##### 



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 June 30, 2005
 or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
 For the transition period from  to
 Commission File Number:
 
 PRA INTERNATIONAL
 (Exact name of Registrant as Specified in Its Charter)
 Delaware(State or Other Jurisdiction of
Incorporation)
    
    54-2040171(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
 PagePart I Financial InformationItem 1.
Financial StatementsConsolidated Condensed Balance Sheets as of December 31, 2004 and June 30, 2005 (unaudited)
    
    
    3Consolidated Condensed Statements of Operations (unaudited) for the Three and Six Months Ended
June 30, 2004 and 2005
    
    
    4Consolidated Condensed Statement of Changes in Stockholders Equity and Other Comprehensive
Income as of June 30, 2005
    
    
    5Consolidated Condensed Statements of Cash Flows (unaudited) for the Six Months Ended June 30,
2004 and 2005
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    25Item 4. Controls and Procedures
    
    
    25Part II Other InformationItem 4. Submission of Matters to a Vote of Security Holders
    
    
    27Item 6. Exhibits and Reports on Form 8-K
    
    
    27
 2




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##### 



PART I FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 PRA INTERNATIONAL AND SUBSIDIARIES
 
 CONSOLIDATED CONDENSED BALANCE SHEETS
 (in thousands, except per share amounts)
 December 31,
    
    June 30,2004
    
    2005(unaudited)ASSETSCurrent assetsCash and cash equivalents
    
    $
    65,888
    
    
    $
    68,241Marketable securities
    
    
    24,500
    
    
    
    Accounts receivable and unbilled services, net
    
    
    84,480
    
    
    
    71,355Prepaid expenses and other current assets
    
    
    5,844
    
    
    
    7,826Deferred tax assets
    
    
    5,069
    
    
    
    4,991Total current assets
    
    
    185,781
    
    
    
    152,413Fixed assets, net
    
    
    21,661
    
    
    
    20,134Goodwill
    
    
    101,340
    
    
    
    106,579Other intangibles, net of accumulated
amortization of $5,752 and $5,234 as of June
30, 2005 and December 31, 2004, respectively
    
    
    25,409
    
    
    
    25,139Other assets
    
    
    3,153
    
    
    
    3,195Total assets
    
    $
    337,344
    
    
    $
    307,460LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    15,190
    
    
    $
    15,612Accrued expenses
    
    
    32,437
    
    
    
    30,716Income taxes payable
    
    
    11,875
    
    
    
    6,949Advance billings
    
    
    114,801
    
    
    
    75,647Total current liabilities
    
    
    174,303
    
    
    
    128,924Deferred tax liability
    
    
    9,349
    
    
    
    8,036Other liabilities
    
    
    3,313
    
    
    
    4,680Total liabilities
    
    
    186,965
    
    
    
    141,640Stockholders equityCommon stock $0.01 par value; 36,000,000
shares authorized as of June 30, 2005 and
December 31, 2004; 22,466,701 and 22,337,822
shares issued and outstanding as of June 30,
2005 and December 31, 2004, respectively
    
    
    223
    
    
    
    225Treasury stock
    
    
    (93
    )
    
    
    (93
    )Additional paid-in capital  common stock
    
    
    124,737
    
    
    
    124,734Accumulated other comprehensive income
    
    
    2,858
    
    
    
    2,787Retained earnings
    
    
    22,654
    
    
    
    38,167Total stockholders equity
    
    
    150,379
    
    
    
    165,820Total liabilities and stockholders equity.
    
    $
    337,344
    
    
    $
    307,460
  3




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##### 



PRA INTERNATIONAL AND SUBSIDIARIES
 
 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
 (unaudited)
(in thousands, except per share amounts)
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2005
    
    2004
    
    2005RevenueService revenue
    
    $
    69,130
    
    
    $
    76,031
    
    
    $
    135,960
    
    
    $
    149,624Reimbursement revenue
    
    
    8,928
    
    
    
    9,124
    
    
    
    15,893
    
    
    
    16,983Total revenue
    
    
    78,058
    
    
    
    85,155
    
    
    
    151,853
    
    
    
    166,607Operating expensesDirect costs
    
    
    33,304
    
    
    
    34,159
    
    
    
    66,075
    
    
    
    69,436Reimbursable out-of-pocket costs
    
    
    8,928
    
    
    
    9,124
    
    
    
    15,893
    
    
    
    16,983Selling, general, and administrative
    
    
    21,811
    
    
    
    25,290
    
    
    
    43,804
    
    
    
    49,671Option purchase
    
    
    
    
    
    
    
    
    
    
    3,713
    
    
    
    Employee per option bonus related to tender
    
    
    321
    
    
    
    
    
    
    
    1,872
    
    
    
    Depreciation and amortization
    
    
    2,358
    
    
    
    2,847
    
    
    
    4,695
    
    
    
    5,623Management fee
    
    
    200
    
    
    
    
    
    
    
    400
    
    
    
    Income from operations
    
    
    11,136
    
    
    
    13,735
    
    
    
    15,401
    
    
    
    24,894Interest expense
    
    
    (921
    )
    
    
    (57
    )
    
    
    (1,743
    )
    
    
    (217
    )Interest income
    
    
    126
    
    
    
    599
    
    
    
    173
    
    
    
    848Other income (expense), net
    
    
    1,223
    
    
    
    (468
    )
    
    
    1,675
    
    
    
    (494
    )Income before income taxes
    
    
    11,564
    
    
    
    13,809
    
    
    
    15,506
    
    
    
    25,031Provision for income taxes
    
    
    4,030
    
    
    
    5,254
    
    
    
    5,615
    
    
    
    9,518Net income
    
    $
    7,534
    
    
    $
    8,555
    
    
    $
    9,891
    
    
    $
    15,513Net income per shareBasic
    
    $
    0.42
    
    
    $
    0.38
    
    
    $
    0.55
    
    
    $
    0.69Diluted
    
    $
    0.37
    
    
    $
    0.35
    
    
    $
    0.50
    
    
    $
    0.63Weighted average number of common shares outstandingBasic
    
    
    18,065
    
    
    
    22,392
    
    
    
    17,859
    
    
    
    22,379Diluted
    
    
    20,164
    
    
    
    24,624
    
    
    
    19,958
    
    
    
    24,597
  4




---



##### 



CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS
 EQUITY AND OTHER COMPREHENSIVE INCOME
 AdditionalPaid-In
    
    Accumulated
    
    RetainedCapital 
    
    Other
    
    Earnings/
    
    
    
    
    
    OtherCommon Stock
    
    Treasury Stock
    
    Common
    
    Comprehensive
    
    (Accumulated
    
    
    
    
    
    ComprehensiveShares
    
    Amount
    
    Shares
    
    Amount
    
    Stock
    
    Income/(Loss)
    
    Deficit)
    
    Total
    
    IncomeBalance as of December 31, 2004
    
    
    22,337,822
    
    
    $
    223
    
    
    
    14,216
    
    
    $
    (93
    )
    
    $
    124,737
    
    
    $
    2,858
    
    
    $
    22,654
    
    
    $
    150,379Exercise of common stock options
    
    
    128,879
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    617
    
    
    
    
    
    
    
    
    
    
    
    619Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,513
    
    
    
    15,513
    
    
    $
    15,513Issuance costs related to public offerings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (620
    )
    
    
    
    
    
    
    
    
    
    
    (620
    )Other comprehensive income:Foreign currency translation adjustment, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    212
    
    
    
    
    
    
    
    212
    
    
    
    212Fair market value adjustments on cash flow hedge,
net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (283
    )
    
    
    
    
    
    
    (283
    )
    
    
    (283
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    15,442Balance as of June 30, 2005 (unaudited)
    
    
    22,466,701
    
    
    $
    225
    
    
    
    14,216
    
    
    $
    (93
    )
    
    $
    124,734
    
    
    $
    2,787
    
    
    $
    38,167
    
    
    $
    165,820
  5




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##### 



PRA INTERNATIONAL AND SUBSIDIARIES
 
 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
 (unaudited)
 (in thousands)
 Six Months EndedJune 30,2004
    
    2005Cash flow from operating activitiesNet income
    
    $
    9,891
    
    
    $
    15,513Adjustments to reconcile net income to net cash provided
by (used in) operating activities:Depreciation and amortization
    
    
    4,695
    
    
    
    5,623Provision for doubtful receivables
    
    
    567
    
    
    
    173Amortization of debt discount
    
    
    143
    
    
    
    Provision for deferred income taxes
    
    
    (15
    )
    
    
    (1,485
    )Changes in assets and liabilities:Accounts receivable and unbilled services
    
    
    9,952
    
    
    
    10,844Prepaid expenses and other assets
    
    
    (494
    )
    
    
    (1,812
    )Accounts payable and accrued expenses
    
    
    (800
    )
    
    
    1,135Income taxes
    
    
    5,735
    
    
    
    (4,684
    )Advance billings
    
    
    (7,490
    )
    
    
    (36,224
    )Net cash provided by (used in) operating activities
    
    
    22,184
    
    
    
    (10,917
    )Cash flow from investing activitiesPurchase of fixed assets
    
    
    (2,800
    )
    
    
    (4,005
    )Disposal of fixed assets
    
    
    (59
    )
    
    
    Purchase of marketable securities
    
    
    
    
    
    
    (22,375
    )Proceeds from marketable securities
    
    
    
    
    
    
    46,875Cash paid for acquisitions, net of cash acquired
    
    
    82
    
    
    
    (7,297
    )Net cash provided by (used in) investing activities
    
    
    (2,777
    )
    
    
    13,198Cash flow from financing activitiesProceeds from issuance of debt
    
    
    5,000
    
    
    
    Repayment of debt and capital leases
    
    
    (17,071
    )
    
    
    (100
    )Issuance of stockholder notes receivable
    
    
    (1,777
    )
    
    
    Payment of dividends
    
    
    (16,851
    )
    
    
    Purchase of treasury stock
    
    
    (93
    )
    
    
    Issuance costs related to public offerings
    
    
    
    
    
    
    (620
    )Proceeds from stock option and warrant exercises
    
    
    2,114
    
    
    
    618Net cash provided by (used in) financing activities
    
    
    (28,678
    )
    
    
    (102
    )Effect of exchange rate on cash and cash equivalents
    
    
    59
    
    
    
    174Increase (decrease) in cash and cash equivalents
    
    
    (9,212
    )
    
    
    2,353Cash and cash equivalents at beginning of period
    
    
    32,328
    
    
    
    65,888Cash and cash equivalents at end of period
    
    $
    23,116
    
    
    $
    68,241Supplemental disclosure of cash flow informationCash paid for taxes
    
    $
    234
    
    
    $
    15,756Cash paid for interest
    
    $
    1,597
    
    
    $
    142
  6




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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
  Unbilled Services
  Fair Value of Financial Instruments
  7




---



##### 



PRA
INTERNATIONAL AND SUBSIDIARIES
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 Goodwill and Other Intangibles
  Advance Billings
  Revenue Recognition
    Reimbursement Revenue and Reimbursable Out-of-Pocket Costs
   8




---



##### 



PRA
INTERNATIONAL AND SUBSIDIARIES
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 Significant Customers
  Three Months
    
    Six MonthsEnded
    
    EndedJune 30,
    
    June 30,2004
    
    2005
    
    2004
    
    2005Customer A
    
    
    12
    %
    
    
    14
    %
    
    
    13
    %
    
    
    14
    %Customer B
    
    
    *
    
    
    
    *
    
    
    
    *
    
    
    
    11
    %Customer C
    
    
    16
    %
    
    
    10
    %
    
    
    12
    %
    
    
    *
 
 *
    
    Less than 10% of consolidated service revenues in the respective period.  Concentration of Credit Risk
  December 31,
    
    June 30,2004
    
    2005Customer A
    
    
    16
    %
    
    
    *Customer B
    
    
    *
    
    
    
    12
    %Customer C
    
    
    15
    %
    
    
    13
    %
 
 *
    
    Less than 10% of consolidated accounts receivable and unbilled services as of the end of each
period.  Foreign Currency Translation
  Comprehensive Income (Loss)
  9




---



##### 



PRA
INTERNATIONAL AND SUBSIDIARIES
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 Stock-Based Compensation
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2005

    
    2004
    
    2005(Dollars in thousands, except per share amounts)Net income, as reported
    
    $
    7,534
    
    
    $
    8,555
    
    
    $
    9,891
    
    
    $
    15,513Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of tax
    
    
    (83
    )
    
    
    (351
    )
    
    
    (155
    )
    
    
    (669
    )SFAS No. 123 pro forma net income
    
    $
    7,451
    
    
    $
    8,204
    
    
    $
    9,736
    
    
    $
    14,844Basic net income per share, as reported
    
    $
    0.42
    
    
    $
    0.38
    
    
    $
    0.55
    
    
    $
    0.69Basic net income per share, pro forma
    
    $
    0.41
    
    
    $
    0.37
    
    
    $
    0.55
    
    
    $
    0.66Diluted net income per share, as reported
    
    $
    0.37
    
    
    $
    0.35
    
    
    $
    0.50
    
    
    $
    0.63Diluted net income per share, pro forma
    
    $
    0.37
    
    
    $
    0.33
    
    
    $
    0.49
    
    
    $
    0.60
  Net income per share
   Recent Accounting Pronouncements
  10




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##### 



PRA
INTERNATIONAL AND SUBSIDIARIES
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 (3) Accounts receivable and unbilled services
  December 31,
    
    June 30,2004
    
    2005Accounts receivable
    
    $
    59,384
    
    
    $
    48,767Unbilled services
    
    
    29,993
    
    
    
    27,57889,377
    
    
    
    76,345Less: Allowance for doubtful accounts
    
    
    (4,897
    )
    
    
    (4,990
    )$
    84,480
    
    
    $
    71,355
 (4) Goodwill and Other Intangibles
  Carrying amount as of December 31, 2004
    
    
    101,340Acquisitions
    
    
    5,964Foreign currency exchange rate changes.
    
    
    (725
    )Carrying amount as of June 30, 2005
    
    $
    106,579
  Weighted
    
    As of December 31, 2004
    
    As of June 30, 2005AverageAmortization
    
    Gross
    
    
    
    
    
    
    
    
    
    Gross
    
    
    
    
    
    NetPeriod
    
    Carrying
    
    Accumulated
    
    Net Carrying
    
    Carrying
    
    Accumulated
    
    Carrying(in Years)
    
    Amount
    
    Amortization
    
    Amount
    
    Amount
    
    Amortization
    
    AmountNon-compete and other agreements
    
    
    2
    
    
    $
    2,776
    
    
    $
    2,442
    
    
    $
    334
    
    
    $
    2,528
    
    
    $
    2,278
    
    
    $
    250Customer relationships
    
    
    10
    
    
    
    7,897
    
    
    
    2,319
    
    
    
    5,578
    
    
    
    8,503
    
    
    
    3,000
    
    
    
    5,503Trade names
    
    Indefinite
    
    
    19,970
    
    
    
    473
    
    
    
    19,497
    
    
    
    19,860
    
    
    
    474
    
    
    
    19,386$
    30,643
    
    
    $
    5,234
    
    
    $
    25,409
    
    
    $
    30,891
    
    
    $
    5,752
    
    
    $
    25,139
  (in thousands)2005 (remaining 6 months)
    
    $
    5772006
    
    
    9352007
    
    
    8642008
    
    
    8502009 and thereafter
    
    
    2,527$
    5,753
 (5) Stock and Option Repurchase and Dividend and Bonus Payment
   11




---



##### 



PRA
INTERNATIONAL AND SUBSIDIARIES
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 (6) Income Taxes
  (7) Accounting for Derivative Instruments and Hedging Activities
  (8) Commitments and Contingencies
 Legal Proceedings
   (9) Related-Party Transactions
 
  12




---



##### 



PRA INTERNATIONAL AND SUBSIDIARIES
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 (10) Segment Reporting  Operations by Geographic Area
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2005
    
    2004
    
    2005Service revenueNorth America
    
    $
    49,762
    
    
    $
    50,628
    
    
    $
    96,040
    
    
    $
    100,890Europe
    
    
    18,026
    
    
    
    22,898
    
    
    
    37,121
    
    
    
    44,312Other
    
    
    1,342
    
    
    
    2,505
    
    
    
    2,799
    
    
    
    4,422$
    69,130
    
    
    $
    76,031
    
    
    $
    135,960
    
    
    $
    149,624
 December 31,
    
    June 30,2004
    
    2005Long-lived assetsNorth America
    
    $
    133,738
    
    
    $
    137,024Europe
    
    
    16,512
    
    
    
    16,731Other
    
    
    1,313
    
    
    
    1,292$
    151,563
    
    
    $
    155,047
 13




---



##### 



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Overview
        14




---



##### 



Service Revenue
   Reimbursement Revenue and Reimbursable Out-of-Pocket Costs
  Direct Costs
  Selling, General, and Administrative Expenses
  Depreciation and Amortization
  Income Taxes
  15




---



##### 



Exchange Rate Fluctuations
  June 30,
    
    December 31,
    
    June 30,2004
    
    2004
    
    2005U.S. Dollars per:Euro
    
    
    1.21
    
    
    
    1.25
    
    
    
    1.24Pound Sterling
    
    
    1.81
    
    
    
    1.84
    
    
    
    1.85Canadian Dollar
    
    
    0.74
    
    
    
    0.77
    
    
    
    0.80
 Results of Operations
   Six Months EndedYear Ended December 31,
    
    June 30,2002
    
    2003
    
    2004
    
    2004
    
    2005Service revenue
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Direct costs
    
    
    53.7
    
    
    
    51.1
    
    
    
    48.3
    
    
    
    48.6
    
    
    
    46.4Selling, general, and administrative
    
    
    32.8
    
    
    
    32.5
    
    
    
    32.5
    
    
    
    32.2
    
    
    
    33.2Depreciation and amortization
    
    
    4.0
    
    
    
    3.6
    
    
    
    3.5
    
    
    
    3.5
    
    
    
    3.7Management fee
    
    
    0.5
    
    
    
    0.3
    
    
    
    0.3
    
    
    
    0.3
    
    
    
    Option repurchase
    
    
    
    
    
    
    
    
    
    
    1.3
    
    
    
    2.7
    
    
    
    Vested option bonus
    
    
    
    
    
    
    
    
    
    
    0.9
    
    
    
    1.4
    
    
    
    Income from operations
    
    
    9.0
    
    
    
    12.5
    
    
    
    13.1
    
    
    
    11.3
    
    
    
    16.6Interest expense
    
    
    (2.4
    )
    
    
    (2.9
    )
    
    
    (1.4
    )
    
    
    (1.3
    )
    
    
    (0.1
    )Interest income
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.6Other income (expenses), net
    
    
    (0.4
    )
    
    
    (1.6
    )
    
    
    0.0
    
    
    
    1.2
    
    
    
    (0.3
    )Income before income taxes
    
    
    6.3
    
    
    
    8.1
    
    
    
    11.8
    
    
    
    11.4
    
    
    
    16.7Provision for income taxes
    
    
    3.1
    
    
    
    2.8
    
    
    
    4.3
    
    
    
    4.1
    
    
    
    6.4Net income
    
    
    3.2
    %
    
    
    5.3
    %
    
    
    7.5
    %
    
    
    7.3
    %
    
    
    10.4
    %
 Selected Consolidated Financial Data
  16




---



##### 



Six Months EndedYear Ended December 31,
    
    June 30,2002
    
    2003
    
    2004
    
    2004
    
    2005(unaudited)
    
    (unaudited)RevenueService revenue
    
    $
    176,365
    
    
    $
    247,888
    
    
    $
    277,479
    
    
    $
    135,960
    
    
    $
    149,624Reimbursement revenue
    
    
    24,648
    
    
    
    42,109
    
    
    
    30,165
    
    
    
    15,893
    
    
    
    16,983Total revenue
    
    $
    201,013
    
    
    $
    289,997
    
    
    $
    307,644
    
    
    $
    151,853
    
    
    $
    166,607Operating expensesDirect costs
    
    
    94,761
    
    
    
    126,501
    
    
    
    134,067
    
    
    
    66,075
    
    
    
    69,436Reimbursable out-of-pocket costs
    
    
    24,648
    
    
    
    42,109
    
    
    
    30,165
    
    
    
    15,893
    
    
    
    16,983Selling, general, and administrative
    
    
    57,897
    
    
    
    80,585
    
    
    
    90,139
    
    
    
    43,804
    
    
    
    49,671Depreciation and amortization
    
    
    6,956
    
    
    
    8,967
    
    
    
    9,691
    
    
    
    4,695
    
    
    
    5,623Management fee
    
    
    800
    
    
    
    800
    
    
    
    704
    
    
    
    400
    
    
    
    Option repurchase(1)
    
    
    
    
    
    
    
    
    
    
    3,713
    
    
    
    3,713
    
    
    
    Vested option bonus(1)
    
    
    
    
    
    
    
    
    
    
    2,738
    
    
    
    1,872
    
    
    
    Income from operations
    
    
    15,951
    
    
    
    31,035
    
    
    
    36,427
    
    
    
    15,401
    
    
    
    24,894Interest income (expense), net
    
    
    (4,100
    )
    
    
    (6,856
    )
    
    
    (3,643
    )
    
    
    (1,570
    )
    
    
    631Other income (expenses), net
    
    
    (721
    )
    
    
    (4,023
    )
    
    
    (38
    )
    
    
    1,675
    
    
    
    (494
    )Income before income taxes
    
    
    11,130
    
    
    
    20,156
    
    
    
    32,746
    
    
    
    15,506
    
    
    
    25,031Provision for income taxes
    
    
    5,493
    
    
    
    6,909
    
    
    
    11,997
    
    
    
    5,615
    
    
    
    9.518Net income
    
    $
    5,637
    
    
    $
    13,247
    
    
    $
    20,749
    
    
    $
    9,891
    
    
    $
    15,513Net income per shareBasic
    
    $
    0.37
    
    
    $
    0.83
    
    
    $
    1.13
    
    
    $
    0.55
    
    
    $
    0.69Diluted
    
    $
    0.32
    
    
    $
    0.71
    
    
    $
    1.02
    
    
    $
    0.50
    
    
    $
    0.63Shares used to compute net income
per share:Basic
    
    
    15,204,232
    
    
    
    15,965,408
    
    
    
    18,442,313
    
    
    
    17,858,768
    
    
    
    22,379,389Diluted
    
    
    17,557,632
    
    
    
    18,666,012
    
    
    
    20,329,852
    
    
    
    19,957,640
    
    
    
    24,596,893Other Financial Data:Net cash provided by (used in)
operating activities
    
    $
    28,442
    
    
    $
    2,058
    
    
    $
    71,636
    
    
    $
    22,184
    
    
    $
    (10,917
    )Net cash provided by (used in)
investing activities
    
    
    (24,625
    )
    
    
    (9,599
    )
    
    
    (32,350
    )
    
    
    (2,777
    )
    
    
    13,198Net cash provided by (used in)
financing activities
    
    
    (14,581
    )
    
    
    26,028
    
    
    
    (6,430
    )
    
    
    (28,678
    )
    
    
    (102
    )Non-GAAP Data:Adjusted EBITDA(2)
    
    $
    22,186
    
    
    $
    35,979
    
    
    $
    52,531
    
    
    $
    27,356
    
    
    $
    30,023Adjusted EBITDA as a % of service
revenue
    
    
    12.6
    %
    
    
    14.5
    %
    
    
    18.9
    %
    
    
    20.1
    %
    
    
    20.1
    %EBITDA(2)
    
    $
    22,186
    
    
    $
    35,979
    
    
    $
    46,080
    
    
    $
    21,771
    
    
    $
    30,023EBITDA as a % of service revenue
    
    
    12.6
    %
    
    
    14.5
    %
    
    
    16.6
    %
    
    
    16.0
    %
    
    
    20.1
    %
 Six Months EndedYear Ended December 31,
    
    June 30,2002
    
    2003
    
    2004
    
    2004
    
    2005(unaudited)
    
    (unaudited)Consolidated Balance Sheet Data:Cash and cash equivalents
    
    $
    13,798
    
    
    $
    32,328
    
    
    $
    65,888
    
    
    $
    23,116
    
    
    $
    68,241Marketable securities
    
    
    
    
    
    
    
    
    
    
    24,500
    
    
    
    
    
    
    
    Working capital
    
    
    (43,429
    )
    
    
    (8,449
    )
    
    
    11,478
    
    
    
    (23,414
    )
    
    
    23,489Total assets
    
    
    254,547
    
    
    
    298,558
    
    
    
    337,344
    
    
    
    275,776
    
    
    
    307,460Long-term debt and capital leases, less current maturities
    
    
    32,509
    
    
    
    57,810
    
    
    
    75
    
    
    
    48,227
    
    
    
    17Stockholders equity
    
    
    59,088
    
    
    
    74,565
    
    
    
    150,379
    
    
    
    67,660
    
    
    
    165,820
 
 (1)
    
    Includes a $3.7 million charge for the repurchase of options, predominantly from former
employees, and a $2.7 million ($1.9 million through June 30, 2004) charge for a
per-vested-option bonus paid to all employee option holders, both of which were executed in
connection with the culmination of the January 2004 tender process.(2)
    
    Adjusted EBITDA and EBITDA are not substitutes for operating income, net income, or cash flow
from operating activities as determined in accordance with GAAP as measures of performance or
liquidity. See Managements Discussion and Analysis of Financial Condition and Results of
Operations  Non-GAAP Financial Measures. For each of the periods indicated, the following
table sets forth a reconciliation of EBITDA and Adjusted EBITDA to net cash provided by (used
in) operating activities and to net income. 17




---



##### 



Six Months EndedYear Ended December 31,
    
    June 30,2002
    
    2003
    
    2004
    
    2004
    
    2005(unaudited)
    
    (unaudited)Adjusted EBITDA
    
    $
    22,186
    
    
    $
    35,979
    
    
    $
    52,531
    
    
    $
    27,356
    
    
    $
    30,023Option repurchase
    
    
    
    
    
    
    
    
    
    
    (3,713
    )
    
    
    (3,713
    )
    
    
    Vested option bonus
    
    
    
    
    
    
    
    
    
    
    (2,738
    )
    
    
    (1,872
    )
    
    
    EBITDA
    
    
    22,186
    
    
    
    35,979
    
    
    
    46,080
    
    
    
    21,771
    
    
    
    30,023Depreciation and amortization
    
    
    (6,956
    )
    
    
    (8,967
    )
    
    
    (9,691
    )
    
    
    (4,695
    )
    
    
    (5,623
    )Interest expense, net
    
    
    (4,100
    )
    
    
    (6,856
    )
    
    
    (3,643
    )
    
    
    (1,570
    )
    
    
    631Provision for income taxes
    
    
    (5,493
    )
    
    
    (6,909
    )
    
    
    (11,997
    )
    
    
    (5,616
    )
    
    
    (9,518
    )Net income
    
    
    5,637
    
    
    
    13,247
    
    
    
    20,749
    
    
    
    9,891
    
    
    
    15,513Depreciation and amortization
    
    
    6,956
    
    
    
    8,967
    
    
    
    9,691
    
    
    
    4,695
    
    
    
    5,623Provision for doubtful receivables
    
    
    1,888
    
    
    
    4,851
    
    
    
    1,914
    
    
    
    567
    
    
    
    173Amortization of debt discount
    
    
    379
    
    
    
    1,642
    
    
    
    
    
    
    
    143
    
    
    
    Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Provision for deferred income taxes
    
    
    (1,228
    )
    
    
    (3,997
    )
    
    
    2,606
    
    
    
    (15
    )
    
    
    (1,485
    )Debt issuance costs write-off
    
    
    
    
    
    
    750
    
    
    
    1,241
    
    
    
    
    
    
    
    Changes in assets and liabilities:Accounts receivable and unbilled services
    
    
    (29,251
    )
    
    
    (18,538
    )
    
    
    15,373
    
    
    
    9,952
    
    
    
    10,144Prepaid expenses and other assets
    
    
    1,444
    
    
    
    408
    
    
    
    1,226
    
    
    
    (494
    )
    
    
    (1,812
    )Accounts payable and accrued expenses
    
    
    3,481
    
    
    
    (4,873
    )
    
    
    7,793
    
    
    
    (800
    )
    
    
    1,135Income taxes
    
    
    989
    
    
    
    (481
    )
    
    
    12,150
    
    
    
    5,735
    
    
    
    (4,684
    )Advance billings
    
    
    38,147
    
    
    
    82
    
    
    
    (1,107
    )
    
    
    (7,490
    )
    
    
    (35,524
    )Net cash provided by (used in) operating activities
    
    $
    28,442
    
    
    $
    2,058
    
    
    $
    71,636
    
    
    $
    22,184
    
    
    $
    (10,917
    )
 Three Months Ended June 30, 2005 Compared to Three Months Ended June 30, 2004
      18




---



##### 



Six Months Ended June 30, 2005 Compared to Six Months Ended June 30, 2004
      19




---



##### 



Liquidity and Capital Resources
        20




---



##### 



Non-GAAP Financial Measures
      Critical Accounting Policies and Estimates
  Revenue Recognition
  21




---



##### 



Allowance for Doubtful Accounts
  Tax Valuation Allowance
   Stock-Based Compensation
   22




---



##### 



Long-Lived Assets
  Goodwill and Indefinite-Lived Intangible Assets
   Inflation
  Potential Liability and Insurance
  23




---



##### 



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.
    
    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 past and 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.
 24




---



##### 



ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Risk
  Foreign Exchange Risk
    Foreign Currency Hedges
  
 ITEM 4  CONTROLS AND PROCEDURES
 Effectiveness of Our Disclosure Controls and Procedures
  25




---



##### 



Changes in Internal Control Over Financial Reporting
    26




---



##### 



PART II OTHER INFORMATION
 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
   
 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
 Exhibits
 ExhibitNumber
    
    Description of Exhibit10.10(1)
    
    Form of Option Agreement21.1
    
    Subsidiaries of PRA International31.1
    
    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
Officer32.2
    
    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(b)
    
    Reports on Form 8-K  Date
    
    DescriptionApril 27, 2005
    
    Current report on Form 8-K filed April 27, 2005
reporting the issuance of a press release on April 27,
2005 announcing our operating and financial results
for the quarter ended March 31, 2005. Not withstanding
its listing here, the information furnished shall not
be deemed filed for the purposes of Section 18 of
the Securities Exchange Act of 1934, as amended, or
otherwise subject to the liability of that section,
nor shall any information contained herein be deemed
incorporated by reference in any filing under the
Securities Act of 1933, as amended, except as
expressly set forth by specific reference in such a
filing.June 6, 2005
    
    Current report on Form 8-K filed June 6, 2005
reporting the acquisition of two regulatory and
product development consultancies. 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.
 27




---



##### 



SIGNATURES
  PRA INTERNATIONALBy:
    /s/ Patrick K. DonnellyName:
    Patrick K. DonnellyTitle:
    Chief Executive Officer By:
    /s/ J. Matthew BondName:
    J. Matthew BondTitle:
    Chief Financial Officer  28




---



##### 



Exhibit Index
 Exhibit No
    
    Description of Exhibit10.10(1)
    
    Form of Option Agreement21.1
    
    Subsidiaries of PRA International31.1
    
    Certifications of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certifications of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    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 29