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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the Quarterly Period Ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from to
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Commission File Number: 0-27058
PAREXEL International Corporation
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(Exact name of registrant as specified in its charter)
Massachusetts 04-2776269
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
195 West Street, Waltham, MA 02154
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(Address of principal executive offices) (Zip code)
(617) 487-9900
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. X Yes No
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Indicate the number of shares outstanding of each of the issues classes of
common stock, as at the latest practicable date.
As of October 29, 1996, there were 8,449,968 shares of
PAREXEL International Corporation common stock outstanding.
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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 sheet -- September 30, 1996
and June 30, 1996 2
Condensed consolidated statement of operations -- Three
months ended September 30, 1996 and 1995 3
Condensed consolidated statement of cash flows -- Three
months ended September 30, 1996 and 1995 4
Notes to condensed consolidated financial statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6
Risk Factors 10
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
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PART I. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
PAREXEL INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands, except share and per share data)
JUNE 30, SEPTEMBER 30,
1996 1996
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(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents:
Unrestricted $ 16,243 $ 9,281
Restricted 858 1,370
Marketable securities 29,319 26,425
Accounts receivable, net 39,277 49,596
Other current assets 6,905 6,960
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Total current assets 92,602 93,632
Property and equipment, net 8,193 12,210
Other assets 1,606 1,828
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$ 102,401 $ 107,670
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 762 $ 774
Accounts payable 7,003 9,014
Advance billings 20,008 18,482
Other current liabilities 11,401 10,946
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Total current liabilities 39,174 39,216
Long-term debt 360 304
Other liabilities 1,655 1,778
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Total liabilities 41,189 41,298
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Stockholders' equity:
Common stock - $.01 par value; shares
authorized: 25,000,000; shares issued:
7,827,110 at June 30, 1996, 8,463,674 at
September 30, 1996; shares outstanding:
7,812,404 at June 30, 1996, 8,448,968 at
September 30, 1996 78 84
Additional paid-in capital and other
stockholders' equity 66,333 68,497
Accumulated deficit (5,199) (2,209)
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Total stockholders' equity 61,212 66,372
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$ 102,401 $ 107,670
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See notes to condensed consolidated financial statements
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PAREXEL INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(in thousands, except per share data)
THREE MONTHS ENDED
SEPTEMBER 30,
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1995 1996
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Revenue $ 24,369 $ 43,152
Reimbursed costs (6,396) (10,122)
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Net revenue 17,973 33,030
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Costs and expenses:
Direct costs 12,465 22,821
Selling, general and administrative 3,834 6,617
Depreciation and amortization 515 883
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16,814 30,321
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Income from operations 1,159 2,709
Other income, net 98 364
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Income before provision for income taxes 1,257 3,073
Provision for income taxes 515 1,137
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Net income $ 742 $ 1,936
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Net income per share $ 0.14 $ 0.22
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Weighted average common and
common equivalent shares outstanding 5,734 8,628
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See notes to condensed consolidated financial statements
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PAREXEL INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(in thousands)
THREE MONTHS ENDED
SEPTEMBER 30,
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1995 1996
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Cash flows from operating activities:
Net income $ 742 $ 1,936
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 515 883
Change in operating assets and liabilities,
net of effects from acquisitions (2,575) (8,934)
Other operating activities (40) --
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Net cash used by operating activities (1,358) (6,115)
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Cash flows from investing activities:
Purchase of marketable securities (1,300) (10,849)
Proceeds from sale of marketable securities 1,500 13,773
Cash related to acquisition activities -- 251
Purchase of property and equipment (262) (2,657)
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Net cash provided (used) by investing activities (62) 518
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Cash flows from financing activities:
Proceeds from issuance of common stock -- 1,429
Repayments of long-term debt (202) (2,755)
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Net cash used by financing activities (202) (1,326)
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Effect of exchange rate changes on unrestricted cash
and cash equivalents (76) (39)
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Net decrease in unrestricted cash
and cash equivalents (1,698) (6,962)
Unrestricted cash and cash equivalents at beginning
of period 5,315 16,243
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Unrestricted cash and cash equivalents at end of period $ 3,617 $ 9,281
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See notes to condensed consolidated financial statements
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PAREXEL INTERNATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 -- Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to 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 (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the three months ended September 30,
1996 are not necessarily indicative of the results that may be expected for the
fiscal year ended June 30, 1997. For further information, refer to the
consolidated financial statements and notes thereto included in PAREXEL
International Corporation's (the "Company") Annual Report on Form 10-K for the
fiscal year ended June 30, 1996.
The balance sheet at June 30, 1996 has been derived from the audited financial
statements at that date but does not include all of the information and notes
required by generally accepted accounting principles for complete financial
statements.
The Company's stock is currently quoted on the Nasdaq National Market under the
symbol "PRXL".
Note 2 -- Subsequent Event
On October 22, 1996, the Company filed a registration statement, on Form S-1,
related to an aggregate of 1,066,900 shares of the Company's common stock for a
proposed sale to the public.
Note 3 -- Earnings per Share
Earnings per share calculations for the three months ended September 30, 1996
are based on 8,384,722 weighted average common shares outstanding, plus 243,216
common share equivalents attributable to common stock options. See Exhibit 11
for further information on the computation of earnings per common and common
equivalent share.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information set forth and discussed below for the three months ended
September 30, 1996 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
(consisting of normal recurring adjustments) 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.
OVERVIEW
The Company provides a full spectrum of clinical trials research and development
services on a contract basis to the pharmaceutical and biotechnology industries.
These services are provided to clients on a global basis and include: (1)
designing, initiating and monitoring clinical trials; (2) managing and analyzing
clinical data; and (3) regulatory consulting.
The Company's contracts are typically fixed price, multi-year contracts that
require a portion of the fee to be paid at the time the contract is entered
into, with the balance of the fee paid in installments during the contract's
duration. Net revenue from contracts is generally recognized on a percentage of
completion basis as work is performed.
As is customary in the industry, the Company routinely subcontracts with third
party investigators in connection with clinical trials and other third party
service providers for laboratory analysis and other specialized services. These
and other reimbursable costs are paid by the client and, in accordance with
industry practice, are included in revenue. Reimbursed costs vary from contract
to contract. Accordingly, the Company views net revenue, which consists of
revenue less reimbursed costs, as its primary measure of revenue growth.
Direct costs 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 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.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1996 Compared to Three Months Ended September
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30, 1995
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Net revenue increased by $15.1 million, or 83.8%, from $18.0 million for the
three months ended September 30, 1995 to $33.0 million for the three months
ended September 30, 1996. This net revenue growth was primarily attributable to
an increase in the volume of clinical research projects serviced by the Company,
particularly in the areas of data management and biostatistical analysis and, to
a lesser extent, clinical monitoring services.
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Direct costs increased by $10.4 million, or 83.1%, from $12.5 million for the
three months ended September 30, 1995 to $22.8 million for the three months
ended September 30, 1996. This increase in direct costs was due to the increase
in the number of project-related personnel, hiring, facilities and information
system costs necessary to support the increased level of operations. Direct
costs as a percentage of net revenue decreased slightly from 69.4% for the three
months ended September 30, 1995 to 69.1% for the three months ended September
30, 1996.
Selling, general and administrative expenses increased by $2.8 million, or
72.6%, from $3.8 million for the three months ended September 30, 1995 to $6.6
million for the three months ended September 30, 1996. This increase was
primarily due to increased administrative personnel, hiring and facilities
costs, in line with management's objective of increasing infrastructure to
accommodate the Company's growth. Selling, general and administrative expenses
as a percentage of net revenue decreased from 21.3% for the three months ended
September 30, 1995 to 20.0% for the three months ended September 30, 1996,
primarily due to leveraging of infrastructure over an expanding revenue base.
Depreciation and amortization expense increased by $368,000, or 71.5%, from
$515,000 for the three months ended September 30, 1995 to $883,000 for the three
months ended September 30, 1996. The increase is primarily due to increased
capital spending on computer equipment to support the increase in
project-related personnel.
Income from operations for the three months ended September 30, 1996 increased
by $1.6 million, or 133.7%, from $1.2 million for the three months ended
September 30, 1995 to $2.7 million for the three months ended September 30,
1996.
Other income, net increased by $266,000 from $98,000 for the three months ended
September 30, 1995 to $364,000 for the three months ended September 30, 1996.
This increase resulted from higher average balances of cash, cash equivalents
and marketable securities due primarily to proceeds from the Company's public
offerings in fiscal 1996.
The Company's effective income tax rate was 37.0% for the three months ended
September 30, 1996, compared to 41.0% for the three months ended September 30,
1995. The effective income tax rate varies with changes in the mix of taxable
income from the different jurisdictions in which the Company operates.
LIQUIDITY AND CAPITAL RESOURCES
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 consists 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, in some cases on a
milestone achievement basis. Revenue from the contracts is generally recognized
on a percentage of completion basis as work is performed. Accordingly, cash
receipts do not necessarily correspond to costs incurred and revenue recognized
on contracts. The Company's cash flow is influenced by changes in the levels of
billed and unbilled receivables and advance
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billings. As a result, the number of days revenue outstanding in accounts
receivable, net of advance billings and the related dollar values of these
accounts, can vary due to the achievement of contractual milestones and the
timing and size of cash receipts. The number of days revenue outstanding, net of
advance billings, was 47 days at June 30, 1996 and 65 days at September 30,
1996. The increase in days revenue outstanding from June 30, 1996 to September
30, 1996 was primarily due to the timing of the achievement of project
milestones and related billings, as well as a decline in the amounts billed to
clients in advance of revenue earned. Accounts receivable, net of the allowance
for doubtful accounts, increased from $39.3 million at June 30 1996 to $49.6
million at September 30, 1996, while advance billings decreased from $20.0
million at June 30, 1996 to $18.5 million at September 30, 1996
Unrestricted cash and cash equivalents decreased by $7.0 million during the
three months ended September 30, 1996 as a result of $6.1 million and $1.3
million in cash used by operating and financing activities, respectively, offset
by $518,000 in cash provided by investing activities. Net cash used by operating
activities resulted from net income, excluding non-cash expenses, of $2.8
million and an increase in accounts payable of $1.6 million being more than
offset by increases in restricted cash of $512,000 and billed and unbilled
receivables of $7.7 million and decreases in advance billings of $1.7 million
and other current liabilities of $858,000. Cash provided by investing activities
consisted of net proceeds from sales of marketable securities of $2.9 million
and the net cash balances of acquired companies of $251,000 nearly offset by
capital expenditures of $2.7 million related to facility expansion and
investments in information technology. Cash used by financing activities
reflects repayments of long-term debt of $2.8 million partially offset by net
proceeds from the exercise of stock options of $1.4 million. Debt repayments
included $2.3 million to retire third-party debt assumed during the August, 1996
S&FA acquisition.
The Company has domestic and foreign line of credit arrangements with banks
totaling approximately $7.5 million and a capital lease line of credit with a
U.S. bank for $2.4 million. At September 30, 1996, the Company had approximately
$9.0 million in available credit under these arrangements.
The Company's primary cash needs on both a short-term and long-term basis are
for the payment of the salaries and fringe benefits, hiring and recruiting
expenses, business development 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 offering, therapeutic base and global presence. Any such acquisitions
may require additional external financings and the Company may from time to time
seek to obtain funds from public or private issuances of equity or debt
securities. There can be no assurance that such financings will be available on
terms acceptable to the Company.
The foregoing statements include forward-looking statements which involve risks
and uncertainties. The Company's actual experience may differ materially from
that discussed above. Factors that might cause such a difference include, but
are not limited to, those discussed
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in "Risk Factors" as well as future events that have the effect of reducing the
Company's available cash balances, such as unexpected operating losses or
capital expenditures or cash expenditures related to possible future
acquisitions.
RECENT EVENT
On October 22, 1996, the Company filed a registration statement, related to an
aggregate of 1,066,900 shares of the Company's common stock, on Form S-1, for a
proposed sale to the public.
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RISK FACTORS
In addition to the other information in this report, the following risk factors
should be considered carefully in evaluating the company and its business.
Information provided by the Company from time to time may contain certain
"forward-looking" information, as that term is defined by (i) the Private
Securities Litigation Reform Act of 1995 (the "Act") and (ii) in releases made
by the Securities and Exchange Commission (the "SEC"). These risk factors are
being provided pursuant to the provisions of the Act and with the intention of
obtaining the benefits of the "safe harbor" provisions of the Act.
LOSS OR DELAY OF LARGE CONTRACTS. Most of the Company's contracts are terminable
upon 60 to 90 days' notice by the client. Clients terminate or delay contracts
for a variety of reasons, including among others the failure of products being
tested to satisfy safety requirements, unexpected or undesired clinical results
of the product, the client's decision to forego a particular study, insufficient
patient enrollment or investigator recruitment or production problems resulting
in shortages of the drug. In addition, the Company believes that several
factors, including the potential adverse impact of health care reform, have
caused pharmaceutical companies to apply more stringent criteria to the decision
to proceed with clinical trials and therefore may result in a greater
willingness of these companies to cancel contracts with CROs. The loss or delay
of a large contract or the loss or delay of multiple contacts could have a
material adverse effect on the financial performance of the Company.
VARIABILITY OF QUARTERLY OPERATING RESULTS. The Company's quarterly operating
results have been subject to variation, and will continue to be subject to
variation, depending upon factors such as the initiation and progress of
significant projects, exchange rate fluctuations, the mix of services offered,
the opening of new offices, the costs associated with integrating acquisitions
and the startup costs incurred in connection with the introduction of new
products and services. In addition, during the third quarters of fiscal 1993 and
1995, the Company's results of operations were affected by a non-cash
restructuring charge and a non-cash write-down due to the impairment of
long-lived assets, respectively. Because a high percentage of the Company's
operating costs is relatively fixed, variations in the initiation, completion,
delay or loss of contracts, or in the progress of clinical trials can cause
material adverse variations in quarterly operating results.
DEPENDENCE ON CERTAIN INDUSTRIES AND CLIENTS. The Company's revenues are highly
dependent on research and development expenditures by the pharmaceutical and
biotechnology industries. The Company's operations could be materially and
adversely affected by general economic downturns in its clients' industries, the
impact of the current trend toward consolidation in these industries or any
decrease in research and development expenditures. Furthermore, the Company has
benefited to date from the increasing tendency of pharmaceutical and
biotechnology companies to outsource large clinical research projects. A
reversal or slowing of this trend would have a material adverse effect on the
Company.
The Company believes that concentrations of business in the CRO industry are not
uncommon. The Company has experienced such concentration in the past and may
experience such
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concentration in future years. No client accounted for 10% or more of
consolidated net revenue in fiscal 1996 or the three months ended September 30,
1996. In fiscal 1996 and the three months ended September 30, 1996, the
Company's top five clients accounted for 32.0% and 34.8%, respectively, of the
Company's consolidated net revenue. The loss of business from a significant
client could have a material adverse effect on the Company.
DEPENDENCE ON GOVERNMENT REGULATION. The Company's business depends on the
comprehensive government regulation of the drug development process. In the
United States, the general trend has been in the direction of continued or
increased regulation, although the FDA recently announced regulatory changes
intended to streamline the approval process for biotechnology products by
applying the same standards as are in effect for conventional drugs. In Europe,
the general trend has been toward coordination of common standards for clinical
testing of new drugs, leading to changes in the various requirements currently
imposed by each country. Changes in regulation, including a relaxation in
regulatory requirements or the introduction of simplified drug approval
procedures, as well as anticipated regulation, could materially and adversely
affect the demand for the services offered by the Company. In addition, failure
on the part of the Company to comply with applicable regulations could result in
the termination of ongoing research or the disqualification of data, either of
which could have a material adverse effect on the Company.
POTENTIAL ADVERSE IMPACT 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
pharmaceutical companies. In the last several years, several comprehensive
health care reform proposals were introduced in the U.S. Congress. The intent of
the proposals was generally, to expand health care coverage for the uninsured
and reduce the growth of total health care expenditures. While none of the
proposals was adopted, health care reform may again be addressed by the U.S.
Congress. Implementation of government health care reform may adversely affect
research and development expenditures by pharmaceutical and biotechnology
companies, resulting in a decrease of the business opportunities available to
the Company. Management is unable to predict the likelihood of health care
reform proposals being enacted into law or the effect such law would have on the
Company.
Many European governments have also reviewed or undertaken health care reform.
For example, German health care reform legislation (the "Seehofer Gesetz"),
which was implemented on January 1, 1993, contributed to an estimated 15%
decline in German pharmaceutical industry sales in calendar 1993 and led several
clients to cancel contracts with the Company. Subsequent to these events, in the
third quarter of fiscal 1993, the Company restructured its German operations and
incurred a restructuring charge of approximately $3.3 million. In addition, in
the third quarter of fiscal 1995, the Company's results of operations were
affected by a non-cash write-down due to the impairment of long-lived assets of
PAREXEL GmbH, the Company's German subsidiary, of approximately $11.3 million.
The Company cannot predict the impact that any pending or future health care
reform proposals may have on the Company's business in Europe.
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COMPETITION; CRO INDUSTRY CONSOLIDATION. The Company primarily competes against
in-house departments of pharmaceutical companies, full service CROs and, to a
lesser extent, universities and teaching hospitals. Some of these competitors
have substantially greater capital, technical and other resources than the
Company. CROs generally compete on the basis of previous experience, medical and
scientific expertise in specific therapeutic areas, the quality of contract
research, the ability to organize and manage large-scale trials on a global
basis, the ability to manage large and complex medical databases, the ability to
provide statistical and regulatory services, the ability to recruit
investigators, the ability to integrate information technology with systems to
improve the efficiency of contract research, an international presence with
strategically located facilities, financial viability and price. There can be no
assurance that the Company will be able to compete favorably in these areas.
The CRO industry is highly fragmented, with participants ranging from several
hundred small, limited-service providers to several large, full-service CROs
with global operations. The trend toward CRO industry consolidation has resulted
in heightened competition among the larger CROs for clients and acquisition
candidates. In addition, consolidation within the pharmaceutical industry as
well as a trend by pharmaceutical companies of outsourcing among fewer CROs has
led to heightened competition for CRO contracts.
MANAGEMENT OF BUSINESS EXPANSION; NEED FOR IMPROVED SYSTEMS; ASSIMILATION OF
FOREIGN OPERATIONS. The Company's business and operations have experienced
substantial expansion over the past 10 years. The Company believes that such
expansion places a strain on operational, human and financial resources. In
order to manage such 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,
professional, scientific and technical operating personnel. Expansion of foreign
operations also may involve the additional risks of assimilating differences in
foreign business practices, hiring and retaining qualified personnel, and
overcoming language barriers. In the event that the operation of an acquired
business does not live up to expectations, the Company may be required to
restructure the acquired business or write-off the value of some or all of the
assets of the acquired business. In fiscal 1993 and 1995, the Company's results
of operations were materially and adversely affected by write-offs associated
with the Company's acquired German operations. Failure by the Company to meet
the demands of and to manage expansion of its business and operations could have
a material adverse effect on the Company's business.
RISKS ASSOCIATED WITH ACQUISITIONS. The Company has made a number of
acquisitions, including four since June 1, 1996, and will continue to review
future acquisition opportunities. No assurances can be given that acquisition
candidates will continue to be available on terms and conditions acceptable to
the Company. Acquisitions involve numerous risks, including, among other things,
difficulties and expenses incurred in connection with the acquisitions and the
subsequent assimilation of the operations and services or products of the
acquired companies, the difficulty of operating new (albeit related) businesses,
the diversion of management's attention from other business concerns and the
potential loss of key employees of the acquired company. Acquisitions of foreign
companies also may involve the additional risks of assimilating
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differences in foreign business practices and overcoming language barriers. In
the event that the operations of an acquired business do not live up to
expectations, the Company may be required to restructure the acquired business
or write-off the value of some or all of the assets of the acquired business. In
fiscal 1993 and 1995, the Company's results of operations were materially and
adversely affected by write-offs associated with the Company's acquired German
operations. There can be no assurance that any acquisition will be successfully
integrated into the Company's operations.
DEPENDENCE ON PERSONNEL. The Company relies on a number of key executives,
including Josef H. von Rickenbach, its President, Chief Executive Officer and
Chairman, upon whom the Company maintains key man life insurance. Although the
Company has entered into agreements containing non-competition restrictions with
its senior officers, the Company does not have employment agreements with most
of these persons and the loss of the services of any of the Company's key
executives could have a material adverse effect on the Company. The Company's
performance also depends on its ability to attract and retain qualified
professional, scientific and technical operating staff. The level of competition
among employers for skilled personnel, particularly whose with M.D., Ph.D. or
equivalent degrees, is high. There can be no assurance the Company will be able
to continue to attract and retain qualified staff. In addition, the cost of
recruiting skilled personnel has increased and there can be no assurance that
such costs will not continue to rise.
POTENTIAL LIABILITY; POSSIBLE INSUFFICIENCY OF INSURANCE. Clinical research
services involve the testing of new drugs on human volunteers pursuant to a
study protocol. Such testing involves a risk of liability for personal injury or
death to patients due to, among other reasons, possible unforeseen adverse side
effects or improper administration of the new drug. Many of these patients are
already seriously ill and are at risk of further illness or death. The Company
could be materially and adversely affected if it were required to pay damages or
incur defense costs in connection with a claim that is outside the scope of an
indemnity or insurance coverage, or if the indemnity, although applicable, is
not performed in accordance with its terms or if the Company's liability exceeds
the amount of applicable insurance. In addition, there can be no assurance that
such insurance will continue to be available on terms acceptable to the Company.
ADVERSE EFFECT OF EXCHANGE RATE FLUCTUATIONS. Approximately 38.4% and 33.8% of
the Company's net revenue for fiscal 1996 and the three months ended September
30, 1996, respectively, were derived from the Company's operations outside of
North America. Since the revenue and expenses of the Company's foreign
operations are generally denominated in local currencies, exchange rate
fluctuations between local currencies and the United States dollar will subject
the Company to currency translation risk with respect to the results of its
foreign operations. To the extent the Company is unable to shift to its clients
the effects of currency fluctuations, these fluctuations could have a material
adverse effect on the Company's results of operations. The Company does not
currently hedge against the risk of exchange rate fluctuations.
VOLATILITY OF STOCK PRICE. The market price of the Company's Common Stock is
subject to wide fluctuations in response to quarter-to-quarter variations in
operating results, changes in earnings
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estimates by analysts, market conditions in the industry, prospects of health
care reform, changes in government regulation and general economic conditions.
In addition, the stock market has from time to time experienced significant
price and volume fluctuations that have been unrelated to the operating
performance of particular companies. These market fluctuations may adversely
affect the market price of the Company's Common Stock. Because the Company's
Common Stock currently trades at a relatively high price-earnings multiple, due
in part to analysts' expectations of continued earnings growth, even a
relatively small shortfall in earnings from, or a change in, analysts'
expectations may cause an immediate and substantial decline in the Company's
stock price. Investors in the Company's Common Stock must be willing to bear the
risk of such fluctuations in earnings and stock price.
ANTI-TAKEOVER PROVISIONS; POSSIBLE ISSUANCE OF PREFERRED STOCK. The Company's
Restated Articles of Organization and Restated By-Laws contain provisions that
may make it more difficult for a third party to acquire, or may discourage a
third party from acquiring, the Company. These provisions could limit the price
that certain investors might be willing to pay in the future for shares of the
Company's Common Stock. In addition, shares of the Company's Preferred Stock may
be issued in the future without further stockholder approval and upon such terms
and condition, and having such rights, privileges and preferences, as the Board
of Directors may determine. The rights of the holders of Common Stock will be
subject to, and may be adversely affected by, the rights of any holders of
Preferred Stock that may be issued in the future. The issuance of Preferred
Stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could adversely affect the market
price of the Common Stock and could have the effect of making it more difficult
for a third party to acquire, or discouraging a third party from acquiring, a
majority of the outstanding voting stock of the Company. The Company has no
present plans to issue any shares of Preferred Stock.
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Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11--Statement re Computation of Earnings Per Common
and Common Equivalent Share
Exhibit 27--Financial Data Schedule
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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 1st day of November, 1996.
PAREXEL International Corporation
By: /s/ Josef H. von Rickenbach
--------------------------------------
Josef H. von Rickenbach
President, Chief Executive Officer and
Chairman
By: /s/ William T. Sobo, Jr.
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William T. Sobo, Jr.
Senior Vice President, Chief Financial
Officer
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EXHIBIT NO. PAGE
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11 Computation of Earnings Per Common and Common Equivalent
Share 18
27 Financial Data Schedule 19
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