##### 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, 2005                                           
|  
|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:





PRA INTERNATIONAL


(Exact name of Registrant as Specified in Its Charter)


|                                |  |                    
|------------------------------- |  | -------------------
|Delaware                        |  | 54-2040171         
|(State or Other Jurisdiction of |  | (I.R.S. Employer   
|Incorporation)                  |  | 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 þ












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INDEX


|                             |  |                                                                                                                                     |  |      |    | 
|---------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                             |  |                                                                                                                                     |  | Page |   
|                             |  |                                                                                                                                     |  |      |   
|Part I Financial Information
|Item 1.                      |  | Financial Statements                                                                                                                |  |      |    | 
|                             |  | Consolidated Condensed Balance Sheets as of December 31,
    2004 and September 30, 2005 (unaudited)                                |  |      | 3  | 
|                             |  | Consolidated Condensed Statements of Operations
    (unaudited) for the Three and Nine Months Ended
    September 30, 2004 and 2005 |  |      | 4  | 
|                             |  | Consolidated Condensed Statement of Changes in
    Stockholders Equity and Other Comprehensive Income as of
    September 30, 2005 |  |      | 5  | 
|                             |  | Consolidated Condensed Statements of Cash Flows
    (unaudited) for the Nine Months Ended September 30,
    2004 and 2005           |  |      | 6  | 
|                             |  | Notes to Consolidated Condensed Financial Statements                                                                                |  |      | 7  | 
|Item 2.                      |  | Managements Discussion and Analysis of Financial Condition
    and Results of Operations                                           |  |      | 15 | 
|Item 3.                      |  | Quantitative and Qualitative Disclosures About Market Risk                                                                          |  |      | 28 | 
|Item 4.                      |  | Controls and Procedures                                                                                                             |  |      | 29 | 
|                             |  | Part II Other Information                                                                                                           |  |      |    | 
|Item 5.                      |  | Legal Proceedings                                                                                                                   |  |      | 30 | 
|Item 6.                      |  | Exhibits and Reports on Form 8-K                                                                                                    |  |      | 30 | 
|Ex-21.1                     
|                            
|EX-31.2                     
|Ex-32.1                     
|EX-32.2                     



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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, | 
|                                                                                                                                                                                                                                            |                                                | 2004                                       |         |             | 2005          | 
|                                                                                                                                                                                                                                            |                                                |                                            |         |             |               | 
|                                                                                                                                                                                                                                            |                                                |                                            |         | (unaudited) |              
|ASSETS                                                                                                                                                                                                                                     
|Current assets                                                                                                                                                                                                                              |                                                |                                            |         |             |               |  |         |        
|                                                                                                                                                                                                                                            | Cash and cash equivalents                      |                                            | $       | 65,888      |               |  | $       | 70,320  |        
|                                                                                                                                                                                                                                            | Marketable securities                          |                                            |         | 24,500      |               |  |         |        |        
|                                                                                                                                                                                                                                            | Accounts receivable and unbilled services, net |                                            |         | 84,480      |               |  |         | 80,563  |        
|                                                                                                                                                                                                                                            | Prepaid expenses and other current assets      |                                            |         | 5,844       |               |  |         | 7,619   |        
|                                                                                                                                                                                                                                            | Deferred tax assets                            |                                            |         | 5,069       |               |  |         | 5,974   |        
|                                                                                                                                                                                                                                            |                                                |                                            |         |             |               | 
|                                                                                                                                                                                                                                            |                                                | Total current assets                       |         |             | 185,781       |  |         |         | 164,476 | 
|Fixed assets, net                                                                                                                                                                                                                           |                                                |                                            | 21,661  |             |               |  | 21,442  |        
|Goodwill                                                                                                                                                                                                                                    |                                                |                                            | 101,340 |             |               |  | 106,769 |        
|Other intangibles, net of accumulated amortization of $6,033 and
    $5,234 as of September 30, 2005 and December 31, 2004,
    respectively                                                                                                |                                                |                                            | 25,409  |             |               |  | 24,840  |        
|Other assets                                                                                                                                                                                                                                |                                                |                                            | 3,153   |             |               |  | 3,125   |        
|                                                                                                                                                                                                                                            |                                                |                                            |         |             |               | 
|                                                                                                                                                                                                                                            | Total assets                                   |                                            | $       | 337,344     |               |  | $       | 320,652 |        
|                                                                                                                                                                                                                                            |                                                |                                            |         |             |               | 
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                                                       
|Current liabilities                                                                                                                                                                                                                         |                                                |                                            |         |             |               |  |         |        
|                                                                                                                                                                                                                                            | Accounts payable                               |                                            | $       | 15,190      |               |  | $       | 16,125  |        
|                                                                                                                                                                                                                                            | Accrued expenses                               |                                            |         | 32,437      |               |  |         | 34,911  |        
|                                                                                                                                                                                                                                            | Income taxes payable                           |                                            |         | 11,875      |               |  |         | 8,195   |        
|                                                                                                                                                                                                                                            | Advance billings                               |                                            |         | 114,801     |               |  |         | 69,879  |        
|                                                                                                                                                                                                                                            |                                                |                                            |         |             |               | 
|                                                                                                                                                                                                                                            |                                                | Total current liabilities                  |         |             | 174,303       |  |         |         | 129,110 | 
|Deferred tax liability                                                                                                                                                                                                                      |                                                |                                            | 9,349   |             |               |  | 7,344   |        
|Other liabilities                                                                                                                                                                                                                           |                                                |                                            | 3,313   |             |               |  | 4,333   |        
|                                                                                                                                                                                                                                            |                                                |                                            |         |             |               | 
|                                                                                                                                                                                                                                            |                                                | Total liabilities                          |         |             | 186,965       |  |         |         | 140,787 | 
|                                                                                                                                                                                                                                            |                                                |                                            |         |             |               | 
|Stockholders equity                                                                                                                                                                                                                        |                                                |                                            |         |             |               |  |         |        
|Common stock $0.01 par value; 36,000,000 shares authorized as of
    September 30, 2005 and December 31, 2004; 22,705,847
    and 22,337,822 shares issued and outstanding as of
    September 30, 2005 and December 31, 2004, respectively |                                                |                                            | 223     |             |               |  | 227     |        
|Treasury stock                                                                                                                                                                                                                              |                                                |                                            | (93     | )           |               |  | (93     | )      
|Additional paid-in capital  common stock                                                                                                                                                                                                   |                                                |                                            | 124,737 |             |               |  | 128,864 |        
|Accumulated other comprehensive income                                                                                                                                                                                                      |                                                |                                            | 2,858   |             |               |  | 3,491   |        
|Retained earnings                                                                                                                                                                                                                           |                                                |                                            | 22,654  |             |               |  | 47,376  |        
|                                                                                                                                                                                                                                            |                                                |                                            |         |             |               | 
|Total stockholders equity                                                                                                                                                                                                                  |                                                |                                            | 150,379 |             |               |  | 179,865 |        
|                                                                                                                                                                                                                                            |                                                |                                            |         |             |               | 
|                                                                                                                                                                                                                                            |                                                | Total liabilities and stockholders equity |         | $           | 337,344       |  |         | $       | 320,652 | 
|                                                                                                                                                                                                                                            |                                                |                                            |         |             |               | 



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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 Ended |  
|                                                     |         | September 30,          |        |        | September 30,     |  
|                                                     |         |                        |        |        |                   |  
|                                                     |         | 2004                   |        |        | 2005              |   |        | 2004   |        |   | 2005    |       
|                                                     |         |                        |        |        |                   |   |        |        |        |   |         |       
|Revenue                                              |         |                        |        |        |                   |   |        |        |        |   |         |        |         |   |         |       
|Service revenue                                      |         | $                      | 70,311 |        |                   | $ | 75,567 |        |        | $ | 206,271 |        |         | $ | 225,191 |       
|Reimbursement revenue                                |         |                        | 7,550  |        |                   |   | 7,602  |        |        |   | 23,443  |        |         |   | 24,585  |       
|                                                     |         |                        |        |        |                   |   |        |        |        |   |         |       
|                                                     |         | Total revenue          |        |        | 77,861            |   |        |        | 83,169 |   |         |        | 229,714 |   |         |        | 249,776 | 
|Operating expenses                                   |         |                        |        |        |                   |   |        |        |        |   |         |        |         |   |         |       
|Direct costs                                         |         |                        | 32,814 |        |                   |   | 34,537 |        |        |   | 98,889  |        |         |   | 103,973 |       
|Reimbursable out-of-pocket costs                     |         |                        | 7,550  |        |                   |   | 7,602  |        |        |   | 23,443  |        |         |   | 24,585  |       
|Selling, general, and administrative                 |         |                        | 23,576 |        |                   |   | 24,654 |        |        |   | 67,380  |        |         |   | 74,325  |       
|Option purchase                                      |         |                        |       |        |                   |   |       |        |        |   | 3,713   |        |         |   |        |       
|Employee per option bonus related to tender          |         |                        | 402    |        |                   |   |       |        |        |   | 2,274   |        |         |   |        |       
|Depreciation and amortization                        |         |                        | 2,355  |        |                   |   | 2,856  |        |        |   | 7,050   |        |         |   | 8,479   |       
|Management fee                                       |         |                        | 200    |        |                   |   |       |        |        |   | 600     |        |         |   |        |       
|                                                     |         |                        |        |        |                   |   |        |        |        |   |         |       
|                                                     |         | Income from operations |        |        | 10,964            |   |        |        | 13,520 |   |         |        | 26,365  |   |         |        | 38,414  | 
|Interest expense                                     |         |                        | (867   | )      |                   |   | (132   | )      |        |   | (2,610  | )      |         |   | (349    | )     
|Interest income                                      |         |                        | 96     |        |                   |   | 380    |        |        |   | 269     |        |         |   | 1,228   |       
|Other income (expense), net                          |         |                        | (843   | )      |                   |   | (292   | )      |        |   | 832     |        |         |   | (786    | )     
|                                                     |         |                        |        |        |                   |   |        |        |        |   |         |       
|Income before income taxes                           |         |                        | 9,350  |        |                   |   | 13,476 |        |        |   | 24,856  |        |         |   | 38,507  |       
|Provision for income taxes                           |         |                        | 3,383  |        |                   |   | 4,267  |        |        |   | 8,998   |        |         |   | 13,785  |       
|                                                     |         |                        |        |        |                   |   |        |        |        |   |         |       
|                                                     |         | Net income             |        | $      | 5,967             |   |        | $      | 9,209  |   |         | $      | 15,858  |   |         | $      | 24,722  | 
|                                                     |         |                        |        |        |                   |   |        |        |        |   |         |       
|Net income per share                                 |         |                        |        |        |                   |   |        |        |        |   |         |        |         |   |         |       
|                                                     | Basic   |                        | $      | 0.33   |                   |   | $      | 0.41   |        |   | $       | 0.88   |         |   | $       | 1.10   |        
|                                                     | Diluted |                        | $      | 0.29   |                   |   | $      | 0.38   |        |   | $       | 0.79   |         |   | $       | 1.01   |        
|Weighted average number of common shares outstanding |         |                        |        |        |                   |   |        |        |        |   |         |        |         |   |         |       
|                                                     | Basic   |                        |        | 18,113 |                   |   |        | 22,548 |        |   |         | 17,944 |         |   |         | 22,436 |        
|                                                     | Diluted |                        |        | 20,301 |                   |   |        | 24,477 |        |   |         | 19,949 |         |   |         | 24,362 |        



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PRA INTERNATIONAL AND SUBSIDIARIES


CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN
STOCKHOLDERS


EQUITY AND OTHER COMPREHENSIVE INCOME


(in thousands, except per share amounts)


|                                                             |  |              |            |  |                |         |     |           |             |            |               |          |  |              |     |   |               |   |               |          |  |   |       |   |  |        |        |  |  |   |         |   |  |   |        |  
|------------------------------------------------------------ |  | ------------ | ---------- |  | -------------- | ------- | --- | --------- | ----------- | ---------- | ------------- | -------- |  | ------------ | --- | - | ------------- | - | ------------- | -------- |  | - | ----- | - |  | ------ | ------ |  |  | - | ------- | - |  | - | ------ | -
|                                                             |  |              |            |  |                |         |     |           |             | Additional |               |          |  |              |     |   |               |   |              
|                                                             |  |              |            |  |                | Paid-In |     |           | Accumulated |            |               | Retained |  |              |     |   |              
|                                                             |  | Common Stock |            |  | Treasury Stock |         |     | Capital  |             |            | Other         |          |  | Earnings/    |     |   |               |   | Other         |         
|                                                             |  |              |            |  |                |         |     | Common    |             |            | Comprehensive |          |  | (Accumulated |     |   |               |   | Comprehensive |         
|                                                             |  | Shares       |            |  | Amount         |         |     | Shares    |             |            | Amount        |          |  | Stock        |     |   | Income/(Loss) |   |               | Deficit) |  |   | Total |   |  | Income |       
|                                                             |  |              |            |  |                |         |     |           |             |            |               |          |  |              |     |   |               |   |               |          |  |   |       |   |  |        |       
|Balance as of December 31, 2004                              |  |              | 22,337,822 |  |                | $       | 223 |           |             |            | 14,216        |          |  | $            | (93 | ) |               | $ | 124,737       |          |  | $ | 2,858 |   |  | $      | 22,654 |  |  | $ | 150,379 |   |  |   |        |  
|Exercise of common stock options                             |  |              | 368,025    |  |                |         | 4   |           |             |            |              |          |  |              |    |   |               |   | 1,885         |          |  |   |      |   |  |        |       |  |  |   | 1,889   |   |  |   |        |  
|Net income                                                   |  |              |           |  |                |         |    |           |             |            |              |          |  |              |    |   |               |   |              |          |  |   |      |   |  |        | 24,722 |  |  |   | 24,722  |   |  | $ | 24,722 |  
|Issuance costs related to public offerings                   |  |              |           |  |                |         |    |           |             |            |              |          |  |              |    |   |               |   | (600          | )        |  |   |      |   |  |        |       |  |  |   | (600    | ) |  |   |        |  
|Stock option tax benefit                                     |  |              |            |  |                |         |     |           |             |            |               |          |  |              |     |   |               |   | 2,842         |          |  |   |       |   |  |        |        |  |  |   | 2,842   |   |  |   |        |  
|Other comprehensive income:                                  |  |              |            |  |                |         |     |           |             |            |               |          |  |              |     |   |               |   |               |          |  |   |       |   |  |        |        |  |  |   |         |   |  |   |        |  
|Foreign currency translation adjustment, net of tax          |  |              |           |  |                |         |    |           |             |            |              |          |  |              |    |   |               |   |              |          |  |   | 811   |   |  |        |       |  |  |   | 811     |   |  |   | 811    |  
|Fair market value adjustments on cash flow hedge, net of tax |  |              |           |  |                |         |    |           |             |            |              |          |  |              |    |   |               |   |              |          |  |   | (178  | ) |  |        |       |  |  |   | (178    | ) |  |   | (178   | )
|                                                             |  |              |            |  |                |         |     |           |             |            |               |          |  |              |     |   |               |   |               |          |  |   |       |   |  |        |       
|Comprehensive income                                         |  |              |            |  |                |         |     |           |             |            |               |          |  |              |     |   |               |   |               |          |  |   |       |   |  |        |        |  |  |   |         |   |  | $ | 25,355 |  
|                                                             |  |              |            |  |                |         |     |           |             |            |               |          |  |              |     |   |               |   |               |          |  |   |       |   |  |        |       
|Balance as of September 30, 2005 (unaudited)                 |  |              | 22,705,847 |  |                | $       | 227 |           |             |            | 14,216        |          |  | $            | (93 | ) |               | $ | 128,864       |          |  | $ | 3,491 |   |  | $      | 47,376 |  |  | $ | 179,865 |   |  |   |        |  
|                                                             |  |              |            |  |                |         |     |           |             |            |               |          |  |              |     |   |               |   |               |          |  |   |       |   |  |        |       



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PRA INTERNATIONAL AND SUBSIDIARIES





CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS0


(in thousands)


|                                                                                                |                                               |                                                     |                                                     |       |         |        |         |        |         |        |  
|----------------------------------------------------------------------------------------------- | --------------------------------------------- | --------------------------------------------------- | --------------------------------------------------- | ----- | ------- | ------ | ------- | ------ | ------- | ------ | -
|                                                                                                |                                               | Nine Months Ended                                   |                                                    
|                                                                                                |                                               | September 30,                                       |                                                    
|                                                                                                |                                               |                                                     |                                                    
|                                                                                                |                                               | 2004                                                |                                                     |       | 2005    |       
|                                                                                                |                                               |                                                     |                                                     |       |         |       
|                                                                                                |                                               | (unaudited)                                         |                                                    
|Cash flow from operating activities                                                             |                                               |                                                     |                                                     |       |         |        |         |       
|Net income                                                                                      |                                               | $                                                   | 15,858                                              |       |         | $      | 24,722  |       
|Adjustments to reconcile net income to net cash provided by
    (used in) operating activities: |                                               |                                                     |                                                     |       |         |        |         |       
|                                                                                                | Depreciation and amortization                 |                                                     |                                                     | 7,050 |         |        |         | 8,479  |        
|                                                                                                | Provision for doubtful receivables            |                                                     |                                                     | 2,692 |         |        |         | 370    |        
|                                                                                                | Provision (benefit) for deferred income taxes |                                                     |                                                     | 2,627 |         |        |         | (3,035 | )      
|                                                                                                | Changes in assets and liabilities:            |                                                     |                                                     |       |         |        |         |        |        
|                                                                                                |                                               | Accounts receivable and unbilled services           |                                                     |       | 5,389   |        |         |        | 1,547   |       
|                                                                                                |                                               | Prepaid expenses and other assets                   |                                                     |       | 28      |        |         |        | (1,390  | )     
|                                                                                                |                                               | Accounts payable and accrued expenses               |                                                     |       | (288    | )      |         |        | 5,814   |       
|                                                                                                |                                               | Income taxes                                        |                                                     |       | 6,331   |        |         |        | (3,391  | )     
|                                                                                                |                                               | Advance billings                                    |                                                     |       | (8,650  | )      |         |        | (42,060 | )     
|                                                                                                |                                               |                                                     |                                                     |       |         |       
|                                                                                                |                                               |                                                     | Net cash provided by (used in) operating activities |       |         | 31,037 |         |        |         | (8,944 | )
|                                                                                                |                                               |                                                     |                                                     |       |         |       
|Cash flow from investing activities                                                             |                                               |                                                     |                                                     |       |         |        |         |       
|Purchase of fixed assets                                                                        |                                               |                                                     | (5,943                                              | )     |         |        | (8,037  | )     
|Disposal of fixed assets                                                                        |                                               |                                                     | 621                                                 |       |         |        | 97      |       
|Purchase of marketable securities                                                               |                                               |                                                     |                                                    |       |         |        | (22,375 | )     
|Proceeds from marketable securities                                                             |                                               |                                                     |                                                    |       |         |        | 46,875  |       
|Cash paid for acquisitions, net of cash acquired                                                |                                               |                                                     | (200                                                | )     |         |        | (7,297  | )     
|                                                                                                |                                               |                                                     |                                                     |       |         |       
|                                                                                                |                                               |                                                     | Net cash provided by (used in) investing activities |       |         | (5,522 | )       |        |         | 9,263  |  
|                                                                                                |                                               |                                                     |                                                     |       |         |       
|Cash flow from financing activities                                                             |                                               |                                                     |                                                     |       |         |        |         |       
|Proceeds from issuance of debt                                                                  |                                               |                                                     | 5,000                                               |       |         |        |        |       
|Repayment of debt and capital leases                                                            |                                               |                                                     | (18,535                                             | )     |         |        | (138    | )     
|Issuance of stockholder notes receivable                                                        |                                               |                                                     | (1,777                                              | )     |         |        |        |       
|Payment of dividends                                                                            |                                               |                                                     | (16,851                                             | )     |         |        |        |       
|Purchase of treasury stock                                                                      |                                               |                                                     | (93                                                 | )     |         |        |        |       
|Stock option tax benefit                                                                        |                                               |                                                     |                                                    |       |         |        | 2,842   |       
|Issuance costs related to public offerings                                                      |                                               |                                                     |                                                    |       |         |        | (600    | )     
|Proceeds from stock option and warrant exercises                                                |                                               |                                                     | 2,639                                               |       |         |        | 1,889   |       
|                                                                                                |                                               |                                                     |                                                     |       |         |       
|                                                                                                |                                               | Net cash provided by (used in) financing activities |                                                     |       | (29,617 | )      |         |        | 3,993   |       
|Effect of exchange rate on cash and cash equivalents                                            |                                               |                                                     | 412                                                 |       |         |        | 120     |       
|                                                                                                |                                               |                                                     |                                                     |       |         |       
|Increase (decrease) in cash and cash equivalents                                                |                                               |                                                     | (3,690                                              | )     |         |        | 4,432   |       
|Cash and cash equivalents at beginning of period                                                |                                               |                                                     | 32,328                                              |       |         |        | 65,888  |       
|                                                                                                |                                               |                                                     |                                                     |       |         |       
|Cash and cash equivalents at end of period                                                      |                                               | $                                                   | 28,638                                              |       |         | $      | 70,320  |       
|                                                                                                |                                               |                                                     |                                                     |       |         |       
|Supplemental disclosure of cash flow information                                                |                                               |                                                     |                                                     |       |         |        |         |       
|                                                                                                | Cash paid for taxes                           |                                                     | $                                                   | 2,249 |         |        | $       | 16,850 |        
|                                                                                                |                                               |                                                     |                                                     |       |         |       
|                                                                                                | Cash paid for interest                        |                                                     | $                                                   | 2,248 |         |        | $       | 213    |        
|                                                                                                |                                               |                                                     |                                                     |       |         |       



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PRA INTERNATIONAL AND SUBSIDIARIES





NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS


(1)     Basis of Preparation




(2)     Significant Accounting
Policies




| |                            
| | ---------------------------
| | Principles of Consolidation





| |                 
| | ----------------
| | Use of Estimates





| |                      
| | ---------------------
| | Marketable securities



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PRA INTERNATIONAL AND SUBSIDIARIES


NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS  (Continued)




| |                  
| | -----------------
| | Unbilled Services





| |                                    
| | -----------------------------------
| | Fair Value of Financial Instruments





| |                               
| | ------------------------------
| | Goodwill and Other Intangibles





| |                 
| | ----------------
| | Advance Billings





| |                    
| | -------------------
| | Revenue Recognition









| |                                                               
| | --------------------------------------------------------------
| | Reimbursement Revenue and Reimbursable Out-of-Pocket
    Costs





8



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PRA INTERNATIONAL AND SUBSIDIARIES


NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS  (Continued)






| |                      
| | ---------------------
| | Significant Customers



|           |  |               |    |   |               |  |    |      |  |  |      |   |  |  |    |  
|---------- |  | ------------- | -- | - | ------------- |  | -- | ---- |  |  | ---- | - |  |  | -- | -
|           |  | Three Months  |    |   | Nine Months   | 
|           |  | Ended         |    |   | Ended         | 
|           |  | September 30, |    |   | September 30, | 
|           |  |               |    |   |               | 
|           |  | 2004          |    |   | 2005          |  |    | 2004 |  |  | 2005 |  
|           |  |               |    |   |               |  |    |      |  |  |      |  
|Customer A |  |               | 17 | % |               |  | 13 | %    |  |  | 14   | % |  |  | 13 | %
|Customer B |  |               | *  |   |               |  | 10 | %    |  |  | *    |   |  |  | 11 | %
|Customer C |  |               | 13 | % |               |  | 11 | %    |  |  | 12   | % |  |  | 10 | %






|  |                                                                             
|- | ----------------------------------------------------------------------------
|* | Less than 10% of consolidated service revenues in the respective
    period.





| |                             
| | ----------------------------
| | Concentration of Credit Risk



|           |  |              |    |   |               |  |    |  
|---------- |  | ------------ | -- | - | ------------- |  | -- | -
|           |  | December 31, |    |   | September 30, | 
|           |  | 2004         |    |   | 2005          | 
|           |  |              |    |   |               | 
|Customer A |  |              | 16 | % |               |  | 10 | %
|Customer B |  |              | *  |   |               |  | *  |  
|Customer C |  |              | 15 | % |               |  | *  |  






|  |                                                                                    
|- | -----------------------------------------------------------------------------------
|* | Less than 10% of consolidated accounts receivable as of the end
    of each period.





| |                             
| | ----------------------------
| | Foreign Currency Translation



9



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PRA INTERNATIONAL AND SUBSIDIARIES


NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS  (Continued)






| |                            
| | ---------------------------
| | Comprehensive Income (Loss)





| |                         
| | ------------------------
| | Stock-Based Compensation



|                                                                                                                                    |  |                                                  |       |   |                   |   |       |      |  |   |        |   |  |   |        |  
|----------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------ | ----- | - | ----------------- | - | ----- | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                                                                                    |  | Three Months Ended                               |       |   | Nine Months Ended |  
|                                                                                                                                    |  | September 30,                                    |       |   | September 30,     |  
|                                                                                                                                    |  |                                                  |       |   |                   |  
|                                                                                                                                    |  | 2004                                             |       |   | 2005              |   |       | 2004 |  |   | 2005   |  
|                                                                                                                                    |  |                                                  |       |   |                   |   |       |      |  |   |        |  
|                                                                                                                                    |  | (Dollars in thousands, except per share amounts) |      
|Net income, as reported                                                                                                             |  | $                                                | 5,967 |   |                   | $ | 9,209 |      |  | $ | 15,858 |   |  | $ | 24,722 |  
|Deduct: Total stock-based employee compensation expense
    determined under fair value based method for all awards, net of
    tax |  |                                                  | (76   | ) |                   |   | (380  | )    |  |   | (231   | ) |  |   | (1,049 | )
|                                                                                                                                    |  |                                                  |       |   |                   |   |       |      |  |   |        |  
|SFAS No. 123 pro forma net income                                                                                                   |  | $                                                | 5,891 |   |                   | $ | 8,829 |      |  | $ | 15,627 |   |  | $ | 23,673 |  
|                                                                                                                                    |  |                                                  |       |   |                   |   |       |      |  |   |        |  
|Basic net income per share, as reported                                                                                             |  | $                                                | 0.33  |   |                   | $ | 0.41  |      |  | $ | 0.88   |   |  | $ | 1.10   |  
|Basic net income per share, pro forma                                                                                               |  | $                                                | 0.33  |   |                   | $ | 0.39  |      |  | $ | 0.87   |   |  | $ | 1.06   |  
|Diluted net income per share, as reported                                                                                           |  | $                                                | 0.29  |   |                   | $ | 0.38  |      |  | $ | 0.79   |   |  | $ | 1.01   |  
|Diluted net income per share, pro forma                                                                                             |  | $                                                | 0.29  |   |                   | $ | 0.36  |      |  | $ | 0.78   |   |  | $ | 0.97   |  





| |                     
| | --------------------
| | Net income per share



10



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PRA INTERNATIONAL AND SUBSIDIARIES


NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS  (Continued)




Recent Accounting Pronouncements




(3)     Accounts Receivable and
Unbilled Services




|                                      |  |              |        |   |               |   |        |  
|------------------------------------- |  | ------------ | ------ | - | ------------- | - | ------ | -
|                                      |  | December 31, |        |   | September 30, |  
|                                      |  | 2004         |        |   | 2005          |  
|                                      |  |              |        |   |               |  
|Accounts receivable                   |  | $            | 59,384 |   |               | $ | 43,965 |  
|Unbilled services                     |  |              | 29,993 |   |               |   | 41,809 |  
|                                      |  |              |        |   |               |  
|                                      |  |              | 89,377 |   |               |   | 85,774 |  
|Less: Allowance for doubtful accounts |  |              | (4,897 | ) |               |   | (5,211 | )
|                                      |  |              |        |   |               |  
|                                      |  | $            | 84,480 |   |               | $ | 80,563 |  
|                                      |  |              |        |   |               |  

(4)     Goodwill and Other
Intangibles




|                                         |  |   |         |  
|---------------------------------------- |  | - | ------- | -
|Carrying amount as of December 31, 2004  |  | $ | 101,340 |  
|Acquisitions                             |  |   | 5,753   |  
|Foreign currency exchange rate changes   |  |   | (324    | )
|                                         |  |   |        
|Carrying amount as of September 30, 2005 |  | $ | 106,769 |  
|                                         |  |   |        

11



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##### Table of Contents



PRA INTERNATIONAL AND SUBSIDIARIES


NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS  (Continued)




|                                 |  |              |            |  |                         |   |        |                          |  |     |          |  |       |          |        |  |              |     |        |          |  |   |       |  |  |   |        | 
|-------------------------------- |  | ------------ | ---------- |  | ----------------------- | - | ------ | ------------------------ |  | --- | -------- |  | ----- | -------- | ------ |  | ------------ | --- | ------ | -------- |  | - | ----- |  |  | - | ------ | 
|                                 |  | Weighted     |            |  | As of December 31, 2004 |   |        | As of September 30, 2005 | 
|                                 |  | Average      |            |  |                         |   |        |                          | 
|                                 |  | Amortization |            |  | Gross                   |   |        |                          |  | Net |          |  | Gross |          |        |  |              | Net |       
|                                 |  | Period       |            |  | Carrying                |   |        | Accumulated              |  |     | Carrying |  |       | Carrying |        |  | Accumulated  |     |        | Carrying | 
|                                 |  | (in Years)   |            |  | Amount                  |   |        | Amortization             |  |     | Amount   |  |       | Amount   |        |  | Amortization |     |        | Amount   | 
|                                 |  |              |            |  |                         |   |        |                          |  |     |          |  |       |          |        |  |              |     |        |          | 
|Non-compete and other agreements |  |              | 2          |  |                         | $ | 2,776  |                          |  | $   | 2,442    |  |       | $        | 334    |  |              | $   | 2,518  |          |  | $ | 2,347 |  |  | $ | 171    | 
|Customer relationships           |  |              | 10         |  |                         |   | 7,897  |                          |  |     | 2,319    |  |       |          | 5,578  |  |              |     | 8,500  |          |  |   | 3,212 |  |  |   | 5,287  | 
|Trade names                      |  |              | Indefinite |  |                         |   | 19,970 |                          |  |     | 473      |  |       |          | 19,497 |  |              |     | 19,855 |          |  |   | 474   |  |  |   | 19,382 | 
|                                 |  |              |            |  |                         |   |        |                          |  |     |          |  |       |          |        |  |              |     |        |          | 
|                                 |  |              |            |  |                         | $ | 30,643 |                          |  | $   | 5,234    |  |       | $        | 25,409 |  |              | $   | 30,873 |          |  | $ | 6,033 |  |  | $ | 24,840 | 
|                                 |  |              |            |  |                         |   |        |                          |  |     |          |  |       |          |        |  |              |     |        |          | 



|                          |  |                |       | 
|------------------------- |  | -------------- | ----- | 
|                          |  | (in thousands) |      
|2005 (remaining 3 months) |  | $              | 287   | 
|2006                      |  |                | 933   | 
|2007                      |  |                | 863   | 
|2008                      |  |                | 850   | 
|2009 and thereafter       |  |                | 2,525 | 
|                          |  |                |      
|                          |  | $              | 5,458 | 
|                          |  |                |      

(5)     Stock and Option Repurchase
and Dividend and Bonus Payment






(6)     Accounting for Derivative
Instruments and Hedging Activities




12



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PRA INTERNATIONAL AND SUBSIDIARIES


NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS  (Continued)




(7)     Commitments and
Contingencies




| |                  
| | -----------------
| | Legal Proceedings





(8)     Related-Party
Transactions






13



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##### Table of Contents



PRA INTERNATIONAL AND SUBSIDIARIES


NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS  (Continued)


(9)     Segment Reporting 
Operations by Geographic Area




|                |               |                    |        |        |                   |   |        |        |  |   |         |         |  |   |         |         | 
|--------------- | ------------- | ------------------ | ------ | ------ | ----------------- | - | ------ | ------ |  | - | ------- | ------- |  | - | ------- | ------- | 
|                |               | Three Months Ended |        |        | Nine Months Ended |  
|                |               | September 30,      |        |        | September 30,     |  
|                |               |                    |        |        |                   |  
|                |               | 2004               |        |        | 2005              |   |        | 2004   |  |   | 2005    |        
|                |               |                    |        |        |                   |   |        |        |  |   |         |        
|Service revenue |               |                    |        |        |                   |   |        |        |  |   |         |         |  |   |         |        
|                | North America |                    | $      | 49,363 |                   |   | $      | 49,652 |  |   | $       | 145,403 |  |   | $       | 150,542 | 
|                | Europe        |                    |        | 19,360 |                   |   |        | 23,533 |  |   |         | 56,481  |  |   |         | 67,845  | 
|                | Other         |                    |        | 1,588  |                   |   |        | 2,382  |  |   |         | 4,387   |  |   |         | 6,804   | 
|                |               |                    |        |        |                   |   |        |        |  |   |         |        
|                |               | $                  | 70,311 |        |                   | $ | 75,567 |        |  | $ | 206,271 |         |  | $ | 225,191 |        
|                |               |                    |        |        |                   |   |        |        |  |   |         |        

|                  |               |              |         |         |               |   |         |         | 
|----------------- | ------------- | ------------ | ------- | ------- | ------------- | - | ------- | ------- | 
|                  |               | December 31, |         |         | September 30, |  
|                  |               | 2004         |         |         | 2005          |  
|                  |               |              |         |         |               |  
|Long-lived assets |               |              |         |         |               |   |         |        
|                  | North America |              | $       | 133,738 |               |   | $       | 138,363 | 
|                  | Europe        |              |         | 16,512  |               |   |         | 16,512  | 
|                  | Other         |              |         | 1,313   |               |   |         | 1,301   | 
|                  |               |              |         |         |               |  
|                  |               | $            | 151,563 |         |               | $ | 156,176 |        
|                  |               |              |         |         |               |  

14



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##### Table of Contents








|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
    CONDITION AND RESULTS OF OPERATIONS



Overview












15



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##### Table of Contents







| |                
| | ---------------
| | Service Revenue







| |                                                               
| | --------------------------------------------------------------
| | Reimbursement Revenue and Reimbursable Out-of-Pocket
    Costs





| |             
| | ------------
| | Direct Costs





| |                                              
| | ---------------------------------------------
| | Selling, General, and Administrative Expenses





| |                              
| | -----------------------------
| | Depreciation and Amortization



16



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##### Table of Contents







| |             
| | ------------
| | Income Taxes







| |                           
| | --------------------------
| | Exchange Rate Fluctuations



|                  |                 |               |  |      |              |  |  |               |  |  |  |      | 
|----------------- | --------------- | ------------- |  | ---- | ------------ |  |  | ------------- |  |  |  | ---- | 
|                  |                 | September 30, |  |      | December 31, |  |  | September 30, | 
|                  |                 | 2004          |  |      | 2004         |  |  | 2005          | 
|                  |                 |               |  |      |              |  |  |               | 
|U.S. Dollars per: |                 |               |  |      |              |  |  |               |  |  |  |     
|                  | Euro            |               |  | 1.22 |              |  |  | 1.25          |  |  |  | 1.25 | 
|                  | Pound Sterling  |               |  | 1.82 |              |  |  | 1.84          |  |  |  | 1.84 | 
|                  | Canadian Dollar |               |  | 0.75 |              |  |  | 0.77          |  |  |  | 0.82 | 



| |                      
| | ---------------------
| | Results of Operations



17



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##### Table of Contents





|                                     |                        |                         |       |       |               |  |       |             |  |  |       |      |  |      |       |      |  |  |       |      | 
|------------------------------------ | ---------------------- | ----------------------- | ----- | ----- | ------------- |  | ----- | ----------- |  |  | ----- | ---- |  | ---- | ----- | ---- |  |  | ----- | ---- | 
|                                     |                        |                         |       |       |               |  |       | Nine Months | 
|                                     |                        |                         |       | Ended |              
|                                     |                        | Year Ended December 31, |       |       | September 30, | 
|                                     |                        |                         |       |       |               | 
|                                     |                        | 2002                    |       |       | 2003          |  |       | 2004        |  |  | 2004  |      |  | 2005 |      
|                                     |                        |                         |       |       |               |  |       |             |  |  |       |      |  |      |      
|Service revenue                      |                        |                         | 100.0 | %     |               |  | 100.0 | %           |  |  | 100.0 | %    |  |      | 100.0 | %    |  |  | 100.0 | %   
|Direct costs                         |                        |                         | 53.7  |       |               |  | 51.1  |             |  |  | 48.3  |      |  |      | 47.9  |      |  |  | 46.2  |     
|Selling, general, and administrative |                        |                         | 32.8  |       |               |  | 32.5  |             |  |  | 32.5  |      |  |      | 32.7  |      |  |  | 33.0  |     
|Depreciation and amortization        |                        |                         | 4.0   |       |               |  | 3.6   |             |  |  | 3.5   |      |  |      | 3.4   |      |  |  | 3.8   |     
|Management fee                       |                        |                         | 0.5   |       |               |  | 0.3   |             |  |  | 0.3   |      |  |      | 0.3   |      |  |  |      |     
|Option repurchase                    |                        |                         |      |       |               |  |      |             |  |  | 1.3   |      |  |      | 1.8   |      |  |  |      |     
|Vested option bonus                  |                        |                         |      |       |               |  |      |             |  |  | 0.9   |      |  |      | 1.1   |      |  |  |      |     
|                                     |                        |                         |       |       |               |  |       |             |  |  |       |      |  |      |      
|                                     | Income from operations |                         |       | 9.0   |               |  |       | 12.5        |  |  |       | 13.1 |  |      |       | 12.8 |  |  |       | 17.0 | 
|Interest expense                     |                        |                         | (2.4  | )     |               |  | (2.9  | )           |  |  | (1.4  | )    |  |      | (1.3  | )    |  |  | (0.1  | )   
|Interest income                      |                        |                         | 0.1   |       |               |  | 0.1   |             |  |  | 0.1   |      |  |      | 0.1   |      |  |  | 0.5   |     
|Other income (expenses), net         |                        |                         | (0.4  | )     |               |  | (1.6  | )           |  |  | 0.0   |      |  |      | 0.4   |      |  |  | (0.3  | )   
|                                     |                        |                         |       |       |               |  |       |             |  |  |       |      |  |      |      
|Income before income taxes           |                        |                         | 6.3   |       |               |  | 8.1   |             |  |  | 11.8  |      |  |      | 12.1  |      |  |  | 17.1  |     
|Provision for income taxes           |                        |                         | 3.1   |       |               |  | 2.8   |             |  |  | 4.3   |      |  |      | 4.4   |      |  |  | 6.1   |     
|                                     |                        |                         |       |       |               |  |       |             |  |  |       |      |  |      |      
|Net income                           |                        |                         | 3.2   | %     |               |  | 5.3   | %           |  |  | 7.5   | %    |  |      | 7.7   | %    |  |  | 11.0  | %   
|                                     |                        |                         |       |       |               |  |       |             |  |  |       |      |  |      |      

18



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##### Table of Contents





| |                                     
| | ------------------------------------
| | Selected Consolidated Financial Data



|                                                    |                                      |                         |         |                   |               |   |        |             |         |   |             |            |         |      |         |            |         |   |        |            |         | 
|--------------------------------------------------- | ------------------------------------ | ----------------------- | ------- | ----------------- | ------------- | - | ------ | ----------- | ------- | - | ----------- | ---------- | ------- | ---- | ------- | ---------- | ------- | - | ------ | ---------- | ------- | 
|                                                    |                                      |                         |         | Nine Months Ended |              
|                                                    |                                      | Year Ended December 31, |         |                   | September 30, |  
|                                                    |                                      |                         |         |                   |               |  
|                                                    |                                      | 2002                    |         |                   | 2003          |   |        | 2004        |         |   | 2004        |            |         | 2005 |        
|                                                    |                                      |                         |         |                   |               |   |        |             |         |   |             |            |         |      |        
|                                                    |                                      |                         |         |                   |               |   |        | (unaudited) |         |   | (unaudited) |           
|Revenue                                             |                                      |                         |         |                   |               |   |        |             |         |   |             |            |         |      |         |            |         |   |        |           
|                                                    | Service revenue                      |                         | $       | 176,365           |               |   | $      | 247,888     |         |   | $           | 277,479    |         |      | $       | 206,271    |         |   | $      | 225,191    |        
|                                                    | Reimbursement revenue                |                         |         | 24,648            |               |   |        | 42,109      |         |   |             | 30,165     |         |      |         | 23,443     |         |   |        | 24,585     |        
|                                                    |                                      |                         |         |                   |               |   |        |             |         |   |             |            |         |      |        
|                                                    |                                      | Total revenue           |         | $                 | 201,013       |   |        | $           | 289,997 |   |             | $          | 307,644 |      |         | $          | 229,714 |   |        | $          | 249,776 | 
|Operating expenses                                  |                                      |                         |         |                   |               |   |        |             |         |   |             |            |         |      |         |            |         |   |        |           
|                                                    | Direct costs                         |                         |         | 94,761            |               |   |        | 126,501     |         |   |             | 134,067    |         |      |         | 98,889     |         |   |        | 103,973    |        
|                                                    | Reimbursable out-of-pocket costs     |                         |         | 24,648            |               |   |        | 42,109      |         |   |             | 30,165     |         |      |         | 23,443     |         |   |        | 24,585     |        
|                                                    | Selling, general, and administrative |                         |         | 57,897            |               |   |        | 80,585      |         |   |             | 90,139     |         |      |         | 67,380     |         |   |        | 74,325     |        
|                                                    | Depreciation and amortization        |                         |         | 6,956             |               |   |        | 8,967       |         |   |             | 9,691      |         |      |         | 7,050      |         |   |        | 8,479      |        
|                                                    | Management fee                       |                         |         | 800               |               |   |        | 800         |         |   |             | 704        |         |      |         | 600        |         |   |        |           |        
|                                                    | Option repurchase(1)                 |                         |         |                  |               |   |        |            |         |   |             | 3,713      |         |      |         | 3,713      |         |   |        |           |        
|                                                    | Vested option bonus(1)               |                         |         |                  |               |   |        |            |         |   |             | 2,738      |         |      |         | 2,274      |         |   |        |           |        
|                                                    |                                      |                         |         |                   |               |   |        |             |         |   |             |            |         |      |        
|Income from operations                              |                                      |                         | 15,951  |                   |               |   | 31,035 |             |         |   | 36,427      |            |         |      | 26,365  |            |         |   | 38,414 |           
|Interest income (expense), net                      |                                      |                         | (4,100  | )                 |               |   | (6,856 | )           |         |   | (3,643      | )          |         |      | (2,341  | )          |         |   | 879    |           
|Other income (expenses), net                        |                                      |                         | (721    | )                 |               |   | (4,023 | )           |         |   | (38         | )          |         |      | 832     |            |         |   | (786   | )         
|                                                    |                                      |                         |         |                   |               |   |        |             |         |   |             |            |         |      |        
|Income before income taxes                          |                                      |                         | 11,130  |                   |               |   | 20,156 |             |         |   | 32,746      |            |         |      | 24,856  |            |         |   | 38,507 |           
|Provision for income taxes                          |                                      |                         | 5,493   |                   |               |   | 6,909  |             |         |   | 11,997      |            |         |      | 8,998   |            |         |   | 13,785 |           
|                                                    |                                      |                         |         |                   |               |   |        |             |         |   |             |            |         |      |        
|Net income                                          |                                      | $                       | 5,637   |                   |               | $ | 13,247 |             |         | $ | 20,749      |            |         | $    | 15,858  |            |         | $ | 24,722 |           
|                                                    |                                      |                         |         |                   |               |   |        |             |         |   |             |            |         |      |        
|Net income per share                                |                                      |                         |         |                   |               |   |        |             |         |   |             |            |         |      |         |            |         |   |        |           
|                                                    | Basic                                |                         | $       | 0.37              |               |   | $      | 0.83        |         |   | $           | 1.13       |         |      | $       | 0.88       |         |   | $      | 1.10       |        
|                                                    | Diluted                              |                         | $       | 0.32              |               |   | $      | 0.71        |         |   | $           | 1.02       |         |      | $       | 0.79       |         |   | $      | 1.01       |        
|Shares used to compute net income per share:        |                                      |                         |         |                   |               |   |        |             |         |   |             |            |         |      |         |            |         |   |        |           
|                                                    | Basic                                |                         |         | 15,204,232        |               |   |        | 15,965,408  |         |   |             | 18,442,313 |         |      |         | 17,944,312 |         |   |        | 22,436,480 |        
|                                                    | Diluted                              |                         |         | 17,557,632        |               |   |        | 18,666,012  |         |   |             | 20,329,852 |         |      |         | 19,949,128 |         |   |        | 24,362,464 |        
|Other Financial Data:                               |                                      |                         |         |                   |               |   |        |             |         |   |             |            |         |      |         |            |         |   |        |           
|Net cash provided by (used in) operating activities |                                      | $                       | 28,442  |                   |               | $ | 2,058  |             |         | $ | 71,636      |            |         | $    | 31,037  |            |         | $ | (8,944 | )         
|Net cash provided by (used in) investing activities |                                      |                         | (24,625 | )                 |               |   | (9,599 | )           |         |   | (32,350     | )          |         |      | (5,522  | )          |         |   | 9,263  |           
|Net cash provided by (used in) financing activities |                                      |                         | (14,581 | )                 |               |   | 26,028 |             |         |   | (6,430      | )          |         |      | (29,617 | )          |         |   | 3,993  |           

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|                                          |  |                         |        |                   |               |   |        |             |  |   |             |   |  |      |        |   |  |   |        |  
|----------------------------------------- |  | ----------------------- | ------ | ----------------- | ------------- | - | ------ | ----------- |  | - | ----------- | - |  | ---- | ------ | - |  | - | ------ | -
|                                          |  |                         |        | Nine Months Ended |              
|                                          |  | Year Ended December 31, |        |                   | September 30, |  
|                                          |  |                         |        |                   |               |  
|                                          |  | 2002                    |        |                   | 2003          |   |        | 2004        |  |   | 2004        |   |  | 2005 |       
|                                          |  |                         |        |                   |               |   |        |             |  |   |             |   |  |      |       
|                                          |  |                         |        |                   |               |   |        | (unaudited) |  |   | (unaudited) |  
|Non-GAAP Data:                            |  |                         |        |                   |               |   |        |             |  |   |             |   |  |      |        |   |  |   |        |  
|Adjusted EBITDA(2)                        |  | $                       | 22,186 |                   |               | $ | 35,979 |             |  | $ | 52,531      |   |  | $    | 40,234 |   |  | $ | 46,107 |  
|Adjusted EBITDA as a % of service revenue |  |                         | 12.6   | %                 |               |   | 14.5   | %           |  |   | 18.9        | % |  |      | 19.5   | % |  |   | 20.5   | %
|EBITDA(2)                                 |  | $                       | 22,186 |                   |               | $ | 35,979 |             |  | $ | 46,080      |   |  | $    | 34,247 |   |  | $ | 46,107 |  
|EBITDA as a % of service revenue          |  |                         | 12.6   | %                 |               |   | 14.5   | %           |  |   | 16.6        | % |  |      | 16.6   | % |  |   | 20.5   | %

|                                                           |  |                         |         |                   |               |   |         |             |  |   |             |  |  |      |         |   |  |   |         | 
|---------------------------------------------------------- |  | ----------------------- | ------- | ----------------- | ------------- | - | ------- | ----------- |  | - | ----------- |  |  | ---- | ------- | - |  | - | ------- | 
|                                                           |  |                         |         | Nine Months Ended |              
|                                                           |  | Year Ended December 31, |         |                   | September 30, |  
|                                                           |  |                         |         |                   |               |  
|                                                           |  | 2002                    |         |                   | 2003          |   |         | 2004        |  |   | 2004        |  |  | 2005 |        
|                                                           |  |                         |         |                   |               |   |         |             |  |   |             |  |  |      |        
|                                                           |  |                         |         |                   |               |   |         | (unaudited) |  |   | (unaudited) | 
|Consolidated Balance Sheet Data:                           |  |                         |         |                   |               |   |         |             |  |   |             |  |  |      |         |   |  |   |         | 
|Cash and cash equivalents                                  |  | $                       | 13,798  |                   |               | $ | 32,328  |             |  | $ | 65,888      |  |  | $    | 28,638  |   |  | $ | 70,320  | 
|Marketable securities                                      |  |                         |        |                   |               |   |        |             |  |   | 24,500      |  |  |      |        |   |  |   |        | 
|Working capital                                            |  |                         | (43,429 | )                 |               |   | (8,449  | )           |  |   | 11,478      |  |  |      | (18,566 | ) |  |   | 35,366  | 
|Total assets                                               |  |                         | 254,547 |                   |               |   | 298,558 |             |  |   | 337,344     |  |  |      | 282,988 |   |  |   | 320,652 | 
|Long-term debt and capital leases, less current maturities |  |                         | 32,509  |                   |               |   | 57,810  |             |  |   | 75          |  |  |      | 46,797  |   |  |   | 11      | 
|Stockholders equity                                       |  |                         | 59,088  |                   |               |   | 74,565  |             |  |   | 150,379     |  |  |      | 75,148  |   |  |   | 179,865 | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes a $3.7 million charge for the repurchase of
    options, predominantly from former employees, and a
    $2.7 million ($2.3 million through September 30,
    2004) 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 Ended |              
|                |                               | Year Ended December 31, |        |                   | September 30, |  
|                |                               |                         |        |                   |               |  
|                |                               | 2002                    |        |                   | 2003          |   |        | 2004        |   |   | 2004        |         |   | 2005 |       
|                |                               |                         |        |                   |               |   |        |             |   |   |             |         |   |      |       
|                |                               |                         |        |                   |               |   |        | (unaudited) |   |   | (unaudited) |        
|Adjusted EBITDA |                               | $                       | 22,186 |                   |               | $ | 35,979 |             |   | $ | 52,531      |         |   | $    | 40,234 |        |   | $ | 46,107 |        
|                | Option repurchase             |                         |        |                  |               |   |        |            |   |   |             | (3,713  | ) |      |        | (3,713 | ) |   |        |        |  
|                | Vested option bonus           |                         |        |                  |               |   |        |            |   |   |             | (2,738  | ) |      |        | (2,274 | ) |   |        |        |  
|                |                               |                         |        |                   |               |   |        |             |   |   |             |         |   |      |       
|EBITDA          |                               |                         | 22,186 |                   |               |   | 35,979 |             |   |   | 46,080      |         |   |      | 34,247 |        |   |   | 46,107 |        
|                | Depreciation and amortization |                         |        | (6,956            | )             |   |        | (8,967      | ) |   |             | (9,691  | ) |      |        | (7,050 | ) |   |        | (8,479  | )
|                | Interest expense, net         |                         |        | (4,100            | )             |   |        | (6,856      | ) |   |             | (3,643  | ) |      |        | (2,341 | ) |   |        | 879     |  
|                | Provision for income taxes    |                         |        | (5,493            | )             |   |        | (6,909      | ) |   |             | (11,997 | ) |      |        | (8,998 | ) |   |        | (13,785 | )
|                |                               |                         |        |                   |               |   |        |             |   |   |             |         |   |      |       

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|                                                    |                                     |                                           |        |                   |               |   |        |             |         |   |             |       |        |      |        |       |        |   |        |        |         |  
|--------------------------------------------------- | ----------------------------------- | ----------------------------------------- | ------ | ----------------- | ------------- | - | ------ | ----------- | ------- | - | ----------- | ----- | ------ | ---- | ------ | ----- | ------ | - | ------ | ------ | ------- | -
|                                                    |                                     |                                           |        | Nine Months Ended |              
|                                                    |                                     | Year Ended December 31,                   |        |                   | September 30, |  
|                                                    |                                     |                                           |        |                   |               |  
|                                                    |                                     | 2002                                      |        |                   | 2003          |   |        | 2004        |         |   | 2004        |       |        | 2005 |       
|                                                    |                                     |                                           |        |                   |               |   |        |             |         |   |             |       |        |      |       
|                                                    |                                     |                                           |        |                   |               |   |        | (unaudited) |         |   | (unaudited) |      
|Net income                                          |                                     |                                           | 5,637  |                   |               |   | 13,247 |             |         |   | 20,749      |       |        |      | 15,858 |       |        |   | 24,722 |       
|                                                    | Depreciation and amortization       |                                           |        | 6,956             |               |   |        | 8,967       |         |   |             | 9,691 |        |      |        | 7,050 |        |   |        | 8,479  |        
|                                                    | Provision for doubtful receivables  |                                           |        | 1,888             |               |   |        | 4,851       |         |   |             | 1,914 |        |      |        | 2,692 |        |   |        | 370    |        
|                                                    | Amortization of debt discount       |                                           |        | 379               |               |   |        | 1,642       |         |   |             |      |        |      |        |      |        |   |        |       |        
|                                                    | Stock-based compensation            |                                           |        |                  |               |   |        |            |         |   |             |      |        |      |        |      |        |   |        |       |        
|                                                    | Provision for deferred income taxes |                                           |        | (1,228            | )             |   |        | (3,997      | )       |   |             | 2,606 |        |      |        | 2,627 |        |   |        | (3,035 | )      
|                                                    | Debt issuance costs write-off       |                                           |        |                  |               |   |        | 750         |         |   |             | 1,241 |        |      |        |      |        |   |        |       |        
|                                                    | Changes in assets and liabilities:  |                                           |        |                   |               |   |        |             |         |   |             |       |        |      |        |       |        |   |        |        |        
|                                                    |                                     | Accounts receivable and unbilled services |        |                   | (29,251       | ) |        |             | (18,538 | ) |             |       | 15,373 |      |        |       | 5,389  |   |        |        | 1,547   |  
|                                                    |                                     | Prepaid expenses and other assets         |        |                   | 1,444         |   |        |             | 408     |   |             |       | 1,226  |      |        |       | 28     |   |        |        | (1,390  | )
|                                                    |                                     | Accounts payable and accrued expenses     |        |                   | 3,481         |   |        |             | (4,873  | ) |             |       | 7,793  |      |        |       | (288   | ) |        |        | 5,814   |  
|                                                    |                                     | Income taxes                              |        |                   | 989           |   |        |             | (481    | ) |             |       | 12,150 |      |        |       | 6,331  |   |        |        | (3,391  | )
|                                                    |                                     | Advance billings                          |        |                   | 38,147        |   |        |             | 82      |   |             |       | (1,107 | )    |        |       | (8,650 | ) |        |        | (42,060 | )
|                                                    |                                     |                                           |        |                   |               |   |        |             |         |   |             |       |        |      |       
|Net cash provided by (used in) operating activities |                                     | $                                         | 28,442 |                   |               | $ | 2,058  |             |         | $ | 71,636      |       |        | $    | 31,037 |       |        | $ | (8,944 | )     
|                                                    |                                     |                                           |        |                   |               |   |        |             |         |   |             |       |        |      |       



| |                                                                                            
| | -------------------------------------------------------------------------------------------
| | Three Months Ended September 30, 2005 Compared to
    Three Months Ended September 30, 2004









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| |                                                                                          
| | -----------------------------------------------------------------------------------------
| | Nine Months Ended September 30, 2005 Compared to Nine
    Months Ended September 30, 2004









22



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Liquidity and Capital Resources










23



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Non-GAAP Financial Measures










24



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Critical Accounting Policies and Estimates






| |                    
| | -------------------
| | Revenue Recognition





| |                                
| | -------------------------------
| | Allowance for Doubtful Accounts



25



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| |                        
| | -----------------------
| | Tax Valuation Allowance







| |                         
| | ------------------------
| | Stock-Based Compensation











| |                  
| | -----------------
| | Long-Lived Assets



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| |                                                
| | -----------------------------------------------
| | Goodwill and Indefinite-Lived Intangible Assets





Inflation




Potential Liability and Insurance




Risk Factors




Special Note Regarding Risks and Forward-Looking
Statements






| |   |                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------
| |  | Termination of a large contract for services or multiple
    contracts for services could adversely affect our revenue and
    profitability.
|
| |  | Our quarterly operating results may vary and could negatively
    affect the market price of our common stock.                               

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| |   |                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A loss of or significant decrease in business from our clients
    could affect our business.                                                                                                                                       
|
| |  | If our costs of performing fixed-fee contracts were to exceed
    the fixed fees payable to us we would lose money in performing
    these contracts.                                                                               
|
| |  | The loss of any member of our senior management 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.                                                                                                    
|
| |  | 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.                                                                                                                                   
|
| |  | Operating in foreign countries subjects us to certain risks.                                                                                                                                                                        
|
| |  | Emerging companies using our services may be unable to pay us.                                                                                                                                                                      
|
| |  | A downturn in our business or industry could require us to take
    a charge to earnings.                                                                                                                                           
|
| |  | Failures of our information technology infrastructure could harm
    our operations.                                                                                                                                                
|
| |  | Our business could be harmed if we cannot successfully integrate
    future acquisitions.                                                                                                                                           
|
| |  | We compete in a highly competitive market and if we do not
    compete successfully our business could be harmed.                                                                                                                   
|
| |  | The companies in the pharmaceutical and biotechnology industries
    to whom we offer our services could reduce their research and
    development activities or reduce the extent to which they
    outsource clinical development.
|
| |  | Our results of operations could be harmed if regulatory
    standards change significantly or we fail to maintain compliance
    with evolving, complex regulations.                                                                
|
| |  | Circumstances beyond our control could cause the CRO industry to
    suffer reputational or other harm resulting in an industry-wide
    reduction in demand for CRO services.                                                      
|
| |  | We could incur liability for hazardous material contamination.                                                                                                                                                                      
|
| |  | Our services are subject to evolving industry standards and
    rapid technological changes.                                                                                                                                        
|
| |  | 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.                                                                                                                                               






|        |                                                               
|------- | --------------------------------------------------------------
|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
    RISK

Interest Rate Risk




Foreign Exchange Risk




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Foreign Currency Hedges







ITEM 4.CONTROLS AND
PROCEDURES


Effectiveness of Our Disclosure Controls and Procedures






Changes in Internal Control Over Financial Reporting




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PART II OTHER INFORMATION







|        |                  
|------- | -----------------
|ITEM 5. | LEGAL PROCEEDINGS






ITEM
6.EXHIBITS
AND REPORTS ON FORM 8-K


Exhibits


|        |    |                        |  |                                                                                                                                                         
|------- | -- | ---------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                       
|Number  |    | Description of Exhibit
|        |    |                       
|        | 21 | .1                     |  | Subsidiaries of PRA International                                                                                                                       
|        | 31 | .1                     |  | Certification of the Chief Executive Officer pursuant to Rule
    13a-14(a)                                                                             
|        | 31 | .2                     |  | Certification of the Chief Financial Officer pursuant to Rule
    13a-14(a)                                                                             
|        | 32 | .1                     |  | 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                     |  | 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

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Reports on Form 8-K




|                |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Date            |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|July 27, 2005   |  | Current report on Form 8-K filed July 27, 2005 reporting the
    issuance of a press release on July 27, 2005 announcing our
    operating and financial results for the quarter ended June 30,
    2005. Not withstanding its listing here, the information
    furnished shall not be deemed filed for the purposes
    of Section 18 of the Securities Exchange Act of 1934, as
    amended, or otherwise subject to the liability of that section,
    nor shall any information contained herein be deemed
    incorporated by reference in any filing under the Securities Act
    of 1933, as amended, except as expressly set forth by specific
    reference in such a filing.
|August 23, 2005 |  | Current report on Form 8-K filed August 23, 2005 reporting the
    notice that the International Chamber of Commerce, International
    Court of Arbitration has extended to November 30, 2005 the time
    limit for issuing a ruling on the Companys currently
    pending arbitration proceeding with Cell Therapeutics, Inc.,
    formerly Novuspharma S.p.A.                                                                                                                                                                                                                                                                                                                       

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SIGNATURES






| |                  
| | -----------------
| | PRA INTERNATIONAL



| |     |                        
| | --- | -----------------------
| | By: | /s/ Patrick K. Donnelly

| |                                     
| | ------------------------------------
| |                                     
| | Name:        Patrick K.
    Donnelly

| |        |                        
| | ------ | -----------------------
| | Title: | Chief Executive Officer



| |     |                    
| | --- | -------------------
| | By: | /s/ J. Matthew Bond

| |                                 
| | --------------------------------
| |                                 
| | Name:        J. Matthew
    Bond

| |        |                        
| | ------ | -----------------------
| | Title: | Chief Financial Officer



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Exhibit Index


|           |    |                        |  |                                                                                                       
|---------- | -- | ---------------------- |  | ------------------------------------------------------------------------------------------------------
|Exhibit No |    | Description of Exhibit
|           |    |                       
|           | 21 | .1                     |  | Subsidiaries of PRA International                                                                     
|           | 31 | .1                     |  | Certification of Chief Executive Officer Pursuant to Section 302
    of the Sarbanes-Oxley Act of 2002
|           | 31 | .2                     |  | Certification of Chief Financial Officer Pursuant to Section 302
    of the Sarbanes-Oxley Act of 2002
|           | 32 | .1                     |  | Certification of Chief Executive Officer Pursuant to Section 906
    of the Sarbanes-Oxley Act of 2002
|           | 32 | .2                     |  | Certification of Chief Financial Officer Pursuant to Section 906
    of the Sarbanes-Oxley Act of 2002

33