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, 1999
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
of incorporation or organization) Identification Number)
195 West Street
Waltham, Massachusetts 02451
(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)
<PAGE>
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
$211,223,719 as of September 21, 1999.
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 21, 1999, there were 25,256,073 shares of the registrant's
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Specified portions of the Registrant's 1999 Annual Report to Stockholders for
the fiscal year ended June 30, 1999 are incorporated by reference into Parts II
and IV of this report.
Specified portions of the Registrant's Proxy Statement dated October 7, 1999 for
the Annual Meeting of Stockholders to be held on November 11, 1999 are
incorporated by reference into Part III of this report.
(End of cover page)
<PAGE>
PAREXEL INTERNATIONAL CORPORATION
FORM 10-K ANNUAL REPORT
INDEX
Page
PART I.
Item 1. Business 4
Risk Factors 21
Item 2. Properties 26
Item 3. Legal Proceedings 27
Item 4. Submission of Matters to a Vote 27
of Security Holders
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 27
Item 6. Selected Financial Data 27
Item 7. Management's Discussion and Analysis of Financial 27
Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures 27
About Market Risk
Item 8. Financial Statements and Supplementary Data 28
Item 9. Changes in and Disagreements with Accountants on 28
Accounting and Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant 28
Item 11. Executive Compensation 28
Item 12. Security Ownership of Certain Beneficial Owners 28
and Management
Item 13. Certain Relationships and Related Transactions 28
PART IV
Item 14. Exhibits, Financial Statement Schedule, and 28
Reports on Form 8-K
SIGNATURES 35
<PAGE>
PART I
ITEM 1. BUSINESS
General
PAREXEL International Corporation ("PAREXEL" or the "Company") is a leading
contract research, medical marketing and consulting 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
rapidly obtain the necessary regulatory approvals of their products and quickly
reach peak sales. Over the past sixteen 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, 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, biotechnology, and medical device 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.
Outsourcing these types of services to PAREXEL provides clients with a variable
cost alternative to the fixed costs associated with internal drug development.
Clients no longer need to staff to peak periods and can benefit from PAREXEL's
technical resource pool, broad therapeutic area expertise, global infrastructure
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,medical marketing and consulting
services. The Company sees significant benefits accruing to sponsor clients from
this strategy, namely, a faster and less expensive development and launch
process, as well as a clinical development strategy that optimally supports the
marketing strategy for the new pharmaceutical product.
The Company believes it is the third largest contract research organization
("CRO") in the world (based upon annual net revenue). Headquartered near Boston,
Massachusetts, the Company manages 45 locations and has approximately 4,400
employees throughout 29 countries around the world. The Company has established
footholds in the major health care markets around the world, including the
United States, Latin America, 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 1999, PAREXEL derived 43% of its revenue from its international
operations, distinguishing the Company from many of its competitors.
The Company 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, and is a Massachusetts corporation. 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.
In March 1999, the Company acquired Groupe PharMedicom S.A., a leading
French provider of regulatory and medical marketing consulting services to
pharmaceutical manufacturers, in exchange for the Company's common stock in a
transaction accounted for as a purchase business combination.
During fiscal 1999, the Company continued to integrate its numerous fiscal
1998 acquisitions. The acquisitions have significantly enhanced the Company's
global competitive position, and include the March 1998 acquisition of 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 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 the fiscal 1998 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. 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 $44 billion in 1998 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:
o 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.
o 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.
o 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.
o 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.
o 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.
o 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 providing 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.
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's business focus is on clinical development services, integrated
with medical marketing and consulting services that optimize the clinical
development phase for our clients. 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.
Provide a Truly Global Service
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 has brought
a well established presence and reputation in attractive, new locations for the
Company, including Eastern Europe, Russia, and the Benelux, Nordic, and Baltic
countries. It also maintains a Phase I alliance with TOHO, one of the largest
Japanese pharmaceutical wholesalers and owner of the Tokyo Research Center of
Clinical Pharmacology. This augments PAREXEL's Asian operations including its
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 and Provide Bundled
and Unbundled Services
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
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
who requires one particular service, which may in turn lead to larger, more
comprehensive projects. The Company also 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, 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 with the client's permission, 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 sixteen 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, 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 Consulting Services.
Contract Research Services ("CRS")
Clinical Trials Management, Biostatistical and Data Management, and Advanced
Technology initiatives comprise the Company's Contract Research Services
business unit, which represents approximately 69% of the Company's fiscal 1999
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" for additional information.
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:
o 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.
o 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.
o 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. A significant
portion of 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.
o Patient Enrollment. The investigators, usually with the assistance of
CROs, 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.
o Study Monitoring and Data Collection. As patients are examined and tests
are conducted in accordance with the study protocol, data are recorded on
CRFs. CRFs 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
its remote date entry ("RDE") and optical character recognition (OCR)
scanning technologies are significantly enhancing both the quality and
timeliness of clinical data collection while achieving 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.
o 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.
o 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.
Biostatistical and Data Management 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, PAREXEL's 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 Image Recognition Integrated System
("IRIS") Electronic Data Capture, Medical Imaging, Sitebase Remote Data Entry,
Integrated Voice Response System ("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 PAREXEL's
internal process businesses.
Medical Marketing Services ("MMS")
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. MMS's strategy is 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. Our MMS business represents over $51 million of annual revenue, making us
one of the largest global medical marketing services organizations in the world.
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.
PAREXEL's Consulting Services ("PCG")
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 designing 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. These services include 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 Services group is responsible for technology
planning and procurement, applications development, program management,
operations, and management of the Company's worldwide computer network. The wide
area network links numerous local area networks, interconnecting over 4,400
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 1999, the Company has continued to focus 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.
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 1999, the Company provided services to most of the top 20
pharmaceutical and top 10 biotechnology companies. 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 continue to
experience such concentration in future years. In fiscal 1999, the Company's
five largest clients accounted for 44% of its consolidated net revenue. In
fiscal 1998, the Company's five largest clients accounted for 34% of its
consolidated net revenue, while in fiscal 1997, the Company's five largest
clients accounted for 36% of its consolidated net revenue. In fiscal 1999, one
client accounted for 20% of consolidated net revenue. In fiscal 1998, a
different client accounted for 12% of consolidated net revenue. In fiscal 1997,
no single customer accounted for more than 10% of 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, 1999 was approximately $356 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, revision, 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. Generally, the
Company's contracts are terminable upon sixty 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, 1999, the Company had approximately 4,400 employees.
Approximately 50% of the employees are located in North America and 50% 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:
o 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 Investigational New Drug Application ("IND"), upon which the FDA
may grant permission to begin human trials.
o Clinical Trials (3.5 to 6 years)
o 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.
o 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.
o 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.
o 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.
o 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.
o 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 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.
<PAGE>
RISK FACTORS
The statements included in Management's Discussion and Analysis of Financial
Condition and Results of Operations incorporated by reference to exhibit 13.1
hereto include forward-looking statements that involve risks and uncertainties.
Such forward-looking statements include those related to the adequacy of the
Company's existing capital resources and future cash flows from operations, the
Company's Year 2000 readiness and the Company's desire to continue to expand
through acquisitions. The forward-looking statements contained in this section
include, but are not limited to, any statements containing the words "expects,"
"anticipates," "estimates," "believes," "may," "will," "should" and similar
expressions, and the negatives thereof. The Company's actual experience may
differ materially from the Company's expectation as discussed in the
forward-looking statement. Factors that could cause such a difference include,
but are not limited to, the failure to successfully consummate a strategic
acquisition or merger, the failure to achieve expected synergies from a
strategic acquisition or merger, the potential loss or cancellation of, or delay
of work under, one or more large contracts; the adequacy and effectiveness of
the Company's sales force in winning new business; the ability to attract, train
and retain qualified employees; the Company's ability to manage adequately its
continued expansion; the Company's ability to meet its deadlines regarding Year
2000 readiness and achieve such readiness within its expected expense range; and
future events that have the effect of reducing the Company's available cash
balances such as unexpected operating losses, capital expenditures or cash
expenditures related to possible future acquisitions; and those discussed below.
The Loss, Modification, or Delay of Large Contracts May Negatively Impact the
Company's Financial Performance
Generally, the Company's clients can terminate their contracts with the Company
upon sixty days' notice. Clients terminate or delay their contracts for a
variety of reasons, including:
o products being tested fail to satisfy safety requirements;
o products have unexpected or undesired clinical results;
o the client decides to forego a particular study, perhaps for economic
reasons;
o not enough patients enroll in the study;
o not enough investigators are recruited; or
o production problems cause shortages of the drug.
In addition, the Company believes that drug companies may proceed with fewer
clinical trials if they are trying to reduce costs. These factors may cause drug
companies to cancel contracts with contract research organizations at a higher
rate than in the past. The loss or delay of a large contract or the loss or
delay of multiple contracts could have a material adverse effect on the
Company's financial performance.
The Company's Operating Results Have Fluctuated Between Quarters and Years and
May Continue to Fluctuate in the Future
The Company's quarterly operating results have varied, and will continue to
vary. Factors that affect these variations include:
o the level of new business authorizations in a particular quarter or year
o the timing of the initiation, progress, or cancellation of significant
projects;
o exchange rate fluctuations between quarters or years;
o the mix of services offered in a particular quarter or year;
o the timing of the opening of new offices;
o the timing of other internal expansion costs;
o the timing and amount of costs associated with integrating acquisitions;
and
o the timing and amount of startup costs incurred in connection with the
introduction of new products and services.
A high percentage of the Company's operating costs are fixed. Therefore, the
timing of the completion, delay or loss of contracts, or in the progress of
client projects, can cause the Company's operating results to vary substantially
between reporting periods.
The Company Depends on a Small Number of Industries and Clients for All of its
Business
The Company depends on research and development expenditures by pharmaceutical
and biotechnology companies. The Company's operations could be materially and
adversely affected if:
o its clients' businesses experience financial problems or are affected by
a general economic downturn;
o consolidation in the drug or biotechnology industries leads to a smaller
client base for the Company; or
o its clients reduce their research and development expenditures.
Furthermore, the Company has benefited to date from the increasing tendency of
pharmaceutical companies to out-source large clinical research projects. If this
trend slows or reverses, the Company's operations would be materially and
adversely affected. In fiscal 1999, the Company's five largest clients accounted
for 44% of its consolidated net revenue, and one client accounted for 20% of
consolidated revenue. In fiscal 1998, the Company's five largest clients
accounted for 34% of its consolidated net revenue, and one client accounted for
12% of consolidated net revenue. The Company could suffer a material adverse
effect if it lost the business of a significant client.
The Company's Business Has Expanded Rapidly and the Company Must Properly Manage
that Expansion
The Company's business has expanded substantially, particularly over the past
few years. This may strain the Company's operational, human and financial
resources. In order to manage expansion, the Company must:
o continue to improve its operating, administrative and information
systems;
o accurately predict its future personnel and resource needs to meet client
contract commitments;
o track the progress of ongoing client projects; and
o attract and retain qualified management, sales, professional, scientific
and technical operating personnel.
The Company will face additional risks in expanding its foreign operations.
Specifically, the Company may find it difficult to:
o assimilate differences in foreign business practices;
o hire and retain qualified personnel; and
o overcome language barriers.
If an acquired business does not meet the Company's performance expectations,
the Company may have to restructure the acquired business or write-off the value
of some or all of the assets of the acquired business. If the Company fails to
properly manage its expansion, the Company could experience a material adverse
effect.
The Company May Not Be Able to Make Strategic Acquisitions in the Future
The Company relies on it ability to make strategic acquisitions to sustain its
growth. The Company has made a number of acquisitions and will continue to
review future acquisition opportunities. The Company may not be able to acquire
companies on terms and conditions acceptable to the Company. Additionally, the
Company faces several obstacles in connection with the acquisitions it
consummates, including:
o The Company may encounter difficulties and will encounter expenses in
connection with the acquisitions and the subsequent assimilation of the
operations and services or products of the acquired companies;
o The Company's management will necessarily divert attention from other
business concerns; and
o The Company could lose some or all of the key employees of the acquired
company.
The Company may also face additional risks when acquiring foreign companies,
such as adapting to different business practices and overcoming language
barriers. In the event that the operations of an acquired business do not meet
the Company's performance expectations, the Company may have to restructure the
acquired business or write-off the value of some or all of the assets of the
acquired business. The Company may experience difficulty integrating acquired
companies into its operations.
The Company Relies on Highly Qualified Management and Technical Personnel Who
May Not Remain with the Company
The Company relies on a number of key executives, including Josef H. von
Rickenbach, its President, Chief Executive Officer and Chairman. The Company
maintains key man life insurance on Mr. von Rickenbach. The Company has entered
into agreements containing non-competition restrictions with its senior
officers. However, the Company does not have employment agreements with most of
its senior officers and if any of these key executives leave the company, it
could have a material adverse effect on the Company. In addition, in order to
compete effectively, the Company must attract and maintain qualified sales,
professional, scientific and technical operating personnel. Competition for
these skilled personnel, particularly those with a medical degree, a Ph.D. or
equivalent degrees is intense. The Company may not be successful in attracting
or retaining key personnel.
The Company May Not Have Adequate Insurance and May Have Substantial Exposure to
Payment of Personal Injury Claims
Clinical research services primarily involve the testing of experimental drugs
on consenting human volunteers pursuant to a study protocol. Such services
involve a risk of liability for personal injury or death to patients who
participate in the study or who use a drug approved by regulatory authorities
after the clinical research has concluded, due to, among other reasons, possible
unforeseen adverse side effects or improper administration of the new drug by
physicians. In certain cases, these patients are already seriously ill and are
at risk of further illness or death. The Company's financial stability could be
materially and adversely affected if the Company had to pay damages or incur
defense costs in connection with a claim that is outside the scope of an
indemnity or insurance coverage. The Company's financial stability could also be
materially and adversely affected in cases where the indemnity, although
applicable, is not performed in accordance with its terms. Additionally, the
Company could be adversely and materially affected if its liability exceeds the
amount of its insurance. The Company may not be able to continue to secure
insurance on acceptable terms.
The Company's Stock Price Is Volatile and Could Decline
The market price of the Company's common stock has fluctuated widely in the past
and may continue to do so in the future in response to quarter-to-quarter
variations in:
o operating results;
o earnings estimates by analysts;
o market conditions in the industry;
o prospects of health care reform;
o changes in government regulation; and
o general economic conditions.
In addition, the stock market has from time to time experienced significant
price and volume fluctuations that are not related to the operating performance
of particular companies. These market fluctuations may adversely affect the
market price of the Company's common stock. Since the Company's common stock
currently trades at a relatively high price-earnings multiple, due in part to
analysts' expectations of continued earnings growth, the price of the stock
could quickly and substantially decline as a result of even a relatively small
shortfall in earnings from, or a change in, analysts' expectations. Investors in
the Company's common stock must be willing to bear the risk of such fluctuations
in earnings and stock price.
The Company's Business Depends on Continued Comprehensive Governmental
Regulation of the Drug Development Process
In the United States, governmental regulation of the drug development process
has become more complicated and more extensive. However, the FDA recently
announced regulatory changes intended to streamline the approval process for
biotechnology products by applying the same standards for approval of
biotechnology products as are in effect for conventional drugs. In Europe,
governmental authorities are coordinating common standards for clinical testing
of new drugs, leading to changes in the various requirements currently imposed
by each country. In April 1997, Japan legislated good clinical practices and
legitimatized the use of contract research organizations. The Company's business
could be materially and adversely affected if governments relaxed their
regulatory requirements or simplified their drug approval procedures, since such
actions would eliminate much of the demand for the Company's services. In
addition, if the Company was unable to comply with any applicable regulation,
the relevant governmental agencies could terminate the Company's ongoing
research or disqualify research data.
The Company Faces Intense Competition
The Company primarily competes against in-house departments of drug companies,
full service contract research organizations, 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. Contract research organizations generally compete on the basis of:
o previous experience;
o medical and scientific expertise in specific therapeutic areas;
o the quality of services;
o the ability to organize and manage large-scale trials on a global basis;
o the ability to manage large and complex medical databases;
o the ability to provide statistical and regulatory services;
o the ability to recruit investigators and patients;
o the ability to integrate information technology with systems to improve
the efficiency of contract research;
o an international presence with strategically located facilities;
o financial strength and stability; and
o price.
The contract research organizations industry is fragmented, with several hundred
small, limited-service providers and several large, full-service contract
research organizations with global operations. The Company competes against
large contract research organizations, including Quintiles Transnational
Corporation, Covance Inc., and Pharmaceutical Product Development, Inc., for
both clients and acquisition candidates. In addition, the Company competes for
contract research organizations contracts as a result of the consolidation
within the drug industry and the growing tendency of drug companies to out
source to a small number of preferred contract research organizations.
The Company May Lose Business Opportunities as a Result 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 drug companies. In the last few years, the U.S. Congress has
entertained several comprehensive health care reform proposals. The proposals
were generally intended to expand health care coverage for the uninsured and
reduce the growth of total health care expenditures. While the U.S. Congress did
not adopt any of the proposals, members of Congress may raise similar proposals
in the future. If any of these proposals are approved by the U.S. Congress, drug
and biotechnology companies may react by spending less on research and
development. If this were to occur, the Company would have fewer business
opportunities. The Company is unable to predict the likelihood that health care
reform proposals will be enacted into law or the effect such laws would have on
the Company's business.
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 foreign
health care reform proposals may have on its business in other countries.
The Company is Subject to Currency Translation Risks
The Company derived approximately 43% of its net revenue for fiscal 1999 from
operations outside of North America. In fiscal 1998, 39% of the Company's net
revenue was derived from operations outside of North America. The Company's
revenues and expenses from foreign operations are usually denominated in local
currencies. The Company is therefore subject to exchange rate fluctuations
between local currencies and the United States dollar. To the extent that the
Company cannot shift this currency translation risk to other parties, the
Company's operating results could be materially and adversely affected. The
Company does not currently hedge against the risk of exchange rate fluctuations.
A Third Party May Have Difficulty Acquiring the Company
Certain provisions of the Company's Restated Articles of Organization, as
amended, and Restated By-Laws contain provisions that 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, the Board of Directors of the Company may issue preferred stock in the
future without further stockholder approval. The Board of Directors of the
Company would determine the terms and conditions, as well as the rights,
privileges and preferences of such preferred stock. The holders of common stock
would be subject to, and may be adversely affected by, the rights of any holders
of preferred stock that the Board of Directors of the Company may issue. The
Company benefits from its Board of Directors' ability to issue the preferred
stock by affording the Company desirable flexibility in connection with possible
acquisitions and other corporate purposes. However, the Company's Board of
Directors' ability to issue the preferred stock could also 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
The Company has been named as one of many defendants in twelve actions pending
in two state courts relating to a drug for which the Company provided clinical
research services. These actions were brought by individual plaintiffs and not
as class actions. The Company has provided notice of these matters to its
insurance carrier and has submitted requests for indemnification to the
companies for whom the Company provided clinical research services pursuant to
the Company's contracts with such companies.
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 1999.
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
1999 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 1999 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 1999 Annual Report to Stockholders included as
Exhibit 13.1.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 1999 Annual Report to Stockholders included as
Exhibit 13.1.
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 1999 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 1999 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 1999 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 1999 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 1999 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 1999 Annual Report to Stockholders,
filed as Exhibit 13.1 to this report, are incorporated by reference into
Item 8 of this report.
<TABLE>
<CAPTION>
Annual Report to
Financial Statements Form 10-K Page Stockholders Page
<S> <C> <C>
Report of Independent Accountants 28 30
Consolidated Balance Sheets at June 30, 1999 and 1998 28 19
Consolidated Statements of Operations for each of the
three years ended June 30, 1999 28 18
Consolidated Statements of Stockholders' Equity for
each of the three years ended June 30, 1999 28 20
Consolidated Statements of Cash Flows for each of the
three years ended June 30, 1999 28 21
Notes to Consolidated Financial Statements 28 22-29
</TABLE>
(2) Financial Statement Schedules:
For the three years ended June 30, 1999:
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.
(3) Exhibits
Exhibit No. Description
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).
4.21 Share Acquisition Agreement with respect to Groupe PharMedicom
S.A., dated March 31, 1999 among Herve Laurent, Philippe
Conquet and Others, as Sellers, and PAREXEL International
Corporation, as Buyer (filed as Exhibit 2.2 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1999 and incorporated herein by this reference).
4.22 Registration Rights Agreement dated as of March 31, 1999 among
PAREXEL International Corporation and certain former
stockholders of Groupe PharMedicom S.A. (filed as Exhibit 4.1
to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999 and incorporated herein by this
reference).
10.1 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).
10.2 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).
10.3 Letter Agreement between A. Joseph Eagle and PPS Europe
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).
10.4 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).
10.5 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).
10.6 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).
10.7 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).
10.8 Second Amended and Restated 1995 Stock Plan of the Company
(filed as Exhibit 10.9 to the Registrant's Annual Report on
Form 10-K for the Fiscal Year Ended June 30, 1998 and
incorporated herein by this reference).
10.9 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).
10.10 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).
10.11 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).
10.12 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.
10.13 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).
10.14 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).
10.15 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).
10.16 1998 Non-Qualified, Non-Officer Stock Option Plan, as amended.
10.17 Employment Agreement dated October 20, 1998 between Josef H.
von Rickenbach and the Company (filed as Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the Quarter
Ended September 30, 1998 and incorporated herein by this
reference).
10.18 Change in Control Agreement dated October 20, 1998 between
William T. Sobo and the Company (filed as Exhibit 10.2 to the
Registrant's Quarterly Report on Form 10-Q for the Quarter
Ended September 30, 1998 and incorporated herein by this
reference).
10.19 Change in Control Agreement dated October 20, 1998 between
Barry R. Philpott and the Company (filed as Exhibit 10.4 to
the Registrant's Quarterly Report on Form 10-Q for the Quarter
Ended September 30, 1998 and incorporated herein by this
reference).
10.20 Third Amendment to Lease dated November 17, 1998 between
Boston Properties Limited Partnership and the Company (filed
as Exhibit 10.1 to the Registrant's Quarterly Report on Form
10-Q for the Quarter Ended December 31, 1998 and incorporated
herein by this reference).
10.21 Lease dated November 17, 1998 between Boston Properties
Limited Partnership and the Company (filed as Exhibit 10.2 to
the Registrant's Quarterly Report on Form 10-Q for the Quarter
Ended December 31, 1998 and incorporated herein by this
reference).
13.1 Specified portions of the Registrant's 1999 Annual Report to
Stockholders.
21.1 List of subsidiaries of the Company.
23.1 Consent of PricewaterhouseCoopers LLP
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
11, 1998 reporting financial results for the quarter and
fiscal year ended June 30, 1998.
The Company filed a Current Report on Form 8-K dated April 28,
1999 reporting financial results for the quarter ended March
31, 1999 and the Agreement and Plan of Merger dated as of
April 28, 1999 among Covance Inc., CCJ Holding Corporation and
the Company.
The Company filed a Current Report on Form 8-K dated June 25,
1999 reporting termination of the Agreement and Plan of Merger
dated as of April 28, 1999 among Covance Inc., CCJ Holding
Corporation and the Company.
The Company filed a Current Report on Form 8-K dated August
17, 1999 reporting financial results for the quarter and
fiscal year ended June 30, 1999.
<PAGE>
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 22nd day of September, 1999.
PAREXEL INTERNATIONAL CORPORATION
By: /s/Josef H. von Rickenbach
President, Chief Executive Officer and Chairman
<TABLE>
<CAPTION>
Signatures Title(s) Date
<S> <C> <C>
/s/Josef H. von Rickenbach
------------------------------------------------
Josef H. von Rickenbach President, Chief Executive Officer September 22, 1999
and Chairman (principal executive
officer)
/s/William T. Sobo
------------------------------------------------
William T. Sobo, Jr. Senior Vice President, Chief September 22, 1999
Financial Officer, Treasurer and
Clerk (principal financial and
accounting officer)
/s/A. Dana Callow, Jr.
------------------------------------------------
A. Dana Callow, Jr. Director September 22, 1999
/s/Patrick J. Fortune
------------------------------------------------
Patrick J. Fortune Director September 22, 1999
/s/Werner M. Herrmann
------------------------------------------------
Werner M. Herrmann Director September 22, 1999
/s/James A. Saalfield
------------------------------------------------
James A. Saalfield Director September 22, 1999
/s/Serge Okun
------------------------------------------------
Serge Okun Director September 22, 1999
/s/A. Joseph Eagle
------------------------------------------------
A. Joseph Eagle Director September 22, 1999
</TABLE>
<PAGE>
Schedule II
PAREXEL INTERNATIONAL CORPORATION
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
($ in thousands)
<TABLE>
<CAPTION>
Balance at Charged to Balance at
beginning of year costs and Charged to Deductions end of
Description expenses other accounts and write-offs year
ALLOWANCE FOR DOUBTFUL
ACCOUNTS:
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1997 $ 2,020 $1,718 329 $(683) $3,384
Year ended June 30, 1998 3,384 1,924 -- (246) 5,062
Year ended June 30, 1999 5,062 533 -- (468) 5,127
DEFERRED TAX ASSET
VALUATION ALLOWANCE:
Year ended June 30, 1997 $6,073 -- -- $(2,569) $3,504
Year ended June 30, 1998 3,504 -- -- (891) 2,613
Year ended June 30, 1999 2,613 950 -- -- 3,563
</TABLE>
<PAGE>
Exhibit 10.12
PAREXEL INTERNATIONAL CORPORATION
195 West Street
Waltham, Massachusetts 02154
BARNETT INTERNATIONAL CORPORATION
Rose Tree Corporate Center
1400 North Providence Rd.
Suite 2000
Media, Pennsylvania 19063
As of December 5, 1997
BankBoston, N.A. formerly
The First National Bank of Boston
100 Federal Street
Boston, Massachusetts 02110
Re: Loan and Security Agreement for Parexel International Corporation and
Barnett International Corporation
Ladies and Gentlemen:
Reference is made to the certain Loan and Security Agreement, dated as
of July 31, 1992, as amended from time to time by and among PAREXEL
INTERNATIONAL CORPORATION, a Massachusetts corporation having its principal
place of business and chief executive offices at 195 West Street, Waltham,
Massachusetts 02154, BARNETT INTERNATIONAL CORPORATION, a Massachusetts
corporation having its principal place of business and chief executive offices
at Rose Tree Corporate Center, 1400 North Providence Rd., Suite 2000, Media,
Pennsylvania 19063 (collectively, the "Borrowers") and THE FIRST NATIONAL BANK
OF BOSTON, now known as BANKBOSTON, N.A., a national bank with its head office
at 100 Federal Street, Boston, Massachusetts 02110 (the "Bank") (the
"Agreement").
For good and valuable consideration, the receipt of which is hereby
acknowledged, the Borrowers and the Bank agree to amend the Agreement as
follows:
1. Section 3.4.4 is amended by deleting the definition "Interest
Period" in its entirety and substituting the following:
"Interest Period" with respect to each LIBOR Loan means the
period commencing on the date of the making or continuation of
or conversion to such LIBOR Loan and ending one, two or three
months thereafter, as the Borrower may elect in the applicable
notice of borrowing or conversion as provided in Section
3.4.,1; provided that:
(a) any Interest Period (other than an Interest Period
determined pursuant to clause (d) below) that would otherwise
end on a day that is not a Business Day shall be extended to
the next succeeding Business Day unless, in the case of LIBOR
Loans, such Business Day falls in the next calendar month, in
which case such Interest period shall end on the immediately
preceding Business Day;
(b) any Interest Period applicable to a LIBOR Loan that begins
on the last Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in the
calendar month at the end of such Interest Period) shall,
subject to clause (d) below, end on the last Business Day of a
calendar month; and
(c) notwithstanding clause (a) above, no Interest Period
applicable to LIBOR Loan shall have a duration of less than
one month; and if any Interest Period applicable to such Loans
would be for a shorter period, such Interest Period shall not
be available hereunder.
The Borrowers hereby, jointly and severally, affirm (1) any and all Obligations,
including without limitation, the Obligations under the Agreement or any
Obligations under foreign exchange lines in U.S. Dollars or other currency, as
modified from time to time, of the Borrowers or any of them to the Lender and
any of its affiliates and (2) that Obligations under the Agreement include,
without limitation, any and all guarantees made by the Borrowers or any of them
to the Lender or any of its affiliates of any and all Obligations of the
Borrowers or any of their respective affiliates to the Lender and its
affiliates, including, without limitation, a 400,000 Great Britain Pounds
Sterling limited guaranty dated March 7, 1994 for the account of Parexel
International Limited, a 750,000 French Franc limited guaranty dated December
30, 1994, which guaranty was amended and increased to 2,500,000 French Franc,
for the account of Parexel International-SARL and a 2,000,000 Deutsche Marks
limited guaranty dated December 30, 1994 for the account of AFB-Parexel GmbH and
(3) that Obligations under the Agreement include, without limitation, the
Obligations as defined in any guarantee by the Borrowers or any of them to the
Bank, now existing or hereafter granted by the Borrowers or any of them to the
Bank and all Obligations of the Borrowers or either of them to any affiliate of
the Bank, including without limitation BancBoston Leasing, Inc. or any of its
affiliates.
Except as specifically modified hereby, all terms and provisions of the
Agreement are ratified and confirmed as of the date hereof, and the Borrowers,
jointly and severally, represent and warrant that no Event of Default, or event
which with the giving of notice or passage of time would constitute an Event of
Default has occurred and is continuing thereunder as defined by the Agreement.
The Borrowers warrant and represent that each of the Borrowers is
authorized to execute this amendment to the Agreement, as set forth above,
without any further action by the directors or shareholders of either Borrower.
The Borrowers further warrant and represent that this amendment of the Agreement
are each a valid, binding and enforceable agreement and amendment as to the
Borrowers and each of them.
All other terms and conditions of the Agreement shall remain in full
force and effect as amended through the date hereof.
Please sign the enclosed copy of this letter below where indicated and
return it to the undersigned whereupon this letter will be deemed to be an
amendment to the Agreement as an instrument under seal to be governed by the
laws of The Commonwealth of Massachusetts effective as of December __, 1997.
Very truly yours,
PAREXEL INTERNATIONAL CORPORATION
By:/s/William T. Sobo, Jr.
Its:Senior V.P./CFO
hereunto duly authorized
BARNETT INTERNATIONAL CORPORATION
By:/s/William T. Sobo, Jr.
Its:Treasurer
hereunto duly authorized
Accepted and Agreed to:
BANKBOSTON, N.A.
formerly known as
THE FIRST NATIONAL BANK OF BOSTON
By:Virginia Dennett
Its:Director
<PAGE>
PAREXEL INTERNATIONAL CORPORATION
195 West Street
Waltham, Massachusetts 02154
BARNETT INTERNATIONAL CORPORATION
Rose Tree Corporate center
1400 North Providence Rd.
Suite 2000
Media, Pennsylvania 19063
As of June 26, 1997
BankBoston, N.A. formerly
The First National Bank Of Boston
100 Federal Street
Boston, Massachusetts 02110
Re: Loan and Security Agreement for Parexel International Corporation and
Barnett International Corporation
Ladies and Gentlemen:
Reference is made to the certain Loan and Security Agreement, dated as
of July 31, 1992, as amended from time to time by and among PAREXEL
INTERNATIONAL CORPORATION, a Massachusetts corporation having its principal
place of business and chief executive offices at 195 West Street, Waltham,
Massachusetts 02154, BARNETT INTERNATIONAL CORPORATION, a Massachusetts
corporation having its principal place of business and chief executive offices
at Rose Tree Corporate Center, 1400 North Providence Rd., Suite 2000, Media,
Pennsylvania 19063(collectively, the "Borrowers") and THE FIRST NATIONAL BANK OF
BOSTON, now known as BANKBOSTON, N.A., a national bank with its head office at
100 Federal Street, Boston, Massachusetts 02110 (the "Bank")( the "Agreement").
For good and valuable consideration, the receipt of which is hereby
acknowledged, the Borrowers and the Bank agree to amend the Agreement as
follows:
1. Section 1.4 of the Loan Agreement is amended in its entirety to read
as follows:
"Borrowing Base" shall mean an amount not to exceed $10,000,000.
2. Section 2.2 of the Loan Agreement is amended in its entirety to read
as follows:
2.2 Corporate Authority. The execution, delivery and performance of
this Agreement and the transactions contemplated hereby are within
each Borrower's corporate authority, have been duly authorized by
all necessary corporate proceedings on the part of both Borrowers,
and do not and will not contravene or its bylaws , or contravene any
provisions of law, its charter documents or its by-laws, or
contravene any provisions of, or constitute an Event of Default
hereunder hereunder or a default under, any other agreement,
instrument, judgment, order, decree, permit, license or undertaking
binding upon or applicable to the Borrowers or either of them or any
of their respective properties, or result in the creation, other
than in favor of the Lender, or any, properties, or result in the
creation, other than in favor of the Lender, of any mortgage,
pledge, security interest, lien, encumbrance or charge upon any of
the properties or assets of the Borrowers or either of them.
3. Section 2.4 of the Loan Agreement is hereby amended in its entirety
to read as follows:
2.4 Approvals. The execution, delivery and performance of this
Agreement and the transactions and other documents contemplated
hereby do not require any approval or consent of, or filing or
registrations with, any governmental or other agency or authority or
any other person.
4. Section 3.3 of the Loan Agreement is deleted in its entirety and
amended to read as follows:
3.3 Borrowing. Prior to making any advance under Section 3.1, the
Borrowers shall deliver to the Lender current information as to
Accounts Receivable in the form of a borrowing base certificate in
the form appended hereto as Exhibit 3.3 and a current aging of
Accounts.
5. Section 3.4 is added to the Agreement to read as follows:
Section 3.4 LIBOR LOANS.
3.4.1 At the option of the Borrower, so long as no Event of Default
has occurred and is then continuing, and if the Lender offers such
option, there being no obligation on the part of the Lender to make
such option available, the Borrower may elect, from time to time to
have all or a portion of the unpaid principal amount of any loan
bear interest during any particular Interest Period at the LIBOR
Rate plus one and one quarter percent (1.25%). Any election by the
Borrower to have interest calculated at the LIBOR Rate shall be made
by notice (which shall be irrevocable) to the Lender at least two
(2) Business Days prior to the first day of the proposed Interest
Period, specifying the loan amount to bear interest at the LIBOR
Rate plus the one and one quarter (1.25%). Any such election of
LIBOR Rate shall lapse at the end of the expiring Interest Period
unless extended by a further election notice as herein before
provided.
3.4.2 Certain LIBOR Provisions. Subject to the provisions of this
Section 3.4, the Borrower shall have the right to have the interest
on all or any portion of the principal amount of the Loans based on
the LIBOR Rate plus the applicable percentage set forth in the
Section 3.4.1. Such interest shall be payable for such Interest
Period on the last day thereof and when such LIBOR Loan is due
(whether upon demand, by reason of acceleration or otherwise).
3.4.3 Payments of the LIBOR Loans.
(a) Payments at End of Interest Period. Loans that are LIBOR
Loans may be paid, without premium or penalty, on the last
day of any Interest Period applicable thereto, upon three
Business Days' notice. Any interest accrued on the amounts so
paid to the date of such payment must be paid at the time of
any such payment.
(b) Duration of Interest Periods.
(1) Subject to the provisions of the definition of
Interest Period, the duration of each Interest Period
applicable to LIBOR Loans shall be as specified in the
notice given under Section 3.4.1.
(2) If the Bank does not receive a notice of election of
duration of an Interest Period for a LIBOR Loan pursuant
to clause (1) of this subsection within the applicable
time limits specified therein, or if, when such notice
must be given, a Default or Event of Default exists, the
Borrower shall be deemed to have elected to convert such
loan in whole into a loan with interest at the Base Rate
on the last day of the then current Interest Period with
respect thereto.
(3) In the event that prior to the commencement of any
Interest Period relating to any LIBOR Loans, the Lender
shall determine that adequate and reasonable methods do
not exist for ascertaining the LIBOR Rate related to such
Interest Period, the Lender shall give notice of such
determination (which shall be conclusive and binding on
the Borrower and the Lender) to the Borrower. In such
event (i) any notice of borrowing or conversion with
respect to a LIBOR Loan shall be automatically withdrawn
and shall be deemed a request for a loan at the Base
Rate, (ii) each LIBOR Loan will automatically, on the
last day of the then current Interest Period relating
thereto, become a loan at the Base Rate unless the
circumstances giving rise to such suspension no longer
exists and such LIBOR Loan is validly continued as such
pursuant to the terms of this Agreement, and (iii) the
obligations of the Lender to make LIBOR Loans shall be
suspended until the Lender determines that the
circumstances giving rise to such suspension no longer
exist, whereupon the Lender shall so notify the Borrower.
3.4.4 Certain LIBOR Loan Definitions.
"LIBOR Loan" shall mean any Loan which bears interest at a rate
determined with reference to the LIBOR Rate and which is not less
than $250,000, and which is an integral multiple of One Hundred
Thousand Dollars ($100,000).
"LIBOR Rate" applicable to any Interest Period, shall mean a rate
per annum determined pursuant to the following formula:
LR = [ IOR ]*
---------
[1.00 - RP ]
LR = LIBOR Rate
IOR = Interbank Offered Rate
RP = Reserve Percentage
* The amount in brackets shall be rounded upwards, if necessary, to
the next higher 1/100 of 1%.
"Interbank Offered Rate" applicable to any LIBOR Loan for any
Interest Period means the rate of interest determined by the Lender
to be the prevailing rate per annum at which deposits in U.S.
dollars are offered to the Lender by First-class banks in the
interbank eurodollar market in which it regularly participates on or
about 10:00 a.m. (Boston time) two Business Days before the first
day of such Interest Period in an amount approximately equal to the
principal amount of the LIBOR Loan to which such Interest Period is
to apply for a period of time approximately equal to such Interest
Period.
"Reserve Percentage" applicable to any Interest Period means the
rate (expressed as a decimal) applicable to the Lender during such
Interest Period under regulations issued from time to time by the
Board of Governors of the Federal Reserve System for determining the
maximum reserve requirement (including, without limitation, any
basic, supplemental, emergency or marginal reserve requirement) of
the Lender with respect to "Eurocurrency Liabilities" as that term
is defined under such regulations.
The LIBOR Rate shall be adjusted automatically as of the effective
date of any change in the Reserve Percentage.
"Interest Period" with respect to each LIBOR Loan means the period
commencing on the date of the making or continuation of or
conversion to such LIBOR Loan and ending one, two or three months
thereafter, as the Borrower may elect in the applicable notice of
borrowing or conversion as provided in Section 3.4.1; provided that:
(a) any Interest Period (other than an Interest Period determined
pursuant to clause (d) below) that would otherwise end on a day that
is not a Business Day shall be extended to the next succeeding
Business Day unless, in the case o LIBOR Loans, such Business Day
falls in the next calendar month, in which case such Interest Period
shall end on the immediately preceding Business Day;
(b) any Interest Period applicable to a LIBOR Loan that begins on
the last Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the calendar month at
the end of such Interest Period) shall, subject to clause (d) below,
end on the last Business Day of a calendar month; and
(c) notwithstanding clause (a) above, no Interest Period applicable
to a LIBOR Loan shall have a duration of less than one month; and if
any Interest Period applicable to such Loans would be for a shorter
period, such Interest Period shall not be available hereunder.
3.4.5 Indemnification for Funding and Other Losses. The Borrower
agrees to indemnify the Lender and to hold it harmless from and
against any loss, cost or expense that the Lender may in its good
faith opinion sustain or incur by reason of liquidation or
re-deployment of deposits or other funds obtained by it in order to
maintain any LIBOR Loan as a consequence of (i) default by the
Borrower in payment of the principal amount of or any interest on
any LIBOR Loan as and when due and payable, including any such loss
or expense arising from interest or fees payable by the Lender to
lenders of funds obtained by it to maintain its LIBOR Loans, (ii)
default by the Borrower in making a borrowing or conversion after it
has giving (or is deemed to have given) a notice of borrowing or
conversion under Section 3.4.1 or (iii) the making of any payment of
a LIBOR Loan or the making of any conversion of any such Loan to a
Base Rate loan on a day that is not the last day of the applicable
Interest Period with respect thereto.
3.4.6 Change in Applicable Laws, Regulations, etc. If any legal
requirement shall make it unlawful for the Lender to fund through
the purchase of U.S. dollar deposits any LIBOR Loan, or, after the
date hereof, any change in capital adequacy requirements shall
increase the Lender's cost of funds or shall impose on the Lender
any costs based on or measured by the excess above a specified level
of the amount of a category of deposits or other liabilities of the
Lender, which includes deposits by reference to which the LIBOR Rate
is determined as provided herein or a category of extension so
credit or other assets of the Lender which includes any LBIOR Loan,
or shall impose on the Lender any restrictions on the amount of such
a category of liabilities or assets which the Lender may hold which
increases the cost tot he Lender, (a) the Lender may by notice
thereof to the Borrower terminate the LIBOR Loan, (b) any LIBOR Loan
subject thereto shall immediately bear interest thereafter at the
rate provided for in Section 5(b) hereof and the Borrower shall
indemnify the Lender against any loss, penalty or expense incurred
by the Lender by reason of the liquidation or redeployment of
deposits or other funds acquired by the Lender to fund or maintain
such LIBOR Loan.
3.4.7 Taxes. It is the understanding of the Borrower and the Lender
that the Lender shall receive payments of amounts of principal and
interest on a LIBOR Loan free and clear of, and without deduction
for, any taxes, other than taxes imposed on the net income of the
Lender and franchise and corporation taxes imposed on the Lender in
each case by the jurisdiction under the laws of which the Lender is
organized or otherwise doing business (any such nonexcluded tax a
"Tax"). If the Borrower shall be required to withhold or deduct any
such Tax from any such payment and the requirement to withhold or
deduct such amounts in respect of such Tax the Lender shall receive
an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions
and (iii) the Borrower shall pay the full amount deducted to the
relevant taxing authority. If after any such adjustment, any part of
any such Tax is subsequently recovered by the Lender, the Lender
shall reimburse the borrower to the extent of the amount so
recovered. the Lender shall use reasonable efforts to the extent so
requested by the Borrower to recover any such Tax. the Borrower
shall reimburse the Lender for all out-of-pocket costs incurred by
such Lender in pursuing such recovery. A certificate of any officer
of the Lender setting for the amount of such recovery and the basis
therefor shall, in the absence of manifest error, be conclusive.
6. Section 5(b) of the Agreement is hereby amended so that it reads in
its entirety as follows:
(b) Except for leans bearing interest at the LIBOR Rate plus
one and one quarter percent (1/25%), interest on loans computed on
the daily debit balance in the Loan Account at a rate per annum
which at all times shall be the rate of interest announced from time
to time by the Lender at its Head Office as its Base Rate (the "Base
Rate") calculated on the basis of a 360 day year for the actual
number of days elapsed and payable monthly unless otherwise
demanded; provided, however, that if any loan is not paid when due
or upon demand, then the debit balance of the Loan Account shall
bear interest (regardless of the interest rate applicable to any
particular loan), to the extent permitted by law, compounded monthly
at an interest rate equal to two percentage points (2%) above the
Base Rate in effect on the first Business Day after such loan
becomes overdue. Any change in the Base Rate shall become effective
as of the beginning of the day during which such change in the Base
Rate occurs.
7. The Borrowers and the Lender further agree to delete Sections 2.9
(ii), 7.1, 8 and 10 from the Agreement in their entirety and not to continue all
existing financing statements.
8. Section 13.13 of the Agreement is amended in its entirety to read as
follows:
13.13 Termination. Either PAREXEL or the Lender may terminate this
Agreement at any time upon written notice to the other party of such
termination. Any such termination shall in no way affect any
transactions entered into or rights created or obligations incurred
prior to the receipt of such notice by the other party, as to which
transactions, rights and obligations this Agreement shall be fully
operative until the same are fully disposed of, concluded or
liquidated; provided that the Borrowers or either of them hereby
agree that the Lender shall make no further Loans after the
effective date of any termination and all Obligations shall be due
and payable without notice or demand on the effective date of any
such termination. This shall be a continuing agreement until all
Obligations are paid in full.
The Borrowers hereby, jointly and severally, affirm (1) any and all
Obligations, including without limitation, the Obligations under the Agreement
or any Obligations under foreign exchange lines in U.S. Dollars or other
currency, as modified from time to time, of the Borrowers or any of them to the
Lender and any of its affiliates and (2) that Obligations under the Agreement
include, without limitation, any and all guarantees made by the Borrowers or any
of them to the Lender or any of its affiliates of any and all Obligations of the
Borrowers or any of their respective affiliates tot he Lender and its
affiliates, including, without limitations, a 400,000 Great Britain Pounds
Sterling limited guaranty dated March 7, 1994 for the account of Parexel
International Limited, a 750,000 French Franc limited guaranty dated December
30, 1994, which guaranty was amended and increased to 2,500,000 French Franc,
for the account of Parexel International-SARL and a 2,000,000 Deutsche Marks
limited guaranty dated December 30, 1994 for the account of AFB-Parexel GmbH,
all of which amounts which are not otherwise secured by foreign accounts
receivable shall continue to be deducted from the Borrowing Base (in equivalent
U.S. Dollars), and (3) that any guarantee by the Borrowers or any of them to the
Bank, now existing or hereafter granted by the Borrowers or any of them to the
Bank, now existing or hereafter granted by the Borrowers or any of them tot he
Bank and all Obligations of the Borrowers or either of them to any affiliate of
the Bank, including without limitation BancBoston Leasing, Inc. or any of its
affiliates.
Except as specifically modified hereby, all terms and provisions of the
Agreement are ratified and confirmed as of the date hereof, and the Borrowers,
jointly and severally, represent and warrant that no Event of Default, or event
which with the giving of notice or passage of time would constitute an Event of
Default has occurred and is continuing thereunder as defined by the Agreement.
The Borrowers warrant and represent that each of the Borrowers is
authorized to execute this amendment to the Agreement, as set forth above,
without any further action by the directors or shareholders of either Borrower.
The Borrowers further warrant and represent that this amendment of the Agreement
are each a valid, binding and enforceable agreement and amendment as to the
Borrowers and each of them.
All other terms and conditions of the Agreement shall remain in full
force and effect as amended through the date hereof.
Please sign the enclosed copy of this letter below where indicated and
return it tot he undersigned whereupon this letter will be deemed to be an
amendment to the Agreement as an instrument under seal to be governed by the
laws of The Commonwealth of Massachusetts effective as of June , 1997.
Very truly yours,
PAREXEL INTERNATIONAL CORPORATION
By:/s/William T. Sobo, Jr.
Its:Senior V.P./CFO
hereunto duly authorized
SIGNATURES CONTINUED ON NEXT PAGE
<PAGE>
BARNETT INTERNATIONAL CORPORATION
By:/s/William T. Sobo, Jr.
Its:Treasurer
hereunto duly authorized
Accepted and Agreed to:
BANKBOSTON, N.A.
formerly known as
THE FIRST NATIONAL BANK OF BOSTON
By:Virginia Dennett
Its:Vice President
<PAGE>
EXHIBIT 3.3
PAREXEL INTERNATIONAL CORPORATION
BARNETT INTERNATIONAL CORPORATION
BORROWING BASE CERTIFICATE
Date:
ACCOUNTS RECEIVABLE
Total Domestic Base Accounts (excluding foreign accounts
as provided in the Loan Agreement)
Less: (i) Accounts over 60 days past invoice date ( )
---------
(ii) Intercompany Accounts with Affiliates ( )
---------
(iv) Contras or disputed Accounts ( )
---------
(vi) Credits ( )
---------
(vii) Other ineligible Accounts ( )
---------
9. NET OUTSTANDING AMOUNT OF DOMESTIC BASE ACCOUNTS $:
----------------
10. BORROWING BASE AVAILABILITY (1x 70%) $
----------------
11. TOTAL GROSS AVAILABILITY: LESSER OF 2
OR $10,000,000 $
----------------
12. TOTAL DEBIT BALANCE
IN LOAN ACCOUNT: $
----------------
13. NET AVAILABILITY(3-4) $
----------------
(IF NEGATIVE NUMBER MUST BE REPAID IMMEDIATELY)
CERTIFIED THIS DAY OF , 19____
PAREXEL INTERNATIONAL CORPORATION
By:
Title:
<PAGE>
Exhibit 10.16
PAREXEL INTERNATIONAL CORPORATION
1998 NON-QUALIFIED, NON-OFFICER STOCK OPTION PLAN
1. Purpose. This 1998 Non-Qualified, Non-Officer Stock Option Plan (the
"Plan") is intended to provide incentives to certain employees and consultants
of PAREXEL INTERNATIONAL CORPORATION (the "Company"), and of any present or
future parent or subsidiary of the Company ("Related Corporations") by providing
them with opportunities to purchase stock in the Company pursuant to options
("Non-Qualified Options or "Options") granted hereunder which do not qualify as
"incentive stock options" ("ISOs") under Section 422(b) of the Internal Revenue
Code (the "Code"). The Plan is not intended to provide options to any officus or
directors of the Company a related Corporation's.
2. Administration of the Plan.
A. Board or Committee Administration. The Plan shall be
administered by the Board of Directors of the Company (the "Board") or
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. Subject to ratification of the grant
or authorization of each Option 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 to whom, from among
the class of individuals and entities eligible under paragraph 3 to
receive Options, Options may be granted; (ii) determine the time or
times at which Options shall be granted; (iii) determine the option
price of shares subject to each Option, which price shall not be less
than the minimum price specified in paragraph 6; (iv) determine
(subject to paragraph 7) the time or times when each Option shall
become exercisable and the duration of the exercise period; (v)
determine whether restrictions such as repurchase options are to be
imposed on shares subject to Options and the nature of such
restrictions, if any, and (vi) interpret the Plan and prescribe and
rescind rules and regulations relating to it. The Committee shall take
whatever actions it deems necessary, under Section 422 of the Code and
the regulations promulgated thereunder, to ensure that no Option issued
hereunder is treated as an ISO. The interpretation and construction by
the Committee of any provisions of the Plan or of any Option 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 advisable. 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 Option 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. A majority of the Committee shall
constitute a quorum and 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.
3. Eligible Employees and Others. Non-Qualified Options may be granted
to any employee or consultant of the Company or any Related Corporation who is
not an officer or director of the Company. Options may not be granted to any
officers or directors of the Company or any related Corporations. The Committee
may take into consideration a recipient's individual circumstances in
determining whether to grant an Option. The granting of any Option to any
individual or entity shall neither entitle such grantee to, nor disqualify such
grantee from, participation in any other grant of Options.
4. Stock. The stock subject to Options 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 is
1,500,000, subject to adjustment as provided in paragraph 12. 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 of Common Stock
subject to such Option shall again be available for grants of Options under the
Plan.
5. Granting of Options. Options may be granted under the Plan at any
time on or after February 26, 1998 and prior to February 26, 2008. The date of
grant of an Option under the Plan will be the date specified by the Committee at
the time it grants the Option; provided, however, that such date shall not be
prior to the date on which the Committee acts to approve the grant.
6. Minimum Option Price. The exercise price per share specified in the
agreement relating to each Non-Qualified Option granted under the Plan (the
"Agreement"), may be less than the fair market value of the Common Stock of the
Company on the date of grant, but 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.
7. Option Duration. Subject to earlier termination as provided in
paragraph 9 or as specified in the Agreement relating to such Option, each
Option shall expire on the date specified by the Committee, but not more than
ten years from the date of grant.
8. Exercise of Option. Subject to the provisions of paragraphs 9
through 11, each Option granted under the Plan 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.
9. Termination of Business Relationship. Each Option may provide that
it shall terminate before its stated expiration date, upon terms specified by
the Committee, if the optionee ceases to be an employee or consultant of the
Company, of any Related Corporation, or of the Company and all Related
Corporations (any such relationship hereinafter referred to as a "Business
Relationship with the Company"). Nothing in the Plan or any Option granted
hereunder shall be deemed to give any optionee the right to continue his or her
Business Relationship with the Company for any period of time.
10. 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 Option granted under this Plan shall be exercisable only by him.
Notwithstanding the foregoing, the Committee may, in its discretion, authorize
all or a portion of any Option granted under this Plan 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 Option shall be prohibited except in accordance with this
paragraph. Following any such transfer, the 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 12, 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 Option shall be exercisable by the transferee only to the extent, and for
the periods specified therein.
11. 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 6 through 10 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 Option
shall be subject to the restrictions set forth herein or, consistent with
paragraph 7, to such other or additional 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.
12. Adjustments. Upon the occurrence of any of the following events, an
optionee's rights with respect to Options granted to such optionee hereunder
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 Options 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 or other
reorganization in which the holders of the outstanding voting stock of
the Company immediately preceding the consummation of such event,
shall, immediately following such event, hold, as a group, less than a
majority of the voting securities of the surviving or successor entity,
or in the event of a sale of all or substantially all of the Company's
assets or otherwise (each, 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, 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
must be exercised, to the extent then exercisable or to be exercisable
as a result of the Acquisition, 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 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 or to be
exercisable as a result of the Acquisition) 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 such optionee would have
received if such optionee had exercised his or her Option prior to such
recapitalization or reorganization.
D. Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, each Option 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.
E. 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.
F. 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.
G. 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
Options which previously have been or subsequently may be granted under
the Plan shall also be appropriately adjusted to reflect the events
described in such subparagraphs.
13. Means of Exercising Options. An Option (or any part or installment
thereof) shall be exercised by giving written notice to the Company at its
principal office address, or to such transfer agent as the Company shall
designate. Such notice shall identify the Option being exercised and specify the
number of shares as to which such Option 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 having a fair market value equal as of the date of the
exercise to the cash exercise price of the Option, (c) at the discretion of the
Committee, by delivery of the optionee's personal recourse note bearing interest
payable not less than annually at no less than 100% of the lowest applicable
Federal rate, as defined in Section 1274(d) of the Code, (d) 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 Option 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 (e) at the
discretion of the Committee, by any combination of (a), (b), (c) and (d) above.
The holder of an Option shall not have the rights of a shareholder with respect
to the shares covered by such Option until the date of issuance of a stock
certificate to such holder for such shares. Except as expressly provided above
in paragraph 12 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.
14. Term and Amendment of Plan. This Plan was adopted by the Board on
February 26, 1998. The Plan shall expire at the end of the day on February 26,
2008 (except as to Options outstanding on that date). The Board may terminate or
amend the Plan in any respect at any time. Except as otherwise provided in this
paragraph 14, in no event may action of the Board alter or impair the rights of
an optionee, without his or her consent, under any Option previously granted to
such optionee.
15. Application Of Funds. The proceeds received by the Company from the
sale of shares pursuant to Options granted under the Plan shall be used for
general corporate purposes.
16. Withholding of Additional Income Taxes. Upon the grant or exercise
of an Option, the vesting or transfer of an Option pursuant to an arm's-length
transaction, the vesting or transfer of restricted stock or securities acquired
upon the exercise of an Option 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 grant or exercise
of an Option, (ii) the transfer of an Option or (iii) the vesting or
transferability of restricted stock or securities acquired by exercising a
Option, on the optionee's making satisfactory arrangement for such withholding.
Such arrangement may include payment by the optionee in cash or by check of the
amount of the withholding taxes or, at the discretion of the Committee, by the
optionee's delivery of previously held shares of Common Stock or the withholding
from the shares of Common Stock otherwise deliverable upon exercise of a Option
shares having an aggregate fair market value equal to the amount of such
withholding taxes.
17. Determination of Fair Market Value of Common Stock. Whenever, under
the terms of any option agreement or in administering the Plan, it is necessary
or desirable to determine the fair market value of the Company's Common Stock,
the Committee shall make such determination in accordance with this Section.
"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.
18. Governmental Regulation. 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. Government regulations may impose reporting or
other obligations on the Company with respect to the Plan. For example, the
Company may be required to file tax information returns reporting the income
received by optionees in connection with the Plan.
19. Governing Law. The validity and construction of the Plan and the
instruments evidencing Options 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.
<PAGE>
Specified portions of the Registrant's Exhibit 13.1
1999 Annual Report to Stockholders
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
PAREXEL International Corporation (the "Company") is a leading contract
research, medical marketing, and consulting 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 its clients rapidly
obtain the necessary regulatory approvals for their products and market those
products successfully. The Company provides the following services to its
clients:
o clinical trials management;
o data management;
o biostatistical analysis;
o medical marketing;
o clinical pharmacology;
o regulatory and medical consulting;
o performance improvement;
o industry training and publishing; and
o other drug development consulting services.
The Company is managed through three reportable segments, namely, the contract
research services group, the consulting services group and the medical marketing
services group. The contract research services group ("CRS") constitutes the
Company's core business and includes clinical trials management, biostatistics
and data management, as well as related medical advisory, information
technology, and investigator site services. PAREXEL's consulting group ("PCG")
provides technical expertise in such disciplines as clinical pharmacology,
regulatory affairs, industry training, publishing, and drug development. These
consultants identify options and propose solutions to address clients' product
development, registration, and commercialization issues. The medical marketing
services group ("MMS") provides a full spectrum of market development, product
development, and targeted communications services in support of product launch.
The Company's contracts are typically fixed price, multi-year contracts that
require a portion of the fee to be paid at the time the contract is entered
into, with 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. The contracts may contain provisions for
renegotiation of cost overruns arising from changes in the scope of work.
Renegotiated amounts are included in net revenues when earned and realization is
assured.
Generally, the Company's contracts are terminable upon sixty 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
independent physician investigators in connection with clinical trials and other
third party service providers for laboratory analysis and other specialized
services. These fees are not reflected in net revenues or expenses since such
fees are granted by customers on a "pass-through basis" without risk or reward
to the Company.
Direct costs primarily consist of compensation and related fringe benefits for
project-related employees, other project-related costs not reimbursed, and
allocated facilities and information systems costs. Selling, general, and
administrative expenses 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.
The Company's stock is quoted on the Nasdaq Stock Market under the symbol
"PRXL."
RESULTS OF OPERATIONS
Acquisition and Impact of Merger-Related, Facilities and Other Charges
In March 1999, the Company acquired the stock of Groupe PharMedicom S.A. in
exchange for approximately 199,600 shares of the Company's common stock in a
transaction accounted for as a purchase business combination. Groupe PharMedicom
S.A. is a leading French provider of post-regulatory services to pharmaceutical
manufacturers. The Company recorded approximately $8.5 million related to the
excess cost over the fair value of the net assets acquired.
During fiscal 1999, the Company recorded $1.9 million in costs related to the
terminated merger agreement with Covance Inc. and $2.8 million in leasehold
abandonment charges resulting primarily from the centralization of certain
facilities. The Company plans to exit under-utilized leased facilities in North
America and Germany by December 1999. In addition, the Company recorded a $3.5
million reduction in revenue during fiscal 1999 resulting from lowering the
estimated contract value related to a contract payment renegotiation. These
charges significantly impacted the Company's results of operations for the year
ended June 30, 1999.
Fiscal Year Ended June 30, 1999 Compared to Fiscal Year Ended June 30, 1998
Net revenue increased $63.0 million, or 22.1%, to $348.5 million for fiscal 1999
from $285.4 million for 1998. This net revenue growth was primarily attributable
to an increase in the volume of projects serviced by the Company. In fiscal
1999, net revenue from North American, European, and Asian operations increased
13%, 37%, and 24%, respectively, over the prior year.
Direct costs increased $47.9 million, or 25.8%, to $233.7 million for fiscal
1999 from $185.7 million for 1998. This increase in direct costs was primarily
due to the increase in hiring and personnel costs along with related facilities
and information system costs necessary to support current and future increased
levels of operations. As a percentage of net revenue, direct costs increased to
67.8% in fiscal 1999 from 65.1% in fiscal 1998, reflecting an increase in
overall operational capacity.
Selling, general, and administrative expenses increased by $10.7 million, or
17.5%, to $71.7 million for fiscal 1999 from $61.0 million for 1998. This
increase was primarily due to increased selling and administrative personnel
hiring and facilities costs, as a result of building infrastructure to
accommodate the Company's growth. As a percentage of net revenue, selling,
general, and administrative expenses decreased to 20.6% in fiscal 1999 from
21.4% in fiscal 1998.
Depreciation and amortization expense increased $2.8 million, or 18.6%, to $17.9
million for fiscal 1999 from $15.1 million for fiscal 1998. This increase was
primarily due to an increase in capital spending on information technology,
facility improvements, and furnishings necessary to support the increased level
of operations. As a percentage of net revenue, depreciation and amortization
expense decreased to 5.1% in fiscal 1999 from 5.3% in fiscal 1998.
Income from operations increased $7.3 million, or 54.6%, to $20.6 million in
fiscal 1999 from $13.3 million in fiscal 1998. Excluding merger-related and
facilities charges of $4.7 million in fiscal 1999 and $10.3 million in fiscal
1998, income from operations increased $1.6 million, or 7.0%, to $25.2 million
for fiscal 1999 from $23.6 million in fiscal 1998. Excluding the impact of these
charges, income from operations decreased to 7.2% of net revenue for fiscal 1999
from 8.3% in 1998, primarily due to an increase in direct costs and selling,
general, and administrative expenses as noted above.
Interest income decreased $0.5 million in fiscal 1999 primarily due to lower
interest rates obtained due to a shift to tax-exempt securities in the second
half of fiscal 1998, partially offset by a shift back to taxable securities in
the third quarter of fiscal 1999.
The Company's effective income tax rate decreased to 34.8% in fiscal 1999 from
45.2% in fiscal 1998. Excluding the effect of certain non-deductible
merger-related charges, the effective tax rate for fiscal 1998 would have been
36.2%. This decrease was attributable to changes in the mix of taxable income
from the different geographic jurisdictions in which the Company operated in
fiscal 1999 compared to fiscal 1998.
Fiscal Year Ended June 30, 1998 Compared To Fiscal Year Ended June 30, 1997
Net revenue increased by $81.8 million, or 40.1%, to $285.4 million for fiscal
1998 from $203.7 million for fiscal 1997. For fiscal 1998, net revenue from
North American, European, and Asian operations increased 49%, 29%, and 19%,
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 10-K for the fiscal year
ended June 30, 1999.
Direct costs increased by $50.7 million, or 37.5%, to $185.7 million for fiscal
1998 from $135.0 million for fiscal 1997. This increase in direct costs was
primarily 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 to 65.1% for fiscal 1998 from 66.3% for fiscal 1997.
Selling, general, and administrative expenses increased by $17.2 million, to
$61.0 million for fiscal 1998 from $43.8 million for fiscal 1997. This increase
was primarily 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
to 20.8% for fiscal 1998 from 21.5% for fiscal 1997.
Depreciation and amortization expense increased by $7.4 million, to $15.1
million for fiscal 1998 from $7.7 million for fiscal 1997. The increase was
primarily 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 (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%, to $26.9 million (or 9.4% of
net revenue) for fiscal 1998 from $17.1 million (or 8.4% of net revenue) for
fiscal 1997.
Interest income decreased by $0.5 million, or 13.1%, to $3.5 million for fiscal
1998 from $4.0 million for fiscal 1997. This decrease was primarily due to the
decrease in interest income resulting from 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 merger-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.
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
acquisition costs and 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 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 60 days at June 30, 1999, compared to 54 days at
June 30, 1998. The increase in days' revenue outstanding from June 30, 1998 to
June 30, 1999, was primarily due to the timing of certain project milestone
billings and related payments. Accounts receivable, net of the allowance for
doubtful accounts, increased to $150.5 million at June 30, 1999 from $113.5
million at June 30, 1998. Advance billings increased to $69.8 million at June
30, 1999 from $45.3 million at June 30, 1998.
During fiscal 1999, the Company's operations provided net cash of $29.1 million,
an increase of $29.0 million from the corresponding fiscal 1998 amount. Cash
flows from net income adjusted for non-cash activity provided $32.9 million
during fiscal 1999, up $3.6 million from the corresponding fiscal 1998 amount.
The change in net operating assets used $3.8 million in cash during fiscal 1999,
primarily due to an increase in accounts receivable partially offset by an
increase in advance billings and other current liabilities. In comparison, for
fiscal 1998, the change in net operating assets used $29.2 million in cash.
Net cash used by investing activities totaled $8.4 million for fiscal 1999 in
comparison to $1.0 million provided by investing activities in fiscal 1998. The
primary use of net cash for investing activities represented capital
expenditures of $18.9 million related to facility expansions and investments in
information technology in fiscal 1999, in comparison to $27.7 million in fiscal
1998. These amounts were either partially or fully offset by the net proceeds
from sales of marketable securities of $9.5 million in fiscal 1999 and $30.1
million in fiscal 1998. Financing activities consisted primarily of net proceeds
from the issuance of common stock of $4.1 million, partially offset by net
repayments on lines of credit and long-term debt of $1.3 million.
The Company has domestic and foreign lines of credit with banks totaling
approximately $14.1 million. At June 30, 1999, the Company had approximately
$13.0 million in available credit under these arrangements.
The Company's primary cash needs are for the payment of salaries and fringe
benefits, hiring and recruiting expenses, business development costs,
acquisition-related 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 that
involve risks and uncertainties. Such forward-looking statements include those
related to the adequacy of the Company's existing capital resources and future
cash flows from operations, the Company's Year 2000 readiness, and the Company's
desire to continue to expand through acquisitions. The forward-looking
statements contained in this section include, but are not limited to, any
statements containing the words "expects," "anticipates," "estimates,"
"believes," "may," "will," "should," and similar expressions, and the negatives
thereof. The Company's actual experience may differ materially from the
Company's expectation as discussed in the forward-looking statement. Factors
that could cause such a difference include, but are not limited to, the failure
to successfully consummate a strategic acquisition or merger; the failure to
achieve expected synergies from a strategic acquisition or merger; the potential
loss or cancellation of, or delay of work under one or more large contracts; the
adequacy and effectiveness of the Company's sales force in winning new business;
the ability to attract, train, and retain qualified employees; the Company's
ability to manage adequately its continued expansion; the Company's ability to
meet its deadlines regarding Year 2000 readiness and achieve such readiness
within its expected expense range; and future events that have the effect of
reducing the Company's available cash balances such as unexpected operating
losses, capital expenditures or cash expenditures related to possible future
acquisitions; and those discussed in "Risk Factors" and in the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1999.
YEAR 2000 READINESS DISCLOSURE STATEMENT
Information systems are an integral part of the services the Company provides.
As such, the Company recognizes that it must ensure that its services 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, "99" to represent "1999" rather than the full four
digits. Computer systems engineered in this manner may not operate properly when
the last two digits of the year become "00", as will occur on January 1, 2000.
The Company established a Year 2000 Program in 1998 to address the Year 2000
Issue. A multi-phase program was initiated that involved inventory analysis,
assessment and testing, remediation planning and execution, contingency and
transition planning. The scope of this program includes an assessment of
critical vendors and suppliers of services to assess whether their Year 2000
Issues, if any, will affect the Company.
The Year 2000 Program is managed by a central program office which provides
strategy, methodology, tracking, communications, documentation control, quality
assurance and coordination of the multiple Year 2000 projects. This approach
ensures that each business unit has responsibility for its respective area and
works within a common framework. The program office has defined standard
deliverables for all Year 2000 projects and has established interim milestones
to monitor and measure weekly and monthly progress.
Existing information technology investment projects have been adjusted to
incorporate the needs of Year 2000 compliance and some of the Year 2000
remediation activities have been encompassed within existing upgrade and
replacement programs.
The Company's Year 2000 Program has made steady progress during fiscal 1999 and
is on schedule to have all internal systems compliant by October 1999. The
Company's remediation activities are based on a risk-driven approach designed to
focus Company resources based on the prioritization of critical business
functions. Accordingly, by June 1999, the Company's data centers used for
worldwide clinical data management processing were already upgraded and running
Year 2000 compliant versions of software, hardware and communications
infrastructure.
In addition to vendor certification, the Company is conducting time box testing
for systems deemed critical to its operations and to the integrity of clinical
data. Time box testing utilizes a test machine to test software in a simulated
environment where the clock on the machine is advanced to January 1, 2000 and
all applications are tested to ensure that the application is still functioning
correctly in a simulated Year 2000 environment. Remediation is on schedule and
targeted for completion during September 1999 for all remaining systems.
The Company is developing contingency plans for critical business processes that
are dependent on third party services which are out of the direct control of the
Company. These contingency plans are scheduled to be completed by October 1999.
The Year 2000 transition will be monitored and coordinated by a command and
control center that will be responsible for incident management, status
consolidation, and the coordination of the Year 2000 transition team during the
period from December 1999 through January 2000.
The Company estimates that the aggregate cost of its Year 2000 Program will be
approximately $3 million. For the year ended June 30, 1999, the Company has
incurred approximately $2.0 million of these costs. The Company's estimates
regarding the cost, timing, and impact of addressing the Year 2000 Issue are
based on numerous assumptions of future events, including the continued
availability of certain resources, the ability of the Company to meet its
deadlines, and the cooperation of third parties. However, if the Company cannot
continue to utilize certain resources or rely on third parties to respond in a
timely manner, or if the Company fails to meet its deadlines among other things,
actual results could differ materially from those expected by the Company.
MARKET RISK
Market risk is the potential loss arising from adverse changes in the market
rates and prices, such as foreign currency rates, interest rates, and other
relevant market rate or price changes. In the ordinary course of business, the
Company is exposed to various market risks, including changes in foreign
currency exchange rates and interest rates, and the Company regularly evaluates
its exposure to such changes. The Company's overall risk management strategy
seeks to balance the magnitude of the exposure and the costs and availability of
appropriate financial instruments. 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. The Company does not hold derivative
instruments for trading purposes.
Foreign Currency Exchange Rates
The Company derived approximately 43% of its net revenues for fiscal 1999, 39%
of its net revenue for fiscal 1998, and 42% of its net revenues for fiscal 1997,
from operations outside of North America. The Company does not have significant
operations in countries in which the economy is considered to be highly
inflationary. The Company's financial statements are denominated in U.S.
dollars, and accordingly, changes in the exchange rate between foreign
currencies and the U.S. dollar will affect the translation of such subsidiaries'
financial results into U.S. dollars for purposes of reporting the Company's
consolidated financial results.
The Company may be subject to foreign currency transaction risk when the
Company's foreign subsidiaries 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.
In cases where the Company contracts for a multi-country clinical trial and a
significant portion of the contract expenses are in a currency other than the
contract currency, the Company seeks to contractually shift to its client the
effect of fluctuations in the relative values of the contract currency and the
currency in which the expenses are incurred. To the extent the Company is unable
to shift to its clients the effects of currency fluctuations, these fluctuations
could have a material effect on the Company's results of operations. The Company
occasionally hedges against the risk of exchange rate fluctuations between the
G.B. pound and the U.S. dollar for three month periods.
INFLATION
The Company believes the effects of inflation generally do not have a material
adverse impact on its operations or financial condition.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued Statement of Financial Accounting Standards
("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 2001. The Company does not believe adoption of SFAS No. 133 will have
a material impact on its financial position or its results of operations.
<TABLE>
<CAPTION>
PAREXEL INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended June 30,
($ in thousands, except per share data) 1999 1998 1997
- ------------------------------------------------------------------------ ---------------- ------------------ -----------------
<S> <C> <C> <C>
Net revenue $348,486 $285,442 $203,676
- ------------------------------------------------------------------------ ---------------- ------------------ -----------------
Costs and expenses:
Direct costs 233,650 185,718 135,048
Selling, general, and administrative 71,690 61,036 43,799
Depreciation and amortization 17,932 15,114 7,710
Merger-related and facilities charges 4,650 10,273 -
- ------------------------------------------------------------------------ ---------------- ------------------ -----------------
327,922 272,141 186,557
- ------------------------------------------------------------------------ ---------------- ------------------ -----------------
Income from operations 20,564 13,301 17,119
- ------------------------------------------------------------------------ ---------------- ------------------ -----------------
Interest income 3,018 3,511 4,040
Interest expense (351) (195) (278)
Other income (expense), net 720 382 241
- ------------------------------------------------------------------------ ---------------- ------------------ -----------------
3,387 3,698 4,003
- ------------------------------------------------------------------------ ---------------- ------------------ -----------------
Income before provision for
income taxes 23,951 16,999 21,122
Provision for income taxes 8,329 7,680 8,319
- ------------------------------------------------------------------------ ---------------- ------------------ -----------------
Net income $15,622 $9,319 $12,803
- ------------------------------------------------------------------------ ---------------- ------------------ -----------------
Earnings per share:
Basic $0.63 $0.39 $0.59
Diluted $0.62 $0.38 $0.56
- ----------------------------------------------------------------------- ----------------- ------------------ -----------------
Shares used in computing earnings per share:
Basic 24,848 23,939 21,628
Diluted 25,128 24,825 22,822
- ----------------------------------------------------------------------- ----------------- ------------------ -----------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<TABLE>
<CAPTION>
PAREXEL INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30,
($ in thousands, except share data) 1999 1998
- --------------------------------------------------------------------------------------------- ----------------- ------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 62,005 $ 39,941
Marketable securities 27,952 37,479
Accounts receivable, net 150,520 113,500
Prepaid expenses 7,917 8,136
Deferred tax assets 14,011 7,869
Other current assets 2,421 2,805
- --------------------------------------------------------------------------------------------- ----------------- ------------------
Total current assets 264,826 209,730
Property and equipment, net 47,065 45,311
Other assets 21,674 6,717
- --------------------------------------------------------------------------------------------- ----------------- ------------------
$333,565 $261,758
- --------------------------------------------------------------------------------------------- ----------------- ------------------
LIABILITIES AND STOCKHOLDERS'EQUITY
Current liabilities:
Notes payable and current portion of long-term debt $1,057 $1,413
Accounts payable 14,698 10,923
Advance billings 69,776 45,273
Other current liabilities 46,538 33,184
- --------------------------------------------------------------------------------------------- ----------------- ------------------
Total current liabilities 132,069 90,793
Long-term debt 79 36
Other liabilities 9,385 2,549
- --------------------------------------------------------------------------------------------- ----------------- ------------------
Total liabilities 141,533 93,378
- --------------------------------------------------------------------------------------------- ----------------- ------------------
Commitments (Note 14)
Stockholders' equity:
Preferred stock--$.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, 1999 and 1998; shares
issued: 25,132,461 at June 30, 1999 and
24,657,637, at June 30,1998; shares outstanding:
25,103,049 at June 30, 1999 and 24,628,225 at
June 30, 1998 251 246
Additional paid-in capital 159,575 149,921
Retained earnings 35,785 20,163
Accumulated other comprehensive income (3,579) (1,950)
- --------------------------------------------------------------------------------------------- ----------------- ------------------
Total stockholders' equity 192,032 168,380
- --------------------------------------------------------------------------------------------- ----------------- ------------------
Total liabilities and stockholders' equity $333,565 $261,758
- --------------------------------------------------------------------------------------------- ----------------- ------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<TABLE>
<CAPTION>
PAREXEL INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'EQUITY
Common Stock
Retained Accumulated Total
Additional Earnings Other Stock-
Number Par Paid-in (Accumulated Comprehen- holders' Comprehen-
($ in thousands, except share data) Of Shares Value Capital Deficit) sive Income Equity sive Income
- ------------------------------------------------- ------------ ------- ----------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
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/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 company (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 $ 97
Foreign currency translation (1,271) (1,271) (1,271)
Net income 12,803 12,803 12,803
- ------------------------------------------------- ------------ ------- ----------- ------------ ------------ ------------ ----------
Balance at June 30, 1997 23,991,670 240 136,549 11,488 (829) 147,448 $11,629
=======
Shares issued under stock/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 (Note 1) 85 85
Net unrealized loss on marketable securities (140) (140) $ (140)
Foreign currency translation (981) (981) (981)
Net income 9,319 9,319 9,319
- ------------------------------------------------- ------------ -------- ---------- ------------ ------------ ---------- ------------
Balance at June 30, 1998 24,628,225 246 149,921 20,163 (1,950) 168,380 $8,198
======
Shares issued under stock option/purchase plans 275,256 3 4,145 4,148
Income tax benefit from exercise of stock options 765 765
Acquisition (Note 3) 199,568 2 4,744 4,746
Net unrealized loss on marketable securities (4) (4) $ (4)
Foreign currency translation (1,625) (1,625) (1,625)
Net income 15,622 15,622 15,622
- ------------------------------------------------- ------------ -------- ---------- ------------ ------------ ---------- ------------
Balance at June 30, 1999 25,103,049 $251 $159,575 $35,785 ($3,579) $192,032 $13,993
=======
- ------------------------------------------------- ------------ -------- ---------- ------------ ------------ ---------- ------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<TABLE>
<CAPTION>
PAREXEL INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended June 30,
($ in thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------- --------------- -------------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $15,622 $9,319 $12,803
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 17,932 15,114 7,710
Gain on sale of investment (647) - -
Stock compensation charges of acquired companies - 4,844 1,048
Change in assets and liabilities, net of effects from acquisitions:
Restricted cash - 1,967 168
Accounts receivable, net (35,970) (26,829) (27,373)
Deferred tax assets (6,142) (4,618) (240)
Prepaid expenses and other current assets 899 (2,691) (1,828)
Other assets (5,892) (1,637) (192)
Accounts payable 2,700 498 (834)
Advance billings 23,033 (897) 13,456
Other current liabilities 11,168 5,022 16,590
Other liabilities 6,421 (15) 699
- ---------------------------------------------------------------------------------------- --------------- -------------- ------------
Net cash provided by operating activities 29,124 77 22,007
- ---------------------------------------------------------------------------------------- --------------- -------------- ------------
Cash flows from investing activities:
Purchase of marketable securities (76,641) (118,533) (118,698)
Proceeds from sale of marketable securities 86,168 148,634 81,223
Cash of acquired companies 633 - -
Purchase of property and equipment (18,910) (27,736) (25,112)
Proceeds on sale of investment 1,287 - -
Other investing activities (921) (1,377) 781
- ---------------------------------------------------------------------------------------- --------------- -------------- ------------
Net cash provided (used) by investing activities (8,384) 988 (61,806)
- ---------------------------------------------------------------------------------------- --------------- -------------- ------------
Cash flows from financing activities:
Proceeds from issuance of common stock 4,148 4,906 60,554
Net borrowings (repayments) under line of credit 1,057 (866) 63
Repayments of long-term debt (2,378) (100) (3,464)
Dividends paid by acquired companies - (1,293) (1,293)
- ---------------------------------------------------------------------------------------- --------------- -------------- ------------
Net cash provided by financing activities 2,827 2,647 55,860
- ---------------------------------------------------------------------------------------- --------------- -------------- ------------
Elimination of net cash activities of acquired companies for
duplicated periods - 672 (21)
- ---------------------------------------------------------------------------------------- --------------- -------------- ------------
Effect of exchange rate changes on cash and cash equivalents (1,503) (1,069) (1,289)
- ---------------------------------------------------------------------------------------- --------------- -------------- ------------
Net increase in cash and cash equivalents 22,064 3,315 14,751
Cash and cash equivalents at beginning of year 39,941 36,626 21,875
- ---------------------------------------------------------------------------------------- --------------- -------------- ------------
Cash and cash equivalents at end of year $62,005 $39,941 $36,626
- ---------------------------------------------------------------------------------------- --------------- -------------- ------------
Supplemental disclosures of cash flow information: Cash paid during the year
for:
Interest $ 84 $ 188 $ 283
Income taxes $7,201 $4,730 $1,909
Supplemental disclosures of noncash investing and financing activities:
Property and equipment acquired under capital lease obligations - - $ 323
Income tax benefit from exercise of stock options $ 765 $2,400 $4,527
Common stock issued in connection with acquisitions $4,746 $3,928 -
- ---------------------------------------------------------------------------------------- --------------- -------------- ------------
</TABLE>
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 organization providing a broad range
of knowledge-based product development and product launch services on a contract
basis 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.
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 held were subject to seven-day put
options at June 30, 1998; no securities held were subject to such put options at
June 30, 1999. The Company does not hold derivative instruments for trading
purposes.
The fair value of the Company's financial instruments are not materially
different from their carrying amounts at June 30, 1999 and 1998.
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 20%, or $69.4 million, of consolidated net revenue for fiscal 1999,
primarily in the contract research services group. In fiscal 1998, one customer
accounted for 12% of consolidated net revenue. No single customer accounted for
more than 10% of the Company's consolidated net revenue in fiscal 1997.
Property and Equipment
Property and equipment is stated at cost. Depreciation is provided on the
straight-line method based on estimated useful lives of 40 years for buildings,
3 to 8 years for computer hardware and software, and 5 years for office
furniture, fixtures and equipment. 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-five years.
Intangible assets of $13.3 million and $5.2 million, included in Other Assets,
are net of accumulated amortization of $1.8 million and $1.7 million as of June
30, 1999 and 1998, respectively. Amortization expense was $0.6 million, $0.4
million, and $0.3 million for the fiscal years ended June 30, 1999, 1998, and
1997, respectively.
Comprehensive Income
During fiscal 1999, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income". SFAS No. 130
establishes new standards for the reporting and display of comprehensive income
and its components. SFAS No. 130 requires the Company's foreign currency
translation adjustments and unrealized gains (losses) on marketable securities,
which prior to adoption were reported separately in shareholders' equity, to be
included in other comprehensive income. The Company has elected to present
comprehensive income in its Consolidated Statement of Stockholders' Equity. The
adoption of SFAS 130 had no impact on the Company's net income or stockholders'
equity.
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.
Reclassifications
Certain fiscal 1998 amounts have been reclassified to conform with the fiscal
1999 presentation.
Recently Issued Accounting Standards
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 2001. 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 1999
On March 31, 1999, the Company acquired the stock of Groupe PharMedicom S.A. in
exchange for approximately 199,600 shares of the Company's common stock in a
transaction accounted for as a purchase business combination. Groupe PharMedicom
S.A. is a leading French provider of post-regulatory services to pharmaceutical
manufacturers. The Company recorded approximately $8.5 million related to the
excess cost over the fair value of the net assets acquired. This goodwill is
being amortized using the straight-line method over 25 years. Pro forma results
of operations of the Company, assuming this acquisition was recorded at the
beginning of each period presented, would not be materially different from
actual results presented.
Fiscal 1998
In March 1998 the Company acquired four companies in separate transactions. PPS
Europe Limited, subsequently renamed PAREXEL MMS Europe Limited ("MMS Europe"),
a leading medical marketing firm based in the United Kingdom, was acquired by
the issuance of 2,774,813 shares of the Company's common stock in exchange for
all of the outstanding ordinary shares of PPS and 134,995 of the Company's
common stock options in exchange for all of the outstanding ordinary share
options of PPS. MIRAI B.V. ("MIRAI"), a full service, pan-European contract
research organization based in the Netherlands, was acquired by the issuance of
682,345 shares of the Company's common stock in exchange for all of the
outstanding shares of MIRAI. The Company acquired 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, by
issuing a total of 184,819 shares of the Company's common stock in exchange for
all of the outstanding shares of Genesis and LOGOS. In December 1997, the
Company acquired Kemper-Masterson, Inc. ("KMI"), a leading regulatory consulting
firm based in Massachusetts, by issuing 581,817 shares of the Company's common
stock in exchange for all of the outstanding shares of KMI.
All of the above fiscal 1998 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 MMS
Europe, MIRAI and KMI for all periods prior to the acquisitions. 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.
Due to the differing fiscal year ends of MMS Europe (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 combine the Company's results of operations for the
year ended June 30, 1997, with the results of operations of MMS Europe and MIRAI
for their respective fiscal years ended November 30 and December 31, 1997.
In March 1998, the Company changed the fiscal year end of PPS from November 30
to May 31 and the fiscal year ends of MIRAI and KMI 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 MMS Europe 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 MMS Europe 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. KMI's results of
operations for the six months ended December 31, 1996, (including revenue,
operating income, and net income of $5.0 million, $167,000, and $117,000,
respectively) were duplicated in the consolidated statements of operations for
fiscal 1997. Accordingly, net income and equity activity for one of the
duplicated periods has been eliminated from stockholders' equity.
The following represents the duplicated amounts included in both the results of
operations for fiscal years 1997 and 1998:
($ in thousands) MMS Europe MIRAI TOTAL
- ---------------- ---------- ----- -----
Net revenue $13,205 $4,891 $18,096
Operating income 1,553 438 1,991
Net income 697 343 1,040
Revenue and net income for the previously separate companies are as follows:
Six Months Year
Ended ended
December 31, June 30,
($ in thousands) 1997 1997
----------------------------------------------------------------
Net revenue:
PAREXEL $106,363 $159,679
KMI 6,523 10,676
MMS Europe 13,205 24,881
MIRAI 4,891 8,440
----------------------------------------------------------------
$130,982 $203,676
================================================================
Net income:
PAREXEL $4,478 $10,848
KMI 724 189
MMS Europe 697 1,201
MIRAI 343 565
----------------------------------------------------------------
$6,242 $12,803
================================================================
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 MMS Europe, 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 Company policy.
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 $0.2 million in aggregate) of the Company's common stock, based
on net receipts generated by certain acquired assets. The transaction was
accounted for as a purchase.
Fiscal 1997
In February 1997, the Company acquired, in separate transactions, RESCON, Inc.,
a medical marketing business located in the Washington, D.C. area, and Sheffield
Statistical Services, Ltd. ("S-Cubed"), a company located in the United Kingdom
that specializes in biostatistical analysis. The Company issued a total of
209,537 shares of common stock in exchange for all the outstanding shares of
RESCON and S-Cubed. In August 1996, the Company acquired, in separate
transactions, Lansal Clinical Pharmaceutics, Limited ("Lansal"), a contract
research organization located in Israel, and State and Federal Associates, Inc.
("S&FA"), a medical marketing business located in the Washington, D.C. area. The
Company issued 1,008,304 shares of common stock in exchange for all of the
outstanding shares of Lansal and S&FA. These transactions were accounted for as
poolings of interests. The Company's financial statements were not restated as
the historical results of operations of the acquired companies, individually or
in aggregate, were not material.
NOTE 4. INVESTMENTS
Available-for-sale securities included in cash and cash equivalents as of June
30, 1999 and 1998, consisted of the following:
($ in thousands) 1999 1998
- ----------------------------------------------------------------------------
Money market $ 9,869 $ 6,119
Municipal securities 4,600 116
Repurchase agreements 16,143 17,785
============================================================================
$30,612 $24,020
============================================================================
Available-for-sale securities included in marketable securities at June 30, 1999
and 1998,consisted of the following:
($ in thousands) 1999 1998
- ----------------------------------------------------------------------------
Municipal securities $27,261 $23,146
Federal government securities 398 6,747
Corporate debt securities 293 7,586
- ----------------------------------------------------------------------------
$27,952 $37,479
============================================================================
The Company's investments are reflected at fair market value, which approximates
amortized cost. During fiscal 1999, gross realized gains totaled $3.3 million
and gross realized losses totaled $3.5 million. Unrealized gains and losses as
of June 30, 1999 and 1998 were not material.
NOTE 5. ACCOUNTS RECEIVABLE
Accounts receivable at June 30, 1999 and 1998, consisted of the following:
($ in thousands) 1999 1998
- ----------------------------------------------------------------------------
Billed $ 81,590 $ 63,255
Unbilled 74,057 55,307
Allowance for doubtful accounts (5,127) (5,062)
- ----------------------------------------------------------------------------
$150,520 $113,500
============================================================================
NOTE 6. PROPERTY AND EQUIPMENT
Property and equipment at June 30, 1999 and 1998, consisted of the following:
($ in thousands) 1999 1998
- ----------------------------------------------------------------------------
Computer and office equipment $46,850 $40,463
Computer software 16,206 11,431
Furniture and fixtures 17,762 16,303
Leasehold improvements 7,021 5,278
Buildings 2,757 2,757
Other 1,854 2,107
- ----------------------------------------------------------------------------
92,450 78,339
Less accumulated depreciation
and amortization 45,385 33,028
- ----------------------------------------------------------------------------
$47,065 $45,311
============================================================================
Depreciation and amortization expense relating to property and equipment was
$17.3 million, $14.7 million, and $7.4 million for the years ended June 30,
1999, 1998, and 1997, respectively, of which $1.2 million in fiscal 1998 and
$0.6 million in fiscal 1997 related to amortization of property and equipment
under capital leases.
Included in the above amounts is computer and office equipment acquired under
capital lease obligations of $3.9 million at June 30, 1998, with accumulated
depreciation of $3.8 million at June 30,1998.
In fiscal 1998, the Company recorded a $1.7 million charge to depreciation and
amortization expense resulting from a change in estimate of the remaining
service lives of certain computer equipment arising from integration activities
associated with acquisitions and a company-wide program implemented to upgrade
and standardize its information technology platform.
NOTE 7. OTHER CURRENT LIABILITIES
Other current liabilities at June 30, 1999 and 1998, consisted of the following:
($ in thousands) 1999 1998
---------------------------------------------------------------------
Accrued compensation and
withholding $14,645 $11,629
Income taxes payable 10,328 8,937
Other 21,565 12,618
---------------------------------------------------------------------
$46,538 $33,184
=====================================================================
NOTE 8. MERGER-RELATED AND FACILITIES CHARGES
During the fourth quarter of fiscal 1999, the Company recorded $1.85 million in
costs related to the terminated merger agreement with Covance Inc. and $2.8
million in leasehold abandonment charges resulting primarily from the
centralization of certain facilities. The Company plans to exit under-utilized
leased facilities in North America and Germany by December 1999. These
noncancellable leases expire at various dates from April 2000 through March
2004. The $2.8 million charge includes future noncancellable lease payments and
related costs partially offset by actual and estimated sublease income. At June
30, 1999, the merger-related and facilities accrual totaled $4.2 million.
NOTE 9. CREDIT ARRANGEMENTS
The Company has domestic and foreign line of credit arrangements with banks
totaling approximately $14.1 million. The lines are collateralized by accounts
receivable and fixed assets, are payable on demand, and bear interest at rates
ranging from 5.5% to 9.3%. The lines of credit expire at various dates through
June 2000 and are renewable. At June 30, 1999, $1.1 million was outstanding
under these lines of credit and included in notes payable. At June 30, 1999,
$13.0 million was available under these lines of credit.
NOTE 10. STOCKHOLDERS' EQUITY
As of June 30, 1999 and 1998, there were five 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, 1999
and 1998, at a cost of $17,430.
NOTE 11. EARNINGS PER SHARE
The following table is a summary of shares used in calculating basic and diluted
earnings per share:
Years ended June 30,
(in thousands) 1999 1998 1997
- ----------------------------------------------------------------------------
Weighted average number of shares
outstanding, used in computing
basic earnings per share 24,848 23,939 21,628
Contingently issuable common shares - 381 467
Dilutive common stock options 280 505 727
- ----------------------------------------------------------------------------
Shares used in computing diluted
earnings per share 25,128 24,825 22,822
============================================================================
NOTE 12. STOCK AND EMPLOYEE BENEFIT PLANS
The Stock Option Committee of the Board of Directors is responsible 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 executive officer or
director of the Company. In January 1999, the Company's Board of Directors
approved an increase in the number of shares issuable under the 1998 Plan to
1,500,000 shares. Options under the 1998 Plan expire in eight years from the
date of grant and vest at dates ranging from the issuance date to five years.
1995 Stock Plan
The 1995 Stock Plan ("1995 Plan") provides for the grant of incentive stock
options for the purchase of up to an aggregate of 2,438,334 shares of common
stock to directors, officers, employees, and consultants to the Company. Options
under the 1995 Plan expire in eight years from the date of grant and vest over
ninety days to five years.
In November 1997, the stockholders of the Company approved an amendment to the
1995 Plan. In connection therewith, the Company terminated the 1995 Non-Employee
Director Stock Option Plan (the "Director Plan") and transferred all remaining
shares under the Director Plan to the 1995 Plan, without increasing the
aggregate number of shares available for grant under all of the Company's stock
option plans.
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
All outstanding options under the Kemper-Masterson, Inc. Stock Option Plan ("KMI
Plan") were exercised in connection with the acquisition of KMI. KMI recorded
compensation expense of $4.1 million in December 1997 as a result of these
exercises. In conjunction with the acquisition of MMS Europe, all outstanding
MMS Europe options became fully vested, and accordingly the Company recognized
compensation expense of $1.6 million in March 1998. Aggregate compensation
expense under the various stock option plans was $5.4 million and $1.0 million
for the years ended June 30, 1998 and 1997, respectively.
Aggregate stock option activity for all plans for the three years ended June 30,
1999 is as follows:
Weighted Average
Options Exercise Price
- -------------------------------------------------------------------------------
Outstanding at June 30, 1996 2,206,298 $ 5.88
Granted 545,495 18.60
Exercised (1,204,734) 1.35
Canceled (31,260) 19.98
- -------------------------------------------------------------------------------
Outstanding at June 30, 1997 1,515,799 13.76
Granted 1,011,495 29.78
Exercised (332,174) 6.72
Cancelled (129,585) 24.27
- -------------------------------------------------------------------------------
Outstanding at June 30, 1998 2,065,535 22.13
Granted 648,700 22.10
Exercised (128,344) 8.35
Cancelled (227,631) 25.26
- -------------------------------------------------------------------------------
Outstanding at June 30, 1999 2,358,260 $22.55
- -------------------------------------------------------------------------------
Exercisable at June 30, 1999 1,013,167 $18.03
- -------------------------------------------------------------------------------
Available for future grant 1,480,332
- -------------------------------------------------------------------------------
Summary information related to options outstanding and exercisable as of June
30, 1999, is as follows:
<TABLE>
<CAPTION>
Weighted Average
Outstanding Remaining Weighted Exercisable Weighted
Range of Exercise as of Contractual Life Average As of Average
Prices June 30, 1999 (Years) Exercise Price June 30, 1999 Exercise Price
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.01-10.00 302,381 5.0 $ 5.44 283,331 $ 5.31
10.01-20.00 356,705 6.7 18.59 154,430 18.38
20.01-30.00 1,221,290 6.9 24.08 516,166 23.26
30.01-37.81 477,884 6.2 32.43 59,240 32.29
- -------------------------------------------------------------------------------------------------------------------------
2,358,260 1,013,167
=========================================================================================================================
</TABLE>
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 three years ended June 30, 1999: Risk free interest rates of
4.58% in fiscal 1999, 5.84% in fiscal 1998 and 6.18% in fiscal 1997, dividend
yield of 0.0% for each year, volatility factor of the expected market price of
the Company's common stock of 71% for fiscal 1999 and 45% for fiscal 1998 and
1997, and an average holding period of five years. During fiscal 1999, 1998 and
1997, the weighted-average grant-date fair value of the stock options granted
during the fiscal year was $17.20, $15.28, and $13.22 per share, respectively.
If the compensation cost for the Company's stock options and the Purchase Plan
had 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) 1999 1998 1997
-------------------------------------------------------------------
Pro forma net income $9,214 $8,215 $10,792
Pro forma diluted income
Per share $0.37 $0.33 $0.47
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.
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 $1.8 million, $1.4 million, and $1.1 million, for the years ended June
30, 1999, 1998, and 1997, respectively.
NOTE 13. INCOME TAXES
Domestic and foreign income before income taxes for the three years ended June
30, 1999, are as follows:
($ in thousands) 1999 1998 1997
-------------------------------------------------------------------
Domestic $ 3,475 $9,428 $11,961
Foreign 20,476 7,571 9,161
-------------------------------------------------------------------
$23,951 $16,999 $21,122
===================================================================
The provision for income taxes for the three years ended June 30, 1999, are as
follows:
($ in thousands) 1999 1998 1997
-------------------------------------------------------------------
Current:
Federal $ 2,801 $5,402 $4,816
State 1,506 1,144 1,207
Foreign 7,359 3,403 3,411
-------------------------------------------------------------------
11,666 9,949 9,434
-------------------------------------------------------------------
Deferred:
Federal (2,526) (1,122) (432)
State (842) (384) (146)
Foreign 31 (763) (537)
-------------------------------------------------------------------
(3,337) (2,269) (1,115)
-------------------------------------------------------------------
$8,329 $7,680 $8,319
===================================================================
The Company's consolidated effective income tax rate differed from the U.S.
federal statutory income tax rate as set forth below:
<TABLE>
<CAPTION>
($ in thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------ -------------- --------------- ---------------
<S> <C> <C> <C>
Income tax expense computed at the federal
statutory rate $8,383 $5,949 $7,374
State income taxes, net of federal benefit 994 494 1,044
Foreign rate differential (629) (141) (33)
Utilization of foreign net operating loss
carryforwards (532) (1,117) --
Nondeductible acquisition costs -- 2,229 (1,166)
Tax-exempt interest income (443) (821) 191
Nondeductible amortization of intangible
assets 49 46 595
Operating losses without current benefit 451 522 142
Other 56 519 172
==================================================================================== ============== =============== ===============
$8,329 $7,680 $8,319
==================================================================================== ============== =============== ===============
</TABLE>
Provision has not been made for U.S. or additional foreign taxes on
undistributed earnings of foreign subsidiaries as those earnings have been
permanently reinvested. Such taxes, if any, are not expected to be significant.
Significant components of the Company's net deferred tax asset as of June 30,
1999 and 1998 are as follows:
<TABLE>
<CAPTION>
($ in thousands) 1999 1998
- -------------------------------------------------------------------------- ----------------- -----------------
<S> <C> <C>
Deferred tax assets:
Foreign loss carryforwards $4,869 $5,725
Accrued expenses 9,480 1,984
Allowance for doubtful accounts 1,300 1,632
Deferred contract profit 8,852 866
Other 89 275
----------------- -----------------
Gross deferred tax assets 24,590 10,482
Deferred tax asset valuation allowance (3,563) (2,613)
----------------- -----------------
Total deferred tax assets 21,027 7,869
----------------- -----------------
Deferred tax liabilities:
Property and equipment (3,948) (2,271)
Other (5,364) (153)
----------------- -----------------
Total deferred tax liabilities (9,312) (2,424)
================= =================
$11,715 $5,445
================= =================
</TABLE>
The net deferred tax assets are included in the consolidated balance sheet as of
June 30, 1999 and 1998, as follows:
($ in thousands) 1999 1998
- ----------------------------------------------------------------------------
Other current assets $14,011 $7,869
Other assets 7,016 -
Other current liabilities (1,175) (404)
Other liabilities (8,137) (2,020)
- ----------------------------------------------------------------------------
$11,715 $5,445
============================================================================
The net deferred tax asset includes the tax effect of approximately $6.5 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. In fiscal 1999,
the valuation allowance increased by $1.0 million due to an increase in foreign
net operating loss carryforwards. The ultimate realization of the remaining loss
carryforwards is dependent upon the generation of sufficient taxable income in
respective jurisdictions, primarily Germany.
NOTE 14. LEASE COMMITMENTS
The Company leases its facilities under operating leases that include renewal
and escalation clauses. Total rent expense was $17.3 million, $13.9 million, and
$9.8 million for the years ended June 30, 1999, 1998, and 1997,respectively.
Future minimum lease payments due under noncancellable operating leases totaled
$18.3 million, $16.0 million, $11.3 million, $7.5 million, $6.1 million, and
$11.8 million for fiscal 2000, 2001, 2002, 2003, 2004, and thereafter,
respectively. These future minimum lease payments are offset by future sublease
payments totaling $1.4 million, $1.5 million, and $0.2 million for fiscal 2000,
2001, and 2002, respectively.
NOTE 15. RELATED PARTY TRANSACTIONS
During the three years ended June 30, 1999, certain members of the Company's
Board of Directors were associated with certain of the Company's customers. Net
revenue recognized from these customers was $25.3 million, $25.2 million and
$13.1 million in fiscal 1999, 1998 and 1997, respectively. Amounts due from
these customers included in accounts receivable at June 30, 1998 totaled $14.3
million. Related party amounts included in accounts receivable are on standard
terms and manner of settlement. At June 30, 1999, none of the Company's
directors were associated as related parties with any of its customers.
At June 30, 1998, the Company had notes receivable of $1.4 million from a
company owned by the former directors of MMS Europe. The notes bore interest at
8.0% and were payable on demand. The Company recorded interest income related to
these notes of $0.2 million for each of the years ended June 30,1998 and 1997.
These notes were settled in fiscal 1999.
NOTE 16. GEOGRAPHIC AND SEGMENT INFORMATION
Financial information by geographic area for the three years ended June 30,
1999, is as follows:
($ in thousands) 1999 1998 1997
- ----------------------------------------------------------------------------
Net revenue:
North America $198,236 $175,045 $118,525
United Kingdom 79,312 56,607 46,003
Europe 66,250 50,012 35,981
Asia/Pacific 4,688 3,778 3,167
----------- ----------- -----------
$348,486 $285,442 $203,676
----------- ----------- -----------
Income (loss) from
operations:
North America $ 1,060 $ 6,334 $ 9,073
United Kingdom 16,545 4,747 5,218
Europe 3,368 2,519 2,655
Asia/Pacific (409) (299) 173
----------- ----------- -----------
$20,564 $13,301 $17,119
----------- ----------- -----------
Identifiable assets:
North America $218,625 $190,017 $173,866
United Kingdom 54,360 42,804 41,309
Europe 58,086 28,710 24,676
Asia/Pacific 2,494 227 693
----------- ----------- -----------
$333,565 $261,758 $240,544
----------- ----------- -----------
The Company is managed through three reportable segments, namely, the contract
research services group, the consulting services group and the medical marketing
services group. The contract research services group ("CRS") constitutes the
Company's core business and includes clinical trials management, biostatistics
and data management, as well as related medical advisory, information
technology, and investigator site services. PAREXEL's consulting group ("PCG")
provides technical expertise in such disciplines as clinical pharmacology,
regulatory affairs, industry training, publishing, and drug development. These
consultants identify options and propose solutions to address clients' product
development, registration, and commercialization issues. The medical marketing
services group ("MMS") provides a full spectrum of market development, product
development, and targeted communications services in support of product launch.
The Company evaluates its segment performance and allocates resources based on
revenue and gross profit (net revenue less direct costs), while other operating
costs are evaluated on a geographical basis. Accordingly, the Company does not
include selling, general, and administrative expenses, depreciation and
amortization expense, nonrecurring and merger-related costs, interest income
(expense), other income (expense), and income tax expense in segment
profitability. The accounting policies of the reportable segments are the same
as those described in Note 2.
<TABLE>
<CAPTION>
($ in thousands) CRS PCG MMS Total
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenue:
1999 $239,502 $57,633 $51,351 $348,486
1998 $187,954 $45,831 $51,657 $285,442
1997 $135,925 $31,657 $36,094 $203,676
Gross profit:
1999 $88,227 $16,422 $10,187 $114,836
1998 $71,459 $12,452 $15,813 $ 99,724
1997 $49,895 $ 7,163 $11,570 $ 68,628
</TABLE>
<PAGE>
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, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 1999, 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 year 1997, which statements reflect total
assets of $26,197,000 at November 30, 1997, and net revenues of $24,881,000 for
the year ended November 30, 1997. 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 period 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.
/s/PricewaterhouseCoopers LLP
Boston, Massachusetts
August 17, 1999
<PAGE>
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, 1999:
<TABLE>
<CAPTION>
For the year ended June 30, 1999
(in thousands, except share data) First Second Third Fourth
Quarter Quarter Quarter Quarter
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenue $82,835 $87,855 $90,032 $87,764
Income(loss) from operations(2) 7,677 7,277 7,703 (2,093)
Net income (loss) 5,505 5,141 5,685 (709)
Diluted earnings (loss)
per share 0.22 0.21 0.23 (0.03)
Range of common stock
prices (1) $29.69-40.13 $20.25-45.50 $19.00-29.38 $10.48-26.81
For the year ended June 30, 1998
(in thousands, except share data) First Second Third Fourth
Quarter Quarter Quarter Quarter
----------------------------------------------------------------------------------------------------------------------------
Net revenue $62,991 $67,991 $73,067 $81,393
Income (loss) from
Operations 5,830 2,383 (2,454) 7,542
Net income (loss) 4,339 1,903 (2,366) 5,443
Diluted earnings (loss)
per share 0.18 0.08 (0.10) 0.22
Range of common stock
prices (1) $31.25-44.75 $28.63-43.50 $30.50-41.25 $24.75-36.75
</TABLE>
(1)The range of common stock prices is based on the high and low sales price on
the Nasdaq National Market for the periods indicated.
(2) Income (loss) from operations for the year ended June 30, 1999 includes
$4.65 million in merger-related and facilities charges including $1.85 million
in costs related to the terminated merger agreement with Covance Inc. and $2.8
million in leasehold abandonment charges resulting primarily from the
centralization of certain facilities in North America and Europe.
The Company's common stock is quoted on the Nasdaq National Market under the
symbol "PRXL."
As of September 15, 1999 there were approximately 133 stockholders of record and
approximately 7,580 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.
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
(in thousands, except per share
data and number of employees) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations
Net revenue $348,486 $285,442 $203,676 $125,053 $89,067
Income(loss)from operations (1) 20,564 (2) 13,301 17,119 10,391 (4) (8,454)
Net income (loss) 15,622 9,319 12,803 6,655 (9,239)
Diluted earnings(loss)per
Share $0.62 $0.38 $0.56 $0.39 (5) $(2.02)
Financial Position
Cash, cash equivalents and
Marketable securities $89,957 $76,634 $104,339 $52,022 $12,996
Working capital 132,757 118,937 113,997 55,681 12,456
Total assets 333,565 261,758 240,544 135,721 67,693
Long-term debt 79 36 136 466 750
Stockholders' equity $192,032 $168,380 $147,448 $69,788 $21,972
Other Data
Investment in property and
Equipment $18,910 $27,736 $25,112 $7,461 $4,742
Depreciation and
Amortization $17,932 (3) $15,114 $7,710 $4,280 $3,920
Number of employees 4,198 3,705 2,928 1,767 1,108
Shares used in computing
diluted earnings (loss)
per share 25,128 24,825 22,822 17,255 (5) 4,580
</TABLE>
(1) Income (loss) from operations for the year ended June 30, 1999 includes
$4.65 million in nonrecurring charges including $1.85 million in costs
related to the terminated merger agreement with Covance Inc. and $2.8
million in leasehold abandonment charges resulting primarily from the
centralization of certain facilities in North America and Europe.
(2) Income from operations for the year ended June 30, 1998 includes $13.6
million of nonrecurring charges, including $10.3 million pertaining to
acquisitions.
(3) Depreciation and amortization for the year ended June 30, 1998 includes a
noncash charge of $1.7 million to reflect a change in estimate in the
remaining useful lives of certain computer equipment as a result of
integration activities of acquired companies and the Company's program to
upgrade and standardize its information technology platform.
(4) 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.
(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 been anti-dilutive.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 21.1
PAREXEL INTERNATIONAL CORPORATION
LIST OF SUBSIDIARIES OF THE COMPANY
PAREXEL
OWNERSHIP(1)
<S> <C>
Barnett International Corporation, a Massachusetts corporation 100%
PAREXEL International Holding Corporation, a Delaware corporation 100%
PAREXEL International Securities Corporation, a Massachusetts corporation 100%
PAREXEL International Inc., a Delaware corporation 100%
PAREXEL Government Services, Inc., a Delaware corporation 100%
PAREXEL Unternehmens beteiligung GmbH, a corporation organized under 100%
the laws of Germany
PAREXEL GmbH Independent Pharmaceutical Research Organization, a 100%
Corporation organized under the laws of Germany
PAREXEL International Limited, a corporation organized under the laws of the 100%
United Kingdom
AFB CLINLAB Laborleistungs - Organisationgesellschaft GmbH, a 100%
corporation organized under the laws of Germany
PAREXEL International SARL, a corporation organized under the laws of 100%
France
PAREXEL International SRL, a corporation organized under the laws of Italy 100%
PAREXEL International Pty Ltd., a corporation organized under the laws of 100%
Australia
PAREXEL International S.L., a corporation organized under the laws of Spain 100%
PAREXEL International Medical Marketing Services, Inc., a 100%
Virginia corporation
PAREXEL International (Lansal) Limited, a corporation organized under the 100%
laws of Israel
Caspard Consultants, a corporation organized under the laws of France 100%
Sitebase Clinical Systems, Inc., a Massachusetts corporation 100%
PAREXEL S-Cubed Limited, a corporation organized under the laws of the 100%
United Kingdom
PAREXEL ClinNet Limited, a corporation organized under the laws of the 100%
United Kingdom
Pharmon, Ltd., a corporation organized under the laws of Liechentenstein 100%
Rescon, Inc., a Virginia corporation 100%
PAREXEL ETT, S.L., a corporation organized under the laws of Spain 100%
PAREXEL International KK, a corporation organized under the laws of Japan 100%
KMI/PAREXEL, Inc., a corporation organized under the laws of Delaware 100%
PAREXEL International Holding BV, a corporation organized under the law of 100%
the Netherlands
PAREXEL International sp. z.o.o., a corporation organized under the laws of 100%
Poland
PAREXEL MMS Europe Limited, a corporation organized under the laws of 100%
the United Kingdom
Genesis Pharma Strategies Ltd., a corporation organized under the laws of the 100%
United Kingdom
Creative Communications Solutions, Ltd., a corporation organized under the 100%
laws of the United Kingdom
PPS International Communcations Ltd., a corporation organized under the laws 100%
of the United Kingdom
Pharos Healthcare Communications Ltd., a corporation organized under the 100%
laws of the United Kingdom
HealthEd Communications, Inc., a Connecticut Corporation 100%
Pharos Healthcare Communications, Inc., a Connecticut corporation 100%
The Center for Bio-Medical Communication, Inc., a New Jersey corporation 100%
Cambridge Medical Publications Ltd., a corporation organized under the laws 100%
of the United Kingdom
Til Occam Limited, a corporation organized under the laws of the 100%
United Kingdom
Til (Medical) Limited, a corporation organized under the laws of the 100%
United Kingdom
Mirai B.V., a corporation organized under the laws of the Netherlands 100%
Logos GmbH, a corporation organized under the laws of Germany 100%
Translation GmbH, a corporation organized under the laws of Germany 75%
Placebo B.V., a corporation organized under the laws of the Netherlands 100%
PAREXEL Mirai Polska SP z.o.o., a corporation 100%
organized under the laws of Poland
PAREXEL Mirai Magy Arorszag KFt, a 100%
corporation organized under the laws of Hungary
Medstat Research A/S, a corporation 100%
organized under the laws of Norway
PAREXEL Medstat Baltic A/S, a corporation 100%
organized under the laws of Norway
PAREXEL Medstat Baltic, a corporation 100%
organized under the laws of Lithuania
PAREXEL Medstat Russia A/S, a corporation 100%
organized under the laws of Norway
PAREXEL Medstat A/S, a corporation organized 100%
under the laws of Norway
Echo Medical B.V., a corporation organized 100%
under the laws of the Netherlands
Verum, a European Economic Interest Grouping 67%
formed under the laws of the United Kingdom
PAREXEL Medstat AB, a corporation 100%
organized under the laws of Sweden
PAREXEL International, S.A., a corporation organized under the laws of 100%
Argentina
Groupe PharMedicom S.A., a corporation organized under the laws of France 100%
Droit & Pharmacie S.A., a corporation organized under the laws of France 100%
Biostat SA, a corporation organized under the laws of France 100%
Cercles SARL, a corporation organized under the laws of France 100%
PAREXEL Biodat GmbH, a corporation organized under the laws of Germany 100%
PAREXEL Pty. Ltd., a corporation organized under the laws of South Africa 100%
CEMAF SA, a corporation organized under the laws of France 100%
</TABLE>
(1) Direct and indirect
<PAGE>
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 17,
1999, 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, 1999 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 22, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements 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 22, 1999
<PAGE>
<PAGE>
