United
States
 Securities
and Exchange Commission
 Washington,
D.C. 20549
  FORM 20-F
  (Mark One)
 o
              REGISTRATION
      STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT
      OF 1934
  OR
  x
              ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
  For the
fiscal year ended: December 31, 2007
   OR
  o
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934.
  Commission
      file number:
              000-29714
    ICON public limited company
 (Exact
name of Registrant as specified in its charter)
   Ireland
 (Jurisdiction
of incorporation or organization)
  South
County Business Park, Leopardstown, Dublin 18, Ireland.
 (Address
of principal executive offices)
   Securities
registered or to be registered pursuant to Section 12(b) of the
Act:
  Title
      of each class
              
              Name
      of exchange
                on
      which registeredAmerican
      Depository Shares, representing Ordinary Shares, par value €0.06 each
      Ordinary
      Shares, par value €0.06 each
              
              NASDAQ
      Global Select Market
  Securities
registered or to be registered pursuant to Section 12(g) of the
Act:
 Title of
each class
 
   
  Securities
for which there is a reporting obligation pursuant to Section 15(d) of the
Act:
 None
 
 (Title of
Class)
   Indicate
the number of outstanding shares of each of the issuer’s classes of capital or
common stock as of the close of the period covered by the annual report:
28,835,244 Ordinary Shares.
  Indicate
by check mark if the registrant is a well-known seasoned issuer, as determined
in Rule 405 of the Securities Act.
  Yes
      x
              No
      o
  If this
report is an annual or transition report, indicate by check mark if registrant
is not required to file reports pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934.
  Yes
      o
              No
      x
  
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days:
  Yes
      x
              No
      o
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non- accelerated filer
  Large
      Accelerated filer x
              Accelerated
      filer o
              Non-accelerated
      filer o
 
  Indicate
by check mark which financial statement item the registrant has elected to
follow:
  Item
      17 o
              Item
      18 x
  If this
is an annual report, indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act)
  Yes
      o
              No
      x
  
 
 TABLE OF CONTENTS
  General
                  
                  
                  1Cautionary Statement
                  
                  
                  1Part IItem
1.
                  Identity of Directors, Senior
      Management and Advisors
                  1Item
2.
                  Offer Statistics and Expected
      Timetable
                  1Item
3.
                  Key
      Information
                  2Item
4.
                  Information on the
      Company
                  8Item
5.
                  Operating and Financial Review
      and Prospects
                  21Item
6.
                  Directors, Senior Management and
      Employees.
                  31Item
7.
                  Major Shareholders and Related
      Party Transactions
                  41Item
8.
                  Financial
      Information
                  44Item
9.
                  The Offer and the
      Listing
                  44Item
    10.
                  Additional
      Information
                  45Item
    11.
                  Quantitative and Qualitative
      Disclosures about Market Risk
                  51Item
    12.
                  Description of Securities Other
      than Equity Securities
                  53Part
IIItem
    13.
                  Defaults, Dividend Arrearages
      and Delinquencies
                  53Item
    14.
                  Material Modifications to the
      Rights of Security Holders and Use of Proceeds
                  53Item
    15.
                  Controls and
      Procedures
                  53Item
    16.
                  Reserved
                  53Part
    IIIItem
    17.
                  Financial
      Statements
                  54Item
    18.
                  Financial
      Statements
                  54Item
    19.
                  Financial Statements and
      Exhibits
                  54
 
  General
 
 As used
herein, “ICON plc”, the “Company” and “we” or “us” refer to ICON public limited
company and its consolidated subsidiaries, unless the context requires
otherwise.
 
 Unless
otherwise indicated, ICON plc’s financial statements and other financial data
contained in this Form 20-F are presented in United States dollars (“$”) and are
prepared in accordance with generally accepted accounting principles in the
United States (“U.S. GAAP”).
 
 In this
Form 20-F, references to "U.S. dollars", "U.S.$" or "$" are to the lawful
currency of the United States, references to "pounds sterling", "sterling", "£",
"pence" or "p" are to the lawful currency of the United Kingdom, references to
“Euro” or “€” are to the European single currency adopted by fifteen members of
the European Union (including the Republic of Ireland, France, Germany, Spain,
Italy and the Netherlands). ICON publishes its consolidated financial statements
in U.S. dollars.
 
 On July
27, 2005, the Board of Directors of the Company approved a change of the
Company’s fiscal year end from a twelve-month period ending on May 31 to a
twelve-month period ending on December 31.  The Company made this change in
order to align its fiscal year end with the majority of other contract research
organizations.  As a requirement of this change, the Company reported
results for the seven-month period from June 1, 2005, to December 31, 2005, as a
separate transition period. As of January 1, 2006, the
Company’s fiscal year now begins on January 1 and ends on December 31 and
its fiscal quarters end on the last day of March, June, September and
December.
 
 On
September 29, 2006, ICON’s shareholders approved a bonus issue of ordinary
shares (the “Bonus Issue”) to shareholders of record as of the close of business
on October 13, 2006 (the “Record Date”).  The Bonus Issue provided for
each shareholder to receive one bonus ordinary share for each ordinary share
held as of the Record Date, effecting the equivalent of a 2-for-1 stock
split.  The Bonus shares were issued on October 16, 2006, to ordinary
shareholders and on October 23, 2006, to holders of American Depositary Shares
(“ADSs”).  NASDAQ adjusted the trading price of ICON’s ADSs to effect
the Bonus Issue prior to the opening of trading on October 24,
2006.  All outstanding ordinary share amounts referenced in the
consolidated financial statements and the notes thereto have been
retrospectively restated to give effect to the Bonus Issue as if it had occurred
as of the date referenced.
 
 Cautionary Statement
 
 Statements
included herein which are not historical facts are forward looking statements.
Such forward looking statements are made pursuant to the safe harbor provisions
of the U.S. Private Securities Litigation Reform Act of 1995 (the “PSLRA”). The
forward looking statements involve a number of risks and uncertainties and are
subject to change at any time. In the event such risks or uncertainties
materialize, our results could be materially affected. The risks and
uncertainties include, but are not limited to, dependence on the pharmaceutical
industry and certain clients, the need to regularly win projects and then to
execute them efficiently, the challenges presented by rapid growth, competition
and the continuing consolidation of the industry, the dependence on certain key
executives and other factors identified in the Company’s Securities and Exchange
Commission filings. The Company has no obligation under the PSLRA to update any
forward looking statements and does not intend to do so.
 
 Part I
 
 Item 1.Identity of Directors,
Senior Management and Advisors.
 
 Not
applicable.
 
 Item 2. Offer
Statistics and Expected Timetable.
 
 Not
applicable.
  1
 Item 3.  Key
Information.
 
 Selected
Historical Consolidated Financial Data for ICON plc
 The
following selected financial data set forth below are derived from ICON’s
consolidated financial statements and should be read in conjunction with, and
are qualified by reference to, Item 5 “Operating and Financial Review and
Prospects” and ICON's consolidated financial statements and related notes
thereto included elsewhere in this Form 20-F.
 Year
      ended May 31
                
                
                7
      month
                  Period
                  ended
                  December
                  31,
                
                
                Year
                  ended
                  December
                  31,
                
                
                Year
                  ended
                  December
                  31,2003
                
                
                2004
                
                
                2005
                
                
                2005
                
                
                2006
                
                
                2007(in
      thousands, except share and per share data)Statement
      of Operations Data:Gross
      revenue
                
                $
                340,971
                
                
                $
                443,875
                
                
                $
                469,583
                
                
                $
                275,586
                
                
                $
                649,826
                
                
                $
                867,473Subcontractor
      costs (1)
                
                
                (115,246
                )
                
                
                (146,952
                )
                
                
                (142,925
                )
                
                
                (73,636
                )
                
                
                (194,229
                )
                
                
                (236,751
                )Net
      revenue
                
                
                225,725
                
                
                
                296,923
                
                
                
                326,658
                
                
                
                201,950
                
                
                
                455,597
                
                
                
                630,722Costs
      and expenses:Direct
      costs
                
                
                122,373
                
                
                
                162,562
                
                
                
                179,661
                
                
                
                114,004
                
                
                
                256,263
                
                
                
                354,479Selling,
      general and administrative
                
                
                71,118
                
                
                
                88,807
                
                
                
                103,784
                
                
                
                62,276
                
                
                
                136,569
                
                
                
                187,993Depreciation
      and amortization
                
                
                7,305
                
                
                
                11,171
                
                
                
                13,331
                
                
                
                8,094
                
                
                
                14,949
                
                
                
                19,008Share
      based compensation (2)
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                6,024
                
                
                
                -
                
                
                
                -Other
      charges (4)
                
                
                -
                
                
                
                -
                
                
                
                11,275
                
                
                
                -
                
                
                
                -
                
                
                
                -Total
      costs and expenses
                
                
                200,796
                
                
                
                262,540
                
                
                
                308,051
                
                
                
                190,398
                
                
                
                407,781
                
                
                
                561,480Income
      from operations
                
                
                24,929
                
                
                
                34,383
                
                
                
                18,607
                
                
                
                11,552
                
                
                
                47,816
                
                
                
                69,242Net
      interest income
                
                
                354
                
                
                
                288
                
                
                
                979
                
                
                
                1,272
                
                
                
                3,640
                
                
                
                2,738Income
      before provision for income taxes
                
                
                25,283
                
                
                
                34,671
                
                
                
                19,586
                
                
                
                12,824
                
                
                
                51,456
                
                
                
                71,980Provision
      for income taxes
                
                
                (7,000
                )
                
                
                (8,929
                )
                
                
                (5,852
                )
                
                
                (5,396
                )
                
                
                (12,924
                )
                
                
                (15,830
                )Minority
      interest
                
                
                -
                
                
                
                -
                
                
                
                (189
                )
                
                
                (10
                )
                
                
                (228
                )
                
                
                (187
                )Net
      income
                
                $
                18,283
                
                
                $
                25,742
                
                
                $
                13,545
                
                
                $
                7,418
                
                
                $
                38,304
                
                
                $
                55,963Net
      income per
                  ordinary
      share (3):Basic
                
                $
                0.78
                
                
                $
                0.97
                
                
                $
                0.49
                
                
                $
                0.27
                
                
                $
                1.35
                
                
                $
                1.95Diluted
                
                $
                0.75
                
                
                $
                0.94
                
                
                $
                0.48
                
                
                $
                0.26
                
                
                $
                1.33
                
                
                $
                1.88Weighted
      average number
                  of
      ordinary shares outstanding:Basic
                
                
                23,627,576
                
                
                
                26,535,062
                
                
                
                27,720,406
                
                
                
                27,940,212
                
                
                
                28,314,985
                
                
                
                28,705,272Diluted
                
                
                24,362,188
                
                
                
                27,406,326
                
                
                
                28,306,890
                
                
                
                28,495,084
                
                
                
                28,863,334
                
                
                
                29,747,964
 
 2
 
 
 
 As
      of May 31,
                
                
                As
      of December 31,2003
                
                
                2004
                
                
                2005
                
                
                2005
                
                
                2006
                
                
                2007(in
      thousands)Balance
      Sheet Data:Cash
      and cash equivalents
                
                $
                18,311
                
                
                $
                55,678
                
                
                $
                56,341
                
                
                $
                59,509
                
                
                $
                63,039
                
                
                $
                76,881Short
      term investments
                
                
                -
                
                
                
                23,085
                
                
                
                22,034
                
                
                
                22,809
                
                
                
                39,822
                
                
                
                41,752Working
      capital
                
                
                53,827
                
                
                
                113,813
                
                
                
                125,288
                
                
                
                132,312
                
                
                
                160,321
                
                
                
                193,271Total
      assets
                
                
                235,014
                
                
                
                335,323
                
                
                
                347,553
                
                
                
                349,067
                
                
                
                476,341
                
                
                
                693,138Total
      debt
                
                
                7,126
                
                
                
                -
                
                
                
                -
                
                
                
                4,856
                
                
                
                5,000
                
                
                
                94,829Long
      term government grants
                
                
                1,140
                
                
                
                1,411
                
                
                
                1,257
                
                
                
                1,160
                
                
                
                1,170
                
                
                
                1,179Shareholders’
      equity
                
                $
                136,910
                
                
                $
                216,760
                
                
                $
                233,066
                
                
                $
                241,558
                
                
                $
                302,738
                
                
                $
                388,400
 
 
 (1)
                Subcontractor
      costs are comprised of investigator payments and certain other costs
      reimbursed by clients under terms specific to each of ICON's contracts.
      See Note 2 (d) to the Audited Consolidated Financial
      Statements.(2)
                $6.0
      million share-based compensation expensed during the period ended December
      31, 2005, was recorded in relation to the transfer of 288,000 shares from
      the founders of the Company to the Chief Executive
  Officer.(3)
                Net
      income per ordinary share is based on the weighted average number of
      outstanding ordinary shares. Diluted net income per share includes
      potential ordinary shares from the exercise of options.(4)
                Other
      operating charges of $11.3 million were recorded in the year ended May 31,
      2005. These charges related to the recognition of an impairment in the
      carrying value of our investment in the central laboratory, a write-down
      of certain fixed assets and the lease termination and exit costs
      associated with the consolidation of some of our office facilities in the
      US.
 
 
 Risk
Factors
 
 We
are dependent on the continued outsourcing of research and development by the
pharmaceutical, biotechnology and medical device industries.
  We are
dependent upon the ability and willingness of the pharmaceutical, biotechnology
and medical device companies to continue to spend on research and development
and to outsource the services that we provide. We are therefore subject to
risks, uncertainties and trends that affect companies in these industries. We
have benefited to date from the tendency of pharmaceutical, biotechnology and
medical device companies to outsource clinical research projects. Any downturn
in these industries or reduction in spending or outsourcing could adversely
affect our business. For example, if these companies expanded upon their
in-house clinical or development capabilities, they would be less likely to
utilize our services. In addition, if governmental regulations were changed,
they could affect the ability of our clients to operate profitably, which may
lead to a decrease in research spending and therefore this could have a material
adverse effect on our business.
  3
 
 We
depend on a limited number of clients and a loss of or significant decrease in
business from them could affect our business.
  We have
in the past and may in the future derive a significant portion of our net
revenue from a relatively limited number of clients. A loss of, or a significant
decrease in business from any one or more of such clients could have a material
adverse effect on our business. During the year ended December 31, 2007, 30% of
our net revenue was derived from our top five clients. During 2007, no client
contributed more than 10% of net revenues. During the year ended December 31,
2006, 35% of our net revenue was derived from our top five clients. During 2006,
no client contributed more than 10% of net revenues. During the 7 month
transition period ended December 31, 2005, 39% of our net revenue was derived
from our top five clients and no client contributed more than 10% of net
revenues. During the fiscal year ended May 31, 2005, 43% of our net revenue was
derived from our top five clients. In the fiscal year ended May 31, 2005, 12% of
our net revenue was from Astra Zeneca plc, no other client contributed more than
10% of net revenues.
  
 If
our clients discontinue using our services, or cancel or discontinue projects,
our revenue will be adversely affected and we may not receive their business in
the future or may not be able to attract new clients.
  Our
clients may discontinue using our services completely or cancel some projects
either without notice or upon short notice. The termination or delay of a large
contract or of multiple contracts could have a material adverse effect on our
revenue and profitability. Historically, clients have cancelled or discontinued
projects and may in the future cancel their contracts with us for reasons
including:
  •
                the
      failure of products being tested to satisfy safety or efficacy
      requirements;•
                unexpected
      or undesired clinical results of the product;•
                a
      decision that a particular study is no longer
necessary;•
                poor
      project performance, insufficient patient enrollment or investigator
      recruitment; or•
                production
      problems resulting in shortages of the
drug.
 
  If we
lose clients, we may not be able to attract new ones, and if we lose individual
projects, we may not be able to replace them.
  We
compete against many companies and research institutions that may be larger or
more efficient than we are. This may preclude us from being given the
opportunity to bid, or may prevent us from being able to competitively bid on
and win new contracts.
  The
market for Contract Research Organizations (“CROs”) is highly competitive. We
primarily compete against in-house departments of pharmaceutical companies and
other CROs including Covance Inc., i3 Research (United Health Group
Incorporated), Kendle International Inc., MDS Inc., Omnicare Inc., PARAEXEL
International Corporation, Pharmaceutical Product Development Inc., PharmaNet
Development Group Inc., PRA International Inc. and Quintiles Transnational
Corporation. Some of these competitors have substantially greater capital,
research and development capabilities and human resources than we do. As a
result, they may be selected as preferred vendors of our clients or potential
clients for all projects or for significant projects, or they may be able to
price projects more competitively than us. Any of these factors may prevent us
from getting the opportunity to bid on new projects or prevent us from being
competitive in bidding on new contracts.
  4
  Our
quarterly results are dependent upon a number of factors and can fluctuate from
quarter to quarter.
  Our
results of operations in any quarter can fluctuate depending upon, among other
things, the number and scope of ongoing client projects, the commencement,
postponement, variation and cancellation or termination of projects in the
quarter, the mix of revenue, cost overruns, employee hiring and other factors.
Our net revenue in any period is directly related to the number of employees and
the percentage of these employees who were working on projects and billed to the
client during that period. We may be unable to compensate for periods of
underutilization during one part of a fiscal period by augmenting revenues
during another part of that period. We believe that operating results for any
particular quarter are not necessarily a meaningful indication of future
results.
  Our
Central Laboratory segment has been loss making in the past and may experience
losses in the future.
  Our
central laboratory has experienced a period of underperformance over the past
number of years. This business unit returned to profitability for the year ended
December 31, 2006, and remained profitable during the year ended December 31,
2007. To maintain this profitability we require continued strong levels of new
business awards and economies of scale in the usage of both resources and lab
inputs. If we do not achieve continued momentum in winning new business and if
these economies are not sustained, then our central laboratory may return to a
loss making position in the future.
  Approximately
84% of our net revenue is earned from long-term fixed-fee contracts. We would
lose money in performing these contracts if the costs of performance exceed the
fixed fees for these projects.
  Approximately
84% of our net revenue is earned from long-term fixed-fee contracts. We have in
the past and will continue to bear the risk of cost overruns under these
contracts. If the costs of performing these projects exceed the fixed fees for
these projects, (for example if we under price these contracts), if there are
significant cost overruns or if there are unanticipated delays under these
contracts, our business, financial condition and operating results could be
adversely affected.
  If
we fail to attract or retain qualified staff, our performance may
suffer.
  Our
business, future success and ability to expand operations depends upon our
ability to attract, hire, train and retain qualified professional, scientific
and technical operating staff. We compete for qualified professionals with other
CROs, temporary staffing agencies and the in-house departments of
pharmaceutical, biotechnology and medical device companies. Although we have not
had any difficulty attracting or retaining qualified staff in the past, there is
no guarantee that we will be able to continue to attract a sufficient number of
clinical research professionals at an acceptable cost.
  Failure
to comply with the regulations of the U.S. Food and Drug Administration and
other regulatory authorities could result in substantial penalties and/or loss
of business.
  The U.S.
Food and Drug Administration, or FDA, and other regulatory authorities inspect
us from time to time to ensure that we comply with their regulations and
guidelines, including environmental and health and safety matters. In addition,
we must comply with the applicable regulatory requirements governing the conduct
of clinical trials in all countries in which we operate. If we fail to comply
with any of these requirements we could suffer:
  •
                the
      termination of any research;•
                the
      disqualification of data;•
                the
      denial of the right to conduct business;•
                criminal
      penalties; and•
                other
      enforcement actions.
 
 5
  Our
exposure to exchange rate fluctuations could adversely affect our results of
operations.
  We
derived approximately 50% of our consolidated net revenue in the year ended
December 31, 2007, from our operations outside of the United States. Our
financial statements are presented in U.S. dollars. Accordingly, changes in
exchange rates between the U.S. dollar and other currencies in which we report
local results, including the pound sterling and the euro, will affect the
translation of a subsidiary’s financial results into U.S. dollars for purposes
of reporting our consolidated financial results.
  In
addition, our contracts with our clients are sometimes denominated in currencies
other than the currency in which we incur expenses related to such contracts.
Where expenses are incurred in currencies other than those in which contracts
are priced, fluctuations in the relative value of those currencies could have a
material adverse effect on our results of operations. This risk is partially
mitigated by clauses in certain of our contracts which allow for price
renegotiation with our clients if changes in the relative value of those
currencies exceed predetermined tolerances. We regularly review our currency
exchange exposure and on occasion hedge a portion of this exposure using forward
exchange contracts.
  Liability
claims brought against us could result in payment of substantial damages to
plaintiffs and decrease our profitability.
  We
contract with physicians who serve as investigators in conducting clinical
trials to test new drugs on their patients. This testing creates the risk of
liability for personal injury to or death of the patients. Although
investigators are generally required by law to maintain their own liability
insurance, we could be named in lawsuits and incur expenses arising from any
professional malpractice actions against the investigators with whom we
contract. To date, we have not been subject to any liability claims that are
expected to have a material effect on us.
  Indemnifications
provided by our clients against the risk of liability for personal injury to or
death of the patients vary from client to client and from trial to trial and may
not be sufficient in scope or amount or the providers may not have the financial
ability to fulfill their indemnification obligations. Furthermore, we would be
liable for our own negligence and that of our employees.
  In
addition, we maintain an appropriate level of worldwide Professional
Liability/Error and Omissions Insurance. The amount of coverage we maintain
depends upon the nature of the trial. We may in the future be unable to maintain
or continue our current insurance coverage on the same or similar terms. If we
are liable for a claim that is beyond the level of insurance coverage, we may be
responsible for paying all or part of any award.
  We
may lose business opportunities as a result of health care reform and the
expansion of managed care organizations.
  Numerous
governments, including the U.S. government and governments outside of the U.S.,
have undertaken efforts to control growing health care costs through
legislation, regulation and voluntary agreements with medical care providers and
drug companies. If these efforts are successful, pharmaceutical, biotechnology
and medical device companies may react by spending less on research and
development and therefore this could have a material adverse effect on our
business.
  For
instance, in the past the U.S. Congress has entertained several comprehensive
healthcare reform proposals. The proposals were generally intended to expand
healthcare coverage for the uninsured and reduce the growth of total healthcare
expenditures. While the U.S. Congress has not yet adopted any comprehensive
reform proposals, members of Congress may raise similar proposals in the future.
We are unable to predict the likelihood that healthcare reform proposals will be
enacted into law.
  In
addition to healthcare reform proposals, the expansion of managed care
organizations in the healthcare market may result in reduced spending on
research and development. Managed care organizations' efforts to cut costs by
limiting expenditures on pharmaceuticals and medical devices could result in
pharmaceutical, biotechnology and medical device companies spending less on
research and development. If this were to occur, we would have fewer business
opportunities and our revenues could decrease, possibly materially.
  6
 
  We
may lose business as a result of changes in the regulatory
environment
  Various
regulatory bodies throughout the world may enact legislation which could
introduce changes to the regulatory environment for drug development and
research. The adoption and implementation of such legislation is difficult to
predict and therefore could have a material adverse effect on our
business.
  We
may not be able to successfully develop and market or acquire new
services.
  We may
seek to develop and market new services that complement or expand our existing
business or expand our service offerings through acquisition. If we are unable
to develop new services and/or create demand for those newly developed services,
or expand our service offerings through acquisition, our future business,
results of operations, financial condition, and cash flows could be adversely
affected.
  We
rely on third parties for important services.
  We depend
on third parties to provide us with services critical to our business. The
failure of any of these third parties to adequately provide the needed services
could have a material adverse effect on our business.
  We
may make acquisitions in the future, which may lead to disruptions to our
ongoing business.
  We have
made a number of acquisitions and will continue to review new acquisition
opportunities. If we are unable to successfully integrate an acquired company,
the acquisition could lead to disruptions to the business. The success of an
acquisition will depend upon, among other things, our ability to:
  ·
                assimilate
      the operations and services or products of the acquired
      company;·
                integrate
      acquired personnel;·
                retain
      and motivate key employees;·
                retain
      customers; and·
                minimize
      the diversion of management's attention from other business
      concerns.
  Acquisitions
of foreign companies may also involve additional risks, including assimilating
differences in foreign business practices and overcoming language and cultural
barriers.
  In the
event that the operations of an acquired business do not meet our performance
expectations, we may have to restructure the acquired business or write-off the
value of some or all of the assets of the acquired business.
  We
rely on our interactive voice response systems to provide accurate information
regarding the randomization of patients and the dosage required for patients
enrolled in the trials.
 
 We
develop and maintain computer run interactive voice response systems to
automatically manage the randomization of patients in trials, assign study drug,
and adjust the dosage when required for patients enrolled in trials we support.
An error in the design, programming or validation of these systems could lead to
inappropriate assignment or dosing of patients which could give rise to patient
safety issues, invalidation of the trial, liability claims against the Company
or all three.
 
 We
rely on various control measures to mitigate the risk of a serious adverse event
resulting from healthy volunteer Phase I trials.
 
 We
conduct healthy volunteer Phase I trials including first-into-man trials for new
clinical entities in the UK and the US. Due to the experimental nature of these
studies, serious adverse events may arise. We mitigate such events by following
Good Clinical Practice and ensuring appropriately trained and experienced
clinical physicians are managing these trials and that internal Standards
Operating Procedures and client protocols are rigorously adhered to. We also
ensure that a signed contract is in place with the client in advance of clinical
dosing with appropriate indemnifications and insurance coverage. We maintain our
own no-faults clinical trial insurance. Following our internal review and
submission, an Independent Ethics committee approves the study protocol and
appropriate approval is obtained from the UK regulatory body.
 
 7
 
 Item 4.Information on the
Company.
 
 General
 We are a
contract research organization (“CRO”), providing outsourced development
services on a global basis to the pharmaceutical, biotechnology and medical
device industries. We specialize in the strategic development, management and
analysis of programs that support Clinical Development - from compound selection
to Phase I-IV clinical studies.
 
 In a
highly fragmented industry, we are one of a small number of companies with the
capability and expertise to conduct clinical trials in all major therapeutic
areas on a global basis. At December 31, 2007, we had 5,610 employees, in 67
locations in 36 countries, providing Phase I - IV Clinical Trial Management,
Drug Development Support Services, Data Management and Biostatistics and Central
Laboratory and Imaging Services. We have the operational flexibility to provide
development services on a stand-alone basis or as part of an integrated “full
service” solution.
 
 Headquartered
in Dublin, Ireland, we began operations in 1990 and have expanded our business
through internal growth and strategic acquisitions. For the year ended December
31, 2007, we derived approximately 50%, 44% and 6% of our net revenue in the
United States, Europe and Rest of World, respectively.
 
 During
the year ended December 31, 2007, we commenced operations in Prague, Czech
Republic; Kiev, Ukraine; Bucharest, Romania; Auckland, New Zealand; Osaka,
Japan; Lima, Peru; and San Antonio, USA. On July 12, 2007, the Company acquired
100% of the common stock of DOCS International, a European based clinical
research staffing organization, for a cash consideration of $40.6 million (€29.5
million). DOCS International operates in eight European countries and focuses on
the training and supply of contract and permanent clinical research personnel to
the pharmaceutical and biotech industry. As a result of the acquisition of DOCS
International offices were also acquired in Manchester and Cambridge, UK; Munich
and Berlin, Germany; Paris, France; Amsterdam, Netherlands; Stockholm, Sweden;
Helsinki, Finland; Copenhagen, Denmark; and Warsaw, Poland.
 
 On July
9, 2007, ICON plc entered into a five year committed multi-currency facility
agreement for €35 million ($51.1 million) with The Governor and Company of the
Bank of Ireland.  Our obligations under the facility are secured by
certain composite guarantees and indemnities and pledges in favor of the bank.
The facility bears interest at an annual rate equal to the EURIBOR plus a
margin. On July 10, 2007, the Company drew down €29.5 million ($40.6 million) of
the facility to fund the acquisition of DOCS International.  On
October 15, 2007, the remaining €5.5 million ($8 million) of the facility was
drawn down to cover head office expansion in Ireland.
 
 On
October 17, 2007, an uncommitted credit facility was negotiated with Allied
Irish Banks plc, for €30 million ($43.8 million). Interest is calculated at the
EUR interbank rate plus a margin.  The facility is secured by the same
composite guarantees and indemnities in place for the ICON plc committed
facility.  On December 31, 2007, this facility was fully
drawn.  The funds were used to refinance overdraft facilities in place
to fund expenditure on the head office expansion. On January 8, 2008, the
facility with Allied Irish Banks plc was increased to €50 Million ($72.9
million). All terms of this facility remain the same. The facility is due to be
reviewed on October 31, 2010.
 
 The
average margin payable in the above mentioned facilities is 0.65 per
cent.
 
 On
September 29, 2006, ICON’s shareholders approved a bonus issue of ordinary
shares (the “Bonus Issue”) to shareholders of record as of the close of business
on October 13, 2006 (the “Record Date”). The Bonus Issue provided for each
shareholder to receive one bonus ordinary share for each ordinary share held as
of the Record Date, effecting the equivalent of a 2-for-1 stock split. The Bonus
shares were issued on October 16, 2006, to Ordinary Shareholders and on October
23, 2006, to holders of American Depositary Shares (“ADSs”). NASDAQ adjusted the
trading price of ICON’s ADSs to effect the Bonus Issue prior to the opening of
trading on October 24, 2006. All outstanding ordinary share amounts referenced
in the consolidated financial statements and the notes thereto have been
retrospectively restated to give effect to the Bonus Issue as if it had occurred
as of the date referenced.
  8
 On July
10, 2006, we acquired 100% of the common stock of Ovation Healthcare Research 2
Inc. (“Ovation”), based in Illinois, USA, for an initial cash consideration of
U.S.$6.6 million, excluding costs of acquisition. Working capital provisions
were built into the acquisition contract requiring the potential payment of
additional deferred consideration up to a maximum of $1.4 million. On October
27, 2006, $0.18 million was paid to the former shareholders of Ovation in full
and final settlement of the working capital provisions.
 
 On July
27, 2005, our Board of Directors approved a change of our fiscal year end from a
twelve-month period ending on May 31, to a twelve-month period ending on
December 31.  We made this change in order to align our fiscal year
end with the majority of other contract research organizations. Our fiscal
quarters now end on the last day of March, June, September and December of each
year.
 
 On
December 1, 2004, we acquired the workforce of Biomines Research Solutions
Private Limited, based in Chennai, India. The workforce is engaged in the
business of clinical trial data management and statistical analysis services and
has been transferred to our existing Indian operation.
 
 On July
1, 2004, we acquired 70% of the outstanding share capital of Beacon Bioscience,
Inc., a leading specialist CRO, which provides a range of medical imaging
services to the pharmaceutical, biotechnology and medical device
industries.
 
 ICON
plc’s principal executive office is located at: South County Business Park,
Leopardstown, Dublin 18, Republic of Ireland. The contact telephone number of
this office is 353 (1) 291 2000.
 
 Industry
Overview
 
 The CRO
industry provides independent product development services for the
pharmaceutical, biotechnology and medical device industries. Companies in these
industries outsource product development services to CROs in order to manage the
drug development process more efficiently and to cost-effectively maximize the
profit potential of both patent-protected and generic products. The CRO industry
has evolved since the 1970s from a small number of companies that provided
limited clinical services to a larger number of CROs that offer a range of
services that encompass the entire research and development process, including
pre-clinical development, clinical trials management, clinical data management,
study design, biostatistical analysis, post marketing surveillance, central
laboratory and regulatory affairs services. CROs are required to provide these
services in accordance with good clinical and laboratory practices, as governed
by the applicable regulatory authorities.
 
 The CRO
industry is highly fragmented, consisting of several hundred small,
limited-service providers and a limited number of medium-sized and large CROs
with global operations. Although there are few barriers to entry for small,
limited-service providers, we believe there are significant barriers to becoming
a CRO with global capabilities. Some of these barriers include the
infrastructure and experience necessary to serve the global demands of clients,
the ability to manage simultaneously complex clinical trials in numerous
countries, broad therapeutic expertise and the development and maintenance of
the complex information technology systems required to integrate these
capabilities. In recent years, the CRO industry has experienced consolidation,
resulting in the emergence of a select group of CROs that have the capital,
technical resources, integrated global capabilities and expertise to conduct
multiple phases of clinical trials on behalf of pharmaceutical, biotechnology
and medical device companies. We believe that some large pharmaceutical
companies, rather than utilizing many CRO service providers, are selecting a
limited number of CROs who are invited to bid for projects. We believe that this
trend will further concentrate the market share among CROs with a track record
of quality, speed, flexibility, responsiveness, global capabilities and overall
development experience and expertise.
 
 9
  New
Drug Development - An Overview
 
 Before a
new drug may be marketed, the drug must undergo extensive testing and regulatory
review in order to determine that the drug is safe and effective. The following
discussion primarily relates to the FDA approval process. Similar procedures
must be followed for clinical trials in other countries. The stages of this
development process are as follows:
  Preclinical
Research (1 to 3.5 years). “In vitro” (test tube) and animal studies are
conducted to establish the relative toxicity of the drug over a wide range of
doses and to detect any potential to cause birth defects or cancer. If results
warrant continuing development of the drug, the manufacturer will file for an
Investigational New Drug Application, or IND, upon which the FDA may grant
permission to begin human trials.
  Clinical
Trials (3.5 to 6 years)
  Phase
I(6 months to
1 year). Basic safety and pharmacology testing in 20 to 80 human
subjects, usually healthy volunteers, includes studies to determine how the drug
works, if it is safe, how it is affected by other drugs, where it goes in the
body, how long it remains active and how it is broken down and eliminated from
the body.
  Phase
II(1 to 2
years). Basic efficacy (effectiveness) and dose-range testing in 100 to
200 patients to help determine the best effective dose, confirm that the drug
works as expected, and provide additional safety data.
  Phase
III(2 to 3
years). Efficacy and safety studies in hundreds or thousands of patients
at many investigational sites (hospitals and clinics). These studies can be
placebo-controlled trials, in which the new drug is compared with a “sugar
pill”, or studies comparing the new drug with one or more drugs with established
safety and efficacy profiles in the same therapeutic category.
  TIND (may span
late Phase II, Phase III, and FDA review). When results from Phase II or
Phase III show special promise in the treatment of a serious condition for which
existing therapeutic options are limited or of minimal value, the FDA may allow
the manufacturer to make the new drug available to a larger number of patients
through the regulated mechanism of a Treatment Investigational New Drug, or
TIND. Although less scientifically rigorous than a controlled clinical trial, a
TIND may enroll and collect a substantial amount of data from tens of thousands
of patients.
  NDA Preparation
and Submission. Upon completion of Phase III trials, the manufacturer
assembles the statistically analyzed data from all phases of development into a
single large submission, the New Drug Application, or NDA, which today
comprises, on average, approximately 100,000 pages.
  FDA Review &
Approval (1 to 1.5 years). Data from all phases of development (including
a TIND) is scrutinized to confirm that the manufacturer has complied with
regulations and that the drug is safe and effective for the specific use (or
“indication”) under study.
  Post-Marketing
Surveillance and Phase IV Studies. Federal regulation requires the
manufacturer to collect and periodically report to the FDA additional safety and
efficacy data on the drug for as long as the manufacturer markets the drug
(post-marketing surveillance). If the drug is marketed outside the U.S., these
reports must include data from all countries in which the drug is sold.
Additional studies (Phase IV) may be undertaken after initial approval to find
new uses for the drug, to test new dosage formulations, or to confirm selected
non-clinical benefits, e.g., increased cost-effectiveness or improved quality of
life.
  Key
Trends Affecting the CRO Industry
 
 CROs
derive substantially all of their revenue from the research and development
expenditures of pharmaceutical, biotechnology and medical device companies.
Based on industry surveys and investment analyst research, we estimate that
clinical development expenditures outsourced by pharmaceutical and biotechnology
companies worldwide in 2007 was approximately $18 billion. We believe that the
following trends create further growth opportunities for global CROs, although
there is no assurance that growth will materialize.
  10
 Innovation
driving new Drug Development activity.
 
 Technologies
such as combinational chemistry and high throughput screening, together with
improved understanding of disease pathology (driven by scientific advances such
as the mapping of the human genome) have greatly increased the number of new
drug candidates being investigated in early development and greatly broadened
the number of biological mechanisms being targeted by such candidates. Arising
from this innovation, funding for research and development, particularly by
biotechnology companies, has been growing strongly. This is leading to
significant increased activity in both Preclinical and Phase I development which
we believe will lead to more treatments in Phase II-III clinical trials.As the number of trials
that need to be performed increases, we believe that drug developers will
increasingly rely on CROs to manage these trials in order to continue to focus
on drug discovery.
 
 Declining
productivity within Research and Development programs.
 
 Whilst
the total number of compounds that have entered clinical development has risen
over the last few years, the number of novel drugs that have successfully been
approved for marketing has remained relatively stable. Pharmaceutical and
biotechnology companies have responded in a number of ways including looking to
extend the product life cycle of existing drugs and initiating programs to drive
efficiency in the development process. One example of this has been the efforts
to achieve a more seamless transition across development phases, particularly
Phase I-III. In parallel regulatory initiatives such as the FDA’s “Critical
Path” and the emergence of techniques such as adaptive trial design are focused
on ensuring unsafe or ineffective drugs are eliminated from the development
process earlier, allowing effective treatments to get to patients quicker at
potentially reduced development costs.
 
 Pressure
to Accelerate Time to Markets; Globalization of the Marketplace.
 
 Reducing
product development time maximizes the client’s potential period of patent
exclusivity, which in turn maximizes potential economic returns. We believe that
clients are increasingly using CROs that have the appropriate expertise to
improve the speed of product development to assist them in improving economic
returns. In addition, applying for regulatory approval in multiple markets and
for multiple indications simultaneously, rather than sequentially, reduces
product development time and thereby maximizes economic returns. We believe that
CROs with global operations and experience in a broad range of therapeutic areas
are a key resource to support a global regulatory approval strategy. Alongside
this, the increasing need to access pools of “treatment naive” patients is
leading to the conduct of clinical trials in new “emerging regions” such as
Eastern Europe, Latin America, South America and India. We believe that having
access to both traditional and emerging clinical research markets gives global
CROs a competitive advantage.
 
 Emergence
of the Biotechnology Sector
 
 The
nature of the drugs being developed is changing. Biotechnology is enabling the
development of targeted drugs with diagnostic tests to determine a priori
whether a drug will be effective given a patient’s genomic profile. An
increasing proportion of research and development (“R&D”) expenditure is
being spent on the development of highly technical drugs to treat very specific
therapeutic areas. Much of this discovery expertise is found in smaller
biotechnology firms. We believe that it is to these organizations that the large
pharmaceutical companies will look for an increasing proportion of their new
drug pipelines. Whether it is through licensing agreements, joint ventures or
equity investment, we believe we will see the emergence of more strategic
relationships between small discovery firms and the larger pharmaceutical
groups. As the majority of these biotechnology companies do not have a clinical
development infrastructure, we believe that the services offered by CROs will
continue to be in demand from such companies.
 
 Cost
Containment Pressures.
 
 Over the
past several years, drug companies have sought more efficient ways of conducting
business due to margin pressures stemming from patent expirations, greater
acceptance of generic drugs, pricing pressures caused by the impact of managed
care, purchasing alliances and regulatory consideration of the economic benefit
of new drugs. Consequently, drug companies are centralizing research and
development, streamlining their internal structures and outsourcing certain
functions to CROs, thereby converting previously fixed costs to variable costs.
The CRO industry, by specializing in clinical trials management, is often able
to perform the needed services with greater focus and at a lower cost than the
client could perform internally.
  11
 Increasing
Number of Large Long-Term Studies
 
 We
believe that to establish competitive claims and to encourage drug prescription
by physicians in some large and competitive categories, more clients need to
conduct outcome studies to demonstrate, for example, that mortality rates are
reduced by certain drugs. To verify such outcomes, very large patient numbers
are required and they must be monitored over long time periods. We believe that
as these types of studies increase there will be a commensurate increase in
demand for the services of CROs who have the ability to quickly assemble large
patient populations, globally if necessary, and manage this complex process
throughout its duration.
 
 A
focus on long–term product safety
 
 High
profile recalls for drugs in recent times have increased the emphasis on
monitoring the health effects of long term drug usage. Historically the industry
has not tracked what has happened to consumers of drugs over long periods. This
is important given that people can potentially be taking a drug for 20 or 30
years, and may have no idea what side-effects it will have over that period of
time. Registry studies are one method of collecting safety and efficacy data
over an extensive patient population once a drug is on the market. Much of the
information collected is voluntary by both physicians and patients as part of
routine care. This data can provide an early warning if a patient were to
experience a serious adverse reaction. With increasing regulation in the area of
post marketing surveillance, we believe pharmaceutical firms will look to CROs
for support in the design and rollout of major post marketing safety
programs.
 
 Increasing
Regulatory Demands.
 
 We
believe that regulatory agencies are becoming more demanding with regard to the
data required to support new drug approvals and are seeking more evidence that
new drugs are safer and more effective than existing products. As a result, the
complexity of clinical trials and the size of regulatory submissions are driving
the demand for services provided by CROs.
 
 The
ICON Strategy
 
 ICON’s
mission is to provide flexible, superior quality, global pharmaceutical
development services, that enable clients to expedite development, reduce costs
and establish the benefits of treatments that enhance people’s
lives.
 
 We
provide these development services to clients on a stand-alone basis or as part
of an integrated “full service” solution. Our primary approach is to use
dedicated teams to achieve optimum results. While we believe that this operating
model differentiates us from our competition in the CRO industry and enables us
to deliver high quality services to our clients, we do retain the operational
flexibility to implement a range of resourcing models to suit client
requirements.
 
 Our
strategy is to continue to grow by penetrating further our existing client base
and adding new clients within the Phase I-IV outsourced development services
market; the aim being to ensure we will be considered by every company for every
major Phase I – IV project.
 
 We intend
to implement our strategy by continuing to deliver high quality services, by
increasing our geographic presence, expanding the scale and range of our
services and, where appropriate, cross selling these services into clients. As
needed we intend to supplement our internal growth with strategic
acquisitions.
 
 o
                Continue to
      Deliver High Quality Services and Customer Satisfaction. ICON’s
      core competency is project management, built up over the last seventeen
      years managing complex projects and underpinned by comprehensive and
      consistent processes which conform to the ISO9001:2000 quality
      standard.
  12
  We
      have extensive therapeutic and scientific knowledge residing in the
      organization and the capability to consistently solve the challenges that
      arise during clinical trials, each of which is the equivalent of a unique
      scientific study.We
      believe our quality processes, extensive experience and dedicated team
      approach allows us to provide consistent high quality, timely and cost
      effective services. We believe that the resulting customer satisfaction
      and enhanced reputation in the industry will continue to enable us to
      penetrate our existing client base and add new clients.o
                Expand
      Geographic Presence. In a highly fragmented industry, we are one of
      a small group of organizations with the capability and expertise to
      conduct clinical trials on a global basis. We believe that this capability
      to provide our services globally in most major and developing
      pharmaceutical markets enhances our ability to compete for new business
      from large multinational pharmaceutical, biotechnology and medical device
      companies. We have expanded geographically through the establishment of 67
      offices in 36 countries and intend to continue expanding in regions that
      have the potential to increase our client base or increase our
      investigator and patient populations. We have most recently been expanding
      our presence in Eastern Europe and Latin America as well as parts of Asia
      including India and Japan.o
                Increase
      Scale and Range of Services. We seek to enhance our competitive
      position by increasing the scale and range of our services. We intend to
      expand our clinical trials, central laboratory, digital imaging, IVRS
      (interactive voice recognition system), data management, statistical and
      consulting operations in order to capitalize further on the outsourcing
      opportunities currently available from our clients. The recent high
      profile withdrawal of several drugs from the market is also placing the
      spotlight on drug safety which will lead to greater emphasis, by all
      involved in drug development, on post-marketing safety monitoring. ICON’s
      acquisition of Ovation added additional capabilities to the organization
      in the areas of health economics, patient registries and outcomes
      research, while the recent acquisition of DOCS International has given
      ICON the ability to compete across global clinical research staffing
      markets.o
                Cross Sell
      Services: By building up a full range of development services, ICON
      can support clients through all stages of their product lifecycle. There
      are signs that certain client segments are looking to rationalize their
      supply base down to a small number of CROs who can provide this breadth of
      service. A core part of our business development strategy is to “cross
      sell” ICON’s service portfolio. By developing and maintaining close
      relationships with clients, we gain repeat business and achieve lateral
      penetration of services with the client organization.o
                Strategic
      acquisitions:  Alongside organic growth, we will continue
      to seek strategic acquisitions that fall within and are complimentary to
      our existing service lines.
 
 
 13
  Services
 
 ICON is a
global provider of outsourced development services to the pharmaceutical,
biotechnology and medical device industries. We specialize in the strategic
development, management and analysis of programs that support Clinical
Development - from compound selection to Phase I-IV clinical
studies.
  Our core
Clinical Research business specializes in the planning, management, execution
and analysis of Phase I – IV clinical trials, ranging from small studies to
complex, multinational projects. Specific clinical research services offered
include:
 
 o
                Investigator
      Recruitmento
                Study
      Monitoring and Data Collectiono
                Case
      Report Form ("CRF") Preparationo
                Patient
      Safety Monitoringo
                Clinical
      Data Managemento
                IVR
      (Interactive Voice Response)o
                Medical
      Reportingo
                Patient
      Registrieso
                Outcomes
      Researcho
                Health
      Economicso
                Strategic
      Analysis and Data Operationso
                Clinical
      Pharmacologyo
                Bioanalysiso
                Pharmacokinetic
      and Pharmacodynamic analysiso
                Study
      Protocol Preparationo
                Regulatory
      Consultingo
                Product
      Development Planningo
                Strategic
      Consultingo
                Medical
      Imagingo
                Contract
      Staffing
  An
important element in monitoring patient safety during a clinical trial is the
conduct of various laboratory tests on the patient's blood, urine and other
bodily fluids at appropriate intervals during the trial. The analysis of these
samples must be standardized and the results must be promptly transmitted to the
investigator. ICON Central Laboratories provides global central laboratory
services dedicated exclusively to clinical trials. Specific services offered by
ICON Central Laboratories include:
  o
                Sample
      analyseso
                Safety
      testingo
                Microbiologyo
                Custom
      flow cytometryo
                Electronic
      transmission of test results
 
 
 14
  Organizational
Structure
 
 Name
                Country
      of incorporation
                Group
      ownership*ICON
      Clinical Research (UK) Limited
                United
      Kingdom
                100%ICON
      Clinical Research Inc.
                USA
                100%ICON
      Clinical Research Limited
                Republic
      of Ireland
                100%ICON
      Japan K.K.
                Japan
                100%ICON
      Clinical Research GmbH
                Germany
                100%ICON
      Clinical Research Pty Limited
                Australia
                100%ICON
      Clinical Research S.A.
                Argentina
                100%ICON
      Clinical Research SARL
                France
                100%ICON
      Clinical Research Pte. Limited
                Singapore
                100%ICON
      Clinical Research Israel Limited
                Israel
                100%Medeval
      Limited
                UK
                100%ICON
      Central Laboratories Inc.
                USA
                100%ICON
      Contracting Solutions,Inc.
                USA
                100%ICON
      Clinical Research (Canada) Inc.
                Canada
                100%ICON
      Development Solutions Inc.
                USA
                100%ICON
      Clinical Research Espana S.L.
                Spain
                100%ICON
      Clinical Research Kft
                Hungary
                100%Beacon
      Bioscience, Inc.
                USA
                70%ICON
      Clinical Research India Private Limited
                India
                100%ICON
      Clinical Research México, S.A. de C.V.
                Mexico
                100%ICON
      Pesquisas Clinicas LTDA
                Brazil
                100%Ovation
      Healthcare Research 2, Inc.
                USA
                100%ICON
      Chile Limitada
                Chile
                100%ICON
      Clinical Research Korea Yuhan Hoesa
                Korea
                100%DOCS
      International BV
                Netherlands
                100%
  15
  ICON  Clinical
      Research Peru SA
                Peru
                100%ICON
      Clinical Research (New Zealand) Limited
                New
      Zealand
                100%ICON
      Clinical Research S.R.L.
                Romania
                100%ICON
      Clinical Research LLC
                Ukraine
                100%ICON
      Clinical Research S.R.O.
                Czech Republic
                100%
 * All
shareholdings comprise ordinary shares.
 
 
 
 
 
 16
  Information
Systems
 
 Our
information technology strategy is built around deploying IT systems to enable
the delivery of our business services in a global environment. The focus is to
provide ease of access to information for our staff and clients globally. Our
current information systems are built on open standards and leading commercial
business applications from vendors including Microsoft, Oracle, EMC, BEA, Phase
Forward and Medidata. IT expenditure is authorized by strict IT Governance
policies requiring senior level approval of all strategic IT expenditure. All
critical business systems are formally delivered following a structured project
management and systems delivery life cycle approach. Critical clinical
information systems, which manage clinical data, are validated in accordance
with FDA regulations and those of other equivalent regulatory bodies throughout
the world.
 
 In
Clinical Operations, we have deployed a suite of software applications that
assist in the management and tracking of our clinical trials activities. These
software applications are both internally developed and commercially available
applications from leading vendors in the industry. These include a clinical
trials management application that tracks all relevant data in a trial and
automates all management and reporting processes. In our Data Management
function, we have deployed leading clinical data management solutions plus
Electronic Data Capture (EDC) solutions from leading industry vendors. Our state
of the art workflow technology allows us to process clinical trials data
seamlessly throughout the Company. We have also developed an interactive voice
response system to increase the efficiency of clinical trials. This system
provides features such as centralized patient randomization, drug inventory
management, and patient diary collection and provides our clients with a fully
flexible data retrieval solution which can be utilized via telephone, internet
browser or a WAP enabled device.
 
 Recognizing
that each client has its own requirements and systems, we seek to ensure an
entirely flexible approach to client needs. An example of this flexibility is in
the provision of portal solutions that allows clients access to study related
information via a secure web based environment. We also provide secure remote
access to client systems for clients who require us to utilize their internal
platforms.
 
 ICON’s
strategy of using technology to enhance our global process can be seen in our
recent deployment of a global SOP Document Management system and a WEB based
training delivery solution.
 
 In our
central laboratory, we utilize a comprehensive suite of software, including a
laboratory information management system (LIMS), a kit/sample management system
and a web interface system to allow clients to review results
online.
 
 Our IT
systems are operated from two centralized hubs in Philadelphia and Dublin. Other
offices are linked to these hubs through a resilient network that is outsourced
to a leading tier one telecommunications provider. Traveling staff can also
access all systems via secure remote dial up facilities. A global corporate
intranet portal provides access to all authorized data and applications for our
internal staff as well as providing an internal platform for company wide
communication.
 
 Sales
and Marketing
 
 Our
global sales and marketing strategy is to focus our business development efforts
on pharmaceutical, biotechnology and medical device companies whose development
projects are advancing. By developing and maintaining close relationships with
our clients, we gain repeat business, can leverage a full service portfolio and
achieve lateral penetration into other therapeutic divisions where applicable.
Simultaneously, we are actively establishing new client
relationships.
 
 While our
sales and marketing activities are carried out locally by executives in each of
the major locations, the sales and marketing process is coordinated centrally to
ensure a consistent and differentiated market positioning for ICON and ongoing
development of the ICON brand. In addition, all our business development
professionals, senior executives and project team leaders share responsibility
for the maintenance of key client relationships and business development
activities.
 
 17
  Clients
 
 In the
year ended December 31, 2007, revenue was earned from over 400 clients,
including all of the top 20 pharmaceutical companies as ranked by 2006
revenues.
  We have
in the past and may in the future derive a significant portion of our net
revenue from a relatively limited number of major projects or
clients.  During the year ended December 31, 2007, 30% of our net
revenue was derived from our top five clients and no one client contributed more
than 10% of net revenues.  During the year ended December 31, 2006,
35% of our net revenue was derived from our top five clients and no one client
contributed more than 10% of net revenues.  In the transition period
ended December 31, 2005, no client contributed more than 10% of net
revenues.   During the fiscal year ended May 31, 2005, we
received 12% of our net revenue from Astra Zeneca.  No other client
contributed more than 10% of net revenues in the fiscal year ended May 31, 2005.
We believe that the importance of certain clients reflects our success in
penetrating our client base. The loss of, or a significant decrease in business
from one or more of these key clients could result in a material adverse
effect.
 
 Contractual
Arrangements
 
 We are
generally awarded contracts based upon our response to requests for proposals
received from pharmaceutical, biotechnology and medical device
industries.
 
 Most of
our revenues are earned from contracts which are fixed price, based on certain
activities and performance specifications. Payment terms usually provide either
for payments based on the achievement of certain identified milestones or
activity levels or monthly payments according to a fixed payment schedule over
the life of the contract. Where clients request changes in the scope of a trial
or in the services to be provided by us, a change order or amendment is issued
often resulting in additional revenues for us. We also contract on a
"fee-for-service," or "time and materials" basis, but this accounts for a small
portion of overall project activities.
 
 Contract
terms may range from several weeks to several years depending on the nature of
the work to be performed. In most cases, a portion of the contract fee,
typically 10% to 20%, is paid at the time the study or trial is started. The
balance of the contract fee payable is generally payable in installments over
the study or trial duration and may be based on the achievement of certain
performance targets or "milestones" or, to a lesser extent, on a fixed monthly
payment schedule. For instance, installment payments may be based on patient
enrollment or delivery of the database. Reimbursable expenses are typically
estimated and budgeted within the contract and invoiced on a monthly basis.
Reimbursable expenses include payments to investigators, travel and
accommodation costs and various other direct costs incurred in the course of the
clinical trial which are fully reimbursable by the client.
 
 Most of
our contracts are terminable immediately by the client with justifiable cause or
with 60 days notice without cause. In the event of termination, we are entitled
to all sums owed for work performed through the notice of termination and
certain costs associated with termination of the study. Some of our contracts
provide for an early termination fee. Termination or delay in the performance of
a contract occurs for various reasons, including, but not limited to, unexpected
or undesired results, production problems resulting in shortages of the drug,
adverse patient reactions to the drug, the client's decision to de-emphasize a
particular trial or inadequate patient enrollment or investigator
recruitment.
 
 Backlog
 
 Our
backlog consists of potential net revenue yet to be earned from projects awarded
by clients.
 
 At
December 31, 2007, we had a backlog of approximately $1.3 billion, compared with
approximately $872 million at December 31, 2006.  We believe that our
backlog as of any date is not necessarily a meaningful predictor of future
results, due to the potential for cancellation or delay of the projects
underlying the backlog, and no assurances can be given that we will be able to
realize this backlog as net revenue.
  18
 Competition
 
 The CRO
industry is highly fragmented, consisting of several hundred small,
limited-service providers and a limited number of medium-sized and large CROs
with global operations. We primarily compete against in-house departments of
pharmaceutical companies and other CROs with global operations. Some of these
competitors have substantially greater capital, technical and other resources
than us. CROs generally compete on the basis of previous experience, the quality
of contract research, the ability to organize and manage large-scale trials on a
global basis, the ability to manage large and complex medical databases, the
ability to provide statistical and regulatory services, the ability to recruit
suitable investigators, the ability to integrate information technology with
systems to improve the efficiency of contract research, an international
presence with strategically located facilities, financial viability, medical and
scientific expertise in specific therapeutic areas and price. We believe that we
compete favorably in these areas. Our principal CRO competitors are Covance
Inc., i3 Research (United Health Group Incorporated), Kendle International Inc.,
MDS Inc., Omnicare Inc., PARAEXEL International Corporation, Pharmaceutical
Product Development Inc., PharmaNet Development Group Inc., PRA International
Inc. and Quintiles Transnational Corporation. The trend toward CRO industry
consolidation has resulted in heightened competition among the larger CROs for
clients and acquisition candidates.
 
 Government
Regulation
 
 Regulation
of Clinical Trials
 
 The
clinical investigation of new drugs is highly regulated by government agencies.
The standard for the conduct of clinical research and development studies is
Good Clinical Practice, which stipulates procedures designed to ensure the
quality and integrity of data obtained from clinical testing and to protect the
rights and safety of clinical subjects.
  Regulatory
authorities, including the FDA, have promulgated regulations and guidelines that
pertain to applications to initiate trials of products, the approval and conduct
of studies, report and record retention, informed consent, applications for the
approval of drugs and post-marketing requirements. Pursuant to these regulations
and guidelines, service providers that assume the obligations of a drug sponsor
are required to comply with applicable regulations and are subject to regulatory
action for failure to comply with such regulations and guidelines. In the United
States and Europe, the trend has been in the direction of increased regulation
by the applicable regulatory authority.
  In
providing our services in the United States, we are obligated to comply with FDA
requirements governing such activities. These include ensuring that the study is
approved by an appropriate independent review board (IRB)/Ethics Committee,
obtaining patient informed consents, verifying qualifications of investigators,
reporting patients’ adverse reactions to drugs and maintaining thorough and
accurate records. We must maintain critical documents for each study for
specified periods, and such documents may be reviewed by the study sponsor and
the FDA during audits.
  The
services we provide outside the United States are ultimately subject to similar
regulation by the relevant regulatory authority, including the Medicines Control
Agency in the United Kingdom and the Bundesinstitut für Arzneimittel und
Medizinprodukte in Germany. In addition, our activities in Europe are affected
by the European Medicines Evaluation Agency, which is based in London,
England.
  We must
retain records for each study for specified periods for inspection by the client
and by the applicable regulatory authority during audits. If such audits
document that we have failed to comply adequately with applicable regulations
and guidelines, it could result in a material adverse effect. In addition, our
failure to comply with applicable regulation and guidelines, depending on the
extent of the failure, could result in fines, debarment, termination or
suspension of ongoing research or the disqualification of data, any of which
could also result in a material adverse effect.
  19
 
 Potential
Liability and Insurance
  We
contract with physicians who serve as investigators in conducting clinical
trials to test new drugs on their patients. Such testing creates a risk of
liability for personal injury to or death of the patients resulting from adverse
reactions to the drugs administered. In addition, although we do not believe
that we are legally accountable for the medical care rendered by third party
investigators, it is possible that we could be subject to claims and expenses
arising from any professional malpractice of the investigators with whom we
contract. We also could be held liable for errors or omissions in connection
with the services we perform.
  We
believe that the risk of liability to patients in clinical trials is mitigated
by various regulatory requirements, including the role of institutional review
boards and the need to obtain each patient’s informed consent. The FDA requires
each human clinical trial to be reviewed and approved by the institutional
review board at each study site. An institutional review board is an independent
committee that includes both medical and non-medical personnel and is obligated
to protect the interests of patients enrolled in the trial. After the trial
begins, the institutional review board monitors the protocol and measures
designed to protect patients, such as the requirement to obtain informed
consent.
  We
further attempt to reduce our risks through contractual indemnification
provisions with clients and through insurance maintained by clients,
investigators and us. However, the contractual indemnifications generally do not
protect us against certain of our own actions such as negligence, the terms and
scope of such indemnification vary from client to client and from trial to
trial, and the financial performance of these indemnities is not secured.
Therefore, we bear the risk that the indemnity may not be sufficient or that the
indemnifying party may not have the financial ability to fulfill its
indemnification obligations. We maintain worldwide professional liability
insurance. We believe that our insurance coverage is adequate. There can be no
assurance, however, that we will be able to maintain such insurance coverage on
terms acceptable to us, if at all. We could be materially adversely affected if
we were required to pay damages or bear the costs of defending any claim outside
the scope of or in excess of a contractual indemnification provision or beyond
the level of insurance coverage or in the event that an indemnifying party does
not fulfill its indemnification obligations.
  Description
of Property
 
 We lease
all but one of our facilities under operating leases.
 
 Our
principal executive offices are located in South County Business Park,
Leopardstown, Dublin, Republic of Ireland, where we own an office facility on
approximately four and a half acres.
  In
February 2006, we began building an extension to this facility comprising four 4
storey office blocks linked to the existing building.  The four
additional blocks will extend the premises by approximately 12,900 square
meters, bringing the entire facility when completed to approximately 15,800
square meters.  Two blocks of this new development, comprising
approximately 5,300 square metres, were completed in July 2007.  The
remaining blocks are due for completion in July 2008.
  We also
maintain two offices in each of the following US cities: New York, Philadelphia,
Chicago and San Francisco, and one office in each of the following US cities:
Irvine, Nashville, Wilmington, Raleigh, Baltimore, Tampa, San Diego, Salt Lake
City, Houston and San Antonio.
  Our
European operations maintain two offices in Manchester, Paris, Amsterdam,
Stockholm and Warsaw, and one office in each of the following cities:
Southampton, Cambridge, Marlow, Frankfurt, Munich, Berlin, Helsinki, Copenhagen,
Milan, Barcelona, Riga, Budapest, Vilinius, Prague, Kiev, Bucharest, Moscow,
Novosibirsk and Tel Aviv.
  Our Rest
of World offices are located in Auckland, Sydney, Tokyo, Osaka, Seoul, Beijing,
Taipei, Hong Kong, Bangkok, Singapore, Chennai, Bangalore, Johannesburg,
Montreal, Mexico City, Sao Paolo, Lima, Buenos Aires and Santiago.
  20
 
 Item 5.Operating and Financial
Review and Prospects
 
 The
following discussion and analysis should be read in conjunction with our
Consolidated Financial Statements, accompanying notes and other financial
information, appearing in Item 18. The Consolidated Financial Statements have
been prepared in accordance with accounting principles generally accepted in the
United States.
 
 Overview
 
 We are a
contract research organization (“CRO”), providing outsourced development
services on a global basis to the pharmaceutical, biotechnology and medical
device industries. We specialize in the strategic development, management and
analysis of programs that support Clinical Development - from compound selection
to Phase I-IV clinical studies. We have the operational flexibility to provide
development services on a stand-alone basis or as part of an integrated “full
service” solution. Our primary approach is to use dedicated teams to achieve
optimum results, but we can implement a range of resourcing models to suit
client requirements.
 
 In a
highly fragmented industry, we are one of a small number of companies with the
capability and expertise to conduct clinical trials in all major therapeutic
areas on a global basis. Currently, we have 5,610 employees, in 67 locations in
36 countries, providing Phase I - IV Clinical Trial Management, Drug Development
Support Services, Data Management and Biostatistics and Central Laboratory and
Imaging Services. For the year ended December 31, 2007, we derived approximately
50%, 44% and 6% of our net revenue in the United States, Europe and Rest of
World, respectively.
 
 Revenue
consists primarily of fees earned under contracts with third-party clients. In
most cases, a portion of the contract fee is paid at the time the study or trial
is started, with the balance of the contract fee generally payable in
installments over the study or trial duration, based on the achievement of
certain performance targets or "milestones". Revenue for contracts is recognized
on the basis of the relationship between time incurred and the total estimated
duration of the trial or on a fee-for-service basis according to the particular
circumstances of the contract. As is customary in the CRO industry, we
subcontract with third party investigators in connection with clinical trials.
All subcontractor costs and certain other costs where reimbursed by clients,
are, in accordance with industry practice, deducted from gross revenue to arrive
at net revenue. As these costs vary from contract to contract, we view net
revenue as our primary measure of revenue growth.
 
 Direct
costs consist primarily of compensation, associated fringe benefits and share
based compensation expense for project-related employees and other direct
project driven costs. Selling, general and administrative expenses consist of
compensation, related fringe benefits and share based compensation expense for
selling and administrative employees, professional services, advertising costs
and all costs related to facilities and information systems.
 
 Our
backlog consists of potential net revenue yet to be earned from projects awarded
by clients. At December 31, 2007, we had a backlog of approximately $1.3
billion, compared with approximately $872 million at December 31,
2006.  We believe that our backlog as of any date is not necessarily a
meaningful predictor of future results, due to the potential for cancellation or
delay of the projects underlying the backlog, and no assurances can be given
that we will be able to realize this backlog as net revenue.
 
 As the
nature of ICON's business involves the management of projects having a typical
duration of one to three years, the commencement or completion of projects in a
fiscal year can have a material impact on revenues earned with the relevant
clients in such years. In addition, as we typically work with some, but not all,
divisions of a client, fluctuations in the number and status of available
projects within such divisions can also have a material impact on revenues
earned from such clients from year to year.
 
 Although
we are domiciled in Ireland, we report our results in U.S. dollars. As a
consequence the results of our non-U.S. based operations, when translated into
U.S. dollars, could be materially affected by fluctuations in exchange rates
between the U.S. dollar and the currencies of those operations.
  21
 In
addition to translation exposures, we are also subject to transaction exposures
because the currency in which contracts are priced can be different from the
currencies in which costs relating to those contracts are
incurred.  We have 18 operations operating in U.S. dollars, 11 trading
in Euros, 5 in pounds Sterling, 2 each in Indian Rupee, Russian Rouble, Japanese
Yen, Swedish Krona and Polish Zloty, and 1 each in Australian dollars, Singapore
dollars, Israeli New Shekels, Latvian Lats, Argentine Peso, South African Rand,
Canadian dollar, Hungarian Forint, Danish Krone, Czech Koruna, Ukraine Hryvnia,
Romanian New Leu, Hong Kong dollar, Taiwan dollar, Mexican Peso, Brazilian Real,
Chilean Peso, South Korean Won, Thai Baht, Chinese Yuan Renminbi, Lithuanian
Litas, Peruvian Neuvo Sol & New Zealand dollars. Our operations in the
United States are not materially exposed to such currency differences as the
majority of our revenues and costs are in U.S. dollars. However, outside the
United States the multinational nature of our activities means that contracts
are usually priced in a single currency, most often U.S. dollars, Euros or
pounds Sterling, while costs arise in a number of currencies, depending, among
other things, on which of our offices provide staff for the contract, and the
location of investigator sites. Although many such contracts benefit from some
degree of natural hedging due to the matching of contract revenues and costs in
the same currency, where costs are incurred in currencies other than those in
which contracts are priced, fluctuations in the relative value of those
currencies could have a material effect on ICON's results of operations. We
regularly review our currency exposures and hedge a portion of these, using
forward exchange contracts, where they are not covered by natural
hedges.
 
 We have
received capital and revenue grants from Enterprise Ireland, an Irish government
agency. We record capital grants as deferred income, which are credited to
income on a basis consistent with the depreciation of the relevant asset. Grants
relating to operating expenditures are credited to income in the period in which
the related expenditure is charged. The capital grant agreements provide that in
certain circumstances the grants received may be refundable in full. These
circumstances include sale of the related asset, liquidation of ICON or failing
to comply in other respects with the grant agreements. The operating expenditure
grant agreements provide for repayment in the event of a downsizing calculated
by reference to any reduction in employee numbers. We have not recognized any
loss contingency having assessed as remote the likelihood of these events
arising. Up to December 31, 2007, we have received $3.0 million and $2.2 million
under capital grants and operating grants, respectively. Pursuant to the terms
of the grant agreements, we are restricted from distributing some of these
amounts by way of dividend or otherwise.
 
 As we
conduct operations on a global basis, our effective tax rate has depended and
will depend on the geographic distribution of our revenue and earnings among
locations with varying tax rates. ICON's results of operations therefore may be
affected by changes in the tax rates of the various jurisdictions. In
particular, as the geographic mix of our results of operations among various tax
jurisdictions changes, our effective tax rate may vary significantly from period
to period.
 
 22
  Operating
Results
 
 The
following table sets forth for the periods indicated certain financial data as a
percentage of net revenue and the percentage change in these items compared to
the prior comparable period. The trends illustrated in the following table may
not be indicative of future results.
 
 Transition
                  Period
                  June
      1,
                  2005
                  to
      Dec 31,
                  2005
                
                
                Jan
      1, 2006
                  to
      Dec 31,
                  2006
                
                
                Jan
      1, 2007
                  to
      Dec31,
                  2007
                
                
                Jan
      1, 2006
                  to
      Dec 31,
                  2006
                
                
                Jan
      1, 2007
                  toDec
      31,
                  2007Percentage
      of Net Revenue
                
                
                Percentage
      Increase/ (Decrease)Net
      revenue
                
                
                100
                %
                
                
                100
                %
                
                
                100
                %
                
                
                125.6
                %
                
                
                38.4
                %Costs
      and expenses:Direct
      costs
                
                
                56.5
                %
                
                
                56.2
                %
                
                
                56.2
                %
                
                
                124.8
                %
                
                
                38.3
                %Selling,
      general and administrative
                
                
                30.8
                %
                
                
                30.0
                %
                
                
                29.8
                %
                
                
                119.3
                %
                
                
                37.6
                %Depreciation
      and amortization
                
                
                4.0
                %
                
                
                3.3
                %
                
                
                3.0
                %
                
                
                84.7
                %
                
                
                27.2
                %Share
      based compensation
                
                
                3.0
                %
                
                
                -
                
                
                
                -
                
                
                
                (100.0
                %)
                
                
                -Income
      from operations
                
                
                5.7
                %
                
                
                10.5
                %
                
                
                11.0
                %
                
                
                313.9
                %
                
                
                44.8
                %
 
 
 23
 
 Year
ended December 31, 2007 compared to year ended December 31, 2006
 
 Net
revenue increased by $175.1 million, or 38.4%, from $455.6 million to $630.7
million. (Revenues in the United States, Europe and the Rest of World increased
by 17.8%, 71.2% and 35.0% respectively). In the year ended December 31, 2007,
net revenue from our central laboratory business increased by 13.3%, from $47.2
million, to $53.5 million, while our clinical research segment improved by
41.3%, from $408.4 million to $577.2 million, over the prior period. This
increase in net revenue has resulted from a combination of increased business
from existing clients, business won from new clients, increased use of
outsourcing by the pharmaceutical, biotechnology and medical device industries
and an underlying increase in research and development spending.
  Direct
costs increased by $98.2 million, or 38.3%, from $256.3 million to $354.5
million. Direct costs as a percentage of net revenue remained static at 56.2% in
the year ended December 31, 2007, compared to the year ended December 31, 2006.
The primary reason for the increase in direct costs was the increase in
personnel related costs of $86.3 million resulting from the increase in direct
headcount of over 1,100 employees.  The remainder of the increase
resulted primarily from increased laboratory and consulting
expenses.
  Selling,
general and administrative expenses increased by $51.4 million, or 37.6%, from
$136.6 million to $188.0 million. As a percentage of net revenue, selling,
general and administrative expenses, decreased from 30.0% for the year ended
December 31, 2006, to 29.8% for the year ended December 31, 2007. The increase
in SG&A costs is primarily driven by increased personnel costs of $22.0
million principally driven by the increased levels of both administrative and
operations infrastructure staff to support expanding operations and revenue
growth.  In addition to these personnel costs there were additional
rental charges of $4.9 million from further office openings in 2007, increased
professional, legal and accounting costs of $4.5 million, increased information
technology costs of $3.8 million, an increase of $4.7 million in relation to
realized and unrealized foreign exchange loss and increased temporary staff and
recruitment costs of $6.6 million.
 
 The total
share based compensation expense recognized during the year ended December 31,
2007 amounted to $5.7m compared to $4.1 million during the year ended December
31, 2006.
 
 Depreciation
and amortization expense increased by $4.1 million, or 27.2%, from $14.9 million
to $19.0 million. As a percentage of net revenue, depreciation and amortization
decreased from 3.3% of net revenues for the year ended December 31, 2006, to
3.0% for the year ended December 31, 2007.  This increase in absolute
terms relates primarily to our investment in facilities and equipment to enable
our continued growth. Capital expenditures were $75.7 million in
2007.  $37.9 million of this spend is attributable to the construction
of the Company’s new headquarter building in Dublin, Republic of Ireland, while
the balance relates to the Company’s continued investment in facilities and
information technology to support its continued growth globally.  We
expect depreciation in 2008 to increase as a result of this
investment.
 
 Income
from operations increased by $21.4 million, or 44.8%, from $47.8 million to
$69.2 million. As a percentage of net revenue, income from operations increased
from 10.5% of net revenues for the year ended December 31, 2006, to 11% for the
year ended December 31, 2007. The year ended December 31, 2007, saw a continued
improvement in the performance of the central laboratory business, with results
improving from an operating profit of 4.9% for the year ended December 31, 2006,
to an operating profit of 6.9% for the year ended December 31, 2007. The central
laboratory constitutes approximately 8.5% of our business revenues for the year
ended December 31, 2007. Operating margins for our clinical research segment
increased to 11.4% in the year ended December 31, 2007, from 11.1% for the year
ended December 31, 2006.
 
 Net
interest income for the year ended December 31, 2007, was $2.7 million, a
decrease of $0.9 million from the year ended December 31, 2006. The Company
entered into two significant banking facilities during 2007 to fund the
acquisition of DOCS International in July 2007 $40.6 million (€29.5 million) and
the construction of the Company’s new headquarter building in Dublin, Republic
of Ireland.
 
 Our
provision for income taxes increased from $12.9 million for the year ended
December 31, 2006, to $15.8 million for the year ended December 31,
2007.  ICON plc’s effective tax rate for the year ended December 31,
2007, was 22% compared with 25% for the year ended December 31, 2006. The
effective tax rate is principally a function of the distribution of pre-tax
profits in the territories in which the Group operates.
  24
  Year
ended December 31, 2006 compared to Seven Month Transition Period Ended December
31, 2005
 
 Note:
Results below compare a 12-month accounting period ended December 31, 2006 to a
7-month accounting period ended December 31, 2005
 
 Net
revenue increased by $253.7 million, or 125.6%, from $201.9 million to $455.6
million. Revenues in the United States, Europe and the Rest of World
increased by 125%, 139% and 70% respectively. In the year ended December 31,
2006, net revenue from our central laboratory business increased by 160%, from
$18.2 million, to $47.2 million, while our clinical research segment improved by
122%, from $183.8 million to $408.4 million, over the prior period. This
increase in net revenue has resulted from a combination of increased business
from existing clients, business won from new clients, increased use of
outsourcing by the pharmaceutical, biotechnology and medical device industries,
an underlying increase in research and development spending and consolidation in
the CRO industry.
  Direct
costs increased by $142.3 million, or 124.8%, from $114.0 million to $256.3
million. Direct costs as a percentage of net revenue decreased from 56.5% in the
seven month transition period ended December 31, 2005, to 56.2% in the year
ended December 31, 2006. A comparative period analysis shows an increase in
direct costs primarily due to increased staff numbers needed to support
increased project related activity. In addition, $2.3m can be attributed to the
share based compensation expense arising from the adoption of SFAS 123R Share Based Payments in
2006.
  Selling,
general and administrative expenses increased by $74.3 million, or 119.3%, from
$62.3 million to $136.6 million. As a percentage of net revenue, selling,
general and administrative expenses, decreased from 30.8% in the seven month
transition period ended December 31, 2005, to 30% for the year ended December
31, 2006. A comparative period analysis shows an increase in SG&A costs due
to the continued expansion of our operations. In addition, $1.8m can be
attributed to the share based compensation expense arising from the adoption of
SFAS 123R Share Based
Payments in 2006.
 
 The total
share based compensation expense during 2006 amounted to
$4.1million.
 
 Depreciation
and amortization expense increased by $6.9 million, or 84.7%, from $8.1 million
to $14.9 million. As a percentage of net revenue, depreciation and amortization
decreased from 4% of net revenues in the seven month transition period ended
December 31, 2005, to 3.3% for the year ended December 31, 2006. A comparative
period analysis shows an increase in depreciation as a result of continued
investment in facilities and information technology to support the growth in
activity and in providing for future capacity.
 
 Income
from operations increased by $36.3 million, or 313.9%, from $11.6 million to
$47.8 million. As a percentage of net revenue, income from operations increased
from 5.7% of net revenues in the seven month transition period ended December
31, 2005, to 10.5% for the year ended December 31, 2006. The year ended December
31, 2006, saw a continued improvement in the performance of the central
laboratory business, from a loss from operations, as a percentage of net revenue
of 16.7% for the seven month transition period ended December 31, 2005, to an
operating profit of 4.9% for the year  ended December 31, 2006. The
central laboratory constitutes approximately 10.4% of our business revenues for
the year ended December 31, 2006. Operating margins for our clinical research
segment increased to 11.1% in the year ended December 31, 2006, from 7.9% for
the seven month transition period ended December 31, 2005.
 
 Net
interest income for the year ended December 31, 2006, was $3.6 million, an
increase of $2.4 million from the seven month transition period ended December
31, 2005. Higher interest rates in 2006 over the 2005 transition period
contributed to the increased interest income.
 
 ICON
plc’s effective tax rate for the year ended December 31, 2006, was 25% compared
with 42% for the seven month transition period ended December 31, 2005. The
decrease in the effective tax rate is due to a number of factors, including the
release of $3.0 million of the valuation allowance against the losses forward in
ICON Laboratories, Inc. In addition, in the seven month period ended December
31, 2005, there had been a once off tax disallowance of the compensation expense
amounting to $6.0 million in respect of the gift of 128,000 and 160,000 ADSs
made by Dr. Ronan Lambe and Dr. John Climax to Mr. Peter Gray, the Company’s
Chief Executive Officer.
  25
 Liquidity
and Capital Resources
 
 The CRO
industry generally is not capital intensive. Since our inception, we have
financed our operations and growth primarily with cash flows from operations,
net proceeds of $49.1 million raised in our initial public offering in May 1998,
net proceeds of $44.3 million raised in our public offering in August 2003 and
borrowings of $94.8 million received during the year ended December 31, 2007,
used to finance the acquisition of DOCS International and the expenditure on our
head office expansion. Our principal cash needs are payment of salaries, office
rents, travel expenditures and payments to investigators. The aggregate amount
of employee compensation, excluding stock compensation expense, paid by us and
our subsidiaries for the year ended May 31, 2005, the seven month transition
period ending December 31, 2005 and the years ended December 31, 2006 and
December 31, 2007, amounted to $194.1 million, $121.4 million, $274.6 million,
and $382.7 million respectively. Investing activities primarily reflect capital
expenditures for facilities, information systems enhancements, the purchase of
short-term investments and acquisitions.
 
 Our
clinical research and development contracts are generally fixed price with some
variable components and range in duration from a few weeks to several years.
Revenue from contracts is generally recognized as income on the basis of the
relationship between time incurred and the total estimated contract duration or
on a fee-for-service basis. The cash flow from contracts typically consists of a
down payment of between 10% and 20% paid at the time the contract is entered
into, with the balance paid in installments over the contract's duration, in
some cases on the achievement of certain milestones. Accordingly, cash receipts
do not correspond to costs incurred and revenue recognized on
contracts.
 
 As of
December 31, 2007, our working capital was $193.3 million, compared to $160.3
million at December 31, 2006 and $132.3 million at December 31, 2005. The most
significant influence on our operating cash flow is revenue outstanding, which
comprises accounts receivable and unbilled revenue, less payments on account.
The dollar values of these amounts and the related days revenue outstanding can
vary due to the achievement of contractual milestones and the timing of cash
receipts. The number of days revenue outstanding was 66 days at December 31,
2007, 53 days at December 31, 2006 and 65 days at December 31,
2005.
 
 Net cash
provided by operating activities was $43.0 million in the year ended December
31, 2007, compared with $50.5 million in the year ended December 31, 2006, $13.8
million in the transition period ended December 31, 2005 and $25.2 million in
fiscal year ended May 31, 2005.
 
 Net cash
used in investing activities was $118.5 million for the year ended December 31,
2007, compared with $55.3 million in the year ended December 31, 2006, $16.3
million in the seven month period ended December 31, 2005 and $25.7 million in
the year ended May 31, 2005.  The increase in net cash used in the
year ended December 31, 2007, over the year ended December 31, 2006 is due
principally to the continued construction of the new head office building
located in Dublin, Republic of Ireland, the Company’s continued investment in
its global infrastructure and information technology systems to support its
ongoing expansion and the acquisition of DOCS International in July
2007.
 
 Net cash
provided by financing activities was $94.0 million in the year ended December
31, 2007, compared with $7.7 million in the year ended December 31, 2006, $6.6
million in the seven month transition period ended December 31, 2005 and $0.9
million in the year ended May 31, 2005. We received $89.8 million in net
borrowings, $5.3 million on the exercise of share options and $1.5 million in
income tax benefits from the exercise of share options during the year ended
December 31, 2007.
 
 As a
result of these cash flows, cash and cash equivalents at December 31, 2007, was
$76.9 million, an increase of $13.8 million in the year ended December 31, 2007,
compared to an increase of $3.5 million in the year ended December 31, 2006, an
increase of $3.2 million in the transition period ended December 31, 2005 and an
increase of $0.7 million in the year ended May 31, 2005.  Total
borrowings at December 31, 2007, amounted to $94.8 million.
  26
  On July
3, 2003, ICON plc entered into a facility agreement (the "Facility Agreement")
for the provision of a term loan facility of $40 million, multi-currency
overdraft facility of $5 million and revolving credit facility of $15 million
(the "Facilities") with The Governor and Company of the Bank of Ireland and
Ulster Bank Ireland Limited (the “Banks”).  Our obligations under the
facility were secured by certain composite guarantees and indemnities and
pledges in favour of the bank.  On July 9, 2007, ICON plc entered into
a five year committed  multi-currency facility agreement
for  €35 million ($51.1 million)  with The Governor and
Company of the Bank of Ireland. This facility replaces the facilities negotiated
in July 2003. The  current facility bears interest at an annual rate
equal to the reference rate of EURIBOR plus a margin. On July 10, 2007, the
Company drew down €29.5 million ($43.1 million) of the facility to fund the
acquisition of DOCS International.  On  October 15, 2007,
the remaining €5.5 million ($8 million) of the facility was drawn down to cover
head office expansion in Ireland.
  On
October 17, 2007, a credit facility was negotiated with Allied Irish Banks plc
for €30 million ($43.8 million). This facility is structured as an uncommitted
facility and interest is calculated at the EUR interbank rate plus a
margin.  The facility is secured by the same composite guarantees and
indemnities in place for the ICON plc committed facility. The facility was fully
drawn on December 31, 2007. The funds were used to refinance overdraft
facilities which were in place to finance the expenditure to date on the head
office expansion. On January 8, 2008, the uncommitted facility with Allied Irish
Banks plc was increased to €50 million ($72.9 million). All terms of this
facility remain the same.  The facility is due to be reviewed on
October 31, 2010.
 
 The
average margin payable on the above mentioned facilities is 0.65
percent.
 
 The
current available overdraft facility with Allied Irish Banks plc is €2 million
($2.9 million). The applicable interest rate when utilised is the bank’s prime
rate and is repayable on demand if the Company defaults under its obligations as
specified in the loan agreement. As of December 31, 2007, the facility was
undrawn and available.
  On July
12, 2007, the Company acquired 100% of the common stock of DOCS International, a
European based clinical research staffing organization, for a cash consideration
of $40.6 million (€29.5 million). DOCS International operates in eight European
countries and focuses on the training and supply of contract and permanent
clinical research personnel to the pharmaceutical and biotech
industry.
 
 On July
10, 2006, we acquired 100% of the common stock of Ovation Healthcare Research 2
Inc. (“Ovation”), based in Illinois, USA, for an initial cash consideration of
U.S.$6.6 million, excluding costs of acquisition. Working capital provisions
were built into the acquisition contract requiring the potential payment of
additional deferred consideration up to a maximum of U.S.$1.4
million.  On October 27, 2006, $0.18 million was paid to the former
shareholders of Ovation in full and final settlement of the working capital
provisions.
  On July
1, 2004, we completed the acquisition of 70% of Beacon Biosciences, Inc. for an
initial cash consideration of U.S. $9.9 million.
  On
December 1, 2004, we acquired the workforce of Biomines Research Solutions
Private Limited for a total cash consideration of U.S. $0.25 million. The
workforce is engaged in the business of clinical trial data management and
statistical analysis services and has been transferred to our existing Indian
operation.
  As at
December 31, 2007, the Company had $311.3 million in contractual obligations and
commercial commitments.  As at December 31, 2007, the Company had
known obligations of $20.4 million relating to the completion of the new head office
building located in Dublin, Republic of Ireland, and $185.1 million operating
lease obligations, primarily relating to leased office
facilities.  Additionally, the Company had bank debt of $94.8 millionused to finance the acquisition of DOCS International and the expenditure
on our head office expansion.
  27
 
 Contractual
obligations table
 
 The
following table represents our contractual obligations and commercial
commitments as of December 31, 2007:
 
 Payments
      due by periodTotal
                
                
                Less
      than 1
                  year
                
                
                1
      to 3
                  years
                
                
                3
      to 5
                  years
                
                
                More
      than
                  5
      years(U.S.$
      in millions)Building
      construction commitments
                
                $
                20.4
                
                
                $
                20.4
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -Operating
      lease obligations
                
                
                185.1
                
                
                
                37.4
                
                
                
                58.3
                
                
                
                39.1
                
                
                
                50.3Capital
      lease obligations
                
                
                0.2
                
                
                
                0.1
                
                
                
                0.1
                
                
                
                -
                
                
                
                -Bank
      credit lines and loans facilities
                
                
                94.8
                
                
                
                43.8
                
                
                
                25.5
                
                
                
                25.5
                
                
                
                -Non-current
      tax liabilities
                
                
                10.9
                
                
                
                -
                
                
                
                5.9
                
                
                
                4.8
                
                
                
                0.2Total
      (U.S.$ in millions)
                
                $
                311.4
                
                
                $
                101.7
                
                
                $
                89.8
                
                
                $
                69.4
                
                
                $
                50.5
 
 Excluding
expenditure in relation to the building construction, we expect to spend
approximately $15 million in the next twelve months on further investments in
information technology, the expansion of existing facilities and the addition of
new offices and expect to increase this level of spending in subsequent
years. We believe that we will be able to fund our additional foreseeable cash
needs for the next twelve months from cash flow from operations and existing
cash balances. In the future, we will consider acquiring businesses to enhance
our service offerings and global presence. Any such acquisitions may require
additional external financing and we may from time to time seek to obtain funds
from public or private issues of equity or debt securities. There can be no
assurance that such financing will be available on terms acceptable to
us.
 
 Critical
Accounting Policies
 
 The
preparation of consolidated financial statements in accordance with generally
accepted accounting principles in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reported period.
  We base
our estimates and judgments on historical experience and on the other factors
that we believe are reasonable under current circumstances. Actual results may
differ from these estimates if these assumptions prove to be incorrect or if
conditions develop other than as assumed for the purposes of such estimates. The
following is a discussion of the accounting policies used by us, which we
believe are critical in that they require estimates and judgments by
management.
  Revenue
Recognition
  Significant
management judgments and estimates must be made and used in connection with the
recognition of revenue in any accounting period. Material differences in the
amount of revenue in any given period may result if these judgments or estimates
prove to be incorrect or if management’s estimates change on the basis of
development of the business or market conditions. To date there have been no
material differences arising from these judgments and estimates.
 
 We earn
revenues by providing a number of different services to our clients. These
services include clinical trials management, biometric activities, consulting,
imaging and laboratory services.  We recognize biometric, consulting,
imaging and laboratory revenues on a fee-for-service basis. Our laboratory
service contracts are multiple element arrangements, with laboratory kits and
laboratory testing representing the contractual elements. We determine the fair
values for these elements, each of which can be sold separately, based on objective and
reliable evidence of their respective fair values. Our laboratory contracts
entitle us to receive non-refundable set-up fees and we allocate such fees as
additional consideration to the contractual elements based on the proportionate
fair values of the elements. We recognize revenues for the elements on the basis
of the number of deliverable units completed in a period.
  28
 We
recognize clinical trials revenue on the basis of the relationship between time
incurred and the total estimated duration of the contract as this represents the
most accurate pattern over which our contractual obligations are fulfilled. We
invoice our customers upon achievement of specified contractual milestones. This
mechanism, which allows us to receive payment from our customers throughout the
duration of the contract, is not reflective of revenue earned. We recognize
revenues over the period from the awarding of the customer’s contract to study
completion and acceptance. This requires us to estimate total expected revenue,
time inputs, contract costs, profitability and expected duration of the clinical
trial. These estimates are reviewed periodically and, if any of these estimates
change or actual results differ from expected results, then an adjustment is
recorded in the period in which they become readily estimable.
  If we do
not accurately estimate the resources required or the scope of the work to be
performed, or do not manage our projects properly within the planned cost or
satisfy our obligations under the contracts, then future results may be
significantly and negatively affected.
  Goodwill
  The
principal judgments and uncertainties affecting our accounting for goodwill
relate to carrying values.  The carrying values of purchased goodwill
are assessed annually, using discounted cash flows and net realizable
values.  The estimates and judgments used to assess carrying values
include those relating to commercial risk, revenue and cost projections, our
intention with respect to the acquired goodwill, the impact of competition, the
impact of any reorganization or change of our business focus, the level of third
party interest in our operations and market conditions.
 
 If the
implied fair value of reporting unit goodwill is lower then its carrying amount,
goodwill is impaired and written down to its implied fair value. If we were to
use different estimates or judgments, particularly with respect to expected
revenue and cost projections or the impact of any reorganization or change of
business focus, a material impairment charge to the statement of operations
could arise.  We believe that we have used reasonable estimates and
judgments in assessing the carrying value of our goodwill.
  Taxation
 
 Given the
global nature of our business and the multiple taxing jurisdictions in which we
operate, the determination of the Company’s provision for income taxes requires
significant judgments and estimates, the ultimate tax outcome of which may not
be certain.  Although we believe our estimates are reasonable, the
final outcome of these matters may be different than those reflected in our
historical income tax provisions and accruals.  Such differences could
have a material effect on our income tax provision and results in the period
during which such determination is made.
 
 Deferred
tax assets and liabilities are determined using enacted or substantially enacted
tax rates for the effects of net operating losses and temporary differences
between the book and tax bases of assets and liabilities.  In
assessing the realizability of deferred tax assets, management considers whether
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. While management considers
the scheduled reversal of deferred tax liabilities, projected future taxable
income, and tax planning strategies in making this assessment, there can be no
assurance that these deferred tax assets may be realizable.
 
 We
operate within multiple taxing jurisdictions and are subject to audits in these
jurisdictions. These audits can involve complex issues  which may
require an extended period of time for resolution.  Management believe
that adequate provisions for income taxes have been made in the financial
statements.
 
 29
 
 Inflation
 
 We
believe that the effects of inflation generally do not have a material adverse
impact on our operations or financial conditions.
 
 New
Accounting Pronouncements
 
 In
February 2007, the FASB issued Statement of Financial Accounting Standards No.
159, The Fair Value Option for
Financial Assets and Financial Liabilities – including an amendment of FASB
Statement No. 115 (SFAS No. 159). SFAS No. 159 gives the Company the
irrevocable option to carry most financial assets and liabilities at fair value
that are not currently required to be measured at fair value. If the fair value
option is elected, changes in fair value would be recorded in earnings at each
subsequent reporting date. SFAS No. 159 is effective for the Company’s 2008
fiscal year. The Company does not expect the adoption of SFAS No. 159 to have a
material impact on the financial statements.
 
 In
September 2006, the FASB issued FASB Statement No. 157, Fair Value Measurement(SFAS
No. 157). Statement 157 defines fair value, establishes a framework for the
measurement of fair value, and enhances disclosures about fair value
measurements. The Statement does not require any new fair value measures. The
Statement is effective for fair value measures already required or permitted by
other standards for fiscal years beginning after November 15, 2007. The Company
is required to adopt SFAS No. 157 beginning on January 1, 2008. SFAS No. 157 is
required to be applied prospectively, except for certain financial instruments.
Any transition adjustment will be recognized as an adjustment to opening
retained earnings in the year of adoption. In November 2007, the FASB proposed a
one-year deferral of SFAS No. 157’s fair-value measurement requirements for
nonfinancial assets and liabilities that are not required or permitted to be
measured at fair value on a recurring basis. The Company does not expect the
adoption of SFAS No. 157 to have a material impact on the financial
statements.
 
 In
December 2007, the FASB issued FASB Statement No. 141R, Business Combinations (SFAS
No. 141R) and FASB Statement No. 160, Noncontrolling Interests in
Consolidated Financial Statements– an amendment to ARB No. 51 (SFAS No.
160). SFAS No. 141R and SFAS No. 160 require most identifiable assets,
liabilities, noncontrolling interests, and goodwill acquired in a business
combination to be recorded at “full fair value” and require noncontrolling
interests (previously referred to as minority interests) to be reported as a
component of equity, which changes the accounting for transactions with
noncontrolling interest holders. Both Statements are effective for periods
beginning on or after December 15, 2008, and earlier adoption is prohibited.
SFAS No. 141R will be applied to business combinations occurring after the
effective date. SFAS No. 160 will be applied prospectively to all noncontrolling
interests, including any that arose before the effective date. The Company does
not expect the adoption of SFAS No. 141R and SFAS No. 160 to have a material
impact on the financial statements.
 
 30
  Item 6.Directors,
Senior Management and Employees.
 
 Directors
and Senior Management
 
 The
following table and accompanying biographies set forth certain information
concerning each of ICON plc’s directors, officers and other key employees as of
December 31, 2007.
 
 Name
                Age
                PositionDr.
      John Climax (1)(5)
                55
                Executive
      Chairman of the Board, DirectorPeter
      Gray (1)(5)
                53
                Chief
      Executive Officer, DirectorCiaran
      Murray (1)(5)
                45
                Chief
      Financial OfficerDr.
      Ronan Lambe (5)
                68
                DirectorThomas
      Lynch (2)(3)(4)
                51
                DirectorEdward
      Roberts (2)(3)(4)
                73
                DirectorShuji
      Higuchi
                67
                DirectorDr.
      Bruce Given (2)(3)(4)
                53
                DirectorWilliam
      Taaffe
                59
                President
      Corporate DevelopmentDr.
      John Hubbard
                51
                Global
      President – Clinical Research DivisionRobert
      Scott-Edwards
                54
                President
      of ICON LaboratoriesSean
      Leech
                37
                President
      ICON Contracting SolutionsDr.
      Thomas Frey
                55
                President
      ICON Development SolutionsJosephine
      Coyle
                50
                Vice
      President for Corporate Quality AssuranceEimear
      Kenny
                38
                Vice
      President for Strategic Human ResourcesSimon
      Holmes
                41
                Vice
      President Group Marketing and Market DevelopmentMichael
      McGrath
                45
                Senior
      Vice President of Group Information
Technology
 (1)
                Executive
      Officer of the Company.(2)
                Member
      of Compensation Committee.(3)
                Member
      of Audit Committee.(4)
                Member
      of Nomination Committee.(5)
                Member
      of Executive Committee.
 
 Dr. John Climax, one of the
Company’s co-founders, has served as a director of the Company and its
subsidiaries since June 1990. Dr. Climax served as Chief Executive Officer from
June 1990 to October 2002 and was appointed Executive Chairman of the Board in
November 2002. Dr. Climax has over 21 years of experience in the contract
research industry in both Europe and the United States. Dr. Climax received his
primary degree in pharmacy in 1977 from the University of Singapore, his masters
in applied pharmacology in 1979 from the University of Wales and his PhD. in
pharmacology from the National University of Ireland in 1982.
 
 Peter Gray has served as the
Chief Executive Officer of ICON and its subsidiaries since November 2002. He
served as the Group Chief Operating Officer of ICON and its subsidiaries from
June 2001, and was Chief Financial Officer from June 1997 to June 2001. He has
been a director of the Company since June 1997. Mr. Gray has over 16 years
experience in the pharmaceutical services industry and has also worked in the
engineering and food sectors. Mr. Gray received a degree in Law from Trinity
College Dublin in 1977 and became a chartered accountant in 1980.
 
 Ciaran Murray was appointed
as Chief Financial Officer of ICON and its subsidiaries in October
2005.  Mr. Murray developed his experience in senior financial
positions in the technology and food sectors, in such companies as Kraft Foods,
Inc. and Novell, Inc.  Prior to joining ICON, Mr. Murray served as the
CFO of Codec Systems from 1999 to 2005, a technology company headquartered in
Ireland.  Mr. Murray is a business graduate of University College
Dublin.  He trained as a chartered accountant with
PricewaterhouseCoopers and is a Fellow of the Institute of Chartered Accountants
in Ireland.
 
 Dr. Ronan Lambe, one of the
Company’s co-founders, served as Chairman of the Board of the Company from June
1990 to November 2002. He currently holds a position as an outside director
since January 2008.  Dr. Lambe has over 24 years of experience in the
contract research industry in Europe. Dr. Lambe attended the National University
of Ireland where he received his bachelor of science degree in chemistry in
1959, his masters in biochemistry in 1962 and his PhD. in pharmacology in
1976.
  31
 Thomas Lynch has served as an
outside director of the Company since January 1996. Mr. Lynch served as a
director of Nanogen Inc., from 1996 to 2000. Mr. Lynch is currently Chairman and
Chief Executive Officer of Amarin Corporation plc, a director of Royal Opera
House (Covent Garden) and a non-executive director of IDA Ireland. In the period
from May 1993 to July 2004, Mr. Lynch held several senior positions in Elan
Corporation, plc, a specialty pharmaceutical company, including Executive Vice
President, Chief Financial Officer, Vice Chairman and Senior Advisor to the
Chairman of the Board of Elan Corporation, plc. Mr. Lynch was a partner at KPMG
from May 1990 to May 1993.
 
 Edward Roberts has served as
an outside director of the Company since February 1998. Mr. Roberts was Managing
Director of the Pharmaceutical Division of Merck KGaA from 1990 to 1998. Prior
to that, he held a number of senior management positions with Eli Lilly
International in Europe and the United States. Mr. Roberts has over 40 years of
experience in the pharmaceutical industry. Mr Roberts serves as Chairman of Merz
& Co. GmbH and is also on the Board of Lupin.
 
 Mr. Shuji Higuchi has served
as an outside director of the Company since September 2004. Dr. Higuchi has over
40 years of experience in the pharmaceutical industry. Dr. Higuchi is currently
Director of R&D and Corporate Integration, Kyoto University Hospital, Japan.
Prior to this Dr. Higuchi has served as President of Takeda Pharma GmbH from
1983 to 1992, President of Takeda Europe R&D Centre, Frankfurt / London from
1992 to 2002, and served as a Corporate Officer of Takeda Chemical Industries
Limited, Japan from 1999 to 2002.
 
 Dr. Bruce Givenhas served as
an outside director of the Company since September 2004. From March 2002 until
June 2007 he served as President and Chief Executive Officer of Encysive
Pharmaceuticals Inc. Previously, Dr. Given has held various positions in Johnson
& Johnson group companies. Dr. Given obtained his doctorate from the
University of Chicago in 1980.
 
 William Taaffe has served as
President Corporate Development since April 2005. Prior to this Mr. Taaffe
served as President and Chief Executive Officer of ICON Clinical Research - U.S.
since 1993. Mr. Taaffe has over 30 years of experience in the contract research
and pharmaceutical industries in Ireland, Canada and the United States. Mr.
Taaffe received his bachelor of science degree in 1970 from University College
Dublin.
 
 Dr. John W. Hubbard has
served as Global President of the Clinical Research Division since March 2007.
Previously he served as President of ICON Clinical Research - U.S. since April
2005 and as Chief Operating Officer, U.S Operations since October 1999. Dr.
Hubbard has more than 20 years of experience in pharmaceutical research and
development.  He has held positions of increasing responsibility at
Revlon Health Care Group, Hoechst Marion Roussel Pharmaceuticals, Parexel
International Corporation, and from July 1997 until joining ICON, he held the
position of Senior Vice President of Clinical Research Operations at Clinical
Studies, an industry leading site management organization and division of
Innovative Clinical Solutions, Ltd. Dr. Hubbard received a B.S. in
Psychology/Biology from the University of Santa Clara, a Ph.D. in Cardiovascular
Physiology from the University of Tennessee, and was a NIH Postdoctoral Fellow
in Cardiovascular Pharmacology at the University of Texas Health Sciences
Center.
 
 Robert Scott-Edwards,has
served the Company as President of ICON Laboratories since August 2004, having
previously held the position of Vice President, Sales & Marketing for ICON
Laboratories since June 2000. Prior to joining ICON, Mr. Scott-Edwards held
various senior positions at Bristol-Myers Squibb from 1979 through 1997. Mr.
Scott-Edwards began his career in the pharmaceutical industry in 1971 at
Wyeth.
 
 Sean Leech has served as
President of ICON Contracting Solutions since March 2007. Prior to this Mr.
Leech served as Executive Vice President Commercial and Organization Development
since October 2005, as the Chief Financial Officer of ICON and its subsidiaries
since June 2001 and Group Vice President of Finance from June 1999. Mr. Leech
was Group Financial Controller of Jones Group plc, a shipping, manufacturing and
fuel distribution company based in Ireland, from 1997 to 1999.  Mr.
Leech is an associate member of the Chartered Institute of Management
Accountants.
  32
 Dr. Thomas Frey has served as
President of ICON Developments Solutions since June 2005. He previously held
positions as Chief Operating Officer for ICON Clinical Research Europe from June
2001 and Vice President of ICON Clinical Operations Europe from January 2000 to
May 2005. Dr. Frey has 18 years of experience in pharmaceutical research and
development. He started his career in 1987 with Hoechst Pharmaceuticals. From
1995 to the end of 1999 he was Senior Director of Clinical Development Europe at
Hoechst Pharmaceuticals. Dr. Frey received his medical degree in 1980 from the
University of Heidelberg.
 
 Josephine Coyle has served as
Vice President for Corporate Quality Assurance since April 2000. Ms. Coyle has
held positions of increasing responsibility in ICON since August 1992 and
previously held the position of Director of Quality Assurance.
 
 Eimear Kenny, has served as
Vice President of Strategic Human Resources since April 2007, having previously
held the position of Vice President of Human Resources for ICON Clinical
Research Europe and Rest of World since joining the Company in November
1999.  Prior to joining ICON, Ms. Kenny was HR Manager for GE Global
Consumer Finance Ireland.  Ms. Kenny holds a degree in both business
studies from Portobello College, Dublin & human resource management from the
National College of Ireland. She is also a Member of the Chartered Institute of
Personnel and Development.
 
 Simon Holmes has served as
Vice President Group Marketing and Market Development since November 2007. In
this role Mr Holmes is responsible for ICON's global marketing function and for
managing ICON's internal process for the proactive identification and evaluation
of potential acquisition candidates. Prior to this role, Mr.Holmes was
Group Director of Marketing, a position he assumed on joining ICON in July 2005.
Mr. Holmes has held senior positions within Microsoft, LogicaCMG and Cable
and Wireless. A graduate of the University of East Anglia and Cambridge
University he holds an MBA from the UCD Smurfit Business School.
 
 Michael Mc Grath has served
as Senior Vice President of Group Information Technology since June 2007. He
joined ICON in December 2002 as Director for Information Technology of Europe
before moving to a role as Global Vice President of Information Technology for
the Clinical Research Division. He previously held a number of senior
Information Technology positions in the Financial Services Industry with GE
Capital and Woodchester Bank Ltd. Prior to this he worked as an IT Consultant
and also as a Software Engineer. He has over 15 years experience in the IT
industry across many areas including Pharmaceuticals, Financial Services and
Utilities. He holds an MSc in Information Technology Management from Dublin City
University and a Higher Diploma in Electronic Engineering.
 
 Board
of Directors
 ICON's
Articles of Association provide that, unless otherwise determined by ICON at a
general meeting, the number of directors shall not be more than 15 nor less than
3. At each annual general meeting, one third of the directors who are subject to
retirement by rotation, rounded down to the next whole number if it is a
fractional number, shall retire from office. The directors to retire shall be
those who have been longest in office, but as between persons who became or were
last re-appointed on the same day, those to retire shall be determined, unless
otherwise agreed, by lot. Accordingly, at the annual general meeting of ICON to
be held in 2008, it is anticipated that two directors will retire by rotation
and offer themselves for re-election, such directors to be determined, unless
otherwise agreed, by lot. Any additional director appointed by us shall hold
office until the next annual general meeting and will be subject to re-election
at that meeting.
 
 Board
committees
 ICON
established a compensation committee and an audit committee in 1998, a
nomination committee in 2004, and an executive committee in 2005, all of which
are committees of the Board of Directors and are, with the exception of the
Executive Committee, composed mainly of non-executive directors of ICON
plc.
 
 Compensation
Committee
 The
Compensation Committee comprises Thomas Lynch (Chairman), Edward Roberts, and
Dr. Bruce Given. It deals with all aspects of senior executive
remuneration.  The committee aims to ensure that remuneration packages
are competitive so that individuals are appropriately rewarded relative to their
responsibility, experience and value to ICON.
 
 Annual
bonuses for executive directors are determined by the committee based on the
achievement of ICON’s objectives.
 
 33
 
 Audit
Committee
 The Audit
Committee comprises Edward Roberts (Chairman), Thomas Lynch and Dr. Bruce
Given.  It reviews the annual report, the quarterly earnings releases,
the effectiveness of the system of internal controls, compliance with our
ethical code and legal requirements, and approves the appointment and removal of
the external auditors. It also addresses all issues raised and recommendations
made by the external auditors and pre-approves all auditor
services.
 
 Nomination
Committee
 The
Nomination Committee comprises Thomas Lynch (Chairman), Edward Roberts and Dr.
Bruce Given. On an ongoing basis it reviews the membership of the board of
directors and board committees. It identifies and recommends individuals to fill
any vacancy that is anticipated or arises on the board of directors. It reviews
and recommends the corporate governance principles of the Company.
 
 Executive
Committee
 The
Executive Committee comprises Dr. John Climax, Peter Gray (Chairman), Dr. Ronan
Lambe and Ciaran Murray. Established in March 2005, this Committee is
responsible for the management of the Company in intervals between meetings of
the Board and exercises business judgment to act in what the Committee members
reasonably believe to be in the best interest of the Company and its
shareholders. All powers exercised by the Executive Committee are ratified at
board meetings. This Committee convenes as often as it determines to be
necessary or appropriate.
 
 The
aggregate compensation (including share-based compensation of $0.4m) paid by
ICON to all persons who served in the capacity of director or executive officer
in 2007 (8 persons) was approximately $3.9 million, but does not include
expenses reimbursed to directors and executive officers (including business
travel, professional and business association dues and expenses). As of December
31, 2007, options granted to directors and executive officers of ICON to
purchase an aggregate of 181,600 of our ordinary shares were outstanding. The
options are exercisable at prices between $14.00 and $42.50 and expire between
January 11, 2010 and February 16, 2015.
 
 In
addition, our officers are eligible to participate in ICON’s Incentive Share
Option Scheme. See Note 10 to the Consolidated Financial
Statements.
 
 Employees
 
 We
employed 5,610, 4,290, 3,036, and 2,713 people for the years ended December 31,
2007, and December 31, 2006, the seven month period ended December 31, 2005, and
the year ended May 31, 2005 respectively. Our employees are not unionized and we
believe that our relations with our employees are good.
  34
 Share
Ownership
 The
following table sets forth certain information regarding beneficial ownership of
our ordinary shares (including Amercian Depository Securities, ADS’s) as of
February 20, 2008, by all of our current directors and executive officers.
Unless otherwise indicated below, to our knowledge, all persons listed below
have sole voting and investment power with respect to their ordinary shares,
except to the extent authority is shared by spouses under applicable
law.
 
 Name
      of Owner or
                  Identity
      of Group
                
                No.
      of Shares
                  (1)
                
                
                %
      of total
                  Shares
                
                
                No.
      of Options
                  (2)
                
                
                Exercise
                  price
                
                Expiration
      DateDr.
      John Climax
                
                
                1,553,784
                
                
                
                5.4
                %
                
                
                10,000
                
                
                $
                14.50
                
                January
      11, 201010,000
                
                
                $
                14.00
                
                January
      21, 201110,000
                
                
                $
                17.75
                
                February
      4, 20126,000
                
                
                $
                22.00
                
                February
      3, 20146,000
                
                
                $
                42.50
                
                February
      16, 2015Dr.
      Ronan Lambe
                
                
                367,940
                
                
                
                1.3
                %
                
                
                6,000
                
                
                $
                14.50
                
                January
      11, 20103,000
                
                
                $
                14.00
                
                January
      21, 20113,000
                
                
                $
                17.75
                
                February
      4, 20122,000
                
                
                $
                17.20
                
                February
      24, 20132,000
                
                
                $
                22.00
                
                February
      3, 20141,000
                
                
                $
                42.50
                
                February
      16, 2015Mr.
      Peter Gray
                
                
                270,040
                
                
                
                0.9
                %
                
                
                10,000
                
                
                $
                14.50
                
                January
      11, 201010,000
                
                
                $
                14.00
                
                January
      21, 201110,000
                
                
                $
                17.75
                
                February
      4, 20126,000
                
                
                $
                22.00
                
                February
      3, 20146,000
                
                
                $
                42.50
                
                February
      16, 2015Mr.
      Ciaran Murray
                
                
                -
                
                
                
                -
                
                
                
                30,000
                
                
                $
                20.84
                
                January
      17, 20149,000
                
                
                $
                22.00
                
                February
      3, 20148,000
                
                
                $
                42.50
                
                February
      16, 2015Mr.
      Thomas Lynch
                
                
                2
                
                
                
                -
                
                
                
                600
                
                
                $
                14.00
                
                January
      21, 20111,200
                
                
                $
                17.75
                
                February
      4, 20121,200
                
                
                $
                17.20
                
                February
      24, 20131,600
                
                
                $
                22.00
                
                February
      3, 20142,000
                
                
                $
                42.50
                
                February
      16, 2015Mr.
      Edward Roberts
                
                
                7,002
                
                
                
                -
                
                
                
                3,000
                
                
                $
                14.00
                
                January
      21, 20113,000
                
                
                $
                17.75
                
                February
      4, 20122,000
                
                
                $
                17.20
                
                February
      24, 20132,000
                
                
                $
                22.00
                
                February
      3, 20142,000
                
                
                $
                42.50
                
                February
      16, 2015Mr.
      Shugi Higuchi
                
                
                -
                
                
                
                -
                
                
                
                3,000
                
                
                $
                17.75
                
                February
      4, 20122,000
                
                
                $
                17.20
                
                February
      24, 20132,000
                
                
                $
                22.00
                
                February
      3,  20142,000
                
                
                $
                42.50
                
                February
      16, 2015Dr.
      Bruce Given
                
                
                -
                
                
                
                -
                
                
                
                2,000
                
                
                $
                17.20
                
                February
      24, 20132,000
                
                
                $
                22.00
                
                February
      3, 20142,000
                
                
                $
                42.50
                
                February
      16, 2015
 
 (1)
                As
      used in this table, each person has the sole or shared power to vote or
      direct the voting of a security, or the sole or shared investment power
      with respect to a security (i.e. the power to
      dispose, or direct the disposition, of a security). A person is deemed as
      of any date to have "beneficial ownership" of any security if that such
      person has the right to acquire such security within 60 days after such
      date.(2)
                The
      title of securities covered by all of the above options are non-revenue
      qualified.
  35
 Employee
Share Option Schemes
 
 On
January 17, 2003, we adopted the Share Option Plan 2003, or the 2003 Plan,
pursuant to which the Compensation Committee of the Board may grant options to
employees of the Company or its subsidiaries for the purchase of ordinary
shares. Each option will be an employee stock option, or “NSO”. Each grant of an
option under the 2003 Plan will be evidenced by a Stock Option Agreement between
the optionee and the Company. The exercise price will be specified in each Stock
Option Agreement.
  An
aggregate of 3 million ordinary shares have been reserved under the 2003 Plan;
and, in no event will the number of ordinary shares that may be issued pursuant
to options awarded under the 2003 Plan exceed 10% of the outstanding shares, as
defined in the 2003 Plan, at the time of the grant. Further, the maximum number
of ordinary shares with respect to which options may be granted under the 2003
Plan during any calendar year to any employee shall be 200,000 ordinary
shares.
  No
options can be granted after January 17, 2013.
  Executive
Officers and Directors Remuneration
 
 Compensation
Discussion & Analysis
 
 Overview
 The
Compensation Committee (the “Committee”) seeks to achieve the following goals
with the Company’s executive compensation programs: to attract, motivate and
retain key executives and to reward executives for value creation. The Committee
seeks to foster a performance-oriented environment by tying a significant
portion of each executive’s cash and equity compensation to the achievement of
performance targets that are important to the Company and its
shareholders.
 
 The
Company’s executive compensation program has three elements: base salary, a
bonus plan and equity incentives in the form of stock option awards granted
under the Share Option Plan 2003 (the “2003 Plan”). All elements of executive
compensation are determined by the Committee based on the achievement of ICON’s
objectives.
 
 In the
year ended December 31, 2007, the officers earned a bonus and the Company
awarded executive officers equity incentives in the form of stock
options.
 
 Base
Salary and Bonus Incentive
 Total
cash compensation is divided into a base salary portion and a bonus incentive
portion. Base salary is established based on peer group and is adjusted based on
individual performance and experience. The Committee targets total cash
compensation at the peer group median of comparable Irish companies and peer CRO
companies, adjusted upward or downward based on individual performance and
experience. The Committee believes that the higher the executive’s level of
responsibility within the Company, the greater the percentage of the executive’s
compensation that should be tied to the Company’s performance. Target bonus
incentive for executive officers is 80% of base salary.
 
 For
fiscal 2007, based upon the Company’s income performance relative to the targets
set by the Committee, and Company business unit, and individual objectives
approved by the Committee, the Company’s named executive officers, excluding the
Chief Executive Officer, earned an aggregate bonus of
$816,410.
 
 Equity
Incentive
 The
Company’s executive officers are eligible to receive stock options granted under
the Company’s equity incentive plans. If executive officers receive equity
incentive grants, they are awarded annually at the first regularly scheduled
meeting of the Committee in the fiscal year. Newly hired executive officers may
receive sign-on grants, if approved by the Committee. In addition, the Committee
may, in its discretion, issue additional equity incentive awards to executive
officers if the Committee determines the awards are necessary for retention. The
number of equity awards granted to each participant is determined primarily
based on an award range determined by the Committee at the start of each year.
The extent of existing options is not generally considered in granting equity
awards, except that the Company occasionally grants an initial round of equity
awards to newly recruited executives to provide them a stake in the Company’s
success from the commencement of their employment.  The Company
granted equity incentive awards to executive officers in its fiscal years ended
December 31, 2006 and 2007.
  36
 On
February 3, 2006, the Company granted performance-based stock options to certain
executive officers. The purpose of these grants is to align management and
shareholder interests as measured by both revenue growth and the stock markets’
assessment of the Company’s performance.   No performance-based
stock options were granted to executive officers during the fiscal year ended
December 31, 2007.
 
 Chief
Executive Officer Compensation
 The
Committee uses the same factors in determining the compensation of the Chief
Executive Officer as it does for the other participants. The Chief Executive
Officer’s base salary for the year ended December 31, 2007, was $545,116.
  37
 Executive
Compensation
 
 Summary
compensation table - Year ended December 31, 2007
 
 Name
      & principal position
                Year
                Salary
                Bonus
                Pension
                  contribution
                All
      other
                  compensation
                Subtotal
                Subtotal
                Share-based
                  compensation
                Total
                  compensationEuro
                  (€)
                Euro
                  (€)
                Euro
                  (€)
                Euro
                  (€)
                Euro
                  (€)
                USD
                  ($)
                USD
                  ($)
                USD
                  ($)Peter
      Gray,
                  Chief
      Executive Officer
                2007
                400,000
                320,000
                40,600
                37,919
                798,519
                1,120,308
                61,381
                1,181,689Ciaran
      Murray,
                  Chief
      Financial Officer
                2007
                240,000
                180,000
                23,999
                15,998
                459,997
                645,001
                142,560
                787,561John
      Climax,
                  Executive
      Chairman
                2007
                540,280
                378,000
                46,056
                55,097
                1,019,433
                1,430,381
                61,381
                1,491,762Total
                2007
                €1,180,280
                €878,000
                €110,655
                €109,014
                €2,277,949
                $3,195,690
                $265,322
                $3,461,012
 
 Summary
compensation table - Year ended December 31, 2006
 
 Name
      & principal position
                Year
                Salary
                Bonus
                Pension
                  contribution
                All
      other compensation
                Subtotal
                Subtotal
                Share-based
                  compensation
                Total
                  compensationEuro
                  (€)
                Euro
                  (€)
                Euro
                  (€)
                Euro
                  (€)
                Euro
                  (€)
                USD
                  ($)
                USD
                  ($)
                USD
                  ($)Peter
      Gray,
                  Chief
      Executive Officer
                2006
                349,388
                236,000
                35,535
                37,937
                658,860
                832,250
                54,283
                886,533Ciaran
      Murray,
                  Chief
      Financial Officer
                2006
                197,500
                115,000
                21,375
                16,000
                349,875
                442,667
                106,198
                548,865John
      Climax,
                  Executive
      Chairman
                2006
                491,164
                335,000
                14,988
                50,036
                891,188
                1,126,348
                54,283
                1,180,631Total
                2006
                €1,038,052
                €686,000
                €71,898
                €103,973
                €1,899,923
                $2,401,265
                $214,764
                $2,616,029
 
 Grant
of Plan-Based Awards - Fiscal 2007
 With the
exception of the bonus element of compensation mentioned above, there were no
plan based awards for any of the named executive officers in fiscal
2007.
  38
  Director
Compensation
 
 Summary
compensation table -Year ended December 31, 2007
 
 Name
                Year
                Salary
                Company
                  Pension
                  contribution
                All
      other compensation
                Subtotal
                Subtotal
                Share-based
                  compensation
                Director’s
                  fees
                Total
                  compensationEuro
                  (€)
                Euro
                  (€)
                Euro
                  (€)
                Euro
                  (€)
                USD
                  ($)
                USD
                  ($)
                USD
                  ($)
                USD
                  ($)John
      Climax
                2007
                540,280
                46,056
                433,097
                1,019,433
                1,430,381
                61,381
                -
                1,491,762Peter
      Gray
                2007
                400,000
                40,600
                357,919
                798,519
                1,120,308
                61,381
                -
                1,181,689Ronan
      Lambe
                2007
                104,394
                4,163
                3,903
                112,460
                148,402
                19,156
                -
                167,558Thomas
      Lynch
                2007
                -
                -
                -
                -
                -
                24,475
                55,000
                79,475Edward
      Roberts
                2007
                -
                -
                -
                -
                -
                22,495
                65,000
                87,495Shuji
      Higuchi
                2007
                -
                -
                -
                -
                -
                18,589
                40,000
                58,589Bruce
      Given
                2007
                -
                -
                -
                -
                -
                13,624
                45,000
                58,624Total
                
                €1,044,674
                €90,819
                €794,919
                €1,930,412
                $2,699,091
                $221,101
                $205,000
                $3,125,192
 
 Summary
compensation table -Year ended December 31, 2006
 
 Name
                Year
                Salary
                Company
                  Pension
                  contribution
                All
      other compensation
                Subtotal
                Subtotal
                Share-based
                  compensation
                Director’s
                  fees
                Total
                  compensationEuro
                  (€)
                Euro
                  (€)
                Euro
                  (€)
                Euro
                  (€)
                USD
                  ($)
                USD
                  ($)
                USD
                  ($)
                USD
                  ($)John
      Climax
                2006
                491,164
                14,988
                385,036
                891,188
                1,126,348
                54,283
                -
                1,180,631Peter
      Gray
                2006
                349,388
                35,535
                273,937
                658,860
                832,250
                54,283
                -
                886,533Ronan
      Lambe
                2006
                147,349
                24,981
                46,192
                218,522
                272,175
                23,839
                -
                296,014Thomas
      Lynch
                2006
                -
                -
                -
                -
                -
                21,645
                35,000
                56,645Edward
      Roberts
                2006
                -
                -
                -
                -
                -
                19,665
                50,000
                69,665Shuji
      Higuchi
                2006
                -
                -
                -
                -
                -
                11,585
                30,000
                41,585Bruce
      Given
                2006
                -
                -
                -
                -
                -
                6,620
                35,000
                41,620Total
                
                €987,901
                €75,504
                €705,165
                €1,768,570
                $2,230,773
                $191,920
                $150,000
                $2,572,693
  39
  Outstanding
Equity Interests Received as Compensation
 
 Outstanding
Equity Awards Table
 The
following table sets forth information concerning stock options held by the
named Executive Officers at December 31, 2007:
 
 Name
                
                Option
      awardsNo.
      of securities underlying
                  unexercised
                  options
      –
                  exercisable
                
                
                No.
      of securities underlying unexercised
                  options
      – unexercisable
                
                
                Equity
      incentive
                  plan
      awards:
                  No.
      of securities underlying unexercised
                  unearned
                  options
                
                
                Option
                  exercise
                  price
      ($)
                
                Option
                  expiration
      datePeter
      Gray
                
                
                10,000
                
                
                
                -
                
                
                
                -
                
                
                $
                14.50
                
                Jan
      11, 20108,000
                
                
                
                2,000
                
                
                
                -
                
                
                $
                14.00
                
                Jan
      21, 20116,000
                
                
                
                4,000
                
                
                
                -
                
                
                $
                17.75
                
                Feb
      4, 20121,200
                
                
                
                4,800
                
                
                
                -
                
                
                $
                22.00
                
                Feb
      3, 2014-
                
                
                
                6,000
                
                
                
                -
                
                
                $
                42.50
                
                Feb
      16, 2015Ciaran
      Murray
                
                
                -
                
                
                
                30,000
                
                
                
                -
                
                
                $
                20.84
                
                Jan
      17, 20141,800
                
                
                
                7,200
                
                
                
                -
                
                
                $
                22.00
                
                Feb
      3, 2014-
                
                
                
                8,000
                
                
                
                -
                
                
                $
                42.50
                
                Feb
      16, 2015John
      Climax
                
                
                10,000
                
                
                
                -
                
                
                
                -
                
                
                $
                14.50
                
                Jan
      11, 20108,000
                
                
                
                2,000
                
                
                
                -
                
                
                $
                14.00
                
                Jan
      21, 20116,000
                
                
                
                4,000
                
                
                
                -
                
                
                $
                17.75
                
                Feb
      4, 20121,200
                
                
                
                4,800
                
                
                
                -
                
                
                $
                22.00
                
                Feb
      3, 2014-
                
                
                
                6,000
                
                
                
                -
                
                
                $
                42.50
                
                Feb
      16, 2015
 
 All
information in this table relates to nonqualified stock options. The Company has
not granted any stock appreciation rights ("SARs") in fiscal year 2007.
Substantially all options become exercisable in five equal installments each
year beginning on the first anniversary of the grant date.
 
 Options
Exercised Table
 There
were no options exercised during fiscal 2007 by any of the named executive
officers.
 
 Retirement
Plans & Other Post-Employment Payments & Benefits
 
 Pension
Plan
 All named
executive officers are eligible to participate in a defined contribution pension
plan (the "Plan"). The Company matches each participant's contributions up to a
percentage of their annual compensation. Contributions to this plan are recorded
as an expense in the Consolidated Statement of Operations. Total company
contributions for the named executive officers for the year ended December 31,
2007, was €110,655 ($154,567).
 
 The
Company's United States operations maintain a retirement plan (the "U.S. Plan")
that qualifies as a deferred salary arrangement under Section 401(k) of the
Internal Revenue Code. In addition one of the Company’s subsidiaries which was
acquired during the 2003 fiscal year, Medeval Group Limited, operates a defined
benefit pension plan in the United Kingdom for its employees. None of the named
executive officers are participants in the U.S. Plan or the defined benefit
pension plan.
 
 Information
regarding the Company’s retirement plans can be found in Note 9 to the
Consolidated Financial Statements “Employee Benefits”.
 
 Non-qualified
Defined Contribution and Deferred Compensation Plans
 
 None of
the named executive officers are involved in any non-qualified defined
contribution plan or receives any nonqualified deferred
compensation.
 
 40
 
 Disclosure
of Compensation Agreements
 
 Employment
Contracts, Termination of Employment and Change in Control
Arrangements
 The
Company does not have any Termination or Change of Control Agreements with its
named executive officers.
 
 Directors’
and Executive Officers’ service agreements and letters of
engagement
 
 Mr.
Peter Gray
 Mr. Peter
Gray has served as the Chief Executive Officer since November 2002. He served as
the Chief Operating Officer of the Company from June 2001 to November 2002 and
as an Executive Director of the Company since June 1997. The service agreement
with Mr. Gray is terminable on 12 months notice by either party. He is entitled
to receive a bonus to be agreed by the Committee. He is also entitled to receive
a pension contribution, company car and medical insurance cover for himself and
his dependants. He currently holds 42,000 ordinary share options at exercise
prices ranging from $14.00 to $42.50 per share. His service agreement requires
him to devote his full time and attention to his duties for the Company
excepting certain non-executive positions authorized by the Board. The agreement
includes certain post termination clauses including non-disclosure,
non-competition and non-solicitation provisions.
 
 Mr.
Ciaran Murray
 Mr.
Ciaran Murray has served as the Chief Financial Officer since October 2005. The
service agreement with Mr. Murray is terminable on 12 months notice by either
party. He is entitled to receive a bonus to be agreed by the
Committee.  He is also entitled to receive a pension contribution, a
company car and medical insurance cover for himself and his
dependants.  He currently holds 47,000 ordinary share options at
exercise prices ranging from $20.84 to $42.50 per share.  His service
agreement requires him to devote his full time and attention to his duties for
the Company excepting certain non-executive positions authorized by the
Board  The agreement includes certain post-termination clauses
including non-disclosure, non-competition and non-solicitation
provisions.
 
 Dr.
John Climax
 Dr. John
Climax, one of the Company’s co-founders, has served as a Director since June
1990, and Chief Executive Officer from June 1990 to October 2002. He was
appointed Chairman of the Board in November 2002. The service agreement with Dr.
Climax is terminable on 12 months notice by either party. He is entitled to
receive a bonus to be agreed by the Committee. He is entitled to receive a
pension contribution, company car and medical insurance cover for himself and
his dependants. He currently holds 42,000 ordinary share options at exercise
prices ranging from $14.00 to $42.50 per share. His service agreement requires
him to devote his full time and attention to his duties for the Company
excepting certain non-executive positions authorized by the Board. The agreement
includes certain post-termination clauses including non-disclosure,
non-competition and non-solicitation provisions.
 
 Item 7.Major
Shareholders and Related Party Transactions.
 
 (a)
                ICON
      plc, is not directly or indirectly, owned or controlled by another
      corporation or by any government.(b)
                The
      following table sets forth certain information regarding beneficial
      ownership of ICON's ordinary shares (including ADSs) as of February 20,
      2008 (i) by each person that beneficially owns more than 5% of the
      outstanding ordinary shares, based upon publicly available information;
      and (ii) by all of our current directors and executive officers as a
      group. Unless otherwise indicated below, to our knowledge, all persons
      listed below have sole voting and investment power with respect to their
      ordinary shares, except to the extent authority is shared by spouses under
      applicable law.
 
 Name
      of Owner or Identity of Group
                No.
      of Shares
      (1)
                Percent
      of ClassFidelity
      Group Companies (3)
                3,960,345
                13.7%Alliance
      Berstein LP
                1,693,540
                5.9%Dr.
      John Climax (2)
                1,595,784
                5.5%Wasatch
      Group Companies (3)
                1,474,820
                5.1%All
      directors and officers as a group (4)
                2,773,398
                9.6%
  41
  (1)
                As
      used in this table, each person has the sole or shared power to vote or
      direct the voting of a security, or the sole or shared investment power
      with respect to a security (i.e., the power to dispose, or direct the
      disposition, of a security). A person is deemed as of any date to have
      "beneficial ownership" of any security if that such person has the right
      to acquire such security within 60 days after such date. Note that all
      figures have been amended to reflect the Bonus Issue which took place with
      an effective date of October 13, 2006.(2)
                Includes
      1,553,784 ADSs held by Poplar Limited, a Jersey company controlled by Dr.
      Climax, and options to purchase 42,000 ADSs.(3)
                Neither
      the Company nor any of its officers, directors or affiliates hold any
      voting power in this entity.(4)
                Includes
      574,530 ordinary shares issuable upon the exercise of stock options
      granted by the Company.
 
 Related
Party Transactions
 
 As at
December 31, 2007, Amarin Investment Holding Limited (a company controlled by
Mr. Thomas Lynch), and Sunninghill Limited (a company controlled by Dr. John
Climax) held 10.7 million and 9.4 million shares respectively in Amarin
Corporation plc (“Amarin”). These respective holdings equate to approximately
7.7% and 6.8% respectively, of Amarin's issued share capital.  Thomas
Lynch also serves as Chairman and Chief Executive Officer of Amarin. Amarin
Corporation plc ("Amarin") is a neuroscience company focused on the research,
development and commercialization of drugs for the treatment of central nervous
system disorders.  During the fiscal year ending May 31, 2005, Amarin
contracted ICON Clinical Research Limited (a wholly owned subsidiary of ICON),
to conduct a clinical trial on its behalf.  The total potential value
of this study is $7 million. During the year ended December 31, 2007, the
Company recognized $2.2 million of revenue relating to the Amarin
contract.  At December 31, 2007, $1.5 million was outstanding to be
received from Amarin on this trial.
  As at
December 31, 2007, Dr. John Climax and Dr. Ronan Lambe held 4.47% and 4.19%
respectively of the issued share capital of NuPathe Inc.
(“NuPathe”).  NuPathe  is a specialty pharmaceutical company
specializing in the acquisition and development of therapeutic products in the
area of neuroscience. Dr. Climax also serves as a non-executive director and
chairman of the compensation committee on the Board of NuPathe. During the year
ending December 31, 2006, NuPathe engaged ICON Clinical Research Limited (a
wholly owned subsidiary of ICON), in consulting and clinical trial related
activities. During the year ended December 31, 2007, the Company recognized $0.1
million relating to the NuPathe contract.  As at December 31, 2007,
$0.1 million was due from NuPathe.
  Prior to
June 25, 2007, Dr. Bruce Given served as the President and Chief Executive
Officer of Encysive Pharmaceuticals Inc. (“Encysive”).  Encysive is a
biopharmaceutical company specializing in the development and commercialization
of synthetic, small molecule compounds. As of December 31, 2007, Dr. Bruce
Given’s holdings in Encysive was less than 0.1% of the issued share capital.
During the year ending December 31, 2003, Encysive engaged ICON Clinical
Research Limited (a wholly owned subsidiary of ICON), in consulting and clinical
trial related activities. The total potential contract value of this study is
$0.8 million.  During the year ending December 31, 2007, ICON
recognized a total of $0.1 million of revenue in relation to these
activities.
  As of
December 31, 2007, Dr. Ronan Lambe held 1.4 million shares in AGI Therapeutics
Limited (“AGI”), a specialty pharmaceutical company focused on developing drug
therapies for gastrointestinal diseases and disorders. This holding equates to
approximately 2.13% of AGI's issued share capital. In January 2006, Dr. Ronan
Lambe was appointed a non-executive director of AGI and took up the position of
non-executive Chairman from February 2006. ICON is engaged in conducting a
series of clinical trials on behalf of AGI. During September 2004, AGI
contracted ICON Clinical Research Limited (a wholly owned subsidiary of ICON),
to conduct a clinical trial on its behalf. The total potential value of this
study is $2.8 million.  During the year ended December 31, 2006, the
Company recognized $0.5 million of revenue relating to the AGI
contract.  No revenue was recognized during the year ended December
31, 2007.  At December 31, 2006, $0.4m was outstanding to be received
from AGI on this trial. There were no amounts outstanding as at December 31,
2007.
  42
  On
December 6, 2005, Dr. Ronan Lambe and Dr. John Climax gifted 128,000 and 160,000
ADSs, respectively, to Mr. Peter Gray, the Company’s Chief Executive Officer.
ICON has accounted for these transfers of equity instruments from shareholders
to Mr. Gray as share based payment transactions, and recorded a compensation
expense of $6,024,000 in its Statement of Operations, measured by reference
to the fair value of the ADSs on the grant date. As this transaction is a
transfer of already issued stock between officers and directors of the Company,
the expense recorded had no cash flow impact on the Company and created no
dilution of ordinary shares outstanding.  The fair value of the ADSs on the
date of gift was determined by reference to market price.
  43
  Item 8.Financial
Information.
 
 Financial
Statements
 
 See Item
18.
 
 Legal
Proceedings
 
 ICON is
not party to any litigation or other legal proceedings that we believe could
reasonably be expected to have a material adverse effect on our business,
results of operations and financial condition.
 
 Dividends
 
 We have
not paid cash dividends on our ordinary shares and do not intend to pay cash
dividends on our ordinary shares in the foreseeable future.
 
 Item 9.The Offer and the
Listing
 
 ICON’s
ADSs are traded on the NASDAQ National Market under the symbol “ICLR”. Our
Depository for the ADSs is The Bank of New York. ICON also has a secondary
listing on the Official List of the Irish Stock Exchange. No securities of ICON
are traded in any other market. The following table sets forth the trading price
for the dates indicated for ICON plc’s ADSs as reported by NASDAQ.
 
 Year
      Ending
                
                High
      Sales Price
                  During
      Period
                
                
                Low
      Sales Price
                  During
      PeriodMay
      31, 2003
                
                $
                16.44
                
                
                $
                7.44May
      31, 2004
                
                $
                23.03
                
                
                $
                12.94May
      31, 2005
                
                $
                22.46
                
                
                $
                15.13December
      31, 2005 (7 month transition period)
                
                $
                25.25
                
                
                $
                15.05December
      31, 2006
                
                $
                40.36
                
                
                $
                20.50December
      31, 2007
                
                $
                64.79
                
                
                $
                36.68Quarter
      Ending
                
                High
      Sales Price
                  During
      Period
                
                
                Low
      Sales Price
                  During
      PeriodAug
      31, 2004
                
                $
                22.46
                
                
                $
                15.88Nov
      30, 2004
                
                $
                19.70
                
                
                $
                15.52Feb
      28, 2005
                
                $
                19.50
                
                
                $
                16.89May
      31, 2005
                
                $
                19.48
                
                
                $
                15.13Aug
      31, 2005
                
                $
                20.95
                
                
                $
                15.05Nov
      30, 2005
                
                $
                25.25
                
                
                $
                18.18Mar
      31, 2006
                
                $
                24.50
                
                
                $
                20.50Jun
      30, 2006
                
                $
                28.66
                
                
                $
                23.35Sept
      30, 2006
                
                $
                36.00
                
                
                $
                27.25Dec
      31, 2006
                
                $
                40.36
                
                
                $
                33.57Mar
      31, 2007
                
                $
                44.60
                
                
                $
                36.68June
      30, 2007
                
                $
                49.65
                
                
                $
                41.65Sept
      30, 2007
                
                $
                53.25
                
                
                $
                42.51Dec
      31, 2007
                
                $
                64.79
                
                
                $
                50.71
 
 44
 
 
 Month
      Ending
                
                High
      Sales Price
                  During
      Period
                
                
                Low
      Sales Price
                  During
      PeriodJan
      31, 2007
                
                $
                40.50
                
                
                $
                36.68Feb
      28, 2007
                
                $
                43.84
                
                
                $
                37.04March
      31, 2007
                
                $
                44.60
                
                
                $
                39.65April
      30, 2007
                
                $
                48.41
                
                
                $
                41.93May
      31, 2007
                
                $
                49.65
                
                
                $
                45.08June
      30, 2007
                
                $
                47.17
                
                
                $
                41.65July
      31, 2007
                
                $
                47.73
                
                
                $
                43.00Aug
      31, 2007
                
                $
                48.84
                
                
                $
                42.51Sept
      30, 2007
                
                $
                53.25
                
                
                $
                45.56Oct
      31, 2007
                
                $
                61.30
                
                
                $
                50.71Nov
      30, 2007
                
                $
                60.77
                
                
                $
                54.50Dec
      31, 2007
                
                $
                64.79
                
                
                $
                54.64
 
 All
comparative figures above have been amended to reflect the Bonus Issue which
took place with an effective date of October 13, 2006.
 
 Item 10.  Additional Information
 
 Exchange
Controls and Other Limitations Affecting Security Holders
 
 Irish
exchange control regulations ceased to apply from and after December 31, 1992.
Except as indicated below, there are no restrictions on non-residents of Ireland
dealing in domestic securities, which includes shares or depository receipts of
Irish companies. Except as indicated below, dividends and redemption proceeds
also continue to be freely transferable to non-resident holders of such
securities.
 
 The
Financial Transfers Act, 1992 gives power to the Minister for Finance of Ireland
to make provision for the restriction of financial transfers between Ireland and
other countries and persons. Financial transfers are broadly defined, and
include all transfers which would be movements of capital or payments within the
meaning of the treaties governing the European Communities. The acquisition or
disposal of ADSs or ADRs representing shares issued by an Irish incorporated
company and associated payments may fall within this definition. In addition,
dividends or payments on redemption or purchase of shares and payments on a
liquidation of an Irish incorporated company would fall within this definition.
At present, the Financial
 Transfers
Act, 1992 prohibits financial transfers involving certain persons connected with
the former regime in Iraq, certain persons indicted by the International
Criminal Tribunal for the former Yugoslavia and certain associated persons,
Zimbabwe, the Taliban of Afghanistan, Osama bin Laden and Al-Qaeda, Liberia,
Burma/Myanmar, Uzbekistan, Sudan, Cote D’Ivoire, the Democratic Republic of
Congo, President Lukashenko and certain other officials of Belarus, and
countries that harbor certain terrorist groups, without the prior permission of
the Central Bank of Ireland.
 
 Any
transfer of, or payment in respect of an ADS involving the government of any
country or any person which is currently the subject of United Nations
sanctions, any person or body controlled by any of the foregoing, or by any
person acting on behalf of the foregoing, may be subject to restrictions
pursuant to such sanctions as implemented into Irish law. The following
countries and persons are currently the subject of such sanctions: Somalia,
Sudan, Cote D’Ivoire, Democratic Republic of Congo, Liberia, the Taliban of
Afghanistan, Osama bin Laden and Al-Qaeda. There are no restrictions under the
Company’s Articles of Association, or under Irish Law that limit the right of
non-residents or foreign owners to hold or vote the Company’s ordinary shares or
ADSs.
 
 45
  Memorandum
and Articles of Association
 
 We hereby
incorporate by reference the description of our Memorandum and Articles of
Association located under the heading “Description of the Memorandum and
Articles of Association of the Company” in our Form 6K filed with the Securities
Exchange Commission on January 31, 2003.
 
 On
September 29, 2006, at ICON’s Extraordinary General Meeting, the Articles of
Association of ICON plc were amended to increase the authorized share capital.
The following amendments were made:
 
 “That the
authorized share capital of the Company be increased from €1,200,000 divided
into 20,000,000 Ordinary Shares of €0.06 each, to €2,400,000 divided into
40,000,000 Ordinary Shares of €0.06 each.”
 
 Material
Contracts
 
 The
Securities and Exchange Commission approved rule filings by NASDAQ, which
requires all securities listed on NASDAQ (subject to limited exceptions not
applicable to ICON) to be eligible for a direct registration system such as the
Depository Trust Company’s Direct Registration System (the “Direct Registration
System”) by January 1, 2008.  As a result of this requirement, ICON
amended and restated its Deposit Agreement to authorize the issuance of
uncertificated shares of some or all of its securities to permit ICON to convert
to electronic book−entry issuance of its securities.
 
 Taxation
 
 General
 
 The
following discussion is based on existing Irish tax law, Irish court decisions
and the practice of the Revenue Commissioners of Ireland, and the convention
between the United States and Ireland for the Avoidance of Double Taxation and
the Prevention of Fiscal Evasion with respect to income and capital gains (the
"Treaty"). This discussion does not purport to deal with the tax consequences of
owning the ordinary shares for all categories of investors, some of which may be
subject to special rules. Prospective purchasers of ordinary shares are advised
to consult their own tax advisors concerning the overall tax consequences
arising in their own particular situations under Irish law. Each prospective
investor should understand that future legislative, administrative and judicial
changes could modify the tax consequences described below, possibly with
retroactive effect.
 
 As used
herein, the term "U.S. Holder" means a beneficial owner of ordinary shares that
(i) owns the ordinary shares as capital assets; (ii) is a U.S. citizen or
resident, a U.S. corporation, an estate the income of which is subject to U.S.
federal income taxation regardless of its source or a trust that meets the
following two tests: (A) a U.S. court is able to exercise primary supervision
over the administration of the trust, and (B) one or more U.S. persons have the
authority to control all substantial decisions of the trust; and for purposes of
the discussion under Irish Taxation of U.S. Holders (A) is not a resident of, or
ordinarily resident in, Ireland for the purposes of Irish tax; and (B) is not
engaged in trade or business in Ireland through a permanent
establishment.
 
 AS USED
HEREIN, REFERENCES TO THE ORDINARY SHARES SHALL INCLUDE ADSs REPRESENTING SUCH
ORDINARY SHARES AND ADRs EVIDENCING OWNERSHIP OF SUCH ADSs.
 
 Irish
Taxation
 
 Irish
corporation tax on income
 ICON is a
public limited company incorporated and resident for tax purposes in
Ireland.
 
 For Irish
tax purposes, the residence of a company is in the jurisdiction where the
central management and control of the company is located. Subject to certain
exceptions, all Irish incorporated companies are deemed to be Irish tax
resident. Companies which are resident in the Republic of Ireland are subject to
Irish corporation tax on their total profits (wherever arising and, generally,
whether or not remitted to the Republic of Ireland). The question of residence,
by virtue of management and control, is essentially one of fact. It is the
present intention of the Company's management to continue to manage and control
the Company from the Republic of Ireland, so that the Company will continue to
be resident in the Republic of Ireland.
  46
  The
standard rate of Irish corporation tax on trading income (with certain
exceptions) is currently 12.5%.
 
 Patent
exemption is available to Irish resident companies whose income derives from
qualifying royalties or license fees paid in respect of qualifying patents. The
main requirement to qualify for the exemption is that the research, planning,
processing, experimentation, testing, devising, designing, developing or similar
activity leading to the invention which is the subject of the patent is carried
out in Ireland. Under Irish law, income from such qualifying patents is
disregarded for taxation purposes. From January 1, 2008, there is an annual
limit of 5 million Euro placed on qualifying patent income.  To the
extent that income arises above this threshold, it will be subject to Irish
corporation tax at 25%.
 
 To the
extent that the company is involved in the "manufacture" of goods in Ireland,
income from this activity, in respect of its data processing operations carried
out in Ireland (which is deemed to be manufacturing for Irish tax purposes) ,
can qualify for a 10% rate of tax. This relief is available until December 31,
2010, and thereafter the income will be taxed at the standard rate applicable to
trading income which is currently 12.5%.
 
 Corporation
tax is charged at the rate of 25% on a company's non-trading income and certain
types of trading income not eligible for the lower rates discussed
above.
 
 Capital
gains arising to an Irish resident company are liable to tax at
20%.  However, a capital gains tax exemption has been introduced in
Ireland in respect of disposals of certain shareholdings.  The
exemption applies with retrospective effect to disposals occurring on or after
February 2, 2004.
 
 The
exemption from capital gains tax on the disposal of shares by an Irish resident
company will apply where certain conditions are met. These conditions
principally are:
 
 ·
                The
      company claiming the exemption must hold (directly or indirectly) at least
      5% of the ordinary share capital of the company in which the interest is
      being disposed of, for a period of at least one year, within the two year
      period prior to disposal.·
                The
      shares being disposed of must be in a company, which at the date of
      disposal, is resident in an EU Member State or in a state with which
      Ireland has a double tax agreement.·
                The
      shares must be in a company which is primarily a trading company or else
      the company making the disposal together with its “5% plus subsidiaries”
      should be primarily a trading group.·
                The
      shares must not derive the greater part of their value from land or
      mineral rights in the State.
 
 Taxation of
Dividends
 Unless
exempted, all dividends paid by ICON, other than dividends paid entirely out of
exempt patent income (subject to conditions), will be subject to Irish
withholding tax at the standard rate of income tax in force at the time the
dividend is paid, currently 20%.  An individual shareholder who is
neither resident nor ordinarily resident for tax purposes in Ireland, but is
resident in a country with which Ireland has a double tax treaty, which includes
the United States, or in a member state of the European Union, other than
Ireland (together a “Relevant Territory”), will be exempt from withholding tax
provided he or she makes the requisite declaration.  No dividend
withholding tax will apply on the payment of a dividend from an Irish resident
company to its Irish resident 51% parent company.  Where the Irish
company receiving the dividend does not hold at least 51% of the shares of the
paying company, the dividend will be exempt if the Irish corporate shareholder
makes the requisite declaration.
 
 Non-Irish
resident corporate shareholders that:
 
 ·
                are
      ultimately controlled by residents of a Relevant
  Territory;·
                are
      resident in a Relevant Territory and are not controlled by Irish
      residents;
  47
  ·
                have
      the principal class of their shares, or shares of a 75% parent,
      substantially and regularly traded on one or more recognized stock
      exchanges in a Relevant Territory or Territories; or·
                are
      wholly owned by two or more companies, each of whose principal class of
      shares is substantially and regularly traded on one or more recognized
      stock exchanges in a Relevant Territory or
  Territories;
  will be
exempt from withholding tax on the production of the appropriate certificates
and declarations.
  U.S.
Holders of ordinary shares (as opposed to ADSs: see below) should note, however,
that these documentation requirements may be burdensome. As described below,
these documentation requirements do not apply in the case of ADSs.
 
 Special
arrangements are available in the case of an interest in shares held in Irish
companies through American depositary banks using ADSs.  The
depositary bank will be allowed to receive and pass on a dividend from the Irish
company without any deduction for withholding tax in the following
circumstances:
 
 ·
                the
      depositary has been authorized by the Irish Revenue Commissioners as a
      qualifying intermediary and such authorization has not expired or been
      revoked; and either·
                the
      depositary bank’s ADS register shows that the beneficial owner has a U.S.
      address on the register; or·
                if
      there is a further intermediary between the depositary bank and the
      beneficial owner, where the depositary bank receives confirmation from the
      intermediary that the beneficial owner’s address in the intermediary’s
      records is in the U.S.
 
 Income
Tax
 Under
certain circumstances, non-Irish resident shareholders will be subject to Irish
income tax on dividend income.  This liability is limited to tax at
the standard rate and therefore, where withholding tax has been deducted, this
will satisfy the tax liability.
 
 However,
a non-Irish resident shareholder will not have an Irish income tax liability on
dividends from the company if the  holder is neither resident nor
ordinarily resident in the Republic of Ireland and the holder is:
 
 ·
                an
      individual resident in the U.S. (or any other country with which Ireland
      has concluded a double taxation treaty);·
                a
      corporation that is ultimately controlled by persons resident in the U.S.
      (or any other country with which Ireland has concluded a double taxation
      treaty);·
                a
      corporation whose principal class of shares (or its 75% or greater
      parent’s principal class of shares) is substantially and regularly traded
      on a recognized stock exchange in an EU country or a country with which
      Ireland has concluded a double taxation treaty;·
                a
      corporation resident in another EU member state or in a country with which
      Ireland has concluded a double taxation treaty, which is not controlled
      directly or indirectly by Irish residents; or·
                a
      corporation that is wholly owned by two or more corporations each of whose
      principal class of shares is substantially and regularly traded on a
      recognized stock exchange in an EU country or a country with which Ireland
      has concluded a double taxation
treaty.
  U.S.
Holders that do not fulfill the documentation requirements or otherwise do not
qualify for the withholding tax exemption may be able to claim treaty benefits
under the treaty.  U.S. Holders that are entitled to benefits under
the treaty will be able to claim a partial refund of the 20% withholding tax
from the Irish Revenue Commissioners.
 
 48
 
 Taxation
of Capital Gains
 A person
who is not resident or ordinarily resident in Ireland, has not been an Irish
resident within the past five years and who does not carry on a trade in Ireland
through a branch or agency will not be subject to Irish capital gains tax on the
disposal of ordinary shares or ADSs, so long as the ordinary shares or ADSs, as
the case may be, are either quoted on a stock exchange or do not derive the
greater part of their value from Irish land or mineral rights.  There
are provisions to subject a person who disposes of an interest in a company
while temporarily being non-Irish resident, to Irish capital gains
tax.  This treatment will apply to Irish domiciled individuals
-:
 
 ·
                who
      cease to be Irish resident;·
                who
      own the shares when they cease to be resident;·
                if
      there are not more than 5 years of assessment between the last year of
      Irish tax residence prior to becoming temporarily non-resident and the tax
      year that he/she resumes Irish tax residency;·
                who
      dispose of an interest in a company during this temporary non-residence;
      and·
                the
      interest disposed of represents 5% or greater of the share capital of the
      company or is worth at least
€500,000.
  In these
circumstances the person will be deemed, for Irish capital gains tax purposes,
to have sold and immediately reacquired the interest in the company on the date
of his or her departure and will be subject to tax at 20% of the taxable
gain.
 
 Irish
Capital Acquisitions Tax
 Irish
capital acquisitions tax (referred to as CAT) applies to gifts and
inheritances.
 
 Where a
gift or inheritance is taken under a disposition made after December 1, 1999, it
will be within the charge to CAT:
 ·
                to
      the extent that the property of which the gift or inheritance consists is
      situated in the Republic of Ireland at the date of the gift or
      inheritance;·
                where
      the person making the gift or inheritance is or was resident or ordinarily
      resident in the Republic of Ireland at the date of the disposition under
      which the gift or inheritance is taken;·
                in
      the case of a gift taken under a discretionary trust where the person from
      whom the gift is taken was resident or ordinarily resident in the Republic
      of Ireland at the date he made the settlement, or at the date of the gift
      or, if he is dead at the date of the gift, at his death;
  or·
                where
      the person receiving the gift or inheritance is resident or ordinarily
      resident in the Republic of Ireland at the date of the gift or
      inheritance.
 
 Where a
gift or an inheritance is taken under a disposition made prior to December 1,
1999, CAT is chargeable in the following circumstances:
 ·
                to
      the extent that the property of which the gift or inheritance consists is
      situated in the Republic of Ireland at the date of the gift or
      inheritance;·
                where
      the person making the gift or inheritance is or was domiciled in Ireland
      at the date of the disposition under which the gift or inheritance is
      taken;·
                in
      the case of a gift taken under a discretionary trust, where the disponer,
      who is usually the settlor, in relation to that trust was domiciled in
      Ireland at the date he made the settlement, or at the date of the gift or,
      where the gift is taken after his death, at the date of his
      death.
 
 The
person who receives the gift or inheritance is primarily liable for CAT. A
person is secondarily liable if he is the donor, his personal representative or
an agent, trustee or other person in whose care the property constituting the
gift or inheritance or the income therefrom is placed. Taxable gifts or
inheritances received by an individual since December 5, 1991, from donors in
the same threshold class are aggregated and only the excess over a specified
tax-free threshold is taxed. The tax-free threshold
is dependent on the relationship between the donor and the donees and the
aggregation since December 5, 1991, of all previous gifts and inheritances,
within the same tax threshold.
  49
 The
tax-free threshold amounts that apply during 2008 are:
 ·
                €26,060
      (2007: €24,841)
      in the case of persons who are not related to one
  another;·
                €52,151
      (2007: €49,682)
      in the case of gifts or inheritances received from inter alia a brother or
      sister or from a brother or sister of a parent or from a grandparent;
      and·
                €521,208
      (2007:
      €496,824)  in the case of gifts and inheritances received
      from a parent (or from a grandparent by a minor child of a deceased child)
      and specified inheritances received by a parent from a
    child.
 
 Gifts and
inheritances passing between spouses are exempt from CAT.
 
 A gift or
inheritance of ordinary shares or ADSs will be within the charge to Irish
capital acquisitions tax, notwithstanding that the person from whom or by whom
the gift or inheritance is received is domiciled or resident outside
Ireland.
 
 The
Estate Tax Convention between Ireland and the United States generally provides
for Irish capital acquisitions tax paid on inheritances in Ireland to be
credited against U.S. federal estate tax payable in the United States and for
tax paid in the United States to be credited against tax payable in Ireland,
based on priority rules set forth in the Estate Tax Convention.  The
Estate Tax Convention does not apply to Irish capital acquisitions tax paid on
gifts.
 
 Irish Probate
Tax
 Irish
probate tax was abolished under the Finance Act, 2001. No probate tax will arise
on any assets passing in respect of a death occurring on or after December 6,
2000.
 
 Irish
Stamp Duty - Ordinary Shares
 Irish
stamp duty, which is a tax on certain documents, is payable on all transfers of
the ordinary shares (other than between spouses) whenever a document of transfer
is executed.  Where the transfer is attributable to a sale, stamp duty
will be charged at a rate of 1%, rounded to the nearest Euro. The stamp duty is
calculated on the amount or value of the consideration (i.e. purchase price) or,
if the transfer is by way of a gift (subject to certain exceptions) or for
consideration less than the market value, on the market value of the shares.
Where the consideration for the sale is expressed in a currency other than Euro,
the duty will be charged on the Euro equivalent calculated at the rate of
exchange prevailing on the date of the transfer.
 
 Transfers
of ordinary shares between associated companies (broadly, companies within a 90%
group relationship, and subject to the satisfaction of certain conditions) are
exempt from stamp duty in the Republic of Ireland.  In the case of
transfers of ordinary shares where no beneficial interest passes (e.g. a
transfer of shares from a beneficial owner to his nominee), no stamp duty arises
where the transfer contains the appropriate certificate and, in the absence of
such certificate, a flat rate of €12.70 (the nominal rate) will
apply.
 
 Irish
Stamp Duty - ADSs Representing Ordinary Shares
 A
transfer by a shareholder to the depositary or custodian of ordinary shares for
deposit under the deposit agreement in return for ADSs and a transfer of
ordinary shares from the depositary or the custodian upon surrender of ADSs for
the purposes of the withdrawal of the underlying ordinary shares in accordance
with the terms of the deposit agreement will be stampable at the ad valorem rate
if the transfer relates to a sale or contemplated sale or any other change in
the beneficial ownership of such ordinary shares.  However, it is not
certain whether the mere withdrawal of ordinary shares in exchange for ADSs or
ADSs for ordinary shares would be deemed to be a transfer of or change in the
beneficial ownership which would be subject to stamp duty at the ad valorem
rate.  Where the transfer merely relates to a transfer where no change
in the beneficial ownership in the underlying ordinary shares is effected or
contemplated, no stamp duty arises where the transfer contains the appropriate
certificate and, in the absence of such certificate, the nominal rate stamp duty
of €12.70 applies.
 
 Transfers
of ADSs are exempt from Irish stamp duty as long as the ADSs are dealt in on the
NASDAQ National Market or any recognized stock exchange in the United States or
Canada.
 
 The
person accountable for payment of stamp duty is the transferee or, in the case
of a transfer by way of gift, or for a consideration less than the market value,
all parties to the transfer.  A late or inadequate payment of stamp
duty will result in a liability to pay interest, penalties and
fines.
 
 50
  Documents
on Display
 
 We are
subject to the informational requirements of the Securities Exchange Act of
1934, as amended, (the “Exchange Act”) and file reports and other information
with the SEC.  You may read and copy any of our reports and other
information at, and obtain copies upon payment of prescribed fees from, the
Public Reference Room maintained by the SEC at 100F Street
N.E.,  Washington, D.C. 20549. In addition, the SEC maintains a Web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the SEC at
http://www.sec.gov.  The public may obtain information on the
operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330.
 
 We
“incorporate by reference” information that we file with the SEC, which means
that we can disclose important information to you by referring you to those
documents.  The information incorporated by reference is an important
part of this report and more recent information automatically updates and
supersedes more dated information contained or incorporated by reference in this
report.  Our SEC file number for Exchange Act reports is
333-8704.
 
 As a
foreign private issuer, we are exempt from the rules under the Exchange Act,
prescribing the furnishing and content of proxy statements to
shareholders.
 
 We will
provide without charge to each person, including any beneficial owner, on the
written or oral request of such person, a copy of any or all documents referred
to above which have been or may be incorporated by reference in this report (not
including exhibits to such incorporated information that are not specifically
incorporated by reference into such information).  Requests for such
copies should be directed to us at the following address:  ICON plc,
South County Business Park, Leopardstown, Dublin 18, Ireland, Attention: Ciaran
Murray, telephone number:  (353) 1 291 2000.
 
 Exemptions
From Corporate Governance Listing Requirements Under the NASDAQ Marketplace
Rules
 
 NASDAQ
may provide exemptions from the NASDAQ corporate governance standards to a
foreign private issuer when those standards are contrary to a law, rule or
regulation of any public authority exercising jurisdiction over such issuer or
contrary to generally accepted business practices in the issuer’s country of
domicile, except to the extent that such exemptions would be contrary to United
States federal securities laws. ICON, as a foreign private issuer, was granted
an exemption in 1998 from provisions set forth in NASDAQ Rule 4350(f), which
requires each issuer to provide for a quorum in its by-laws for any meeting of
the holders of common stock, which shall in no case be less than 33.33% of the
outstanding shares of the issuer’s outstanding voting stock.  ICON’s
Articles of Association require that only 3 members be present at a shareholder
meeting to constitute a quorum.  This quorum requirement is in
accordance with Irish law and generally accepted business practices in
Ireland.
 
 Item 11.  Quantitative and
Qualitative Disclosures about Market Risk
 
 Qualitative
Disclosure of Market Risk.  The principal market risks (i.e.
risk of loss arising from adverse changes in market rates and prices) to which
we are exposed are:
 
 ·
                Interest
      rate changes on short term investments (available for sale) in the form of
      floating rate notes and medium term minimum “AA-” rated corporate
      securities, and·
                Interest
      rate risk on variable rate debt.·
                Foreign
      currency risk on non-U.S. dollar denominated cash and non-U.S. dollar
      denominated debt.
 
 We use
derivative financial instruments solely to hedge exposure to these market risks
and we do not enter into these instruments for trading or speculative
purposes.  The Company had no interest rate instruments or derivatives
as at December 31, 2007.
 
 Our
primary foreign currency exchange risk relates to movements in rates between the
U.S. dollar, Sterling and the Euro.  At December 31, 2007, we had cash
denominated in non-U.S. dollar denominated currencies.  In order to
reduce the foreign currency exchange risk, we may enter into certain derivative
instruments to reduce our exposure to adverse changes in exchange
rates.  At December 31, 2007, we held no foreign exchange forward
contracts.
  51
 Quantitative
disclosure of Market Risk.  The analysis
below presents the sensitivity of the market value, or fair value of our
financial instruments to selected changes in market rates and
prices.  The changes chosen represent our view of changes that are
reasonable over a one year period.
 
 The
hypothetical changes in fair value are estimated based on the same methodology
used by the third party financial institutions to calculate the fair value of
the original instruments, keeping all variables constant except the relevant
exchange rate, as the case may be, which has been adjusted to reflect the
hypothetical change.  Fair value estimates by their nature are
subjective and involve uncertainties and matters of significant judgment and
therefore cannot be determined precisely.
 
 Foreign
Currency Exchange Risk
 
 The
sensitivity analysis below represents the hypothetical change in fair value
based on an immediate 10% movement in the exchange rates.
 
 Fair
      value at
                  December
      31, 2007
                
                
                Fair
      value Change +10%
                  movement
      in foreign
                  exchange
      rate
                
                
                Fair
      value Change -10%
                  movement
      in foreign
                  exchange
      rate(in
      thousands)
                
                
                (in
      thousands)
                
                
                (in
      thousands)Non-U.S.
      Dollar denominated cash
                
                $
                16,818
                
                
                $
                1,682
                
                
                $
                (1,682
                )Non-U.S.
      Dollar denominated short term debt
                
                $
                94,829
                
                
                $
                9,483
                
                
                $
                (9,483
                )
 
 
 Interest
Rate Risk
 
 The
sensitivity analysis below represents the hypothetical change in our interest
income/(expense) based on an immediate 1% movement in market interest
rates.
 
 Interest
                  Income/(Expense)
                  for
      the year ended
                  December
      31, 2007
                
                
                Interest
      Income/(Expense)
                  Change
      1% increase in
                  market
      interest rate
                
                
                Interest
                  Income/(Expense)
                  Change
      1% decrease in
                  market
      interest rate(in
      thousands)
                
                
                (in
      thousands)
                
                
                (in
      thousands)Interest
      Income
                
                $
                4,141
                
                
                $
                5,327
                
                
                $
                2,955Income
      Expense
                
                $
                (1,403
                )
                
                $
                (1,787
                )
                
                $
                (1,019
                )
 
 
 52
  Item 12.
Description of Securities Other than Equity Securities
 
 Not
applicable.
 
 Part II
 
 Item 13. Defaults,
Dividend Arrearages and Delinquencies
 
 None.
 
 Item 14.Material
Modifications to the Rights of Security Holders and Use of
Proceeds
 
 We hereby
incorporate by reference the description of the amendment to our Memorandum and
Articles of Association described under the heading “Memorandum and Articles of
Association” from Item 10 of this Form 20F.
 
 Item 15.Controls and Procedures
 
 (a)
Evaluation of disclosure controls and procedures
 
 An
evaluation was carried out under the supervision and with the participation of
the Company’s management, including the Chief Executive Officer (CEO) and the
Chief Financial Officer (CFO), of the effectiveness of our disclosure controls
and procedures as at December 31, 2007. Based on that evaluation, the CEO and
CFO have concluded that the Company’s disclosure controls and procedures are
effective to ensure that information required to be disclosed by the Company in
reports that it files or submits under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in Securities and Exchange Commission rules and forms.
 
 (b)
Managements Annual Report
 
 Reference
is made to page 56 of this Form 20-F.
 
 (c)
Report of Independent Registered Public Accounting Firm
 
 Reference
is made to page 58 of this Form 20-F.
 
 (d)
Changes in internal controls
 
 There
were no changes in our internal controls over financial reporting that occurred
during the period covered by this Form 20-F that have materially affected or are
reasonably likely to materially affect our internal controls over financial
reporting.
 
 Item 16.Reserved.
 
 Item
16A.   Audit Committee Financial Expert
 
 Mr.
Thomas Lynch acts as the Audit Committee financial expert serving on our Audit
Committee and Board of Directors. Mr. Lynch is independent and serves as one of
our non-executive directors.
 
 Item
16B.   Code of Ethics
 
 Our Board
of Directors adopted a code of ethics in 2003 that applies to the Chief
Executive Officer, the Chief Financial Officer and any persons performing
similar functions, if any, of the Company.
 
 There are
no material modifications to, or waivers from, the provisions of such code,
which are required to be disclosed.
  53
 This code
is available on our website at the following address:
 
 http://www.iconclinical.com
 
 Item
16C.   Principal Accountant Fees and Services
 
 Our
principal accountants for the years ended December 31, 2007 and December 31,
2006, were KPMG.
 
 The table
below summarizes the fees for professional services rendered by KPMG for the
audit of our annual financial statements for the years ended December 31, 2007,
and December 31, 2006, and fees billed for other services rendered by
KPMG.
 
 12
      month period ending
                
                
                12
      month period endingDecember
      31, 2006
                
                
                December
      31, 2007(in
      thousands)
                
                
                (in
      thousands)Audit
      fees (1)
                
                $
                1,076
                
                
                
                81
                %
                
                $
                2,075
                
                
                
                71
                %Audit
      related fees (2)
                
                
                99
                
                
                
                7
                %
                
                
                418
                
                
                
                14
                %Tax
      fees (3)
                
                
                162
                
                
                
                12
                %
                
                
                429
                
                
                
                15
                %Total
                
                $
                1,337
                
                
                
                100
                %
                
                $
                2,922
                
                
                
                100
                %
 
 (1) Audit
fees include annual audit fees for ICON plc and its subsidiaries.
 
 (2) Audit
related fees principally consisted of fees for financial due diligence services
and fees for audit of financial statements of employee benefit
plans.
 
 (3) Tax
fees are fees for tax compliance and tax consultation services.
  The Audit
Committee pre-approves on an annual basis the audit and non-audit services
provided to ICON plc by its auditors.
 
 Such
annual pre-approval is given with respect to particular services. The Audit
Committee, on a case-by-case basis, may approve additional services not covered
by the annual pre-approval, as the need for such services arises.
 
 Item
16D.   Exemptions from the Listing Standards for Audit
Committees
 
 Not
applicable.
 
 Item
16E.   Purchases of Equity Securities by the Issuer and
Affiliated Purchasers
 
 Not
applicable.
 
 Part III
 
 Item 17.Financial
Statements
 
 See item
18.
 
 Item 18. Financial
Statements
 
 Reference
is made to pages 57 to 96 of this Form 20-F.
 
 Item 19.Financial
Statements and Exhibits
  54
 Financial
statements of ICON plc and subsidiaries
 
 Management's
Report on Internal Control over Financial Reporting
 
 Report of
Independent Registered Public Accounting Firm.
 
 Consolidated Balance Sheets as at
December 31, 2005, 2006 and 2007
 
 Consolidated Statements of Operations
for the year ended May 31, 2005, the transition period ended December 31, 2005,
and the years ended December 31, 2006 and December 31, 2007
 
 Consolidated
Statements of Shareholders’ Equity and Comprehensive Income for the year ended
May 31, 2005, the transition period ended December 31, 2005, and the years ended
December 31, 2006 and December 31, 2007
 
 Consolidated
Statements of Cash Flows for the year ended May 31, 2005, the transition period
ended December 31, 2005, and the years ended December 31, 2006 and December 31,
2007
 
 Notes to the Consolidated Financial
Statements.
 
 Exhibits
of ICON plc and subsidiaries
 
 Amended
and Restated Deposit Agreement (incorporated by reference to Exhibit 1 to
the Post-Effective Amendment No. 1 to the Form F-6 (File
No. 333-143546) filed on December 18, 2007).
 
 Exhibit A
to Amended and Restated Deposit Agreement (incorporated by reference to
Exhibit 1 to the Post-Effective Amendment No. 1 to the Form F-6 (File
No. 333-143546) filed on December 18, 2007).
 
 Significant
subsidiaries (Incorporated by reference in Item 4).
 
 Section 302
certifications.
 
 Section
906 certifications.
  55
  Management's
Report on Internal Control over Financial Reporting
 
 Management
is responsible for establishing and maintaining adequate internal control over
financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the
Securities Exchange Act of 1934.
 
 The
Company’s internal control over financial reporting is a process designed by, or
under the supervision of, the Company’s executive and financial officers and
effected by the Company’s board of directors, management and other personnel, to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external reporting purposes in
accordance with generally accepted accounting principles.
 
 A
Company’s internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorization
of management and directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of the company’s assets that could have a material effect on
the financial statements.
 
 Because
of the inherent limitation due to, for example, the potential for human error or
circumvention of control, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
 
 Management
assessed the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2007. In making this assessment, we used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control – Integrated Framework. Based upon the
assessment performed, we determined that, as of December 31, 2007, the Company’s
internal control over financial reporting was effective.  In addition,
there have been no changes in the Company’s internal control over financial
reporting during 2007 that have materially affected, or are reasonably likely to
affect materially, the Group’s internal control over financial
reporting
 
 KPMG,
which has audited the consolidated financial statements of the Company for the
year ended December 31, 2007, has also audited the effectiveness of the
Company’s internal control over financial reporting under Auditing Standard No.
5 of the Public Company Accounting Oversight Board (United States).
 
 56
  REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 To the
Directors and Shareholders of ICON plc
 
 We have
audited the accompanying consolidated balance sheets of ICON plc and
subsidiaries as of December 31, 2007, 2006 and 2005 and the related consolidated
statements of income, shareholders’ equity and comprehensive income, and cash
flows for the years ended December 31, 2007 and December 31, 2006, the
seven-month period ended December 31, 2005, and the year ended May 31, 2005.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of ICON plc and subsidiaries as
of December 31, 2007, 2006 and 2005, and the results of their operations and
their cash flows for the years ended December 31, 2007 and December 31, 2006,
the seven-month period ended December 31, 2005, and the year ended May 31, 2005,
in conformity with U.S. generally accepted accounting principles.
 
 As
described in Note 2 to the consolidated financial statements, the Company
adopted the provisions of FASB Interpretation No. 48 Accounting for Uncertain Income
Taxes, as of January 1, 2007.   As described in Note 2 to
the consolidated financial statements, effective January 1, 2006, the Company
changed its method of accounting for share-based compensation upon adoption of
Statement of Accounting Standard No. 123R Share Based
Payments.
 
 We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), ICON plc’s internal control over financial
reporting as of December 31, 2007, based on criteria established in Internal
Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) and our report dated February
20, 2008, expressed an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.
 
 
 KPMG
 
 Dublin,
Ireland
 February
20, 2008
 
 57
  REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 To the
Directors and Shareholders of ICON plc
 
 We have
audited ICON plc’s internal control over financial reporting as of December 31,
2007, based on criteria established in Internal Control - Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). ICON plc’s management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying report.
Our responsibility is to express an opinion on the Company’s internal control
over financial reporting based on our audit.
 
 We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audit also included performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
 
 A
company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles.  A company's internal
control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
 
 Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
 
 In our
opinion, ICON plc maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2007, based on criteria
established in Internal Control - Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO).
 
 We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of ICON plc as
of December 31, 2007, 2006 and 2005, and the related consolidated statements of
operations, shareholders’ equity and comprehensive income, and cash flows for
the years ended December 31, 2007 and December 31, 2006, the seven-month period
ended December 31, 2005, and the year ended May 31, 2005, and our report dated
February 20, 2008 expressed an unqualified opinion on those consolidated
financial statements.
 
 KPMG
 
 Dublin,
Ireland
 February
20, 2008
 
 58
 
 ICON
plc
 CONSOLIDATED
BALANCE SHEETS
 December
      31,
                
                
                December
      31,
                
                
                December
      31,2005
                
                
                2006
                
                
                2007ASSETS
                
                (in
      thousands)Current
      Assets:Cash
      and cash equivalents
                
                $
                59,509
                
                
                $
                63,039
                
                
                $
                76,881Short
      term investments - available for sale (Note 3)
                
                
                22,809
                
                
                
                39,822
                
                
                
                41,752Accounts
      receivable
                
                
                71,450
                
                
                
                108,216
                
                
                
                129,865Unbilled
      revenue
                
                
                62,270
                
                
                
                89,977
                
                
                
                144,661Other
      receivables
                
                
                6,435
                
                
                
                7,468
                
                
                
                6,171Deferred
      tax asset (Note 13)
                
                
                1,554
                
                
                
                6,028
                
                
                
                4,919Prepayments
      and other current assets
                
                
                11,089
                
                
                
                14,335
                
                
                
                16,449Income
      taxes receivable
                
                
                -
                
                
                
                -
                
                
                
                2,448Total
      current assets
                
                
                235,116
                
                
                
                328,885
                
                
                
                423,146Other
      Assets:Property,
      plant and equipment, net (Note 6)
                
                
                47,652
                
                
                
                68,208
                
                
                
                133,426Goodwill
      (Note 4)
                
                
                65,731
                
                
                
                78,717
                
                
                
                123,879Non-current
      other assets
                
                
                -
                
                
                
                -
                
                
                
                2,140Non-current
      income taxes receivable (Note 13)
                
                
                -
                
                
                
                -
                
                
                
                3,049Non-current
      deferred tax asset (Note 13)
                
                
                452
                
                
                
                531
                
                
                
                5,703Intangible
      assets (Note 5)
                
                
                116
                
                
                
                -
                
                
                
                1,795Total
      Assets
                
                $
                349,067
                
                
                $
                476,341
                
                
                $
                693,138LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      Liabilities:Accounts
      payable
                
                $
                7,575
                
                
                $
                9,691
                
                
                $
                13,459Payments
      on account
                
                
                50,211
                
                
                
                90,394
                
                
                
                96,553Other
      liabilities (Note 7)
                
                
                33,184
                
                
                
                51,956
                
                
                
                70,743Deferred
      tax liability (Note 13)
                
                
                682
                
                
                
                538
                
                
                
                398Bank
      credit lines and loan facilities (Note 8)
                
                
                4,856
                
                
                
                5,000
                
                
                
                43,767Income
      taxes payable (Note 13)
                
                
                6,296
                
                
                
                10,985
                
                
                
                4,955Total
      current liabilities
                
                
                102,804
                
                
                
                168,564
                
                
                
                229,875Other
      Liabilities:Long
      term government grants (Note 11)
                
                
                1,160
                
                
                
                1,170
                
                
                
                1,179Long
      term finance leases
                
                
                152
                
                
                
                163
                
                
                
                49Non-current
      income taxes payable (Note 13)
                
                
                -
                
                
                
                -
                
                
                
                13,906Non-current
      deferred tax liability (Note 13)
                
                
                2,499
                
                
                
                2,586
                
                
                
                5,966Non-current
      other liabilities
                
                
                -
                
                
                
                -
                
                
                
                1,394Non-current
      bank credit lines and facilities (Note 8)
                
                
                -
                
                
                
                -
                
                
                
                51,062Minority
      interest
                
                
                894
                
                
                
                1,120
                
                
                
                1,307Shareholders'
      Equity:Ordinary
      shares, par value 6 euro cents per share;
                  40,000,000
      shares authorized, (Note 12)28,036,184
      shares issued and outstanding at December 31, 2005, 28,517,852 shares
      issued and outstanding at December 31, 2006 and 28,835,244 shares issued
      and outstanding at December 31, 2007
                
                
                2,063
                
                
                
                2,100
                
                
                
                2,127Additional
      paid-in capital
                
                
                122,263
                
                
                
                133,996
                
                
                
                146,355Accumulated
      other comprehensive income
                
                
                3,409
                
                
                
                14,515
                
                
                
                31,828Retained
      earnings
                
                
                113,823
                
                
                
                152,127
                
                
                
                208,090Total
      Shareholders’ Equity
                
                
                241,558
                
                
                
                302,738
                
                
                
                388,400Total
      Liabilities and Shareholders’ Equity
                
                $
                349,067
                
                
                $
                476,341
                
                
                $
                693,138
   The
      accompanying notes are an integral part of these consolidated financial
      statements.
 59
  ICON
plc
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 
 Year
      Ended
                  May
      31,
                
                
                Seven
      Month
                  Period
      Ended December 31,
                
                
                Year
      Ended December 31,2005
                
                
                2005
                
                
                2006
                
                
                2007(in thousands, except
      share and per share data)Revenue:Gross
      revenue
                
                $
                469,583
                
                
                $
                275,586
                
                
                $
                649,826
                
                
                $
                867,473Subcontractor
      costs
                
                
                (142,925
                )
                
                
                (73,636
                )
                
                
                (194,229
                )
                
                
                (236,751
                )Net
      revenue
                
                
                326,658
                
                
                
                201,950
                
                
                
                455,597
                
                
                
                630,722Costs
      and expenses:Direct
      costs
                
                
                179,661
                
                
                
                114,004
                
                
                
                256,263
                
                
                
                354,479Selling,
      general and administrative
                
                
                103,784
                
                
                
                62,276
                
                
                
                136,569
                
                
                
                187,993Depreciation
      and amortization
                
                
                13,331
                
                
                
                8,094
                
                
                
                14,949
                
                
                
                19,008Share
      based compensation (Note 10)
                
                
                -
                
                
                
                6,024
                
                
                
                -
                
                
                
                -Other
      charges (Note 14)
                
                
                11,275
                
                
                
                -
                
                
                
                -
                
                
                
                -Total
      costs and expenses
                
                
                308,051
                
                
                
                190,398
                
                
                
                407,781
                
                
                
                561,480Income
      from operations
                
                
                18,607
                
                
                
                11,552
                
                
                
                47,816
                
                
                
                69,242Interest
      income
                
                
                1,208
                
                
                
                1,294
                
                
                
                3,765
                
                
                
                4,141Interest
      expense
                
                
                (229
                )
                
                
                (22
                )
                
                
                (125
                )
                
                
                (1,403
                )Income
      before provision for income taxes
                
                
                19,586
                
                
                
                12,824
                
                
                
                51,456
                
                
                
                71,980Provision
      for income taxes (Note 13)
                
                
                (5,852
                )
                
                
                (5,396
                )
                
                
                (12,924
                )
                
                
                (15,830
                )Minority
      interest
                
                
                (189
                )
                
                
                (10
                )
                
                
                (228
                )
                
                
                (187
                )Net
      income
                
                $
                13,545
                
                
                $
                7,418
                
                
                $
                38,304
                
                
                $
                55,963Net
      income per ordinary share:Basic
                
                $
                0.49
                
                
                $
                0.27
                
                
                $
                1.35
                
                
                $
                1.95Diluted
                
                $
                0.48
                
                
                $
                0.26
                
                
                $
                1.33
                
                
                $
                1.88Weighted
      average number of ordinary shares outstanding:Basic
      (Note 2)
                
                
                27,720,406
                
                
                
                27,940,212
                
                
                
                28,314,985
                
                
                
                28,705,272Diluted
      (Note 2)
                
                
                28,306,890
                
                
                
                28,495,084
                
                
                
                28,863,334
                
                
                
                29,747,964
  The
      accompanying notes are an integral part of these consolidated financial
      statements.
 
 60
  
 ICON
plc
 CONSOLIDATED
STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
 (in thousands, except share
and per share data)
 AccumulatedAdditional
                
                
                OtherPaid-in
                
                
                Comprehensive
                
                
                RetainedShares
                
                
                Amount
                
                
                Capital
                
                
                Income
                
                
                Earnings
                
                
                TotalBalance
      at May 31, 2004*
                
                
                27,676,952
                
                
                $
                2,037
                
                
                $
                111,879
                
                
                $
                9,984
                
                
                $
                92,860
                
                
                $
                216,760Comprehensive
      Income:Net
      income
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                13,545
                
                
                
                13,545Currency
      translation adjustment
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                1,245
                
                
                
                -
                
                
                
                1,245Total
      comprehensive income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                14,790Exercise
      of share options
                
                
                121,240
                
                
                
                10
                
                
                
                1,397
                
                
                
                -
                
                
                
                -
                
                
                
                1,407Share
      issue costs
                
                
                -
                
                
                
                -
                
                
                
                (60
                )
                
                
                -
                
                
                
                -
                
                
                
                (60
                )Tax
      benefit on exercise of options
                
                
                -
                
                
                
                -
                
                
                
                169
                
                
                
                -
                
                
                
                -
                
                
                
                169Balance
      at May 31, 2005*
                
                
                27,798,192
                
                
                $
                2,047
                
                
                $
                113,385
                
                
                $
                11,229
                
                
                $
                106,405
                
                
                $
                233,066Comprehensive
      Income:Net
      income
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                7,418
                
                
                
                7,418Currency
      translation adjustment
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (6,049
                )
                
                
                -
                
                
                
                (6,049
                )Minimum
      pension liability adjustment
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (1,771
                )
                
                
                -
                
                
                
                (1,771
                )Total
      comprehensive income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (402
                )Exercise
      of share options
                
                
                237,992
                
                
                
                16
                
                
                
                1,895
                
                
                
                -
                
                
                
                -
                
                
                
                1,911Share
      based compensation expense
                
                
                -
                
                
                
                -
                
                
                
                6,249
                
                
                
                -
                
                
                
                -
                
                
                
                6,249Share
      issue costs
                
                
                -
                
                
                
                -
                
                
                
                (24
                )
                
                
                -
                
                
                
                -
                
                
                
                (24
                )Tax
      benefit on exercise of options
                
                
                -
                
                
                
                -
                
                
                
                758
                
                
                
                -
                
                
                
                -
                
                
                
                758Balance
      at December 31, 2005*
                
                
                28,036,184
                
                
                $
                2,063
                
                
                $
                122,263
                
                
                $
                3,409
                
                
                $
                113,823
                
                
                $
                241,558Comprehensive
      Income:Net
      income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                38,304
                
                
                
                38,304Currency
      translation adjustment
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                11,482
                
                
                
                
                
                
                
                11,482Actuarial
      loss on defined benefit pension plan (net of nil tax)
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (376
                )
                
                
                -
                
                
                
                (376
                )Total
      comprehensive income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                49,410Exercise
      of share options
                
                
                481,668
                
                
                
                37
                
                
                
                6,642
                
                
                
                -
                
                
                
                -
                
                
                
                6,679Share
      based compensation expense
                
                
                -
                
                
                
                -
                
                
                
                4,066
                
                
                
                -
                
                
                
                -
                
                
                
                4,066Share
      issue costs
                
                
                -
                
                
                
                -
                
                
                
                (84
                )
                
                
                -
                
                
                
                -
                
                
                
                (84
                )Tax
      benefit on exercise of options
                
                
                -
                
                
                
                -
                
                
                
                1,109
                
                
                
                -
                
                
                
                -
                
                
                
                1,109Balance
      at December 31, 2006*
                
                
                28,517,852
                
                
                $
                2,100
                
                
                $
                133,996
                
                
                $
                14,515
                
                
                $
                152,127
                
                
                $
                302,738
  61
  ICON
plc
 CONSOLIDATED STATEMENTS OF
SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
 (in thousands, except share
and per share data)
  Balance
      at December 31, 2006*
                
                
                28,517,852
                
                
                $
                2,100
                
                
                $
                133,996
                
                
                $
                14,515
                
                
                $
                152,127
                
                
                $
                302,738Comprehensive
      Income:Net
      income
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                55,963
                
                
                
                55,963Currency
      translation adjustment (net of tax)
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                11,893
                
                
                
                -
                
                
                
                11,893Actuarial
      gain on defined benefit pension plan  (net of nil
      taxation)
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                5,420
                
                
                
                -
                
                
                
                5,420Total
      comprehensive income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                73,276Exercise
      of share options
                
                
                317,392
                
                
                
                27
                
                
                
                5,271
                
                
                
                -
                
                
                
                -
                
                
                
                5,298Share
      based compensation expense
                
                
                
                
                
                
                
                
                
                
                5,748
                
                
                
                -
                
                
                
                -
                
                
                
                5,748Share
      issue costs
                
                
                -
                
                
                
                -
                
                
                
                (126
                )
                
                
                -
                
                
                
                -
                
                
                
                (126
                )Tax
      benefit on exercise of options
                
                
                -
                
                
                
                -
                
                
                
                1,466
                
                
                
                -
                
                
                
                -
                
                
                
                1,466Balance
      at December 31, 2007*
                
                
                28,835,244
                
                
                $
                2,127
                
                
                $
                146,355
                
                
                $
                31,828
                
                
                $
                208,090
                
                
                $
                388,400
  *Comparative
figures have been amended to reflect the Bonus Issue (Stock Split) which took
place with an effective date of October 13, 2006.
 The
accompanying notes are an integral part of these consolidated financial
statements.
 
 62
 
 ICON
plc
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
  Year
      Ended
                  May
      31,
                
                
                Seven
      Month
                  Period
      Ended December 31,
                
                
                Year
      Ended
                  December
      31,
                
                
                Year
      Ended
                  December
      312005
                
                
                2005
                
                
                2006
                
                
                2007Cash
      flows from operating activities:
                
                (in
      thousands)Net
      income
                
                $
                13,545
                
                
                $
                7,418
                
                
                $
                38,304
                
                
                $
                55,963Adjustments
      to reconcile net income to net cashprovided
      by operating activities:Loss
      on disposal of property, plant and equipment
                
                
                66
                
                
                
                43
                
                
                
                186
                
                
                
                396Depreciation
      and amortization
                
                
                13,331
                
                
                
                8,094
                
                
                
                14,949
                
                
                
                19,008Amortization
      of government grants
                
                
                (199
                )
                
                
                (105
                )
                
                
                (114
                )
                
                
                (117
                )Stock
      compensation expense
                
                
                -
                
                
                
                6,249
                
                
                
                4,066
                
                
                
                5,748Deferred
      taxes
                
                
                (532
                )
                
                
                717
                
                
                
                (1,887
                )
                
                
                (1,177
                )Minority
      interest
                
                
                189
                
                
                
                10
                
                
                
                228
                
                
                
                187Other
      charges
                
                
                11,275
                
                
                
                -
                
                
                
                -
                
                
                
                -Changes
      in assets and liabilities:(Increase)/decrease
      in accounts receivable
                
                
                (4,930
                )
                
                
                7,487
                
                
                
                (32,893
                )
                
                
                (11,390
                )Decrease/(increase)
      in unbilled revenue
                
                
                3,071
                
                
                
                (6,522
                )
                
                
                (24,178
                )
                
                
                (52,231
                )Decrease/(increase)
      in other receivables
                
                
                1,383
                
                
                
                (1,530
                )
                
                
                5,089
                
                
                
                2,275(Increase)/decrease
      in prepayments and other current assets
                
                
                (994
                )
                
                
                (703
                )
                
                
                (2,477
                )
                
                
                502Increase
      in other non current assets
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (2,140
                )(Decrease)
      /increase in payments on account
                
                
                (9,515
                )
                
                
                (1,579
                )
                
                
                35,605
                
                
                
                4,220(Decrease)
      /increase  in other liabilities
                
                
                (446
                )
                
                
                (4,324
                )
                
                
                10,699
                
                
                
                14,403Increase  in
      other non current liabilities
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                1,394Increase
      in income taxes payable
                
                
                1,420
                
                
                
                1,125
                
                
                
                1,532
                
                
                
                3,582(Decrease)
      /increase in accounts payable
                
                
                (2,455
                )
                
                
                (2,599
                )
                
                
                1,343
                
                
                
                2,343Net
      cash provided by operating activities
                
                
                25,209
                
                
                
                13,781
                
                
                
                50,452
                
                
                
                42,966Cash
      flows from investing activities:Purchase
      of property, plant and equipment
                
                
                (15,595
                )
                
                
                (12,128
                )
                
                
                (31,516
                )
                
                
                (75,391
                )Purchase
      of intangible asset
                
                
                (250
                )
                
                
                -
                
                
                
                -
                
                
                
                -Purchase
      of subsidiary undertakings and acquisition costs
                
                
                (10,052
                )
                
                
                -
                
                
                
                (7,017
                )
                
                
                (41,150
                )Deferred
      payments in respect of historical acquisitions
                
                
                (2,514
                )
                
                
                (3,374
                )
                
                
                (96
                )
                
                
                -Cash
      acquired with subsidiary undertaking
                
                
                1,658
                
                
                
                -
                
                
                
                341
                
                
                
                -Sale
      of short term investments
                
                
                12,022
                
                
                
                14,016
                
                
                
                3,008
                
                
                
                14,824Purchase
      of short term investments
                
                
                (10,971
                )
                
                
                (14,791
                )
                
                
                (20,021
                )
                
                
                (16,753
                )Net
      cash used in investing activities
                
                
                (25,702
                )
                
                
                (16,277
                )
                
                
                (55,301
                )
                
                
                (118,470
                )Cash
      flows from financing activities:Drawdown
      of credit lines and facilities
                
                
                -
                
                
                
                4,833
                
                
                
                112
                
                
                
                89,829Proceeds
      from the exercise of share options
                
                
                1,407
                
                
                
                1,911
                
                
                
                6,679
                
                
                
                5,298Share
      issuance costs
                
                
                (197
                )
                
                
                (24
                )
                
                
                (84
                )
                
                
                (126
                )Tax
      benefit from the exercise of share options
                
                
                -
                
                
                
                -
                
                
                
                1,109
                
                
                
                1,466Bank
      overdraft acquired with subsidiary undertakings
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (2,400
                )Repayment
      of other liabilities and finance lease obligations
                
                
                (272
                )
                
                
                (96
                )
                
                
                (114
                )
                
                
                (109
                )Net
      cash provided by financing activities
                
                
                938
                
                
                
                6,624
                
                
                
                7,702
                
                
                
                93,958Effect
      of exchange rate movements on cash
                
                
                218
                
                
                
                (960
                )
                
                
                677
                
                
                
                (4,612
                )Net
      increase in cash and cash equivalents
                
                
                663
                
                
                
                3,168
                
                
                
                3,530
                
                
                
                13,842Cash
      and cash equivalents at beginning of year
                
                
                55,678
                
                
                
                56,341
                
                
                
                59,509
                
                
                
                63,039Cash
      and cash equivalents at end of year
                
                $
                56,341
                
                
                $
                59,509
                
                
                $
                63,039
                
                
                $
                76,881
  The
      accompanying notes are an integral part of these consolidated financial
      statements.
  63
  ICON
plc
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 
 1.
Description of business
 
 ICON plc
and its subsidiaries (“the Company” or “ICON”) is a contract research
organization (“CRO”), providing outsourced development services on a global
basis to the pharmaceutical, biotechnology and medical device industries. The
Company specializes in the strategic development, management and analysis of
programs that support Clinical Development - from compound selection to Phase
I-IV clinical studies.
 
 The
Company’s primary approach is to use dedicated teams to achieve optimum results,
but the Company can implement a range of resourcing models to suit client
requirements.
 
 In a
highly fragmented industry, we are one of a select group of companies with the
capability and expertise to conduct clinical trials in all major therapeutic
areas on a global basis. At December 31, 2007, the Company had 5,610 employees,
in 67 locations, in 36 countries, providing Phase I - IV Clinical Trial
Management, Drug Development Support Services, Data Management and Biostatistics
and Central Laboratory and Imaging Services. The Company has the operational
flexibility to provide development services on a stand-alone basis or as part of
an integrated “full service” solution.
 
 Headquartered
in Dublin, Ireland, we began operations in 1990 and have expanded our business
through internal growth and strategic acquisitions. For the year ended December
31, 2007, we derived approximately 50%, 44% and 6% of our net revenue in the
United States, Europe and Rest of World, respectively.
 
 On July
27, 2005, the Board of Directors of ICON approved a change of the Company’s
fiscal year end from a twelve-month period ending on May 31 to a twelve-month
period ending on December 31.  The Company made this change in order to
align our fiscal year end with the majority of other contract research
organizations.  As a requirement of this change, ICON reported results for
the seven-month period from June 1, 2005, to December 31, 2005, as a separate
transition period. As of January 1, 2006, ICON’s fiscal year now
begins on January 1 and ends on December 31 and its fiscal quarters end on the
last day of March, June, September and December.
 
 On
September 29, 2006, ICON’s shareholders approved a bonus issue of ordinary
shares (the “Bonus Issue”) to shareholders of record as of the close of business
on October 13, 2006 (the “Record Date”).  The Bonus Issue provided for
each shareholder to receive one bonus ordinary share for each ordinary share
held as of the Record Date, effecting the equivalent of a 2-for-1 stock
split.  The Bonus shares were issued on October 16, 2006, to Ordinary
Shareholders and on October 23, 2006, to holders of American Depositary Shares
(“ADSs”).  NASDAQ adjusted the trading price of ICON’s ADSs to effect
the Bonus Issue prior to the opening of trading on October 24,
2006.  All outstanding ordinary share amounts referenced in the
consolidated financial statements and the notes thereto have been
retrospectively restated to give effect to the Bonus Issue as if it had occurred
as of the date referenced.
 
 
 2.
Significant Accounting Policies
 
 The
accounting policies noted below were applied in the preparation of the
accompanying financial statements of the Company and are in conformity with
accounting principles generally accepted in the United States.
 
 (a)
                Basis
      of consolidation
 
 The
consolidated financial statements include the financial statements of the
Company and all of its subsidiaries. All significant intercompany profits,
transactions and account balances have been eliminated. The results of
subsidiary undertakings acquired in the period are included in the consolidated
statement of operations from the date of acquisition.
  64
  (b)
                Use
      of estimates
 
 The
preparation of financial statements in conformity with generally accepted
accounting principles in the United States 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 reported
period. Actual results could differ from those estimates.
 
 (c)
                Revenue
      recognition
 
 The
Company primarily earns revenues by providing a number of different services to
its customers. These services include clinical trials management, biometric
activities, consulting, imaging and laboratory services. Contracts range in
duration from a number of months to several years.
 
 Clinical
trials management revenue is earned on the basis of the relationship between
time incurred and the total estimated duration of the trial. Biometrics revenue
is recognized on a fee-for-service method on the basis of the number of units
completed in a period as a percentage of the total number of contracted units.
Imaging revenue is recognized on a fee-for-service basis.  Consulting
revenue is recognized on a fee-for-service basis as the related service is
performed. Laboratory service revenue is recognized on a fee-for-service basis.
The Company accounts for laboratory service contracts as multiple element
arrangements, with contractual elements comprising laboratory kits and
laboratory testing, each of which can be sold separately. Fair values for
contractual elements are determined by reference to objective and reliable
evidence of their fair values. Non-refundable set-up fees are allocated as
additional consideration to the contractual elements based on the proportionate
fair values of each of these elements. Revenues for contractual elements are
recognized on the basis of the number of deliverable units completed in the
period.
 
 Contracts
generally contain provisions for renegotiation in the event of changes in the
scope, nature, duration, volume of services or conditions of the contract.
Renegotiated amounts are recognized as revenue by revision to the total contract
value arising as a result of an authorized customer change order. Provisions for
losses to be incurred on contracts are recognized in full in the period in which
it is determined that a loss will result from performance of the contractual
arrangement.
 
 The
difference between the amount of revenue recognized and the amount billed on a
particular contract is included in the balance sheet as unbilled
revenue.  Normally, amounts become billable upon the achievement of
certain milestones, in accordance with pre-agreed payment schedules included in
the contract or on submission of appropriate billing detail. Such cash payments
are not representative of revenue earned on the contract as revenues are
recognized over the period in which the specified contractual obligations are
fulfilled.  Amounts included in unbilled revenue are expected to be
collected within one year and are included within current assets. Advance
billings to customers, for which revenue has not been recognized, are recognized
as payments on account within current liabilities.
 
 In the
event of contract termination, if the value of work performed and recognized as
revenue is greater than aggregate milestone billings at the date of termination,
cancellation clauses ensure that the Company is paid for all work performed to
the termination date.
 
 (d)
                Subcontractor
      costs
 
 Subcontractor
costs comprise investigator payments and certain other costs which are
reimbursed by clients under terms specific to each contract and are deducted
from gross revenue in arriving at net revenue. Investigator payments are accrued
based on patient enrollment over the life of the contract. Investigator payments
are made based on predetermined contractual arrangements, which may differ from
the accrual of the expense. Payments to investigators in excess of the accrued
expense are classified as prepaid expenses and accrued expense in excess of
amounts paid are classified as accounts payable.
 
 (e)
                Direct
      costs
 
 Direct
costs consist of compensation and associated employee benefits for
project-related employees, other direct project-related costs and share based
compensation.
 
 65
  (f)
                Advertising
      costs
 
 All costs
associated with advertising and promotion are expensed as incurred. The
advertising and promotion expense was U.S.$2,401,000, U.S.$1,453,000 and
US$2,687,000 for the year ended May 31, 2005, the seven month period ended
December 31, 2005, and the year ended December 31, 2006,
respectively.  For the year ended December 31, 2007, these costs
amounted to U.S.$3,612,000.
 
 (g)
                Foreign
      currencies and translation of
subsidiaries
 
 The
Company's financial statements are prepared in United States dollars.
Transactions in currencies other than United States dollars are recorded at the
rate ruling at the date of the transactions. Monetary assets and liabilities
denominated in currencies other than United States dollars are translated into
United States dollars at exchange rates prevailing at the balance sheet date.
Adjustments resulting from these translations are charged or credited to income.
For the year ended May 31, 2005, the seven month period ending December 31, 2005
and the year ended December 31, 2006 the amounts charged to income amounted to,
U.S.$433,000, U.S.$408,000 and U.S. $1,538,000 respectively. For the year ended
December 31, 2007, amounts charged to income amounted to U.S.
$6,266,000.
 
 The
financial statements of subsidiaries with other functional currencies are
translated at period end rates for the balance sheet and average rates for the
income statement. Translation gains and losses arising are reported as a
movement on accumulated other comprehensive income.
 
 (h)
                Disclosure
      about fair value of financial
instruments
 
 The
following methods and assumptions were used to estimate the fair value of each
material class of financial instrument:
 
 Cash,
cash equivalents, unbilled revenue, other receivables, short term investments,
prepayments and other current assets, accounts receivable, accounts payable,
investigator payments, payments received on account, accrued liabilities,
accrued bonuses, bank overdraft and taxes payable have carrying amounts that
approximate fair value due to the short term maturities of these
instruments.
 
 Long-term
debt and other liabilities carrying amounts approximate fair value based on net
present value of estimated future cash flows.
 
 (i)
                Leased
      Assets
 
 Costs in
respect of operating leases are charged to the statement of operations on a
straight line basis over the lease term.
 
 Assets
acquired under capital finance leases are included in the balance sheet at the
present value of the future minimum lease payments and are depreciated over the
shorter of the lease term and their remaining useful lives. The corresponding
liabilities are recorded in the balance sheet and the interest element of the
capital lease rental is charged to interest expense.
 
 (j)
                Goodwill
      and Impairment
 
 Goodwill
represents the excess of the cost of acquired entities over the net of amounts
assigned to assets acquired and liabilities assumed. Goodwill is stated net of
any provision for impairment. The Company tests goodwill annually for any
impairments or whenever events occur which may indicate impairment. The first
step is to compare the carrying amount of the reporting unit’s assets to the
fair value of the reporting unit. If the carrying amount exceeds the fair value
then a second step is completed which involves the fair value of the reporting
unit being allocated to each asset and liability with the excess being implied
goodwill. The impairment loss is the amount by which the recorded goodwill
exceeds the implied goodwill. The Company’s annual test for impairment performed
for the year ended May 31, 2005, identified an impairment charge to be taken
against the central laboratory reporting unit. For further information, refer to
Note 14 to the Consolidated Financial Statements. No impairment was recognized
as a result of the impairment testing carried out as at December 31, 2005,
December 31, 2006 and December 31, 2007.
  66
 
 (k)
                Other
      intangible assets
 
 Other
intangible assets are amortized on a straight line basis over their estimated
useful life.
 
 (l)
                Cash
      and cash equivalents
 
 Cash and
cash equivalents include cash and highly liquid investments with initial
maturities of three months or less and are stated at cost, which approximates
market value.
 
 (m)
                Short
      term investments - available for
sale
 
 The
Company has classified short-term investments as available for sale in
accordance with the terms of SFAS No. 115 Accounting for Certain Investments
in Debt and Equity Securities.  Realized gains and losses are
determined using specific identification.  The investments are
reported at fair value, with unrealized gains or losses reported in a separate
component of shareholders’ equity.  Any differences between the cost
and fair value of the investments are represented by accrued
interest.
 
 (n)
                Inventory
 
 Inventory
is valued at the lower of cost and net market value and after provisions for
obsolescence. Cost of raw materials comprises the purchase price and
attributable costs, less trade discounts.  As at the year ended
December 31, 2007, the carrying value of inventory, included within prepayments
and other current assets on the balance sheet, was U.S.$2.6 million (2006:
U.S.$2.6 million; 2005: U.S.$1.7 million).
 
 (o)
                Property,
      plant and equipment
 
 Property,
plant and equipment are stated at cost less accumulated depreciation.
Depreciation of property, plant and equipment is computed using the straight
line method based on the estimated useful lives of the assets as listed
below:
 
 YearsBuilding
                40Computer
      equipment and software
                4Office
      furniture and fixtures
                8Laboratory
      equipment
                5Motor
      vehicles
                5
 
 Leasehold
improvements are amortized using the straight-line method over the estimated
useful life of the asset or the lease term, whichever is shorter.
 
 (p)
                Income
      taxes
 
 The
Company applies Statement of Financial Accounting Standard ("SFAS") No. 109,
Accounting for Income
Taxes, which requires the asset and liability method of accounting for
income taxes. Under the asset and liability method of SFAS No. 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases, and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which these temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
The Company adopted FIN 48 “Accounting for uncertainty in
Income taxes”with effect from January 1, 2007.  FIN 48
requires that the Company recognizes the largest amount of tax benefit that is
greater than 50% likely of being realized upon ultimate settlement when
considering uncertain tax positions.
 
 67
 
 (q)
                Government
      grants
 
 Government
grants received relating to capital expenditure are shown as deferred income and
credited to income on a basis consistent with the depreciation policy of the
relevant assets.
 
 Grants
relating to categories of operating expenditures are credited to income in the
period in which the expenditure to which they relate is charged.
 
 Under the
grant agreements amounts received may become repayable in full should certain
circumstances specified within the grant agreements occur, including downsizing
by the Company, disposing of the related assets, ceasing to carry on its
business or the appointment of a receiver over any of its assets.
 
 The
Company has not recognized any loss contingency having assessed as remote the
likelihood of these events arising.
 
 (r)
                Pension
      costs
 
 The
Company contributes to defined contribution plans covering all eligible
employees. The Company contributes to these plans based upon various fixed
percentages of employee compensation and such contributions are expensed as
incurred.
 
 The
Company operates, through a subsidiary, a defined benefit plan for certain of
its United Kingdom employees. The Company accounts for the costs of this plan
using actuarial models required by SFAS No. 87, Employers Accounting for
Pensions and the plan is presented in accordance with the requirements of
SFAS No. 158 Employers’
Accounting for Defined Benefit Pensions and Other Post-retirement
Plans.
 
 (s)
                Net
      income per ordinary share
 
 Basic net
income per ordinary share has been computed by dividing net income available to
ordinary shareholders by the weighted average number of ordinary shares
outstanding during the period. Diluted net income per ordinary share is computed
by adjusting the weighted average number of ordinary shares outstanding during
the period for all potentially dilutive ordinary shares outstanding during the
period and adjusting net income for any changes in income or loss that would
result from the conversion of such potential ordinary shares.
 
 There is
no difference in net income used for basic and diluted net income per ordinary
share. The reconciliation of the number of shares used in the computation of
basic and diluted net income per ordinary share is as follows:
 
 Year
      Ended
                  May
      31,
                
                
                Seven
      month
                  Period
      Ended December
                  31,
                
                
                Year Ended
      December 31,2005
                
                
                2005
                
                
                2006
                
                
                2007Weighted
      average number of ordinary shares outstanding for basic net income per
      ordinary share
                
                
                27,720,406
                
                
                
                27,940,212
                
                
                
                28,314,985
                
                
                
                28,705,272Effect
      of dilutive share options outstanding
                
                
                586,484
                
                
                
                554,872
                
                
                
                548,349
                
                
                
                1,042,692Weighted
      average number of ordinary shares outstanding for diluted net income per
      ordinary share
                
                
                28,306,890
                
                
                
                28,495,084
                
                
                
                28,863,334
                
                
                
                29,747,964
 
 68
  (t)
                Share-based
      compensation
 
 The
Company accounts for its share options in accordance with the provisions of SFAS
No. 123R, Share Based
Payment.  SFAS 123R requires that all share based payments to
employees, including stock options granted, be recognized in the financial
statements based on their grant date fair values over the requisite service
period.  The Company adopted SFAS 123R with effect from January 1,
2006, with the Black-Scholes method of valuation being used to calculate the
fair value of options granted.  The Company adopted SFAS 123R using
the modified-prospective transition method.  Under that transition
method compensation cost recognized in the year ended December 31, 2006,
includes; (a) compensation cost for all share-based payments granted prior to,
but not yet vested as of, January 1, 2006, based on grant date fair value
estimated in accordance with the original provisions of SFAS 123 and (b)
compensation cost for all share based payments granted subsequent to January 1,
2006, based on grant date fair values estimated in accordance with the
provisions of SFAS 123R and the estimated number of awards that are expected to
vest. Results for prior periods have not been restated.
 
 The
following table illustrates the effect on net income and earnings per share as
if the fair value method of SFAS No. 123R had been applied to all outstanding
and unvested stock options in each period.
 
 Year
      ended
                  May
      31,
                  2005
      *
                
                
                Seven-month
                  ended
                  December
      31,
                  2005
      *(in
      thousands)(except
      per share data)Net
      income, as reported
                
                $
                13,545
                
                
                $
                7,418Add:
      Share compensation expense
                
                
                -
                
                
                
                22513,545
                
                
                
                7,643Deduct:
      Total share-based employee compensation expense determined under fair
      value based method for all awards, net of related tax
    effects
                
                
                (2,729
                )
                
                
                (1,248
                )Pro
      forma net income
                
                $
                10,816
                
                
                $
                6,395Earnings
      per share (in $):Basic
      – as reported *
                
                $
                0.49
                
                
                $
                0.27Basic
      – pro forma *
                
                
                0.39
                
                
                
                0.23Diluted
      – as reported *
                
                $
                0.48
                
                
                $
                0.26Diluted
      – pro forma *
                
                
                0.38
                
                
                
                0.22
 
 *
Comparative figures have been amended to reflect the Bonus Issue (Stock Split)
which took place with an effective date of October 13, 2006 (See note
12).
 
 (u)
                Impairment
      of long-lived assets
 
 Long
lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future undiscounted net cash
flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
selling costs.
 
 (v)
                Reclassifications
 
 Certain
amounts in the consolidated financial statements have been reclassified where
necessary to conform to the current year presentation.
 
 69
 
 3.
Short term investments - available for sale
 
 The
Company has classified its entire investment portfolio comprising floating rate
and medium term minimum “AA-” rated corporate securities, as available for sale.
The investments are reported at fair value, with unrealized gains or losses
reported in a separate component of shareholders’ equity.  In the year
to May 31, 2005, the seven month period ended December 31, 2005, and in the
years ended December 31, 2006 and December 31, 2007, no unrealized gains or
losses arose.  Any differences between the cost and fair value of the
investments are represented by accrued interest.
 
 4.
Goodwill
 
 December
      31,
                
                
                December
      31,
                
                
                December
      31,2005
                
                
                2006
                
                
                2007(in
      thousands)Opening
      Goodwill
                
                $
                67,440
                
                
                $
                65,731
                
                
                $
                78,717Arising
      during the year
                
                
                -
                
                
                
                9,005
                
                
                
                42,081Arising
      on earn-out (prior year acquisitions)
                
                
                -
                
                
                
                96
                
                
                
                -Foreign
      exchange movement
                
                
                (1,709
                )
                
                
                3,885
                
                
                
                3,081Closing
      Goodwill
                
                $
                65,731
                
                
                $
                78,717
                
                
                $
                123,879
 
 The
distribution of goodwill by business segment was as follows:
 
 December
      31,
                
                
                December
      31,
                
                
                December
      31,2005
                
                
                2006
                
                
                2007(in
      thousands)Central
      laboratory (Note 14)
                
                $
                -
                
                
                $
                -
                
                
                $
                -Clinical
      research
                
                
                65,731
                
                
                
                78,717
                
                
                
                123,879Total
                
                $
                65,731
                
                
                $
                78,717
                
                
                $
                123,879
 
 (a)
Acquisition of DOCS International
  On July
12, 2007, the Company acquired 100% of the common stock of DOCS International
(“DOCS”), a European based clinical research staffing organization, for a cash
consideration of $40.6 million (€29.5 million), excluding costs of
acquisition.
 
 The
acquisition of DOCS has been accounted for as a purchase in accordance with SFAS
No. 141, Business
Combinations. The following table summarizes the fair values of the
assets acquired and the liabilities assumed at the date of
acquisition.
  (in
      thousands)Property,
      plant and equipment
                
                $
                984Intangible
      asset
                
                
                2,035Goodwill
                
                
                42,081Bank
      overdraft
                
                
                (2,400
                )Other
      current assets
                
                
                7,960Current
      liabilities
                
                
                (9,510
                )Purchase
      price
                
                $
                41,150
  70
 
 Goodwill
above represents the cost associated with the presence in the European contract
staffing market which the acquisition affords the Company.  The
results of DOCS have been included in the consolidated financial statements from
July 12, 2007.
  The
proforma effect of the DOCS acquisition if completed on January 1, 2006, would
have resulted in net revenue, net income and earnings per share for the fiscal
years ended December 31, 2007 and 2006 as follows:
  Year
      EndedDecember
      31,2006
                
                
                2007(in
      thousands)Net
      revenue
                
                $
                478,622
                
                
                $
                645,527Net
      income
                
                $
                37,747
                
                
                $
                56,245Basic
      earnings per share
                
                $
                1.33
                
                
                $
                1.96Diluted
      earnings per share
                
                $
                1.31
                
                
                $
                1.89
 
 (b)
Acquisition of Ovation
  On July
10, 2006, the Company acquired 100% of the common stock of Ovation Healthcare
Research 2 Inc. (“Ovation”), based in Illinois, USA, for an initial cash
consideration of U.S.$6.6 million, excluding costs of acquisition. Working
capital provisions were built into the acquisition contract requiring the
potential payment of additional deferred consideration up to a maximum of
U.S.$1.4 million.  On October 27, 2006, $0.18 million was paid to the
former shareholders of Ovation in full and final settlement of the working
capital provisions.
 
 The
acquisition of Ovation has been accounted for as a purchase in accordance with
SFAS No. 141, Business
Combinations. The following table summarizes the fair values of the
assets acquired and the liabilities assumed at the date of
acquisition.
 
 (in
      thousands)Property,
      plant and equipment
                
                $
                384Goodwill
                
                
                9,005Cash
                
                
                341Other
      current assets
                
                
                4,381Current
      liabilities
                
                
                (6,952
                )Long
      term liabilities
                
                
                (124
                )Purchase
      price
                
                $
                7,035
 
 The
results of Ovation have been included in the consolidated financial statements
from July 10, 2006.
  (c)
Acquisition of Beacon Biosciences, Inc
  On July
1, 2004, the Company acquired 70% of the outstanding shares of Beacon
Biosciences, Inc. (“Beacon”), based in Pennsylvania, USA, for an initial cash
consideration of U.S.$9.9 million, excluding costs of acquisition.
  The
following table summarizes the fair values of the assets acquired and the
liabilities assumed at the date of acquisition.
  (in
      thousands)Property,
      plant and equipment
                
                $
                792Goodwill
                
                
                8,463Cash
                
                
                1,658Other
      current assets
                
                
                935Current
      liabilities
                
                
                (718
                )Long
      term liabilities
                
                
                (352
                )10,778Minority
      interest
                
                
                (695
                )Purchase
      price
                
                $
                10,083
 
 71
  The
results of Beacon have been included in the consolidated financial statements
from July 1, 2004.
  5.
Intangible Assets
  December
      31,
                
                
                December
      31,
                
                
                December
      31,2005
                
                
                2006
                
                
                2007(in
      thousands)CostAcquired
      workforce
                
                $
                250
                
                
                $
                250
                
                
                $
                250Customer
      relationships acquired
                
                
                -
                
                
                
                -
                
                
                
                2,035Foreign
      exchange movement
                
                
                -
                
                
                
                -
                
                
                
                120250
                
                
                
                250
                
                
                
                2,405Accumulated
      amortization
                
                
                (134
                )
                
                
                (250
                )
                
                
                (595
                )Foreign
      exchange movement
                
                
                -
                
                
                
                -
                
                
                
                (15
                )Net
      book value
                
                $
                116
                
                
                $
                -
                
                
                $
                1,795
 
 On July
12, 2007, the Company acquired 100% of the common stock of DOCS International
(“DOCS”), a European based clinical research staffing organization (Note
4).  The value of certain customer relationships identified is being
amortised over 2.7 years, the estimated period of the
benefit.  U.S.$345,000 has been amortised in the period since the date
of acquisition.
 
 On
December 1, 2004, the Company acquired the workforce of Biomines Research
Solutions Private Limited, (“Biomines”), based in Chennai, India, for a cash
consideration of U.S.$250,000.  The cost of the acquired
workforce was amortized over 24 months in line with the life of the non-compete
service contracts of the acquired employees.
 
 The
expected amortization cost for the years ended December 31, 2008, December 31,
2009, December 31, 2010, December 31, 2011 and December 31, 2012, is U.S. $0.8
million, U.S. $0.8 million, U.S. $0.2 million, U.S. $nil and U.S. $nil
respectively.
 
 6.
Property, Plant and Equipment, net
 
 December
      31,
                
                
                December
      31,
                
                
                December
      31,2005
                
                
                2006
                
                
                2007(in
      thousands)CostLand
                
                $
                3,477
                
                
                $
                3,771
                
                
                $
                4,102Building
                
                
                12,625
                
                
                
                28,131
                
                
                
                70,260Computer
      equipment and software
                
                
                53,768
                
                
                
                68,353
                
                
                
                95,689Office
      furniture and fixtures
                
                
                19,889
                
                
                
                24,639
                
                
                
                41,140Laboratory
      equipment
                
                
                6,820
                
                
                
                8,525
                
                
                
                11,180Leasehold
      improvements
                
                
                5,679
                
                
                
                5,674
                
                
                
                5,753Motor
      vehicles
                
                
                73
                
                
                
                110
                
                
                
                78102,331
                
                
                
                139,203
                
                
                
                228,202Less
      accumulated depreciation and asset write off
                
                
                (54,679
                )
                
                
                (70,995
                )
                
                
                (94,776
                )Property,
      plant and equipment (net)
                
                $
                47,652
                
                
                $
                68,208
                
                
                $
                133,426
 
 72
 
 Total
cost at December 31, 2007, includes U.S.$1,043,000 (December 31, 2006:
U.S.$1,057,000; December 31, 2005: U.S.$654,000), which relates to assets held
under capital finance leases. Related accumulated depreciation amounted to U.S.
$869,000 (December 31, 2006: U.S. $643,000; December 31, 2005: U.S.$346,000).
The cost of assets under construction as at December 31, 2007, amounted to $23.0
million (December 31, 2006: US$11.2 million).
 
 
 7.
Other Liabilities
 
 December
      31,
                
                
                December
      31,
                
                
                December
      31,2005
                
                
                2006
                
                
                2007(in
      thousands)Accrued
      liabilities
                
                $
                17,721
                
                
                $
                24,856
                
                
                $
                27,938Accrued
      salary and bonuses
                
                
                5,762
                
                
                
                18,460
                
                
                
                36,341Accrued
      social welfare costs
                
                
                3,124
                
                
                
                2,131
                
                
                
                3,961Lease
      accruals
                
                
                1,123
                
                
                
                1,493
                
                
                
                2,257Short
      term government grants
                
                
                109
                
                
                
                118
                
                
                
                125Accrued
      pension liability
                
                
                5,152
                
                
                
                4,724
                
                
                
                -Short
      term finance leases (Note 16)
                
                
                193
                
                
                
                174
                
                
                
                121$
                33,184
                
                
                $
                51,956
                
                
                $
                70,743
 
 8.
Bank Loans
 
 December
      31,
                
                
                December
      31,
                
                
                December
      31,2005
                
                
                2006
                
                
                2007(in
      thousands)Bank
      credit lines and facilities
                
                $
                4,856
                
                
                $
                5,000
                
                
                $
                94,829Less
      current maturities
                
                
                (4,856
                )
                
                
                (5,000
                )
                
                
                (43,767
                )$
                -
                
                
                $
                -
                
                
                $
                51,062
 
 On July
3, 2003, ICON plc  entered into a facility agreement (the "Facility
Agreement") for the provision of a term loan facility of U.S.$40 million,
multi-currency overdraft facility of $5 million and revolving credit facility of
$15 million (the "Facilities") with The Governor and Company of the Bank of
Ireland and Ulster Bank Ireland Limited (the “Banks”).  Our
obligations under the facility were secured by certain composite guarantees and
indemnities and pledges in favour of the banks.  On July 9, 2007, ICON
plc entered into a five year committed  multi-currency facility
agreement for  €35 million ($51.1 million)  with The
Governor and Company of the Bank of Ireland. This facility replaces the
facilities negotiated in July 2003. The  current facility bears
interest at an annual rate equal to the reference rate of EURIBOR plus a margin.
On July 10, 2007, the Company drew down €29.5 million ($43.1 million) of the
facility to fund the acquisition of DOCS
International.  On  October 15, 2007, the remaining €5.5
million ($8 million) of the facility was drawn down to cover head office
expansion in Ireland.
  On
October 17, 2007, a credit facility was negotiated with Allied Irish Banks plc
for €30 million ($43.8 million). This facility is structured as an uncommitted
facility and interest is calculated at the EUR interbank rate plus a margin. The
facility is secured by the same composite guarantees and indemnities in place
for the ICON plc committed facility. The facility was fully drawn on December
31, 2007. The funds were used to refinance overdraft facilities which were in
place to finance the expenditure to date on the head office expansion. On
January 8, 2008, the uncommitted facility with Allied Irish Banks was increased
to €50 million ($72.9 million).  All terms of this facility remain the
same.  The facility is due to be reviewed on October 31,
2010.
 
 73
  The above
facilities are repayable as follows:
  Year
      ended
                  December
      31
                  (in
      thousands)2008
                
                $
                43,7672009
                
                
                25,5312010
                
                
                25,531
 
 The
average margin payable on the above mentioned facilities is 0.65 per
cent.
 
 The
current available overdraft facility with Allied Irish Banks plc is €2 million
($2.9 million). The applicable interest rate when utilised is the bank’s prime
rate and is repayable on demand if the Company defaults under its obligations as
specified in the loan agreement. As of December 31, 2007, the facility was
undrawn and available.
  9.
Employee Benefits
 
 Certain
Company employees are eligible to participate in a defined contribution plan
(the "Plan"). Participants in the Plan may elect to defer a portion of their
pre-tax earnings into a pension plan, which is run by an independent party. The
Company matches participant's contributions typically at 6% of the participant's
annual compensation. Contributions to this plan are recorded, as an expense in
the Consolidated Statement of Operations. Contributions for the year ended May
31, 2005, the seven month period ending December 31, 2005 and the years ended
December 31, 2006 and December 31, 2007, were U.S.$3,443,000, U.S.$2,112,000,
U.S.$4,837,000 and U.S.$7,306,000,
respectively.
 
 The
Company's United States operations maintain a retirement plan (the "U.S. Plan")
that qualifies as a deferred salary arrangement under Section 401(k) of the
Internal Revenue Code. Participants in the U.S. Plan may elect to defer a
portion of their pre-tax earnings, up to the Internal Revenue Service annual
contribution limit. The Company matches 50% of each participant's contributions,
each participant can contribute up to 6% of their annual compensation.
Contributions to this U.S. Plan are recorded, in the year contributed, as an
expense in the Consolidated Statement of Operations. Contributions for the year
ended May 31, 2005, the seven month period ending December 31, 2005 and the
years ended December 31, 2006 and December 31, 2007, were U.S.$2,540,000,
U.S.$1,588,000, U.S.$ 3,428,000 and U.S.$4,488,000 respectively.
 
 One of
the Company’s subsidiaries which was acquired during the 2003 fiscal year,
Medeval Group Limited, operates a defined benefit pension plan in the United
Kingdom for its employees. The plan is managed externally and the related
pension costs and liabilities are assessed in accordance with the advice of a
professionally qualified actuary. Plan assets at December 31, 2005, December 31,
2006 and December 31, 2007, consist of units held in independently administered
funds. The pension costs of this plan are presented in the following tables in
accordance with the requirements of SFAS No.158, Employers’ Accounting for Defined
Pension and Other Postretirement Plans. The plan is no longer open to new
entrants.
 
 Change
      in benefit obligation
                
                December
      31,
                  2005
                
                
                December
      31,
                  2006
                
                
                December
      31,
                  2007(in
      thousands)Benefit
      obligation at beginning of period/year
                
                $
                11,323
                
                
                $
                13,244
                
                
                $
                17,816Service
      cost
                
                
                368
                
                
                
                685
                
                
                
                766Interest
      cost
                
                
                350
                
                
                
                730
                
                
                
                930Plan
      participants’ contributions
                
                
                129
                
                
                
                216
                
                
                
                227Benefits
      paid
                
                
                (93
                )
                
                
                (74
                )
                
                
                (50
                )Actuarial
      loss/(gain)
                
                
                1,875
                
                
                
                1,015
                
                
                
                (4,722
                )Foreign
      currency exchange rate changes
                
                
                (708
                )
                
                
                2,000
                
                
                
                249Benefit
      obligation at end of period/year
                
                $
                13,244
                
                
                $
                17,816
                
                
                $
                15,216
 
 74
 
 Change
      in plan assets
                
                December
      31,
                  2005
                
                
                December
      31,
                  2006
                
                
                December
      31,
                  2007(in
      thousands)Fair
      value of plan assets at beginning
of  period/year
                
                $
                7,354
                
                
                $
                8,092
                
                
                $
                13,092Actual
      return on plan assets
                
                
                342
                
                
                
                1,218
                
                
                
                1,582Employer
      contributions
                
                
                808
                
                
                
                2,287
                
                
                
                457Plan
      participants’ contributions
                
                
                128
                
                
                
                216
                
                
                
                227Benefits
      paid
                
                
                (93
                )
                
                
                (74
                )
                
                
                (50
                )Foreign
      currency exchange rate changes
                
                
                (447
                )
                
                
                1,353
                
                
                
                162Fair
      value of plan assets at end of period/year
                
                $
                8,092
                
                
                $
                13,092
                
                
                $
                15,470
 
 
 Funded
      status
                
                December
      31,
                  2005
                
                
                December
      31,
                  2006
                
                
                December
      31,
                  2007(in
      thousands)Projected
      benefit obligation
                
                $
                (13,244
                )
                
                $
                (17,816
                )
                
                $
                (15,216
                )Fair
      value of plan assets
                
                
                8,092
                
                
                
                13,092
                
                
                
                15,470Funded
      status
                
                $
                (5,152
                )
                
                $
                (4,724
                )
                
                $
                254Unrecognized
      net loss
                
                
                1,771
                
                
                
                -
                
                
                
                -Current
      (liability)/asset
                
                
                (5,152
                )
                
                
                (4,724
                )
                
                
                254Non-current
      (liability)/asset
                
                
                -
                
                
                
                -
                
                
                
                -
 
 
 Amounts
      included in other comprehensive income consist of:
                
                December
      31,
                  2005
                
                
                December
      31,
                  2006
                
                
                December
      31,
                  2007(in
      thousands)Actuarial
      loss /(gain)
                
                $
                -
                
                
                $
                391
                
                
                $
                (5,376
                )Less
      actuarial loss recognized in net periodic benefit cost
                
                
                -
                
                
                
                (15
                )
                
                
                (44
                )Amounts
      recognized in other comprehensive income
                
                $
                -
                
                
                $
                376
                
                
                $
                (5,420
                )
 
 
 Amounts
      recognized in accumulated other comprehensive income that have not yet
      been
                  recognized
      as components of net periodic benefit/cost
                
                December
      31,
                  2005
                
                
                December
      31,
                  2006
                
                
                December
      31,
                  2007(in
      thousands)Net
      actuarial loss/(gain)
                
                $
                -
                
                
                $
                2,220
                
                
                $
                (3,200
                )Total  amount
      in accumulated other comprehensive income
                
                $
                -
                
                
                $
                2,220
                
                
                $
                (3,200
                )
 
 
 Components
      of net periodic benefit cost
                
                December
      31,
                  2005
                
                
                December
      31,
                  2006
                
                
                December
      31,
                  2007(in
      thousands)Service
      cost
                
                $
                368
                
                
                $
                685
                
                
                $
                766Interest
      cost
                
                
                350
                
                
                
                730
                
                
                
                930Expected
      return on plan assets
                
                
                (285
                )
                
                
                (593
                )
                
                
                (928
                )Amortization
      of net loss
                
                
                -
                
                
                
                15
                
                
                
                44Net
      periodic benefit cost
                
                $
                433
                
                
                $
                837
                
                
                $
                812
  75
 The
estimated net gain and prior service cost for the defined benefit pension plans
that will be amortized from accumulated other comprehensive income into net
periodic benefit cost over the next fiscal year are U.S.$0.01m and U.S.$nil,
respectively.
 
 Weighted
      average assumptions to determine benefit obligation
                
                December
      31,
                  2005
                
                December
      31,
                  2006
                
                December
      31,
                  2007Discount
      rate
                
                
                5.0
                %
                
                
                5.0
                %
                
                
                5.8
                %Rate
      of compensation increase
                
                
                4.4
                %
                
                
                4.8
                %
                
                
                4.5
                %Expected
      rate of return on plan assets
                
                
                6.0
                %
                
                
                6.8
                %
                
                
                7.1
                %
 
 The
assets of the scheme are invested in a unitized with profits policy. The
expected long-term rate of return on assets of 6.8% was calculated as the value
of the unitized with profits fund after application of a market value reduction
factor. The underlying asset split of the fund is shown below.
 
 Asset
      Category
                
                December
      31,
                  2005
                
                December
      31,
                  2006
                
                December
      31,
                  2007Equity
                
                
                30
                %
                
                
                59
                %
                
                
                63
                %Bonds
                
                
                49
                %
                
                
                26
                %
                
                
                20
                %Property
                
                
                18
                %
                
                
                12
                %
                
                
                12
                %Cash/other
                
                
                3
                %
                
                
                3
                %
                
                
                5
                %100
                %
                
                
                100
                %
                
                
                100
                %
  The
accumulated benefit obligation for the defined pension plans was $15.2 million
at December 31, 2007 (December 31, 2006: $17.8 million; December 31, 2005: $13.2
million). With effect from July 1, 2003, the scheme was closed to new entrants.
The Company expects to contribute $0.4 million to its pension fund in the year
ending December 31, 2008.
 
 
 Accumulated
      other comprehensive income expected to be recognized as periodic benefit
      cost over the next financial year
                
                December
      31,
                  2008(in
      thousands)Net
      gain
                
                $
                93$
                93
  The
following annual benefit payments, which reflect expected future service, as
appropriate, are expected to be paid.
 
 Estimated
      future benefit payments
                
                (in
      thousands)2008
                
                $
                202009
                
                
                602010
                
                
                602011
                
                
                992012
                
                
                99Years
      2013 - 2017
                
                $
                496
 
 The
expected cash flows are estimated figures based on the members expected to
retire over the next 10 years assuming no early retirements plus an additional
amount in respect of recent average withdrawal experience.  At the
present time it is not clear whether annuities will be purchased when members
reach retirement or whether pensions will be paid each month out of the Scheme
assets.  The above cash flows have been estimated on the assumption
that pension will be paid monthly out of the Scheme assets.  If
annuities are purchased, then the expected benefit payments will be
significantly different from those shown above.
  76
  Transitional
      disclosure of impact of FAS 158 in the year ended December 31, 2006, the
      first year of implementation:
                
                Before
                  implementation
      of
                  FAS
      158
                
                
                Adjustments
                
                
                After
                  implementation
      of FAS 158Liability
      for pension benefits
                
                $
                4,724
                
                
                $
                -
                
                
                $
                4,724Deferred
      income tax liabilities
                
                
                3,124
                
                
                
                -
                
                
                
                3,124Total
      liabilities
                
                
                173,603
                
                
                
                -
                
                
                
                173,603Accumulated
      other comprehensive income
                
                
                14,500
                
                
                
                15
                
                
                
                14,515Retained
      earnings
                
                
                152,142
                
                
                
                (15
                )
                
                
                152,127
  Details
of the Medeval Group Limited pension and life assurance scheme.
  The
assets of the Scheme are invested in the Norwich Union With-Profit Fund and the
Legal & General Global Equity Fixed Weights (50:50) Index Fund. The aim of
the Index Fund is to capture the returns of the UK and overseas equity markets
with a more even investment in UK and overseas equities than would be provided
by reference to market capitalization or consensus weights. The aim of the
With-Profits Fund is to provide good investment returns through steady growth
over the duration of the policy.  Although market fluctuations of
investment return are smoothed through the declaration of annual bonuses, the
investment objective is to provide payments which reflect the actual investment
returns achieved by the Scheme over the long term.
  Asset
Allocation
  The asset
distribution of the Legal & General Fund is 50% UK Equities and 50% global
equities. The asset distribution of the Norwich Union With-Profits Fund at
December 31, 2006, (the most up to date available) was as follows:
  Asset
      Category
                
                December
      31,
                  2006UK
      Equities
                
                
                37
                %Overseas
      Equities
                
                
                10
                %Property
                
                
                18
                %UK
      Fixed Interest
                
                
                16
                %Corporate
      Bonds
                
                
                8
                %Overseas
      Bonds
                
                
                4
                %Cash
                
                
                7
                %Total
                
                
                100
                %
 
 Bonuses
paid under the Unitised With-Profits policy which is invested in the Norwich
Union With-Profit Fund consist of regular bonuses and final bonuses which are
explained below in further detail.
  Norwich UnionRegular Bonus
  Premiums
paid under the Norwich Union policy are used to buy units which increase in
price daily in line with the current Regular Bonus rate.  The Regular
Bonus rate is normally declared at the end of each calendar year and remains in
force until further notice.
  Regular
Bonuses have been declared at the following levels:
  Date
                
                Regular
      Bonus
                  %
      per annumAugust
      1, 2002
                
                
                4.8
                %December
      31, 2002
                
                
                4.0
                %December
      31, 2003
                
                
                4.0
                %December
      31, 2004
                
                
                3.0
                %December
      31, 2005
                
                
                3.0
                %December
      31, 2006
                
                
                3.0
                %
 
 77
  Norwich
Union Final Bonus
  The
purpose of the Final Bonus is to enable the investment return provided by the
policy to reflect more closely what has actually been earned over its
lifetime.  Final Bonus is added when units are cashed and is taken
into account in calculating the market value of the policy.  The last
units purchased are the first units cashed.  The amount of Final Bonus
depends on the year units were purchased.  A scale of bonus rates is
normally declared at the end of each calendar year and remains in force until
further notice.  The scale can be altered during the
year.
  When
units are cashed a Market Value Reduction (“MVR”) scale may be applied instead
of a Final Bonus Scale.  This reduction may be applied at any time
except when units are cashed to provide a member’s normal retirement benefits or
because of a member’s death before retirement.
  An MVR is
applied when the value of the units plus the Final Bonus is significantly
greater than the value of the underlying investments.  It is applied
so that non-contracted encashments do not result in more than the fair share of
the fund being taken in times of poor performance in the stock market and other
asset types in which Norwich Union’s With-Profits Fund is invested.
  Year
      units purchased
                
                Final
      Bonus
                
                
                Final
      Bonus
                  (including
      MVR)2002
                
                
                24
                %
                
                
                24
                %2003
                
                
                30
                %
                
                
                30
                %2004
                
                
                24
                %
                
                
                24
                %2005
                
                
                15
                %
                
                
                15
                %2006
                
                
                5
                %
                
                
                5
                %2007
                
                
                0
                %
                
                
                0
                %
 
 Overall
Rate of Return
  At
December 31, 2007, UK gilts were yielding around 4.5% per annum. This is often
referred to as the risk free rate of return as UK gilts have a negligible risk
of default and the income payments and capital on redemption are guaranteed by
the UK Government.  Overseas bonds have been assumed to produce
returns in line with UK gilts.
  A long
term equity “risk-premium” of 3.1% per annum has been assumed. This being the
expected long-term out-performance of equities over UK
gilts.  Property has been assumed to provide a return in line with
equities over the long term, but with a 0.5% reduction. This represents the
iboxx AA 15 year plus return. An expected out-performance of 1.5% per annum over
the long term for corporate bonds over UK gilts has been assumed.
  78
  The
expected long term rates of return on different asset classes over the long term
are as follows:
  Asset
      Category
                
                Expected
      long-term
                  return
      per annumUK
      equities
                
                
                7.6
                %Overseas
      equities
                
                
                7.6
                %Property
                
                
                7.1
                %UK
      Gilts
                
                
                4.5
                %Overseas
      bonds
                
                
                6.0
                %Corporate
      bonds
                
                
                6.0
                %Cash
                
                
                4.8
                %
 
  Applying
the above expected long term rates of return to the asset distribution of the
With-Profits Fund at December 31, 2007, gives rise to an expected overall rate
of return of scheme assets of around 7.1% per annum
  10.
Share Options and Stock Compensation Charges
  The
Company accounts for its share options in accordance with the provisions of SFAS
No. 123R, Share Based
Payment.  SFAS 123R requires that all share based payments to
employees, including stock options granted, be recognized in the financial
statements based on their grant date fair values.  The Company adopted
SFAS 123R with effect from January 1, 2006, with the Black-Scholes method of
valuation being used to calculate the fair value of options
granted.  The Company adopted SFAS 123R using the modified-prospective
transition method.  Under that transition method compensation cost
recognized in the year ended December 31, 2006, includes; (a) compensation cost
for all share-based payments granted prior to, but not yet vested as of, January
1, 2006, based on grant date fair value estimated in accordance with the
original provisions of SFAS 123 and (b) compensation cost for all share based
payments granted subsequent to January 1, 2006, based on grant date fair values
estimated in accordance with the provisions of SFAS 123R.  Results for
prior periods have not been restated.
 
 On
January 17, 2003, the Company adopted the Share Option Plan 2003 (the “2003
Plan”) pursuant to which the Compensation Committee of the Board may grant
options to officers and other employees of the Company or its subsidiaries for
the purchase of ordinary shares.  Each grant of an option under the
2003 Plan will be evidenced by a Stock Option Agreement between the employee and
the Company. The exercise price will be specified in each Stock Option
Agreement.
  An
aggregate of 3 million ordinary shares have been reserved under the 2003 Plan;
and, in no event will the number of ordinary shares that may be issued pursuant
to options awarded under the 2003 Plan exceed 10% of the outstanding shares, as
defined in the 2003 Plan, at the time of the grant, unless the Board expressly
determines otherwise. Further, the maximum number of ordinary shares with
respect to which options may be granted under the 2003 Plan during any calendar
year to any employee shall be 200,000 ordinary shares.
  Share
option awards are granted with an exercise price equal to the market price of
the Company’s shares at date of grant.  Share options typically vest
over a period of five years from date of grant and expire eight years from date
of grant.  The maximum contractual term of options outstanding at
December 31, 2007, is eight years.  No options can be granted after
January 17, 2013.
 
 In
December 2004, the Financial Accounting Standards Board (“FASB”) issued
Statement of Accounting Standards (“SFAS”) 123 (revised 2004), Share Based Payment(“SFAS
123R”) which replaced SFAS 123 Accounting for Stock-Based
Compensationand supersedes Accounting Principles Board (“APB”) Opinion
No. 25 Accounting for Stock
Issued to Employees.  SFAS 123R requires, with effect from
accounting periods beginning after June 15, 2005, that all share based payments
to employees, including stock options granted, be recognized in the financial
statements based on their grant date fair values.
  79
  The
following table summarizes the transactions for the Company’s share option plans
for the year ended May 31, 2005, the seven month period ended December 31, 2005,
and the years ended December 31, 2006, and December 31, 2007:
 
 Options
                  Granted
                  Prior
      to
                  Jan
      15,
                  1998
      *
                
                
                Options
      Granted
                  Under
      Plans *
                
                
                Number
      of
                  Shares
      *
                
                
                Weighted
                  Average
                  Exercise
                  Price
      *
                
                
                Weighted
      Average Grant
                  Date
      Fair
                  Value
      *Outstanding
      at May 31, 2004
                
                
                94,140
                
                
                
                1,893,004
                
                
                
                1,987,144
                
                
                $
                13.95Granted
                
                
                -
                
                
                
                855,460
                
                
                
                855,460
                
                
                $
                17.20Exercised
                
                
                -
                
                
                
                (121,240
                )
                
                
                (121,240
                )
                
                $
                11.56Cancelled
                
                
                -
                
                
                
                (144,880
                )
                
                
                (144,880
                )
                
                $
                15.54Outstanding
      at May 31, 2005
                
                
                94,140
                
                
                
                2,482,344
                
                
                
                2,576,484
                
                
                $
                15.10Exercised
                
                
                (80,000
                )
                
                
                (157,992
                )
                
                
                (237,992
                )
                
                $
                8.04Cancelled
                
                
                -
                
                
                
                (74,200
                )
                
                
                (74,200
                )
                
                $
                16.19Outstanding
      at December 31, 2005
                
                
                14,140
                
                
                
                2,250,152
                
                
                
                2,264,292
                
                
                $
                15.75
                
                
                $
                7.30Granted
                
                
                -
                
                
                
                818,502
                
                
                
                818,502
                
                
                $
                23.16
                
                
                $
                10.39Exercised
                
                
                (14,140
                )
                
                
                (467,528
                )
                
                
                (481,668
                )
                
                $
                13.87
                
                
                $
                7.12Cancelled
                
                
                -
                
                
                
                (279,274
                )
                
                
                (279,274
                )
                
                $
                16.64
                
                
                $
                7.76Outstanding
      at December 31, 2006
                
                
                -
                
                
                
                2,321,852
                
                
                
                2,321,852
                
                
                $
                18.61
                
                
                $
                8.45Granted
                
                
                
                
                
                
                625,715
                
                
                
                625,715
                
                
                $
                42.51
                
                
                $
                17.77Exercised
                
                
                
                
                
                
                (317,392
                )
                
                
                (317,392
                )
                
                $
                16.69
                
                
                $
                7.64Cancelled
                
                
                
                
                
                
                (142,112
                )
                
                
                (142,112
                )
                
                $
                24.54
                
                
                $
                10.64Outstanding
      at December 31, 2007
                
                
                -
                
                
                
                2,488,063
                
                
                
                2,488,063
                
                
                $
                24.53
                
                
                $
                10.70Vested
      and exercisable at December 31, 2007
                
                
                -
                
                
                
                679,114
                
                
                
                679,114
                
                
                $
                19.36
                
                
                $
                8.24Unvested
      at December 31, 2007
                
                
                -
                
                
                
                1,808,949
                
                
                
                1,808,949
                
                
                $
                26.47
                
                
                $
                11.62
 *
Comparative figures have been amended to reflect the Bonus Issue, (Stock Split)
which took place with an effective date of October 13, 2006.
 
 
 Non
vested shares outstanding as at December 31, 2007, are as follows:
 Options
                  Outstanding
                  Number of Shares
                
                
                Weighted Average Exercise
    Price
                
                
                Weighted Average Fair ValueNon vested outstanding at December 31,
      2006
                
                
                1,788,308
                
                
                $
                19.32
                
                
                $
                8.69Granted
                
                
                625,715
                
                
                
                42.51
                
                
                
                17.77Vested
                
                
                (530,488
                )
                
                
                20.80
                
                
                
                8.81Forfeited
                
                
                (74,586
                )
                
                
                13.00
                
                
                
                5.70Non vested outstanding
      at  December  31, 2007
                
                
                1,808,949
                
                
                $
                26.47
                
                
                $
                11.62
  80
  The
weighted average fair value of options granted during the year was U.S.$17.77.
The weighted average remaining contractual life of options outstanding and
exercisable at December 31, 2007, was 5.47 years and 4.45 years
respectively.  499,445 options are expected to vest during the year
ended December 31, 2008.
 
 There
were 530,488 options vested during the year and the weighted average fair value
of these options was U.S.$8.81. There were 142,112 options cancelled during the
year and the weighted average fair value of these options was
U.S.$10.64.
 
 The
intrinsic value of options exercised during the year was U.S.$14,338,033. The
Company calculated the intrinsic value at the market value of options as at
December 31, 2007, as per SFAS 123R. The aggregate intrinsic value of options
outstanding and exercisable as at December 31, 2007, was U.S.$92,876,041 and
U.S.$28,860,155 respectively.
 
 The total
tax benefit recognized in additional paid in capital related to the compensation
charge during the year was U.S.$1.5 million (2006: U.S.$1.3 million). The total
compensation cost capitalized during the year was U.S.$nil (2006:
U.S.$nil).
 
 The total
compensation cost not yet recognized at December 31, 2007, was U.S.$11.8 million
and the weighted average period over which this is expected to be recognized is
2.2 years.
 
 Outstanding
and exercisable share options:
 
 The
following table summarizes information concerning outstanding and exercisable
share options as of December 31, 2007:
 
 Options
      Outstanding
                
                
                Options
      ExercisableRange
                  Exercise
                  Price
                
                
                Number
      of
                  Shares
                
                
                Weighted
                  Average
                  Remaining
                  Contractual
      Life
                
                
                Weighted
                  Average
                  Exercise
      Price
                
                
                Number
      of
                  Shares
                
                
                Weighted
                  Average
                  Exercise
      Price$
                10.63
                
                
                
                10,060
                
                
                
                1.08
                
                
                $
                10.63
                
                
                
                10,060
                
                
                $
                10.63$
                13.25
                
                
                
                16,000
                
                
                
                1.92
                
                
                $
                13.25
                
                
                
                16,000
                
                
                $
                13.25$
                14.00
                
                
                
                192,416
                
                
                
                3.08
                
                
                $
                14.00
                
                
                
                121,858
                
                
                $
                14.00$
                14.50
                
                
                
                76,500
                
                
                
                2.08
                
                
                $
                14.50
                
                
                
                76,500
                
                
                $
                14.50$
                17.20
                
                
                
                605,500
                
                
                
                5.17
                
                
                $
                17.20
                
                
                
                115,708
                
                
                $
                17.20$
                17.75
                
                
                
                344,536
                
                
                
                4.17
                
                
                $
                17.75
                
                
                
                147,145
                
                
                $
                17.75$
                20.84
                
                
                
                30,000
                
                
                
                6.08
                
                
                $
                20.84
                
                
                
                -
                
                
                $
                20.84$
                22.00
                
                
                
                552,751
                
                
                
                6.17
                
                
                $
                22.00
                
                
                
                129,543
                
                
                $
                22.00$
                34.60
                
                
                
                12,000
                
                
                
                6.67
                
                
                $
                34.60
                
                
                
                2,400
                
                
                $
                34.60$
                35.99
                
                
                
                58,000
                
                
                
                6.08
                
                
                $
                35.99
                
                
                
                10,000
                
                
                $
                35.99$
                42.50
                
                
                
                587,775
                
                
                
                7.17
                
                
                $
                42.50
                
                
                
                49,900
                
                
                $
                42.50$
                43.51
                
                
                
                1,225
                
                
                
                7.33
                
                
                $
                43.51
                
                
                
                -
                
                
                $
                43.51$
                45.20
                
                
                
                1,000
                
                
                
                7.67
                
                
                $
                45.20
                
                
                
                -
                
                
                $
                45.20$
                53.77
                
                
                
                300
                
                
                
                7.83
                
                
                $
                53.77
                
                
                
                -
                
                
                $
                53.77$
                10.63
      - $53.77
                
                
                
                2,488,063
                
                
                
                5.47
                
                
                $
                24.53
                
                
                
                679,114
                
                
                $
                19.36
 
 Substantially
all of the options granted at exercise prices from $14.50 to $53.77 vest over a
five year period from the date of grant.  Options granted at exercise
prices from $10.63 to $14.00 have fully vested at December 31,
2007.
 
 81
  Fair
value of Stock Options Assumptions
 
 Expected
volatility is based on the historical volatility of our common stock over a
period equal to the expected term of the options; the expected life represents
the weighted average period of time that options granted are expected to be
outstanding given consideration to vesting schedules, and our historical
experience of past vesting and termination patterns. The risk-free rate is based
on the U.S. government zero-coupon bonds yield curve in effect at time of grant
for periods corresponding with the expected life of the option.
 
 The
weighted average fair value of stock options granted during the year ended May
31, 2005, calculated using the Black-Scholes option pricing model, was $17.09
using the following assumptions; expected dividend yield - 0%, risk free
interest rate – 4.02%, expected volatility - 50% and expected life – 4.8
years.
 
 There
were no stock options granted during the seven months ended December 31,
2005.
 
 The
weighted average fair value of stock options granted during the year ended
December 31, 2006, calculated using the Black-Scholes option pricing model, was
$10.39 using the following assumptions; expected dividend yield - 0%, risk free
interest rate – 4.68%, expected volatility - 45% and expected life – 4.8
years.
 
 The
weighted average fair value of stock options granted during the year ended
December 31, 2007, calculated using the Black-Scholes option pricing model, was
$17.77 using the following assumptions; expected dividend yield - 0%, risk free
interest rate – 4.7%, expected volatility - 40% and expected life – 5.11
years.
 
 Total
compensation cost recognized in income:
 
 Income
from operations for the year ended December 31, 2007, is stated after charging
$5.7 million in respect of non-cash stock compensation expense.  Basic
and diluted earnings per share for the year ended December 31, 2007, had SFAS
123R not been introduced would have been $2.15 and $2.06
respectively.  Non-cash stock compensation expense for the year ended
December 31, 2007, has been allocated to direct costs and selling, general and
administrative expenses as follows:
 
 Seven
                  Months
                  Ended
                  December
                  31,
                  2005
                
                
                Year
      Ended
                  December
      31,
                  2006
                
                
                Year
      Ended
                  December
      31,
                  2007(in
      thousands)Direct
      costs
                
                $
                -
                
                
                $
                2,240
                
                
                $
                3,167Selling,
      general and administrative
                
                $
                255
                
                
                $
                1,826
                
                
                $
                2,581Total
      compensation costs
                
                $
                255
                
                
                $
                4,066
                
                
                $
                5,748
 
 On
December 6, 2005, Dr. Ronan Lambe and Dr. John Climax gifted 128,000 and 160,000
ADSs, respectively, to Mr. Peter Gray, the Company’s Chief Executive Officer.
The Company has accounted for these transfers of equity instruments from
shareholders to Mr. Gray as share based payment transactions, and recorded a
compensation expense of $6,024,000 in its Statement of Operations, measured
by reference to the fair value of the ADSs on the grant date. As this
transaction is a transfer of already issued stock between officers and directors
of the Company, the expense recorded had no cash flow impact on the Company and
created no dilution of ordinary shares outstanding.  The fair value of the
ADSs on the date of gift was determined by reference to market
price.
 
 82
  11.
Government Grants
 
 December
      31,
                
                
                December
      31,
                
                
                December
      31,2005
                
                
                2006
                
                
                2007(in
      thousands)Received
                
                $
                2,225
                
                
                $
                2,225
                
                
                $
                2,225Less
      accumulated amortization
                
                
                (1,153
                )
                
                
                (1,266
                )
                
                
                (1,384
                )Foreign
      exchange translation adjustment
                
                
                197
                
                
                
                329
                
                
                
                4631,269
                
                
                
                1,288
                
                
                
                1,304Less
      current portion
                
                
                (109
                )
                
                
                (118
                )
                
                
                (125
                )$
                1,160
                
                
                $
                1,170
                
                
                $
                1,179
 
 Capital
grants received may be refundable in full if certain events occur. Such events,
as set out in the related grant agreements, include sale of the related asset,
liquidation of the Company or failure to comply with other conditions of the
grant agreements.  No loss contingency has been recognized as the
likelihood of such events arising has been assessed as remote.
 
 Government
grants amortized to the profit and loss account amounted to U.S.$199,000,
U.S.$105,000, U.S.$113,000 and U.S.$117,000 for the year ended May 31, 2005, the
seven month period ended December 31, 2005 and for the years ended December 31,
2006, and December 31, 2007, respectively.   As of December 31,
2007, the Company had U.S.$1,351,000 in restricted retained earnings, pursuant
to the terms of the grant agreements.
 
 12.
Share Capital
 
 Holders
of ordinary shares will be entitled to receive such dividends as may be
recommended by the board of directors of the Company and approved by the
shareholders and/or such interim dividends as the board of directors of the
Company may decide. On liquidation or a winding up of the Company, the par value
of the ordinary shares will be repaid out of the assets available for
distribution among the holders of the Company's ADSs and ordinary shares not
otherwise represented by ADRs. Holders of ordinary shares have no conversion or
redemption rights. On a show of hands, every holder of an ordinary share present
in person at a general meeting of shareholders, and every proxy, shall have one
vote, for each ordinary share held with no individual having more than one
vote.
 
 During
the year to May 31, 2005, 121,240 options were exercised by employees at an
average exercise price of U.S.$11.56 per share for total proceeds of U.S.$1.4
million.
 
 During
the seven month period to December 31, 2005,  237,992 options were
exercised by employees at an average exercise price of U.S.$8.04 per share for
total proceeds of U.S.$1.9 million.
 
 During
the year ended December 31, 2006,  481,668 options were exercised by
employees at an average exercise price of U.S.$13.87 per share for total
proceeds of U.S.$6.7 million.
 
 During
the year ended December 31, 2007, 317,392 options were exercised by employees at
an average exercise price of U.S.$16.69 per share for total proceeds of U.S.$5.3
million.
 
 On
September 29, 2006, ICON’s shareholders approved a bonus issue of ordinary
shares (the “Bonus Issue”) to shareholders of record as of the close of business
on October 13, 2006 (the “Record Date”).  The Bonus Issue provided for
each shareholder to receive one bonus ordinary share for each ordinary share
held as of the Record Date, effecting the equivalent of a 2-for-1 stock
split.  The Bonus shares were issued on October 16, 2006, to Ordinary
Shareholders and on October 23, 2006, to holders of American Depositary Shares
(“ADSs”).  NASDAQ adjusted the trading price of ICON’s ADSs to effect
the Bonus Issue prior to the opening of trading on October 24,
2006.  All outstanding ordinary share amounts referenced in the
consolidated financial statements and the notes thereto have been
retrospectively restated to give effect to the Bonus Issue as if it had occurred
as of the date referenced.
  83
 13.
Income Taxes
 
 The U.S.
based and Irish based subsidiaries file tax returns in the United States and
Ireland, respectively. The other foreign subsidiaries are taxed separately under
the laws of their respective countries.
 
 The
components of income before provision for income tax expense are as
follows:
 
 Year
      ended
                
                
                Seven
      months ended
                
                
                Year
      endedMay
      31,
                
                
                December
      31,
                
                
                December
      31,(in
      thousands)2005
                
                
                2005
                
                
                2006
                
                
                2007Ireland
                
                $
                13,795
                
                
                $
                (1,470
                )
                
                $
                31,212
                *
                
                $
                39,063
                *United
      States
                
                
                (9,001
                )
                
                
                2,647
                
                
                
                12,l69
                *
                
                
                16,818
                *Other
                
                
                14,792
                
                
                
                11,647
                
                
                
                8,075
                
                
                
                16,099Income
      before provision for income taxes
                
                $
                19,586
                
                
                $
                12,824
                
                
                $
                51,456
                
                
                $
                71,980
 
 *Net
Income as reported for the year ended December 31, 2007, for Ireland and United
States is stated inclusive of stock compensation expense of $2.5 million (2006:
$1.95 million) and $3.2 million (2006: $2.12 million) respectively (see Note 10:
Share Options and Stock Compensation Charges).
 
 The
components of total income tax expense are as follows:
 
 Year
      ended
                
                
                Seven
      months ended
                
                
                Year
      endedMay
      31,
                
                
                December
      31,
                
                
                December
      31,2005
                
                
                2005
                
                
                2006
                
                
                2007(in
      thousands)Provision
      for income taxesCurrent:Ireland
                
                $
                1,821
                
                
                $
                401
                
                
                $
                4,291
                
                
                $
                4,073United
      States
                
                
                1,872
                
                
                
                1,196
                
                
                
                8,855
                
                
                
                6,909Other
                
                
                2,885
                
                
                
                3,044
                
                
                
                4,389
                
                
                
                6,171Total
      current tax
                
                
                6,578
                
                
                
                4,641
                
                
                
                17,535
                
                
                
                17,153Deferred
      expenses/(benefit):Ireland
                
                
                (128
                )
                
                
                6
                
                
                
                (330
                )
                
                
                (908
                )United
      States
                
                
                16
                
                
                
                475
                
                
                
                (4,445
                )
                
                
                (154
                )Other
                
                
                (614
                )
                
                
                274
                
                
                
                164
                
                
                
                (261
                )Total
      deferred (benefit) /tax
                
                
                (726
                )
                
                
                755
                
                
                
                (4,611
                )
                
                
                (1,323
                )Provision
      for income taxes
                
                
                5,852
                
                
                
                5,396
                
                
                
                12,924
                
                
                
                15,830Impact
      on shareholders equity of the tax consequence of:Compensation
      expense
                
                
                (169
                )
                
                
                (758
                )
                
                
                (1,109
                )
                
                
                (1,466
                )Currency
      impact of long term funding
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (1,954
                )Total
                
                $
                5,683
                
                
                $
                4,638
                
                
                $
                11,815
                
                
                $
                12,410
 
 
 84
 
 Ireland’s
statutory income tax rate is 12.5%.  Certain activities carried out by
the Irish company, principally data processing services, are taxed at a reduced
rate of 10%. The Company’s consolidated effective tax rate differed from the
statutory rate as set forth below;
 
 Year
      Ended
                
                
                Seven
      Months
                  Ended
                
                
                Year
      endedMay
      31,
                
                
                December
      31,
                
                
                December
      31,2005
                
                
                2005
                
                
                2006
                
                
                2007(in
      thousands)Taxes
      at Irish statutory rate of 12.5% (2006:12.5%; 2005: 12.5%)
                
                $
                2,448
                
                
                $
                1,603
                
                
                $
                6,430
                
                
                $
                8,998Foreign
      and other income taxed at (reduced)/higher rates
                
                
                (1,068
                )
                
                
                953
                
                
                
                10,575
                
                
                
                6,496United
      States state tax net of United States Federal benefit and other foreign
      taxes
                
                
                767
                
                
                
                428
                
                
                
                -
                
                
                
                -Movement
      in valuation allowance
                
                
                2,473
                
                
                
                2,020
                
                
                
                (6,113
                )
                
                
                82Prior
      year (over) / under provision in respect of foreign taxes
                
                
                (1,319
                )
                
                
                (553
                )
                
                
                1,438
                
                
                
                (166
                )Effects
      of non deductible expenses
                
                
                2,491
                
                
                
                995
                
                
                
                538
                
                
                
                344Other
                
                
                60
                
                
                
                (50
                )
                
                
                56
                
                
                
                76$
                5,852
                
                
                $
                5,396
                
                
                $
                12,924
                
                
                $
                15,830
 
 The tax
effects of temporary differences that give rise to significant portions of
deferred tax assets and deferred tax liabilities are presented
below:
  Seven
      MonthsEnded
                
                
                Year
      Ended
                
                
                Year
      EndedDecember
      31,
                
                
                December
      31,
                
                
                December
      31,2005
                
                
                2006
                
                
                2007(in
      thousands)Deferred
      tax liabilities:Property,
      plant and equipment
                
                $
                1,659
                
                
                $
                1,188
                
                
                $
                1,253Goodwill
      and related assets
                
                
                1,865
                
                
                
                2,742
                
                
                
                4,274Other
      intangible assets
                
                
                0
                
                
                
                0
                
                
                
                439Accruals
                
                
                687
                
                
                
                684
                
                
                
                352Other
                
                
                359
                
                
                
                41
                
                
                
                46Total
      deferred tax liabilities
                
                
                4,570
                
                
                
                4,655
                
                
                
                6,364Deferred
      tax assets:Net
      operating loss carry forwards
                
                
                7,330
                
                
                
                5,971
                
                
                
                6,931Property,
      plant and equipment
                
                
                768
                
                
                
                486
                
                
                
                614Accrued
      expenses and payments on account
                
                
                4,680
                
                
                
                4,520
                
                
                
                6,007Stock
      options exercised
                
                
                -
                
                
                
                467
                
                
                
                1,556Deferred
      compensation expense
                
                
                310
                
                
                
                370
                
                
                
                471Other
                
                
                259
                
                
                
                115
                
                
                
                0Total
      deferred tax assets
                
                
                13,347
                
                
                
                11,929
                
                
                
                15,579Valuation
      allowance for deferred tax assets
                
                
                (9,952
                )
                
                
                (3,839
                )
                
                
                (4,957
                )Deferred
      tax assets recognized
                
                $
                3,395
                
                
                $
                8,090
                
                
                $
                10,622Net
      deferred tax (liability) /asset
                
                $
                (1,175
                )
                
                $
                3,435
                
                
                $
                4,258
  U.S$5.7
million of the deferred tax asset of U.S$10.6 million above is non-current.
U.S.$6.0 million of the deferred tax liability of U.S.$6.3 million is
non-current.
  85
  At
December 31, 2007, non-US subsidiaries had operating loss carry forwards for
income tax purposes that may be carried forward indefinitely, available to
offset against future taxable income, if any, of approximately U.S$10.5
million.
 
 At
December 31, 2007, ICON Laboratory Inc., a U.S. subsidiary had net operating
loss carry forwards for U.S. Federal and State income tax purposes, available to
offset against future taxable income if any of approximately U.S.$7.935 million
for U.S. Federal and U.S.$10.049million for State income
tax, which expire between 2009 and 2025.
 
 Of the
U.S.$7.935 million
U.S. Federal and U.S.$10.049 million State net
operating losses, approximately U.S.$6.5million and U.S.$8.6million
respectively is
currently available for offset against future taxable income, if any, of future
accounting periods. The subsidiary’s ability to use the remaining net operating
loss (“NOL”) carry forward of U.S.$1.5 million for Federal and
State taxes is limited to U.S.$113,000per year due to the
subsidiary experiencing a change of ownership in 2000, as defined by Section 382
of the Internal Revenue Code of 1986, as amended.  The expected expiry
dates of these losses are as follows:
 
 Federal
                
                
                StateNOL’s
                
                
                NOL’s(in
      thousands)2009-
      2011
                
                
                $
                452
                
                
                $
                1,2192012-
      2016
                
                
                
                226
                
                
                
                2262017-
      2025
                
                
                
                7,257
                
                
                
                8,604$
                7,935
                
                
                $
                10,049
 
 The
valuation allowance for deferred tax assets as of December 31, 2006, and
December 31, 2005, was US$3.8 million and US$9.9 million, respectively. The
valuation allowance at December 31, 2007, was approximately US$5.0 million. The
net change in the total valuation allowance was an increase of US$1.2 million in
2007 and a decrease of US$6.1 million during 2006.
 
 The
valuation allowance at December 31, 2007, and December 31, 2006, was primarily
related to tax losses carried forward that, in the judgment of management, are
not more likely than not to be realized. In assessing the realizability of
deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences
become deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning strategies in
making this assessment.
 
 Subsequently
recognized tax benefits relating to the valuation allowance for deferred tax
assets as of December 31, 2007, will be allocated as follows
 
 (in
      thousands)Income
      tax benefit that would be reported in the consolidated statement of
      income
                
                $
                4,162Goodwill
      and other non-current intangible assets
                
                
                795Total
      valuation allowance
                
                $
                4,957
 
 The
Company has not recognized a deferred tax liability for the undistributed
earnings of foreign subsidiaries that arose in 2007 and prior years as the
Company considers these earnings to be indefinitely reinvested.
  The
Company adopted the provisions of FIN 48 on January 1, 2007. This did not result
in any change to the opening liability for unrecognized tax benefits. A
reconciliation of the beginning and ending amount of total unrecognized tax
benefits is as follows:
  86
  (in
      thousands)Gross
      amount of unrecognized tax benefits at January 1,
    2007
                
                $
                11,759Increase
      related to prior year tax positions
                
                
                285Decrease
      related to prior year tax positions
                
                
                (129
                )Increase
      related to current year tax positions
                
                
                2,161Settlements
                
                
                (906
                )Lapse
      of statute of limitations
                
                
                (292
                )Gross
      amount of unrecognized tax benefits at December 31,
      2007
                
                $
                12,878
 
 The
Company does not anticipate that the amount of unrecognized tax benefits at
December 31, 2007, will significantly change in the coming year.
 
 Included
in the balance of total unrecognized tax benefits at December 31, 2007, are
potential benefits of US$10.5 million, which if recognized, would affect the
effective rate on income tax from continuing operations. Also included in the
balance of unrecognized tax benefits at December 31, 2007, are potential
benefits of US$0.4 million which, if recognized, would be recorded as
adjustments to goodwill.
 
 Interest
and penalties recognized as an expense amounted to US$1.3 million in the year
ended December 31, 2007. Total accrued interest and penalties as of December 31,
2007 and January 1, 2007, were US$2.1 million and  US$1.5 million
respectively and are included in the closing income tax liabilities at those
dates.
 
 Our major
tax jurisdictions are the United States and Ireland.  We may
potentially be subjected to tax audits in our major jurisdictions.  In
the United States tax periods open to audit include the years ended May 31, 2004
and May 31, 2005, the seven month transition period ended December 31, 2005, and
the years ended December 31, 2006 and December 31, 2007.  In Ireland
tax periods open to audit include the years ended May 31, 2003, May 31, 2004 and
May 31, 2005, the seven month transition period ended December 31, 2005, and the
years ended December 31, 2006 and December 31, 2007.  During such
audits, local tax authorities may challenge the position taken by
us.
 
 14.
Other charges
 
 The
principal items classified as other charges include asset impairments, computer
software write-off and lease termination and exit costs. These charges were
expensed to the statement of operations during the year ended May 31,
2005.
 
 (in
      thousands)(A)
                Goodwill
      impairment charge
                
                $
                7,017(B)
                Computer
      software write-off
                
                
                1,031(C)
                Lease
      termination and exit costs
                
                
                3,227$
                11,275
 
 (A)
                Goodwill
      impairment charge
 
 Under
SFAS No.142, goodwill and intangible assets with indefinite lives are no longer
amortized, but instead are tested for impairment at least annually. Given the
pattern of operating losses in recent years, the slowdown in growth and future
outlook in our central laboratory reporting unit at that time, management
determined that the carrying value of the reporting unit exceeded its fair value
at February 28, 2005. After allocating the fair value of the reporting unit to
all of the assets and liabilities of that unit, management determined that the
carrying value of the central laboratory goodwill was impaired. The fair value of the
central laboratory segment was determined using discounted cash flows and net
realizable values.The central laboratory segment was formed by the
combination of our existing central laboratory operation in Dublin, Ireland and
by the acquisition in June 2000 of UCT (U.S.) Inc. (“UCT”), a central laboratory
company based in New York, USA.
 
 87
  (B)
                Computer
      software write-off
 
 This
charge represents the write off of the carrying value of computer software
costs, which did not provide a reasonable economic return.
 
 (C)
                Lease
      termination and exit costs
 
 This
charge represents the lease termination and exit costs associated with the close
of a facility in Irvine, California and the termination of two redundant leases
in New York following the relocation of the central laboratory. Total costs
expected to be incurred in association with these lease termination and exit
costs have been accrued. Of the total $1.2 million relates to the central
laboratory segment and $2.1 million to the clinical research
segment.  During the period ended December 31, 2005, $2.4 million of
this was used and the excess balance of $0.9 million was released to the income
statement.
 
 15.
Significant Concentrations
 
 The
Company does business with most major international pharmaceutical companies. As
at December 31, 2007, the balance for doubtful debts was $0.32 million (December
31, 2006: $0.24 million, December 31, 2005: $0.67 million; May 31, 2005: $0.48
million). During the year ended December 31, 2007, an additional reserve for
doubtful debts of $0.75 million was created and $0.67 million was
used.
 
 
 16.
Commitments and Contingencies
 
 The
Company is not party to any litigation or other legal proceedings that the
Company believes could reasonably be expected to have a material adverse effect
on the Company's business, results of operations and financial
condition.
 
 The
Company has several non-cancelable operating leases, primarily for facilities,
that expire over the next 10 years. These leases generally contain renewal
options and require the Company to pay all executory costs such as maintenance
and insurance. The Company recognized U.S.$26,158,000, U.S.$14,462,000 and
U.S.$28,450,000 in rental expense for the fiscal years ended May 31, 2005, the
seven month period ended December 31, 2005, and the year ended December 31,
2006, respectively and U.S.$35,760,000 for the year ended December 31, 2007.
Future minimum rental commitments for operating leases with non-cancelable terms
in excess of one year are as follows:
 
 
 Minimum
      rental payments(in
      thousands)2008
                
                $
                37,3702009
                
                
                31,1942010
                
                
                27,0792011
                
                
                20,5282012
                
                
                18,603Thereafter
                
                
                50,296Total
                
                $
                185,070
 
  88
  The
Company has a number of capital leases, primarily over furniture and equipment,
which expire over the next five years. Future commitments are as
follows:
 
 
 Lease
      payments(in
      thousands)2008
                
                $
                1372009
                
                
                332010
                
                
                172011
                
                
                12Thereafter
                
                
                -Less
      future finance charges
                
                
                (29
                )Total
                
                $
                170
 
 The
Company made a number of acquisitions in recent years with earn-out provisions
built into the purchase contracts, however no payments are expected to be made
during the year ended December 31, 2008.
 
 17.  Business
Segment Information
 
 The
Company operates predominantly in the contract clinical research industry
providing a broad range of clinical research and integrated product development
services on a global basis for the pharmaceutical and biotechnology industries.
The Company also has a central laboratory segment primarily based in New York,
USA. This, together with laboratory services based in Dublin, form the central
laboratory segment information disclosed below.
 
 The
Company's areas of operation outside of Ireland principally include the United
Kingdom, United States, Germany, Australia, Argentina, France, Italy, Japan,
Israel, Singapore, Canada, Sweden, The Netherlands, Latvia, Russia, Lithuania,
Poland, South Africa, India, Hong Kong, Taiwan, Mexico, Brazil, Hungary, Spain,
Thailand, South Korea, China, Chile, New Zealand, Denmark, Finland, Peru, Czech
Republic, Ukraine and Romania.  Segment information for the fiscal
year ended May 31, 2005, the seven month period ended December 31, 2005 and the
years ended December 31, 2006 and December 31, 2007 is as follows:
 
 a)
                The
      distribution of net revenue by geographical area was as
      follows:
 
 Year
      ended
                
                
                Seven
      months ended
                
                
                Year
      endedMay
      31,
                
                
                December
      31,
                
                
                December
      31,(in
      thousands)2005
                
                
                2005
                
                
                2006
                
                
                2007Ireland
                
                $
                37,242
                
                
                $
                19,838
                
                
                $
                66,028
                
                
                $
                134,268Rest
      of Europe
                
                
                84,140
                
                
                
                48,206
                
                
                
                96,868
                
                
                
                144,586U.S.
                
                
                186,919
                
                
                
                118,292
                
                
                
                266,175
                
                
                
                316,049Other
                
                
                18,357
                
                
                
                15,614
                
                
                
                26,526
                
                
                
                35,819Total
                
                $
                326,658
                
                
                $
                201,950
                
                
                $
                455,597
                
                
                $
                630,722
  89
 
  b)
                The
      distribution of net revenue by business segment was as
      follows:
 
 Year
      ended
                
                
                Seven
      months ended
                
                
                Year
      endedMay
      31,
                
                
                December
      31,
                
                
                December
      31,(in
      thousands)2005
                
                
                2005
                
                
                2006
                
                
                2007Central
      laboratory
                
                $
                25,499
                
                
                $
                18,190
                
                
                $
                47,230
                
                
                $
                53,512Clinical
      research
                
                
                301,159
                
                
                
                183,760
                
                
                
                408,367
                
                
                
                577,210Total
                
                $
                326,658
                
                
                $
                201,950
                
                
                $
                455,597
                
                
                $
                630,722
 
 
 c)
                The
      distribution of income from operations by geographical area was as
      follows:
 
 Year
      ended
                
                
                Seven
      months ended
                
                
                Year
      endedMay
      31,
                
                
                December
      31,
                
                
                December
      31,(in
      thousands)2005
                
                
                2005
                
                
                2006
                
                
                2007Ireland
                
                $
                6,223
                
                
                $
                (8,338
                )
                
                $
                28,375
                
                
                $
                40,592Rest
      of Europe
                
                
                14,033
                
                
                
                10,437
                
                
                
                2,681
                
                
                
                7,234U.S.
                
                
                (4,130
                )
                
                
                5,152
                
                
                
                15,216
                
                
                
                19,166Other
                
                
                2,481
                
                
                
                4,301
                
                
                
                1,544
                
                
                
                2,250Total
                
                $
                18,607
                
                
                $
                11,552
                
                
                $
                47,816
                
                
                $
                69,242
 
 
 d)
                The
      distribution of income from operations by business segment was as
      follows:
 
 Year
      ended
                
                
                Seven
      months ended
                
                
                Year
      endedMay
      31,
                
                
                December
      31,
                
                
                December
      31,(in
      thousands)2005
                
                
                2005
                
                
                2006
                
                
                2007Central
      laboratory
                
                $
                (15,284
                )
                
                $
                (3,035
                )
                
                $
                2,297
                
                
                $
                3,717Clinical
      research
                
                
                33,891
                
                
                
                14,587
                
                
                
                45,519
                
                
                
                65,525Total
                
                $
                18,607
                
                
                $
                11,552
                
                
                $
                47,816
                
                
                $
                69,242
 
 
 e)
                The
      distribution of property, plant and equipment, net, by geographical area
      was as follows:
 
 December
      31,
                
                
                December
      31,
                
                
                December
      31,2005
                
                
                2006
                
                
                2007(in
      thousands)Ireland
                
                $
                22,538
                
                
                $
                33,999
                
                
                $
                82,127Rest
      of Europe
                
                
                6,669
                
                
                
                9,213
                
                
                
                15,547U.S.
                
                
                16,720
                
                
                
                21,421
                
                
                
                29,072Other
                
                
                1,725
                
                
                
                3,575
                
                
                
                6,680Total
                
                $
                47,652
                
                
                $
                68,208
                
                
                $
                133,426
 
 90
  f)
                The
      distribution of property, plant and equipment, net, by business segment
      was as follows:
 
 December
      31,
                
                
                December
      31,
                
                
                December
      31,2005
                
                
                2006
                
                
                2007(in
      thousands)Central
      laboratory
                
                $
                3,380
                
                
                $
                5,050
                
                
                $
                7,048Clinical
      research
                
                
                44,272
                
                
                
                63,158
                
                
                
                126,378Total
                
                $
                47,652
                
                
                $
                68,208
                
                
                $
                133,426
 
 
 g)
                The
      distribution of depreciation and amortization by geographical area was as
      follows:
 
 Year
      ended
                
                
                Seven
      months ended
                
                
                Year
      endedMay
      31,
                
                
                December
      31,
                
                
                December
      31,(in
      thousands)2005
                
                
                2005
                
                
                2006
                
                
                2007Ireland
                
                $
                5,091
                
                
                $
                3,115
                
                
                $
                5,099
                
                
                $
                5,972Rest
      of Europe
                
                
                2,157
                
                
                
                1,210
                
                
                
                2,489
                
                
                
                3,738U.S.
                
                
                5,552
                
                
                
                3,415
                
                
                
                6,521
                
                
                
                7,761Other
                
                
                531
                
                
                
                354
                
                
                
                840
                
                
                
                1,537Total
                
                $
                13,331
                
                
                $
                8,094
                
                
                $
                14,949
                
                
                $
                19,008
 
 
 h)
                The
      distribution of depreciation and amortization by business segment was as
      follows:
 
 Year
      ended
                
                
                Seven
      months ended
                
                
                Year
      endedMay
      31,
                
                
                December
      31,
                
                
                December
      31,(in
      thousands)2005
                
                
                2005
                
                
                2006
                
                
                2007Central
      laboratory
                
                $
                995
                
                
                $
                687
                
                
                $
                1,340
                
                
                $
                1,814Clinical
      research
                
                
                12,336
                
                
                
                7,407
                
                
                
                13,609
                
                
                
                17,194Total
                
                $
                13,331
                
                
                $
                8,094
                
                
                $
                14,949
                
                
                $
                19,008
 
 
 i)
                The
      distribution of total assets by geographical area was as
      follows:
 
 December
      31,
                
                
                December
      31,
                
                
                December
      31,2005
                
                
                2006
                
                
                2007(in
      thousands)Ireland
                
                $
                91,826
                
                
                $
                115,802
                
                
                $
                202,293Rest
      of Europe
                
                
                81,268
                
                
                
                100,212
                
                
                
                161,746U.S.
                
                
                169,231
                
                
                
                245,381
                
                
                
                301,183Other
                
                
                6,742
                
                
                
                14,946
                
                
                
                27,916Total
                
                $
                349,067
                
                
                $
                476,341
                
                
                $
                693,138
 
 91
  j)
                The
      distribution of total assets by business segment was as
      follows:
 
 December
      31,
                
                
                December
      31,
                
                
                December
      31,2005
                
                
                2006
                
                
                2007(in
      thousands)Central
      laboratory
                
                $
                17,150
                
                
                $
                28,272
                
                
                $
                40,562Clinical
      research
                
                
                331,917
                
                
                
                448,069
                
                
                
                652,576Total
                
                $
                349,067
                
                
                $
                476,341
                
                
                $
                693,138
 
 k)
                The
      distribution of capital expenditures by geographical area was as
      follows:
 
 Year
      ended
                
                
                Seven
      months ended
                
                
                Year
      endedMay
      31,
                
                
                December
      31,
                
                
                December
      31,(in
      thousands)2005
                
                
                2005
                
                
                2006
                
                
                2007Ireland
                
                $
                6,583
                
                
                $
                6,438
                
                
                $
                13,854
                
                
                $
                46,765Rest
      of Europe
                
                
                2,168
                
                
                
                600
                
                
                
                4,073
                
                
                
                8,346U.S.
                
                
                5,873
                
                
                
                4,197
                
                
                
                10,905
                
                
                
                15,727Other
                
                
                1,053
                
                
                
                425
                
                
                
                2,881
                
                
                
                4,812Total
                
                $
                15,677
                
                
                $
                11,660
                
                
                $
                31,713
                
                
                $
                75,650
 
 
 l)
                The
      distribution of capital expenditures by business segment was as
      follows:
 
 Year
      ended
                
                
                Seven
      months ended
                
                
                Year
      endedMay
      31,
                
                
                December
      31,
                
                
                December
      31,(in
      thousands)2005
                
                
                2005
                
                
                2006
                
                
                2007Central
      laboratory
                
                $
                965
                
                
                $
                948
                
                
                $
                2,538
                
                
                $
                3,874Clinical
      research
                
                
                14,712
                
                
                
                10,712
                
                
                
                29,175
                
                
                
                71,776Total
                
                $
                15,677
                
                
                $
                11,660
                
                
                $
                31,713
                
                
                $
                75,650
 
 
 m)
                The
      following table sets forth the clients which represented 10% or more of
      the Company's net revenue in each of the periods set out
      below.
 
 Year
      ended
                
                
                Seven
      months ended
                
                
                Year
      endedMay
      31,
                
                
                December
      31,
                
                
                December
      31,(in
      thousands)2005
                
                
                2005
                
                
                2006
                
                
                2007Client
      A
                
                
                12
                %
                
                
                *
                
                
                
                *
                
                
                
                *
 
 
 ·
                Net
      revenue did not exceed 10%
 
 92
  n)
                The
      distribution of interest income by geographical area was as
      follows:
 
 Year
      ended
                
                
                Seven
      months ended
                
                
                Year
      endedMay
      31,
                
                
                December
      31,
                
                
                December
      31,(in
      thousands)2005
                
                
                2005
                
                
                2006
                
                
                2007Ireland
                
                $
                103
                
                
                $
                115
                
                
                $
                162
                
                
                $
                -Rest
      of Europe
                
                
                881
                
                
                
                988
                
                
                
                2,737
                
                
                
                2,819U.S.
                
                
                206
                
                
                
                176
                
                
                
                822
                
                
                
                1,232Other
                
                
                18
                
                
                
                15
                
                
                
                44
                
                
                
                90Total
                
                $
                1,208
                
                
                $
                1,294
                
                
                $
                3,765
                
                
                $
                4,141
  
 o)
                The
      distribution of interest income by business segment was as
      follows:
 
 Year
      ended
                
                
                Seven
      months ended
                
                
                Year
      endedMay
      31,
                
                
                December
      31,
                
                
                December
      31,(in
      thousands)2005
                
                
                2005
                
                
                2006
                
                
                2007Central
      laboratory
                
                $
                12
                
                
                $
                9
                
                
                $
                97
                
                
                $
                182Clinical
      research
                
                
                1,196
                
                
                
                1,285
                
                
                
                3,668
                
                
                
                3,959Total
                
                $
                1,208
                
                
                $
                1,294
                
                
                $
                3,765
                
                
                $
                4,141
 
 
 p)
                The
      distribution of the tax charge by geographical area was as
      follows:
 
 Year
      ended
                
                
                Seven
      months ended
                
                
                Year
      endedMay
      31,
                
                
                December
      31,
                
                
                December
      31,(in
      thousands)2005
                
                
                2005
                
                
                2006
                
                
                2007Ireland
                
                $
                1,693
                
                
                $
                407
                
                
                $
                3,961
                
                
                $
                3,165Rest
      of Europe
                
                
                1,004
                
                
                
                1,460
                
                
                
                2,034
                
                
                
                4,512U.S.
                
                
                1,888
                
                
                
                1,671
                
                
                
                4,411
                
                
                
                6,755Other
                
                
                1,267
                
                
                
                1,858
                
                
                
                2,518
                
                
                
                1,398Total
                
                $
                5,852
                
                
                $
                5,396
                
                
                $
                12,924
                
                
                $
                15,830
 
 
 q)
                The
      distribution of the tax charge by business segment was as
      follows:
 
 Year
      ended
                
                
                Seven
      months ended
                
                
                Year
      endedMay
      31,
                
                
                December
      31,
                
                
                December
      31,(in
      thousands)2005
                
                
                2005
                
                
                2006
                
                
                2007Central
      laboratory
                
                $
                53
                
                
                $
                (84
                )
                
                $
                (2,877
                )
                
                $
                679Clinical
      research
                
                
                5,799
                
                
                
                5,480
                
                
                
                15,801
                
                
                
                15,151Total
                
                $
                5,852
                
                
                $
                5,396
                
                
                $
                12,924
                
                
                $
                15,830
 
 93
 
 18.
Supplemental Disclosure of Cash Flow Information
 
 Year
      ended
                
                
                Seven
      months ended
                
                
                Year
      endedMay
      31,
                
                
                December
      31,
                
                
                December
      31,(in
      thousands)2005
                
                
                2005
                
                
                2006
                
                
                2007Cash
      paid for interest
                
                $
                229
                
                
                $
                19
                
                
                $
                54
                
                
                $
                1,491Cash
      paid for income taxes
                
                $
                5,290
                
                
                $
                4,794
                
                
                $
                11,632
                
                
                $
                13,632
 
 19.
New Accounting Pronouncements
  In
February 2007, the FASB issued Statement of Financial Accounting Standards No.
159, The Fair Value Option for
Financial Assets and Financial Liabilities – including an amendment of FASB
Statement No. 115 (SFAS No. 159). SFAS No. 159 gives the Company the
irrevocable option to carry most financial assets and liabilities at fair value
that are not currently required to be measured at fair value. If the fair value
option is elected, changes in fair value would be recorded in earnings at each
subsequent reporting date. SFAS No. 159 is effective for the Company’s 2008
fiscal year. The Company does not expect the adoption of SFAS No. 159 to have a
material impact on the financial statements.
 
 In
September 2006, the FASB issued FASB Statement No. 157, Fair Value Measurement(SFAS
No. 157). Statement 157 defines fair value, establishes a framework for the
measurement of fair value, and enhances disclosures about fair value
measurements. The Statement does not require any new fair value measures. The
Statement is effective for fair value measures already required or permitted by
other standards for fiscal years beginning after November 15, 2007. The Company
is required to adopt SFAS No. 157 beginning on January 1, 2008. SFAS No. 157 is
required to be applied prospectively, except for certain financial instruments.
Any transition adjustment will be recognized as an adjustment to opening
retained earnings in the year of adoption. In November 2007, the FASB proposed a
one-year deferral of SFAS No. 157’s fair-value measurement requirements for
nonfinancial assets and liabilities that are not required or permitted to be
measured at fair value on a recurring basis. The Company does not expect the
adoption of SFAS No. 157 to have a material impact on the financial
statements.
 
 In
December 2007, the FASB issued FASB Statement No. 141R, Business Combinations (SFAS
No. 141R) and FASB Statement No. 160, Noncontrolling Interests in
Consolidated Financial Statements– an amendment to ARB No. 51 (SFAS No.
160). SFAS No. 141R and SFAS No. 160 require most identifiable assets,
liabilities, noncontrolling interests, and goodwill acquired in a business
combination to be recorded at “full fair value” and require noncontrolling
interests (previously referred to as minority interests) to be reported as a
component of equity, which changes the accounting for transactions with
noncontrolling interest holders. Both Statements are effective for periods
beginning on or after December 15, 2008, and earlier adoption is prohibited.
SFAS No. 141R will be applied to business combinations occurring after the
effective date. SFAS No. 160 will be applied prospectively to all noncontrolling
interests, including any that arose before the effective date. The Company does
not expect the adoption of SFAS No. 141R and SFAS No. 160 to have a material
impact on the financial statements.
 
 94
  20.
Related Parties
 
 As at
December 31, 2007, Amarin Investment Holding Limited (a company controlled by
Mr. Thomas Lynch), and Sunninghill Limited (a company controlled by Dr. John
Climax) held 10.7 million and 9.4 million shares respectively in Amarin
Corporation plc (“Amarin”). These respective holdings equate to approximately
7.7% and 6.8% respectively, of Amarin's issued share capital.  Thomas
Lynch also serves as Chairman and Chief Executive Officer of Amarin. Amarin
Corporation plc ("Amarin") is a neuroscience company focused on the research,
development and commercialization of drugs for the treatment of central nervous
system disorders.  During the fiscal year ending May 31, 2005, Amarin
contracted ICON Clinical Research Limited (a wholly owned subsidiary of ICON),
to conduct a clinical trial on its behalf.  The total potential value
of this study is $7 million. During the year ended December 31, 2007, the
Company recognized $2.2 million of revenue relating to the Amarin
contract.  At December 31, 2007, $1.5 million was outstanding to be
received from Amarin on this trial.
  As at
December 31, 2007, Dr. John Climax and Dr. Ronan Lambe held 4.47% and 4.19%
respectively of the issued share capital of NuPathe Inc.
(“NuPathe”).  NuPathe  is a specialty pharmaceutical company
specializing in the acquisition and development of therapeutic products in the
area of neuroscience. Dr. Climax also serves as a non-executive director and
chairman of the compensation committee on the Board of NuPathe. During the year
ending December 31, 2006, NuPathe engaged ICON Clinical Research Limited (a
wholly owned subsidiary of ICON), in consulting and clinical trial related
activities. During the year ended December 31, 2007, the Company recognized $0.1
million relating to the NuPathe contract.  As at December 31, 2007,
$0.1 million was due from NuPathe.
  Prior to
June 25, 2007, Dr. Bruce Given served as the President and Chief Executive
Officer of Encysive Pharmaceuticals Inc. (“Encysive”).  Encysive is a
biopharmaceutical company specializing in the development and commercialization
of synthetic, small molecule compounds. As of December 31, 2007, Dr. Bruce
Given’s holdings in Encysive was less than 0.1% of the issued share capital.
During the year ending December 31, 2003, Encysive engaged ICON Clinical
Research Limited (a wholly owned subsidiary of ICON), in consulting and clinical
trial related activities. The total potential contract value of this study is
$0.8 million.  During the year ending December 31, 2007, ICON
recognized a total of $0.1 million of revenue in relation to these
activities.
  As of
December 31, 2007, Dr. Ronan Lambe held 1.4 million shares in AGI Therapeutics
Limited (“AGI”), a specialty pharmaceutical company focused on developing drug
therapies for gastrointestinal diseases and disorders. This holding equates to
approximately 2.13% of AGI's issued share capital. In January 2006, Dr. Ronan
Lambe was appointed a non-executive director of AGI and took up the position of
non-executive Chairman from February 2006. ICON is engaged in conducting a
series of clinical trials on behalf of AGI. During September 2004, AGI
contracted ICON Clinical Research Limited (a wholly owned subsidiary of ICON),
to conduct a clinical trial on its behalf. The total potential value of this
study is $2.8m.  During the year ended December 31, 2006, the Company
recognized $0.5m of revenue relating to the AGI contract.  No revenue
was recognized during the year ended December 31, 2007.  At December
31, 2006, $0.4m was outstanding to be received from AGI on this trial. There
were no amounts outstanding as at December 31, 2007.
  On
December 6, 2005, Dr. Ronan Lambe and Dr. John Climax gifted 128,000 and 160,000
ADSs, respectively, to Mr. Peter Gray, the Company’s Chief Executive Officer.
ICON has accounted for these transfers of equity instruments from shareholders
to Mr. Gray as share based payment transactions, and recorded a compensation
expense of $6,024,000 in its Statement of Operations, measured by reference
to the fair value of the ADSs on the grant date. As this transaction is a
transfer of already issued stock between officers and directors of the Company,
the expense recorded had no cash flow impact on the Company and created no
dilution of ordinary shares outstanding.  The fair value of the ADSs on the
date of gift was determined by reference to market price.
  21.
Acquisition of Healthcare Discoveries Inc.
  On
February 8, 2008, the Company acquired 100% of the outstanding shares of
Healthcare Discoveries Inc., a Phase I
unit locatedin Texas, USA for an initial cash
consideration of $12 million.  Further consideration of up to $10
million may become payable during the year ended December 31, 2008, if certain
performance milestones are achieved.
  95
  SIGNATURES
  
 The
Registrant certifies that it meets all of the US requirements for filing on Form
20-F and has duly caused and authorized this annual report to be signed on its
behalf.
  ICON
      plc/s/
      Ciaran MurrayDate
      February 20, 2008
                
                Ciaran
      MurrayChief
      Financial Officer
   
 96
 
 INDEX
TO EXHIBITS
  Exhibit
                  Number
                
                Title4.1
                
                Amended
      and Restated Deposit Agreement (incorporated by reference to
      Exhibit 1 to the Post-Effective Amendment No. 1 to the Form F-6
      (File No. 333-143546) filed on December 18, 2007).4.2
                
                Exhibit
      A to Amended and Restated Deposit Agreement (incorporated by reference to
      Exhibit 1 to the Post-Effective Amendment No. 1 to the Form F-6
      (File No. 333-143546) filed on December 18, 2007).8.1
                
                List
      of Subsidiaries (incorporated by reference to Item 4 of Form 20-F filed
      herewith).12.1*
                
                Section
      302 certifications.12.2*
                
                Section
      906 certifications.
  *           Filed
herewith