Parexel International (PRXL) 10-Q 2010 Q3 Quarterly report

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 March 31, 2010

OR

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

For the transition period from            to            

Commission File Number: 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)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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  ¨    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.

Large Accelerated Filer	x	Accelerated Filer	¨
Non-accelerated Filer	¨  (Do not check if smaller reporting company)	Smaller Reporting Company	¨

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 May 4, 2010, there were 58,365,200 shares of common stock outstanding.

PAREXEL INTERNATIONAL CORPORATION

INDEX

Part I. Financial Information	3
Item 1. Financial Statements	3
Condensed Consolidated Balance Sheets (Unaudited): March 31, 2010 and June 30, 2009	3
Condensed Consolidated Statements of Income (Unaudited): Three and Nine Months Ended March  31, 2010 and 2009	4
Condensed Consolidated Statements of Cash Flows (Unaudited): Nine Months Ended March 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	15
Item 3. Quantitative and Qualitative Disclosure About Market Risk	26
Item 4. Controls and Procedures	27
Part II. Other Information	28
Item 1. Legal Proceedings	28
Item 1A. Risk Factors	28
Item 6. Exhibits	38
Signatures	39
Exhibit Index	40

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PAREXEL INTERNATIONAL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except share and per share data)

	March 31, 2010			June 30, 2009
ASSETS
Current assets:
Cash and cash equivalents	$	104,347		$	96,352
Marketable securities		13,461			—
Billed and unbilled accounts receivable, net		487,643			481,321
Prepaid expenses		26,328			24,636
Deferred tax assets		27,631			21,268
Income tax receivable		—			7,631
Other current assets		8,720			16,215
Total current assets		668,130			647,423
Property and equipment, net		174,597			170,486
Goodwill		251,844			247,612
Other intangible assets, net		90,466			98,799
Non-current deferred tax assets		5,637			15,385
Long-term income tax receivable		20,320			21,308
Other assets		16,893			23,448
Total assets	$	1,227,887		$	1,224,461
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Notes payable and current portion of long-term debt	$	32,082		$	32,090
Accounts payable		23,427			31,648
Deferred revenue		279,874			266,453
Accrued expenses		27,684			34,937
Accrued restructuring charges		7,341			876
Accrued employee benefits and withholdings		80,297			59,638
Current deferred tax liabilities		15,461			18,110
Income tax payable		6,474			—
Other current liabilities		13,560			11,966
Total current liabilities		486,200			455,718
Long-term debt, net of current portion		192,626			247,083
Non-current deferred tax liabilities		40,789			44,446
Long-term accrued restructuring charges		3,033			1,268
Long-term tax liabilities		43,811			47,881
Other liabilities		17,145			13,320
Total liabilities		783,604			809,716
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: 58,286,987 at March 31, 2010 and 57,782,931 at June 30, 2009		577			572
Additional paid-in capital		229,785			219,849
Retained earnings		233,867			205,192
Accumulated other comprehensive loss		(19,946	)		(10,868	)
Total stockholders’ equity		444,283			414,745
Total liabilities and stockholders’ equity	$	1,227,887		$	1,224,461

See notes to condensed consolidated financial statements.

3

PAREXEL INTERNATIONAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share data)

	Three Months Ended March 31						Nine months ended March 31
	2010			2009			2010			2009
Service revenue	$	291,244		$	264,457		$	835,738		$	803,349
Reimbursement revenue		53,162			46,504			154,186			151,165
Total revenue		344,406			310,961			989,924			954,514
Direct costs		177,769			165,781			522,835			514,440
Reimbursable out-of-pocket expenses		53,162			46,504			154,186			151,165
Selling, general and administrative		68,345			58,998			193,196			178,785
Depreciation		12,439			10,531			37,159			31,765
Amortization		2,748			2,728			7,731			7,237
Other (benefit) charge		—			—			(1,144	)		15,000
Restructuring charge		4,119			—			12,950			—
Total costs and expenses		318,582			284,542			926,913			898,392
Income from operations		25,824			26,419			63,011			56,122
Interest income		1,188			3,126			3,932			10,138
Interest expense		(3,832	)		(5,900	)		(11,842	)		(18,955	)
Miscellaneous (expense) income		(3,706	)		(2,041	)		(9,164	)		5,966
Other expense		(6,350	)		(4,815	)		(17,074	)		(2,851	)
Income before income taxes		19,474			21,604			45,937			53,271
Provision for income taxes		6,691			7,400			17,263			20,240
Net income	$	12,783		$	14,204		$	28,674		$	33,031
Earnings per common share
Basic	$	0.22		$	0.25		$	0.49		$	0.57
Diluted	$	0.22		$	0.25		$	0.49		$	0.57
Shares used in computing earnings per common share
Basic		58,135			57,556			57,960			57,449
Diluted		59,184			57,556			58,463			57,861

See notes to condensed consolidated financial statements.

4

PAREXEL INTERNATIONAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

	Nine months ended
	March 31, 2010			March 31, 2009
Cash flow from operating activities:
Net income	$	28,674		$	33,031
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		44,890			39,002
Loss on disposal of fixed assets		352			555
Stock-based compensation		5,270			5,409
Changes in operating assets and liabilities		38,473			12,458
Net cash provided by operating activities		117,659			90,455
Cash flow from investing activities:
Purchases of marketable securities		(13,724	)		—
Purchases of property and equipment		(48,523	)		(57,203	)
Acquisition of businesses		(32	)		(189,042	)
Proceeds from sale of assets		227			155
Net cash used in investing activities		(62,052	)		(246,090	)
Cash flow from financing activities:
Proceeds from issuance of common stock		4,672			3,390
Repayments under lines of credit		(75,500	)		(129,586	)
Borrowing under lines of credit		23,000			344,961
(Repayments) borrowings under long-term debt		(1,957	)		1,603
Restricted stock surrendered		—			(1,382	)
Net cash (used in) provided by financing activities		(49,785	)		218,986
Effect of exchange rate changes on cash and cash equivalents		2,173			(15,757	)
Net increase in cash and cash equivalents		7,995			47,594
Cash and cash equivalents at beginning of period		96,352			51,918
Cash and cash equivalents at end of period	$	104,347		$	99,512
Supplemental disclosures of cash flow information
Net cash paid during the period for:
Interest	$	11,606		$	17,743
Income taxes, net of refunds	$	14,443		$	26,405
Supplemental disclosures of investing activities
Fair value of assets acquired and goodwill	$	32		$	231,374
Liabilities assumed		—			(42,332	)
Cash paid for acquisitions	$	32		$	189,042

See notes to condensed consolidated financial statements.

5

PAREXEL INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1 – BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of PAREXEL International Corporation (“PAREXEL”, “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 nine months ended March 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, 2009 (the “2009 10-K”).

Certain amounts for our fiscal year ended June 30, 2009 (“Fiscal Year 2009”) have been reclassified to conform to the presentation of such amounts for our fiscal year ending June 30, 2010 (“Fiscal Year 2010”), including non-controlling interest balances and expenses that were inconsequential to our consolidated financial statements.

NOTE 2 — EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income for the period by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted average number of common shares plus the dilutive effect of outstanding stock options and shares issuable under 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 March 31				Nine months ended March 31
	2010		2009		2010		2009
Net income	$	12,783	$	14,204	$	28,674	$	33,031
Weighted average number of shares outstanding used in computing basic earnings per share		58,135		57,556		57,960		57,449
Dilutive common stock equivalents		1,049		—		503		412
Weighted average number of shares outstanding used in computing diluted earnings per share		59,184		57,556		58,463		57,861
Basic earnings per share	$	0.22	$	0.25	$	0.49	$	0.57
Diluted earnings per share	$	0.22	$	0.25	$	0.49	$	0.57
Anti-dilutive options*		1,191		2,670		1,731		1,402

* We also excluded all unvested restricted stock from the calculation of diluted earnings per share because they were anti-dilutive.

NOTE 3 – COMPREHENSIVE (LOSS) INCOME

Comprehensive (loss) income has been calculated in accordance with Accounting Standards Committee (“ASC”) No. 220, “Comprehensive Income,” (formerly Statement of Financial Accounting Standards (“SFAS”) 130, “Reporting Comprehensive Income”). Comprehensive income (loss) for the three and nine months ended March 31, 2010 and 2009 was as follows:

(in thousands)	Three Months Ended March 31						Nine months ended March 31
	2010			2009			2010			2009
Net income	$	12,783		$	14,204		$	28,674		$	33,031
Unrealized gain (loss) on derivative instruments*		478			2,479			(3,844	)		(5,780	)
Foreign currency translation		(14,647	)		(30,417	)		(5,234	)		(102,549	)
Comprehensive (loss) income	$	(1,386	)	$	(13,734	)	$	19,596		$	(75,298	)
*net of deferred tax amounts		(823	)		(1,635	)		(2,591	)		3,816

6

PAREXEL INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

NOTE 4 – ACQUISITIONS

On August 14, 2008, we acquired ClinPhone plc (“ClinPhone”), a company traded on the London Stock Exchange, for approximately $172 million in cash, and repaid approximately $18 million of ClinPhone debt. By combining ClinPhone with our Perceptive Informatics (“Perceptive”) business segment, Perceptive is now one of the industry’s largest providers of telecommunications and web-based technologies for clinical research. The combined business offers access to a broad array of clinical trial technologies and resources, providing clients and service providers with the benefits of an extensive line of products and services throughout the entire clinical development lifecycle. We allocated the total purchase price of ClinPhone to the tangible and intangible assets and liabilities acquired based on fair value, with any excess recorded as goodwill. The following table summarizes the final purchase price allocation for ClinPhone (in thousands):

Purchase Price:	Cash paid, net of cash acquired	$	185,306
	Transaction costs		4,927
	Total	$	190,233
Allocations:	Fair value of assets acquired
	Accounts receivable	$	18,416
	Other current assets		2,236
	Property and equipment		12,796
	Goodwill		124,722
	Tradename		22,158
	In-process research and development		224
	Other intangible assets		68,413
	Liabilities assumed
	Accounts payable		(8,628	)
	Current liabilities		(14,693	)
	Deferred revenue		(478	)
	Other liabilities		(34,933	)
	Net assets acquired		$190,233

The following table summarizes the details of the intangible assets acquired in the ClinPhone transaction as of March 31, 2010 (in thousands):

Intangible Assets	Weighted Average Useful Life*	Cost		Accumulated  Amortization/ Foreign Currency Exchange Impact		Net
Customer relationships	13.6 years	$	35,757	$	8,886	$	26,871
Backlog	4 years		6,326		3,903		2,423
Technology	8 years		26,330		12,415		13,915
Total intangible assets		$	68,413	$	25,204	$	43,209

*The determination of the useful life of the customer relationships, backlog and technology was based, in part, on our own historical experience (in particular based upon the experience in our Perceptive business) in renewing or extending similar relationships and arrangements.

The following table sets forth the estimated amortization expense of intangible assets acquired in the ClinPhone transaction (in thousands):

	2010		2011		2012		2013		2014
Amortization expense	$	7,026	$	6,711	$	6,347	$	5,748	$	5,367

NOTE 5 – STOCK-BASED COMPENSATION

We account for stock-based compensation according to ASC 718, “Compensation—Stock Compensation” (formerly SFAS No. 123(R), “Share-Based Payment”). The compensation expense recognized in the three and nine months ended March 31, 2010 and 2009 is presented in the following table.

(in thousands)	Three Months Ended March  31				Nine months ended March  31
	2010		2009		2010		2009
Included in direct costs	$	420	$	552	$	1,624	$	1,608
Included in selling, general and administrative		1,431		1,196		3,646		3,801
Total stock-based compensation	$	1,851	$	1,748	$	5,270	$	5,409

7

PAREXEL INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

NOTE 6 – SEGMENT INFORMATION

PAREXEL is managed through three business segments:

• 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.

• 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 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 the revenue earned in the respective countries; however, 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 March 31				Nine months ended March 31
	2010		2009		2010		2009
Service revenue
Clinical Research Services	$	221,456	$	199,662	$	645,350	$	603,419
PAREXEL Consulting and MedCom Services		31,518		29,176		90,070		91,218
Perceptive Informatics, Inc.		38,270		35,619		100,318		108,712
Total service revenue	$	291,244	$	264,457	$	835,738	$	803,349
Direct costs
Clinical Research Services	$	138,851	$	127,862	$	407,284	$	390,491
PAREXEL Consulting and MedCom Services		18,613		17,840		56,026		58,770
Perceptive Informatics, Inc.		20,305		20,079		59,525		65,179
Total direct costs	$	177,769	$	165,781	$	522,835	$	514,440
Gross profit
Clinical Research Services	$	82,605	$	71,800	$	238,066	$	212,928
PAREXEL Consulting and MedCom Services		12,905		11,336		34,044		32,448
Perceptive Informatics, Inc.		17,965		15,540		40,793		43,533
Total gross profit	$	113,475	$	98,676	$	312,903	$	288,909

NOTE 7 – 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”). For the three months ended March 31, 2010, we recorded $4.1 million in restructuring charges related to the 2010 Restructuring Plan, including approximately $0.5 million in costs related to the abandonment of certain property leases and $3.6 million in employee separation benefits associated with the elimination of 81 managerial and staff positions. For the nine months ended March 31, 2010, we recorded $13.0 million in restructuring charges related to the 2010 Restructuring Plan, including approximately $7.2 million in employee separation benefits associated with the elimination of 180 managerial and staff positions and $5.8 million in costs related to the abandonment of certain property leases. In addition, we recorded $0.5 million of accelerated depreciation associated with abandoned lease facilities. We expect to incur approximately $5.0 million in additional restructuring charges primarily in employee separation benefits under the 2010 Restructuring Plan during the fourth quarter of Fiscal Year 2010.

8

PAREXEL INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

Current activity charged against all restructuring accruals in the nine months ended March 31, 2010 was as follows:

($ in thousands)	Balance at June 30,  2009		Provision Adjustments		Payments/Foreign Currency Exchange Adjustments			Balance at March 31,  2010
2005 Restructuring Plan
Facilities-related charges	$	2,144	$	—	$	(564	)	$	1,580
2010 Restructuring Plan
Facilities-related charges		—		5,647		(954	)		4,693
Employee separation benefits		—		7,228		(3,241	)		3,987
Other expenses		—		75		39			114
Total	$	2,144	$	12,950	$	(4,720	)	$	10,374

NOTE 8 –RECENTLY ISSUED ACCOUNTING STANDARDS

In January 2010, the FASB issued No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements (“ASU 2010-06”). ASU 2010-06 requires reporting entities to provide information about movements of assets among Levels 1 and 2 of the three-tier fair value hierarchy established by SFAS No. 157 ( FASB ASC 820 ). The guidance is effective for interim and annual reporting after December 15, 2009. We have adopted ASU 2010-06 during the quarter ended March 31, 2010. The adoption of this statement did not have a material impact on our consolidated financial statements.

In October 2009, the FASB issued ASU No. 2009-14, “Software (Topic 985): Certain Revenue Arrangements That Include Software Elements—a consensus of the FASB Emerging Issues Task Force (“EITF”)” (formerly EITF 09-3). ASU 2009-14 revises FASB ASC 985-605 to drop from its scope all tangible products containing both software and non-software components that operate together to deliver the products’ functions. It also amends the determination of how arrangement consideration should be allocated to deliverable in a multi-deliverable revenue arrangement. ASU 2009-14 is effective for us in Fiscal Year 2011. Early adoption is permitted with required transition disclosures based on the period of adoption. We are currently evaluating the impact that the adoption of this guidance will have on our consolidated financial statements.

In October 2009, the FASB issued ASU No. 2009-13, “Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements – a consensus of the FASB Emerging Issues Task Force” (formerly EITF 08-1), which amends the revenue recognition guidance for arrangements with multiple deliverables. ASU 2009-13 addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting and how to allocate consideration to each unit of accounting in the arrangement. This ASU replaces all references to fair value as the measurement criteria with the term selling price and establishes a hierarchy for determining the selling price of a deliverable. It also eliminated the use of the residual value method for determining the allocation of arrangement consideration. ASU 2009-13 will be effective for us in Fiscal Year 2011. Early adoption is permitted with required transition disclosures based on the period of adoption. We are currently evaluating the impact that the adoption of this guidance will have on our consolidated financial statements.

NOTE 9 – INCOME TAXES

We determine our global provision for corporate income taxes in accordance with FASB ASC 740, “Income Taxes” (formerly SFAS 109 and Financial Accounting Standards Board Interpretation (“FIN”) 48). 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, 2009, we had $58.3 million of gross unrecognized tax benefits of which $15.6 million would impact the effective tax rate if recognized. As of March 31, 2010, we had $61.1 million of gross unrecognized tax benefits, of which $24.7 million would impact the effective tax rate if recognized. This reserve primarily relates to exposures for income tax matters such as changes in the jurisdiction in which income is taxable and taxation of certain investments. The $2.8 million net increase in gross unrecognized tax benefits is primarily composed of $6.9 million in reserves established in conjunction with the acquisition of ClinPhone Group Limited in FY 2009 which did not impact the effective tax rate, net of the release of reserves resulting from the expiration of statutes in several jurisdictions.

9

PAREXEL INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

As of March 31, 2010, we anticipate that the liability for unrecognized tax benefits for uncertain tax positions will decrease by approximately $1.1 million in the next twelve months primarily as a result of settlements of tax audits.

Our historical practice has been, and continues to be, to recognize interest and penalties related to income tax matters in income tax expense. As of June 30, 2009, $11.0 million of gross interest and penalties were included in our liability for unrecognized tax benefits. Income tax expense recorded through March 31, 2010 includes an expense of approximately $0.2 million of interest and penalties. As of March 31, 2010, $11.2 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 U.S. state, local and federal income tax matters through 2004 have been concluded. Substantially all material foreign income tax matters have been concluded for all years through 1996.

For the three months ended March 31, 2010 and 2009, we had an effective income tax rate of 34.4% and 34.3%, respectively. The tax rate for the three months ended March 31, 2010 reflects non-deductible restructuring costs recorded in the current quarter outside the United States, and an increase in valuation reserves, net of a release of tax reserves resulting from the expiration of statutes in several jurisdictions. For the nine months ended March 31, 2010 and 2009, we had an effective income tax rate of 37.6% and 38.0%, respectively. The tax rate for the nine months ended March 31, 2010 reflects non-deductible restructuring costs recorded in the second and third quarters, non-deductible expenses outside the United States, and an increase in valuation reserves, net of a release of tax reserves resulting from the expiration of statutes in several jurisdictions.

NOTE 10 – LINES OF CREDIT

2008 Credit Facility

On June 13, 2008, PAREXEL, certain subsidiaries of PAREXEL, JPMorgan Chase Bank, N.A., 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 Chase Bank, N.A. and for letters of credit. We may request that the Lenders 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 0.50% 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 0.75%) based on the 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 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 “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:

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

• 20% of principal borrowed must be repaid during the one-year period from July 1, 2009 to 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.

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.

10

PAREXEL INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

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, such as 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 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 Chase Bank, N.A. or KeyBank or both.

As of March 31, 2010, we had $221.0 million in principal amount of debt outstanding under the 2008 Credit Facility, consisting of $101.0 million of principal borrowed under the revolving credit facility and $120.0 million of principal under the term loan, and remaining borrowing availability of approximately $64.0 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 an interest rate of 4.8%. Currently, our debt under the 2008 Credit Facility, including the $150 million of principal hedged with an interest swap agreement, carries an average interest rate of 3.0%.

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 March 31, 2010, we were in compliance with all covenants under the 2008 Credit Facility.

Additional Lines of Credit

We have a line of credit with RBS Nederland, NV in the amount of Euro 12.0 million. This line of credit is not collateralized, is payable on demand, and bears interest at an annual rate ranging between 2% and 4%. The line of credit may be revoked or canceled by RBS Nederland, NV at any time at its discretion. At March 31, 2010, we had Euro 12.0 million available under this line of credit.

We also have a line of credit with HSBC UK in the amount of 2.0 million pounds sterling. This line of credit was established by ClinPhone and is guaranteed by PAREXEL International Holding BV. The line of credit is not secured and bears interest at an annual rate ranging between 2% and 4%. At March 31, 2010, we had 2.0 million pounds sterling available under this line 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 entered into this line of credit primarily to facilitate business transactions with JP Morgan UK. At March 31, 2010, we had $4.5 million available under this line of credit.

We have a cash pooling arrangement with RBS Nederland, NV Bank. 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 overall balance, the bank then (1) recalculates the overall interest to be charged or earned, (2) compares this amount with the sum of previously charged/earned interest amounts per account and (3) additionally pays/charges the difference. The gross overdraft balance related to this pooling arrangement was $140.3 million at March 31, 2010 and $117.9 million at June 30, 2009. However, on a net basis, we have surplus cash balances over all accounts for the respective periods.

11

PAREXEL INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

We have financing agreements with a vendor to finance software purchases. The agreements carry four-year terms and bear annual interest rates ranging between 0% and 3%. The balance on the promissory notes issued in connection with the financing agreements was $3.1 million and $5.7 million at March 31, 2010 and June 30, 2009, respectively.

NOTE 11 – COMMITMENTS, CONTINGENCIES AND GUARANTEES

As of March 31, 2010, we had approximately $38.8 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 Chase Bank, N.A.), and it is guaranteed by certain of our U.S. subsidiaries.

We have letter-of-credit agreements with banks totaling approximately $5.9 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 12 – DERIVATIVES

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 that are accounted for in accordance with ASC 815, “Derivatives and Hedging” (formerly SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”).

• 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 currency underlying the service contract with our customer 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.

• 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 have entered into swap agreements for intervals of up to 3 years.

Occasionally, we 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, but may involve other denominations or counterparties and are not accounted for as hedges in accordance with ASC 815.

12

PAREXEL INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

The following table presents the notional amounts and fair values of our derivatives as of March 31, 2010 and June 30, 2009 (in thousands). All amounts are reported in other current assets and other current liabilities.

	March 31, 2010					June 30, 2009
	Notional Amount		Asset (Liability)			Notional Amount		Asset (Liability)
Derivatives designated as hedging instruments under ASC 815
Interest rate contracts	$	150,000	$	(5,700	)	$	150,000	$	(5,381	)
Foreign exchange contracts		143,214		(2,618	)		54,459		5,584
Total designated derivatives	$	293,214	$	(8,318	)	$	204,459	$	203
Derivatives not designated as hedging instruments under ASC 815
Interest rate contracts	$	46,204	$	(652	)	$	—	$	—
Foreign exchange contracts		103,720		1,533			197,086		1,764
Total non-designated derivatives	$	149,924	$	881		$	197,086	$	1,764
Total derivatives	$	443,138	$	(7,437	)	$	401,545	$	1,967

The change in the fair value of derivatives designated as hedging instruments under ASC 815 is recorded to other comprehensive income (loss) on the balance sheet, net of deferred taxes. The amounts recognized for the three and nine months ended March 31, 2010 and 2009 are presented below (in thousands):

	Three Months Ended March  31,						Nine months ended March 31,
	2010			2009			2010			2009
Derivatives designated as hedging instruments under ASC 815
Interest rate contracts	$	(50	)	$	(132	)	$	(207	)	$	(3,341	)
Foreign exchange contracts		(1,762	)		2,611			(5,358	)		(2,439	)
Total designated derivatives	$	(1,812	)	$	2,479		$	(5,565	)	$	(5,780	)

The change in the fair value of derivatives not designated as hedging instruments under ASC 815 is recorded to miscellaneous income (expense) on the income statement. The amounts recognized for the three and nine months ended March 31, 2010 and 2009 are presented below (in thousands):

	Three Months Ended March  31,					Nine months ended March  31,
	2010		2009			2010			2009
Derivatives not designated as hedging instruments under ASC 815
Interest rate contracts	$	93	$	—		$	(652	)	$	—
Foreign exchange contracts		84		(16,115	)		(231	)		799
Total non-designated derivatives	$	177	$	(16,115	)	$	(883	)	$	799

For the three months ended March 31, 2009, the decrease in the fair value of derivatives not designated as hedging instruments under ASC 815 was due primarily to a decrease in the value of a derivative instrument hedging the currency fluctuations between the pound sterling and Euro, as part of the cash funding structures used for the $172 million ClinPhone acquisition.

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PAREXEL INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

NOTE 13–FAIR VALUE MEASUREMENTS

We apply the provisions of ASC 820, “Fair Value Measurements and Disclosures” (formerly SFAS 157, “Fair Value Measurements”). 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:

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

• 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:

• quoted prices for similar assets and liabilities in active markets

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

• 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)

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

• 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 March 31, 2010:

	Level 1		Level 2			Level 3		Total
Marketable Securities	$	13,461	$	—		$	—	$	13,461
Interest Rate Derivative Instruments		—		(6,352	)		—		(6,352	)
Foreign Currency Exchange Contracts		—		(1,085	)		—		(1,085	)
Total	$	13,461	$	(7,437	)		—	$	6,024

The marketable securities are held in foreign government treasury certificates that are actively traded.

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 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. We record changes in the fair value of these contracts, to the extent they are effective as cash flow hedges, in other comprehensive income. If a contract does not qualify for hedge accounting, changes in the fair value of the contract are recorded in income.

As of March 31, 2010, there were no transfers between 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.

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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, 2009, filed on August 28, 2009 (the “2009 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 readers 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 services, 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”).

• 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 Phases 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.

• 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. For further information, please refer to the consolidated financial statements and footnotes thereto included in the 2009 10-K.

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RESULTS OF OPERATIONS

ANALYSIS BY SEGMENT

We evaluate our business 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 business segment profitability. We attribute revenue to individual countries based upon the number of hours of services performed in the respective countries. 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 nine months ended March 31, 2010 and 2009 were as follows:

($ in thousands)	Three Months Ended				Increase (Decrease)			%
	March 31, 2010		March 31, 2009
Service revenue
Clinical Research Services	$	221,456	$	199,662	$	21,794		10.9	%
PAREXEL Consulting and MedCom Services		31,518		29,176		2,342		8.0	%
Perceptive Informatics, Inc.		38,270		35,619		2,651		7.4	%
Total service revenue	$	291,244	$	264,457	$	26,787		10.1	%
Direct costs
Clinical Research Services	$	138,851	$	127,862	$	10,989		8.6	%
PAREXEL Consulting and MedCom Services		18,613		17,840		773		4.3	%
Perceptive Informatics, Inc.		20,305		20,079		226		1.1	%
Total direct costs	$	177,769	$	165,781	$	11,988		7.2	%
Gross profit
Clinical Research Services	$	82,605	$	71,800	$	10,805		15.0	%
PAREXEL Consulting and MedCom Services		12,905		11,336		1,569		13.8	%
Perceptive Informatics, Inc.		17,965		15,540		2,425		15.6	%
Total gross profit	$	113,475	$	98,676	$	14,799		15.0	%
($ in thousands)	Nine months ended				Increase (Decrease)			%
	March 31, 2010		March 31, 2009
Service revenue
Clinical Research Services	$	645,350	$	603,419	$	41,931		6.9	%
PAREXEL Consulting and MedCom Services		90,070		91,218		(1,148	)	-1.3	%
Perceptive Informatics, Inc.		100,318		108,712		(8,394	)	-7.7	%
Total service revenue	$	835,738	$	803,349	$	32,389		4.0	%
Direct costs
Clinical Research Services	$	407,284	$	390,491	$	16,793		4.3	%
PAREXEL Consulting and MedCom Services		56,026		58,770		(2,744	)	-4.7	%
Perceptive Informatics, Inc.		59,525		65,179		(5,654	)	-8.7	%
Total direct costs	$	522,835	$	514,440	$	8,395		1.6	%
Gross profit
Clinical Research Services	$	238,066	$	212,928	$	25,138		11.8	%
PAREXEL Consulting and MedCom Services		34,044		32,448		1,596		4.9	%
Perceptive Informatics, Inc.		40,793		43,533		(2,740	)	-6.3	%
Total gross profit	$	312,903	$	288,909	$	23,994		8.3	%

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

For the three months ended March 31, 2010, we had net income of $12.8 million compared with net income of $14.2 million for the three months ended March 31, 2009. On a fully diluted basis, earnings per share decreased to $0.22 from $0.25 for the respective periods.

Revenue

Service revenue increased by $26.8 million, or 10.1%, to $291.2 million for the three months ended March 31, 2010 from $264.5 million for the three months ended March 31, 2009. On a geographic basis, service revenue was distributed as follows (in millions):

	Three months ended March 31, 2010				Three months ended March 31, 2009
Region	Service Revenue		% of Total		Service Revenue		% of Total
The Americas	$	115.0	39.5	%	$	113.6	42.9	%
Europe, Middle East & Africa	$	141.8	48.7	%	$	126.7	47.9	%
Asia/Pacific	$	34.4	11.8	%	$	24.2	9.2	%

Service revenue increased in The Americas by $1.4 million, or 1.3%, in Europe, Middle East & Africa by $15.1 million, or 12.0%, and in Asia/Pacific by $10.2 million, or 42.2%. Overall, service revenue was positively impacted by foreign currency exchange rate fluctuations including: $1.7 million in The Americas, $11.3 million in Europe, Middle East & Africa, and $1.9 million in Asia/Pacific.

On a segment basis, CRS service revenue increased by $21.8 million, or 10.9%, to $221.5 million for the three months ended March 31, 2010 from $199.7 million for the three months ended March 31, 2009. The growth was attributable to the positive $12.1 million impact of foreign currency exchange rate fluctuations, a $6.8 million increase in Phases II-III/PACE, and a $2.9 million increase in Early Phase. Growth in this segment has been largely driven by the positive impact of strategic partnerships and increased business activity in the Asia/Pacific region driven by global studies and studies from local biopharmaceutical companies.

PCMS service revenue increased by $2.3 million, or 8.0%, to $31.5 million for the three months ended March 31, 2010 from $29.2 million for the same period in 2009. The increase was caused by a $2.0 million increase in consulting, including a $1.3 million increase in compliance-related work, and a $1.3 million increase related to the positive impact of foreign currency exchange rate fluctuations. These increases were partly offset by a $0.5 million decrease in health policy and strategic reimbursement services, which has been adversely affected by the uncertainty in the regulatory markets due to changes in the U.S. healthcare law, and a $0.5 million decrease in other services, including the discontinuation of continuing medical education activities.

Perceptive service revenue increased by $2.7 million, or 7.4%, to $38.3 million for the three months ended March 31, 2010 from $35.6 million for the three months ended March 31, 2009. The increase was due to a $2.0 million increase in RTSM and support services, $1.6 million from the positive impact of foreign currency exchange rate fluctuations, and a $1.4 million increase in medical imaging and other services; partly offset by a $2.3 million decrease in CTMS services. Perceptive revenue for the three months ended March 31, 2009 included $3.7 million that was subsequently reversed in the fourth quarter of Fiscal Year 2009 due to an accounting correction related to start-up and deferred revenue.

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 $12.0 million, or 7.2%, to $177.8 million for the three months ended March 31, 2010 from $165.8 million for the three months ended March 31, 2009. As a percentage of total service revenue, direct costs decreased to 61.0% from 62.7% for the respective periods.

On a segment basis, CRS direct costs increased by $11.0 million, or 8.6%, to $138.9 million for the three months ended March 31, 2010 from $127.9 million for the three months ended March 31, 2009. This increase was due to $6.8 million from the negative impact of foreign currency exchange rate fluctuations, $2.4 million in the Phase II-III/PACE business and $1.8 million in Early Phase. As a percentage of service revenue, CRS direct costs decreased to 62.7% for the three months ended March 31, 2010 from 64.0% for the three months ended March 31, 2009 due primarily to strong performance in Asia/Pacific, the continued effectiveness of cost controls, and improved productivity and efficiency.

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PCMS direct costs increased slightly by $0.8 million, or 4.3%, to $18.6 million for the three months ended March 31, 2010 from $17.8 million for the three months ended March 31, 2009. This increase was due primarily to $0.7 million related to the negative impact of foreign currency exchange rate fluctuations. As a percentage of service revenue, PCMS direct costs decreased to 59.1% from 61.1% for the respective periods. This reduction resulted from efforts by PCMS to implement substantial improvements in business processes, mainly related to the strategic marketing portion of the business and the shedding of certain unprofitable service lines.

Perceptive direct costs increased slightly by $0.2 million, or 1.1%, to $20.3 million for the three months ended March 31, 2010 from $20.1 million for the three months ended March 31, 2009. The increase was due to a $1.1 million increase in product support services, a $1.0 million increase in the medical imaging business, and $0.5 million related to the negative impact of foreign currency exchange rate fluctuations; partially offset by a $2.4 million decrease in RTSM. Perceptive costs for the three months ended March 31, 2009 included $1.5 million that was subsequently reversed in the fourth quarter of Fiscal Year 2009 due to an accounting adjustment related to start-up costs. As a percentage of service revenue, Perceptive direct costs decreased to 53.1% for the three months ended March 31, 2010 from 56.4% for the three months ended March 31, 2009, due, in part, to improved operating procedures and the integration of ClinPhone operations into the overall Perceptive business.

Selling, General and Administrative

Selling, general and administrative (“SG&A”) expense increased by $9.3 million, or 15.8%, to $68.3 million for the three months ended March 31, 2010 from $59.0 million for the three months ended March 31, 2009. This increase was due to a $4.5 million increase in personnel costs, $4.4 million from the negative impact of foreign exchange movements, and a $1.2 million increase in sales expenses; partly offset by a $0.8 million increase in other expenses. As a percentage of service revenue, SG&A increased to 23.5% for the three months ended March 31, 2010 from 22.3% for the three months ended March 31, 2009.

Depreciation and Amortization

Depreciation and amortization (“D&A”) expense increased by $1.9 million, or 14.5%, to $15.2 million for the three months ended March 31, 2010 from $13.3 million for the three months ended March 31, 2009, primarily due to increased capital expenditures over the past twelve months. As a percentage of service revenue, D&A increased to 5.2% for the three months ended March 31, 2010 from 5.0% for the same period in 2009.

Restructuring Charge

For the three months ended March 31, 2010, we recorded $4.1 million in restructuring charges in association with the 2010 Restructuring Plan, including approximately $0.5 million in costs related to the abandonment of certain property leases and $3.6 million in employee separation benefits associated with the elimination of 81 managerial and staff positions.

Income from Operations

Income from operations decreased slightly to $25.8 million for the three months ended March 31, 2010 from $26.4 million for the same period in 2009. Income from operations as a percentage of service revenue, or operating margin, decreased to 8.9% from 10.0% for the respective periods. This decrease in operating margin was due primarily to the $4.1 million of restructuring charges taken during the quarter.

Other Income and Expense

We recorded net other expense of $6.4 million for the three months ended March 31, 2010 compared with $4.8 million for the three months ended March 31, 2009. The $1.5 million increase was due primarily to a $1.7 million increase in miscellaneous expense.

Miscellaneous expense for the three months ended March 31, 2010 of $3.7 million included $3.3 million of losses on the revaluation of foreign denominated assets/liabilities, a $0.4 million asset impairment charge, and $0.2 million of other losses; partly offset by a $0.2 million gain related to foreign exchange contracts.

Miscellaneous expense for the three months ended March 31, 2009 of $2.0 million consisted of $16.1 million of losses related to foreign exchange contracts, due primarily to a derivative instrument hedging the currency fluctuations between the pound sterling and Euro as part of the cash funding structures used for the $172 million ClinPhone acquisition; partly offset by a $13.7 million gain on the revaluation of foreign denominated assets/liabilities and $0.4 million of other gains.

Taxes

For the three months ended March 31, 2010 and 2009, we had an effective income tax rate of 34.4% and 34.3%, respectively. The tax rate for the three months ended March 31, 2010 reflects non-deductible restructuring costs recorded in the current quarter outside the United States, and an increase in valuation reserves, net of a release of tax reserves resulting from the expiration of statutes in several jurisdictions.

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Nine months ended March 31, 2010 Compared With Nine months ended March 31, 2009:

For the nine months ended March 31, 2010, we had net income of $28.7 million compared with net income of $33.0 million for the nine months ended March 31, 2009. On a fully diluted basis, earnings per share decreased to $0.49 from $0.57 for the respective periods.

Revenue

Service revenue increased by $32.4 million, or 4.0%, to $835.7 million for the nine months ended March 31, 2010 from $803.3 million for the nine months ended March 31, 2009. On a geographic basis, service revenue was distributed as follows (in millions):

	Nine months ended March 31, 2010				Nine months ended March 31, 2009
Region	Service Revenue		% of Total		Service Revenue		% of Total
The Americas	$	325.5	38.9	%	$	337.4	42.0	%
Europe, Middle East & Africa	$	413.8	49.5	%	$	398.6	49.6	%
Asia/Pacific	$	96.4	11.6	%	$	67.3	8.4	%

Service revenue in The Americas decreased by $12.0 million, or 3.5%, while service revenue increased in Europe, Middle East & Africa by $15.2 million, or 3.8%, and in Asia/Pacific by $29.1 million, or 43.3%. Overall, service revenue was positively impacted by foreign currency exchange rate fluctuations including: $0.3 million in The Americas, $5.0 million in Europe, Middle East & Africa, and $5.7 million in Asia/Pacific.

On a segment basis, CRS service revenue increased by $42.0 million, or 6.9%, to $645.4 million for the nine months ended March 31, 2010 from $603.4 million for the nine months ended March 31, 2009. The increase was attributable to a $31.8 million increase in the Phases II-III/PACE portions of the business and $11.8 million related to the positive impact of foreign currency exchange rate fluctuations; partially offset by a $1.7 million decrease in the Early Phase business. Our growth in the Phases II-III/PACE business has been driven by the impact of strategic partnerships and an increase in demand in the Asia/Pacific region from both global studies and studies from local biopharmaceutical companies. The nine-month decrease in the Early Phase business was due to weakness in the first quarter of Fiscal Year 2010.

PCMS service revenue decreased by $1.1 million, or 1.3%, to $90.1 million for the nine months ended March 31, 2010 from $91.2 million for the same period in 2009. The decline was caused by a $2.0 million decrease in health policy and strategic reimbursement services, which has been affected by the uncertainty in the regulatory markets due to changes in the U.S. healthcare law, and the $0.2 million negative impact of foreign currency exchange rate fluctuations; partly offset by a $1.1 million increase in the consulting business, including strong growth in compliance work.

Perceptive service revenue decreased by $8.4 million, or 7.7%, to $100.3 million for the nine months ended March 31, 2010 from $108.7 million for the nine months ended March 31, 2009. The decline was due to a $4.8 million decrease in CTMS, a $3.5 million decrease in RTSM services, a $2.2 million decrease in the integration services group, and $0.6 million from the negative impact of foreign currency exchange rate fluctuations; partly offset by a $1.5 million increase in EDC and a $1.2 million increase in medical imaging. Perceptive revenue for the nine months ended March 31, 2009 included $17.0 million that was subsequently reversed in the fourth quarter of Fiscal Year 2009 related to an accounting adjustment on start-up costs and deferred revenues.

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 $8.4 million, or 1.6%, to $522.8 million for the nine months ended March 31, 2010 from $514.4 million for the nine months ended March 31, 2009. As a percentage of total service revenue, direct costs decreased to 62.6% from 64.0% for the respective periods.

On a segment basis, CRS direct costs increased by $16.8 million, or 4.3%, to $407.3 million for the nine months ended March 31, 2010 from $390.5 million for the nine months ended March 31, 2009, due to a $9.7 million increase in Phases II-III/PACE business activities and $7.1 million from the negative impact of foreign currency exchange rate fluctuations. Direct costs of Early Phase remained flat. As a percentage of service revenue, CRS direct costs decreased to 63.1% for the nine months ended March 31, 2010 from 64.7% for the nine months ended March 31, 2009 due primarily to strong performance in Asia/Pacific, the continued effectiveness of cost controls, and improved productivity and efficiency.

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PCMS direct costs decreased by $2.7 million, or 4.7%, to $56.0 million for the nine months ended March 31, 2010 from $58.8 million for the nine months ended March 31, 2009. This decline was the result of lower costs across all service lines. As a percentage of service revenue, PCMS direct costs decreased to 62.2% from 64.4% for the respective periods. This reduction resulted from efforts by PCMS to implement substantial improvements in business processes, mainly related to the strategic marketing portion of the business and the shedding of certain business lines, such as continuing medical education services.

Perceptive direct costs decreased by $5.7 million, or 8.7%, to $59.5 million for the nine months ended March 31, 2010 from $65.2 million for the nine months ended March 31, 2009. This decline was due to a $6.5 million decrease in RTSM and a $4.7 million decrease in our medical imaging business; partly offset by a $5.5 million increase in other business lines, primarily in the product support area. Perceptive costs for the nine months ended March 31, 2009 included $3.9 million that was subsequently reversed in the fourth quarter of Fiscal Year 2009 due to an accounting adjustment related to start-up costs. As a percentage of service revenue, Perceptive direct costs decreased to 59.3% for the nine months ended March 31, 2010 from 60.0% for the nine months ended March 31, 2009. This decrease was due primarily to higher utilization rates and revenue growth.

Selling, General and Administrative

Selling, general and administrative (“SG&A”) expense increased by $14.4 million, or 8.1%, to $193.2 million for the nine months ended March 31, 2010 from $178.8 million for the nine months ended March 31, 2009. This increase was due primarily to $6.8 million in higher personnel costs, a $3.9 million increase in rent and related office expenses, $2.8 million in sales expenses, and $2.2 million resulting from the negative impact of foreign currency exchange rate fluctuations. As a percentage of service revenue, SG&A increased to 23.1% for the nine months ended March 31, 2010 from 22.3% for the nine months ended March 31, 2009.

Depreciation and Amortization

Depreciation and amortization (“D&A”) expense increased by $5.9 million, or 15.1%, to $44.9 million for the nine months ended March 31, 2010 from $39.0 million for the nine months ended March 31, 2009, primarily due to increased capital expenditures over the past twelve months and $0.4 million in accelerated depreciation associated with abandoned leased facilities related to the 2010 Restructuring Plan. As a percentage of service revenue, D&A increased to 5.4% for the nine months ended March 31, 2010 from 4.9% for the same period in 2009.

Other Charge

For the nine months ended March 31, 2009, we recorded $15 million in reserves for anticipated wind-down costs and bad debt expense related to impaired accounts receivable (for service fees, pass-through costs, and investigator fees) from a biopharma client that filed for bankruptcy protection and informed us that it would be unable to make payments due to us in connection with an on-going service contract for a large Phase III clinical trial. In the second quarter of Fiscal Year 2010, we released $1.1 million of these reserves to reflect lower-than-anticipated close-out costs.

Restructuring Charge

For the nine months ended March 31, 2010, we recorded $13.0 million in restructuring charges in association with the 2010 Restructuring Plan, including approximately $7.2 million in employee separation benefits associated with the elimination of 180 managerial and staff positions and $5.8 million in costs related to the abandonment of certain property leases.

Income from Operations

Income from operations increased by $6.9 million, or 12.3%, to $63.0 million for the nine months ended March 31, 2010 from $56.1 million for the same period in 2009. Income from operations as a percentage of service revenue, or operating margin, increased to 7.5% from 7.0% for the respective periods. This increase was due primarily to cost efficiencies and operational improvement efforts.

Other Income and Expense

We recorded net other expense of $17.1 million for the nine months ended March 31, 2010 compared with $2.9 million for the nine months ended March 31, 2009. The $14.2 million increase in net other expense was attributable to a $14.7 million decrease in foreign exchange gains and a $0.5 million increase in other miscellaneous expenses; partially offset by a $1.0 million decrease in interest expense (net of interest income).

Miscellaneous expense for the nine months ended March 31, 2010 of $9.2 million included a $6.1 million reserve for an impaired investment in a French laboratory that filed for bankruptcy protection, $1.5 million of losses on the revaluation of foreign denominated assets/liabilities, $0.9 million of losses related to foreign exchange contracts, a $0.4 million asset impairment charge, and $0.3 in other miscellaneous losses.

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Miscellaneous income for the nine months ended March 31, 2009 of $6.0 million consisted of $11.5 million of gains on the revaluation of foreign denominated assets/liabilities and $0.8 million in gains related to foreign exchange contracts; partly offset by a $3.0 million legal settlement charge related to a contract dispute, $2.3 million for the write-off of certain impaired assets, and $1.0 in other miscellaneous losses.

Taxes

For the nine months ended March 31, 2010 and 2009, we had an effective income tax rate of 37.6% and 38.0%, respectively. The tax rate for the nine months ended March 31, 2010 reflects non-deductible restructuring costs recorded in the second and third quarters, non-deductible expenses outside the United States, and an increase in valuation reserves, net of a release of tax reserves resulting from the expiration of statutes in several jurisdictions.

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. Investing activities primarily reflect the costs of acquisitions and capital expenditures for information systems enhancements and leasehold improvements. As of March 31, 2010, we had cash, cash equivalents, and marketable securities of approximately $117.8 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. DSO was 47 days at March 31, 2010, 57 days at June 30, 2009, and 47 days at March 31, 2009. Accounts receivable, net of provision for losses on receivables, totaled $487.6 million ($250.6 million in billed accounts receivable and $237.0 million in unbilled accounts receivable) at March 31, 2010 and $481.3 million ($251.2 million in billed accounts receivable and $230.1 million in unbilled accounts receivable) at June 30, 2009 and $430.4 million ($214.7 million in billed accounts receivable and $215.7 million in unbilled accounts receivable) at March 31, 2009. Deferred revenue was $279.9 million at March 31, 2010, $266.5 million at June 30, 2009, and $244.3 million at March 31, 2009. 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.

CASH FLOWS

Net cash provided by operating activities for the nine months ended March 31, 2010 totaled $117.7 million and was generated from $28.7 million in net income, $44.9 million of non-cash charges for depreciation and amortization, $23.4 million related to increases in tax and other liabilities, $19.3 million from a decrease in other current and long-term assets, $5.3 million of non-cash charges for stock-based compensation, and $4.0 million from a decrease in net receivables (net of deferred revenue and allowances for doubtful accounts). These sources of cash were offset by a $7.9 million decrease in accounts payable.

Net cash used in investing activities for the nine months ended March 31, 2010 totaled $62.1 million, including $48.5 million of capital expenditures primarily for computer software and hardware and leasehold improvements and $13.7 million for the purchase of marketable securities in foreign government treasury certificates.

Net cash used in financing activities for the nine months ended March 31, 2010 totaled $49.8 million, and consisted of $54.5 million of net repayments under lines of credit; offset by $4.7 million in proceeds related to the issuance of common stock in connection with our stock option and employee stock purchase plans.

Net cash provided by operating activities for the nine months ended March 31, 2009 totaled $90.5 million and was generated from net income of $33.0 million, non-cash charges for depreciation and amortization expense in the amount of $39.0 million, a $57.9 million decrease in net receivables (net of deferred revenue and allowances for doubtful accounts), $22.4 million related to changes in prepaid assets and other current assets, $5.4 million of non-cash charges for stock-based compensation, and $1.1 million from other sources. These sources of cash were offset by a $36.6 million increase in other assets, a $15.5 million decrease in other current liabilities (mainly related to the payment of management bonuses), an $11.7 million decrease in accounts payable and other accrued expenses and liabilities, and a $4.5 million decrease in deferred income tax liability (net of deferred tax assets).

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Net cash used in investing activities for the nine months ended March 31, 2009 totaled $246.1 million and consisted of $189.0 million for the acquisition of ClinPhone and $57.1 million of capital expenditures, primarily for leasehold improvements and computer software and hardware.

Net cash provided by financing activities for the nine months ended March 31, 2009 totaled $219.0 million and consisted of $215.4 million of net borrowings under lines of credit, $3.4 million in proceeds related to the issuance of common stock in conjunction with stock option and employee stock purchase plans, and $0.2 million related to other activities. The increase in net borrowings was due primarily to the acquisition of ClinPhone.

LINES OF CREDIT

2008 Credit Facility

We have a line of credit (the “2008 Credit Facility”) with JPMorgan Chase Bank, N.A., as Administrative Agent, J.P. Morgan Europe Limited, as London Agent, and other lenders. The 2008 Credit Facility consists of an unsecured term loan facility of $150 million and an unsecured revolving credit facility of up to $165 million. A portion of the revolving loan facility is available for swingline loans of up to $20 million to be made by JP Morgan Chase Bank, N.A. and for letters of credit. We may request that the lenders increase the 2008 Credit Facility by an additional amount of up to $50 million, and such increase may, but is not committed to, be provided. Please see Note 10 to our Condensed Consolidated Financial Statements included in this quarterly report on Form 10-Q for more information on the 2008 Credit Facility.

As of March 31, 2010, we had $221.0 million in principal amount of debt outstanding under the 2008 Credit Facility, consisting of $101.0 million of principal borrowed under the revolving credit facility and $120.0 million of principal under the term loan, and remaining borrowing availability of approximately $64.0 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 an interest rate of 4.8%. Currently, our debt under the 2008 Credit Facility, including the $150 million of principal hedged with an interest swap agreement, carries an average interest rate of 3.0%.

Additional Lines of Credit

We have a line of credit with RBS Nederland, NV in the amount of Euro 12.0 million. This line of credit is not collateralized, is payable on demand, and bears interest at an annual rate ranging between 2% and 4%. The line of credit may be revoked or canceled by RBS Nederland, NV at any time at its discretion. At March 31, 2010, we had Euro 12.0 million available under this line of credit.

We also have a line of credit with HSBC UK in the amount of 2.0 million pounds sterling. This line of credit was established by ClinPhone and is guaranteed by PAREXEL International Holding BV. The line of credit is not secured and bears interest at an annual rate ranging between 2% and 4%. At March 31, 2010, we had 2.0 million pounds sterling available under this line 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 entered into this line of credit primarily to facilitate business transactions with JP Morgan UK. At March 31, 2010, we had $4.5 million available under this line of credit.

We have a cash pooling arrangement with RBS Nederland, NV Bank. 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 overall balance, the bank then (1) recalculates the overall interest to be charged or earned, (2) compares this amount with the sum of previously charged/earned interest amounts per account and (3) additionally pays/charges the difference. The gross overdraft balance related to this pooling arrangement was $140.3 million at March 31, 2010 and $117.9 million at June 30, 2009. 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 ranging between 0% and 3%. The balance on the promissory notes issued in connection with the financing agreements was $3.1 million and $5.7 million at March 31, 2010 and June 30, 2009, respectively.

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FINANCING NEEDS

Our primary cash needs are for operating expenses, such as salaries and fringe benefits, hiring and recruiting, business development and facilities, and for 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. Our only committed external source of funds is under our 2008 Credit Facility 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 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; however, we are currently focused on integrating our recent acquisitions. Depending on their size, any such 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. 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 had capital expenditures of approximately $48.5 million during the nine months ended March 31, 2010, primarily for computer software and hardware and leasehold improvements. We expect capital expenditures to total approximately $70 million in Fiscal Year 2010 which will be funded by cash from operations or from draws under the 2008 Credit Facility. These capital expenditures will be primarily for computer software and hardware and leasehold improvements, as well as for our Leveraging Expertise and Process initiative (“LEAP”). LEAP is a re-engineering of the Phases II-III/PACE Clinical Research Services operating model to meet evolving market needs. The goal of the redesign is to streamline and harmonize processes across operations and geographies, while improving productivity and quality through the use of our integrated clinical trial technologies.

COMMITMENTS, CONTINGENCIES AND GUARANTEES

As of March 31, 2010, we had approximately $38.8 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 Chase Bank, N.A.), and it is guaranteed by certain of our U.S. subsidiaries.

We have letter-of-credit agreements with banks totaling approximately $5.9 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.

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.

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RESTRUCTURING PLAN

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 nine months ended March 31, 2010, we recorded $13.0 million in restructuring charges related to the 2010 Restructuring Plan, including approximately $7.2 million in employee separation benefits associated with the elimination of 180 managerial and staff positions and $5.8 million in costs related to the abandonment of certain property leases. In addition, we recorded $0.4 million of accelerated depreciation associated with abandoned lease facilities. We expect to incur approximately $5.0 million in additional restructuring charges primarily in employee separation benefits under the 2010 Restructuring Plan during the fourth quarter of Fiscal Year 2010.

INFLATION

We believe the effects of inflation generally do not have a material adverse impact on our operations or financial condition.

RECENTLY ISSUED ACCOUNTING STANDARDS

For a discussion of new accounting pronouncements, see Note 8 to our Condensed Consolidated Financial Statements included in this quarterly report on Form 10-Q.

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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 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 66.3% of our consolidated service revenue for the nine months ended March 31, 2010 from operations outside of the U.S., of which 24.8% was denominated in Euros and 15.0% was denominated in pounds sterling. We derived approximately 63.0% of our consolidated service revenue for the nine months ended March 31, 2009 from operations outside of the U.S., of which 24.5% was denominated in Euros and 14.6% was 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 12 to our Condensed 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 March 31, 2010, the programs with derivatives designated as hedging instruments under ASC 815 (formerly SFAS 133) were deemed effective and the notional values of the derivatives were approximately $293.2 million. Under certain circumstances, such as the occurrence of significant differences between actual cash receipts and forecasted cash receipts, the program 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 March 31, 2010, the estimated amount that could be recognized in other income is a loss of approximately $4.0 million.

As of March 31, 2010, the notional value of derivatives that were not designated as hedging instruments under ASC 815 (formerly SFAS 133) was approximately $149.9 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 $14.9 million.

During the nine months ended March 31, 2010 and 2009, we recorded foreign exchange losses of $2.4 million and gains of $12.3million, respectively. We acknowledge our 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 $32.1 million at March 31, 2010 and $32.1 million at June 30, 2009. Long-term debt was $192.6 million and $247.1 million for the corresponding periods.

In connection with the borrowings under our 2008 Credit Facility, we entered into interest rate exchange agreements to swap, at specified intervals, the difference between fixed and variable interest amounts calculated by reference to an agreed-upon notional principal amount. The mark-to-market values of both the hedge instrument and underlying debt obligations are recorded as equal and offsetting amounts in other comprehensive income. We had interest rate exchange agreements with a notional amount of $150 million at both March 31, 2010 and June 30, 2009.

MARKETABLE SECURITIES

During the third quarter of Fiscal Year 2010, we purchased marketable securities in the form of foreign government treasury certificates that are actively traded. We expect to hold these securities to maturity and have elected to account for them under the fair value method. As of March 31, 2010, the value of these marketable securities was $13.5 million. Since the counterparty is a stable sovereign and due to the relatively short terms of maturity (less than one year), we do not believe that these investments are at high risk of default. Nevertheless, these investments are still at risk for adverse changes in market rates and prices.

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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 March 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 March 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

As described in our Management’s Report on Internal Control over Financial Reporting for Fiscal Year 2009 as presented in the 2009 10-K, our internal control over financial reporting was not effective as of June 30, 2009 as our management identified a material weakness due to insufficient controls associated with accounting for the ClinPhone business combination, specifically the adoption 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 fair value of deferred revenue assumed in the business combination.

During the fiscal quarter ended September 30, 2009, we adopted a plan to remediate the material weakness that included:

• Review and redesign of internal controls related to business combinations, with emphasis on conforming an acquired entity’s accounting policies with U.S. GAAP;

• Early evaluation by our Internal Audit group of the internal control environment of the acquired entity, together with periodic reports to management on internal control challenges and progress;

• Strengthening or supplementing technical resources to provide for the completion of purchase accounting for the acquired entity as quickly as possible after transaction closing to identify and clear technical issues on a timely basis

• Accelerating the integration of the acquired entity on to PAREXEL standard financial systems and shared services; and

• Enhanced oversight by senior financial management on the harmonization of accounting and financial policies of the acquired company with PAREXEL policies and processes.

We anticipate that the actions described above and the resulting improvements in controls are reasonably likely to sufficiently strengthen our internal control over financial reporting and address the related material weakness identified as of June 30, 2009. However, the institutionalization of the internal control processes requires repeatable process execution, and because certain of these additional controls necessarily involve business combination transactions, the successful execution of these controls is reliant on business combination transactions occurring and allowing for the assessment of the operating effectiveness of these remediations before management is able to definitively conclude that the material weakness has been fully remediated.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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.

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 nine revised or new risk factors (“The current economic environment may negatively impact our financial performance as a result of client defaults and other 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;” “We may have substantial exposure to payment of personal injury claims and may not have adequate insurance to cover such claims;” “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 2009 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 contract cancellations, which have adversely affected our operating results, including cancellations of a late-phase contract during the first quarter of Fiscal Year 2008 and a late-phase contract during the second quarter of Fiscal Year 2007.

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

• failure of products being tested to satisfy safety requirements;

• failure of products being tested to satisfy efficacy criteria;

• products having unexpected or undesired clinical results;

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

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

• merger or potential merger related activities involving the client;

• insufficient patient enrollment in a study;

• insufficient investigator recruitment;

• clinical drug manufacturing problems resulting in shortages of the product;

• product withdrawal following market launch; and

• shut down of manufacturing facilities.

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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 the volatile conditions in the financial markets, the economy in general and disruptions to the demand for healthcare 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. As a result, 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 the nine months ended March 31, 2010, we recorded $13.0 million in restructuring charges related to this plan, including approximately $5.6 million in costs related to the abandonment of certain property leases and $7.2 million in employee separation benefits associated with the elimination of 180 managerial and staff positions. In addition, we recorded $0.4 million of accelerated depreciation associated with the abandoned lease facilities. We expect to incur approximately $5.0 million in additional restructuring charges primarily in employee separation benefits under the 2010 Restructuring Plan during the fourth quarter of Fiscal Year 2010. If we incur restructuring charges in addition to those charges that we currently expect to incur, 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, delays encountered in finalizing the scope of, and implementing, the restructurings (including extensive consultations concerning potential workforce reductions (particularly in locations outside of the U.S.)), 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. These risks are further complicated by our extensive international operations, which subject us to different legal and regulatory requirements that govern the extent, and the speed, of our ability to reduce our operating capacity and workforce.

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

Approximately 90% of our contracts are fixed rate. If we fail to accurately price our contracts, or if we experience significant cost overruns, 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.

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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 66.3% and 63.0% of total consolidated service revenue for the nine months ended March 31, 2010 and 2009, respectively. More specifically, our service revenue from operations in Europe, Middle East and Africa represented 49.5% and 49.6% of total consolidated service revenue for the corresponding periods. Our service revenue from operations in the Asia/Pacific region represented 11.6% and 8.4% of total consolidated service revenue for the respective periods. Accordingly, our business is subject to risks associated with doing business internationally, including:

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

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

• difficulty in staffing and managing widespread operations;

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

• changes in foreign currency exchange rates;

• 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

• 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.

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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 $25.8 million for the fiscal quarter ended March 31, 2010, $18.7 million for the fiscal quarter ended December 31, 2009, $18.5 million for the fiscal quarter ended September 30, 2009, and $19.5 million for the fiscal quarter ended June 30, 2009. Factors that cause these variations include:

• the level of new business authorizations in a particular quarter or year;

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

• exchange rate fluctuations between quarters or years;

• restructuring charges;

• seasonality;

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

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

• timing, costs and the related financial impact of acquisitions;

• the timing and amount of costs associated with integrating acquisitions;

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

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

• 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, 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 three months ended March 31, 2010 was positively impacted by approximately $14.9 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:

• 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 nine months ended March 31, 2010 and 2009, approximately 24.8% and 24.5% of consolidated service revenue was denominated in Euros, respectively. Revenue, denominated in pounds sterling, was 15.0% and 14.6%, 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:

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

• actual and projected full year pretax income;

• changes in tax laws in various taxing jurisdictions;

• audits by taxing authorities; and

• 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.

Additionally, recently proposed changes to the U.S. international tax laws would limit U.S. deductions for expenses related to offshore earnings and modify the U.S. foreign tax credit and “check-the-box” rules. It is unclear whether these proposed tax reforms will be enacted or, if enacted, what the scope of the reforms will be. Any potential changes from this proposal or from the other factors described above could cause fluctuations in our effective income tax rate that could cause fluctuations in our earnings and earnings per share, which can 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 March 31, 2010, our total assets included $342.3 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.

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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:

• continue to improve operating, administrative, and information systems;

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

• track the progress of ongoing client projects; and

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

If 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:

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

• integrate acquired personnel;

• retain and motivate key employees;

• retain customers;

• identify and manage risks facing the acquired company; and

• minimize the diversion of management’s attention from other business concerns.

Acquisitions of foreign companies may also involve additional risks, including assimilating differences in foreign business practices and overcoming language and cultural barriers.

In the event that the operations of an acquired business do not meet 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 2009, 2008, and 2007, our five largest clients accounted for approximately 28%, 31%, and 28% of our consolidated service revenue, respectively. We expect

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that a small number of clients will continue to represent a significant part of our consolidated revenue. 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., 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.

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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 health care reform and the expansion of managed-care organizations.

Numerous governments, including the U.S. government, have undertaken efforts to control growing health care costs through legislation, regulation and voluntary agreements with medical care providers and drug companies. In March 2010, the United States Congress enacted health care 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 health care reform in order to control growing health care 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 health care reform proposals, the expansion of managed-care organizations in the health care 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:

• 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;

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

• 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:

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

• 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.

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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 liability insurance 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.

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 are attempting to cure this material weakness, but we have not yet completed remediation and there can be no assurance that such 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. If we continue to 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.

Risks Associated with Leverage

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

As of March 31, 2010, we had approximately $221.0 million principal amount of debt outstanding and remaining borrowing availability of approximately $64.0 million under our revolving line of credit. We may incur additional debt in the future. Our leverage could have significant adverse consequences, including:

• 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;

• increasing our vulnerability to general adverse economic and industry conditions;

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

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

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Under the terms of the credit facility we entered into in June 2008, which we refer to as 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. 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 have recently experienced an unprecedented 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.

Moreover, 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 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 agreement in connection with our 2008 Credit Facility includes 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:

• incur additional debt;

• make certain investments;

• enter into certain types of transactions with affiliates;

• make specified restricted payments; and

• 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:

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

• 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;

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

• 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 May 4, 2010, the closing sales price of our common stock on the Nasdaq Global Select Market was $23.90 per share. During the period from May 4, 2008 to May 4, 2010, our common stock traded at prices ranging from a high of $36.16 per share to a low of $6.11 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:

• operating results;

• earnings estimates by analysts;

• market conditions in our industry;

• prospects of health care reform;

• changes in government regulations;

• general economic conditions, and

• 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.

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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: May 7, 2010	By:	/S/    JOSEF H.VON RICKENBACH
		Josef H. von Rickenbach
		Chairman of the Board and Chief Executive Officer
Date: May 7, 2010	By:	/S/    JAMES F. WINSCHEL, JR.
		James F. Winschel, Jr.
		Senior Vice President and Chief Financial Officer

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EXHIBIT INDEX

Exhibit Number	Description
10.1*	Perceptive Informatics President Long-Term Discretionary Incentive Plan
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

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

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