##### 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 March 31, 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
    Incorporation) |  | (I.R.S. Employer
    Identification No.)

12120 Sunset Hills Road


Suite 600


Reston, Virginia 20190


(Address of
principal executive offices)


(703) 464-6300


(Registrants telephone number, including area code)





þ o


o þ












---










INDEX


|                             |  |                                                                                                                        |  |      |    | 
|---------------------------- |  | ---------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                             |  |                                                                                                                        |  | Page |   
|                             |  |                                                                                                                        |  |      |   
|Part I Financial Information
|Item 1.                      |  | Financial Statements                                                                                                   |  |      |    | 
|                             |  | Consolidated Condensed Balance Sheets as of
    December 31, 2004 and March 31, 2005 (unaudited)                       |  |      | 3  | 
|                             |  | Consolidated Condensed Statements of
    Operations (unaudited) for the Three Months Ended
    March 31, 2004 and 2005 |  |      | 4  | 
|                             |  | Consolidated Condensed Statement of Changes
    in Stockholders Equity and Other Comprehensive Income                 |  |      | 5  | 
|                             |  | Consolidated Condensed Statements of Cash
    Flows (unaudited) for the Three Months Ended March 31,
    2004 and 2005 |  |      | 6  | 
|                             |  | Notes to Condensed Consolidated 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                                                         |  |      | 27 | 
|Item 4.                      |  | Controls and Procedures                                                                                                |  |      | 28 | 
|                            
|Part II Other Information   
|Item 6.                      |  | Exhibits and Reports on Form 8-K                                                                                       |  |      | 29 | 
|Ex-21.1                     
|Ex-31.1                     
|Ex-31.2                     
|Ex-32.1                     
|Ex-32.2                     



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##### Table of Contents






PART I







|        |                     
|------- | --------------------
|ITEM 1. | FINANCIAL STATEMENTS

PRA INTERNATIONAL AND SUBSIDIARIES





CONSOLIDATED CONDENSED BALANCE SHEETS


|                                                                                                                                                                                                                                    |                                                |                                            |         |             |           |  |         |         |         | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------- | ------------------------------------------ | ------- | ----------- | --------- |  | ------- | ------- | ------- | 
|                                                                                                                                                                                                                                    |                                                | December 31,                               |         |             | March 31, | 
|                                                                                                                                                                                                                                    |                                                | 2004                                       |         |             | 2005      | 
|                                                                                                                                                                                                                                    |                                                |                                            |         |             |           | 
|                                                                                                                                                                                                                                    |                                                |                                            |         | (Unaudited) |          
|                                                                                                                                                                                                                                    |                                                | (In thousands, except per                  |        
|                                                                                                                                                                                                                                    |                                                | share amounts)                             |        
|ASSETS                                                                                                                                                                                                                             
|Current assets                                                                                                                                                                                                                      |                                                |                                            |         |             |           |  |         |        
|                                                                                                                                                                                                                                    | Cash and cash equivalents                      |                                            | $       | 65,888      |           |  | $       | 68,996  |        
|                                                                                                                                                                                                                                    | Marketable securities                          |                                            |         | 24,500      |           |  |         |        |        
|                                                                                                                                                                                                                                    | Accounts receivable and unbilled services, net |                                            |         | 84,480      |           |  |         | 81,773  |        
|                                                                                                                                                                                                                                    | Prepaid expenses and other current assets      |                                            |         | 5,844       |           |  |         | 8,113   |        
|                                                                                                                                                                                                                                    | Deferred tax assets                            |                                            |         | 5,069       |           |  |         | 4,992   |        
|                                                                                                                                                                                                                                    |                                                |                                            |         |             |           | 
|                                                                                                                                                                                                                                    |                                                | Total current assets                       |         |             | 185,781   |  |         |         | 163,874 | 
|Fixed assets, net                                                                                                                                                                                                                   |                                                |                                            | 21,661  |             |           |  | 21,038  |        
|Goodwill                                                                                                                                                                                                                            |                                                |                                            | 101,340 |             |           |  | 101,077 |        
|Other intangibles, net of accumulated amortization of $5,479 and
    $5,234 as of March 31, 2005 and December 31, 2004,
    respectively                                                                                            |                                                |                                            | 25,409  |             |           |  | 25,090  |        
|Other assets                                                                                                                                                                                                                        |                                                |                                            | 3,153   |             |           |  | 3,072   |        
|                                                                                                                                                                                                                                    |                                                |                                            |         |             |           | 
|                                                                                                                                                                                                                                    | Total assets                                   |                                            | $       | 337,344     |           |  | $       | 314,151 |        
|                                                                                                                                                                                                                                    |                                                |                                            |         |             |           | 
|                                                                                                                                                                                                                                   
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                                               
|Current liabilities                                                                                                                                                                                                                 |                                                |                                            |         |             |           |  |         |        
|                                                                                                                                                                                                                                    | Accounts payable                               |                                            | $       | 15,190      |           |  | $       | 12,612  |        
|                                                                                                                                                                                                                                    | Accrued expenses                               |                                            |         | 32,437      |           |  |         | 26,766  |        
|                                                                                                                                                                                                                                    | Income taxes payable                           |                                            |         | 11,875      |           |  |         | 9,216   |        
|                                                                                                                                                                                                                                    | Advance billings                               |                                            |         | 114,801     |           |  |         | 95,738  |        
|                                                                                                                                                                                                                                    |                                                |                                            |         |             |           | 
|                                                                                                                                                                                                                                    |                                                | Total current liabilities                  |         |             | 174,303   |  |         |         | 144,332 | 
|Deferred tax liability                                                                                                                                                                                                              |                                                |                                            | 9,349   |             |           |  | 8,820   |        
|Other liabilities                                                                                                                                                                                                                   |                                                |                                            | 3,313   |             |           |  | 3,303   |        
|                                                                                                                                                                                                                                    |                                                |                                            |         |             |           | 
|                                                                                                                                                                                                                                    |                                                | Total liabilities                          |         |             | 186,965   |  |         |         | 156,455 | 
|                                                                                                                                                                                                                                    |                                                |                                            |         |             |           | 
|Stockholders equity                                                                                                                                                                                                                |                                                |                                            |         |             |           |  |         |        
|Common stock $0.01 par value; 36,000,000 shares
    authorized as of March 31, 2005 and December 31, 2004;
    22,378,199 and 22,337,822 shares issued and outstanding as
    of March 31, 2005 and December 31, 2004, respectively |                                                |                                            | 223     |             |           |  | 224     |        
|Treasury stock                                                                                                                                                                                                                      |                                                |                                            | (93     | )           |           |  | (93     | )      
|Additional paid-in capital  common stock                                                                                                                                                                                           |                                                |                                            | 124,737 |             |           |  | 124,832 |        
|Accumulated other comprehensive income                                                                                                                                                                                              |                                                |                                            | 2,858   |             |           |  | 3,121   |        
|Retained earnings                                                                                                                                                                                                                   |                                                |                                            | 22,654  |             |           |  | 29,612  |        
|                                                                                                                                                                                                                                    |                                                |                                            |         |             |           | 
|Total stockholders equity                                                                                                                                                                                                          |                                                |                                            | 150,379 |             |           |  | 157,696 |        
|                                                                                                                                                                                                                                    |                                                |                                            |         |             |           | 
|                                                                                                                                                                                                                                    |                                                | Total liabilities and stockholders equity |         | $           | 337,344   |  |         | $       | 314,151 | 
|                                                                                                                                                                                                                                    |                                                |                                            |         |             |           | 



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PRA INTERNATIONAL AND SUBSIDIARIES





CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS


|                                                     |         |                        |        |        |        |   |        |        |        | 
|---------------------------------------------------- | ------- | ---------------------- | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                                                     |         | Three Months Ended     |       
|                                                     |         | March 31,              |       
|                                                     |         |                        |       
|                                                     |         | 2004                   |        |        | 2005   |  
|                                                     |         |                        |        |        |        |  
|                                                     |         | (Unaudited)            |       
|                                                     |         | (In thousands, except  |       
|                                                     |         | per share amounts)     |       
|Revenue                                              |         |                        |        |        |        |   |        |       
|Service revenue                                      |         | $                      | 66,830 |        |        | $ | 73,592 |       
|Reimbursement revenue                                |         |                        | 6,965  |        |        |   | 7,859  |       
|                                                     |         |                        |        |        |        |  
|                                                     |         | Total revenue          |        |        | 73,795 |   |        |        | 81,451 | 
|Operating expenses                                   |         |                        |        |        |        |   |        |       
|Direct costs                                         |         |                        | 32,771 |        |        |   | 35,277 |       
|Reimbursable out-of-pocket costs                     |         |                        | 6,965  |        |        |   | 7,859  |       
|Selling, general, and administrative                 |         |                        | 21,993 |        |        |   | 24,380 |       
|Option purchase                                      |         |                        | 3,713  |        |        |   |       |       
|Employee per option bonus related to tender          |         |                        | 1,551  |        |        |   |       |       
|Depreciation and amortization                        |         |                        | 2,337  |        |        |   | 2,776  |       
|Management fee                                       |         |                        | 200    |        |        |   |       |       
|                                                     |         |                        |        |        |        |  
|                                                     |         | Income from operations |        |        | 4,265  |   |        |        | 11,159 | 
|Interest expense                                     |         |                        | (822   | )      |        |   | (160   | )     
|Interest income                                      |         |                        | 47     |        |        |   | 249    |       
|Other expenses, net                                  |         |                        | 452    |        |        |   | (26    | )     
|                                                     |         |                        |        |        |        |  
|Income before income taxes                           |         |                        | 3,942  |        |        |   | 11,222 |       
|Provision for income taxes                           |         |                        | 1,585  |        |        |   | 4,264  |       
|                                                     |         |                        |        |        |        |  
|                                                     |         | Net income             |        | $      | 2,357  |   |        | $      | 6,958  | 
|                                                     |         |                        |        |        |        |  
|Net income per share                                 |         |                        |        |        |        |   |        |       
|                                                     | Basic   |                        | $      | 0.13   |        |   | $      | 0.31   |       
|                                                     | Diluted |                        | $      | 0.12   |        |   | $      | 0.28   |       
|Weighted average number of common shares outstanding |         |                        |        |        |        |   |        |       
|                                                     | Basic   |                        |        | 17,653 |        |   |        | 22,366 |       
|                                                     | Diluted |                        |        | 19,857 |        |   |        | 24,626 |       



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PRA INTERNATIONAL AND SUBSIDIARIES





CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN
STOCKHOLDERS


EQUITY AND OTHER COMPREHENSIVE INCOME


|                                                                         |  |              |            |  |                |         |     |           |             |            |               |          |  |              |     |   |               |   |               |          |  |   |       |   |  |        |        |  |  |   |         |   |  |   |       |  
|------------------------------------------------------------------------ |  | ------------ | ---------- |  | -------------- | ------- | --- | --------- | ----------- | ---------- | ------------- | -------- |  | ------------ | --- | - | ------------- | - | ------------- | -------- |  | - | ----- | - |  | ------ | ------ |  |  | - | ------- | - |  | - | ----- | -
|                                                                         |  |              |            |  |                |         |     |           |             | 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                                         |  |              | 40,377     |  |                |         | 1   |           |             |            |              |          |  |              |    |   |               |   | 145           |          |  |   |      |   |  |        |       |  |  |   | 146     |   |  |   |       |  
|Net income                                                               |  |              |           |  |                |         |    |           |             |            |              |          |  |              |    |   |               |   |              |          |  |   |      |   |  |        | 6,958  |  |  |   | 6,958   |   |  | $ | 6,958 |  
|Issuance costs related to initial public offering                        |  |              |           |  |                |         |    |           |             |            |              |          |  |              |    |   |               |   | (50           | )        |  |   |      |   |  |        |       |  |  |   | (50     | ) |  |   |       |  
|Other comprehensive income                                               |  |              |            |  |                |         |     |           |             |            |               |          |  |              |     |   |               |   |               |          |  |   |       |   |  |        |        |  |  |   |         |   |  |   |       |  
|Foreign currency translation adjustment, net of tax                      |  |              |           |  |                |         |    |           |             |            |              |          |  |              |    |   |               |   |              |          |  |   | 318   |   |  |        |       |  |  |   | 318     |   |  |   | 318   |  
|Fair market value adjustments on interest rate agreement, net of
    tax |  |              |           |  |                |         |    |           |             |            |              |          |  |              |    |   |               |   |              |          |  |   | (55   | ) |  |        |       |  |  |   | (55     | ) |  |   | (55   | )
|                                                                         |  |              |            |  |                |         |     |           |             |            |               |          |  |              |     |   |               |   |               |          |  |   |       |   |  |        |       
|Comprehensive income                                                     |  |              |            |  |                |         |     |           |             |            |               |          |  |              |     |   |               |   |               |          |  |   |       |   |  |        |        |  |  |   |         |   |  | $ | 7,221 |  
|                                                                         |  |              |            |  |                |         |     |           |             |            |               |          |  |              |     |   |               |   |               |          |  |   |       |   |  |        |       
|Balance as of March 31, 2005 (unaudited)                                 |  |              | 22,378,199 |  |                | $       | 224 |           |             |            | 14,216        |          |  | $            | (93 | ) |               | $ | 124,832       |          |  | $ | 3,121 |   |  | $      | 29,612 |  |  | $ | 157,696 |   |  |   |       |  
|                                                                         |  |              |            |  |                |         |     |           |             |            |               |          |  |              |     |   |               |   |               |          |  |   |       |   |  |        |       



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PRA INTERNATIONAL AND SUBSIDIARIES





CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS


|                                                                                                |                                     |                                                     |                                                     |       |         |        |         |       |         |         |  
|----------------------------------------------------------------------------------------------- | ----------------------------------- | --------------------------------------------------- | --------------------------------------------------- | ----- | ------- | ------ | ------- | ----- | ------- | ------- | -
|                                                                                                |                                     | Three Months Ended                                  |                                                    
|                                                                                                |                                     | March 31,                                           |                                                    
|                                                                                                |                                     |                                                     |                                                    
|                                                                                                |                                     | 2004                                                |                                                     |       | 2005    |       
|                                                                                                |                                     |                                                     |                                                     |       |         |       
|                                                                                                |                                     | (Unaudited)                                         |                                                    
|                                                                                                |                                     | (In thousands)                                      |                                                    
|Cash flow from operating activities                                                             |                                     |                                                     |                                                     |       |         |        |         |      
|Net income                                                                                      |                                     | $                                                   | 2,357                                               |       |         | $      | 6,958   |      
|Adjustments to reconcile net income to net cash provided by
    (used in) operating activities: |                                     |                                                     |                                                     |       |         |        |         |      
|                                                                                                | Depreciation and amortization       |                                                     |                                                     | 2,337 |         |        |         | 2,776 |        
|                                                                                                | Provision for doubtful receivables  |                                                     |                                                     | 509   |         |        |         | 87    |        
|                                                                                                | Amortization of debt discount       |                                                     |                                                     | 58    |         |        |         |      |        
|                                                                                                | Provision for deferred income taxes |                                                     |                                                     | 3     |         |        |         | (580  | )      
|                                                                                                | Changes in assets and liabilities:  |                                                     |                                                     |       |         |        |         |       |        
|                                                                                                |                                     | Accounts receivable and unbilled services           |                                                     |       | 240     |        |         |       | 2,057   |        
|                                                                                                |                                     | Prepaid expenses and other assets                   |                                                     |       | (2,570  | )      |         |       | (2,400  | )      
|                                                                                                |                                     | Accounts payable and accrued expenses               |                                                     |       | (4,810  | )      |         |       | (7,846  | )      
|                                                                                                |                                     | Income taxes                                        |                                                     |       | 1,393   |        |         |       | (2,525  | )      
|                                                                                                |                                     | Advance billings                                    |                                                     |       | 2,471   |        |         |       | (18,019 | )      
|                                                                                                |                                     |                                                     |                                                     |       |         |       
|                                                                                                |                                     |                                                     | Net cash provided by (used in) operating activities |       |         | 1,988  |         |       |         | (19,492 | )
|                                                                                                |                                     |                                                     |                                                     |       |         |       
|Cash flow from investing activities                                                             |                                     |                                                     |                                                     |       |         |        |         |      
|Purchase of fixed assets                                                                        |                                     |                                                     | (1,607                                              | )     |         |        | (2,022  | )    
|Disposal of fixed assets                                                                        |                                     |                                                     |                                                    |       |         |        | 7       |      
|Purchase of marketable securities                                                               |                                     |                                                     |                                                    |       |         |        | (22,375 | )    
|Proceeds from marketable securities                                                             |                                     |                                                     |                                                    |       |         |        | 46,875  |      
|Cash paid for acquisitions, net of cash acquired                                                |                                     |                                                     | 75                                                  |       |         |        |        |      
|                                                                                                |                                     |                                                     |                                                     |       |         |       
|                                                                                                |                                     |                                                     | Net cash provided by (used in) investing activities |       |         | (1,532 | )       |       |         | 22,485  |  
|                                                                                                |                                     |                                                     |                                                     |       |         |       
|Cash flow from financing activities                                                             |                                     |                                                     |                                                     |       |         |        |         |      
|Repayment of debt and capital leases                                                            |                                     |                                                     | (1,286                                              | )     |         |        | (48     | )    
|Issuance of stockholder notes receivable                                                        |                                     |                                                     | (1,777                                              | )     |         |        |        |      
|Payment of dividends                                                                            |                                     |                                                     | (16,851                                             | )     |         |        |        |      
|Purchase of treasury stock                                                                      |                                     |                                                     | (93                                                 | )     |         |        |        |      
|Issuance costs from initial public offering                                                     |                                     |                                                     |                                                    |       |         |        | (50     | )    
|Proceeds from stock option and warrant exercises                                                |                                     |                                                     | 1,920                                               |       |         |        | 146     |      
|                                                                                                |                                     |                                                     |                                                     |       |         |       
|                                                                                                |                                     | Net cash provided by (used in) financing activities |                                                     |       | (18,087 | )      |         |       | 48      |        
|Effect of exchange rate on cash and cash equivalents                                            |                                     |                                                     | 792                                                 |       |         |        | 67      |      
|                                                                                                |                                     |                                                     |                                                     |       |         |       
|Increase (decrease) in cash and cash equivalents                                                |                                     |                                                     | (16,839                                             | )     |         |        | 3,108   |      
|Cash and cash equivalents at beginning of period                                                |                                     |                                                     | 32,328                                              |       |         |        | 65,888  |      
|                                                                                                |                                     |                                                     |                                                     |       |         |       
|Cash and cash equivalents at end of period                                                      |                                     | $                                                   | 15,489                                              |       |         | $      | 68,996  |      
|                                                                                                |                                     |                                                     |                                                     |       |         |       
|Supplemental disclosure of cash flow information                                                |                                     |                                                     |                                                     |       |         |        |         |      
|                                                                                                | Cash paid for taxes                 |                                                     | $                                                   | 342   |         |        | $       | 7,218 |        
|                                                                                                |                                     |                                                     |                                                     |       |         |       
|                                                                                                | Cash paid for interest              |                                                     | $                                                   | 840   |         |        | $       | 74    |        
|                                                                                                |                                     |                                                     |                                                     |       |         |       



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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



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##### Table of Contents



PRA INTERNATIONAL AND SUBSIDIARIES


NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS  (Continued)






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



|           |  |               |    |   |      |  |    |  
|---------- |  | ------------- | -- | - | ---- |  | -- | -
|           |  | Quarter Ended |   
|           |  | March 31,     |   
|           |  |               |   
|           |  | 2004          |    |   | 2005 | 
|           |  |               |    |   |      | 
|Customer A |  |               | 13 | % |      |  | 14 | %
|Customer B |  |               | *  |   |      |  | 12 | %






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





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



|           |  |              |    |   |           |  |    |  
|---------- |  | ------------ | -- | - | --------- |  | -- | -
|           |  | December 31, |    |   | March 31, | 
|           |  | 2004         |    |   | 2005      | 
|           |  |              |    |   |           | 
|Customer A |  |              | 16 | % |           |  | 14 | %
|Customer B |  |              | *  |   |           |  | 10 | %
|Customer C |  |              | 15 | % |           |  | *  |  






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





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



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PRA INTERNATIONAL AND SUBSIDIARIES


NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS  (Continued)




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





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



|                                                                                                                                    |  |                    |       |   |      |   |       |  
|----------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ----- | - | ---- | - | ----- | -
|                                                                                                                                    |  | Quarter Ended      |      
|                                                                                                                                    |  | March 31,          |      
|                                                                                                                                    |  |                    |      
|                                                                                                                                    |  | 2004               |       |   | 2005 |  
|                                                                                                                                    |  |                    |       |   |      |  
|                                                                                                                                    |  | (Dollars in        |      
|                                                                                                                                    |  | thousands, except  |      
|                                                                                                                                    |  | per share amounts) |      
|Net income, as reported                                                                                                             |  | $                  | 2,357 |   |      | $ | 6,958 |  
|Deduct: Total stock-based employee compensation expense
    determined under fair value based method for all awards, net of
    tax |  |                    | (72   | ) |      |   | (318  | )
|                                                                                                                                    |  |                    |       |   |      |  
|SFAS No. 123 pro forma net income                                                                                                   |  | $                  | 2,285 |   |      | $ | 6,640 |  
|                                                                                                                                    |  |                    |       |   |      |  
|Basic net income per share, as reported                                                                                             |  | $                  | 0.13  |   |      | $ | 0.31  |  
|Basic net income per share, pro forma                                                                                               |  | $                  | 0.13  |   |      | $ | 0.30  |  
|Diluted net income per share, as reported                                                                                           |  | $                  | 0.12  |   |      | $ | 0.28  |  
|Diluted net income per share, pro forma                                                                                             |  | $                  | 0.12  |   |      | $ | 0.27  |  



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PRA INTERNATIONAL AND SUBSIDIARIES


NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS  (Continued)




|                                               |  |               |      |   |      |   |       |  
|---------------------------------------------- |  | ------------- | ---- | - | ---- | - | ----- | -
|                                               |  | Quarter Ended |     
|                                               |  | March 31      |     
|                                               |  |               |     
|                                               |  | 2004          |      |   | 2005 |  
|                                               |  |               |      |   |      |  
|Weighted-average fair value of options granted |  | $             | 1.11 |   |      | $ | 9.86  |  
|Risk-free rate                                 |  |               | 2.60 | % |      |   | 3.61  | %
|Expected life, in years                        |  |               | 4.0  |   |      |   | 5.0   |  
|Dividend yield                                 |  |               | 0    | % |      |   | 0     | %
|Volatility                                     |  |               | 0    | % |      |   | 40.23 | %



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





Recent Accounting Pronouncements






|    |                                          
|--- | -----------------------------------------
|(3) | Accounts receivable and unbilled services



|                                      |  |              |        |   |           |   |        |  
|------------------------------------- |  | ------------ | ------ | - | --------- | - | ------ | -
|                                      |  | December 31, |        |   | March 31, |  
|                                      |  | 2004         |        |   | 2005      |  
|                                      |  |              |        |   |           |  
|Accounts receivable                   |  | $            | 59,384 |   |           | $ | 51,227 |  
|Unbilled services                     |  |              | 29,993 |   |           |   | 35,492 |  
|                                      |  |              |        |   |           |  
|                                      |  |              | 89,377 |   |           |   | 86,719 |  
|Less: Allowance for doubtful accounts |  |              | (4,897 | ) |           |   | (4,946 | )
|                                      |  |              |        |   |           |  
|                                      |  | $            | 84,480 |   |           | $ | 81,773 |  
|                                      |  |              |        |   |           |  

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PRA INTERNATIONAL AND SUBSIDIARIES


NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS  (Continued)




|    |                               
|--- | ------------------------------
|(4) | Goodwill and Other Intangibles



|                                        |  |   |         |  
|--------------------------------------- |  | - | ------- | -
|Carrying amount as of December 31, 2004 |  |   | 101,340 |  
|Foreign currency exchange rate changes  |  |   | (263    | )
|                                        |  |   |        
|Carrying amount as of March 31, 2005    |  | $ | 101,077 |  
|                                        |  |   |        



|                                 |  |              |            |  |                         |   |        |                      |  |     |          |  |       |          |        |  |              |     |        |          |  |   |       |  |  |   |        | 
|-------------------------------- |  | ------------ | ---------- |  | ----------------------- | - | ------ | -------------------- |  | --- | -------- |  | ----- | -------- | ------ |  | ------------ | --- | ------ | -------- |  | - | ----- |  |  | - | ------ | 
|                                 |  | Weighted     |            |  | As of December 31, 2004 |   |        | As of March 31, 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    |  |              | $   | 2,488  |          |  | $ | 2,208 |  |  | $ | 280    | 
|Customer relationships           |  |              | 10         |  |                         |   | 7,897  |                      |  |     | 2,319    |  |       |          | 5,578  |  |              |     | 8,155  |          |  |   | 2,797 |  |  |   | 5,358  | 
|Trade names                      |  |              | Indefinite |  |                         |   | 19,970 |                      |  |     | 473      |  |       |          | 19,497 |  |              |     | 19,926 |          |  |   | 474   |  |  |   | 19,452 | 
|                                 |  |              |            |  |                         |   |        |                      |  |     |          |  |       |          |        |  |              |     |        |          | 
|                                 |  |              |            |  |                         | $ | 30,643 |                      |  | $   | 5,234    |  |       | $        | 25,409 |  |              | $   | 30,569 |          |  | $ | 5,479 |  |  | $ | 25,090 | 
|                                 |  |              |            |  |                         |   |        |                      |  |     |          |  |       |          |        |  |              |     |        |          | 



|                          |  |                |       | 
|------------------------- |  | -------------- | ----- | 
|                          |  | (In thousands) |      
|2005 (remaining 9 months) |  | $              | 890   | 
|2006                      |  |                | 815   | 
|2007                      |  |                | 815   | 
|2008                      |  |                | 815   | 
|2009 and thereafter       |  |                | 2,303 | 
|                          |  |                |      
|                          |  | $              | 5,638 | 
|                          |  |                |      



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





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PRA INTERNATIONAL AND SUBSIDIARIES


NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS  (Continued)




|    |             
|--- | ------------
|(6) | Income Taxes





|    |                                                                 
|--- | ----------------------------------------------------------------
|(7) | Accounting for Derivative Instruments and Hedging
    Activities





|    |                              
|--- | -----------------------------
|(8) | Commitments and Contingencies



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







|    |                           
|--- | --------------------------
|(9) | Related-Party Transactions





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PRA INTERNATIONAL AND SUBSIDIARIES


NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS  (Continued)




|     |                                                      
|---- | -----------------------------------------------------
|(10) | Segment Reporting  Operations by Geographic
    Area



|                |               |                    |        |        |      |   |        |        | 
|--------------- | ------------- | ------------------ | ------ | ------ | ---- | - | ------ | ------ | 
|                |               | Three Months Ended |       
|                |               | March 31,          |       
|                |               |                    |       
|                |               | 2004               |        |        | 2005 |  
|                |               |                    |        |        |      |  
|Service revenue |               |                    |        |        |      |   |        |       
|                | North America |                    | $      | 46,278 |      |   | $      | 50,262 | 
|                | Europe        |                    |        | 19,095 |      |   |        | 21,413 | 
|                | Other         |                    |        | 1,457  |      |   |        | 1,917  | 
|                |               |                    |        |        |      |  
|                |               | $                  | 66,830 |        |      | $ | 73,592 |       
|                |               |                    |        |        |      |  

|                  |               |              |         |         |           |   |         |         | 
|----------------- | ------------- | ------------ | ------- | ------- | --------- | - | ------- | ------- | 
|                  |               | December 31, |         |         | March 31, |  
|                  |               | 2004         |         |         | 2005      |  
|                  |               |              |         |         |           |  
|Long-lived assets |               |              |         |         |           |   |         |        
|                  | North America |              | $       | 133,738 |           |   | $       | 133,144 | 
|                  | Europe        |              |         | 16,512  |           |   |         | 15,863  | 
|                  | Other         |              |         | 1,313   |           |   |         | 1,270   | 
|                  |               |              |         |         |           |  
|                  |               | $            | 151,563 |         |           | $ | 150,277 |        
|                  |               |              |         |         |           |  

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



Overview














15



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







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





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





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



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





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







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



|                  |                 |           |  |        |              |  |  |           |  |  |  |        | 
|----------------- | --------------- | --------- |  | ------ | ------------ |  |  | --------- |  |  |  | ------ | 
|                  |                 | March 31, |  |        | December 31, |  |  | March 31, | 
|                  |                 | 2004      |  |        | 2004         |  |  | 2005      | 
|                  |                 |           |  |        |              |  |  |           | 
|U.S. Dollars per: |                 |           |  |        |              |  |  |           |  |  |  |       
|                  | Euro            |           |  | 1.2418 |              |  |  | 1.2466    |  |  |  | 1.3085 | 
|                  | Pound Sterling  |           |  | 1.8443 |              |  |  | 1.8362    |  |  |  | 1.8975 | 
|                  | Canadian Dollar |           |  | 0.7551 |              |  |  | 0.7716    |  |  |  | 0.8148 | 



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



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|                                     |                        |                         |       |       |           |  |       |              |  |  |       |      |  |      |       |     |  |  |       |      | 
|------------------------------------ | ---------------------- | ----------------------- | ----- | ----- | --------- |  | ----- | ------------ |  |  | ----- | ---- |  | ---- | ----- | --- |  |  | ----- | ---- | 
|                                     |                        |                         |       |       |           |  |       | Three Months | 
|                                     |                        |                         |       | Ended |          
|                                     |                        | Year Ended December 31, |       |       | March 31, | 
|                                     |                        |                         |       |       |           | 
|                                     |                        | 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  |      |  |      | 49.0  |     |  |  | 47.9  |     
|Selling, general, and administrative |                        |                         | 32.8  |       |           |  | 32.5  |              |  |  | 32.5  |      |  |      | 32.9  |     |  |  | 33.1  |     
|Depreciation and amortization        |                        |                         | 4.0   |       |           |  | 3.6   |              |  |  | 3.5   |      |  |      | 3.5   |     |  |  | 3.8   |     
|Management fee                       |                        |                         | 0.5   |       |           |  | 0.3   |              |  |  | 0.3   |      |  |      | 0.3   |     |  |  |      |     
|Option repurchase                    |                        |                         |      |       |           |  |      |              |  |  | 1.3   |      |  |      | 5.6   |     |  |  |      |     
|Vested option bonus                  |                        |                         |      |       |           |  |      |              |  |  | 0.9   |      |  |      | 2.3   |     |  |  |      |     
|                                     |                        |                         |       |       |           |  |       |              |  |  |       |      |  |      |      
|                                     | Income from operations |                         |       | 9.0   |           |  |       | 12.5         |  |  |       | 13.1 |  |      |       | 6.4 |  |  |       | 15.2 | 
|Interest expense                     |                        |                         | (2.4  | )     |           |  | (2.9  | )            |  |  | (1.4  | )    |  |      | (1.2  | )   |  |  | (0.2  | )   
|Interest income                      |                        |                         | 0.1   |       |           |  | 0.1   |              |  |  | 0.1   |      |  |      | 0.1   |     |  |  | 0.3   |     
|Other income (expenses), net         |                        |                         | (0.4  | )     |           |  | (1.6  | )            |  |  | 0.0   |      |  |      | 0.7   |     |  |  | 0.0   |     
|                                     |                        |                         |       |       |           |  |       |              |  |  |       |      |  |      |      
|Income before income taxes           |                        |                         | 6.3   |       |           |  | 8.1   |              |  |  | 11.8  |      |  |      | 5.9   |     |  |  | 15.2  |     
|Provision for income taxes           |                        |                         | 3.1   |       |           |  | 2.8   |              |  |  | 4.3   |      |  |      | 2.4   |     |  |  | 5.8   |     
|                                     |                        |                         |       |       |           |  |       |              |  |  |       |      |  |      |      
|Net income                           |                        |                         | 3.2   | %     |           |  | 5.3   | %            |  |  | 7.5   | %    |  |      | 3.5   | %   |  |  | 9.5   | %   
|                                     |                        |                         |       |       |           |  |       |              |  |  |       |      |  |      |      

18



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



|                                                    |                                      |                         |         |                    |           |   |        |             |         |   |             |            |         |      |         |            |        |   |         |            |        | 
|--------------------------------------------------- | ------------------------------------ | ----------------------- | ------- | ------------------ | --------- | - | ------ | ----------- | ------- | - | ----------- | ---------- | ------- | ---- | ------- | ---------- | ------ | - | ------- | ---------- | ------ | 
|                                                    |                                      |                         |         | Three Months Ended |          
|                                                    |                                      | Year Ended December 31, |         |                    | March 31, |  
|                                                    |                                      |                         |         |                    |           |  
|                                                    |                                      | 2002                    |         |                    | 2003      |   |        | 2004        |         |   | 2004        |            |         | 2005 |        
|                                                    |                                      |                         |         |                    |           |   |        |             |         |   |             |            |         |      |        
|                                                    |                                      |                         |         |                    |           |   |        | (Unaudited) |         |   | (Unaudited) |           
|Revenue                                             |                                      |                         |         |                    |           |   |        |             |         |   |             |            |         |      |         |            |        |   |         |           
|                                                    | Service revenue                      |                         | $       | 176,365            |           |   | $      | 247,888     |         |   | $           | 277,479    |         |      | $       | 66,830     |        |   | $       | 73,592     |       
|                                                    | Reimbursement revenue                |                         |         | 24,648             |           |   |        | 42,109      |         |   |             | 30,165     |         |      |         | 6,965      |        |   |         | 7,859      |       
|                                                    |                                      |                         |         |                    |           |   |        |             |         |   |             |            |         |      |        
|                                                    |                                      | Total revenue           |         | $                  | 201,013   |   |        | $           | 289,997 |   |             | $          | 307,644 |      |         | $          | 73,795 |   |         | $          | 81,451 | 
|Operating expenses                                  |                                      |                         |         |                    |           |   |        |             |         |   |             |            |         |      |         |            |        |   |         |           
|                                                    | Direct costs                         |                         |         | 94,761             |           |   |        | 126,501     |         |   |             | 134,067    |         |      |         | 32,771     |        |   |         | 35,277     |       
|                                                    | Reimbursable out-of-pocket costs     |                         |         | 24,648             |           |   |        | 42,109      |         |   |             | 30,165     |         |      |         | 6,965      |        |   |         | 7,859      |       
|                                                    | Selling, general, and administrative |                         |         | 57,897             |           |   |        | 80,585      |         |   |             | 90,139     |         |      |         | 21,993     |        |   |         | 24,380     |       
|                                                    | Depreciation and amortization        |                         |         | 6,956              |           |   |        | 8,967       |         |   |             | 9,691      |         |      |         | 2,337      |        |   |         | 2,776      |       
|                                                    | Management fee                       |                         |         | 800                |           |   |        | 800         |         |   |             | 704        |         |      |         | 200        |        |   |         |           |       
|                                                    | Option repurchase(1)                 |                         |         |                   |           |   |        |            |         |   |             | 3,713      |         |      |         | 3,713      |        |   |         |           |       
|                                                    | Vested option bonus(1)               |                         |         |                   |           |   |        |            |         |   |             | 2,738      |         |      |         | 1,551      |        |   |         |           |       
|                                                    |                                      |                         |         |                    |           |   |        |             |         |   |             |            |         |      |        
|Income from operations                              |                                      |                         | 15,951  |                    |           |   | 31,035 |             |         |   | 36,427      |            |         |      | 4,265   |            |        |   | 11,159  |           
|Interest income (expense), net                      |                                      |                         | (4,100  | )                  |           |   | (6,856 | )           |         |   | (3,643      | )          |         |      | (775    | )          |        |   | 89      |           
|Other income (expenses), net                        |                                      |                         | (721    | )                  |           |   | (4,023 | )           |         |   | (38         | )          |         |      | 452     |            |        |   | (26     | )         
|                                                    |                                      |                         |         |                    |           |   |        |             |         |   |             |            |         |      |        
|Income before income taxes                          |                                      |                         | 11,130  |                    |           |   | 20,156 |             |         |   | 32,746      |            |         |      | 3,942   |            |        |   | 11,222  |           
|Provision for income taxes                          |                                      |                         | 5,493   |                    |           |   | 6,909  |             |         |   | 11,997      |            |         |      | 1,585   |            |        |   | 4,264   |           
|                                                    |                                      |                         |         |                    |           |   |        |             |         |   |             |            |         |      |        
|Net income                                          |                                      | $                       | 5,637   |                    |           | $ | 13,247 |             |         | $ | 20,749      |            |         | $    | 2,357   |            |        | $ | 6,958   |           
|                                                    |                                      |                         |         |                    |           |   |        |             |         |   |             |            |         |      |        
|Net income per share                                |                                      |                         |         |                    |           |   |        |             |         |   |             |            |         |      |         |            |        |   |         |           
|                                                    | Basic                                |                         | $       | 0.37               |           |   | $      | 0.83        |         |   | $           | 1.13       |         |      | $       | 0.13       |        |   | $       | 0.31       |       
|                                                    | Diluted                              |                         | $       | 0.32               |           |   | $      | 0.71        |         |   | $           | 1.02       |         |      | $       | 0.12       |        |   | $       | 0.28       |       
|Shares used to compute net income per share:        |                                      |                         |         |                    |           |   |        |             |         |   |             |            |         |      |         |            |        |   |         |           
|                                                    | Basic                                |                         |         | 15,204,232         |           |   |        | 15,965,408  |         |   |             | 18,442,313 |         |      |         | 17,652,866 |        |   |         | 22,365,579 |       
|                                                    | Diluted                              |                         |         | 17,557,632         |           |   |        | 18,666,012  |         |   |             | 20,329,852 |         |      |         | 19,856,877 |        |   |         | 24,625,539 |       
|Other Financial Data:                               |                                      |                         |         |                    |           |   |        |             |         |   |             |            |         |      |         |            |        |   |         |           
|Net cash provided by (used in) operating activities |                                      | $                       | 28,442  |                    |           | $ | 2,058  |             |         | $ | 71,636      |            |         | $    | 1,988   |            |        | $ | (19,492 | )         
|Net cash provided by (used in) investing activities |                                      |                         | (24,625 | )                  |           |   | (9,599 | )           |         |   | (32,350     | )          |         |      | (1,532  | )          |        |   | 22,485  |           
|Net cash provided by (used in) financing activities |                                      |                         | (14,581 | )                  |           |   | 26,028 |             |         |   | (6,430      | )          |         |      | (18,087 | )          |        |   | 48      |           
|Non-GAAP Data:                                      |                                      |                         |         |                    |           |   |        |             |         |   |             |            |         |      |         |            |        |   |         |           
|Adjusted EBITDA(2)                                  |                                      | $                       | 22,186  |                    |           | $ | 35,979 |             |         | $ | 52,531      |            |         | $    | 12,318  |            |        | $ | 13,909  |           
|Adjusted EBITDA as a % of service revenue           |                                      |                         | 12.6    | %                  |           |   | 14.5   | %           |         |   | 18.9        | %          |         |      | 18.4    | %          |        |   | 18.9    | %         
|EBITDA(2)                                           |                                      | $                       | 22,186  |                    |           | $ | 35,979 |             |         | $ | 46,080      |            |         | $    | 7,054   |            |        | $ | 13,909  |           
|EBITDA as a % of service revenue                    |                                      |                         | 12.6    | %                  |           |   | 14.5   | %           |         |   | 16.6        | %          |         |      | 10.6    | %          |        |   | 18.9    | %         

19



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|                                                           |  |                         |         |                    |           |   |         |             |  |   |             |  |  |      |         |   |  |   |         | 
|---------------------------------------------------------- |  | ----------------------- | ------- | ------------------ | --------- | - | ------- | ----------- |  | - | ----------- |  |  | ---- | ------- | - |  | - | ------- | 
|                                                           |  |                         |         | Three Months Ended |          
|                                                           |  | Year Ended December 31, |         |                    | March 31, |  
|                                                           |  |                         |         |                    |           |  
|                                                           |  | 2002                    |         |                    | 2003      |   |         | 2004        |  |   | 2004        |  |  | 2005 |        
|                                                           |  |                         |         |                    |           |   |         |             |  |   |             |  |  |      |        
|                                                           |  |                         |         |                    |           |   |         | (Unaudited) |  |   | (Unaudited) | 
|Consolidated Balance Sheet Data:                           |  |                         |         |                    |           |   |         |             |  |   |             |  |  |      |         |   |  |   |         | 
|Cash and cash equivalents                                  |  | $                       | 13,798  |                    |           | $ | 32,328  |             |  | $ | 65,888      |  |  | $    | 15,489  |   |  | $ | 68,996  | 
|Marketable securities                                      |  |                         |        |                    |           |   |        |             |  |   | 24,500      |  |  |      |        |   |  |   |        | 
|Working capital                                            |  |                         | (43,429 | )                  |           |   | (8,449  | )           |  |   | 11,478      |  |  |      | (21,823 | ) |  |   | 19,542  | 
|Total assets                                               |  |                         | 254,547 |                    |           |   | 298,558 |             |  |   | 337,344     |  |  |      | 282,094 |   |  |   | 314,151 | 
|Long-term debt and capital leases, less current maturities |  |                         | 32,509  |                    |           |   | 57,810  |             |  |   | 75          |  |  |      | 57,770  |   |  |   | 36      | 
|Stockholders equity                                       |  |                         | 59,088  |                    |           |   | 74,565  |             |  |   | 150,379     |  |  |      | 60,553  |   |  |   | 157,696 | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes a $3.7 million charge for the repurchase of
    options, predominantly from former employees, and a
    $2.7 million charge for a per-vested-option bonus paid to
    all employee option holders, both of which were executed in
    connection with the culmination of the January 2004 tender
    process.                                                                                                                                                                                                                                      
|   
|(2) | Adjusted EBITDA and EBITDA are not substitutes for operating
    income, net income, or cash flow from operating activities as
    determined in accordance with GAAP as measures of performance or
    liquidity. See Managements Discussion and Analysis
    of Financial Condition and Results of Operations 
    Non-GAAP Financial Measures. For each of the periods
    indicated, the following table sets forth a reconciliation of
    EBITDA and Adjusted EBITDA to net cash provided by (used in)
    operating activities and to net income.

|                                                    |                                     |                                           |        |                    |           |   |        |             |         |   |             |         |        |      |        |        |        |   |         |        |         |  
|--------------------------------------------------- | ----------------------------------- | ----------------------------------------- | ------ | ------------------ | --------- | - | ------ | ----------- | ------- | - | ----------- | ------- | ------ | ---- | ------ | ------ | ------ | - | ------- | ------ | ------- | -
|                                                    |                                     |                                           |        | Three Months Ended |          
|                                                    |                                     | Year Ended December 31,                   |        |                    | March 31, |  
|                                                    |                                     |                                           |        |                    |           |  
|                                                    |                                     | 2002                                      |        |                    | 2003      |   |        | 2004        |         |   | 2004        |         |        | 2005 |       
|                                                    |                                     |                                           |        |                    |           |   |        |             |         |   |             |         |        |      |       
|                                                    |                                     |                                           |        |                    |           |   |        | (Unaudited) |         |   | (Unaudited) |        
|Adjusted EBITDA                                     |                                     | $                                         | 22,186 |                    |           | $ | 35,979 |             |         | $ | 52,531      |         |        | $    | 12,318 |        |        | $ | 13,909  |       
|                                                    | Option repurchase                   |                                           |        |                   |           |   |        |            |         |   |             | (3,713  | )      |      |        | (3,713 | )      |   |         |       |        
|                                                    | Vested option bonus                 |                                           |        |                   |           |   |        |            |         |   |             | (2,738  | )      |      |        | (1,551 | )      |   |         |       |        
|                                                    |                                     |                                           |        |                    |           |   |        |             |         |   |             |         |        |      |       
|EBITDA                                              |                                     |                                           | 22,186 |                    |           |   | 35,979 |             |         |   | 46,080      |         |        |      | 7,054  |        |        |   | 13,909  |       
|                                                    | Depreciation and amortization       |                                           |        | (6,956             | )         |   |        | (8,967      | )       |   |             | (9,691  | )      |      |        | (2,337 | )      |   |         | (2,776 | )      
|                                                    | Interest expense, net               |                                           |        | (4,100             | )         |   |        | (6,856      | )       |   |             | (3,643  | )      |      |        | (775   | )      |   |         | 89     |        
|                                                    | Provision for income taxes          |                                           |        | (5,493             | )         |   |        | (6,909      | )       |   |             | (11,997 | )      |      |        | (1,585 | )      |   |         | (4,264 | )      
|                                                    |                                     |                                           |        |                    |           |   |        |             |         |   |             |         |        |      |       
|Net income                                          |                                     |                                           | 5,637  |                    |           |   | 13,247 |             |         |   | 20,749      |         |        |      | 2,357  |        |        |   | 6,958   |       
|                                                    | Depreciation and amortization       |                                           |        | 6,956              |           |   |        | 8,967       |         |   |             | 9,691   |        |      |        | 2,337  |        |   |         | 2,776  |        
|                                                    | Provision for doubtful receivables  |                                           |        | 1,888              |           |   |        | 4,851       |         |   |             | 1,914   |        |      |        | 509    |        |   |         | 87     |        
|                                                    | Amortization of debt discount       |                                           |        | 379                |           |   |        | 1,642       |         |   |             |        |        |      |        | 58     |        |   |         |       |        
|                                                    | Stock-based compensation            |                                           |        |                   |           |   |        |            |         |   |             |        |        |      |        |       |        |   |         |       |        
|                                                    | Provision for deferred income taxes |                                           |        | (1,228             | )         |   |        | (3,997      | )       |   |             | 2,606   |        |      |        | 3      |        |   |         | (580   | )      
|                                                    | Debt issuance costs write-off       |                                           |        |                   |           |   |        | 750         |         |   |             | 1,241   |        |      |        |       |        |   |         |       |        
|                                                    | Changes in assets and liabilities:  |                                           |        |                    |           |   |        |             |         |   |             |         |        |      |        |        |        |   |         |        |        
|                                                    |                                     | Accounts receivable and unbilled services |        |                    | (29,251   | ) |        |             | (18,538 | ) |             |         | 15,373 |      |        |        | 240    |   |         |        | 2,057   |  
|                                                    |                                     | Prepaid expenses and other assets         |        |                    | 1,444     |   |        |             | 408     |   |             |         | 1,226  |      |        |        | (2,570 | ) |         |        | (2,400  | )
|                                                    |                                     | Accounts payable and accrued expenses     |        |                    | 3,481     |   |        |             | (4,873  | ) |             |         | 7,793  |      |        |        | (4,810 | ) |         |        | (7,846  | )
|                                                    |                                     | Income taxes                              |        |                    | 989       |   |        |             | (481    | ) |             |         | 12,150 |      |        |        | 1,393  |   |         |        | (2,525  | )
|                                                    |                                     | Advance billings                          |        |                    | 38,147    |   |        |             | 82      |   |             |         | (1,107 | )    |        |        | 2,471  |   |         |        | (18,019 | )
|                                                    |                                     |                                           |        |                    |           |   |        |             |         |   |             |         |        |      |       
|Net cash provided by (used in) operating activities |                                     | $                                         | 28,442 |                    |           | $ | 2,058  |             |         | $ | 71,636      |         |        | $    | 1,988  |        |        | $ | (19,492 | )     
|                                                    |                                     |                                           |        |                    |           |   |        |             |         |   |             |         |        |      |       

20



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| |                                                                                    
| | -----------------------------------------------------------------------------------
| | Three Months Ended March 31, 2005 Compared to Three
    Months Ended March 31, 2004

















21



---



##### Table of Contents



Liquidity and Capital Resources


















22



---



##### Table of Contents





Non-GAAP Financial Measures












Critical Accounting Policies and Estimates




23



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##### Table of Contents







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





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





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





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##### Table of Contents





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











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





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





25



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##### Table of Contents





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.                                       
|
| |  | 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.                                                                                         

26



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##### Table of Contents





| |   |                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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






27



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##### Table of Contents





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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##### Table of Contents










|        |                                 
|------- | --------------------------------
|ITEM 6. | EXHIBITS AND REPORTS ON FORM 8-K

Exhibits


|        |    |                        |  |                                                                                                                                                         
|------- | -- | ---------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                       
|Number  |    | Description of Exhibit
|        |    |                       
|        | 10 | .10(1)                 |  | Form of Option Agreement                                                                                                                                
|        | 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






|    |                                                                    
|--- | -------------------------------------------------------------------
|(1) | Incorporated by reference to Form 8-K filed on
    February 2, 2005

Reports on Form 8-K




|                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|----------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Date              |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|January 26, 2005  |  | Current report on Form 8-K filed January 26, 2005
    reporting the issuance of a press release on January 21,
    2005 relating to earnings guidance for fiscal years 2005 and
    2006 as well as business awards and contract cancellations in
    fiscal year 2004. 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.
|                 
|February 2, 2005  |  | Current report on Form 8-K filed February 2, 2005
    reporting our entry into a material definitive agreement. The
    compensation committee of our board of directors approved the
    form of option agreement for use in connection with awards of
    options under our 2004 Incentive Award Plan. In addition, the
    board of directors voted to elect Armin Kessler to become a
    member of our board of directors.                                                                                                                                                                                                                                                                                                                        
|                 
|February 23, 2005 |  | Current report on Form 8-K filed February 23, 2005
    reporting the issuance of a press release on February 23,
    2005 announcing our operating and financial results for the
    quarter and twelve months ended December 31, 2004. 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.                            

29



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##### Table of Contents






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



30



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##### Table of Contents






Exhibit Index


|           |    |                        |  |                                                                                                        
|---------- | -- | ---------------------- |  | -------------------------------------------------------------------------------------------------------
|Exhibit No |    | Description of Exhibit
|           |    |                       
|           | 10 | .10(1)                 |  | Form of Option Agreement                                                                               
|          
|           | 21 | .1                     |  | Subsidiaries of PRA International                                                                      
|          
|           | 31 | .1                     |  | Certifications of Chief Executive Officer Pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002
|          
|           | 31 | .2                     |  | Certifications 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 






|    |                                                                    
|--- | -------------------------------------------------------------------
|(1) | Incorporated by reference to Form 8-K filed on
    February 2, 2005

31