UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 2000
Commission File Number: 0-27058
PAREXEL INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its Charter)
Massachusetts 04-2776269
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
195 WEST STREET
Waltham, Massachusetts 02451
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (781) 487-9900
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of February 9, 2001, there
were 24,603,026 shares of PAREXEL International Corporation common stock
outstanding, excluding 861,000 shares in treasury.
PAREXEL INTERNATIONAL CORPORATION
INDEX
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Page
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Part I. FINANCIAL INFORMATION
Item 1 Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets - December 31, 2000 3
and June 30, 2000
Condensed Consolidated Statements of Operations - Three 4
months ended December 31, 2000 and 1999; Six months ended
December 31, 2000 and 1999
Condensed Consolidated Statements of Cash Flows - Six months 5
ended December 31, 2000 and 1999
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition 10
and Results of Operations
Item 3 Quantitative and Qualitative Disclosure About Market Risk 15
Risk Factors 16
Part II. OTHER INFORMATION
Item 1 Legal Proceedings 21
Item 4 Submission of Matters to a Vote of Security Holders 22
Item 6 Exhibits and Reports on Form 8-K 22
Signatures 23
2
PART I. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
PAREXEL INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
DECEMBER 31, JUNE 30,
2000 2000
------------ --------
(UNAUDITED) (RESTATED)
ASSETS
Current assets:
Cash and cash equivalents $ 52,967 $ 53,508
Marketable securities 29,004 37,022
Accounts receivable, net 193,349 162,105
Prepaid expenses 9,172 10,186
Other current assets 19,411 17,244
--------- ---------
Total current assets 303,903 280,065
Property and equipment, net 41,222 43,829
Other assets 30,966 28,046
--------- ---------
$ 376,091 $ 351,940
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term debt $ 266 $ 269
Accounts payable 27,003 19,587
Advance billings 98,380 86,223
Other current liabilities 53,401 50,306
--------- ---------
Total current liabilities 179,050 156,385
Other liabilities 12,337 9,422
--------- ---------
Total liabilities 191,387 165,807
--------- ---------
Stockholders' equity:
Preferred stock - $0.01 par value; shares
authorized: 5,000,000; none issued and outstanding -- --
Common stock - $0.01 par value; shares authorized:
50,000,000; shares issued: 25,463,214 and 25,399,570 at
December 31, 2000 and June 30, 2000, respectively; shares
outstanding: 24,602,214 and 24,719,158 at December 31, 2000
and June 30, 2000, respectively 255 254
Additional paid-in capital 162,659 162,057
Retained earnings 40,901 40,173
Treasury stock, at cost (8,165) (6,424)
Accumulated other comprehensive income (10,946) (9,927)
--------- ---------
Total stockholders' equity 184,704 186,133
--------- ---------
$ 376,091 $ 351,940
========= =========
See notes to condensed consolidated financial statements.
3
PAREXEL INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share data)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
-------------------------- ------------------------
2000 1999 2000 1999
-------- -------- --------- ---------
(RESTATED) (RESTATED) (RESTATED)
Net revenue $94,324 $97,957 $182,539 $189,725
-------- -------- --------- ---------
Costs and expenses:
Direct costs 67,832 66,790 132,123 128,923
Selling, general and administrative 21,139 19,692 41,309 38,877
Depreciation 4,938 4,919 10,466 9,794
Amortization 221 237 328 457
Restructuring and other charges - - (768) (312)
-------- -------- --------- ---------
94,130 91,638 183,458 177,739
-------- -------- --------- ---------
Income (loss) from operations 194 6,319 (919) 11,986
Other income, net 1,578 1,933 2,880 2,248
-------- -------- --------- ---------
Income before provision for income taxes 1,772 8,252 1,961 14,234
Provision for income taxes 815 3,187 1,105 5,299
-------- -------- --------- ---------
Net income $ 957 $ 5,065 $ 856 $ 8,935
======== ======== ========= =========
Earnings per share:
Basic $0.04 $0.20 $0.03 $0.36
Diluted $0.04 $0.20 $0.03 $0.35
Shares used in computing earnings per
share:
Basic 24,549 25,070 24,764 25,112
Diluted 24,650 25,216 24,893 25,261
See notes to condensed consolidated financial statements.
4
PAREXEL INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
For the six months ended
December 31,
------------------------
2000 1999
--------- ----------
(RESTATED) (RESTATED)
Cash flows from operating activities:
Net income $ 856 $ 8,935
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 10,796 10,251
Changes in operating assets/liabilities: (7,464) 17,767
- ------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 4,188 36,953
- ------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (43,110) (54,505)
Proceeds from sale of marketable securities 51,102 44,752
Acquisition of business (2,994) (3,000)
Proceeds from the sale of fixed assets 117 -
Purchase of property and equipment (7,292) (7,891)
Other investing activities - (53)
- ------------------------------------------------------------------------------------------------------
Net cash used in investing activities (2,177) (20,697)
- ------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 621 1,494
Repurchase of common stock (1,759) (3,659)
Repayments on credit arrangements (51) (863)
Proceeds from issuance of subsidiary's common stock 364 -
- ------------------------------------------------------------------------------------------------------
Net cash used in financing activities (825) (3,028)
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Elimination of net cash activities of subsidiary for change in fiscal year (126)
- ------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents (1,601) (614)
- ------------------------------------------------------------------------------------------------------
Net change in cash for the period (541) 12,614
Cash and cash equivalents at beginning of period 53,508 62,005
- ------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 52,967 $ 74,619
========== ==========
See notes to condensed consolidated financial statements.
5
PAREXEL INTERNATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - RESTATEMENT OF FINANCIAL STATEMENTS
Subsequent to the issuance of the June 30, 2000 financial statements, the
PAREXEL International Corporation (the "Company") determined that at June 30,
2000, its intercompany accounts did not fully eliminate in consolidation. The
unreconciled difference, amounting to $7.6 million, was originally classified as
a reduction to advance billings on the consolidated balance sheet. Based on
subsequent analysis, the Company determined the appropriate accounts to which
the difference previously included in advance billings should have been
recorded. Accordingly, the financial statements for the year ended June 30, 2000
have been restated to reflect these changes. The restatement resulted in a
decrease of $4.1 million to the June 30, 2000 working capital principally
related to currency translation adjustments which increased the previously
reported balance for advance billings and correspondingly decreased
stockholders' equity. In addition, total assets at June 30, 2000 increased by
$1.0 million due primarily to adjustments to unbilled and trade receivables for
the same reason.
As part of the adjustments described above, the Company also identified certain
charges that should have been made to its consolidated statement of income for
the fiscal year ended June 30, 2000 of $1.6 million on a pre-tax basis,
resulting in a $1.1 million reduction to net income for the year.
The restated numbers are properly reflected in the financial statements for the
quarter and six months ended December 31, 2000.
NOTE 2 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of the
Company have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions of Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and notes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (primarily consisting of normal recurring adjustments) considered
necessary for a fair presentation have been included. Operating results for the
three and six months ended December 31, 2000, are not necessarily indicative of
the results that may be expected for other quarters or the entire fiscal year.
Certain prior year balances have been reclassified in order to conform to
current year presentation. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K/A for the year ended June 30, 2000.
6
NOTE 3 -- EARNINGS PER SHARE
The following table outlines the basic and diluted earnings per common share
computations (in thousands, except per share data):
FOR THE THREE MONTHS FOR THE SIX MONTHS ENDED
ENDED DECEMBER 31, DECEMBER 31,
2000 1999 2000 1999
-------- -------- -------- --------
(RESTATED) (RESTATED) (RESTATED)
Net income attributable to common shares $ 957 $ 5,065 $ 856 $ 8,935
======== ======== ======== ========
BASIC EARNINGS PER COMMON SHARE COMPUTATION:
Weighted average common shares outstanding 24,549 25,070 24,764 25,112
======== ======== ======== ========
Basic earnings per common share $ 0.04 $ 0.20 $ 0.03 $ 0.36
======== ======== ======== ========
DILUTED EARNINGS PER COMMON SHARE COMPUTATION:
Weighted average common shares outstanding:
Shares attributable to common stock outstanding 24,549 25,070 24,764 25,112
Shares attributable to common stock options 101 146 129 149
-------- -------- -------- --------
24,650 25,216 24,893 25,261
======== ======== ======== ========
Diluted earnings per common share $ 0.04 $ 0.20 $ 0.03 $ 0.35
======== ======== ======== ========
7
NOTE 4 - COMPREHENSIVE INCOME
Comprehensive income has been calculated by the Company in accordance with FASB
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." Comprehensive income (loss), which is comprised of net
income and foreign currency translation adjustments, totaled $3.2 million and
$1.7 million for the three months ended December 31, 2000 and 1999,
respectively, and $(163) thousand and $6.0 million for the six months ended
December 31, 2000 and 1999, respectively.
NOTE 5 - SEGMENT INFORMATION
The Company is managed through four reportable segments, namely, Clinical
Research Services, PAREXEL Consulting Group, Medical Marketing Services, and
Perceptive Informatics, Inc. Clinical Research Services constitutes the
Company's core business and includes clinical trials management, biostatistics
and data management, as well as related medical advisory, and investigator site
services. PAREXEL Consulting Group provides technical expertise in such
disciplines as clinical pharmacology, regulatory affairs, industry training,
publishing, and management consulting. These consultants identify options and
propose solutions to address clients' product development, registration, and
commercialization issues. Medical Marketing Services provides a full spectrum
of market development, product development, and targeted communications services
in support of product launch. Perceptive Informatics, Inc. provides a variety of
web-based portal solutions designed to accelerate and enhance the clinical
development and product launch processes, as well as a range of voice and data
systems. It also offers an industry-leading medical imaging service supporting
the use of advanced imaging techniques in clinical development.
The Company evaluates its segment performance and allocates resources based on
revenue and gross profit (net revenue less direct costs), while other operating
costs are evaluated on a geographical basis. Accordingly, the Company does not
include selling, general and administrative expenses; depreciation and
amortization expense; restructuring and other charges; interest income
(expense); other income (expense); and income tax expense in segment
profitability.
For the three months ended For the six months ended
December 31, December 31,
- --------------------------------------------------------------------------------------
($ in thousands) 2000 1999 2000 1999
- --------------------------------------------------------------------------------------
(Restated) (Restated) (Restated)
Net revenue:
Clinical Research Services $59,227 $69,470 $113,986 $134,563
PAREXEL Consulting Group 19,103 16,864 36,364 32,199
Medical Marketing Services 13,350 11,623 27,116 22,963
Perceptive Informatics, Inc. 2,644 - 5,073 -
-------- -------- --------- ---------
$94,324 $97,957 $182,539 $189,725
======== ======== ========= =========
Gross profit:
Clinical Research Services $19,176 $23,893 $ 36,360 $ 47,339
PAREXEL Consulting Group 3,768 4,056 6,689 7,199
Medical Marketing Services 4,411 3,218 8,912 6,264
Perceptive Informatics, Inc. (863) - (1,545) -
-------- -------- --------- ---------
$26,492 $31,167 $ 50,416 $ 60,802
======== ======== ========= =========
8
NOTE 6 - ACQUISITION
Effective September 1, 2000, the Company acquired a majority interest in
FARMOVS, a clinical pharmacology research business and bioanalytical laboratory
located in Bloemfontein, South Africa for approximately $3.0 million. In
connection with this transaction, the Company recorded approximately $2.0
million related to the excess cost over the fair value of the interest in the
net assets acquired. This goodwill is being amortized using a straight-line
method over 15 years.
NOTE 7 - RESTRUCTURING AND OTHER CHARGES
During the year ended June 30, 2000, the Company recorded restructuring and
other charges of $13.1 million. These charges included $7.2 million for employee
severance costs related to the Company's decision to eliminate approximately 475
managerial and staff positions in order to reduce personnel costs as a result of
a material dollar volume of contract cancellations. The charges also included
$4.3 million for lease termination costs related to continued efforts to
consolidate certain facilities and reduce excess space in certain locations, in
addition to a benefit derived from a change in the Company's original estimate
of when certain facilities would be sublet. The remaining charges, totaling $1.6
million, primarily related to the write-off of certain intangible assets and
other investments, which are not expected to produce future value. The Company
reported in the 10-Q and 10-Q/A for the quarter ended September 30, 2000 that it
was planing to further consolidate facilities to gain further cost savings and,
in connection therewith, take an additional facility related charge of between
$5 and $7 million in fiscal 2001. As of the date of this filing, the Company has
no current plans to take a charge, but continues to explore opportunities that
may result in further cost savings giving rise to such a charge.
Current quarter activity against the restructuring and other charges accrual
(which is included in "Other current liabilities" in the Condensed Consolidated
Balance Sheet) was as follows (in thousands):
Balance as of 2nd Quarter Balance as of
September 30, Charges and December 31,
2000 Reversals 2000
------------- ------------- --------------
Employee severance costs $1,619 $ (913) $ 706
Facilities related charges 4,831 (847) 3,984
Other charges 552 (396) 156
------- -------- -------
$7,002 $(2,156) $4,846
======= ======== =======
NOTE 8 - STOCK REPURCHASE PROGRAM
In September 1999, the Board of Directors approved a stock repurchase program
authorizing the purchase of up to $20 million of the Company's common stock.
Repurchases made in the open market are subject to market conditions. During the
three months ended December 31, 2000, the Company acquired 210,000 shares at a
total cost of $1.8 million.
9
NOTE 9 - RECENTLY ISSUED ACCOUNTING STANDARD
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin 101, "Revenue Recognition" ("SAB 101"). SAB 101 summarizes certain of
the SEC staff's views in applying generally accepted accounting principles to
selected revenue recognition issues in financial statements. SAB 101, which was
delayed by the issuance of SAB 101A on March 27, 2000 and SAB 101B on June 26,
2000, must be implemented by the Company by the fourth quarter of fiscal 2001.
The Company does not expect that SAB 101 will have any material impact on its
consolidated financial position or results of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The financial information discussed below is derived from the Condensed
Consolidated Financial Statements included herein. The financial information set
forth and discussed below is unaudited but, in the opinion of management,
reflects all adjustments (primarily consisting of normal recurring adjustments)
considered necessary for a fair presentation of such information. The Company's
results of operations for a particular quarter may not be indicative of results
expected during subsequent fiscal quarters or for the entire year.
The statements included in this quarterly report on Form 10-Q, including
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", may contain "forward-looking statements", within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, including statements regarding the adequacy of the
Company's existing capital resources and future cash flows from operations, and
statements regarding expected financial results, future growth and customer
demand. For this purpose, any statements that are not statements of historical
fact may be deemed forward-looking statements. Without limiting the foregoing,
the words "believes," "anticipates," "plans," "expects," "intends", "appears",
"will" and similar expressions are intended to identify forward-looking
statements. The Company's actual operating performance, actual expense savings
and other operating improvements resulting from recent restructurings, and
actual future results may differ significantly from the results discussed in the
forward-looking statements. Important factors that might cause such a
difference include, but are not limited to, risks associated with: the
cancellation, revision, or delay of contracts, including those contracts in
backlog; the Company's dependence on certain industries and clients; the
Company's ability to manage growth and its ability to attract and retain
employees; the Company's ability to complete additional acquisitions and to
integrate newly acquired businesses or enter into new lines of business;
government regulation of certain industries and clients; competition and
consolidation within the pharmaceutical industry; the potential for significant
liability to clients and third parties; the potential adverse impact of health
care reform; and the effects of exchange rate fluctuations. These factors and
others are discussed under "RISK FACTORS" below.
OVERVIEW
The Company is a leading clinical research, medical marketing and consulting
services organization providing a broad spectrum of services from first-in-human
clinical studies through product launch to the pharmaceutical, biotechnology and
medical device industries around the world. The Company's primary objective is
to help its clients rapidly obtain the necessary regulatory approvals for their
products and market those products successfully. The Company provides the
following services to its clients: clinical trials management; data management;
biostatistical analysis; medical marketing; clinical pharmacology;
10
regulatory and medical consulting; performance improvement; industry training
and publishing, web-based portal solutions and voice and data systems; and other
drug development consulting services.
The Company is managed through four reportable segments, namely, Clinical
Research Services ("CRS"), PAREXEL Consulting Group ("PCG"), Medical Marketing
Services ("MMS"), and Perceptive Informatics, Inc. ("Perceptive"). CRS
constitutes the Company's core business and includes clinical trials management,
biostatistics and data management, as well as related medical advisory and
investigator site services. PCG provides technical expertise in such disciplines
as clinical pharmacology, regulatory affairs, industry training, publishing, and
management consulting. These consultants identify options and propose solutions
to address clients' product development, registration, and commercialization
issues. MMS provides a full spectrum of market development, product development,
and targeted communications services in support of product launch. Perceptive
provides a variety of web-based portal solutions designed to accelerate and
enhance the clinical development and product launch processes, as well as a
range of voice and data systems. It also offers a medical imaging service
supporting the use of advanced imaging techniques in clinical development.
The Company's clinical research and development contracts are generally fixed
price, with some variable components, and range in duration from a few months to
several years. The cash flows from contracts typically consist of a down
payment required to be paid at the time the contract is entered into and the
balance in installments over the contract's duration, usually on a milestone
achievement basis. Revenue from the contracts is generally recognized on a
percentage of completion basis as work is performed. As a result, cash receipts
do not necessarily correspond to costs incurred and revenue recognized on
contracts.
Generally, the Company's clients can terminate their contracts with the Company
upon thirty to sixty days' notice or can delay execution of services. Clients
may terminate or delay contracts for a variety of reasons, including, among
others: merger or potential merger related activities involving the client, the
failure of products being tested to satisfy safety requirements, unexpected or
undesired clinical results of the product, client cost reductions as a result of
budgetary limits or changing priorities, the client's decision to forego a
particular study, insufficient patient enrollment or investigator recruitment,
or production problems resulting in shortages of the product.
During the six months ended December 31, 2000 the Company experienced contract
cancellations of $36 million, compared to contract cancellations of $55 million
for the same six month period in the prior fiscal year.
As is customary in the industry, the Company routinely subcontracts with
independent physician investigators in connection with clinical trials and other
third party service providers for laboratory analysis and other specialized
services. These fees are not reflected in net revenues or expenses since such
fees are granted by customers on a "pass through basis," without risk or reward
to the Company.
Direct costs primarily consist of compensation and related fringe benefits for
project-related employees, other project-related costs not reimbursed and
allocated facilities and information systems costs. Selling, general and
administrative expenses primarily consist of compensation and related fringe
benefits for selling and administrative employees, professional services and
advertising costs, as well as allocated costs related to facilities and
information systems.
The Company's stock is quoted on the Nasdaq Stock Market under the symbol
"PRXL."
11
RESULTS OF OPERATIONS
Three Months Ended December 31, 2000 Compared to Three Months Ended December 31,
1999:
Net revenue decreased by $3.6 million, or 3.7%, to $94.3 million for the three
months ended December 31, 2000 from $97.9 million for the same period one year
ago. On a segment basis, CRS decreased by $10.2 million, or 14.7%, to $59.2
million due primarily to the impact of cancellations and the decision to break
out Perceptive Informatics, Inc. as a separate reportable segment during fiscal
year 2001. Perceptive was included in CRS revenue in the same period last
fiscal year. PCG revenue increased by $2.2 million, or 13.3%, to $19.1 million
due primarily to incremental revenue resulting from the acquisition of a
majority interest in FARMOVS during the first quarter. FARMOVS is a clinical
pharmacology research business and bioanalytical laboratory located in South
Africa. MMS revenue increased by $1.7 million, or 14.9%, to $13.4 million due
primarily to ongoing growth in international strategic marketing, slightly
offset by a decline in its strategic reimbursement and technology business. The
Company began reporting Perceptive as a fourth business segment in the first
quarter of fiscal 2001. Net revenue for Perceptive was $2.6 million for the
three months ended December, 2000, but was included as part of CRS in the prior
year quarter, and therefore, no comparable net revenue amounts are available for
Perceptive for the three months period ended in 1999.
Direct costs increased by $1.0 million, or 1.6%, to $67.8 million for the three
months ended December 31, 2000 from $66.8 million for the same period in 1999.
On a segment basis, CRS direct costs decreased by $5.5 million, or 12.1%, to
$40.1 million due primarily to the impact of cancellations and Perceptive's
direct costs being reported as part of CRS in the same period last fiscal year.
PCG direct costs increased by $2.5 million, or 19.7%, to $15.3 million due
primarily to incremental costs associated with the FARMOVS acquisition. MMS
direct costs increased by $500 thousand, or 6.4%, from $8.4 million due
primarily to labor and related costs associated with increased revenue.
Perceptive direct costs for the three months ended December 31, 2000 were $3.5
million. Direct costs as a percentage of net revenue increased to 71.9% for the
three months ended December 31, 2000 compared to 68.2% for the comparable prior
year period.
Selling, general and administrative expenses increased by $1.4 million, or 7.3%,
to $21.1 million for the three months ended December 31, 2000 from $19.7 million
for the same period in 1999. The increase was due principally to increased
employee recruiting, retention, training and facilities related expenses.
Selling, general and administrative expenses as a percentage of net revenue
increased to 22.4% for the three months ended December 31, 2000 from 20.1% for
the same period one year ago.
Depreciation and amortization expense was unchanged at $5.2 million for the
three months ended December 31, 2000 and for the same period in 1999.
Depreciation and amortization expense as a percentage of net revenues increased
to 5.5% for the three months ended December 31, 2000 from 5.3% for the same
period one year ago.
Income from operations decreased $6.1 million to $0.2 million for the three
months ended December 31, 2000 from $6.3 million for the same period in 1999.
Income from operations decreased as a percentage of net revenue to 0.2% for the
three months ended December 31, 2000 from 6.4% for the same period in 1999.
Other income, net, decreased by $300 thousand, or 18.4%, to $1.6 million for the
three months ended December 31,2000 from $1.9 million for the same period in
1999. The decrease was driven primarily by lower interest income.
12
The Company had an effective income tax rate of 46.0% for the three months ended
December 31, 2000 compared to 38.6% for the same period in 1999. The increase
was due to unfavorable changes in the mix of taxable income from the different
jurisdictions in which the Company operates.
Six Months Ended December 31, 2000 Compared to Six Months Ended December 31,
1999:
Net revenue decreased by $7.2 million, or 3.8%, to $182.5 million for the six
months ended December 31, 2000 from $189.7 million for the same six month period
in 1999. CRS revenue decreased by $20.6 million, or 15.3%, to $114.0 million due
primarily to the inclusion of Perceptive revenue in the same period in 1999 and
the impact of cancellations. PCG revenue increased by $4.2 million, or 12.9%, to
$36.4 million due primarily to incremental revenue resulting from the FARMOVS
acquisition. MMS revenue increased by $4.2 million, or 18.1%, to $27.1 million
due primarily to ongoing growth in international strategic marketing, slightly
offset by a decline in its strategic reimbursement and technology business. The
Company began reporting Perceptive as a fourth business segment in the first
quarter of fiscal 2001. Net revenue for Perceptive was $5.1 million for the six
months ended December, 2000, but was included as part of CRS in the same period
in 1999 and, therefore, no comparable net revenue amounts are available for
Perceptive for the same six month period in 1999.
Direct costs increased by $3.2 million, or 2.5%, to $132.1 million for the six
months ended December 31, 2000 from $128.9 million for the same six month period
one year ago. On a segment basis, CRS direct costs decreased $9.6 million, or
11.0%, from $87.2 million due primarily to the impact of cancellations and
Perceptive's direct costs being reported as part of CRS in the same period last
fiscal year. PCG direct costs increased $4.7 million, or 18.7%, to $29.7
million. MMS direct costs increased $1.5 million, or 9.0%, from $16.7 million.
The increase in direct costs for PCG and MMS were due primarily to increased
expenses associated with employee hiring and retention. Perceptive direct costs
for the six months ended December 31, 2000 were $6.6 million. Direct costs as a
percentage of net revenue increased to 72.4% for the six months ended December
31, 2000 as compared to 68.0% for the comparable prior year period.
Selling, general and administrative expenses increased by $2.4 million, or 6.3%,
to $41.3 million for the six months ended December 31, 2000 from $38.9 million
for the same six month period in 1999. The increase was due primarily to
staffing, training, retention, and facility related expenses. Selling, general
and administrative expenses as a percentage of net revenue increased to 22.6%
for the six months ended December 31, 2000 from 20.5% for the same six month
period last fiscal year.
Depreciation and amortization expense increased by $0.5 million, or 5.3%, to
$10.8 million for the six months ended December 31, 2000 from $10.3 million for
the same six month period in 1999. Increase was due primarily to the Company's
downward adjustment of the estimated useful life of assets related to certain
facilities which the Company abandoned. Depreciation and amortization expense
as a percentage of net revenue increased to 5.9% for the six months ended
December 31, 2000 from 5.4% for the same period in 1999.
Income (loss) from operations decreased by $12.9 million to ($919) thousand for
the six months ended December 31, 2000 from $12.0 million for the same six-month
period in 1999. Operating income as a percentage of net revenues was a negative
0.5% for the six months ended December 31, 2000 compared to 6.3% in the
comparable period one year ago.
13
Other income, net increased $0.6 million, or 28.1%, to $2.8 million for the six
months ended December 31, 2000 from $2.2 million in the same six month period in
1999. The increase was due primarily to higher foreign exchange gains.
The Company had an effective tax rate of 56.3% for the six months ended December
31, 2000 compared to 37.2% for the same six month period in 1999. The increase
was due to unfavorable changes in the mix of taxable income from the different
jurisdictions in which the Company operates.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations and growth,
including acquisition costs, with cash flow from operations and proceeds from
the sale of equity securities. Investing activities primarily reflect capital
expenditures for information systems enhancements and leasehold improvements.
The Company's clinical research and development contracts are generally fixed
price, with some variable components, and range in duration from a few months to
several years. Cash flow from contracts typically consists of a down payment
required to be paid at the time the contract is signed with balance due in
installments over the contract's duration, usually on a milestone achievement
basis. Revenue from contracts is generally recognized on a percentage of
completion basis as work is performed. As a result, cash receipts do not
necessarily correspond to costs incurred and revenue recognized on contracts.
The Company's operating cash flow is influenced by changes in the levels of
billed and unbilled receivables and advance billings. These account balances and
the number of days revenue outstanding in accounts receivable, net of advance
billings, can vary based upon contractual milestones and the timing and size of
cash receipts. The number of days revenue outstanding in accounts receivable,
net of advance billings, increased to 69 days at December 31, 2000 compared to
60 days at June 30, 2000. The increase was a result of timing of collections,
which were higher than expected during the first three weeks of January,
subsequent to the end of the quarter.
In September 1999 the Board of Directors authorized the repurchase of up to $20
million of the Company's common stock. As of December 31, 2000, a total of
861,000 shares at a total cost of $8.2 million had been repurchased. For the
six months period ended December 31, 2000, a total of 210,000 shares at a total
cost of $1.8 million had been repurchased.
In connection with the final quarterly closing process and completion of this
report on Form 10-Q for the period ended December 31, 2000, the Company
determined that cash and cash equivalents (including marketable securities) at
period end was $82.0 million, total assets were $376.1 million, working capital
was $124.9 million and stockholder's equity was $184.7 million. In the Company's
earnings release and related telephone conference call on January 25, 2001, the
Company preliminarily reported these amounts at $91.4 million, $385.5 million,
$123.3 million and $183.3 million, respectively. The changes reflected in the
final numbers are a result of a $9.4 million re-classification between cash and
accounts payable and a $1.4 million favorable working capital adjustment.
The Company's cash and cash equivalents were $53.0 million at December 31, 2000,
a decrease of $500 thousand from $53.5 million at June 30, 2000.
Net cash provided by operating activities for the six months ended December
31, 2000 of $4.2 million reflected depreciation and amortization of $10.8
million offset by the impact of $7.5 million change in operating assets and
liabilities.
14
Net cash used for investing activities of $2.2 million for the six months ended
December 31, 2000 consisted primarily of capital expenditures of $7.3 million
offset by proceeds from net sales of marketable securities of $8.0 million and a
$3.0 million cash payment related to a business acquisition.
Net cash used in financing activities for the six months ended December 31, 2000
of $0.8 million resulted primarily from $1.8 million used to repurchase common
stock of the company, offset by $1.0 million in proceeds from the issuance of
common stock under the Company's employee stock purchase plan and the issuance
of a subsidiary's common stock.
The Company has domestic and foreign lines of credit with banks totaling
approximately $14.7 million. At December 31, 2000 the Company had approximately
$14.3 in available credit under these arrangements.
The Company's primary cash needs are for payment of salaries and fringe
benefits, hiring and recruiting expenses, business development costs,
acquisition-related costs, capital expenditures and facility-related expenses.
The Company believes that its existing capital resources, together with cash
flows from operations and borrowing capacity under its existing lines of credit,
will be sufficient to meet its foreseeable cash needs. In the future, the
Company will continue to consider acquiring businesses to enhance its service
offerings, therapeutic base, and/or global presence. Any such acquisitions may
require additional external financing and the Company may from time to time seek
to obtain funds from public or private issuance of equity or debt securities.
There can be no assurance that such financing will be available on terms
acceptable to the Company.
RECENTLY ISSUED ACCOUNTING STANDARD
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin 101, "Revenue Recognition" ("SAB 101"). SAB 101 summarizes certain of
the SEC staff's views in applying generally accepted accounting principles to
selected revenue recognition issues in financial statements. SAB 101, which was
delayed by the issuance of SAB 101A on March 27, 2000 and SAB 101B on June 26,
2000, must be implemented by the Company by the fourth quarter of fiscal 2001.
The Company does not expect that SAB 101 will have any material impact on its
consolidated financial position or results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Market risk is the potential loss arising from adverse changes in the market
rates and prices, such as foreign currency rates, interest rates, and other
relevant market rate or price changes. In the ordinary course of business, the
Company is exposed to various market risks, including changes in foreign
currency exchange rates and interest rates, and the Company regularly evaluates
its exposure to such changes. The Company's overall risk management strategy
seeks to balance the magnitude of the exposure and the costs and availability of
appropriate financial instruments. The Company occasionally purchases
securities with seven-day put options that allow the Company to sell the
underlying securities in seven days at par value. The Company uses these
derivative financial instruments on a limited basis to shorten contractual
maturity dates, thereby managing interest rate risk.
15
RISK FACTORS
In addition to other information in this report, the following risk factors
should be considered carefully in evaluating the Company and its business,
including forward-looking statements made in the section of this report entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and other forward-looking statements that the Company may make from
time to time.
THE LOSS, MODIFICATION, OR DELAY OF LARGE CONTRACTS MAY NEGATIVELY IMPACT THE
COMPANY'S FINANCIAL PERFORMANCE
Generally, the Company's clients can terminate their contracts with the Company
upon thirty to sixty days' notice or can delay execution of services. Clients
terminate or delay their contracts for a variety of reasons, including, but not
limited to:
. merger or potential merger related activities;
. products being tested fail to satisfy safety requirements;
. products have unexpected or undesired clinical results;
. the client decides to forego a particular study, perhaps for economic
reasons;
. not enough patients enroll in the study;
. not enough investigators are recruited; or
. production problems cause shortages of the product
In addition, the Company believes that pharmaceutical companies may proceed with
fewer clinical trials if they are trying to reduce costs as a result of
budgetary limits or changing priorities. These factors may cause pharmaceutical
companies to cancel contracts with contract research organizations. The loss or
delay of a large contract or the loss or delay of multiple contracts could have
a material adverse effect on the Company's financial performance. Refer to Note
7 - Restructuring and Other Charges
THE COMPANY'S OPERATING RESULTS HAVE FLUCTUATED BETWEEN QUARTERS AND YEARS AND
MAY CONTINUE TO FLUCTUATE IN THE FUTURE
The Company's quarterly and annual operating results have varied, and will
continue to vary. 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;
. the mix of services offered in a particular quarter or year;
. the timing of the opening of new offices;
. the timing of other internal expansion costs;
. the timing and amount of costs associated with integrating
acquisitions; and
. the timing and amount of startup costs incurred in connection with the
introduction of new products, services or subsidiaries.
A high percentage of the Company's operating costs are fixed. Therefore, the
timing of the completion, delay or loss of contracts, or in the progress of
client projects, can cause the Company's operating results to vary substantially
between reporting periods.
16
THE COMPANY DEPENDS ON A SMALL NUMBER OF INDUSTRIES AND CLIENTS FOR ALL OF ITS
BUSINESS
The Company depends on research and development expenditures by pharmaceutical
and biotechnology companies to sustain a large part of its business. The
Company's operations could be materially and adversely affected if:
. its clients' businesses experience financial problems or are affected
by a general economic downturn;
. consolidation in the pharmaceutical or biotechnology industries leads
to a smaller client base for the Company; or
. its clients reduce their research and development expenditures.
Furthermore, the Company has benefited in the past from the tendency of
pharmaceutical companies to out-source large clinical research projects. If this
tendency slows or reverses, the Company's operations would be materially and
adversely affected. In the second quarter of fiscal 2001, the Company's five
largest clients accounted for 36% of its consolidated net revenue, and one
client accounted for 11% of consolidated revenue. In the second quarter of
fiscal 2000, the Company's five largest clients accounted for 46% of its
consolidated net revenue, and one client accounted for 22% of consolidated net
revenue. The Company could suffer a material adverse effect if it lost or
experienced a material reduction in the business of a significant client.
THE COMPANY'S BUSINESS HAS EXPERIENCED SUBSTANTIAL EXPANSION IN THE PAST AND THE
COMPANY MUST PROPERLY MANAGE THAT EXPANSION
The Company's business has expanded substantially in the past. Rapid expansion
could strain the Company's operational, human and financial resources. In order
to manage expansion, the Company must:
. continue to improve its operating, administrative and information
systems;
. accurately predict its future personnel and resource needs to meet
client contract commitments;
. track the progress of ongoing client projects; and
. attract and retain qualified management, sales, professional,
scientific and technical operating personnel.
The Company will face additional risks in expanding its foreign operations.
Specifically, the Company may find it difficult to:
. assimilate differences in foreign business practices, exchange rates
and regulatory requirements;
. operate amid political and economic instability;
. hire and retain qualified personnel; and
. overcome language, tariffs and other barriers.
If an acquired business does not meet the Company's performance expectations,
the Company may have to restructure the acquired business or write-off the value
of some or all of the assets of the acquired business. If the Company fails to
properly manage its expansion, the Company could experience a material adverse
effect.
17
THE COMPANY MAY NOT BE ABLE TO MAKE STRATEGIC ACQUISITIONS IN THE FUTURE
The Company's growth depends in part on its ability to make strategic
acquisitions. The Company has made a number of acquisitions and will continue to
in part review future acquisition opportunities. The Company may not be able to
acquire companies on acceptable terms and conditions. Additionally, the Company
faces several obstacles in connection with the acquisitions it consummates,
including:
. difficulties and expenses associated with assimilation of the
operations and services or products of the acquired companies;
. management's attention will necessarily be diverted from other
business concerns; and
. the loss of some or all of the key employees of the acquired company.
In the event that the operations of an acquired business do not meet the
Company's performance expectations, the Company may have to restructure the
acquired business or write-off the value of some or all of the assets of the
acquired business. The Company may also experience difficulty integrating
acquired companies into its operations.
THE COMPANY RELIES ON HIGHLY QUALIFIED MANAGEMENT AND TECHNICAL PERSONNEL WHO
MAY NOT REMAIN WITH THE COMPANY
The Company relies on a number of key executives, including Josef H. von
Rickenbach, its Chairman, President and Chief Executive Officer. The Company
maintains key man life insurance on Mr. von Rickenbach. The Company does not
have employment agreements with most of its senior officers and if any of these
key executives leave the Company, it could have a material adverse effect on the
Company. In addition, in order to compete effectively, the Company must attract
and maintain qualified sales, professional, scientific and technical operating
personnel. Competition for these skilled personnel, particularly those with a
medical degree, a Ph.D. or equivalent degrees is intense. The Company may not be
successful in attracting or retaining key personnel.
THE COMPANY MAY NOT HAVE ADEQUATE INSURANCE AND MAY HAVE SUBSTANTIAL EXPOSURE TO
PAYMENT OF PERSONAL INJURY CLAIMS
Clinical research services primarily involve the testing of experimental drugs
on consenting human volunteers pursuant to a study protocol. Such services
involve a risk of liability for personal injury or death to patients who
participate in the study or who use a drug approved by regulatory authorities
after the clinical research has concluded, due to, among other reasons, possible
unforeseen adverse side effects or improper administration of the new drug by
physicians. In certain cases, these patients are already seriously ill and are
at risk of further illness or death. The Company's financial stability could be
materially and adversely affected if the Company had to pay damages or incur
defense costs in connection with a claim that is outside the scope of an
indemnity or insurance coverage. The Company's financial stability could also be
materially and adversely affected in cases where the indemnity, although
applicable, is not performed in accordance with its terms. Additionally, the
Company could be adversely and materially affected if its liability exceeds the
amount of its insurance. The Company may not be able to continue to secure
insurance on acceptable terms.
18
THE COMPANY'S STOCK PRICE IS VOLATILE AND COULD DECLINE
The market price of the Company's common stock has fluctuated widely in the past
and may continue to do so in the future in response to quarter-to-quarter
variations in:
. operating results;
. earnings estimates by analysts;
. market conditions in the industry;
. prospects of health care reform;
. changes in government regulations; and
. general economic conditions.
In addition, the stock market has from time to time experienced significant
price and volume fluctuations that are not related to the operating performance
of particular companies. These market fluctuations may adversely affect the
market price of the Company's common stock. Since the Company's common stock has
traded in the past at a relatively high price-earnings multiple, due in part to
analysts' expectations of earnings growth, the price of the stock could quickly
and substantially decline as a result of even a relatively small shortfall in
earnings from, or a change in, analysts' expectations. Investors in the
Company's common stock must be willing to bear the risk of such fluctuations in
earnings and stock price.
THE COMPANY'S BUSINESS DEPENDS ON CONTINUED COMPREHENSIVE GOVERNMENTAL
REGULATION OF THE DRUG DEVELOPMENT PROCESS
In the United States, governmental regulation of the drug development process
has become more complicated and more extensive. However, the FDA announced
regulatory changes intended to streamline the approval process for biotechnology
products by applying the same standards for approval of biotechnology products
as are in effect for conventional drugs. In Europe, governmental authorities are
coordinating common standards for clinical testing of new drugs, leading to
changes in the various requirements currently imposed by each country. In the
past, Japan legislated good clinical practices and legitimatized the use of
contract research organizations. The Company's business could be materially and
adversely affected by relaxed government regulatory requirements or simplified
drug approval procedures, since such actions eliminate much of the demand for
the Company's services. In addition, if the Company was unable to comply with
any applicable regulation, the relevant governmental agencies could terminate
the Company's ongoing research or disqualify its research data.
THE COMPANY FACES INTENSE COMPETITION
The Company primarily competes against in-house departments of drug companies,
other full service contract research organizations, and to a lesser extent,
universities, teaching hospitals and other site organizations. Some of these
competitors have greater capital, technical and other resources than the
Company. Contract research organizations generally compete on the basis of:
. previous experience;
. medical and scientific expertise in specific therapeutic areas;
. the quality of services;
. the ability to organize and manage large-scale trials on a global
basis;
19
. the ability to manage large and complex medical databases;
. the ability to provide statistical and regulatory services;
. the ability to recruit investigators and patients;
. the ability to integrate information technology with systems to
improve the efficiency of contract research;
. an international presence with strategically located facilities;
. financial strength and stability; and
. price.
The contract research organization industry is fragmented, with several hundred
small, limited-service providers and several large, full-service contract
research organizations with global operations. The Company competes against
large contract research organizations, including Quintiles Transnational
Corporation, Covance Inc., and Pharmaceutical Product Development, Inc., for
both clients and acquisition candidates. In addition, the Company competes for
research contracts arising out of the consolidation within the drug industry and
the growing tendency of drug companies to outsource to a small number of
preferred contract research organizations.
THE COMPANY MAY LOSE BUSINESS OPPORTUNITIES AS A RESULT OF HEALTH CARE REFORM
Numerous governments have undertaken efforts to control growing health care
costs through legislation, regulation and voluntary agreements with medical care
providers and drug companies. In the recent past, the U.S. Congress has
entertained several comprehensive health care reform proposals. The proposals
were generally intended to expand health care coverage for the uninsured and
reduce the growth of total health care expenditures. While the U.S. Congress did
not adopt any comprehensive reform proposals, members of Congress may raise
similar proposals in the future. If any of these proposals are approved by the
U.S. Congress, pharmaceutical and biotechnology companies may react by spending
less on research and development. If this were to occur, the Company would have
fewer business opportunities. The Company is unable to predict the likelihood
that health care reform proposals will be enacted into law or the effect such
laws would have on the Company's business.
Many governments outside the U.S. have also reviewed or undertaken health care
reform. The Company cannot predict the impact that any pending or future foreign
health care reform proposals may have on its business in other countries.
THE COMPANY IS SUBJECT TO CURRENCY TRANSLATION RISKS
The Company derived approximately 43% of its net revenue for the three months
ended December 31, 2000 from operations outside of North America, compared with
42% for the same period in the prior fiscal year. Since the Company's revenues
and expenses from foreign operations are usually denominated in local
currencies, the Company is subject to exchange rate fluctuations between local
currencies and the United States dollar. To the extent that the Company cannot
shift this currency translation risk to other parties, the Company's operating
results could be materially and adversely affected. The Company does not
generally hedge against the risk of exchange rate fluctuations.
20
THE COMPANY'S DEVELOPMENT OF ITS PERCEPTIVE INFORMATICS BUSINESS MAY NEGATIVELY
IMPACT RESULTS IN THE SHORT TERM
The Company is currently making investments in its informatics subsidiary,
Perceptive Informatics, Inc., but does not expect such subsidiary to become
profitable in the immediate future. The Company may need to make additional
investments in this subsidiary in the future in order to achieve its objectives.
The profitability of this subsidiary depends, in part, on customer acceptance
and use of its products and services and its ability to compete against rival
products and services. There can be no assurance that this subsidiary will be
profitable in the future or that any revenues resulting from it will be
sufficient to offset the Company's investments in this division.
PART II. OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
At various times in 1998 and 1999, the Company was named as one of many
defendants in approximately twenty-three (23) lawsuits in the state trial courts
of New Jersey and Pennsylvania. These lawsuits related to a drug for which the
Company provided clinical research services. These actions were brought by
individual plaintiffs and not as class actions. Generally, the claims against
the Company in those actions included negligence, breach of express and implied
warranty, strict liability, fraud, civil conspiracy, and negligent and
intentional infliction of emotional distress. Over the past year, the Company
has been dismissed from all but three lawsuits without any payment by the
Company to any of the respective plaintiffs. The Company has provided notice of
these actions to its insurance carriers. The Company has secured
indemnification for one of the three cases that remain pending from one of the
companies for which the Company provided clinical services pursuant to the
Company's contracts with such company.
On or about June 8, 2000, a complaint was filed in the United States District
Court for the Southern District of New York against the Company and four of its
directors by two arbitrageurs, Elliott Associates, L.P. and Westgate
International L.P. The complaint alleged violations of Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5, Section 20(a) of the Exchange
Act and asserted state law claims for fraud and negligent misrepresentation. On
November 28, 2000, the United States District Court for the Southern District of
New York granted the Company's Motion to Dismiss all counts of the complaint.
The time period to appeal this decision has expired. The decision of the United
States District Court dismissing all claims does not bar the arbitrageurs from
re-filing state law claims against the Company in a state forum within the
applicable limitations period. As of January 31, 2001, no such action has been
filed against the Company.
21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 16, 200, the Company held its 2000 Annual meeting of
Stockholders. At the meeting, the stockholders of the Company voted:
(1) to elect the following persons to serve as Class II directors, to
serve for a three-year term (until the 2003 Annual Meeting). The
votes cast were as follows:
For Withheld
--- --------
Serge Okun 21,561,662 389,122
A. Joseph Eagle 21,484,310 466,474
(2) to approve the Company's 2000 Employee Stock Purchase Plan. The
votes cast were as follows:
For Against Abstain
---- -------- --------
18,613,848 2,304,817 1,032,119
(3) to ratify the selection of PricewaterhouseCoopers LLP as
independent auditors for the fiscal year ending June 30, 2001.
The votes cast were as follows:
For Against Abstain
---- -------- --------
21,918,409 25,075 7,300
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The Company did not file any Current Reports on Form 8-K with the Securities and
Exchange Commission for the quarter ended December 31, 2000.
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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, on this ____ day of February 2001.
PAREXEL International Corporation
Date: February 14, 2001 By: /s/ Josef H. von Rickenbach
---------------------------------
Josef H. von Rickenbach
Chairman of the Board, President and Chief
Executive Officer
Date: February 14, 2001 By: /s/ James F. Winschel, Jr.
---------------------------------
James F. Winschel, Jr.
Senior Vice President and Chief Financial Officer
23