock options 2,400 2,400
Acquisitions (Note 3) 216,435 2 1,227 311 1,540
Acquisition costs reimbursed by
shareholders 300 300
Elimination of PPS and MIRAI net
activity duplicated for the six
months ended November 30 and
December 31, 1997, respectively (Note 3) (556) (1,040) (1,596)
Effect of change in fiscal year of
foreign operation 85 85
Net unrealized loss on marketable
securities (140) (140)
Foreign currency translation (981) (981)
Net income 9,319 9,319
Balance at June 30, 1998 - 24,628,225 $246 $149,921 $20,120 - (1,907) $168,380
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended June 30,
($ in thousands) 1998 1997 1996
Cash flows from operating activities:
Net income $ 9,319$ 12,803$ 6,655
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 15,114 7,710 4,280
Stock compensation charges of acquired companies 4,844 1,048 337
Change in assets and liabilities, net of effects from
acquisitions:
Restricted cash 1,181 168 (1,597)
Accounts receivable, net (26,829) (27,373) (23,625)
Prepaid expenses and other current assets (7,309) (2,068) (3,865)
Other assets (1,637) (192) (2,013)
Accounts payable 498 (834) 1,543
Advance billings (897) 13,456 16,731
Other current liabilities 5,022 16,590 8,480
Other liabilities (15) 699 987
Net cash provided (used) by operating activities (709) 22,007 7,913
Cash flows from investing activities:
Purchase of marketable securities (118,533)(118,698)(131,903)
Proceeds from sale of marketable securities 148,634 81,223 104,128
Purchase of property and equipment (27,736) (25,112) (7,461)
Other investing activities (1,377) 781 52
Net cash provided (used) by investing activities 988 (61,806) (35,184)
Cash flows from financing activities:
Proceeds from issuance of common stock 4,906 60,554 37,298
Proceeds from issuance of convertible preferred stock - - 1,769
Cash received from stock subscriptions - - 157
Net proceeds (repayments) under line of credit (866) 63 619
Net proceeds (repayments) of long-term debt (100) (3,464) (945)
Dividends paid (1,293) (1,293) (1,597)
Net cash provided by financing activities 2,647 55,860 37,301
Elimination of net cash activities of acquired companies
for duplicated periods 672 (21) -
Effect of exchange rate changes on unrestricted cash and
cash equivalents (1,069) (1,289) 349
Net increase in unrestricted 2,529 14,751 10,379
cash and cash equivalents
Unrestricted cash and cash equivalents 36,626 21,875 11,496
at beginning of year
Unrestricted cash and cash equivalents at end of year$39,155$ 36,626$ 21,875
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 188$ 283$ 267
Income taxes $ 4,730$ 1,909$ 3,038
Supplemental disclosure of noncash financing activities:
lease obligations
Property and equipment acquired under capital -$ 323$ 552
Income tax benefit from exercise of stock options$2,400 $ 4,527$ 3,058
Income tax benefit from building acquisition -$ 320 -
Common stock issued in connection with acquisitions$3,928 - -
The accompanying notes are an integral part of the
consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Description of Business
The Company is a leading contract research and medical
marketing services organization providing a broad range of
knowledge-based product development and product launch
services to the worldwide pharmaceutical, biotechnology, and
medical device industries. The Company has developed
expertise in such disciplines as: clinical trials
management, biostatistical analysis and data management,
medical marketing, clinical pharmacology, regulatory and
medical consulting, industry training and publishing, and
other drug development consulting services.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The consolidated financial statements include the accounts
of PAREXEL International Corporation and its wholly-owned
subsidiaries. All significant intercompany accounts and
transactions have been eliminated. In fiscal year 1998, the
Company's German subsidiary changed its fiscal year end from
May 31 to June 30 in order to conform to the Company's
fiscal year end. Results of operations for the month ended
June 30, 1998, were credited directly to Retained Earnings.
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
disclosures 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 that require the revisions become known. When the
revised estimate indicates a loss, such loss is provided in
the current period in its entirety. Unbilled accounts
receivable represents revenue recognized in excess of
amounts billed. Advance billings represents amounts billed
in excess of revenue recognized.
Cash, Cash Equivalents, Marketable Securities, and Financial
Instruments
The Company considers all highly liquid investments
purchased with original maturities of three months or less
to be cash equivalents. 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. Unrealized gains and 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 that 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. Approximately $4.9 million of
securities were subject to seven-day put options at June 30,
1998, and $2.7 million at June 30, 1997. The Company does
not hold derivative instruments for trading purposes.
The fair values of the Company's financial instruments are
not materially different from their carrying amounts at June
30, 1998 and 1997.
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. One customer accounted
for 12% of consolidated net revenue for fiscal 1998. No
single customer accounted for more than 10% of the Company's
consolidated net revenue in fiscal 1997 and 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 eight
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
expensed 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
for acquisitions accounted for under the purchase method.
Intangible assets are amortized using the straight-line
method over their expected useful lives ranging from five to
twenty years.
Intangible assets of $5.2 million and $2.5 million, included
in Other Assets, are net of accumulated amortization of $1.7
million and $1.3 million as of June 30, 1998 and 1997,
respectively. Amortization expense was $0.4 million, $0.3
million, and $0.3 million for the fiscal years ended June
30, 1998, 1997, and 1996, respectively.
Income Taxes
Deferred income tax assets and liabilities are recognized
for the expected future tax consequences, utilizing current
tax rates, of temporary differences between the carrying
amounts and the tax bases of assets and liabilities.
Deferred tax assets are recognized, net of any valuation
allowance, for the estimated future tax effects of
deductible temporary differences and tax operating loss and
credit carryforwards. Deferred income tax expense
represents the change in the net deferred tax asset and
liability balances.
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
during the year. Translation adjustments are accumulated in
a separate component of stockholders' equity. Realized
gains and losses recorded in the statements of operations
were not material for each period presented.
Earnings Per Share
Earnings per share has been calculated in accordance with
Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings per Share," which was adopted as required in
fiscal 1998. All previously reported earnings per share
data presented herein have been restated. Basic earnings
per share is calculated based on the weighted average number
of common shares outstanding during the period. Diluted
earnings per share is calculated based on the weighted
average number of common shares and dilutive common
equivalent shares assumed outstanding during the period.
Stock-Based Compensation
The Company accounts for employee stock awards using the
intrinsic value based method as prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees." Accordingly, no compensation expense
is recognized because the exercise price of the Company's
stock options was equal to the market price of the
underlying stock on the date of grant. The Company has
adopted the provisions of SFAS No. 123, "Accounting for
Stock-based Compensation," for disclosure only.
Recently Issued Accounting Standards
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income," and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS
No. 130 establishes standards for reporting and display of
comprehensive income and its components in the consolidated
financial statements.. SFAS No. 131 establishes standards
for reporting information on operating segments in interim
and annual financial statements. Both statements are
effective for the Company for fiscal 1999. The adoption of
the new standards will not have an effect on the Company's
financial position or results of operations but will result
in additional disclosures.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This
statement establishes new standards for the recognition of
gains and losses on derivative instruments and provides
guidance as to whether a derivative may be accounted for as
a hedging instrument. Gain or loss from hedging
transactions may be wholly or partially recorded in earnings
or comprehensive income as part of a cumulative translation
adjustment, depending upon the classification of the hedge
transaction. Gain or loss on a derivative instrument not
classified as a hedging instrument is recognized in earnings
in the period of change. SFAS No. 133 will be effective for
the Company beginning in fiscal 2000. The Company does not
believe adoption of SFAS No. 133 will have a material impact
on its financial position or its results of operations.
Note 3. Acquisitions
Fiscal 1998
In March 1998, the Company acquired, in separate
transactions, PPS Europe Limited ("PPS"), a leading medical
marketing firm based in the United Kingdom, and MIRAI B.V.
("MIRAI"), a full service, pan-European contract research
organization based in the Netherlands. The Company issued
2,774,813 shares of common stock in exchange for all of the
outstanding ordinary shares of PPS and 134,995 common stock
options in exchange for all of the outstanding ordinary
share options of PPS. The Company issued 682,345 shares of
common stock in exchange for all of the outstanding shares
of MIRAI. Both acquisitions were accounted for as poolings
of interests. The Company's historical consolidated
financial statements have been restated to include the
financial position and results of operations of PPS and
MIRAI for all periods prior to the acquisitions.
Due to the differing fiscal year ends of PPS (November 30)
and MIRAI (December 31), financial information for
dissimilar fiscal years has been combined with that of the
Company. The consolidated statements of operations of the
Company for fiscal 1997 and 1996 combine the Company's
results of operations for the years ended June 30, 1997 and
1996, with the results of operations of PPS and MIRAI for
their respective fiscal years ended November 30 and December
31, 1997 and 1996.
In March 1998, the Company changed the fiscal year end of
PPS from November 30 to May 31 and the fiscal year end of
MIRAI from December 31 to June 30. As such, the statement
of operations for
the fiscal year ended June 30, 1998, includes the results of
operations of PPS and MIRAI for the twelve months ended May
31 and June 30, 1998, respectively. As a result of
conforming fiscal year ends, the results of operations of
PPS and MIRAI for the six months ended November 30 and
December 31, 1997, respectively, are duplicated
in the combined statements of operations for fiscal 1997 and
1998. Therefore, net income and equity activity for one of
the duplicated periods were eliminated from stockholders'
equity.
The following represents the duplicated amounts included in
both
the results of operations for fiscal years 1997 and 1998:
($ in thousands)PPS MIRAI Total
Net revenue $13,205 $4,891$18,096
Operating income1,553 438 1,991
Net income 697 343 1,040
Also in March 1998 the Company acquired, in separate
transactions, Genesis Pharma Strategies Limited ("Genesis"),
a physician-focused marketing and clinical communications
firm servicing the international pharmaceutical industry,
and LOGOS GmbH ("LOGOS"), a provider of regulatory services
to pharmaceutical manufacturers. The Company issued a total
of 184,819 shares of common stock in exchange for all of the
outstanding shares of Genesis and LOGOS. Both acquisitions
were accounted for as poolings of interests. The historical
results of operations and financial position of Genesis and
LOGOS are not material, individually or in aggregate, to the
Company's historical financial statements. Therefore, prior
period amounts have not been restated and results of
operations of Genesis and LOGOS have been included in the
consolidated results since acquisition.
In December 1997, the Company acquired Kemper-Masterson,
Inc. ("KMI"), a leading regulatory consulting firm based in
Massachusetts, in a business combination accounted for as a
pooling of interests. The Company issued 581,817 shares of
common stock in exchange for all of the outstanding shares
of KMI. The Company's historical consolidated financial
statements have been restated to include the financial
position and results of operations of KMI for all periods
prior to the acquisition. In March 1998, the Company
changed the fiscal year of KMI from December 31 to June 30.
As a result of conforming dissimilar year ends, KMI's
results of operations for the six months ended December 31,
1996 (including revenue, operating income, and net income of
$5.0 million, $0.2 million, and $0.1 million respectively),
were duplicated in the consolidated statements of operations
for fiscal 1997 and 1996. Therefore, net income and equity
activity for one of the duplicated periods were eliminated
from stockholders' equity.
In connection with the acquisitions during fiscal 1998, the
Company incurred acquisition-related charges of $10.3
million consisting principally of noncash compensation
attributed to stock options of KMI and PPS, granted prior to
the acquisition by the Company, an accelerated compensation
payment to a PPS executive pursuant to a pre-existing
employment agreement, and legal, accounting, and other
transaction-related fees. In addition the Company recorded
a $1.6 million provision during fiscal 1998 which has been
reflected in selling, general and administrative expense in
the accompanying consolidated statement of operations to
increase the accounts receivable reserves of PPS and MIRAI
to conform reserve estimates with the Company policy.
Revenue and net income for the previously separate companies
are as follows:
For the six months For the years
ended December 31, ended June 30,
($ in thousands) 1997 1997 1996
Net revenue:
PAREXEL $106,363 $159,679 $ 88,006
KMI 6,523 10,676 9,355
PPS 13,205 24,881 18,522
MIRAI 4,891 8,440 9,170
$130,982 $203,676 $125,053
Net income:
PAREXEL $ 4,478 $ 10,848 $ 4,599
KMI 724 189 94
PPS 697 1,201 1,721
MIRAI 343 565 241
$ 6,242 $ 12,803 $ 6,655
In September 1997, the Company acquired substantially all of
the assets of Perceptive Systems, Inc., a Colorado
corporation doing business as Hayden Image Processing Group
("Hayden"), in exchange for 5,035 shares of the Company's
common stock. In addition, Hayden will receive three annual
contingent payments (not exceeding $0.2 million in
aggregate) of the Company's common stock, based on net
receipts generated by certain acquired assets. The
transaction was accounted for as a purchase.
Fiscal 1997
In February 1997, the Company acquired, in separate
transactions, RESCON, Inc., a medical marketing business
located in the Washington, D.C. area, and Sheffield
Statistical Services, Ltd.("S-Cubed"), a company located in
the United Kingdom that specializes in biostatistical
analysis. The Company issued a total of 209,537 shares of
common stock in exchange for all the outstanding shares of
RESCON and S-Cubed. In August 1996, the Company acquired,
in separate transactions, Lansal Clinical Pharmaceutics,
Limited ("Lansal"), a contract research organization located
in Israel, and State and Federal Associates, Inc. ("S&FA"),
a medical marketing business located in the Washington, D.C.
area. The Company issued 1,008,304 shares of common stock
in exchange for all of the outstanding shares of Lansal and
S&FA. These transactions were accounted for as poolings of
interests. The Company's financial statements were not
restated as the historical results of operations of the
acquired companies, individually or in aggregate, were not
material.
Fiscal 1996
In June 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 161,636 shares of common stock in exchange for all
of the outstanding shares of Sitebase and Caspard. These
transactions were accounted for as poolings of interests.
The Company's financial statements were not restated as the
historical results of operations of the acquired companies,
individually or in aggregate, were not material.
Note 4. Investments
Available-for-sale securities included in cash and cash
equivalents as of June 30, 1998 and 1997, consisted of the
following:
($ in thousands) 1998 1997
Money market $ 6,119 $ 988
Municipal securities 116 1,000
Repurchase agreements 17,785 20,210
$24,020 $22,198
Available-for-sale securities included in marketable
securities at June 30, 1998 and 1997, consisted of the
following:
($ in thousands) 1998 1997
Municipal securities $23,146 $ 3,788
Federal government securities 6,747 24,221
Corporate debt securities 7,586 39,704
$37,479 $67,713
Reflected at fair market value, which approximates amortized
cost. Unrealized gains and losses as of June 30, 1998 and
1997, were not material.
Note 5. Accounts Receivable
Accounts receivable at June 30, 1998 and 1997, consisted of
the
following:
($ in thousands) 1998 1997
Billed $ 63,255 $53,939
Unbilled 51,548 32,272
Allowance for doubtful accounts (5,062) (3,384)
$109,741 $82,827
Note 6. Property and Equipment
Property and equipment at June 30, 1998 and 1997, consisted
of the following:
($ in thousands) 1998 1997
Computer and office equipment $40,463 $29,855
Computer software 11,431 5,351
Furniture and fixtures 16,303 12,228
Leasehold improvements 5,278 2,311
Building 2,757 2,757
Other 2,107 2,065
78,339 54,567
Less accumulated depreciation
and amortization 33,028 21,059
$45,311 $33,508
Included in the above amounts is computer and office
equipment acquired under capital lease obligations of $3.9
million at June 30, 1998 and 1997. Accumulated depreciation
on computer and office equipment under capital leases
totaled $3.8 million and $2.5 million at June 30, 1998 and
1997, respectively.
Depreciation and amortization expense relating to property
and equipment was $14.7 million, $7.4 million, and $4.0
million for the years ended June 30, 1998, 1997, and 1996,
respectively, of which $1.2 million, $0.6 million, and $0.7
million related to amortization of property and equipment
under capital leases.
In fiscal 1998, the Company recorded a $1.7 million charge
to depreciation and amortization expense resulting from a
change in estimate of the remaining service lives of certain
computer equipment arising from integration activities
associated with acquisitions and a company-wide program
implemented to upgrade and standardize its information
technology platform.
Note 7. Other Current Liabilities
Other current liabilities at June 30, 1998 and 1997,
consisted of the following:
($ in thousands) 1998 1997
Accrued compensation and withholdings $11,629 12,420
Income taxes payable 8,937 4,164
Other 12,618 14,981
$33,184 $31,565
Note 8. Credit Arrangements
The Company has domestic and foreign line of credit
arrangements with banks totaling approximately $14.8
million. The lines are collateralized by accounts
receivable and fixed assets, are payable on demand, and bear
interest at rates ranging from 3.7% to 8.5%. The lines of
credit expire at various dates through June 1999 and are
renewable. At June 30, 1998 and 1997, $1.3 million was
outstanding under these lines of credit and was included in
notes payable. At June 30, 1998, $13.5 million was
available under these lines of credit.
The Company has a renewable $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% (8.03% at June 30, 1998).
Available capacity under this line was approximately $2.0
million at June 30, 1998.
Long-term debt at June 30, 1998 and 1997, primarily
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,
1998 and 1997. Aggregate lease obligations bear a weighted
average interest rate of approximately 8.03% and 8.3% at
June 30, 1998 and 1997, respectively. Long-term debt at
June 30, 1998, matures as follows: $28,000 in fiscal 2000
and $8,000 in fiscal 2001.
Note 9. Stockholders' Equity
As of June 30, 1998 and 1997, there were 5 million 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 (without stockholder
approval) with such designations, rights and preferences as
the Board of Directors may determine.
There were 29,412 shares of common stock held in treasury as
of June 30, 1998 and 1997, at a cost of $17,430.
Note 10. Earnings Per Share
The following table is a summary of shares used in
calculating
basic and diluted earnings per share:
For the years ended June 30,
(in thousands) 1998 1997 1996
Weighted average number of
shares outstanding, used in
computing basic earnings
per share 23,939 21,628 15,801
Contingently issuable
common shares 381 467 371
Dilutive common stock options 505 727 1,083
Shares used in computing
diluted earnings per share 24,825 22,822 27,255
Note 11. Stock and Employee Benefit Plans
The Stock Option Committee of the Board of Directors is
respon-
sible for administration of the Company's stock option plans
and determines the term of each option, the option exercise
price, the number of option shares granted, and the rate at
which options become exercisable.
1998 Stock Plan
In February 1998, the Company adopted the 1998 Nonqualified,
Non-Officer Stock Option Plan (the "1998 Plan") which
provides for the grant of nonqualified options to purchase
up to an aggregate of 500,000 shares of common stock to any
employee or consultant of the Company who is not an officer
or director of the Company.
1995 Stock Plan
The 1995 Amended and Restated Stock Plan (the "1995 Plan")
provides for the grant of incentive stock options to
officers and employees of the Company and the grant of
nonqualified stock options to employees, consultants,
directors, and officers of the Company for the purchase of
up to an aggregate of 2,438,334 shares of common stock.
Options generally expire eight to ten years from the date of
grant and generally vest over four to five years.
In September 1998, the Board of Directors voted to terminate
the automatic annual formula grant of options to nonemployee
directors and to grant options to nonemployee directors in
accordance with a discretionary arrangement.
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 600,000 shares may be issued under the Purchase
Plan.
Stock Options of Acquired Companies
In conjunction with the acquisition of KMI in December 1997,
all outstanding options were exercised under the Kemper-
Masterson, Inc. Stock Option Plan ("KMI Plan"), which
allowed for the grant of stock options for the purchase of
up to an aggregate of 138,714 shares of stock; and the KMI
Plan was terminated. The stock acquired through exercise of
KMI options were subject to repurchase by KMI upon certain
events, as specified in the option agreements. Certain
options provided KMI the right, but not the obligation, to
repurchase shares of stock previously acquired by employees
through exercise at a formula price defined in the stock
option agreements ("formula options") upon termination of
employment. Other options required KMI to repurchase shares
of stock previously acquired by employees through exercise
at the exercise price ("repurchase options"). All options
were granted with an exercise price of $0.17 per share.
The Company has accounted for the KMI Plan as a variable
option plan. Aggregate compensation cost was determined for
formula options during periods prior to exercise based on
the estimated formula value at each balance sheet date and
was recognized ratably over the vesting period. Upon
exercise, compensation expense was recognized for the
difference between the formula value of the stock on the
date of exercise and the exercise price. For repurchase
options, compensation expense was recognized as the
difference between the amount for which the stock was
repurchased and the exercise price. Because the exercise
price of the options was considered nonsubstantive and the
repurchase features lapsed as a result of the acquisition,
KMI recorded additional compensation expense of $4.1 million
in December 1997 based upon the value of the stock on the
date of acquisition.
In conjunction with the acquisition of PPS in March of 1998,
outstanding PPS options to purchase 121,121 shares that were
previously issued to employees with an exercise price below
the estimated fair value on the date of grant became fully
vested, in accordance with the PPS stock option agreements.
Accordingly, in March 1998, the Company recognized remaining
compensation expense of $1.6 million. Compensation expense
has been recognized ratably over the two-year vesting period
in an amount equal to the difference between the exercise
price and the estimated fair value of the underlying
ordinary shares on the date of grant. Aggregate
compensation expense under the various stock option plans
was $5.4 million, $1.0 million, and $0.3 million, for the
years ended June 30, 1998, 1997, and 1996, respectively.
Aggregate stock option activity for all plans for the two
years ended June 30, 1998 and 1997, is as follows:
June 30, 1998 June 30, 1997
Weighted Average Weighted Average
Options Exercise PriceOptionsExercise Price
Outstanding at beginning of year1,515,799 $13.762,206,298 $ 5.88
Granted 1,011,495 29.78 545,495 18.60
Exercised (332,174) 6.72(1,204,734) 1.35
Canceled (129,585) 24.27(31,260) 19.98
Outstanding at end of year 2,065,535 $22.131,515,799 $13.76
Options exercisable at end of year606,974 $11.81 594,460 $ 7.60
Weighted-average fair value of options granted
$15.28$13.22
Options available for future grant908,521 1,431,426
Summary information related to options outstanding and
exercisable as of June 30, 1998, is as follows:
Weighted
Average Weighted Weighted
Outstanding Remaining Average Exercisable Average
Range of Exercise as of Contractual Life Exercise as of Exercise
Prices June 30, 1998 (Years) Price June 30, 1998 Price
$ 0.01 - 10.00393,080 5.60 $ 4.87 341,977 $ 4.53
10.01 - 20.00362,900 5.86 18.48 145,750 18.40
20.01 - 30.00794,830 7.18 25.93 119,247 24.63
30.01 - 35.75514,725 7.13 32.02 - -
2,065,535 6.63 $22.13 606,974 $11.81
The fair value for options granted was estimated at the time
of the grant using the Black-Scholes option pricing model
with the following weighted-average assumptions for the two
years ended June 30, 1998: Risk free interest rates of
5.84% in fiscal year 1998 and 6.18% in fiscal year 1997,
dividend yield of 0.0%, volatility factor of the expected
market price of the Company's common stock of 45.0%, and an
average expected life of the option of one year from the
date of vesting.
Had compensation cost for the Company's stock options and
the Purchase Plan been determined based on the fair value at
the date of grant, as prescribed in SFAS No. 123, the
Company's net income and net income per share would have
been as follows:
($ in thousands, except per share data) 1998 1997 1996
Pro forma net income $8,215 $10,792 $5,373
Pro forma diluted income
per share $ 0.33 $ 0.47 $0.31
As stock options vest over several years and additional
stock option grants are expected to be made each year, the
above pro forma disclosures are not necessarily
representative of pro forma effects on results of operations
for future years.
Note 12. 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. The Company
matches 100% of each participant's 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 $1.4 million, $1.1 million, and $0.5 million,
for the years ended June 30, 1998, 1997, and 1996,
respectively.
Note 13. Income Taxes
Domestic and foreign income before income taxes for the
three years ended June 30, 1998, is as follows:
($ in thousands)1998 1997 1996
Domestic $ 9,428 $11,961$ 5,187
Foreign 7,571 9,161 5,995
$16,999 $21,122$11,182
The provision for income taxes for the three years ended
June 30, 1998, are as follows:
($ in thousands)1998 1997 1996
Current:
Federal $5,402 $ 4,816$2,364
State 1,144 1,207 684
Foreign 3,403 3,411 2,021
9,949 9,434 5,069
Deferred:
Federal (1,122) (432) (305)
State (384) (146) (87)
Foreign (763) (537) (150)
(2,269) (1,115) (542)
$ 7,680 $ 8,319$4,527
The Company's consolidated effective income tax rate
differed from the U.S. federal statutory income tax rate as
set forth below:
($ in thousands) 1998 1997 1996
Income tax expense computed
at the federal statutory rate $5,949 $7,374
$3,803
State income taxes, net of
federal benefit 494 1,044 474
Foreign rate differential (141) (33) (265)
Utilization of foreign net
operating loss carryforwards (1,117) (1,166) -
Nondeductible acquisition costs 2,229 191 -
Tax-exempt interest income (821) - -
Nondeductible amortization
of intangible assets 46 595 45
Foreign operating losses without
current benefit 522 142 26
Other 519 172 444
$7,680 $8,319 $4,527
Provision has not been made for U.S. or additional foreign
taxes on undistributed earnings of foreign subsidiaries as
those earnings have been permanently reinvested. Such
taxes, if any, are not expected to be significant.
Significant components of the Company's net deferred tax
asset as of June 30, 1998 and 1997, are as follows:
($ in thousands) 1998 1997
Deferred tax assets:
Foreign loss carryforwards $5,725
$5,173
Accrued expenses 1,984 1,121
Allowance for doubtful accounts 1,632 878
Deferred contract profit 866 -
Other 275 888
Gross deferred tax assets 10,482 8,060
Deferred tax asset valuation allowance (2,613)
(3,504)
Total deferred tax assets 7,869 4,556
Deferred contract profit - (976)
Property and equipment (2,271) (1,108)
Other (153) (96)
Total deferred tax liabilities (2,424)
(2,180)
$5,445 $2,376
The net deferred tax assets are included in the consolidated
balance sheets as of June 30, 1998 and 1997, as follows:
($ in thousands) 1998 1997
Other current assets $ 7,869
$3,251
Other assets - 226
Other current liabilities (404) (466)
Other liabilities (2,020) (635)
$ 5,445 $2,376
The net deferred tax asset includes the tax effect of
approximately $12.0 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 certain of 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. Principally
due to the use of previously reserved foreign net operating
loss carryforwards, the Company's valuation allowance
decreased to $2.6 million at June 30, 1998, from $3.5
million at June 30, 1997. The ultimate realization of the
remaining loss carryforwards is dependent upon the
generation of sufficient taxable income in respective
jurisdictions, primarily Germany.
Note 14. Geographic Information
Financial information by geographic area for the three years
ended June 30, 1998, is as follows:
($ in thousands) 1998 1997 1996
Net revenue:
North America $175,045 $118,525 $64,605
Europe 106,619 81,984 59,455
Asia/Pacific 3,778 3,167 993
$285,442 $203,676 $125,053
Income (loss) from operations:
North America $ 6,334 $ 9,073 $5,331
Europe 7,266 7,873 5,236
Asia/Pacific (299) 173 (176)
$ 13,301 $17,119 $10,391
Identifiable assets:
North America $190,017 $173,866 $85,034
Europe 71,514 65,985 50,531
Asia/Pacific 227 693 156
$261,758 $240,544 $135,721
Note 15. Leases
The Company leases its facilities under operating leases
which include renewal and escalation clauses. Total rent
expense was $13.9 million, $9.8 million, and $6.6 million
for the years ended June 30, 1998, 1997, and 1996,
respectively. Future minimum lease payments due under
noncancelable operating leases and capital lease obligations
are as follows:
($ in thousands) Capital Leases Operating Leases
1999 $ 87 $13,127
2000 11 12,797
2001 3 10,941
2002 - 6,302
2003 - 3,679
Thereafter - 18,567
Total obligations 101 $65,413
Less amount representing interest(7)
$ 94
Note 16. Related Party Transactions
Certain of the Company's Directors are associated with
certain of the Company's customers. Net revenue recognized
from these customers was $25.2 million, $13.1 million, and
$8.1 million in fiscal 1998, 1997, and 1996, respectively.
Amounts due from these customers included in accounts
receivable at June 30, 1998 and 1997, were $14.3 million and
$3.3 million, respectively. Related party amounts included
in accounts receivable are on standard terms and manner of
settlement.
At June 30, 1998 and 1997, the Company had notes receivable
of $1.4 million and $1.3 million, respectively, from a
company owned by the former directors of PPS. The notes
bear interest at 8.0% and are payable on demand. The
Company recorded interest income related to these notes of
$0.2 million for each of the years ended June 30, 1998,
1997, and 1996.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of PAREXEL
International Corporation
In our opinion, based upon our audits and the report of
other auditors, the accompanying consolidated balance sheets
and 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,
1998 and 1997, and the results of their operations and their
cash flows for each of the three years in the period ended
June 30, 1998, 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 did not audit the
financial statements of PPS Europe Limited, a wholly-owned
subsidiary, for fiscal years 1997 and 1996, which statements
reflect total assets of $26,197,000 at November 30, 1997,
and net revenues of $24,881,000 and $18,522,000 for the
years ended November 30, 1997 and 1996, respectively. Those
statements were audited by other auditors whose report
thereon has been furnished to us, and our opinion expressed
herein, insofar as it relates to the amounts included for
PPS Europe Limited as of and for the periods described
above, is based solely on the report of the other auditors.
We conducted our audits of these statements in accordance
with generally accepted auditing standards which require
that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting
principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits and the report of
other auditors provide a reasonable basis for the opinion
expressed above.
Boston, Massachusetts
August 11, 1998
QUARTERLY OPERATING RESULTS & COMMON STOCK INFORMATION (unaudited)
The following is a summary of unaudited quarterly results of operations for the
two years ended June 30, 1998 and 1997:
<TABLE>
For the year ended June 30, 1998
($ in thousands, except share data)
<S> <C> <C> <C>
First Quarter Second Quarter Third Quarter Fourth Quarter
Net revenue $ 62,991 $ 67,991 $ 73,067 $ 81,393
Income (loss) from operations(1) 5,830 2,383 (2,454) 7,542
Net income (loss)(1) 4,339 1,903 (2,366) 5,443
Diluted earnings (loss) per share(1)0.18 0.08 (0.10) 0.22
Range of common stock prices(2)$ 31.25 - 44.75$ 28.63 - 43.50$ 30.50 - 41.25 $ 24.75 - 36.75
For the year ended June 30, 1997
($ in thousands, except share data)
<S> <C> <C> <C>
First Quarter Second Quarter Third Quarter Fourth Quarter
Net revenue $ 42,225 $ 48,164 $53,584 $ 59,703
Income from operations 3,153 3,922 4,626 5,418
Net income 2,323 2,729 3,645 4,106
Diluted earnings per share 0.11 0.13 0.15 0.17
Range of common stock prices(2)$ 15.50 - 31.50$ 22.88 -31.88$ 21.75 -34.00$ 19.50 - 34.00
(1) Excluding acquisition-related and other nonrecurring charges, income from
operations was $6.5 million and $7.0 million; net income was $4.0 million and
$5.1 million; and diluted earnings per share was $0.19 and $0.21 in the second
and third quarters of fiscal 1998, respectively. See Note 3 to the Consolidated
Financial Statements for further discussion.
(2) The range of common stock prices is based on the high and low sales prices
on the Nasdaq National Market for the periods indicated.
The Company's common stock is quoted on the Nasdaq National Market under the
symbol "PRXL."
As of September 18, 1998, there were approximately 140 stockholders of record
and the Company estimates that it has approximately 7,400 beneficial
stockholders.
The company has never declared or paid any cash dividends on its common stock
and does not anticipate paying any cash dividends in the foreseeable future.
The Company intends to retain future earnings for the development and expansion
of its business.
SELECTED FINANCIAL DATA
($ in thousands, except per share data and number of employees)
1998 1997 1996 1995 1994
Operations
Net revenue $285,442 $203,676$125,053 $89,067 $81,835
Income (loss) from operations13,301(1) 17,119 10,391(8,454)(3) 5,895
Net income (loss) 9,319(1) 12,803 6,655 (9,239)3,929(4)
Diluted earnings $ 0.38(1) $ 0.56 $ 0.39 $ (2.02)(5)$ 0.27
(loss per share)
Financial Position
Unrestricted cash, $ 76,634 $104,339$ 52,022$ 12,996$ 4,705
cash equivalents
and marketable securities
Working capital 118,937 113,997 55,681 12,456 17,233
Total assets 261,758 240,544 135,721 67,693 64,411
Long-term debt 36 136 466 750 436
Stockholders' equity $168,380 $147,448$ 69,788$ 21,972 $30,674
Other Data
Investment in property $ 27,736 $ 25,112 $ 7,461 $ 4,742 $2,204
and equipment
Depreciation and amortization$ 15,114(2)$ 7,710$ 4,280$ 3,920$ 3,591
Number of employees 3,705 2,928 1,767 1,108 1,057
Shares used in computing 24,825 22,822 17,255 4,580(5) 14,688
Diluted Earnings Per Share
(1)Income from operations for the twelve months ended June 30, 1998, includes
$13.6 million of nonrecurring charges including $10.3 million pertaining to
acquisitions made during the fiscal year. Excluding these charges, income from
operations was $26.9 million, net income was $19.5 million, and diluted
earnings per share was $0.79. See Note 3 to the Consolidated Financial
Statements for further discussion.
(2)Depreciation and amortization for the twelve months ended June 30, 1998,
include a noncash charge of $1.7 million to reflect the reduced useful lives of
certaincomputer equipment as a result of the integration activities associated
with acquired companies and the Company's program to upgrade and standardize its
information technology platform.
(3) Loss from operations in fiscal 1995 includes an $11.3 million noncash
charge due to the write-down of impaired long-lived assets of the Company's
German operations.
(4) Net income in fiscal 1994 includes $0.5 million related to the cumulative
effect of adopting Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes."
(5) For the year ended June 30, 1995, shares used to compute diluted earnings
per share exclude common share equivalents (primarily convertible preferred
stock), as their inclusion would have anti-dilutive.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CIK> 0000799729
<NAME> PAREXEL INTERNATIONAL CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUL-01-1997
<CASH> 39,941
<SECURITIES> 37,479
<RECEIVABLES> 114,803
<ALLOWANCES> 5,062
<INVENTORY> 0
<CURRENT-ASSETS> 209,730
<PP&E> 78,339
<DEPRECIATION> (33,028)
<TOTAL-ASSETS> 261,758
<CURRENT-LIABILITIES> 90,793
<BONDS> 0
246
0
<COMMON> 0
<OTHER-SE> 168,134
<TOTAL-LIABILITY-AND-EQUITY> 261,758
<SALES> 0
<TOTAL-REVENUES> 285,442
<CGS> 0
<TOTAL-COSTS> 185,718
<OTHER-EXPENSES> 86,423
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,698
<INCOME-PRETAX> 16,999
<INCOME-TAX> 7,680
<INCOME-CONTINUING> 9,319
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,319
<EPS-PRIMARY> 0.39
<EPS-DILUTED> 0.38
</TABLE>
