-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O+dWx5qyn/bUuDQzxUacVEONBOwuWCDVKEK1bBwEnjbs/Z7HYatljOj+lVgSuSZU kQBeuzR05zQjZcIGX6CWwg== 0000927016-01-000056.txt : 20010122 0000927016-01-000056.hdr.sgml : 20010122 ACCESSION NUMBER: 0000927016-01-000056 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20010105 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PAREXEL INTERNATIONAL CORP CENTRAL INDEX KEY: 0000799729 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH [8731] IRS NUMBER: 042776269 STATE OF INCORPORATION: MA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 000-27058 FILM NUMBER: 1502937 BUSINESS ADDRESS: STREET 1: 195 WEST ST CITY: WALTHAM STATE: MA ZIP: 02151 BUSINESS PHONE: 7814879900 MAIL ADDRESS: STREET 1: 195 WEST ST CITY: WALTHAM STATE: MA ZIP: 02154 10-K/A 1 0001.txt FORM 10-K/A 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. 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. PAREXEL INTERNATIONAL CORPORATION FORM 10-K ANNUAL REPORT INDEX PAGE ---- 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 1 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, 2 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. 3 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. 4 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. 5 - 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 6 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. 7 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 8 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. 9 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 10 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: 11 - 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 12 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 13 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 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.
For the year ended June 30, 2000 (Restated) (1) (in thousands, except share data) First Second Third Fourth Quarter Quarter Quarter Quarter - ----------------------------------------------------------------------------------- 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
For the year ended June 30, 1999 (in thousands, except share data) First Second Third Fourth Quarter Quarter Quarter Quarter - ---------------------------------------------------------------------------------------- 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
(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:
For the year ended June 30, 2000 (in thousands, except share data) First Quarter Second Quarter As Reported As Restated As Reported As Restated ----------- ----------- ----------- ----------- 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
For the year ended June 30, 2000 (in thousands, except share data) Third Quarter Fourth Quarter As Reported As Restated As Reported As Restated ----------- ----------- ----------- ----------- 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
(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 ITEM 6. SELECTED FINANCIAL DATA
(in thousands, except per share data and number of employees) 2000 1999 1998 1997 1996 (Restated) - ---------------------------------------- ---------- ---------- ---------- -------- -------- 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
(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 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 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):
Balance, Net Balance, June 30, 1999 Provisions Charges June 30, 2000 ------------- ---------- ------- ------------- 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 ======= ======= ======= ======
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 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 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 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 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 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA PAREXEL INTERNATIONAL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended June 30, -------------------------------------- ($ in thousands, except per share data) 2000 1999 1998 (Restated) - --------------------------------------- --------- --------- ---------- 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 --------- --------- ---------
The accompanying notes are an integral part of the consolidated financial statements. 23 PAREXEL INTERNATIONAL CORPORATION CONSOLIDATED BALANCE SHEETS
June 30, ----------------------- ($ in thousands, except share data) 2000 1999 (Restated) --------- --------- 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 ========= =========
The accompanying notes are an integral part of the consolidated financial statements. 24 PAREXEL INTERNATIONAL CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Restated)
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) - ------------------------------------------------------------------------------------------------------------------------------------ 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 $(1,960) ---------- ---- -------- ------- ------- ------- -------- =======
The accompanying notes are an integral part of the consolidated financial statements. 25 PAREXEL INTERNATIONAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended June 30, ------------------------------------- ($ in thousands) 2000 1999 1998 (Restated) --------- --------- --------- 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 ========= ========= =========
The accompanying notes are an integral part of the consolidated financial statements. 26 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 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 $7.6 million, was originally classified as a reduction to advance billings on the consolidated balance sheet. Based on subsequent analysis, the Company has now determined the appropriate accounts to which the difference previously included in advance billings should have been recorded. Accordingly, the financial statements for the year ended June 30, 2000 have been restated to reflect these changes. The impact of this restatement on the consolidated financial statements for the year ended June 30, 2000 is as follows:
($ in thousands, except per share data) As Reported As Restated ----------- ----------- 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
NOTE 4. ACQUISITIONS Fiscal 2000 28 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 $117,000, respectively) were duplicated in the consolidated statements of operations for fiscal 1997. Accordingly, net income and equity activity for one of the duplicated periods has been eliminated from stockholders' equity. The following represents the duplicated amounts included in both the results of operations for fiscal 1998:
($ IN THOUSANDS) MMS EUROPE MIRAI TOTAL - ---------------- ---------- ----- ----- Net revenue $13,205 $4,891 $18,096 Operating income 1,553 438 1,991 Net income 697 343 1,040
29 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 $1.6 million provision during fiscal 1998 which has been reflected in selling, general, and administrative expense in the accompanying consolidated statement of operations to increase the accounts receivable reserves of PPS and MIRAI to conform reserve estimates with Company policy. NOTE 5. INVESTMENTS Available-for-sale securities included in cash equivalents as of June 30, 2000 and 1999, consisted of the following:
($ IN THOUSANDS) 2000 1999 -------- ------- Money market instruments $ 2,665 $ 9,869 Municipal and corporate debt securities 12,374 4,600 Repurchase agreements 10,436 16,143 ------- ------- $25,475 $30,612 ======= =======
Available-for-sale securities included in marketable securities at June 30, 2000 and 1999,consisted of the following:
($ IN THOUSANDS) 2000 1999 ------- ------- Municipal securities $36,337 $27,261 Federal government securities 380 398 Corporate debt securities 305 293 ------- ------- $37,022 $27,952 ======= =======
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 $2.0 million. Unrealized gains and losses as of June 30, 1999 and 1998 were not material. NOTE 6. ACCOUNTS RECEIVABLE Accounts receivable at June 30, 2000 and 1999, consisted of the following:
2000 ($ IN THOUSANDS) (Restated) 1999 ---------- -------- Billed $ 89,207 $ 81,590 Unbilled 76,598 74,057 Allowance for doubtful accounts (3,700) (5,127) -------- -------- $162,105 $150,520 ======== ========
NOTE 7. PROPERTY AND EQUIPMENT Property and equipment at June 30, 2000 and 1999, consisted of the following:
2000 ($ IN THOUSANDS) (Restated) 1999 ---------- ------- 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 ======= =======
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 $1.7 million charge to depreciation and amortization expense resulting from a change in estimate of the remaining service lives of certain computer equipment arising from integration activities associated with acquisitions and a company-wide program implemented to upgrade and standardize its information technology platform. 30 NOTE 8. OTHER CURRENT LIABILITIES Other current liabilities at June 30, 2000 and 1999, consisted of the following:
2000 ($ IN THOUSANDS) (Restated) 1999 ---------- ------- Accrued compensation and withholding $16,166 $14,645 Income taxes payable 11,351 10,328 Other 22,789 21,565 ------- ------- $50,306 $46,538 ======= =======
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:
Balance, Net Balance, (In thousands) June 30, 1999 Provisions Charges June 30, 2000 ------------- ---------- -------- ------------- 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 ======= ======== ======== ========
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 NOTE 12. EARNINGS PER SHARE The following table is a summary of shares used in calculating basic and diluted earnings per share:
YEARS ENDED JUNE 30, ------------------------------------- (IN THOUSANDS) 2000 1999 1998 ------ ------ ----- 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 ====== ====== ======
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 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:
WEIGHTED AVERAGE EXERCISE OPTIONS PRICE ---------- -------- 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 --------- ------
33 Summary information related to options outstanding and exercisable as of June 30, 2000, is as follows:
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 - ------------- -------------- ------------ -------- ------------- -------- $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 ========= === ------ ========= =======
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:
(IN THOUSANDS, EXCEPT PER 2000 SHARE DATA) (Restated) 1999 1998 ------------------------- ---------- ------ ------ Pro forma net income $(1,057) $9,214 $8,215 Pro forma income per diluted weighted average share $(0.04) $0.37 $0.33
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 $1.4 million, for the years ended June 30, 2000, 1999, and 1998, respectively. NOTE 14. INCOME TAXES Domestic and foreign income before income taxes for the three years ended June 30, 2000, are as follows:
($ IN THOUSANDS) 2000 1999 1998 (Restated) ---------------- ------- ------- ------- Domestic $16,204 $ 3,475 $ 9,428 Foreign (7,739) 20,476 7,571 ------- ------- ------- $ 8,465 $23,951 $16,999 ======= ======= =======
34 The provisions for income taxes for the three years ended June 30, 2000 are as follows:
2000 ($ IN THOUSANDS) (Restated) 1999 1998 ---------------- ---------- ------- ------- 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 $7,680 ======= ====== ======
The Company's consolidated effective income tax rate differed from the U.S. federal statutory income tax rate as set forth below:
2000 ($ IN THOUSANDS) (Restated) 1999 1998 - ---------------- ---------- ------ ------ 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 $7,680 ====== ====== ======
Provision has not been made for U.S. or additional foreign taxes on undistributed earnings of foreign subsidiaries as those earnings have been permanently reinvested. Such taxes, if any, are not expected to be significant. Significant components of the Company's net deferred tax asset as of June 30, 2000 and 1999 are as follows:
($ IN THOUSANDS) 2000 1999 (Restated) - --------------- -------- -------- 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 ======== ========
The net deferred tax assets and liabilities are included in the consolidated balance sheet as of June 30, 2000 and 1999, as follows:
($ IN THOUSANDS) 2000 1999 (Restated) - ---------------- ------- ------- 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 ======= =======
35 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 $0.2 million for each of the years ended June 30, 1998. These notes were settled in fiscal 1999. NOTE 17. GEOGRAPHIC AND SEGMENT INFORMATION Financial information by geographic area for the three years ended June 30, 2000 is as follows:
($ IN THOUSANDS) 2000 1999 1998 (Restated) - ---------------- ---------- --------- --------- 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 --------- --------- ---------
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 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.
($ IN THOUSANDS) CRS PCG MMS TOTAL ---------------- -------- ------- ------- -------- 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
37 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 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 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.
FINANCIAL STATEMENTS FORM 10-K/A PAGE ---------------- 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
(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 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 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 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 Schedule II PAREXEL INTERNATIONAL CORPORATION VALUATION AND QUALIFYING ACCOUNTS AND RESERVES ($ in thousands)
Balance at Charged to Balance at beginning costs and Charged to Deductions end of Description of year expenses other accounts and write-offs year 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
44 EX-21.1 2 0002.txt LIST OF SUBSIDIARIES EXHIBIT 21.1 PAREXEL INTERNATIONAL CORPORATION LIST OF SUBSIDIARIES OF THE COMPANY
PAREXEL OWNERSHIP(1) --------- Barnett International, LLC, a Delaware limited liability company 100% PAREXEL International Holding Corporation, a Delaware corporation 100% PAREXEL International, L.P., a Delaware limited partnership 100% PAREXEL International, LLC, a Delaware limited liability company 100% PAREXEL International Securities Corporation, a Massachusetts corporation 100% PAREXEL International Inc., a Delaware corporation 100% PAREXEL Government Services, Inc., a Delaware corporation 100% PAREXEL International Trust, a Massachusetts Business Trust 100% PAREXEL Unternehmens beteiligung GmbH, a corporation organized under 100% the laws of Germany PAREXEL GmbH Independent Pharmaceutical Research Organization, a 100% Corporation organized under the laws of Germany PAREXEL International Limited, a corporation organized under the laws of the 100% United Kingdom AFB CLINLAB Laborleistungs - Organisationgesellschaft GmbH, a 100% corporation organized under the laws of Germany PAREXEL International SARL, a corporation organized under the laws of 100% France PAREXELInternational SRL, a corporation organized under the laws of Italy 100% PAREXEL International Pty Ltd., a corporation organized under the laws of 100% Australia PAREXEL International S.L., a corporation organized under the laws of Spain 100% PAREXEL International Medical Marketing Services, Inc., a 100% Virginia corporation PAREXEL International (Lansal) Limited, a corporation organized under the 100% laws of Israel Advanced Technology & Informatics, Inc., a Delaware corporation 100% Caspard Consultants, a corporation organized under the laws of France 100% Sitebase Clinical Systems, Inc., a Massachusetts corporation 100% PAREXEL S-Cubed Limited, a corporation organized under the laws of the 100% United Kingdom PAREXEL ClinNet Limited, a corporation organized under the laws of the 100% United Kingdom Pharmon, Ltd., a corporation organized under the laws of Liechtenstein 100% Rescon, Inc., a Virginia corporation 100% PAREXEL ETT, S.L., a corporation organized under the laws of Spain 100% PAREXEL International KK, a corporation organized under the laws of Japan 100% KMI/PAREXEL, LLC., a Delaware limited liability company 100% PAREXEL International Holding BV, a corporation organized under the law of 100% the Netherlands PAREXEL International sp. z.o.o., a corporation organized under the laws of 100% Poland PAREXEL MMS Europe Limited, a corporation organized under the laws of 100% the United Kingdom Genesis Pharma Strategies Ltd., a corporation organized under the laws of the 100% United Kingdom Creative Communications Solutions, Ltd., a corporation organized under the 100% laws of the United Kingdom PPS International Communications Ltd., a corporation organized under the laws 100% of the United Kingdom Pharos Healthcare Communications Ltd., a corporation organized under the 100% laws of the United Kingdom HealthEd Communications, Inc., a Connecticut Corporation 100% Pharos Healthcare Communications, Inc., a Connecticut corporation 100% The Center for Bio-Medical Communication, Inc., a New Jersey corporation 100% Cambridge Medical Publications Ltd., a corporation organized under the laws 100% of the United Kingdom Til Occam Limited, a corporation organized under the laws of the 100% United Kingdom Til (Medical) Limited, a corporation organized under the laws of the 100% United Kingdom Mirai B.V., a corporation organized under the laws of the Netherlands 100% Logos GmbH, a corporation organized under the laws of Germany 100% Translation GmbH, a corporation organized under the laws of Germany 75% Placebo B.V., a corporation organized under the laws of the Netherlands 100% PAREXEL Mirai Polska SP z.o.o., a corporation 100% organized under the laws of Poland
PAREXEL OWNERSHIP(1) --------- PAREXEL Mirai Magy Arorszag KFt, a corporation organized under 100% the laws of Hungary Medstat Research A/S, a corporation organized under the laws of Norway 100% PAREXEL Medstat Baltic A/S, a corporation 100% organized under the laws of Norway PAREXEL Medstat Baltic, a corporation organized under the laws of Lithuania 100% PAREXEL Medstat Russia A/S, a corporation organized under the laws of Norway 100% PAREXEL Medstat A/S, a corporation organized organized under the laws of Norway 100% Echo Medical B.V., a corporation organized under the laws of the Netherlands 100% Verum, a European Economic Interest Grouping 67% formed under the laws of the United Kingdom PAREXEL Medstat AB, a corporation organized under the laws of Sweden 100% PAREXEL International, S.A., a corporation organized under the laws of Argentina 100% Groupe PharMedicom S.A., a corporation organized under the laws of France 100% Droit & Pharmacie S.A., a corporation organized under the laws of France 100% Biostat SA, a corporation organized under the laws of France 100% Cercles SARL, a corporation organized under the laws of France 100% PAREXEL Biodat GmbH, a corporation organized under the laws of Germany 100% PAREXEL Pty. Ltd., a corporation organized under the laws of South Africa 100% CEMAF SA, a corporation organized under the laws of France 100%
(1) Direct and indirect 2 EX-23.1 3 0003.txt CONSENT OF PRICEWATERHOUSECOOPERS LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statements on Form S-8 (File Nos. 33-80301, 333-16205, 333-37138, 333-40276, 333-47033 and 333-71151) of PAREXEL International Corporation of our report dated August 18, 2000, except for the information in Note 3, as to which the date is December 8, 2000, relating to the financial statements, which appears in the Annual Report to Shareholders, which is incorporated by reference in this Annual Report on Form 10-K/A. We also consent to the incorporation by reference of our report dated December 8, 2000 relating to the financial statement schedule, which also appears in this Form 10-K/A. PricewaterhouseCoopers LLP Boston, Massachusetts January 5, 2001 EX-23.2 4 0004.txt REPORT OF INDEPENDENT ACCOUNTANTS Exhibit 23.2 Report of Independent Accountants on Financial Statement Schedule To the Board of Directors of PAREXEL International Corporation: Our audits of the consolidated financial statements referred to in our report dated August 18, 2000, except for the information in Note 3, as to which the date is December 8, 2000, appearing in the 2000 Annual Report to Shareholders of PAREXEL International Corporation (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K/A) also included an audit of the financial statement schedule listed in Item 14(a)(2) of this Form 10-K/A. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PricewaterhouseCoopers LLP Boston, Massachusetts December 8, 2000 EX-27.1 5 0005.txt FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS YEAR JUN-30-2000 JUL-01-1999 JUN-30-2000 1 53,508 37,022 165,805 3,700 0 280,065 103,975 60,146 351,940 156,385 104 0 0 254 185,879 351,940 0 378,150 260,885 260,885 114,282 0 419 8,465 4,077 4,388 0 0 0 4,388 0.18 0.17
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