PAREXEL INTERNATIONAL CORP - FORM 10-Q

PAREXEL INTERNATIONAL CORP - FORM 10-Q - February 9, 2011

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2010

¨	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: 000-21244

PAREXEL INTERNATIONAL CORPORATION

(Exact name of registrant as specified in its charter)

Massachusetts

04-2776269

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

195 West Street

Waltham, Massachusetts

02451

(Address of principal executive offices)

(Zip Code)

(781) 487-9900

(Registrant’s telephone number, including area code)

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of February 3, 2011, there were 58,601,568 shares of common stock outstanding.

PAREXEL INTERNATIONAL CORPORATION

INDEX


Part I. Financial Information		3

Item 1.	Financial Statements	3

	Condensed Consolidated Balance Sheets (Unaudited): December 31, 2010 and June 30, 2010	3

	Condensed Consolidated Statements of Income (Unaudited): Three and Six Months Ended December 31, 2010 and 2009	4

	Condensed Consolidated Statements of Cash Flows (Unaudited): Six Months Ended December 31, 2010 and 2009	5

	Notes to Condensed Consolidated Financial Statements (Unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

Item 3.	Quantitative and Qualitative Disclosure About Market Risk	30

Item 4.	Controls and Procedures	31

Part II. Other Information		32

Item 1.	Legal Proceedings	32

Item 1A.	Risk Factors	32

Item 6.	Exhibits	42

Signatures		43

Exhibit Index		44

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PAREXEL INTERNATIONAL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except share and per share data)


	December 31, 2010			June 30, 2010
ASSETS
Current assets:
Cash and cash equivalents	$	87,552		$	95,170
Marketable securities		—			12,243
Billed and unbilled accounts receivable, net		597,354			478,926
Prepaid expenses		38,990			32,084
Deferred tax assets		28,345			28,932
Income tax receivable		10,805			—
Other current assets		11,933			8,502

Total current assets		774,979			655,857

Property and equipment, net		196,341			187,888
Goodwill		258,331			248,226
Other intangible assets, net		83,871			87,114
Non-current deferred tax assets		5,812			7,193
Long-term income tax receivable		18,865			17,737
Other assets		17,833			16,695

Total assets	$	1,356,032		$	1,220,710


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Notes payable and current portion of long-term debt	$	110,019		$	32,082
Accounts payable		29,975			34,353
Deferred revenue		285,576			261,080
Accrued expenses		33,843			35,994
Accrued restructuring charges		2,927			7,760
Accrued employee benefits and withholdings		67,553			87,606
Current deferred tax liabilities		14,909			15,977
Income tax payable		—			2,840
Other current liabilities		13,007			19,541

Total current liabilities		557,809			497,233

Long-term debt, net of current portion		172,230			183,707
Non-current deferred tax liabilities		29,966			32,235
Long-term accrued restructuring charges		2,073			2,318
Long-term tax liabilities		56,859			48,232
Other liabilities		20,381			17,430

Total liabilities		839,318			781,155

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: 75,000,000; shares issued and outstanding: 58,578,696 at December 31, 2010 and 58,433,717 at June 30, 2010		580			578
Additional paid-in capital		239,842			233,677
Retained earnings		281,359			246,734
Accumulated other comprehensive loss		(5,067	)		(41,434	)

Total stockholders’ equity		516,714			439,555

Total liabilities and stockholders’ equity	$	1,356,032		$	1,220,710

See notes to condensed consolidated financial statements.

PAREXEL INTERNATIONAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share data)


	Three Months Ended December 31						Six Months Ended December 31
	2010			2009			2010			2009

Service revenue	$	304,359		$	284,731		$	600,179		$	544,494
Reimbursement revenue		59,691			53,249			106,128			101,024

Total revenue		364,050			337,980			706,307			645,518

Direct costs		196,475			181,276			383,457			352,264
Reimbursable out-of-pocket expenses		59,691			53,249			106,128			101,024
Selling, general and administrative		64,196			61,459			127,716			117,653
Depreciation		13,605			13,151			26,856			24,720
Amortization		2,451			2,447			4,908			4,983
Other benefit		—			(1,144	)		—			(1,144	)
Restructuring (benefit) charge		(572	)		8,831			(962	)		8,831

Total costs and expenses		335,846			319,269			648,103			608,331

Income from operations		28,204			18,711			58,204			37,187

Interest income		1,188			1,917			2,405			2,744
Interest expense		(4,257	)		(4,254	)		(8,181	)		(8,010	)
Miscellaneous expense		(5,404	)		(7,607	)		(10,012	)		(5,458	)

Other expense, net		(8,473	)		(9,944	)		(15,788	)		(10,724	)

Income before income taxes		19,731			8,767			42,416			26,463

Provision for income taxes		2,899			5,317			7,793			10,572


Net income	$	16,832		$	3,450		$	34,623		$	15,891


Earnings per common share
Basic	$	0.29		$	0.06		$	0.59		$	0.27
Diluted	$	0.28		$	0.06		$	0.58		$	0.27

Shares used in computing earnings per common share
Basic		58,516			57,933			58,483			57,874
Diluted		59,686			58,073			59,673			58,104

See notes to condensed consolidated financial statements.

PAREXEL INTERNATIONAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)


	Six Months Ended
	December 31, 2010			December 31, 2009
Cash flow from operating activities:
Net income	$	34,623		$	15,891
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization		31,764			29,703
Loss on disposal of fixed assets		30			227
Stock-based compensation		4,846			3,419
Changes in operating assets and liabilities		(138,411	)		22,432

Net cash (used in) provided by operating activities		(67,148	)		71,672

Cash flow from investing activities:
Purchases of property and equipment		(27,664	)		(29,899	)
Proceeds from sale of marketable securities		13,058			—
Acquisition of businesses		—			(13	)
Proceeds from sale of assets		50			196

Net cash used in investing activities		(14,556	)		(29,716	)

Cash flow from financing activities:
Proceeds from issuance of common stock		1,795			2,083
Borrowing under lines of credit		155,000			11,000
Repayments under lines of credit		(87,000	)		(36,000	)
Repayments under other debt		(1,442	)		(1,500	)
Purchase of non-controlling interests		(1,550	)		—

Net cash provided by (used in) financing activities		66,803			(24,417	)

Effect of exchange rate changes on cash and cash equivalents		7,283			4,956


Net (decrease) increase in cash and cash equivalents		(7,618	)		22,495

Cash and cash equivalents at beginning of period		95,170			96,352


Cash and cash equivalents at end of period	$	87,552		$	118,847


Supplemental disclosures of cash flow information
Net cash paid during the period for:
Interest	$	8,055		$	7,959
Income taxes, net of refunds	$	16,084		$	10,544

See notes to condensed consolidated financial statements.

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”, “the Company”, “we”, “our” or “us”) have been prepared in accordance with generally accepted accounting principles for interim financial information and 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 and six months ended December 31, 2010 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 our Annual Report on Form 10-K for the fiscal year ended June 30, 2010, as amended (the “2010 10-K”).

Effective July 1, 2010, certain selling, general and administrative expenses for the three and six months ended December 31, 2009 were reclassified as direct costs to conform to the presentation for the fiscal year ending June 30, 2011 (“Fiscal Year 2011”). These changes had no impact on total revenue, total expenses, operating income, net income, earnings per share or the balance sheet.

REVENUE RECOGNITION

We derive revenue from the delivery of service or software solutions to clients in the worldwide pharmaceutical, biotechnology, and medical device industries. In general, we recognize revenue when all of the following conditions are satisfied: (1) there is persuasive evidence of an arrangement; (2) the service offering has been delivered to the client; (3) the collection of fees is probable; and (4) the amount of fees to be paid by the client is fixed or determinable. Revenue recognition treatment of each business segment is described below.

Clinical Research Services (“CRS”) and PAREXEL Consulting and MedCom Services (“PCMS”) Service Revenues

Service revenues in our CRS and PCMS businesses are derived principally from fee-for-service or fixed-price executory contracts, which typically involve competitive bid awards and multi-year terms. Client billing schedules and payment arrangements are prescribed under negotiated contract terms. Contract provisions do not provide for rights of return or refund, but normally include rights of cancellation with notice, in which case services delivered through the cancellation date are due and payable by the client, including certain costs to conclude the trial or study.

Revenue from fee-for-service contracts generally is recognized as units of output are delivered. Revenue on fixed-price contracts is measured by applying a proportional performance model using output units, such as site or investigator recruitment, patient enrollment, data management, or other deliverables common, for example, to our Phase II-III/Peri Approval Clinical Excellence (“PACE”) business. Performance-based output units are pre-defined in contracts and revenue is recognized based upon actual units of completion. Revenue related to changes in contract scope, which are subject to client approval, is recognized when realization is assured and amounts are reasonably determinable.

Our client arrangements generally involve multiple service deliverables, where bundled service deliverables are accounted for in accordance with Accounting Standards Codification (“ASC”) 605-25, “Multiple-Element Arrangements.” We determined that each of our service deliverables has standalone value. We adopted Accounting Standards Update (“ASU”) 2009-13, “Multiple-Deliverable Revenue Arrangements,” on July 1, 2010 for new or materially modified contracts entered into after that date, which did not have a material impact on our financial statements nor do we expect the adoption of this guidance to have a material effect on our financial statements in future periods. ASU 2009-13 requires the allocation of contract (arrangement) value based on the relative selling price of the various separate units of accounting in the arrangement. The guidance in ASU 2009-13 requires a hierarchy of evidence be followed when determining if evidence of the selling price of an item exists such that the best evidence of selling price of a unit of accounting is vendor-specific objective evidence (VSOE), or the price charged when a deliverable is sold separately. When VSOE is not available to determine selling price, relevant third-party evidence (TPE) of selling price should be used, if available. Lastly, when neither VSOE nor TPE of selling price for similar deliverables exists, management must use its best estimate of selling price considering all relevant information that is available without undue cost and effort.

prices of the deliverables within the contract based on TPE. Consistent with our accounting prior to the adoption of ASU 2009-13, we recognize revenues for the separate elements of our contracts upon delivery of actual units of output and when all other revenue recognition criteria are met.

Perceptive Informatics, Inc. (“Perceptive”) Service Revenue

Service revenue is derived principally from the delivery of software solutions through our Perceptive business segment. Software solutions include ClinPhone^® randomization and trial supply management (“RTSM”), IMPACT^® and TrialWorks^™ clinical trials management systems (“CTMS”) and DataLabs^® electronic data capture (“EDC”).

Within Perceptive’s Clinphone RTSM business, we offer selected software solutions through a hosted application delivered through a standard web-browser. We recognize revenue from application hosting services in accordance with ASC 985-605, “Revenue Recognition in the Software Industry” and ASC 605-25 as our customers do not have the right to take possession of the software. Revenue resulting from these hosting services consists of three stages: set-up (client specification and workflow), hosting and support services, and closeout reporting.

We recognize revenue from all stages of a project ratably over the hosting period, including customary and expected extensions. Fees charged and costs incurred in the set-up stage are deferred until the start of the hosting period and are amortized and recognized ratably over the estimated hosting period. Deferred costs include incremental direct costs and certain indirect costs associated with the trial and application setup. These costs include salary and benefits associated with direct labor costs incurred during trial setup, as well as third-party subcontract fees and other contract labor costs. In the event of a contract cancellation by a client, all deferred revenue is recognized and all deferred setup costs are expensed. To the extent that termination-related fees are payable under the contract, such fees are recognized in the period of termination.

Within the CTMS operating unit of the Perceptive business segment, software revenue is recognized on a proportional performance basis in accordance with ASC 985-605 and the relevant guidance provided by ASC 605-35, “Construction-Type and Certain Production-Type Contracts,” due to the significant nature of customization of each project.

Within the EDC operating unit of the Perceptive business segment, revenue is recognized ratably over the contract service period.

Deferred revenue represents amounts billed or cash received in advance of revenue recognized. Unbilled accounts receivable represent revenue recognized in excess of amounts billed.

Reimbursable out-of-pocket expenses are reflected in our Consolidated Statements of Income under “Reimbursement revenue” and “Reimbursable out-of-pocket expenses.”

NOTE 2 – EARNINGS PER SHARE

We compute basic earnings per share by dividing net income for the period by the weighted average number of common shares outstanding during the period. We compute diluted earnings per share by dividing net income by the weighted average number of common shares plus the dilutive effect of outstanding stock options and shares issuable under our employee stock purchase plan. The following table outlines the basic and diluted earnings per common share computations:


(in thousands, except per share data)	Three Months Ended December 31				Six Months Ended December 31
	2010		2009		2010		2009

Net income	$	16,832	$	3,450	$	34,623	$	15,891


Weighted average number of shares outstanding used in computing basic earnings per share		58,516		57,933		58,483		57,874

Dilutive common stock equivalents		1,170		140		1,190		230


Weighted average number of shares outstanding used in computing diluted earnings per share		59,686		58,073		59,673		58,104


Basic earnings per share	$	0.29	$	0.06	$	0.59	$	0.27
Diluted earnings per share	$	0.28	$	0.06	$	0.58	$	0.27

Anti-dilutive options*		1,537		2,232		1,396		2,093

*	We excluded these options from the calculation of diluted earnings per share because they were anti-dilutive.

NOTE 3 – COMPREHENSIVE INCOME

Comprehensive income has been calculated in accordance with ASC No. 220, “Comprehensive Income.” Comprehensive income was as follows:


(in thousands)	Three Months Ended December 31						Six Months Ended December 31
	2010			2009			2010		2009
Net income	$	16,832		$	3,450		$	34,623	$	15,891
Unrealized (loss) gain on derivative instruments*		(1,460	)		(652	)		3,661		(4,322	)
Foreign currency translation		1,068			(2,085	)		32,706		9,413

Comprehensive income	$	16,440		$	713		$	70,990	$	20,982

*	The unrealized (loss) gain on derivative instruments is net of $(0.4) and $0.9 million of taxes for the three and six months ended December 31, 2010, respectively; and net of $(0.5) and $(1.8) million of tax benefit for three and six months ended December 31, 2009, respectively.

NOTE 4 – STOCK-BASED COMPENSATION

We account for stock-based compensation according to ASC 718, “Compensation—Stock Compensation.” The classification of compensation expense within the consolidated statements of income is presented in the following table.


(in thousands)	Three Months Ended December 31				Six Months Ended December 31
	2010		2009		2010		2009

Direct costs	$	420	$	428	$	843	$	1,204
Selling, general and administrative		2,273		1,441		4,003		2,215

Total stock-based compensation	$	2,693	$	1,869	$	4,846	$	3,419

NOTE 5 – SEGMENT INFORMATION

PAREXEL is managed through three business segments:

•

Clinical Research Services (“CRS”) constitutes our core business and includes Phase I-IV clinical trials management and biostatistics, data management and clinical pharmacology, as well as related medical advisory and investigator site services.

•

PAREXEL Consulting and MedCom Services (“PCMS”) provides technical expertise and advice in such areas as drug development, regulatory affairs, and good manufacturing practices (“GMP”) compliance. PCMS also provides a full spectrum of market development, product development, targeted communications, and strategic reimbursement advisory services in support of product launch.

•

Perceptive Informatics, Inc. (“Perceptive”) provides information technology solutions designed to improve the product development processes of our clients. Perceptive offers a portfolio of products and services that includes medical imaging services, ClinPhone® randomization and trial supply management (“RTSM”), DataLabs® electronic data capture (“EDC”), IMPACT® and TrialWorks™ clinical trials management systems (“CTMS”), web-based portals, systems integration, and electronic patient reported outcomes (“ePRO”).

We evaluate our segment performance and allocate resources based on service revenue and gross profit (service revenue less direct costs), while other operating costs are allocated and evaluated on a geographic basis. Accordingly, we do not include the impact of selling, general, and administrative expenses, depreciation and amortization expense, other income (expense), and income tax expense in segment profitability. We attribute revenue to individual countries based upon external and internal contractual arrangements. 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.


(in thousands)	Three Months Ended December 31				Six Months Ended December 31
	2010		2009		2010		2009
Service revenue
Clinical Research Services	$	231,364	$	221,570	$	463,003	$	423,894
PAREXEL Consulting and MedCom Services		32,013		29,731		60,348		58,552
Perceptive Informatics, Inc.		40,982		33,430		76,828		62,048

Total service revenue	$	304,359	$	284,731	$	600,179	$	544,494


Direct costs
Clinical Research Services	$	154,508	$	141,757	$	302,829	$	274,854
PAREXEL Consulting and MedCom Services		19,149		19,185		36,371		37,789
Perceptive Informatics, Inc.		22,818		20,334		44,257		39,621

Total direct costs	$	196,475	$	181,276	$	383,457	$	352,264


Gross profit
Clinical Research Services	$	76,856	$	79,813	$	160,174	$	149,040
PAREXEL Consulting and MedCom Services		12,864		10,546		23,977		20,763
Perceptive Informatics, Inc.		18,164		13,096		32,571		22,427

Total gross profit	$	107,884	$	103,455	$	216,722	$	192,230

NOTE 6 – RESTRUCTURING CHARGES

In October 2009, we adopted a plan to restructure our operations to reduce expenses, better align costs with current and future geographic sources of revenue, and improve operating efficiencies (the “2010 Restructuring Plan”). During the six months ended December 31, 2010, we made payments, foreign currency adjustments, and provision adjustments (primarily related to the finalization of certain severance payments associated with the 2010 Restructuring Plan), as presented below:


(in thousands)
	Balance at June 30, 2010		Provisions/ Adjustments			Payments/Foreign Currency Exchange			Balance at December 31, 2010
2010 Restructuring Plan
Employee severance costs	$	5,221	$	(755	)	$	(2,702	)	$	1,764
Facilities-related charges		3,337		(176	)		(1,230	)		1,931
Other charges		54		(31	)		(23	)		0

Pre-2010 Plans
Facilities-related charges		1,466		—			(161	)		1,305

Total	$	10,078	$	(962	)	$	(4,116	)	$	5,000

NOTE 7 – INCOME TAXES

We determine our global provision for corporate income taxes in accordance with ASC 740, “Income Taxes”. We recognize our deferred tax assets and liabilities based upon the effect of temporary differences between the book and tax basis of recorded assets and liabilities. Further, we follow a methodology by which a company must identify, recognize, measure and disclose in its financial statements the effects of any uncertain tax return reporting positions that a company has taken or expects to take. Our financial statement reporting of the expected future tax consequences of uncertain tax return reporting positions is based on the presumption that all relevant tax authorities possess full knowledge of those tax reporting positions, as well as all of the pertinent facts and circumstances.

As of June 30, 2010, we had $56.3 million of gross unrecognized tax benefits of which $19.2 million would impact the effective tax rate if recognized. As of December 31, 2010, we had $58.3 million of gross unrecognized tax benefits of which $18.7 million would impact the effective tax rate if recognized. These reserves primarily relate to exposures for income tax matters such as changes in the jurisdiction in which income is taxable and taxation of certain investments. The $2.0 million net increase in gross unrecognized tax benefits is primarily composed of an increase of $2.8 million attributable to currency translation adjustments net of decreases of $0.9 million resulting from the expiration of statutes in several U.S. states and Europe.

As of December 31, 2010, we anticipated that the liability for unrecognized tax benefits for uncertain tax positions would decrease by approximately $0.5 million in the next twelve months primarily as a result of the expiration of statutes of limitations outside the United States.

We recognize interest and penalties related to income tax matters in income tax expense. As of June 30, 2010, $8.9 million of gross interest and penalties were included in our liability for unrecognized tax benefits. Income tax expense recorded through December 31, 2010 includes an expense of approximately $0.2 million of interest and penalties. As of December 31, 2010, $9.7 million of gross interest and penalties were included in our liability for unrecognized tax benefits.

We are subject to U.S. federal income tax, as well as income tax in multiple state, local and foreign jurisdictions. All material federal, state, and local income tax matters through 2005 have been concluded. Substantially all material foreign income tax matters have been concluded for all years through 2000.

For the three months and six months ended December 31, 2010, we had an effective income tax rate of 14.7% and 18.4%, respectively. The tax rates for these periods were lower than the expected statutory rate primarily because of a discrete reduction in the valuation allowance in the United States which was recorded in the second quarter of Fiscal Year 2011 as well as the effect of the projected annual effective tax rate for Fiscal Year 2011 on both the three and six month periods. The projected annual effective tax rate is lower than the expected statutory rate because of additional reductions in valuation allowances resulting from improved profitability in the United States and United Kingdom as well as the favorable effect of statutory rates applicable to income earned outside the United States.

For the three months and six months ended December 31, 2009, we had an effective income tax rate of 60.6% and 40.0%, respectively. The tax rates for these periods were higher than the expected statutory rate primarily as a result of discrete non-deductible impairment costs which were recorded in the second quarter of Fiscal Year 2010 as well as the effect of the projected annual effective tax rate for Fiscal Year 2010 on the three and six month periods. The projected annual effective tax rate was higher than the expected statutory rate primarily because of non-deductible expenses outside the United States.

NOTE 8 – LINES OF CREDIT

2010 Credit Facilities

In September 2010, we entered into three short-term credit facilities of $25 million with each of JPMorgan Chase Bank, N.A. (“JPMorgan”), Bank of America, N.A. (“BOA”) and KeyBank National Association (“KeyBank”), for an aggregate of $75 million. In December 2010, we amended the credit facilities with JPMorgan and BOA to extend their respective expiration dates to June 30, 2011, and we replaced the credit facility with KeyBank with a short-term credit facility from HSBC Bank USA, National Association (“HSBC”) in the amount of $25 million, which on December 31, 2010 was fully drawn and the proceeds of which were used to repay the borrowing under the credit facility with KeyBank that matured on December 31, 2010. At this time we have aggregate borrowings of $75 million outstanding under the credit facilities with JPMorgan, BOA and HSBC (collectively, the “2010 Credit Facilities”).

The loan facility available from JPMorgan (the “JPMorgan Facility”) consists of a term loan facility for up to $25 million and terminates, with all outstanding loans under it maturing, on June 30, 2011 (the “Maturity Date”). Borrowings made under the JPMorgan Facility bear interest, at PAREXEL’s determination, at a rate based on either prime plus a margin (not to exceed a per annum rate of .750%) based on a ratio of consolidated total debt to consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) (the “2010 Leverage Ratio”), or a fixed rate determined by JPMorgan at its discretion, or based on adjusted LIBOR plus a margin (not to exceed a per annum rate of 1.750%) based on the 2010 Leverage Ratio. Loans outstanding under the JPMorgan Facility may be prepaid at any time in whole or in part without premium or penalty, other than customary breakage costs, if any, subject to the terms and conditions of the applicable promissory note executed by PAREXEL.

The loan facility available from BOA (the “BOA Facility”) consists of a term loan facility for up to $25 million and terminates, with all outstanding loans under it maturing, on the Maturity Date. Borrowings made under the BOA Facility bear interest, at PAREXEL’s determination, at a rate based on either prime plus a margin (not to exceed a per annum rate of .750%) based on the 2010 Leverage Ratio, or based on LIBOR plus a margin (not to exceed a per annum rate of 1.750%) based on the 2010 Leverage Ratio. Loans outstanding under the BOA Facility may be prepaid at any time in whole or in part without premium or penalty, other than customary breakage costs, if any, subject to the terms and conditions of the loan agreement.

The loan facility available from HSBC (the “HSBC Facility”) consists of a term loan facility for up to $25 million and terminates, with all outstanding loans under it maturing, on the Maturity Date. Borrowings made under the HSBC Facility bear interest, at PAREXEL’s determination, at a rate based on either base rate plus a margin (not to exceed a per annum rate of .750%) based on the 2010 Leverage Ratio, or based on adjusted LIBOR plus a margin (not to exceed a per annum rate of 1.750%) based on the 2010 Leverage Ratio. Loans outstanding under the HSBC Facility may be prepaid at any time in whole or in part without premium or penalty, other than customary breakage costs, if any, subject to the terms and conditions of the loan agreement.

The obligations of PAREXEL under the 2010 Credit Facilities may be accelerated upon the occurrence of an event of default under the applicable facility, which includes customary events of default, including payment defaults, the inaccuracy of representations or warranties and cross defaults to material indebtedness. The proceeds from the 2010 Credit Facilities were used to provide funding to cover short-term cash requirements and to create additional availability of funds until the Maturity Date. The increased short-term working capital needs resulted from the implementation of a new project accounting and billing system, which caused delays in client billing during the fiscal quarter ended September 30, 2010. The issues have now been largely resolved; however, we are still recovering from the impact that delayed billing had with regard to receiving payments from clients. As of December 31, 2010, we had $75 million in principal amount of debt outstanding under the 2010 Credit Facilities, carrying an average annualized interest rate of 1.8%.

The 2010 Credit Facilities contain affirmative and negative covenants applicable to us and our subsidiaries, including financial covenants requiring us to comply with maximum leverage ratios and minimum interest coverage ratios. As of December 31, 2010, we were in compliance with all covenants under the 2010 Credit Facilities.

2008 Credit Facility

On June 13, 2008, PAREXEL, certain subsidiaries of PAREXEL, JPMorgan, as Administrative Agent, J.P. Morgan Europe Limited, as London Agent, and the lenders party thereto (the “Lenders”) entered into an agreement for a credit facility (as amended and restated as of August 14, 2008 and as further amended by the first amendment thereto dated as of December 19, 2008, the “2008 Credit Facility”) in the principal amount of up to $315 million (collectively, the “Loan Amount”). The 2008 Credit Facility consists of an unsecured term loan facility and an unsecured revolving credit facility. Of the total principal amount, up to $150 million is made available through a term loan and up to $165 million is made available through a revolving credit facility. A portion of the revolving loan facility is available for swingline loans of up to $20 million to be made by JP Morgan and for letters of credit. We may request the lenders to increase the 2008 Credit Facility by an additional amount of up to $50 million. Such increase may, but is not committed to, be provided.

Borrowings made under the 2008 Credit Facility bear interest, at our determination, at a rate based on the highest of prime, the federal funds rate plus .50% and the one-month Adjusted LIBOR Rate (as defined in the 2008 Credit Facility) plus 1.00% (such highest rate, the “Alternate Base Rate”) plus a margin (not to exceed a per annum rate of .75%) based on the 2008 Leverage Ratio (defined below), in which case it is a floating interest rate, or based on LIBOR or EURIBOR plus a margin (not to exceed a per annum rate of 1.75%) based on the 2008 Leverage Ratio, in which case the interest rate is fixed at the beginning of each interest period for the balance of the interest period. An interest period is typically one, two, three, or six months. The “2008 Leverage Ratio” is a ratio of the consolidated total debt to consolidated net income before interest, taxes, depreciation and amortization (EBITDA). Loans outstanding under the 2008 Credit Facility may be prepaid at any time in whole or in part without premium or penalty, other than customary breakage costs, if any. The 2008 Credit Facility terminates and any outstanding loans under it mature on June 13, 2013.

Repayment of the principal borrowed under the revolving credit facility (other than a swingline loan) is due on June 13, 2013. Repayment of principal borrowed under the term loan facility is as follows:

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5% of principal borrowed was repaid by June 30, 2009;

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20% of principal borrowed was repaid by June 30, 2010;

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20% of principal borrowed must be repaid during the one-year period from July 1, 2010 to June 30, 2011;

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25% of principal borrowed must be repaid during the one-year period from July 1, 2011 to June 30, 2012; and

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30% of principal borrowed must be repaid during the period from July 1, 2012 to June 13, 2013.

All payments of principal on the term loan facility made during each annual period described above are required to be made in equal quarterly installments and to be accompanied by accrued interest thereon. To the extent not previously paid, all borrowings under the term loan facility must be repaid on June 13, 2013. Swingline loans under the 2008 Credit Facility generally must be paid on the first date after such swingline loan is made that is the 15th or last day of a calendar month.

Interest due under the revolving credit facility (other than a swingline loan) and the term loan facility must be paid quarterly for borrowings with an interest rate determined at the Alternate Base Rate. Interest must be paid on the last day of the interest period selected by us for borrowings with an interest rate based on LIBOR or EURIBOR; provided that for interest periods of longer than three months, interest is required to be paid every three months. Interest under swingline loans is payable when principal is required to be repaid.

Our obligations under the 2008 Credit Facility may be accelerated upon the occurrence of an event of default under the 2008 Credit Facility, which includes customary events of default, including payment defaults, defaults in the performance of affirmative and negative covenants, the inaccuracy of representations or warranties, bankruptcy and insolvency related defaults, cross defaults to other material indebtedness, defaults relating to such matters as ERISA and judgments, and a change of control default. Our obligations under the 2008 Credit Facility are guaranteed by certain of our U.S. domestic subsidiaries, and we have guaranteed any obligations of any co-borrowers under the 2008 Credit Facility.

In connection with the 2008 Credit Facility, we agreed to pay a commitment fee on the term loan commitment, payable quarterly and calculated as a percentage of the unused amount of the term loan commitments at a per annum rate of 0.30%, and a commitment fee on the revolving loan commitment calculated as a percentage of the unused amount of the revolving loan commitments at a per annum rate of up to 0.375% (based on the 2008 Leverage Ratio). To the extent there are letters of credit outstanding under the 2008 Credit Facility, we will pay to the Administrative Agent, for the benefit of the lenders, and to the issuing bank certain letter of credit fees, a fronting fee and additional charges. We also agreed to pay various fees to JPMorgan or KeyBank or both.

As of December 31, 2010, we had $205.5 million in principal amount of debt outstanding under the 2008 Credit Facility, consisting of $108.0 million of principal borrowed under the revolving credit facility and $97.5 million of principal under the term loan, and remaining borrowing availability of approximately $57.0 million under the revolving credit facility. Principal in the amount of $150 million under the 2008 Credit Facility has been hedged with an interest rate swap agreement and carries a fixed interest rate of 4.8%. As of December 31, 2010, our debt under the 2008 Credit Facility, including the $150 million of principal hedged with an interest swap agreement, carried an average annualized interest rate of 4.0%.

The 2008 Credit Facility contains affirmative and negative covenants applicable to us and our subsidiaries, including financial covenants requiring us to comply with maximum leverage ratios, minimum interest coverage ratios, a minimum net worth test (which covenant allows for foreign translation adjustments of up to $50 million in connection with the calculations required under such covenant) and maximum capital expenditures requirements, as well as restrictions on liens, investments, indebtedness, fundamental changes, acquisitions, dispositions of property, making specified restricted payments (including stock repurchases exceeding an agreed to percentage of consolidated net income), and transactions with affiliates. As of December 31, 2010, we were in compliance with all covenants under the 2008 Credit Facility.

Additional Lines of Credit

We have an unsecured line of credit with JP Morgan UK in the amount of $4.5 million that bears interest at an annual rate ranging between 2% and 4%. We primarily entered into this line of credit to facilitate business transactions with the bank. At December 31, 2010, we had $4.5 million available under this line of credit.

We have a cash pooling arrangement with RBS Nederland, NV. Pooling occurs when debit balances are offset against credit balances and the overall net position is used as a basis by the bank for calculating the overall pool interest amount. Each legal entity owned by PAREXEL and party to this arrangement remains the owner of either a credit (deposit) or a debit (overdraft) balance. Therefore, interest income is earned by legal entities with credit balances, while interest expense is charged to legal entities with debit balances. Based on the pool’s aggregate 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. The gross overdraft balance related to this pooling arrangement was $173.9 million and $91.0 million at December 31, 2010 and June 30, 2010, respectively. However, on a net basis, we have surplus cash balances over all accounts for the respective periods.

We have financing agreements with a vendor to finance software purchases. The agreements carry four-year terms and bear annual interest rates up to 3%. As of December 31, 2010, the balance on the promissory notes issued in connection with the financing agreements was $0.2 million.

NOTE 9 – COMMITMENTS, CONTINGENCIES AND GUARANTEES

As of December 31, 2010, we had approximately $42.3 million in purchase obligations with various vendors for the purchase of computer software and other services.

The 2008 Credit Facility, our unsecured senior credit facility, consists of a term loan facility for $150 million and a revolving credit facility for $165 million with a group of lenders (including and managed by JPMorgan), and it is guaranteed by certain of our U.S. subsidiaries.

We have letter-of-credit agreements with banks totaling approximately $7.9 million guaranteeing performance under various operating leases and vendor agreements.

We periodically become involved in various claims and lawsuits that are incidental to our business. We believe, after consultation with counsel, that no matters currently pending would, in the event of an adverse outcome, have a material impact on our consolidated financial position, results of operations, or liquidity.

NOTE 10 – DERIVATIVES

It is our policy to mitigate the risks associated with fluctuations in foreign exchange rates and market rates of interest. Accordingly, we have instituted foreign currency hedging programs and an interest rate swap program that are accounted for in accordance with ASC 815, “Derivatives and Hedging.”

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Our foreign denominated intercompany debt and accounts receivable hedging program is a cash flow hedge program designed to minimize foreign currency volatility. The objective of the program is to reduce variability of cash flows with respect to forecasted billing for services provided outside of the service contract’s host currency and the foreign exchange exposure related to payment of invoices for services provided in executing the customer contract. We primarily utilize forward exchange contracts and purchased currency options with maturities of no more than 12 months that qualify as cash flow hedges. These are intended to offset the effect of exchange rate fluctuations as services are performed and billed, and are generally expected to be reclassified to earnings in the next 12 months as the underlying transactions occur.

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Under our interest rate hedging program, we swap the difference between fixed and variable interest amounts calculated by reference to an agreed-upon notional principal amount, at specified intervals. The objective of this program is to reduce the variability of cash flows related to fluctuations in market rates of interest. We initially entered into swap agreements for intervals of up to 3 years, all of which amounts are expected to come due within the next 12 months.

We also enter into other foreign currency exchange contracts to offset the impact of currency fluctuations for other currencies and intercompany billings. These hedges include cash flow hedges similar to those described above and other derivative instruments, but may involve other denominations or counterparties. These contracts are not accounted for as hedges in accordance with ASC 815.

The following table presents the notional amounts and fair values of our derivatives as of December 31, 2010 and June 30, 2010 (in thousands). All asset and liability amounts are reported in other current assets and other current liabilities.


	December 31, 2010					June 30, 2010
	Notional Amount		Asset (Liability)			Notional Amount		Asset (Liability)
Derivatives designated as hedging instruments under ASC 815
Interest rate contracts	$	150,000	$	(3,348	)	$	150,000	$	(5,062	)
Foreign exchange contracts		28,562		(2,142	)		63,849		(4,996	)

Total designated derivatives		178,562		(5,490	)		213,849		(10,058	)

Derivatives not designated as hedging instruments under ASC 815
Cross-currency interest rate swap contracts		45,707		(1,872	)		41,969		(4,161	)
Foreign exchange contracts		17,676		(124	)		89,138		(1,027	)

Total non-designated derivatives		63,383		(1,996	)		131,107		(5,188	)


Total derivatives	$	241,945	$	(7,486	)	$	344,956	$	(15,246	)

We record the effective portion of any change in the fair value of derivatives designated as hedging instruments under ASC 815 to other comprehensive income on the balance sheet, net of deferred taxes and any ineffective portion to miscellaneous (expense) income on the income statement. The amounts recognized in other comprehensive income are presented below (in thousands):


	Three Months Ended December 31,						Six Months Ended December 31,
	2010			2009			2010		2009
Derivatives designated as hedging instruments under ASC 815
Interest rate contracts	$	734		$	412		$	1,115	$	(157	)
Foreign exchange contracts		(2,194	)		(1,582	)		2,546		(3,596	)

Total designated derivatives	$	(1,460	)	$	(1,170	)	$	3,661	$	(3,753	)

During the three and six months ended December 31, 2010 and 2009, there were no amounts recorded to reflect ineffective portions of any hedges. The estimated amount (net of taxes) of the existing losses that are expected to be reclassified into earnings within the next twelve months is $1.5 million.

The change in the fair value of derivatives not designated as hedging instruments under ASC 815 is recorded to miscellaneous (expense) income on the income statement. The amounts recognized are presented below (in thousands):


	Three Months Ended December 31,						Six Months Ended December 31,
	2010			2009			2010		2009
Derivatives not designated as hedging instruments under ASC 815
Cross-currency interest rate swap contracts	$	(263	)	$	(915	)	$	2,289	$	(745	)
Foreign exchange contracts		(2,741	)		(1,727	)		903		(315	)

Total non-designated derivatives	$	(3,004	)	$	(2,642	)	$	3,192	$	(1,060	)

NOTE 11 – FAIR VALUE MEASUREMENTS

We apply the provisions of ASC 820, “Fair Value Measurements and Disclosures.” ASC 820 defines fair value and provides guidance for measuring fair value and expands disclosures about fair value measurements. ASC 820 enables the reader of financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. ASC 820 requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

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Level 1 – Unadjusted quoted prices in active markets that are accessible to the reporting entity at the measurement date for identical assets and liabilities.

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Level 2 – Inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 2 inputs include the following:

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quoted prices for similar assets and liabilities in active markets

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quoted prices for identical or similar assets or liabilities in markets that are not active

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observable inputs other than quoted prices that are used in the valuation of the asset or liabilities (e.g., interest rate and yield curve quotes at commonly quoted intervals)

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inputs that are derived principally from or corroborated by observable market data by correlation or other means

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Level 3 - Unobservable inputs for the assets or liability (i.e., supported by little or no market activity). Level 3 inputs include management’s own assumption about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk).

The following table sets forth by level, within the fair value hierarchy, our assets (liabilities) carried at fair value as of December 31, 2010:


	Level 1		Level 2			Level 3		Total
Interest Rate Derivative Instruments	$	—	$	(5,220	)	$	—	$	(5,220	)
Foreign Currency Exchange Contracts		—		(2,266	)		—		(2,266	)

Total	$	—	$	(7,486	)	$	—	$	(7,486	)

Interest rate derivative instruments are measured at fair value using the mark-to-market valuation technique. The valuation is based on the estimate of net present value of the expected cash flows using relevant mid-market observable data inputs and based on the assumption of no unusual market conditions or forced liquidation.

Foreign currency exchange contracts are measured at fair value using the market-to-market method valuation technique. The inputs to this technique utilize current foreign currency exchange forward market rates published by third-party leading financial news and data providers. This is observable data that represent the rates that the financial institution uses for contracts entered into at that date; however, they are not based on actual transactions so they are classified as Level 2. As of December 31, 2010, there were no transfers among Level 1, Level 2, or Level 3. Additionally, there were no changes in the valuation techniques used to determine the fair values of our Level 2 or Level 3 assets or liabilities.

The carrying value of our short-term and long-term debt approximates fair value because all of the debt bears variable rate interest.

NOTE 12 – PURCHASE OF NON-CONTROLLING INTERESTS

In August 2010, we purchased all the remaining shares outstanding of Synchron Private Limited from its minority shareholders for approximately $1.6 million, pursuant to a call option. The transaction was accounted for as an equity transaction following the guidance of ASC 810, “Consolidation,” because we controlled and consolidated Synchron Private Limited prior to the transaction.

NOTE 13 –OTHER BENEFIT

For the three months ended December 31, 2009, we released $1.1 million of reserves to reflect lower-than-anticipated close-out costs that were related to a biopharma client that filed for bankruptcy protection in Fiscal Year 2009.

NOTE 14 –MISCELLANEOUS EXPENSE

In November 2010, a tenant in one of our buildings in France ended its lease and we have been unsuccessful in finding a new tenant. As a result, we evaluated the rental markets and property values in that area and recorded a $1.2 million impairment loss reflecting the difference between the carrying value of this property and its fair value.

In January 2010, we were informed that a French laboratory, in which we had a direct and indirect investment, filed for bankruptcy protection. We evaluated the investment and recorded a $6.1 million impairment loss in miscellaneous expense, equal to the amount of our total investment, for the three and six months ended December 31, 2009.

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 in this quarterly report on Form 10-Q. 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. Our results of operations for a particular quarter may not be indicative of results expected during subsequent fiscal quarters or for the entire year.

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 (the “Exchange Act”), and Section 27A of the Securities Act of 1933, as amended. For this purpose, any statements contained in this report regarding our 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,” “appears,” “intends,” “may,” “plans,” “projects,” “will,” “would,” “could,” “should,” “targets,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We cannot guarantee that we actually will achieve the plans, intentions or expectations expressed or implied in our 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 we make. These important factors are described under “Critical Accounting Policies and Estimates” included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2010, filed on August 27, 2010, as amended on Form 10-K/A, filed on September 9, 2010 (the “2010 10-K”), and under “Risk Factors” set forth in Part II, Item 1A below. In light of these risks, uncertainties, assumptions and factors, the forward-looking events discussed herein may not occur and our actual performance and results may vary from those anticipated or otherwise suggested by such statements. You are cautioned not to place undue reliance on these forward-looking statements. Although we may elect to update forward-looking statements in the future, we specifically disclaim any obligation to do so, even if our estimates change, and you should not rely on those forward-looking statements as representing our views as of any date subsequent to the date of this quarterly report.

OVERVIEW

We are a leading biopharmaceutical services company, providing a broad range of expertise in clinical research, medical communications services, consulting and informatics and advanced technology products and services to the worldwide pharmaceutical, biotechnology, and medical device industries. Our primary objective is to provide solutions for managing the biopharmaceutical product lifecycle with the goal of reducing the time, risk, and cost associated with the development and commercialization of new therapies. Since our incorporation in 1983, we have developed significant expertise in processes and technologies supporting this strategy. Our product and service offerings include: clinical trials management, data management, biostatistical analysis, medical communications, clinical pharmacology, patient recruitment, regulatory and product development consulting, health policy and reimbursement, performance improvement, medical imaging services, ClinPhone® RTSM, IMPACT® and TrialWorks™ CTMS, DataLabs® EDC, web-based portals, systems integration, ePRO, and other drug development consulting services. We believe that our comprehensive services, depth of therapeutic area expertise, global footprint and related access to patients, and sophisticated information technology, along with our experience in global drug development and product launch services, represent key competitive strengths.

We are managed through three business segments: Clinical Research Services (“CRS”), PAREXEL Consulting and MedCom Services (“PCMS”) and Perceptive Informatics, Inc. (“Perceptive”).

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CRS constitutes our core business and includes all phases of clinical research from Early Phase (encompassing the early stages of clinical testing that range from first-in-man through proof-of-concept studies, formerly referred to as “Clinical Pharmacology”) to Phase II-III and Phase IV, which we call Peri Approval Clinical Excellence (“PACE”). Our services include clinical trials management and biostatistics, data management and clinical pharmacology, as well as related medical advisory, patient recruitment, clinical supply and drug logistics, pharmacovigilance, and investigator site services.

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PCMS provides technical expertise and advice in such areas as drug development, regulatory affairs, and biopharmaceutical process and management consulting. PCMS also provides a full spectrum of market development, product development, and targeted communications services in support of product launch. PCMS consultants identify alternatives and propose solutions to address clients’ product development, registration, and commercialization issues. In addition, PCMS provides health policy consulting, as well as reimbursement and market access (“RMA”) services.

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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, ClinPhone® RTSM, IMPACT® and TrialWorks™ CTMS, DataLabs® EDC, web-based portals, systems integration, and ePRO.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The discussion and analysis of our financial condition and results of operations are based on our 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 us to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and other financial information. On an ongoing basis, we evaluate our estimates and judgments. We base our estimates on historical experience and on various other factors that we believe to be reasonable under the circumstances. Our actual results may differ from these estimates under different assumptions or conditions. Our most critical accounting policies involve: revenue recognition, billed accounts receivable, unbilled accounts receivable and deferred revenue, accounting for income taxes, and goodwill.

REVENUE RECOGNITION

CRS and PCMS Service Revenues

Revenue from fee-for-service contracts generally is recognized as units of output are delivered. Revenue on fixed-price contracts is measured by applying a proportional performance model using output units, such as site or investigator recruitment, patient enrollment, data management, or other deliverables common, for example, to our Phase II-III/PACE business. Performance-based output units are pre-defined in contracts and revenue is recognized based upon actual units of completion. Revenue related to changes in contract scope, which are subject to client approval, is recognized when realization is assured and amounts are reasonably determinable.

We generally are not able to establish VSOE as our deliverables are seldom sold separately. Consistent with our practice prior to the adoption of ASU 2009-13, we have established TPE of selling price for each of our arrangement deliverables based on the price we charge for equivalent services when sold to other similar customers as well as our knowledge of market-pricing from the competitive bidding process for customer contracts offering similar services to comparably situated customers. Consequently, we allocate arrangement consideration at the inception of the arrangement using the relative selling prices of the deliverables within the contract based on TPE. Consistent with our accounting prior to the adoption of ASU 2009-13, we recognize revenues for the separate elements of our contracts upon delivery of actual units of output and when all other revenue recognition criteria are met.

We plan to analyze the selling prices used in our allocation of arrangement consideration at least annually. Selling prices will be analyzed on a more frequent basis if a significant change in our business necessitates a more timely analysis or if we experience significant variances in its selling prices.

Perceptive Service Revenue

Within Perceptive’s Clinphone RTSM business, we offer selected software solutions through a hosted application delivered through a standard web-browser. We recognize revenue from application hosting services in accordance with ASC 985-605, “Revenue Recognition in the Software Industry” and ASC 605-25, “Multiple-Element Arrangements” as our customers do not have the right to take possession of the software. Revenue resulting from these hosting services consists of three stages: set-up (client specification and workflow), hosting and support services, and closeout reporting.

Critical management estimates may be involved in the determination of “hosting period,” and other revenue elements. Changes to these elements could affect the amount and timing of revenue recognition.

For further information on our other critical accounting policies, please refer to the consolidated financial statements and footnotes thereto included in the 2010 10-K.

RESULTS OF OPERATIONS

ANALYSIS BY SEGMENT

We evaluate our segment performance and allocate resources based on service revenue and gross profit (service revenue less direct costs), while other operating costs are allocated and evaluated on a geographic basis. Accordingly, we do not include the impact of selling, general, and administrative expenses, depreciation and amortization expense, other charges, interest income (expense), other income (loss), and income tax expense (benefit) in segment profitability. We attribute revenue to individual countries based upon external and internal contractual arrangements. Inter-segment transactions are not included in service revenue. Furthermore, we have a global infrastructure supporting our business segments, and therefore, we do not identify assets by reportable segment. Service revenue, direct costs and gross profit on service revenue for the three and six months ended December 31, 2010 and 2009 were as follows:


($ in thousands)	Three Months Ended				Increase
	December 31, 2010		December 31, 2009*		(Decrease)			%

Service revenue
Clinical Research Services	$	231,364	$	221,570	$	9,794			4.4	%
PAREXEL Consulting and MedCom Services		32,013		29,731		2,282			7.7	%
Perceptive Informatics, Inc.		40,982		33,430		7,552			22.6	%

Total service revenue	$	304,359	$	284,731	$	19,628			6.9	%


Direct costs
Clinical Research Services	$	154,508	$	141,757	$	12,751			9.0	%
PAREXEL Consulting and MedCom Services		19,149		19,185		(36	)		-0.2	%
Perceptive Informatics, Inc.		22,818		20,334		2,484			12.2	%

Total direct costs	$	196,475	$	181,276	$	15,199			8.4	%


Gross profit
Clinical Research Services	$	76,856	$	79,813	$	(2,957	)		-3.7	%
PAREXEL Consulting and MedCom Services		12,864		10,546		2,318			22.0	%
Perceptive Informatics, Inc.		18,164		13,096		5,068			38.7	%

Total gross profit	$	107,884	$	103,455	$	4,429			4.3	%


($ in thousands)	Six Months Ended				Increase
	December 31, 2010		December 31, 2009*		(Decrease)			%

Service revenue
Clinical Research Services	$	463,003	$	423,894	$	39,109			9.2	%
PAREXEL Consulting and MedCom Services		60,348		58,552		1,796			3.1	%
Perceptive Informatics, Inc.		76,828		62,048		14,780			23.8	%

Total service revenue	$	600,179	$	544,494	$	55,685			10.2	%


Direct costs
Clinical Research Services	$	302,829	$	274,854	$	27,975			10.2	%
PAREXEL Consulting and MedCom Services		36,371		37,789		(1,418	)		-3.8	%
Perceptive Informatics, Inc.		44,257		39,621		4,636			11.7	%

Total direct costs	$	383,457	$	352,264	$	31,193			8.9	%


Gross profit
Clinical Research Services	$	160,174	$	149,040	$	11,134			7.5	%
PAREXEL Consulting and MedCom Services		23,977		20,763		3,214			15.5	%
Perceptive Informatics, Inc.		32,571		22,427		10,144			45.2	%

Total gross profit	$	216,722	$	192,230	$	24,492			12.7	%

Three Months Ended December 31, 2010 Compared With Three Months Ended December 31, 2009:

For the three months ended December 31, 2010, we had net income of $16.8 million compared with net income of $3.5 million for the three months ended December 31, 2009. On a fully diluted basis, earnings per share increased to $0.28 from $0.06 for the respective periods.

Revenue

Service revenue increased by $19.6 million, or 6.9%, to $304.3 million for the three months ended December 31, 2010 from $284.7 million for the three months ended December 31, 2009. On a geographic basis, service revenue was distributed as follows (in millions):


	Three months ended December 31, 2010					Three months ended December 31, 2009
Region	Service Revenue		% of Total			Service Revenue		% of Total
The Americas	$	127.2		41.8	%	$	108.9		38.3	%
Europe, Middle East & Africa	$	136.1		44.8	%	$	142.4		50.0	%
Asia/Pacific	$	41.0		13.5	%	$	33.4		11.7	%

For the three months ended December 31, 2010 compared with the same period in 2009, service revenue in the Americas increased by $18.3 million, or 16.8%; Europe, Middle East & Africa service revenue decreased by $6.3 million, or 4.4%; and Asia/Pacific service revenue increased by $7.6 million, or 22.8%. The increase in the Americas and Asia/Pacific was due to strong new business growth. Growth in the Americas was also due to a change in internal contractual arrangements that determine how much revenue from a client contract is attributed to different PAREXEL legal entities. In the past, we recognized revenue in different regions based upon the work performed. Furthermore, service revenue in Europe, Middle East & Africa was negatively impacted by foreign currency fluctuations of approximately $7.5 million. The positive impact of foreign currency fluctuations in Asia/Pacific was approximately $2.5 million, while the impact in the Americas was minimal.

On a segment basis, CRS service revenue increased by $9.8 million, or 4.4%, to $231.4 million for the three months ended December 31, 2010 from $221.6 million for the three months ended December 31, 2009. The increase was attributable to strong performance in all of our CRS business lines, including a $1.2 million increase in our Early Phase business and a $12.2 million increase in Phase II-III/PACE; partly offset by approximately $3.6 million related to the negative impact of foreign currency fluctuations. The growth is a result of successful sales efforts over the past twelve months and the continued positive impact of strategic partnerships.

PCMS service revenue increased by $2.3 million, or 7.7%, to $32.0 million for the three months ended December 31, 2010 from $29.7 million for the same period in 2009. The increase was due primarily to a $2.8 million growth in our compliance-related consulting services.

Perceptive service revenue increased by $7.6 million, or 22.6%, to $41.0 million for the three months ended December 31, 2010 from $33.4 million for the three months ended December 31, 2009. The increase was due primarily to a $4.3 million increase in our RTSM business and a $2.6 million increase in Medical Imaging; partly offset by the $0.6 million negative impact of foreign currency fluctuations. The growth in Perceptive is due to increasing usage of technology in conjunction with clinical trials.

Reimbursement revenue consists of reimbursable out-of-pocket expenses incurred on behalf of and reimbursable by clients. Reimbursement revenue does not yield any gross profit to us, nor does it have an impact on net income.

Direct Costs

Direct costs increased by $15.2 million, or 8.4%, to $196.5 million for the three months ended December 31, 2010 from $181.3 million for the three months ended December 31, 2009. As a percentage of total service revenue, direct costs increased to 64.6% from 63.7% for the respective periods.

On a segment basis, CRS direct costs increased by $12.8 million, or 9.0%, to $154.5 million for the three months ended December 31, 2010 from $141.8 million for the three months ended December 31, 2009. This increase resulted from higher levels of project activity and increased labor costs, partially offset by the $2.0 million positive impact of foreign exchange rate fluctuations. As a percentage of service revenue, CRS direct costs increased to 66.8% for the three months ended December 31, 2010 from 64.0% for the three months ended December 31, 2009 due primarily to increased headcount. In this regard, we had a resource imbalance as a result of project delays and a slower-than-expected ramp up of revenue from strategic partnership-related projects.

PCMS direct costs were essentially flat at $19.1 million for the three months ended December 31, 2010 and $19.2 million for the three months ended December 31, 2009. A $1.0 million decrease in Medical Communications and other business lines (due to lower levels of business activity) and $0.3 million related to the positive impact of foreign currency fluctuations were

partially offset by a $1.2 million increase in compliance-related consulting services. As a percentage of service revenue, PCMS direct costs decreased to 59.8% from 64.5% for the respective periods as a result of improved productivity and efficiency.

Perceptive direct costs increased by $2.5 million, or 12.2%, to $22.8 million for the three months ended December 31, 2010 from $20.3 million for the three months ended December 31, 2009. This increase was due primarily to higher RTSM business volume. As a percentage of service revenue, Perceptive direct costs decreased to 55.7% for the three months ended December 31, 2010 from 60.8% for the three months ended December 31, 2009. This decrease was due primarily to improved utilization rates and higher revenue growth.

Selling, General and Administrative

Selling, general and administrative (“SG&A”) expense increased by $2.7 million, or 4.5%, to $64.2 million for the three months ended December 31, 2010 from $61.5 million for the three months ended December 31, 2009. This increase was due primarily to a $3.8 million increase in labor costs and a $1.4 million increase in facilities expenses; partly offset by the $1.3 million positive impact of foreign exchange fluctuations and a $0.7 million decrease in other areas, such as insurance and professional fees. As a percentage of service revenue, SG&A, at 21.1% for the three months ended December 31, 2010, decreased by 50 basis points from 21.6% for the three months ended December 31, 2009.

Depreciation and Amortization

Depreciation and amortization (“D&A”) expense increased by $0.5 million, or 2.9%, to $16.1 million for the three months ended December 31, 2010 from $15.6 million for the three months ended December 31, 2009, primarily due to additional depreciation expense from increased capital expenditures over the last several quarters, including the implementation of our new project accounting and billing system. As a percentage of service revenue, D&A was 5.3% for the three months ended December 31, 2010 versus 5.5% for the same period in 2009.

Other Benefit

Restructuring Charge

For the three months ended December 31, 2009, we recorded $8.8 million in restructuring charges in association with the 2010 Restructuring Plan, including approximately $5.2 million in costs related to the abandonment of certain property leases and $3.6 million in employee separation benefits associated with the elimination of 99 managerial and staff positions. For the three months ended December 31, 2010, we recorded a $0.6 million benefit, primarily related to the finalization of certain severance payments associated with the 2010 Restructuring Plan.

Income from Operations

Income from operations increased to $28.2 million for the three months ended December 31, 2010 from $18.7 million for the same period in 2009. Income from operations as a percentage of service revenue, or operating margin, increased to 9.3% from 6.6% for the respective periods. This increase in operating margin was due primarily to a decrease in the restructuring charges.

Other Expense, Net

We recorded net other expense of $8.5 million for the three months ended December 31, 2010 compared with $9.9 million for the three months ended December 31, 2009. The $1.5 million decrease was due primarily to a $2.2 million decrease in miscellaneous expense.

Miscellaneous expense for the three months ended December 31, 2010 of $5.4 million was driven by $3.0 million of unrealized losses related to foreign exchange contracts, the $1.2 million charge for the impairment of certain long-lived assets in France, and $1.2 million of losses on the revaluation of certain foreign denominated assets and liabilities.

Miscellaneous expense for the three months ended December 31, 2009 of $7.6 million included a $6.1 million impairment of an investment and $2.6 million of losses related to foreign exchange contracts, partly offset by $1.3 million of gains on the revaluation of certain foreign denominated assets and liabilities.

Taxes

For the three months ended December 31, 2010 and 2009, we had an effective income tax rate of 14.7% and 60.6%, respectively. The reduced tax rate is primarily attributable to the impact of discrete items on the effective tax rate. A discrete reduction in valuation allowances in the United States recorded in the second quarter of Fiscal Year 2011 resulted in a significant reduction in the quarterly effective tax rate. The effective tax rate for the second quarter of Fiscal Year 2010 was increased as a result of discrete non-deductible impairment costs.

Additionally, the effective tax rate for the second quarter of Fiscal Year 2011 was affected by a reduction in the projected annual effective tax rate for Fiscal Year 2011 in comparison to the annual effective rate in Fiscal Year 2010. The decrease in the projected annual effective tax rate was caused by reductions in valuation allowances resulting from improved profitability in the United States and United Kingdom, a reduction in non-deductible expenses in foreign jurisdictions in comparison to the prior year, and a reduction in U.S. taxable income resulting from recently enacted legislation regarding U.S. international tax laws relating to the “look through” rules. We expect that our effective tax rate for the remainder of the fiscal year will increase given the discrete benefits recognized in the current quarter.

Six Months Ended December 31, 2010 Compared With Six Months Ended December 31, 2009:

For the six months ended December 31, 2010, we had net income of $34.6 million compared with net income of $15.9 million for the six months ended December 31, 2009. On a fully diluted basis, earnings per share increased to $0.58 from $0.27 for the respective periods.

Revenue

Service revenue increased by $55.7 million, or 10.2%, to $600.2 million for the six months ended December 31, 2010 from $544.5 million for the six months ended December 31, 2009. On a geographic basis, service revenue was distributed as follows (in millions):


	Six months ended December 31, 2010					Six months ended December 31, 2009
Region	Service Revenue		% of Total			Service Revenue		% of Total
The Americas	$	260.1		43.3	%	$	210.5		38.7	%
Europe, Middle East & Africa	$	261.7		43.6	%	$	272.0		50.0	%
Asia/Pacific	$	78.4		13.1	%	$	62.0		11.3	%

For the six months ended December 31, 2010 compared with the same period in 2009, service revenue in the Americas increased by $49.6 million, or 23.5%; Europe, Middle East & Africa service revenue decreased by $10.3 million, or 3.8%; and Asia/Pacific service revenue increased by $16.4 million, or 26.4%. The increase in the Americas and Asia/Pacific was due to strong new business growth. Growth in the Americas was also due to a change in internal contractual arrangements that determine how much revenue from a client contract is attributed to different PAREXEL legal entities. In the past, we recognized revenue in different regions based upon the work performed. Furthermore, service revenue in Europe, Middle East & Africa was negatively impacted by foreign currency fluctuations of approximately $18.0 million. The positive impact of foreign currency fluctuations in Asia/Pacific was approximately $4.8 million, while the impact in the Americas was minimal.

On a segment basis, CRS service revenue increased by $39.1 million, or 9.2%, to $463.0 million for the six months ended December 31, 2010 from $423.9 million for the six months ended December 31, 2009. The increase was attributable to strong performance in all of our CRS business lines, including a $6.6 million increase in our Early Phase business and a $41.9 million increase in Phase II-III/PACE; partly offset by approximately $9.4 million related to the negative impact of foreign currency fluctuations. The growth is a result of successful sales efforts over the past twelve months and the continued positive impact of strategic partnerships.

PCMS service revenue increased by $1.8 million, or 3.1%, to $60.3 million for the six months ended December 31, 2010 from $58.6 million for the same period in 2009. The increase was due primarily to a $3.9 million growth in our compliance-related consulting services. This increase was partially offset by $1.5 million related to the negative impact of foreign currency fluctuations and a $0.5 million decrease in other parts of the business.

Perceptive service revenue increased by $14.8 million, or 23.8%, to $76.8 million for the six months ended December 31, 2010 from $62.0 million for the six months ended December 31, 2009. The increase was due primarily to a $10.0 million increase in our RTSM business, a $3.0 million increase in Medical Imaging, and a $3.4 million increase in our other service offerings; partly offset by the $1.7 million negative impact of foreign currency fluctuations. The growth in Perceptive is due to increasing usage of technology in conjunction with clinical trials and successful implementation of our technology strategy.

Direct Costs

Direct costs increased by $31.2 million, or 8.9%, to $383.5 million for the six months ended December 31, 2010 from $352.3 million for the six months ended December 31, 2009. As a percentage of total service revenue, direct costs decreased to 63.9% from 64.7% for the respective periods.

On a segment basis, CRS direct costs increased by $28.0 million, or 10.2%, to $302.8 million for the six months ended December 31, 2010 from $274.9 million for the six months ended December 31, 2009. This increase resulted from higher levels of project activity and increased labor costs, partially offset by the $4.7 million positive impact of foreign exchange

rate fluctuations. As a percentage of service revenue, CRS direct costs increased to 65.4% for the six months ended December 31, 2010 from 64.9% for the six months ended December 31, 2009 due primarily to increased headcount. In this regard, we had a resource imbalance as a result of project delays and a slower-than-expected ramp up of revenue from strategic partnership-related projects.

PCMS direct costs decreased by $1.4 million, or 3.8%, to $36.4 million for the six months ended December 31, 2010 from $37.8 million for the six months ended December 31, 2009. This decline was due primarily to a $1.4 million decrease in Medical Communications, a $0.5 million decrease in other business lines (due to lower levels of business activity), and $0.8 million related to the positive impact of foreign currency fluctuations; partially offset by a $1.3 million increase in compliance-related consulting service costs. As a percentage of service revenue, PCMS direct costs decreased to 60.3% from 64.5% for the respective periods as a result of improved productivity and efficiency.

Perceptive direct costs increased by $4.6 million, or 11.7%, to $44.3 million for the six months ended December 31, 2010 from $39.6 million for the six months ended December 31, 2009. This increase was due primarily to higher RTSM business volume. As a percentage of service revenue, Perceptive direct costs decreased to 57.6% for the six months ended December 31, 2010 from 63.9% for the six months ended December 31, 2009. This decrease was due primarily to improved utilization rates and higher revenue growth.

Selling, General and Administrative

Selling, general and administrative (“SG&A”) expense increased by $10.0 million, or 8.6%, to $127.7 million for the six months ended December 31, 2010 from $117.7 million for the six months ended December 31, 2009. This increase was due primarily to an $8.6 million increase in labor costs, a $1.5 million increase in facilities expenses, and a $2.8 million increase in other areas, such as insurance and travel expenses; partly offset by the $3.3 million positive impact of foreign exchange fluctuations. As a percentage of service revenue, SG&A was at 21.3% for the six months ended December 31, 2010 compared with 21.6% for the six months ended December 31, 2009.

Depreciation and Amortization

Depreciation and amortization (“D&A”) expense increased by $2.1 million, or 6.9%, to $31.8 million for the six months ended December 31, 2010 from $29.7 million for the six months ended December 31, 2009, primarily due to additional depreciation expense from increased capital expenditures over the last several quarters, including the implementation of our new project accounting and billing system. As a percentage of service revenue, D&A was 5.3% for the six months ended December 31, 2010 versus 5.5% for the same period in 2009.

Other Benefit

For the six months ended December 31, 2009, we released $1.1 million of reserves to reflect lower-than-anticipated close-out costs that were related to a biopharma client that filed for bankruptcy protection in Fiscal Year 2009.

Restructuring Charge

For the six months ended December 31, 2009, we recorded $8.8 million in restructuring charges in association with the 2010 Restructuring Plan, including approximately $5.2 million in costs related to the abandonment of certain property leases and $3.6 million in employee separation benefits associated with the elimination of 99 managerial and staff positions. For the six months ended December 31, 2010, we recorded a $1.0 million benefit, primarily related to the finalization of certain severance payments associated with the 2010 Restructuring Plan.

Income from Operations

Income from operations increased to $58.2 million for the six months ended December 31, 2010 from $37.2 million for the same period in 2009. Income from operations as a percentage of service revenue, or operating margin, increased to 9.7% from 6.8% for the respective periods. This increase in operating margin was due primarily to a decrease in the restructuring charges and an improvement in gross profit, as described above.

Other Expense, Net

We recorded net other expense of $15.8 million for the six months ended December 31, 2010 compared with $10.7 million for the six months ended December 31, 2009. The $5.1 million increase was due primarily to a $4.6 million increase in miscellaneous expense.

Miscellaneous expense for the six months ended December 31, 2010 of $10.0 million was primarily attributable to $11.9 million of losses on certain foreign denominated assets and liabilities and the $1.2 million charge for the impairment of certain long-lived assets in France; partly offset by $3.2 million of unrealized gains related to foreign exchange contracts. The higher-than-anticipated net loss was caused, in part, by short-term disruptions associated with the implementation of our new project accounting and billing system which adversely impacted cash flow and delayed the settlement of certain intercompany receivables.

Miscellaneous expense for the six months ended December 31, 2009 of $5.5 million included a $6.1 million charge for the impairment of an investment and $1.1 million of losses related to foreign exchange contracts, partly offset by $1.9 million of gains on the revaluation of certain foreign denominated assets and liabilities.

Taxes

For the six months ended December 31, 2010 and 2009, we had an effective income tax rate of 18.4% and 40.0%, respectively. The reduction in the tax rate from December 31, 2009 to December 31, 2010 is primarily attributable to the impact of discrete items recorded in the second quarter of Fiscal Years 2011 and 2010 as well as a decrease in the projected annual effective tax rate for Fiscal Year 2011. A discrete reduction in valuation allowances in the United States recorded in the second quarter of Fiscal Year 2011 resulted in a significant reduction in the effective tax rate for the six months ended December 31, 2010. The effective tax rate for the six months ended December 31, 2009 was increased as a result of non-deductible impairment costs recorded in the second quarter of Fiscal Year 2010. The reduction in the projected annual effective rate for Fiscal Year 2011 in comparison to the annual effective rate for Fiscal Year 2010 was caused by reductions in valuation allowances resulting from improved profitability in the United States and United Kingdom, a reduction in non-deductible expenses in foreign jurisdictions in comparison to the prior year, and a reduction in U.S. taxable income resulting from recently enacted legislation regarding U.S. international tax laws relating to the “look through” rules. We expect that our effective tax rate for the remainder of the fiscal year will increase given the discrete benefits recognized in the current quarter.

LIQUIDITY AND CAPITAL RESOURCES

Since our inception, we have financed our operations and growth with cash flow from operations, proceeds from the sale of equity securities, and, more recently, credit facilities to fund business acquisitions and provide working capital. Investing activities primarily reflect the costs of acquisitions and capital expenditures for information systems enhancements and leasehold improvements. As of December 31, 2010, we had cash and cash equivalents of $87.6 million.

DAYS SALES OUTSTANDING

Our 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. We calculate DSO by adding the end-of-period balances for billed and unbilled account receivables, net of deferred revenue and the provision for losses on receivables, 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. The following table presents the DSO, account receivables balances, and deferred revenue for December 31, 2010 and June 30, 2010.


(in millions)	December 31, 2010		June 30, 2010
Billed accounts receivable	$	311.4	$	229.9
Unbilled accounts receivable		286.0		249.0

Total accounts receivable		597.4		478.9
Deferred revenue		285.6		261.1

Net receivables	$	311.8	$	217.8


DSO (in days)		69		49

The increase in DSO for the quarter ended December 31, 2010 compared to the quarter ended June 30, 2010, was due, in part, to short-term disruptions associated with the implementation of our new project accounting and billing system which caused some temporary delays in our ability to bill clients on a timely basis. The increase in DSO for the quarter ended December 31, 2010 compared to the quarter ended June 30, 2010, was due, in part, to short-term disruptions associated with the implementation of our new project accounting and billing system which caused some temporary delays in our ability to bill clients on a timely basis.

CASH FLOWS

Net cash used in operating activities during the six months ended December 31, 2010 totaled $67.1 million and consisted of a $83.0 million increase in accounts receivable (net of allowance for doubtful accounts and deferred revenue), a $39.9 million decrease in accounts payable and other current liabilities (including the payment of Fiscal Year 2010 bonuses), an $8.7 million increase in prepaid expenses and other current assets and $8.5 million related to deferred taxes and other tax accounts. These uses of cash were partially offset by $34.6 million of net income, $31.8 million for non-cash depreciation and amortization expense, $4.8 million related to non-cash charges for stock-based compensation, and a $1.8 million decrease in other assets. The large increase in the cash used in operating activities is due primarily to the short-term disruptions caused by the implementation of our new project accounting and billing system.

Net cash used in investing activities for the six months ended December 31, 2010 totaled $14.6 million, consisting of $27.7 million in capital expenditures, primarily computer software and hardware and leasehold improvements, partially offset by $13.0 million from the redemption of marketable securities held to maturity.

Net cash provided by financing activities for the six months ended December 31, 2010 totaled $66.8 million and consisted of $66.7 million of borrowings under lines of credit (net of repayments) and $1.8 million in proceeds related to the issuance of common stock in conjunction with our stock option plans and employee stock purchase plan; offset by $1.6 million for the repurchase of the non-controlling interests in one of our subsidiaries. The net cash provided by financing activities included $75.0 million of short-term borrowings under the 2010 Credit Facilities (see below).

Net cash provided by operating activities for the six months ended December 31, 2009 totaled $71.7 million and was generated from net income of $15.9 million, non-cash charges for depreciation and amortization expense in the amount of $29.7 million, $3.4 million of non-cash charges for stock-based compensation, $4.7 million from a decrease in net receivables (net of deferred revenue and allowances for doubtful accounts), $19.2 million from a decrease in other current and long-term assets, and a $3.6 million increase in taxes and other liabilities. These sources of cash were offset by a $4.8 million decrease in accounts payable.

Net cash used in investing activities for the six months ended December 31, 2009 totaled $29.7 million primarily for capital expenditures for computer software and hardware and leasehold improvements.

Net cash used in financing activities for the six months ended December 31, 2009 totaled $24.4 million, and consisted of $26.5 million of net repayments under lines of credit; offset by $2.1 million in proceeds related to the issuance of common stock in conjunction with our stock option and employee stock purchase plans.

LINES OF CREDIT

2010 Credit Facilities

representations or warranties and cross defaults to material indebtedness. The proceeds from the 2010 Credit Facilities were used to provide funding to cover short-term cash requirements and to create additional availability of funds until the Maturity Date. The increased short-term working capital needs resulted from the implementation of a new project accounting and billing system, which caused delays in client billing during the fiscal quarter ended September 30, 2010. The issues have now been largely resolved; however, we are still recovering from the impact that delayed billing had with regard to receiving payments from clients. As of December 31, 2010, we had $75 million in principal amount of debt outstanding under the 2010 Credit Facilities, carrying an average annualized interest rate of 1.8%.

2008 Credit Facility

•

5% of principal borrowed was repaid by June 30, 2009;

•

20% of principal borrowed was repaid by June 30, 2010;

•

20% of principal borrowed must be repaid during the one-year period from July 1, 2010 to June 30, 2011;

•

25% of principal borrowed must be repaid during the one-year period from July 1, 2011 to June 30, 2012; and

•

30% of principal borrowed must be repaid during the period from July 1, 2012 to June 13, 2013.

Additional Lines of Credit

COMMITMENTS, CONTINGENCIES AND GUARANTEES

As of December 31, 2010, we had approximately $42.3 million in purchase obligations with various vendors for the purchase of computer software and other services.

We have letter-of-credit agreements with banks totaling approximately $7.9 million guaranteeing performance under various operating leases and vendor agreements.

FINANCING NEEDS

Our primary cash needs are for operating expenses, such as salaries and fringe benefits, hiring and recruiting, business development and facilities, business acquisitions, capital expenditures, and repayment of principal and interest on our borrowings. Our requirements for cash to pay principal and interest on our borrowings will increase significantly in future periods because we borrowed approximately $192 million under the 2008 Credit Facility in August 2008 to finance the acquisition of ClinPhone and we borrowed $75 million under the 2010 Credit Facilities to provide working capital. Our only committed external source of funds are under the 2008 Credit Facility and the 2010 Credit Facilities, both described above. Our principal source of cash is from the performance of services under contracts with our clients. If we were unable to generate new contracts with existing and new clients or if the level of contract cancellations increased, our revenue and cash flow would be adversely affected (see “Part II, Item 1A - Risk Factors” for further detail). Absent a material adverse change in the level of our new business bookings or contract cancellations, we believe that our existing capital resources together with cash flow from operations and borrowing capacity under existing lines of credit will be sufficient to meet our foreseeable cash needs over the next twelve months and on a longer term basis. Depending upon our revenue and cash flow from operations, it is possible that we will require external funds to repay amounts outstanding under our 2010 Credit Facilities upon maturity in June 2011 and under our 2008 Credit Facility upon maturity in 2013.

We expect to continue to acquire businesses to enhance our service and product offerings, expand our therapeutic expertise, and/or increase our global presence. Depending on their size, any future acquisitions may require additional external financing, and we may from time to time seek to obtain funds from public or private issuances of equity or debt securities. We may be unable to secure such financing at all or on terms acceptable to us, as a result of our outstanding borrowings under the 2008 Credit Facility and the 2010 Credit Facilities. In addition, under the terms of the 2008 Credit Facility, interest rates are fixed based on market indices at the time of borrowing and, depending upon the interest mechanism selected by us, may float thereafter. As a result, the amount of interest payable by us on our borrowings may increase if market interest rates change.

We made capital expenditures of approximately $27.7 million during the three months ended December 31, 2010, primarily for computer software, hardware, and leasehold improvements. We expect capital expenditures to total approximately $65 to $70 million in Fiscal Year 2011, primarily for computer software and hardware and leasehold improvements.

OFF-BALANCE SHEET ARRANGEMENTS

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our investors.

INFLATION

We believe the effects of inflation generally do not have a material adverse impact on our 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, we are exposed to market risk resulting from changes in foreign currency exchange rates and interest rates, and we regularly evaluate our exposure to such changes. Our 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 AND INTEREST RATES

We derived approximately 59.9% of our consolidated service revenue for the six months ended December 31, 2010 from operations outside of the U.S., including 23.0% denominated in Euros and 12.3% denominated in pounds sterling. We derived approximately 66.6% of our consolidated service revenue for the six months ended December 31, 2009 from operations outside of the U.S., including 25.5% denominated in Euros and 14.1% denominated in pounds sterling. We do not have significant operations in countries in which the economy is considered to be highly inflationary. Our 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 our consolidated financial results.

It is our policy to mitigate the risks associated with fluctuations in foreign exchange rates and in market rates of interest. Accordingly, we have instituted foreign currency hedging programs and an interest rate swap program. See Note 10 to our consolidated financial statements included in this Quarterly Report on Form 10-Q for more information on our hedging programs and interest rate swap program.

As of December 31, 2010, the programs with derivatives designated as hedging instruments under ASC 815 were deemed effective and the notional values of the derivatives were approximately $178.6 million, including an interest rate swap agreement with a notional value of $150 million in connection with the borrowings under our 2008 Credit Facility. Under certain circumstances, such as the occurrence of significant differences between actual cash receipts and forecasted cash receipts, the ASC 815 programs could be deemed ineffective. In that event, the unrealized gains and losses related to these derivatives, and currently reported in accumulated other comprehensive income, would be recognized in earnings. As of December 31, 2010, the estimated amount that could be recognized in earnings was a loss of approximately $3.8 million, net of tax.

As of December 31, 2010, the notional value of derivatives that were not designated as hedging instruments under ASC 815 was approximately $63.4 million. The potential change in the fair value of these foreign currency exchange contracts that would result from a hypothetical change of 10% in exchange rates would be approximately $1.8 million.

During the six months ended December 31, 2010 and 2009, we recorded foreign exchange losses of $8.7 million and foreign exchange gains of $0.8 million, respectively. We also have exposure to additional foreign exchange risk as it relates to assets and liabilities that are not part of the economic hedge program, but quantification of this risk is difficult to assess at any given point in time.

Our exposure to interest rate changes relates primarily to the amount of our short-term and long-term debt. Short-term debt was $110.0 million at December 31, 2010 and $32.1 million at June 30, 2010. Long-term debt was $172.2 million at December 31, 2010 and $183.7 million at June 30, 2010.

ITEM 4. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2010. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a 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 Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of December 31, 2010, our chief executive officer and chief financial officer concluded that, as of such date, PAREXEL’s disclosure controls and procedures were effective at the reasonable assurance level.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended December 31, 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

ITEM 1A. RISK FACTORS

In addition to other information in this report, the following risk factors should be considered carefully in evaluating our company and our business. These important factors could cause our actual results to differ from those indicated by forward-looking statements made in this report, including 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 we may make from time to time. If any of the following risks occur, our business, financial condition, or results of operations would likely suffer.

The following discussion includes 7 revised or new risk factors (“We face risks arising from the restructuring of our operations;” “Our business is subject to international economic, political, and other risks that could negatively affect our results of operations or financial position;” “Our operating results have fluctuated between quarters and years and may continue to fluctuate in the future, which could affect the price of our common stock;” “Our revenue and earnings are exposed to exchange rate fluctuations, which has substantially affected our operating results;” “Our results of operations may be adversely affected if we fail to realize the full value of our goodwill and intangible assets;” “Our indebtedness may limit cash flow available to invest in the ongoing needs of our business;” and “Our stock price has been, and may in the future be volatile, which could lead to losses by investors,” that reflect material developments subsequent to the discussion of risk factors included in the 2010 10-K.

Additional risks not currently known to us or other factors not perceived by us to present significant risk to our business at this time also may impair our business operations.

Risks Associated with our Business and Operations

The loss, modification, or delay of large or multiple contracts may negatively impact our financial performance.

Our clients generally can terminate their contracts with us upon 30 to 60 days notice or can delay the execution of services. The loss or delay of a large contract or the loss or delay of multiple contracts could adversely affect our operating results, possibly materially. We have in the past experienced large contract cancellations and delays, which have adversely affected our operating results, including a cancellation of a late-phase contract during the first quarter of Fiscal Year 2008.

Clients terminate or delay their contracts for a variety of reasons, including:

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failure of products being tested to satisfy safety requirements;

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failure of products being tested to satisfy efficacy criteria;

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products having unexpected or undesired clinical results;

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client cost reductions as a result of budgetary limit or changing priorities;

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client decisions to forego a particular study, perhaps for economic reasons;

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merger or potential merger related activities involving the client;

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insufficient patient enrollment in a study;

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insufficient investigator recruitment;

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clinical drug manufacturing problems resulting in shortages of the product;

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product withdrawal following market launch; and

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shut down of manufacturing facilities.

The current economic environment may negatively impact our financial performance as a result of client defaults and other factors.

Our ability to attract and retain clients, invest in and grow our business and meet our financial obligations depends on our operating and financial performance, which, in turn, is subject to numerous factors. In addition to factors specific to our business, prevailing economic conditions and financial, business and other factors beyond our control can also affect us. We cannot anticipate all the ways in which the current economic climate and financial market conditions could adversely impact our business.

We are exposed to risks associated with reduced profitability and the potential financial instability of our clients, many of whom may be adversely affected by volatile conditions in the financial markets, the economy in general and disruptions to the demand for health care services and pharmaceuticals. These conditions could cause clients to experience reduced profitability and/or cash flow problems that could lead them to modify, delay or cancel contracts with us, including contracts included in our current backlog.

Some of our clients do not generate revenue and rely upon equity and debt investments and other external sources of capital to meet their cash requirements. Due to the poor condition of the current global economy and other factors outside of our control, these clients may lack the funds necessary to meet outstanding liabilities to us, despite contractual obligations. For example, in the second quarter of Fiscal Year 2009, one of our biopharma clients informed us that it had encountered funding difficulties when one of its major investors defaulted on a contractual investment commitment, and that, as a result, the client would be unable to make payments due to us in connection with an on-going service contract for a large Phase III clinical trial. Consequently, we recorded approximately $15.0 million in reserves related to this late-stage trial, including $12.3 million in bad debt reserves. It is possible that similar situations could arise in the future, and such defaults could negatively affect our financial performance, possibly materially.

We face risks arising from the restructuring of our operations.

In October 2009, we adopted a plan to restructure our operations to reduce expenses, better align costs with current and future geographic sources of revenue, and improve operating efficiencies. During Fiscal Year, 2010, we recorded $16.8 million in restructuring charges related to this plan, including approximately $11.6 million in employee separation benefits associated with the elimination of 238 managerial and staff positions and $5.2 million in costs related to the abandonment of certain property leases. Although we expect that all costs associated with the restructuring plan were recorded as of December 31, 2010, if we incur additional restructuring charges, our financial condition and results of operations may suffer.

Restructuring also presents significant potential risks of events occurring that could adversely affect us, including a decrease in employee morale, the failure to achieve targeted cost savings and the failure to meet operational targets and customer requirements due to the loss of employees and any work stoppages that might occur.

The fixed price nature of our contracts could hurt our operating results.

Approximately 90% of our contracts are fixed price. If we fail to accurately price our contracts, or if we experience significant cost overruns that are not recovered from our clients, our gross margins on the contracts would be reduced and we could lose money on contracts. In the past, we have had to commit unanticipated resources to complete projects, resulting in lower gross margins on those projects. We might experience similar situations in the future.

If we are unable to attract suitable willing investigators and volunteers for our clinical trials, our clinical development business might suffer.

The clinical research studies we run in our CRS segment rely upon the ready accessibility and willing participation of physician investigators and volunteer subjects. Investigators are typically located at hospitals, clinics or other sites and supervise administration of the study drug to patients during the course of a clinical trial. Volunteer subjects generally include people from the communities in which the studies are conducted. Our clinical research development business could be adversely affected if we were unable to attract suitable and willing investigators or volunteers on a consistent basis.

If our Perceptive 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.

Our Perceptive business involves collecting, managing, manipulating and analyzing large amounts of data, and communicating data via the Internet. In our Perceptive business, we depend on the continuous, effective, reliable and secure operation of computer hardware, software, networks, telecommunication networks, Internet servers and related infrastructure. If the hardware or software malfunctions or access to data by internal research personnel or customers through the Internet is interrupted, our Perceptive business could suffer. In addition, any sustained disruption in Internet access provided by third parties could adversely impact our Perceptive business.

Although the computer and communications hardware used in our Perceptive business 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. And while certain of our operations have appropriate disaster recovery plans in place, we currently do not have redundant facilities everywhere in the world to provide IT capacity in the event of a system failure. In addition, the Perceptive 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 the needs of our Perceptive customers, it could result in a loss of or a delay in revenue and market acceptance. Additionally, significant delays in the planned delivery of system enhancements or inadequate performance of the systems once they are completed could damage our reputation and harm our business.

Finally, long-term disruptions in the infrastructure caused by events such as natural disasters, the outbreak of war, the escalation of hostilities, and acts of terrorism (particularly in areas where we have offices) could adversely affect our businesses. Although we carry property and business interruption insurance, our coverage may not be adequate to compensate us for all losses that may occur.

Our business is subject to international economic, political, and other risks that could negatively affect our results of operations or financial position.

We provide most of our services on a worldwide basis. Our service revenue from non-U.S. operations represented approximately 59.9% and 66.6% of total consolidated service revenue for the six months ended December 31, 2010 and 2009, respectively. More specifically, our service revenue from operations in Europe, Middle East and Africa represented 43.6% and 50.0% of total consolidated service revenue for the corresponding periods. Our service revenue from operations in the Asia/Pacific region represented 13.1% and 11.3% of total consolidated service revenue for the respective periods. Accordingly, our business is subject to risks associated with doing business internationally, including:

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changes in a specific country’s or region’s political or economic conditions, including Western Europe, in particular;

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potential negative consequences from changes in tax laws affecting our ability to repatriate profits;

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difficulty in staffing and managing widespread operations;

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unfavorable labor regulations applicable to our European or other international operations;

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changes in foreign currency exchange rates;

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the need to ensure compliance with the numerous regulatory and legal requirements applicable to our business in each of these jurisdictions and to maintain an effective compliance program to ensure compliance; and

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longer payment cycles of foreign customers and difficulty of collecting receivables in foreign jurisdictions.

Our operating results are impacted by the health of the North American, European and Asian economies, among others. Our business and financial performance may be adversely affected by current and future economic conditions that cause a decline in business and consumer spending, including a reduction in the availability of credit, rising interest rates, financial market volatility and recession.

If we cannot retain our highly qualified management and technical personnel, our business would be harmed.

We rely on the expertise of our Chairman and Chief Executive Officer, Josef H. von Rickenbach, and our Chief Operating Officer, Mark A. Goldberg, and it would be difficult and expensive to find qualified replacements with the level of specialized knowledge of our products and services and the biopharmaceutical services industry. While we are a party to an employment agreement with Mr. von Rickenbach, it may be terminated by either party upon notice to the counterparty.

In addition, in order to compete effectively, we must attract and retain 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. We may not be successful in attracting or retaining key personnel.

Risks Associated with our Financial Results

Our operating results have fluctuated between quarters and years and may continue to fluctuate in the future, which could affect the price of our common stock.

Our 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, our income from operations totaled $28.2 million for the fiscal quarter ended December 31, 2010, $30.0 million for the fiscal quarter ended September 30, 2010, $20.1 million for the fiscal quarter ended June 30, 2010, $25.8 million for the fiscal quarter ended March 31, 2010, and $18.7 million for the fiscal quarter ended December 31, 2009. Factors that cause these variations include:

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the level of new business authorizations in particular quarters or years;

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the timing of the initiation, progress, or cancellation of significant projects;

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exchange rate fluctuations between quarters or years;

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restructuring charges;

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seasonality;

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the mix of services offered in a particular quarter or year;

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the timing of the opening of new offices or internal expansion;

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timing, costs and the related financial impact of acquisitions;

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the timing and amount of costs associated with integrating acquisitions;

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the timing and amount of startup costs incurred in connection with the introduction of new products, services or subsidiaries

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the dollar amount of changes in contract scope finalized during a particular period; and

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the amount of any reserves we are required to record.

Many of these factors, such as the timing of cancellations of significant projects and exchange rate fluctuations between quarters or years, are beyond our control.

If our operating results do not match the expectations of securities analysts and investors, the trading price of our common stock will likely decrease.

Backlog may not result in revenue, and the rate at which this backlog converts into revenue may slow when compared to historical trends.

Our backlog is not necessarily a meaningful predictor of future results because backlog can be affected by a number of factors, including the size and duration of contracts, many of which are performed over several years. Additionally, as described above, contracts relating to our clinical development business are subject to early termination by the client and clinical trials can be delayed or canceled for many reasons, including unexpected test results, safety concerns, regulatory developments or economic issues. Also, the scope of a contract can be reduced significantly during the course of a study. If the scope of a contract is revised, the adjustment to backlog occurs when the revised scope is approved by the client. For these and other reasons, we do not fully realize all of our backlog as net revenue.

In addition, the rate at which our backlog converts into revenue may slow. A slowdown in this conversion rate means that the rate of revenue recognized on contract awards may be slower than what we have experienced in the past, particularly in connection with the ramp-up and initiation of strategic partnerships, which could impact our net revenue and results of operations on a quarterly and annual basis.

Our revenue and earnings are exposed to exchange rate fluctuations, which has substantially affected our operating results.

We conduct a significant portion of our operations in foreign countries. Because our financial statements are denominated in U.S. dollars, changes in foreign currency exchange rates could have and have had a significant effect on our operating results. For example, as a result of year-over-year foreign currency fluctuation, service revenue for the six months ended December 31, 2010 was negatively impacted by approximately $12.7 million as compared with the same period in the previous year. Exchange rate fluctuations between local currencies and the U.S. dollar create risk in several ways, including:

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Foreign Currency Translation Risk. The revenue and expenses of our foreign operations are generally denominated in local currencies, primarily the pound sterling and the Euro, and are translated into U.S. dollars for financial reporting purposes. For the six months ended December 31, 2010 and 2009, approximately 23.0% and 25.5% of consolidated service revenue was denominated in Euros, respectively. Revenue, denominated in pounds sterling, was 12.3% and 14.1%, respectively. Accordingly, changes in exchange rates between foreign currencies and the U.S. dollar will affect the translation of foreign results into U.S. dollars for purposes of reporting our consolidated results.

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Foreign Currency Transaction Risk. We may be subjected to foreign currency transaction risk when our foreign subsidiaries enter into contracts or incur liabilities denominated in a currency other than the foreign subsidiaries functional (local) currency. To the extent we are unable to shift the effects of currency fluctuations to the clients, foreign exchange rate fluctuations as a result of foreign currency exchange losses could have a material adverse effect on our results of operations.

Although we try to limit these risks through exchange rate fluctuation provisions stated in our service contracts, or by hedging transaction risk with foreign currency exchange contracts, we do not succeed in all cases. Even in those cases where we are successful, we may still experience fluctuations in financial results from our operations outside of the U.S., and we may not be able to favorably reduce the currency transaction risk associated with our service contracts.

Our effective income tax rate may fluctuate from quarter-to-quarter, which may affect our earnings and earnings per share.

Our quarterly effective income tax rate is influenced by our projected profitability in the various taxing jurisdictions in which we operate. Changes in the distribution of profits and losses among taxing jurisdictions may have a significant impact on our effective income tax rate, which in turn could have a material adverse effect on our net income and earnings per share. Factors that affect the effective income tax rate include, but are not limited to:

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the requirement to exclude from our quarterly worldwide effective income tax calculations losses in jurisdictions where no tax benefit can be recognized;

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actual and projected full year pretax income;

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changes in tax laws in various taxing jurisdictions;

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audits by taxing authorities; and

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the establishment of valuation allowances against deferred tax assets if it is determined that it is more likely than not that future tax benefits will not be realized.

These changes may cause fluctuations in our effective income tax rate that could cause fluctuation in our earnings and earnings per share, which could affect our stock price.

Our results of operations may be adversely affected if we fail to realize the full value of our goodwill and intangible assets.

As of December 31, 2010, our total assets included $342.2 million of goodwill and net intangible assets. We assess the realizability of our net intangible assets and goodwill annually as well as whenever events or changes in circumstances indicate that these assets may be impaired. These events or circumstances generally include operating losses or a significant decline in earnings associated with the acquired business or asset. Our ability to realize the value of the goodwill and indefinite-lived intangible assets will depend on the future cash flows of these businesses. These cash flows in turn depend in part on how well we have integrated these businesses. If we are not able to realize the value of the goodwill and indefinite-lived intangible assets, we may be required to incur material charges relating to the impairment of those assets.

Our business has experienced substantial expansion in the past and such expansion and any future expansion could strain our resources if not properly managed.

We have expanded our business substantially in the past. For example, in August 2008, we completed the acquisition of ClinPhone, a leading clinical technology organization, for a purchase price of approximately $190 million. Future rapid expansion could strain our operational, human and financial resources. In order to manage expansion, we must:

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continue to improve operating, administrative, and information systems;

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accurately predict future personnel and resource needs to meet client contract commitments;

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track the progress of ongoing client projects; and

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attract and retain qualified management, sales, professional, scientific and technical operating personnel.

If we do not take these actions and are not able to manage the expanded business, the expanded business may be less successful than anticipated, and we may be required to allocate additional resources to the expanded business, which we would have otherwise allocated to another part of our business.

If we are unable to successfully integrate an acquired company, the acquisition could lead to disruptions to our business. The success of an acquisition will depend upon, among other things, our ability to:

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assimilate the operations and services or products of the acquired company;

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integrate acquired personnel;

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retain and motivate key employees;

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retain customers;

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identify and manage risks facing the acquired company; and

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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 our performance expectations, we may have to restructure the acquired business or write-off the value of some or all of the assets of the acquired business.

Risks Associated with our Industry

We depend on the pharmaceutical and biotechnology industries, either or both of which may suffer in the short or long term.

Our revenues depend greatly on the expenditures made by the pharmaceutical and biotechnology industries in research and development. In some instances, companies in these industries are reliant on their ability to raise capital in order to fund their research and development projects. Accordingly, economic factors and industry trends that affect our clients in these industries also affect our business. If companies in these industries were to reduce the number of research and development projects they conduct or outsource, our business could be materially adversely affected.

In addition, we are dependent upon the ability and willingness of pharmaceutical and biotechnology companies to continue to spend on research and development and to outsource the services that we provide. We are therefore subject to risks, uncertainties and trends that affect companies in these industries. We have benefited to date from the tendency of pharmaceutical and biotechnology companies to outsource clinical research projects, but any downturn in these industries or reduction in spending or outsourcing could adversely affect our business. For example, if these companies expanded upon their in-house clinical or development capabilities, they would be less likely to utilize our services.

Because we depend on a small number of industries and clients for all of our business, the loss of business from a significant client could harm our 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 our revenue and adversely affect our business and financial condition, possibly materially. In Fiscal Years 2010, 2009, and 2008, our five largest clients accounted for approximately 27%, 28%, and 31% of our consolidated service revenue, respectively. We expect that a small number of clients will continue to represent a significant part of our consolidated revenue. This concentration may increase as a result of the increasing number of strategic partnerships into which we have been entering with sponsors. Our contracts with these clients generally can be terminated on short notice. We have in the past experienced contract cancellations with significant clients.

We face intense competition in many areas of our business; if we do not compete effectively, our business will be harmed.

The biopharmaceutical services industry is highly competitive and we face numerous competitors in many areas of our business. If we fail to compete effectively, we may lose clients, which would cause our business to suffer.

We primarily compete against in-house departments of pharmaceutical companies, other full service clinical research organizations (“CROs”), small specialty CROs, and, to a lesser extent, universities, teaching hospitals, and other site organizations. Some of the larger CROs against which we compete include Quintiles Transnational Corporation, Covance, Inc., Pharmaceutical Product Development Inc., Kendle Inc., and Icon plc. In addition, our PCMS business 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 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 we have. In addition, our competitors that are smaller specialized companies may compete effectively against us because of their concentrated size and focus.

In recent years, a number of the large pharmaceutical companies have established formal or informal alliances with one or more CROs relating to the provision of services for multiple trials over extended time periods. Our success depends in part on successfully establishing and maintaining these relationships. If we fail to do so, our revenues and results of operations could be adversely affected, possibly materially.

If we do not keep pace with rapid technological changes, our products and services may become less competitive or obsolete, especially in our Perceptive business.

The biotechnology, pharmaceutical and medical device industries generally, and clinical research specifically, are subject to increasingly rapid technological changes. Our competitors or others might develop technologies, products or services that are more effective or commercially attractive than our current or future technologies, products or services, or render our technologies, products or services less competitive or obsolete. If our competitors introduce superior technologies, products or services and we cannot make enhancements to our technologies, products and services necessary to remain competitive, our competitive position would be harmed. If we are unable to compete successfully, we may lose clients or be unable to attract new clients, which could lead to a decrease in our revenue.

Risks Associated with Regulation or Legal Liabilities

If governmental regulation of the drug, medical device and biotechnology industry changes, the need for our services could decrease.

Governmental regulation of the drug, medical device and biotechnology product development process is complicated, extensive, and demanding. A large part of our business involves assisting pharmaceutical, biotechnology and medical device 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 our services. If companies regulated by the United States Food and Drug Administration (the “FDA”) or similar foreign regulatory authorities needed fewer of our services, we would have fewer business opportunities and our revenues would decrease, possibly materially.

In the United States, the FDA and the Congress have attempted to streamline the regulatory process by providing for industry user fees that fund the hiring of additional reviewers and better management of the regulatory review process. In Europe, governmental authorities have approved common standards for clinical testing of new drugs throughout the European Union by adopting standards for Good Clinical Practices (“GCP”) and by making the clinical trial application and approval process more uniform across member states. The FDA has had GCP in place as a regulatory standard and requirement for new drug approval for many years and Japan adopted GCP in 1998.

The United States, Europe and Japan have also collaborated for over 15 years on the International Conference on Harmonisation (“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 new drug marketing applications that reduces 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 our services.

Parts of our PCMS business advise clients on how to satisfy regulatory standards for manufacturing and clinical 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 or clinical processes or levels of regulatory enforcement, generally, would result in fewer business opportunities for our business in this area.

If we fail to comply with existing regulations, our reputation and operating results would be harmed.

Our business is subject to numerous governmental regulations, primarily relating to worldwide pharmaceutical and medical device product development and regulatory approval and the conduct of clinical trials. If we fail to comply with these governmental regulations, it could result in the termination of our ongoing research, development or sales and marketing projects, or the disqualification of data for submission to regulatory authorities. We also could be barred from providing clinical trial services in the future or could be subjected to fines. Any of these consequences would harm our reputation, our prospects for future work and our operating results. In addition, we may have to repeat research or redo trials. If we are required to repeat research or redo trials, we may be contractually required to do so at no further cost to our clients, but at substantial cost to us.

We may lose business opportunities as a result of healthcare reform and the expansion of managed-care organizations.

Numerous governments, including the U.S. government, have undertaken efforts to control growing healthcare costs through legislation, regulation and voluntary agreements with medical care providers and drug companies. In March 2010, the United States Congress enacted healthcare reform legislation intended over time to expand health insurance coverage and impose health industry cost containment measures. This legislation may significantly impact the pharmaceutical industry. The U.S. Congress has also considered and may adopt legislation that could have the effect of putting downward pressure on the prices that pharmaceutical and biotechnology companies can charge for prescription drugs. In addition, various state legislatures and European and Asian governments may consider various types of healthcare reform in order to control growing healthcare costs. We are presently uncertain as to the effects of the recently enacted legislation on our business and are unable to predict what legislative proposals will be adopted in the future, if any.

If these efforts are successful, drug, medical device and biotechnology companies may react by spending less on research and development. If this were to occur, we would have fewer business opportunities and our revenue could decrease, possibly materially. In addition, new laws or regulations may create a risk of liability, increase our costs or limit our service offerings.

In addition to healthcare reform proposals, the expansion of managed-care organizations in the healthcare market and 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, we would have fewer business opportunities and our revenue could decrease, possibly materially.

We may have substantial exposure to payment of personal injury claims and may not have adequate insurance to cover such claims.

Our 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 a number of reasons, including, but not limited to:

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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;

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general risks associated with clinical pharmacology facilities, including professional malpractice of clinical pharmacology medical care providers; and

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errors and omissions during a trial that may undermine the usefulness of a trial or data from the trial or study.

In order to mitigate the risk of liability, we seek to include indemnity provisions in our CRS contracts with clients and with investigators. However, we are not able to include indemnity provisions in all of our contracts. In addition, even if we are able to include an indemnity provision in our contracts, the indemnity provisions may not cover our exposure if:

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we had to pay damages or incur defense costs in connection with a claim that is outside the scope of an indemnity agreement; or

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a client failed to indemnify us 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.

In addition, contractual indemnifications generally do not protect us against liability arising from certain of our own actions, such as negligence or misconduct.

We also carry insurance to cover our risk of liability. However, our 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, we may not be able to maintain or obtain the same levels of coverage on reasonable terms, at a reasonable cost, or in sufficient amounts to protect us against losses due to claims.

Existing and proposed laws and regulations regarding confidentiality of patients’ information could result in increased risks of liability or increased cost to us or could limit our product and service offerings.

The confidentiality, security, use and disclosure of patient-specific information are subject to governmental regulation. Regulations to protect the safety and privacy of human subjects who participate in or whose data are used in clinical research generally require clinical investigators to obtain affirmative informed consent from identifiable research subjects before research is undertaken. 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 privacy and security protections for certain types of individually identifiable health information, or protected health information, when used or disclosed by health care providers and other HIPAA-covered entities or business associates that provide services to or perform functions on behalf of these covered entities. HIPAA regulations require individuals’ written authorization before identifiable health information may be used for research, in addition to any required informed consent. HIPAA regulations also specify standards for de-identifying health information so that information can be handled outside of the HIPAA requirements and for creating limited data sets that can be used for research purposes under less stringent HIPAA restrictions. The European Union and its member states, as well as other countries, such as Japan, and state governments in the United States, have adopted and continue to issue new medical privacy and general data protection laws and regulations. In order to comply with these laws and regulations, we may need to implement new privacy and security measures, which may require us to make substantial expenditures or cause us to limit the products and services we offer. In addition, if we violate applicable laws, regulations, contractual commitments, or other duties relating to the use, privacy or security of health information, we could be subject to civil liability or criminal penalties and it may be necessary to modify our business practices.

Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, and delays in completing our internal controls and financial audits, could have a material adverse effect on our business and stock price.

If we fail to achieve and maintain effective internal controls, we will not be able to conclude that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002. Failure to achieve and maintain an effective internal control environment, and delays in completing our internal controls and financial audits, could cause investors to lose confidence in our reported financial information and us, which could result in a decline in the market price of our common stock, and cause us to fail to meet our reporting obligations in the future, which in turn could impact our ability to raise equity financing if needed in the future. Our Fiscal Year 2009 management assessment revealed a material weakness in our internal controls over financial reporting due to insufficient controls associated with accounting for the ClinPhone business combination, specifically the adoption by ClinPhone of an accounting policy for revenue recognition in accordance with U.S. GAAP for IVR sales contracts with multiple revenue elements and the determination of the fair value of deferred revenue assumed in the business combination. We have changed our internal controls to address this material weakness, but we have not yet tested the effectiveness of our remediation since we have not completed any further acquisitions. There can be no assurance that our remediation will be successful. During the course of our continued testing, we also may identify other significant deficiencies or material weaknesses, in addition to the ones already identified, which we may not be able to remediate in a timely manner or at all.

Risks Associated with Leverage

Our indebtedness may limit cash flow available to invest in the ongoing needs of our business.

As of December 31, 2010, we had $280.5 million principal amount of debt outstanding and remaining borrowing availability of $57.0 million under our lines of credit. We may incur additional debt in the future. Our leverage could have significant adverse consequences, including:

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requiring us to dedicate a substantial portion of any cash flow from operations to the payment of interest on, and principal of, our debt, which will reduce the amounts available to fund working capital and capital expenditures, and for other general corporate purposes;

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increasing our vulnerability to general adverse economic and industry conditions;

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limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we compete; and

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placing us at a competitive disadvantage compared to our competitors that have less debt.

Under the terms of our various credit facilities, interest rates are fixed based on market indices at the time of borrowing and, depending upon the interest mechanism selected by us, may float thereafter. Some of our other smaller credit facilities also bear interest at floating rates. As a result, the amount of interest payable by us on our borrowings may increase if market interest rates change.

We may not have sufficient funds or may be unable to arrange for additional financing to pay the amounts due under our existing or any future debt. In addition, a failure to comply with the covenants under our existing debt instruments could result in an event of default under those instruments. In the event of an acceleration of amounts due under our debt instruments as a result of an event of default, we may not have sufficient funds or may be unable to arrange for additional financing to repay our indebtedness or to make any accelerated payments.

In addition, the terms of the 2008 Credit Facility provide that upon the occurrence of a change in control, as defined in the credit facility agreement, all outstanding indebtedness under the facility would become due. This provision may delay or prevent a change in control that stockholders may consider desirable.

Moreover, the United States credit markets continue to experience contraction, and it remains very difficult to acquire credit at this time. As a result of the tightened credit markets, we may not be able to obtain additional financing on favorable terms, or at all. If one or more of the financial institutions that supports our $165 million revolving credit facility, which is part of our 2008 Credit Facility, fails, we may not be able to find a replacement, which would negatively impact our ability to borrow the remaining funds available under the $165 million facility.

The 2010 Credit Facilities will expire on June 30, 2011, and all outstanding loans under the 2010 Credit Facilities will become due at that time. The 2008 Credit Facility will expire in June 2013 and all unpaid principal and interest under the facility will become due at that time. The recent and ongoing turmoil in the credit markets could affect our ability to refinance the 2010 Credit Facilities or the 2008 Credit Facility or further increase our funding costs.

Our existing debt instruments contain covenants that limit our flexibility and prevent us from taking certain actions.

The agreements in connection with our 2008 Credit Facility and 2010 Credit Facilities include a number of significant restrictive covenants. These covenants could adversely affect us by limiting our ability to plan for or react to market conditions, meet our capital needs and execute our business strategy. These covenants, among other things, limit our ability and the ability of our restricted subsidiaries to:

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incur additional debt;

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make certain investments;

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enter into certain types of transactions with affiliates;

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make specified restricted payments; and

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sell certain assets or merge with or into other companies.

These covenants may limit our operating and financial flexibility and limit our ability to respond to changes in our business or competitive activities. Our failure to comply with these covenants could result in an event of default, which, if not cured or waived, could result in our being required to repay these borrowings before their scheduled due date.

Risks Associated with our Common Stock

Our corporate governance structure, including provisions of our articles of organization, by-laws, shareholder rights plan, as well as Massachusetts law, may delay or prevent a change in control or management that stockholders may consider desirable.

Provisions of our articles of organization, by-laws and our shareholder rights plan, as well as provisions of Massachusetts law, may enable our management to resist acquisition of us by a third party, or may discourage a third party from acquiring us. These provisions include the following:

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we have divided our board of directors into three classes that serve staggered three-year terms;

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we are 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 our board of directors may only be filled by a vote of our board of directors, and the number of directors may be fixed only by our board of directors;

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we are subject to Chapter 110F of the Massachusetts General Laws, which may limit the ability of some interested stockholders to engage in business combinations with us;

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our stockholders are limited in their ability to call or introduce proposals at stockholder meetings; and

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our shareholder rights plan would cause a proposed acquirer of 20% or more of our 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 us or a change in our 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 our stock.

In addition, our board of directors may issue preferred stock in the future without stockholder approval. If our board of directors issues preferred stock, the rights of the holders of common stock would be subordinate to the rights of the holders of preferred stock. Our 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 our stock.

Our stock price has been, and may in the future be volatile, which could lead to losses by investors.

The market price of our common stock has fluctuated widely in the past and may continue to do so in the future. On February 3, 2011, the closing sales price of our common stock on the Nasdaq Global Select Market was $20.35 per share. During the period from February 3, 2009 to February 3, 2011, our common stock traded at prices ranging from a high of $25.64 per share to a low of $7.20 per share. Investors in our 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 our stock could decline.

Our stock price can be affected by quarter-to-quarter variations in a number of factors including, but not limited to:

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operating results;

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earnings estimates by analysts;

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market conditions in our industry;

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prospects of healthcare reform;

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changes in government regulations;

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general economic conditions, and

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our effective income tax rate.

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 our common stock. Although our 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 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.

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: February 9, 2011				By: /s/ Josef H. von Rickenbach

				Josef H. von Rickenbach
				Chairman of the Board and Chief Executive Officer

Date: February 9, 2011				By: /s/ James F. Winschel, Jr.

				James F. Winschel, Jr.
				Senior Vice President and Chief Financial Officer

EXHIBIT INDEX


Exhibit Number		Description

10.1		Promissory Note, dated December 31, 2010, in the original principal amount of $25,000,000, issued by PAREXEL to JPMorgan (filed as exhibit 10.1 to the Company’s Current Report on Form 8-K dated December 31, 2010, and incorporated herein by this reference).

10.2		Amendment to Loan Agreement, dated as of December 31, 2010, by and between PAREXEL and BOA (filed as exhibit 10.2 to the Company’s Current Report on Form 8-K dated December 31, 2010, and incorporated herein by this reference).

10.3		Term Loan Facility, dated as of December 31, 2010, by and between PAREXEL and HSBC Bank USA (filed as exhibit 10.3 to the Company’s Current Report on Form 8-K dated December 31, 2010, and incorporated herein by this reference).

10.4*		2010 Stock Incentive Plan of the Company

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

101.INS**		XBRL Instance Document

101.SCH**		XBRL Taxonomy Extension Schema

101.CAL**		XBRL Taxonomy Extension Calculation Linkbase

101.LAB**		XBRL Taxonomy Extension Label Linkbase

101.PRE**		XBRL Taxonomy Extension Presentation Linkbase

*	Denotes management contract or any compensatory plan, contract or arrangement.

In accordance with Rule 406T of Regulation S-T, the information in these exhibits is furnished and deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections

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