##### Table of Contents



UNITED
    STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
    20549
      Form 10-K
  ANNUAL REPORT
 PURSUANT TO SECTION 13 OR
    15(d)
 OF THE SECURITIES EXCHANGE ACT
    OF 1934
  For the fiscal year ended December 31, 2006
  Commission file number:
    000-51029
      PRA INTERNATIONAL
 (Exact name of Registrant as
    Specified in Its Charter)
  Delaware

54-2040171(State or Other Jurisdiction
    of
    Incorporation)

(I.R.S. Employer
    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)
  Securities registered pursuant to Section 12(b) of the
    Act:
 Common Stock, $0.01 par value per share
 NASDAQ Global Market
  Securities registered pursuant to Section 12(g) of the
    Act:
 None
     o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
 o þ o
  Rule 12b-2 o þ




---



##### 



PRA
    INTERNATIONAL
  FORM 10-K
    ANNUAL REPORT
  FOR THE
    YEAR ENDED DECEMBER 31, 2006
  TABLE OF
    CONTENTS
  PagePART IItem 1.


Business


4Item 1B.


Unresolved Staff
    Comments


27Item 2.


Description of
    Properties


27Item 3.


Legal
    Proceedings


27Item 4.


Submission of
    Matters to a Vote of Security Holders


28PART IIItem 5.


Market for
    Registrants Common Equity and Related Stockholder
    Matters


28Item 6.


Selected
    Consolidated Financial Data


31Item 7.


Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


34Item 7A.


Quantitative and
    Qualitative Disclosures About Market Risk


47Item 8.


Index to
    Consolidated Financial Statements


49Item 9.


Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure


50Item 9A.


Controls and
    Procedures


50PART IIIItem 10.


Directors and
    Executive Officers of the Registrant


51Item 11.


Executive
    Compensation


51Item 12.


Security Ownership
    of Certain Beneficial Owners and Management


51Item 13.


Certain
    Relationships and Related Transactions


51Item 14.


Principal
    Accountant Fees and Services


51PART IVItem 15.


Exhibits, Financial
    Statement Schedules, and Reports on
    Form 8-KSubsidiaries of PRA InternationalConsent of PricewaterhouseCoopers LLPCertification of CEOCertification of CFOCertification of CEOCertification of CFO    SPECIAL
    NOTE REGARDING FORWARD-LOOKING STATEMENTS
    
    the possibility of business disruption in connection with our
    restructuring initiatives;
    the effect of contracts, which are generally terminable on
    little or no notice, being terminated;
    our ability to achieve growth objectives, particularly in our
    largest markets and new and emerging markets;
    our ability to implement our Project Assurance program and our
    standard operating procedures globally; 2




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
    our ability to successfully identify new business opportunities
    and acquisition candidates, and our ability to successfully
    integrate or manage any acquired business;
    our ability to meet our current and future supply needs and to
    control other costs under our contracts, many of which are
    fixed-fee contracts;
    our ability to attract and retain key personnel and executives,
    particularly individuals with scientific, technical and
    managerial expertise;
    competitive uncertainties in our markets that could lead to
    greater industry consolidation and increased price competition,
    including competition from full-service CROs, some of which are
    larger than we are and have greater resources, and from smaller
    entities with specialty focuses;
    our ability to compete on reliability, past performance,
    expertise and experience in specific therapeutic areas, scope of
    service offerings, strengths in various geographic markets,
    technological capabilities, ability to manage large-scale
    clinical trials both domestically and internationally, and price;
    our ability to retain and grow our global sales force, to bid
    successfully on proposal requests and to develop preferred
    vendor relationships;
    our ability to protect our intellectual property rights;
    the impact of substantial currency fluctuations and default risk
    on the results of our foreign operations;
    the effect of changes in market trends and operational
    requirements in the pharmaceutical and biotechnology industries;
    a general economic downturn in our markets, information
    technology systems outages or other sudden disruption in
    business operations beyond our control as a result of events
    such as acts of terrorism or war, natural disasters, pandemic
    situations and large scale power outages;
    the impact of evolving industry standards, rapid technological
    changes and health care reform;
    the effect of political, legal and regulatory risks, including
    the possible imposition of sanctions, as well as foreign
    exchange or other restrictions, imposed on us and our operations
    by governmental entities;
    our ability to comply with privacy laws, which vary in scope and
    complexity, in the multiple jurisdictions in which we
    operate; and
    the risk of an adverse outcome or potential liability in any
    material future litigations.     3




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PART I  ITEM 1.
    BUSINESS  Overview
        
    creating drug development and regulatory strategy plans;
    utilizing bioanalytical laboratory testing;
    executing Phase I clinical trials;
    performing Phase II through IV multi-center,
    international clinical trials;
    developing and analyzing integrated global clinical databases;
    preparing and submitting regulatory filings around the
    world; and
    managing long-term drug safety programs.    CRO
    Industry
  Overview
   4




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Global
    Drug Approval Process
    U.S. Approval Process.
  EU Approval Process.
   5




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Japan Approval Process.
  Drug
    Development Cycle
    
    Phase I.  Phase I trials are
    conducted in healthy individuals and usually involve 20 to 80
    subjects and typically range from six to 12 months. These
    trials are designed to establish the basic safety, dose
    tolerance, and metabolism of the clinical product candidate. If
    the trial establishes basic safety and metabolism of the
    clinical product candidate, Phase II trials begin.
    Phase II.  Phase II trials are
    conducted in patients who have the disorder a molecule is
    designed to treat. These trials typically test 100 to
    300 patients and last on average 12 to 18 months.
    Phase II trials are typically designed to identify possible
    adverse effects and safety risks, to determine the efficacy of
    the clinical product candidate, and to determine dose tolerance.
    If the molecule appears safe and effective, Phase III
    trials begin.
    Phase III.  Phase III trials involve
    significantly larger and more diverse populations than
    Phase I and II trials and are conducted at multiple sites.
    On average, this phase lasts from one to three years. Depending
    on the size and complexity, Phase III CRO contracts can
    exceed $10 million in some cases. During this phase, the
    drugs safety and effectiveness are further examined and
    evaluated.    
    Post-Approval/Phase IV.  During the course
    of the review process, various regulatory authorities may
    approve a drug for marketing and sale, provided that additional
    clinical trials be conducted. Usually referred to as
    post-approval or Phase IV trials, these trials may either
    be for submission of additional data to regulatory authorities
    or for non-registration purposes, such as additional marketing
    information. These trials are intended to monitor the
    drugs long-term risks and benefits, to analyze different
    dosage levels, to evaluate different safety and efficacy
    parameters in target populations, or to substantiate marketing
    claims. Phase IV trials typically enroll thousands of
    patients and last from six to 24 months. 6




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CRO
    Industry Trends
    Globalization of Drug Development.
  Increased Number of Products Entering
    Development.
  Biotechnology Industry Growth.
    Increased Regulatory Scrutiny.
  Need for Quick, Efficient, and Cost-Effective Drug
    Development.
 7




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Our
    Competitive Strengths
  Therapeutic Expertise and Scientific
    Depth.
  Global Leadership Position.
  Diversified Client Base.
  Proven and Incentivized Management Team and
    Workforce.
   8




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Our
    Strategy
    Continue to Leverage and Build Our Expertise in Key
    Therapeutic Areas.
  Expand the Breadth and Depth of Our Service
    Offering.
  Leverage Our Infrastructure to Improve Operational
    Efficiencies. ®
  Augment Our Geographic Reach in Latin America and
    Asia.
  Pursue a Disciplined Acquisition Strategy.
 9




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Description
    of Service Offerings
    Product
    Registration Services
    
    clinical program review and consultation;
    protocol and design the case report form, or CRF;
    feasibility studies for investigator interest and patient
    availability;
    project management;
    investigator site selection and qualification;
    investigational site support and clinical monitoring;
    data management;
    analysis and reporting;
    investigator handbook and meetings;
    medical and scientific publications; and
    regulatory filings.    Scientific
    and Medical Affairs
    Therapuetic Expertise.
 10




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
    assess pre-clinical and clinical data, products, and programs;
    analyze markets and competition;
    prepare clinical and regulatory approval strategy plans;
    design clinical studies or programs;
    identify and form scientific advisory boards;
    provide high-level consultation on specific scientific and
    clinical issues;
    provide program planning, management, and oversight from IND
    application submission to product registration and market launch;
    design and evaluate feasibility studies;
    respond to investigator questions regarding a study
    protocol; and
    review of clinical study data and reports.    Therapeutic Areas:

Specific Areas of Expertise:Analgesics

Acute and chronic pain  (including
    headaches, osteoarthritis)Cardiovascular disease

Atrial fibrillation, hypertension,
    coronary artery disease, heart failure, hyperlipidemia,
    peripheral arterial disease, pulmonary arterial hypertension,
    stroke, venous thromboembolismCentral nervous system

Alzheimers and other
    dementias,  attention deficit hyperactivity disorder,
    Parkinsons disease and other movement disorders,
    schizophrenia, depression, epilepsy, anxiety,
    obsessive-compulsive disorders, panic disorders, insomnia,
    multiple sclerosisCritical care

ARDS (acute respiratory distress
    syndrome), sepsisDermatology

Wound healing, acne, hair loss,
    psoriasisGastroenterology

Duodenal and gastric ulcer,
    gastroesophogeal reflux disease, H.pylori eradication,
    inflammatory bowel disease (Crohns disease, ulcerative
    colitis), irritable bowel syndromeGenitourinary

Incontinence, sexual dysfunction,
    overactive bladder, benign prostate hyperplasiaHIV/AIDS

Primary disease and
    treatment/prophylaxis of opportunistic infectionsInfectious disease/virology

Pneumonia, sinusitis, chronic
    bronchitis, childhood and adult vaccines, herpes simplex,
    hepatitis B and C, respiratory syncytial virus, influenza,
    fungal infectionsMetabolic/Endocrine disease

Diabetes mellitus, growth
    retardationOncology

Pancreatic, prostate, colorectal,
    breast, renal cell, lung, other solid cancers, all hematologic
    malignanciesRespiratory/Allergy/Pulmonary

Asthma, allergic rhinitis, COPD
    (chronic obstructive pulmonary disease), cystic fibrosisRheumatology

Rheumatoid arthritis,
    osteoarthritis, lupus erythematodesWomens health

Osteoporosis, hormone replacement
    therapy  11




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Safety and Risk Management. set-up
    
    processing and reporting of serious adverse events in clinical
    trials;
    processing and reporting of adverse drug reactions for marketed
    products;
    set-up and
    maintenance of the safety databases
    annual and other periodic safety update reports for drugs in
    development and marketed products;
    coding of clinical data (diseases, medication, adverse events
    and procedures);
    design, conduct and analyses of safety and
    pharmaco-epidemiological studies;
    integration of multiple clinical studies;
    generation of integrated summaries of efficacy and safety;
    set-up and
    support of Independent Data Monitoring Committees;
    investigations of safety issues and benefit risk assessments;
    generation of risk management plans;
    implementation and evaluation of risk management programs;
    system analysis and design of safety departments including
    SOPs; and
    audits and preparations of regulatory inspections.  Regulatory Affairs.
  
    strategic regulatory consultation;
    support of clinical trials applications and application
    maintenance;
    preparation and support for agency interactions;
    comprehensive support for marketing authorizations; and
    electronic document management in support of global regulatory
    submissions.   12




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Medical Affairs.
  Early
    Development Services
    
    70 bed Phase I research unit in Zuidlaren, The Netherlands;
    70 bed Phase IIa clinic in Groningen, The Netherlands which
    is operated in collaboration with the University Medical Center
    Groningen, a renouned teaching hospital;
    50 bed Phase I facility in Lenexa, Kansas.      
    LC-MS/MS machines;
    Packard Robotic system;
    Symbiosis system;
    HPLL system;
    Immuno-Analysis suite;
    Beta cartes; and
    Sapphire LIMS system;  Project
    Assurance
   13




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
    Clinical Trial Management System, or
    CTMS.  CTMS is a company-wide system used to track
    and report on the information associated with managing a
    clinical trial, from initiation through closeout. The system is
    based upon Siebels eClinical product, and allows an
    authorized user to access data about a clinical trial from
    anywhere in the world. We believe that this system is critical
    to our ability to successfully conduct global clinical programs.
    PRA Estimator.  PRA Estimator is our
    proprietary comprehensive bid development tool which analyzes
    customer specifications and requests along with therapeutic and
    patient recruitment requirements, using a set of complex
    algorithms, to produce various scenarios for bid response.
    Electronic Trial Master File, or
    e-TMF®.e-TMF
    is a company-wide document management system that enables
    documents to be scanned, indexed, and warehoused electronically.
    The system, which is built on a Documentum platform, allows
    access to documents by an authorized user from any of our
    offices. We believe the benefits of this system include enhanced
    global project coordination, work-sharing across locations,
    increased document accountability and tracking, increased
    security, electronic communication with clients and facilitation
    of electronic regulatory submissions.
    Electronic Regulatory Submissions.  Our
    electronic regulatory submissions capability is based on
    CoreDossier, an industry-accepted software system. This system
    allows documents to be created, indexed, and cross-referenced
    electronically for ease of editing while in production and for
    ease of review by the appropriate regulatory authorities.
    Electronic submissions can be used at the IND and the NDA
    submission stages.
    Flex
    DMStm.  We
    believe electronic data capture, which involves direct entry of
    clinical trial data by investigational sites, is gaining
    acceptance by clients worldwide. EDC permits more rapid data
    acquisition and locking of final databases. As the technology
    continues to advance and standards upgraded, we believe that
    many pharmaceutical and biotechnology companies will shift more
    and more to EDC. Therefore, we are developing, in conjunction
    with DataLabs, a hybrid data management system. This EDC based
    system includes a paper double data entry module and a data
    clarification form management module. We will be able to support
    both EDC studies and paper-CRF studies as well as EDC/paper
    hybrid studies. We continue to have seemless integration
    software for electronic data transfer to our two data management
    systems previously mentioned. To date, we have completed 49 EDC
    studies involving nearly 21,000 patients.
    Customer Relationship Management, or CRM.  This
    is a company-wide system based on the system suite from Siebel
    designed to manage customer relationships and new business
    activities. This system allows customer contacts and new
    business opportunities to be tracked and shared worldwide to
    ensure consistent customer interactions.
    Oracle AERS.  Our web-based safety system
    provides safety database functionality allowing us to provide a
    comprehensive suite of safety management services to our
    clients. This provides one uniform global platform to track all
    safety activities and clinical trial and post marketing case
    management processing for our clients. 14




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Customers
    and Suppliers
      Sales and
    Marketing
      Competition
       15




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
    the cost and experience necessary to develop broad therapeutic
    expertise;
    the ability to manage large, complex international clinical
    programs;
    the ability to deliver high-quality services consistently for
    large drug development projects;
    the experience to prepare regulatory submissions throughout the
    world; and
    the infrastructure and knowledge to respond to the global needs
    of clients.    Backlog
      Intellectual
    Property
    
    PRA®(including a design);
    PRA
    International®;
    PRA Clinical Data
    Manager®;
    PRA
    e-TMF®; and
    Project
    Assurance®
    Flex
    DMSsm(application pending) 16




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Government
    Regulation
          
    comply with specific requirements governing the selection of
    qualified investigators;
    obtain specific written commitments from the investigators;
    obtain IRB review and approval of the clinical trial;
    verify that appropriate patient informed consent is obtained
    before the patient participates in a clinical trial;
    ensure adverse drug reactions resulting from the administration
    of a drug or biologic during a clinical trial are medically
    evaluated and reported in a timely manner;
    monitor the validity and accuracy of data;
    verify drug or device accountability;
    instruct investigators and study staff to maintain records and
    reports; and
    permit appropriate governmental authorities access to data for
    review.       17




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and/or
    Employees
    Announced
    Restructuring
   18




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Liability
    and Insurance
  agreed-upon agreed-upon and/or
        Environmental
    Regulation and Liability
    ITEM 1A. RISK
    FACTORS
    Risks
    Related to Our Business
  We may
    experience difficulties, delays or unexpected costs in
    completing and achieving the anticipated benefits of our
    restructuring plan.
   19




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Our
    contracts are generally terminable on little or no notice.
    Termination of a large contract for services or multiple
    contracts for services could adversely affect our revenue and
    profitability.
      
    the failure of the product being tested to satisfy safety or
    efficacy requirements;
    unexpected or undesired clinical results of the product; and
    the clients decision to forego a particular study.    
    insufficient patient enrollment or investigator recruitment;
    the clients decision to downsize its product development
    portfolios;
    the clients dissatisfaction with our performance,
    including the quality of data provided and our ability to meet
    agreed upon schedules; and
    production problems resulting in shortages of the drug or
    required clinical supplies.  and/or
  Our
    quarterly operating results may vary, which could negatively
    affect the market price of our common stock.
  start-up
 20




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We
    depend on a limited number of clients and a loss of or
    significant decrease in business from them could affect our
    business.
    Because
    most of our clinical development service revenue is from
    long-term fixed-fee contracts, we would lose money in performing
    these contracts if our costs of performing them were to exceed
    the fixed fees payable to us.
    Our
    senior management team is important to our business and the loss
    of any member of the team may harm our business.
    If we
    are unable to recruit and retain qualified personnel, we may not
    be able to expand our business or remain
    competitive.
     21




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If we
    are unable to restore our organic growth in the Phase II
    and Phase III service areas, we may not be able to expand
    our business and remain competitive.
    Our
    business could be harmed if we are unable to manage our growth
    effectively.
    Our
    exposure to exchange rate fluctuations could negatively impact
    our results of operations.
        We are
    subject to certain risks associated with our foreign
    operations.
    
    tax rates in certain foreign countries may exceed those in the
    United States and foreign earnings may be subject to withholding
    requirements or the imposition of tariffs, exchange controls or
    other restrictions, including restrictions on
    repatriation; and
    general economic and political conditions in countries where we
    operate may have an adverse effect on our operations in those
    countries. 22




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
    foreign customers may have longer payment cycles than customers
    in the United States;
    we may have difficulty complying with a variety of foreign laws
    and regulations, some of which may conflict with United States
    law;
    the difficulty of enforcing agreements and collecting
    receivables through certain foreign legal systems; and
    the difficulties associated with managing a large organization
    spread throughout various countries.      We
    provide services to emerging companies which may be unable to
    pay us.
    We
    have a significant amount of goodwill on our balance sheet, and
    a downturn in our business or industry could require us to take
    a charge to earnings, which may negatively affect the market
    price of our common stock.
    Our
    business depends significantly on the continued effectiveness of
    our information technology infrastructure, and failures of such
    technology could harm our operations.
    Our
    business could be harmed if we cannot successfully integrate
    future acquisitions.
   23




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We
    compete in a highly competitive market and if we do not compete
    successfully our business could be harmed.
    Risks
    Related to Our Industry
  Our
    business could be harmed if the companies in the pharmaceutical
    and biotechnology industries to whom we offer our services
    reduce their research and development activities or reduce the
    extent to which they outsource clinical
    development.
    Our
    business and the businesses of our customers are subject to
    extensive regulation, and our results of operations could be
    harmed if regulatory standards change significantly or if we
    fail to maintain compliance with evolving, complex
    regulations.
   24




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Circumstances
    beyond our control could cause the CRO industry to suffer
    reputational or other harm that could result in an industry-wide
    reduction in demand for CRO services, which could harm our
    business.
    If we
    incur liability for hazardous material contamination, our
    business would be harmed.
    Our
    services are subject to evolving industry standards and rapid
    technological changes.
   25




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Our
    clinical research services create a risk of liability and, if we
    are required to pay damages or to bear the costs of defending
    any claim not covered by contractual indemnity or insurance,
    this could cause material harm to our business.
    Health
    care industry reform could reduce or eliminate our business
    opportunities.
    Risks
    Related to Our Common Stock
  The
    price of our common stock may fluctuate significantly, and you
    could lose all or part of your investment.
    The
    sale of a substantial number of our shares of common stock in
    the public market could reduce the market price of our shares,
    which in turn could negatively impact your investment in
    us.
   26




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We
    have implemented certain provisions that could make any change
    in our board of directors or in control of our company more
    difficult.
    Our
    largest stockholders continue to have significant influence over
    us, and they may make decisions with which you
    disagree.
    Because
    we typically have not paid dividends and do not anticipate
    paying dividends on our common stock for the indefinite future,
    you should not expect to receive dividends on shares of our
    common stock.
   27




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ITEM 1B.
    UNRESOLVED
    STAFF COMMENTS    ITEM 2.
    DESCRIPTION
    OF PROPERTIES    ITEM 3.
    LEGAL
    PROCEEDINGS      ITEM 4.
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS   PART II  ITEM 5.
    MARKET
    FOR THE REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER
    MATTERS        High


LowCalendar Year 2005First Quarter

$
28.30


$
22.26Second Quarter

$
27.43


$
23.15Third Quarter

$
31.25


$
25.38Fourth Quarter

$
30.43


$
25.48   High


LowCalendar Year 2006First Quarter

$
29.16


$
21.05Second Quarter

$
27.25


$
20.50Third Quarter

$
27.38


$
20.93Fourth Quarter

$
32.22


$
24.00     28




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Symbol



CRSP Total Returns Index for:

11/2004

12/2004

6/2005

12/2005

6/2006

12/2006PRA International

100.0

130.4

140.9

148.2

117.2

133.0Nasdaq Stock Market (US Companies)

100.0

103.7

98.5

105.9

104.7

116.3    



Nasdaq Stocks (SIC 8000-8099
    US Companies) Health Services

100.0

107.5

129.2

149.9

149.5

150.0         Dividend
    Policy
     29




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Securities
    Authorized for Issuance Under Equity Compensation
    Plans
    Number ofSecuritiesNumber of





Remaining AvailableSecurities to be





for Future IssuanceIssued Upon


Weighted-Average


Under EquityExercise of


Exercise Price of


Compensation PlansOutstanding


Outstanding


(Excluding SecuritiesOptions, Warrants


Options, Warrants


Reflected in ColumnPlan Category

and Rights


and Rights


(a))(a)


(b)


(c)Equity compensation plans approved
    by security holders


3,130,190


$
15.93



1,116,988Equity compensation plans not
    approved by security holders


0



0



0Total


3,130,190


$
15.93



1,116,988   Recent
    Sales of Unregistered Securities
        and/or
   30




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and/or
  ITEM 6.
    SELECTED
    CONSOLIDATED FINANCIAL DATA    31




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Year Ended December 31,2002


2003


2004


2005


2006RevenueService revenue

$
176,365


$
247,888


$
277,479


$
294,739



303,207Reimbursement revenue


24,648



42,109



30,165



31,505



34,959Total revenue

$
201,013


$
289,997


$
307,644


$
326,244



338,166Operating
    expensesDirect costs


94,761



126,501



134,067



136,572



154,416Reimbursable
    out-of-pocket
    costs


24,648



42,109



30,165



31,505



34,959Selling, general, and administrative


57,897



80,585



90,139



95,827



103,031Depreciation and amortization


6,956



8,967



9,691



11,156



12,587Management fee


800



800



704







Option repurchase(1)










3,713







Vested option bonus(1)










2,738







Income from operations


15,951



31,035



36,427



51,184



33,173Interest (expense) income, net


(4,100
)


(6,856
)


(3,643
)


1,181



104Other income (expenses), net


(721
)


(4,023
)


(38
)


(1,137
)


220Income before income taxes


11,130



20,156



32,746



51,228



33,497Provision for income taxes


5,493



6,909



11,997



19,005



6,652Net income

$
5,637


$
13,247


$
20,749


$
32,223


$
26,845Net income per
    shareBasic

$
0.37


$
0.83


$
1.13


$
1.43


$
1.14Diluted

$
0.32


$
0.71


$
1.02


$
1.32


$
1.08Shares used to compute net income
    (loss) per share(2):Basic


15,204,232



15,965,408



18,442,313



22,527,108



23,509,725Diluted


17,557,632



18,666,012



20,329,852



24,389,592



24,749,664Other Financial Data:Net cash provided by operating
    activities

$
28,442


$
2,058


$
71,636


$
1,509


$
37,519Net cash (used in) provided by
    investing activities


(24,625
)


(9,599
)


(32,350
)


4,016



(102,790
)Net cash (used in) provided by
    financing activities


(14,581
)


26,028



(6,430
)


23,455



30,848Non-GAAP Data:Adjusted EBITDA(3)

$
22,186


$
35,979


$
52,531


$
61,203


$
45,980Adjusted EBITDA as a % of service
    revenue


12.6
%


14.5
%


18.9
%


20.8
%


15.2
%EBITDA(4)

$
22,186


$
35,979


$
46,080


$
61,203


$
45,980EBITDA as a % of service revenue


12.6
%


14.5
%


16.6
%


20.8
%


15.2
%   32




---



##### Table of Contents



As of December 31,2002


2003


2004


2005


2006(Dollars in thousands)Consolidated Balance Sheet
    Data:Cash and cash equivalents

$
13,798


$
32,328


$
65,888


$
73,640


$
44,490Marketable securities










24,500







Working capital


(43,429
)


(8,449
)


11,478



41,760



7,897Total assets


254,547



298,558



337,344



329,364



454,255Long-term debt and capital leases,
    less current maturities


32,509



57,810



75



9



24,047Stockholders equity


59,088



74,565



150,379



188,866



251,368     (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)
    
    Net income (loss) per share and shares used to compute net
    income (loss) per share for all periods following the
    predecessor period gives effect to a
    four-for-one
    stock split of our common stock effected prior to completion of
    the offering.(3)
    
    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 (loss).  33




---



##### Table of Contents



Year Ended December 31,2002


2003


2004


2005


2006Adjusted EBITDA

$
22,186


$
35,979


$
52,531


$
61,203


$
45,980Option repurchase










(3,713
)






Vested option bonus










(2,738
)






EBITDA


22,186



35,979



46,080



61,203



45,980Depreciation and amortization


(6,956
)


(8,967
)


(9,691
)


(11,156
)


(12,587
)Interest expense, net


(4,100
)


(6,856
)


(3,643
)


1,181



104Provision for income taxes


(5,493
)


(6,909
)


(11,997
)


(19,005
)


(6,652
)Net income


5,637



13,247



20,749



32,223



26,845Depreciation and amortization


6,956



8,967



9,691



11,156



12,587Provision for doubtful receivables


1,888



4,851



1,914



(123
)


1,023Amortization of debt discount


379



1,642











Stock-based compensation


















4,455Excess tax benefit from
    share-based compensation














2,986



(2,625
)Provision for deferred income taxes


(1,228
)


(3,997
)


2,606



2,354



(666
)Debt issuance costs write-off






750



1,241







Changes in assets and liabilities:Accounts receivable and unbilled
    services


(29,251
)


(18,538
)


15,373



(3,057
)


(14,805
)Prepaid expenses and other assets


1,444



408



1,226



(2,465
)


(10,410
)Accounts payable and accrued
    expenses


3,481



(4,873
)


7,793



11,022



(22,941
)Income taxes


989



(481
)


12,150



(3,677
)


8,647Advance billings


38,147



82



(1,107
)


(48,910
)


35,409Net cash provided by (used in)
    operating activities

$
28,442


$
2,058


$
71,636


$
1,509


$
37,519   ITEM 7.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS    Overview
   34




---



##### Table of Contents



35




---



##### Table of Contents



Service
    Revenue
      Reimbursement
    Revenue and Reimbursable
    Out-of-Pocket
    Costs
  out-of-pocket out-of-pocket out-of-pocket out-of-pocket and/or
  Direct
    Costs
   36




---



##### Table of Contents



Selling,
    General, and Administrative Expenses
    Depreciation
    and Amortization
    Exchange
    Rate Fluctuations
    Year2004


2005


2006U.S. Dollars per:Euro


1.2466



1.2371



1.2647Pound Sterling


1.8362



1.8126



1.8549Canadian Dollar


0.7716



0.8279



0.8847   Results
    of Operations
     37




---



##### Table of Contents



Year Ended December 31,2004


2005


2006Service revenue


100.0
%


100.0
%


100.0
%Direct costs


48.3



46.3



50.9Selling, general, and
    administrative


32.5



32.5



34.0Depreciation and amortization


3.5



3.8



4.2Management fee


0.3







Option repurchase


1.3







Vested option bonus


0.9







Income from operations


13.1



17.4



10.9Interest expense


(1.4
)


(0.2
)


(0.5
)Interest income


0.1



0.6



0.6Other income (expenses), net






(0.4
)


0.1Income before income taxes


11.8



17.4



11.1Provision for income taxes


4.3



6.4



2.2Net income (loss)


7.5
%


10.9
%


8.9
%   Year
    Ended December 31, 2006 Compared to Year Ended
    December 31, 2005
       38




---



##### Table of Contents



Year
    Ended December 31, 2005 Compared to Year Ended
    December 31, 2004
     39




---



##### Table of Contents



Variation
    in Quarterly Operating Results
    Liquidity
    and Capital Resources
     40




---



##### Table of Contents



41




---



##### Table of Contents



Form 8-K
       42




---



##### Table of Contents



Contractual
    Obligations and Commercial Commitments
    Payments Due by PeriodLess Than








More ThanOne Year


1-3 Years


3-5 Years


5 Years


Total(Dollars in thousands)Long-term debt, including interest
    payments

$



$
24,000


$



$



$
24,000Service purchase commitments


2,029



2,791











4,820Capital lease, including interest
    payments


9



51











60Operating leases


20,212



35,264



28,553



182,041



266,070Less: sublease income


(854
)


(1,579
)


(634
)






(3,067
)Total

$
21,396


$
60,527


$
27,919


$
182,041


$
291,883   15-year
  Off-Balance
    Sheet Arrangements
   43




---



##### Table of Contents



Non-GAAP Financial
    Measures
            Critical
    Accounting Policies and Estimates
   44




---



##### Table of Contents



Revenue
    Recognition
    Allowance
    for Doubtful Accounts
    Tax
    Valuation Allowance
     45




---



##### Table of Contents



Stock-Based
    Compensation
        Long-Lived
    Assets
    Goodwill
    and Indefinite-Lived Intangible Assets
     46




---



##### Table of Contents



Inflation
    Potential
    Liability and Insurance
    ITEM 7A.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK  Interest
    Rate Risk
    Foreign
    Exchange Risk
     47




---



##### Table of Contents



Foreign
    Currency Hedges
   48




---



##### Table of Contents



ITEM 8.
    INDEX
    TO CONSOLIDATED FINANCIAL STATEMENTS  PageReport of Independent Registered
    Public Accounting Firm


F-50Consolidated Balance Sheets as of
    December 31, 2005 and 2006


F-52Consolidated Statements of
    Operations for the years ended December 31, 2004,
    December 31, 2005 and December 31, 2006


F-53Consolidated Statements of Changes
    in Stockholders Equity and Other Comprehensive Income for
    the years ended December 31, 2004, December 31, 2005
    and December 31, 2006


F-54Consolidated Statements of Cash
    Flows for the years ended December 31, 2004,
    December 31, 2005 and December 31, 2006


F-55Notes to Consolidated Financial
    Statements


F-56  49




---



##### Table of Contents



ITEM 9.
    CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURE  None.
 ITEM 9A 
    CONTROLS AND PROCEDURES  Rule 13a-15(b)
  Managements
    Annual Report On Internal Control Over Financial
    Reporting
  Internal
    Control  Integrated Framework
      Changes
    in Internal Control over Financial Reporting
   50




---



##### Table of Contents



PART III  Items 10-14
  ITEM 10.
    DIRECTORS
    AND EXECUTIVE OFFICERS OF THE REGISTRANT          ITEM 11.
    EXECUTIVE
    COMPENSATION    ITEM 12.
    SECURITY
    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
    MANAGEMENT    ITEM 13.
    CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS    ITEM 14.
    PRINCIPAL
    ACCOUNTING FEES AND SERVICES   51




---



##### Table of Contents



PART
    IV
  ITEM 15.
    EXHIBITS,
    FINANCIAL STATEMENT SCHEDULES, AND REPORTS 
    ON
    FORM 8-K  PRA
    INTERNATIONAL AND SUBSIDIARIES
  INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS
  Consolidated Financial
    Statements of PRA InternationalReport of
    Independent Registered Public Accounting Firm,
    PricewaterhouseCoopers LLP


F-50Consolidated
    Balance Sheets


F-52Consolidated
    Statements of Operations


F-53Consolidated
    Statements of Changes in Stockholders Equity and Other
    Comprehensive Income


F-54Consolidated
    Statements of Cash Flows


F-55Notes to
    Consolidated Financial Statements


F-56Financial Statement
    Schedule II


F-77  52




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm      Consolidated
    financial statements and financial statement schedule
      Internal
    control over financial reporting
  Internal Control  Integrated Framework Internal Control 
    Integrated Framework
 53




---



##### Table of Contents



54




---



##### Table of Contents



PRA
    INTERNATIONAL AND SUBSIDIARIES
  CONSOLIDATED
    BALANCE SHEETS
  As of December 31,2005


2006(Dollars in thousands, except per share amounts)ASSETSCurrent assetsCash and cash equivalents

$
73,640


$
44,490Accounts receivable and unbilled
    services, net


85,426



106,298Prepaid expenses and other current
    assets


8,678



21,050Deferred tax assets


663



191Total current assets


168,407



172,029Fixed assets, net


26,906



33,663Goodwill


106,748



210,761Other intangibles, net of
    accumulated amortization of $6,307 and $8,446 as of
    December 31, 2005, and 2006, respectively


24,530



33,493Deferred tax asset


783



2,183Other assets


1,990



2,126Total assets

$
329,364


$
454,255LIABILITIES AND
    STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable

$
21,640


$
16,892Accrued expenses


34,523



31,276Income taxes payable


7,423



10,724Advance billings


62,651



101,618Deferred tax liability


359



3,491Capital leases, current portion


51



131Total current liabilities


126,647



164,132Deferred tax liability


7,499



7,571Other liabilities


6,343



7,137Debt






24,000Capital leases


9



47Total liabilities


140,498



202,887Commitments and contingencies
    (Note 12)Stockholders equityCommon stock $0.01 par value;
    36,000,000 shares authorized as of December 31, 2005
    and 2006; 22,915,896 and 24,242,768 shares issued and
    outstanding as of December 31, 2005 and 2006, respectively


229



243Treasury stock


(93
)


(108
)Additional paid-in capital


130,338



156,779Accumulated other comprehensive
    income


3,515



12,732Retained earnings


54,877



81,722Total stockholders equity


188,866



251,368Total liabilities and
    stockholders equity

$
329,364


$
454,255    55




---



##### Table of Contents



PRA
    INTERNATIONAL AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  Year Ended December 31,2004


2005


2006(Dollars in thousands, except per share amounts)RevenueService revenue

$
277,479


$
294,739


$
303,207Reimbursement revenue


30,165



31,505



34,959Total revenue


307,644



326,244



338,166Operating expensesDirect costs


134,067



136,572



154,416Reimbursable
    out-of-pocket
    costs


30,165



31,505



34,959Selling, general, and
    administrative


90,139



95,827



103,031Option purchase


3,713







Employee per option bonus related
    to tender


2,738







Depreciation and amortization


9,691



11,156



12,587Management fee


704







Income from operations


36,427



51,184



33,173Interest expense


(4,023
)


(467
)


(1,561
)Interest income


380



1,648



1,665Other income (expenses), net


(38
)


(1,137
)


220Income before income taxes


32,746



51,228



33,497Provision for income taxes


11,997



19,005



6,652Net income

$
20,749


$
32,223


$
26,845Net income per shareBasic

$
1.13


$
1.43


$
1.14Diluted

$
1.02


$
1.32


$
1.08    56




---



##### Table of Contents



CONSOLIDATED
    STATEMENTS OF CHANGES IN STOCKHOLDERS
    EQUITY AND OTHER COMPREHENSIVE INCOME  AdditionalPaid-In


Notes


AccumulatedAdditional


Capital


Receivable


Other








OtherCommon Stock


Exchangeable Shares


Treasury Stock


Paid-In


Exchangeable


from


Comprehensive


Retained





ComprehensiveShares


Amount


Shares


Amount


Shares


Amount


Capital


Shares


Stockholders


Income


Earnings


Total


IncomeBalance as of December 31, 2003


15,273,044


$
153



1,115,796


$
11






$



$
47,306


$
7,102


$
(401
)

$
1,638


$
18,756


$
74,565Issuance of common stock for cash
    and stock


14,116























150



















150Exercise of common stock options


1,212,174



12



















2,766







(1,777
)










1,001Exercise of warrants


729,596



7



















(6
)


















1Purchase of treasury stock


(14,216
)














14,216



(93
)






















(93
)Declaration of dividends










































(16,851
)


(16,851
)Net income










































20,749



20,749


$
20,749Interest on notes receivable from
    stockholders


































(113
)










(113
)Payment on notes receivable from
    stockholders


































2,291











2,291Issuance of common stock in
    connection with initial public offering, net of $6,564 in fees


4,007,312



40



















67,419



















67,459Transfer of exchangeable shares


1,115,796



11



(1,115,796
)


(11
)










7,102



(7,102
)














Other comprehensive incomeForeign currency translation
    adjustment, net of tax






































1,175







1,175



1,175Fair market value adjustments on
    interest rate agreement, net of tax






































45







45



45Comprehensive income

















































$
21,969Balance as of December 31, 2004


22,337,822


$
223


$



$




14,216


$
(93
)

$
124,737


$
7,102


$



$
2,858


$
22,654


$
150,379Exercise of common stock options


578,074



6



















3,215



















3,221Net income










































32,223



32,223


$
32,223Issuance costs related to public
    offerings


























(600
)


















(600
)Stock option tax benefit


























2,986



















2,986Other comprehensive incomeForeign currency translation
    adjustment, net of tax






































687







687



687Fair market value adjustments on
    interest rate agreement, net of tax






































(30
)






(30
)


(30
)Comprehensive income

















































$
32,880Balance as of December 31, 2005


22,915,896


$
229


$



$




14,216


$
(93
)

$
130,338


$



$



$
3,515


$
54,877


$
188,866Exercise of common stock options


637,470



6



















4,290



















4,296Shares issued in connection with
    acquisitions


688,621



7



















15,051



















15,058Shares issued from the manager
    stock purchase plan


785



1



















20



















21Net income










































26,845



26,845


$
26,845Stock-based compensation expense


























4,455



















4,455Stock option excess tax benefit


























2,625



















2,625Purchase of treasury stock


















500



(15
)






















(15
)Other comprehensive incomeForeign currency translation
    adjustment, net of tax






































9,396







9,396



9,396Fair market value adjustments on
    cash flow hedge and interest rate agreement, net of tax






































(179
)






(179
)


(179
)Comprehensive income

















































$
36,062Balance as of December 31, 2006


24,242,772


$
243


$



$




14,716


$
(108
)

$
156,779


$



$



$
12,732


$
81,722


$
251,368    57




---



##### Table of Contents



PRA
    INTERNATIONAL AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Year Ended December 31,2004


2005


2006(Dollars in thousands)Cash flow from operating
    activitiesNet income

$
20,749


$
32,223


$
26,845Adjustments to reconcile net
    income to net cash provided by operating activities:Depreciation and amortization


9,691



11,156



12,587Stock-Based Compensation










4,455Provision for doubtful receivables


1,914



(123
)


1,023Provision for deferred income taxes


2,606



2,354



(666
)Debt issuance costs write-off


1,241







Excess Tax Benefits from
    Share-Based Compensation






2,986



(2,625
)Changes in assets and liabilities:Accounts receivable and unbilled
    services


15,373



(3,057
)


(14,805
)Prepaid expenses and other assets


1,226



(2,465
)


(10,410
)Accounts payable and accrued
    expenses


7,793



11,022



(22,941
)Income taxes


12,150



(3,677
)


8,647Advance billings


(1,107
)


(48,910
)


35,409Net cash provided by operating
    activities


71,636



1,509



37,519Cash flow from investing
    activitiesPurchase of fixed assets


(8,781
)


(13,349
)


(8,791
)Disposal of fixed assets


1,131



196



137Purchase of marketable securities


(24,500
)


(22,375
)


Proceeds from sale of marketable
    securities






46,875



Cash paid for acquisitions, net of
    cash acquired


(200
)


(7,331
)


(94,136
)Net cash (used in) provided by
    investing activities


(32,350
)


4,016



(102,790
)Cash flow from financing
    activitiesProceeds from issuance of debt


5,000







30,000Repayment of debt


(65,275
)






(6,000
)Repayment of capital leases






(166
)


(58
)Proceeds from initial public
    offering, net of issuance costs


67,020







Issuance costs related to public
    offerings






(600
)


Issuance of stockholder notes
    receivable


(1,777
)






Stockholder receivable payment


2,178







Payment of dividends


(16,852
)






Purchase of treasury stock


(93
)






(15
)Stock option excess tax benefit










2,625Proceeds from stock option and
    warrant exercises


3,369



3,221



4,296Net cash provided by (used in)
    financing activities


(6,430
)


2,455



30,848Effect of exchange rate on cash
    and cash equivalents


704



(228
)


5,273Increase (decrease) in cash and
    cash equivalents


33,560



7,752



(29,150
)Cash and cash equivalents at
    beginning of period


32,328



65,888



73,640Cash and cash equivalents at end
    of period

$
65,888


$
73,640


$
44,490    58




---



##### Table of Contents



PRA
    INTERNATIONAL AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
  (1)  Summary
    of Operations and Significant Accounting Policies
  Nature
    of Operations
    Principles
    of Consolidation
    Risks
    and Other Factors
      Use of
    Estimates
    Cash
    Equivalents
    Unbilled
    Services
   59




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##### Table of Contents



PRA
    INTERNATIONAL AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Fixed
    Assets
    Furniture, fixtures, and equipment

5-7 yearsComputer hardware and software

3-7 yearsLeasehold improvements

Ten years or the life of the lease   Fair
    Value of Financial Instruments
    Impairment
    of Long-Lived Assets
    Goodwill
    and Other Intangibles
    Advance
    Billings
    Revenue
    Recognition
   60




---



##### Table of Contents



PRA
    INTERNATIONAL AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
       Reimbursement
    Revenue and Reimbursable
    Out-of-Pocket
    Costs
  out-of-pocket 01-14, Out-of-Pocket out-of-pocket out-of-pocket
    Significant
    Customers
    Year Ended December 31,2004

2005

2006Customer A


15.7%



14.6%



Customer B


12.4%



10.1%



     Concentration
    of Credit Risk
    As ofDecember 31,2005

2006Customer A


16.0%



16.2
%Customer C


11.0%




*     *
    
    Less than 10% of consolidated accounts receivable and unbilled
    services as of the end of each period.   61




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##### Table of Contents



PRA
    INTERNATIONAL AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Foreign
    Currency Translation
    Comprehensive
    Income (Loss)
    Income
    Taxes
    Stock-Based
    Compensation
    Accounting for
    Stock Issued to Employees
 62




---



##### Table of Contents



PRA
    INTERNATIONAL AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2004


2005(Dollars in thousands, except per share amounts)Net income, as reported

$
20,749


$
32,223Deduct: Total stock-based employee
    compensation expense determined under fair value based method
    for all awards, net of tax


(637
)


(1,909
)FAS No. 123 pro forma
    net income

$
20,112


$
30,314Basic net income per share, as
    reported

$
1.13


$
1.43Basic net income per share, pro
    forma

$
1.09


$
1.15Diluted net income per share, as
    reported

$
1.02


$
1.32Diluted net income per share, pro
    forma

$
0.99


$
1.24     Debt
    Issuance Costs
    Net
    income per share
        Year Ended December 31,2004


2005


2006Numerator:Net income for basic and diluted
    EPS

$
20,749


$
32,223


$
26,845Denominator:Weighted average shares for basic
    EPS


18,442



22,527



23,510Effect of dilutive stock options


1,888



1,863



1,240Weighted average shares for
    diluted EPS


20,330



24,390



24,750Basic earnings per share

$
1.13


$
1.43


$
1.14Diluted earnings per share

$
1.02


$
1.32


$
1.08  63




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##### Table of Contents



PRA
    INTERNATIONAL AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Supplemental
    Cash Flow Information
    2004

2005

2006(Dollars in thousands)Cash paid for taxes

$
3,890


$
17,989


$
8,134Cash paid for interest

$
2,630


$
213


$
1,075     Derivatives
    Recent
    Accounting Pronouncements
    Revision
    (2)  Acquisitions
  lock-up
 64




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##### Table of Contents



PRA
    INTERNATIONAL AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Cash

$
869Accounts receivable, net


4,622Property and equipment, net


7,805Goodwill


98,216Separately identifiable intangible
    assets


10,380Other assets


1,362Total assets acquired

$
123,254Accounts payable

$
3,870Other accrued liabilities


10,040Total liabilities assumed

$
13,910Net assets acquired

$
109,344     2005


2006Pro forma service revenue

$
343,823


$
328,731Pro forma net income

$
31,371


$
24,492Pro forma net income per diluted
    share

$
1.25


$
0.96    65




---



##### Table of Contents



PRA
    INTERNATIONAL AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   (3)  Accounts
    receivable and unbilled services
    As of December 31,2005


2006Accounts receivable

$
45,933


$
68,491Unbilled services


44,189



42,79590,122



111,286Less: Allowance for doubtful
    accounts


(4,696
)


(4,988
)$
85,426


$
106,298   (5)  Fixed
    assets
    As of December 31,2005


2006Leasehold improvements

$
4,449


$
7,204Computer hardware and software


37,080



46,527Furniture and equipment


10,308



15,199Less: Accumulated depreciation and
    amortization


(24,931
)


(35,267
)$
26,906


$
33,663     (6)  Goodwill
    and Other Intangibles
    Carrying amount as of
    December 31, 2004

$
101,340Acquisitions


5,866Foreign currency exchange rate
    changes


(458
)Carrying amount as of
    December 31, 2005


106,748Acquisitions


98,741Foreign currency exchange rate
    changes


5,272Carrying amount as of
    December 31, 2006

$
210,761     66




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##### Table of Contents



PRA
    INTERNATIONAL AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  WeightedAverage


As of December 31, 2005


As of December 31, 2006Amortization


Gross





Net


Gross





NetPeriod


Carrying


Accumulated


Carrying


Carrying


Accumulated


Carrying(In Years)


Amount


Amortization


Amount


Amount


Amortization


AmountNon-compete and other agreements


2


$
2,504


$
2,413


$
91


$
3,088


$
2,779


$
309Customer relationships


10



8,492



3,420



5,072



18,908



5,193



13,715Trade names


Indefinite



19,841



474



19,367



19,943



474



19,469$
30,837


$
6,307


$
24,530


$
41,939


$
8,446


$
33,493     (7)  Accrued
    expenses
    As ofDecember 31,2005


2006Accrued payroll and related
    expenses

$
20,909


$
18,116Accrued expenses


19,957



20,29740,866



38,413Less current portion of accrued
    expenses


(34,523
)


(31,276
)$
6,343


$
7,137   (8)  Capital
    Leases
    As of December 31,2005


2006Obligations under capital leases

$
60


$
178Less current portion


(51
)


(131
)$
9


$
47   Credit
    Agreement
   67




---



##### Table of Contents



PRA
    INTERNATIONAL AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      (9)  Income
    Taxes
    Year EndedDecember 31,2004


2005


2006Current:Federal

$
6,303


$
8,885


$
1,320State


2,086



1,325



(371
)Foreign


1,215



7,472



4,036Total current


9,604



17,682



4,985Deferred:Federal


5,973



1,231



1,104State


68



181



(1,348
)Foreign


(1,678
)


1,144



1,918Valuation allowance


(1,970
)


(1,233
)


(7
)Total deferred


2,393



1,323



1,667$
11,997


$
19,005


$
6,652  68




---



##### Table of Contents



PRA
    INTERNATIONAL AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year EndedDecember 31,2004


2005


2006Statutory federal income tax rate


35.0
%


35.0
%


35.0
%State income taxes


4.4



2.0



0.8Permanent Differences


1.0



1.0



(.9
)Changes in valuation allowance for
    foreign net operating losses, net


(4.2
)


(2.7
)


(.4
)State tax credits










(5.5
)U.K. R&D










(7.8
)Canadian R&D


(3.0
)


(3.1
)


(3.6
)Other


3.4



4.9



2.3Effective income tax rate


36.6
%


37.1
%


19.9
%     December 31,2005


2006Foreign operating loss carry
    forwards

$
3,292



9,528Accruals and reserves


5,895



5,019Equity based compensation






631Tax credits






1,4319,187



16,609Prepaid Items


(957
)


(1,098
)Identified Intangibles


(8,617
)


(11,543
)Depreciable, amortizable and other
    property


(468
)


(437
)Deferred and unbilled revenue


(3,316
)


(6,594
)(13,358
)


(19,672
)Valuation allowance


(2,241
)


(5,625
)Net deferred tax liability

$
(6,412
)

$
(8,688
)Current deferred tax asset
    (liability)


304



(3,300
)Non current deferred tax liability


(6,716
)


(5,388
)        69




---



##### Table of Contents



PRA
    INTERNATIONAL AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        (10)  Stockholders
    Equity
  Authorized
    Shares
    Initial
    Public Offering
    Secondary
    Offering
    Stockholders
    Agreement
    Employee
    Stock Purchase Plan
   70




---



##### Table of Contents



PRA
    INTERNATIONAL AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Management
    Stock Purchase Plan
    Stock
    and Option Repurchase and Dividend and Bonus
    Payment
      (11)  Stock
    Options
   71




---



##### Table of Contents



PRA
    INTERNATIONAL AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2004


2005


2006Weighted-average fair value of
    options granted

$
5.29


$
10.91


$
11.77Intrinsic value of options
    exercised


14,314



12,575



12,769Cash received from options
    exercised


3,369



3,221



4,296Excess tax benefit realized for
    tax deductions from option exercises






2,986



2,625     Weighted AverageRemaining


AggregateWtd. Average


Contractual


IntrinsicOptions


Exercise Price


Life


Value(Millions)Outstanding December 31, 2005


3,149,373


$
11.60Granted


1,031,250



25.69Exercised


(637,470
)


6.74Expired/forfeited


(412,963
)


21.46Outstanding December 31, 2006


3,130,190


$
15.93



5.47


$
31Exercisable at December 31,
    2006


1,556,315


$
8.54



4.83


$
26     Options OutstandingWeighted-





Options ExercisableNumber


Average


Weighted-


Number


Weighted-Outstanding as


Remaining


Average


Exercisable as


Averageof December 31,


Contractual


Exercise


of December 31,


ExerciseRange of Exercise Price

2006


Life in Years


Price


2006


Price$ 0.19 - $ 3.17


50,871



4.60


$
0.93



50,871


$
0.933.18 -  6.34


583,342



4.40



3.30



583,342



3.306.35 -  9.50


594,102



5.23



6.91



529,602



6.799.51 - 12.67


140,000



7.14



11.13



50,000



10.9812.68 - 15.84


60,000



7.49



13.75



20,000



13.7515.84 - 19.01


443,750



4.61



19.00



235,000



19.0019.02 - 22.18


















22.19 - 25.34


408,125



6.22



24.09



25,625



24.3725.35 - 28.51


645,000



6.15



26.20



18,125



26.7328.52 - 31.68


205,000



5.92



30.51



43,750



30.313,130,190



5.47


$
15.93



1,556,315


$
8.54  72




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##### Table of Contents



PRA
    INTERNATIONAL AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2004


2005


2006Weighted-average fair value of
    options granted

$
5.29


$
10.91


$
11.77Risk-free rate


3.25
%


3.96
%


4.57
%Expected life, in years


4.6



5.0



4.75Dividend yield


0
%


0
%


0
%Volatility


25.23
%


39.6
%


47.00
%   (12)  Commitments
    and Contingencies
  Operating
    Leases
          SubleaseRelated





RentalYear Ending December 31,

Party


Other


Income


Net Total2007

$
446


$
19,766


$
(854
)

$
19,3582008


458



17,520



(786
)


17,1922009


470



16,816



(793
)


16,4932010






15,418



(634
)


14,7842011






13,135







13,135Thereafter






182,041







182,041$
1,374


$
264,696


$
(3,067
)

$
263,003   Employment
    Agreements
   73




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##### Table of Contents



PRA
    INTERNATIONAL AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Legal
    Proceedings
    Insurance
    Employee
    Health Insurance
    (13)  Employee
    Benefit Plan
    (14)  Lease
    Termination
      (15)  Related-Party
    Transactions
   74




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##### Table of Contents



PRA
    INTERNATIONAL AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
       (16)  Segment
    Reporting  Operations by Geographic Area
    Year Ended December 31,2004


2005


2006Service revenueUnited States

$
175,704


$
169,827


$
161,062Canada


24,705



29,496



31,411Europe


70,715



86,487



101,271Other


6,355



8,929



9,463$
277,479


$
294,739


$
303,207Long-lived assetsUnited States

$
18,086


$
23,423


$
19,376Canada


1,836



1,448



866Europe


4,225



4,265



16,589Other


667



543



1,141$
24,814


$
29,679


$
37,972   (17)  Quarterly
    Financial Data
   75




---



##### Table of Contents



PRA
    INTERNATIONAL AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Three Months EndedMarch 31,


June 30,


September 30,


December 31,2006


2006


2006


2006(Unaudited)Service revenue

$
69,204


$
70,089


$
81,504


$
82,410Reimbursement revenue


7,352



9,357



8,120



10,130Total revenue


76,556



79,446



89,624



92,540Direct costs


35,175



36,566



40,988



41,687Selling, general, and
    administrative


23,025



23,847



25,833



30,326Reimbursable
    out-of-pocket
    costs


7,352



9,357



8,120



10,130Depreciation and amortization


2,426



2,651



3,697



3,813Income from operations


8,578



7,025



10,986



6,584Net income


6,106



6,835



8,183



5,721Net income per share:Basic

$
0.27


$
0.30


$
0.34


$
.24Diluted

$
0.25


$
0.28


$
0.33


$
.23   March 31,


June 30,


September 30,


December 31,2005


2005


2005


2005Service revenue

$
73,592


$
76,031


$
75,567


$
69,548Reimbursement revenue


7,859



9,124



7,602



6,920Total revenue


81,451



85,155



83,169



76,468Direct costs


35,277



34,159



34,537



32,599Reimbursable out-of-pocket costs


7,859



9,124



7,602



6,920Selling, general, and
    administrative


24,380



25,290



24,654



21,503Depreciation and amortization


2,776



2,847



2,856



2,677Income from operations


11,159



13,735



13,520



12,770Net income


6,958



8,555



9,209



7,501Net income per share:Basic

$
0.31


$
0.38


$
0.41


$
.33Diluted

$
0.28


$
0.35


$
0.38


$
.31     (1)
    
    Represents the average or mathematical number of full time
    equivalent employees for the stated period.  (18)  Subsequent
    Event
   76




---



##### Table of Contents



PRA
    INTERNATIONAL AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Schedule II  Allowance for Doubtful AccountsBalance at December 31,
    2003

$
4,580Provisions


1,914Write-offs/Recoveries


(1,597
)Balance at December 31,
    2004


4,897Provisions


(123
)Write-offs/Recoveries


(78
)Balance at December 31,
    2005


4,696Provisions


1,023Write-offs/Recoveries


(731
)Balance at December 31,
    2006

$
4,988Income Tax Valuation
    AllowanceBalance at December 31,
    2003


8,269Provisions


569Releases


(2,539
)Balance at December 31,
    2004


6,299Provisions


Releases


(4,058
)Balance at December 31,
    2005


2,241Provisions


1,143Acquisitions


3,377Releases


(1,136
)Balance at December 31,
    2006

$
5,625  77




---



##### Table of Contents



SIGNATURES
      By:
    /s/  Terrance
    J. Bieker         Signature

Title

Date/s/  Terrance
    J. BiekerTerrance
    J. Bieker

Chief Executive Officer and
    Director

March 14, 2007/s/  J.
    Matthew BondJ.
    Matthew Bond

Executive Vice President and Chief
    Financial Officer, Assistant Treasurer and Assistant Secretary

March 14, 2007/s/  David
    G.
    Mathews, IIIDavid
    G. Mathews, III

Vice President and Controller

March 14, 2007/s/  Jean-Pierre
    L. ConteJean-Pierre
    L. Conte

Director

March 14, 2007/s/  Melvin
    D. BoothMelvin
    D. Booth

Chairman

March 14, 2007/s/  Robert
    E. ConwayRobert
    E. Conway

Director

March 14, 2007/s/  Judith
    A. HembergerJudith
    A. Hemberger

Director

March 14, 2007/s/  Armin
    KesslerArmin
    Kessler

Director

March 14, 2007/s/  Robert
    J. WeltmanRobert
    J. Weltman

Director

March 14, 2007  78




---



##### Table of Contents



Exhibit Index
  Exhibit No

Description of Exhibit2
.1(7)

Share and Loan Note Purchase
    Agreement by and among PRA International, Colomera Investments
    B.V., PBR Holdings SA and Pharma Bio-Research Metaholdings B.V.,
    dated June 18, 2006 (attached as Exhibit 2.1 to
    PRAs Report on
    Form 8-K
    dated July 21, 2006 and filed on July 26, 2006, and
    incorporated herein by reference). The schedules to the Share
    Purchase Agreement are omitted but will be furnished to the
    Securities and Exchange Commission supplementally upon request.2
.2(7)

Amendment of the Share and Loan
    Note Purchase Agreement by and among PRA International,
    Colomera Investments B.V., PBR Holdings SA and Pharma
    Bio-Research Metaholdings B.V., dated July 21, 2006
    (attached as Exhibit 2.1 to PRAs report on
    Form 8-K
    dated July 21, 2006 and filed on July 26, 2006, and
    incorporated herein by reference).3
.1(1)

Second Amended and Restated
    Certificate of Incorporation of PRA International3
.2(1)

Amended and Restated Bylaws of PRA
    International4
.1(1)

2001 Stock Option Plan4
.2(1)

1997 Stock Option Plan4
.3(1)

1993 Stock Option Plan, as amended
    and restated4
.4(2)

PRA International 2005 Employee
    Stock Purchase Plan4
.5(3)

2004 Incentive Award Plan10
.1(4)

Credit Agreement by and among PRA
    International, its affiliates and the lenders party thereto10
.2(5)

Form of Option Agreement
    (Optionees other than Senior Vice Presidents, Executive Vice
    Presidents, President and Directors).10
.3(8)

Separation Agreement, dated
    December 14, 2006, between Pharmaceutical Research
    Associates, Inc. and Patrick K, Donnelly.10
.4(1)

Registration Rights Agreement by
    and among PRA International and the parties identified therein10
.5(5)

Form of Option Agreement (Senior
    Vice Presidents, Executive Vice Presidents and President).10
.6(8)

Employment Agreement, dated
    December 14, 2006, between Pharmaceutical Research
    Associates, Inc. and Terrance J. Bieker.10
.7(1)

Stockholders Agreement by and
    among PRA International and the parties identified therein10
.8(5)

Form of Option Agreement
    (Directors).10
.9(1)

Form of Stockholder Agreement10
.10(5)

Employment Agreement dated
    February 3, 2006 between PRA International and David W.
    Dockhorn*10
.11(5)

Employment Agreement dated
    February 3, 2006 between PRA International and Monika
    Pietrek*10
.12(5)

Employment Agreement dated
    February 3, 2006 between PRA International and Bruce A.
    Teplitzky*10
.13(1)

Securities Purchase Agreement by
    and among Genstar Capital Partners III, L.P.,
    Stargen III, L.P. and PRA International10
.14(6)

Form of Option Agreement21
.1

Subsidiaries of PRA International23
.1

Consent of PricewaterhouseCoopers
    LLP31
.1

Certifications of Chief Executive
    Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
    of 200231
.2

Certifications of Chief Financial
    Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
    of 200232
.1

Certifications of Chief Executive
    Officer Pursuant to Section 906 of the Sarbanes-Oxley Act
    of 200232
.2

Certifications of Chief Financial
    Officer Pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002  79




---



##### Table of Contents



(1)
    
    Incorporated by reference to Registration Statement on
    Form S-1
    filed on June 14, 2004 (File No. 333 
    116424), as amended by Amendment No. 1 filed on
    July 29, 2004, by Amendment No. 2 filed on
    September 21, 2004, by Amendment No. 3 filed on
    October 22, 2004, by Amendment No. 4 filed on
    October 28, 2004 and by Amendment No. 5 filed on
    November 16, 2004(2)
    
    Incorporated by reference to Registration Statement on
    Form S-8
    filed on August 23, 2005 (File
    No. 333-127782)(3)
    
    Incorporated by reference to
    Form 10-K
    filed on March 18, 2005 (File No.
    000-51029)(4)
    
    Incorporated by reference to
    Form 8-K
    filed on December 29, 2004 (File
    No. 000-51029)(5)
    
    Incorporated by reference to
    Form 8-K
    filed on February 3, 2006 (File
    No. 000-51029)(6)
    
    Incorporated by reference to
    Form 8-K
    filed on February 2, 2005 (File No.
    000-51029)(7)
    
    Incorporated by reference to
    Form 8-K
    filed on July 21, 2006 (File No.
    000-51029)(8)
    
    Incorporated by reference to
    Form 8-K
    filed on December 14, 2006 (File
    No. 000-51029)*
    
    Indicates a management contract or compensatory plan or
    arrangement 80