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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, 2004
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
Commission File Number: 0-27058
PAREXEL INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its Charter)
MASSACHUSETTS 04-2776269
(State or other jurisdiction of (I.R.S. Employer 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 ( )
Indicate 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 1, 2004, there
were 25,993,517 shares of common stock outstanding.
PAREXEL INTERNATIONAL CORPORATION
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets - September 30, 2004 and June 30, 3
2004
Condensed Consolidated Statements of Operations - Three months ended 4
September 30, 2004 and 2003
Condensed Consolidated Statements of Cash Flows - Three months ended 5
September 30, 2004 and 2003
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition and Results 10
of Operations
Item 3 Quantitative and Qualitative Disclosure About Market Risk 17
Item 4 Controls and Procedures 25
PART II. OTHER INFORMATION
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 25
Item 5 Other Information 26
Item 6 Exhibits 26
SIGNATURES 27
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PAREXEL INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
SEPTEMBER 30,
2004 JUNE 30,
(UNAUDITED) 2004
---------------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 58,330 $ 60,686
Marketable securities 35,061 34,921
Billed and unbilled accounts receivable, net 209,023 221,956
Prepaid expenses 12,281 11,681
Current deferred tax assets 29,828 29,710
Income tax receivable - 1,834
Other current assets 4,529 4,694
---------------- ---------
Total current assets 349,052 365,482
Property and equipment, net 68,427 68,983
Goodwill 42,662 41,002
Other intangible assets, net 10,229 10,636
Non-current deferred tax assets 10,151 10,160
Other assets 6,645 6,733
---------------- ---------
Total assets $ 487,166 $ 502,996
================ =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term debt $ 222 $ 768
Accounts payable 8,865 15,917
Deferred revenue 132,310 145,409
Accrued expenses 13,677 14,805
Accrued restructuring charges 4,609 5,481
Accrued employee benefits and withholdings 30,601 28,577
Current deferred tax liabilities 4,457 4,424
Income taxes payable 2,326 -
Other current liabilities 2,666 4,693
---------------- ---------
Total current liabilities 199,733 220,074
Long-term debt 444 471
Non-current deferred tax liabilities 19,746 18,100
Long-term accrued restructuring charges 6,917 7,944
Other liabilities 5,817 5,886
---------------- ---------
Total liabilities 232,657 252,475
---------------- ---------
Minority interest in subsidiary 3,599 3,761
Stockholders' equity:
Preferred stock--$.01 par value; shares authorized: 5,000,000; Series A
junior participating preferred stock - 50,000 shares designated, none
issued and outstanding
Common stock--$.01 par value; shares authorized: 50,000,000; shares issued:
25,968,028 at September 30, 2004 and 26,522,178 at June 30, 2004; shares
outstanding: 25,968,028 at September 30, 2004 and 26,077,078
at June 30, 2004 260 275
Additional paid-in capital 164,317 175,126
Treasury stock, shares at cost: 445,100 at June 30, 2004 - (8,056)
Retained earnings 82,564 76,908
Accumulated other comprehensive income 3,769 2,507
---------------- ---------
Total stockholders' equity 250,910 246,760
---------------- ---------
Total liabilities and stockholders' equity $ 487,166 $ 502,996
================ =========
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,
--------------------------
2004 2003
--------- --------
Service revenue $ 131,511 $132,123
Reimbursement revenue 27,175 21,468
--------- --------
Total revenue 158,686 153,591
Costs and expenses:
Direct costs 83,690 85,848
Reimbursable out-of-pocket expenses 27,175 21,468
Selling, general and administrative 31,841 32,468
Depreciation and amortization 6,410 5,987
--------- --------
Total costs 149,116 145,771
--------- --------
Income from operations 9,570 7,820
Other income (expense), net (436) 294
--------- --------
Income before provision for income taxes
and minority interest 9,134 8,114
Provision for income taxes 3,535 3,124
Minority interest (benefit) expense (57) 258
--------- --------
Net income $ 5,656 $ 4,732
--------- --------
Earnings per share:
Basic $ 0.22 $ 0.18
Diluted $ 0.21 $ 0.18
Weighted average shares:
Basic 26,027 25,860
Diluted 26,583 26,592
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,
--------------------------
2004 2003
-------- --------
Cash flow from operating activities:
Net income $ 5,656 $ 4,732
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Minority interest in net income of consolidated subsidiary (57) 258
Depreciation and amortization 6,410 5,987
Changes in operating assets/liabilities (6,696) (10,332)
-------- --------
Net cash provided by operating activities 5,313 645
-------- --------
Cash flow from investing activities:
Purchases of marketable securities (1,131) (42,634)
Proceeds from sale of marketable securities 991 45,526
Purchases of property and equipment (5,765) (4,944)
Proceeds from sale of assets 567 30
-------- --------
Net cash used in investing activities (5,338) (2,022)
-------- --------
Cash flow from financing activities:
Proceeds from issuance of common stock 974 1,411
Payments to repurchase common stock (3,742) (627)
Borrowings (repayments) under lines of credit and long-term debt (573) 221
-------- --------
Net cash (used) provided by financing activities (3,341) 1,005
-------- --------
Effect of exchange rate changes on cash and cash equivalents 1,010 686
-------- --------
Net (decrease) increase in cash and cash equivalents (2,356) 314
Cash and cash equivalents at beginning of period 60,686 69,734
-------- --------
Cash and cash equivalents at end of period $ 58,330 $ 70,048
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Net cash paid (refunded) during the year for:
Interest $ 940 $ 943
Income taxes $ (782) $ 214
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, 2004, 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, 2004.
Effective with the September 30, 2004 reporting period, certain components of
the Company's strategic business units were reorganized to better align services
offered to clients and to ensure a more integrated selling effort. Specifically,
the Company's clinical operations were consolidated by moving Clinical
Pharmacology (Phase I) and some small parts of the Regulatory business from the
PAREXEL Consulting Group ("PCG") to Clinical Research Services ("CRS"), and
Phase IV clinical operations from Medical Marketing Services ("MMS") to CRS. The
remaining businesses of PCG and MMS were then combined to form the new PAREXEL
Consulting and Marketing Services ("PCMS") business segment. These changes
resulted in various reclassifications to the historical segment information
presented in Note 6 to the condensed consolidated financial statements in this
quarterly report, but had no impact on the Company's total revenue, expenses,
operating income, net income, or balance sheet.
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 0.6 million and 1.0 million outstanding stock options were
excluded from the calculation of diluted earnings per share for the three months
ended September 30, 2004 and 2003, 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) 2004 2003
--------- ---------
Net income attributable to common shares $ 5,656 $ 4,732
--------- ---------
BASIC EARNINGS PER COMMON SHARE COMPUTATION:
Weighted average common shares outstanding 26,027 25,860
--------- ---------
Basic earnings per common share $ .22 $ 0.18
========= =========
6
DILUTED EARNINGS PER COMMON SHARE COMPUTATION:
Weighted average common shares outstanding:
Shares attributable to common stock outstanding 26,027 25,860
Shares attributable to common stock options 556 732
--------- --------
26,583 26,592
========= ========
Diluted earnings per common share $ 0.21 $ 0.18
========= ========
NOTE 3 - COMPREHENSIVE INCOME
Comprehensive income (loss) 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, 2004 and 2003 were
as follows:
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
------------------------------
($ IN THOUSANDS, EXCEPT PER SHARE DATA) 2004 2003
--------- ------------
Net income $ 5,656 $ 4,732
Add: foreign currency translation adjustments 1,218 2,016
unrealized gain/loss on investment 44 -
--------- ------------
Comprehensive income $ 6,918 $ 6,748
========= ============
NOTE 4 - ACQUISITIONS
Effective October 1, 2004, the Company acquired 100% of the outstanding stock of
Integrated Marketing Concepts (IMC), a provider of specialty professional
marketing and communication services in Whitehall, Pennsylvania for
approximately $1.5 million in cash. Under the agreement, the Company agreed to
make additional payments of $0.3 million and up to $2.9 million in contingent
purchase price if IMC achieves certain established financial targets through
September 30, 2007. Pro forma results of IMC have not been presented because the
effect of this acquisition is not material.
NOTE 5 - STOCK-BASED COMPENSATION
The Company accounts for employee stock awards using the intrinsic value based
method as prescribed by Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees", as described by FASB Interpretation No. 44.
Accordingly, no compensation expense was recognized because the exercise price
of the Company's stock options was equal to the market price of the underlying
stock on the date of grant. The Company has adopted the provisions of SFAS No.
123, "Accounting for Stock-Based Compensation" for disclosure purposes only.
If the compensation cost for the Company's stock options and the Company's
employee stock purchase plan had been determined based on the fair value at the
date of grant, as prescribed in SFAS No. 123, the Company's net income and net
income per share would have been as follows:
7
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
---------------------------
($ IN THOUSANDS, EXCEPT PER SHARE DATA) 2004 2003
-------- --------
Net income as reported $ 5,656 $ 4,732
Deduct: effect of fair-valued based
compensation, net of tax (979) (353)
------- --------
Pro forma net income $ 4,677 $ 4,379
======= ========
Pro forma net income per share:
Basic $ 0.18 $ 0.17
Diluted $ 0.18 $ 0.16
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 6 - SEGMENT INFORMATION
Effective with the September 30, 2004 reporting period, certain components of
the Company's strategic business units were reorganized to better align services
offered to clients and to ensure a more integrated selling effort. Specifically,
the Company's clinical operations were consolidated by moving Clinical
Pharmacology (Phase I) and some small parts of the Regulatory business from PCG
to CRS, and Phase IV clinical operations from MMS to CRS. The remaining
businesses of PCG and MMS were then combined to form the new PCMS business
segment. These changes had no impact on the Company's total revenue, expenses,
operating income, net income, or balance sheet.
The Company is managed through three business segments, namely, CRS, PCMS, and
Perceptive Informatics, Inc. ("Perceptive"). CRS constitutes the Company's core
business and includes clinical trials management and biostatistics, data
management and clinical pharmacology, as well as related medical advisory and
investigator site services. PCMS provides technical expertise in such
disciplines as regulatory affairs, industry training, publishing, product
development, management consulting, registration, commercialization issues,
market development, targeted communications services in support of product
launch, as well as health policy consulting and strategic reimbursement
services. Perceptive provides information technology solutions designed to
improve clients' product development processes. Perceptive offers a portfolio of
products and services that includes medical imaging services, interactive voice
response systems ("IVRS"), clinical trial management systems ("CTMS"), web-based
portals, systems integration, and patient diary applications.
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 geographical basis. Accordingly, the
Company does not include selling, general, and administrative expenses,
depreciation and amortization expense, other income (expense), and income tax
expense in segment profitability. 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.
Furthermore, PAREXEL has a global infrastructure supporting its business
segments, and therefore, assets are not identified by reportable segment.
8
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
--------------------------
($ IN THOUSANDS) 2004 2003
--------- ---------
Service revenue:
Clinical Research Services $ 89,926 $ 93,930
PAREXEL Consulting and
Marketing Services 32,356 30,050
Perceptive Informatics, Inc. 9,229 8,143
--------- ---------
$ 131,511 $ 132,123
========= =========
Gross profit on service revenue:
Clinical Research Services $ 33,001 $ 35,990
PAREXEL Consulting and
Marketing Services 10,886 6,585
Perceptive Informatics, Inc. 3,934 3,700
--------- ---------
$ 47,821 $ 46,275
========= =========
NOTE 7 - RESTRUCTURING CHARGES
During the quarter ended September 30, 2004, the Company was successful in
executing a sublease agreement for one of its previously abandoned facilities,
thereby decreasing the restructuring charge in conjunction with past
restructuring activities by $0.5 million. At the same time, as a result of the
reorganization of the strategic business units discussed in Note 1 to the
condensed consolidated financial statements in this quarterly report, the
Company incurred severance and other related charges in the amount of $0.5
million. There was no net change in the Restructuring Charge as a result of
these activities.
During the quarter ended March 31, 2004, the Company recorded restructuring
charges totaling $10.8 million. These charges included $3.9 million of employee
severance and related costs for eliminating approximately 157 managerial and
staff positions worldwide, $5.6 million related to newly abandoned leased
facilities, and $1.3 million related to changes in assumptions for previously
abandoned leased facilities under the Company's June 2001 restructuring plan.
During the three months ended June 30, 2003 and December 31, 2002, the Company
recorded facilities-related restructuring charges totaling $3.5 and $5.9
million, respectively, as a result of changes in prior assumptions regarding
certain leased facilities which were previously abandoned as part of the
Company's June 2001 restructuring charge.
In June 2001, the Company made certain reasonable assumptions based upon market
conditions, which indicated that sub-lease payments for these abandoned
facilities were probable. The June 2001 restructuring charge involved fourteen
properties. As of September 30, 2004, the Company has been successful in exiting
or subleasing all of those properties.
Current activity charged against the restructuring accrual in the quarter ended
September 30, 2004 (which is included in "Accrued Restructuring Charges and
Long-term Accrued Restructuring Charges" in the Condensed Consolidated Balance
Sheet) was as follows:
BALANCE AS OF BALANCE AS OF
JUNE 30, CHARGE/ SEPTEMBER 30,
($ IN THOUSANDS) 2004 ADJUSTMENT PAYMENTS 2004
------------- ---------- -------- --------------
Employee severance costs $ 1,503 $ 534 $ (957) $ 1,080
Facilities-related charges 11,923 (534) (943) 10,446
-------- ------ ------- ---------
$ 13,426 - $(1,900) $ 11,526
======== ====== ======= =========
9
NOTE 8 - STOCKHOLDERS' EQUITY
In September 1999, the Board of Directors approved a stock repurchase program
authorizing the purchase of up to $20.0 million of the Company's common stock.
Repurchases were made in the open market subject to market conditions. As of
September 30, 2004, the Company had fully utilized this authorization by
acquiring 1,506,600 shares at a total cost of $20.0 million pursuant to this
program.
On September 9, 2004, the Board of Directors approved a new stock repurchase
program authorizing the purchase of up to an additional $20 million of the
Company's common stock to be repurchased in the open market subject to market
conditions. As of September 30, 2004, no repurchases had been made under this
new authorization.
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.
Effective with the September 30, 2004 reporting period, certain components of
the Company's strategic business units were reorganized to better align services
offered to clients and to ensure a more integrated selling effort. Specifically,
the Company's clinical operations were consolidated by moving Clinical
Pharmacology (Phase I) and some small parts of the Regulatory business from the
PCG to CRS, and Phase IV clinical operations from MMS to CRS. The remaining
businesses of PCG and MMS were then combined to form the new PCMS business
segment. These changes resulted in various reclassifications to the historical
segment information presented in Note 6 to the condensed consolidated financial
statements of this quarterly report, but had no impact on the Company's total
revenue, expenses, operating income, net income, or balance sheet.
This quarterly report on Form 10-Q includes forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
and Section 27A of the Securities Act of 1933, as amended. For this purpose, any
statements contained herein regarding the Company's strategy, future operations,
financial position, future revenue, projected costs, prospects, plans and
objectives of management, other than statements of historical facts, are
forward-looking statements. The words "anticipates", "believes", "estimates",
"expects", "intends", "may", "plans", "projects", "will", "would", and similar
expressions are intended to identify forward-looking statements, although not
all forward-looking statements contain these identifying words. The Company
cannot guarantee that they actually will achieve the plans, intentions or
expectations expressed or implied in its forward-looking statements. There are a
number of important factors that could cause actual results, levels of activity,
performance or events to differ materially from those expressed or implied in
the forward-looking statements the Company makes. These important factors
include the Company's "critical accounting estimates" and the risk factors set
forth below. Although the Company may elect to update forward-looking statements
in the future, it specifically disclaims any obligation to do so, even if its
estimates change, and readers should not rely on those forward-looking
statements as representing the Company's 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 bio/pharmaceutical
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, patient recruitment,
regulatory and medical consulting, health policy and reimbursement, performance
improvement, industry training and publishing, medical imaging services, IVRS,
CTMS, web-based portals, systems integration, patient diary applications, and
other drug development consulting services. The Company believes that its
comprehensive services, depth of therapeutic area expertise,
10
global footprint and related 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 three business segments, namely, CRS, PCMS, and
Perceptive. CRS constitutes the Company's core business and includes clinical
trials management and biostatistics, data management and clinical pharmacology,
as well as related medical advisory and investigator site services. PCMS
provides technical expertise in such disciplines as regulatory affairs, industry
training, publishing, product development, management consulting, registration,
commercialization issues, market development, targeted communications services
in support of product launch, as well as health policy consulting and strategic
reimbursement services. Perceptive provides information technology solutions
designed to improve clients' product development processes. Perceptive offers a
portfolio of products and services that includes medical imaging services, IVRS,
CTMS, web-based portals, systems integration, and patient diary applications.
Perceptive is a majority-owned subsidiary of the Company. As of September 30,
2004, the Company owned approximately 97.9% of the outstanding shares of common
stock of Perceptive. On a fully diluted basis, the Company owned approximately
91.9% of Perceptive.
The Company conducts a significant portion of its operations in foreign
countries. Approximately 60.6% of the Company's service revenue for the three
months ended September 30, 2004 and 53.4% of the Company's service revenue for
the three months ended September 30, 2003, 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, 2004, approximately 23.4% of total consolidated service revenue
was denominated in British pounds and approximately 29.5% of total consolidated
service revenue was denominated in Euros. For the three months ended September
30, 2003, approximately 19.5% of total consolidated service revenue was
denominated in British pounds and approximately 25.9% of total consolidated
service revenue was denominated in Euros.
Approximately 85.0% of the Company's contracts are fixed price, with some
variable components, and range in duration from a few months to several years.
Cash flows from these contracts typically consist 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.
The Company regards an accounting estimate underlying its financial statements
as a "critical accounting estimate" if the nature of the estimate or assumption
is material due to level of subjectivity and judgment involved or the
susceptibility of such matter to change and if the impact of the estimate or
assumption on financial condition or operating performance is material. The
Company believes that the following accounting policies are most critical to aid
in fully understanding and evaluating its reported financial results:
11
REVENUE RECOGNITION
Service revenue on fixed-price contracts is recognized as services are
performed. The Company measures progress for fixed-price contracts using the
concept of proportional performance based upon a unit based output method. This
method requires the Company to estimate total expected units, as well as the
costs and revenue per unit. 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 actual costs incurred, which were not
recovered from clients. In the event that future estimates are materially
incorrect, they could materially impact the Company's consolidated results of
operations and financial position.
BILLED ACCOUNTS RECEIVABLE, UNBILLED ACCOUNTS RECEIVABLE AND DEFERRED REVENUE
Billed accounts receivable represent 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
historic collectability and specific identification of potential problem
accounts. 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.
INCOME TAXES
The Company's global provision for corporate income taxes is calculated using
the tax accounting rules established by SFAS No. 109. 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 results of operations and
financial position.
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. Under SFAS No. 142,
"Goodwill and Other Intangible Assets", goodwill is subject to annual impairment
testing or more frequent testing if an event occurs or circumstances change that
would more likely than not reduce the carrying value of the reporting unit below
its fair value. The Company has assessed the impairment of goodwill under SFAS
No. 142 in fiscal years 2004 and 2003. The impairment testing involves
determining the fair market value of each of the reporting units with which the
goodwill was associated and comparing the value with the reporting unit's
carrying value. Based on this assessment, there was no impairment identified at
June 30, 2004 and 2003. 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 ended September 30, 2004 and 2003 were
as follows:
12
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------
INCREASE
($ IN THOUSANDS) 2004 2003 (DECREASE) %
-------- --------- --------- -----
Service revenue:
CRS $ 89,926 $ 93,930 $(4,004) -4.3%
PCMS 32,356 30,050 2,306 7.7%
Perceptive 9,229 8,143 1,086 13.3%
-------- --------- -------
$131,511 $ 132,123 $ (612) -0.5%
======== ========= =======
Direct costs:
CRS $ 56,925 $ 57,940 $(1,015) -1.8%
PCMS 21,470 23,465 (1,995) -8.5%
Perceptive 5,295 4,443 852 19.2%
-------- --------- -------
$ 83,690 $ 85,848 $(2,158) -2.5%
======== ========= =======
Gross profit on service revenue:
CRS $ 33,001 $ 35,990 $(2,989) -8.3%
PCMS 10,886 6,585 4,301 65.3%
Perceptive 3,934 3,700 234 6.3%
-------- --------- -------
$ 47,821 $ 46,275 $ 1,546 3.3%
======== ========= =======
THREE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED WITH THREE MONTHS ENDED SEPTEMBER
30, 2003:
Service revenue decreased by $0.6 million, or 0.5%, to $131.5 million for the
three months ended September 30, 2004 from $132.1 million for the same period
one year ago. Service revenue was positively impacted by foreign exchange
fluctuations of $6.8 million, or 4.7%. On a geographic basis, service revenue
for the three months ended September 30, 2004 was distributed as follows: The
United States - $51.9 million (39.4%), Europe - $72.6 million (55.2%), and Asia
& Other - $7.1 million (5.4%). For the three months ended September 30, 2003,
service revenue was distributed as follows: The United States - $61.5 million
(46.6%), Europe - $63.2 million (47.8%), and Asia & Other - $7.4 million (5.6%).
The year-over-year shift of revenue from the United States to Europe was
primarily caused by the weakening of the U.S. dollar, incremental revenue in
Europe attributed to the 3C acquisition completed during the third quarter of
fiscal year 2004, and cancellations as a result of drug safety issues in the
U.S.
On a segment basis, CRS service revenue decreased $4.0 million, or 4.3%, to
$89.9 million for the three months ended September 30, 2004 from $93.9 million
in the same period in fiscal year 2003, as a result of several factors including
cancellations caused by drug safety issues, client driven project
start-up-delays, and no current year counterpart to last year's favorable
contract close-out in Japan, partly offset by the favorable $5.4 million effect
of foreign exchange fluctuations. PCMS service revenue increased by $2.3
million, or 7.7%, to $32.4 million in the three months ended September 30, 2004
from $30.1 million in the three months ended September 30, 2003. Approximately
1.6% of the total 7.7% increase was attributed to the positive impact of foreign
currency fluctuations, with the remaining 6.1% primarily due to rebounding
demand for most of this segment's services. Perceptive service revenue increased
by $1.1 million, or 13.3%, to $9.2 million in the three months ended September
30, 2004 compared with $8.1 million in the same period one year ago. Of the
total 13.3% increase, approximately 3.8% was attributed to the positive impact
of foreign currency fluctuations, and the remaining 9.5% was primarily due to
new business wins in the medical imaging business experienced throughout fiscal
year 2004.
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 decreased by $2.2 million, or 2.5%, to $83.7 million for the three
months ended September 30, 2004 from $85.8 million in the same period last
fiscal year. Direct costs were negatively impacted by foreign exchange
fluctuations of $4.6 million, or 5.4%. On a segment basis, CRS direct costs
decreased by $1.0 million, or 1.8%, to $56.9 million for the three months ended
September 30, 2004 from $57.9 million in the same three-month period in fiscal
year 2004. The year-over-year decrease in CRS direct costs was primarily due to
lower revenue levels, tighter cost controls, productivity and quality
improvements, and a favorable swing in loss reserves, partly offset by a 5.9%
increase due to the impact of foreign currency fluctuations. As a percentage of
service revenue, CRS direct costs increased by 1.6 points to 63.3% for the three
months ended September 30, 2004 from 61.7% for the three months ended September
30, 2003. PCMS direct costs decreased by $2.0 million, or 8.5%, to $21.5 million
in the three months ended September 30, 2004 from $23.5 million in the same
period one year ago. The year-over-year decrease in PCMS direct costs was a
result of tighter cost controls, no counterpart to the prior year's one-time
catch-up adjustment in MMS, and lower hiring costs, partially offset by a 4.4%
increase due to the impact of foreign currency fluctuations. As a percentage of
service revenue, PCMS direct costs decreased by 11.7 points to 66.4% for the
three months ended September 30, 2004 from 78.1% for the three months ended
September 30, 2003 as a result of efficiency improvements and the other factors
previously mentioned. Perceptive direct costs increased $0.9 million, or 19.2%,
to $5.3 million in the three months ended September 30, 2004 from $4.4 million
in the same period in the last fiscal year. Of the total 19.2% increase,
approximately 4.0% was attributed to foreign currency fluctuations, with the
remaining 15.2% due to higher labor costs associated with increased staffing
needs to support business growth. As a percentage of service revenue,
Perceptive's direct costs increased by 2.8 points to 57.4% in the three months
ended September 30, 2004 from 54.6% in the same three-month period one year ago
as a result of a less favorable revenue mix.
Selling, general and administrative ("SG&A") expenses decreased $0.6 million, or
1.9%, to $31.8 million in the three-month period ended September 30, 2004 from
$32.4 in the same period one year ago as the impact of unfavorable foreign
currency fluctuations of approximately $1.6 million were offset by a decrease of
approximately $2.2 million as a result of tight cost controls and the favorable
impact of past restructuring activities. As a percentage of service revenue,
SG&A improved by 0.4 points to 24.2% in the three months ended September 30,
2004 from 24.6% in the same period one year ago.
Depreciation and amortization ("D&A") expense increased by $0.4 million, or
7.1%, to $6.4 million for the three months ended September 30, 2004 from $6.0
million for the same period in the last fiscal year primarily due to foreign
currency fluctuations and an increased level of capital expenditures. As a
percentage of service revenue, D&A was 4.9% for the three months ended September
30, 2004 versus 4.5% for the three months ended September 30, 2003.
Other income (expense) changed by $0.7 million to a $(0.4) million expense in
the three months ended September 30, 2004 from $0.3 million of income in the
same three-month period in the last fiscal year, primarily due to higher foreign
currency transaction losses.
The Company had an effective income tax rate of 38.7% for the three months ended
September 30, 2004 and 38.5% for the three months ended September 30, 2003. Tax
rates are a function of profitability in the various taxing jurisdictions in
which the Company does business. Any future changes in the mix of taxable income
in the different jurisdictions in which the Company operates could materially
impact the Company's effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations and growth,
including acquisitions, 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 85.0% 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.
14
DAYS SALES OUTSTANDING
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 ("DSO") in accounts receivable, net of
deferred revenue, can vary based on contractual milestones and the timing and
size of cash receipts. DSO in accounts receivable, net of deferred revenue, was
41 days at September 30, 2004 compared with 48 days at September 30, 2003 and 36
days at June 30, 2004. DSO increased five days primarily due to lower revenue
levels and slower payments in the first quarter of fiscal year 2005, as compared
with the fourth quarter of fiscal year 2004, coupled with a decrease in client
advance payments. Accounts receivable, net of the allowance for doubtful
accounts was $209.0 million ($107.0 million in billed accounts receivable and
$102.0 million in unbilled accounts receivable) at September 30, 2004 and $222.0
million ($127.5 million in billed accounts receivable and $94.5 million in
unbilled accounts receivable) at June 30, 2004. Deferred revenue was $132.3
million at September 30, 2004 and $145.4 million at June 30, 2004. DSO 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 the sum of total revenue plus investigator
fees billed for the most recent quarter, and multiplying the resulting fraction
by the number of days in the quarter.
CASH FLOWS
Net cash provided by operating activities for the three months ended September
30, 2004 totaled $5.3 million and was generated from $6.4 million related to
non-cash charges for depreciation and amortization expense, $5.7 million of net
income, and a $1.1 increase in liabilities, offset by a $7.0 million decrease in
accounts payable and $0.9 million utilized for other needs. 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 consolidated subsidiaries, offset by a $5.7 million decrease in
current and non-current liabilities, a $5.3 million decrease in accounts
payable, and a $0.9 million increase in other asset classifications.
Net cash used in investing activities for the three months ended September 30,
2004 totaled $5.3 million and consisted of $5.8 million used for capital
expenditures (primarily computer hardware and software), offset by approximately
$0.7 million of proceeds from sale of fixed assets. 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 used in financing activities for the three months ended September 30,
2004 totaled $3.3 million, and was generated from $3.7 million used to
repurchase the Company's common stock pursuant to its stock repurchase program
and $0.6 million for repayments under lines-of-credit and long-term debt, offset
by $1.0 million in proceeds related to the issuance of common stock in
conjunction with the Company's stock option plan. 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.
LINES OF CREDIT
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 line-of-credit may
be revoked or canceled by the bank at any time at its discretion. The Company
primarily entered into this line of credit to facilitate business transactions
with the bank. At September 30, 2004, the Company had approximately Euro 12.0
million available under this line of credit.
The Company has other foreign lines of credit with banks totaling approximately
$1.8 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, 2004, the
Company had approximately $1.8 million available under these arrangements.
15
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 calculating interest. 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 to legal entities with debit
balances. Based on the pool's overall balance, the Bank then (1) recalculates
the overall interest to be charged or earned, (2) compares this amount with the
sum of previously charged/earned interest amounts per account and (3)
additionally pays/charges the difference. Interest income and interest expense
are included in "other income (expense), net" in the Company's condensed
consolidated statements of operations.
FINANCING NEEDS
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 twelve months and on a longer term basis.
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.
The Company expects capital expenditures to total approximately $25.0 million in
fiscal year 2005.
CONTINGENT LIABILITIES AND GUARANTEES
In connection with the FW Pharma acquisition as discussed in Note 3 to the
consolidated financial statements included in Item 8 of the Company's June 30,
2004 Form 10-K, the Company is obligated to make a maximum additional payments
of up to $2.4 million in contingent purchase price if FW Pharma achieves certain
established financial targets through January 31, 2005.
In connection with the IMC acquisition as discussed in Note 4 to the condensed
consolidated financial statements in this quarterly report, the Company is
obligated to make additional payments of $0.3 million and up to $2.9 million in
contingent purchase price if IMC achieves certain established financial targets
through September 30, 2007.
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.
FOREIGN CURRENCY EXCHANGE RATES
The Company derived approximately 60.6% of its service revenue for the
three-month period ended September 30, 2004 and 53.4% of its service revenue for
the three months ended September 30, 2003 from operations outside of the U.S.
The Company does not have significant operations in countries in which the
economy is considered to be highly inflationary. The Company's financial
statements are denominated in U.S. dollars. Accordingly, changes in exchange
rates between foreign currencies and the U.S. dollar will affect the translation
of financial results into U.S. dollars for purposes of reporting the Company's
consolidated financial results.
16
The Company may be subjected to foreign currency transaction risk when the
Company's foreign subsidiaries enter into contracts denominated in a currency
other than the foreign subsidiary's functional (local) currency. To the extent
the Company is unable to shift the effects of currency fluctuations to its
clients, foreign exchange fluctuations as a result of currency exchange losses
could have a material effect on the Company's results of operations. The Company
has implemented a derivative hedging policy during the fourth quarter of fiscal
year 2004 to hedge certain foreign denominated accounts receivable and
intercompany payables. Derivatives are accounted for in accordance with FAS No.
133 "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133").
The Company occasionally enters into other currency exchange contracts to offset
the impact of currency fluctuations. These currency exchange contracts are
entered into as economic hedges, but are not designated as hedges for accounting
purposes as defined under FAS 133. The Company does not expect gains or losses
on these contracts to have a material impact on its financial results. During
the three-month periods ended September 30, 2004 and 2003, the Company recorded
foreign-exchange losses of $0.8 million and $0.1 million, respectively.
INFLATION
The Company believes the effects of inflation generally do not have a material
adverse impact on its operations or financial condition.
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 rates 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.
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, 2004, approximately 23.4% of
total consolidated service revenue was denominated in British pounds and
approximately 29.5% of total consolidated service revenue was denominated in
Euros. The Company has implemented a derivative policy during the fourth quarter
of fiscal year 2004 to hedge certain foreign denominated accounts receivable and
intercompany payables. Derivatives are accounted for in accordance with FAS 133.
Occasionally, the Company enters into other foreign currency exchange contracts
to offset the impact of currency fluctuations. These currency exchange contracts
are entered into as economic hedges, but are not designated as hedges for
accounting purposes as defined under FAS 133. The notional contract amount of
these outstanding currency exchange contracts was approximately $6.3 million at
September 30, 2004. The potential change in the fair value of these currency
exchange contracts that would result from a hypothetical change of 10% in
exchange rates would be approximately $0.6 million. The Company acknowledged its
exposure to additional foreign exchange risk as it relates to assets and
liabilities that are not part of the economic hedge program, but quantification
is very difficult to address at any given point.
INTEREST RATE
The Company's exposure to interest rate changes is minimal as the level of
long-term debt the Company has is minimal. Long-term debt was approximately $0.5
million as of September 30, 2004 and June 30, 2004.
17
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. These
risk factors could cause actual results to differ from those indicated by
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 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 30 to 60 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.
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 Food and Drug
Administration ("FDA") may proceed with fewer clinical trials or conduct them
without the assistance of bio/pharmaceutical 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
bio/pharmaceutical services companies such as the Company.
THE COMPANY FACES INTENSE COMPETITION IN MANY AREAS OF ITS BUSINESS; IF THE
COMPANY DOES NOT COMPETE EFFECTIVELY, ITS BUSINESS WILL BE HARMED
The bio/pharmaceutical 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 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 PCMS business also competes 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
CROs, 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.
18
THE FIXED PRICE NATURE OF THE COMPANY'S CONTRACTS COULD HURT ITS OPERATING
RESULTS
Approximately 85.0% 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 CHANGES, 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 regulated by the FDA
or similar foreign regulatory authorities 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 E.U. 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. The FDA has had
GCP in place as a regulatory standard and requirement for new drug approval for
many years and Japan had adopted GCP since April 1998. The U.S., Europe and
Japan have also collaborated in the 14-year-long 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 (the Common Technical Document) 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 PCMS business advises 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 PCMS business in this area. As a result of lower level of
FDA enforcement activities over the last two years, PCMS has experienced a
decline in the group's GMP consulting business, which has adversely affected the
business unit.
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.
19
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.
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, 2004, the Company's five largest clients accounted for 30% of its
consolidated service revenue, although no client accounted for 10% or more of
consolidated service revenue. In the fiscal year ended June 30, 2003, the
Company's five largest clients accounted for 32% of its consolidated service
revenue, and one client, AstraZeneca, accounted for 11% of 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.
20
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 were 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 bio/pharmaceutical
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.
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 CRS business primarily involves the testing of experimental drugs
and medical devices on consenting human volunteers pursuant to a study protocol.
Clinical research involves 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 drug or device by physicians. In some cases, these
patients are already seriously ill and are at risk of further illness or death.
21
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 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 claims. In addition, liability coverage is expensive. In the
future, the Company may not be able to maintain or obtain liability insurance on
reasonable terms, at a reasonable cost or in sufficient amounts to protect it
against losses due to 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 on a worldwide basis. The Company's
service revenue from non-U.S. operations represented approximately 60.6% of
total consolidated service revenue for the three months ended September 30, 2004
and approximately 53.4% of total consolidated service revenue for the three
months ended September 30, 2003. In addition, the Company's service revenue from
operations in the United Kingdom represented approximately 23.4% of total
consolidated service revenue for the three month ended September 30, 2004 and
approximately 19.5% of total consolidated service revenue for the three months
ended September 30, 2003. The Company's service revenue from operations in
Germany represented approximately 15.8% of total consolidated service revenue
for the three months ended September 30, 2004 and approximately 12.0% of total
consolidated service revenue for the three months ended September 30, 2003. 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.
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 (loss) from operations was $7.8 million for the quarter
ended September 30, 2003, $8.2 million for the quarter ended December 31, 2003,
$(1.7) million for the quarter ended March 31, 2004, $10.3 million for the
quarter ended June 30, 2004 and $9.6 million for the quarter ended September 30,
2004. Factors that cause these variations include:
- the level of new business authorizations in a particular quarter or
year;
- 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 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.
22
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 65-70% of the
Company's total operating costs in fiscal year 2004. 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 60.6% of the Company's total consolidated service revenue for the
three months ended September 30, 2004 and approximately 53.4% of the Company's
total consolidated service revenue for the three months ended September 30, 2003
were from non-U.S. operations. The Company's financial statements are
denominated in U.S. dollars. As a result, changes in foreign currency exchange
rate, 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, 2004, approximately 23.4% of
total consolidated service revenue was denominated in British pounds
and approximately 29.5% of total consolidated service revenue was
denominated in Euros. For the three months ended September 30, 2003,
approximately 19.5% of total consolidated service revenue was
denominated in British pounds and approximately 25.9% of total
consolidated 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.
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.
23
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:
- the Company has divided its board of directors into three classes
that serve staggered three-year terms;
- the Company is subject to Section 8.06 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 November 1, 2004 the closing sale
price of the Company's common stock on the NASDAQ National Market was $19.30 per
share. During the period from October 1, 2002 to September 30, 2004, the price
of the Company's common stock ranged from a high of $21.00 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.
24
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.
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, 2004, 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 rules and forms of the Securities and Exchange
Commission.
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, 2004 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 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(c) The following table provides information about purchases of equity
securities by the Company and its affiliated purchases of shares of
the Company's common stock during the quarter ended September 30,
2004.
25
Maximum Number
Total Number of (or Appropriate
Shares (or Units) Dollar Value) of
Total Number Purchased as Shares (or Units)
of Shares (or Average Part of Publicly that May Yet Be
Units) Price Paid Announced Purchased Under
Purchased per Share (or Plans or the Plans or
Period (1) Unit) Programs (2) Programs
- ------------------- -------------- ------------- ----------------- -----------------
07/01/04 - 07/31/04 - - - $3.7 million
08/01/04 - 08/31/04 200,500 $18.66 200,500 None
09/01/04 - 09/30/04 - - - $20.0 million (3)
------- -------
Total 200,500 200,500
======= =======
(1) The Company purchased an aggregate of 200,500 shares of its common
stock pursuant to the repurchase plan that was publicly announced on
September 27, 1999 (the "Plan").
(2) The Company's Board of Directors approved the repurchase by the
Company of shares of its common stock having a value of up to $20.0
million in the aggregate pursuant to the Plan. The Plan expired on
August 16, 2004 when all shares authorized for repurchase under the
Plan, had been repurchased by the Company.
(3) On September 9, 2004, the Board of Directors of the Company approved
a new stock repurchase program authorizing the purchase of up to
$20.0 million of the Company's common stock to be repurchased in the
open market subject to market conditions, which was announced on
September 10, 2004.
ITEM 5. OTHER INFORMATION
On September 8, 2004, PAREXEL granted a non-statutory stock option to
acquire 15,000 shares of its common stock, $.01 par value per share
("Common Stock"), at an exercise price of $19.99 per share, to Carl A.
Spalding, President and Chief Operating Officer of PAREXEL. PAREXEL
granted these stock options pursuant to PAREXEL's Second Amended and
Restated 1995 Stock Plan.
These stock options have an 8-year term and vest in four equal annual
installments with the first installment vesting on September 8, 2005,
subject to acceleration upon the achievement of specified financial
milestones. The exercise price of these stock options equals the closing
price of one share of Common Stock of PAREXEL on the Nasdaq National
Market on September 8, 2004.
ITEM 6. EXHIBITS
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.
26
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 8, 2004 By: /s/ Josef H. von Rickenbach
---------------------------------
Josef H. von Rickenbach
Chairman of the Board and
Chief Executive Officer
Date: November 8, 2004 By: /s/ James F. Winschel, Jr.
---------------------------------
James F. Winschel, Jr.
Senior Vice President and
Chief Financial Officer
27
EXHIBIT INDEX
Exhibit Number Description
- ------------- -------------
10.1 Form of Stock Option Agreement issued pursuant to the PAREXEL
International Corporation Second Amended and Restated 1995 Stock Plan to
Carl A. Spalding.
31.1 Principal executive officer certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 Principal financial officer certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Principal executive officer certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2 Principal financial officer certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
28