-----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, DiGiCzw933xRd5Ab6gZbZrXWFntFuHDY+Ev4Xh4hG7lTBeetjgnC0WYHe4FbD0A1 SA+lga0WdAKYvFlmNkW8NQ== 0000950135-96-004146.txt : 19960930 0000950135-96-004146.hdr.sgml : 19960930 ACCESSION NUMBER: 0000950135-96-004146 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960927 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-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-27058 FILM NUMBER: 96636291 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-K405 1 PAREXEL INTERNATIONAL 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 (FEE REQUIRED) For the fiscal year ended June 30, 1996 -------------------- 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 04-2776264 (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 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) 1 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 5-K is not contained hereto, and will not be contained to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ State the aggregate market value of the voting stock held by non-affiliates of the registrant: The aggregate market value of Common Stock held by non-affiliates was $387,890,464 as of September 20, 1996. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as the latest practicable date: As of September 20, 1996, there were 8,448,868 shares of the registrant's Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Specified portions of the Registrant's 1996 Annual Report to Stockholders for the fiscal year ended June 30, 1996 are incorporated by reference into Parts II and IV of this report. Specified portions of the Registrant's Proxy Statement dated October 8, 1996 for the annual meeting of stockholders to be held on November 14, 1996 are incorporated by reference into Part III of this report. (End of cover page) 3 PAREXEL INTERNATIONAL CORPORATION FORM 10-K ANNUAL REPORT INDEX
Page ---- PART I. Item 1. Business 3 Item 2. Properties 15 Item 3. Legal Proceedings 15 Item 4. Submission of Matters to a Vote of Security Holders 15 PART II Item 5. Market for Registrant's Common Equity and Related 16 Stockholder Matters Item 6. Selected Financial Data 16 Item 7. Management's Discussion and Analysis of Financial 16 Condition and Results of Operations Item 8. Financial Statements and Supplementary Data 22 Item 9. Changes in and Disagreements with Accountants on 22 Accounting and Financial Disclosure PART III Item 10. Directors and Executive Officers of the Registrant 22 Item 11. Executive Compensation 22 Item 12. Security Ownership of Certain Beneficial Owners 22 and Management Item 13. Certain Relationships and Related Transactions 22 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 22 SIGNATURES 28
2 4 PART I ITEM 1. BUSINESS GENERAL PAREXEL is a leading contract research organization ("CRO"), providing clinical research and development services to the worldwide pharmaceutical and biotechnology industries. The Company complements the research and development departments of pharmaceutical and biotechnology companies by offering high quality clinical research services to the client and reducing drug development time and cost. In addition, the Company's integrated services and extensive information technology capabilities coupled with its broad experience and expertise in global drug development provide clients with a variable cost alternative to the fixed costs associated with internal drug development. The Company offers a full complement of integrated product development services, including designing, initiating and monitoring clinical trials, managing and analyzing clinical data and consulting on regulatory affairs. The Company, founded in 1983 as a regulatory consulting firm, has built its business both through internal expansion and acquisitions. In 1988, the Company acquired Consulting Statisticians Inc., a leading biostatistics and data management provider specializing in the healthcare industry. In 1989, the Company initiated its international expansion by acquiring the London-based McDonnell Douglas Clinical Trials Analysis Division, a division of McDonnell Douglas Information Systems Ltd., which provided biostatistics and data management services in Europe. In 1990, the Company acquired Barnett Associates, Inc. to expand its Information Products Division, through which the Company offers a range of specialized clinical consulting and training services and related products. In 1991, the Company acquired AFB Arzneimittelforschung GmbH in Berlin, a European CRO based in Berlin, with offices in Frankfurt and Paris. In June 1996, the Company acquired Sitebase Clinical Systems, Inc., a provider of remote data entry software and Caspard Consultants, a Paris-based CRO. In August, 1996, the Company acquired Lansal Clinical Pharmaceutics Limited, an Israel-based CRO, and State and Federal Associates, Inc., a provider of consulting services to the healthcare and pharmaceutical industries located in Washington, D.C. The Company is headquartered in Waltham, Massachusetts and opened offices in San Diego in 1990, Raleigh-Durham in 1994, Milan, Italy, Kobe, Japan and Sydney, Australia in 1995 and Chicago and Madrid, Spain in 1996. INDUSTRY OVERVIEW The CRO industry provides independent product development services for the pharmaceutical and biotechnology industries. Generally, CROs derive substantially all 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 clinical research process, including pre-clinical evaluations, study design, clinical trial management, data collection and 3 5 biostatistical analysis and product registration support. All of these services are provided in accordance with regulations which govern clinical trials and the drug approval process. The CRO industry is highly 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 expertise and 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, and the development and maintenance of the complex information technology systems required to integrate these capabilities. 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 Company believes that the following trends will lead to further growth opportunities for full-service, global CROs, although there can be no assurance that this growth will materialize: - Cost Containment Pressures. Recently, drug companies have been focusing on more efficient ways of conducting business because of margin pressures stemming from patent expirations, market acceptance of generic drugs and impending regulatory pressures to reduce drug prices. The Company believes that the pharmaceutical industry is responding by consolidating and reducing jobs, centralizing the research and development process and outsourcing to variable cost CROs, thereby reducing the fixed costs associated with internal drug development. - 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. - Consolidation in the Pharmaceutical Industry. The pharmaceutical industry is consolidating as pharmaceutical companies seek to obtain cost reduction synergies through business combinations. Recent announced 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 and 4 6 Roche-Syntex. 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. - 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. 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. - Drug Development Pressures. The Company believes that research and development expenditures have increased as a result of the constant pressure to develop a pipeline of products, and to respond to the demand for products for an aging population and for the treatment of chronic disorders and life-threatening conditions such as infectious diseases, including AIDS. - Biotechnology Industry Growth. The U.S. biotechnology industry has grown rapidly over the last ten years and is introducing significant numbers of new drug candidates which will require regulatory approval. Many biotechnology companies do not have the necessary experience or resources to conduct clinical trials. Accordingly, many of these companies have chosen to outsource to CROs rather than expend significant time and resources to develop an internal clinical development capability. Moreover, the biotechnology industry is rapidly expanding into and within Europe, providing significant growth opportunities for CROs with a global presence. The development of therapies for chronic disorders, such as Alzheimer's disease and arthritis, requires complex clinical trials to demonstrate the therapy's effectiveness and determine whether the drug causes any long-term side effects. PAREXEL'S STRATEGY PAREXEL's objective is to maintain and enhance its position as a leading CRO by providing a full range of clinical services on a global basis. The Company addresses all aspects of clinical research and development with a flexible approach that 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 will continue to invest in improvements in information technology and will consider acquisitions of complementary businesses in order to enhance its competitive position and its level of service. 5 7 Serve the Global Model of New Drug Development The Company believes that its ability to conduct clinical trials worldwide enhances its ability to serve the increasingly global model of drug development. The Company has provided 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 opened offices in Chicago, Kobe, Milan, Raleigh-Durham, Sydney and Madrid. 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. These procedures, together with the Company's information technology, enable the Company to reduce the time involved in preparing regulatory submissions by concurrently compiling and analyzing large volumes of data from multinational trials and preparing regulatory submissions for filings on a global basis. Address All Aspects of Clinical Research; Offer Flexible Menu of Services The Company offers a full range of services that encompasses the clinical research process. The Company believes that its knowledge and experience in all stages of clinical research enhance its credibility with prospective clients. The Company's full range of services and global experience complement the research and development departments 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 AIDS, cancer and 6 8 Alzheimer's. The Company's leadership in AIDS 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 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. This 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. SERVICES The Company provides a full range of clinical research and development services, including clinical trials management, clinical data management, biostatistical analysis, study design and regulatory affairs services, including product registrations with regulatory authorities for its clients. The Company provides services individually or as an integrated package of two or more services. The Company's full range of services and global experience complement the research and development departments of the Company's clients. In addition, the Company's Information Products Division ("IPD") offers specialized clinical consulting and training services and related products. 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 neurology, oncology, gastroenterology, endocrinology, cardiology, hematology, immunology, rheumatology and the study of pulmonary, reproductive and infectious diseases. PAREXEL's multi-disciplinary 7 9 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 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 much 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 staff follow the established protocols of the studies. The Company has adopted standard operating procedures which are intended to satisfy regulatory requirements and serve as a tool for controlling and enhancing the quality of PAREXEL's worldwide clinical services. Clinical trials represent one of the most expensive and time-consuming parts of the overall drug development process. The information generated during these trials is critical for gaining marketing approval from the FDA or other regulatory agencies. PAREXEL's clinical trials management group assists clients with one or more of the following steps: - Study Protocol Design. The protocol defines the medical issues the study seeks to examine and the statistical tests that will be conducted. Accordingly, the protocol defines the frequency and type of laboratory and clinical measures that are to be tracked and analyzed. The protocol also defines the number of patients required to produce a statistically valid result, the period of time over which they must be tracked and the frequency and dosage of drug administration. The study's success depends on the protocol's ability to predict correctly the requirements of the regulatory authority. - Case Report Forms Design. Once the study protocol has been finalized, 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 identified by the drug sponsor or the CRO. The trial's success depends on the successful identification and recruitment of 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. - 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 8 10 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 are entered into an electronic database. The Company's study monitoring and data collection services comply with the FDA's adverse events reporting guidelines. - 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 clinical trial, PAREXEL's physicians can provide a wide range of medical research and consulting services, including medical monitoring of clinical trials. 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 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 in the United States and Europe 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 recently 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 as well as the client's individual objectives. Working with the programming staff, biostatisticians perform appropriate analyses 9 11 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. Regulatory Affairs Services 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. Information Products Division The Company's Information Products Division offers a range of specialized clinical consulting and training services and related products through Barnett International Corporation, a subsidiary of the Company, and through IPD's publications group. Barnett International Corporation is a leader in providing training, conferences, education and management consulting services to the worldwide clinical research community, with extensive experience in organization structure, curriculum design and human resource management in clinical research. The publications group produces several publications covering regulatory issues, including the monthly U.S. Regulatory Reporter (launched in 1984), books such as New Drug Development: A Regulatory Overview and Biologics Development: A Regulatory Overview, and reports such as CANDA: A Regulatory, Technology, and Strategy Report and GCPs in the U.S., E.C., and Nordic Council: An International Comparative Report. Note 13 entitled "Geographic Information" to the Company's Consolidated Financial Statements contains information concerning foreign and domestic operations of PAREXEL. 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 the few CROs that has an extensive and effective global information technology network. The Company has built on its network by developing a 10 12 number of proprietary information systems that address critical aspects of its business, including time management, budgeting and forecasting and on-line clinical information management. The Company recently augmented its systems capabilities with the acquisition of Sitebase Clinical Systems, a leading provider of remote data entry technology. RDE technology has important implications for CROs, including enhancing the accuracy and timeliness of clinical data, thereby shortening customers' time-to-market. The Company's information systems group has 45 employees responsible for technology procurement, applications development and management of the Company's worldwide computer network. The wide area network links ten local area networks, interconnecting approximately 1,300 computers worldwide. The Company's information systems are designed to work in support of and reinforce that Company's standard operating procedures. The Company's information technology system is open and flexible, allowing it to be adapted to the multiple needs of different clients and regulatory systems. This system also enables the Company to respond quickly to client inquiries on the progress of projects and, in some cases, to gain direct access to client data on client systems. SALES AND MARKETING PAREXEL's marketing strategy is to focus on prospective clients whose clinical development projects are large and complex and to develop close relationships with key decision-makers throughout its clients' drug development organizations. 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, Italy, Japan, Spain 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 PAREXEL has served most of the leading U.S., European and Japanese pharmaceutical companies. PAREXEL's clients also include companies which develop biotechnology and other emerging technologies. 11 13 The Company has in the past derived, and may in the future derive, a significant portion of its net revenue from a relatively limited number of major projects or clients. In fiscal 1994, 1995 and 1996, no single customer accounted for more than 10% of consolidated net revenue. In fiscal 1994, 1995 and 1996, the Company's top five customers accounted for 29.8%, 25.2% and 32.0%, respectively, of the Company's consolidated net revenue. The loss of business from a significant client could materially and adversely affect the Company's net revenue. COMPETITION The Company primarily competes against in-house departments of pharmaceutical companies, full service CROs, and, to a lesser extent, universities and teaching hospitals. Some of these competitors have substantially 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 contract research, 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, 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 highly 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, based on estimated annual net revenue. The three largest CROs are Corning Lab Services, Inc., a subsidiary of Corning, Inc., Applied Bioscience International, Inc. and Quintiles Transnational Corporation. In addition, the fifth largest CRO is 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 as a trend toward the concentration by pharmaceutical companies of outsourcing among fewer CROs has led to heightened competition for CRO contracts. GOVERNMENT REGULATION 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 12 14 knowledge of the specific regulatory requirements in various countries, and the Company has managed simultaneous regulatory submissions in more than one country for a number of drug sponsors. Beginning in 1991, the FDA and corresponding regulatory agencies of Canada, Japan and Western Europe commenced discussions to develop harmonized standards for preclinical and clinical studies and the format and content of applications for new drug approvals. Data from multinational studies adhering to GCP are now generally acceptable to the FDA, Canadian and Western European regulators. 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. 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, 1996 was approximately $110 million, as compared with approximately $81 million at June 30, 1995. 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 contacts 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. 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. 13 15 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. 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, 1996, the Company had approximately 1,300 full and part-time employees, of which over 120 hold Ph.D. or M.D. degrees and over 225 others hold masters degrees. Approximately 63% of the full-time employees are located in North America and 36% are located in Europe. 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 14 16 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. ITEM 2. PROPERTIES PAREXEL leases all but one of its facilities. The Company's principal executive offices are located in Waltham, Massachusetts, where it leases approximately 83,000 square feet under leases that expire in August 2001. The Company also maintains 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, Milan, Paris, Madrid, and Tel Aviv. The Company's Japanese subsidiary is located in Kobe. The Company's Australian subsidiary is located in Sydney. ITEM 3. LEGAL PROCEEDINGS The Company is a defendant in a proceeding initiated by a former shareholder of a business which was subsequently acquired by the Company captioned Tallon v. Harwood, 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 County, Pennsylvania. The plaintiff, whose shares were acquired by the other two shareholders of the acquired business approximately three months prior to the acquisition of the business by PAREXEL, is seeking unspecified monetary damages based on a claim that his shares were purchased at an unfairly low price. The Company has filed an answer specifically denying the material allegations raised in the plaintiff's complaint and raising various affirmative defenses. The Company believes that resolution of this matter will not have a material adverse effect on the financial position, results of operations or business of the Company. The Company is not a party to, and is not aware of, any proceeding involving any material claims arising out of any clinical trial that it managed or monitored. 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, 1996. 15 17 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS This information is incorporated by reference from page 34, "Quarterly Operating Results and Common Stock Information (Unaudited)" of the Company's 1996 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 1996 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 14-18, "Management's Discussion and Analysis of Financial Condition and Results of Operations," of the Company's 1996 Annual Report to Stockholders included as Exhibit 13.1. 16 18 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 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, insufficient patient enrollment or investigator recruitment or production problems resulting in shortages of the drug. In addition, the Company believes that several factors, including the potential adverse impact of health care reform, 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 13-17 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 and progress of significant projects, exchange rate fluctuations, the mix of services offered, the opening of new offices, 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 1993 and 1995, 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 clinical trials 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 34 of the Company's 1996 Annual Report to Stockholders included as Exhibit 13.1 of this Form 10-K. Dependence on Certain Industries and Clients 17 19 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 and biotechnology 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 1994, 1995 and 1996, the Company's top five clients accounted for 29.8%, 25.2% and 32.0%, respectively, of the Company's consolidated 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 11 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. 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 Regulations" which appears on page 12 of this Form 10-K. Potential Adverse Impact of Health Care Reform Numerous governments have recently undertaken efforts to control growing health care costs through legislation, regulation and voluntary agreements with medical care providers and pharmaceutical companies. In the last several years, several comprehensive health care reform proposals were introduced in the U.S. Congress. The intent of the proposals was, generally, to expand health care coverage for the uninsured and reduce the growth of total health care expenditures. While none of the proposals were adopted, health care reform may again be addressed by the U.S. Congress. Implementation of government health care reform may adversely affect research and development expenditures by pharmaceutical and biotechnology companies, resulting in a decrease of the business opportunities available to the Company. Management is unable to predict the likelihood of health care reform proposals being enacted into law or the effect such law would have on the Company. See Item "Business - Industry Overview" which appears on page 3 of this Form 10K. 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 18 20 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 13-17 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 and teaching hospitals. Some of these competitors have substantially 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 contract research, 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, 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. There can be no assurance that the Company will be able to compete favorably in these areas. See "Business - Competition" which appears on page 12 of this Form 10-K. The CRO industry is highly fragmented, with participants ranging from several hundred small, limited-service providers to several large, full-service CROs with global operations. The trend toward CRO industry consolidation has resulted in heightened competition among the larger CROs for clients and acquisition candidates. In addition, consolidation within the pharmaceutical industry as well as a trend by pharmaceutical companies of outsourcing among fewer 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. Revenue derived from acquired businesses has contributed significantly to the Company's growth. 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 19 21 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 13-17 of the Company's 1996 Annual Report to Stockholders included as Exhibit 13.1 of this Form 10-K. Management of Business Expansion; Need for Improved Systems; Assimilation of Foreign Operations The Company's business and operations have experienced substantial expansion over the past 10 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 13-17 of the Company's 1996 Annual Report to Stockholders included as Exhibit 13.1 of this Form 10-K. Dependence on 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 most 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 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 20 22 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 13 of this Form 10-K. Adverse Effect of Exchange Rate Fluctuations Approximately 36.0%, 40.2% and 38.4% of the Company's net revenue for fiscal 1994, 1995 and 1996, respectively, were derived from the Company's operations outside of North America. Since the revenue and expenses of the Company's foreign operations are generally denominated in local currencies, exchange rate fluctuations between local currencies and the United States dollar will subject the Company to currency translation risk with respect to the results of its foreign operations. To the extent the Company is unable to shift to its clients the effects of currency fluctuations, these fluctuations could have a material adverse effect on the Company's results of operations. The Company does not currently hedge against the risk of exchange rate fluctuations. Potential Volatility of Stock Price The market price of the Company's Common Stock could be subject to wide fluctuations in response to quarter-to-quarter variations in operating results, changes in earnings estimates by analysts, market conditions in the industry, prospects of health care reform, changes in government regulation and general economic conditions. In addition, the stock market has from time to time experienced significant price and volume fluctuations that have been unrelated to the operating performance of particular companies. These market fluctuations may adversely affect the market price of the Company's Common Stock. Because the Company's Common Stock currently trades at a relatively high price-earnings multiple, due in part to analysts' expectations of continued earnings growth, even a relatively small shortfall in earnings from, or a change in, analysts' expectations may cause an immediate and substantial decline in the Company's stock price. Investors in the Company's Common Stock must be willing to bear the risk of such fluctuations in earnings and stock price. 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 21 23 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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary financial information are incorporated by reference from pages 19-33 of the Company's 1996 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 1996 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 1996 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 1996 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 1996 Annual Meeting of Stockholders. Such information is incorporated herein by reference. 22 24 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 1996 Annual Report to Stockholders, filed as Exhibit 13.1 to this report, are incorporated by reference into Item 8 of this report.
Annual Report to Financial Statements Form 10-K Page Stockholders Page -------------------- -------------- ----------------- Report of Independent Accountants 22 33 Consolidated Balance Sheet at June 30, 1995 22 20 and 1996 Consolidated Statement of Operations for each of 22 19 the three years in the period ended June 30, 1996 Consolidated Statement of Stockholders' Equity for 22 21 each of the three years ended June 30, 1996 Consolidated Statement of Cash Flows for each of 22 22 the three years ended June 30, 1996 Notes to Consolidated Financial Statements 22 23-32
(2) Financial Statement Schedules: For the three years ended June 30, 1996: 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 Exhibit No. Description 23 25 3.1 -- Amended and Restated Articles of Organization of the Company (filed as exhibit 3.1 to the Registrant's Registration Statement on Form S-1 (File No. 333-1188) 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 -- Stock Purchase Agreement dated as of May 24, 1996 between the Company, Sitebase Clinical Systems, Inc., Raymond A. Konisky and Karen A. Konisky. (filed as exhibit 4.2 to the Registrant's Registration Statement on Form S-1 (File No. 333-06953) and incorporated herein by this reference) 4.3 -- Registration Rights Agreement dated as of June 28, 1996 between the Company, Raymond A. Konisky and Karen A. Konisky. (filed as exhibit 4.3 to the Registrant's Registration Statement on Form S-1 (File No. 333-06953) and incorporated herein by this reference). 10.1 -- Stock Restriction and Registration Rights Agreement dated as of June 15, 1990 among the Company and Samuel T. Barnett and Frederic Harwood (filed as exhibit 10.1 to the Registrant's Registration Statement on Form S-1 (File No. 33-97406) and incorporated herein by this reference). 10.2 -- Stock Purchase, Restriction and Registration Rights Agreement dated as of March 11, 1991 between the Company and Prof. Dr. Werner M. Herrmann (filed as exhibit 10.2 to the Registrant's Registration Statement on Form S-1 (File No. 33- 97406) and incorporated herein by this reference). 10.3 -- Investment Agreement dated as of December 26, 1990 among the Company and the stockholders named therein (filed as exhibit 10.3 to the Registrant's Registration Statement on Form S-1 (File No. 33-97406) and incorporated herein by this reference). 10.4 -- Investment Agreement dated as of March 31, 1992 among the Company and the stockholders named therein (filed as exhibit 10.4 to the Registrant's Registration Statement on Form S-1 (File No. 33-97406) and incorporated herein by this reference). 10.5 -- Sales Contract dated March 11, 1991 among Prof. Dr. Werner M. Herrmann, Josef H. von Rickenbach and William T. Sobo with respect to the sale by Prof. Dr. Herrmann of a majority interest in AFB Arzneimittelforschung GmbH (filed 24 26 as exhibit 10.5 to the Registrant's Registration Statement on Form S-1 (File No. 33- 97406) and incorporated herein by this reference). 10.6 -- Employment Agreement dated June 30, 1993 between AFB-PAREXEL GmbH Independent Pharmaceutical Research Organization and Prof. Dr. med. Werner M. Herrmann (filed as exhibit 10.6 to the Registrant's Registration Statement on Form S-1 (File No. 33-97406) and incorporated herein by this reference). 10.7 -- Letter Agreement dated June 30, 1993 between the Company and Prof. Dr. Werner M. Herrmann (filed as exhibit 10.7 to the Registrant's Registration Statement on Form S-1 (File No. 33-97406) and incorporated herein by this reference). 10.8 -- Employment Agreement dated July 2, 1987 between Dr. Veronica G.H. Jordan and the Company (filed as exhibit 10.8 to the Registrant's Registration Statement on Form S-1 (File No. 33-97406) and incorporated herein by this reference). 10.9 -- 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). 10.10 -- 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). 10.11 -- 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). 10.12 -- 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). 10.13 -- 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). 10.14 -- 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). 10.15 -- 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). 25 27 10.16 -- 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). 10.17 -- 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). 10.18 -- 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). 10.19 -- 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). 10.20 -- 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). 10.21 -- 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). 10.22 -- 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). 10.23 -- 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). 11.1 -- Statement re computation of per share earnings. 13.1 -- Specified portions of the Registrant's 1996 Annual Report to Stockholders. 21.1 -- List of subsidiaries of the Company. 23.1 -- Consent of Price Waterhouse LLP. 27.1 -- Financial Data Schedule. 26 28 (B) Reports on Form 8-K: No reports on Form 8-K were filed during the quarter ended June 30, 1996. 27 29 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 27th day of September, 1996. 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 Executive Officer September 27, 1996 - --------------------------------------- Josef H. von Rickenbach and Chairman (principal executive officer) /s/ WILLIAM T. SOBO, JR Senior Vice President, Chief Financial September 27, 1996 - --------------------------------------- William T. Sobo, Jr Officer and Treasurer (principal financial and accounting officer) /s/ A. DANA CALLOW, JR. Director September 27, 1996 - --------------------------------------- A. Dana Callow, Jr. /s/ PATRICK J. FORTUNE Director September 27, 1996 - --------------------------------------- Patrick J. Fortune /s/ WERNER M. HERRMANN Director September 27, 1996 - --------------------------------------- Werner M. Herrmann /s/ PETER BARTON HUTT Director September 27, 1996 - --------------------------------------- Peter Barton Hutt /s/ JAMES SAALFIELD Director September 27, 1996 - --------------------------------------- James Saalfield
28 30 Schedule II PAREXEL INTERNATIONAL CORPORATION VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Description Balance at Charged to Balance at beginning of costs and Charged to Deductions end of period expenses other accounts and write-offs period --------------- ------------- -------------- --------------- ------------- ALLOWANCE FOR DOUBTFUL ACCOUNTS Year ended June 30, 1994 $ 242,000 $ 349,000 -- $ (11,000) $ 580,000 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 DEFERRED TAX ASSET VALUATION ALLOWANCE Year ended June 30, 1994 -- -- $6,659,000(1) (588,000) 6,071,000 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
- -------------- (1) Recorded in connection with the adoption of Statement of Financial Accounting Standards No. 109 on July 1, 1993. 29 EX-11.1 2 STATEMENT RE COMPUTATION OF NET INCOME (LOSS) PS 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, 1994 1995 1996 ---- ---- ---- Net income (loss) $2,423 $(10,630) $4,599 Net interest income pursuant to APB 15, paragraph 38(b) 123 -- -- ------ -------- ------ Net income (loss) attributable to common shares $2,546 $(10,630) $4,599 ====== ======== ====== Weighted average common shares outstanding: a. Shares attributable to common stock outstanding 750 842 6,452 b. Shares attributable to convertible preferred stock outstanding 4,200 -- -- c. Shares attributable to common stock options and preferred stock warrants pursuant to APB 15, paragraph 38(b) 796 -- 328 d. Shares attributable to common stock options pursuant to SAB 83 1 1 -- ------ -------- ------ Weighted average common shares outstanding 5,747 843 6,780 ====== ======== ====== Net income (loss) per share $ 0.44 $ (12.61) $ 0.68 ====== ======== ======
30 EX-13.1 3 MANAGEMENT'S DISCUSSION & ANALYSIS/ANNUAL REPORT 1 EXHIBIT 13.1 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company provides a full spectrum of clinical research and development services on a contract basis to the pharmaceutical, biotechnology and medical device industries. These services are provided to clients on a global basis and include: (i) designing, initiating and monitoring clinical trials; (ii) managing and analyzing clinical data; and (iii) industry consulting services including regulatory affairs, medical writing, performance improvement, training and health economics. The Company, founded in 1983 as a regulatory consulting firm, has built its business both through internal expansion and acquisitions. In 1988, the Company acquired Consulting Statisticians, Inc., a biostatistics and data management provider specializing in the healthcare industry. In 1989, the Company initiated its international expansion by acquiring the London-based McDonnell Douglas Clinical Trials Analysis Division, a division of McDonnell Douglas Informations Systems Ltd., which provided biostatistics and data management services in Europe. In 1990, PAREXEL acquired Barnett Associates, Inc. to expand the Company's Information Products Division, which offers a range of specialized clinical consulting and training services and related products. In 1991, the Company acquired AFB Arzneimittelforschung GmbH in Berlin, a European contract research organization (CRO) based in Berlin with offices in Frankfurt and Paris. In June 1996, the Company aquired Caspard Consultants, a Paris-based CRO, and in August 1996 acquired Lansal Pharmaceutics Limited, the largest and oldest CRO in Israel. These acquisitions augment the Company's existing clinical operations and are in line with management's focused international expansion efforts. In June 1996, the Company acquired Sitebase Clinical Systems, a provider of remote data entry (RDE) technology. This acquisition positions the Company as a leading provider of RDE technology which is expected to enhance the quality and timeliness of clinical trial data. In August 1996, the Company also acquired State & Federal Associates, Inc., a Washington D.C.-based provider of consulting services to the healthcare and pharmaceutical industries. The acquisition broadens the Company's portfolio of consulting services, specifically in the area of health economics. These acquisitions are each being accounted for as poolings of interest. The aggregate financial results of the acquired companies are not material to the Company's financial position and results of operations and, therefore, prior periods have not been restated. See Note 4 to the Consolidated Financial Statements for additional information regarding these transactions. The Company's clinical research and development 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 contract's duration, 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 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. 14 PAREXEL INTERNATIONAL CORPORATION 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GLOBAL OPERATIONS The following table sets forth, for fiscal year ended June 30, 1994, 1995 and 1996, net revenue by geographic region as well as the percentage of total net revenue represented by each region (in thousands).
% OF % OF % OF 1994 TOTAL 1995 TOTAL 1996 TOTAL - ------------------------------------------------------------------------------------------------------- North America $ 37,111 64.0% $ 35,037 59.8% $ 54,179 61.6% Europe 20,891 36.0 23,443 40.0 32,834 37.3 Asia-Pacific - - 93 0.2 993 1.1 - ------------------------------------------------------------------------------------------------------- Total $ 58,002 100.0% $ 58,573 100.0% $ 88,006 100.0% - -------------------------------------------------------------------------------------------------------
The Company's foreign subsidiaries generally enter into contracts denominated in the local currency of the foreign subsidiary. Because the foreign subsidiaries expenses 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 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 in which the expenses are incurred. To the extent the Company is unable to shift to its clients the effects of currency fluctuations, these fluctuations could have a material effect on the Company's results of operations. The Company does not currently hedge against the risk of exchange rate fluctuations. As the Company conducts operations on a global basis, the Company's effective tax rate has depended, and will depend, on 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, 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 from period to period. Impact of German Operations The Company's operations from fiscal 1993 through fiscal 1995 were adversely affected by its German operations. In the wake of uncertainty caused by German healthcare reform in 1993, the Company's German operations experienced a sudden decline in demand for services and an associated decline in net revenue. In response to this revenue decline, the Company consolidated certain facilities and reduced personnel costs in Germany and, as a result, incurred a $3.3 million restructuring charge in the quarter ending March 31, 1993, consisting of $2.4 million, $600,000 and $300,000 for facilities, wages and severance and other operating costs, respectively. As a result of the restructuring, the Company reduced annual facility, personnel and other operating costs by an estimated $1.0 million, $1.0 million and $150,000 respectively. While the fiscal 1993 restructuring temporarily improved operating margins in fiscal 1994, changes in drug development regulations in Germany and Europe significantly impacted revenues in fiscal 1995. As a result of this development, and in light of past history of poor operating performance, the Company reassessed the recoverability of long-lived assets acquired in the 1991 acquisition of PAREXEL GmbH. As a result of this reassessment, the Company recorded an $11.3 million non-cash charge reflecting the excess of book value of PAREXEL GmbH over their fair value. Of the $11.3 million charge, $9.9 million consisted of goodwill and other intangible assets. See Note 3 entitled Impairment of Long-Lived Assets to the Consolidated Financial Statements for additional information regarding this matter. PAREXEL INTERNATIONAL CORPORATION 15 3 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table sets forth for the fiscal years indicated certain financial data as a percentage of net revenue and the percentage change in these items compared to the prior comparable period.
PERCENTAGE OF NET REVENUE PERCENTAGE YEAR ENDED JUNE 30, INCREASE (DECREASE) 1994 1995 1996 1994 to 1995 1995 to 1996 - --------------------------------------------------------------------------------------------------------------- Net revenue 100.0% 100.0% 100.0% 1.0% 50.3% Costs and expenses: Direct costs 65.9 71.9 68.3 10.2 42.7 Selling, general and administrative 23.5 22.7 21.6 (2.5) 43.1 Depreciation and amortization 4.2 3.9 2.7 (7.6) 4.1 Impairment of long-lived assets -- 19.2 -- * * - --------------------------------------------------------------------------------------------------------------- Income (loss) from operations 6.4% (17.7)% 7.4% * * - --------------------------------------------------------------------------------------------------------------- * not meaningful
Fiscal Year Ended June 30, 1996 Compared to Fiscal Year Ended June 30, 1995 Net revenue increased by $29.4 million, or 50.3%, from $58.6 million for fiscal 1995 to $88.0 million for fiscal 1996. This net revenue growth was primarily 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 by $18.0 million, or 42.7%, from $42.1 million for fiscal 1995 to $60.1 million for fiscal 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 fiscal 1995 to 68.3% for fiscal 1996, primarily due to improved workforce and facility utilization. Selling, general and administrative expenses increased by $5.7 million, or 43.1%, from $13.3 million for fiscal 1995 to $19.0 million for fiscal 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 fiscal 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 fiscal 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. 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 fiscal 1996. Income from operations for fiscal 1996 was $6.5 million, compared to a loss from operations of $10.4 million for fiscal 1995. Results for fiscal 1995 included an $11.3 million non-cash charge related to the write-down of impaired long-lived assets of the Company's German operations. Income from operations for fiscal 1995, excluding the impact of the asset impairment charge, was approximately $303,000. Interest income increased by $1.1 million from $213,000 for fiscal 1995 to $1.3 million for 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 non-cash, non-deductible 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. 16 PAREXEL INTERNATIONAL CORPORATION 4 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Fiscal Year Ended June 30, 1995 Compared to Fiscal Year Ended June 30, 1994 Net revenue increased by $571,000, or 1.0%, from $58.0 million for fiscal 1994 to $58.6 million for fiscal 1995. This increase was due to an increase of $2.6 million in net revenue from European operations, partially offset by a decrease of $2.1 million in net revenue from North American operations. The increase in European net revenue was primarily due to the weakening of the dollar and, to a lesser extent, to an increase in clinical research contract volume in all areas in Europe other than Germany, which experienced a decline in net revenue. The decline in net revenue from North America was primarily due to reduced revenues from the Company's data management operation, which substantially completed work on a number of large contracts during fiscal 1994 that were not replaced in fiscal 1995. Direct costs increased by $3.9 million, or 10.2%, from $38.2 million for fiscal 1994 to $42.1 million for fiscal 1995. Substantially all of the increase in direct costs was due to increased expenses associated with European operations. The increase in direct costs in Europe was primarily due to the hiring of additional project-related personnel and expansion of facilities in the United Kingdom and France. The weakening of the dollar also contributed to the increase of direct costs in Europe. Direct costs as a percentage of net revenue increased from 65.9% in fiscal 1994 to 71.9% in fiscal 1995. This increase was primarily due to the increased costs incurred in Europe, where direct costs increased as a percentage of net revenue from 65.5% in fiscal 1994 to 75.4% in fiscal 1995 and to a decline in net revenue in North America, where direct costs remained flat against lower net revenue, resulting in an increase in direct costs as a percentage of net revenue from 66.2% in fiscal 1994 to 69.8% in fiscal 1995. Selling, general and administrative expenses decreased by $337,000, or 2.5%, from $13.6 million in fiscal 1994 to $13.3 million in fiscal 1995. The decrease in selling, general and administrative expenses was primarily due to savings in Europe as a result of a more effective deployment of employee and facility resources in the United Kingdom and Germany, partially offset by the weakness of the dollar. Due to these factors, selling, general and administrative expenses as a percentage of net revenue decreased from 23.5% for fiscal 1994 to 22.7% in fiscal 1995. Depreciation and amortization expenses decreased by $184,000, or 7.6%, from $2.4 million in fiscal 1994 to $2.3 million in fiscal 1995. This decrease was primarily due to a reduction in depreciation and amortization expense from fully amortized intangible assets and the write-down of impaired long-lived assets, offset in part by the weakness of the dollar. Fiscal 1995 includes only six months of depreciation and amortization, or approximately $588,000, resulting from the 1991 acquisition of PAREXEL GmbH, due to the impairment charge in the third quarter. Other income (expense), net changed from an expense of $375,000 in fiscal 1994 to income of $14,000 in fiscal 1995. The change was primarily due to the incurrence in fiscal 1994 of approximately $450,000 related to the Company's postponed fiscal 1994 initial public offering. The effective tax rate in fiscal 1995, excluding the effect of the $11.3 million non-cash, non-deductible write-down due to the impairment of long-lived assets, would have been 89.4%, compared to an effective rate of 45.0% in fiscal 1994. In fiscal 1994, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," the cumulative effect of which increased net income by $500,000 in fiscal 1994. LIQUIDITY AND CAPITAL RESOURCES Since its inception, the Company has primarily 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 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 generally recognized on a percentage completion basis as the work is performed. Accordingly, cash receipts do not necessarily correspond to costs incurred and revenue PAREXEL INTERNATIONAL CORPORATION 17 5 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 47 days at June 30, 1996, up from 40 days at June 30, 1995. Accounts receivable, net of the allowance for doubtful accounts, increased from $24.7 million at June 30, 1995 to $39.3 million at June 30, 1996 while advance billings increased from $14.0 million at June 30, 1995 to $20.0 million at June 30, 1996, both consistent with the growth in revenues in fiscal 1996. Unrestricted cash and cash equivalents increased by $10.9 million during fiscal 1996 as a result of $6.5 million and $40.5 million in cash provided by operating and financing activities, respectively, offset by $32.8 million in cash used for investing activities and an $155,000 unfavorable effect of exchange rate changes. Net cash provided by operating activities resulted primarily from net income, excluding non-cash expenses, of $6.9 million and increases in advance billings, accounts payable and other current liabilities of $6.4 million, $4.6 million and $3.3 million, respectively. Cash used by operating activities included an increase in accounts receivable of $15.1 million. Financing activities consisted primarily of net proceeds of approximately $21.2 million from the Company's initial public offering of 1,600,000 shares of common stock in November 1995, and net proceeds of approximately $15.7 million from the Company's follow-on public offering of 500,000 shares of common stock in March 1996. Investing activities consisted of net purchases of marketable securities of $27.8 million and capital expenditures. The Company has invested approximately $5.0 million in fiscal 1996 for capital expenditures related to facility expansion and investments in information technology and expects to invest approximately $8 million to $10 million in the next twelve months. The Company has domestic and foreign lines of credit with banks totalling approximately $6.4 million, and a capital lease line of credit with a U.S. bank for $2.4 million. At June 30, 1996 the Company had approximately $7.6 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 conditions. RECENTLY ISSUED ACCOUNTING STANDARDS In October 1995, the Financial Accounting Standards Board issued Statement No. 123, "Accounting for Stock-Based Compensation" (FAS 123). The Company has elected to adopt FAS 123 in fiscal 1997 through disclosure only. 18 PAREXEL INTERNATIONAL CORPORATION 6 CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, (in thousands, except per share data) 1994 1995 1996 - ------------------------------------------------------------------------------------------------------------------ Revenue $ 69,646 $ 79,928 $ 121,869 Reimbursed costs (11,644) (21,355) (33,863) - ------------------------------------------------------------------------------------------------------------------ NET REVENUE 58,002 58,573 88,006 - ------------------------------------------------------------------------------------------------------------------ Costs and expenses: Direct costs 38,244 42,140 60,141 Selling, general and administrative 13,631 13,294 19,027 Depreciation and amortization 2,435 2,251 2,343 Impairment of long-lived assets -- 11,253 -- - ------------------------------------------------------------------------------------------------------------------ 54,310 68,938 81,511 - ------------------------------------------------------------------------------------------------------------------ INCOME (LOSS) FROM OPERATIONS 3,692 (10,365) 6,495 Interest income 250 213 1,297 Interest expense (71) (172) (162) Other income (expense), net (375) 14 22 - ------------------------------------------------------------------------------------------------------------------ (196) 55 1,157 - ------------------------------------------------------------------------------------------------------------------ Income (loss) before provision for income taxes and cumulative effect of accounting change 3,496 (10,310) 7,652 Provision for income taxes 1,573 320 3,053 - ------------------------------------------------------------------------------------------------------------------ Net income (loss) before cumulative effect of accounting change 1,923 (10,630) 4,599 Cumulative effect of change in accounting for income taxes 500 -- -- - ------------------------------------------------------------------------------------------------------------------ NET INCOME (LOSS) $ 2,423 $(10,630) $ 4,599 - ------------------------------------------------------------------------------------------------------------------ Net income (loss) per share: Before cumulative effect of accounting change $ 0.35 $ (12.61) $ 0.68 Cumulative effect of change in accounting for income taxes 0.09 -- -- - ------------------------------------------------------------------------------------------------------------------ Net income (loss) per share $ 0.44 $ (12.61) $ 0.68 - ------------------------------------------------------------------------------------------------------------------ Weighted average common and common equivalent shares outstanding 5,747 843 6,780 - ------------------------------------------------------------------------------------------------------------------ The accompanying notes are an integral part of the consolidated financial statements.
PAREXEL INTERNATIONAL CORPORATION 19 7 CONSOLIDATED BALANCE SHEET
JUNE 30, (in thousands, except share data) 1995 1996 - --------------------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents: Unrestricted $ 5,315 $ 16,243 Restricted 1,360 858 Marketable securities 1,500 29,319 Accounts receivable, net 24,675 39,277 Other current assets 4,003 6,905 - --------------------------------------------------------------------------------------------------------------- Total current assets 36,853 92,602 Property and equipment, net 4,671 8,193 Other assets 1,726 1,606 - --------------------------------------------------------------------------------------------------------------- $ 43,250 $ 102,401 - --------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $ 692 $ 762 Accounts payable 2,466 7,003 Advance billings 14,032 20,008 Other current liabilities 8,089 11,401 - --------------------------------------------------------------------------------------------------------------- Total current liabilities 25,279 39,174 Long-term debt 633 360 Other liabilities 1,814 1,655 - --------------------------------------------------------------------------------------------------------------- Total liabilities 27,726 41,189 - --------------------------------------------------------------------------------------------------------------- Commitments and contingencies Stockholders' equity: Convertible preferred stock - $.01 par value 23,683 -- Common stock - $.01 par value; shares authorized: 6,684,077 at June 30, 1995 and 25,000,000 at June 30, 1996; shares issued: 858,364 at June 30, 1995 and 7,827,110 at June 30, 1996; shares outstanding: 843,658 at June 30, 1995 and 7,812,404 at June 30, 1996 9 78 Additional paid-in capital 406 66,291 Accumulated deficit (8,826) (5,199) Stock subscriptions receivable (157) -- Cumulative translation adjustment 409 42 - --------------------------------------------------------------------------------------------------------------- Total stockholders' equity 15,524 61,212 - --------------------------------------------------------------------------------------------------------------- $ 43,250 $ 102,401 - ---------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements. 20 PAREXEL INTERNATIONAL CORPORATION 8 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK COMMON STOCK RETAINED ----------------------- ------------------------------------ ADDITIONAL EARNINGS NUMBER ISSUANCE NUMBER PAR PAID-IN (ACCUMULATED (in thousands, except shares) OF SHARES PRICE, NET OF SHARES VALUE CAPITAL DEFICIT) - ----------------------------------------------------------------------------------------------------------------------------------- BALANCE AT JUNE 30, 1993 2,101,044 $ 22,550 721,045 $ 7 $ 203 $ (619) Issuance of convertible preferred stock upon exercise of warrants 226,700 1,133 Issuance of common stock upon exercise of stock options 102,000 1 75 Income tax benefit from exercise of stock options 80 Proceeds from stock subscriptions receivable Foreign currency translation Net income 2,423 - ----------------------------------------------------------------------------------------------------------------------------------- BALANCE AT JUNE 30, 1994 2,327,744 23,683 823,045 8 358 1,804 Issuance of common stock upon exercise of stock options 21,986 1 65 Repurchase of common shares (1,373) (17) Proceeds from stock subscriptions receivable Foreign currency translation Net loss (10,630) - ----------------------------------------------------------------------------------------------------------------------------------- BALANCE AT JUNE 30, 1995 2,327,744 23,683 843,658 9 406 (8,826) Issuance of convertible preferred stock upon exercise of warrants 176,887 1,769 Proceeds from stock subscriptions receivable Conversion of preferred stock into common upon initial public offering (2,504,631) (25,452) 4,478,008 44 25,408 Payment of accrued preferred stock dividends (940) Net proceeds from public offerings 2,100,000 21 36,866 Issuance of common stock upon exercise of stock options 309,920 3 408 Acquisitions (Note 4) 80,818 1 145 (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 -- -- 7,812,404 $78 $ 66,291 $ (5,199) - ----------------------------------------------------------------------------------------------------------------------------------- STOCK CUMULATIVE TOTAL SUBSCRIPTIONS TRANSLATION STOCKHOLDERS' RECEIVABLE ADJUSTMENT EQUITY - --------------------------------------------------------------------------------------- BALANCE AT JUNE 30, 1993 $(148) $(146) $ 21,847 Issuance of convertible preferred stock upon exercise of warrants (33) 1,100 Issuance of common stock upon exercise of stock options 76 Income tax benefit from exercise of stock options 80 Proceeds from stock subscriptions receivable 18 18 Foreign currency translation (308) (308) Net income 2,423 - --------------------------------------------------------------------------------------- BALANCE AT JUNE 30, 1994 (163) (454) 25,236 Issuance of common stock upon exercise of stock options 66 Repurchase of common shares (17) Proceeds from stock subscriptions receivable 6 6 Foreign currency translation 863 863 Net loss (10,630) - --------------------------------------------------------------------------------------- BALANCE AT JUNE 30, 1995 (157) 409 15,524 Issuance of convertible preferred stock upon exercise of warrants 1,769 Proceeds from stock subscriptions receivable 157 157 Conversion of preferred stock into common upon initial public offering _ Payment of accrued preferred stock dividends (940) Net proceeds from public offerings 36,887 Issuance of common stock upon exercise of stock options 411 Acquisitions (Note 4) 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 - ---------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements. PAREXEL INTERNATIONAL CORPORATION 21 9 CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, (in thousands) 1994 1995 1996 - ---------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 2,423 $(10,630) $ 4,599 Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Depreciation and amortization 2,435 2,251 2,343 Restructuring transactions (1,959) (683) (135) Impairment of long-lived assets -- 11,253 -- Change in assets and liabilities, net of effects from acquisitions: Restricted cash (282) (929) 502 Accounts receivable, net (6,309) (281) (15,086) Other current assets (366) (1,395) 54 Other assets (531) (79) (144) Accounts payable (1,573) 256 4,605 Advance billings 350 3,953 6,383 Other current liabilities 1,867 1,932 3,347 Other liabilities (239) 56 (18) - ---------------------------------------------------------------------------------------------------------------------------- Net cash provided (used) by operating activities (4,184) 5,704 6,450 - ---------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of marketable securities (2,787) (3,510) (131,903) Proceeds from sale of marketable securities 4,303 2,710 104,128 Cash related to acquisition activities (100) -- 52 Purchase of property and equipment (1,979) (1,460) (5,039) - ---------------------------------------------------------------------------------------------------------------------------- Net cash used by investing activities (563) (2,260) (32,762) - ---------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of convertible preferred stock 1,100 -- 1,769 Proceeds from issuance of common stock 76 66 37,298 Cash received from stock subscriptions 18 6 157 Payments to acquire treasury stock -- (17) -- Repayments of long-term debt (510) (684) (889) Dividends on convertible preferred stock -- -- (940) - ---------------------------------------------------------------------------------------------------------------------------- Net cash provided (used) by financing activities 684 (629) 37,395 - ---------------------------------------------------------------------------------------------------------------------------- Effect of exchange rate changes on unrestricted cash and cash equivalents (24) 134 (155) - ---------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in unrestricted cash and cash equivalents (4,087) 2,949 10,928 Unrestricted cash and cash equivalents at beginning of period 6,453 2,366 5,315 - ---------------------------------------------------------------------------------------------------------------------------- Unrestricted cash and cash equivalents at end of period $ 2,366 $ 5,315 $ 16,243 - ---------------------------------------------------------------------------------------------------------------------------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $ 83 $ 179 $ 165 Income taxes $ 1,237 $ 565 $ 1,649 SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES: Property and equipment acquired under capital lease obligations $ 666 $ 1,265 $ 536 Income tax benefit from exercise of stock options $ 80 -- $ 3,058
The accompanying notes are an integral part of the consolidated financial statements 22 PAREXEL INTERNATIONAL CORPORATION 10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - DESCRIPTION OF THE BUSINESS PAREXEL International Corporation (the Company) is a leading contract research organization (CRO), providing clinical research and development services to the worldwide pharmaceutical, biotechnology and medical device industries. The Company designs, initiates and monitors clinical trials, manages and analyzes clinical data, assists with regulatory affairs and offers other related services and products. 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. The Company's German and French subsidiaries operate on a fiscal year which ends 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 which require the revisions become known. When the revised estimate indicates a loss, such loss is provided for currently 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 for purposes of the statement of cash flows. 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, and 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 which 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. At June 30, 1996, approximately $1.0 million of securities were subject to seven-day put options. The Company does not hold derivative instruments for trading purposes. PAREXEL INTERNATIONAL CORPORATION 23 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. No single customer accounted for more than 10% of the Company's consolidated net revenue for the years ended June 30, 1994, 1995 or 1996. Property and Equipment Property and equipment is stated at cost. Depreciation is provided on the straight-line method over the estimated useful lives of the assets ranging from three to five 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. Goodwill and other intangible assets are amortized using the straight-line method 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 Effective July 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109) prospectively. FAS 109 requires the recognition of deferred tax assets (representing future tax benefits) attributable to deductible temporary differences between financial statement and income tax bases of assets and liabilities and to operating loss carryforwards to the extent that realization of these benefits is more likely than not. The cumulative effect of the Company's adoption of FAS 109 increased net income by $500,000 for the year ended June 30, 1994, and primarily related to the future tax benefit of temporary differences within the North American operations. 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 for the period. Accumulated net translation adjustments are included in stockholders' equity. Realized gains and losses recorded in the statement 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 an assumed initial public offering price of $14 per share, as if these shares were outstanding for all periods prior to the initial public offering. 24 PAREXEL INTERNATIONAL CORPORATION 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Recently Issued Accounting Standards In October 1995, the Financial Accounting Standards Board issued Statement No. 123, "Accounting for Stock-Based Compensation" (FAS 123). The Company has elected to adopt FAS 123 in fiscal 1997 through disclosure only. NOTE 3 - IMPAIRMENT OF LONG-LIVED ASSETS In fiscal 1991, PAREXEL acquired AFB Arzneimittelforschung GmbH, (which was subsequently renamed PAREXEL GmbH), a contract research organization headquartered in Germany, in exchange for $3.9 million of cash, Convertible Preferred Stock then valued at $1.3 million and the assumption of $16.1 million of liabilities. Since it was acquired, PAREXEL GmbH's financial performance has fallen below management's expectations and experienced a declining revenue base. In fiscal 1993, the Company recorded a charge aggregating $3.3 million with respect to a plan to restructure its German operations. The plan primarily involved the physical consolidation of several operating groups within two facilities and a reduction in employee headcount. The charge included lease abandonment costs, write-offs of leasehold improvements, severance payments and other expenses directly associated with the restructuring plan. There were no material changes in estimates included in this charge, and at June 30, 1996 these actions were complete. As a result of the restructuring effort in fiscal 1993, management budgeted positive operating results that supported the realization of the related net assets. However, in the third quarter of fiscal 1995, PAREXEL GmbH's operations suffered a further 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 updated its assessment of the realizability of the long-lived assets of PAREXEL GmbH as of the third quarter of fiscal 1995. 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. This forecast was based on assumptions developed by management using PAREXEL GmbH's historical experience as well as the best estimate of future trends and events. In the short-term, management had forecasted declining revenue in certain of PAREXEL GmbH's operations in recognition of the current business environment within Germany. In the longer-term, management's assumptions reflected a stabilization of the revenue base, followed by a period of moderate revenue and expense growth (approximately 4% annually). 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, the Company retained a valuation expert. 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, in the third quarter of fiscal 1995, the Company recorded an impairment loss on long-lived assets of $11.3 million; comprising $8.7 million in goodwill, $1.4 million in fixed assets and $1.2 million in identifiable intangible assets. PAREXEL INTERNATIONAL CORPORATION 25 13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 4 - ACQUISITIONS On June 28, 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 80,818 shares of common stock in exchange for all of the outstanding shares of Sitebase and Caspard. Both of these transactions are being accounted for as poolings of interest. The aggregate historical results of operations and financial position of Sitebase and Caspard are not material to the Company's consolidated financial statements. Therefore, prior period amounts have not been restated and results of operations have been included since the date of acquisition. On August 16, 1996, the Company acquired Lansal Clinical Pharmaceutics Limited (Lansal), a contract research organization in Israel. On August 22, 1996, the Company acquired State and Federal Associates, Inc. (S&FA), a strategic healthcare consulting organization located in Washington D.C. Both of these transactions are being accounted for as poolings of interest. The Company issued 504,152 shares of common stock in exchange for all of the outstanding shares of Lansal and S&FA. The aggregate historical results of operations and financial position of Lansal and S&FA are not material to the Company's consolidated financial statement. Therefore, prior period amounts will not be restated and results of operations will be included prospectively from the date 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. NOTE 5 - INVESTMENTS Available-for-sale securities included in cash and cash equivalents as of June 30, 1995 and 1996 consisted of the following:
(in thousands) 1995 1996 - ----------------------------------------------------------- Money market $ - $ 2,492 Municipal securities - 10,000 Repurchase agreements 2,191 1,141 - ----------------------------------------------------------- $2,191 $13,633 - -----------------------------------------------------------
Available-for-sale securities included in marketable securities at June 30, 1995 consisted of $1.5 million of municipal securities (which are carried at fair market value which approximates cost). 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, 1996 was $39.5 million within one year, $2.8 million over one year and less than five years, and $700,000 over five years. Proceeds from the maturities and sales of available-for-sale securities amounted to approximately $568.1 million for the year ended June 30, 1996 and $2.7 million for the year ended June 30, 1995. Purchases amounted to approximately $607.4 million for the year ended June 30, 1996 and $3.5 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. 26 PAREXEL INTERNATIONAL CORPORATION 14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6 - ACCOUNTS RECEIVABLE Accounts receivable at June 30, 1995 and 1996 consisted of the following:
(in thousands) 1995 1996 - --------------------------------------------------------------------------- Billed $14,081 $21,286 Unbilled 11,868 19,490 Allowance for doubtful accounts (1,274) (1,499) - --------------------------------------------------------------------------- $24,675 $39,277 - ---------------------------------------------------------------------------
NOTE 7 - PROPERTY AND EQUIPMENT Property and equipment at June 30, 1995 and 1996 consisted of the following:
(in thousands) 1995 1996 - --------------------------------------------------------------------------- Computer and office equipment $ 6,807 $10,527 Computer software 1,061 1,725 Furniture and fixtures 2,117 3,058 Leasehold improvements 394 652 10,379 15,962 - --------------------------------------------------------------------------- Less accumulated depreciation and amortization 5,708 7,769 - --------------------------------------------------------------------------- $ 4,671 $ 8,193 - ---------------------------------------------------------------------------
Included in the above amounts is computer and office equipment acquired under capital lease obligations of approximately $3.0 million and $3.6 million at June 30, 1995 and 1996, respectively. Accumulated depreciation on computer and office equipment under capital leases totalled approximately $1.3 million and $1.8 million at June 30, 1995 and 1996, respectively. Depreciation and amortization expense relating to property and equipment was approximately $1.5 million, $1.7 million and $2.1 million for the years ended June 30, 1994, 1995 and 1996, respectively, of which $286,000, $427,000 and $634,000 related to amortization of property and equipment under capital leases. NOTE 8 - OTHER CURRENT LIABILITIES Other current liabilities at June 30, 1995 and 1996 consisted of the following:
(in thousands) 1995 1996 - --------------------------------------------------------------------------- Accrued compensation and withholdings $2,068 $ 4,281 Accrued investigator fees 1,608 1,565 Other 4,413 5,555 - --------------------------------------------------------------------------- $8,089 $11,401 - ---------------------------------------------------------------------------
NOTE 9 - CREDIT ARRANGEMENTS The Company has domestic and foreign line of credit arrangements with banks totalling approximately $6.4 million. The lines are collateralized by accounts receivable, are payable on demand and bear interest at the local bank base or money market rate, plus 1% to 3% (resulting in interest rates ranging from 5.5% to 9.25% at June 30, 1996). The lines of credit expire at various dates through December 1996 and are renewable. There were no amounts outstanding under these lines of credit at June 30, 1996. PAREXEL INTERNATIONAL CORPORATION 27 15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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% (for a total interest rate of 9.2% at June 30, 1996) and are included in long-term debt. This line of credit expires on November 30, 1998 and is renewable annually. Available capacity under this line was approximately $1.2 million at June 30, 1996. Long-term debt at June 30, 1995 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, 1995 and 1996. Aggregate lease obligations bear a weighted average interest rate of approximately 7.9% at June 30, 1996. Long-term debt matures as follows: $762,000 in fiscal 1997, $333,000 in fiscal 1998 and $27,000 in fiscal 1999. NOTE 10 - STOCKHOLDERS' EQUITY On November 22, 1995 the Company sold 1.6 million shares of common stock to the public in the Company's initial public offering at a price of $15 per share. Proceeds to the Company, net of offering expenses, amounted to $21.2 million. Upon closing of the initial public offering, the Company received $157,000 in repayment of stock subscriptions receivable, $1.8 million of proceeds from the exercise of preferred stock warrants and all of the preferred stock automatically converted into a total of 4,478,008 shares of common stock. In addition, the Company paid cumulative dividends to preferred stockholders of approximately $940,000. On March 1, 1996, an additional 500,000 shares of the Company's common stock were sold by the Company to the public at a price per share of $33.75. Proceeds to the Company, net of offering expenses, amounted to $15.7 million. At June 30, 1996 there were 5,000,000 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 of the Company (without stockholder approval) with such designations, rights and preferences, including voting rights, dividend rights and rates and terms of redemption, as the Board of Directors may determine from time to time. At June 30, 1994, the Company held 13,333 shares of common stock in treasury, at a cost per share of $0.01. During the year ended June 30, 1995, 1,373 common shares were repurchased at a cost per share of $12.50. There were 14,706 shares of common stock held in treasury at June 30, 1995 and 1996. NOTE 11 - STOCK AND EMPLOYEE BENEFIT PLANS Common Stock Options The Company's 1986 Incentive Stock Option Plan, 1987 Stock Plan and 1989 Stock Plan (collectively, the Plans) provide for the granting of incentive and non-qualified stock options for the purchase of shares of common stock, and awards and sales of common stock, to directors, officers, employees and consultants, depending upon the provisions of the plan. An aggregate of 638,000 shares of common stock was originally reserved for issuance under the Plans. In September 1995 the Company adopted the 1995 Stock Plan (the 1995 Plan), which provides for the issuance of options to purchase up to 500,000 shares of common stock to employees, officers, consultants and advisors of the Company. The Compensation Committee of the Company's Board of Directors determines the type of grant, option exercise price per share, the vesting period (generally four to five years), and the expiration date at the date of grant. In September 1995, the Company adopted the 1995 Non-Employee Director Stock Option Plan (Director Plan). The Director Plan provides for the grant of options to purchase up to 300,000 shares of common stock of the Company to non-employee directors. An aggregate of 86,500 options were granted on November 21, 1995, the effective date of the Company's initial public offering, at an exercise price equal to the initial public offering price of $15.00 per share. The options became exercisable on the first succeeding June 30th after the effective date. All other options become exercisable in three equal annual installments beginning on the first anniversary of the date of grant, subject to specified meeting attendance requirements. 28 PAREXEL INTERNATIONAL CORPORATION 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In addition to plan options granted, the Company granted at various dates prior to 1989 options to purchase an aggregate of 86,300 shares of common stock at prices ranging from $0.35 to $0.75 not pursuant to any plan. During the year ended June 30, 1994, the Company granted additional options to purchase 40,000 shares of common stock not pursuant to any plan. These options vest over a three year period and have an exercise price of $12.50 per share. Aggregate stock option activity during fiscal 1994, 1995 and 1996 was as follows:
OPTIONS EXERCISE PRICE - ---------------------------------------------------------------------------------- Outstanding at June 30, 1993 741,022 $ 0.25 -- $12.50 Granted 95,300 12.50 Canceled (11,500) 0.60 -- 12.50 Exercised (102,000) 0.60 -- 0.75 - ---------------------------------------------------------------------------------- Outstanding at June 30, 1994 722,822 $ 0.25 -- $12.50 Granted 12,000 12.50 Canceled (75,383) 3.00 -- 12.50 Exercised (21,986) 3.00 - ---------------------------------------------------------------------------------- Outstanding at June 30, 1995 637,453 $ 0.25 -- $12.50 Granted 419,000 12.50 -- 47.50 Canceled (26,073) 3.00 -- 15.00 Exercised (309,920) 0.25 -- 10.00 - ---------------------------------------------------------------------------------- Outstanding at June 30, 1996 720,460 $ 0.35 -- $47.50 - ---------------------------------------------------------------------------------- Exercisable at June 30, 1996 393,757 $ 0.35 -- $19.38 - ---------------------------------------------------------------------------------- Available for future grant at June 30, 1996 408,667 - ----------------------------------------------------------------------------------
All of the foregoing options were granted with an exercise price equal to fair market value at the time of grant. 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 300,000 shares may be issued under the Purchase Plan. 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. Effective July 1, 1992, the Company matches 100% of each participants' 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 $327,000 and $526,000 for the years ended June 30, 1995 and 1996, respectively. PAREXEL INTERNATIONAL CORPORATION 29 17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 12 - INCOME TAXES Domestic and foreign income (loss) before income taxes for the years ended June 30, 1994, 1995 and 1996 are as follows:
(in thousands) 1994 1995 1996 - ------------------------------------------------------------------------------------------------ Domestic $2,702 $ 350 $5,526 Foreign 794 (10,660) 2,126 - ------------------------------------------------------------------------------------------------ $3,496 $(10,310) $7,652 - ------------------------------------------------------------------------------------------------
The provision for income taxes for the years ended June 30, 1994, 1995 and 1996 are as follows:
(in thousands) 1994 1995 1996 - ------------------------------------------------------------------------------------------------ Current: Federal $ 881 $ 274 $2,202 State 421 192 636 Foreign 361 78 427 - ------------------------------------------------------------------------------------------------ 1,663 544 3,265 - ------------------------------------------------------------------------------------------------ Deferred: Federal (55) (164) (157) State (18) (55) (52) Foreign (17) (5) (3) (90) (224) (212) - ------------------------------------------------------------------------------------------------ $1,573 $ 320 $3,053 - ------------------------------------------------------------------------------------------------
Income taxes are greater than the amount of income tax determined by applying the applicable U.S. federal statutory income tax rate to income before income taxes as a result of the following differences:
(in thousands) 1994 1995 1996 - ------------------------------------------------------------------------------------------------ Income tax expense (benefit) at the 34% federal statutory rate $1,189 $(3,505) $2,602 State income taxes, net of federal benefit 282 92 460 Foreign rate differential 105 (108) (234) Non-deductible amortization of intangible assets 305 169 45 Non-deductible impairment of assets - 3,348 - Foreign operating losses without current benefit - 334 26 Temporary items without current benefit (reversals) (341) - - Other 33 (10) 154 - ------------------------------------------------------------------------------------------------ $1,573 $ 320 $3,053 - ------------------------------------------------------------------------------------------------
Temporary items without current benefit relate primarily to book and tax differences between the deductibility of restructuring charges incurred in fiscal 1993. 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. 30 PAREXEL INTERNATIONAL CORPORATION 18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Significant components of the Company's net deferred tax asset as of June 30, 1995 and 1996 are as follows:
(in thousands) 1995 1996 - ------------------------------------------------------------------------------- Deferred tax assets: Foreign loss carryforwards $ 6,891 $ 6,048 Facility and other restructuring costs 763 - Accrued expenses 445 497 Property and equipment 703 486 Allowance for doubtful accounts 417 491 Other 118 477 - ------------------------------------------------------------------------------- Gross deferred tax assets 9,337 7,999 Deferred tax asset valuation allowance (7,491) (5,926) - ------------------------------------------------------------------------------- Total deferred tax assets 1,846 2,073 - ------------------------------------------------------------------------------- Deferred tax liabilities: Deferred contract profit (463) (274) Other (289) (292) - ------------------------------------------------------------------------------- Total deferred tax liabilities (752) (566) - ------------------------------------------------------------------------------- $ 1,094 $ 1,507 - -------------------------------------------------------------------------------
The net deferred tax assets are included in the consolidated balance sheet as of June 30, 1995 and 1996 as follows:
(in thousands) 1995 1996 - ------------------------------------------------------------------------------- Other current assets $ 716 $1,255 Other assets 378 252 - ------------------------------------------------------------------------------- $1,094 $1,507 - -------------------------------------------------------------------------------
The net deferred tax asset includes the tax effect of approximately $12 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. The ultimate realization of these loss carryforwards is primarily dependent upon the generation of sufficient taxable income in respective foreign jurisdictions, primarily Germany. PAREXEL INTERNATIONAL CORPORATION 31 19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 years ended June 30, 1994, 1995 and 1996 is as follows:
(in thousands) 1994 1995 1996 - --------------------------------------------------------------------------- Net revenue North America $37,111 $ 35,037 $ 54,179 Europe 20,891 23,443 32,834 Asia-Pacific - 93 993 - --------------------------------------------------------------------------- $58,002 $ 58,573 $ 88,006 - --------------------------------------------------------------------------- Income (loss) from operations North America $ 3,908 $ 1,166 $ 5,405 Europe (216) (11,531) 1,266 Asia-Pacific - - (176) - --------------------------------------------------------------------------- $ 3,692 $(10,365) $ 6,495 - --------------------------------------------------------------------------- Identifiable assets North America $21,349 $ 25,288 $ 77,493 Europe 24,587 17,927 24,752 Asia-Pacific - 35 156 - --------------------------------------------------------------------------- $45,936 $ 43,250 $102,401 - ---------------------------------------------------------------------------
NOTE 14 - LEASES The Company leases its facilities under operating leases which include renewal and escalation clauses. Total rent expense was approximately $3.7 million, $4.3 million and $5.1 million for years ended June 30, 1994, 1995 and 1996, respectively. Future minimum lease commitments due under non-cancelable operating leases and capital lease obligations at each fiscal year end are as follows:
CAPITAL OPERATING (in thousands) LEASES LEASES - -------------------------------------------------------------------- 1997 $ 823 $ 6,170 1998 347 6,146 1999 28 5,642 2000 - 4,013 2001 - 3,699 Thereafter - 1,520 - -------------------------------------------------------------------- Total obligations 1,198 $27,190 - -------------------------------------------------------------------- Less amount representing interest 76 - -------------------------------------------------------------------- $1,122 - --------------------------------------------------------------------
NOTE 15 - RELATED PARTY TRANSACTIONS Certain of the Company's Directors are affiliated with certain of the Company's customers. Net revenue recognized from these customers was $2.3 million, $3.0 million and $8.1 million in fiscal 1994, 1995 and 1996, respectively. Amounts included in accounts receivable at June 30, 1995 and 1996 were $1.2 million and $1.9 million respectively. Related party amounts included in accounts receivable are on standard terms and manner of settlement. 32 PAREXEL INTERNATIONAL CORPORATION 20 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of PAREXEL International Corporation In our opinion, the accompanying consolidated balance sheet 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, 1995 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1996, 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. /s/ Price Waterhouse LLP Boston, Massachusetts August 22, 1996 PAREXEL INTERNATIONAL CORPORATION 33 21 QUARTERLY OPERATING RESULTS AND COMMON STOCK INFORMATION (UNAUDITED) The following is a summary of unaudited quarterly results of operations for the years ended June 30, 1996 and 1995:
FOR THE YEAR ENDED JUNE 30, 1996 FIRST SECOND THIRD FOURTH (in thousands, except per share amounts) QUARTER QUARTER QUARTER 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 $ 0.14 $ 0.15 $ 0.17 $ 0.20 Range of common stock prices (1) na $18.75 - 36.00(2) $26.00 - 44.50 $37.50 - 55.75
(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.
FOR THE YEAR ENDED JUNE 30, 1995 FIRST SECOND THIRD FOURTH (in thousands, except per share amounts) QUARTER QUARTER QUARTER QUARTER - -------------------------------------------------------------------------------------------------- Net revenue $13,176 $14,281 $ 14,824 $16,292 Income (loss) from operations (1,449) 473 (10,370)(3) 981 Net income (loss) (971) 295 (10,637) 683 Net income (loss) per share $ (1.16) $ 0.06 $ (12.59) $ 0.13
(3) Includes an $11.3 million non-cash charge due to the write-off of impaired long-lived assets of the Company's German operations. The Company's common stock is quoted on the Nasdaq National Market under the symbol "PRXL". 34 PAREXEL INTERNATIONAL CORPORATION 22 SELECTED FINANCIAL DATA
FISCAL YEAR ENDED JUNE 30, (in thousands, except per share data and number of employees) 1992 1993 1994 1995 1996 - ---------------------------------------------------------------------------------------------------------------------------- OPERATIONS Net revenue $45,407 $54,000 $58,002 $ 58,573 $ 88,006 Income (loss) from operations 3,172 298 (1) 3,692 (10,365)(3) 6,495 Net income (loss) 1,536 (2,157) 2,423 (2) (10,630) 4,599 Net income (loss) per share $ 0.33 $ (2.97) $ 0.44 $ (12.61) $ 0.68 FINANCIAL POSITION Cash, cash equivalents and marketable securities $11,131 $ 8,669 $ 3,066 $ 6,815 $ 45,562 Working capital 5,884 7,161 10,885 11,574 53,428 Total assets 44,390 45,457 45,936 43,250 102,401 Long-term debt 790 222 391 633 360 Stockholders' equity 21,807 21,847 25,236 15,524 61,212 OTHER DATA Investment in property and equipment $ 1,474 $ 1,699 $ 1,979 $ 1,460 $ 5,039 Depreciation and amortization $ 2,299 $ 2,511 $ 2,435 $ 2,251 $ 2,343 Number of employees 647 641 723 726 1,344 Average common and common equivalent shares(4) 5,236 727 5,747 843 6,780
(1) Income from operations includes a $3.3 million charge in connection with a restructuring of operations in Germany. See Note 3 entitled "Impairment of Long-Lived Assets" to Consolidated Financial Statements for a description of this matter. (2) Net income includes $500,000 related to the cumulative effect of adopting Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". (3) Loss from operations includes an $11.3 million non-cash 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 impaact of this charge was $303,000. See Note 3 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), the inclusion of which would have been anti-dilutive. PAREXEL INTERNATIONAL CORPORATION 35 EX-21.1 4 LIST OF SUBSIDIARIES OF THE COMPANY 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 Unternehmens beteilung 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 - Organisationgesellschaft mbH, a corporation organized under the laws of Germany 100% PAREXEL International, 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 (Lansel) Limited, a corporation organized under the laws of Brazil 100% Caspard Consultants, a corporation organized under the laws of France 100% Sitebase Clinical Systems, Inc., a Massachusetts Corporation 100%
- ------------------ (1) Direct and indirect 31 EX-23.1 5 CONSENT OF PRICE WATERHOUSE LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 33-80301) of PAREXEL International corporation of our report dated August 22, 1996 appearing on page 33 of the Annual Report to Shareholders which is incorporated 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, 1996 listed under Item 14(a) of PAREXEL International Corporation's Annual Report on From 10-K for the year ended June 30, 1996 when such schedule is read in conjunction with the financial statements referred to in our report. The audit referred to in such report also included this Financial Statement Schedule. PRICE WATERHOUSE LLP Boston, Massachusetts September 27, 1996 EX-27 6 FINANCIAL DATA SCHEDULE
5 1000 YEAR JUN-30-1996 JUL-01-1995 JUN-30-1996 17101 29319 40776 (1499) 0 92602 15962 7769 102401 39174 0 0 0 78 61134 102401 0 88006 0 60141 0 515 162 7652 3053 4599 0 0 0 4599 0.68 0.68
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