-----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, GUGIABWWDcrx4tec3JZ6NPqY8apMSESKPYGvW1qnB6Av6UdYMqaGjGm05uc3o1nw Hq0Eyx5BxdkNmchT/C53RQ== 0000950135-97-003994.txt : 19970930 0000950135-97-003994.hdr.sgml : 19970930 ACCESSION NUMBER: 0000950135-97-003994 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970929 SROS: NASD 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 SEC ACT: SEC FILE NUMBER: 000-27058 FILM NUMBER: 97687257 BUSINESS ADDRESS: STREET 1: 195 WEST ST CITY: WALTHAM STATE: MA ZIP: 02154 BUSINESS PHONE: 6174879900 MAIL ADDRESS: STREET 1: 195 WEST ST CITY: WALTHAM STATE: MA ZIP: 02154 10-K 1 PAREXEL CORPORATION 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the fiscal year ended June 30, 1997 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from ___________to ___________ Commission file number 0-27058 PAREXEL INTERNATIONAL CORPORATION (Exact name of registrant as specified in its Charter) MASSACHUSETTS 04-2776269 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 195 WEST STREET WALTHAM, MASSACHUSETTS 02154 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (617) 487-9900 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.01 PAR VALUE PER SHARE (Title of class) (Continued) 2 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 $558,509,902 as of September 19, 1997. 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 19, 1997, there were 20,099,320 shares of the registrant's Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Specified portions of the Registrant's 1997 Annual Report to Stockholders for the fiscal year ended June 30, 1997 are incorporated by reference into Parts II and IV of this report. Specified portions of the Registrant's Proxy Statement dated September 19, 1997 for the Annual Meeting of Stockholders to be held on November 13, 1997 are incorporated by reference into Part III of this report. (End of cover page) 2 3 PAREXEL INTERNATIONAL CORPORATION FORM 10-K ANNUAL REPORT INDEX PAGE PART I. Item 1. Business 4 Item 2. Properties 20 Item 3. Legal Proceedings 20 Item 4. Submission of Matters to a Vote of Security 20 Holders PART II Item 5. Market for Registrant's Common Equity and 21 Related Stockholder Matters Item 6. Selected Financial Data 21 Item 7. Management's Discussion and Analysis of 21 Financial Condition and Results of Operations Item 8. Financial Statements and Supplementary Data 21 Item 9. Changes in and Disagreements with Accountants 21 on Accounting and Financial Disclosure PART III Item 10. Directors and Executive Officers of the 21 Registrant Item 11. Executive Compensation 21 Item 12. Security Ownership of Certain Beneficial Owners 21 and Management Item 13. Certain Relationships and Related Transactions 21 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 22 SIGNATURES 27 3 4 PART I ITEM 1. BUSINESS GENERAL PAREXEL International Corporation ("PAREXEL" or "the Company") is a leading contract research organization ("CRO") providing a broad range of knowledge-based product development and product launch services to the worldwide pharmaceutical, biotechnology and medical device industries. The Company's primary objective is to help clients quickly obtain the necessary regulatory approvals of their products and, ultimately, optimize the market penetration of those products. Over the past fifteen years, PAREXEL has developed significant expertise in disciplines supporting this strategy. The Company's service offerings include: clinical trials management, data management, biostatistical analysis, medical marketing, clinical pharmacology, regulatory and medical consulting, performance improvement, industry training and publishing, and other drug development consulting services. PAREXEL'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. The Company believes it is the fourth largest CRO in the world, based on annual net revenue, and one of a select few providers capable of delivering a full range of clinical development and medical marketing services on a global basis. The Company complements the research and development ("R&D") functions, as well as the marketing functions, of pharmaceutical and biotechnology companies. Through its high quality clinical research and product launch services, PAREXEL helps clients maximize the return on their significant investments in research and development by reducing the time and cost of clinically testing their products and launching those products into the commercial marketplace. By outsourcing these types of services, clients are provided with a variable cost alternative to the fixed costs associated with internal drug development and product marketing. Clients no longer need to staff to peak periods, and can benefit from PAREXEL's technical resource pool, broad therapeutic area expertise, global infrastructures designed to expedite parallel, multi-country clinical trials, and other advisory services focused on accelerating time-to-market. Headquartered near Boston, Massachusetts, the Company has 20 offices in 10 countries, and employs over 2,400 individuals. 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, and Israel. The Company believes it is the second largest clinical CRO in both Europe and Japan. During fiscal 1997, PAREXEL derived 36% of its revenues from its international operations, distinguishing the Company from many of its competitors. The Company, a Massachusetts corporation, was co-founded in 1983 as a regulatory consulting firm by Josef H. von Rickenbach, Chairman of the Board, President and Chief Executive Officer of PAREXEL. Since that time, the Company has executed a focused growth strategy embracing aggressive internal expansion, as well as strategic acquisitions to expand or enhance the Company's portfolio of services, geographic presence, therapeutic area knowledge, information technology, and client relationships. Since June 1996, the Company has completed six acquisitions. In June 1996, the Company acquired, in separate transactions, Caspard Consultants, a Paris-based CRO, and Sitebase Clinical Systems, Inc., a provider of remote data entry ("RDE") technology designed to enhance the quality and timeliness of clinical trial data. In August 1996, PAREXEL acquired Lansal Clinical Pharmaceutics Limited, a CRO in Tel Aviv, Israel, as well as State and Federal Associates, Inc. ("S&FA"), a Washington, D.C.-based provider of medical marketing and related consulting services to the health care and pharmaceutical industries. In February 1997, the Company purchased RESCON, Inc. (RESCON), another medical marketing firm near Washington, D.C., and Sheffield Statistical Services, Ltd. ("S-Cubed"), a data management and biostatistical consulting business in Sheffield, U.K. All of these acquisitions involved exchanges of PAREXEL common stock and were treated as poolings of interests for financial reporting purposes. S&FA and RESCON not only represent the Company's largest acquisitions during fiscal 1997, but they also mark an important strategic move for PAREXEL. That is, the Company has extended its strategic vision beyond product regulatory approval to the rapid market penetration of clients' products. It is management's belief that there 4 5 are significant efficiencies to be gained by tightening the integration between the R&D functions and the marketing and sales functions within client organizations. Drawing upon PAREXEL's core competencies in clinical research, the Company is well-positioned to capitalize on peri-approval outsourcing opportunities within the pharmaceutical and biotechnology industries as clients look for ways to expedite the commercial launch of their products. In order to best serve clients, capitalize on market opportunities, and leverage the Company's knowledge base and synergistic services, PAREXEL has internally organized its operations into three interactive business units, namely: Drug Development (which comprises approximately 70% of the Company's net revenue), Medical Marketing Services, and Consulting Services. In 1997, PAREXEL also entered into a clinical pharmacology research collaboration with Georgetown University Medical Center ("Georgetown"), one of the leading academic medical centers in the United States. This alliance enables the Company to access Georgetown's scientific thought leadership, and offer clients Phase I services in the United States, in addition to the Company's facilities in Berlin, employing an alternative and more flexible business model. This collaboration also signifies stronger ties with clinical investigator sites; in this case, an academic medical center. It is the Company's belief that the Company can have a positive impact on expediting clinical research at the site level. In conjunction with the Company's acquisition of Sheffield Statistical Services Limited in 1997, the Company also acquired a small European site management organization named ClinNet(R). INDUSTRY OVERVIEW The CRO industry provides independent product development and related services on an outsourced basis to the pharmaceutical, biotechnology, and medical device industries. Although outsourcing by client companies is occurring throughout the product life cycles of pharmaceutical and biological products, CROs today still derive the majority of their revenue from the research and development expenditures of pharmaceutical and biotechnology companies. The CRO industry has evolved from providing limited clinical services in the 1970s to an industry which currently offers a full range of services that encompass the research and development process, including discovery, pre-clinical evaluations, study design, clinical trial management, data collection and management, biostatistical analysis, product registrations, and other services. Certain CROs also offer various peri- and post-approval outsourcing services in support of the manufacturing, marketing and sale of pharmaceutics and biologics. 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. Although there are few barriers to entry for small, limited-service providers, the Company believes there are significant barriers to becoming a full-service CRO with global capabilities. Some of these barriers include the development of broad therapeutic 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 due, in part, to the acquisition of smaller firms by larger full-service CROs. The CRO industry derives substantially all of its revenue from the pharmaceutical and biotechnology industries. The global pharmaceutical and biotechnology industries spent an estimated $35 billion in 1996 on research and development, with approximately 45% spent on clinical development. Of this amount, approximately $2.5 to $3.0 billion is estimated to have been outsourced to CROs. The Company believes that there are a number of positive macro trends driving the CRO industry's growth. - - Drug Development Pressures. The Company believes that research and development expenditures have increased as a result of the constant pressure to develop product pipelines, and to respond to the demand for products for an aging population and for the treatment of chronic disorders and life-threatening conditions in such categories as infectious disease, central nervous system, cardiology and oncology. The development of therapies for chronic disorders, such as HIV/AIDS, Alzheimer's, cancer, diabetes and arthritis, requires complex 5 6 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 in parallel rather than sequentially, as was the practice historically. The Company believes that the globalization of clinical research and development activities has increased the demand for CRO services. A pharmaceutical or biotechnology company seeking approvals in a country in which it lacks experience or internal resources will frequently turn to a CRO for assistance in interacting with regulators or in organizing and conducting clinical trials. In addition, a company may turn to a CRO in the belief that regulatory authorities who are not familiar with the company may have more confidence in the results from tests independently conducted by a CRO known to those authorities. An important event recently occurred in Japan which should benefit the CRO industry. Effective April 1, 1997, Japan officially adopted Good Clinical Practices ("GCP") and legitimized the use of CROs in conducting clinical research in accordance with Western standards. This should result in demand for CROs services on behalf of local pharmaceutical companies in Japan, as well as Western companies interested in performing clinical studies in Japan. - - 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 to Contain Costs and Accelerate Time-to-Market. Drug companies have been focusing on gaining market share and more efficient ways of conducting business because of pressures stemming from patent expirations, market acceptance of generic drugs, and efforts of regulatory bodies and managed care to control drug prices. The Company believes that the pharmaceutical industry is responding by centralizing the research and development process and outsourcing to variable cost CROs, thereby reducing the fixed costs associated with internal drug development. The CRO industry, by specializing in clinical trials management, is often able to perform the needed services with a higher level of expertise or specialization, more quickly and at a lower cost than the client could perform the services internally. The Company believes that some large pharmaceutical companies, rather than utilizing many CRO service providers, are selecting a limited number of full-service, global CROs to serve as their primary CROs, a phenomenon referred to as short-listing. - - Consolidation in the Pharmaceutical Industry. The pharmaceutical industry is consolidating as pharmaceutical companies seek to obtain cost reduction synergies through business combinations. Consolidations include some of the largest multinational pharmaceutical companies in the world, such as Glaxo-Wellcome, American Home Products-American Cyanamid, Hoechst-Marion Merrill Dow, Upjohn-Pharmacia, Roche-Syntex and Sandoz-Ciba Geigy. Once consolidated, many pharmaceutical companies aggressively manage costs by reducing headcount and outsourcing to variable-cost CROs in an effort to reduce the fixed costs associated with internal drug development. The Company believes that full-service global CROs will benefit from this trend. - - Growth of Biotechnology and Genomics Industries.. The U.S. biotechnology industry has grown rapidly over the last ten years, and in recent years the genomics industry has emerged with strong growth potential. These companies are introducing significant numbers of new drug candidates which will require regulatory approval. Oftentimes, they do not have the necessary experience or resources to conduct clinical trials, registrations, and product launches. Accordingly, many of these companies have chosen to outsource to CROs rather than expend significant time and resources to develop the necessary internal capabilities. Moreover, the biotechnology industry is rapidly expanding into and within Europe, providing significant growth opportunities for CROs with a global presence. 6 7 PAREXEL'S STRATEGY PAREXEL's intention is to maintain and enhance its position as a leading CRO by providing a full range of integrated clinical research and medical marketing services on a global basis across key therapeutic areas. With an ongoing commitment to providing excellent client service and advancing safe and effective drug therapies, the Company draws on its specialized knowledge and expertise to aid clients in expediting drug development time, regulatory approval and the market introduction of new products. In so doing, PAREXEL helps clients achieve an important objective, which is maximizing product revenues and profits over limited patent lives. Central to PAREXEL's success has been the Company's focused strategy on building its platform of knowledge in the pursuit of outstanding client service. This includes a focus on its core clinical research business which has enjoyed significant growth; a focus on continuous process improvement, efficiency gains and leveraging internal expertise, resources and infrastructure; a focus on managing the Company's strong internal growth while augmenting the Company's knowledge base through strategic acquisitions; a focus on deeply and broadly penetrating key client accounts by offering a full spectrum of clinical development and medical marketing services; and always, a focus on outstanding quality and superior client service. The Company's service philosophy involves a flexible approach which allows its clients to use the Company's services on an individual or bundled basis. The Company believes its expertise in conducting scientifically demanding trials and its ability to coordinate complicated global trials are significant competitive strengths. The Company continues to devote significant resources to developing innovative methodologies and sophisticated information systems designed to allow the Company to more effectively manage its business operations and deliver services to its clients. The Company has executed a focused growth strategy embracing aggressive internal expansion and strategic acquisitions to expand or enhance the Company's portfolio of services, geographic presence, therapeutic area knowledge, information technology, and client relationships. PAREXEL has extended its strategic vision beyond product regulatory approval, to the rapid market penetration of clients' products. It is management's belief that there are significant efficiencies to be gained by tightening the integration between the R&D functions and the marketing and sales functions within client organizations, which will positively impact time-to-market. Given PAREXEL's core competencies in clinical research, the Company is well-positioned to capitalize on peri-approval outsourcing opportunities within the pharmaceutical and biotechnology industries. PAREXEL completed two acquisitions in the medical marketing area during fiscal 1997: S&FA and RESCON. These companies focus on pricing, payment and other market access issues by interfacing with the key players in the health care delivery system. They have brought expertise in health economics, outcomes research, market analysis, reimbursement, patient registrars, hotlines and other patient assistance programs, training and communication programs, and health policy advocacy. Serve the Global Model of New Drug Development The Company believes that its ability to conduct clinical trials and other services worldwide enhances its ability to serve the increasingly global model of drug development. The Company provides clinical research and development services to major North American, European and Japanese pharmaceutical companies. The Company has expanded geographically primarily through internal growth, supplemented by strategic acquisitions, with a goal of serving all major client markets worldwide and positioning the Company to serve developing markets. Since January 1, 1994, the Company has established a presence in Kobe and Tokyo, Japan; Milan, Italy; Raleigh-Durham, NC; Sydney, Australia; Madrid, Spain; Tel Aviv, Israel; Washington, D.C.; Chicago, IL; Sheffield, U.K.; and Stockholm, Sweden. PAREXEL is conducting a number of multinational clinical studies designed to pursue concurrent regulatory approvals in multiple countries. The Company believes that the expertise developed by conducting multi-jurisdictional clinical trials is a competitive advantage as pharmaceutical companies increasingly pursue regulatory approvals in multiple jurisdictions in parallel. The Company believes that the efficient delivery of high-quality clinical services requires adherence to standardized procedures on a worldwide basis. The Company has devoted considerable resources to developing internal standard operating procedures, 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 7 8 regulatory submissions by concurrently compiling and analyzing large volumes of data from multinational trials and preparing regulatory submissions for filings on a global basis. Address All Aspects of Clinical Research and Product Launch The Company offers a full range of services that encompass the clinical research process, and will continue to build its medical marketing services supporting the commercial launch phase. The Company believes that its knowledge and experience in all stages of clinical research, as well as peri-and post-approval services surrounding product launch, enhance its marketability and credibility with clients. The Company's full range of services and global experience complement the R&D and marketing and sales functions of pharmaceutical and biotechnology companies. In order to meet the needs of specific clients, PAREXEL offers its services on either an individual or a bundled basis. This approach allows the Company to establish a relationship with a new client with the need for a particular service which may in turn lead to larger, more comprehensive projects. This flexibility allows PAREXEL to deliver its services by operating autonomously or by working in close collaboration with its clients. In some cases, the Company has taken advantage of the flexibility of its information technology systems to gain direct access to client data on client systems. In addition, the Company provides regulatory periodicals, training materials and seminars and other complementary information products and services designed to meet its clients' demands for increased productivity in clinical development. Conduct Scientifically Demanding Trials The Company provides its services in connection with scientifically and clinically demanding trials in a wide range of therapeutic areas, such as trials involving the testing of drugs developed by biotechnology companies and drugs addressing complex diseases such as HIV/AIDS, cancer and Alzheimer's. The Company's leadership in HIV/AIDS-related therapeutic areas is evidenced by the selection of PAREXEL as the CRO for the Intercompany Collaborative for AIDS Drug Development, a consortium including 18 global leaders in AIDS research. Other therapeutic categories in which the Company has expertise include central nervous system ("CNS"), neurology, oncology, gastroenterology, endocrinology, cardiology, hematology, immunology, rheumatology and the study of pulmonary, reproductive and infectious diseases. The Company believes that as trials involve increasingly complex therapeutic areas, CROs with a broad range of experience have a competitive advantage over other companies with more limited capabilities. Continue Investment in Information Technology The Company believes that superior information technology is essential to enable a CRO to provide project services concurrently in multiple countries, expand its geographic operations to meet the global needs of the pharmaceutical and biotechnology industries and provide innovative services designed to expedite the clinical trials process. The Company has an extensive and effective global information technology network and believes that its information technology provides it with a significant competitive advantage. The Company's information technology supports its global organizational structure by enabling all offices to exchange information with each other so that several offices worldwide can work simultaneously on a project. The global information technology network also allows the Company to track the progress of ongoing client projects and predict more accurately and quickly its future personnel needs to meet client contract commitments. In addition, the Company's open and flexible information technology system can be adapted to the multiple needs of different clients and regulatory systems. For example, the system enables the Company to reduce the time involved in preparing regulatory submissions by concurrently compiling and analyzing large volumes of data from multinational trials and preparing regulatory submissions for filings on a global basis. This system also enables the Company to respond quickly to client inquires on the progress of projects and, in some cases, to gain direct access to client data on client systems. SERVICES The Company 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. It is PAREXEL's vision to orchestrate all critical activities and seamlessly manage the clinical development process, as project managers, through the marketing phase of new products, as product managers. 8 9 Over the past fifteen years, PAREXEL has developed significant expertise in disciplines which support clients' efforts to accelerate the development and market introduction of their products. Specifically, PAREXEL offers such services as: clinical trials management, data management, biostatistical analysis, medical marketing, clinical pharmacology, regulatory and medical consulting, performance improvement, industry training and publishing, and other drug development consulting services. The Company's integrated services, therapeutic area depth, and sophisticated information technology, along with its experience in global drug development and product launch services, represent key competitive strengths. In order to best serve clients, capitalize on market opportunities, and leverage the Company's knowledge base and synergistic services, PAREXEL has internally organized its operations into three interactive business units, namely: Drug Development (which comprise approximately 70% of the Company's revenues), Medical Marketing Services, and Consulting Services. DRUG DEVELOPMENT Clinical Trials Management, Biostatistical and Data Management and related medical services comprise the Company's Drug Development business unit, which represents approximately 70% of the Company's revenue base. Clinical Trials Management Services PAREXEL offers complete services for the design, initiation and management of clinical trial programs, a critical element in obtaining regulatory approval for drugs. The Company has performed services in connection with trials in most therapeutic areas, including, but not limited to, cardiovascular, central nervous system, infectious disease, AIDS/HIV, neurology, oncology, gastroenterology, endocrinology, hematology, immunology, rheumatology and the study of 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 -- New Drug Development-An Overview." Most of the Company's clinical trials management projects involve Phase II or III clinical trials, which are generally larger and more complex than Phase I trials. Clinical trials are monitored for and with strict adherence to good clinical practices ("GCP"). The design of efficient Case Report Forms ("CRF"), detailed operations manuals and site visits by PAREXEL's clinical research associates ensure that clinical investigators and their staffs follow the established protocols of the studies. The Company has adopted standard operating procedures which are intended to satisfy regulatory requirements and serve as a tool for controlling and enhancing the quality of PAREXEL's worldwide clinical services. Clinical trials represent one of the most expensive and time-consuming parts of the overall drug development process. The information generated during these trials is critical for gaining marketing approval from the FDA or other regulatory agencies. PAREXEL's clinical trials management group assists clients with one or more of the following steps: - Study Protocol Design. The protocol defines the medical issues the study seeks to examine and the statistical tests that will be conducted. Accordingly, the protocol defines the frequency and type of laboratory and clinical measures that are to be tracked and analyzed. The protocol also defines the number of patients required to produce a statistically valid result, the period of time over which they must be tracked and the frequency and dosage of drug administration. The study's success depends on the protocol's ability to predict correctly the requirements of the regulatory authority. - Case Report Forms Design. Once the study protocol has been finalized, case report forms ("CRFs") must be developed. The CRF may change at different stages of a trial. The CRFs for one patient in a given study may consist of 100 or more pages. - Site and Investigator Recruitment. The drug is administered to patients by physicians, referred to as investigators, at hospitals, clinics or other locations, referred to as sites. Potential investigators may be 9 10 identified by the drug sponsor or the CRO. The CRO generally solicits the investigators' participation in the study. The trial's success depends on the successful identification and recruitment of 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 physician and expedite the clinical research process. - Patient Enrollment. The investigators find and enroll patients suitable for the study. The speed with which trials can be completed is significantly affected by the rate at which patients are enrolled. Prospective patients are required to review information about the drug and its possible side effects, and sign an informed consent form to record their knowledge and acceptance of potential side effects. Patients also undergo a medical examination to determine whether they meet the requirements of the study protocol. Patients then receive the drug and are examined by the investigator as specified by the study protocol. - Study Monitoring and Data Collection. As patients are examined and tests are conducted in accordance with the study protocol, data are recorded on CRFs and laboratory reports. The data are collected from study sites by specially trained persons known as monitors. Monitors visit sites regularly to ensure that the CRFs are completed correctly and that all data specified in the protocol are collected. The monitors take completed CRFs to the study coordinating site, where the CRFs are reviewed for consistency and accuracy before their data is entered into an electronic database. The Company believes remote date entry ("RDE") technology will significantly enhance both the quality and timeliness of clinical data collection with significant efficiency savings. Hence, in June 1996, the Company acquired Sitebase Clinical Systems, Inc., ("Sitebase") a provider of RDE software to the pharmaceutical industry. The Company's study monitoring and data collection services comply with the FDA's adverse events reporting guidelines. - Clinical Data Management and Biostatistical Services. (See Below) - Report Writing. The findings of statistical analysis of data collected during the trial together with other clinical data are included in a final report generated for inclusion in a regulatory document. - Medical Services. Throughout the course of a development program, PAREXEL's physicians provide a wide range of medical research and consulting services to improve the speed and quality of clinical research, including medical supervision of clinical trials, compliance with medical standards and safety regulations, medical writing, medical imaging, strategy development, and portfolio management. Clinical Data Management and Biostatistical Services PAREXEL's data management professionals assist in the design of CRFs, as well as training manuals for investigators, to ensure that data are collected in an organized and consistent format. 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 Sitebase, RDE technology, to gather and report clinical monitoring information expedites data exchange while minimizing data collection errors as a result of real time data integrity verification. The Company provides clients with data abstraction, data review and coding, data entry, database verification and editing and problem data resolution. The Company has extensive experience 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. For example, the Company completed, in support of a New Drug Application filing, an expanded access program with over 2,000 investigators enrolling over 11,000 patients at sites located in 26 countries, including 17 in Europe, five in South America, two in Central America, the United States and Australia. Over 300,000 pages of CRF data were collected from these sites and merged into one integrated database. PAREXEL's biostatistics professionals assist clients with all phases of drug development, including biostatistical consulting, database design, data analysis and statistical reporting. These professionals develop and review protocols, design appropriate analysis plans and design report formats to address the objectives of the study protocol 10 11 as well as the client's individual objectives. Working with the programming staff, biostatisticians perform appropriate analyses and produce tables, graphs, listings and other applicable displays of results according to the analysis plan. Frequently, biostatisticians represent clients during panel hearings at the FDA. MEDICAL MARKETING SERVICES With the acquisitions of S&FA and RESCON in fiscal 1997, PAREXEL has extended the endpoint of its service offerings beyond product regulatory approval to the commercial launch and market acceptance of clients' products. Various pressures on the pharmaceutical industry have resulted in a greater focus on quickly moving more compounds from clinical development into the marketplace in order to maximize revenues and profits over limited patent lives. The move into medical marketing services in response to client demand has been a natural progression for PAREXEL, and one that draws upon the Company's core competencies in clinical research. It is PAREXEL's vision to orchestrate all critical activities and seamlessly manage the clinical development process, as project managers, through the marketing phase of new products, as product managers. An emphasis on tightening the integration between the R&D and marketing functions should have a positive impact on time-to-market and market penetration. The Company's experience indicates that clients need assistance in addressing the technical aspects of launching their products, especially managing the simultaneous launch of numerous products. PAREXEL assists clients in: developing launch strategies; defining product attributes; product positioning and promotion; interpreting clinical results; pricing and reimbursement issues; justifying the cost-effectiveness and outcomes of proposed treatments; post-approval studies; training physicians, sales forces, patients, payors; managing patient registries, hotlines and other assistance programs; and advocating appropriate public policy. CONSULTING SERVICES The Company offers a number of consulting, or advisory, services in support of the product development and product marketing processes. This group brings together experts from relevant disciplines focused on shaping meaningful solutions and helping clients make the best business decisions with respect to their product development and marketing strategies. This group also serves as a valuable resource for the Company's internal operations, as technical experts leverage their knowledge and experience to benefit Drug Development and Medical Marketing Services. PAREXEL's Consulting Services which are synergistically related, included Regulatory Affairs, Clincial Pharmacology, Information Technology Consulting, Information Products, and Performance Improvement. Regulatory Affairs PAREXEL provides comprehensive regulatory product registration services for pharmaceutical and biotechnology products in major jurisdictions in Europe and North America, including regulatory strategy formulation, document preparation and liaison with the FDA and other regulatory agencies. In addition, the Company provides the services of qualified experts to assist with good manufacturing practices ("GMP") compliance in existing manufacturing plants and to assure that new facilities are built to conform to GMP. PAREXEL's staff provides on-site GMP training sessions and conducts internal and external quality control and quality assurance audits. PAREXEL works closely with clients to devise regulatory strategies and comprehensive product development programs. The Company's regulatory affairs experts review existing published literature, assess the scientific background of a product, assess the competitive and regulatory environment, identify deficiencies and define the steps necessary to obtain registration in the most expeditious manner. Through this service, the Company helps its clients determine the feasibility of developing a particular product or product line. Clinical Pharmacology PAREXEL's clinical pharmacology services primarily include Phase I investigations and trial facilities, both for volunteers and patients. The Company's Clinical Pharmacology Unit in Berlin is one of the world's leading units 11 12 for combined kinetic and dynamic studies. It provides state-of-the-art in- and out-patient facilities, and is staffed with a team of clinical pharmacology experts with extensive experience in both pharmakinetics and pharmadynamics. During fiscal 1997, PAREXEL also entered into a clinical pharmacology research collaboration with Georgetown University Medical Center, thereby creating the Georgetown/PAREXEL Clinical Pharmacology Research Unit ("CPRU"). This relationship provides PAREXEL exclusive access to the CPRU for purposes of conducting clinical pharmacology research employing a more flexible, variable-cost business model. Information Technology Consulting Information technology is integral to the clinical research process. PAREXEL has technical experts which consult externally with clients, as well as internally with Drug Development, on ways to best utilize technology to expedite the development process. The Company has developed expertise is such areas as: Sitebase (RDE technology), interactive voice recognition, optical imaging, medical imaging, clinical information systems, and Computer Assisted New Drug Application (CANDA) technologies, amongst others. Information Products Division The Company's Information Products Division ("IPD") offers a wide range of specialized clinical consulting, training, and publication services to the health care industry. PAREXEL/Barnett is a leader in providing conferences, educational materials, and management consulting services tot the clinical research community, with extensive experience in organizational structure, curriculum design, and human resource management. The publications group produces several publications covering regulatory issues, including the monthly U.S. Regulatory Reporter, and books such as International Pharmaceutical Product Registration; Drug Formularies and the Pharmaceutical Industry; A Practical Guide to the EMEA; New Drug Development: A Regulatory Overview; and Biologies Development: A Regulatory Overview. Other publications include the Worldwide Pharmaceutical Regulation Series and PAREXEL's Pharmaceutical R&D Statistical Source Book, published annually. Performance Improvement PAREXEL/Barnett is also a leader in management consulting in the clinical research area, offering a wide range of solutions that help pharmaceutical and biotechnology companies improve their own in-house clinical performance. These services include performance benchmarking, process improvement, clinical research capacity analysis, and operational support services. INFORMATION SYSTEMS The Company is committed to investing in information technology designed to help the Company provide high quality services in a cost effective manner and to manage its internal resources. The Company believes it is one of a few CROs that has an extensive and effective global information technology network. The Company has built on its network by developing a number of proprietary information systems that address critical aspects of its business, such as project proposals/budget generations, time information management, revenue and resource forecasting, clinical data entry and management, and project management. In June 1996, the Company augmented its information technology capabilities with the acquisition of Sitebase Clinical Systems, Inc., a provider of RDE technology which involves entry of data onto electronic case report forms at the investigational site. RDE technology has important implications for CROs, including enhancing the accuracy and timeliness of clinical data, thereby shortening customers' time-to-market. The Company has also developed expertise in each area as interactive voice recognition, optical imaging, and Computer Assisted New Drug Applications (CANDA) technologies. The Company's information systems group has hundreds of employees responsible for technology procurement, applications development and management of the Company's worldwide computer network. The wide area network links numerous local area networks, interconnecting over 2,400 computers worldwide. The Company's information systems are designed to work in support of and reinforce the Company's standard operating procedures. The Company's information technology system is open and flexible, allowing it to be adapted to the multiple needs of 12 13 different clients and regulatory systems. This system also enables the Company to respond quickly to client inquiries on the progress of projects and, in some cases, to gain direct access to client data on client systems. SALES AND MARKETING PAREXEL's marketing strategy is maintain excellent service-oriented relationship with its large and loyal client base, while expanding its base through strong global development initiatives. The Company's client relations professionals, senior executives and project team leaders all share responsibility for the maintenance of key client relationships and business development activities. The Company believes that its emphasis on developing close relationships with its clients leaves it well positioned to benefit from the trend among pharmaceutical companies to concentrate their outsourcing among fewer CROs. The Company's core marketing activities are complemented by the industry conferences and publications offered by the Company's IPD. Although the IPD activities are conducted as independent business activities, the Company believes that the IPD offerings enhance the Company's market position in the drug development community. The Company's marketing activities are coordinated by PAREXEL's client service executives in each of the Company's U.S. locations as well as the Company's locations in Australia, France, Germany, Israel, Italy, Japan, Spain, Sweden, and the United Kingdom. Most of the Company's business development personnel have technical or scientific backgrounds and many are physicians, pharmacologists, statisticians and regulatory affairs professionals. The Company coordinates its worldwide marketing efforts through a computerized system that is integrated into each of the Company's locations. CLIENTS During fiscal 1997, the Company provided services to most of the top 20 pharmaceutical and top 10 biotechnology companies, as ranked by estimated 1995 worldwide R&D spending. The Company performed services for hundreds of clients on over 2,000 projects during the year. The Company has in the past derived, and may in the future derive, a significant portion of its net revenue from a core group of major projects or clients. Concentrations of business in the CRO industry are not uncommon and the Company is likely to experience such concentration in future years. In fiscal 1997, one client accounted for 11% of net revenue; in fiscal 1996 and 1995, no single customer accounted for more than 10% of net revenue. In fiscal 1997, 1996 and 1995, the Company's top five customers accounted for 41%, 32% and 25%, respectively, of the Company's net revenue. The loss of business from a significant client could materially and adversely affect the Company's net revenue and results of operations. BACKLOG Backlog consists of anticipated net revenue from letter agreements or contracts that have been signed but not yet completed. Once work under a contract or letter agreement commences, revenue is generally recognized over the life of the contract, which usually lasts for 12 months or more. Backlog excludes anticipated net revenues for projects for which the Company has commenced work but for which a definitive contract or letter agreement has not been executed. Backlog at June 30, 1997 was approximately $200 million, as compared to approximately $110 million at June 30, 1996. The Company believes that its backlog as of any date is not necessarily a meaningful predictor of future results. Clinical studies under contracts included in backlog are subject to termination or delay. Clients terminate or delay contracts for a variety of reasons including, among others, the failure of products being tested to satisfy safety requirements, unexpected or undesirable clinical results of the product, the clients' decision to forego a particular study, insufficient patient enrollment or investigator recruitment or production problems resulting in shortages of the drug. Most of the Company's contracts are terminable upon 60 to 90 days' notice by the client. The Company typically is entitled to receive certain fees for winding down a study which is terminated or delayed and, in some cases, a termination fee. 13 14 COMPETITION The Company primarily competes against in-house departments of pharmaceutical companies, full service CROs, and, to a lesser extent, universities, teaching hospitals and other site organizations. Some of these competitors have greater capital, technical and other resources than the Company. CROs generally compete on the basis of previous experience, medical and scientific expertise in specific therapeutic areas, the quality of services, the ability to organize and manage large-scale trials on a global basis, the ability to manage large and complex medical databases, the ability to provide statistical and regulatory services, the ability to recruit investigators and patients, the ability to integrate information technology with systems to improve the efficiency of contract research, an international presence with strategically located facilities, financial viability and price. PAREXEL believes that it competes favorably in these areas. The CRO industry is fragmented, with participants ranging from several hundred small, limited-service providers to several large, full-service CROs with global operations. PAREXEL believes that it is the fourth largest full-service CRO in the world, based on annual net revenue. Other large CROs include Quintiles Transnational Corporation, Covance Inc., IBAH, Inc., Pharmaceutical Product Development, Inc. and ClinTrials Research, Inc.. The trend toward CRO industry consolidation has resulted in heightened competition among the larger CROs for clients and acquisition candidates. In addition, consolidation within the pharmaceutical industry as well pharmaceutical companies outsourcing to a fewer number of preferred CROs has led to heightened competition for CRO contracts. INTELLECTUAL PROPERTY The Company believes that factors such as its ability to attract and retain highly-skilled professional and technical employees and its project management skills and experience are significantly more important to its business than are any intellectual property rights developed by it. PAREXEL has developed certain computer software and related methodologies that the Company has sought to protect through a combination of contracts, copyrights and trade secrets; however, the Company does not consider the loss of exclusive rights to any of this software or methodology to be material to the Company's business. EMPLOYEES As of June 30, 1997, the Company had approximately 2,400. Approximately 65% of the employees are located in North America and 35% are located throughout Europe and the Asia/Pacific region. The Company believes that its relations with its employees are good. The success of the Company's business depends on its ability to attract and retain a qualified professional, scientific and technical staff. The level of competition among employers for skilled personnel, particularly those with Ph.D., M.D. or equivalent degrees, is high. The Company believes that its multinational presence, which allows for international transfers, is an advantage in attracting employees. In addition, the Company believes that the wide range of clinical trials in which it participates allows the Company to offer a broad experience to clinical researchers. While the Company has not experienced any significant difficulties in attracting or retaining qualified staff to date, there can be no assurance the Company will be able to avoid such difficulties in the future. GOVERNMENT REGULATION New Drug Development -- An Overview Before a new drug may be marketed in North America or Europe, the drug must undergo extensive testing and regulatory review in order to determine that the drug is safe and effective. The stages of this development process are as follows: 14 15 - Preclinical Research (1 to 3.5 years). In vitro ("test tube") and animal studies to establish the relative toxicity of the drug over a wide range of doses and to detect any potential to cause birth defects or cancer. If results warrant continuing development of the drug, the manufacturer will file for an IND (Investigational New Drug Application), upon which the FDA may grant permission to begin human trials. - Clinical Trials (3.5 to 6 years) - Phase I (6 months to 1 year). Basic safety and pharmacology testing in 20 to 80 human subjects, usually healthy volunteers, includes studies to determine how the drug works, how it is affected by other drugs, where it goes in the body, how long it remains active, and how it is broken down and eliminated from the body. - Phase II (1 to 2 years). Basic efficacy (effectiveness) and dose-range testing in 100 to 200 afflicted volunteers to help determine the best effective dose, confirm that the drug works as expected, and provide additional safety data. - Phase III (2 to 3 years). Efficacy and safety studies in hundreds or thousands of patients at many investigational sites (hospitals and clinics) can be placebo-controlled trials, in which the new drug is compared with a "sugar pill," or studies comparing the new drug with one or more drugs with established safety and efficacy profiles in the same therapeutic category. - TIND (May span late Phase II, Phase III, and FDA review). When results from Phase II or Phase III show special promise in the treatment of a serious condition for which existing therapeutic options are limited or of minimal value, the FDA may allow the manufacturer to make the new drug available to a larger number of patients through the regulated mechanism of a TIND (Treatment Investigational New Drug). Although less scientifically rigorous than a controlled clinical trial, a TIND may enroll and collect a substantial amount of data from tens of thousands of patients. - NDA Preparation and Submission. Upon completion of Phase III trials, the manufacturer assembles the statistically analyzed data from all phases of development into a single large document, the New Drug Application (NDA), which today comprises, on average, roughly 100,000 pages. - FDA Review & Approval (1 to 1.5 years). Careful scrutiny of data from all phases of development (including a TIND) to confirm that the manufacturer has complied with regulations and that the drug is safe and effective for the specific use (or "indication") under study. - Post-Marketing Surveillance and Phase IV Studies. Federal regulation requires the manufacturer to collect and periodically report to FDA additional safety and efficacy data on the drug for as long as the manufacturer markets the drug (post-marketing surveillance). If the drug is marketed outside the U.S., these reports must include data from all countries in which the drug is sold. Additional studies (Phase IV) may be undertaken after initial approval to find new uses for the drug, to test new dosage formulations, or to confirm selected non-clinical benefits, e.g., increased cost-effectiveness or improved quality of life. The clinical investigation of new drugs is highly regulated by government agencies. The standard for the conduct of clinical research and development studies comprises GCP, which stipulates procedures designed to ensure the quality and integrity of data obtained from clinical testing and to protect the rights and safety of clinical subjects. While GCP has not been formally adopted by the FDA nor, with certain exceptions, by similar regulatory authorities in other countries, some provisions of GCP have been included in regulations adopted by the FDA. Furthermore, in practice, the FDA and many other regulatory authorities require that study results submitted to such authorities be based on studies conducted in accordance with GCP. The FDA's regulatory requirements have served as the model for much of the regulation for new drug development worldwide. As a result, similar regulatory requirements exist in the other countries in which the Company operates. The Company's regulatory capabilities include knowledge of the specific regulatory requirements in various countries, and the Company has managed simultaneous regulatory submissions in more than one country for a number of drug sponsors. Beginning in 1991, the FDA and corresponding regulatory agencies of Canada, Japan and Western Europe commenced discussions to develop harmonized standards for 15 16 preclinical and clinical studies and the format and content of applications for new drug approvals. Data from multinational studies adhering to GCP are now generally acceptable to the FDA, Canadian and Western European regulators. Effective April 1, 1997, Japan officially adopted GCP and legitimized the use of CROs in conducting clinical research. The services provided by PAREXEL are ultimately subject to FDA regulation in the U.S. and comparable agencies in other countries. The Company is obligated to comply with FDA requirements governing such activities as obtaining patient informed consents, verifying qualifications of investigators, reporting patients' adverse reactions to drugs and maintaining thorough and accurate records. The Company must maintain source documents for each study for specified periods, and such documents may be reviewed by the study sponsor and the FDA during audits. Non-compliance with GCP can result in the disqualification of data collected during a clinical trial. POTENTIAL LIABILITY AND INSURANCE PAREXEL's clinical research services center on the testing of new drugs on human volunteers pursuant to a study protocol. Clinical research involves a risk of liability for personal injury or death to patients due, among other reasons, to possible unforeseen adverse side effects or improper administration of the new drug. Many of these patients are already seriously ill and are at risk of further illness or death. The Company has not experienced any claims to date arising out of any clinical trial managed or monitored by it. The Company believes that the risk of liability to patients in clinical trials is mitigated by various regulatory requirements, including the role of institutional review boards ("IRBs") and the need to obtain each patient's informed consent. The FDA requires each human clinical trial to be reviewed and approved by the IRB at each study site. An IRB is an independent committee that includes both medical and non-medical personnel and is obligated to protect the interests of patients enrolled in the trial. After the trial begins, the IRB monitors the protocol and measures designed to protect patients, such as the requirement to obtain informed consent. To reduce its potential liability, PAREXEL seeks to obtain indemnity provisions in its contracts with clients and with investigators hired by the Company on behalf of its clients. These indemnities generally do not, however, protect PAREXEL against certain of its own actions such as those involving negligence. Moreover, these indemnities are contractual arrangements that are subject to negotiation with individual clients, and the terms and scope of such indemnities can vary from client to client and from study to study. Finally, the financial performance of these indemnities is not secured, so that the Company bears the risk that an indemnifying party may not have the financial ability to fulfill its indemnification obligations. PAREXEL could be materially and adversely affected if it were required to pay damages or incur defense costs in connection with a claim that is outside the scope of an indemnity or where the indemnity, although applicable, is not performed in accordance with its terms. The Company currently maintains an errors and omissions professional liability insurance policy. There can be no assurance that this insurance coverage will be adequate, or that insurance coverage will continue to be available on terms acceptable to the Company. RISK FACTORS In addition to the other information in this report, the following risk factors should be considered carefully in evaluating the company and its business. Information provided by the Company from time to time may contain certain "forward-looking" information, as that term is defined by (i) the Private Securities Litigation Reform Act of 1995 (the "Act") and (ii) in releases made by the Securities and Exchange Commission (the "SEC"). These risk factors are being provided pursuant to the provisions of the Act and with the intention of obtaining the benefits of the "safe harbor" provisions of the Act. LOSS OR DELAY OF LARGE CONTRACTS Most of the Company's contracts are terminable upon 60 to 90 days' notice by the client. Clients terminate or delay contracts for a variety of reasons, including, among others, the failure of products being tested to satisfy safety requirements, unexpected or undesired clinical results of the product, the client's decision to forego a particular study, such as for economic reasons, insufficient patient enrollment or investigator recruitment or production problems resulting in shortages of the drug. In addition, the Company believes that cost-containment and 16 17 competitive pressures have caused pharmaceutical companies to apply more stringent criteria to the decision to proceed with clinical trials and therefore may result in a greater willingness of these companies to cancel contracts with CROs. The loss or delay of a large contract or the loss or delay of multiple contracts could have a material adverse effect on the financial performance of the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 16-19 of the Company's Annual Report to Stockholders included as Exhibit 13.1 of this Form 10-K. VARIABILITY OF QUARTERLY OPERATING RESULTS The Company's quarterly operating results have been subject to variation, and will continue to be subject to variation, depending upon factors such as the initiation, progress, or cancellation of significant projects, exchange rate fluctuations, the mix of services offered, the opening of new offices and other internal expansion costs, the costs associated with integrating acquisitions and the startup costs incurred in connection with the introduction of new products and services. In addition, during the third quarter of fiscal 1995 and 1993, the Company's results of operations were affected by a non-cash restructuring charge and a non-cash write-down due to the impairment of long-lived assets, respectively. See "Risks Associated with Acquisitions." Because a high percentage of the Company's operating costs are relatively fixed, variations in the initiation, completion, delay or loss of contracts, or in the progress of client projects can cause material adverse variations in quarterly operating results. See Note entitled "Quarterly Operating Results and Common Stock Information (Unaudited)" to the Company's Consolidated Financial Statements on page 35 of the Company's 1997 Annual Report to Stockholders included as Exhibit 13.1 of this Form 10-K. DEPENDENCE ON CERTAIN INDUSTRIES AND CLIENTS The Company's revenues are highly dependent on research and development expenditures by the pharmaceutical and biotechnology industries. The Company's operations could be materially and adversely affected by general economic downturns in its clients' industries, the impact of the current trend toward consolidation in these industries or any decrease in research and development expenditures. Furthermore, the Company has benefited to date from the increasing tendency of pharmaceutical companies to outsource large clinical research projects. A reversal or slowing of this trend would have a material adverse effect on the Company. In fiscal 1997, 1996 and 1995, the Company's top five clients accounted for 41%, 32% and 25%, respectively, of the Company's consolidated net revenue. In fiscal 1997, one client accounted for 11% of net revenue; In fiscal 1996 and 1995, no single customer accounted for mote than 10% of net revenue. The loss of business from a significant client could have a material adverse effect on the Company. See "Business - Clients" which appears on page 13 of this Form 10-K. DEPENDENCE ON GOVERNMENT REGULATION The Company's business depends on the comprehensive government regulation of the drug development process. In the United States, the general trend has been in the direction of continued or increased regulation, although the FDA recently announced regulatory changes intended to streamline the approval process for biotechnology products by applying the same standards as are in effect for conventional drugs. In Europe, the general trend has been toward coordination of common standards for clinical testing of new drugs, leading to changes in the various requirements currently imposed by each country. Japan also legislated GCP and legitimatized the use of CRO's in April 1997. Changes in regulation, including a relaxation in regulatory requirements or the introduction of simplified drug approval procedures, as well as anticipated regulation, could materially and adversely affect the demand for the services offered by the Company. In addition, failure on the part of the Company to comply with applicable regulations could result in the termination of ongoing research or the disqualification of data, either of which could have a material adverse effect on the Company. See "Business - Government Regulation" which appears on page 14 of this Form 10-K. POTENTIAL ADVERSE IMPACT OF HEALTH CARE REFORM Numerous governments have undertaken efforts to control growing health care costs through legislation, regulation and voluntary agreements with medical care providers and pharmaceutical companies. In the last several years, several comprehensive health care reform proposals were introduced in the U.S. Congress. The intent of the proposals was, generally, to expand health care coverage for the uninsured and reduce the growth of total health care expenditures. While none of the proposals were adopted, health care reform may again be addressed by the 17 18 U.S. Congress. Implementation of government health care reform may adversely affect research and development expenditures by pharmaceutical and biotechnology companies, resulting in a decrease of the business opportunities available to the Company. Management is unable to predict the likelihood of health care reform proposals being enacted into law or the effect such law would have on the Company. See Item "Business - Industry Overview" which appears on page 5 of this Form 10-K. Many European governments have also reviewed or undertaken health care reform. For example, German health care reform legislation implemented in January 1993 contributed to an estimated 15% decline in German pharmaceutical industry sales in calendar 1993 and led several clients to cancel contracts with the Company. Subsequent to these events, in the third quarter of fiscal 1993, the Company restructured its German operations and incurred a restructuring charge of approximately $3.3 million. In addition, in the third quarter of fiscal 1995, the Company's results of operations were affected by a non-cash write-down due to the impairment of long-lived assets of PAREXEL GmbH, the Company's German subsidiary, of approximately $11.3 million. The Company cannot predict the impact that any pending or future health care reform proposals may have on the Company's business in Europe. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 16-19 of the Company's Annual Report to Stockholders included as Exhibit 13.1 of this Form 10-K. COMPETITION; CRO INDUSTRY CONSOLIDATION The Company primarily competes against in-house departments of pharmaceutical companies, full service CROs, and, to a lesser extent, universities, teaching hospitals and other site organizations. Some of these competitors have greater capital, technical and other resources than the Company. CROs generally compete on the basis of previous experience, medical and scientific expertise in specific therapeutic areas, the quality of services, the ability to organize and manage large-scale trials on a global basis, the ability to manage large and complex medical databases, the ability to provide statistical and regulatory services, the ability to recruit investigators and patients, the ability to integrate information technology with systems to improve the efficiency of contract research, an international presence with strategically located facilities, financial viability and price. PAREXEL believes that it competes favorably in these areas. There can be no assurance that the Company will be able to compete favorably in these areas. See "Business - - Competition" which appears on page 14 of this Form 10-K. 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 fourth largest full-service CRO in the world, based on annual net revenue. Other large CROs include Quintiles Transnational Corporation, Covance Inc., IBAH, Inc., Pharmaceutical Product Development, Inc. and ClinTrials Research, Inc. The trend toward CRO industry consolidation has resulted in heightened competition among the larger CROs for clients and acquisition candidates. In addition, consolidation within the pharmaceutical industry as well pharmaceutical companies outsourcing to a fewer number of preferred CROs has led to heightened competition for CRO contracts. RISKS ASSOCIATED WITH ACQUISITIONS The Company has made a number of acquisitions and will continue to review future acquisition opportunities. No assurances can be given that acquisition candidates will continue to be available on terms and conditions acceptable to the Company. Acquisitions involve numerous risks, including, among other things, difficulties and expenses incurred in connection with the acquisitions and the subsequent assimilation of the operations and services or products of the acquired companies, the diversion of management's attention from other business concerns and the potential loss of key employees of the acquired company. Acquisitions of foreign companies also may involve the additional risks of assimilating differences in foreign business practices and overcoming language barriers. In the event that the operations of an acquired business do not live up to expectations, the Company may be required to restructure the acquired business or write-off the value of some or all of the assets of the acquired business. In fiscal 1993 and 1995, the Company's results of operations were materially and adversely affected by write-offs associated with the Company's acquired German operations. There can be no assurance that any acquisition will be successfully integrated into the Company's operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 16-19 of the Company's 1997 Annual Report to Stockholders included as Exhibit 13.1 of this Form 10-K. 18 19 MANAGEMENT OF BUSINESS EXPANSION; NEED FOR IMPROVED SYSTEMS; ASSIMILATION OF FOREIGN OPERATIONS The Company's business and operations have recently experienced substantial expansion over the past 15 years. The Company believes that such expansion places a strain on operational, human and financial resources. In order to manage such expansion, the Company must continue to improve its operating, administrative and information systems, accurately predict its future personnel and resource needs to meet client contract commitments, track the progress of ongoing client projects and attract and retain qualified management, professional, scientific and technical operating personnel. Expansion of foreign operations also may involve the additional risks of assimilating differences in foreign business practices, hiring and retaining qualified personnel, and overcoming language barriers. In the event that the operation of an acquired business does not live up to expectations, the Company may be required to restructure the acquired business or write-off the value of some or all of the assets of the acquired business. Failure by the Company to meet the demands of and to manage expansion of its business and operations could have a material adverse effect on the Company's business. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 16-19 of the Company's 1997 Annual Report to Stockholders included as Exhibit 13.1 of this Form 10-K. DEPENDENCE ON PERSONNEL; ABILITY TO ATTRACT AND RETAIN PERSONNEL The Company relies on a number of key executives, including Josef H. von Rickenbach, its President, Chief Executive Officer and Chairman, upon whom the Company maintains key man life insurance. Although the Company has entered into agreements containing non-competition restrictions with its senior officers, the Company does not have employment agreements with certain of these persons and the loss of the services of any of the Company's key executives could have a material adverse effect on the Company. The Company's performance also depends on its ability to attract and retain qualified professional, scientific and technical operating staff. The level of competition among employers for skilled personnel, particularly those with M.D., Ph.D. or equivalent degrees, is high. There can be no assurance the Company will be able to continue to attract and retain qualified staff. See "Business - Employees" which appears on page 14 of this Form 10-K. POTENTIAL LIABILITY; POSSIBLE INSUFFICIENCY OF INSURANCE Clinical research services involve the testing of new drugs on consenting human volunteers pursuant to a study protocol. Such testing involves a risk of liability for personal injury or death to patients due to, among other reasons, possible unforeseen adverse side effects or improper administration of the new drug. Many of these patients are already seriously ill and are at risk of further illness or death. The Company could be materially and adversely affected if it were required to pay damages or incur defense costs in connection with a claim that is outside the scope of an indemnity or insurance coverage, or if the indemnity, although applicable, is not performed in accordance with its terms or if the Company's liability exceeds the amount of applicable insurance. In addition, there can be no assurance that such insurance will continue to be available on terms acceptable to the Company. See "Business - Potential Liability and Insurance" which appears on page 16 of this Form 10-K. ADVERSE EFFECT OF EXCHANGE RATE FLUCTUATIONS Approximately 36%, 38% and 40% of the Company's net revenue for fiscal 1997, 1996 and 1995, respectively, was derived from the Company's operations outside of North America. Since the revenue and expenses of the Company's foreign operations are generally denominated in local currencies, exchange rate fluctuations between local currencies and the United States dollar will subject the Company to currency translation risk with respect to the results of its foreign operations. To the extent the Company is unable to shift to its clients the effects of currency fluctuations, these fluctuations could have a material adverse effect on the Company's results of operations. The Company does not currently hedge against the risk of exchange rate fluctuations. POTENTIAL VOLATILITY OF STOCK PRICE The market price of the Company's Common Stock could be subject to wide fluctuations in response to quarter-to-quarter variations in operating results, changes in earnings estimates by analysts, market conditions in the industry, prospects of health care reform, changes in government regulation and general economic conditions. In 19 20 addition, the stock market has from time to time experienced significant price and volume fluctuations that have been unrelated to the operating performance of particular companies. These market fluctuations may adversely affect the market price of the Company's Common Stock. Because the Company's Common Stock currently trades at a relatively high price-earnings multiple, due in part to analysts' expectations of continued earnings growth, even a relatively small shortfall in earnings from, or a change in, analysts' expectations may cause an immediate and substantial decline in the Company's stock price. Investors in the Company's Common Stock must be willing to bear the risk of such fluctuations in earnings and stock price. ANTI-TAKEOVER PROVISIONS; POSSIBLE ISSUANCE OF PREFERRED STOCK The Company's Restated Articles of Organization and Restated By-Laws contain provisions that may make it more difficult for a third party to acquire, or may discourage a third party from acquiring, the Company. These provisions could limit the price that certain investors might be willing to pay in the future for shares of the Company's Common Stock. In addition, shares of the Company's Preferred Stock may be issued in the future without further stockholder approval and upon such terms and conditions, and having such rights, privileges and preferences, as the Board of Directors may determine. The rights of the holders of Common Stock will be subject to, and may be adversely affected by, the rights of any holders of Preferred Stock that may be issued in the future. The issuance of Preferred Stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could adversely affect the market price of the Common Stock and could have the effect of making it more difficult for a third party to acquire, or discouraging a third party from acquiring, a majority of the outstanding voting stock of the Company. The Company has no present plans to issue any shares of Preferred Stock. ITEM 2. PROPERTIES PAREXEL leases all but one of its facilities. The Company's principal executive offices are located in Waltham, Massachusetts. The company also leases space in Lowell, Massachusetts, and maintains other North American offices in Chicago, Philadelphia, Raleigh- Durham, San Diego, and Washington, D.C.. The Company's European subsidiaries maintain offices in Berlin, Frankfurt, London, Sheffield, Milan, Paris, Madrid, Stockholm, and Tel Aviv. The Company's Japanese subsidiary is located in Kobe, with a branch office in Tokyo. Its Australian subsidiary is located in Sydney. The Company considers all of its properties to be suitable and adequate for its present needs. ITEM 3. LEGAL PROCEEDINGS As previously disclosed, the Company was a defendant in a proceeding captioned Dennis J. Tallon v. Frederic Harwood, Samuel T. Barnett, Barnett Associates, Inc., and PAREXEL International Corporation, 92-3496. The proceeding was filed on March 3, 1992 in the Court of Common Pleas, Delaware Court, Pennsylvania. On May 8, 1997, the trial court granted the Company's motion for summary judgment and dismissed the Plaintiff's action in its entirety. Subsequently, the Plaintiff filed an appeal of the Trial Court's order. In August 1997, this matter was settled and the Company was released from liability for all alleged claims of the Plaintiff. Pursuant to the Parties' settlement, the Plaintiff's appeal will be withdrawn and all proceedings in this matter will be terminated. The resolution of this matter did not have a material adverse affect on the financial position, results of operations or business of the Company. No material legal proceedings are pending to which the Company, its subsidiaries, or any of their properties are subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended June 30, 1997. 20 21 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS This information is incorporated by reference from page 35, "Quarterly Operating Results and Common Stock Information (Unaudited)" of the Company's 1997 Annual Report to Stockholders included as Exhibit 13.1. ITEM 6. SELECTED FINANCIAL DATA This information is incorporated by reference from page 35, "Selected Financial Data," of the Company's 1997 Annual Report to Stockholders included as Exhibit 13.1. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This information is incorporated by reference from pages 16-19, "Management's Discussion and Analysis of Financial Condition and Results of Operations," of the Company's 1997 Annual Report to Stockholders included as Exhibit 13.1. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary financial information are incorporated by reference from pages 20-34 of the Company's 1997 Annual Report to Stockholders included as Exhibit 13.1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information with respect to this item may be found under the captions "Elections of Directors" and "Executive Officers" in the Proxy Statement for the Company's 1997 Annual Meeting of Stockholders. Such information is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION Information with respect to this item may be found under the captions "Directors' Compensation" and "Executive Compensation" in the Proxy Statement for the Company's 1997 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 1997 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 1997 Annual Meeting of Stockholders. Such information is incorporated herein by reference. 21 22 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (A) The following documents are filed as part of this report. (1) Financial Statements. The following financial statements and supplementary data included in the 1997 Annual Report to Stockholders, filed as Exhibit 13.1 to this report, are incorporated by reference into Item 8 of this report.
ANNUAL REPORT FINANCIAL STATEMENTS FORM 10-K PAGE TO STOCKHOLDERS PAGE Report of Independent Accountants 21 34 Consolidated Balance Sheets at June 30, 1997 21 21 and 1996 Consolidated Statements of Operations for each 21 20 of the three years ended June 30, 1997 Consolidated Statements of Stockholders' 21 22 Equity for each of the three years ended June 30, 1997 Consolidated Statements of Cash Flows for each 21 23 of the three years ended June 30, 1997 Notes to Consolidated Financial Statements 21 24-33
(2) Financial Statement Schedules: For the three years ended June 30, 1997: 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 the Notes thereto. (3) Exhibits 22 23 Exhibit Description No. 3.1 -- Amended and Restated Articles of Organization of the Company, as amended (filed as Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q for the Quarter Ended December 31, 1996 and incorporated herein by this reference). 3.2 -- Amended and Restated By-laws of the Company (filed as Exhibit 3.2 to the Registrant's Registration Statement on Form S-1 (File No. 333-1188) and incorporated herein by this reference). 4.1 -- Specimen certificate representing the Common Stock of the Company (filed as Exhibit 4.1 to the Registrant's Registration Statement on Form S-1 (File No. 33- 97406) and incorporated herein by this reference). 4.2 -- Purchase Agreement dated as of August 22, 1996 between the Company and State and Federal Associates, Inc., S&FA of Alexandria Partnership, Martin J. Miller, Howard Tag, Peter Malamis and Laurie Hughes (filed as Exhibit 4.2 to the Registrant's Registration Statement on Form S-3 (File No. 333-19751) and incorporated herein by this reference). 4.3 -- Registration Rights Agreement dated as of August 22, 1996 between the Company and S&FA of Alexandria Partnership, Martin J. Miller, Howard Tag, Peter Malamis and Laurie Hughes (filed as Exhibit 4.3 the Registrant's Registration Statement on Form S-3 (File No. 333-19751) and incorporated herein by this reference). 4.4 -- Agreement and Plan of Reorganization and Merger dated as of February 28, 1997 among the Company, Rescon, Inc., Rescon Acquisition Corporation, Walter Leroy Hill, as Trustee of the Walter L. Hill Revocable Trust and Walter Leroy Hill (filed as Exhibit 4.2 the Registrant's Registration Statement on Form S-3 (File No. 333-27487) and incorporated herein by this reference). 4.5 -- Registration Rights Agreement dated as of February 28, 1997 among the Company, Walter Leroy Hill, and Walter Leroy Hill as Trustee of the Walter L. Hill Revocable Trust (filed as Exhibit 4.3 the Registrant's Registration Statement on Form S-3 (File No. 333-27487) and incorporated herein by this reference). 4.6 -- Share Purchase Agreement dated as of February 28, 1997 among the Company, Dr. Richard Kay and Janet Kay (filed as Exhibit 4.4 the Registrant's Registration Statement on Form S-3 (File No. 333-27487) and incorporated herein by this reference). 4.7 -- Registration Rights Agreement dated as of February 28, 1997 among the Company, Dr. Richard Kay and Janet Kay (filed as Exhibit 4.5 the Registrant's Registration Statement on Form S-3 (File No. 333-27487) and incorporated herein by this reference). 4.8 -- Share Purchase Agreement dated as of February 28, 1997 among the Company, Dr. Afron Lloyd Jones and Dr. Diana Smith (filed as Exhibit 4.6 the Registrant's Registration Statement on Form S-3 (File No. 333-27487) and incorporated herein by this reference). 4.9 -- Registration Right Agreement dated as of February 28, 1997 among the Company, Dr. . Afron Lloyd Jones and Dr. Diana Smith (filed as Exhibit 4.7 the Registrant's Registration Statement on Form S-3 (File No. 333-27487) and incorporated herein by this reference). 23 24 10.1 -- Employment Agreement dated December 30, 1996 between James M. Karis and the Company (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the Quarter Ended December 31, 1996 and incorporated herein by this reference). 10.2 -- Agreement dated June 30, 1993 between Prof. Dr. med. Werner M. Herrmann and PAREXEL GmbH Independent Pharmaceutical Research Organization, as amended (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the Quarter Ended March 31, 1997 and incorporated herein by this reference). 10.3 -- Letter Agreement date May 12, 1997 between Prof. Dr. med. Werner M. Herrmann and the Company (filed as Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the Quarter Ended March 31, 1997 and incorporated herein by this reference). 10.4 -- Form of Stock Option Agreement of the Company (filed as Exhibit 10.9 to the Registrant's Registration Statement on Form S-1 (File No. 333-1188) and incorporated herein by this reference). 10.5 -- 1986 Incentive Stock Option Plan of the Company (filed as Exhibit 10.10 to the Registrant's Registration Statement on Form S-1 (File No. 33-97406) and incorporated herein by this reference). 10.6 -- 1987 Stock Plan of the Company (filed as Exhibit 10.11 to the Registrant's Registration Statement on Form S-1 (File No. 33-97406) and incorporated herein by this reference). 10.7 -- 1989 Stock Plan of the Company (filed as Exhibit 10.12 to the Registrant's Registration Statement on Form S-1 (File No. 33-97406) and incorporated herein by this reference). 10.8 -- 1995 Stock Plan of the Company (filed as Exhibit 10.13 to the Registrant's Registration Statement on Form S-1 (File No. 33-97406) and incorporated herein by this reference). 10.9 -- 1995 Non-Employee Director Stock Option Plan of the Company (filed as Exhibit 10.14 to the Registrant's Registration Statement on Form S-1 (File No. 33-97406) and incorporated herein by this reference). 10.10 -- 1995 Employee Stock Purchase Plan of the Company (filed as Exhibit 10.15 to the Registrant's Registration Statement on Form S-1 (File No. 33-97406) and incorporated herein by this reference). 24 25 10.11 -- Corporate Plan for Retirement of the Company (filed as Exhibit 10.16 to the Registrant's Registration Statement on Form S-1 (File No. 33-97406) and incorporated herein by this reference). 10.12 -- Loan and Security Agreement dated as of July 31, 1992 between the Company, Barnett International Corporation and The First National Bank of Boston, as amended (filed as Exhibit 10.17 to the Registrant's Registration Statement on Form S-1(File No. 333-06953) and incorporated herein by this reference). 10.13 -- Line of Credit Agreement between PAREXEL GmbH and Deutsche Bank Berlin, dated January 23, 1995 (filed as Exhibit 10.24 to the Registrant's Registration Statement on Form S-1 (File No. 33-97406) and incorporated herein by this reference). 10.14 -- 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). 10.15 -- Second Amendment dated as of June 28, 1993 to the lease dated June 14, 1991 between 200 West Street Limited Partnership and the Company (filed as Exhibit 10.28 to the Registrant's Registration Statement on Form S-1 (File No. 33-97406) and incorporated herein by this reference). 10.16 -- 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). 10.17 -- Credit Agreement dated December 30, 1994 between PAREXEL GmbH and The First National Bank of Boston (filed as Exhibit 10.30 to the Registrant's Registration Statement on Form S-1(File No. 33-97406) and incorporated herein by this reference). 10.18 -- Collateral Agreement dated December 30, 1994 between PAREXEL GmbH and The First National Bank of Boston (filed as Exhibit 10.31 to the Registrant's Registration Statement on Form S-1 (File No. 33-97406) and incorporated herein by this reference). 10.19 -- Proposed Amended and Restated 1995 Stock Plan of the Company to become effective upon the approval of the stockholders at the 1997 Annual Meeting. 11.1 -- Statement re computation of per share earnings. 13.1 -- Specified portions of the Registrant's 1997 Annual Report to Stockholders. 21.1 -- List of subsidiaries of the Company. 23.1 -- Consent of Price Waterhouse L.L.P. 27.1 -- Financial Data Schedule. 25 26 (B) Reports on Form 8-K: The Company filed a Current Report on Form 8-K dated April 23, 1997, reporting financial results for the three months ended March 31, 1997. 26 27 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 26th day of September, 1997. PAREXEL INTERNATIONAL CORPORATION By:/s/ JOSEF H. VON RICKENBACH ---------------------------------- JOSEF H. VON RICKENBACH President, Chief Executive Officer and Chairman
Signatures Title(s) Date ---------- -------- ---- /s/ JOSEF H. VON RICKENBACH President, Chief September 26, 1997 --------------------------- Executive Officer and Josef H. von Rickenbach Chairman (principal executive officer) /s/ WILLIAM T. SOBO, JR. Senior Vice President, September 26, 1997 ------------------------ Chief Financial Officer, William T. Sobo, Jr. Treasurer and Clerk (principal financial and accounting officer) /s/ A. DANA CALLOW, JR. Director September 26, 1997 ----------------------- A. Dana Callow, Jr. /s/ PATRICK J. FORTUNE Director September 26, 1997 ---------------------- Patrick J. Fortune /s/ WERNER M. HERRMANN Director September 26, 1997 ---------------------- Werner M. Herrmann /s/ PETER BARTON HUTT Director September 26, 1997 --------------------- Peter Barton Hutt /s/ JAMES A. SAALFIELD Director September 26, 1997 ---------------------- James A. Saalfield
27 28 SCHEDULE II PAREXEL INTERNATIONAL CORPORATION VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Balance at Charged to Balance at beginning of costs and Charged to Deductions end of Description period expenses other accounts and write-offs period - ------------------------- ------------ ----------- -------------- -------------- ----------- ALLOWANCE FOR DOUBTFUL ACCOUNTS Year ended June 30, 1995 $ 580,000 $ 1,021,000 -- $ (327,000) $ 1,274,000 Year ended June 30, 1996 1,274,000 515,000 -- (290,000) 1,499,000 Year ended June 30, 1997 1,499,000 1,452,000 $ 384,000(1) (624,000) 2,711,000 DEFERRED TAX ASSET VALUATION ALLOWANCE Year ended June 30, 1995 6,071,000 -- 1,620,000 (200,000) 7,491,000 Year ended June 30, 1996 7,491,000 -- -- (1,565,000) 5,926,000 Year ended June 30, 1997 5,926,000 -- -- (2,554,000) 3,372,000
(1) Amounts acquired through business combinations. 28 EX-10.19 2 PROPOSED AMENDED AND RESTATED 1995 STOCK PLAN 1 Exhibit 10.19 PAREXEL INTERNATIONAL CORPORATION AMENDED AND RESTATED 1995 STOCK PLAN (as amended by the Board of Directors on July 8, 1997 and approved by the Stockholders on November ___, 1997) INTRODUCTION: GENERAL PROVISIONS 1. PURPOSE. A. PART I - NON-FORMULA GRANTS. Part I of this Amended and Restated 1995 Stock Plan (the "Plan") is intended to provide incentives: (a) to the officers and other employees of PAREXEL International Corporation (the "Company"), and of any present or future parent or subsidiary of the Company (collectively, "Related Corporations"), by providing them with opportunities to purchase stock in the Company pursuant to options granted hereunder which qualify as "incentive stock options" ("ISOs") under Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code"); (b) to directors, officers, employees and consultants of the Company and Related Corporations by providing them with opportunities to purchase stock in the Company pursuant to options granted hereunder which do not qualify as ISOs ("Non-Qualified Options"); (c) to directors, officers, employees and consultants of the Company and Related Corporations by providing them with awards of stock in the Company ("Awards"); and (d) to directors, officers, employees and consultants of the Company and Related Corporations by providing them with opportunities to make direct purchases of stock in the Company ("Purchases"). B. PART II - FORMULA GRANTS. Part II of this Plan is designed to operate as a formula plan and intended to promote the interests of the Company, with an inducement to obtain and retain the services of qualified persons who are not employees or officers of the Company to serve as members of its Board of Directors (the "Board") by providing such directors with an automatic, annual grant of Non-Qualified Options pursuant to the terms and conditions of Part II of this Plan. C. CERTAIN DEFINITIONS. Both ISOs and Non-Qualified Options are referred to hereafter individually as an "Option" and collectively as "Options." Options, Awards and authorizations to make Purchases are referred to hereafter collectively as "Stock Rights." As used herein, the terms "parent" and "subsidiary" mean "parent corporation" and "subsidiary corporation," respectively, as those terms are defined in Section 424 of the Code. 2 - 2 - 2. ADMINISTRATION OF THE PLAN. A. BOARD OR COMMITTEE ADMINISTRATION. The Plan shall be administered by the Board or, subject to paragraph 2D (relating to compliance with Section 162(m) of the Code), by a committee appointed by the Board (the "Committee"). Hereinafter, all references in this Plan to the "Committee" shall mean the Board if no Committee has been appointed. With respect to Stock Rights granted pursuant to Part I of the Plan and subject to ratification of the grant or authorization of each Stock Right pursuant to Part I of the Plan by the Board (if so required by applicable state law), and subject to the terms of the Plan, the Committee shall have the authority to (i) determine the employees of the Company and Related Corporations (from among the class of employees eligible under paragraph 3 to receive ISOs) to whom ISOs shall be granted, and determine (from among the class of individuals and entities eligible under paragraph 3 to receive Non-Qualified Options and Awards and to make Purchases) to whom Non-Qualified Options, Awards and authorizations to make Purchases may be granted; (ii) determine the time or times at which Options or Awards shall be granted or Purchases made; (iii) determine the option price of shares subject to each Option, which price shall not be less than the minimum price specified in paragraph 14, and the purchase price of shares subject to each Purchase; (iv) determine whether each Option granted shall be an ISO or a Non-Qualified Option; (v) determine (subject to paragraph 15) the time or times when each Option shall become exercisable and the duration of the exercise period; (vi) determine whether restrictions such as repurchase options are to be imposed on shares subject to Options, Awards and Purchases and the nature of such restrictions, if any, and (vii) interpret the Plan and prescribe and rescind rules and regulations relating to it. With respect to Non-Qualified Options granted pursuant to Part II of the Plan, the terms of such Non-Qualified Options shall be as set forth in paragraphs 23 through 28. If the Committee determines to issue a Non-Qualified Option, it shall take whatever actions it deems necessary, under Section 422 of the Code and the regulations promulgated thereunder, to ensure that such Option is not treated as an ISO. The interpretation and construction by the Committee of any provisions of the Plan or of any Stock Right granted under it shall be final unless otherwise determined by the Board. The Committee may from time to time adopt such rules and regulations for carrying out the Plan as it may deem best. No member of the Board or the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Stock Right granted under it. B. COMMITTEE ACTIONS. The Committee may select one of its members as its chairman, and shall hold meetings at such time and places as it may determine. Acts by a majority of the members of the Committee, or acts reduced to or approved in writing by a majority of the members of the Committee (if consistent with applicable state law), shall constitute the valid acts of the Committee. From time to time the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies however caused, or remove all members of the Committee and thereafter directly administer the Plan. 3 - 3 - C. GRANT OF STOCK RIGHTS TO BOARD MEMBERS. In addition to the Non-Qualified Options automatically granted to non-employee directors pursuant to Part II of the Plan, Stock Rights may be granted pursuant to Part I of this Plan to members of the Board. Members of the Board who either (i) are eligible to receive grants of Stock Rights pursuant to the Plan or (ii) have been granted Stock Rights may vote on any matters affecting the administration of the Plan or the grant of any Stock Rights pursuant to the Plan, except that no such member shall act upon the granting to himself of Stock Rights, but any such member may be counted in determining the existence of a quorum at any meeting of the Board during which action is taken with respect to the granting to him of Stock Rights. D. PERFORMANCE-BASED COMPENSATION. The Board, in its discretion, may take such action as may be necessary to ensure that Stock Rights granted under the Plan qualify as "qualified performance-based compensation" within the meaning of Section 162(m) of the Code and applicable regulations promulgated thereunder ("Performance-Based Compensation"). Such action may include, in the Board's discretion, some or all of the following (i) if the Board determines that Stock Rights granted under the Plan generally shall constitute Performance-Based Compensation, the Plan shall be administered, to the extent required for such Stock Rights to constitute Performance-Based Compensation, by a Committee consisting solely of two or more "outside directors" (as defined in applicable regulations promulgated under Section 162(m) of the Code), (ii) if any Non-Qualified Options with an exercise price less than the fair market value per share of Common Stock are granted under the Plan and the Board determines that such Options should constitute Performance-Based Compensation, such options shall be made exercisable only upon the attainment of a pre-established, objective performance goal established by the Committee, and such grant shall be submitted for, and shall be contingent upon shareholder approval and (iii) Stock Rights granted under the Plan may be subject to such other terms and conditions as are necessary for compensation recognized in connection with the exercise or disposition of such Stock Right or the disposition of Common Stock acquired pursuant to such Stock Right, to constitute Performance-Based Compensation. 3. ELIGIBLE OPTIONEES. ISOs may be granted only to employees of the Company or any Related Corporation. Non-Qualified Options, Awards and authorizations to make Purchases may be granted pursuant to Part I to any employee, officer or director (whether or not also an employee) or consultant of the Company or any Related Corporation. Non-Qualified Options granted pursuant to Part II may only be granted to non-employee directors of the Company. With respect to Stock Rights granted pursuant to Part I of the Plan, the Committee may take into consideration a recipient's individual circumstances in determining whether to grant an ISO, a Non-Qualified Option, an Award or an authorization to make a Purchase. Granting of any Stock Right to any individual or entity shall neither entitle that individual or entity to, nor disqualify him from, participation in any other grant of Stock Rights. 4. STOCK. The stock subject to Options, Awards and Purchases shall be authorized but unissued shares of Common Stock of the Company, par value $.01 per share (the "Common Stock"), or shares of Common Stock reacquired by the Company in any manner. The aggregate number of shares which may be issued pursuant to the Plan, subject to adjustment as provided in 4 - 4 - paragraph 11 of the Plan, is the sum of (x) 2,000,000, plus (y) a number equal to 600,000 minus the number of shares issued upon the exercise of options granted under the 1995 Non-Employee Director Stock Option Plan of the Company (the "Director Plan), subject to adjustment as provided in paragraph 11. If any Stock Right granted under the Plan shall expire or terminate for any reason without having been exercised in full or shall cease for any reason to be exercisable in whole or in part, the unpurchased shares subject to such Stock Right shall again be available for grants of Stock Rights under the Plan. No employee of the Company or any Related Corporation may be granted Options to acquire, in the aggregate, more than 998,000 shares of Common Stock under the Plan. If any Option granted under the Plan shall expire or terminate for any reason without having been exercised in full or shall cease for any reason to be exercisable in whole or in part or shall be repurchased by the Company, the shares subject to such Option shall be included in the determination of the aggregate number of shares of Common Stock deemed to have been granted to such employee under the Plan. The aggregate number of shares which may be issued pursuant to Part II shall not exceed 540,000 shares, minus the number of shares issued upon the exercise of options granted under the Director Plan, subject to adjustment in accordance with paragraph 11 of the Plan. 5. MEANS OF EXERCISING STOCK RIGHTS. A Stock Right (or any part or installment thereof) shall be exercised by giving written notice to the Company at its principal office address. Such notice shall identify the Stock Right being exercised and specify the number of shares as to which such Stock Right is being exercised, accompanied by full payment of the purchase price therefor either (a) in United States dollars in cash or by check, (b) at the discretion of the Committee, through delivery of shares of Common Stock owned by the optionee free and clear of any restrictions (other than those arising under securities laws) for at least six months having a fair market value equal as of the date of the exercise to the cash exercise price of the Stock Right, (c) at the discretion of the Committee and consistent with applicable law, through the delivery of an assignment to the Company of a sufficient amount of the proceeds from the sale of the Common Stock acquired upon exercise of the Stock Right and an authorization to the broker or selling agent to pay that amount to the Company, which sale shall be at the participant's direction at the time of exercise, or (d) at the discretion of the Committee, by any combination of (a), (b) and (c) above. If the Committee exercises its discretion to permit payment of the exercise price of an ISO by means of the methods set forth in clauses (b), (c) or (d) of the preceding sentence, such discretion shall be exercised in writing at the time of the grant of the ISO in question. The holder of a Stock Right shall not have the rights of a shareholder with respect to the shares covered by his Stock Right until the date of issuance of a stock certificate to him for such shares. Except as expressly provided in paragraph 11 below with respect to changes in capitalization and stock dividends, no adjustment shall be made for dividends or similar rights for which the record date is before the date such stock certificate is issued. The stock certificates representing such shares shall carry such appropriate legend, and such written instructions shall be given to the Company's transfer agent, as may be deemed necessary or advisable by counsel to the Company in order to comply with the requirements of the Securities Act of 1933, as amended, (the "Act") or any state securities laws. 5 - 5 - 6. APPLICATION OF FUNDS. The proceeds received by the Company from the sale of shares pursuant to Options granted and Purchases authorized under the Plan shall be used for general corporate purposes. 7. WITHHOLDING OF ADDITIONAL INCOME TAXES. Upon the exercise of a Non-Qualified Option, the transfer of a Non-Qualified Option pursuant to an arms-length transaction, the grant of an Award, the making of a Purchase of Common Stock for less than its fair market value, the making of a Disqualifying Disposition (as described in paragraph 22), the vesting or transfer of restricted stock or securities acquired on the exercise of a Stock Right hereunder, or the making of a distribution or other payment with respect to such stock or securities, the Company may withhold taxes in respect of amounts that constitute compensation includible in gross income. The Committee in its discretion may condition (i) the exercise of an Option, (ii) the transfer of a Non-Qualified Option, (iii) the grant of an Award, (iv) the making of a Purchase of Common Stock for less than its fair market value, or (v) the vesting or transferability of restricted stock or securities acquired by exercising a Stock Right, on the grantee's making satisfactory arrangement for such withholding. Such arrangement may include payment by the grantee in cash or by check of the amount of the withholding taxes or, at the discretion of the Committee, by the grantee's delivery of previously held shares of Common Stock held by the grantee for at least six months or the withholding from the shares of Common Stock otherwise deliverable upon exercise of a Stock Right shares having an aggregate fair market value equal to the amount of such withholding taxes. 8. GOVERNMENTAL AND SECURITIES LAW REGULATION. A. The Company's obligation to sell and deliver shares of the Common Stock under this Plan is subject to the approval of any governmental authority required in connection with the authorization, issuance or sale of such shares. The Company shall have no obligation to deliver any stock certificate or certificates upon exercise of an Option until one of the following conditions shall be satisfied: (i) The shares with respect to which the Option has been exercised are at the time of the issue of such shares effectively registered under applicable Federal and state securities laws as now in force or hereafter amended; or (ii) Counsel for the Company shall have given an opinion that such shares are exempt from registration under Federal and state securities laws as now in force or hereafter amended; and the Company has complied with all applicable laws and regulations with respect thereto, including without limitation all regulations required by any stock exchange upon which the Company's outstanding Common Stock is then listed. B. If in the opinion of legal counsel for the Company the issuance or sale of any shares of Common Stock pursuant to the exercise of an Option would not be lawful for any reason, including without limitation the inability of the Company to obtain from any 6 - 6 - governmental authority or regulatory body having jurisdiction the authority deemed by such counsel to be necessary to such issuance or sale, the Company shall not be obligated to issue or sell any shares of Common Stock pursuant to the exercise of an Option to an optionee or any other authorized person unless a registration statement that complies with the provisions of the Act in respect of such shares of Common Stock is in effect at the time thereof, or other appropriate action has been taken under and pursuant to the terms and provisions of the Act, or the Company receives evidence satisfactory to such counsel that the issuance and sale of such shares of Common Stock, in the absence of an effective registration statement or other appropriate action, would not constitute a violation of the Act or any applicable state securities law. The Company is in no event obligated to register any such shares of Common Stock, to comply with any exemption from registration requirements or to take any other action which may be required in order to permit, or to remedy or remove any prohibition or limitation on, the issuance or sale of such shares of Common Stock of any optionee or other authorized person. C. Government regulations may impose reporting or other obligations on the Company with respect to the Plan. For example, the Company may be required to send tax information statements to employees and former employees that exercise ISOs under the Plan, and the Company may be required to file tax information returns reporting the income received by grantees of Stock Rights in connection with the Plan. D. If requested by the Company, an optionee shall deliver to the Company written representations and warranties upon exercise of the Option that are necessary to show compliance with Federal and state securities laws, including representations and warranties to the effect that a purchase of shares under an Option granted pursuant to this Plan is made for investment and not with a view to their distribution (as that term is used in the Act.) 9. COMPLIANCE WITH REGULATIONS. It is the Company's intent that the Plan comply in all respects with Section 162(m) of the Code and Rule 16b-3 under the Securities Exchange Act of 1934 (or any successor or amended version thereof) and any applicable Securities and Exchange Commission interpretations thereof ("Rule 16b-3"). If any provision of this Plan is deemed not to be in compliance with Rule 16b-3, the provision shall be null and void. 10. GOVERNING LAW; CONSTRUCTION. The validity and construction of the Plan and the instruments evidencing Stock Rights shall be governed by the laws of the Commonwealth of Massachusetts, or the laws of any jurisdiction in which the Company or its successors in interest may be organized. In construing this Plan, the singular shall include the plural and the masculine gender shall include the feminine and neuter, unless the context otherwise requires. 11. ADJUSTMENTS. Upon the occurrence of any of the following events, an optionee's rights with respect to Options granted to him shall be adjusted as hereinafter provided, unless otherwise specifically provided in the written agreement between the optionee and the Company relating to such Option: 7 - 7 - A. STOCK DIVIDENDS AND STOCK SPLITS. If the shares of Common Stock shall be subdivided or combined into a greater or smaller number of shares or if the Company shall issue any shares of Common Stock as a stock dividend on its outstanding Common Stock, the number of shares of Common Stock deliverable upon the exercise of outstanding Options, as well as any Non-Qualified Options to be granted under Part II, shall be appropriately increased or decreased proportionately, and appropriate adjustments shall be made in the purchase price per share to reflect such subdivision, combination or stock dividend. B. CONSOLIDATIONS OR MERGERS. If the Company is to be consolidated with or acquired by another entity in a merger, sale of all or substantially all of the Company's assets or otherwise (an "Acquisition"), the Committee or the board of directors of any entity assuming the obligations of the Company hereunder (the "Successor Board"), shall, as to outstanding Options granted pursuant to Part I of the Plan, either (i) make appropriate provision for the continuation of such Options by substituting on an equitable basis for the shares then subject to such Options the consideration payable with respect to the outstanding shares of Common Stock in connection with the Acquisition; or (ii) upon written notice to the optionees, provide that all Options granted pursuant to Part I must be exercised, to the extent then exercisable, within a specified number of days of the date of such notice, at the end of which period the Options shall terminate; or (iii) terminate all Options granted pursuant to Part I in exchange for a cash payment equal to the excess of the fair market value of the shares subject to such Options (to the extent then exercisable) over the exercise price thereof. In the event of a reorganization, recapitalization, merger, consolidation, or any other change in the corporate structure or shares of the Company, to the extent permitted by Rule 16b-3, adjustments in the number and kind of shares authorized by Part II and in the number and kind of shares covered by, and in the option price of outstanding Options under Part II necessary to maintain the proportionate interest of the optionee and preserve, without exceeding, the value of such Option shall be made. C. RECAPITALIZATION OR REORGANIZATION. In the event of a recapitalization or reorganization of the Company (other than a transaction described in subparagraph B above) pursuant to which securities of the Company or of another corporation are issued with respect to the outstanding shares of Common Stock, an optionee upon exercising an Option granted pursuant to Part I shall be entitled to receive for the purchase price paid upon such exercise the securities he would have received if he had exercised his Option prior to such recapitalization or reorganization. D. MODIFICATION OF ISOS. Notwithstanding the foregoing, any adjustments made pursuant to subparagraphs A, B or C with respect to ISOs shall be made only after the Committee, after consulting with counsel for the Company, determines whether such adjustments would constitute a "modification" of such ISOs (as that term is defined in Section 424 of the Code) or would cause any adverse tax consequences for the holders of such ISOs. If the Committee determines that such adjustments made with respect to ISOs would constitute a modification of such ISOs or would cause adverse tax consequences to the holders, it may refrain from making such adjustments. 8 - 8 - E. DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution or liquidation of the Company, each Option granted pursuant to this Plan will terminate immediately prior to the consummation of such proposed action or at such other time and subject to such other conditions as shall be determined by the Committee. F. ISSUANCES OF SECURITIES. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares subject to Options. No adjustments shall be made for dividends paid in cash or in property other than securities of the Company. G. FRACTIONAL SHARES. No fractional shares shall be issued under the Plan and the optionee shall receive from the Company cash in lieu of such fractional shares. H. ADJUSTMENTS. Upon the happening of any of the events described in subparagraphs A, B or C above, the class and aggregate number of shares set forth in paragraph 4 hereof that are subject to Stock Rights which previously have been or subsequently may be granted shall also be appropriately adjusted to reflect the events described in such subparagraphs. 12. TERM AND AMENDMENT OF PLAN. This Plan was initially adopted by the Board on September 14, 1995 and approved by the Stockholders of the Company on November 3, 1995, and amended and restated by the Board on July 8, 1997 subject, with respect to the validation of ISOs granted under the Plan, to approval of the Plan by the stockholders of the Company at the next Annual Meeting (or Special Meeting in Lieu of Annual Meeting) of Stockholders. The Plan shall expire at the end of the day on September 13, 2005 (except as to Options outstanding on that date). The Board may terminate or amend the Plan in any respect at any time, except that, without the affirmative vote of the holders of a majority of the shares of Common Stock present in person or by proxy and voting on such matter obtained within 12 months before or after the Board adopts a resolution authorizing any of the following actions: (a) the total number of shares that may be issued under the Plan may not be increased (except by adjustment pursuant to paragraph 11); (b) the benefits accruing to participants under the Plan may not be materially increased; (c) the requirements as to eligibility for participation in the Plan may not be materially modified; (d) the provisions of paragraph 3 regarding eligibility for grants of ISOs may not be modified; (e) the provisions of paragraph 14 regarding the exercise price at which shares may be offered pursuant to ISOs may not be modified (except by adjustment pursuant to paragraph 11); (f) the expiration date of the Plan may not be extended; and (g) the Board may not take any action which would cause the Plan to fail to comply with Rule 16b-3. Except as otherwise provided in this paragraph 12, in no event may action of the Board or stockholders alter or impair the rights of a grantee, without his consent, under any Stock Right previously granted to him. 9 - 9 - PART I: NON-FORMULA GRANTS 13. NON-FORMULA GRANT OF STOCK RIGHTS. Stock Rights may be granted under this Part I at any time prior to September 14, 2005. The date of grant of a Stock Right under this Part I will be the date specified by the Committee at the time it grants the Stock Right; provided, however, that such date shall not be prior to the date on which the Committee acts to approve the grant. 14. MINIMUM OPTION PRICE; ISO LIMITATIONS. A. PRICE FOR NON-QUALIFIED OPTIONS. Subject to paragraph 2D, the exercise price per share specified in the agreement relating to each Non-Qualified Option granted under Part I shall in no event be less than the minimum legal consideration required therefor under the laws of the Commonwealth of Massachusetts or the laws of any jurisdiction in which the Company or its successors in interest may be organized. B. PRICE FOR ISOS. The exercise price per share specified in the agreement relating to each ISO granted under the Plan shall not be less than the fair market value per share of Common Stock on the date of such grant. In the case of an ISO to be granted to an employee owning stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Related Corporation, the price per share specified in the agreement relating to such ISO shall not be less than one hundred ten percent (110%) of the fair market value per share of Common Stock on the date of grant. For purposes of determining stock ownership under this paragraph, the rules of Section 424(d) of the Code shall apply. C. $100,000 ANNUAL LIMITATION ON ISO VESTING. Each eligible employee may be granted Options treated as ISOs only to the extent that, in the aggregate under this Plan and all incentive stock option plans of the Company and any Related Corporation, ISOs do not become exercisable for the first time by such employee during any calendar year with respect to stock having a fair market value (determined at the time the ISOs were granted) in excess of $100,000. The Company intends to designate any Options granted in excess of such limitation as Non-Qualified Options. D. DETERMINATION OF FAIR MARKET VALUE. If, at the time an Option is granted under the Plan, the Company's Common Stock is publicly traded, "fair market value" shall be determined as of the last business day for which the prices or quotes discussed in this sentence are available prior to the date such Option is granted and shall mean (i) the average (on that date) of the high and low prices of the Common Stock on the principal national securities exchange on which the Common Stock is traded, if the Common Stock is then traded on a national securities exchange; or (ii) the last reported sale price (on that date) of the Common Stock on the Nasdaq National Market, if the Common Stock is not then traded on a national securities exchange; or (iii) the closing bid price (or average of bid prices) last quoted (on that date) by an established quotation service for over-the-counter securities, if 10 - 10 - the Common Stock is not reported on the Nasdaq National Market. However, if the Common Stock is not publicly traded at the time an Option is granted under the Plan, "fair market value" shall be deemed to be the fair value of the Common Stock as determined by the Committee after taking into consideration all factors which it deems appropriate, including, without limitation, recent sale and offer prices of the Common Stock in private transactions negotiated at arm's length. 15. OPTION DURATION. Subject to earlier termination as provided in paragraphs 17 and 18, each Option granted pursuant to this Part I shall expire on the date specified by the Committee, but not more than (i) eight years from the date of grant in the case of Options generally and (ii) five years from the date of grant in the case of ISOs granted to an employee owning stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Related Corporation, as determined under paragraph 14B. Subject to earlier termination as provided in paragraphs 17 and 18, the term of each ISO shall be the term set forth in the original instrument granting such ISO, except with respect to any part of such ISO that is converted into a Non-Qualified Option pursuant to paragraph 21. 16. EXERCISE OF OPTION. Subject to the provisions of paragraphs 17 through 21, each Option granted under this Part I shall be exercisable as follows: A. VESTING. The Option shall either be fully exercisable on the date of grant or shall become exercisable thereafter in such installments as the Committee may specify. B. FULL VESTING OF INSTALLMENTS. Once an installment becomes exercisable it shall remain exercisable until expiration or termination of the Option, unless otherwise specified by the Committee. C. PARTIAL EXERCISE. Each Option or installment may be exercised at any time or from time to time, in whole or in part, for up to the total number of shares with respect to which it is then exercisable. D. ACCELERATION OF VESTING. The Committee shall have the right to accelerate the date of exercise of any installment of any Option granted pursuant to Part I; provided that the Committee shall not, without the consent of an optionee, accelerate the exercise date of any installment of any Option granted to any employee as an ISO (and not previously converted into a Non-Qualified Option pursuant to paragraph 21) if such acceleration would violate the annual vesting limitation contained in Section 422(d) of the Code, as described in paragraph 14C. 17. TERMINATION OF EMPLOYMENT. If an ISO optionee ceases to be employed by the Company and all Related Corporations other than by reason of death or disability as defined in paragraph 18, no further installments of his ISOs shall become exercisable, and his ISOs shall terminate after the passage of sixty (60) days from the date of termination of his employment, but in no event later than on their specified expiration dates, except to the extent that such ISOs (or 11 - 11 - unexercised installments thereof) have been converted into Non-Qualified Options pursuant to paragraph 21. For purposes of this paragraph 17, employment shall be considered as continuing uninterrupted during any bona fide leave of absence (such as those attributable to illness, military obligations or governmental service) provided that the period of such leave does not exceed 90 days or, if longer, any period during which such optionee's right to reemployment is guaranteed by statute or contract. A bona fide leave of absence with the written approval of the Committee shall not be considered an interruption of employment under this paragraph 17, provided that such written approval contractually obligates the Company or any Related Corporation to continue the employment of the optionee after the approved period of absence. ISOs granted under the Plan shall not be affected by any change of employment within or among the Company and Related Corporations, so long as the optionee continues to be an employee of the Company or any Related Corporation. Nothing in the Plan shall be deemed to give any grantee of any Stock Right the right to be retained in employment or other service by the Company or any Related Corporation for any period of time. 18. DEATH; DISABILITY. A. DEATH. If an ISO optionee ceases to be employed by the Company and all Related Corporations by reason of his death, any ISO of his may be exercised, to the extent of the number of shares with respect to which he could have exercised it on the date of his death, by his estate, personal representative or beneficiary who has acquired the ISO by will or by the laws of descent and distribution, at any time prior to the earlier of the specified expiration date of the ISO or 180 days from the date of the optionee's death. B. DISABILITY. If an ISO optionee ceases to be employed by the Company and all Related Corporations by reason of his disability, he shall have the right to exercise any ISO held by him on the date of termination of employment, to the extent of the number of shares with respect to which he could have exercised it on that date, at any time prior to the earlier of the specified expiration date of the ISO or 180 days from the date of the termination of the optionee's employment. For the purposes of the Plan, the term "disability" shall mean "permanent and total disability" as defined in Section 22(e)(3) of the Code or any successor statute. 19. TRANSFERABILITY AND ASSIGNABILITY. Except as set forth below, (i) no Stock Right shall be assignable or transferable by an optionee except by will or by the laws of descent and distribution; and (ii) during the lifetime of the optionee each Stock Right granted under this Part I shall be exercisable only by him. Notwithstanding the foregoing, the Committee may, in its discretion, authorize all or a portion of any Non-Qualified Option granted under this Part I to be transferable by the optionee to (i) the spouse, children or grandchildren of the optionee ("Immediate Family Members"), (ii) a trust or trusts for the exclusive benefit of such Immediate Family Members, or (iii) a partnership of which such Immediate Family Members are the only partners, provided that (x) only the Committee may in its discretion permit transfers to other persons or entities, (y) the stock option agreement pursuant to which the Non-Qualified Option is granted must be approved by the Committee, and must expressly provide for transferability at the date of grant in a manner consistent with the Plan, and (z) subsequent transfers of the transferred 12 - 12 - Non-Qualified Option shall be prohibited except in accordance with this paragraph. Following any such transfer, the Non-Qualified Option shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer, provided that for purposes of paragraph 11, hereof, the term "optionee" shall be deemed to refer to the transferee. The events of termination of Business Relationship set forth in the grantee's option agreement shall continue to be applied with respect to the original optionee, following which the Non-Qualified Option shall be exercisable by the transferee only to the extent, and for the periods specified therein. 20. TERMS AND CONDITIONS OF OPTIONS. Options granted pursuant to this Part I shall be evidenced by instruments (which need not be identical) in such forms as the Committee may from time to time approve. Such instruments shall conform to the terms and conditions set forth in paragraphs 14 through 19 hereof and may contain such other provisions as the Committee deems advisable which are not inconsistent with the Plan, including restrictions applicable to shares of Common Stock issuable upon exercise of Options. The Committee may specify that any Non-Qualified Option granted pursuant to this Part I shall be subject to the restrictions set forth herein with respect to ISOs, or to such other termination and cancellation provisions as the Committee may determine. The Committee may from time to time confer authority and responsibility on one or more of its own members and/or one or more officers of the Company to execute and deliver such instruments. The proper officers of the Company are authorized and directed to take any and all action necessary or advisable from time to time to carry out the terms of such instruments. 21. CONVERSION OF ISOS INTO NON-QUALIFIED OPTIONS. The Committee, at the written request or with the written consent of any optionee, may in its discretion take such actions as may be necessary to convert such optionee's ISOs (or any installments or portions of installments thereof) that have not been exercised on the date of conversion into Non-Qualified Options at any time prior to the expiration of such ISOs, regardless of whether the optionee is an employee of the Company or a Related Corporation at the time of such conversion. Such actions may include, but shall not be limited to, extending the exercise period or reducing the exercise price of the appropriate installments of such ISOs. At the time of such conversion, the Committee (with the consent of the optionee) may impose such conditions on the exercise of the resulting Non-Qualified Options as the Committee in its discretion may determine, provided that such conditions shall not be inconsistent with this Plan. Nothing in this Part I shall be deemed to give any optionee the right to have such optionee's ISOs converted into Non-Qualified Options, and no such conversion shall occur until and unless the Committee takes appropriate action. 22. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. By accepting an ISO, each optionee agrees to notify the Company in writing immediately after he makes a Disqualifying Disposition (as described in Sections 421, 422 and 424 of the Code and regulations thereunder) of any stock acquired pursuant to the exercise of ISOs granted under this Part I. A Disqualifying Disposition is generally any disposition occurring within two years of the date the ISO was granted or within one year of the date the ISO was exercised, whichever period ends later. 13 - 13 - PART II: FORMULA GRANTS 23. AUTOMATIC FORMULA GRANTS OF NON-QUALIFIED OPTIONS TO NON-EMPLOYEE DIRECTORS. On the 1st business day in July in each year beginning in July 1998, each member of the Board who is not an employee or officer of the Company on such date and who has served as a member of the Board since the last meeting of stockholders at which directors were elected, shall be automatically granted an option, subject to adjustment in accordance with paragraph 11, to purchase: (i) 1,000 shares of the Common Stock, multiplied by the number of Board meetings physically attended by such person during the immediately preceding fiscal year; plus (ii) 500 shares of the Common Stock, multiplied by the number of Board meetings such person participated in by telephone during the immediately preceding fiscal year; plus (iii) 1,000 shares of the Common Stock, multiplied by the number of committee meetings (other than committee meetings held on the same day as full Board meetings) physically attended by such person during the immediately preceding fiscal year; plus (iv) 500 of the Common Stock, multiplied by the number of committee meetings such person participated in by telephone during the immediately preceding fiscal year; plus (v) 500 shares of the Common Stock, multiplied by the number of committee meetings held on the same day as a Board meeting and physically attended by such person during the immediately preceding fiscal year; provided, however, that (A) the aggregate number of shares granted pursuant to clauses (i) and (ii) above shall not exceed 7,500 shares in connection with any grant in any year under this paragraph 23; (B) the aggregate number of shares granted pursuant to clauses (iii), (iv) and (v) above shall not exceed 3,750 shares per committee in connection with any grant in any year under this paragraph 23; and (C) the aggregate number of shares granted pursuant to clauses (iii), (iv) and (v) above shall not exceed 7,500 shares in connection with any grant in any year under this paragraph 23. Except for the specific Options referred to in this paragraph 23, no other Options shall be granted under this Part II. 24. OPTION PRICE. The purchase price of the shares of Common Stock covered by any Option granted pursuant to this Part II shall be 100% of the fair market value of such shares on the day the option is granted, determined in accordance with Section 14D. The option price will be subject to adjustment in accordance with the provisions of paragraph 11 of this Plan. 25. PERIOD OF OPTION. Unless sooner terminated in accordance with the provisions of paragraph 27, an Option granted pursuant to this Part II shall expire on the date which is eight (8) years after the date of grant of the Option. 26. VESTING OF SHARES AND TRANSFERABILITY OF OPTIONS. A. VESTING. No Option granted under this Part II shall be exercisable until it becomes vested, and shall vest and thus become exercisable for the fraction of shares subject to such 14 - 14 - Option set forth opposite the applicable date below (rounded up to the nearest whole share): one year from the - one-third of shares subject to the date of grant Option two years from the - an additional one-third of date of grant shares subject to the Option three years from the - an additional one-third of date of grant shares subject to the Option Each of the dates on which an installment of the Option becomes exercisable pursuant to this paragraph 26 shall be referred to as the "Annual Vesting Date". In addition to the number of shares as to which the Option may be exercised in accordance with this paragraph 26, if the optionee ceases to be a director of the Company for any reason, other than by reason of a voluntary resignation by such director, the optionee may exercise an Option granted pursuant to this Part II for the additional number of shares as is determined by multiplying (i) the number of shares that would otherwise vest on the next anniversary of the date of grant by (ii) the quotient obtained by dividing (A) the number of full months elapsed between the later of the date on which the Option was granted to the Optionee and the most recent Annual Vesting Date Prior to the date the Optionee ceased to be a director of the Company (the "Termination Date") and the Termination Date divided by (B) 12, provided, however, such number of shares shall be rounded down to the nearest whole number of shares. Notwithstanding the foregoing and notwithstanding the last sentence of paragraph 11B, upon a Change of Control (as defined below), any then-unexercisable portion of a Option granted pursuant to this Part II shall become immediately and fully exercisable. For purposes of this paragraph 26A, "Change of Control" shall mean the closing of: (i) a merger, consolidation, liquidation or reorganization of the Company into or with another Company or other legal person, after which merger, consolidation, liquidation or reorganization the capital stock of the Company outstanding prior to consummation of the transaction is not converted into or exchanged for or does not represent more than 50% of the aggregate voting power of the surviving or resulting entity; (ii) the direct or indirect acquisition by any person (as the term "person" is used in Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended) of more than 50% of the voting capital stock of the Company, in a single or series of related transactions; or (iii) the sale, exchange, or transfer of all or substantially all of the Company's assets (other than a sale, exchange or transfer to one or more entities where the stockholders of the Company immediately before such sale, exchange or transfer retain, directly or indirectly, at least a majority of the beneficial interest in the voting stock of the entities to which the assets were transferred). 15 - 15 - B. TRANSFERABILITY AND ASSIGNABILITY. Except as set forth below, (i) no Non-Qualified Options granted pursuant to this Part II shall be assignable or transferable by the optionee except by will or by the laws of descent and distribution; and (ii) during the lifetime of the optionee each Non-Qualified Option granted pursuant to this Part II shall be exercisable only by the optionee. Notwithstanding the foregoing, all or a portion of the Non-Qualified Options granted pursuant to this Part II to an optionee will be transferable by such optionee to (i) the spouse, children or grandchildren of the optionee ("Immediate Family Members"), (ii) a trust or trusts for the exclusive benefit of such Immediate Family Members, or (iii) a partnership of which such Immediate Family Members are the only partners, provided that subsequent transfers of the transferred Non-Qualified Option shall be prohibited except in accordance with this paragraph 26B. Following any such transfer, any such Options shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer, provided that for purposes of paragraph 11, hereof the term "optionee" shall be deemed to refer to the transferee. The termination of Option Rights set forth in paragraph 27 hereof shall continue to be applied with respect to the original optionee, following which the Options shall be exercisable by the transferee only to the extent, and for the periods specified therein. 27. TERMINATION OF OPTION RIGHTS. In the event an optionee ceases to be a member of the Board for any reason, any then unexercised portion of Options granted to such optionee shall, to the extent not then vested, immediately terminate and become void; any portion of an Option which is then vested but has not been exercised at the time the optionee so ceases to be a member of the Board may be exercised, to the extent it is then vested, by the optionee within 270 days of the date the optionee ceased to be a member of the Board; and all Options shall terminate after such 270 days have expired. 28. OPTION AGREEMENT. Each Non-Qualified Option granted under the provisions of this Part II shall be evidenced by an option agreement, which agreement shall be duly executed and delivered on behalf of the Company and by the optionee to whom such Option is granted. The option agreement shall contain such terms, provisions and conditions not inconsistent with this Plan as may be determined by the officer executing it. EX-11.1 3 STATEMENT RE: COMPUTATION OF SHARES 1 EXHIBIT 11.1 PAREXEL INTERNATIONAL CORPORATION STATEMENT RE COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Year ended June 30, ------------------- 1997 1996 1995 -------- -------- -------- Net income (loss) $ 10,848 $ 4,599 $(10,630) ======== ======== ======== Weighted average common shares outstanding: a. Shares attributable to common stock outstanding 18,462 12,904 1,684 b. Shares attributable to common stock options and preferred stock warrants pursuant to APB15, paragraph 38(b) 476 656 -- c. Shares attributable to common stock options pursuant to SAB 83 -- -- 2 -------- -------- -------- Weighted average common shares outstanding 18,938 13,560 1,686 ======== ======== ======== Net income (loss) per share $ 0.57 $ 0.34 $ (6.31) ======== ======== ========
EX-13.1 4 1997 ANNUAL REPORT TO SHAREHOLDERS 1 EXHIBIT 13.1 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company is a leading contract research organization ("CRO") 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, information technology, industry training and publishing, and other drug development consulting services. Founded in 1983, the Company has built its business through internal expansion and acquisitions. The Company's services contracts are generally fixed price with some variable components and range in duration from a few months to several years. A portion of the fee is typically required to be paid at the time the contract is entered into and the balance in installments over the duration of the contract, in some cases on a milestone-achievement basis. Revenue from the contracts is generally recognized on a percentage-of-completion basis as work is performed. Most of the Company's contracts are terminable upon 60 to 90 days' notice by the client. Clients terminate or delay contracts for a variety of reasons, including, among others, the failure of products being tested to satisfy safety requirements, unexpected or undesired clinical results of the product, the client's decision to forego a particular study, insufficient patient enrollment or investigator recruitment, or production problems resulting in shortages of the drug. As is customary in the industry, the Company routinely subcontracts with third party investigators in connection with clinical trials and with other third party service providers for laboratory analysis and other specialized services. These and other reimbursable costs are paid by the Company and reimbursed by clients and, in accordance with industry practice, are included in gross revenue. Reimbursed costs vary from contract to contract. Accordingly, the Company views net revenue, which consists of gross revenue less reimbursed costs, as its primary measure of revenue growth. Direct costs consist of compensation and related fringe benefits for project-related employees, other project-related costs not reimbursed, and allocated facilities and information systems costs. Selling, general, and administrative expenses consist of compensation and related fringe benefits for selling and administrative employees, professional services, and advertising costs, as well as allocated costs related to facilities and information systems. GLOBAL OPERATIONS The following table presents the net revenue by geographic region and the percentage of total net revenue represented by each region for the three years ended June 30, 1997:
($ in thousands) 1997 % OF TOTAL 1996 % OF TOTAL 1995 % OF TOTAL - ---------------- ---- ---------- ---- ---------- ---- ---------- North America $102,913 64.4% $54,179 61.6% $35,037 59.8% Europe 53,599 33.6% 32,834 37.3% 23,443 40.0% Asia/Pacific 3,167 2.0% 993 1.1% 93 0.2% Total $159,679 100.0% $88,006 100.0% $58,573 100.0%
The Company's foreign subsidiaries generally enter into contracts denominated in the local currency of the foreign subsidiary. Because expenses of the foreign subsidiaries are generally paid in the local currency, such foreign subsidiaries' local currency earnings are not materially affected by fluctuations in exchange rates. However, changes in the exchange rates between these local currencies and the U.S. dollar will affect the translation of such subsidiaries' financial results into U.S. dollars for the purposes of reporting the Company's consolidated financial results. In cases where the Company contracts for a multi-country clinical trial and a significant portion of the contract expenses are in a currency other than the contract currency, the Company seeks to contractually shift to its client the effect of fluctuations in the relative values of the contract currency and the currency that the expenses are incurred. To the extent the Company is unable to shift to its clients the effects of currency fluctuations, these fluctuations could have a material effect on the Company's results of operations. The Company does not currently hedge against the risk of exchange rate fluctuations. 16 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) As the Company conducts operations on a global basis, the Company's effective tax rate has depended, and will continue to depend, upon the distribution of its revenue among geographic locations with varying tax rates. The Company's results of operations may be affected by changes in the tax rates of the various jurisdictions. In particular, from period to period, as the geographic mix of the Company's results of operations among various tax jurisdictions changes, the Company's effective tax rate may vary significantly. RESULTS OF OPERATIONS As an aid to understanding the Company's operating results, the following table indicates the percentage relationships of income and expense items included in the Consolidated Statements of Operations for the three years ended June 30, 1997, and the percentage changes in those items for such years:
PERCENTAGE OF NET REVENUE FOR THE YEARS ENDED JUNE 30, PERCENTAGE INCREASE 1997 1996 1995 1996 TO 1997 1995 TO 1996 ---- ---- ---- ------------ ------------ Net revenue 100.0% 100.0% 100.0% 81.4% 50.3% Costs and expenses: Direct costs 68.2% 68.3% 71.9% 81.1% 42.7% Selling, general and administrative 20.1% 21.6% 22.7% 68.5% 43.1% Depreciation and amortization 3.1% 2.7% 3.9% 114.0% 4.1% Impairment of long-lived assets -- -- 19.2% -- * ----- ----- ------ ----- ---- Income (loss) from operations 8.6% 7.4% (17.7)% 110.5% * ===== ===== ====== ===== ====
* not meaningful FISCAL YEAR ENDED JUNE 30, 1997, COMPARED TO FISCAL YEAR ENDED JUNE 30, 1996 Net revenue increased $71.7 million, or 81.4%, from $88.0 million for fiscal 1996 to $159.7 million for 1997. This growth in revenue was primarily attributable to an increase in the volume and average contract value of clinical research projects serviced by the Company and to a lesser extent, the Company's six acquisitions since June 1996. In fiscal 1997, net revenue in North America and in Europe increased $48.7 million and $20.8 million, respectively, over the prior year. Direct costs increased $48.8 million, or 81.1%, from $60.1 million for fiscal 1996 to $108.9 million for 1997. This increase in direct costs was due to the increase in the number of project-related personnel, hiring, facilities, and information system costs necessary to support the increased level of operations. As a percentage of net revenue, direct costs remained essentially unchanged, decreasing slightly from 68.3% in fiscal 1996 to 68.2% in 1997. Selling, general, and administrative expenses increased $13.0 million, or 68.5%, from $19.0 million for fiscal 1996 to $32.1 million for 1997. This increase was primarily due to increased costs associated with additional administrative personnel, greater hiring and selling costs, and additional facilities to accommodate the Company's growth. As a percentage of net revenue, selling, general, and administrative expenses decreased from 21.6% in fiscal 1996 to 20.1% in 1997, primarily due to leveraging of infrastructure over an expanding revenue base. Depreciation and amortization expense increased $2.7 million, or 114.0% from $2.3 million for fiscal 1996 to $5.0 million for 1997. This increase was primarily due to increased capital spending on computer equipment and facilities to support the increase in project-related personnel required to support the increased level of operations. Income from operations increased $7.2 million, or 110.5%, from $6.5 million for fiscal 1996 to $13.7 million in 1997. As a percentage of net revenue, income from operations increased to 8.6% in fiscal 1997, compared to 7.4% in 1996. Interest income increased $2.2 million in fiscal 1997 as a result of higher average balances of cash and investments. This increase was due to proceeds from the Company's public offering and cash generated from operations. The Company's effective income tax rate decreased from 39.9% in fiscal 1996 to 36.0% in fiscal 1997. This decrease was attributable to changes in the mix of taxable income from the different geographic jurisdictions that the Company operated in fiscal 1997 compared to 1996. 17 3 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) FISCAL YEAR ENDED JUNE 30, 1996, COMPARED TO FISCAL YEAR ENDED JUNE 30, 1995 Net revenue increased $29.4 million, or 50.3%, from $58.6 million for fiscal 1995 to $88.0 million for 1996. This net revenue growth was attributable to an increase in the number and average contract value of clinical research projects serviced by the Company, many of which have a multi-national scope. Direct costs increased $18.0 million, or 42.7%, from $42.1 million for fiscal 1995 to $60.1 million for 1996. This increase in direct costs was due to the increase in the number of project-related personnel, facilities, and information system costs necessary to support the increased level of operations. Direct costs as a percentage of net revenue decreased from 71.9% for 1995 to 68.3% for 1996, primarily due to improved workforce and facility utilization. Selling, general and administrative expenses increased $5.7 million, or 43.1%, from $13.3 million for fiscal 1995 to $19.0 million for 1996. This increase was primarily due to increased costs associated with additional administrative personnel, greater hiring and selling costs, and additional facilities to support the Company's growth and operation as a publicly held company. Selling, general and administrative expenses as a percentage of net revenue decreased from 22.7% for fiscal 1995 to 21.6% for 1996, primarily due to leveraging of infrastructure over an expanded revenue base. Depreciation and amortization expense increased $92,000, or 4.1%, from $2.2 million for fiscal 1995 to $2.3 million for 1996. The change resulted from an increase in depreciation associated with increased capital expenditures, offset by a decrease in depreciation and amortization due to the write-down of impaired long-lived assets of the Company's German operations. See Note 3 to the Consolidated Financial Statements entitled, "Impairment of Long Lived Assets." Depreciation and amortization expense in fiscal 1995 includes approximately $588,000 related to long-lived assets which were written-down and did not recur in 1996. Income from operations for fiscal 1996 was $6.5 million, compared to a loss from operations of $10.4 million for 1995. Results for 1995 included an $11.3 million noncash charge related to the write-down of impaired long-lived assets of the Company's German operations. Income from operations for 1995, excluding the impact of the asset impairment charge, was approximately $303,000. Interest income increased by $1.1 million in fiscal 1996. This increase resulted from higher average balances of cash and investments due primarily to proceeds from the Company's public offerings in November 1995 and March 1996. The Company's effective income tax rate was 39.9% for fiscal 1996. The effective tax rate in fiscal 1995, excluding the effect of the $11.3 million noncash, nondeductible write-down due to the impairment of long-lived assets, would have been 89.4%. The effective income tax rate may vary with changes in the mix of taxable income from the different geographic jurisdictions in which the Company operates. LIQUIDITY AND CAPITAL RESOURCES Since its inception, the Company has financed its operations and growth, including acquisition costs, with cash flow from operations and the proceeds from the sale of equity securities. Investing activities primarily reflect capital expenditures for information systems enhancements, leasehold improvements, and net purchases of marketable securities. The Company's clinical research and development contracts are generally fixed price with some variable components, and range in duration from a few months to several years. The cash flows from contracts typically consists of a down payment required to be paid at the time the contract is entered into and the balance in installments over the contract's duration, in some cases on a milestone-achievement basis. Revenue from contracts is recognized on a percentage-completion basis as the work is performed. Accordingly, cash receipts do not necessarily correspond to costs incurred and revenue recognized on contracts. The Company's cash flow is influenced by the changes in levels of billed and unbilled accounts receivable, net of amounts advance billed representing unearned revenue. As a result, the number of days outstanding in accounts receivable, net of advance billings, and the related dollar values of these accounts can vary due to the achievement of contractual milestones and the timing and size of cash receipts. The number of days revenue outstanding, net of advance billings, was 45 days at June 30, 1997, down from 47 days at June 30, 1996. Accounts receivable, net of the allowance for doubtful accounts, increased from $39.3 million at June 30, 1996, to $63.0 million at June 30, 1997, while advance billings increased from $20.0 million at June 30, 1996, to $32.6 million at June 30, 1997, both consistent with the growth in revenue in fiscal 1997. 18 4 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Unrestricted cash and cash equivalents increased by $12.1 million during fiscal 1997 as a result of $14.8 million of cash provided by operations and $57.0 million provided by financing activities, offset by $58.7 million of cash used for investing activities and a $968,000 unfavorable effect of exchange rate changes. Net cash provided by operating activities resulted primarily from net income, excluding noncash expenses, of $15.9 million and increases in advance billings and other current liabilities of $12.2 million and $11.5 million, respectively. Cash used by operating activities included increases in accounts receivable and other current assets of $21.7 million and $2.7 million, respectively. Financing activities consisted primarily of net proceeds of approximately $57.2 million from the Company's December 1996 follow-on public offering of 2,516,300 shares of common stock net of repayments of long-term debt of $3.4 million. Debt repayments included $2.3 million to retire third party debt assumed during the August 1996 acquisition of State and Federal Associates, Inc. Investing activities consisted of net purchases of marketable securities of $37.5 million and capital expenditures. The Company has invested approximately $22.0 million in fiscal 1997 for capital expenditures related to facility expansion and investments in information systems technology and expects to invest approximately $25.0 million in the next twelve months. The Company has domestic and foreign lines of credit with banks totaling approximately $12.5 million, and a capital lease line of credit with a U.S. bank for $2.4 million. At June 30, 1997, the Company had approximately $13.7 million in available credit under these arrangements. The Company's primary short-term and long-term cash needs are for the payment of the salaries and fringe benefits, hiring and recruiting expenses, business development costs, capital expenditures and facility-related expenses. The Company believes that its existing capital resources together with cash flows from operations and borrowing capacity under existing lines of credit, will be sufficient to meet its foreseeable cash needs. In the future, the Company will consider acquiring businesses to enhance its service offerings, therapeutic base, and global presence. Any such acquisitions may require additional external financing, and the Company may from time to time seek to obtain funds from public or private issuances of equity or debt securities. There can be no assurance that such financing will be available on terms acceptable to the Company. The statements included in Management's Discussion and Analysis of Financial Condition and Results of Operations include forward-looking statements which involve risks and uncertainties. The Company's actual experience may differ materially from that discussed above. Factors that might cause such a difference include, but are not limited to, the loss or delay of large contracts, the Company's dependence on certain industries and clients and government regulation of such industries and clients, competition or consolidation within the industry, as well as those discussed in "Risk Factors" in the Company's Annual Report on Form 10-K. 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 February 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share." This statement establishes and simplifies standards for computing and presenting earnings per share. SFAS No. 128 will be effective for the Company's second quarter of fiscal 1998 and requires the restatement of all previously reported earnings per share data presented. Early adoption of this Statement is not permitted. SFAS No. 128 replaces primary and fully diluted earnings per share with basic and diluted earnings per share. The Company expects that basic and diluted earnings per share amounts will not be materially different from the Company's primary and fully diluted earnings per share amounts. In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components in the consolidated financial statements. SFAS No. 131 establishes standards for reporting information on operating segments in interim and annual financial statements. Both statements are effective for the Company for fiscal 1999. 19 5 CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, (in thousands, except share data) 1997 1996 1995 --------- --------- --------- Revenue $ 207,840 $ 121,869 $ 79,928 Reimbursed costs (48,161) (33,863) (21,355) --------- --------- -------- NET REVENUE 159,679 88,006 58,573 --------- --------- -------- Costs and expenses: Direct costs 108,939 60,141 42,140 Selling, general and administrative 32,055 19,027 13,294 Depreciation and amortization 5,014 2,343 2,251 Impairment of long-lived assets -- -- 11,253 --------- --------- -------- 146,008 81,511 68,938 --------- --------- -------- INCOME (LOSS) FROM OPERATIONS 13,671 6,495 (10,365) Interest income 3,465 1,297 213 Interest expense (185) (162) (172) Other income (expense), net (7) 22 14 --------- --------- -------- 3,273 1,157 55 --------- --------- -------- Income (loss) before provision for income taxes 16,944 7,652 (10,310) Provision for income taxes 6,096 3,053 320 --------- --------- -------- NET INCOME (LOSS) $ 10,848 $ 4,599 $(10,630) ========= ========= ======== Net income (loss) per share $ 0.57 $ 0.34 $ (6.31) ========= ========= ======== Weighted average common and common equivalent shares outstanding 18,938 13,560 1,686 ========= ========= ========
The accompanying notes are an integral part of the consolidated financial statements. 20 6 CONSOLIDATED BALANCE SHEETS
JUNE 30, ($ in thousands, except share data) 1997 1996 --------- --------- ASSETS Current assets: Cash and cash equivalents: Unrestricted $ 28,368 $ 16,243 Restricted 1,967 858 Marketable securities 66,891 29,319 Accounts receivable, net 63,009 39,277 Other current assets 11,632 6,905 --------- --------- Total current assets 171,867 92,602 Property and equipment, net 27,530 8,193 Other assets 1,604 1,606 --------- --------- $ 201,001 $ 102,401 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable and current portion of long-term debt $ 1,135 $ 762 Accounts payable 7,999 7,003 Advance billings 32,592 20,008 Other current liabilities 19,680 11,401 --------- --------- Total current liabilities 61,406 39,174 Long-term debt 55 360 Other liabilities 1,715 1,655 --------- --------- Total liabilities 63,176 41,189 --------- --------- Commitments and contingencies Stockholders' equity: Preferred stock - $.01 par value; shares authorized: 5,000,000 -- -- Common stock - $.01 par value; shares authorized: 50,000,000 at June 30, 1997, and 25,000,000 at June 30, 1996; shares issued: 20,066,867 at June 30, 1997, and 15,654,220 at June 30, 1996; shares outstanding: 20,037,455 at June 30, 1997, and 15,624,808 at June 30, 1996 200 156 Additional paid-in capital 131,421 66,213 Retained earnings (accumulated deficit) 6,977 (5,199) Cumulative translation adjustment (773) 42 --------- --------- Total stockholders' equity 137,825 61,212 --------- --------- $ 201,001 $ 102,401 ========= =========
The accompanying notes are an integral part of the consolidated financial statements. 21 7 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Convertible Preferred Stock Common Stock --------------------- ---------------------------------- Retained Additional Earnings Stock Number Issuance Number Par Paid-In (Accumulated Subscriptions ($ in thousands, except share data) of Shares Price, Net of Shares Value Capital Deficit) Receivable ---------- -------- ---------- ---- ----------- ------- ------ BALANCE AT JUNE 30, 1994 2,327,744 $ 23,683 1,646,090 $ 16 $ 350 $ 1,804 $(163) Shares issued under stock option plans 43,972 2 64 Repurchase of common shares (2,746) (17) Proceeds from stock subscriptions receivable 6 Foreign currency translation Net loss (10,630) ---------- -------- ---------- ---- ----------- ------- ------ BALANCE AT JUNE 30, 1995 2,327,744 23,683 1,687,316 18 397 (8,826) (157) Convertible preferred stock issued upon exercise of warrants 176,887 1,769 Proceeds from stock subscriptions receivable 157 Conversion of preferred stock into common upon initial public offering (2,504,631) (25,452) 8,956,016 88 25,364 Payment of accrued preferred stock dividends (940) Net proceeds from public offerings 4,200,000 42 36,845 Shares issued under stock option plans 619,840 6 405 Acquisitions 161,636 2 144 (76) Income tax benefit from exercise of stock options 3,058 Net unrealized gain on marketable securities 44 Foreign currency translation Net income 4,599 ---------- -------- ---------- ---- ----------- ------- ------ BALANCE AT JUNE 30, 1996 - - 15,624,808 156 66,213 (5,199) - Net proceeds from public offering 2,516,300 25 57,161 Shares issued under stock option plans 524,122 5 1,427 Shares issued under employee stock purchase plan 154,384 2 1,743 Income tax benefit from exercise of stock options 4,527 Income tax benefit from building acquisition 320 Net unrealized gain on marketable securities 97 Acquisitions 1,217,841 12 30 1,231 Foreign currency translation Net income 10,848 ---------- -------- ---------- ---- ----------- ------- ------ Balance at June 30, 1997 - - 20,037,455 $200 $131,421 $ 6,977 - ========== ======== ========== ==== =========== ======= ======
The accompanying notes are an integral part of the consolidated financial statements. 22 8
Total Cumulative Stock- Translation Holders' ($ in thousands, except share data) Adjustment Equity ------- -------- BALANCE AT JUNE 30, 1994 $ (454) $ 25,236 Shares issued under stock option plans 66 Repurchase of common shares (17) Proceeds from stock subscriptions receivable 6 Foreign currency translation 863 863 Net loss (10,630) ------ -------- BALANCE AT JUNE 30, 1995 409 15,524 Convertible preferred stock issued upon exercise of warrants 1,769 Proceeds from stock subscriptions receivable 157 Conversion of preferred stock into common upon initial public offering - Payment of accrued preferred stock dividends (940) Net proceeds from public offerings 36,887 Shares issued under stock option plans 411 Acquisitions 70 Income tax benefit from exercise of stock options 3,058 Net unrealized gain on marketable securities 44 Foreign currency translation (367) (367) Net income 4,599 ------- -------- BALANCE AT JUNE 30, 1996 42 61,212 Net proceeds from public offering 57,186 Shares issued under stock option plans 1,432 Shares issued under employee stock purchase plan 1,745 Income tax benefit from exercise of stock options 4,527 Income tax benefit from building acquisition 320 Net unrealized gain on marketable securities 97 Acquisitions 1,273 Foreign currency translation (815) (815) Net income 10,848 ------- -------- Balance at June 30, 1997 $ (773) $137,825 ======= ========
The accompanying notes are an integral part of the consolidated financial statements. 22 (continued) 9 CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, ($ in thousands) 1997 1996 1995 --------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 10,848 $ 4,599 $(10,630) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 5,014 2,343 2,251 Restructuring transactions -- (135) (683) Impairment of long-lived assets -- -- 11,253 Change in assets and liabilities, net of effects from acquisitions: Restricted cash (1,109) 502 (929) Accounts receivable, net (20,727) (15,086) (281) Other current assets (2,697) 54 (1,395) Other assets (882) (144) (79) Accounts payable (50) 4,605 256 Advance billings 12,168 6,383 3,953 Other current liabilities 11,473 3,347 1,932 Other liabilities 782 (18) 56 --------- --------- --------- Net cash provided by operating activities 14,820 6,450 5,704 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of marketable securities (118,698) (131,903) (3,510) Proceeds from sale of marketable securities 81,223 104,128 2,710 Cash related to acquisition activities 781 52 -- Purchase of property and equipment (22,018) (5,039) (1,460) --------- --------- --------- Net cash used by investing activities (58,712) (32,762) (2,260) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of convertible preferred stock -- 1,769 -- Proceeds from issuance of common stock 60,363 37,298 66 Cash received from stock subscriptions -- 157 6 Purchase of treasury stock -- -- (17) Repayments of long-term debt (3,378) (889) (684) Dividends on convertible preferred stock -- (940) -- --------- --------- --------- Net cash provided (used) by financing activities 56,985 37,395 (629) --------- --------- --------- Effect of exchange rate changes on unrestricted cash and cash equivalents (968) (155) 134 --------- --------- --------- Net increase in unrestricted cash and cash equivalents 12,125 10,928 2,949 Unrestricted cash and cash equivalents at beginning of year 16,243 5,315 2,366 --------- --------- --------- Unrestricted cash and cash equivalents at end of year $ 28,368 $ 16,243 $ 5,315 ========= ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $ 194 $ 165 $ 179 Income taxes $ 1,226 $ 1,649 $ 565 SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES: Property and equipment acquired under capital lease obligations -- $ 536 $ 1,265 Income tax benefit from exercise of stock options $ 4,527 $ 3,058 -- Income tax benefit from building acquisition $ 320 -- --
The accompanying notes are an integral part of the consolidated financial statements. 23 10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. DESCRIPTION OF BUSINESS The Company is a leading contract research organization ("CRO") 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, information technology, industry training and publishing, and other drug development consulting services. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of PAREXEL International Corporation and its wholly-owned domestic and foreign subsidiaries. In fiscal year 1997, the Company's French subsidiary changed its fiscal year end to June 30, which resulted in a 13-month year. The additional month is included in the fiscal year 1997 results of operations and does not materially affect the Company's consolidated financial statements. For fiscal year 1997, the Company's German subsidiary operated on a fiscal year that ended May 31. For fiscal years 1996 and 1995, the Company's German and French subsidiaries operated on a fiscal year that ended May 31. All significant intercompany accounts and transactions have been eliminated. ACCOUNTING ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. Actual results may differ from those estimates. REVENUE Fixed price contract revenue is recognized using the percentage-of-completion method based on the ratio that costs incurred to date bear to estimated total costs at completion. Revenue from other contracts is recognized as services are provided. Revenue related to contract modifications is recognized when realization is assured and the amounts are reasonably determinable. Adjustments to contract cost estimates are made in the periods in which the facts that require the revisions become known. When the revised estimate indicates a loss, such loss is provided in the current period in its entirety. "Unbilled accounts receivable" represents revenue recognized in excess of amounts billed. "Advance billings" represents amounts billed in excess of revenue recognized. INVESTIGATOR FEES Investigator fees are accrued as investigator services are rendered. The timing of payments to investigators is determined by reference to predetermined contractual arrangements, which may differ from the accrual of the expense. Payments to investigators in excess of amounts accrued are classified as prepaid expenses included in other current assets, and accrued expenses in excess of amounts paid are classified as other current liabilities. CASH, CASH EQUIVALENTS, MARKETABLE SECURITIES, AND FINANCIAL INSTRUMENTS The Company considers all highly liquid debt instruments purchased with original maturities of three months or less to be cash equivalents. 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. Any unrealized gains or losses are recorded as part of stockholders' equity. Restricted cash consists of advances and deposits from customers subject to certain restrictions. The Company occasionally purchases securities with seven-day put options 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 $2.7 million of securities were subject to seven-day put options at June 30, 1997, and $1.0 million at June 30, 1996. The Company does not hold derivative instruments for trading purposes. CONCENTRATION OF CREDIT RISK Financial instruments which potentially expose the Company to concentrations of credit risk include trade accounts receivable. However, such risk is limited due to the large number of clients and their international dispersion. In addition, the Company maintains reserves for potential credit losses and such losses, in the aggregate, have not exceeded management expectations. One customer accounted for 11% of the Company's consolidated net revenue for the year ended June 30, 1997. No single customer accounted for more than 10% of the Company's consolidated net revenue for the years ended June 30, 1996 and 1995. 24 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) PROPERTY AND EQUIPMENT Property and equipment is stated at cost. Depreciation is provided on the straight-line method over the estimated useful lives of the assets ranging from three to eight years. Leasehold improvements are amortized over the lesser of the estimated useful lives of the improvements or the remaining lease term. Repair and maintenance costs are charged to expense as incurred. INTANGIBLE ASSETS Intangible assets consist principally of goodwill, customer lists, covenants not to compete, and other intangible assets attributable to businesses acquired. Goodwill represents the excess of the cost of businesses acquired over the fair value of the related net assets at the date of acquisition. Intangible assets are amortized using the straight-line method over their expected useful lives. Goodwill and other intangibles are currently being amortized over five to ten years. IMPAIRMENT OF LONG-LIVED ASSETS The Company periodically assesses the recoverability of the carrying amount of long-lived assets, including intangible assets. A loss is recognized when expected future cash flows (undiscounted and without interest) are less than the carrying amount of the asset. The amount of the impairment loss is determined as the difference by which the carrying amount of the asset exceeds the fair value of the asset. INCOME TAXES The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109. Deferred 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 prevailing during the year. Translation adjustments are accumulated in a separate component of stockholders' equity. Realized gains and losses recorded in the statements of operations were not material. NET INCOME (LOSS) PER SHARE Net income (loss) per share is calculated based on the weighted average number of common shares and common equivalent shares assumed outstanding during the period. Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 83, certain common and common equivalent shares issued by the Company during the twelve months immediately preceding the initial filing of the registration statement relating to the Company's initial public offering have been included in the calculation of weighted average shares, using the treasury stock method and the initial public offering price, as if these shares were outstanding for all periods prior to the initial public offering. STOCK-BASED COMPENSATION In October 1995, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation." As permitted by SFAS No. 123, the Company has elected to continue to follow the accounting provisions of Accounting Principles Board Opinion (APBO) No. 25, "Accounting for Stock Issued to Employees," and furnish pro forma disclosures. Since the exercise price of the Company's stock options was equal to the market price of the underlying stock on the date of grant, no compensation expense was recognized. RECENTLY ISSUED ACCOUNTING STANDARDS In February 1997, the FASB issued SFAS No. 128, "Earnings per Share." This statement replaces primary and fully diluted earnings per share with basic and diluted earnings per share. SFAS No. 128 will be effective for the Company's second quarter of fiscal 1998 and requires the restatement of all previously reported earnings per share data presented. Early adoption of this Statement is not permitted. The Company expects that basic and diluted earnings per share amounts will not be materially different from the Company's primary and fully diluted earnings per share amounts. In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components in the consolidated financial statements. SFAS No. 131 establishes standards for reporting information on operating segments in interim and annual financial statements. Both statements are effective for the Company for fiscal 1999. 25 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS In the third quarter of fiscal 1995, PAREXEL GmbH's operations suffered a decline in net revenue resulting in a net loss for the period. Also during the third quarter, drug development regulations in Germany and Europe were modified and further changes were being contemplated, all of which were expected to have a detrimental impact on PAREXEL GmbH's operations. Considering the cumulative impact of the above-described factors, management assessed the realizability of the long-lived assets of PAREXEL GmbH. In accordance with its accounting policy for impaired long-lived assets, management prepared a forecast of PAREXEL GmbH's expected future cash flows on an undiscounted basis and without interest charges, based upon assumptions developed by management using PAREXEL GmbH's historical experience as well as the best estimate of future trends and events. The sum of the forecasted cash flows from management's model was less than the carrying amount of PAREXEL's investment in PAREXEL GmbH. To assess the fair value of PAREXEL GmbH, a discounted cash flow valuation technique was utilized with a discount rate of approximately 19.5% based upon PAREXEL GmbH's calculated cost of capital. The results of this calculation indicated a de minimus valuation; and accordingly, the Company recorded an impairment loss on long-lived assets of $11.3 million in fiscal 1995. NOTE 4. ACQUISITIONS In February 1997, the Company acquired, in separate transactions, RESCON, Inc., a medical marketing consulting business located in the Washington, D.C. area, and Sheffield Statistical Services, Ltd. (S-Cubed), a company located in the United Kingdom that specializes in biostatistical analysis. The Company issued a total of 209,537 shares of common stock in exchange for all the outstanding shares of RESCON and S-Cubed. In August 1996, the Company acquired, in separate transactions, Lansal Clinical Pharmaceutics, Limited (Lansal), a contract research organization located in Israel, and State and Federal Associates, Inc. (S&FA), a medical marketing business located in the Washington, D.C. area. The Company issued 1,008,304 shares of common stock in exchange for all of the outstanding shares of Lansal and S&FA. In June 1996, the Company acquired, in separate transactions, Sitebase Clinical Systems, Inc. (Sitebase), a provider of remote data entry technology, and Caspard Consultants (Caspard), a Paris-based biostatistical and data management consulting company. The Company issued a total of 161,636 shares of common stock in exchange for all of the outstanding shares of Sitebase and Caspard. All of these transactions were accounted for as poolings of interests. The aggregate historical results of operations and financial position of the above acquisitions were not material to the Company's consolidated financial statements. Therefore, prior period amounts have not been restated and results of operations of the acquired companies have been included since the period of acquisition. Pro forma results of the Company, assuming the above acquisitions were made at the beginning of each period presented, would not be materially different from the actual results reported. 26 13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 5. INVESTMENTS Available-for-sale securities included in cash and cash equivalents as of June 30, 1997 and 1996, consisted of the following:
($ in thousands) 1997 1996 - -------------------------------------------------------------------------------- Money market $ 988 $ 2,492 Municipal securities 1,000 10,000 Repurchase agreements 20,210 1,141 - -------------------------------------------------------------------------------- $22,198 $13,633 - --------------------------------------------------------------------------------
Available-for-sale securities included in marketable securities at June 30, 1997, consisted of the following:
AMORTIZED UNREALIZED FAIR ($ in thousands) COST GAINS LOSSES VALUE - --------------------------------------------------------------------------------------- Municipal securities $ 3,785 $ 5 $ (2) $ 3,788 Federal government securities 23,400 -- (1) 23,399 Corporate debt securities 39,565 140 (1) 39,704 - --------------------------------------------------------------------------------------- $ 66,750 $ 145 $ (4) $ 66,891 - ---------------------------------------------------------------------------------------
Available-for-sale securities included in marketable securities at June 30, 1996, consisted of the following:
AMORTIZED UNREALIZED FAIR ($ in thousands) COST GAINS LOSSES VALUE - --------------------------------------------------------------------------------------- Municipal securities $ 16,972 $ 3 $ (34) $ 16,941 Federal government securities 10,344 66 (1) 10,409 Corporate debt securities 1,959 10 -- 1,969 - --------------------------------------------------------------------------------------- $ 29,275 $ 79 $ (35) $ 29,319 - ---------------------------------------------------------------------------------------
The contractual maturity of available-for-sale securities at June 30, 1997, was $67.3 million within one year, $19.1 million over one year and less than five years, and $2.7 million over five years. Proceeds from the maturities and sales of available-for-sale securities amounted to approximately $1.9 billion for the year ended June 30, 1997, $568 million for the year ended June 30, 1996, and $3 million for the year ended June 30, 1995. Purchases amounted to approximately $1.9 billion for the year ended June 30, 1997, $607 million for the year ended June 30, 1996, and $4 million for the year ended June 30, 1995. Gains and losses realized upon the sale of securities (the cost of which is based upon the specific identification method) were not significant. NOTE 6. ACCOUNTS RECEIVABLE Accounts receivable at June 30, 1997 and 1996, consisted of the following:
($ in thousands) 1997 1996 - -------------------------------------------------------------------------------- Billed $ 38,759 $ 21,286 Unbilled 26,961 19,490 Allowance for doubtful accounts (2,711) (1,499) - -------------------------------------------------------------------------------- $ 63,009 $ 39,277 - --------------------------------------------------------------------------------
27 14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 7. PROPERTY AND EQUIPMENT Property and equipment at June 30, 1997 and 1996, consisted of the following:
($ in thousands) 1997 1996 - -------------------------------------------------------------------------------- Computer and office equipment $22,874 $10,527 Computer software 5,304 1,725 Furniture and fixtures 8,876 3,058 Leasehold improvements 2,286 652 Building 2,757 -- - -------------------------------------------------------------------------------- 42,097 15,962 Less accumulated depreciation and amortization 14,567 7,769 - -------------------------------------------------------------------------------- $27,530 $ 8,193 ================================================================================
Included in the above amounts is computer and office equipment acquired under capital lease obligations of approximately $3.6 million at June 30, 1997 and 1996. Accumulated depreciation on computer and office equipment under capital leases totaled approximately $2.4 million and $1.8 million at June 30, 1997 and 1996, respectively. Depreciation and amortization expense relating to property and equipment was approximately $4.9 million, $2.1 million, and $1.7 million for the years ended June 30, 1997, 1996, and 1995, respectively, of which $560,000, $634,000, and $427,000 related to amortization of property and equipment under capital leases. NOTE 8. OTHER CURRENT LIABILITIES Other current liabilities at June 30, 1997 and 1996, consisted of the following:
($ in thousands) 1997 1996 - -------------------------------------------------------------------------------- Accrued compensation and withholdings $ 8,944 $ 4,281 Accrued investigator fees 350 1,565 Other 10,386 5,555 - -------------------------------------------------------------------------------- $19,680 $11,401 ================================================================================
NOTE 9. CREDIT ARRANGEMENTS The Company has domestic and foreign line of credit arrangements with banks totaling approximately $12.5 million. The lines are collateralized by accounts receivable, payable on demand, and bear interest at varying rates that differ from country to country (resulting in interest rates ranging from 4.9% to 9.5% at June 30, 1997). The lines of credit expire at various dates through April 1998 and are renewable. At June 30, 1997, there was approximately $800,000 outstanding under these lines of credit. There were no amounts outstanding at June 30, 1996. The Company has a $2.4 million capital lease line of credit with a U.S. bank for the financing of property and equipment. This line is collateralized by property and equipment. Borrowings under this line are payable over a three-year term with interest fixed at the five-year U.S. Treasury note rate plus 2.5% (8.03% at June 30, 1997). This line of credit expires on November 30, 1997, and is renewable annually. Available capacity under this line was approximately $2.0 million at June 30, 1997. Long-term debt at June 30, 1997 and 1996, consisted of borrowings under the capital lease line. The fair value of debt is estimated based on the market value for similar debt and approximates carrying value at June 30, 1997 and 1996. Aggregate lease obligations bear a weighted average interest rate of approximately 8.3% at June 30, 1997, and 7.9% at June 30, 1996. Long-term debt matures as follows: $26,000 in fiscal 1999 and $29,000 in fiscal 2001. 28 15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 10. STOCKHOLDERS' EQUITY On January 28, 1997, the Board of Directors of the Company declared a two-for-one stock split of the Company's common stock, payable in the form of a 100% stock dividend to be distributed to stockholders of record as of the close of business on February 7, 1997. All share and per share data, including stock and stock option, stock purchase plan, and market price information, included in these consolidated financial statements have been restated to reflect the two-for-one stock split. As of June 30, 1997 and 1996, there were 5 million shares of preferred stock, $0.01 per share, authorized, but none were issued or outstanding. Preferred stock may be issued at the discretion of the Board of Directors (without stockholder approval) with such designations, rights and preferences, as the Board of Directors may determine. There were 29,412 shares of common stock held in treasury as of June 30, 1997 and 1996, at a cost of $17,430. NOTE 11. STOCK AND EMPLOYEE BENEFIT PLANS COMMON STOCK OPTIONS In September 1995, the Company adopted the 1995 Stock Plan (1995 Plan), which provides for the grant of incentive stock options for the purchase of up to an aggregate of 1,000,000 shares of common stock to directors, officers, employees, and consultants of the Company. In November 1996, the Company's stockholders approved an increase in the number of shares issuable under the 1995 Plan from 1,000,000 to 2,000,000 shares. The Stock Option Committee of the Board of Directors is responsible for the administration of the Company's stock option plans and determines the term of each option, the option exercise price, number of shares granted, and the rate that options vest. Options generally expire eight to ten years from the date of grant and generally vest over four to five years. In September 1995, the Company adopted the 1995 Non-Employee Director Stock Option Plan (Director Plan) under which options to purchase an aggregate of 600,000 shares of common stock may be granted to nonemployee directors. On November 21, 1995, nonemployee directors were granted an aggregate of 173,000 options (initial options). The initial options became exercisable on June 30, 1996. Other options granted under the Director Plan vest ratably in three equal annual installments beginning on the first anniversary of the date of grant, subject to certain requirements as defined in the Director Plan. In September 1995, the Board of Directors voted to grant no further options under the 1986 Incentive Stock Option Plan, the 1987 Stock Plan, and the 1989 Stock Plan and to reduce the number of shares authorized for those plans to the number of options outstanding at that time. 29 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Aggregate stock option activity for the two years ended June 30, 1997, was as follows:
WEIGHTED AVERAGE OPTIONS EXERCISE PRICE ------- -------------- Outstanding at June 30, 1995 1,274,906 $ 1.59 Granted 838,000 13.57 Canceled (52,146) 5.03 Exercised (619,840) 0.61 --------- --------- Outstanding at June 30, 1996 1,440,920 $ 8.85 Granted 410,500 24.38 Canceled (31,260) 19.98 Exercised (524,122) 2.75 --------- --------- Outstanding at June 30, 1997 1,296,038 $ 15.97 ========= ========= Exercisable at June 30, 1997 479,153 $ 9.33 ========= ========= Available for future grant at June 30, 1997 1,431,426 ========= =========
Summary information related to options outstanding and exercisable as of June 30, 1997, is as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE --------------------------------------------------------- ----------------------------- WEIGHTED AVERAGE WEIGHTED WEIGHTED OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE RANGE OF EXERCISE AS OF CONTRACTUAL LIFE EXERCISE AS OF EXERCISE PRICES 6/30/97 (YEARS) PRICE 6/30/97 PRICE - ----------------- ----------- ---------------- -------- ----------- -------- $ 0.30 - 10.00 472,188 7.07 $ 6.22 377,136 $ 6.01 10.01 - 20.00 406,650 8.79 18.50 49,750 18.31 20.01 - 27.25 417,200 9.30 24.54 52,267 24.69 -------------- --------- ---- ------ ------- ------ 1,296,038 8.33 $15.97 479,153 $ 9.33 ============== ========= ==== ====== ======= ======
The fair value for options granted was estimated at the time of the grant using the Black-Scholes option pricing model with the following weighted-average assumptions for the two years ended June 30, 1997: Risk free interest rate of 6.17%, dividend yield of 0.0%, volatility factor of the expected market price of the Company's common stock of 45%, and an average expected life of the option of one year from the date of vesting. Under these assumptions, the estimated weighted-average fair value of options granted during the fiscal years ended June 30, 1997 and 1996, was $11.81 and $7.05, respectively. EMPLOYEE STOCK PURCHASE PLAN In September 1995, the Company adopted the 1995 Employee Stock Purchase Plan (the Purchase Plan). Under the Purchase Plan, employees have the opportunity to purchase common stock at 85% of the average market value on the first or last day of the plan period (as defined by the Purchase Plan), whichever is lower, up to specified limits. An aggregate of 600,000 shares may be issued under the Purchase Plan. 30 17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Had compensation cost for the Company's stock options and the Purchase Plan been determined based on the fair value at the date of grant, as prescribed in SFAS 123, the Company's net income and net income per share would have been as follows:
($ in thousands, except per share data) 1997 1996 - --------------------------------------- ---- ---- Pro forma net income $ 9,058 $ 3,597 Pro forma net income per share $ 0.48 $ 0.27
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 reported operations for future years. 401(k) PLAN The Company sponsors an employee savings plan (the Plan) as defined by Section 401(k) of the Internal Revenue Code of 1986, as amended. The Plan covers substantially all employees in the U.S. who elect to participate. Participants have the opportunity to invest on a pre-tax basis in a variety of mutual fund options. The Company matches 100% of each participant's voluntary contributions up to 3% of gross salary per payroll period. Company contributions vest to the participants in 20% increments for each year of employment and become fully vested after five years of continuous employment. Company contributions to the Plan were $1,053,000, $526,000, and $327,000 for the years ended June 30, 1997, 1996, and 1995, respectively. NOTE 12. INCOME TAXES Domestic and foreign income (loss) before income taxes for the three years ended June 30, 1997, are as follows:
($ in thousands) 1997 1996 1995 - ---------------- ---- ---- ---- Domestic $10,835 $ 5,526 $ 350 Foreign 6,109 2,126 (10,660) ------- -------- -------- $16,944 $ 7,652 $(10,310) ======= ======== ========
The provision for income taxes for the three years ended June 30, 1997, are as follows:
($ in thousands) 1997 1996 1995 - ---------------- ---- ---- ---- Current: Federal $ 4,085 $ 2,202 $ 274 State 1,003 636 192 Foreign 1,444 427 78 ------- ------- ----- 6,532 3,265 544 ------- ------- ----- Deferred: Federal (175) (157) (164) State (67) (52) (55) Foreign (194) (3) (5) ------- ------- ----- (436) (212) (224) ------- ------- ----- $ 6,096 $ 3,053 $ 320 ======= ======= =====
31 18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The Company's consolidated effective income tax rate differed from the U.S. federal statutory income tax rate as set forth below:
($ in thousands) 1997 1996 1995 - ---------------- ---- ---- ---- Income tax expense (benefit) at the federal statutory rate $ 5,931 $ 2,602 $(3,505) State income taxes, net of federal benefit 968 460 92 Foreign rate differential 107 (234) (108) Utilization of foreign net operating losses carryforwards (1,118) -- -- Nondeductible amortization of intangible assets 45 45 169 Nondeductible impairment of assets -- -- 3,348 Foreign operating losses without current benefit 142 26 334 Other 21 154 (10) ------- ------- ------- $ 6,096 $ 3,053 $ 320 ======= ======= =======
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, 1997 and 1996, are as follows:
($ in thousands) 1997 1996 - ---------------- ---- ---- Deferred tax assets: Foreign loss carryforwards $ 5,173 $ 6,048 Accrued expenses 943 497 Property and equipment -- 486 Allowance for doubtful accounts 816 491 Other 530 477 ------- ------- Gross deferred tax assets 7,462 7,999 Deferred tax asset valuation allowance (3,372) (5,926) ------- ------- Total deferred tax assets 4,090 2,073 ------- ------- Deferred contract profit (803) (274) Property and equipment (730) -- Other (96) (292) ------- ------- Total deferred tax liabilities (1,629) (566) ------- ------- $ 2,461 $ 1,507 ======= =======
The net deferred tax assets are included in the consolidated balance sheet as of June 30, 1997 and 1996, as follows:
($ in thousands) 1997 1996 - ---------------- ---- ---- Other current assets $ 3,011 $1,255 Other assets -- 252 Other current liabilities (466) -- Other liabilities (84) -- ------- ------ $ 2,461 $1,507 ======= ======
The net deferred tax asset includes the tax effect of approximately $11 million of pre-acquisition and post-acquisition foreign tax loss carryforwards available to offset future liabilities for foreign income tax. Substantially all of the foreign tax losses are carried forward indefinitely, subject to certain limitations. A valuation allowance has been established for the future foreign income tax benefits primarily related to income tax loss carryforwards and temporary differences based on management's assessment that it is more likely than not that such benefits will not be realized. Principally due to the use of previously reserved foreign net operating loss carryforwards, the Company's valuation allowance decreased to approximately $3.4 million at June 30, 1997, from approximately $5.9 million at June 30, 1996. The ultimate realization of the remaining loss carryforwards is dependent upon the generation of sufficient taxable income in respective jurisdictions, primarily Germany. 32 19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 13. GEOGRAPHIC INFORMATION The Company's operations involve a single industry segment providing clinical research and development services. The principal financial information by geographic area for the three years ended June 30, 1997, is as follows:
($ in thousands) 1997 1996 1995 - ---------------- ---- ---- ---- Net revenue: North America $102,913 $ 54,179 $ 35,037 Europe 53,599 32,834 23,443 Asia/Pacific 3,167 993 93 -------- --------- -------- $159,679 $ 88,006 $ 58,573 ======== ========= ======== Income (loss) from operations: North America $ 9,859 $ 5,405 $ 1,166 Europe 3,639 1,266 (11,531) Asia/Pacific 173 (176) -- -------- --------- -------- $ 13,671 $ 6,495 $(10,365) ======== ========= ======== Identifiable assets: North America $170,689 $ 77,493 $ 25,288 Europe 29,619 24,752 17,927 Asia/Pacific 693 156 35 -------- --------- -------- $201,001 $ 102,401 $ 43,250 ======== ========= ========
NOTE 14. LEASES The Company leases its facilities under operating leases which include renewal and escalation clauses. Total rent expense was approximately $8.0 million, $5.1 million, and $4.3 million for years ended June 30, 1997, 1996, and 1995, respectively. Future minimum lease payments due under noncancelable operating leases and capital lease obligations are as follow:
CAPITAL OPERATING ($ in thousands) LEASES LEASES - ---------------- ------- --------- 1998 $352 $12,000 1999 26 11,452 2000 -- 9,328 2001 30 8,132 2002 -- 4,204 Thereafter -- 1,033 ---- ------- Total obligations 408 $46,149 ---- ------- Less amount representing interest 16 ---- ------- $392 ==== =======
NOTE 15. RELATED PARTY TRANSACTIONS Certain of the Company's Directors are related with certain of the Company's customers. Net revenue recognized from these customers was $13.1 million, $8.1 million, and $3.0 million in fiscal 1997, 1996, and 1995, respectively. Amounts included in accounts receivable at June 30, 1997 and 1996, were $3.3 million and $1.9 million, respectively. Related party amounts included in accounts receivable are on standard terms and manner of settlement. 33 20 REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF PAREXEL INTERNATIONAL CORPORATION In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of stockholders' equity, and of cash flows present fairly, in all material respects, the financial position of PAREXEL International Corporation and its subsidiaries at June 30, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP Boston, Massachusetts August 6, 1997 34 21 QUARTERLY OPERATING RESULTS & COMMON STOCK INFORMATION (UNAUDITED) The following is a summary of unaudited quarterly results of operations for the years ended June 30, 1997 and 1996:
FOR THE YEAR ENDED JUNE 30, 1997 ($ in thousands, except share data) FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER - ----------------------------------- ------------- -------------- ------------- -------------- Net revenue $ 33,030 $ 37,169 $ 42,261 $ 47,219 Income from operations 2,709 3,122 3,656 4,184 Net income 1,936 2,273 3,117 3,522 Net income per share 0.11 0.13 0.15 0.17 Range of common stock prices (1) $15.50 - 31.50 $22.88 - 31.88 $21.75 - 34.00 $19.50 - 34.00
FOR THE YEAR ENDED JUNE 30, 1996 ($ in thousands, except share data) FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER - ----------------------------------- ------------- -------------- ------------- -------------- Net revenue $17,973 $ 20,616 $ 22,507 $ 26,910 Income from operations 1,159 1,445 1,736 2,155 Net income 742 956 1,297 1,604 Net income per share 0.07 0.08 0.09 0.10 Range of common stock prices (1) na $9.38 - 18.00(2) $13.00 - 22.25 $18.75 - 27.88
(1) The range of common stock prices is based on the high and low sales price on the Nasdaq National Market for the periods indicated. (2) Stock prices for the Second Quarter of fiscal 1996 represent the period from the date of the Company's initial offering, November 22, 1995, through December 31, 1995. The Company's common stock is quoted on the Nasdaq National Market under the symbol "PRXL." As of September 19, 1997, there were approximately 77 stockholders of record and approximately 5,500 beneficial stockholders. The Company has never declared or paid any cash dividends on its common stock and does not anticipate paying any cash dividends in the foreseeable future. The Company intends to retain future earnings for the development and expansion of its business. SELECTED FINANCIAL DATA
(in thousands, except share data and number of employees) 1997 1996 1995 1994 1993 - -------------------------------- ---- ---- ---- ---- ---- OPERATIONS Net revenue $159,679 $ 88,006 $ 58,573 $58,002 $ 54,000 Income (loss) from operations 13,671 6,495 (10,365)(3) 3,692 298(1) Net income (loss) 10,848 4,599 (10,630) 2,423(2) (2,157) Net income (loss) per share $ 0.57 $ 0.34 $ (6.31) $ 0.22 $ (1.49) FINANCIAL POSITION Cash, cash equivalents and marketable securities $ 95,259 $ 45,562 $ 6,815 $ 3,066 $ 8,669 Working capital 110,461 53,428 11,574 10,885 7,161 Total assets 201,001 102,401 43,250 45,936 45,457 Long-term debt 55 360 633 391 222 Stockholders' equity $137,825 $ 61,212 $ 15,524 $25,236 $ 21,847 OTHER DATA Investment in property and equipment $ 22,018 $ 5,039 $ 1,460 $ 1,979 $ 1,699 Depreciation and amortization $ 5,014 $ 2,343 $ 2,251 $ 2,435 $ 2,511 Number of employees 2,412 1,344 726 723 641 Average common and common equivalent shares (4) 18,938 13,560 1,686 11,494 1,454
(1) Income from operations includes a $3.3 million charge in connection with a restructuring of operations in Germany. (2) Net income includes $500,000 related to the cumulative effect of adopting Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." (3) Loss from operations includes an $11.3 million noncash charge due to the write-down of impaired long-lived assets of the Company's German operations. Income from operations on a pro forma basis excluding the impact of this charge was $303,000. See Note 3 to Consolidated Financial Statements entitled, "Impairment of Long-Lived Assets," to Consolidated Financial Statements for a description of this matter. (4) For the years ended June 30, 1993 and 1995, weighted average common shares outstanding exclude common share equivalents (primarily convertible preferred stock), as the inclusion of which would have had an anti-dilutive effect. 35 EX-21.1 5 SUBSIDIARIES 1 EXHIBIT 21.1 PAREXEL INTERNATIONAL CORPORATION LIST OF SUBSIDIARIES OF THE COMPANY
PAREXEL OWNERSHIP(1) Barnett International Corporation, a Massachusetts corporation 100% PAREXEL International Holding Corporation, a Delaware corporation 100% PAREXEL International Securities Corporation, a Massachusetts corporation 100% PAREXEL International Inc., a Delaware corporation 100% PAREXEL Unternehmensbeteiligung GmbH, a corporation organized under the laws of Germany 100% PAREXEL GmbH Independent Pharmaceutical Research Organization, a corporation organized under the laws of Germany 100% PAREXEL International Limited, a corporation organized under the laws of the United Kingdom 100% AFB CLINLAB Laborleistungs Organisationsgesellschaft GmbH, a corporation organized under the laws of Germany 100% PAREXEL International SARL, a corporation organized under the laws of France 100% PAREXEL International SRL, a corporation organized under the laws of Italy 100% PAREXEL International Pty Ltd, a corporation organized under the laws of Australia 100% PAREXEL International S.L., a corporation organized under the laws of Spain 100% State and Federal Associates, Inc., a Virginia corporation 100% PAREXEL International (Lansal) Limited, a corporation organized under the laws of Israel 100% Caspard Consultants, a corporation organized under the laws of France 100% Sitebase Clinical Systems, Inc., a Massachusetts corporation 100% Rescon, Inc., a Virginia corporation Sheffield Statistical Services, a corporation organized under the laws of the United Kingdom 100% Pharmon , Ltd., a corporation organized under the law of Liechtenstein 100% CLINNET, a corporation organized under the law of the United Kingdom 100% PAREXEL ETT S.L., a corporation organized under the law of Spain 100%
(1) Direct and indirect EX-23.1 6 CONSENT OF PRICE WATERHOUSE L.L.P. 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statements on Form S-3 (File Nos. 333-19751 and 333-27487) and the Registration Statements on Form S-8 (File Nos. 33-80301 and 333-16205) of PAREXEL International Corporation and its subsidiaries of our report dated August 6, 1997, appearing on page 34 of PAREXEL International Corporation's Annual Report to Stockholders, which is incorporated by reference in this Annual Report on Form 10-K. We also consent to the application of such report to the Financial Statement Schedule for the three years ended June 30, 1997 listed under Item 14(a) when such schedule is read in conjunction with the financial statements referred to in our report. The audit referred to in such report included this Financial Statement Schedule. PRICE WATERHOUSE LLP Boston, Massachusetts September 26, 1997 EX-27.1 7 FINANCIAL DATA SCHEDULE
5 1,000 YEAR JUN-30-1997 JUL-01-1996 JUN-30-1997 30,335 66,891 65,720 2,711 0 171,867 42,097 14,567 201,001 61,406 0 0 0 200 137,625 201,001 0 159,679 0 108,939 0 1,452 185 16,944 6,096 10,848 0 0 0 10,848 0.57 0.57
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