Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-27058
PAREXEL INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its Charter)
MASSACHUSETTS 04-2776269
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
195 WEST STREET
WALTHAM, MASSACHUSETTS 02451
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (781) 487-9900
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 ( )
Indicated by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes (X) No ( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of November 6, 2003, there
were 25,936,541 shares of PAREXEL International Corporation common stock
outstanding, excluding 930,829 shares in treasury.
1
PAREXEL INTERNATIONAL CORPORATION
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets - September 30, 2003 and June 30, 2003 3
Condensed Consolidated Statements of Operations - Three months ended
September 30, 2003 and 2002 4
Condensed Consolidated Statements of Cash Flows - Three months ended
September 30, 2003 and 2002 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition and Results 9
of Operations
Item 3 Quantitative and Qualitative Disclosure About Market Risk 16
Item 4 Controls and Procedures 25
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 25
SIGNATURES 26
2
PART I. FINANCIAL INFORMATION PAREXEL INTERNATIONAL CORPORATION
ITEM 1 - FINANCIAL STATEMENTS CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
SEPTEMBER 30, JUNE 30,
2003 2003
------------- -----------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 70,048 $ 69,734
Marketable securities 10,098 12,990
Billed and unbilled accounts receivable, net 210,794 222,726
Prepaid expenses 11,160 12,087
Current deferred tax assets 27,390 27,604
Other current assets 4,407 4,936
------------ -----------
Total current assets 333,897 350,077
Property and equipment, net 61,625 61,924
Goodwill 30,452 29,803
Other intangible assets, net 5,534 5,763
Non-current deferred tax assets 10,109 10,043
Other assets 6,604 6,627
------------ -----------
Total assets $ 448,221 $ 464,237
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term debt $ 358 $ 118
Accounts payable 9,091 14,462
Deferred revenue 118,584 130,650
Accrued expenses 13,239 13,766
Accrued restructuring charges 7,953 8,750
Accrued employee benefits and withholdings 32,444 37,849
Current deferred tax liabilities 2,557 2,557
Income taxes payable 4,563 1,801
Other current liabilities 4,115 5,778
------------ -----------
Total current liabilities 192,904 215,731
Long-term debt 625 644
Non-current deferred tax liabilities 10,674 10,674
Other liabilities 5,958 6,092
------------ -----------
Total liabilities 210,161 233,141
------------ -----------
Minority interest in subsidiary 3,428 3,996
Stockholders' equity:
Preferred stock--$.01 par value; shares authorized:
5,000,000 at September 30, 2003 and June 30, 2003;
Series A Junior Participating Preferred Stock
- 50,000 shares designated; none issued and outstanding
Common stock--$.01 par value; shares authorized:
50,000,000 at September 30, 2003 and June 30, 2003; shares
issued: 26,841,981 at September 30, 2003 and
26,683,055 at June 30, 2003; shares outstanding 25,911,152
at September 30, 2003 and 25,822,055 at June 30, 2003 269 267
Additional paid-in capital 176,143 174,734
Treasury stock, at cost; 930,829 shares at September 30,2003 and
861,000 shares at June 30, 2003 (8,792) (8,165)
Retained earnings 67,849 63,117
Accumulated other comprehensive loss (837) (2,853)
------------ -----------
Total stockholders' equity 234,632 227,100
------------ -----------
Total liabilities and stockholders' equity $ 448,221 $ 464,237
============ ===========
See notes to condensed consolidated financial statements.
3
PAREXEL INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share data)
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
--------------------------
2003 2002
---------- -----------
Service revenue $ 129,788 $ 119,353
Reimbursement revenue 23,803 26,833
---------- -----------
Total revenue 153,591 146,186
Costs and expenses:
Direct costs 83,513 79,980
Reimbursable out-of-pocket expenses 23,803 26,833
Selling, general and administrative expenses 32,468 27,564
Depreciation and amortization 5,987 4,806
---------- -----------
Total costs 145,771 139,183
---------- -----------
Income from operations 7,820 7,003
Other income (loss), net 294 (1,103)
----------- -----------
Income before provision for income taxes and minority interest 8,114 5,900
Provision for income taxes 3,124 2,478
Minority interest 258 159
---------- -----------
Net income $ 4,732 $ 3,263
========== ===========
Earnings per share:
Basic and diluted $ 0.18 $ 0.13
Shares used in computing earnings per share:
Basic 25,860 25,173
Diluted 26,592 25,315
See notes to condensed consolidated financial statements.
4
PAREXEL INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------
2003 2002
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,732 $ 3,263
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 5,987 4,806
Minority interest in net income of consolidated subsidiary 258 159
Changes in operating assets/liabilities (10,332) 1,131
---------- ----------
Net cash provided by operating activities 645 9,359
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (42,634) (60,714)
Proceeds from sale of marketable securities 45,526 68,952
Acquisition of business - (497)
Proceeds from sale of fixed assets 30 31
Purchase of property and equipment (4,944) (6,552)
---------- ----------
Net cash provided by (used) in investing activities (2,022) 1,220
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 1,411 19
Borrowings and (repayments) under credit arrangements 221 (44)
Payments to repurchase common stock (627) -
---------- ----------
Net cash provided by (used) in financing activities 1,005 (25)
---------- ----------
Effect of exchange rate changes on cash and cash equivalents 686 715
---------- ----------
Net increase in cash for the period 314 11,269
Cash and cash equivalents at beginning of period 69,734 22,479
---------- ----------
Cash and cash equivalents at end of period $ 70,048 $ 33,748
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Taxes $ 214 $ 6,055
Interest $ 943 $ 645
Acquisitions, net of cash acquired:
Fair value of assets acquired and goodwill - $ 497
Liabilities and minority interest assumed - -
---------- ----------
Cash paid for acquisition - $ 497
========== ==========
See notes to condensed consolidated financial statements.
5
PAREXEL INTERNATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
PAREXEL International Corporation ("PAREXEL" or "the Company") have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions of Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (primarily
consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included. Operating results for the three months ended
September 30, 2003, are not necessarily indicative of the results that may be
expected for other quarters or the entire fiscal year. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Company's Annual Report on Form 10-K for the year ended June 30, 2003.
Certain prior year balances have been reclassified in order to conform to
current year presentation. Specifically, effective July 1, 2003, the Company
decided to merge the Conferences and Publishing business of PAREXEL Consulting
Group ("PCG") with the Meetings and Events business of Medical Marketing
Services ("MMS") in order to eliminate duplication and improve synergies. As a
result, revenue and direct costs were moved from PCG to MMS. In addition, the
Company combined certain Clinical Research Services ("CRS") and Corporate
Information Technology groups into one organization led by the Company's
Corporate Information Systems group in order to capitalize on various synergies
in those areas. As a result, ongoing and historical expenses related to these
activities were shifted from direct costs to selling, general and administrative
expenses.
NOTE 2 -- EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income for the period by
the weighted average number of common shares outstanding during the period.
Diluted earnings per share is computed by dividing net income by the weighted
average number of common shares plus the dilutive effect of outstanding stock
options and shares issuable under the employee stock purchase plan.
Approximately 1.0 million and 2.7 million outstanding stock options were
excluded from the calculation of diluted earnings per share for the three months
ended September 30, 2003 and 2002, respectively, because they were
anti-dilutive.
The following table outlines the basic and diluted earnings per common share
computations:
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
($ IN THOUSANDS, EXCEPT PER SHARE DATA) 2003 2002
---------- ----------
Net income attributable to common shares $ 4,732 $ 3,263
========== ==========
BASIC EARNINGS PER COMMON SHARE COMPUTATION:
Weighted average common shares outstanding 25,860 25,173
========== ==========
Basic earnings per common share $ 0.18 $ 0.13
========== ==========
DILUTED EARNINGS PER COMMON SHARE COMPUTATION:
Weighted average common shares outstanding:
Shares attributable to common stock outstanding 25,860 25,173
Shares attributable to common stock options 732 142
---------- ----------
26,592 25,315
========== ==========
Diluted earnings per common share $ 0.18 $ 0.13
========== ==========
6
NOTE 3 - COMPREHENSIVE INCOME
Comprehensive income has been calculated by the Company in accordance with
Financial Accounting Standards Board ("FASB") Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income." Comprehensive
income for the three months ended September 30, 2003 and 2002 were as follows:
THREE MONTHS ENDED
SEPTEMBER 30,
($ IN THOUSANDS, EXCEPT PER SHARE DATA) 2003 2002
-------- --------
Net income $ 4,732 $ 3,263
Add foreign currency translation adjustments 2,016 799
-------- --------
Comprehensive income $ 6,748 $ 4,062
======== ========
NOTE 4 - STOCK-BASED COMPENSATION
The Company accounts for employee stock awards using the intrinsic value based
method as prescribed by Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees", as described by FASB Interpretation No. 44.
Accordingly, no compensation expense is recognized because the exercise price of
the Company's stock options was equal to the market price of the underlying
stock on the date of grant. The Company has adopted the provisions of SFAS No.
123, "Accounting for Stock-Based Compensation" for disclosure purposes only.
If the compensation cost for the Company's stock options and the Company's
employee stock purchase plan had been determined based on the fair value at the
date of grant, as prescribed in SFAS No. 123, the Company's net income and net
income per share would have been as follows:
THREE MONTHS ENDED
SEPTEMBER 30,
($ IN THOUSANDS, EXCEPT PER SHARE DATA) 2003 2002
-------- --------
Net income, as reported $ 4,732 $ 3,263
Deduct total stock-based compensation, net of tax 353 711
-------- --------
Pro forma net income $ 4,379 $ 2,552
======== ========
Pro forma net income per share:
Basic $ 0.17 $ 0.10
Diluted $ 0.16 $ 0.10
As stock options vest over several years and additional stock option grants are
expected to be made each year, the above pro forma disclosures are not
necessarily representative of pro forma effects on results of operations for
future periods.
NOTE 5 - SEGMENT INFORMATION
The Company is managed through four business segments: CRS, the PCG, MMS, and
Perceptive Informatics, Inc. ("Perceptive"). CRS constitutes the Company's core
business and includes clinical trials management, biostatistics and data
management, as well as related medical advisory and investigator site services.
PCG provides technical expertise in such disciplines as clinical pharmacology,
regulatory affairs, industry training, and management consulting. PCG
consultants identify alternatives and propose solutions to address clients'
product development, registration, and commercialization issues. MMS provides a
full spectrum of market development, product development, and targeted
communications services in support of product launch. Perceptive provides
technology solutions to improve clients' product development and
commercialization processes. Perceptive offers a portfolio of services that
include design of web-based portals, interactive voice response systems
("IVRS"), clinical trial management systems ("CTMS"), electronic data capture
solutions, and medical imaging. Perceptive is a majority-owned subsidiary of the
Company. As of September 30, 2003, the Company owned 98.2% of Perceptive, based
on the outstanding shares.
7
The Company evaluates its segment performance and allocates resources based on
service revenue and gross profit (service revenue less direct costs), while
other operating costs are evaluated on a geographic basis. Accordingly, the
Company does not include selling, general, and administrative expenses,
depreciation and amortization expense, interest income (expense), other income
(expense), and income tax expense in segment profitability. Furthermore, the
Company attributes revenue to individual countries based upon the number of
hours of services performed in the respective countries and inter-segment
transactions are not included in service revenue.
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
--------------------------
($ IN THOUSANDS) 2003 2002
---------- ----------
Service revenue:
Clinical Research Services $ 79,662 $ 71,897
PAREXEL Consulting Group 21,790 22,373
Medical Marketing Services 20,193 19,499
Perceptive Informatics, Inc. 8,143 5,584
---------- ----------
$ 129,788 $ 119,353
========== ==========
Gross profit on service revenue:
Clinical Research Services $ 32,604 $ 24,923
PAREXEL Consulting Group 4,854 6,061
Medical Marketing Services 5,117 6,700
Perceptive Informatics, Inc. 3,700 1,689
---------- ----------
$ 46,275 $ 39,373
========== ==========
NOTE 6 - RESTRUCTURING CHARGES
During the three months ended September 30, 2003, the Company did not record any
new restructuring provisions.
During the three-month periods ended June 30, 2003 and December 31, 2002 the
Company recorded facilities-related restructuring charges totaling $3.5 million
and $5.9 million, respectively, as a result of changes in prior assumptions
regarding certain leased facilities which were abandoned as part of the
Company's June 2001 restructuring. The changes in prior assumptions were caused
by a further deterioration in challenging real estate market conditions, which
made it difficult to sub-lease the abandoned facilities at previously estimated
rental rates.
In June 2001, the Company made certain reasonable assumptions based upon market
conditions, which indicated that sub-lease payments for these abandoned
facilities were probable. The June 2001 restructuring charge involved fourteen
properties. The Company has been successful in exiting or subleasing eleven of
those properties. After expending significant effort attempting to sub-lease the
remaining properties during a declining commercial real estate market, it became
apparent to the Company during fiscal year 2003 that the original assumptions
for the remaining three properties were no longer valid under current market
conditions.
Current quarter activity charged against the restructuring accrual (which is
included in "Other current liabilities" in the Condensed Consolidated Balance
Sheet) was as follows:
BALANCE AS OF
BALANCE AS OF 1ST QUARTER SEPTEMBER 30,
($ IN THOUSANDS) JUNE 30, 2003 PAYMENTS 2003
------------- ----------- -------------
Employee severance costs $ 244 $ (6) $ 238
Facilities related charges 8,506 (791) 7,715
------- ------- -------
$ 8,750 $ (797) $ 7,953
======= ======= =======
8
NOTE 7 - RECENTLY ISSUED ACCOUNTING STANDARDS
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Instruments
with Characteristics of both Liabilities and Equity" ("SFAS 150"), which
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity.
Except for those provisions related to mandatory redeemable financial
instruments, which have been deferred indefinitely by the FASB, SFAS 150 is
effective for financial instruments entered into or modified after May 31, 2003,
and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. The Company adopted SFAS 150 effective July 1,
2003. Adoption of this standard did not have a material impact on the Company's
results of operations or financial position.
In April 2003, the FASB issued SFAS No 149, "Derivatives and Hedging, an
Amendment of FASB Statement 133" ("SFAS 149"). This statement amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under
Statement 133, Accounting for Derivative Instruments and Hedging Activities. The
changes in this Statement improve financial reporting by requiring that
contracts with comparable characteristics be accounted for similarly. In
particular, this Statement clarifies under what circumstances a contract with an
initial net investment meets the characteristics of a derivative under Statement
133, clarifies when a derivative contains a financing component, amends the
definition of "underlying" to conform it to language used in FASB Interpretation
No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others", and amends certain
other existing pronouncements. Those changes will result in more consistent
reporting of contracts as either derivatives or hybrid instruments. This
Statement is effective for contracts entered into or modified after June 30,
2003 and for hedging relationships designated after June 30, 2003. The Company
adopted SFAS 149 effective July 1, 2003. Adoption of this standard did not have
a material impact on the Company's results of operations or financial position.
In January 2003, the EITF, published EITF Issue 00-21 ("EITF 00-21"), "Revenue
Arrangements with Multiple Deliverables", which requires companies to determine
whether an arrangement involving multiple deliverables contains more than one
unit of accounting. In applying EITF 00-21, revenue arrangements with multiple
deliverables should be divided into separate units of accounting if the
deliverables in the arrangement meet certain criteria. Consideration under an
arrangement should be allocated among the separate units of accounting based on
their relative fair values. This issue is effective for revenue arrangements
entered into in fiscal periods beginning after June 15, 2003. The Company's
adoption of EITF 00-21 did not have a material impact on the Company's results
of operations or financial position.
In January 2003, the FASB issued Interpretation No 46 ("FIN 46"), "Consolidation
of Variable Interest Entities", to expand upon and strengthen existing
accounting guidance that addresses when a company's financial statements should
include the assets, liabilities and activities of another entity. Until now, a
company generally has included another entity in its consolidated financial
statements only if it controlled the entity through voting interests. FIN 46
changes that guidance by requiring a variable interest entity, as defined, to be
consolidated by a company if that company is subject to a majority of the risk
of loss from the variable interest entity's activities or is entitled to receive
a majority of the entity's residual returns or both. FIN 46 also requires
disclosure about variable interest entities that the company is not required to
consolidate but in which it has a significant variable interest. The
consolidation requirements of FIN 46 apply immediately to variable interest
entities created after January 31, 2003 and to older entities in the first
fiscal year or interim period beginning after December 15, 2003. Certain of the
disclosure requirements apply in all financial statements issued after January
31, 2003, regardless of when the variable interest entity was established. The
Company is reviewing the provisions of FIN 46 but does not expect the adoption
to have a material impact, if any, on the Company's results of operations or
financial position.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The financial information discussed below is derived from the Condensed
Consolidated Financial Statements included herein. The financial information set
forth and discussed below is unaudited but, in the opinion of management,
reflects all adjustments (primarily consisting of normal recurring adjustments)
considered necessary for a fair presentation of such information. The Company's
results of operations for a particular quarter may not be indicative of results
expected during subsequent fiscal quarters or for the entire year.
9
Certain prior year balances have been reclassified in order to conform to
current year presentation. Specifically, effective July 1, 2003, the Company
decided to merge the Conferences and Publishing business of PCG with the
Meetings and Events business of MMS in order to eliminate duplication and
improve synergies. As a result, revenue and direct costs were moved from PCG to
MMS. In addition, the Company combined certain CRS and Corporate Information
Technology groups into one organization led by the Company's Corporate
Information Systems group in order to capitalize on various synergies in those
areas. As a result, ongoing and historical expenses related to these activities
were shifted from direct costs to selling, general and administrative expenses.
The statements included in this quarterly report on Form 10-Q, including the
statements in "Management's Discussion and Analysis of Financial Condition and
Results of Operations", may contain "forward-looking statements", within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, including statements regarding the adequacy of
the Company's existing capital resources and future cash flows from operations,
and statements regarding expected financial results, future growth and customer
demand. For this purpose, any statements that are not statements of historical
fact may be deemed forward-looking statements. Without limiting the foregoing,
the words "believes", "anticipates", "plans", "expects", "intends", "appears",
"will" and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause the
Company's actual results, including the Company's actual operating performance,
actual expense savings and other operating improvements resulting from
restructurings and other corporate actions, to differ significantly from the
results indicated by the forward-looking statements. These important factors are
discussed in greater detail under "RISK FACTORS" below and elsewhere in this
quarterly report.
The forward-looking statements included in this quarterly report represent the
Company's estimates as of the date of this quarterly report. The Company
specifically disclaims any obligation to update these forward-looking statements
in the future. These forward-looking statements should not be relied upon as
representing the Company's estimates or views as of any date subsequent to the
date of this quarterly report.
OVERVIEW
The Company is a leading biopharmaceutical services company, providing a broad
range of expertise in clinical research, medical marketing, consulting and
informatics and advanced technology products and services to the worldwide
pharmaceutical, biotechnology, and medical device industries. The Company's
primary objective is to provide solutions for managing the biopharmaceutical
product lifecycle with the goal of reducing the time, risk and cost associated
with the development and commercialization of new therapies. Since its founding
in 1983, PAREXEL has developed significant expertise in processes and
technologies supporting this strategy. The Company's product and service
offerings include: clinical trials management, data management, biostatistical
analysis, medical marketing, clinical pharmacology, regulatory and medical
consulting, performance improvement, industry training and publishing, web-based
portal solutions, interactive voice response systems ("IVRS"), clinical trial
management systems ("CTMS"), electronic data capture solutions, medical imaging
services, and other drug development consulting services. The Company believes
that its integrated services, depth of therapeutic area expertise, access to
patients, and sophisticated information technology, along with its experience in
global drug development and product launch services, represent key competitive
strengths.
The Company is managed through four business segments, namely, Clinical Research
Services ("CRS"), PAREXEL Consulting Group ("PCG"), Medical Marketing Services
("MMS") and Perceptive Informatics, Inc. ("Perceptive"). CRS constitutes the
Company's core business and includes clinical trials management and
biostatistics and data management, as well as related medical advisory and
investigator site services. PCG provides technical expertise in such disciplines
as clinical pharmacology, regulatory affairs, industry training, and management
consulting. PCG consultants identify alternatives and propose solutions to
address clients' product development, registration, and commercialization
issues. MMS provides a full spectrum of market development, product development,
and targeted communications services in support of product launch. Perceptive
provides technology solutions to improve clients' product development and
commercialization processes. Perceptive offers a portfolio of services that
include the design of web-based portals, IVRS, CTMS, electronic data capture
solutions, and medical diagnostics. Perceptive is a majority-owned subsidiary of
the Company. As of September 30, 2003, the Company owned 98.2% interest in
Perceptive, based on the outstanding shares.
10
The Company conducts a significant portion of its operations in foreign
countries. Approximately 52.6% of the Company's service revenue for the three
months ended September 30, 2003 and 46.5% of the Company's service revenue for
the three months ended September 30, 2002, were from non-U.S. operations.
Because the Company's financial statements are denominated in United States
("U.S"). dollars, changes in foreign currency exchange rates can have a
significant effect on its operating results. For the three months ended
September 30, 2003, approximately 19.3% of total service revenue was denominated
in British pounds and 25.2% of total service revenue was denominated in Euros.
For the three months ended September 30, 2002, approximately 20.9% of total
service revenue was denominated in British pounds and approximately 19.1% of
total service revenue was denominated in Euros. As a result of a weakening of
the U.S. dollar against the British Pound and the Euro in the first quarter of
fiscal year 2004, the Company's revenue and direct costs increased significantly
in the three months ended September 30, 2003 versus the comparable 2002 period.
Approximately 90% of the Company's contracts are fixed price, with some variable
components, and range in duration from a few months to several years. Cash flow
from these contracts typically consists of a down payment required to be paid at
the time of contract execution with the balance due in installments over the
contract's duration, usually on a milestone achievement basis. Revenue from
these contracts is generally recognized as work is performed. As a result, cash
receipts do not necessarily correspond to costs incurred and revenue recognized
on contracts.
Generally, the Company's clients can terminate their contracts with the Company
upon thirty to sixty days' notice or can delay execution of services. Clients
may terminate or delay contracts for a variety of reasons, including, among
others: merger or potential merger related activities involving the client, the
failure of products being tested to satisfy safety requirements or efficacy
criteria, unexpected or undesired clinical results of the product, client cost
reductions as a result of budgetary limits or changing priorities, the client's
decision to forego a particular study, insufficient patient enrollment or
investigator recruitment, or production problems resulting in shortages of the
product.
CRITICAL ACCOUNTING POLICIES
The discussion and analysis of the Company's financial condition and results of
operations are based on the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the U.S. The preparation of these financial statements requires the Company
to make estimates and assumptions that affect the reported amounts of assets and
liabilities, revenue and expenses, and other financial information. On an
ongoing basis, the Company evaluates its estimates and judgments, including
those related to revenue recognition. The Company bases its estimates on
historical experience and on various other factors that are believed to be
reasonable under the circumstances. Actual results may differ from these
estimates under different assumptions or conditions.
While the Company's significant accounting policies are more fully described in
Note 2 to the consolidated financial statements included in Item 8 of Form 10-K
for the year ended June 30, 2003, the Company believes that the following
accounting policies are most critical to aid in fully understanding and
evaluating its reported financial results.
REVENUE
Service revenue on fixed price contracts is recognized as services are
performed. The Company measures progress on fixed price contracts using the
concept of proportional performance based upon a direct labor cost-to-cost
methodology or by the unit based output method. These methods require the
Company to estimate total expected revenue and total expected costs. Generally,
the assigned financial manager or financial analyst reviews contract estimates
on a monthly basis. Adjustments to contract estimates are made in the periods in
which the facts that require the revisions become known. Historically, there
have not been any significant variations between contract estimates and the
actual costs incurred, which were not recovered from clients. In the event that
future estimates are incorrect, they could materially impact the Company's
consolidated results of operations or financial position.
BILLED ACCOUNTS RECEIVABLE, UNBILLED ACCOUNTS RECEIVABLE AND DEFERRED REVENUE
Billed accounts receivable represents amounts for which invoices have been sent
to clients. Unbilled accounts receivable represent amounts recognized as revenue
for which invoices have not yet been sent to clients. Deferred revenue
represents amounts billed or payments received for which revenue has not yet
been earned. The Company maintains an allowance for doubtful accounts based on
historical collectability and specific identification of potential problems. In
the event the Company is unable to collect portions of its outstanding billed or
unbilled receivables, there may be a material impact to the Company's
consolidated results of operations and financial position.
11
INCOME TAXES
The Company's global provision for corporate income taxes is calculated using
the tax accounting rules established by SFAS No. 109 "Accounting for Income
Taxes". Income tax expense is based on the distribution of profit before tax
amongst the various taxing jurisdictions in which the Company operates, adjusted
as required by the tax laws of each taxing jurisdiction. Changes in the
distribution of profits and losses between taxing jurisdictions may have a
significant impact on the Company's effective tax rate. The provision is a
combination of current-year tax liability and future tax liability/benefit that
results from differences between book and taxable income that will reverse in
future periods. Deferred tax assets and liabilities for these future tax effects
are established on the Company's balance sheet. A valuation allowance is
established if it is more likely than not that future tax benefits will not be
realized. Monthly interim tax provision calculations are prepared during the
year. Differences between these interim estimates and the final results for the
year could materially impact the Company's effective tax rate and its
consolidated financial results and financial position.
EMPLOYEE STOCK COMPENSATION
The Company elected to follow Accounting Principal Board Opinion No. 25,
"Accounting for Stock Options Issued to Employees" ("APB 25"), and related
interpretations in accounting for the Company's employee stock options because
the alternative fair value accounting provided for under SFAS No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), requires the use of
option valuation models that were not developed for valuing employee stock
options. Under APB 25, no compensation expense is recognized if the exercise
price equals the market price of the underlying stock on the date of the grant.
If PAREXEL accounted for stock options under SFAS 123, the Company would have
recorded additional compensation expense for stock option grants to employees.
If PAREXEL were unable to account for stock options under APB 25, the Company's
financial results would be materially affected to the extent the additional
compensation expense would have to be recognized. The additional compensation
expense could vary significantly from period to period based on several factors
including the number of stock options granted and stock price fluctuations.
FOREIGN CURRENCIES
The Company derives a large portion of its service revenue from operations in
foreign countries. The Company's financial statements are denominated in U.S.
dollars. As a result, factors associated with international operations,
including changes in foreign currency exchange rates, could significantly affect
the Company's results of operations. Gains and losses on transactions
denominated in currencies other than an entity's functional currency are
reported in other income (expense). Adjustments from the translation of the
subsidiary entities' foreign functional currencies to U.S. dollars are reported
in accumulated other comprehensive income/(loss) within stockholder's equity.
GOODWILL
Goodwill represents the excess of the cost of an acquired business over the fair
value of the related net assets at the date of acquisition. Prior to the
adoption of SFAS No. 142, "Goodwill and Other Intangible Assets" (SFAS No.
142"), goodwill was amortized using the straight-line method over its expected
useful life. Subsequent to the adoption of SFAS No. 142, goodwill is subject to
annual impairment testing. The Company has assessed the impairment of goodwill
under SFAS No. 142 in fiscal year 2003. Based on this assessment, there was no
impairment identified. The Company tests for impairment at least annually
(generally in the fourth quarter) and more often if events or circumstances
warrant. Any future impairment of goodwill could have a material impact to the
Company's financial position or its results of operations.
RESULTS OF OPERATIONS
ANALYSIS BY SEGMENT
The Company evaluates its segment performance and allocates resources based on
service revenue and gross profit (service revenue less direct costs), while
other operating costs are evaluated on a geographic basis. Accordingly, the
Company does not include the impact of selling, general, and administrative
expenses, depreciation and amortization expense, other income (expense), and
income taxes in segment profitability. Service revenue, direct costs and gross
profit on service revenue for the three months ended September 30, 2003 and 2002
were as follows:
12
FOR THE THREE MONTHS
ENDED SEPTEMBER 30,
--------------------
($ IN THOUSANDS) 2003 2002 INCREASE %
--------- --------- --------- ------
Service revenue:
CRS $ 79,662 $ 71,897 $ 7,765 10.8%
PCG 21,790 22,373 (583) -2.6%
MMS 20,193 19,499 694 3.6%
Perceptive 8,143 5,584 2,559 45.8%
--------- --------- ---------
$ 129,788 $ 119,353 $ 10,435 8.7%
========= ========= =========
Direct costs:
CRS $ 47,058 $ 46,974 $ 84 0.2%
PCG 16,936 16,312 624 3.8%
MMS 15,076 12,799 2,277 17.8%
Perceptive 4,443 3,895 548 14.1%
--------- --------- ---------
$ 83,513 $ 79,980 $ 3,533 4.4%
========= ========= =========
Gross profit on service revenue:
CRS $ 32,604 $ 24,923 $ 7,681 30.8%
PCG 4,854 6,061 (1,207) -19.9%
MMS 5,117 6,700 (1,583) -23.6%
Perceptive 3,700 1,689 2,011 119.1%
--------- --------- ---------
$ 46,275 $ 39,373 $ 6,902 17.5%
========= ========= =========
THREE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2002:
Service revenue increased by $10.4 million, or 8.7%, to $129.8 million for the
three months ended September 30, 2003 from $119.4 million in the three months
ended September 30, 2002. On a geographic basis, service revenue for the three
months ended September 30, 2003 was distributed as follows: The Americas $62.4
million (48.1%), Europe $60.9 million (46.9%) and Asia/Pacific $6.5 million
(5.0%). For the three months ended September 30, 2002, service revenue was
distributed as follows: The Americas $64.7 million (54.2%), Europe $49.9 million
(41.8%), and Asia/Pacific $4.8 million (4.0%). On a segment basis, CRS service
revenue increased by $7.8 million, or 10.8%, to $79.7 million for the three
months ended September 30, 2003 from $71.9 million in the three months ended
September 30, 2002. Of the total 10.8% increase, approximately 5.0% was
attributed to the positive impact of foreign currency fluctuations, with the
remaining 5.8% primarily due to higher business volume in Europe and in Japan.
PCG service revenue decreased by $0.6 million, or 2.6%, to $21.8 million for the
three months ended September 30, 2003 from $22.4 million in the three months
ended September 30, 2002. This decrease was offset by the positive impact of
foreign exchange fluctuations, which accounted for approximately 8.4% of the
increase in PCG service revenue for the three-month period ended September 30,
2003. PCG experienced a decrease in revenue resulting from a reduction in FDA
enforcement activity and reduced levels of discretionary spending by
biopharmaceutical companies, which impacted the regulatory and consulting
segments of the PCG business. MMS service revenue increased by $0.7 million, or
3.6%, to $20.2 million for the three months ended September 30, 2003 from $19.5
million in the same period one year ago. This increase was attributed to
incremental revenue from the Pracon and HealthIQ business, which was acquired by
the Company during the second quarter of fiscal year 2003. Perceptive service
revenue increased by $2.6 million, or 45.8%, to $8.1 million for the three
months ended September 30, 2003, as compared with $5.6 million in the same
period a year ago. Of the total 45.8% increase, approximately 42.2% was
attributed to incremental revenue associated with the FW Pharma business, which
was acquired by the Company during the third quarter of fiscal year 2003, and
the remaining 3.6% was primarily attributed to an increase in the group's
e-Services business.
Reimbursement revenue consists of reimbursable out-of-pocket expenses incurred
on behalf of, and reimbursable by, clients. It does not yield any gross profit
to the Company, nor does it have an impact on net income.
13
Direct costs increased by $3.5 million, or 4.4%, to $83.5 million for the three
months ended September 30, 2003 from $80.0 million in the three months ended
September 30, 2002. On a segment basis, CRS's direct costs for the three months
ended September 30, 2003 remained relatively consistent at $47.0 million as
compared with the same period one year ago. As a percentage of service revenue,
CRS direct costs for the three months ended September 30, 2003 decreased by 6.2
percentage points, declining to 59.1% from 65.3% over the three months ended
September 30, 2002 primarily due to ongoing productivity improvements, improved
performance in Japan, and continued strength in Europe. The improvement in Japan
was a result of the positive effect of the management changes and operational
improvements implemented during the fourth quarter of fiscal year 2003, and a
contract closeout. PCG direct costs increased by $0.6 million, or 3.8%, to $16.9
million for the three months ended September 30, 2003 from $16.3 in the same
period in 2002 primarily due to the unfavorable impact of foreign exchange
fluctuations, which were partly offset by lower personnel costs. As a percentage
of service revenue, PCG direct costs for the three months ended September 30,
2003 increased by 4.8 percentage points to 77.7% for the three months ended
September 30, 2003 from 72.9% in the three months ended September 30, 2002
primarily reflecting the period-over-period decline in revenue levels. MMS
direct costs increased $2.3 million, or 17.8%, to $15.1 million for the three
months ended September 30, 2003 from $12.8 million in the three months ended
September 30, 2002. Of the total 17.8% increase, approximately 2.0% was
attributed to increased costs as a result of foreign currency fluctuations with
the remaining 15.8% attributed to one-time catch-up adjustments, incremental
hiring costs related to recent staff additions, and the impact of investing
ahead of the revenue curve. As a percentage of service revenue, MMS direct costs
were 74.7% for three months ended September 30, 2003 and 65.6% for the same
period one year ago primarily reflecting the increased costs described above,
coupled with a less favorable revenue mix. Perceptive direct costs increased by
$0.5 million, or 14.1%, to $4.4 million for the three months ended September 30,
2003 from $3.9 million in the three months ended September 30, 2002. Of the
total 14.1% increase, approximately 9.2% was due to incremental costs associated
with the FW Pharma acquisition with the remaining 4.9% primarily due to
increased labor costs associated with headcount additions made between the
second and fourth quarters of fiscal year 2003. As a percentage of service
revenue, Perceptive's direct costs for the three months ended September 30, 2003
decreased by 15.2 percentage points to 54.6% for the three months ended
September 30, 2003 from 69.8% in the same period one year ago, primarily
reflecting increased revenue in the period and continued improvements in
productivity.
Selling, general and administrative ("SG&A") expenses increased by $4.9 million,
or 17.8%, to $32.5 million for the three months ended September 30, 2003 from
$27.6 million in the same period in the last fiscal year. Of the total 17.8%
increase, approximately 4.5% was caused by foreign currency fluctuations,
approximately 2.3% was attributed to incremental expenses associated with the
businesses acquired during fiscal year 2003 and the remaining 11.0% was driven
primarily by increased selling and promotions expenses and higher facilities
costs. As a percentage of service revenue, SG&A increased by 1.9 percentage
points to 25.0% in the three-month period ended September 30, 2003, as compared
with 23.1% in the same period of the last fiscal year. This increase was driven
by higher research and development costs in the businesses acquired in fiscal
year 2003, higher spending on selling and promotions, and higher facilities
costs.
Depreciation and amortization ("D&A") expense increased by $1.2 million, or 24.6
%, to $6.0 million for the three months ended September 30, 2003 from $4.8
million in the three months ended September 30, 2002. Of the total 24.6%
increase, approximately 9.2% was attributed to higher depreciation expense as a
result of computer software placed in service during the three-month period
ended September 30, 2003, 4.8% in incremental amortization expense associated
with intangible assets acquired with the fiscal year 2003 acquisitions, 4.5%
resulted from foreign exchange fluctuations and the remaining 6.1% was due to
higher depreciation expenses associated with increased capital spending during
fiscal year 2003. As a percentage of service revenue, D&A was 4.6% for the three
months ended September 30, 2003 and 4.0% in the same period in the last fiscal
year.
Income from operations increased by $0.8 million, or 11.7%, to $7.8 million for
the three months ended September 30, 2003 from $7.0 million in the same period
one year ago primarily due to the reasons noted in the preceding paragraphs.
Income from operations increased as a percentage of service revenue to 6.0% for
the three months ended September 30, 2003 from 5.9% for the same period in the
last fiscal year.
Total other income/(loss) increased by $1.4 million in the three months ended
September 30, 2003 to $0.3 million of income from a loss of $1.1 million in the
three months ended September 30, 2002. The improvement was primarily due to
lower foreign exchange losses in the current period.
The Company had an effective income tax rate of 38.5% for the three months ended
September 30, 2003 and 42.0% for the three months ended September 30, 2002 as a
result of a more favorable projected mix of pre-tax income and/or losses in the
jurisdictions in which the Company does business. Any future unfavorable changes
in the mix of taxable income in the various jurisdictions in which the Company
operates could materially impact the Company's effective tax rate.
14
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations and growth,
including acquisition costs, with cash flow from operations and proceeds from
the sale of equity securities. Investing activities primarily reflect
acquisition costs and capital expenditures for information systems enhancements
and leasehold improvements.
Approximately 90% of the Company's contracts are fixed price, with some variable
components, and range in duration from a few months to several years. Cash flow
from these contracts typically consists of a down payment required to be paid at
the time of contract execution with the balance due in installments over the
contract's duration, usually on a milestone achievement basis. Revenue from
these contracts is generally recognized as work is performed. As a result, cash
receipts do not necessarily correspond to costs incurred and revenue recognized
on contracts.
The Company's operating cash flow is heavily influenced by changes in the levels
of billed and unbilled receivables and deferred revenue. These account balances,
as well as days sales outstanding in accounts receivable, net of deferred
revenue, can vary based on contractual milestones and the timing and size of
cash receipts. Days sales outstanding ("DSO") in accounts receivable, net of
deferred revenue, was 48 days at September 30, 2003 compared with 59 days at
September 30, 2002. The decrease in DSO at September 30, 2003 as compared with
September 30, 2002 was primarily due to improved billing practices and increased
collection activities. Accounts receivable, net of the allowance for doubtful
accounts was $210.8 million ($124.7 million in billed accounts receivable and
$86.1 million in unbilled accounts receivable) at September 30, 2003 and $223.8
million ($132.4 million in billed accounts receivable and $91.4 million in
unbilled accounts receivable) at September 30, 2002. Deferred revenue was $118.6
million at September 30, 2003 and $118.5 million at September 30, 2002. Days
sales outstanding is calculated by adding the end-of-period balances for billed
and unbilled account receivables, net of deferred revenue and the allowance for
doubtful accounts, then dividing the resulting amount by gross revenue (service
revenue, reimbursement revenue, and investigator fees) for the most recent
quarter, and multiplying the resulting fraction by the number of days in the
quarter.
Net cash provided by operating activities for the three months ended September
30, 2003 totaled $0.6 million and was generated from $6.0 million of
depreciation and amortization expense, $4.7 million of net income, a $1.5
million decrease in prepaid and other current assets and $0.3 million in
minority interest included in the net income of the consolidated subsidiaries,
offset by a $5.7 million decrease in current and non-current liabilities, a $5.3
million decrease in accounts payable, a $0.7 million increase in other assets,
and a $0.2 million increase in accounts receivable (net of deferred revenue and
the allowance for doubtful accounts). Net cash provided by operating activities
for the three months ended September 30, 2002 totaled $9.4 million and was
generated from $3.3 million of net income, $4.8 million related to depreciation
and amortization expense, a $4.8 million decrease in accounts receivable (net of
deferred revenue and the allowance for doubtful accounts), a $1.4 million
decrease in prepaids and other current assets, and a $0.4 million decrease in
deferred taxes and other assets, partially offset by a $4.0 million decrease in
other current liabilities and a $1.3 million decrease in accounts payable. The
period-over-period decrease in net cash provided by operating activities of $8.7
million was primarily due to fiscal year 2003 bonus payment made in September
2003 versus fiscal year 2002 bonus payment made in October 2002, partly offset
by higher net income and depreciation and amortization expense in the three
months ended September 30, 2003 versus the same period in the last fiscal year.
Net cash used in investing activities for the three months ended September 30,
2003 totaled $2.0 million and consisted of $4.9 million used for capital
expenditures (primarily software and hardware), offset by $2.9 million of net
proceeds from the sale of marketable securities. Net cash provided by investing
activities for the three months ended September 30, 2002 totaled $1.2 million
and consisted of $8.2 million of net proceeds from the sale of marketable
securities, offset by $6.5 million used for equipment purchases and $0.5 million
used for the acquisition of Invantage.
Net cash provided by financing activities for the three months ended September
30, 2003 totaled $1.0 million and consisted primarily of the proceeds generated
from the issuance of common stock in conjunction with the Company's stock option
plans. For the three months ended September 30, 2002, net cash provided by
financing activities was de minimis.
The Company has a line of credit with ABN AMRO Bank, NV in the amount of Euro
12.0 million. This line-of-credit is not collateralized, is payable on demand,
and bears interest at a rate ranging between 3% and 5%. The Company entered into
this line-of-credit primarily to facilitate business transactions with the bank.
At September 30, 2003 the Company had approximately Euro 12.0 million available
under this line of credit.
15
The Company has other foreign lines-of-credit with banks totaling approximately
$1.7 million. These lines are used as overdraft protection and bear interest at
rates ranging from 4% to 6%. The lines of credit are payable on demand and are
supported by PAREXEL International Corporation. At September 30, 2003, the
Company had approximately $1.7 million available credit under these
arrangements.
The Company has a cash pooling arrangement with ABN AMRO Bank. Pooling occurs
when debit balances are offset against credit balances and the net position is
used as a basis by the bank for interest calculations. Each legal entity owned
by the Company and party to this arrangement remains the owner of either a
credit or debit balance. Therefore, interest income is earned in legal entities
with credit balances, while interest expense is charged in legal entities with
debit balances. Based on the pool's overall balance, the bank than recalculates
the overall interest to be charged or earned, compares this amount with the sum
of interest amounts already charged/earned per account and pays/charges the
difference to the entities. Interest income and interest expense are included in
"other income (loss), net" of the Company's condensed consolidated statements of
operations.
The Company's primary cash needs are for the payment of salaries and fringe
benefits, hiring and recruiting expenses, business development costs,
acquisition-related costs, capital expenditures, and facility-related expenses.
The Company's principal source of cash is from contracts with clients. If the
Company were unable to generate new contracts with existing and new clients or
the level of contract cancellations increased, the Company's revenue and cash
flow would be adversely affected (see "Risk Factors" for further detail). Absent
a material adverse change in the level of the Company's new business bookings or
contract cancellations, PAREXEL believes that its existing capital resources
together with cash flow from operations and borrowing capacity under existing
lines of credit will be sufficient to meet its foreseeable cash needs over the
next five years.
In the future, the Company expects to consider acquiring businesses to enhance
its service offerings, expand its therapeutic expertise, and/or increase its
global presence. Any such acquisitions may require additional external
financing, and the Company may from time to time seek to obtain funds from
public or private issuances of equity or debt securities. The Company may be
unable to secure such financing on terms acceptable to the Company.
GUARANTEES
The Company has letter-of-credit agreements with banks totaling approximately
$1.0 million guaranteeing performance under various operating leases and vendor
agreements.
OFF-BALANCE SHEET ARRANGEMENTS
The Company has no off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on the Company's financial condition,
changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources that is material to the
Company.
RELATED PARTY TRANSACTIONS
The Company contributed the shares of stock of FWPS Group Limited, a company
organized under the laws of the United Kingdom, which it acquired in January
2003, to its indirect majority owned subsidiary, Perceptive Informatics, Inc.,
in July 2003. Perceptive issued shares of common stock to PAREXEL International
Trust, a wholly owned subsidiary of the Company, as consideration for this
contribution. As a result of the transaction, the Company's ownership (based on
the outstanding shares) in Perceptive increased from 97.4% to 98.2%. Certain
officers and Directors of the Company own less than 2% of the issued and
outstanding common stock of Perceptive.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
MARKET RISK
Market risk is the potential loss arising from adverse changes in market rates
and prices, such as foreign currency rates, interest rates, and other relevant
market rate or price changes. In the ordinary course of business, the Company is
exposed to market risk resulting from changes in foreign currency exchange
rates, and the Company regularly evaluates its exposure to such changes. The
Company's overall risk management strategy seeks to balance the magnitude of the
exposure and the costs and availability of appropriate financial instruments.
16
FOREIGN CURRENCY EXCHANGE RATES
The Company may be subjected to foreign currency transaction risk when the
Company's foreign subsidiaries enter into contracts or incur liabilities
denominated in a currency other than the foreign subsidiary's functional
currency. For the three months ended September 30, 2003, approximately 19.3% of
total service revenue was denominated in British pounds and approximately 25.2%
of total service revenue was denominated in Euros. The Company enters into
foreign currency exchange contracts to offset the impact of currency
fluctuations. Such contracts are not treated as hedges for accounting purposes.
The notional contract amount of outstanding currency exchange contracts was
approximately $22.1 million as of September 30, 2003. The potential loss in the
fair value of these currency exchange contracts that would result from a
hypothetical change of 10% in exchange rates would be approximately $2.3
million.
INFLATION
The Company believes the effects of inflation generally do not have a material
adverse impact on its operations or financial condition.
RISK FACTORS
In addition to other information in this report, the following risk factors
should be considered carefully in evaluating the Company and its business,
including forward-looking statements made in the section of this report entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and other forward-looking statements that the Company may make from
time to time. If any of the following risks actually occur, the Company's
business, financial condition, or results of operations would likely suffer.
LOSS, MODIFICATION, OR DELAY OF LARGE OR MULTIPLE CONTRACTS MAY NEGATIVELY
IMPACT THE COMPANY'S FINANCIAL PERFORMANCE
The Company's clients generally can terminate their contracts with the Company
upon thirty to sixty days notice or can delay execution of services. The loss or
delay of a large contract or the loss or delay of multiple contracts could
adversely affect its operating results, possibly materially. The Company has in
the past experienced contract cancellations, which have adversely affected its
operating results. In both fiscal years 2003 and 2002, AstraZeneca accounted for
11% of the Company's consolidated service revenue. If AstraZeneca terminated all
of its contracts with the Company, it would adversely affect the Company's
operating results, possibly materially.
Clients terminate or delay their contracts for a variety of reasons, including,
but not limited to:
- merger or potential merger related activities;
- failure of products being tested to satisfy safety requirements;
- failure of products being tested to prove effective;
- products having unexpected or undesired clinical results;
- client decisions to forego a particular study, perhaps for economic
reasons;
- insufficient patient enrollment in a study;
- insufficient investigator recruitment;
- production problems which cause shortages of the product;
- product withdrawal following market launch; and
- manufacturing facility shut down.
In addition, the Company believes that companies regulated by the FDA may
proceed with fewer clinical trials or conduct them without the assistance of
biopharmaceutical services companies if they are trying to reduce costs as a
result of budgetary limits or changing priorities. These factors may cause such
companies to cancel contracts with biopharmaceutical services companies.
17
THE COMPANY FACES INTENSE COMPETITION IN MANY AREAS OF ITS BUSINESS; IF THE
COMPANY DOES NOT COMPETE EFFECTIVELY, ITS BUSINESS WILL BE HARMED
The biopharmaceutical services industry is highly competitive, and the Company
faces numerous competitors in many areas of its business. If the Company fails
to compete effectively, the Company may lose clients, which would cause its
business to suffer.
The Company primarily competes against in-house departments of pharmaceutical
companies, other full service biopharmaceutical services companies, Contract
Research Organizations ("CROs"), small specialty CROs, and to a lesser extent,
universities, teaching hospitals, and other site organizations. Some of the
larger CROs against which the Company competes include Quintiles Transnational
Corporation, Covance, Inc. and Pharmaceutical Product Development Inc. In
addition, PAREXEL's PCG and MMS businesses also compete with a large and
fragmented group of specialty service providers, including
advertising/promotional companies, major consulting firms with pharmaceutical
industry groups and smaller companies with pharmaceutical industry focus.
Perceptive, a majority owned subsidiary of the Company, competes primarily with
biopharmaceutical services companies, information technology companies and other
software companies. Some of these competitors, including the in-house
departments of pharmaceutical companies, have greater capital, technical and
other resources than the Company. In addition, those of the Company's
competitors that are smaller specialized companies may compete effectively
against the Company because of their concentrated size and focus.
THE FIXED PRICE NATURE OF THE COMPANY'S CONTRACTS COULD HURT ITS OPERATING
RESULTS
Approximately 90% of the Company's contracts are at fixed prices. As a result,
the Company bears the risk of cost overruns. If the Company fails to adequately
price its contracts or if the Company experiences significant cost overruns, its
gross margins on the contract would be reduced and the Company could lose money
on contracts. In the past, the Company has had to commit unanticipated resources
to complete projects, resulting in lower gross margins on those projects. The
Company might experience similar situations in the future.
IF GOVERNMENTAL REGULATION OF THE DRUG, MEDICAL DEVICE AND BIOTECHNOLOGY
INDUSTRY WERE STREAMLINED OR RELAXED, THE NEED FOR THE COMPANY'S SERVICES COULD
DECREASE
Governmental regulation of the drug, medical device and biotechnology product
development process is complicated, extensive, and demanding. A large part of
the Company's business involves assisting pharmaceutical and biotechnology
companies through the regulatory approval process. Changes in regulations, that,
for example, streamline procedures or relax approval standards, could eliminate
or reduce the need for the Company's services. If companies needed fewer of
PAREXEL's services, the Company would have fewer business opportunities and its
revenues would decrease, possibly materially.
In the U.S., the FDA and the Congress have attempted to streamline the
regulatory process by providing for industry user fees that fund additional
reviewer hires and better management of the regulatory review process. In
Europe, governmental authorities have approved common standards for clinical
testing of new drugs throughout the European Union by adopting standards for
Good Clinical Practice ("GCP") and by making the clinical trial application and
approval process more uniform across member states starting in May 2004. In the
past several years, Japan also has adopted GCP. The FDA has had GCP in place as
a regulatory standard and requirement for new drug approval for many years. The
U.S., Europe and Japan have also collaborated in the 11-year-long International
Conference on Harmonization ("ICH"), the purpose of which is to eliminate
duplicative or conflicting regulations in the three regions. The ICH partners
have agreed upon a common format for marketing applications that eliminates the
need to tailor the format to each region. Such efforts and similar efforts in
the future that streamline the regulatory process may reduce the demand for the
Company's services.
For example, parts of PAREXEL's PCG business advise clients on how to satisfy
regulatory standards for manufacturing processes and on other matters related to
the enforcement of government regulations by the FDA and other regulatory
bodies. Any reduction in levels of review of manufacturing processes or levels
of regulatory enforcement, generally, would result in fewer business
opportunities for the PCG business in this area.
18
IF THE COMPANY FAILS TO COMPLY WITH EXISTING REGULATIONS, ITS REPUTATION AND
OPERATING RESULTS WOULD BE HARMED
The Company's business is subject to numerous governmental regulations,
primarily relating to pharmaceutical product development and the conduct of
clinical trials. If the Company fails to comply with these governmental
regulations, it could result in the termination of the Company's ongoing
research, development or sales and marketing projects, or the disqualification
of data for submission to regulatory authorities. The Company also could be
barred from providing clinical trial services in the future or be subjected to
fines. Any of these consequences would harm the Company's reputation, its
prospects for future work and its operating results. In addition, the Company
may have to repeat research or redo trials. The Company may be contractually
required to take such action at no further cost to the customer, but at
substantial cost to the Company.
THE COMPANY MAY LOSE BUSINESS OPPORTUNITIES AS A RESULT OF HEALTH CARE REFORM
AND THE EXPANSION OF MANAGED CARE ORGANIZATIONS
Numerous governments, including the U.S. government and governments outside of
the U.S., have undertaken efforts to control growing health care costs through
legislation, regulation and voluntary agreements with medical care providers and
drug companies. If these efforts are successful, pharmaceutical, medical device
and biotechnology companies may react by spending less on research and
development. If this were to occur, the Company would have fewer business
opportunities and its revenues could decrease, possibly materially.
For instance, in the past, the U.S. Congress has entertained several
comprehensive health care reform proposals. The proposals were generally
intended to expand health care coverage for the uninsured and reduce the growth
of total health care expenditures. While the U.S. Congress has not yet adopted
any comprehensive reform proposals, members of Congress may raise similar
proposals in the future. The Company is unable to predict the likelihood that
health care reform proposals will be enacted into law.
In addition to health care reform proposals, the expansion of managed care
organizations in the healthcare market may result in reduced spending on
research and development. Managed care organizations' efforts to cut costs by
limiting expenditures on pharmaceuticals and medical devices could result in
pharmaceutical, biotechnology and medical device companies spending less on
research and development. If this were to occur, the Company would have fewer
business opportunities and its revenues could decrease, possibly materially.
NEW AND PROPOSED LAWS AND REGULATIONS REGARDING CONFIDENTIALITY OF PATIENT
INFORMATION COULD RESULT IN INCREASED RISKS OF LIABILITY OR INCREASED COSTS TO
THE COMPANY, OR COULD LIMIT THE COMPANY'S SERVICE OFFERINGS
The confidentiality and release of patient-specific information are subject to
government regulation. Under the Health Insurance Portability and Accountability
Act of 1996, or HIPAA, the U.S. Department of Health and Human Services has
issued regulations mandating heightened privacy and confidentiality protections.
The federal government and state governments have proposed or adopted additional
legislation governing the possession, use and dissemination of medical record
information and other personal health information. Proposals being considered by
state governments may contain privacy and security provisions that are more
burdensome than the federal regulations. In order to comply with these
regulations, the Company may need to implement new security measures, which may
require the Company to make substantial expenditures or cause the Company to
limit the products and services it offers. In addition, if the Company violates
applicable laws, regulations or duties relating to the use, privacy or security
of health information, it could be subject to civil or criminal liability.
IF THE COMPANY DOES NOT KEEP PACE WITH RAPID TECHNOLOGICAL CHANGES, ITS PRODUCTS
AND SERVICES MAY BECOME LESS COMPETITIVE OR OBSOLETE, ESPECIALLY IN THE
COMPANY'S PERCEPTIVE INFORMATICS BUSINESS
The biotechnology, pharmaceutical and medical device industries generally, and
clinical research specifically, are subject to increasingly rapid technological
changes. The Company's competitors or others might develop technologies,
products or services that are more effective or commercially attractive than the
Company's current or future technologies, products or services, or render its
technologies, products or services less competitive or obsolete. If competitors
introduce superior technologies, products or services and the Company cannot
make enhancements to its technologies, products and services necessary to remain
competitive, its competitive position will be harmed. If the Company is unable
to compete successfully, it may lose customers or be unable to attract new
customers, which could lead to a decrease in revenue.
19
BECAUSE THE COMPANY DEPENDS ON A SMALL NUMBER OF INDUSTRIES AND CLIENTS FOR ALL
OF ITS BUSINESS, THE LOSS OF BUSINESS FROM A SIGNIFICANT CLIENT COULD HARM ITS
BUSINESS, REVENUE, AND FINANCIAL CONDITION
The loss of, or a material reduction in the business of, a significant client
could cause a substantial decrease in the Company's revenue and adversely affect
its business and financial condition, possibly materially. In the fiscal year
ended June 30, 2003, the Company's five largest clients accounted for 33% of its
consolidated service revenue, and one client, AstraZeneca, accounted for 11% of
consolidated service revenue. In the fiscal year ended June 30, 2002, the
Company's five largest clients accounted for 34% of its consolidated service
revenue, and one client, AstraZeneca, accounted for 11% of its consolidated
service revenue. The Company expects that a small number of clients will
continue to represent a significant part of its revenue. The Company's contracts
with these clients generally can be terminated on short notice. The Company has
in the past experienced contract cancellations with significant clients.
IF THE COMPANY'S PERCEPTIVE INFORMATICS BUSINESS IS UNABLE TO MAINTAIN
CONTINUOUS, EFFECTIVE, RELIABLE AND SECURE OPERATION OF ITS COMPUTER HARDWARE,
SOFTWARE AND INTERNET APPLICATIONS AND RELATED TOOLS AND FUNCTIONS, ITS BUSINESS
WILL BE HARMED
The Company's Perceptive Informatics business involves collecting, managing,
manipulating and analyzing large amounts of data, and communicating data via the
Internet. Perceptive depends on the continuous, effective, reliable and secure
operation of its computer hardware, software, networks, telecommunication
networks, Internet servers and related infrastructure. If Perceptive's hardware
or software malfunctions or access to Perceptive's data by internal research
personnel or customers through the Internet is interrupted, its business could
suffer. In addition, any sustained disruption in Internet access provided by
third parties could adversely impact Perceptive's business.
Although Perceptive's computer and communications hardware is protected through
physical and software safeguards, it is still vulnerable to fire, storm, flood,
power loss, earthquakes, telecommunications failures, physical or software
break-ins, and similar events. In addition, Perceptive's software products are
complex and sophisticated, and could contain data, design or software errors
that could be difficult to detect and correct. If Perceptive fails to maintain
and further develop the necessary computer capacity and data to support its
customers' needs, it could result in loss of or delay in revenue and market
acceptance.
IF THE COMPANY IS UNABLE TO ATTRACT SUITABLE WILLING VOLUNTEERS FOR THE CLINICAL
TRIALS OF ITS CLIENTS, ITS CLINICAL RESEARCH SERVICES BUSINESS MAY SUFFER
One of the factors on which the Company's CRS business competes is the ability
to recruit patients for the clinical studies the Company is managing. These
clinical trials rely upon the ready accessibility and willing participation of
volunteer subjects. These subjects generally include volunteers from the
communities in which the studies are conducted. Although to date these
communities have provided a substantial pool of potential subjects for research
studies, there may not be enough patients available with the traits necessary to
conduct the studies. For example, if the Company manages a study for a treatment
of a particular type of cancer, its ability to conduct the study may be limited
by the number of patients that it can recruit that have that form of cancer. If
multiple organizations are conducting similar studies and competing for
patients, it could also make the Company's recruitment efforts more difficult.
If the Company is unable to attract suitable and willing volunteers on a
consistent basis, it would have an adverse effect on the trials being managed by
its CRS business, which could have a material adverse effect on its CRS
business.
IF THE COMPANY'S HIGHLY QUALIFIED MANAGEMENT AND TECHNICAL PERSONNEL LEFT, ITS
BUSINESS WOULD BE HARMED
The Company relies on the expertise of its Chairman and Chief Executive Officer,
Josef H. von Rickenbach. If Mr. von Rickenbach left, it would be difficult and
expensive to find a qualified replacement with the level of specialized
knowledge of the Company's products and services and the biopharmaceutical
services industry. The Company is a party to an employment agreement with Mr.
von Rickenbach, which may be terminated by the Company or Mr. von Rickenbach
upon notice to the other party.
20
In addition, in order to compete effectively, the Company must attract and
maintain qualified sales, professional, scientific and technical operating
personnel. Competition for these skilled personnel, particularly those with a
medical degree, a Ph.D. or equivalent degrees, is intense. The Company may not
be successful in attracting or retaining key personnel.
THE COMPANY MAY HAVE SUBSTANTIAL EXPOSURE TO PAYMENT OF PERSONAL INJURY CLAIMS
AND MAY NOT HAVE ADEQUATE INSURANCE TO COVER SUCH CLAIMS
The Company's Clinical Research Services business primarily involves the testing
of experimental drugs or other regulated FDA products on consenting human
volunteers pursuant to a study protocol. These services involve a risk of
liability for personal injury or death to patients who participate in the study
or who use a product approved by regulatory authorities after the clinical
research has concluded, due to, among other reasons, possible unforeseen adverse
side effects or improper administration of the new product by physicians. In
some cases, these patients are already seriously ill and are at risk of further
illness or death.
In order to mitigate the risk of liability, the Company seeks to include
indemnity provisions in its Clinical Research Services contracts with clients.
However, the Company is not able to include indemnity provisions in all of its
contracts. The indemnity provisions the Company includes in these contracts
would not cover its exposure if:
- the Company had to pay damages or incur defense costs in
connection with a claim that is outside the scope of an
indemnity; or
- a client failed to indemnify the Company in accordance with the
terms of an indemnity agreement because it did not have the
financial ability to fulfill its indemnification obligation or
for any other reason.
The Company also carries product liability insurance to cover its risk of
liability. However, the Company's insurance is subject to deductibles and
coverage limits and may not be adequate to cover product liability claims. In
addition, product liability coverage is expensive. In the future, the Company
may not be able to maintain or obtain product liability insurance on reasonable
terms, at a reasonable cost or in sufficient amounts to protect it against
losses due to product liability claims.
THE COMPANY'S BUSINESS IS SUBJECT TO INTERNATIONAL ECONOMIC, POLITICAL AND OTHER
RISKS THAT COULD NEGATIVELY AFFECT ITS RESULTS OF OPERATIONS OR FINANCIAL
POSITION
The Company provides most of its services worldwide. The Company's service
revenue from non-U.S. operations represented approximately 52.6% of total
service revenue for the three months ended September 30, 2003 and approximately
46.5% of total service revenue for the three month period a year ago. In
addition, the Company's service revenue from operations in the United Kingdom
represented approximately 18.4% of total service revenue for the three months
ended September 30, 2003 and approximately 20.6% of total service revenue for
the three months ended September 30, 2002. The Company anticipates that service
revenue from international operations may grow in the future. Accordingly, the
Company's business is subject to risks associated with doing business
internationally, including:
- changes in a specific country's or region's political or economic
conditions, including Western Europe, in particular;
- potential negative consequences from changes in tax laws
affecting its ability to repatriate profits;
- difficulty in staffing and managing widespread operations;
- unfavorable labor regulations applicable to its European
operations;
- changes in foreign currency exchange rates; and
- longer payment cycles of foreign customers and difficulty of
collecting receivables in foreign jurisdictions.
21
THE COMPANY'S OPERATING RESULTS HAVE FLUCTUATED BETWEEN QUARTERS AND YEARS AND
MAY CONTINUE TO FLUCTUATE IN THE FUTURE, WHICH COULD AFFECT THE PRICE OF ITS
COMMON STOCK
The Company's quarterly and annual operating results have varied and will
continue to vary in the future as a result of a variety of factors. For example,
the Company's income from operations was $8.3 million for the quarter ended
March 31, 2003, $3.6 million for the quarter ended June 30, 2003 and $7.8
million for the quarter ended September 30, 2003. Factors that cause these
variations include:
- the timing of the initiation, progress, or cancellation of
significant project;
- exchange rate fluctuations between quarters or years;
- restructuring charges;
- the mix of services offered in a particular quarter or year;
- the timing of the opening of new offices;
- costs and the related financial impact of acquisitions;
- the level of new business authorizations in a particular quarter
or year;
- the timing of internal expansion;
- the timing and amount of costs associated with integrating
acquisitions; and
- the timing and amount of startup costs incurred in connection
with the introduction of new products, services or subsidiaries.
Many of these factors, such as the timing of cancellations of significant
projects and exchange rate fluctuations between quarters or years, are beyond
the Company's control.
Approximately 80-85% of the Company's operating costs are fixed in the short
term. In particular, a significant portion of the Company's operating costs
relate to personnel, which are estimated to have accounted for 80-85% of the
Company's total operating costs in the three months ended September 30, 2003. As
a result, the effect on the Company's revenues of the timing of the completion,
delay or loss of contracts, or the progress of client projects, could cause its
operating results to vary substantially between reporting periods.
If the Company's operating results do not match the expectations of securities
analysts and investors as a result of these factors, the trading price of its
common stock will likely decrease.
THE COMPANY'S REVENUE AND EARNINGS ARE EXPOSED TO EXCHANGE RATE FLUCTUATIONS
Approximately 52.6% of the Company's service revenue for the three months ended
September 30, 2003 and approximately 46.5% of the Company's service revenue for
the three months ended September 30, 2002 were from non-U.S. operations. The
Company's financial statements are denominated in U.S. dollars; thus, factors
associated with international operations, including changes in foreign currency
exchange rates, could have a significant effect on its operating results.
Exchange rate fluctuations between local currencies and the U.S. dollar create
risk in several ways, including:
- Foreign Currency Translation Risk. The revenue and expenses of
the Company's foreign operations are generally denominated in
local currencies, primarily the British pound and the Euro, and
then are translated into U.S. dollars for financial reporting
purposes. For the three months ended September 30, 2003,
approximately 19.3% of total service revenue was denominated in
British pounds and approximately 25.2% of total service revenue
was denominated in Euros. For the three months ended September
30, 2002, approximately 20.9% of total service revenue was
denominated in British pounds and approximately 19.1% of total
service revenue was denominated in Euros.
- Foreign Currency Transaction Risk. The Company's service
contracts may be denominated in a currency other than the
functional currency in which it performs the service related to
such contracts.
Although the Company tries to limit these risks through exchange rate
fluctuation provisions stated in its service contracts, or by hedging
transaction risk with foreign currency exchange contracts, it may still
experience fluctuations in financial results from its operations outside of the
U.S., and may not be able to favorably reduce the currency transaction risk
associated with its service contracts.
22
THE COMPANY'S BUSINESS HAS EXPERIENCED SUBSTANTIAL EXPANSION IN THE PAST AND
SUCH EXPANSION AND ANY FUTURE EXPANSION COULD STRAIN ITS RESOURCES IF NOT
PROPERLY MANAGED
The Company has expanded its business substantially in the past. Future rapid
expansion could strain the Company's operational, human and financial resources.
In order to manage expansion, the Company must:
- continue to improve operating, administrative and information
systems;
- accurately predict future personnel and resource needs to meet
client contract commitments;
- track the progress of ongoing client projects; and
- attract and retain qualified management, sales, professional,
scientific and technical operating personnel.
If the Company does not take these actions and is not able to manage the
expanded business, the expanded business may be less successful than
anticipated, and the Company may be required to allocate additional resources to
the expanded business, which it would have otherwise allocated to another part
of its business.
The Company may face additional risks in expanding its foreign operations.
Specifically, the Company may find it difficult to:
- assimilate differences in foreign business practices, exchange
rates and regulatory requirements;
- operate amid political and economic instability;
- hire and retain qualified personnel; and
- overcome language, tariff and other barriers.
THE COMPANY MAY MAKE ACQUISITIONS IN THE FUTURE, WHICH MAY LEAD TO DISRUPTIONS
TO ITS ONGOING BUSINESS
The Company has made a number of acquisitions and will continue to review new
acquisition opportunities. If the Company is unable to successfully integrate an
acquired company, the acquisition could lead to disruptions to the business. The
success of an acquisition will depend upon, among other things, the Company's
ability to:
- assimilate the operations and services or products of the
acquired company;
- integrate acquired personnel;
- retain and motivate key employees;
- retain customers; and
- minimize the diversion of management's attention from other
business concerns.
Acquisitions of foreign companies may also involve additional risks, including
assimilating differences in foreign business practices and overcoming language
and cultural barriers.
In the event that the operations of an acquired business do not meet the
Company's performance expectations, the Company may have to restructure the
acquired business or write-off the value of some or all of the assets of the
acquired business.
THE COMPANY'S CORPORATE GOVERNANCE STRUCTURE, INCLUDING PROVISIONS OF ITS
ARTICLES OF ORGANIZATION AND BY-LAWS AND ITS SHAREHOLDER RIGHTS PLAN, AND
MASSACHUSETTS LAW MAY DELAY OR PREVENT A CHANGE IN CONTROL OR MANAGEMENT THAT
STOCKHOLDERS MAY CONSIDER DESIRABLE
Provisions of the Company's articles of organization, by-laws and its
shareholder rights plan, as well as provisions of Massachusetts law, may enable
the Company's management to resist acquisition of the Company by a third party,
or may discourage a third party from acquiring the Company. These provisions
include the following:
23
- the Company has divided its Board of Directors into three classes
that serve staggered three-year terms;
- the Company is subject to Section 50A of the Massachusetts
Business Corporation Law which provides that directors may only
be removed by stockholders for cause, vacancies in the Company's
Board of Directors may only be filled by a vote of the Company's
Board of Directors and the number of directors may be fixed only
by the Company's Board of Directors;
- the Company is subject to Chapter 110F of the Massachusetts
General Laws which limits its ability to engage in business
combinations with certain interested stockholders;
- the Company's stockholders are limited in their ability to call
or introduce proposals at stockholder meetings; and
- the Company's shareholder rights plan would cause a proposed
acquirer of 20% or more of the Company's outstanding shares of
common stock to suffer significant dilution.
These provisions could have the effect of delaying, deferring, or preventing a
change in control of the Company or a change in the Company's management that
stockholders may consider favorable or beneficial. These provisions could also
discourage proxy contests and make it more difficult for stockholders to elect
directors and take other corporate actions. These provisions could also limit
the price that investors might be willing to pay in the future for shares of the
Company's stock. In addition, the Company's Board of Directors may issue
preferred stock in the future without stockholder approval. If the Company's
Board of Directors issues preferred stock, the holders of common stock would be
subordinate to the rights of the holders of preferred stock. The Company's Board
of Directors' ability to issue the preferred stock could make it more difficult
for a third party to acquire, or discourage a third party from acquiring, a
majority of the Company's stock.
THE COMPANY'S STOCK PRICE HAS BEEN AND MAY IN THE FUTURE BE VOLATILE, WHICH
COULD LEAD TO LOSSES BY INVESTORS
The market price of the Company's common stock has fluctuated widely in the past
and may continue to do so in the future. On October 28, 2003, the closing sale
price of the Company's common stock on the NASDAQ National Market was $16.50 per
share. During the period from October 1, 2001 to September 30, 2003, the closing
sale price of the Company's common stock ranged from a high of $17.65 per share
to a low of $8.05 per share. Investors in the Company's common stock must be
willing to bear the risk of such fluctuations in stock price and the risk that
the value of an investment in the Company's stock could decline.
The Company's stock price can be affected by quarter-to-quarter variations in:
- operating results;
- earnings estimates by analysts;
- market conditions in the industry;
- prospects of health care reform;
- changes in government regulations; and
- general economic conditions.
In addition, the stock market has from time to time experienced significant
price and volume fluctuations that are not related to the operating performance
of particular companies. These market fluctuations may adversely affect the
market price of the Company's common stock. Since the Company's common stock has
traded in the past at a relatively high price-earnings multiple, due in part to
analysts' expectations of earnings growth, the price of the stock could quickly
and substantially decline as a result of even a relatively small shortfall in
earnings from, or a change in, analysts' expectations.
24
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The Company's management, with the participation of the Company's chief
executive officer and chief financial officer, evaluated the effectiveness of
the Company's disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) under the Exchange Act). Based on this evaluation, the Company's
chief executive officer and chief financial officer concluded that, as of
September 30, 2003, the Company's disclosure controls and procedures were (1)
designed to ensure that material information relating to the Company, including
its consolidated subsidiaries, is made known to the Company's chief executive
officer and chief financial officer by others within those entities,
particularly during the period in which this report was being prepared and (2)
effective, in that they provide reasonable assurance that information required
to be disclosed by the Company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms.
No change in the Company's internal control over financial reporting (as defined
in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the
three months ended September 30, 2003 that has materially affected, or is
reasonably likely to materially affect, the Company's internal control over
financial reporting.
CHANGES IN INTERNAL CONTROLS
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their most recent evaluation.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See the Exhibit Index on the page immediately preceding the exhibits for a
list of exhibits filed as part of this quarterly report, which Exhibit Index is
incorporated by this reference.
(b) The Company furnished a Current Report on Form 8-K on August 7, 2003 under
Item 12, which included the Company's press release dated August 7, 2003
containing financial results for the quarter and fiscal year ended June 30,
2003.
25
SIGNATURES
Pursuant to the requirements 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.
PAREXEL International Corporation
Date: November 12, 2003 By: /s/ Josef H. von Rickenbach
-------------------------------------------------
Josef H. von Rickenbach
Chairman of the Board and Chief Executive Officer
Date: November 12, 2003 By: /s/ James F. Winschel, Jr.
-------------------------------------------------
James F. Winschel, Jr.
Senior Vice President and Chief Financial Officer
26
EXHIBIT INDEX
Exhibit Number Description
- -------------- ---------------------------------------------------------
10.1 Amendment No 4 to the PAREXEL International Corporation
Second Amended and Restated 1995 Stock Plan.
10.2 Amendment No 1 to the PAREXEL International Corporation
2001 Stock Incentive Plan.
10.3 Amendment No 1 to the PAREXEL International Corporation
Non-Qualified Deferred Compensation Plan Agreement.
31.1 CEO certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 CFO certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 CEO certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2 CFO certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
27