##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2007
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from        to
 Commission
File Number:  000-51029
 PRA INTERNATIONAL
 (Exact name of Registrant as Specified in Its Charter)
 Delaware
    
    54-2040171(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation)
    
    Identification No.)
 12120 Sunset Hills Road
Suite 600
Reston, Virginia 20190  (Address of principal executive offices)
 (703) 464-6300  (Registrants telephone number, including area code)
 
 þ o
  o þ o
 o þ




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##### 



INDEX
 PagePart I Financial InformationItem 1. Financial Statements
    
    
    3Consolidated Condensed Balance Sheets as of December 31, 2006 and September 30, 2007 (unaudited)
    
    
    3Consolidated Condensed Statements of Operations (unaudited) for the Three and Nine Months Ended
September 30, 2006 and 2007
    
    
    4Consolidated Condensed Statement of Changes in Stockholders Equity and Other Comprehensive
Income (unaudited) for the Nine Months Ended September 30, 2007
    
    
    5Consolidated Condensed Statements of Cash Flows (unaudited) for the Nine Months Ended September
30, 2006 and 2007
    
    
    6Notes to Consolidated Condensed Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    27Item 4. Controls and Procedures
    
    
    28Part II Other InformationItem 1. Legal Proceedings
    
    
    28Item 6. Exhibits
    
    
    29Exhibit 21.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
  2




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##### Table of Contents



PART I FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 PRA INTERNATIONAL AND SUBSIDIARIES
 
 CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except per share amounts)
 December 31,
    
    
    September 30,2006
    
    
    2007(Unaudited)ASSETSCurrent assetsCash and cash equivalents
    
    $
    44,490
    
    
    $
    38,401Accounts receivable and unbilled services, net
    
    
    106,298
    
    
    
    118,000Prepaid expenses and other current assets
    
    
    21,050
    
    
    
    24,237Deferred tax assets
    
    
    191
    
    
    
    5,082Total current assets
    
    
    172,029
    
    
    
    185,720Fixed assets, net
    
    
    33,663
    
    
    
    34,865Goodwill
    
    
    210,761
    
    
    
    221,221Other intangibles, net of accumulated amortization of $8,446 and $11,379 as of
December 31, 2006 and September 30, 2007, respectively
    
    
    33,493
    
    
    
    31,716Deferred tax assets
    
    
    2,183
    
    
    
    2,220Other assets
    
    
    2,126
    
    
    
    1,371Total assets
    
    $
    454,255
    
    
    $
    477,113LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    16,892
    
    
    $
    17,466Accrued expenses and other current liabilities
    
    
    31,276
    
    
    
    38,992Income taxes payable
    
    
    10,724
    
    
    
    4,481Advance billings
    
    
    101,618
    
    
    
    111,959Deferred tax liability
    
    
    3,491
    
    
    
    4,230Capital leases, current portion
    
    
    131
    
    
    
    1Total current liabilities
    
    
    164,132
    
    
    
    177,129Deferred tax liability
    
    
    7,571
    
    
    
    8,125Other liabilities
    
    
    7,137
    
    
    
    5,918Debt
    
    
    24,000
    
    
    
    Capital leases
    
    
    47
    
    
    
    45Total liabilities
    
    
    202,887
    
    
    
    191,217Commitments and ContingenciesStockholders equityPreferred Shares; 250,000 shares authorized and 0 shares issued as of September 30, 2007
    
    
    
    
    
    
    Common stock $0.01 par value; 36,000,000 shares authorized as of December 31, 2006 and
September 30, 2007; 24,242,772 and 24,780,241 shares issued and 24,228,056 and
24,764,676 shares outstanding as of December 31, 2006 and September 30, 2007,
respectively
    
    
    243
    
    
    
    248Treasury stock
    
    
    (108
    )
    
    
    (162
    )Additional paid-in capital
    
    
    156,779
    
    
    
    169,565Accumulated other comprehensive income
    
    
    12,732
    
    
    
    24,312Retained earnings
    
    
    81,722
    
    
    
    91,933Total stockholders equity
    
    
    251,368
    
    
    
    285,896Total liabilities and stockholders equity
    
    $
    454,255
    
    
    $
    477,113
  3




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##### Table of Contents



PRA INTERNATIONAL AND SUBSIDIARIES
 
 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2007
    
    
    2006
    
    
    2007RevenueService revenue
    
    $
    81,504
    
    
    $
    96,657
    
    
    $
    220,797
    
    
    $
    271,883Reimbursement revenue
    
    
    8,120
    
    
    
    10,778
    
    
    
    24,829
    
    
    
    35,272Total revenue
    
    
    89,624
    
    
    
    107,435
    
    
    
    245,626
    
    
    
    307,155Operating expensesDirect costs
    
    
    40,988
    
    
    
    53,690
    
    
    
    112,729
    
    
    
    150,223Reimbursable out-of-pocket costs
    
    
    8,120
    
    
    
    10,778
    
    
    
    24,829
    
    
    
    35,272Selling, general, and administrative
    
    
    25,833
    
    
    
    29,480
    
    
    
    72,705
    
    
    
    95,847Depreciation and amortization
    
    
    3,697
    
    
    
    3,918
    
    
    
    8,774
    
    
    
    11,492Income from operations
    
    
    10,986
    
    
    
    9,569
    
    
    
    26,589
    
    
    
    14,321Interest expense
    
    
    (529
    )
    
    
    (211
    )
    
    
    (823
    )
    
    
    (974
    )Interest income
    
    
    265
    
    
    
    327
    
    
    
    1,296
    
    
    
    982Other expense
    
    
    (65
    )
    
    
    (179
    )
    
    
    (519
    )
    
    
    (572
    )Income before income taxes
    
    
    10,657
    
    
    
    9,506
    
    
    
    26,543
    
    
    
    13,757Provision for income taxes
    
    
    2,474
    
    
    
    2,996
    
    
    
    5,419
    
    
    
    3,546Net income
    
    $
    8,183
    
    
    $
    6,510
    
    
    $
    21,124
    
    
    $
    10,211Net income per shareBasic
    
    $
    0.34
    
    
    $
    0.26
    
    
    $
    0.91
    
    
    $
    0.42Diluted
    
    $
    0.33
    
    
    $
    0.26
    
    
    $
    0.86
    
    
    $
    0.40Weighted average number of common shares outstandingBasic
    
    
    23,754
    
    
    
    24,691
    
    
    
    23,294
    
    
    
    24,496Diluted
    
    
    24,938
    
    
    
    25,454
    
    
    
    24,557
    
    
    
    25,312
  4




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##### Table of Contents



CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS
EQUITY AND OTHER COMPREHENSIVE INCOME
(Unaudited)
(In thousands)
 AdditionalPaid-in
    
    
    AccumulatedCapital
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    OtherCommon Stock
    
    
    Treasury Stock
    
    
    Common
    
    
    Comprehensive
    
    
    Retained
    
    
    
    
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Stock
    
    
    Income
    
    
    Earnings
    
    
    Total
    
    
    IncomeBalance as of
December 31, 2006
    
    
    24,242,772
    
    
    $
    243
    
    
    
    14,716
    
    
    $
    (108
    )
    
    $
    156,779
    
    
    $
    12,732
    
    
    $
    81,722
    
    
    $
    251,368Exercise of common stock
options
    
    
    537,469
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    5,261
    
    
    
    
    
    
    
    
    
    
    
    5,266Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    3,500
    
    
    
    (77
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (77
    )Shares issued from the
manager stock purchase
plan
    
    
    
    
    
    
    
    
    
    
    (2,651
    )
    
    
    23
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23Stock-based compensation
expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,744
    
    
    
    
    
    
    
    
    
    
    
    4,744Stock option tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,781
    
    
    
    
    
    
    
    
    
    
    
    2,781Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,211
    
    
    
    10,211
    
    
    $
    10,211Other comprehensive income
Foreign currency
translation adjustment,
net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,351
    
    
    
    
    
    
    
    11,351
    
    
    
    11,351Change in fair value of
hedging instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    229
    
    
    
    
    
    
    
    229
    
    
    
    229Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    21,791Balance as of September
30, 2007 (unaudited)
    
    
    24,780,241
    
    
    $
    248
    
    
    
    15,565
    
    
    $
    (162
    )
    
    $
    169,565
    
    
    $
    24,312
    
    
    $
    91,933
    
    
    $
    285,896
  5




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##### Table of Contents



PRA INTERNATIONAL AND SUBSIDIARIES
 
 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 Nine Months EndedSeptember 30,2006
    
    
    2007Cash flow from operating activitiesNet income
    
    $
    21,124
    
    
    $
    10,211Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    8,774
    
    
    
    11,492Stock-based compensation
    
    
    3,478
    
    
    
    4,744Provision for doubtful receivables
    
    
    416
    
    
    
    Deferred income tax benefit
    
    
    (4,582
    )
    
    
    (4,146
    )Loss on disposal of fixed assets
    
    
    
    
    
    
    771Excess tax benefits from share-based compensation
    
    
    (1,626
    )
    
    
    (2,755
    )Changes in assets and liabilities, net of acquisition:Accounts receivable and unbilled services
    
    
    (17,745
    )
    
    
    (9,036
    )Prepaid expenses and other assets
    
    
    751
    
    
    
    (3,317
    )Accounts payable and accrued expenses
    
    
    (22,330
    )
    
    
    5,123Income taxes
    
    
    4,557
    
    
    
    (1,012
    )Advance billings
    
    
    22,512
    
    
    
    6,983Net cash provided by operating activities
    
    
    15,329
    
    
    
    19,058Cash flow from investing activitiesPurchase of fixed assets
    
    
    (4,941
    )
    
    
    (9,633
    )Disposal of fixed assets
    
    
    115
    
    
    
    29Cash paid for acquisitions, net of cash acquired
    
    
    (93,450
    )
    
    
    Net cash used in investing activities
    
    
    (98,276
    )
    
    
    (9,604
    )Cash flow from financing activitiesDrawdown on revolving line of credit
    
    
    30,000
    
    
    
    Repayment of debt
    
    
    (6,000
    )
    
    
    (24,000
    )Repayment of capital leases
    
    
    (50
    )
    
    
    (141
    )Purchase of treasury stock
    
    
    
    
    
    
    (77
    )Excess tax benefits from share-based compensation
    
    
    1,626
    
    
    
    2,755Proceeds from stock option exercises
    
    
    2,619
    
    
    
    5,266Net cash provided by (used in ) financing activities
    
    
    28,195
    
    
    
    (16,197
    )Effect of exchange rate on cash and cash equivalents
    
    
    1,626
    
    
    
    654Decrease in cash and cash equivalents
    
    
    (53,126
    )
    
    
    (6,089
    )Cash and cash equivalents at beginning of period
    
    
    73,640
    
    
    
    44,490Cash and cash equivalents at end of period
    
    $
    20,514
    
    
    $
    38,401Supplemental disclosure of cash flow informationCash paid for taxes
    
    $
    5,957
    
    
    $
    7,998Cash paid for interest
    
    $
    487
    
    
    $
    604
  6




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##### Table of Contents



PRA INTERNATIONAL AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 (1) Acquisition of Company by Genstar Capital LLC
  (2) Basis of Preparation
  (3) Significant Accounting Policies
 Principles of Consolidation
  Use of Estimates
  Unbilled Services
  Fair Value of Financial Instruments
  7




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##### Table of Contents



Goodwill and Other Intangibles
  Advance Billings
  Revenue Recognition
    Reimbursement Revenue and Reimbursable Out-of-Pocket Costs
   Significant Customers
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2006
    
    2007
    
    2006
    
    2007Customer D
    
    
    *
    
    
    
    *
    
    
    
    10
    %
    
    
    *
 
 *
    
    Less than 10% of consolidated service revenues in the respective period. 8




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##### Table of Contents



Concentration of Credit Risk 
  December 31,
    
    September 30,2006
    
    2007Customer A
    
    
    16
    %
    
    
    18
    %
  Foreign Currency Translation
  Comprehensive Income
  Income Taxes
  Stock-Based Compensation
  9




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##### Table of Contents



Stock Options
   For the NineMonths EndedSeptember 30,2006
    
    2007Dividend yield
    
    
    0
    %
    
    
    0
    %Expected volatility
    
    
    48.63
    %
    
    
    34.95
    %Risk-free interest rate
    
    
    4.56
    %
    
    
    4.59
    %Expected terms in years
    
    
    4.75
    
    
    
    4.67
  For the NineMonths EndedSeptember 30,2006
    
    2007($ In thousands, except per share data)Weighted-average fair value of options granted per share
    
    $
    12.81
    
    
    $
    9.02Intrinsic value of options exercised
    
    $
    5,688
    
    
    $
    8,673Cash received from options exercised
    
    $
    2,619
    
    
    $
    5,266Actual tax benefit realized for tax deductions from option exercises
    
    $
    1,626
    
    
    $
    2,781
 10




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##### Table of Contents



Weighted AverageRemaining
    
    AggregateWeighted Average
    
    Contractual
    
    IntrinsicOptions
    
    Exercise Price
    
    Life
    
    Value(Millions)Outstanding December 31, 2006
    
    
    3,130,190
    
    
    $
    15.93Granted
    
    
    1,280,000
    
    
    
    24.11Exercised
    
    
    (537,469
    )
    
    
    9.80Expired/forfeited
    
    
    (300,343
    )
    
    
    23.58Outstanding September 30, 2007
    
    
    3,572,378
    
    
    $
    19.14
    
    
    
    5.5
    
    
    $
    37Exercisable at September 30, 2007
    
    
    1,340,808
    
    
    $
    10.81
    
    
    
    4.5
    
    
    $
    25
  Net income per share
    Three Months Ended
    
    
    Nine months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2007
    
    
    2006
    
    
    2007Numerator:Net income for basic and diluted EPS
    
    $
    8,183
    
    
    $
    6,510
    
    
    $
    21,124
    
    
    $
    10,211Denominator:Weighted average shares for basic EPS
    
    
    23,754
    
    
    
    24,691
    
    
    
    23,294
    
    
    
    24,496Effect of dilutive stock options
    
    
    1,184
    
    
    
    763
    
    
    
    1,263
    
    
    
    816Weighted average shares for diluted EPS
    
    
    24,938
    
    
    
    25,454
    
    
    
    24,557
    
    
    
    25,312Basic earnings per share
    
    $
    0.34
    
    
    $
    0.26
    
    
    $
    0.91
    
    
    $
    0.42Diluted earnings per share
    
    $
    0.33
    
    
    $
    0.26
    
    
    $
    0.86
    
    
    $
    0.40
  Recent Accounting Pronouncements
 Accounting for
Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109, Accounting for Income
Taxes
 11




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##### Table of Contents



Out-of-Period Adjustment
  (4) Accounts receivable and unbilled services
  December 31,
    
    
    September 30,2006
    
    
    2007Accounts receivable
    
    $
    68,491
    
    
    $
    80,041Unbilled services
    
    
    42,795
    
    
    
    42,080111,286
    
    
    
    122,121Less: Allowance for doubtful accounts
    
    
    (4,988
    )
    
    
    (4,121
    )$
    106,298
    
    
    $
    118,000
 (5) Goodwill and Other Intangibles
  Carrying amount as of December 31, 2006
    
    $
    210,761Acquisitions
    
    
    Foreign currency exchange rate changes
    
    
    10,460Carrying amount as of September 30, 2007
    
    $
    221,221
 12




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##### Table of Contents



As of December 31,
    
    
    As of September 30,Weighted
    
    
    2006
    
    
    2007Average
    
    
    Gross
    
    
    
    
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    NetAmortization
    
    
    Carrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Carrying
    
    
    Accumulated
    
    
    CarryingPeriod
    
    
    Amount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    Amount(In Years)Non-compete and other agreements
    
    
    2
    
    
    $
    3,088
    
    
    $
    2,779
    
    
    $
    309
    
    
    $
    3,166
    
    
    $
    3,165
    
    
    $
    1Customer relationships
    
    
    10
    
    
    
    18,908
    
    
    
    5,193
    
    
    
    13,715
    
    
    
    19,908
    
    
    
    7,740
    
    
    
    12,168Trade names
    
    Indefinite
    
    
    19,943
    
    
    
    474
    
    
    
    19,469
    
    
    
    20,021
    
    
    
    474
    
    
    
    19,547$
    41,939
    
    
    $
    8,446
    
    
    $
    33,493
    
    
    $
    43,095
    
    
    $
    11,379
    
    
    $
    31,716
  (In thousands)2007 (remaining 3 months)
    
    $
    8892008
    
    
    2,5582009
    
    
    1,6692010
    
    
    1,6692011
    
    
    1,3942012 and thereafter
    
    
    3,990$
    12,169
 (6) Accounting for Derivative Instruments and Hedging Activities
    13




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##### Table of Contents



(7) Commitments and Contingencies
 Legal Proceedings
  (8) Related-Party Transactions
  (9) Segment Reporting  Operations by Geographic Area
  Three Months Ended
    
    
    Nine months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2007
    
    
    2006
    
    
    2007Service revenueUnited States
    
    $
    43,017
    
    
    $
    46,327
    
    
    $
    120,856
    
    
    $
    127,349Canada
    
    
    7,970
    
    
    
    5,880
    
    
    
    23,713
    
    
    
    19,259Europe
    
    
    27,920
    
    
    
    40,204
    
    
    
    69,821
    
    
    
    113,946Other
    
    
    2,597
    
    
    
    4,246
    
    
    
    6,407
    
    
    
    11,329$
    81,504
    
    
    $
    96,657
    
    
    $
    220,797
    
    
    $
    271,883
 December 31,
    
    
    September 30,2006
    
    
    2007Long-lived assetsUnited States
    
    $
    19,376
    
    
    $
    18,550Canada
    
    
    866
    
    
    
    1,554Europe
    
    
    16,589
    
    
    
    17,299Other
    
    
    1,141
    
    
    
    1,053$
    37,972
    
    
    $
    38,456
 (10) Restructuring
   14




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##### Table of Contents



Severance andExecutiveReal Estate Costs
    
    
    Separation costs
    
    
    Other costs
    
    
    TotalBalance at December 31, 2006
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0Costs incurred and charged to expense
    
    
    5,364
    
    
    
    2,304
    
    
    
    297
    
    
    
    7,965Costs paid
    
    
    (4,077
    )
    
    
    (1,861
    )
    
    
    (256
    )
    
    
    (6,194
    )Balance at September 30, 2007
    
    $
    1,287
    
    
    $
    443
    
    
    $
    41
    
    
    $
    1,771
 15




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Acquisition of Company by Genstar Capital LLC
  Overview
      16




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##### Table of Contents



Announced Restructuring
   Service Revenue
     Reimbursement Revenue and Reimbursable Out-of-Pocket Costs
  17




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##### Table of Contents



Direct Costs
    Selling, General, and Administrative Expenses
  Depreciation and Amortization
  Income Taxes
   18




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##### Table of Contents



Exchange Rate Fluctuations
  September 30,
    
    December 31,
    
    September 30,2006
    
    2006
    
    2007U.S. Dollars per:Euro
    
    
    1.25
    
    
    
    1.26
    
    
    
    1.35Pound Sterling
    
    
    1.82
    
    
    
    1.85
    
    
    
    2.00Canadian Dollar
    
    
    0.89
    
    
    
    0.88
    
    
    
    0.91
 Results of Operations
   Nine monthsEndedYear Ended December 31,
    
    September 30,2004
    
    2005
    
    2006
    
    2006
    
    2007Service revenue
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Direct costs
    
    
    48.3
    
    
    
    46.3
    
    
    
    50.9
    
    
    
    51.1
    
    
    
    55.3Selling, general, and administrative
    
    
    32.5
    
    
    
    32.5
    
    
    
    34.0
    
    
    
    32.9
    
    
    
    35.3Depreciation and amortization
    
    
    3.5
    
    
    
    3.8
    
    
    
    4.2
    
    
    
    4.0
    
    
    
    4.2Management fee
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Option repurchase
    
    
    1.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Vested option bonus
    
    
    0.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income from operations
    
    
    13.1
    
    
    
    17.4
    
    
    
    10.9
    
    
    
    12.0
    
    
    
    5.3Interest expense
    
    
    (1.4
    )
    
    
    (0.2
    )
    
    
    (0.5
    )
    
    
    (0.4
    )
    
    
    (0.4
    )Interest income
    
    
    0.1
    
    
    
    0.6
    
    
    
    0.6
    
    
    
    0.6
    
    
    
    0.4Other income (expenses), net
    
    
    0.0
    
    
    
    (0.4
    )
    
    
    0.1
    
    
    
    (0.2
    )
    
    
    (0.2
    )Income before income taxes
    
    
    11.8
    
    
    
    17.4
    
    
    
    11.1
    
    
    
    12.0
    
    
    
    5.1Provision for income taxes
    
    
    4.3
    
    
    
    6.4
    
    
    
    2.2
    
    
    
    2.5
    
    
    
    1.3Net income
    
    
    7.5
    %
    
    
    10.9
    %
    
    
    8.9
    %
    
    
    9.6
    %
    
    
    3.8
    %
 19




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##### Table of Contents



Selected Consolidated Financial Data
  Nine months EndedYear Ended December 31,
    
    
    September 30,2004
    
    
    2005
    
    
    2006
    
    
    2006
    
    
    2007(Unaudited)
    
    
    (Unaudited)RevenueService revenue
    
    $
    277,479
    
    
    $
    294,739
    
    
    $
    303,207
    
    
    $
    220,797
    
    
    $
    271,883Reimbursement revenue
    
    
    30,165
    
    
    
    31,505
    
    
    
    34,959
    
    
    
    24,829
    
    
    
    35,272Total revenue
    
    $
    307,644
    
    
    $
    326,244
    
    
    $
    338,166
    
    
    $
    245,626
    
    
    $
    307,155Operating expensesDirect costs
    
    
    134,067
    
    
    
    136,572
    
    
    
    154,416
    
    
    
    112,729
    
    
    
    150,223Reimbursable out-of-pocket costs
    
    
    30,165
    
    
    
    31,505
    
    
    
    34,959
    
    
    
    24,829
    
    
    
    35,272Selling, general, and administrative
    
    
    90,139
    
    
    
    95,827
    
    
    
    103,031
    
    
    
    72,705
    
    
    
    95,847Depreciation and amortization
    
    
    9,691
    
    
    
    11,156
    
    
    
    12,587
    
    
    
    8,774
    
    
    
    11,492Management fee
    
    
    704
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Option repurchase(1)
    
    
    3,713
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Vested option bonus(1)
    
    
    2,738
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income from operations
    
    
    36,427
    
    
    
    51,184
    
    
    
    33,173
    
    
    
    26,589
    
    
    
    14,321Interest income (expense), net
    
    
    (3,643
    )
    
    
    1,181
    
    
    
    104
    
    
    
    473
    
    
    
    8Other income (expenses), net
    
    
    (38
    )
    
    
    (1,137
    )
    
    
    220
    
    
    
    (519
    )
    
    
    (572
    )Income before income taxes
    
    
    32,746
    
    
    
    51,228
    
    
    
    33,497
    
    
    
    26,543
    
    
    
    13,757Provision for income taxes
    
    
    11,997
    
    
    
    19,005
    
    
    
    6,652
    
    
    
    5,419
    
    
    
    3,546Net income
    
    $
    20,749
    
    
    $
    32,223
    
    
    $
    26,845
    
    
    $
    21,124
    
    
    $
    10,211Net income per shareBasic
    
    $
    1.13
    
    
    $
    1.43
    
    
    $
    1.14
    
    
    $
    0.91
    
    
    $
    0.42Diluted
    
    $
    1.02
    
    
    $
    1.32
    
    
    $
    1.08
    
    
    $
    0.86
    
    
    $
    0.40Shares used to compute net income per
share:Basic
    
    
    18,442,313
    
    
    
    22,527,108
    
    
    
    23,509,725
    
    
    
    23,294,442
    
    
    
    24,495,519Diluted
    
    
    20,329,852
    
    
    
    24,389,592
    
    
    
    24,749,664
    
    
    
    24,557,484
    
    
    
    25,311,548Other Financial Data:Net cash provided by operating activities
    
    $
    71,636
    
    
    $
    1,509
    
    
    $
    37,519
    
    
    $
    15,329
    
    
    $
    19,058Net cash provided by (used in) investing
activities
    
    
    (32,350
    )
    
    
    4,016
    
    
    
    (102,790
    )
    
    
    (98,276
    )
    
    
    (9,604
    )Net cash provided by (used in) financing
activities
    
    
    (6,430
    )
    
    
    2,455
    
    
    
    30,848
    
    
    
    28,195
    
    
    
    (16,197
    )Non-GAAP Data:Adjusted EBITDA(2)
    
    $
    52,531
    
    
    $
    61,203
    
    
    $
    45,980
    
    
    $
    34,844
    
    
    $
    25,241Adjusted EBITDA as a % of service revenue
    
    
    18.9
    %
    
    
    20.8
    %
    
    
    15.2
    %
    
    
    15.8
    %
    
    
    9.3
    %EBITDA(2)
    
    $
    46,080
    
    
    $
    61,203
    
    
    $
    45,980
    
    
    $
    34,844
    
    
    $
    25,241EBITDA as a % of service revenue
    
    
    16.6
    %
    
    
    20.8
    %
    
    
    15.2
    %
    
    
    15.8
    %
    
    
    9.3
    %Consolidated Balance Sheet Data:Cash and cash equivalents
    
    $
    65,888
    
    
    $
    73,640
    
    
    $
    44,490
    
    
    $
    20,514
    
    
    $
    38,401Marketable securities
    
    
    24,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Working capital (deficit)
    
    
    11,478
    
    
    
    41,760
    
    
    
    7,897
    
    
    
    (3,779
    )
    
    
    8,591Total assets
    
    
    337,344
    
    
    
    329,364
    
    
    
    454,255
    
    
    
    418,351
    
    
    
    477,113Long-term debt and capital leases, less
current maturities
    
    
    75
    
    
    
    9
    
    
    
    24,047
    
    
    
    24,004
    
    
    
    45Stockholders equity
    
    
    150,379
    
    
    
    188,866
    
    
    
    251,368
    
    
    
    235,529
    
    
    
    285,896
 20




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##### Table of Contents



(1)
    
    Includes a $3.7 million charge for the repurchase of options,
predominantly from former employees, and a $2.7 million charge for a
per-vested-option bonus paid to all employee option holders, both of
which were executed in connection with the culmination of the January
2004 tender process.(2)
    
    Adjusted EBITDA and EBITDA are not substitutes for operating income,
net income, or cash flow from operating activities as determined in
accordance with GAAP as measures of performance or liquidity. See
Managements Discussion and Analysis of Financial Condition and
Results of Operations  Non-GAAP Financial Measures. For each of the
periods indicated, the following table sets forth a reconciliation of
EBITDA and Adjusted EBITDA to net cash provided by (used in) operating
activities and to net income. Nine months EndedYear Ended December 31,
    
    
    September 30,2004
    
    
    2005
    
    
    2006
    
    
    2006
    
    
    2007(Unaudited)
    
    
    (Unaudited)Adjusted EBITDA
    
    $
    52,531
    
    
    $
    61,203
    
    
    $
    45,980
    
    
    $
    34,844
    
    
    $
    25,241Option repurchase
    
    
    (3,713
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Vested option bonus
    
    
    (2,738
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    EBITDA
    
    
    46,080
    
    
    
    61,203
    
    
    
    45,980
    
    
    
    34,844
    
    
    
    25,241Depreciation and amortization
    
    
    (9,691
    )
    
    
    (11,156
    )
    
    
    (12,587
    )
    
    
    (8,774
    )
    
    
    (11,492
    )Interest expense, net
    
    
    (3,643
    )
    
    
    1,181
    
    
    
    104
    
    
    
    473
    
    
    
    8Provision for income taxes
    
    
    (11,997
    )
    
    
    (19,005
    )
    
    
    (6,652
    )
    
    
    (5,419
    )
    
    
    (3,546
    )Net income
    
    
    20,749
    
    
    
    32,223
    
    
    
    26,845
    
    
    
    21,124
    
    
    
    10,211Depreciation and amortization
    
    
    9,691
    
    
    
    11,156
    
    
    
    12,587
    
    
    
    8,774
    
    
    
    11,492Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    4,455
    
    
    
    3,478
    
    
    
    4,744Provision for doubtful receivables
    
    
    1,914
    
    
    
    (123
    )
    
    
    1,023
    
    
    
    416
    
    
    
    Excess tax benefits from share-based compensation
    
    
    
    
    
    
    2,986
    
    
    
    (2,625
    )
    
    
    (1,626
    )
    
    
    (2,755
    )Provision for deferred income taxes
    
    
    2,606
    
    
    
    2,354
    
    
    
    (666
    )
    
    
    (4,582
    )
    
    
    (4,146
    )Loss on disposal of fixed assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    771Debt issuance costs write off
    
    
    1,241
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Changes in assets and liabilities:Accounts receivable and unbilled services
    
    
    15,373
    
    
    
    (3,057
    )
    
    
    (14,805
    )
    
    
    (17,745
    )
    
    
    (9,036
    )Prepaid expenses and other assets
    
    
    1,226
    
    
    
    (2,465
    )
    
    
    (10,410
    )
    
    
    751
    
    
    
    (3,317
    )Accounts payable and accrued expenses
    
    
    7,793
    
    
    
    11,022
    
    
    
    (22,941
    )
    
    
    (22,330
    )
    
    
    5,123Income taxes
    
    
    12,150
    
    
    
    (3,677
    )
    
    
    8,647
    
    
    
    4,557
    
    
    
    (1,012
    )Advance billings
    
    
    (1,107
    )
    
    
    (48,910
    )
    
    
    35,409
    
    
    
    22,512
    
    
    
    6,983Net cash provided by operating activities
    
    $
    71,636
    
    
    $
    1,509
    
    
    $
    37,519
    
    
    $
    15,329
    
    
    $
    19,058
 Three Months Ended September 30, 2007 Compared to Three Months Ended September 30, 2006
    21




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##### Table of Contents



Nine months Ended September 30, 2007 Compared to Nine months Ended September 30, 2006
       22




---



##### Table of Contents



Liquidity and Capital Resources
        23




---



##### Table of Contents



Non-GAAP Financial Measures
      Critical Accounting Policies and Estimates
  24




---



##### Table of Contents



Revenue Recognition
  Allowance for Doubtful Accounts
  Tax Valuation Allowance
   Stock-Based Compensation
  25




---



##### Table of Contents



Long-Lived Assets and Goodwill and Indefinite-lived Intangible Assets
    Inflation
  26




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##### Table of Contents



Potential Liability and Insurance
  Special Note Regarding Risks and Forward-Looking Statements
  
 ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Risk
  Foreign Exchange Risk and Foreign Currency Hedges
    27




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##### Table of Contents



ITEM 4  CONTROLS AND PROCEDURES
 Effectiveness of Our Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
  
 PART II OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  28




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##### Table of Contents



ITEM 6. EXHIBITS
 ExhibitNumber
    
    Description of Exhibit2.1
    
    Agreement and Plan of Merger, dated
as of July 24, 2007, by and among PRA International, GG Holdings
I, Inc. and GG Merger Sub I, Inc. (Incorporated by reference to
Exhibit 2.1 to PRA Internationals current report on
Form 8-K filed with the SEC on July 25, 2007).21.1 (1)
    
    Subsidiaries of PRA International.31.1 (1)
    
    Certification of the Chief Executive Officer pursuant to Rule 13a-14(a).31.2 (1)
    
    Certification of the Chief Financial Officer pursuant to Rule 13a-14(a).32.1 (2)
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002  Chief Executive Officer.32.2 (2)
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002  Chief Financial Officer.
 
 (1)
    
    Filed herewith.(2)
    
    Furnished herewith. 29




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##### Table of Contents



SIGNATURES
  PRA INTERNATIONALBy:
    /s/  Terrance J. BiekerName:
    Terrance J. BiekerTitle:
    Chief Executive OfficerBy:
    /s/  Linda BaddourName:
    Linda BaddourTitle:
    Chief Financial Officer  30