Filing Compare · PRA International, LLC

UNITEDTable STATESof SECURITIES AND EXCHANGE COMMISSION Contents

PARTTable Iof FINANCIAL INFORMATION Contents

TheTable accompanying notes are an integral part of these financial statements. Contents

PRATable INTERNATIONALof AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (unaudited) (in thousands) Contents

(1) BasisTable of Preparation Contents

TheTable preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. In particular, the Company’s method of revenue recognition requires estimates of costs to be incurred to fulfill existing long-term contract obligations. Actual results could differ from those estimates. Estimates are also used when accounting for certain items such as provision for doubtful receivables, stock option expense, depreciation and amortization, asset impairment, certain acquisition-related assets and liabilities, income taxes, fair market value determinations, and contingencies. Contents

AsTable is customary in the industry, the Company routinely enters into separate agreements on behalf of its clients with independent physician investigators in connection with clinical trials. The funds received for investigator fees are netted against the related cost because such fees are the obligation of the Company’s clients, without risk or reward to the Company. The Company is not obligated either to perform the service or to pay the investigator in the event of default by the client. In addition, the Company does not pay the independent physician investigator until funds are received from the client. The amounts identified for payment to investigators were $12.7 million for the three months ending March 31, 2007 and $12.4 million for the three months ending March 31, 2006. Contents

TheTable primary type of share-based payment utilized by the Company is stock options. Stock options are awards which allow the employee to purchase shares of the Company’s stock at a fixed price. Stock options are granted at an exercise price equal to the Company stock price at the date of grant. The stock options issued in the first quarter of 2007 vest over four years and have a contractual term of seven years. Prior to January 1, 2006, the Company accounted for employee stock-based compensation using the intrinsic value based method as prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”, as described by FASB Interpretation No. 44. Accordingly, no compensation expense was required to be recognized as long as the exercise price of the Company’s stock options was equal to the market price of the underlying stock on the date of grant. Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standard (“SFAS”) No. 123(R) “Share-Based Payment” under the modified prospective method as described in SFAS No. 123(R). Under this transition method, compensation expense recognized in the three months ended March 31, 2006 and March 31, 2007 includes compensation expense for all stock-based payments granted after January 1, 2006, and for all stock-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provision of SFAS No. 123. For the three months ended March 31, 2006 and March 31, 2007, the amount of compensation expense recognized was $1.1 million and $1.3 million, respectively, which was recorded in selling, general, and administrative expenses in the condensed consolidated statement of operations. Contents

BasicTable income per common share is computed by dividing reported net income by the weighted average number of common shares outstanding during each period. Contents

PRATable INTERNATIONALof AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS Contents

12 Table of Contents

(9) Restructuring Table of Contents

InTable the normal course of business, we experience contract cancellations, which are reflected as cancellations when the client provides us written or electronic correspondence that the work should cease. The number or cancellations can vary significantly from quarter to quarter. The value of the cancellation is the remaining amount of unrecognized service revenue, less the estimated effort to transition the work back to the sponsor. Our cancellations for the quarters ended March 31, 2006 and 2007 were $18 million and $6 million, respectively. Contents

Selling,Table General,of and Administrative Expenses Contents

DepreciationTable represents the depreciation charged on our fixed assets. The charge is recorded on a straight-line method, based on estimated useful lives of three to seven years for computer hardware and software and five to seven years for furniture and equipment. Leasehold improvements are depreciated over ten years or the life of lease term. Amortization expenses consist of amortization costs recorded on computer software and identified finite-lived intangible assets on a straight-line method over their estimated useful lives. Goodwill and indefinite-lived intangible assets were being amortized prior to January 1, 2002. Pursuant to SFAS No. 142 “Goodwill and Other Intangible Assets” we do not amortize goodwill and indefinite-lived intangible assets. Contents

SelectedTable Consolidatedof Financial Data Contents

IncomeTable from operations decreased by $4.2 million, or 48.8%, from $8.6 million for the first quarter of 2006 to $4.4 million for the first quarter of 2007 due primarily to the higher employee costs, investment in therapeutic expertise and the employee incentive compensation plan, as noted above. Income from operations as a percentage of service revenue decreased from 12.4% for the first quarter of 2006 to 5.1% for the first quarter of 2007. Contents

Non-GAAPTable Financialof Measures Contents

RevenueTable Recognition of Contents

WeTable have operations in various foreign jurisdictions and in multiple United States jurisdictions. We provide a tax valuation allowance for deferred tax assets in each of the jurisdictions where we have operations based on the weight of available evidence, both positive and negative, that it is more likely than not that some portion or all of the deferred tax assets will not be realized. In determining our tax valuation allowance, we assess both the historical and the projected entity level earnings before tax. Historically we have provided valuation allowances when estimates of future profitability are not present. As part of our analysis, we consider the previous three years’ cumulative activity to determine whether it is more likely than not that the deferred tax assets will be realized. We review and adjust these tax valuation allowances based on current profitability and positive future financial projections. In a meaningful tax jurisdiction, where we currently have a tax valuation allowance, if we were able to demonstrate sufficient taxable income to realize a tax benefit, we would reduce our tax valuation allowance in this jurisdiction by approximately $1.1 million. Contents

WeTable review long-lived asset groups for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset group might not be recoverable. If indicators of impairment are present, we evaluate the carrying value of property and equipment in relation to estimates of future undiscounted cash flows. As a result of our acquisitions we have recorded goodwill and other identifiable finite and indefinite-lived acquired intangibles. The identification and valuation of these intangible assets at the time of acquisition require significant management judgment and estimates. Contents

ForeignTable Exchangeof Risk and Foreign Currency Hedges Contents

PARTTable IIof OTHER INFORMATION Contents

26 Table of Contents

~~Washington,~~UNITED ~~D.C.~~STATES ~~20549~~SECURITIES AND EXCHANGE COMMISSION

~~FORM~~Washington, ~~10-Q~~D.C. 20549

~~þ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934~~Form 10-Q

~~For~~þ ~~the~~QUARTERLY ~~quarterly~~REPORT ~~period~~PURSUANT ~~ended~~TO ~~March 31,~~SECTION ~~2007~~ 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

orFor the quarterly period ended September 30, 2007

~~o Transition Report Pursuant to Section 13~~ or ~~15(d) of the Securities Exchange Act of 1934~~

~~For~~o ~~the~~TRANSITION ~~transition~~REPORT ~~period~~PURSUANT ~~from to~~ TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

~~Commission~~For ~~File~~the ~~Number:~~transition period from to

~~PRA INTERNATIONAL~~Commission File Number: 000-51029

~~(Exact~~PRA ~~name of Registrant as Specified in Its Charter)~~INTERNATIONAL

~~Delaware~~ (~~State~~Exact orname ~~Other Jurisdiction~~ of ~~Incorporation)~~Registrant ~~54-2040171~~as ~~(I.R.S.~~Specified ~~Employer~~in ~~Identification~~Its ~~No.~~Charter)

12120 Sunset Hills Road Suite 600 Reston, Virginia 20190 (Address of principal executive offices)


Delaware		54-2040171
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation)		Identification No.)

~~(703)~~12120 Sunset Hills Road Suite ~~464-6300~~600 ~~(Registrant’s~~Reston, ~~telephone~~Virginia ~~number,~~20190 (Address ~~including~~of ~~area~~principal ~~code~~executive offices)

~~Indicate by check mark whether the registrant~~ (1703) ~~has filed all reports required to be filed~~464-6300 ~~by Section 13 or 15~~(d)Registrant’s oftelephone ~~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)~~number, ~~and~~including ~~(2) has~~area ~~been subject to such filing requirements for the past 90 days. Yes þ No o~~ code)

Indicate by check mark whether the registrant is(1) has afiled ~~large~~all ~~accelerated~~reports ~~filer,~~required anto be filed ~~accelerated~~by ~~filer,~~Section 13 or a15(d) ~~non-accelerated~~of ~~filer.~~the ~~See~~Securities ~~definition~~Exchange Act of ~~“accelerated~~1934 ~~filer~~during ~~and~~the ~~large~~preceding 12 months (or ~~accelerated~~for ~~filer”~~such inshorter ~~Rule 12b-~~period that the registrant was required to file such reports), and (2) has ofbeen subject to such filing requirements for the ~~Exchange~~past ~~Act~~90 days. Yes þ No o

~~Large~~ Indicate by check mark whether the registrant is a large accelerated filer, ~~o Accelerated~~an accelerated filer, ~~þ Non~~or a non-accelerated filer. oSee definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

~~Indicate~~Large byaccelerated ~~check~~filer ~~mark~~o Accelerated ~~whether~~filer ~~the registrant is a shell company (as defined in Rule 12b~~þ Non-2accelerated ~~of the~~filer ~~Exchange Act).~~ o

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of ~~April~~November 286, 2007, 24,~~419~~878,~~957~~011 shares of the registrant’s common stock, par value $0.01 per share, were outstanding.

INDEX

	Page
Part I Financial Information
Item 1. Financial Statements		3
Consolidated Condensed Balance Sheets as of December 31, 2006 and March 31, 2007 (unaudited)		3
Consolidated Condensed Balance Sheets as of December 31, 2006 and September 30, 2007 (unaudited)		3
Consolidated Condensed Statements of Operations for the Three Months Ended March 31, 2006 and 2007 (unaudited)		4
Consolidated Condensed Statements of Operations (unaudited) for the Three and Nine Months Ended September 30, 2006 and 2007		4
Consolidated Condensed Statement of Changes in Stockholders’ Equity and Other Comprehensive Income as of March 31, 2007 (unaudited)		5
Consolidated Condensed Statement of Changes in Stockholders’ Equity and Other Comprehensive Income (unaudited) for the Nine Months Ended September 30, 2007		5
Consolidated Condensed Statements of Cash Flows (unaudited) for the Three Months Ended March 31, 2006 and 2007		6
Consolidated Condensed Statements of Cash Flows (unaudited) for the Nine Months Ended September 30, 2006 and 2007		6
Notes to Condensed Consolidated Financial Statements		7
Notes to Consolidated Condensed Financial Statements		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		1416
Item 3. Quantitative and Qualitative Disclosures About Market Risk		2327
Item 4. Controls and Procedures		2428
Part II Other Information
Item 1. Legal Proceedings		2428
Item 6. Exhibits		2529
Exhibit 21.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

~~ITEM~~PART 1.I FINANCIAL ~~STATEMENTS~~INFORMATION

~~PRA~~ITEM ~~INTERNATIONAL~~1. ~~AND~~FINANCIAL ~~SUBSIDIARIES~~STATEMENTS ~~CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands, except per share amounts)~~

	December 31,			March 31,
	2006			2007
				(unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	44,490		$	41,496
Accounts receivable and unbilled services, net		106,298			94,693
Prepaid expenses and other current assets		21,050			24,375
Deferred tax assets		191			1,082
Total current assets		172,029			161,646
Fixed assets, net		33,663			33,622
Goodwill		210,761			212,401
Other intangibles, net of accumulated amortization of $8,446 and $9,388 as of December 31, 2006 and March 31, 2007, respectively		33,493			32,869
Deferred tax assets		2,183			2,479
Other assets		2,126			2,049
Total assets	$	454,255		$	445,066
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	16,892		$	15,036
Accrued expenses		31,276			36,625
Income taxes payable		10,724			9,066
Advance billings		101,618			106,627
Deferred tax liability		3,491			3,491
Capital leases, current portion		131			39
Total current liabilities		164,132			170,884
Deferred tax liability		7,571			8,108
Other liabilities		7,137			6,126
Debt		24,000			—
Capital leases		47			39
Total liabilities		202,887			185,157
Stockholders’ equity
Common stock $0.01 par value; 36,000,000 shares authorized as of December 31, 2006 and March 31, 2007; 24,242,772 and 24,405,836 shares issued and outstanding as of December 31, 2006 and March 31, 2007, respectively		243			244
Treasury stock		(108	)		(159	)
Additional paid-in capital — common stock		156,779			160,519
Accumulated other comprehensive income		12,732			14,575
Retained earnings		81,722			84,730
Total stockholders’ equity		251,368			259,909
Total liabilities and stockholders’ equity	$	454,255		$	445,066

PRA INTERNATIONAL AND SUBSIDIARIES

~~The~~CONSOLIDATED ~~accompanying~~CONDENSED ~~notes~~BALANCE ~~are~~SHEETS (In anthousands, ~~integral~~except ~~part~~per ofshare ~~these financial statements.~~amounts)


	December 31,			September 30,
	2006			2007
				(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	44,490		$	38,401
Accounts receivable and unbilled services, net		106,298			118,000
Prepaid expenses and other current assets		21,050			24,237
Deferred tax assets		191			5,082

Total current assets		172,029			185,720
Fixed assets, net		33,663			34,865
Goodwill		210,761			221,221
Other intangibles, net of accumulated amortization of $8,446 and $11,379 as of December 31, 2006 and September 30, 2007, respectively		33,493			31,716
Deferred tax assets		2,183			2,220
Other assets		2,126			1,371

Total assets	$	454,255		$	477,113

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	16,892		$	17,466
Accrued expenses and other current liabilities		31,276			38,992
Income taxes payable		10,724			4,481
Advance billings		101,618			111,959
Deferred tax liability		3,491			4,230
Capital leases, current portion		131			1

Total current liabilities		164,132			177,129
Deferred tax liability		7,571			8,125
Other liabilities		7,137			5,918
Debt		24,000			—
Capital leases		47			45

Total liabilities		202,887			191,217

Commitments and Contingencies
Stockholders’ equity
Preferred Shares; 250,000 shares authorized and 0 shares issued as of September 30, 2007		—			—
Common stock $0.01 par value; 36,000,000 shares authorized as of December 31, 2006 and September 30, 2007; 24,242,772 and 24,780,241 shares issued and 24,228,056 and 24,764,676 shares outstanding as of December 31, 2006 and September 30, 2007, respectively		243			248
Treasury stock		(108	)		(162	)
Additional paid-in capital		156,779			169,565
Accumulated other comprehensive income		12,732			24,312
Retained earnings		81,722			91,933

Total stockholders’ equity		251,368			285,896

Total liabilities and stockholders’ equity	$	454,255		$	477,113

~~PRA~~The ~~INTERNATIONAL~~accompanying ~~AND~~notes ~~SUBSIDIARIES CONSOLIDATED~~are ~~CONDENSED~~an ~~STATEMENTS~~integral OFpart ~~OPERATIONS (unaudited) (in~~of ~~thousands,~~these ~~except~~financial ~~per share amounts)~~statements.

	Three Months Ended
	March 31,
	2006			2007
Revenue
Service revenue	$	69,204		$	85,052
Reimbursement revenue		7,352			11,158
Total revenue		76,556			96,210
Operating expenses
Direct costs		35,175			46,680
Reimbursable out-of-pocket costs		7,352			11,158
Selling, general, and administrative		23,025			30,266
Depreciation and amortization		2,426			3,727
Income from operations		8,578			4,379
Interest expense		(122	)		(620	)
Interest income		456			422
Other income (expense), net		31			(55	)
Income before income taxes		8,943			4,126
Provision for income taxes		2,837			1,118
Net income	$	6,106		$	3,008
Net income per share
Basic	$	0.27		$	0.12
Diluted	$	0.25		$	0.12
Weighted average number of common shares outstanding
Basic		22,966			24,353
Diluted		24,209			25,206

4PRA INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF ~~CHANGES IN STOCKHOLDERS’~~OPERATIONS ~~EQUITY AND COMPREHENSIVE INCOME~~ (~~unaudited~~Unaudited) (inIn thousands, except per share amounts)

													Additional
	Three Months Ended						Nine Months Ended
													Paid-In		Accumulated		Retained
	September 30,						September 30,
													Capital —		Other		Earnings/
	2006			2007			2006			2007
	Common Stock						Treasury Stock						Common		Comprehensive		(Accumulated					Comprehensive
Revenue
	Shares			Amount			Shares			Amount			Stock		Income/(Loss)		Deficit)		Total			Income
Service revenue	$	81,504		$	96,657		$	220,797		$	271,883
Balance as of December 31, 2006		24,242,772		$	243			14,716		$	(108	)	$	156,779	$	12,732	$	81,722	$	251,368
Reimbursement revenue		8,120			10,778			24,829			35,272
Exercise of common stock options		163,064			1			—			—			1,940		—		—		1,941
Total revenue		89,624			107,435			245,626			307,155
Purchase of treasury stock		—			—			2,500			(51	)		—		—		—		(51	)
Operating expenses
Stock-based compensation expense		—			—			—			—			1,269		—		—		1,269
Direct costs		40,988			53,690			112,729			150,223
Stock option tax benefit		—			—			—			—			531		—		—		531
Reimbursable out-of-pocket costs		8,120			10,778			24,829			35,272
Net income		—			—			—			—			—		—		3,008		3,008		$	3,008
Selling, general, and administrative		25,833			29,480			72,705			95,847
Other comprehensive income
Depreciation and amortization		3,697			3,918			8,774			11,492
Foreign currency translation adjustment, net of tax		—			—			—			—			—		1,789		—		1,789			1,789
Income from operations		10,986			9,569			26,589			14,321
Change in fair value of hedging instruments																54				54			54
Interest expense		(529	)		(211	)		(823	)		(974	)
Balance as of March 31, 2007 (unaudited)		24,405,836		$	244			17,216		$	(159	)	$	160,519	$	14,575	$	84,730	$	259,909		$	4,851
Interest income		265			327			1,296			982
Other expense		(65	)		(179	)		(519	)		(572	)
Income before income taxes		10,657			9,506			26,543			13,757
Provision for income taxes		2,474			2,996			5,419			3,546
Net income	$	8,183		$	6,510		$	21,124		$	10,211
Net income per share
Basic	$	0.34		$	0.26		$	0.91		$	0.42
Diluted	$	0.33		$	0.26		$	0.86		$	0.40
Weighted average number of common shares outstanding
Basic		23,754			24,691			23,294			24,496
Diluted		24,938			25,454			24,557			25,312

The accompanying notes are an integral part of these financial statements.

	Three Months Ended
	March 31,
	2006			2007
Cash flow from operating activities
Net income	$	6,106		$	3,008
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		2,426			3,727
Stock-based compensation		1,100			1,269
Provision for doubtful receivables		3			1
Loss on disposal of fixed assets		—			185
Provision (benefit) for deferred income taxes		378			(629	)
Excess tax benefits from share-based compensation		(708	)		(377	)
Changes in assets and liabilities:
Accounts receivable and unbilled services		(14,707	)		12,020
Prepaid expenses and other assets		(501	)		(221	)
Accounts payable and accrued expenses		(11,090	)		2,188
Income taxes		1,372			(4,018	)
Advance billings		3,999			4,504
Net cash (used in) provided by operating activities		(11,622	)		21,657
Cash flow from investing activities
Purchase of fixed assets		(1,478	)		(2,747	)
Disposal of fixed assets		23			5
Net cash used in investing activities		(1,455	)		(2,742	)
Cash flow from financing activities
Repayment of debt		—			(24,000	)
Repayment of capital leases		(24	)		(103	)
Purchase of treasury stock		—			(51	)
Proceeds from stock option exercises		1,354			1,942
Stock option excess tax benefit		708			377
Net cash provided by (used in) financing activities		2,038			(21,835	)
Effect of exchange rate on cash and cash equivalents		68			(74	)
Decrease in cash and cash equivalents		(10,971	)		(2,994	)
Cash and cash equivalents at beginning of period		73,640			44,490
Cash and cash equivalents at end of period	$	62,669		$	41,496
Supplemental disclosure of cash flow information
Cash paid for taxes	$	947		$	5,745
Cash paid for interest	$	11		$	515

CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’
EQUITY AND OTHER COMPREHENSIVE INCOME
(Unaudited)
(In thousands)

The accompanying notes are an integral part of these financial statements.


											Additional
											Paid-in		Accumulated
											Capital		Other							Other
	Common Stock				Treasury Stock						Common		Comprehensive		Retained					Comprehensive
	Shares		Amount		Shares			Amount			Stock		Income		Earnings		Total			Income
Balance as of December 31, 2006		24,242,772	$	243		14,716		$	(108	)	$	156,779	$	12,732	$	81,722	$	251,368
Exercise of common stock options		537,469		5		—			—			5,261		—		—		5,266
Purchase of treasury stock		—		—		3,500			(77	)		—		—		—		(77	)
Shares issued from the manager stock purchase plan		—		—		(2,651	)		23			—		—		—		23
Stock-based compensation expense		—		—		—			—			4,744		—		—		4,744
Stock option tax benefit		—		—		—			—			2,781		—		—		2,781
Net income		—		—		—			—			—		—		10,211		10,211		$	10,211
Other comprehensive income Foreign currency translation adjustment, net of tax		—		—		—			—			—		11,351		—		11,351			11,351
Change in fair value of hedging instruments														229				229			229

Comprehensive income																				$	21,791

Balance as of September 30, 2007 (unaudited)		24,780,241	$	248		15,565		$	(162	)	$	169,565	$	24,312	$	91,933	$	285,896

6The accompanying notes are an integral part of these financial statements

~~PRA INTERNATIONAL AND SUBSIDIARIES~~5 ~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS~~

The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) 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 footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007. The balance sheet at December 31, 2006 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements. You should read these consolidated financial statements together with the historical consolidated financial statements of PRA ~~International~~INTERNATIONAL ~~and~~AND ~~subsidiaries for the years ended December 31, 2006, 2005, and 2004 included~~SUBSIDIARIES ~~in our Annual Report on Form 10-K for the year ended December 31, 2006.~~

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (2Unaudited) ~~Significant~~ (In ~~Accounting Policies~~thousands)

Principles of Consolidation


	Nine Months Ended
	September 30,
	2006			2007
Cash flow from operating activities
Net income	$	21,124		$	10,211
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		8,774			11,492
Stock-based compensation		3,478			4,744
Provision for doubtful receivables		416			—
Deferred income tax benefit		(4,582	)		(4,146	)
Loss on disposal of fixed assets		—			771
Excess tax benefits from share-based compensation		(1,626	)		(2,755	)
Changes in assets and liabilities, net of acquisition:
Accounts receivable and unbilled services		(17,745	)		(9,036	)
Prepaid expenses and other assets		751			(3,317	)
Accounts payable and accrued expenses		(22,330	)		5,123
Income taxes		4,557			(1,012	)
Advance billings		22,512			6,983

Net cash provided by operating activities		15,329			19,058

Cash flow from investing activities
Purchase of fixed assets		(4,941	)		(9,633	)
Disposal of fixed assets		115			29
Cash paid for acquisitions, net of cash acquired		(93,450	)		—

Net cash used in investing activities		(98,276	)		(9,604	)

Cash flow from financing activities
Drawdown on revolving line of credit		30,000			—
Repayment of debt		(6,000	)		(24,000	)
Repayment of capital leases		(50	)		(141	)
Purchase of treasury stock		—			(77	)
Excess tax benefits from share-based compensation		1,626			2,755
Proceeds from stock option exercises		2,619			5,266

Net cash provided by (used in ) financing activities		28,195			(16,197	)
Effect of exchange rate on cash and cash equivalents		1,626			654

Decrease in cash and cash equivalents		(53,126	)		(6,089	)
Cash and cash equivalents at beginning of period		73,640			44,490

Cash and cash equivalents at end of period	$	20,514		$	38,401

Supplemental disclosure of cash flow information
Cash paid for taxes	$	5,957		$	7,998

Cash paid for interest	$	487		$	604

The accompanying ~~consolidated~~notes condensed financial statements include the accounts and results of operations of the Company. All significant intercompany balances and transactions have been eliminated. Investments in which the Company exercises significant influence, but which do not control, are ~~accounted~~an ~~for~~integral ~~under~~part ~~the equity method~~ of ~~accounting.~~these Tofinancial ~~date, such investments have been immaterial~~statements.

~~Use of Estimates~~6

~~Unbilled~~PRA ~~Services~~INTERNATIONAL AND SUBSIDIARIES

~~Unbilled~~NOTES ~~services~~TO ~~represent~~CONSOLIDATED ~~amounts~~CONDENSED ~~earned~~FINANCIAL ~~for services that have been rendered but for which~~STATEMENTS ~~clients have not been billed and include reimbursement revenue. Unbilled services are generally~~ ~~billable upon submission of appropriate billing information, achievement of contract goals or contract completion.~~

~~Fair~~(1) Acquisition ~~Value~~ of ~~Financial~~Company ~~Instruments~~by Genstar Capital LLC

~~The~~On ~~carrying~~July 25, ~~amount~~2007, ofthe ~~financial~~Company ~~instruments,~~announced ~~including~~that ~~cash~~it ~~and~~had ~~cash~~entered ~~equivalents,~~into ~~trade~~a definitive merger agreement ~~receivables~~to be acquired by affiliates of Genstar Capital, ~~contracts~~LLC ~~receivable~~(“Genstar”), ~~other~~a ~~current~~private ~~assets,~~equity ~~accounts~~firm ~~payable~~for approximately $790 million. Affiliates of Genstar beneficially own 12.6% of the outstanding shares of the Company. Upon consummation of the merger, the Company’s stockholders will be entitled to receive $30.50 in cash for each share of the Company’s stock. Pending the receipt of stockholder approval and ~~accrued~~other ~~expenses,~~customary closing ~~approximate~~conditions, ~~fair~~the ~~value~~transaction ~~due~~is expected to be completed in the ~~short~~fourth ~~maturities~~quarter of ~~these instruments~~2007.

~~Goodwill~~(2) Basis ~~and~~of ~~Other Intangibles~~Preparation

The ~~Company~~accompanying ~~follows~~unaudited ~~Statement~~consolidated ofcondensed ~~Financial~~financial ~~Accounting~~statements ~~Standards~~have ~~No. 142,~~been ~~“Goodwill~~prepared ~~and Other~~in ~~Intangible~~accordance ~~Assets”~~with ~~(SFAS~~accounting ~~No. 142~~principles generally accepted in the United States (“GAAP”), ~~whereby~~for ~~goodwill~~interim financial information and ~~indefinite~~with the instructions to Form 10-~~lived~~Q ~~intangible~~and ~~assets~~Article 10 ~~are~~of ~~not~~Regulation S-X. ~~amortized~~Accordingly, ~~but~~they ~~instead~~do ~~are~~not ~~tested~~include all of the information and footnotes required by GAAP for ~~impairment~~complete financial ~~annually~~statements. orIn ~~more~~the ~~frequently~~opinion ifof anmanagement, ~~event~~all oradjustments (consisting of normal recurring ~~circumstance~~accruals) ~~indicates~~considered ~~that~~necessary anfor ~~impairment~~a ~~loss~~fair ~~may~~statement have been ~~incurred~~included. ~~Separate~~Operating ~~intangible~~results ~~assets~~for the ~~that~~three ~~have~~and ~~finite~~nine ~~useful~~months ~~lives~~ended ~~continue~~September 30, to2007 are not necessarily indicative of the results that may be ~~amortized~~expected ~~over~~for ~~their~~the ~~estimated~~year ~~useful~~ending ~~lives~~December 31, 2007. The ~~most~~balance sheet at December 31, 2006 has ~~recent~~been ~~annual~~derived ~~test~~from ~~performed~~the ~~for~~audited ~~2006~~financial ~~did~~statements ~~not~~at ~~identify~~that ~~any~~date, ~~instances~~but does not include all of ~~impairment~~the information and ~~there~~footnotes ~~were~~required by GAAP for complete financial statements. You should read these noconsolidated ~~events~~financial ~~through~~statements ~~March~~together with the historical consolidated condensed financial statements of PRA International and subsidiaries for the years ended December 31, ~~2007~~2006, ~~that~~2005, ~~warranted~~and 2004 aincluded ~~reconsideration~~in of our ~~impairment~~Annual ~~test~~Report ~~results~~on Form 10-K for the year ended December 31, 2006.

7(3) Significant Accounting Policies

~~PRA~~Principles ~~INTERNATIONAL~~of ~~AND SUBSIDIARIES~~Consolidation ~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS~~

~~Advance~~ The ~~Billings~~accompanying consolidated condensed financial statements include the accounts and results of operations of the Company. All significant intercompany balances and transactions have been eliminated. Investments in which the Company exercises significant influence, but which it does not control, are accounted for under the equity method of accounting. To date, such investments have been immaterial.

~~Advance~~Use ~~billings~~of ~~represent amounts associated with services, reimbursement revenue and~~Estimates ~~investigator fees that have been received but have not yet been earned or paid.~~

~~Revenue~~ The ~~Recognition~~preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. In particular, the Company’s method of revenue recognition requires estimates of costs to be incurred to fulfill existing long-term contract obligations. Actual results could differ from those estimates. Estimates are also used when accounting for certain items such as provision for doubtful receivables, stock option expense, depreciation and amortization, asset impairment, certain acquisition-related assets and liabilities, income taxes, fair market value determinations, and contingencies.

~~Revenue~~Unbilled ~~from fixed-price contracts are recorded on a proportional performance basis. To~~Services measure performance, the Company compares the direct costs incurred to estimated total direct contract costs through completion. The estimated total direct costs are reviewed and revised periodically throughout the lives of the contracts, with adjustments to revenue resulting from such revisions being recorded on a cumulative basis in the period in which the revisions are first identified. Direct costs consist primarily of direct labor and other related costs. Revenue from time and materials contracts are recognized as hours are incurred, multiplied by contractual billing rates. Revenue from unit-based contracts are generally recognized as units are completed.

AUnbilled ~~majority~~services ofrepresent ~~the~~amounts ~~Company’s~~earned ~~contracts~~for ~~undergo~~services ~~modifications~~that ~~over~~have ~~the~~been ~~contract~~rendered ~~period~~but ~~and~~for ~~the~~which ~~Company’s~~clients ~~contracts~~have ~~provide~~not ~~for~~been ~~these~~billed ~~modifications.~~and ~~During~~include ~~the~~reimbursement ~~modification~~revenue. ~~process,~~Unbilled ~~the~~services ~~Company~~are generally ~~recognizes~~billable ~~revenue~~upon tosubmission ~~the~~of ~~extent~~appropriate itbilling ~~incurs costs~~information, ~~provided~~achievement ~~client~~of ~~acceptance~~contract ~~and~~milestones ~~payment is deemed~~or ~~reasonably~~contract ~~assured~~completion.

IfFair itValue ~~is determined that a loss will result from performance under a contract, the entire amount~~ of ~~the~~Financial ~~loss is charged against income in the period in which the determination is made.~~Instruments

~~Reimbursement~~ The ~~Revenue~~carrying amount of financial instruments, including cash and ~~Reimbursable~~cash ~~Out-of-Pocket~~equivalents, ~~Costs~~trade receivables, contracts receivable, other current assets, accounts payable, and accrued expenses, approximate fair value due to the short maturities of these instruments.

~~In addition to the various contract costs previously described, the Company incurs~~7 out-of-pocket costs, in excess of contract amounts, which are reimbursable by its customers. The Company includes out-of-pocket costs as reimbursement revenue and reimbursable out-of-pocket costs in the consolidated statements of operations.

~~Significant~~Goodwill ~~Customers~~and Other Intangibles

~~There~~The ~~were~~Company nofollows ~~individually~~Statement ~~significant~~of ~~customers~~Financial ~~accounting~~Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (SFAS No. 142), whereby goodwill and indefinite-lived intangible assets are not amortized, but instead are tested for ~~greater~~impairment ~~than~~annually ~~10%~~or ofmore frequently if an event or ~~consolidated~~circumstance ~~service~~indicates ~~revenue~~that an impairment loss may have been incurred. Separate intangible assets that have finite useful lives continue to be amortized over their estimated useful lives. The most recent annual test performed for ~~the~~2006 ~~quarters~~did ~~ended~~not ~~March~~identify any instances of impairment and there were no events through September 3130, 2007 orthat ~~2006~~warranted a reconsideration of our impairment test results.

~~Due~~Advance ~~to the nature of the Company’s business and the relative size of certain contracts, it is~~Billings not unusual for a significant customer in one year to be less significant in the next. However, it is possible that the loss of any single significant customer could have a material adverse effect on the Company’s results from operations.

8 Advance billings represent amounts associated with services, reimbursement revenue and investigator fees that have been received but have not yet been earned or paid.

~~PRA~~Revenue ~~INTERNATIONAL AND SUBSIDIARIES~~Recognition ~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS~~

~~Concentration~~ Revenue from fixed-price contracts are recorded on a proportional performance basis. To measure performance, the Company compares the direct costs incurred to estimated total direct contract costs through completion. The estimated total direct costs are reviewed and revised periodically throughout the lives of ~~Credit~~the ~~Risk~~contracts, –with adjustments to revenue resulting from such revisions being recorded on a cumulative basis in the period in which the revisions are first identified. Direct costs consist primarily of direct labor and other related costs. Revenue from time and materials contracts are recognized as hours are incurred, multiplied by contractual billing rates. Revenue from unit-based contracts are generally recognized as units are completed.

~~Financial~~A ~~instruments~~majority ~~that~~of ~~potentially subject~~ the Company’s tocontracts ~~credit~~undergo ~~risk~~modifications ~~consist~~over ofthe ~~cash~~contract ~~and cash~~period ~~equivalents, accounts receivable,~~ and ~~unbilled services. As of March 31, 2007, substantially all of~~ the Company’s ~~cash~~contracts ~~and~~provide ~~cash~~for ~~equivalents~~these ~~were held in or invested with domestic banks~~modifications. ~~Accounts~~ ~~receivable~~During ~~include~~the ~~amounts~~modification ~~due~~process, ~~from~~the ~~pharmaceutical and biotechnology companies. Accounts~~Company ~~receivable~~recognizes ~~from~~revenue ~~individual~~to ~~customers~~the ~~that~~extent ~~are~~it ~~equal~~incurs tocosts, orprovided ~~greater~~client ~~than~~acceptance ~~10%~~and ofpayment ~~consolidated~~is ~~accounts~~deemed ~~receivable~~reasonably ~~in the respective periods were as follows:~~assured.

	December 31,			March 31,
	2006			2007
Customer A		16.2	%		20.8	%

If it is determined that a loss will result from performance under a contract, the entire amount of the loss is charged against income in the period in which the determination is made.

~~The~~Reimbursement ~~Company~~Revenue ~~establishes~~and anReimbursable ~~allowance~~Out-of-Pocket ~~for potentially uncollectible receivables. In~~Costs ~~management’s opinion, there is no additional material credit risk beyond amounts provided for such losses.~~

~~Foreign~~ In ~~Currency~~addition ~~Translation~~to the various contract costs previously described, the Company incurs out-of-pocket costs, in excess of contract amounts, which are reimbursable by its customers. The Company includes out-of-pocket costs as reimbursement revenue and reimbursable out-of-pocket costs in the consolidated statements of operations.

~~The~~As ~~assets~~is ~~and~~customary ~~liabilities~~in ofthe industry, the Company’s ~~foreign~~routinely ~~subsidiaries~~enters ~~are~~into ~~translated~~separate ~~into~~agreements ~~U.S.~~on ~~dollars~~behalf atof ~~exchange~~its ~~rates~~clients inwith ~~effect~~independent asphysician ofinvestigators ~~the~~in ~~end~~connection ofwith ~~the~~clinical ~~period~~trials. The ~~Equity~~funds ~~activities~~received for investigator fees are ~~translated at~~netted against the ~~spot~~related ~~rate~~cost ~~effective~~because atsuch fees are the ~~date~~obligation of the ~~transaction.~~Company’s ~~Revenue~~clients, ~~and~~without ~~expense~~risk ~~accounts~~or ~~and~~reward ~~cash~~to the Company. The Company is not ~~flows~~obligated ofeither ~~these~~to ~~operations~~perform ~~are~~the ~~translated~~service ator ~~average~~to ~~exchange~~pay ~~rates~~the ~~prevailing~~investigator ~~during~~in the ~~period~~event of default by the ~~transactions occurred~~client. ~~Translation~~In ~~gains~~addition, ~~and~~the ~~losses~~Company ~~are~~does ~~included~~not aspay anthe ~~adjustment~~independent tophysician ~~the~~investigator until funds ~~accumulated~~are ~~other~~received ~~comprehensive~~from ~~income~~the ~~account~~client. inThe ~~stockholders’~~amounts ~~equity.~~identified ~~Transaction~~for ~~gains~~payment ~~and~~to investigators were ~~losses~~$15.8 million ~~are~~and ~~included~~$46.5 million infor ~~other~~the ~~income~~three ~~(expenses),~~and ~~net~~nine months ended September 30, in2007 and $12.2 million and $38.7 million for the ~~accompanying~~three ~~Consolidated~~and ~~Condensed Statements~~nine ofmonths ~~Operations~~ended September 30, 2006, respectively.

~~Comprehensive~~Significant ~~Income (Loss)~~Customers

~~The~~Service ~~components~~revenue offrom ~~comprehensive~~individual ~~income~~customers ~~(loss) include~~greater ~~the~~than ~~foreign~~10% ~~currency~~of ~~translation adjustment~~consolidated ~~and~~service anrevenue ~~adjustment resulting from a change~~ in the ~~fair~~respective ~~value~~periods ofwas ~~foreign~~as ~~currency hedges~~follows: ~~and an interest rate agreement.~~

Income Taxes

Three Months Ended

Nine Months Ended

September 30,

2006

2007

2006

2007

Customer D

~~Deferred~~* ~~income~~Less taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized and are reversed at such time that realization is believed to be more likely than ~~not.~~10% ~~Future reversals~~ of ~~valuation allowance on acquired deferred tax assets will first be applied against goodwill and other intangibles before recognition of a benefit in the~~ consolidated ~~statement~~service ofrevenues ~~operations. Income tax expense is the tax payable for the period and the change during the period~~ in ~~deferred tax assets and liabilities, exclusive of amounts related to~~ the ~~exercise~~respective ~~of stock options which benefit is recognized directly as an adjustment to stockholders’ equity~~period.

~~Stock-Based Compensation~~8

9 Due to the nature of the Company’s business and the relative size of certain contracts, it is not unusual for a significant customer in one year to be less significant in the next. However, it is possible that the loss of any single significant customer could have a material adverse effect on the Company’s results from operations.

~~PRA~~Concentration ~~INTERNATIONAL~~of ~~AND~~Credit ~~SUBSIDIARIES NOTES~~Risk ~~TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS~~—

~~Stock~~ Financial ~~Options~~instruments that potentially subject the Company to credit risk consist of cash and cash equivalents, accounts receivable, and unbilled services. As of September 30, 2007, substantially all of the Company’s cash and cash equivalents were held in or invested with domestic banks. Accounts receivable include amounts due from pharmaceutical and biotechnology companies. Accounts receivable and unbilled services from individual customers that are equal to or greater than 10% of consolidated accounts receivable in the respective periods were as follows:

The stock option compensation cost calculated under the fair value approach is recognized on a pro rata basis over the vesting period of the stock options (usually four years). All stock option grants are subject to graded vesting as services are rendered. The fair value for granted options was estimated at the time of the grant using the Black-Scholes option-pricing model. Expected volatilities are based on the volatility of share prices of similar entities and the Company uses historical data to estimate option exercise behavior.

~~During~~The ~~the three months ended March 31, 2007 and 2006, the~~ Company ~~issued~~establishes ~~77,500~~an ~~and~~allowance ~~573,750 options,~~for ~~respectively.~~potentially ~~The~~uncollectible ~~fair value of each option issued during these periods was estimated on~~receivables. ~~the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:~~

	For the three months ended
	March 31,
	2006			2007
Dividend yield		0	%		0	%
Expected volatility		49.0	%		42.6	%
Risk-free interest rate		4.5	%		4.7	%
Expected terms in years		5.0			4.75

Foreign Currency Translation

The ~~following~~assets ~~table~~and ~~summarizes~~liabilities ~~information~~of ~~related~~the Company’s foreign subsidiaries are translated into U.S. dollars at exchange rates in effect as of the end of the period. Equity activities are translated at the spot rate effective at the date of the transaction. Revenue and expense accounts and cash flows of these operations are translated at average exchange rates prevailing during the period the transactions occurred. Translation gains and losses are included as an adjustment to ~~stock~~the accumulated ~~option~~other ~~activity~~comprehensive ~~for~~income account in stockholders’ equity. Transaction gains and losses are included in other income (expenses), net, in the ~~respective~~accompanying Consolidated Condensed ~~periods:~~Statements of Operations.

	For the three months ended
	March 31,
($ in thousands, except per share data)	2006		2007
Weighted-average fair value of options granted per share	$	12.53	$	10.07
Intrinsic value of options exercised	$	3,175	$	1,918
Cash received from options exercised	$	1,354	$	1,942
Actual tax benefit realized for tax deductions from option exercises	$	708	$	531

Comprehensive Income

~~Aggregated~~The ~~information~~components ~~regarding~~of comprehensive income include the ~~Company’s~~foreign ~~fixed~~currency ~~stock~~translation ~~option~~adjustment ~~plans~~and adjustments isresulting ~~summarized~~from ~~below:~~changes in the fair value of foreign currency hedges. Changes in the fair value of an interest rate agreement were included in comprehensive income until the Company paid off the related debt.

				Wtd.		Weighted average
				average		remaining		Aggregate
	Options			exercise		contractual		intrinsic
	(000)			price		life		value (millions)
Outstanding December 31, 2006		3,130,190		$	15.93
Granted		77,500			23.42
Exercised		(163,064	)		11.91
Expired/forfeited		(83,500	)		22.79
Outstanding March 31, 2007		2,961,126		$	16.16		5.4	$	22
Exercisable at March 31, 2007		1,597,367		$	9.63		5.0	$	20

Income Taxes

~~Stock-based~~ Deferred ~~compensation~~income ~~expense~~taxes ~~included~~are recognized for the tax consequences in future years of differences between the ~~statement~~tax bases of ~~operations~~assets ~~for~~and ~~the~~liabilities ~~three~~and ~~months~~their financial reporting amounts at each year ~~ended~~end ~~March 31,~~based ~~2006~~on enacted tax laws and ~~2007,~~statutory ~~was~~tax ~~approximately~~rates ~~$1.1 million~~applicable ~~and~~to ~~$1.3 million,~~the ~~respectively.~~periods Asin which the ofdifferences ~~March 31,~~are ~~2007,~~expected ~~there~~to ~~were~~affect ~~approximately~~taxable ~~$11~~income.~~1 million~~ ofValuation ~~total~~allowances ~~unrecognized~~are ~~stock-based~~established when ~~compensation~~necessary ~~costs~~to ~~related~~reduce deferred tax assets to ~~options~~the ~~granted~~amount ~~under~~expected ~~our~~to ~~plans~~be realized and are reversed at such time that realization is believed to be more likely than not. Future reversals of valuation allowances on acquired deferred tax assets will be ~~recognized~~a ~~over~~recognition of a tax benefit in the ~~weighted~~consolidated ~~average~~statement of operations. Income tax expense is the tax payable for the period and the change during the period in deferred tax assets and liabilities, exclusive of 1amounts related to the exercise of stock options which benefit is recognized directly as an adjustment to stockholders’ equity.~~4 years.~~

10Stock-Based Compensation

~~PRA~~ The ~~INTERNATIONAL~~primary ~~AND~~type ~~SUBSIDIARIES~~of share-based payment utilized by the Company is stock options. Stock ~~NOTES~~options TOare ~~CONSOLIDATED~~awards ~~CONDENSED~~which ~~FINANCIAL~~allow ~~STATEMENTS~~the employee to purchase shares of the Company’s stock at a fixed price. Stock options are granted at an exercise price equal to the Company stock price at the date of grant. The Company issued stock options in the first nine months of 2007 that vest over four years and have a contractual term of seven years. In addition, the Company issued performance based options to certain executives that vest if the Company’s closing share price meets certain thresholds during the executive’s employment with the Company. These performance based options also have a seven year contractual term.

~~Net income per share~~9

~~Diluted~~Prior ~~income~~to ~~per~~January 1, ~~common~~2006, ~~share~~the isCompany ~~computed~~accounted for employee stock-based compensation using the intrinsic value based method as prescribed by ~~dividing~~Accounting ~~reported~~Principles ~~net~~Board ~~income~~Opinion No. 25, “Accounting for Stock Issued to Employees”, as described by FASB Interpretation No. 44. Accordingly, no compensation expense was required to be recognized as long as the ~~weighted~~exercise price of ~~average~~the ~~number~~Company’s stock options was equal to the market price of ~~common~~the ~~shares,~~underlying ~~common~~stock ~~shares~~on ~~obtainable~~the ~~upon~~date of grant. Effective January 1, 2006, the ~~exchange~~Company adopted Statement of ~~exchangeable~~Financial ~~shares~~Accounting Standard (“SFAS”) No. 123(R) “Share-Based Payment” under the modified prospective method as described in SFAS No. 123(R). Under this transition method, compensation expense recognized in the three and nine months ended September 30, 2006 and ~~dilutive~~September 30, ~~common~~2007 ~~equivalent~~includes ~~shares~~compensation ~~outstanding~~expense ~~during~~for ~~each~~all stock-based ~~period~~payments granted after January 1, 2006, and for all stock-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provision of SFAS No. 123. ~~Dilutive~~For ~~common~~the ~~equivalent~~three and nine months ended ~~shares~~September 30, ~~consist~~2006, the amount of ~~stock~~compensation ~~options~~expense recognized was $1.5 million and ~~warrants~~$3.5 million, respectively. For the three and nine months ended September 30, 2007, the amount of compensation expense recognized was $1.9 million and $4.7 million, respectively. Stock based compensation expense is recorded in selling, general, and administrative expenses in the condensed consolidated statement of operations.

~~The~~Stock ~~following is a reconciliation of the amounts used to determine the basic and diluted~~Options ~~earnings per share:~~

	Quarter Ended
	March 31,
	2006		2007
Numerator:
Net income for basic and diluted EPS	$	6,106	$	3,008
Denominator:
Weighted average shares for basic EPS		22,966		24,353
Effect of dilutive stock options		1,243		853
Weighted average shares for diluted EPS		24,209		25,206
Basic earnings per share	$	0.27	$	0.12
Diluted earnings per share	$	0.25	$	0.12

The stock option compensation cost calculated under the fair value approach is recognized on a pro rata basis over the vesting period of the stock options (usually four years for time vested options). All stock option grants are subject to graded vesting as services are rendered. The fair value for options with a service condition was estimated at the time of the grant using the Black-Scholes option-pricing model. The options with a market condition were valued using a Monte Carlo model. For both valuation methods, expected volatilities are based on the volatility of share prices of similar entities and the Company uses historical data to estimate option exercise behavior.

~~Excluded~~ During ~~from~~ the ~~calculation~~nine ofmonths ~~earnings~~ended ~~per~~September 30, ~~diluted~~2007 ~~share~~and ~~were~~2006, ~~212~~the Company issued 1,~~500~~280,000 and 828,750 1options,~~202~~ respectively. Included in the options issued in 2007 are 460,000 ~~shares~~options with a market vesting condition. The fair value of each option issued during ~~2006~~these periods was estimated on the date of grant using the Black-Scholes option pricing model for service condition awards and a ~~2007~~Monte Carlo model for market condition awards, ~~respectively.~~with the following weighted average assumptions:

Recent Accounting Pronouncements


	For the Nine
	Months Ended
	September 30,
	2006			2007
Dividend yield		0	%		0	%
Expected volatility		48.63	%		34.95	%
Risk-free interest rate		4.56	%		4.59	%
Expected terms in years		4.75			4.67

~~Effective~~The ~~January 1,~~following ~~2007,~~table wesummarizes ~~adopted~~information ~~the~~related provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109, Accounting for Income Taxes, (FIN 48) which establishes a single model to ~~address~~stock ~~accounting~~option ~~for~~activity ~~uncertain tax positions. FIN 48 clarifies the accounting~~ for ~~income taxes by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in~~ the ~~financial statements.~~respective ~~FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim~~ periods~~, disclosure and transition. The Company identified,~~: evaluated and measured the amount of income tax benefits and liabilities to be recognized for all of its income tax positions. The net income tax liability of $4.6M did not differ from the net liability recognized before adoption, and, therefore, the Company did not record an adjustment related to the adoption of FIN 48. We are continuing our practice of recognizing interest and/or penalties related to income tax matters in the income tax provision.

In February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities” (SFAS 159). SFAS 159 permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company does not believe that SFAS 159 will have a material impact on its consolidated financial position and results of operations.


	For the Nine
	Months Ended
	September 30,
	2006		2007
	($ In thousands, except per share data)
Weighted-average fair value of options granted per share	$	12.81	$	9.02
Intrinsic value of options exercised	$	5,688	$	8,673
Cash received from options exercised	$	2,619	$	5,266
Actual tax benefit realized for tax deductions from option exercises	$	1,626	$	2,781

1110

~~(3) Accounts~~ Aggregated ~~receivable~~information ~~and~~regarding ~~unbilled~~the ~~services~~Company’s fixed stock option plans is summarized below:

Accounts receivable and unbilled services include service revenue, reimbursement revenue, and amounts associated with work performed by investigators (dollars in thousands):


						Weighted Average
						Remaining		Aggregate
				Weighted Average		Contractual		Intrinsic
	Options			Exercise Price		Life		Value
								(Millions)
Outstanding December 31, 2006		3,130,190		$	15.93
Granted		1,280,000			24.11
Exercised		(537,469	)		9.80
Expired/forfeited		(300,343	)		23.58

Outstanding September 30, 2007		3,572,378		$	19.14		5.5	$	37

Exercisable at September 30, 2007		1,340,808		$	10.81		4.5	$	25

	December 31,			March 31,
	2006			2007
Accounts receivable	$	68,491		$	60,597
Unbilled services		42,795			39,061
		111,286			99,658
Less: Allowance for doubtful accounts		(4,988	)		(4,965	)
	$	106,298		$	94,693

Stock-based compensation expense included in the statement of operations for the three and nine months ended September 30, 2007, was approximately $1.9 million and $4.7 million, respectively and $1.5 million and $3.5 million for the three and nine months ended September 30, 2006, respectively. As of September 30, 2007, there were approximately $14.7 million of total unrecognized stock-based compensation costs related to options granted under our plans that will be recognized over a weighted average period of 1.4 years.

~~(4) Goodwill~~Net ~~and~~income ~~Other~~per ~~Intangibles~~share

~~The~~Basic ~~changes~~income inper ~~the~~common ~~carrying~~share ~~amount~~is ofcomputed ~~goodwill~~by ~~for~~dividing ~~the~~reported ~~twelve~~net ~~months~~income ~~ended~~by ~~December 31,~~the ~~2006~~weighted ~~and~~average ~~the~~number ~~three~~of ~~months~~common ~~ended~~shares ~~March 31,~~outstanding ~~2007~~during ~~were~~each ~~as follows (dollars in thousands):~~period.

Carrying amount as of December 31, 2006	$	210,761
Foreign currency exchange rate changes		1,640
Carrying amount as of March 31, 2007	$	212,401

Diluted income per common share is computed by dividing reported net income by the weighted average number of common shares and dilutive common equivalent shares outstanding during each period. Dilutive common equivalent shares consist of stock options.

~~Other~~The ~~intangibles~~following ~~consist~~is a reconciliation of the ~~following~~amounts ~~(dollars~~used to determine the basic and diluted earnings per share (in thousands, except for per share amounts):

	Weighted
	Three Months Ended				Nine months Ended
	Average		As of December 31, 2006						As of March 31, 2007
	September 30,				September 30,
	Amortization		Gross						Gross				Net
	2006		2007		2006		2007
	Period		Carrying		Accumulated		Net Carrying		Carrying		Accumulated		Carrying
Numerator:
	(in Years)		Amount		Amortization		Amount		Amount		Amortization		Amount
Net income for basic and diluted EPS	$	8,183	$	6,510	$	21,124	$	10,211
Non-compete and other agreements		2	$	3,088	$	2,779	$	309	$	3,100	$	2,925	$	175
Denominator:
Customer relationships		10		18,908		5,193		13,715		19,200		5,989		13,211
Weighted average shares for basic EPS		23,754		24,691		23,294		24,496
Trade names	Indefinite			19,943		474		19,469		19,957		474		19,483
Effect of dilutive stock options		1,184		763		1,263		816
			$	41,939	$	8,446	$	33,493	$	42,257	$	9,388	$	32,869
Weighted average shares for diluted EPS		24,938		25,454		24,557		25,312
Basic earnings per share	$	0.34	$	0.26	$	0.91	$	0.42
Diluted earnings per share	$	0.33	$	0.26	$	0.86	$	0.40

~~Amortization~~Excluded ~~expense~~from ~~related~~the tocalculation ~~other~~of ~~intangibles~~earnings ~~was~~per ~~approximately~~diluted ~~$0.3 million~~share were 915,000 and ~~$0.9 million~~205,000 shares for the quarters ~~three months~~ ended ~~March~~September 3130, 2006 and ~~March 31,~~ 2007, respectively., ~~Estimated amortization~~and ~~expense~~890,000 and 777,200 for the ~~next~~nine months ~~five~~ended ~~years~~September 30, is2006 and 2007, respectively as ~~follows:~~their inclusion would be antidilutive.

(in thousands)
2007 (remaining 9 months)	$	2,586
2008		2,454
2009		1,619
2010		1,619
2011		1,344
2012 and thereafter		3,764
	$	13,386

Recent Accounting Pronouncements

~~(5)~~Effective January 1, 2007, we adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty ~~Derivative~~in ~~Instruments~~Income Taxes — an interpretation of FASB Statement No. 109, Accounting for Income Taxes , (FIN 48) which establishes a single model to address accounting for uncertain tax positions. FIN 48 clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, ~~Hedging~~accounting ~~Activities~~in interim periods, disclosure and transition. The Company identified, evaluated and measured the amount of income tax benefits and liabilities to be recognized for all of its income tax positions. The net income tax liability of $4.6 million did not differ from the net income tax liability recognized before adoption,

~~We entered into foreign currency derivatives to mitigate exposure to movements~~11 between the US dollar and the British pound, Canadian dollar and Euro. We agreed to purchase a given amount of British pounds, Canadian dollars and Euros at established dates through 2006 and 2007. The transactions are structured as no-cost collars whereby we neither pay more than an established ceiling exchange rate nor less than an established floor exchange rate on the notional amounts hedged. These agreements expire throughout 2006 and 2007. We expect to continue to use similar derivatives to mitigate our foreign currency exposure.

~~PRA~~and, ~~INTERNATIONAL~~therefore, ~~AND~~the ~~SUBSIDIARIES~~Company did not record an ~~NOTES~~adjustment TOrelated ~~CONSOLIDATED~~to ~~CONDENSED~~the ~~FINANCIAL~~adoption ~~STATEMENTS~~of FIN 48 during the first quarter of 2007. During the third quarter of 2007, the statute for the 2003 US income tax return closed and we therefore reduced our FIN 48 reserve by $1.3 million. During the third quarter, we recognized interest of $112,000 related to our tax liabilities and will continue our practice of recognizing interest and/or penalties related to income tax matters in the income tax provision. While it is reasonably possible that an increase or reduction in the amount on our net income tax liability will occur in the next twelve months, quantification of an estimated range cannot be made at this time.

In ~~August~~September 2006, ~~2006~~the weFASB ~~entered~~issued ~~into~~FASB anStatement ~~interest~~No. 157, ~~rate~~Fair ~~swap~~Value ~~with~~Measurements a(SFAS ~~notional~~157), which ~~amount~~addresses ofhow ~~$15 million, to~~companies ~~mitigate~~should ~~exposure~~measure fair value when they are required to ~~movements~~use ina ~~our~~fair ~~borrowing~~value measure ~~rate~~for recognition or disclosure purposes under ~~our~~generally ~~credit~~accepted ~~facility~~accounting principles. WeSFAS 157 ~~agreed~~outlines a common definition of fair value and the new standard intends to make the measurement ~~swap~~of ~~our~~fair ~~floating~~value ~~rate~~more consistent and comparable and improve disclosures about those measures. The Company will need to adopt SFAS 157 for afinancial ~~fixed~~statements ~~rate~~issued for 2 fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of SFAS 157 on its results of operations and financial condition.

~~These~~In ~~derivatives~~February 2007, ~~are~~the ~~accounted~~FASB ~~for~~issued inSFAS ~~accordance with FAS~~ No. ~~133,~~159 “~~Accounting~~The Fair Value Option for ~~Derivative Instruments~~Financial Assets and ~~Hedging~~Financial ~~Activities.~~Liabilities” We(SFAS ~~recognize~~159). ~~derivatives~~SFAS as159 ~~instruments~~permits asentities ~~either~~to ~~assets~~choose ~~or liabilities~~to inmeasure ~~the~~many financial ~~balance~~assets ~~sheet~~ and ~~measure~~financial ~~them~~liabilities at fair value. ~~These~~Unrealized ~~foreign~~gains ~~currency~~and ~~derivatives~~losses on items for ~~are~~which ~~designated~~the asfair ~~cash~~value ~~flow~~option ~~hedges~~has ~~and~~been ~~accordingly~~elected ~~the~~are ~~changes~~reported in ~~fair~~earnings. ~~value~~SFAS ~~have~~159 ~~been~~is ~~recorded~~effective infor ~~stockholders~~fiscal ~~equity~~years ~~(as~~beginning after November 15, 2007. The Company does not believe that SFAS 159 will have a ~~component~~material ofimpact ~~comprehensive~~on ~~income/loss)~~its consolidated financial position and results of operations.

~~(6) Commitments~~Out-of-Period ~~and Contingencies~~Adjustment

~~Legal~~During ~~Proceedings~~the second quarter of 2007, the Company identified an error of approximately $554,000 in its 2004 consolidated income tax expense related to the allocation of pass-through revenue between the U.S and non U.S. entities. The company identified and corrected this error in the second quarter of 2007, which had the effect of reducing the 2007 consolidated tax expense by $554,000. The Company does not believe this adjustment is material to the consolidated financial statements for the years ended December 31, 2006, 2005, or 2004 and the nine months ended September 30, 2007 and, as a result, has not restated its consolidated financial statements for the year ended December 31, 2004.

~~The~~(4) Accounts ~~Company~~receivable ~~is involved in legal proceedings from time to time in the ordinary course of its business, including employment claims~~ and ~~claims~~unbilled ~~related to other business transactions. Although~~services the outcome of such claims is uncertain, management believes that these legal proceedings will not have a material adverse effect on the financial condition or results of future operations of the Company.

Accounts receivable and unbilled services include service revenue, reimbursement revenue, and amounts associated with work performed by investigators (~~7) Related-Party~~dollars ~~Transactions~~in thousands):

The Company currently leases operating facilities from a related party under a lease agreement which expires in December 2009. Under terms of the lease, we have exercised our option to terminate the lease as of September 30, 2007 in exchange for a termination fee of approximately $0.2 million, 50% of which was paid in March 2007 and the balance payable on or before September 30, 2007. Rental expense under this lease was approximately $0.1 million for each of the three months ended March 31, 2006 and 2007.


	December 31,			September 30,
	2006			2007
Accounts receivable	$	68,491		$	80,041
Unbilled services		42,795			42,080

		111,286			122,121
Less: Allowance for doubtful accounts		(4,988	)		(4,121	)

	$	106,298		$	118,000

(85) ~~Segment~~Goodwill ~~Reporting~~and —Other ~~Operations by Geographic Area~~Intangibles

The ~~Company’s~~changes ~~operations~~in ~~consist~~the ofcarrying ~~one~~amount ~~reportable~~of ~~segment,~~goodwill ~~which~~for ~~represents management’s view of~~ the ~~Company’s~~nine ~~operations~~months ~~based~~ended onSeptember 30, ~~its management and internal reporting structure. The following~~2007 ~~table~~were ~~presents~~as ~~certain~~follows ~~enterprise-wide information about the Company’s operations by geographic area~~ (dollars in thousands):

	Three Months Ended
Carrying amount as of December 31, 2006	$	210,761
	March 31,
Acquisitions		—
	2006		2007
Foreign currency exchange rate changes		10,460
Service revenue
Carrying amount as of September 30, 2007	$	221,221
United States	$	39,453	$	38,379
Canada		8,851		7,284
Europe		19,181		35,909
Other		1,719		3,480
	$	69,204	$	85,052

	December 31,		March 31,
	2006		2007
Long-lived assets
United States	$	19,376	$	19,041
Canada		866		946
Europe		16,589		16,990
Other		1,141		1,173
	$	37,972	$	38,150

InOther ~~February 2007,~~intangibles ~~the~~consist ~~Company announced the planned closing~~ of ~~our Eatontown, New Jersey and Ottawa, Canada facilities. This restructuring will result in a charge in~~ the ~~first~~following ~~two~~(dollars quarters of 2007 totaling approximately $9 million. During the first quarter of 2007, we recorded an expense of approximately $1.0 million, primarily related to severance costs. We expect approximately $8.0 million in ~~charges in the second quarter of 2007, related to the real estate costs for closing~~thousands): ~~the facilities as well as additional severance costs.~~


			As of December 31,						As of September 30,
	Weighted		2006						2007
	Average		Gross				Net		Gross				Net
	Amortization		Carrying		Accumulated		Carrying		Carrying		Accumulated		Carrying
	Period		Amount		Amortization		Amount		Amount		Amortization		Amount
	(In Years)
Non-compete and other agreements		2	$	3,088	$	2,779	$	309	$	3,166	$	3,165	$	1
Customer relationships		10		18,908		5,193		13,715		19,908		7,740		12,168
Trade names	Indefinite			19,943		474		19,469		20,021		474		19,547

			$	41,939	$	8,446	$	33,493	$	43,095	$	11,379	$	31,716

~~ITEM~~ Amortization expense related to other intangibles was approximately $0.6 million and $1.2 million for the three and nine months ended September 30, 2006 and $0.9 million ~~MANAGEMENT’S~~and $2.7 million ~~DISCUSSION~~for ~~AND~~the ~~ANALYSIS~~three OFand ~~FINANCIAL~~nine ~~CONDITION~~months ~~AND~~ended ~~RESULTS~~September 30, OF2007, ~~OPERATIONS~~respectively. Estimated amortization expense for the next five years is as follows:

The following discussion and analysis should be read in conjunction with the financial statements and related notes and the other financial information included elsewhere in this report. This discussion contains forward-looking statements about our business and operations. Our actual results could differ materially from those anticipated in such forward-looking statements.


	(In thousands)
2007 (remaining 3 months)	$	889
2008		2,558
2009		1,669
2010		1,669
2011		1,394
2012 and thereafter		3,990

	$	12,169

~~Overview~~(6) Accounting for Derivative Instruments and Hedging Activities

We ~~provide~~entered ~~clinical~~into ~~drug~~foreign ~~development~~currency ~~services~~derivatives onto amitigate ~~contract~~exposure ~~basis~~ to ~~biotechnology~~movements ~~and~~between the ~~pharmaceutical~~US ~~companies~~dollar ~~worldwide.~~and Wethe ~~conduct~~British ~~clinical~~pound, ~~trials~~Canadian ~~globally~~dollar and ~~are~~Euro. ~~one~~We ofagreed ato ~~limited number~~purchase ofa ~~contract~~given ~~research~~amount ~~organizations,~~of British ~~or CROs~~pounds, ~~with~~Canadian ~~the~~dollars ~~capability~~and toEuros ~~serve~~at ~~the~~established ~~growing~~dates ~~need of~~through ~~pharmaceutical~~2006 and ~~biotechnology companies to conduct complex clinical trials in multiple geographies concurrently~~2007. ~~We offer our clients high-quality services designed to provide data to~~The ~~clients~~transactions asare ~~rapidly~~structured as ~~possible~~no-cost ~~and~~collars ~~reduce~~whereby ~~product~~we ~~development~~neither ~~time.~~paid Wemore ~~believe~~than ~~our~~an ~~services enable~~established ~~our~~ceiling ~~clients~~exchange torate ~~introduce~~nor ~~their~~less ~~products~~than ~~into~~an ~~the~~established ~~marketplace~~floor ~~faster~~exchange ~~and,~~rate ason athe ~~result,~~notional ~~maximize the~~amounts ~~period~~hedged. ofThese ~~market~~agreements ~~exclusivity~~expired ~~and~~throughout ~~monetary~~2006 ~~return on their research~~ and ~~development investments~~2007. ~~Additionally,~~ ~~our~~We ~~comprehensive~~expect ~~services~~to ~~and~~continue ~~broad~~to ~~experience~~use ~~provide our clients with a variable~~similar ~~cost~~derivatives ~~alternative~~ to ~~fixed~~mitigate ~~cost~~our ~~internal~~foreign ~~development~~currency ~~capabilities~~exposure.

~~Contracts~~These ~~define~~derivatives ~~our~~are ~~relationships~~accounted ~~with~~for ~~clients~~ in ~~the~~accordance ~~pharmaceutical~~with ~~and~~FAS ~~biotechnology industries and establish the way we earn revenue~~No. 133, ~~Two~~“Accounting ~~types~~for ~~of relationships are most common: a~~Derivative ~~fixed-price~~Instruments ~~contract or a time~~ and ~~materials~~Hedging ~~contract~~Activities.” ~~The~~We ~~duration~~recognize ofderivatives ~~our~~as ~~contracts~~instruments ~~ranges~~as ~~from~~either ~~a few~~assets ~~months to several years. A fixed-price contract typically requires a portion of the contract~~or ~~fee~~liabilities toin ~~be paid at~~ the ~~time~~balance ~~the~~sheet ~~contract is entered into~~ and ~~the~~measure ~~balance~~them isat ~~received~~fair invalue. ~~installments over~~These ~~the~~derivatives ~~contract’s duration, in most cases when certain performance targets or milestones~~ are ~~reached.~~ ~~Service revenue from fixed-price contracts is generally recognized on a proportional~~designated ~~performance basis, measured principally by the total costs incurred~~ as acash ~~percentage~~flow ofhedges ~~estimated total costs for each contract. We also perform work under time~~ and ~~materials~~accordingly ~~contracts, recognizing service revenue as hours are incurred, which is then multiplied by~~ the ~~contractual~~changes ~~billing~~in ~~rate. Our~~fair ~~costs~~value ~~consist~~have ofbeen ~~expenses~~recorded ~~necessary~~in ~~to carry out the clinical development project undertaken by~~stockholders usequity ~~on behalf of the client. These costs primarily include the expense of obtaining appropriately qualified labor to administer the project, which we refer to~~ (as ~~direct~~a ~~cost~~component ~~headcount. Other costs we incur are attributable to the expense~~ of ~~operating~~comprehensive ~~our business generally, such as leases and maintenance of information technology and equipment~~income/expense).

WeIn ~~review~~August, ~~various~~2006 ~~financial~~we ~~and~~entered ~~operational~~into ~~metrics,~~an ~~including~~interest ~~service~~rate ~~revenue,~~swap ~~margins, earnings,~~with ~~new~~a ~~business~~notional ~~awards,~~amount ~~and~~of ~~backlog~~ $15 million, to ~~evaluate~~mitigate ~~our~~exposure ~~financial~~to ~~performance.~~movements ~~Our~~in ~~service revenue~~our ~~was~~borrowing ~~$303.2 million~~rate inunder ~~2006~~our ~~and~~credit ~~$85~~facility.~~1 million~~ ~~for~~We ~~the~~agreed ~~three months ended March 31, 2007.~~to ~~Once~~swap ~~contracted~~our ~~work~~floating ~~begins,~~rate ~~service~~for ~~revenue~~a isfixed ~~recognized~~rate ~~over~~for ~~the~~2 years. ~~life~~As of the ~~contract~~Company ~~as services~~paid ~~are~~off ~~performed.~~its Werevolving ~~commence~~credit facility ~~service~~in ~~revenue~~March ~~recognition~~of ~~when~~2007, athis ~~contract~~derivative is ~~signed~~no orlonger ~~when we~~designated ~~receive~~as a ~~signed~~hedging ~~task order or letter of intent~~instrument.

~~Our new business awards for the three months ended March 31, 2006 and 2007 were $87 million~~13 and $125 million, respectively. New business awards arise when a client selects us to execute its trial and so indicates by written or electronic correspondence. The number of new business awards can vary significantly from quarter to quarter, and awards can have terms ranging from several months to several years. The value of a new award is the anticipated service revenue over the life of the contract, which does not include reimbursement activity or investigator fees.

Our backlog consists of anticipated service revenue from new business awards that either have not started but are anticipated to begin in the near future or are contracts in process that have not been completed. Backlog varies from period to period depending upon new business awards and contract increases, cancellations, and the amount of service revenue recognized under existing contracts. Our backlog at March(7) ~~31,~~Commitments ~~2006~~ and ~~2007 was $553 million and $654 million, respectively.~~Contingencies

~~Income~~Legal ~~from operations was $8.6 million and $4.4 million for the quarters ended March 31, 2006~~Proceedings ~~and 2007, respectively.~~

14 The Company is involved in legal proceedings from time to time in the ordinary course of its business, including employment claims and claims related to other business transactions. Although the outcome of such claims is uncertain, management believes that these legal proceedings will not have a material adverse effect on the financial condition or results of future operations of the Company.

~~Announced~~(8) Related-Party ~~Restructuring~~Transactions

InThe ~~February 2007,~~Company wecurrently ~~announced~~leases ~~the~~operating ~~planned~~facilities ~~closing~~from ofa ~~our~~related ~~Eatontown,~~party ~~New~~under ~~Jersey~~a ~~and~~lease ~~Ottawa,~~agreement ~~Canada~~which ~~facilities.~~expires ~~Our~~in ~~project~~December 2009. ~~managers,~~Under ~~product~~terms ~~directors~~of ~~and~~the ~~lead~~lease, ~~clinical~~we ~~research~~have ~~associates will~~exercised ~~work from a home-based environment while~~ our ~~associated~~option ~~support~~to ~~functions will be consolidated~~terminate ~~into~~the ~~our~~lease ~~larger~~as ~~offices.~~of WeSeptember 30, ~~expect~~2007 noin ~~overall~~exchange ~~reduction~~for ina ~~staff.~~termination Wefee ~~incurred~~of approximately $1.0.2 million in, ~~costs~~which ~~related~~was topaid ~~these~~prior ~~closings~~to inSeptember 30, ~~the~~2007. ~~first~~Rental ~~quarter~~expense ofunder ~~2007,~~this ~~primarily~~lease ~~related~~was ~~to severance costs.~~approximately We$0.1 million ~~anticipate~~and ~~an additional~~ $8.0.3 million ~~will~~for beeach ~~charged in the second quarter~~ of ~~2007, related to real estate charges to close~~ the ~~facilities~~three asand ~~well~~nine asmonths ~~additional~~ended ~~severance~~September 30, ~~costs.~~2006 ~~We expect an~~and ~~annual~~2007, ~~cost savings of approximately $4 million from these office closings~~respectively.

~~Service~~(9) Segment ~~Revenue~~Reporting — Operations by Geographic Area

WeThe ~~recognize~~Company’s ~~service~~operations ~~revenue~~consist ~~from~~of ~~fixed-price~~one ~~contracts~~reportable ~~on a proportional performance basis as services are provided. To measure performance on a given date~~segment, wewhich ~~compare~~represents ~~each contract~~management’s ~~direct~~view ~~cost~~of ~~incurred~~the ~~to such contract~~Company’s ~~total~~operations ~~estimated~~based ~~direct~~on ~~cost~~its ~~through~~management ~~completion.~~and Weinternal ~~believe~~reporting ~~this~~structure. ~~is the~~The ~~best indicator of the performance of the contractual obligations because the costs relate to~~following ~~the~~table ~~amount~~presents ofcertain ~~labor~~enterprise-wide ~~incurred~~information toabout ~~perform~~ the ~~service~~Company’s ~~revenues.~~operations ~~For time and materials contracts, revenue is recognized as hours are incurred, multiplied~~ by ~~contractual billing rates. Our contracts~~geographic ~~often~~area ~~undergo~~(dollars ~~modifications, which can change the amount of and the period of time~~ in ~~which to~~thousands): ~~perform services. Our contracts provide for such modifications.~~

Most of our contracts can be terminated by our clients after a specified period, typically 30 to 60 days, following notice by the client. In the case of early termination, these contracts typically require payment to us of expenses to wind down a study, payment to us of fees earned to date, and in some cases, a termination fee or some portion of the fees or profit that we could have earned under the contract if it had not been terminated early. Based on ethical, regulatory, and health considerations, this wind-down activity may continue for several quarters or years.


	Three Months Ended				Nine months Ended
	September 30,				September 30,
	2006		2007		2006		2007
Service revenue
United States	$	43,017	$	46,327	$	120,856	$	127,349
Canada		7,970		5,880		23,713		19,259
Europe		27,920		40,204		69,821		113,946
Other		2,597		4,246		6,407		11,329

	$	81,504	$	96,657	$	220,797	$	271,883

Reimbursement Revenue and Reimbursable Out-of-Pocket Costs


	December 31,		September 30,
	2006		2007
Long-lived assets
United States	$	19,376	$	18,550
Canada		866		1,554
Europe		16,589		17,299
Other		1,141		1,053

	$	37,972	$	38,456

~~We incur out-of-pocket costs, which are reimbursable by our customers. We include these~~(10) Restructuring out-of-pocket costs as reimbursement revenue and reimbursable out-of-pocket expenses in our consolidated statement of operations. In addition, we routinely enter into separate agreements on behalf of our clients with independent physician investigators, in connection with clinical trials. The funds received for investigator fees are netted against the related costs, since such fees are the obligation of the Company’s clients, without risk or reward to the Company. The Company is not obligated either to perform the service or to pay the investigator in the event of default by the client. In addition, the Company does not pay the independent physician investigator until funds are received from the client. Reimbursement costs and investigator fees are not included in our backlog.

~~Direct~~ In ~~Costs~~February 2007, the Company announced the planned closing of our Eatontown, New Jersey and Ottawa, Canada facilities. During the three months ended September 30, 2007, we recorded an expense of approximately $0.4 million, including $0.3 million for severance costs and $0.1 million in other costs. During the nine months ended September 30, 2007, we recorded an expense of approximately $8.0 million, of which $5.4 million related to real estate costs, $2.3 million for severance, including executive separation, and $0.3 million in other costs. These expenses are included in selling, general and administrative expense in the Consolidated Condensed Statement of Operations. Included in the real estate costs is an early termination fee for the Eatontown office. The Company sublet its Ottawa facility. No further expenses are expected to be incurred for these closings.

~~Our direct costs are primarily labor-related charges. They include elements such as salaries, benefits, and incentive compensation for our employees.~~ In ~~addition, we utilize staffing agencies to procure primarily part time individuals to perform work on our contracts. For the quarters ended March~~September ~~31, 2006 and~~ 2007, the ~~labor-related~~Company ~~charges~~announced ~~were~~a ~~91%~~plan ~~and~~to ~~90%~~move ofits ~~our~~corporate ~~direct~~headquarters ~~costs~~to Raleigh, ~~respectively~~North Carolina. The ~~cost~~move ~~of labor procured through staffing agencies~~ is ~~included~~expected into ~~these percentages~~be ~~and~~completed ~~represents~~by 3%the orend ~~less~~ of ~~total~~the ~~direct~~first ~~costs~~quarter ~~in each period presented. The remaining direct costs are items such as travel~~2008, ~~meals,~~with ~~postage and freight, patient costs,~~an ~~medicine~~estimated ~~waste~~charge ~~and supplies. The total~~ of ~~all these items has historically been less than 10% of total direct cost~~$1.7 million ~~Direct~~expected ~~costs as a percentage of service revenue fluctuate from one period~~ to ~~another~~ asbe ataken ~~result~~over ~~of changes in operational performance to~~ the ~~original~~next ~~budget~~two ~~in the hundreds of ongoing studies conducted during any period of time~~quarters.

~~The margins on our portfolio of contracts vary based on our ability to optimize the efficiency~~14 of our work on each contract. The deployment of our billable staff in an optimally efficient manner has the most impact on our ratio of direct cost to service revenue. The most effective deployment of our staff is when they are fully engaged in billable work and are accomplishing contract related activities at a rate that meets or exceeds the targets in our internal budgets. We also seek to optimize our efficiency by performing work using the employee with the lowest cost. Our margins decrease when our staff are not fully deployed, as is the case when there are unforeseen cancellations or delays, or when our staff are accomplishing tasks at levels of effort that exceed budget, such as rework.

~~Selling,~~The ~~general,~~changes ~~and~~in ~~administrative~~the ~~expenses~~liability ~~consist~~for ofthe ~~administration~~restructuring ~~payroll~~for ~~and~~the ~~benefits, marketing~~nine ~~expenditures,~~months ~~and~~ended ~~overhead~~September 30, 2007 ~~costs~~were ~~such~~ as ~~information~~follows ~~technology~~(dollars ~~and~~in ~~facilities costs.~~thousands): ~~These expenses also include central overhead costs that are not directly attributable to our operating business and include certain costs related to insurance, professional fees, and property.~~


				Severance and
				Executive
	Real Estate Costs			Separation costs			Other costs			Total
Balance at December 31, 2006	$	0		$	0		$	0		$	0
Costs incurred and charged to expense		5,364			2,304			297			7,965
Costs paid		(4,077	)		(1,861	)		(256	)		(6,194	)

Balance at September 30, 2007	$	1,287		$	443		$	41		$	1,771

~~Depreciation and Amortization~~15

~~Income~~ITEM ~~Taxes~~2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

~~Because~~The wefollowing ~~conduct~~discussion ~~operations~~and onanalysis ashould ~~global~~be ~~basis,~~read ~~our~~in ~~effective~~conjunction ~~tax~~with ~~rate~~the ~~has~~financial statements and ~~will~~related ~~continue to~~notes ~~depend~~and ~~upon~~ the ~~geographic~~other ~~distribution~~financial ofinformation ~~our~~included ~~pre-tax~~elsewhere ~~earnings~~in ~~among~~this ~~several statutory foreign jurisdictions~~report. This ~~Our~~discussion ~~effective~~contains ~~tax~~forward-looking ~~rate~~statements ~~can~~about ~~also~~our ~~vary~~business ~~based~~and ~~on changes in the tax rates of different jurisdictions~~operations. Our ~~effective tax rate is also impacted by tax credits, the establishment or release~~actual ofresults ~~tax~~could ~~asset~~differ ~~valuation~~materially ~~allowances~~from ~~and~~those ~~tax~~anticipated ~~reserves~~in assuch ~~well~~forward-looking ~~as changes to prior year tax expense or prior year net operating loss carryforwards~~statements.

~~Our~~Acquisition ~~foreign subsidiaries are taxed separately in their respective jurisdictions. As~~ of ~~March 31,~~ ~~2007~~Company ~~and~~by ~~December 31,~~Genstar ~~2006,~~Capital ~~we had foreign net operating loss carryforwards in some~~LLC jurisdictions. The carryforward periods for these losses vary from five years to nine years depending on the jurisdiction. Our ability to offset future taxable income with the foreign net operating loss carryforwards may be limited in certain instances, including changes in ownership.

~~Exchange~~ On ~~Rate~~July 25, ~~Fluctuations~~2007, the Company announced that it had entered into a definitive merger agreement to be acquired by affiliates of Genstar Capital, LLC (“Genstar”), a private equity firm for approximately $790 million. Affiliates of Genstar beneficially own 12.6% of the outstanding shares of the Company. Upon the consummation of the merger, the Company’s stockholders will be entitled to receive $30.50 in cash for each share of the Company’s stock. Pending the receipt of stockholder approval and other customary closing conditions, the transaction is expected to be completed in the fourth quarter of 2007.

~~The majority of our foreign operations transact in the euro, pound sterling, or Canadian~~Overview dollar. As a result, our revenue is subject to exchange rate fluctuations with respect to these currencies. We have translated these currencies into U.S. dollars using the following average exchange rates:

	March 31,		December 31,		March 31,
	2006		2006		2007
U.S. Dollars per:
Euro		1.21		1.26		1.32
Pound Sterling		1.76		1.85		1.96
Canadian Dollar		0.87		0.88		0.86

We provide clinical drug development services on a contract basis to biotechnology and pharmaceutical companies worldwide. We conduct clinical trials globally and are one of a limited number of clinical research organizations, or CROs, with the capability to serve the growing need of pharmaceutical and biotechnology companies to conduct complex clinical trials in multiple geographies concurrently. We offer our clients high-quality services designed to provide data to clients as rapidly as possible and reduce product development time. We believe our services enable our clients to introduce their products into the marketplace faster and, as a result, maximize the period of market exclusivity and monetary return on their research and development investments. Additionally, our comprehensive services and broad experience provide our clients with a variable cost alternative to fixed cost internal development capabilities.

~~Results~~ Contracts define our relationships with clients in the pharmaceutical and biotechnology industries and establish the way we earn revenue. Two types of ~~Operations~~relationships are most common: a fixed-price contract or a time and materials contract. The duration of our contracts ranges from a few months to several years. A fixed-price contract typically requires a portion of the contract fee to be paid at the time the contract is entered into and the balance is received in installments over the contract’s duration, in most cases when certain performance targets or milestones are reached. Service revenue from fixed-price contracts is generally recognized on a proportional performance basis, measured principally by the total costs incurred as a percentage of estimated total costs for each contract. We also perform work under time and materials contracts, recognizing service revenue as hours are incurred, which is then multiplied by the contractual billing rate. Our costs consist of expenses necessary to carry out the clinical development project undertaken by us on behalf of the client. These costs primarily include the expense of obtaining appropriately qualified labor to administer the project, which we refer to as direct cost headcount. Other costs we incur are attributable to the expense of operating our business generally, such as leases and maintenance of information technology and equipment.

~~Many~~We ofreview ~~our~~various ~~current~~financial ~~contracts~~and ~~include~~operational ~~clinical~~metrics, ~~trials~~including ~~covering~~service ~~multiple~~revenue, ~~geographic~~margins, earnings, ~~locations~~new business awards, and backlog to evaluate our financial performance. Our service Werevenue ~~utilize~~was ~~the~~$303.2 million ~~same~~in ~~management~~2006 ~~systems~~and $96.7 million and ~~reporting~~$271.9 million ~~tools~~for tothe ~~monitor~~three and ~~manage these activities~~nine onmonths ~~the~~ended ~~same~~September 30, ~~basis~~2007, ~~worldwide~~respectively. ~~For~~Once ~~this~~contracted ~~reason~~work begins, weservice ~~consider~~revenue ~~our~~is recognized ~~operations~~over tothe belife aof ~~single~~the ~~business~~contract as services are performed. We commence service revenue ~~unit,~~recognition ~~and~~when wea ~~present~~contract ~~our~~is ~~results~~signed ofor ~~operations~~when aswe receive a ~~single~~signed ~~reportable~~task ~~segment~~order or letter of intent.

~~The~~Our ~~following~~new ~~table~~business ~~summarizes~~awards ~~certain~~were ~~statement~~$383 million ofand ~~operations~~$479 million ~~data~~for asthe anine ~~percentage~~months ofended ~~service~~September ~~revenue~~30, ~~for~~2006 ~~the~~and ~~periods~~2007, ~~shown~~respectively. WeNew ~~monitor~~business awards arise when a client selects us to execute its trial and ~~measure~~so ~~costs~~indicates asby awritten ~~percentage~~or electronic correspondence. The number of ~~service~~new ~~revenue~~business awards ~~rather~~can ~~than~~vary ~~total~~significantly ~~revenue~~from asquarter ~~this~~to isquarter, and awards can have terms ranging from several months to several years. The value of a ~~more~~new ~~meaningful~~award ~~comparison~~is ~~and~~the ~~better~~anticipated ~~reflects~~service revenue over the ~~operations~~ life of ~~our~~the ~~business~~contract, which does not include reimbursement activity or investigator fees.

										Three Months Ended
	Year Ended December 31,									March 31,
	2004			2005			2006			2006			2007
Service revenue		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%
Direct costs		48.3			46.3			50.9			50.8			54.9
Selling, general, and administrative		32.5			32.5			34.0			33.3			35.6
Depreciation and amortization		3.5			3.8			4.2			3.5			4.4
Management fee		0.3			—			—			—			—
Option repurchase		1.3			—			—			—			—
Vested option bonus		0.9			—			—			—			—
Income from operations		13.1			17.4			10.9			12.4			5.1
Interest expense		(1.4	)		(0.2	)		(0.5	)		(0.2	)		(0.7	)
Interest income		0.1			0.6			0.6			0.7			0.5
Other income (expenses), net		0.0			(0.4	)		0.1			0.0			(0.1	)
Income before income taxes		11.8			17.4			11.1			12.9			4.8
Provision for income taxes		4.3			6.4			2.2			4.1			1.3
Net income		7.5	%		10.9	%		8.9	%		8.8	%		3.5	%

In the normal course of business, we experience contract cancellations, which are reflected as cancellations when the client provides written or electronic correspondence that the work should cease. The number of cancellations can vary significantly from quarter to quarter. The value of the cancellation is the remaining amount of unrecognized service revenue, less the estimated effort to transition the work back to the sponsor. Our cancellations for the three months ended September 30, 2006 and 2007 were $21.0 million and $48.2 million, respectively.

~~The~~Our ~~following~~backlog ~~table~~consists ~~represents selected historical consolidated financial data. The statement~~ of ~~operations~~anticipated ~~data~~service ~~for~~revenue ~~the~~from ~~years~~new ~~ended~~business ~~December 31,~~awards ~~2004,~~that ~~2005~~either ~~and 2006 and balance sheet data at~~have ~~December 31,~~not ~~2005~~started ~~and~~but ~~2006~~ are ~~derived~~anticipated ~~from~~to ~~our~~begin ~~audited~~in ~~consolidated~~the ~~financial~~near ~~statements incorporated~~future byor ~~reference~~are tocontracts ~~Form~~in ~~10-K~~process ~~filed~~that onhave not ~~March 14,~~been ~~2007~~completed. ~~The~~Backlog ~~historical~~varies ~~results~~from ~~are~~period ~~not necessarily indicative of the operating results~~ to beperiod ~~expected~~depending inupon ~~the~~new ~~future.~~business ~~The~~awards ~~selected~~and ~~financial~~contract ~~data~~increases, ~~should~~cancellations, beand ~~read~~the ~~together~~amount ~~with~~of ~~“Management’s~~service ~~Discussion~~revenue ~~and~~recognized ~~Analysis~~under ~~of Financial~~existing ~~Condition~~contracts. ~~and~~Our ~~Results~~backlog ofat ~~Operations”~~September 30, 2006 and ~~our~~2007 ~~financial~~was ~~statements~~$605 million and ~~notes to the financial~~$753 million, ~~statements~~respectively.

										Three Months Ended
	Year Ended December 31,									March 31,
	2004			2005			2006			2006			2007
										(unaudited)			(unaudited)
Revenue
Service revenue	$	277,479		$	294,739		$	303,207		$	69,204		$	85,052
Reimbursement revenue		30,165			31,505			34,959			7,352			11,158
Total revenue	$	307,644		$	326,244		$	338,166		$	76,556		$	96,210
Operating expenses
Direct costs		134,067			136,572			154,416			35,175			46,680
Reimbursable out-of-pocket costs		30,165			31,505			34,959			7,352			11,158
Selling, general, and administrative		90,139			95,827			103,031			23,025			30,266
Depreciation and amortization		9,691			11,156			12,587			2,426			3,727
Management fee		704			—			—			—			—
Option repurchase(1)		3,713			—			—			—			—
Vested option bonus(1)		2,738			—			—			—			—
Income from operations		36,427			51,184			33,173			8,578			4,379
Interest income (expense), net		(3,643	)		1,181			104			334			(198	)
Other income (expenses), net		(38	)		(1,137	)		220			31			(55	)
Income before income taxes		32,746			51,228			33,497			8,943			4,126
Provision for income taxes		11,997			19,005			6,652			2,837			1,118
Net income	$	20,749		$	32,223		$	26,845		$	6,106		$	3,008
Net income per share
Basic	$	1.13		$	1.43		$	1.14		$	0.27		$	0.12
Diluted	$	1.02		$	1.32		$	1.08		$	0.25		$	0.12
Shares used to compute net income per share:
Basic		18,442,313			22,527,108			23,509,725			22,966,440			24,352,512
Diluted		20,329,852			24,389,592			24,749,664			24,209,012			25,205,634
Other Financial Data:
Net cash provided by (used in) operating activities	$	71,636		$	1,509		$	37,519		$	(11,622	)	$	21,657
Net cash provided by (used in) investing activities		(32,350	)		4,016			(102,790	)		(1,455	)		(2,742	)
Net cash provided by (used in) financing activities		(6,430	)		2,455			30,848			2,038			(21,835	)
Non-GAAP Data:
Adjusted EBITDA(2)	$	52,531		$	61,203		$	45,980		$	11,035		$	8,051
Adjusted EBITDA as a % of service revenue		18.9	%		20.8	%		15.2	%		15.9	%		9.5	%
EBITDA(2)	$	46,080		$	61,203		$	45,980		$	11,035		$	8,051
EBITDA as a % of service revenue		16.6	%		20.8	%		15.2	%		15.9	%		9.5	%

Income from operations was $11.0 million and $9.6 million for the quarters ended September 30, 2006 and 2007, respectively.

							As at
	As at December 31,						March 31,
	2004		2005		2006		2006		2007
							(unaudited)		(unaudited)
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	65,888	$	73,640	$	44,490	$	62,669	$	41,496
Marketable securities		24,500		—		—		—		—
Working capital (deficit)		11,478		41,760		7,897		51,193		(9,238	)
Total assets		337,344		329,364		454,255		332,501		445,066
Long-term debt and capital leases, less current maturities		75		9		24,047		7		39
Stockholders’ equity		150,379		188,866		251,368		198,230		259,909

Announced Restructuring

~~(1)~~ In ~~Includes~~February 2007, awe ~~$3.7~~announced ~~million~~the ~~charge~~planned ~~for~~closing ~~the~~of ~~repurchase~~our ofEatontown, ~~options~~New Jersey and Ottawa, ~~predominantly~~Canada ~~from~~facilities. ~~former~~Our ~~employees~~project managers, product directors and lead clinical research associates will work from a ~~$2.7~~home-based ~~million~~environment ~~($2~~while our associated support functions will be consolidated into our larger offices.3 ~~million~~We ~~through~~expect ~~September~~no ~~30,~~overall ~~2004)~~reduction ~~charge~~in ~~for~~staff. aWe ~~per-vested-option~~incurred ~~bonus~~$8.0 million ~~paid~~in costs related to ~~all~~these ~~employee~~closings ~~option~~in ~~holders,~~the ~~both~~first nine months of 2007, of which ~~were~~$5.4 million ~~executed~~related to real estate costs and $2.6 million for severance and other costs. Included in ~~connection~~the ~~with~~real estate costs is an early termination fee for the ~~culmination~~Eatontown office. The Company sublet its Ottawa facility. We expect an annual cost savings of ~~the~~approximately ~~January~~$4 million ~~2004~~from ~~tender~~these ~~process~~office closings.

17 In September 2007, the Company announced a plan to move its corporate headquarters to Raleigh, North Carolina. The move is expected to be completed by the end of the first quarter 2008, with an estimated charge of $1.7 million expected to be taken over the next two quarters.

~~(2)~~Service Adjusted EBITDA and EBITDA are not substitutes for operating income, net income, or cash flow from operating activities as determined in accordance with GAAP as measures of performance or liquidity. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measures.” For each of the periods indicated, the following table sets forth a reconciliation of EBITDA and Adjusted EBITDA to net cash provided by (used in) operating activities and to net income.Revenue

										Three Months Ended
	Year Ended December 31,									March 31,
	2004			2005			2006			2006			2007
										(unaudited)			(unaudited)
Adjusted EBITDA	$	52,531		$	61,203		$	45,980		$	11,035		$	8,051
Option repurchase		(3,713	)		—			—			—			—
Vested option bonus		(2,738	)		—			—			—			—
EBITDA		46,080			61,203			45,980			11,035			8,051
Depreciation and amortization		(9,691	)		(11,156	)		(12,587	)		(2,426	)		(3,727	)
Interest expense, net		(3,643	)		1,181			104			334			(198	)
Provision for income taxes		(11,997	)		(19,005	)		(6,652	)		(2,837	)		(1,118	)
Net income		20,749			32,223			26,845			6,106			3,008
Depreciation and amortization		9,691			11,156			12,587			2,426			3,727
Stock-based compensation		—			—			4,455			1,100			1,269
Provision for doubtful receivables		1,914			(123	)		1,023			3			1
Excess tax benefits from share-based compensation		—			2,986			(2,625	)		(708	)		(377	)
Provision for deferred income taxes		2,606			2,354			(666	)		378			(629	)
Loss on disposal of fixed assets		—			—			—			—			185
Debt issuance costs write-off		1,241			—			—			—			—
Changes in assets and liabilities:
Accounts receivable and unbilled services		15,373			(3,057	)		(14,805	)		(14,707	)		12,020
Prepaid expenses and other assets		1,226			(2,465	)		(10,410	)		(501	)		(221	)
Accounts payable and accrued expenses		7,793			11,022			(22,941	)		(11,090	)		2,188
Income taxes		12,150			(3,677	)		8,647			1,372			(4,018	)
Advance billings		(1,107	)		(48,910	)		35.409			3,999			4,504
Net cash provided by (used in) operating activities	$	71,636		$	1,509		$	37,519		$	(11,622	)	$	21,657

We recognize service revenue from fixed-price contracts on a proportional performance basis as services are provided. To measure performance on a given date, we compare each contract’s direct cost incurred to such contract’s total estimated direct cost through completion. We believe this is the best indicator of the performance of the contractual obligations because the costs relate to the amount of labor incurred to perform the service revenues. For time and materials contracts, revenue is recognized as hours are incurred, multiplied by contractual billing rates. Our contracts often undergo modifications, which can change the amount of and the period of time in which to perform services. Our contracts provide for such modifications.

~~Three~~ Most ~~Months~~of ~~Ended~~our ~~March~~contracts can be terminated by our clients after a specified period, typically 30 to 60 31days, ~~2007~~following ~~Compared~~notice by the client. In the case of early termination, these contracts typically require payment to ~~Three~~us ~~Months~~of ~~Ended~~expenses ~~March 31~~to wind down a study, ~~2006~~payment to us of fees earned to date, and in some cases, a termination fee or some portion of the fees or profit that we could have earned under the contract if it had not been terminated early. Based on ethical, regulatory, and health considerations, this wind-down activity may continue for several quarters or years.

~~Service~~Historically, ~~revenue~~direct costs have increased bywith ~~$15.9 million,~~increases orin ~~23.0%,~~net ~~from~~service ~~$69~~revenues.~~2 million~~ ~~for the first quarter~~The ofrelationship ~~2006~~between todirect ~~$85.1 million~~costs ~~for~~and ~~the~~net ~~first~~service ~~quarter~~revenues ofmay ~~2007,~~vary ~~due~~from inhistorical ~~part~~relationships. In torecent years the ~~acquisition~~Company ~~of Pharma-Bio~~has ~~Research,~~expected ~~(PBR) which~~that ~~closed~~its indirect ~~the~~costs ~~third~~will ~~quarter~~generally ofrepresent ~~2006.~~an ~~There~~amount within ~~was~~ a ~~favorable~~range ~~impact~~ from ~~foreign~~48% ~~currency~~to ~~fluctuations~~52% of ~~approximately~~service $2revenues.~~8 million.~~ OnFor athe ~~geographic~~2007 ~~basis~~fiscal year, ~~service revenue for~~ the ~~first~~Company ~~quarter~~expects that ofits ~~2007~~direct ~~was~~costs ~~distributed~~ as ~~follows:~~a ~~North~~percentage ~~America~~of ~~$45.7 million (53.7%),~~revenue ~~Europe~~will ~~$35.9 million~~increase ~~(42.2%),~~to ~~and~~approximately ~~rest of world $3.5 million (4.1~~55%). ~~For~~due to the full-year ~~first~~impact ~~quarter~~ of ~~2006~~the ~~service~~PBR ~~revenue~~acquisition, ~~was~~reinstatement ~~distributed~~of asbonus ~~follows: North America $48.3 million (69.8%)~~amounts, ~~Europe $19.2 million (27.7%),~~ and ~~rest~~increased ofsalary ~~world~~and benefit $1costs.~~7 million (2.5%).~~

~~Direct~~Increases ~~costs~~in ~~increased~~the byestimated ~~$11.5 million,~~total ordirect ~~32.7%,~~costs ~~from~~to ~~$35.2 million~~complete ~~for~~a ~~the~~contract ~~first~~without ~~quarter~~a ofcorresponding ~~2006~~proportional ~~to $46.7 million for the first quarter of 2007. The~~ increase ~~is due~~ to the ~~acquisition~~contract ~~of PBR,~~value ~~the~~result ~~planned investment~~ in ~~therapeutic expertise, the planned increase in billable headcount and reinstatement of our employee incentive compensation plan. Direct costs include~~ a ~~$1.5 million~~cumulative ~~impact~~adjustment ~~from~~to ~~foreign~~the ~~currency~~amount ~~fluctuations. Direct costs as a percentage~~ of ~~service~~ revenue ~~increased~~recognized ~~from~~in ~~50.9% for~~ the ~~first~~period ~~quarter of 2006 to 54.9% for~~ the ~~first~~change ~~quarter of 2007. The decline~~ in ~~gross~~estimate ~~margin~~ is ~~attributed to the investment in therapeutic expertise and higher employment costs, essentially the employee incentive compensation plan~~determined.

~~Selling,~~Reimbursement ~~general,~~Revenue and ~~administrative~~Reimbursable ~~expenses increased by $7.3 million, or 31.7%, from $23.0 million for the first quarter~~ Out-of 2006 to $30.3 million for the first quarter of 2007. The increase is due to the acquisition of PBR, $1.0 million for our management bonus plan, $1.0 million in charges related to the closing of the New Jersey and Ottawa facilities, an increase of $0.2 million in non-~~cash~~Pocket ~~stock option expense, as well as a $0.7 million impact from foreign currency~~Costs ~~fluctuations. Selling, general, and administrative expenses as a percentage of service revenue were 33.2% for the first quarter of 2006 and 35.6% for the first quarter of 2007.~~

18 We incur out-of-pocket costs, which are reimbursable by our customers. We include these out-of-pocket costs as reimbursement revenue and reimbursable out-of-pocket expenses in our consolidated statement of operations. In addition, we routinely enter into separate agreements on behalf of our clients with independent physician investigators in connection with clinical trials. The funds received for investigator fees are netted against the related costs, since such fees are the obligation of the Company’s clients, without risk or reward to the Company. The Company is not obligated either to perform the service or to pay the investigator in the event of default by the client. In addition, the Company does not pay the independent physician investigator until funds are received from the client. Reimbursement costs and investigator fees are not included in our backlog.

~~Depreciation and amortization expense increased by approximately $1.3 million, or 54.2%, from~~17 $2.4 million for the first quarter of 2006 to $3.7 million for the first quarter of 2007, primarily from the acquisition of PBR, which added $1.4 million of depreciation and amortization expense in the first quarter of 2007. Depreciation and amortization expense as a percentage of service revenue was 3.5% for the first quarter of 2006 and 4.4% for the first quarter of 2007.

~~Our~~Direct ~~effective tax rate for the first three months of 2006 was 31.7% as compared to 27.1% for~~Costs the same period in 2007. The decrease in our effective rate was partly due to our tax benefits available to the Company related to research and development incentive programs in Canada and the United Kingdom in the current year.

~~Liquidity~~ Our direct costs are primarily labor-related charges. They include elements such as salaries, benefits, and ~~Capital~~incentive ~~Resources~~compensation for our employees. In addition, we utilize staffing agencies to procure primarily part time individuals to perform work on our contracts. For the years ended December 31, 2004, 2005 and 2006, the labor-related charges were 94%, 97% and 91% of our direct costs, respectively. The cost of labor procured through staffing agencies is included in these percentages and represents 3% or less of total direct costs in each year presented. The remaining direct costs are items such as travel, meals, postage and freight, patient costs, medicine waste and supplies. The total of all these items has historically been less than 10% of total direct cost.

As Historically, ofdirect ~~March 31,~~costs ~~2007,~~have weincreased ~~had~~with ~~approximately~~an ~~$41~~increase in net service revenues.~~5 million~~ ofThe relationship ~~cash~~between direct costs and ~~cash~~net ~~equivalents.~~service ~~Our~~revenues may vary from historical relationships. ~~expected~~Generally, ~~primary~~several ~~cash~~factors ~~needs~~will oncause ~~both~~direct costs to decrease as a ~~short~~percentage ~~and~~of ~~long-term~~net ~~basis~~service revenues. ~~are~~Deployment ~~for~~of ~~capital~~our ~~expenditures,~~billable staff in an optimally efficient manner has the most impact on ~~expansion~~our ratio of ~~services,~~direct ~~geographic~~cost ~~expansion,~~to ~~possible~~service ~~acquisitions,~~revenue. The most effective deployment of our staff is when they are fully engaged in billable work and ~~other~~are ~~general~~accomplishing ~~corporate~~contract related activities at a rate ~~purposes~~that meets or exceeds the targets in our internal budgets. We ~~have~~also ~~historically~~seek ~~funded~~to optimize our ~~operations~~efficiency by ~~and~~performing ~~growth,~~work ~~including~~using ~~acquisitions,~~the employee with ~~cash~~the lowest cost. Generally, the following factors will ~~flow~~cause ~~from~~direct ~~operations~~costs to increase as a percentage of net service revenues: our staff are not fully deployed, ~~borrowings~~as is the case when there are unforeseen cancellations or delays, ~~and~~or ~~issuances~~when our staff are accomplishing tasks at levels of ~~equity~~effort ~~securities~~that exceed budget, such as rework; and pricing pressure from increased competition.

In We ~~the~~achieved ~~first~~a ~~three~~particularly ~~months~~high level of ~~2007,~~efficiency ~~net~~in ~~cash~~2005 ~~provided~~and byexceeded ~~operations~~our ~~was~~budgeted ~~$21.7 million as~~targets, ~~compared~~thus toincreasing ~~net~~our ~~cash~~margin ~~used~~by inapproximately ~~operations of~~ $112.64 million ~~for~~over ~~the~~our ~~same~~internal ~~period~~plans. ~~during~~This ~~the~~effect ~~prior year.~~did ~~The~~not ~~primary~~occur ~~reason~~in ~~for~~2006 ~~this~~or ~~increase~~2004, iswhen ~~the~~our ~~improved~~levels ~~cash~~of ~~collections~~operational ~~and~~efficiency ~~resulting~~were ~~decrease~~consistent inwith our ~~accounts~~targets. ~~receivable~~The ~~and~~increase ~~unbilled~~in ~~services.~~direct ~~Cash~~cost ~~collections~~percentage ~~from~~in ~~accounts~~2006 ~~receivable~~is ~~were~~primarily ~~$130.1 million~~related ~~for~~to the ~~first~~acquisition ~~three months~~ of PBR ~~2007~~in July, as2006 ~~compared~~which toincreased ~~$84.2 million~~direct ~~for~~costs ~~the~~as ~~same~~a ~~period~~percentage ~~in 2006.~~of ~~This~~revenues ~~increase~~on isa ~~primarily~~full ~~due~~year tobasis ~~the timing of project invoices triggered~~ by ~~performance~~ ~~goals~~approximately ~~and~~1.2%. ~~collection~~The remainder of ~~initial~~the ~~billings~~increase, onrepresenting ~~new business~~3.4% Inof ~~addition,~~direct ~~adjustments~~costs toas ~~reconcile~~a ~~net~~percentage ~~income~~ of ~~$3.0 million~~revenues inon ~~2007~~a tofull ~~cash~~year ~~used~~basis, inis ~~operating~~attributable ~~activities~~to ~~include~~changes ~~the~~in ~~addback~~our ofcontract $3mix.7 We ~~million~~anticipate ~~for~~the ~~depreciation~~integration ~~and~~of ~~amortization,~~PBR ~~$1.3 million~~will ~~for~~increase ~~stock-based~~our ~~compensation,~~direct ~~$0.2 million from~~cost ~~the~~percentage ~~loss~~by onapproximately ~~disposal~~1% ofin future ~~fixed~~periods. ~~assets,~~Although ~~and~~we ~~$14.5 million~~are ~~provided~~not ~~for~~able byto ~~changes~~forecast inthe ~~assets~~effects ~~and liabilities,~~on ~~all~~direct ~~offset~~cost byof ~~$0.6 million~~our inability ~~deferred~~to optimize ~~taxes~~our ~~and~~efficiency ~~$0.4 million~~ in ~~stock~~deploying ~~option~~our ~~tax benefits.~~staff ~~Days~~to ~~sales~~meet ~~outstanding,~~our ~~which~~internal ~~includes~~operational ~~accounts receivable~~objectives, ~~unbilled services and~~we ~~advanced~~believe ~~billings,~~that ~~were~~changes ain ~~negative~~our ~~6 days~~contract asmix ofwill ~~March 31,~~be ~~2007~~roughly ~~and~~consistent ~~39 days~~with asour ofhistorical ~~March 31, 2006~~experience.

~~Net cash used in investing activities was $2.7 million for the first three months of 2007 as compared to $1.5 million for the same period of 2006~~Selling, ~~primarily due to capital expenditures. We expect our capital expenditures to be approximately $13.0 million to $15.0 million for the full year 2007~~General, ~~with the majority of the spending related to information technology enhancement~~ and ~~expansion~~ ofAdministrative ~~our phase 1 clinic capacity.~~Expenses

~~Net~~Selling, ~~cash~~general, ~~used~~and inadministrative ~~financing~~expenses ~~activities~~consist ~~in the first three months~~ of ~~2007~~administration ~~was~~payroll ~~$21.8 million~~and benefits, ~~compared~~marketing toexpenditures, ~~net~~and ~~cash~~overhead ~~provided~~costs ofsuch ~~$2.0 million~~as ininformation ~~the~~technology ~~same~~and ~~period~~facilities ~~of 2006~~costs. These Weexpenses ~~paid~~also ~~off~~include ~~the~~central ~~$24 million~~overhead ~~outstanding~~costs onthat ~~our~~are ~~revolving~~not ~~credit~~directly ~~facility~~attributable into ~~March 2007,~~our operating ~~which~~business ~~was~~and ~~offset~~include bycertain ~~proceeds from~~costs ~~the~~related ~~exercise~~to ofinsurance, ~~stock~~professional ~~options~~fees, ofand $1property.~~9 million.~~

OnDepreciation March 7, 2006, we filed a shelf registration statement registering the resale of common stock to satisfy certain of our obligations under our June 2001 registration rights agreement with our pre-IPO investor and ~~other parties. The registration statement allows these parties to~~Amortization publicly resell up to 5,000,000 shares of common stock, subject to certain limitations and the satisfaction by selling stockholders of the prospectus delivery requirements of the Securities Act of 1933 in connection with any such resale. We will not receive any of the proceeds from the sale of common stock sold by selling stockholders. The registration statement also includes a universal shelf component that provides for the offer and sale by us, from time to time on a delayed basis, of up to $350 million aggregate amount of debt securities, common stock, preferred stock and warrants. These securities, which may be offered in one or more offerings and in any combination, will in each case be offered pursuant to a separate prospectus supplement issued at the time of the particular offering that will describe the specific types, amounts, prices and terms of the offered securities.

~~Our~~Depreciation ~~current~~represents ~~credit~~the ~~facility~~depreciation ~~provides~~charged ~~for~~on aour ~~$75~~fixed assets.~~0 million~~ ~~revolving~~The ~~line~~charge ofis ~~credit that~~recorded ~~terminates~~ on ~~December 23,~~a ~~2008.~~straight-line ~~At any time within three years after December 23~~method, ~~2004~~based ~~and~~on soestimated ~~long as~~useful nolives ~~event~~ of ~~default~~three isto ~~continuing,~~seven weyears ~~have~~for ~~the~~computer hardware ~~right,~~and insoftware ~~consultation~~and ~~with~~five ~~the administrative agent,~~ to ~~request~~seven ~~increases~~years infor ~~the~~furniture ~~aggregate~~and ~~principal~~equipment. ~~amount~~Leasehold ~~of the facility in minimum increments~~improvements ofare ~~$5.0 million~~depreciated upover toten anyears ~~aggregate~~or ~~increase of $50.0 million (and which would make~~ the ~~total~~life ~~amount available~~of ~~under~~ the ~~facility~~lease ~~$125~~term.~~0 million).~~ ~~The~~Amortization ~~revolving credit facility is available for general corporate purposes (including working capital~~ expenses, ~~capital~~consist ~~expenditures,~~of ~~and permitted~~a ~~acquisitions),~~amortization ~~the~~costs ~~issuance~~recorded ofon ~~letters~~computer ofsoftware ~~credit~~ and ~~swingline~~identified ~~loans~~finite-lived ~~for~~intangible ~~our~~assets ~~account,~~on ~~for the~~a ~~refinancing~~straight-line ofmethod ~~certain~~over ~~existing~~their ~~indebtedness,~~estimated ~~and~~useful tolives. ~~pay~~Goodwill ~~fees~~ and ~~expenses~~indefinite-lived ~~related to the facility.~~intangible ~~All~~assets ~~borrowings~~were ~~are~~being ~~subject~~amortized prior to ~~the satisfaction of customary conditions~~January 1, ~~including~~2002. ~~absence~~Pursuant ofto ~~a default~~SFAS ~~and~~No. 142 ~~accuracy~~“Goodwill ~~of representations~~ and ~~warranties.~~Other Intangible AAssets” ~~portion~~we ofdo ~~the~~not ~~facility~~amortize isgoodwill ~~also~~and ~~available for~~indefinite-lived ~~alternative~~intangible ~~currency loans~~assets.

19Income Taxes

~~The~~Because ~~revolving~~we ~~credit~~conduct ~~facility~~operations ~~requires~~on usa global basis, our effective tax rate has and will continue to ~~comply~~depend ~~with~~upon ~~certain~~the ~~financial~~geographic ~~covenants,~~distribution of our pre-tax earnings among several statutory foreign ~~including~~jurisdictions. aOur ~~maximum~~effective ~~total~~tax ~~leverage~~rate ~~ratio,~~can aalso ~~minimum~~vary ~~fixed~~based ~~charge~~on ~~coverage~~changes ~~ratio,~~in ~~and~~the atax ~~minimum~~rates ~~net~~of different ~~worth,~~jurisdictions. ~~which~~Our weeffective ~~have~~tax ~~met.~~rate ~~There~~is ~~were~~also noimpacted ~~amounts~~by ~~outstanding~~tax oncredits, the ~~credit~~establishment ~~facility~~or atrelease of ~~March 31,~~tax asset valuation allowances and tax reserves as well as changes to prior year tax expense or ~~2007~~prior year net operating loss carryforwards.

WeOur ~~expect~~foreign tosubsidiaries ~~continue~~are ~~expanding~~taxed ~~our~~separately ~~operations~~in ~~through~~their ~~internal~~respective ~~growth and strategic acquisitions and investments~~jurisdictions. WeAs ~~expect these activities will be funded from existing cash~~of September 30, ~~cash flow~~2007 ~~from operations~~ and December 31, ~~if necessary or appropriate~~2006, ~~borrowings~~we ~~under~~had ~~our~~foreign ~~existing~~net oroperating ~~future credit~~loss ~~facilities~~carryforwards orin ~~issuances of equity securities~~some jurisdictions. WeThe ~~believe~~carryforward ~~that~~periods ~~our~~for ~~existing~~these ~~capital resources,~~losses ~~together~~vary ~~with cash flows~~ from ~~operations~~five ~~and~~years ~~our~~to ~~borrowing~~nine ~~capacity~~years depending ~~under~~on the ~~$75~~jurisdiction.~~0 million~~ ~~credit~~Our ~~facility,~~ability ~~will be sufficient~~ to ~~meet~~offset ~~our~~future ~~working~~taxable ~~capital~~income ~~and~~with ~~capital expenditure requirements for at least~~ the ~~next~~foreign ~~eighteen~~net operating ~~months.~~loss ~~Our~~carryforwards ~~sources~~may ~~of liquidity could~~ be ~~affected~~limited ~~by our~~in ~~dependence~~certain ~~on a small number of industries and clients~~instances, ~~compliance~~including ~~with~~changes ~~regulations, international~~in ~~risks, and personal injury, environmental or other material litigation claims~~ownership.

~~On March 23, 2007, the Board of Directors adopted a Stockholder Rights Plan and declared a~~18 dividend of one preferred share purchase right for each outstanding share of common stock of the Company. The dividend is payable on April 4, 2007 to the stockholders of record on that date. Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock of the Company, par value $0.01 per share (the “ Preferred Shares ”), at a price of $110.00 per one one-thousandth of a Preferred Share. The Plan is designed to deter coercive takeover tactics and to prevent an acquirer from gaining control of the Company without offering a fair price to all of the Company’s stockholders. The preferred share purchase rights will expire on March 23, 2017.

WeExchange ~~use~~Rate ~~certain measures of our performance that are not required by, or presented in~~Fluctuations accordance with, generally accepted accounting principles (GAAP). These non-GAAP financial measures are “EBITDA” and “adjusted EBITDA.” These measures should not be considered as an alternative to income from operations, net income, net income per share, or any other performance measures derived in accordance with GAAP.

~~EBITDA~~The ~~represents~~majority ~~net~~of ~~income~~our ~~before~~foreign ~~interest,~~operations ~~taxes,~~transact depreciation, and amortization. We use EBITDA to facilitate operating performance comparisons from period to period. In addition, we believe EBITDA facilitates company to company comparisons by backing out potential differences caused by variations in ~~capital~~the ~~structures (affecting interest expense)~~euro, ~~taxation,~~pound ~~and the age and book depreciation of facilities and equipment (affecting relative depreciation expense)~~sterling, ~~which~~or ~~may~~Canadian ~~vary for different companies for reasons unrelated to operating performance~~dollar. WeAs ~~also~~a ~~use EBITDA~~result, ~~and~~ ~~we believe that others in~~ our ~~industry~~revenue ~~use~~is ~~EBITDA,~~subject to ~~evaluate~~exchange ~~and~~rate ~~price~~fluctuations ~~potential~~with ~~acquisition~~respect to these ~~candidates~~currencies. We ~~further~~have ~~believe~~translated ~~that~~these ~~EBITDA~~currencies isinto ~~frequently~~U.S. ~~used~~dollars byusing ~~securities analysts, investors, and other interested parties in~~ the ~~evaluation~~following ~~of issuers, many of which present EBITDA when~~average ~~reporting~~exchange ~~their results.~~rates:

In addition to EBITDA, we use a measure that we call adjusted EBITDA, which we define as EBITDA excluding the effects of a one-time $25.0 million tender offer specifically relating to our repurchase in 2004 of stock options and the payment of a special bonus to certain employee option holders. In addition to our GAAP results and our EBITDA, we use adjusted EBITDA to manage our business and assess our performance. Our management does not view the tender offer and option repurchase costs as indicative of the status of our ongoing operating performance because such costs related to a special non-recurring restructuring transaction.


	September 30,		December 31,		September 30,
	2006		2006		2007
U.S. Dollars per:
Euro		1.25		1.26		1.35
Pound Sterling		1.82		1.85		2.00
Canadian Dollar		0.89		0.88		0.91

~~These~~Results ~~non-GAAP financial measures have limitations as analytical tools, and you should not consider these measures in isolation, or as a substitute for analysis~~ of ~~our results as reported~~Operations under GAAP. For example, EBITDA and adjusted EBITDA do not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments; changes in, or cash requirements for, our working capital needs; our significant interest expense, or the cash requirements necessary to service interest and principal payments on our debts; and any cash requirements for the replacement of assets being depreciated and amortized, which will often have to be replaced in the future, even though depreciation and amortization are non-cash charges. Neither EBITDA nor adjusted EBITDA should be considered as a measure of discretionary cash available to us to invest in the growth of our business.

InMany ~~addition,~~of ~~adjusted~~our ~~EBITDA~~current iscontracts ~~not~~include ~~uniformly~~clinical ~~defined~~trials covering multiple geographic locations. We utilize the same management system and ~~varies~~reporting ~~among~~structure ~~companies~~to ~~that~~monitor ~~use~~and ~~such~~manage these aactivities ~~measure.~~on ~~Accordingly,~~the ~~EBITDA~~same ~~and~~basis ~~adjusted~~worldwide. ~~EBITDA~~For ~~have~~this ~~limited~~reason, ~~usefulness~~we asconsider ~~comparative~~our ~~measures. We~~operations ~~compensate~~to ~~for~~be ~~these~~a ~~limitations~~single business byunit, ~~relying~~and ~~primarily~~we onpresent our ~~GAAP~~ results ~~and~~of byoperations ~~using~~as ~~non-GAAP financial~~a ~~measures~~single ~~only~~reportable ~~supplementally~~segment.

~~Critical~~ The ~~Accounting~~following ~~Policies~~table summarizes certain statement of operations data as a percentage of service revenue for the periods shown. We monitor and ~~Estimates~~measure costs as a percentage of service revenue rather than total revenue as this is a more meaningful comparison and better reflects the operations of our business.

In preparing our financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Our actual results could differ from those estimates. We believe that the following are some of the more critical judgment areas in the application of our accounting policies that affect our financial condition and results of operations. We have discussed the application of these critical accounting policies with our audit committee.


										Nine months
										Ended
	Year Ended December 31,									September 30,
	2004			2005			2006			2006			2007
Service revenue		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%
Direct costs		48.3			46.3			50.9			51.1			55.3
Selling, general, and administrative		32.5			32.5			34.0			32.9			35.3
Depreciation and amortization		3.5			3.8			4.2			4.0			4.2
Management fee		0.3			—			—			—			—
Option repurchase		1.3			—			—			—			—
Vested option bonus		0.9			—			—			—			—

Income from operations		13.1			17.4			10.9			12.0			5.3
Interest expense		(1.4	)		(0.2	)		(0.5	)		(0.4	)		(0.4	)
Interest income		0.1			0.6			0.6			0.6			0.4
Other income (expenses), net		0.0			(0.4	)		0.1			(0.2	)		(0.2	)

Income before income taxes		11.8			17.4			11.1			12.0			5.1
Provision for income taxes		4.3			6.4			2.2			2.5			1.3

Net income		7.5	%		10.9	%		8.9	%		9.6	%		3.8	%

2019

~~The~~Selected ~~majority~~Consolidated ofFinancial ~~our service revenue is recorded from fixed-price contracts on a proportional~~Data performance basis. To measure performance, we compare direct costs incurred to estimated total contract direct costs through completion. We believe this is the best indicator of the performance of the contract obligations because the costs relate to the amount of labor hours incurred to perform the service. Direct costs are primarily comprised of labor overhead related to the delivery of services. Each month we accumulate costs on each project and compare them to the total current estimated costs to determine the proportional performance. We then multiply the proportion completed by the contract value to determine the amount of revenue that can be recognized. Each month we review the total current estimated costs on each project to determine if these estimates are still accurate and, if necessary, we adjust the total estimated costs for each project. During our monthly contract review process, we review each contract’s performance to date, current cost trends, and circumstances specific to each study. The original or current cost estimates are reviewed and if necessary the estimates are adjusted and refined to reflect any changes in the anticipated performance under the study. In the normal course of business, we conduct this review each month in all service delivery locations. As the work progresses, original estimates might be deemed incorrect due to, among other things, revisions in the scope of work or patient enrollment rate, and a contract modification might be negotiated with the customer to cover additional costs. If not, we bear the risk of costs exceeding our original estimates. Management assumes that actual costs incurred to date under the contract are a valid basis for estimating future costs. Should management’s assumption of future cost trends fluctuate significantly, future margins could be reduced. In the past, we have had to commit unanticipated resources to complete projects, resulting in lower margins on those projects. Should our actual costs exceed our estimates on fixed price contracts, future margins could be reduced, absent our ability to negotiate a contract modification. We accumulate information on each project to refine our bidding process. Historically, the majority of our estimates and assumptions have been materially correct, but these estimates might not continue to be accurate in the future.

~~Allowance~~ The following table represents selected historical consolidated financial data. The statement of operations data for ~~Doubtful~~the ~~Accounts~~years ended December 31, 2004, 2005 and 2006 and balance sheet data at December 31, 2005 and 2006 are derived from our audited consolidated financial statements included in the Form 10-K filed on March 14, 2007. The historical results are not necessarily indicative of the operating results to be expected in the future. The selected financial data should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements, unaudited consolidated financial statements included herein, and notes to the financial statements.

Included in “Accounts receivable and unbilled services, net” on our consolidated balance sheets is an allowance for doubtful accounts. Generally, before we do business with a new client, we perform a credit check, as our allowance for doubtful accounts requires that we make an accurate assessment of our customers’ creditworthiness. Approximately 50% of our client base is emerging emerging pharmaceutical and biotech companies, creating a heightened risk related to the creditworthiness for a significant portion of our customer base. We manage and assess our exposure to bad debt on each of our contracts. We age our billed accounts receivable and assess exposure by customer type, by aged category, and by specific identification. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. Historically, we have not had any write-offs in excess of our allowance. If, at March 31, 2007, our aged accounts receivable balance greater than 90 days were to increase by 10% (for the U.S. operations), we would need to evaluate the need for an additional reserve and record additional bad debt expense of approximately $50,000.


										Nine months Ended
	Year Ended December 31,									September 30,
	2004			2005			2006			2006			2007
										(Unaudited)			(Unaudited)
Revenue
Service revenue	$	277,479		$	294,739		$	303,207		$	220,797		$	271,883
Reimbursement revenue		30,165			31,505			34,959			24,829			35,272

Total revenue	$	307,644		$	326,244		$	338,166		$	245,626		$	307,155
Operating expenses
Direct costs		134,067			136,572			154,416			112,729			150,223
Reimbursable out-of-pocket costs		30,165			31,505			34,959			24,829			35,272
Selling, general, and administrative		90,139			95,827			103,031			72,705			95,847
Depreciation and amortization		9,691			11,156			12,587			8,774			11,492
Management fee		704			—			—			—			—
Option repurchase(1)		3,713			—			—			—			—
Vested option bonus(1)		2,738			—			—			—			—

Income from operations		36,427			51,184			33,173			26,589			14,321
Interest income (expense), net		(3,643	)		1,181			104			473			8
Other income (expenses), net		(38	)		(1,137	)		220			(519	)		(572	)

Income before income taxes		32,746			51,228			33,497			26,543			13,757
Provision for income taxes		11,997			19,005			6,652			5,419			3,546

Net income	$	20,749		$	32,223		$	26,845		$	21,124		$	10,211

Net income per share
Basic	$	1.13		$	1.43		$	1.14		$	0.91		$	0.42
Diluted	$	1.02		$	1.32		$	1.08		$	0.86		$	0.40
Shares used to compute net income per share:
Basic		18,442,313			22,527,108			23,509,725			23,294,442			24,495,519
Diluted		20,329,852			24,389,592			24,749,664			24,557,484			25,311,548
Other Financial Data:
Net cash provided by operating activities	$	71,636		$	1,509		$	37,519		$	15,329		$	19,058
Net cash provided by (used in) investing activities		(32,350	)		4,016			(102,790	)		(98,276	)		(9,604	)
Net cash provided by (used in) financing activities		(6,430	)		2,455			30,848			28,195			(16,197	)
Non-GAAP Data:
Adjusted EBITDA(2)	$	52,531		$	61,203		$	45,980		$	34,844		$	25,241
Adjusted EBITDA as a % of service revenue		18.9	%		20.8	%		15.2	%		15.8	%		9.3	%
EBITDA(2)	$	46,080		$	61,203		$	45,980		$	34,844		$	25,241
EBITDA as a % of service revenue		16.6	%		20.8	%		15.2	%		15.8	%		9.3	%
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	65,888		$	73,640		$	44,490		$	20,514		$	38,401
Marketable securities		24,500			—			—			—			—
Working capital (deficit)		11,478			41,760			7,897			(3,779	)		8,591
Total assets		337,344			329,364			454,255			418,351			477,113
Long-term debt and capital leases, less current maturities		75			9			24,047			24,004			45
Stockholders’ equity		150,379			188,866			251,368			235,529			285,896

~~Tax Valuation Allowance~~20

Our quarterly and annual effective income tax rate could vary substantially. We operate in several foreign jurisdictions and in each jurisdiction where we estimate pre-tax income, we must also estimate the local effective tax rate. In each jurisdiction where we estimate pre-tax losses, we must evaluate local tax attributes and the likelihood of recovery for foreign loss carryforwards, if any. Changes in currency exchange rates and the factors discussed above result in the consolidated tax rate being subject to significant variations and adjustments during interim and annual periods.


(1)		Includes a $3.7 million charge for the repurchase of options, predominantly from former employees, and a $2.7 million charge for a per-vested-option bonus paid to all employee option holders, both of which were executed in connection with the culmination of the January 2004 tender process.

(2)		Adjusted EBITDA and EBITDA are not substitutes for operating income, net income, or cash flow from operating activities as determined in accordance with GAAP as measures of performance or liquidity. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measures.” For each of the periods indicated, the following table sets forth a reconciliation of EBITDA and Adjusted EBITDA to net cash provided by (used in) operating activities and to net income.

Stock-Based Compensation


										Nine months Ended
	Year Ended December 31,									September 30,
	2004			2005			2006			2006			2007
										(Unaudited)			(Unaudited)
Adjusted EBITDA	$	52,531		$	61,203		$	45,980		$	34,844		$	25,241
Option repurchase		(3,713	)		—			—			—			—
Vested option bonus		(2,738	)		—			—			—			—

EBITDA		46,080			61,203			45,980			34,844			25,241
Depreciation and amortization		(9,691	)		(11,156	)		(12,587	)		(8,774	)		(11,492	)
Interest expense, net		(3,643	)		1,181			104			473			8
Provision for income taxes		(11,997	)		(19,005	)		(6,652	)		(5,419	)		(3,546	)

Net income		20,749			32,223			26,845			21,124			10,211
Depreciation and amortization		9,691			11,156			12,587			8,774			11,492
Stock-based compensation		—			—			4,455			3,478			4,744
Provision for doubtful receivables		1,914			(123	)		1,023			416			—
Excess tax benefits from share-based compensation		—			2,986			(2,625	)		(1,626	)		(2,755	)
Provision for deferred income taxes		2,606			2,354			(666	)		(4,582	)		(4,146	)
Loss on disposal of fixed assets		—			—			—			—			771
Debt issuance costs write off		1,241			—			—			—			—
Changes in assets and liabilities:
Accounts receivable and unbilled services		15,373			(3,057	)		(14,805	)		(17,745	)		(9,036	)
Prepaid expenses and other assets		1,226			(2,465	)		(10,410	)		751			(3,317	)
Accounts payable and accrued expenses		7,793			11,022			(22,941	)		(22,330	)		5,123
Income taxes		12,150			(3,677	)		8,647			4,557			(1,012	)
Advance billings		(1,107	)		(48,910	)		35,409			22,512			6,983

Net cash provided by operating activities	$	71,636		$	1,509		$	37,519		$	15,329		$	19,058

OnThree ~~January 1,~~Months ~~2006,~~Ended ~~we adopted Statement of Financial Accounting Standards No.~~September ~~123 (revised 2004)~~30, ~~“Share-Based~~2007 ~~Payment,”~~Compared ~~(“SFAS 123(R)”) which requires the measurement and recognition of compensation expense for all share-based payment awards made~~ to ~~our~~Three ~~employees~~Months ~~and~~Ended ~~directors based on estimated fair values. Stock-based compensation expense recognized under SFAS 123(R) for the three months ended March~~September 3130, 2006 ~~and 2007 was $1.1~~ million and $1.3 million, respectively, which consisted of stock-based compensation expense related to employee stock options. See Note 2 to the Consolidated Financial Statements for additional information.

21 Service revenue increased by $15.2 million, from $81.5 million for the third quarter of 2006 to $96.7 million for the third quarter of 2007 due primarily to contribution of a full quarter of service revenue from our acquisition of Pharma-Bio Research (PBR), which closed in July, 2006, and a favorable impact from foreign currency fluctuations of approximately $3.7 million. On a geographic basis, service revenue for the third quarter of 2007 was distributed as follows: North America $52.2 million (54.0%), Europe $40.2 million (41.6%), and rest of world $4.3 million (4.4%). For the third quarter of 2006, service revenue was distributed as follows: North America $51.0 million (62.6%), Europe $27.9 million (34.3%), and rest of world $2.6 million (3.2%).

WeDirect ~~estimate~~costs ~~the~~increased ~~value~~by of$12.7 million, ~~employee~~from ~~stock~~$41.0 million ~~options~~for on the ~~date~~third quarter of ~~grant~~2006 ~~using The~~to ~~Black-Scholes model~~$53.7 million ~~The~~for ~~determination of fair value of share-based payment awards on~~ the ~~date~~third ~~of grant~~quarter ~~using an option-pricing model is affected by the stock price~~ of ~~similar~~2007. ~~entities~~Direct ascosts ~~well~~ as ~~assumptions~~ ~~regarding~~ a ~~number~~percentage of ~~highly~~service ~~complex~~revenue increased ~~and~~from ~~subjective variables~~50.3% ~~These~~for ~~variables include~~ the ~~expected~~third ~~stock~~quarter ~~price~~of ~~volatility~~2006 ~~over~~to ~~the~~55.5% ~~term~~for of the ~~awards,~~third ~~and~~quarter ~~actual~~of ~~and projected employee stock option exercise behaviors~~2007. The ~~use of a Black-Scholes model requires the use of extensive~~ ~~actual~~increase ~~employee~~is ~~exercise~~due ~~behavior~~primarily ~~data~~to ~~and~~ the ~~use~~acquisition of aPBR, ~~number~~increased oflabor ~~complex~~costs; ~~assumptions~~ including ~~expected~~ ~~volatility~~salaries, benefits ~~risk-free interest rate, expected dividends,~~ and ~~expected~~contractor ~~term. Due to our limited trading history~~costs, weas ~~calculated~~well ~~expected~~as ~~volatility~~patient ofand ~~our~~medical ~~stock~~supply ~~based on the volatility of the share price of similar entities~~costs. ~~The~~In ~~risk-free~~addition, ~~interest~~there ~~rate assumption is based upon observed~~was ~~interest~~an ~~rates~~unfavorable ~~appropriate~~impact ~~for~~from ~~the~~foreign ~~term~~currency fluctuations of ~~our employee stock options~~$2.2 million. The ~~dividend~~decline ~~yield assumption~~in ~~is based on the history and expectation of dividend payouts. As stock-based~~gross ~~compensation~~margin ~~expense recognized in the Consolidated Statement of Operations~~ is ~~based~~attributed ~~on awards ultimately expected~~ to ~~vest, it has been reduced for estimated forfeitures. SFAS 123(R) requires forfeitures to be estimated at~~ the ~~time~~increase ~~of grant and revised, if necessary,~~ in ~~subsequent~~costs ~~periods if~~noted ~~actual forfeitures differ from those estimates~~above.

~~In determining our estimated stock-based compensation expense~~Selling, ~~our assessment of the forfeiture rate~~general, ~~volatility,~~ and ~~expect~~administrative ~~term~~expenses ofincreased ~~the~~by ~~equity instrument impacts the related option expense after the equity instrument is issued~~$3.7 million, Wefrom ~~have been a public company since November 2004~~$25.8 million Asfor ~~such~~ the ~~volatility~~third isquarter ~~based~~of ~~upon~~2006 ~~overall~~to ~~industry~~$29.5 million ~~experience~~for ~~and~~ the ~~expected~~third ~~term~~quarter isof ~~based upon a formula in the accounting literature~~2007. ~~Both~~The ~~are~~increase ~~estimates that are calculated in accordance~~is ~~with~~primarily ~~the~~due ~~guidance~~to ~~provided by SAB 107~~$1.5 million ~~Forfeitures~~for ~~are~~our ~~based~~management onbonus ~~our~~plan, ~~company~~a ~~experience~~$0.4 million ~~A 1%~~ increase in ~~the~~non-cash stock ~~forfeiture~~option ~~rate~~expense, ~~would~~as ~~cause~~well as a 2%$0.9 million ~~decrease~~impact infrom ~~our~~foreign ~~stock-based~~currency ~~compensation expense~~fluctuations. Selling,

~~Long-Lived Assets, Goodwill and Indefinite-Lived Intangible Assets~~21

Wegeneral, ~~test~~and ~~goodwill~~administrative ~~for~~expenses ~~impairment~~as ona atpercentage ~~least~~of anservice ~~annual~~revenue ~~basis~~were by31.7% ~~comparing~~for the ~~carrying value to~~ ~~the~~third ~~estimated~~quarter ~~fair value~~ of ~~our~~2006 ~~reporting~~and ~~unit~~30.5% Wefor ~~test indefinite-lived intangible assets, principally trade names, on at least an annual basis by comparing~~ the ~~fair~~third ~~value~~quarter of ~~the trade name to our carrying value~~2007. ~~The measure of goodwill impairment, if any, would include additional fair~~ ~~market value measurements, as if the reporting unit was newly acquired.~~

~~This~~Depreciation ~~process is inherently subjective~~ and ~~dependent~~amortization ~~upon~~expense ~~the~~increased ~~estimates~~by ~~and~~approximately ~~assumptions~~$0.2 million, wefrom ~~make~~$3.7 million Infor ~~determining~~ the ~~expected~~third ~~future~~quarter ~~cash flows~~ of ~~our~~2006 ~~company, we assume that we will continue~~ to ~~enter~~$3.9 million ~~into~~for ~~new contracts, execute~~ the ~~work~~third onquarter ~~these~~of ~~contracts profitably, collect receivables from customers, and thus generate positive cash flows~~2007. ~~To date, we have been able to~~ ~~generate~~Depreciation and ~~execute~~amortization ~~work~~expense toas ~~support~~a ~~the~~percentage ~~valuation~~ of ~~our~~service ~~long~~revenue ~~lived~~was ~~assets, goodwill, and indefinite-lived intangible assets~~4.5% Asfor ~~of our most recent fiscal year end, our cash flow substantially exceeds~~ the ~~historical book value~~third ofquarter ~~these assets. Adverse conditions impacting our industry or poor execution~~ of ~~our~~2006 ~~business~~and ~~plan could~~4.1% ~~impair~~for the ~~undiscounted~~third ~~future~~quarter ~~cash~~of ~~flows and result in asset impairments~~2007.

~~Inflation~~ Income from operations decreased by $1.4 million, from $11.0 million for the third quarter of 2006 to $9.6 million for the third quarter of 2007, due primarily to the increased costs as noted above. Income from operations as a percentage of service revenue decreased from 13.5% for the third quarter of 2006 to 9.9% for the third quarter of 2007.

Our ~~long-term~~effective ~~contracts,~~tax ~~those~~rate infor ~~excess~~the third quarter of ~~one~~2006 ~~year,~~was ~~generally~~23.2% ~~include~~as ancompared ~~inflation~~to or31.5% ~~cost~~for the same period in 2007. The 2007 rate was impacted by discrete items including a release of ~~living~~our ~~adjustment~~FIN 48 reserve for the ~~portion~~closing of the ~~services~~statute tofor beour ~~performed~~2003 ~~beyond~~US ~~one~~income ~~year~~tax ~~from~~return during the third ~~contract~~quarter; ~~date.~~an Asincrease ain ~~result,~~our weFIN ~~expect~~48 ~~that~~reserve ~~inflation~~for ~~generally~~additional ~~will~~information ~~not~~related ~~have~~to aour ~~material~~state ~~adverse~~income ~~effect~~tax onliabilities; ~~our~~provision ~~operations~~to orreturn ~~financial~~true ~~condition.~~ups ~~Historically~~related ~~our~~to ~~projection~~income oftax ~~inflation~~returns filed during the third ~~contained~~quarter; ~~within~~the ~~our~~effect ~~contracts~~of ~~has~~the ~~not~~enacted ~~significantly~~reduction ~~impacted~~in the income tax rate in the UK on our ~~operating~~deferred tax assets and interest related to outstanding US income tax refunds and FIN 48 reserves. ~~Should~~The 2006 ~~inflation~~rate bewas inimpacted ~~excess~~by ofdiscrete ~~the~~events ~~estimates~~originating ~~within~~in ~~our~~the ~~contracts~~second ~~our~~quarter ~~operating~~for ~~margins~~the ~~would~~tax ~~be negatively~~benefit ~~impacted~~for ifUK research weand ~~were~~development ~~unable~~deductions toand ~~negotiate~~the ~~contract~~inclusion ~~modifications~~of ~~with~~PBR in our ~~customers~~operations for the third quarter.

~~Potential~~Nine ~~Liability~~months ~~and~~Ended ~~Insurance~~September 30, 2007 Compared to Nine months Ended September 30, 2006

WeService ~~obtain~~revenue ~~contractual~~increased ~~indemnification~~by ~~for all of our contracts~~$51. ~~In addition~~1 million, wefrom ~~attempt~~$220.8 million ~~to manage our risk of liability~~ for ~~personal~~the ~~injury~~first ornine ~~death~~months ~~to patients from administration~~ of ~~products~~2006 ~~under~~to ~~study through measures such as stringent operating procedures and insurance~~$271.9 million ~~We monitor~~for ~~our~~the ~~clinical~~first ~~trials~~nine inmonths aof ~~manner~~2007 ~~designed~~due primarily to ~~ensure~~the ~~compliance~~acquisition ~~with~~of ~~government regulations~~PBR, ~~and~~which ~~guidelines.~~closed ~~We have adopted global standard operating procedures intended to satisfy regulatory requirements~~ in the ~~United~~third ~~States~~quarter ~~and~~of in2006, ~~many~~as ~~foreign~~well ~~countries and serve~~ as a ~~tool~~favorable ~~for~~impact ~~controlling and~~from ~~enhancing~~foreign ~~the~~currency exchange ~~quality~~ of ~~our clinical trials~~$9. ~~We currently maintain professional liability insurance coverage with limits we believe are adequate and appropriate~~4 million. IfOn ~~our~~a ~~insurance~~geographic ~~coverage is not adequate to cover actual claims~~basis, orservice ifrevenue ~~insurance~~for ~~coverage~~the ~~does~~first ~~not~~nine ~~continue~~months toof be2007 was ~~available~~distributed onas ~~terms~~follows: ~~acceptable to~~North ~~us,~~America ~~our~~$146.6 million ~~business~~(53.9%), ~~financial~~Europe ~~condition,~~$113.9 million (41.9%), and ~~operating~~rest ~~results~~of ~~could~~world be$11.4 million ~~materially harmed~~(4. ~~Historically~~2%). weFor ~~have~~the ~~experienced~~first ~~infrequent~~nine ~~and~~months ~~immaterial~~of ~~claims.~~2006 ~~Should~~service arevenue ~~material claim arise~~was ~~that~~distributed ~~exceeds~~as ~~our~~follows: ~~insurance~~North ~~coverage~~America ~~levels~~$144.6 million (65.5%), ~~there~~Europe ~~would~~$69.8 million be(31.6%), ~~a dollar for dollar impact to operating~~and ~~income~~rest ~~for the amount in excess~~ of ~~our~~world ~~insurance~~$6.4 million ~~coverage~~(2.9%).

~~Special~~ Direct ~~Note~~costs ~~Regarding~~increased ~~Risks~~by $37.5 million, from $112.7 million for the first nine months of 2006 to $150.2 million for the same period of 2007. Direct costs as a percentage of service revenue increased from 51.1% for the first nine months of 2006 to 55.3% for the same period of 2007. The increase in the dollar amount is due primarily to the acquisition of PBR, increased labor costs, including salaries, benefits and ~~Forward-Looking~~the ~~Statements~~employee incentive program, as well as patient and medical supply costs. In addition, there was an unfavorable impact from foreign currency fluctuations of $5.5 million. The decline in gross margin is primarily attributed to higher labor costs, the employee incentive compensation program, and increased patient and medical supply costs.

~~The~~Selling, ~~discussion of our operations~~general, ~~cash~~and ~~flows~~administrative ~~and~~expenses ~~financial~~increased ~~position~~by ~~includes~~$23.1 million, ~~forward-looking~~from $72.7 million ~~statements~~for ~~within~~ the ~~meaning~~first ofnine ~~Section 27A~~months of ~~the~~2006 ~~Securities~~to ~~Act and Section~~$95.8 ~~21E~~million offor the ~~Exchange Act.~~same ~~Statements~~period ~~that~~of ~~are~~2007. ~~predictive~~The inincrease ~~nature,~~is primarily ~~that~~due ~~depend~~to ~~upon~~the oradditional ~~refer~~costs tofrom ~~future events or conditions~~PBR, or$8.0 million ~~that~~restructuring ~~include~~charge ~~words~~for ~~such~~the asclosing of ~~“expect,”~~the ~~“anticipate,”~~New ~~“intend,”~~Jersey ~~“plan,” “believe,” “estimate”~~ and ~~similar~~Ottawa ~~expressions~~facilities, ~~are~~$3.0 million ~~forward-looking~~for ~~statements.~~our ~~Although~~management ~~these~~bonus ~~statements~~plan, ~~are~~a $1.2 million ~~based~~increase ~~upon~~in ~~assumptions~~non-cash westock ~~consider~~option ~~reasonable~~expense, ~~they~~as ~~are~~well ~~subject~~as toa ~~risks~~$2.3 million ~~and~~impact ~~uncertainties~~from ~~that~~foreign ~~are~~currency ~~described~~fluctuations. ~~more~~Selling, ~~fully~~general, ~~below~~ and inadministrative ~~the~~expenses ~~notes~~as ~~accompanying~~a ~~our~~percentage ~~financial~~of ~~statements.~~service ~~Accordingly, we~~revenue ~~can~~were ~~give~~32.9% nofor ~~assurance~~the ~~that~~first wenine ~~will~~months ~~achieve~~of ~~the~~2006 ~~results~~and ~~anticipated~~35.3% orfor ~~implied~~the bysame ~~our forward-looking~~period ~~statements~~in 2007.

22 Depreciation and amortization expense increased by approximately $2.7 million, from $8.8 million for the first nine months of 2006 to $11.5 million for the same period of 2007. Depreciation and amortization expense as a percentage of service revenue was 4.0% for the first nine months of 2006 and 4.2% for the first nine months of 2007. The increase was due to the acquisition of PBR.

~~ITEM~~ Income from operations decreased by $12.3 million, ~~QUANTITATIVE~~from ~~AND~~$26.6 million ~~QUALITATIVE~~for ~~DISCLOSURES~~the ~~ABOUT~~first ~~MARKET~~nine months ~~RISK~~of 2006 to $14.3 million for the same period of 2007. Income from operations as a percentage of service revenue decreased from 12.0% for the first nine months of 2006 to 5.3% for the same period in 2007. The decrease in income from operations is primarily due to the restructuring charge taken to close 2 facilities described above.

~~Interest~~ Our ~~Rate~~effective ~~Risk~~tax rate for the first nine months of 2006 was 20.4% as compared to 25.8% for the same period in 2007. The third quarter 2007’s rate is impacted by discrete items including a release of our FIN 48 reserve for the closing of the statute for our 2003 US income tax return and an increase in our FIN 48 reserve for additional information related to our state income taxes; provision to return true-ups related to income tax returns filed during the third quarter; the effect of the enacted reduction in the income tax rate in the UK on our deferred tax assets and additional interest related to outstanding US income tax refunds and FIN 48 reserves. In 2006,

~~At March 31, 2007, we had no amounts outstanding under our revolving credit facility. Future~~22 ~~drawings under the facility will bear interest at various rates. Historically, we have mitigated our exposure to fluctuations in interest rates by entering into interest rate hedge agreements.~~

~~Since~~the weCompany’s ~~operate~~rate onwas aimpacted ~~global~~by ~~basis, we are exposed to various foreign currency risks. First, our consolidated financial statements are denominated in U.S. dollars, but~~ a ~~significant~~release ~~portion~~ of ~~our~~ ~~revenue~~tax isvaluation ~~generated~~allowances inon the ~~local currency of our~~ foreign ~~subsidiaries. Accordingly, changes in~~net ~~exchange~~operating ~~rates~~loss ~~between~~carry ~~the~~forwards ~~applicable~~in ~~foreign~~Spain ~~currency~~ and ~~the~~France ~~U.S.~~as ~~dollar~~well will affect the translation of each foreign subsidiary’s financial results into U.S. dollars for purposes of reporting consolidated financial results. The process by which each foreign subsidiary’s financial results are translated into U.S. dollars is as ~~follows:~~tax ~~income~~benefits ~~statement~~available ~~accounts~~to ~~are translated at average exchange rates for~~ the ~~period; balance sheet asset and liability accounts are translated at~~Company ~~end~~related ofto ~~period~~research ~~exchange rates;~~ and ~~equity~~development ~~accounts~~incentive ~~are~~programs ~~translated at historical exchange rates. Translation of the balance sheet~~ in ~~this manner affects~~ the ~~stockholders’~~United ~~equity~~Kingdom ~~account, referred to as the cumulative translation adjustment account. This account exists only~~ in ~~the~~2006 ~~foreign subsidiary’s U.S. dollar balance sheet~~ and isfor ~~necessary to keep the foreign balance sheet stated in~~prior Uperiods.~~S. dollars in balance. To date such cumulative translation adjustments have not been material to~~ ~~our consolidated financial position.~~

InLiquidity ~~addition,~~and ~~two~~Capital ~~specific risks arise from the nature of the contracts we enter into with our~~Resources customers, which from time to time are denominated in currencies different than the particular subsidiary’s local currency. These risks are generally applicable only to a portion of the contracts executed by our foreign subsidiaries providing clinical services. The first risk occurs as revenue recognized for services rendered is denominated in a currency different from the currency in which the subsidiary’s expenses are incurred. As a result, the subsidiary’s earnings can be affected by fluctuations in exchange rates.

~~The~~As ~~second~~of ~~risk~~September 30, ~~results~~2007, ~~from~~we ~~the~~had ~~passage of~~approximately ~~time~~$38.4 million ~~between the invoicing~~ of ~~customers~~cash ~~under these contracts~~ and ~~the~~cash ~~ultimate collection of customer payments against such invoices~~equivalents. ~~Because the~~Our ~~contract~~expected isprimary ~~denominated~~cash inneeds aon ~~currency~~both ~~other than the subsidiary’s local currency, we recognize~~ a ~~receivable~~ atshort ~~the~~and ~~time~~long-term ofbasis ~~invoicing~~are for ~~the~~capital ~~local~~expenditures, expansion ~~currency equivalent~~ of ~~the~~services, ~~foreign~~possible ~~currency invoice~~acquisitions, ~~amount.~~geographic ~~Changes~~expansion, inworking ~~exchange~~capital, ~~rates~~and ~~from the time the invoice is prepared until payment from~~other ~~the~~general ~~customer~~corporate ispurposes. ~~received~~We ~~will~~have ~~result~~historically infunded our ~~receiving~~operations ~~either~~and ~~more~~growth, ~~or less in local currency than~~including ~~the~~acquisitions, ~~local~~with ~~currency~~cash ~~equivalent~~flow offrom ~~the invoice amount at the time the invoice was prepared and the receivable established. This difference is recognized by us as a foreign currency transaction gain or loss~~operations, ~~as applicable~~borrowings, and isissuances ~~reported in other expense or income in our consolidated statements~~ of ~~operations.~~equity ~~Historically, fluctuations in exchange rates from those in effect at the time contracts were executed have not had a material effect on our consolidated financial results~~securities.

~~For~~In the ~~quarter~~first ~~ended March 31,~~nine months of 2007, ~~approximately~~net ~~28.2%,~~cash ~~6.7%~~provided ~~and~~by ~~0.6%~~operations ofwas ~~total~~$19.1 million ~~service~~as ~~revenue~~compared ~~was~~to ~~denominated~~$15.3 million infor ~~Euros,~~the ~~British~~same ~~pounds~~period ~~and~~during ~~Canadian~~the ~~dollars,~~prior ~~respectively~~year. ~~We periodically~~Cash ~~enter~~collections ~~into~~from accounts ~~foreign~~receivable ~~currency~~were ~~derivatives~~$363.5 million tofor ~~mitigate exposure to movements between~~ the ~~U.S.~~ ~~dollar~~first ~~and~~nine ~~the~~months ~~British~~of ~~pound~~2007, ~~the~~as Ucompared to $299.S.1 million ~~dollar~~for ~~and~~ the ~~Euro,~~same ~~and~~period ~~the~~in U2006.S. ~~dollar~~This ~~and~~increase ~~Canadian dollar.~~is Weprimarily ~~agreed~~due to ~~purchase~~the atiming ~~given~~of collections ~~amount~~ of ~~Euros,~~initial ~~British~~billings ~~pounds~~on ~~and~~new ~~Canadian dollars at established dates~~business. ~~The~~In ~~transactions~~addition, ~~were~~adjustments ~~structured~~to asreconcile ~~no-cost~~net ~~collars. These foreign currency~~income ~~derivatives~~of ~~are~~$10.2 million ~~designated~~in as2007 to cash ~~flow~~provided ~~hedges~~by ~~and~~operating weactivities ~~recognize~~include ~~them~~the asaddback ~~either assets or~~of ~~liabilities~~$11.5 million infor ~~the~~depreciation ~~balance sheet~~ and ~~measure~~amortization, ~~them at fair value~~$4.~~with~~7 million ~~the changes~~ in ~~fair~~non-cash ~~value recorded~~stock inoption ~~stockholders~~expense, ~~equity~~and $0.8 million ~~(as~~for a ~~component~~loss on disposal of ~~comprehensive~~fixed ~~income)~~assets, inoffset ~~accordance~~by ~~with~~a ~~FAS No~~$4.1 ~~133,~~million ~~“Accounting~~deferred ~~for~~tax provision, ~~Derivative~~$2.8 million ~~Instruments~~in ~~and~~excess ~~Hedging~~tax ~~Activities.”~~benefits ~~The~~from ~~potential~~share ~~decrease~~based ~~in net~~compensation ~~income~~as ~~resulting~~well ~~from~~as $1.2 million ain ~~hypothetical~~changes ~~weakening~~in ofassets ~~the~~and Uliabilities.S. ~~dollar~~Days ~~relative~~sales tooutstanding, ~~the~~which ~~Euro,~~includes ~~British~~accounts ~~pound~~receivable, ~~and~~unbilled ~~Canadian~~services ~~dollar~~and ofadvanced ~~10%~~billings, ~~would~~were ~~have~~8 days ~~been~~and ~~approximately $0.4~~27 ~~million~~days ~~for~~as ~~the~~of ~~three months~~September 30, ~~ended~~2007 ~~March 31~~and 2006, ~~2007~~respectively.

23 Net cash used in investing activities was $9.6 million for the first nine months of 2007 as compared to $98.3 million used for the same period of 2006. This is primarily for the purchase of fixed assets, offset by fixed asset disposals. In 2006, we paid $93.5 million for acquisitions. We expect our capital expenditures to be approximately $13 million to $15 million for the full year 2007, with the majority of the spending related to information technology enhancement and expansion of our laboratory business.

~~ITEM~~ Net 4cash —used ~~CONTROLS~~in ~~AND~~financing ~~PROCEDURES~~activities in the first nine months of 2007 was $16.2 million compared to net cash provided of $28.2 million in the same period of 2006. The Company paid off the $24 million outstanding on our revolving credit facility in March of 2007, which was offset by proceeds from stock option exercises of $5.3 million and $2.8 million in excess tax benefits from share based compensation.

~~Effectiveness~~ On March 7, 2006, we filed a shelf registration statement registering the resale of ~~Our~~common stock ~~Disclosure~~to ~~Controls~~satisfy certain of our obligations under our September 2001 registration rights agreement with our pre-IPO investor and ~~Procedures~~other parties. The registration statement allows these parties to publicly resell up to 5,000,000 shares of common stock, subject to certain limitations and the satisfaction by selling stockholders of the prospectus delivery requirements of the Securities Act of 1933 in connection with any such resale. We will not receive any of the proceeds from the sale of common stock sold by selling stockholders. The registration statement also includes a universal shelf component that provides for the offer and sale by us, from time to time on a delayed basis, of up to $350 million aggregate amount of debt securities, common stock, preferred stock and warrants. These securities, which may be offered in one or more offerings and in any combination, will in each case be offered pursuant to a separate prospectus supplement issued at the time of the particular offering that will describe the specific types, amounts, prices and terms of the offered securities.

~~Under~~Our ~~the~~current ~~supervision~~credit ~~and~~facility ~~with~~provides ~~the~~for ~~participation~~a $75.0 million revolving line of ~~our~~credit ~~management,~~that ~~including~~terminates ~~our~~on ~~Chief~~December 23, ~~Executive~~2008. ~~Officer~~At any time within three years after December 23, 2004 and ~~Chief~~so ~~Financial~~long as ~~Officer~~no event of default is continuing, we have ~~evaluated~~the right, in consultation with the ~~effectiveness~~administrative agent, to request increases in the aggregate principal amount of ~~our~~the ~~disclosure~~facility ~~controls~~in ~~and~~minimum increments ~~procedures~~of ~~pursuant~~$5.0 million up to ~~Exchange~~an ~~Act~~aggregate ~~Rule~~increase ~~13a-15~~of $50.0 million (b)and aswhich ofwould make the ~~end~~total ofamount available under the ~~period~~facility ~~covered~~$125.0 million). byThe ~~this~~revolving ~~report.~~credit ~~Based~~facility onis ~~that~~available ~~evaluation~~for general corporate purposes (including working capital expenses, ~~our~~capital expenditures, and permitted ~~Chief~~acquisitions), ~~Executive~~the ~~Officer~~issuance of letters of credit and ~~Chief~~swingline ~~Financial~~loans ~~Officer~~for ~~have~~our ~~concluded~~account, for the ~~that~~refinancing ~~these~~of ~~disclosure~~certain ~~controls~~existing indebtedness, and ~~procedures~~to pay fees and expenses related to the facility. All borrowings are ~~effective~~subject to the satisfaction of customary conditions, including absence of a default and accuracy of representations and warranties. A portion of the facility is also available for alternative currency loans. There were no amounts outstanding on the credit facility as of September 30, 2007.

~~Changes~~ The inrevolving ~~Internal~~credit ~~Control~~facility ~~Over~~requires ~~Financial~~us ~~Reporting~~to comply with certain financial covenants, including a maximum total leverage ratio, a minimum fixed charge coverage ratio, and a minimum net worth, which we currently are in compliance with.

23 There were no changes in our internal control over financial reporting during the quarter ended March 31, 2007 that have materially affected, or are reasonably likely to affect, our internal control over financial reporting.

~~ITEM~~ We 1expect to continue expanding our operations through internal growth and strategic acquisitions and investments. ~~LEGAL~~We ~~PROCEEDINGS~~expect these activities will be funded from existing cash, cash flow from operations and, if necessary or appropriate, borrowings under our existing or future credit facilities or issuances of equity securities. We believe that our existing capital resources, together with cash flows from operations and our borrowing capacity under the $75 million credit facility, will be sufficient to meet our working capital and capital expenditure requirements for at least the next eighteen months. Our sources of liquidity could be affected by our dependence on a small number of industries and clients, compliance with regulations, international risks, and personal injury, environmental or other material litigation claims.

WeOn ~~are~~March 23, ~~currently involved~~2007, asthe weBoard ~~are~~of ~~from~~Directors ~~time~~adopted toa ~~time~~Stockholder Rights Plan and declared a dividend of one preferred share purchase right for each outstanding share of common stock of the Company. The dividend was paid on April 3, in2007, ~~legal~~to ~~proceedings~~the stockholders on record on that ~~arise~~date. inEach Right entitles the registered holder to purchase from the Company one one-thousandth of a share of ~~ordinary~~Series A ~~course~~Junior Participating Preferred Stock of ~~our~~the ~~business~~Company, par value $0.01 Weper ~~believe~~share ~~that~~(The “Preferred weShares”), ~~have~~at ~~adequately~~a ~~reserved~~price ~~for~~of ~~these~~$110.00 ~~liabilities~~per one one-thousandth of a Preferred Share. The Plan is designed to deter coercive takeover tactics and ~~that~~to ~~there~~prevent isan noacquirer ~~other~~from ~~litigation~~gaining ~~pending~~control ~~that~~of ~~could~~the Company ~~materially~~without ~~harm~~offering ~~our~~a ~~results~~fair price to all of ~~operations~~the Company’s stockholders. The preferred share ~~and~~purchase ~~financial~~rights ~~condition~~will expire on March 23, 2017.

On July 24, 2007, immediately prior to the execution of the merger agreement, PRA and the rights agent entered into an amendment to the rights agreement which provides that neither the execution of the merger agreement nor the consummation of the merger will trigger the provisions of this rights agreement. In particular, the amendment to the rights agreement provides that neither Parent, Merger Sub nor any of their affiliates or associates will be deemed to be an acquiring person (as defined by the rights agreement) solely by virtue of the approval, execution, delivery and adoption or performance of the merger agreement or the consummation of the merger of any other transactions contemplated by the merger agreement.

~~ITEM~~Non-GAAP 6.Financial ~~EXHIBITS~~Measures

We use certain measures of our performance that are not required by, or presented in accordance with, generally accepted accounting principles (aGAAP). ~~Exhibits~~These non-GAAP financial measures are “EBITDA” and “adjusted EBITDA.” These measures should not be considered as an alternative to income from operations, net income, net income per share, or any other performance measures derived in accordance with GAAP.

Exhibit
Number			Description of Exhibit
	3.3	(1)	Certificate of Designations of Series A Junior Participating Preferred Stock, as filed with the Secretary of Delaware on March 26, 2007
	4.6	(1)	Rights Agreement, dated as of March 23, 2007, between PRA International and American Stock Transfer & Trust Company as Rights Agent
	21.1	(2)	Subsidiaries of PRA International.
	31.1	(2)	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a).
	31.2	(2)	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a).
	32.1	(3)	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 — Chief Executive Officer.
	32.2	(3)	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 — Chief Financial Officer.

EBITDA represents net income before interest, taxes, depreciation, and amortization. We use EBITDA to facilitate operating performance comparisons from period to period. In addition, we believe EBITDA facilitates company to company comparisons by backing out potential differences caused by variations in capital structures (affecting interest expense), taxation, and the age and book depreciation of facilities and equipment (affecting relative depreciation expense), which may vary for different companies for reasons unrelated to operating performance. We also use EBITDA, and we believe that others in our industry use EBITDA, to evaluate and price potential acquisition candidates. We further believe that EBITDA is frequently used by securities analysts, investors, and other interested parties in the evaluation of issuers, many of which present EBITDA when reporting their results.

(1)		Incorporated by reference to Form 8-K filed on March 23, 2007 (File No. 000-51029)
(2)		Filed herewith.
(3)		Furnished herewith.

25 These non-GAAP financial measures have limitations as analytical tools, and you should not consider these measures in isolation, or as a substitute for analysis of our results as reported under GAAP. For example, EBITDA and adjusted EBITDA do not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments; changes in, or cash requirements for, our working capital needs; our significant interest expense, or the cash requirements necessary to service interest and principal payments on our debts; and any cash requirements for the replacement of assets being depreciated and amortized, which will often have to be replaced in the future, even though depreciation and amortization are non-cash charges. Neither EBITDA nor adjusted EBITDA should be considered as a measure of discretionary cash available to us to invest in the growth of our business.

~~SIGNATURES~~ In addition, adjusted EBITDA is not uniformly defined and varies among companies that use such a measure. Accordingly, EBITDA and adjusted EBITDA have limited usefulness as comparative measures. We compensate for these limitations by relying primarily on our GAAP results and by using non-GAAP financial measures only supplementally.

~~Pursuant~~Critical toAccounting ~~the~~Policies ~~requirements~~and ~~of Section 13 or 15(d) of the Securities Exchange Act of 1934,~~Estimates ~~the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.~~

~~PRA~~ In ~~INTERNATIONAL~~preparing ~~By:~~our ~~/s/~~financial ~~Terrance~~statements Jin conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. ~~Bieker~~Our ~~Name:~~actual ~~Terrance~~results Jcould differ from those estimates. ~~Bieker~~We ~~Title:~~believe ~~Chief~~that ~~Executive~~the ~~Officer~~following ~~By:~~are ~~/s/~~some J.of ~~Matthew~~the ~~Bond~~more ~~Name:~~critical Jjudgment areas in the application of our accounting policies that affect our financial condition and results of operations. ~~Matthew~~We ~~Bond~~have ~~Title:~~discussed ~~Chief~~the ~~Financial~~application ~~Officer~~of these critical accounting policies with our audit committee.

~~Dated:~~24 ~~May 10, 2007~~

~~Exhibit Index~~Revenue Recognition

Exhibit No		Description of Exhibit
21.1		Subsidiaries of PRA International
31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

The majority of our service revenue is recorded from fixed-price contracts on a proportional performance basis. To measure performance, we compare direct costs incurred to estimated total contract direct costs through completion. We believe this is the best indicator of the performance of the contract obligations because the costs relate to the amount of labor hours incurred to perform the service. Direct costs are primarily comprised of labor overhead related to the delivery of services. Each month we accumulate costs on each project and compare them to the total current estimated costs to determine the proportional performance. We then multiply the proportion completed by the contract value to determine the amount of revenue that can be recognized. Each month we review the total current estimated costs on each project to determine if these estimates are still accurate and, if necessary, we adjust the total estimated costs for each project. During our monthly contract review process, we review each contract’s performance to date, current cost trends, and circumstances specific to each study. The original or current cost estimates are reviewed and if necessary the estimates are adjusted and refined to reflect any changes in the anticipated performance under the study. In the normal course of business, we conduct this review each month in all service delivery locations. As the work progresses, original estimates might be deemed incorrect due to, among other things, revisions in the scope of work or patient enrollment rate, and a contract modification might be negotiated with the customer to cover additional costs. If not, we bear the risk of costs exceeding our original estimates. Management assumes that actual costs incurred to date under the contract are a valid basis for estimating future costs. Should management’s assumption of future cost trends fluctuate significantly, future margins could be reduced. In the past, we have had to commit unanticipated resources to complete projects, resulting in lower margins on those projects. Should our actual costs exceed our estimates on fixed price contracts, future margins could be reduced, absent our ability to negotiate a contract modification. We accumulate information on each project to refine our bidding process. Historically, the majority of our estimates and assumptions have been materially correct, but these estimates might not continue to be accurate in the future.

27Allowance for Doubtful Accounts

Included in “Accounts receivable and unbilled services, net” on our consolidated balance sheets is an allowance for doubtful accounts. Generally, before we do business with a new client, we perform a credit check, as our allowance for doubtful accounts requires that we make an accurate assessment of our customers’ creditworthiness. Approximately 50% of our client base is emerging pharmaceutical and biotech companies, creating a heightened risk related to the creditworthiness for a significant portion of our customer base. We manage and assess our exposure to bad debt on each of our contracts. We age our billed accounts receivable and assess exposure by customer type, by aged category, and by specific identification. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. Historically, we have not had any write-offs in excess of our allowance. If, at September 30, 2007, our aged accounts receivable balance greater than 90 days were to increase by 10% (for the U.S. operations), no additional bad debt expense would need to be recorded.

Tax Valuation Allowance

We have operations in various foreign jurisdictions and in multiple United States jurisdictions. We provide a tax valuation allowance for deferred tax assets in each of the jurisdictions where we have operations based on the weight of available evidence, both positive and negative, that it is more likely than not that some portion or all of the deferred tax assets will not be realized. In determining our tax valuation allowance, we assess both the historical and the projected entity level earnings before tax. Historically we have established valuation allowances when estimates of future profitability are not present. As part of our analysis, we consider the previous three years’ cumulative activity to determine whether it is more likely than not that the deferred tax assets will be realized. We review and adjust these tax valuation allowances based on current profitability and positive future financial projections. In a meaningful tax jurisdiction, where we currently have a tax valuation allowance, if we were able to demonstrate sufficient taxable income to realize a tax benefit, we would reduce our tax valuation allowance in this jurisdiction by approximately $1.1 million.

Stock-Based Compensation

On January 1, 2006, we adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment,” (“SFAS 123(R)”) which requires the measurement and recognition of compensation expense for all share-based payment awards made

to our employees and directors based on estimated fair values. Stock-based compensation expense recognized under SFAS 123(R) for the nine months ended September 30, 2006 and 2007 was $3.5 million and $4.7 million, respectively, which consisted of stock-based compensation expense related to employee stock options. See Note 2 to the Consolidated Financial Statements for additional information.

We estimate the value of employee stock options on the date of grant using either the Black-Scholes model for all options with a service condition or a Monte Carlo model for options with a market condition. The determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by the stock price of similar entities as well as assumptions regarding a number of highly complex and subjective variables. These variables include the expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The use of Black-Scholes and a Monte Carlo models require the use of extensive actual employee exercise behavior data and the use of a number of complex assumptions including expected volatility, risk-free interest rate, expected dividends, and expected term. Due to our limited trading history, we calculated expected volatility of our stock based on the volatility of the share price of similar entities. The risk-free interest rate assumption is based upon observed interest rates appropriate for the term of our employee stock options. The dividend yield assumption is based on the history and expectation of dividend payouts. As stock-based compensation expense recognized in the Consolidated Statement of Operations is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

In determining our estimated stock-based compensation expense, our assessment of the forfeiture rate, volatility, and expected term of the equity instrument impacts the related option expense after the equity instrument is issued. We have been a public company since November 2004. As such the volatility is based upon overall industry experience. For those options valued using the Black Scholes model, the expected term is based upon a formula in the accounting literature. Both are estimates that are calculated in accordance with the guidance provided by SAB 107. Under the Monte Carlo model, the expected term varies depending on the target stock price that triggers vesting, as the higher stock price will result in options that are deeper in the money when they vest. Forfeitures are based on our company experience. A 1% increase in the forfeiture rate would cause a 2% decrease in our stock-based compensation expense.

Long-Lived Assets and Goodwill and Indefinite-lived Intangible Assets

We review long-lived asset groups for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset group might not be recoverable. If indicators of impairment are present, we evaluate the carrying value of property and equipment in relation to estimates of future undiscounted cash flows. As a result of our acquisitions we have recorded goodwill and other identifiable finite and indefinite-lived acquired intangibles. The identification and valuation of these intangible assets at the time of acquisition require significant management judgment and estimates.

We test goodwill for impairment on at least an annual basis by comparing the carrying value to the estimated fair value of our reporting unit. We test indefinite-lived intangible assets, principally trade names, on at least an annual basis by comparing the fair value of the trade name to our carrying value. The measure of goodwill impairment, if any, would include additional fair market value measurements, as if the reporting unit was newly acquired.

This process is inherently subjective and dependent upon the estimates and assumptions we make. In determining the expected future cash flows of our company, we assume that we will continue to enter into new contracts, execute the work on these contracts profitably, collect receivables from customers, and thus generate positive cash flows. To date, we have been able to generate and execute work to support the valuation of our long lived assets, goodwill, and indefinite-lived intangible assets. As of our most recent fiscal year end, our cash flow substantially exceeds the historical book value of these assets. Adverse conditions impacting our industry or poor execution of our business plan could impair the undiscounted future cash flows and result in asset impairments.

Inflation

Our long-term contracts, those in excess of one year, generally include an inflation or cost of living adjustment for the portion of the services to be performed beyond one year from the contract date. As a result, we expect that inflation generally will not have a material adverse effect on our operations or financial condition. Historically our projection of inflation contained within our contracts has not significantly impacted our operating income. Should inflation be in excess of the estimates within our contracts our operating margins would be negatively impacted if we were unable to negotiate contract modifications with our customers.

Potential Liability and Insurance

We obtain contractual indemnification for all of our contracts. In addition, we attempt to manage our risk of liability for personal injury or death to patients from administration of products under study through measures such as stringent operating procedures and insurance. We monitor our clinical trials in a manner designed to ensure compliance with government regulations and guidelines. We have adopted global standard operating procedures intended to satisfy regulatory requirements in the United States and in many foreign countries and serve as a tool for controlling and enhancing the quality of our clinical trials. We currently maintain professional liability insurance coverage with limits we believe are adequate and appropriate. If our insurance coverage is not adequate to cover actual claims, or if insurance coverage does not continue to be available on terms acceptable to us, our business, financial condition, and operating results could be materially harmed. Historically we have experienced infrequent and immaterial claims. Should a material claim arise that exceeds our insurance coverage levels, there would be a dollar for dollar impact to operating income for the amount in excess of our insurance coverage.

Special Note Regarding Risks and Forward-Looking Statements

The discussion of our operations, cash flows and financial position includes forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate” and similar expressions are forward-looking statements. Although these statements are based upon assumptions we consider reasonable, they are subject to risks and uncertainties that are described more fully below and in the notes accompanying our financial statements. Accordingly, we can give no assurance that we will achieve the results anticipated or implied by our forward-looking statements.

ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

At September 30, 2007, we had no amounts outstanding under our revolving credit facility. Future drawings under the facility will bear interest at various rates. Historically, we have mitigated our exposure to fluctuations in interest rates by entering into interest rate hedge agreements.

Foreign Exchange Risk and Foreign Currency Hedges

Since we operate on a global basis, we are exposed to various foreign currency risks. First, our consolidated financial statements are denominated in U.S. dollars, but a significant portion of our revenue is generated in the local currency of our foreign subsidiaries. Accordingly, changes in exchange rates between the applicable foreign currency and the U.S. dollar will affect the translation of each foreign subsidiary’s financial results into U.S. dollars for purposes of reporting consolidated financial results. The process by which each foreign subsidiary’s financial results are translated into U.S. dollars is as follows: income statement accounts are translated at average exchange rates for the period; balance sheet asset and liability accounts are translated at end of period exchange rates; and equity accounts are translated at historical exchange rates. Translation of the balance sheet in this manner affects the stockholders’ equity account, referred to as the cumulative translation adjustment account. This account exists only in the foreign subsidiary’s U.S. dollar balance sheet and is necessary to keep the foreign balance sheet stated in U.S. dollars in balance. To date such cumulative translation adjustments have not been material to our consolidated financial position.

In addition, two specific risks arise from the nature of the contracts we enter into with our customers, which from time to time are denominated in currencies different than the particular subsidiary’s local currency. These risks are generally applicable only to a portion of the contracts executed by our foreign subsidiaries providing clinical services. The first risk occurs as revenue recognized for services rendered is denominated in a currency different from the currency in which the subsidiary’s expenses are incurred. As a result, the subsidiary’s earnings can be affected by fluctuations in exchange rates.

The second risk results from the passage of time between the invoicing of customers under these contracts and the ultimate collection of customer payments against such invoices. Because the contract is denominated in a currency other than the subsidiary’s local currency, we recognize a receivable at the time of invoicing for the local currency equivalent of the foreign currency invoice amount. Changes in exchange rates from the time the invoice is prepared until payment from the customer is received will result in our receiving either more or less in local currency than the local currency equivalent of the invoice amount at the time the invoice was prepared and the receivable established. This difference is recognized by us as a foreign currency transaction gain or loss, as applicable, and is reported in other expense or income in our consolidated statements of operations. Historically, fluctuations in

exchange rates from those in effect at the time contracts were executed have not had a material effect on our consolidated financial results.

For the nine months ended September 30, 2007, approximately 24.9%, 7.0% and 0.8% of total service revenue was denominated in Euros, British pounds and Canadian dollars, respectively. We periodically enter into foreign currency derivatives to mitigate exposure to movements between the U.S. dollar and the British pound, the U.S. dollar and the Euro, and the U.S. dollar and Canadian dollar. We agreed to purchase a given amount of Euros, British pounds and Canadian dollars at established dates. The transactions were structured as no-cost collars. These foreign currency derivatives are designated as cash flow hedges and we recognize them as either assets or liabilities in the balance sheet and measure them at fair value with the changes in fair value recorded in stockholders equity (as a component of comprehensive income), in accordance with FAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” The potential decrease in net income resulting from a hypothetical weakening of the U.S. dollar relative to the Euro, British pound and Canadian dollar of 10% would have been approximately $0.7 million for the nine months ended September 30, 2007.

ITEM 4 — CONTROLS AND PROCEDURES

Effectiveness of Our Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2007 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are currently involved, as we are from time to time, in legal proceedings that arise in the ordinary course of our business. We believe that we have adequately reserved for these liabilities and that there is no other litigation pending that could materially harm our results of operations and financial condition.

ITEM 6. EXHIBITS


Exhibit
Number		Description of Exhibit

2.1		Agreement and Plan of Merger, dated as of July 24, 2007, by and among PRA International, GG Holdings I, Inc. and GG Merger Sub I, Inc. (Incorporated by reference to Exhibit 2.1 to PRA International’s current report on Form 8-K filed with the SEC on July 25, 2007).

21.1 (1)		Subsidiaries of PRA International.

31.1 (1)		Certification of the Chief Executive Officer pursuant to Rule 13a-14(a).

31.2 (1)		Certification of the Chief Financial Officer pursuant to Rule 13a-14(a).

32.1 (2)		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 — Chief Executive Officer.

32.2 (2)		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 — Chief Financial Officer.


(1)		Filed herewith.

(2)		Furnished herewith.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.


PRA INTERNATIONAL
By:	/s/ Terrance J. Bieker
	Name:	Terrance J. Bieker
	Title:	Chief Executive Officer


By:	/s/ Linda Baddour
	Name:	Linda Baddour
	Title:	Chief Financial Officer

Dated: November 7, 2007

December 31,

September 30,

Customer A