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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
Amendment No. 1 to
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 0-27058
PAREXEL INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its Charter)
MASSACHUSETTS 04-2776269
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
195 WEST STREET
WALTHAM, MASSACHUSETTS 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)
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. [ ]
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
$203,929,372 as of September 21, 2000.
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, 2000, there were 24,694,642 shares of the
registrant's Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Specified portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders held on November 16, 2000 are incorporated by reference into Part
III of this report.
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Note: This 10-K/A is being filed to restate certain financial statements
included with the Form 10-K for the year ended June 30, 2000. The corrected
information was identified in connection with the closing of the books for the
first quarter of fiscal 2001. See note 3 to the financial statements included in
Item 8 for further information.
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PAREXEL INTERNATIONAL CORPORATION
FORM 10-K ANNUAL REPORT
INDEX
PAGE
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PART I.
Item 1. Business 2
Risk Factors 11
Item 2. Properties 14
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote
of Security Holders 14
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 15
Item 6. Selected Financial Data 16
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk 22
Item 8. Financial Statements and Supplementary Data 23
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 39
PART III
Item 10. Directors and Executive Officers of the Registrant 39
Item 11. Executive Compensation 39
Item 12. Security Ownership of Certain Beneficial Owners
and Management 39
Item 13. Certain Relationships and Related Transactions 39
PART IV
Item 14. Exhibits, Financial Statement Schedule, and
Reports on Form 8-K 40
SIGNATURES 43
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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 seventeen years, PAREXEL has developed
significant expertise in disciplines and technologies supporting this strategy.
The Company's service offerings include: clinical trials management, data
management, biostatistical analysis, medical marketing, clinical pharmacology,
regulatory and medical consulting, performance improvement, industry training
and publishing, and other drug development consulting services. The Company
believes that its integrated services, depth of therapeutic area expertise, 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 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 clinical development and launch of new
products. 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's
vision is to integrate and build critical mass in the complementary businesses
of clinical research, medical marketing and drug development 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 41 locations and has approximately 4,200
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, Japan, Germany, the United Kingdom ("U.K."), France, Italy,
Spain, Sweden, Australia, Latin America, 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,
based upon annual net revenue). During fiscal 2000, PAREXEL derived 40% of its
revenue from its international operations, distinguishing the Company from many
of its competitors.
The Company was founded in 1983 as a regulatory consulting firm and is a
Massachusetts corporation. Josef H. von Rickenbach, Chairman of the Board,
President, and Chief Executive Officer of PAREXEL, was a co-founder. Since its
inception, the Company has executed a focused growth strategy embracing 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 September 1999, the Company acquired CEMAF S.A., a leading Phase I clinical
research and bioanalytical laboratory located in Poitiers, France in a purchase
business combination.
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. It is estimated that the global
pharmaceutical and biotechnology industries spent approximately $53 billion in
1999 on research and development, with an equal or greater amount spent on
marketing and selling activities. More than $5 billion is estimated to have been
outsourced to CROs, and the pharmaceutical outsourcing industry is projected to
be growing 10-15% annually. The CRO industry's reliance on the pharmaceutical
sector makes it sensitive to changes in that industry. Over the past year,
consolidation in the pharmaceutical industry has been a primary driver of
increased project cancellations and delays,
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affecting all of the major CROs. We believe that the cancellations will return
to past levels as the newly merged pharmaceutical companies complete their
integration and restructuring.
Long term, the Company believes that there are a number of positive trends in
the pharmaceutical industry driving the CRO industry's growth, including the
following:
- CONTINUING PRESSURE FOR NEW PRODUCTS. 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 therapeutic categories
as infectious disease, central nervous system, cardiology and oncology.
The development of therapies for chronic disorders, requires complex
clinical trials to demonstrate the therapy's safety and effectiveness, and
to determine if the drug causes any long-term side effects.
- GLOBALIZATION OF CLINICAL DEVELOPMENT AND REGULATORY STRATEGY.
Pharmaceutical and biotechnology companies increasingly are attempting to
maximize profits from a given drug by pursuing regulatory approvals in
multiple countries simultaneously rather than sequentially, as was the
practice historically. The Company believes that the globalization of
clinical research and development activities has increased the demand for
CRO services. A pharmaceutical or biotechnology company seeking approvals
in a country in which it lacks experience or internal resources will
frequently turn to a CRO for assistance in interacting with regulators or
in organizing and conducting clinical trials. In addition, a company may
turn to a CRO in the belief that regulatory authorities who are not
familiar with the company may have more confidence in the results from
tests independently conducted by a CRO known to those authorities.
- CONSOLIDATION IN THE PHARMACEUTICAL INDUSTRY. Consolidation in the
pharmaceutical industry has accelerated during the past year as companies
seek to boost pipelines and reduce costs through business combinations.
While the near term focus on merger integration has, in some cases,
disrupted a client's R&D and outsourcing programs, once the merger
integration is completed, we expect that many companies will manage costs
by reducing headcount and outsourcing to variable-cost CROs in an effort
to reduce the fixed costs associated with internal drug development.
- INCREASINGLY COMPLEX AND STRINGENT REGULATION, NEED FOR TECHNOLOGICAL
CAPABILITIES. Increasingly complex and stringent regulatory requirements
throughout the world have increased the volume of data required for
regulatory filings and escalated the demands on data collection and
analysis during the drug development process. In recent years, the FDA and
corresponding regulatory agencies of Canada, Japan and Western Europe have
made progress in attempting to harmonize standards for preclinical and
clinical studies and the format and content of applications for new drug
approvals. Further, the FDA encourages the use of computer-assisted
filings in an effort to expedite the approval process. As regulatory
requirements have become more complex, the pharmaceutical and
biotechnology industries are increasingly outsourcing to CROs to take
advantage of their data management expertise, technological capabilities
and global presence.
- COMPETITIVE PRESSURES. Drug companies have been focusing on gaining market
share and more efficient ways of conducting business because of pressures
stemming from patent expirations, market acceptance of generic drugs, and
efforts of regulatory bodies and managed care initiatives to control drug
prices. The Company believes that the pharmaceutical industry is
responding by centralizing their research and development processes 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, on a
more timely basis, 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.
- GROWTH OF THE BIOTECHNOLOGY AND SMALL PHARMACEUTICAL SECTORS. 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. More so than in the past, biotechnology and small
pharmaceutical companies are developing products themselves, rather than
licensing compounds to larger pharmaceutical companies. In many cases, the
smaller companies do not have the necessary experience or resources to
conduct clinical trials, registrations, and product launches, which has
resulted in increased demand for CRO services from this sector.
- ADVANCES IN DRUG DEVELOPMENT TECHNOLOGIES. A host of new technologies for
drug development, including genomics, high throughput screening, and
bioinformatics, have significantly increased the number of drug targets
available for evaluation and development into new products. This has
increased the overall level of drug development activity and has fueled
strong growth in new compounds now in the early development stages.
PAREXEL'S STRATEGY
PAREXEL seeks to become the leading provider of outsourced clinical development
services, with a focus on reducing the time, risk, and cost associated with
developing and launching new products. Our strategy for achieving this vision is
to provide a full spectrum of expertise-driven clinical development services,
including clinical research services, drug development consulting, and
clinically oriented medical marketing services. 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.
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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 substantial 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 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. Management believes that PAREXEL provides substantial
benefits to client organizations by helping them achieve better integration
between their R&D and marketing functions. Designing clinical trials to meet
marketing, as well as regulatory requirements, can provide clients with a higher
return on their substantial clinical trial investment and provide marketing data
sooner. PAREXEL Clinical Research and Medical Marketing Services can work
together to assist clients in realizing these key benefits.
INVESTMENT IN INFORMATION TECHNOLOGY SERVICES
The Company believes that superior information technology is critical to
efficient drug development and launch processes, on both the client and CRO
sides. Using technology to reduce the overall cost, time, and risk of developing
and launching a new product is a key element of the Company's strategy. PAREXEL
has a subsidiary, Advanced Technology and Informatics, Inc. ("ATI"), which is
dedicated to implementing this critical strategy component. Through a
combination of internally developed technology and partnerships with other
technology leaders, ATI is able to tailor solutions to meet each client's
particular needs, from developing overall technology strategies to implementing
new systems, to effectively accommodating legacy systems. This year, the Company
introduced a series of Intranet/Extranet-based tools, including ParXnet(tm),
ParXtrial(tm), ParXlaunch(tm) and ParXware(tm). The Company is evolving these
tools on an ongoing basis, as well as developing new tools. The Company believes
that it has a leadership position in this area and expects this technology-
related business to be a key growth driver in the future. In fiscal 2001, ATI
became a separate business unit to maximize its ability to create new
technology-based services.
PROVIDE A TRULY GLOBAL SERVICE
The Company believes that its ability to conduct clinical trials worldwide
enhances its ability to serve the increasingly global model of drug development.
The Company 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. The Company
has established a presence in North America, the United Kingdom, Denmark,
Finland, France, Italy, Spain, Germany, Sweden, Norway, Lithuania, South Africa,
Japan, Australia, Israel, Poland, Hungary, the Czech Republic, and Russia.
PAREXEL 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. PAREXEL prides itself on its ability to work globally with
consistent operating processes, quality, communications, and performance metrics
across all regions.
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 broad range of services that encompass the clinical
research process through to commercial launch. 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 broad 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 has a depth of expertise in designing and conducting scientifically
and clinically demanding trials in a wide range of therapeutic areas, including
cardiovascular, central nervous system, oncology, gastroenterology,
endocrinology, hematology, immunology, pediatrics, rheumatology and the study of
pulmonary, reproductive and infectious diseases. PAREXEL has expertise dealing
in complex disease indications such as HIV, cancer, Alzheimers, and
transplantation. Additionally, it has successfully designed and completed
numerous trials which are complex because of their size and scope, such as with
cardiovascular drugs, intended for a very large population. The Company believes
that as trials become increasingly complex, CROs with a broad range of
experience have a competitive advantage over other companies with more limited
capabilities.
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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 seventeen 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: Clinical Research Services, Medical Marketing Services and
Consulting Services. Financial data on a business unit and geographic basis are
included in footnote 17 to the consolidated financial statements included in
Item 8 of this annual report.
CLINICAL RESEARCH SERVICES ("CRS")
Revenues from the Clinical Trials Management, Biostatistical and Data
Management, and Advanced Technology initiatives, services that the Company's
Clinical Research Services business unit provides, represent approximately $263
million (69%) of the Company's consolidated net revenue for fiscal 2000. As
noted above, in fiscal 2001, ATI became a separate business unit.
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 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 ("CRFs"), detailed
operations manuals and site visits by PAREXEL's clinical research associates
seek to ensure that clinical investigators and their staff follow the
established protocols of the studies. The Company has adopted standard operating
procedures which are intended to satisfy regulatory requirements and serve as a
tool for controlling and enhancing the quality of PAREXEL's worldwide clinical
services.
Clinical trials represent one of the most expensive and time-consuming parts of
the overall drug development process. The information generated during these
trials is critical for gaining marketing approval from the FDA or other
regulatory agencies. PAREXEL's clinical trials management group assists clients
with one or more of the following steps:
- STUDY PROTOCOL DESIGN. The protocol defines the medical issues the study
seeks to examine and the statistical tests that will be conducted.
Accordingly, the protocol also defines the frequency and type of laboratory
and clinical measures that are to be tracked and analyzed. The protocol
also defines the number of patients required to produce a statistically
valid result, the period of time over which they must be tracked and the
frequency and dosage of drug administration. The study's success depends on
the protocol's ability to predict correctly the requirements of the
regulatory authorities.
- CASE REPORT FORM DESIGN. Once the study protocol has been finalized, case
report forms must be developed. The CRF is the critical source document for
collecting the necessary clinical data as dictated by the study protocol.
The CRF may change at different stages of a trial. The CRFs for one patient
in a given study may consist of 100 or more pages.
- SITE AND INVESTIGATOR RECRUITMENT. The drug is administered to patients by
physicians, referred to as investigators, at hospitals, clinics, or other
locations, referred to as sites. Potential investigators may be identified
and solicited by the drug sponsor or the CRO. 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.
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- 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.
- 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 offers
several remote data entry ("RDE") technologies which significantly enhance
both the quality and timeliness of clinical data collection while
achieving significant efficiency savings. (See "Advanced Technology and
Informatics" below.) The Company's study monitoring and data collection
services comply with the FDA's adverse events reporting guidelines.
- REPORT WRITING. The statistical analysis findings for data collected
during the trial together with other clinical data are included in a final
report generated for inclusion in a regulatory document.
- MEDICAL SERVICES. Throughout the course of a development program,
PAREXEL's physicians provide a wide range of medical research and
consulting services to improve the speed and quality of clinical research,
including medical supervision of clinical trials, compliance with medical
standards and safety regulations, medical writing, medical imaging,
strategy development, and portfolio management.
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 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 AND INFORMATICS
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 professionals, on ways to best utilize technology to
expedite the development process. The Company currently offers a portfolio of
information technology tools including the ParXnettm suite of
Intranet/Extranet-based tools, Electronic Data Capture, Medical Imaging,
Integrated Voice Response System ("IVRS"), Medical Imaging Services, ECG
Services, computer-based training programs, and other similar products that can
be customized to our clients' needs. ATI 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. The MMS business
represents approximately $49 million, (13%) of consolidated net revenue in
fiscal 2000.
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
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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 the Information
Products Group. The PCG business represents approximately $67 million (18%) of
consolidated net revenue for fiscal 2000.
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 and IIa
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 outpatient 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. A third unit
is located in Poitiers, France and includes both a Phase I clinic and a
bioanalytical laboratory specializing in mass spectrometry in combination with
chromatography.
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. IPG is a leader in providing conferences, educational
materials, and management consulting services to the clinical research
community, with expertise 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.
IPG 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 has built on its information
technology network by developing a number of proprietary information systems
that address critical aspects of its business, such as project proposals/budget
generation, 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 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.
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FISCAL 2000 CANCELLATION AND RESTRUCTURING AND OTHER CHARGES
During the three months ended March 31, 2000, the Company announced that
Novartis, a key client, reduced the amount of work outsourced to the CRS
business segment, due to Novartis' reprioritization of its research pipeline. As
a result, the Company estimated that total revenues for fiscal 2000 and 2001
would be reduced by $50 million to $55 million in the aggregate.
Consequently, during the year ended June 30, 2000, the Company recorded
restructuring and other charges of $13.1 million. These charges included $7.2
million for employee severance costs related to the Company's decision to
eliminate approximately 475 managerial and staff positions in order to reduce
personnel costs as a result of a material dollar volume of contract
cancellations. The charges also included $4.3 million for lease termination
costs related to continued efforts to consolidate certain facilities and reduce
excess space in certain locations in addition to changes in the Company's
original estimate of when certain facilities would be sublet. The remaining
charges, totaling $1.6 million, primarily related to the write-off of certain
intangible assets and other investments, which are not expected to produce
future value. The Company is planning to further consolidate facilities to gain
further cost savings. In this regard, the Company plans to take an additional
facilities-related charge of between $5 and $10 million in the first quarter of
fiscal 2001. Overall, the Company anticipates these restructuring and other
charges will result in aggregate cost savings of $15 to $20 million once
implemented.
SALES AND MARKETING
PAREXEL's business development strategy is based on maintaining excellent
service-oriented relationships with its large client base. 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. 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 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 global marketing
organization, with offices at its headquarters and in the U.K. The Company's
promotional activities consist primarily of participation in industry
conferences, advertising, and public relations.
CLIENTS
During fiscal 2000, 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 2000, the Company's
five largest clients accounted for 45% of its consolidated net revenue. In
fiscal 1999, the Company's five largest clients accounted for 44% of its
consolidated net revenue, while in fiscal 1998, the Company's five largest
clients accounted for 34% of its consolidated net revenue. In fiscal 2000 and
1999, one client, Novartis, accounted for 21% and 20% of consolidated net
revenue, respectively. In fiscal 1998, a different client, Smithkline Beecham,
accounted for 12% of consolidated 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 work not yet completed or
performed under signed contracts, letter agreements, and certain verbal
commitments. Once work commences, revenue is generally recognized over the life
of the contract. Backlog at June 30, 2000 was approximately $385.1 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, other full service CROs, and, occasionally, small specialty CROs. In
addition, PAREXEL's Consulting and Medical Marketing Services businesses have a
large and fragmented group of specialty service providers with which they
compete. Some of the major CRO's against which the Company competes 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 effectiveness in managing large
and complex medical databases, the capability 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 effectively 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
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among the larger CROs for clients and acquisition candidates.
INTELLECTUAL PROPERTY
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, 2000, the Company had approximately 4,200 employees.
Approximately 49% of the employees are located in North America and 51% are
located throughout Europe and the Asia/Pacific region. The Company believes that
its relations with its employees are good.
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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 REGULATIONS
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:
1. 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.
2. Clinical Trials (3.5 to 6 years)
3. Phase I (6 months to 1 year). Basic safety and pharmacology testing
usually 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.
4. Phase II (1 to 2 years). Basic efficacy (effectiveness) and dose-range
testing usually 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.
5. 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 sponsor 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.
6. New Drug Application ("NDA") Preparation and Submission. Upon
completion of Phase III trials, the sponsor 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.
7. 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.
8. Post-Marketing Surveillance and Phase IV Studies. Federal regulation
requires the sponsor 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. 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
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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.
RISK FACTORS
The statements included in this annual report, including "Management's
Discussion and Analysis of Financial Condition and Results of Operations," may
contain "forward-looking" statements, within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
regarding future results and events that involve a number of risks and
uncertainties including the adequacy of the Company's existing capital resources
and future cash flows from operations, statements regarding expected financial
results, future growth and customer demand. For this purpose, any statements
that are not statements of historical fact may be deemed forward-looking
statements. Without limiting the foregoing, the words "believes," "anticipates,"
"plans," "expects," "intends" and similar expressions are intended to identify
forward-looking statements. The Company's actual future results may differ
significantly from the results discussed in the forward-looking statements.
Important factors that might cause such a difference include, but are not
limited to, risks associated with: the cancellation, revision, or delay of
contracts, including those contracts in backlog; the Company's dependence on
certain industries and clients; the Company's ability to manage growth and its
ability to attract and retain employees; the Company's ability to complete
additional acquisitions and to integrate newly acquired businesses or enter into
new lines of business; government regulation of certain industries and clients;
competition and consolidation within the pharmaceutical industry; the potential
for significant liability to clients and third parties; the potential adverse
impact of health care reform; and the effects of exchange rate fluctuations.
These factors and others are discussed below in greater detail.
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, but not limited to:
- products being tested fail to satisfy safety requirements;
- products have unexpected or undesired clinical results;
- the client decides to forego a particular study, perhaps for economic
reasons;
- not enough patients enroll in the study;
- not enough investigators are recruited; or
- production problems cause shortages of the drug.
In addition, the Company believes that pharmaceutical companies may proceed with
fewer clinical trials if they are trying to reduce costs. These factors may
cause pharmaceutical 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. Refer to "Fiscal 2000
Cancellation and Restructuring and Other Charges" above.
THE COMPANY'S OPERATING RESULTS HAVE FLUCTUATED BETWEEN QUARTERS AND YEARS
AND MAY CONTINUE TO FLUCTUATE IN THE FUTURE
The Company's quarterly and annual operating results have varied, and will
continue to vary. Factors that could cause these variations include:
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- the level of new business authorizations in a particular quarter or year;
- the timing of the initiation, progress, or cancellation of significant
projects;
- exchange rate fluctuations between quarters or years;
- the mix of services offered in a particular quarter or year;
- the timing of the opening of new offices;
- the timing of other internal expansion costs;
- the timing and amount of costs associated with integrating acquisitions;
and
- 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 to sustain a large part of its business. The
Company's operations could be materially and adversely affected if:
- its clients' businesses experience financial problems or are affected by a
general economic downturn;
- consolidation in the pharmaceutical or biotechnology industries leads to a
smaller client base for the Company; or
- 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 2000, the Company's five largest clients accounted
for 45% of its consolidated net revenue, and one client accounted for 21% of
consolidated revenue. 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 net revenue. The Company could suffer a material adverse
effect if it lost the business of a significant client.
THE COMPANY'S BUSINESS HAS EXPERIENCED SUBSTANTIAL EXPANSION IN THE PAST AND THE
COMPANY MUST PROPERLY MANAGE THAT EXPANSION
The Company's business has expanded substantially in the past. Rapid expansion
could strain the Company's operational, human and financial resources. In order
to manage expansion, the Company must:
- continue to improve its operating, administrative and information systems;
- accurately predict its future personnel and resource needs to meet client
contract commitments;
- track the progress of ongoing client projects; and
- attract and retain qualified management, 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:
- assimilate differences in foreign business practices;
- hire and retain qualified personnel; and
- 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 as a component
of 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:
- The Company may encounter difficulties and will encounter expenses in
connection with acquisitions and the subsequent assimilation of the
operations and services or products of the acquired companies;
- The Company's management will necessarily divert attention from other
business concerns; and
- The Company could lose some or all of the key employees of the acquired
company.
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 Chairman, President and Chief Executive Officer. The Company
maintains key man life insurance on Mr. von Rickenbach. The Company does not
have employment agreements with most of its senior
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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:
- operating results;
- earnings estimates by analysts;
- market conditions in the industry;
- prospects of health care reform;
- changes in government regulations; and
- 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 has
traded in the past at a relatively high price-earnings multiple, due in part to
analysts' expectations of 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:
- 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 strength and stability; and
- price.
The contract research organization 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
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Transnational Corporation, Covance Inc., and Pharmaceutical Product Development,
Inc., for both clients and acquisition candidates. In addition, the Company
competes for research contracts arising out of the consolidation within the drug
industry and the growing tendency of drug companies to outsource 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,
pharmaceutical 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 40% of its net revenue for fiscal 2000 from
operations outside of North America. In fiscal 1999, 43% 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.
In fiscal 2000, the Company recorded realized foreign exchange gains of
approximately $0.8 million.
ITEM 2. PROPERTIES
PAREXEL maintains 41 locations throughout 29 countries around the world. The
Company leases all but one of its facilities. The principle executive and
administrative offices are located in Waltham, Massachusetts. The Waltham
facilities encompass approximately 192,000 square feet and, in addition to the
executive and administrative offices, serve the CRS unit in all aspects of its
business and the PCG unit in regulatory affairs. Also in North America, the
Company leases facilities for its CRS business unit in Chicago, Raleigh-Durham
and San Diego. CRS shares leased space in Philadelphia with the Information
Products Group of PCG and in Washington D.C. with the MMS business unit's
headquarters.
In Europe, the Company maintains offices in Berlin, London and Paris, having
approximately 145,000, 75,000 and 43,000 square feet respectively. CRS shares
this leased space in Berlin, London and Paris with PCG, and otherwise occupies
offices in Frankfurt, Sheffield, Guildford, and Amsterdam. MMS' principal
European offices are located in Worthing, with other facilities in Paris.
The Company is planning to consolidate certain facilities to achieve cost
savings. In this regard, the Company plans to take a facilities-related charge
in fiscal 2001. Please see "Fiscal 2000 Cancellation and Restructuring and Other
Charges." Otherwise, 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 approximately seventeen
(17) lawsuits currently pending before the state trial courts in New Jersey and
Pennsylvania. This litigation relates to a drug for which the Company provided
clinical research services. These actions were brought by individual plaintiffs
and not as class actions. Generally, the claims against the Company in these
actions include negligence, breach of express and implied warranty, strict
liability, fraud, civil conspiracy, and negligent and intentional infliction of
emotional distress. The Company has provided notice of these matters to its
insurance carriers. Indemnification has been secured as to four (4) of the
pending lawsuits from one of the companies for which the Company provided
clinical research services. The Company has submitted requests for
indemnification as to the remaining pending lawsuits pursuant to the Company's
contracts with other companies for which the Company provided clinical research
services for the subject drug.
The Company and four of its directors have been named in a lawsuit filed on or
about June 8, 2000 by two arbitrageurs, Elliott Associates, L.P. and Westgate
International L.P. The complaint, filed in the United States District Court for
the Southern District of New York, alleges violations of Section 10(b) of the
Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5, Section
20(a) of the Exchange Act and state law claims for fraud and negligent
misrepresentation. The arbitrageurs allege that they executed both purchases and
short sales of securities in reliance on statements made by the Company
regarding a proposed merger with Covance, Inc. announced in April 1999. The
arbitrageurs further allege that they were damaged by the termination of the
merger agreement which was announced in June 1999. The Plaintiffs have provided
notice to the Company's counsel that they intend to withdraw their negligent
misrepresentation claim. The Company and the Directors have filed a motion with
the court to dismiss the complaint. The Company has provided notice of this
matter to its insurance carrier.
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 2000.
14
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
QUARTERLY OPERATING RESULTS AND COMMON STOCK INFORMATION (UNAUDITED)
The following is a summary of unaudited quarterly results of operations for the
two years ended June 30,2000.
<TABLE>
<CAPTION>
For the year ended June 30, 2000
(Restated) (1)
(in thousands, except share data) First Second Third Fourth
Quarter Quarter Quarter Quarter
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenue $ 91,768 $ 97,957 $ 97,253 $ 91,172
Income (loss) from operations (2) 5,667 6,319 (9,129) 126
Net income (loss) 3,870 5,065 (5,910) 1,363
Diluted earnings (loss) per share 0.15 0.21 (0.24) 0.05
Range of common stock prices (3) $8.03-13.50 $7.62-12.56 $8.12-15.44 $8.25-10.37
</TABLE>
<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 (4) 7,667 7,277 7,703 (2,093)
Net income (loss) 5,505 5,141 5,685 (709)
Diluted earnings (loss) per share 0.22 0.20 0.23 (0.03)
Range of common stock prices (3) $29.69-40.13 $20.25-45.50 $19.00-29.38 $10.48-26.81
</TABLE>
(1) As described in Note 3 to the restated financial statements in Item 8, the
Company restated its Consolidated Financial Statements. The quarterly impact is
as follows:
<TABLE>
<CAPTION>
For the year ended June 30, 2000
(in thousands, except share data) First Quarter Second Quarter
As Reported As Restated As Reported As Restated
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE SHEET
Cash $ 62,033 $ 62,033 $ 74,539 $ 74,619
Accounts receivables, net 170,777 170,777 167,203 167,203
Property and equipment, net 48,409 48,416 44,758 44,775
Accounts payable 19,361 17,541 11,907 11,785
Advance billings 88,094 91,000 103,845 106,459
Other current liabilities 49,690 49,343 48,636 48,364
Accumulated other comprehensive income (2,896) (3,058) (4,752) (6,420)
Retained earnings 40,224 39,655 45,288 44,833
Stockholders' equity 198,602 197,870 198,197 196,073
INCOME STATEMENT
Selling, general and administrative expense $ 18,765 $ 19,185 $ 19,684 $ 19,692
Other income (expense) 774 315 1,848 2,046
Provision for income taxes 2,422 2,112 3,111 3,187
Net income 4,439 3,870 5,064 5,065
COMPREHENSIVE INCOME (LOSS) $ 5,122 $ 4,391 $ 3,208 $ 1,816
Earnings per share - basic $ 0.18 $ 0.15 $ 0.20 $ 0.21
Earnings per share - diluted $ 0.18 $ 0.15 $ 0.20 $ 0.21
</TABLE>
<TABLE>
<CAPTION>
For the year ended June 30, 2000
(in thousands, except share data) Third Quarter Fourth Quarter
As Reported As Restated As Reported As Restated
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE SHEET
Cash $ 79,047 $ 79,127 $ 53,191 $ 53,508
Accounts receivables, net 149,363 149,363 161,447 162,105
Property and equipment, net 42,894 42,913 43,783 43,829
Accounts payable 20,006 18,758 20,979 19,587
Advance billings 82,167 87,594 78,743 86,223
Other current liabilities 52,193 51,481 51,353 50,306
Accumulated other comprehensive income (6,055) (8,393) (7,004) (9,927)
Retained earnings 39,840 38,810 41,270 40,173
Stockholders' equity 190,844 187,476 190,153 186,133
INCOME STATEMENT
Selling, general and administrative expense $ 20,117 $ 20,117 $ 20,399 $ 20,617
Other income (expense) 1,780 1,001 2,014 2,120
Provision for income taxes (1,901) (2,105) 928 883
Net income (5,448) (5,910) 1,430 1,363
COMPREHENSIVE INCOME (LOSS) $ (6,751) $ (7,996) $ 481 $ (171)
Earnings per share - basic $ (0.22) $ (0.24) $ 0.06 $ 0.06
Earnings per share - diluted $ (0.22) $ (0.24) $ 0.06 $ 0.05
</TABLE>
(2) The Statement of Operations for the year ended June 30, 2000 includes
charges of $13.1 million related to restructuring and other charges, consisting
primarily of severance and lease termination costs and $1.0 million related to
accelerated depreciation expense due to changes in the estimated useful lives
of leasehold improvements on abandonded leased facilities.
(3) The range of common stock prices is based on the high and low sales price on
the Nasdaq National Market for the periods indicated.
(4) Income (loss) from operations for the year ended June 30, 1999 includes $4.7
million in merger-related and facilities charges including $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 in North America and Europe.
The Company's common stock is quoted on the Nasdaq National Market under the
symbol "PRXL."
As of September 11, 2000, there were approximately 127 stockholders of record.
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.
15
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(in thousands, except per share data and
number of employees) 2000 1999 1998 1997 1996
(Restated)
---------------------------------------- ---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net revenue $378,150 $348,486 $285,442 $203,676 $125,053
Income from operations 2,983(1) 20,564(2) 13,301(3) 17,119 10,391
Net income 4,388 15,622 9,319 12,803 6,655
Diluted earnings per Share $ 0.17 $ 0.62 $ 0.38 $ 0.56 $ 0.39
FINANCIAL POSITION
Cash, cash equivalents
and marketable securities $ 90,530 $89,957 $76,634 $104,339 $52,022
Working capital 123,680 132,757 118,937 113,997 55,681
Total assets 351,940 333,565 261,758 240,544 135,721
Long-term debt 104 79 36 136 466
Stockholders' equity $ 186,133 $192,032 $168,380 $147,448 $69,788
OTHER DATA
Purchase of property and equipment $20,067 $ 18,910 $ 27,736 $ 25,112 $ 7,461
Depreciation and Amortization $21,934 $ 17,932 $ 15,114(4) $ 7,710 $ 4,280
Number of employees 4,200 4,198 3,705 2,928 1,767
Weighted average shares used in computing
diluted earnings (loss) per share 25,140 25,128 24,825 22,822 17,255
</TABLE>
(1) The Statement of Operations for the year ended June 30, 2000 includes
charges of $13.1 million related to restructuring and other charges, consisting
primarily of severance and lease termination costs and $1.0 million related to
accelerated depreciation expense due to changes in the estimated useful lives of
leasehold improvements on abandoned leased facilities.
(2) Income from operations for the year ended June 30, 1999 includes $4.7
million in nonrecurring charges including $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 in North America and Europe.
(3) Income from operations for the year ended June 30, 1998 includes $13.6
million of nonrecurring charges, including $10.3 million pertaining to
acquisitions.
(4) 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.
16
<PAGE>
ITEM 7. 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:
- clinical trials management;
- data management;
- biostatistical analysis;
- medical marketing;
- clinical pharmacology;
- regulatory and medical consulting;
- performance improvement;
- industry training and publishing; and
- other drug development consulting services.
The Company is managed through three reportable segments, namely, the clinical
research services group, the consulting services group and the medical marketing
services group. The clinical 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
and/or efficacy 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. Revenues and expenses are reported net of these fees 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 non-reimbursable project-related costs 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 RESTRUCTURING AND OTHER CHARGES
In September 1999, the Company acquired CEMAF S.A., a leading Phase I clinical
research and bioanalytical laboratory located in Poitiers, France. The Company
acquired the business and related facilities for an initial cash payment of
approximately $3.0 million in a transaction accounted for as a purchase business
combination. In connection with recording the assets and liabilities acquired,
the Company recorded approximately $2.4 million related to the excess cost over
the fair value of the net assets acquired. In connection with this transaction,
the Company paid approximately an additional $3.0 million to purchase certain
buildings in May 2000. This amount is reflected in property and equipment on the
Company's balance sheet as of June 30, 2000.
17
<PAGE>
During the three months ended March 31, 2000, the Company announced that
Novartis, a key client, reduced the amount of work outsourced to the CRS
business segment, due to Novartis' reprioritization of its research pipeline. As
a result, the Company estimated that total revenues for fiscal 2000 and 2001
would be reduced by $50 million to $55 million in the aggregate.
Consequently, during the year ended June 30, 2000, the Company recorded
restructuring and other charges of $13.1 million. These charges included $7.2
million for employee severance costs related to the Company's decision to
eliminate approximately 475 managerial and staff positions in order to reduce
personnel costs as a result of a material dollar volume of contract
cancellations. The charges also included $4.3 million for lease termination
costs related to continued efforts to consolidate certain facilities and reduce
excess space in certain locations in addition to changes in the Company's
original estimate of when certain facilities would be sublet. The remaining
charges, totaling $1.6 million, primarily related to the write-off of certain
intangible assets and other investments, which are not expected to produce
future value. The Company is planning to further consolidate facilities to gain
further cost savings. In this regard, the Company plans to take an additional
facilities-related charge of between $5 and $10 million in the first quarter of
fiscal 2001. Overall, the Company anticipates these restructuring and other
charges will result in aggregate cost savings of $15 to $20 million once
implemented.
During 1999, the Company recorded a $2.8 million charge in connection with the
centralization of certain facilities. The charge consisted of future
noncancellable lease payments partially offset by estimated sublease income.
Current year activity against the restructuring and other charges accrual (which
is included in "Other current liabilities" in the Consolidated Balance Sheet)
was as follows (in thousands):
<TABLE>
<CAPTION>
Balance, Net Balance,
June 30, 1999 Provisions Charges June 30, 2000
------------- ---------- ------- -------------
<S> <C> <C> <C> <C>
Employee severance costs $ -- $ 7,157 $(2,974) $4,183
Facilities related charges 2,557 4,317 (1,898) 4,976
Other charges -- 1,614 (1,629) (15)
------- ------- ------- ------
$ 2,557 $13,088 $(6,501) $9,144
======= ======= ======= ======
</TABLE>
FISCAL YEAR ENDED JUNE 30, 2000 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1999
Net revenue increased $29.7 million (8.5%) to $378.2 million for fiscal 2000
from $348.5 million for 1999. This net revenue growth was primarily attributable
to an increase in the volume of projects serviced by the Company. In fiscal
2000, net revenue from North American and Asian operations increased 14% and
61%, respectively, over the prior year while net revenue from European
operations for fiscal was flat. On a segment basis, fiscal 2000 net revenues
from CRS and PCG increased by 9.7% and 15.4%, respectively, over the prior year.
Net revenues from the MMS segment decreased by 4.7% compared with the prior year
due to not having a current year counterpart to a large 1999 project.
Direct costs increased $27.2 million (11.7%) to $260.9 million for fiscal 2000
from $233.7 million for 1999. On a segment basis, CRS direct costs increased
$22.2 million to $173.5 million for fiscal 2000 from $151.3 million; PCG direct
costs increased $10.8 million to $52.0 million from $41.2 million; and MMS
direct costs decreased $5.8 million to $35.4 million from $41.2 million. The
higher direct costs for CRS and PCG were primarily due to an increased level of
hiring and personnel costs coupled with related facilities and information
systems costs necessary to support growth in realized and expected levels of
operations. As a percentage of net revenue, direct costs increased to 66.1% and
78.1% in fiscal 2000 from 63.2% and 71.5% in 1999 for CRS and PCG, respectively.
Direct costs for MMS decreased as a percentage of net revenue to 72.3% in fiscal
2000 from 80.2% in 1999 due to improved cost management and the absence of
certain wind-down costs incurred on a project in fiscal 1999 (see above).
Selling, general, and administrative ("SG&A") expenses increased by $7.9 million
(11.0%) to $79.6 million for fiscal 2000 from $71.7 million in 1999. This rise
was primarily due to increased personnel hiring and facilities costs, directly
connected to the infrastructure build-up required to accommodate the Company's
realized and expected growth. As a percentage of net revenue, SG&A expenses
increased to 21.0% in fiscal 2000 from 20.6% in fiscal 1999.
Depreciation and amortization expense increased $3.7 million (20.4%) to $21.6
million for fiscal 2000 from $17.9 million for fiscal 1999. This increase was
primarily due to an increase in capital spending on information technology and
facility improvements necessary to support higher operating levels. In addition,
the Company recorded accelerated depreciation charges in conjunction with the
reduction in estimated useful lives of leasehold improvements on abandoned
facilities related to the Company's restructuring efforts. As a percentage of
net revenue, depreciation and amortization expense increased to 5.7% in fiscal
2000 from 5.1% in fiscal 1999.
Income from operations decreased $17.6 million (85.4%) to $3.0 million in fiscal
2000 from $20.6 million in fiscal 1999. Excluding restructuring and other
charges, income from operations decreased $11.6 million (40.4%) to $17.1 million
for fiscal 2000 from $28.7 million in fiscal 1999. Excluding the impact of these
charges, income from operations decreased to 4.5% of net revenue for fiscal 2000
from 8.2% in 1999, primarily due to higher direct and SG&A expenses, as noted
above.
Interest income increased $1.4 million in fiscal 2000 primarily due to higher
average cash balances and the mix between taxable and tax-exempt securities held
during the year. Other income increased $0.8 million primarily due to realized
foreign exchange gains and the sale of a minority investment in a company.
18
<PAGE>
The Company's effective income tax rate increased to 48.2% in fiscal 2000 from
34.8% in fiscal 1999. This increase was primarily attributable to changes in the
mix of taxable income within the different geographic jurisdictions in which the
Company operated in fiscal 2000 compared with fiscal 1999.
FISCAL YEAR ENDED JUNE 30, 1999 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1998
Net revenue increased $63.0 million (22.1%) to $348.5 million for fiscal 1999
from $285.4 million for 1998. On a segment basis, fiscal 1999 net revenues from
CRS and PCG of $239.5 million and $57.6 million increased by $51.5 million
(27.4%) and $11.8 million (25.8%), respectively, over the prior year. Fiscal
1999 net revenues from MMS of $51.4 million were flat compared to the prior
year. Net revenue growth from fiscal 1998 was primarily the result of an
increase in the volume of projects serviced by the Company.
Direct costs increased $47.9 million (25.8%) to $233.7 million for fiscal 1999
from $185.8 million for 1998. On a segment basis, CRS direct costs increased
$34.8 million to $151.3 million for fiscal 1999 from $116.5 million; PCG direct
costs increased $7.8 million to $41.2 million from $33.4 million; and MMS direct
costs increased $5.3 million to $41.2 million from $35.9 million. These
increases in direct costs were principally due to the increase in hiring and
personnel costs along with related facilities and information systems 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 the overall operational
capacity.
SG&A expenses increased by $10.7 million (17.5%) to $71.7 million for fiscal
1999 from $61.0 million for 1998. This increase was mainly 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, SG&A expenses decreased to 20.6% in fiscal 1999 from 21.4% in
fiscal 1998.
Depreciation and amortization expense increased $2.8 million (18.6%) to $17.9
million for fiscal 1999 from $15.1 million for fiscal 1998. This increase was
largely caused by an increase in capital spending on information technology,
facility improvements, and furnishings necessary to support an 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 (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 (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 SG&A 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 with fiscal 1998.
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 signed 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 heavily 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' sales outstanding in accounts
receivable, net of advance billings, was 55 days at June 30, 2000 compared to 60
days at June 30, 1999. Accounts receivable, net of the allowance for doubtful
accounts, increased to $162.1 million at June 30, 2000 from $150.5 million at
June 30, 1999. Advance billings increased to $86.2 million at June 30, 2000 from
$69.8 million at June 30, 1999.
19
<PAGE>
During fiscal 2000, the Company's operations provided net cash of $29.8 million,
an increase of $0.7 million from the corresponding fiscal 1999 amount. Cash
flows from net income adjusted for non-cash activity provided $28.0 million
during fiscal 2000, down $4.9 million from the corresponding fiscal 1999 amount.
Change in net operating assets provided $1.8 million in cash during fiscal 2000,
primarily due to an increase in advance billings and other current liabilities
partially offset by an increase in accounts receivable. In comparison, for
fiscal 1999, the change in net operating assets used $3.8 million in cash.
Net cash used by investing activities totaled $32.2 million for fiscal 2000 as
compared with $8.4 million used by investing activities in fiscal 1999. The
primary use of net cash for investing activities represented purchase of
property and equipment of $19.1 million related to facility expansions and
investments in information technology in fiscal 2000, as compared to $18.9
million in fiscal 1999. Net purchases of marketable securities were $9.4 million
in fiscal 2000, as compared to net marketable security sales of $9.6 million in
fiscal 1999.
Net cash used by financing activities totaled $4.6 million for fiscal 2000 as
compared to $2.8 million provided by financing activities in fiscal 1999. Under
a stock repurchase program approved by the Board of Directors in September 1999,
the Company acquired 631,000 shares of its common stock at a total cost of $6.2
million. This spending was partially offset by $2.4 million in proceeds from the
issuance of common stock through stock option exercises and the employee stock
purchase plan. The Company has domestic and foreign lines of credit with banks
totaling approximately $3.2 million. At June 30, 2000, the Company had
approximately $2.4 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, expand its
therapeutic expertise, and/or increase its 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 this annual report, including "Management's
Discussion and Analysis of Financial Condition and Results of Operations," may
contain "forward-looking" statements, within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
regarding future results and events that involve a number of risks and
uncertainties including the adequacy of the Company's existing capital resources
and future cash flows from operations, statements regarding expected financial
results, future growth and customer demand. For this purpose, any statements
that are not statements of historical fact may be deemed forward-looking
statements. Without limiting the foregoing, the words "believes," "anticipates,"
"plans," "expects," "intends" and similar expressions are intended to identify
forward-looking statements. The Company's actual future results may differ
significantly from the results discussed in the forward-looking statements.
Important factors that might cause such a difference include, but are not
limited to, risks associated with: the cancellation, revision, or delay of
contracts, including those contracts in backlog; the Company's dependence on
certain industries and clients; the Company's ability to manage growth and its
ability to attract and retain employees; the Company's ability to complete
additional acquisitions and to integrate newly acquired businesses or enter into
new lines of business; government regulation of certain industries and clients;
competition and consolidation within the pharmaceutical industry; the potential
for significant liability to clients and third parties; the potential adverse
impact of health care reform; and the effects of exchange rate fluctuations; and
those discussed in "Risk Factors" included above in Part 1, Item 1 of the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2000.
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 40% of its net revenue for fiscal 2000, 43% of
its net revenue for fiscal 1999, and 39% of its net revenue for fiscal 1998,
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 clients 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 the effects of currency fluctuations to its clients, 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.
20
<PAGE>
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 March 2000, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 44, "Accounting for Certain Transactions involving Stock
Compensation" ("FIN 44"). FIN 44 clarifies the application of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" for
certain issues such as the definition of an employee for the purposes of
applying Opinion 25, the criteria for determining whether a plan qualifies as a
noncompensatory plan, the accounting consequences of various modifications to
the terms of a previously fixed stock option or award, and the accounting for
an exchange of stock compensation awards in a business combination, among other
issues. FIN 44 does not address any issues related to the application of the
fair value method in FASB Statement No. 123, "Accounting for Stock-based
Compensation." FIN 44 will be effective for the Company beginning in fiscal
2001. The Company is currently in the process of evaluating the impact, if any,
that FIN 44 will have on its consolidated financial position or results of
operations.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin 101, "Revenue Recognition" ("SAB 101"). SAB 101 summarizes certain of
the SEC staff's views in applying generally accepted accounting principles to
selected revenue recognition issues in financial statements. SAB 101, which was
delayed by the issuance of SAB 101A on March 27, 2000 and SAB 101B on June 26,
2000, must now be implemented by the Company by the fourth quarter of fiscal
2001. The Company is currently in the process of evaluating the impact, if any,
that SAB 101 will have on its consolidated financial position or results of
operations.
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.
21
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 40% of its net revenue for fiscal 2000, 43% of
its net revenue for fiscal 1999, and 39% of its net revenue for fiscal 1998,
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 clients 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 the effects of currency fluctuations to its clients, 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.
22
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAREXEL INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the years ended June 30,
--------------------------------------
($ in thousands, except per share data) 2000 1999 1998
(Restated)
--------------------------------------- --------- --------- ----------
<S> <C> <C> <C>
NET REVENUE $ 378,150 $ 348,486 $ 285,442
--------- --------- ---------
Costs and expenses:
Direct costs 260,885 233,650 185,718
Selling, general and administrative 79,611 71,690 61,036
Depreciation and amortization 21,583 17,932 15,114
Restructuring and other charges 13,088 4,650 10,273
--------- --------- ---------
375,167 327,922 272,141
--------- --------- ---------
INCOME FROM OPERATIONS 2,983 20,564 13,301
--------- --------- ---------
Interest income 4,370 3,018 3,511
Interest expense (419) (351) (195)
Other income (expense), net 1,531 720 382
--------- --------- ---------
5,482 3,387 3,698
--------- --------- ---------
Income before provision for
income taxes 8,465 23,951 16,999
Provision for income taxes 4,077 8,329 7,680
--------- --------- ---------
NET INCOME $ 4,388 $ 15,622 $ 9,319
--------- --------- ---------
Earnings per share:
Basic $ 0.18 $ 0.63 $ 0.39
Diluted $ 0.17 $ 0.62 $ 0.38
--------- --------- ---------
Weighted average shares outstanding:
per share:
Basic 24,981 24,848 23,939
Diluted 25,140 25,128 24,825
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
23
<PAGE>
PAREXEL INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
-----------------------
($ in thousands, except share data) 2000 1999
(Restated)
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 53,508 $ 62,005
Marketable securities 37,022 27,952
Accounts receivable, net 162,105 150,520
Prepaid expenses 10,186 7,917
Deferred tax assets 15,370 14,011
Other current assets 1,874 2,421
--------- ---------
Total current assets 280,065 264,826
Property and equipment, net 43,829 47,065
Other assets 28,046 21,674
--------- ---------
Total Assets $ 351,940 $ 333,565
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term debt $ 269 $ 1,057
Accounts payable 19,587 14,698
Advance billings 86,223 69,776
Other current liabilities 50,306 46,538
--------- ---------
Total current liabilities 156,385 132,069
Long-term debt 104 79
Other liabilities 9,318 9,385
--------- ---------
Total liabilities 165,807 141,533
--------- ---------
Commitments (Note 15)
Stockholders' equity:
Preferred stock--$.01 par value; shares authorized:
5,000,000; none issued and outstanding -- --
Common stock--$.01 par value; shares authorized:
50,000,000 at June 30, 2000 and 1999; shares
issued: 25,399,570 at June 30, 2000 and
25,132,461, at June 30, 1999; shares outstanding:
24,719,158 at June 30, 2000 and 25,103,049 at
June 30, 1999 254 251
Additional paid-in capital 162,057 159,593
Treasury stock, at cost (6,424) (18)
Retained earnings 40,173 35,785
Accumulated other comprehensive loss (9,927) (3,579)
--------- ---------
Total stockholders' equity 186,133 192,032
--------- ---------
Total liabilities and stockholders' equity $ 351,940 $ 333,565
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
24
<PAGE>
PAREXEL INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Restated)
<TABLE>
<CAPTION>
COMMON STOCK
------------------- Accumulated
Retained Other Total
Additional Treasury Earnings Comprehen- Stock-
Number Par Paid-in Stock, (Accumulated sive (Loss) holders' Comprehensive
($ in thousands, except share data) Of Shares Value Capital At Cost Deficit) Income Equity Income (Loss)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1997 23,991,670 $240 $136,567 $ (18) $11,488 $ (829) $147,448 $11,629
=======
Shares issued under stock option/
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 4) 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 2) 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 24,628,225 246 149,939 (18) 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 4) 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 25,103,049 251 159,593 (18) 35,785 (3,579) 192,032 13,993
=======
Shares issued under stock option/
purchase plans 267,109 3 2,354 2,357
Income tax benefit from exercise
of stock options 110 110
Shares repurchased (651,000) (6,406) (6,406)
Net unrealized gain on marketable
securities 2 2 2
Foreign currency translation (6,350) (6,350) (6,350)
Net income 4,388 4,388 4,388
---------- ---- -------- ------- ------- ------- -------- -------
Balance at June 30, 2000 24,719,158 $254 $162,057 $(6,424) $40,173 $(9,927) $186,133 $(1,960)
---------- ---- -------- ------- ------- ------- -------- =======
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
25
<PAGE>
PAREXEL INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended June 30,
-------------------------------------
($ in thousands) 2000 1999 1998
(Restated)
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,388 $ 15,622 $ 9,319
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 21,934 17,932 15,114
Loss (Gain) on disposal of assets 1,638 (647) --
Stock compensation charges of acquired companies -- -- 4,844
Change in assets and liabilities, net of effects from
acquisitions:
Restricted cash -- -- 1,967
Accounts receivable, net (11,153) (35,970) (26,829)
Deferred tax assets (1,359) (6,142) (4,618)
Prepaid expenses and other current assets (1,439) 899 (2,691)
Other assets (5,122) (5,892) (1,637)
Accounts payable 4,114 2,700 498
Advance billings 13,339 23,033 (897)
Other current liabilities 3,541 11,168 5,022
Other liabilities (68) 6,421 (15)
--------- --------- ---------
Net cash provided by operating activities 29,813 29,124 77
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (83,090) (76,641) (118,533)
Proceeds from sale of marketable securities 73,670 86,168 148,634
Cash of acquired companies -- 633 --
Purchase of property and equipment (19,089) (18,910) (27,736)
Acquisition of a business (3,000) -- --
Proceeds from sale of assets 587 1,287 --
Other investing activities (1,244) (921) (1,377)
--------- --------- ---------
Net cash provided (used) by investing activities (32,166) (8,384) 988
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 2,357 4,148 4,906
Payments to repurchase common stock (6,225) -- --
Net borrowings (repayments) under line of credit (787) 1,057 (866)
Repayments of long-term debt 25 (2,378) (100)
Dividends paid by acquired companies -- -- (1,293)
--------- --------- ---------
Net cash (used) provided by financing activities (4,630) 2,827 2,647
--------- --------- ---------
Elimination of net cash activities of acquired companies for
duplicated periods -- -- 672
--------- --------- ---------
Effect of exchange rate changes on cash and cash equivalents (1,514) (1,503) (1,069)
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents (8,497) 22,064 3,315
Cash and cash equivalents at beginning of year 62,005 39,941 36,626
--------- --------- ---------
Cash and cash equivalents at end of year $ 53,508 $ 62,005 $ 39,941
--------- --------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 22 $ 84 $ 188
Income taxes $ 14,159 $ 7,201 $ 4,730
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Income tax benefit from exercise of stock options $ 110 $ 765 $ 2,400
Common stock issued in connection with acquisitions $ -- $ 4,746 $ 3,928
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
26
<PAGE>
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 represent amounts billed in excess of revenue recognized.
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. Revenues and expenses are reported net of these fees since such fees
are granted by customers on a "pass-through basis" without risk or reward to the
Company.
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 $3.9 million of securities held at June 30, 2000 were subject to
seven-day put options; no securities held at June 30, 1999 were subject to such
put options. 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, 2000 and 1999.
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,
Novartis, accounted for 21%, or $80.9 million, of consolidated net revenue for
fiscal 2000, primarily in the contract research services group. In fiscal 1999,
the same customer accounted for 20% of consolidated net revenue.
27
<PAGE>
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 acquired businesses.
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 $13.1 million and $13.3 million, included in Other Assets,
are net of accumulated amortization of $1.6 million and $1.8 million as of June
30, 2000 and 1999, respectively. Amortization expense was $1.5 million, $0.6
million, and $0.4 million for the fiscal years ended June 30, 2000, 1999, and
1998, respectively.
Comprehensive Income
In fiscal 1999, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income." SFAS No. 130 established 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 stockholders' equity, to be included in
other comprehensive income. The Company presents comprehensive income in its
Consolidated Statement of Stockholders' Equity. The adoption of SFAS No. 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 in effect during the
year. Translation adjustments are accumulated in a separate component of
stockholders' equity.
Earnings Per Share
Earnings per share has been calculated in accordance with SFAS No. 128,
"Earnings per Share." 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 1999 amounts have been reclassified to conform with the fiscal 2000
presentation.
Recently Issued Accounting Standards
In March 2000, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 44, "Accounting for Certain Transactions involving Stock
Compensation" ("FIN 44"). FIN 44 clarifies the application of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" for
certain issues such as the definition of an employee for the purposes of
applying Opinion 25, the criteria for determining whether a plan qualifies as a
noncompensatory plan, the accounting consequences of various modifications to
the terms of a previously fixed stock option or award, and the accounting for
an exchange of stock compensation awards in a business combination, among other
issues. FIN 44 does not address any issues related to the application of the
fair value method in FASB Statement No. 123, "Accounting for Stock-based
Compensation." FIN 44 will be effective for the Company beginning in fiscal
2001. The Company is currently in the process of evaluating the impact, if any,
that FIN 44 will have on its consolidated financial position or results of
operations.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin 101, "Revenue Recognition" ("SAB 101"). SAB 101 summarizes certain of
the SEC staff's views in applying generally accepted accounting principles to
selected revenue recognition issues in financial statements. SAB 101, which was
delayed by the issuance of SAB 101A on March 27, 2000 and SAB 101B on June 26,
2000, must now be implemented by the Company by the fourth quarter of fiscal
2001. The Company is currently in the process of evaluating the impact, if any,
SAB 101 will have on its consolidated financial position or results of
operations.
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. Gains 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. Restatement of Consolidated Financial Information
Subsequent to the issuance of the June 30, 2000 financial statements, the
Company determined that at June 30, 2000, its intercompany accounts did not
fully eliminate in consolidation. The unreconciled difference, amounting to $7.6
million, was originally classified as a reduction to advance billings on the
consolidated balance sheet. Based on subsequent analysis, the Company has now
determined the appropriate accounts to which the difference previously included
in advance billings should have been recorded. Accordingly, the financial
statements for the year ended June 30, 2000 have been restated to reflect these
changes. The impact of this restatement on the consolidated financial statements
for the year ended June 30, 2000 is as follows:
<TABLE>
<CAPTION>
($ in thousands, except per share data) As Reported As Restated
----------- -----------
<S> <C> <C>
Balance Sheet
Cash $ 53,191 $ 53,508
Accounts receivables, net 161,447 162,105
Property and equipment, net 43,783 43,829
Accounts payable 20,979 19,587
Advance billings 78,743 86,223
Other current liabilities 51,353 50,306
Accumulated other comprehensive income (7,004) (9,927)
Retained earnings 41,270 40,173
Stockholders' equity 190,153 186,133
Income Statement
Selling, general and administrative expenses $ 78,965 $ 79,611
Other income (expense) 6,416 5,482
Provision for income taxes 4,560 4,077
Net income 5,485 4,388
COMPREHENSIVE INCOME (LOSS) $ 2,060 $ (1,960)
Earnings per share - basic $ 0.22 $ 0.18
Earnings per share - diluted $ 0.22 $ 0.17
</TABLE>
NOTE 4. ACQUISITIONS
Fiscal 2000
28
<PAGE>
On September 1, 1999, the Company acquired CEMAF S.A., a leading Phase I
clinical research and bioanalytical laboratory located in Poitiers, France. The
Company acquired the business and related facilities for an initial cash payment
of approximately $3.0 million in a transaction accounted for as a purchase
business combination. In connection with this transaction, the Company paid
approximately an additional $3.0 million to purchase certain buildings in May
2000. This amount is reflected in property and equipment on the Company's
balance sheet as of June 30, 2000. In accordance with the terms of the asset
purchase agreement, the Company is obligated to make additional payments in
contingent purchase price if CEMAF achieves certain established annual earnings
targets in each fiscal year through June 30, 2002. No payments were required in
fiscal 2000. The remaining maximum contingent obligation is $3.2 million. In
connection with recording the assets and liabilities acquired, the Company
recorded approximately $2.4 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 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.
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 $117,000,
respectively) were duplicated in the consolidated statements of operations for
fiscal 1997. Accordingly, net income and equity activity for one of the
duplicated periods has been eliminated from stockholders' equity.
The following represents the duplicated amounts included in both the results of
operations for fiscal 1998:
<TABLE>
<CAPTION>
($ IN THOUSANDS) MMS EUROPE MIRAI TOTAL
---------------- ---------- ----- -----
<S> <C> <C> <C>
Net revenue $13,205 $4,891 $18,096
Operating income 1,553 438 1,991
Net income 697 343 1,040
</TABLE>
29
<PAGE>
In connection with the acquisitions during fiscal 1998, the Company incurred
acquisition-related charges of $10.3 million consisting principally of non-cash
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 $1.6 million provision during fiscal 1998 which has been reflected in
selling, general, and administrative expense in the accompanying consolidated
statement of operations to increase the accounts receivable reserves of PPS and
MIRAI to conform reserve estimates with Company policy.
NOTE 5. INVESTMENTS
Available-for-sale securities included in cash equivalents as of June 30, 2000
and 1999, consisted of the following:
<TABLE>
<CAPTION>
($ IN THOUSANDS) 2000 1999
-------- -------
<S> <C> <C>
Money market instruments $ 2,665 $ 9,869
Municipal and corporate debt securities 12,374 4,600
Repurchase agreements 10,436 16,143
------- -------
$25,475 $30,612
======= =======
</TABLE>
Available-for-sale securities included in marketable securities at June 30, 2000
and 1999,consisted of the following:
<TABLE>
<CAPTION>
($ IN THOUSANDS) 2000 1999
------- -------
<S> <C> <C>
Municipal securities $36,337 $27,261
Federal government securities 380 398
Corporate debt securities 305 293
------- -------
$37,022 $27,952
======= =======
</TABLE>
The Company's investments are reflected at fair market value. During fiscal
2000, gross realized gains totaled $2.2 million and gross realized losses
totaled $2.0 million. Unrealized gains and losses as of June 30, 1999 and 1998
were not material.
NOTE 6. ACCOUNTS RECEIVABLE
Accounts receivable at June 30, 2000 and 1999, consisted of the following:
<TABLE>
<CAPTION>
2000
($ IN THOUSANDS) (Restated) 1999
---------- --------
<S> <C> <C>
Billed $ 89,207 $ 81,590
Unbilled 76,598 74,057
Allowance for doubtful accounts (3,700) (5,127)
-------- --------
$162,105 $150,520
======== ========
</TABLE>
NOTE 7. PROPERTY AND EQUIPMENT
Property and equipment at June 30, 2000 and 1999, consisted of the following:
<TABLE>
<CAPTION>
2000
($ IN THOUSANDS) (Restated) 1999
---------- -------
<S> <C> <C>
Computer and office equipment $48,960 $46,850
Computer software 19,445 16,206
Furniture and fixtures 19,283 17,762
Leasehold improvements 8,512 7,021
Buildings 6,012 2,757
Other 1,763 1,854
------- -------
103,975 92,450
Less accumulated depreciation
and amortization 60,146 45,385
------- -------
$43,829 $47,065
======= =======
</TABLE>
Depreciation and amortization expense relating to property and equipment was
$20.1 million, $17.3 million, and $14.7 million for the years ended June 30,
2000, 1999, and 1998, respectively, of which $1.2 million in fiscal 1998 related
to amortization of property and equipment under capital leases. The depreciation
expense for the year ended June 30, 2000 includes $1.0 million of accelerated
depreciation due to the restructuring charge taken in the third quarter of
fiscal 2000 and the consequent changes in the estimated useful lives of
leasehold improvements on abandoned leased facilities.
In fiscal 1998, the Company recorded a $1.7 million charge to depreciation and
amortization expense resulting from a change in estimate of the remaining
service lives of certain computer equipment arising from integration activities
associated with acquisitions and a company-wide program implemented to upgrade
and standardize its information technology platform.
30
<PAGE>
NOTE 8. OTHER CURRENT LIABILITIES
Other current liabilities at June 30, 2000 and 1999, consisted of the following:
<TABLE>
<CAPTION>
2000
($ IN THOUSANDS) (Restated) 1999
---------- -------
<S> <C> <C>
Accrued compensation and
withholding $16,166 $14,645
Income taxes payable 11,351 10,328
Other 22,789 21,565
------- -------
$50,306 $46,538
======= =======
</TABLE>
NOTE 9. RESTRUCTURING AND OTHER CHARGES
During the year ended June 30, 2000, the Company recorded restructuring and
other charges of $13.1 million. These charges included $7.2 million of employee
severance costs related to the Company's decision to eliminate approximately 475
managerial and staff positions in order to reduce personnel costs as a result of
a material dollar volume of contract cancellations. The charges also included
$4.3 million for lease termination costs related to continued efforts to
consolidate certain facilities and to reduce excess space in certain locations,
in addition to changes in the Company's original estimate of when certain
facilities would be sublet. The remaining charges, totaling $1.6 million,
primarily related to the write-off of certain intangible assets and other
investments, which is not expected to produce future value. In addition, the
Company is planning to further consolidate facilities to gain further cost
savings. The Company plans to take an additional facilities related charge of
between $5 and $10 million in the first quarter of fiscal 2001. Overall, the
Company anticipates these restructuring and other charges will result in
aggregate cost savings of $15 to $20 million once implemented.
During the three months ended June 30, 1999, the Company recorded a $2.8 million
charge in connection with the centralization of certain facilities. The charge
consisted of future noncancellable lease payments partially offset by estimated
sublease income. Current year activity against the restructuring and other
charges accrual (which is included in "Other current liabilities" in the
Consolidated Balance Sheet) was as follows:
<TABLE>
<CAPTION>
Balance, Net Balance,
(In thousands) June 30, 1999 Provisions Charges June 30, 2000
------------- ---------- -------- -------------
<S> <C> <C> <C> <C>
Employee severance costs $ - $ 7,157 $(2,974) $ 4,183
Facilities related charges 2,557 4,317 (1,898) 4,976
Other charges - 1,614 (1,629) (15)
------- -------- ------- --------
$ 2,557 $ 13,088 $(6,501) $ 9,144
======= ======== ======== ========
</TABLE>
NOTE 10. CREDIT ARRANGEMENTS
The Company has domestic and foreign lines of credit with banks totaling
approximately $3.2 million. The lines are collateralized by accounts receivable
and fixed assets, are payable on demand, and bear interest at rates ranging from
1.1% to 9.0%. The lines of credit expire at various dates through December 2000
and are renewable. At June 30, 2000, $0.8 million was outstanding under these
credit arrangements and included in accounts and notes payable. At June 30,
2000, $2.4 million was available under these lines of credit.
NOTE 11. STOCKHOLDERS' EQUITY
As of June 30, 2000 and 1999, 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.
In September 1999, the Board of Directors approved a stock repurchase program
authorizing the purchase of up to $20 million of the Company's common stock. The
repurchases are made in the open market subject to market conditions. The
Company acquired 651,000 shares at a total cost of $6.4 million during the year
ended June 30, 2000. As of June 30, 2000, $0.2 million of the $6.4 million was
accrued for the repurchase of 20,000 shares.
31
<PAGE>
NOTE 12. EARNINGS PER SHARE
The following table is a summary of shares used in calculating basic and diluted
earnings per share:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-------------------------------------
(IN THOUSANDS) 2000 1999 1998
------ ------ -----
<S> <C> <C> <C>
Weighted average number of shares
outstanding, used in computing
basic earnings per share 24,981 24,848 23,939
Contingently issuable common shares -- -- 381
Dilutive common stock options 159 280 505
------ ------ ------
Weighted average shares used in computing
diluted earnings per share 25,140 25,128 24,825
====== ====== ======
</TABLE>
NOTE 13. 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.
32
<PAGE>
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 3,160,344 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. In November 1999, the Company's stockholders approved an amendment
to increase the number of shares issuable under the 1995 Plan by 800,000 shares.
Both the November 1997 and November 1999 amendments are reflected in the
3,160,344 shares noted above.
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. The Purchase Plan terminated in fiscal 2000.
In March 2000, the Board of Directors of the Company adopted the 2000 Employee
Stock Purchase Plan (the "2000 Purchase Plan"). Under the 2000 Purchase Plan,
employees will continue to 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 approximately 800,000 shares were issued under the 2000 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 for the year ended
June 30, 1998.
Aggregate stock option activity for all plans for the three years ended June 30,
2000 is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
OPTIONS PRICE
---------- --------
<S> <C> <C>
Outstanding at June 30, 1997 1,515,799 $13.76
Granted 1,011,495 29.78
Exercised (332,174) 6.72
Canceled (129,585) 24.27
--------- ------
Outstanding at June 30, 1998 2,065,535 22.13
Granted 648,700 22.10
Exercised (128,344) 8.35
Canceled (227,631) 25.26
-------- -----
Outstanding at June 30, 1999 2,358,260 22.55
Granted 945,850 9.88
Exercised (56,718) 4.75
Canceled (588,897) 21.77
-------- ------
Outstanding at June 30, 2000 2,658,495 $18.38
--------- ------
Exercisable at June 30, 2000 1,076,312 $19.51
--------- ------
Available for future grant 1,920,009
--------- ------
</TABLE>
33
<PAGE>
Summary information related to options outstanding and exercisable as of June
30, 2000, is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
REMAINING WEIGHTED WEIGHTED
RANGE OF OUTSTANDING CONTRACTUAL AVERAGE EXERCISABLE AVERAGE
EXERCISE AS OF LIFE EXERCISE AS OF EXERCISE
PRICES JUNE 30, 2000 (YEARS) PRICE JUNE 30, 2000 PRICE
------------- -------------- ------------ -------- ------------- --------
<S> <C> <C> <C> <C>
$0.01-10.00 596,653 6.4 $ 7.49 242,153 $ 5.62
10.01-20.00 792,837 6.6 13.58 185,486 18.40
20.01-30.00 893,588 5.9 23.98 537,101 23.37
30.01-37.81 375,417 4.9 32.51 111,572 32.91
--------- --- ------ -------- -------
2,658,495 1,076,312
========= === ------ ========= =======
</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, 2000: Risk free interest rates of
6.10% in fiscal 2000, 4.58% in fiscal 1999 and 5.84% in fiscal 1998, dividend
yield of 0.0% for each year, volatility factor of the expected market price of
the Company's common stock of 72% for fiscal 2000, 71% for fiscal 1999, and 45%
for fiscal 1998, and an average holding period of five years. During fiscal
2000, 1999 and 1998, the weighted-average grant-date fair value of the stock
options granted during the fiscal year was $6.30, $17.20, and $15.28 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:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER 2000
SHARE DATA) (Restated) 1999 1998
------------------------- ---------- ------ ------
<S> <C> <C> <C>
Pro forma net income $(1,057) $9,214 $8,215
Pro forma income per diluted
weighted average share $(0.04) $0.37 $0.33
</TABLE>
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 $2.4 million, $1.8 million, and $1.4 million, for the years ended June
30, 2000, 1999, and 1998, respectively.
NOTE 14. INCOME TAXES
Domestic and foreign income before income taxes for the three years ended June
30, 2000, are as follows:
<TABLE>
<CAPTION>
($ IN THOUSANDS) 2000 1999 1998
(Restated)
---------------- ------- ------- -------
<S> <C> <C> <C>
Domestic $16,204 $ 3,475 $ 9,428
Foreign (7,739) 20,476 7,571
------- ------- -------
$ 8,465 $23,951 $16,999
======= ======= =======
</TABLE>
34
<PAGE>
The provisions for income taxes for the three years ended June 30, 2000 are as
follows:
<TABLE>
<CAPTION>
2000
($ IN THOUSANDS) (Restated) 1999 1998
---------------- ---------- ------- -------
<S> <C> <C> <C>
Current:
Federal $ 5,389 $ 2,801 $5,402
State 2,015 1,506 1,144
Foreign 1,338 7,359 3,403
------- ------- ------
8,742 11,666 9,949
------- ------- ------
Deferred:
Federal (1,087) (2,526) (1,122)
State (362) (842) (384)
Foreign (3,216) 31 (763)
------- ------ ------
(4,665) (3,337) (2,269)
------- ------ ------
$ 4,077 $8,329 $7,680
======= ====== ======
</TABLE>
The Company's consolidated effective income tax rate differed from the U.S.
federal statutory income tax rate as set forth below:
<TABLE>
<CAPTION>
2000
($ IN THOUSANDS) (Restated) 1999 1998
---------------- ---------- ------ ------
<S> <C> <C> <C>
Income tax expense computed at the federal
statutory rate $2,963 $8,383 $5,949
State income taxes, net of federal benefit 953 994 494
Foreign rate differential 498 (629) (141)
Use of foreign net operating loss carryforwards (776) (532) (1,117)
Foreign losses w/o current benefit 983 291 522
Foreign permanent tax adjustments 202 191
U.S. permanent tax adjustments (124) (287) 1,454
U.S. separate return limitation year loss (154) 160
Other (468) (242) 519
------ ------ ------
$4,077 $8,329 $7,680
====== ====== ======
</TABLE>
Provision has not been made for U.S. or additional foreign taxes on
undistributed earnings of foreign subsidiaries as those earnings have been
permanently reinvested. Such taxes, if any, are not expected to be significant.
Significant components of the Company's net deferred tax asset as of June 30,
2000 and 1999 are as follows:
<TABLE>
<CAPTION>
($ IN THOUSANDS) 2000 1999
(Restated)
--------------- -------- --------
<S> <C> <C>
Deferred tax assets:
Foreign loss carryforwards $ 8,061 $ 4,869
Accrued expenses 16,140 9,480
Allowance for doubtful accounts 558 1,300
Deferred contract profit 6,699 8,852
Other 118 89
-------- --------
Gross deferred tax assets 31,576 24,590
Deferred tax asset valuation allowance (3,636) (3,563)
-------- --------
Total deferred tax assets 27,940 21,027
-------- --------
Deferred tax liabilities:
Property and equipment (4,822) (3,948)
Other (4,224) (5,364)
-------- --------
Total deferred tax liabilities (9,046) (9,312)
-------- --------
$ 18,894 $ 11,715
======== ========
</TABLE>
The net deferred tax assets and liabilities are included in the consolidated
balance sheet as of June 30, 2000 and 1999, as follows:
<TABLE>
<CAPTION>
($ IN THOUSANDS) 2000 1999
(Restated)
---------------- ------- -------
<S> <C> <C>
Other current assets $15,370 $14,011
Other assets 12,570 7,016
Other current liabilities (1,007) (1,175)
Other liabilities (8,039) (8,137)
------- -------
$18,894 $11,715
======= =======
</TABLE>
35
<PAGE>
The net deferred tax asset includes a tax effect of approximately $8.6 million
for pre-acquisition and post-acquisition foreign tax loss carryforwards
available to offset future liabilities for foreign income taxes. 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 2000,
the valuation allowance increased by $0.1 million due to inability to use
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 15. LEASE COMMITMENTS
The Company leases its facilities under operating leases that include renewal
and escalation clauses. Total rent expense was $20.3 million, $17.3 million, and
$13.9 million for the years ended June 30, 2000, 1999, and 1998,respectively.
Future minimum lease payments due under noncancellable operating leases totaled
$18.3 million, $14.1 million, $10.5 million, $7.5 million, $6.8 million, and
$22.2 million for fiscal 2001, 2002, 2003, 2004, 2005 and thereafter,
respectively. These future minimum lease payments are offset by future sublease
payments totaling $4.3 million and $1.4 million for fiscal 2001 and 2002,
respectively.
NOTE 16. RELATED PARTY TRANSACTIONS
During the three years ended June 30, 2000, 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 nil, $25.3 million and $25.2 million
in fiscal 2000, 1999 and 1998, 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 were on standard terms and manner
of settlement. At June 30, 2000 and 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 $0.2 million for each of the years ended June 30, 1998. These
notes were settled in fiscal 1999.
NOTE 17. GEOGRAPHIC AND SEGMENT INFORMATION
Financial information by geographic area for the three years ended June 30, 2000
is as follows:
<TABLE>
<CAPTION>
($ IN THOUSANDS) 2000 1999 1998
(Restated)
---------------- ---------- --------- ---------
<S> <C> <C> <C>
Net revenue:
North America $ 225,478 $ 198,236 $ 175,045
United Kingdom 65,444 79,312 56,607
Europe 79,695 66,250 50,012
Asia/Pacific 7,533 4,688 3,778
--------- --------- ---------
$ 378,150 $ 348,486 $ 285,442
--------- --------- ---------
Income (loss) from
operations:
North America $ 5,979 $ 1,060 $ 6,334
United Kingdom (4,162) 16,545 4,747
Europe 2,012 3,368 2,519
Asia/Pacific (846) (409) (299)
--------- --------- ---------
$ 2,983 $ 20,564 $ 13,301
--------- --------- ---------
Identifiable assets:
North America $ 199,762 $ 218,625 $ 190,017
United Kingdom 65,028 54,360 42,804
Europe 81,348 58,086 28,710
Asia/Pacific 5,802 2,494 227
--------- --------- ---------
$ 351,940 $ 333,565 $ 261,758
--------- --------- ---------
</TABLE>
The Company is managed through three reportable segments, namely, the clinical
research services group, the consulting services group and the medical marketing
services group. The clinical 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.
36
<PAGE>
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:
2000 $262,698 $66,525 $48,927 $378,150
1999 $239,502 $57,633 $51,351 $348,486
1998 $187,954 $45,831 $51,657 $285,442
Gross profit:
2000 $89,154 $14,562 $13,549 $117,265
1999 $88,227 $16,422 $10,187 $114,836
1998 $71,459 $12,452 $15,813 $ 99,724
</TABLE>
37
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of PAREXEL International Corporation:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and of cash flows,
after the restatement described in Note 3, present fairly, in all material
respects, the financial position of PAREXEL International Corporation and its
subsidiaries at June 30, 2000 and June 30, 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30 2000, in conformity with accounting principles generally accepted in the
United States of America. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/PricewaterhouseCoopers LLP
Boston, Massachusetts
August 18, 2000, except for the information
in Note 3, as to which the date is
December 8, 2000.
38
<PAGE>
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," "Executive Officers" and "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Proxy Statement for the Company's 2000 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," "Compensation Committee Interlocks and Insider
Participation," "Executive Compensation," "Employment Agreements," "Stock
Performance Graph" and "Compensation Committee and Stock Option Committee Report
on Executive Compensation" in the Proxy Statement for the Company's 2000 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 2000 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
2000 Annual Meeting of Stockholders. Such information is incorporated herein by
reference.
39
<PAGE>
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 are included in Item 8 of this report.
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS FORM 10-K/A PAGE
----------------
<S> <C>
Report of Independent Accountants 38
Consolidated Statements of Operations for each of the 23
three years ended June 30, 2000
Consolidated Balance Sheets at June 30, 2000 and 1999 24
Consolidated Statements of Stockholders' Equity for 25
each of the three years ended June 30, 2000
Consolidated Statements of Cash Flows for each of the 26
three years ended June 30, 2000
Notes to Consolidated Financial Statements 27-37
</TABLE>
(2) FINANCIAL STATEMENT SCHEDULES:
For the three years ended June 30, 2000:
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).
3.3 Amendment to Article 1, Section 1 of the Corporation's Amended
and Restated By-laws (filed as Exhibit 3.3 to the Registrant's
Annual Report on Form 10-K for the year ended June 30, 2000 and
incorporated herein by 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 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).
4.3 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).
4.4 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).
40
<PAGE>
4.5 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* 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 reference.
10.4* 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).
10.5* 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).
10.6* 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).
10.7* 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).
10.8* 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).
10.9* 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).
10.10 Loan and Security Agreement dated as of July 31, 1992 between the
Company, Barnett International Corporation and The First National
Bank of Boston, as amended (filed as Exhibit 10.12 to the
Registrant's Annual Report on Form 10-K for the year ended June
30, 1999 and incorporated herein by this reference.
10.11 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).
10.12 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).
41
<PAGE>
10.13* 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).
10.14* 1998 Non-Qualified, Non-Officer Stock Option Plan, as amended
(filed as Exhibit 10.16 to the registrant's Annual Report on form
10-K for the year ended June 30, 1999 and incorporated herein by
this reference).
10.15* Amended and Restated Employment Agreement dated December 6, 1999
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 December 31, 1999 and incorporated herein by this
reference).
10.16* 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).
10.17 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).
10.18 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).
10.19 Lease dated June 14, 1991 between 200 West Street Limited
Partnership and the Company (filed as Exhibit 10.19 to the
Registrant's Annual Report on Form 10-K for the year ended
June 30, 2000 and incorporated herein by this reference).
10.20* Employment Agreement dated August 30, 1996 between Ulf Schneider
and the Company (filed as Exhibit 10.20 to the Registrant's
Annual Report on Form 10-K for the year ended June 30, 2000 and
incorporated herein by this reference).
10.21* Employment Agreement dated December 15, 1997 between Paule Dapres
and the Company (filed as Exhibit 10.21 to the Registrant's
Annual Report on Form 10-K for the year ended June 30, 2000 and
incorporated herein by this reference).
10.22 Fourth Amendment dated August 28, 2000 to the lease dated
November 17, 1998 between Boston Properties Limited Partnership
and the Company (filed as Exhibit 10.22 to the Registrant's
Annual Report on Form 10-K for the year ended June 30, 2000 and
incorporated herein by this reference).
21.1 List of subsidiaries of the Company (filed as Exhibit 21.1 to the
Registrant's Report on Form 10-K for the year ended June 30, 2000
and incorporated herein by this reference).
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Report of Independent Accountants on Financial Statement
Schedule.
27.1 Financial Data Schedule.
(B) Reports on Form 8-K: No reports on Form 8-K for the quarter ended
June 30, 2000.
* denotes management contract or any compensatory plan, contract or arrangement.
42
<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 5th day of January, 2001.
PAREXEL INTERNATIONAL CORPORATION
January 5, 2001 By: /s/ Josef H. von Rickenbach
---------------------------------
Josef H. von Rickenbach
Chairman of the Board, President and Chief
Executive Officer
January 5, 2001 /s/ James F. Winschel, Jr.
---------------------------------
James F. Winschel, Jr.
Senior Vice President and Chief
Financial Officer (principal
financial and accounting officer)
43
<PAGE>
Schedule II
PAREXEL INTERNATIONAL CORPORATION
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
($ in thousands)
<TABLE>
<CAPTION>
Balance at Charged to Balance at
beginning costs and Charged to Deductions end of
Description of year expenses other accounts and write-offs year
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL
ACCOUNTS:
Year ended June 30, 1998 $3,384 $1,924 $ -- $ (246) $5,062
Year ended June 30, 1999 5,062 533 -- (468) 5,127
Year ended June 30, 2000 5,127 607 -- (2,034) 3,700
DEFERRED TAX ASSET
VALUATION ALLOWANCE:
Year ended June 30, 1998 $3,504 $ -- $ -- $ (891) $2,613
Year ended June 30, 1999 2,613 950 -- -- 3,563
Year ended June 30, 2000
(Restated) 3,563 73 -- -- 3,636
</TABLE>
44
