e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2009
OR
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o |
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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 0-28000
PRG-Schultz International, Inc.
(Exact name of registrant as specified in its charter)
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Georgia
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58-2213805 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
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600 Galleria Parkway
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30339-5986 |
Suite 100
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(Zip Code) |
Atlanta, Georgia |
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(Address of principal executive offices) |
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Registrant’s telephone number, including area code: (770) 779-3900
Indicate by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of
“large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of
the Exchange Act. (Check One):
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Large accelerated filer o
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Accelerated filer
þ
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Non-accelerated filer o
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Smaller reporting company
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes o No þ
Common shares of the registrant outstanding at October 31, 2009 were 23,170,760.
PRG-SCHULTZ INTERNATIONAL, INC.
FORM 10-Q
For the Quarter Ended September 30, 2009
INDEX
PART I. FINANCIAL INFORMATION
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Item 1. |
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Financial Statements |
PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2009 |
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2008 |
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2009 |
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2008 |
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Revenues |
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$ |
45,321 |
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$ |
49,182 |
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$ |
130,044 |
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$ |
147,093 |
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Cost of revenues |
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28,482 |
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31,169 |
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82,701 |
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94,362 |
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Gross margin |
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16,839 |
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18,013 |
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47,343 |
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52,731 |
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Selling, general and administrative expenses |
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11,893 |
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12,139 |
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32,911 |
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36,006 |
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Operating income |
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4,946 |
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5,874 |
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14,432 |
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16,725 |
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Gain on bargain purchase (Note J) |
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2,788 |
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— |
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2,788 |
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— |
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Income before interest and income taxes |
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7,734 |
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5,874 |
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17,220 |
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16,725 |
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Interest expense, net |
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728 |
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789 |
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2,154 |
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2,545 |
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Earnings before income taxes |
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7,006 |
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5,085 |
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15,066 |
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14,180 |
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Income taxes |
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605 |
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879 |
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1,767 |
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1,872 |
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Net earnings |
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$ |
6,401 |
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$ |
4,206 |
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$ |
13,299 |
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$ |
12,308 |
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Basic earnings per common share (Note B) |
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$ |
0.27 |
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$ |
0.19 |
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$ |
0.59 |
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$ |
0.57 |
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Diluted earnings per common share (Note B) |
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$ |
0.27 |
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$ |
0.18 |
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$ |
0.57 |
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$ |
0.54 |
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Weighted-average common shares outstanding
(Note B): |
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Basic |
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23,404 |
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21,919 |
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22,735 |
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21,726 |
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Diluted |
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23,833 |
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23,002 |
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23,453 |
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22,942 |
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See accompanying Notes to Condensed Consolidated Financial Statements.
1
PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
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September 30, |
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December 31, |
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2009 |
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2008 |
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(Unaudited) |
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ASSETS
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Current assets: |
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Cash and cash equivalents (Notes F and I) |
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$ |
27,329 |
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$ |
26,688 |
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Restricted cash |
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317 |
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61 |
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Receivables: |
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Contract receivables, less allowances of $887 in 2009 and $921 in 2008: |
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Billed |
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27,068 |
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28,143 |
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Unbilled |
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4,683 |
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5,568 |
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31,751 |
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33,711 |
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Employee advances and miscellaneous receivables, less allowances of
$261 in 2009 and $311 in 2008 |
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544 |
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285 |
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Total receivables |
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32,295 |
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33,996 |
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Prepaid expenses and other current assets |
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2,743 |
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2,264 |
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Total current assets |
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62,684 |
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63,009 |
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Property and equipment, at cost |
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31,231 |
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30,041 |
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Less accumulated depreciation and amortization |
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(23,712 |
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(22,140 |
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Property and equipment, net |
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7,519 |
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7,901 |
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Goodwill (Note I) |
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4,600 |
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4,600 |
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Intangible assets, less accumulated amortization of $12,452 in 2009 and
$10,932 in 2008 (Note I) |
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24,866 |
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18,968 |
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Unbilled receivables |
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1,483 |
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1,789 |
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Other assets |
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1,883 |
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2,516 |
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$ |
103,035 |
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$ |
98,783 |
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LIABILITIES AND SHAREHOLDERS’ EQUITY
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Current liabilities: |
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Accounts payable and accrued expenses |
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$ |
11,170 |
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$ |
16,275 |
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Accrued payroll and related expenses |
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18,397 |
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22,536 |
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Refund liabilities |
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7,169 |
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7,870 |
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Deferred revenue |
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1,424 |
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502 |
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Current portions of debt and capital lease obligations (Note G) |
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5,342 |
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5,314 |
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Business acquisition obligations |
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2,560 |
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— |
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Total current liabilities |
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46,062 |
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52,497 |
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Long-term debt and capital lease obligations (Note G) |
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10,320 |
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14,331 |
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Deferred income taxes |
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8 |
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234 |
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Noncurrent compensation obligations |
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1,233 |
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2,849 |
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Refund liabilities |
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758 |
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897 |
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Other long-term liabilities |
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6,342 |
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5,265 |
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Total liabilities |
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64,723 |
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76,073 |
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Commitments and contingencies (Note H) |
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Shareholders’ equity (Note B): |
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Common stock, no par value; $.01 stated value per share. Authorized
50,000,000 shares;
23,160,760 shares issued and outstanding as of September 30, 2009
and 21,789,645 shares
issued and outstanding as of December 31, 2008 |
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232 |
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218 |
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Additional paid-in capital |
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561,770 |
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559,359 |
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Accumulated deficit |
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(526,689 |
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(539,988 |
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Accumulated other comprehensive income |
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2,999 |
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3,121 |
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Total shareholders’ equity |
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38,312 |
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22,710 |
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$ |
103,035 |
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$ |
98,783 |
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See accompanying Notes to Condensed Consolidated Financial Statements.
2
PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
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Nine Months Ended |
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September 30, |
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2009 |
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2008 |
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Cash flows from operating activities: |
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Net earnings |
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$ |
13,299 |
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$ |
12,308 |
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Adjustments to reconcile net earnings to net cash provided
by operating activities: |
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Gain on bargain purchase |
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(2,788 |
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— |
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Depreciation and amortization |
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4,342 |
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3,897 |
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Amortization of deferred loan costs |
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591 |
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588 |
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Stock-based compensation expense |
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2,500 |
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4,961 |
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Loss on sale of property and equipment |
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92 |
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84 |
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Deferred income taxes |
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(226 |
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109 |
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Changes in assets and liabilities: |
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Restricted cash |
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(256 |
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(262 |
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Billed receivables |
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1,712 |
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4,022 |
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Unbilled receivables |
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1,191 |
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492 |
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Prepaid expenses and other current assets |
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329 |
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279 |
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Other assets |
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55 |
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24 |
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Accounts payable and accrued expenses |
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(7,112 |
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(2,498 |
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Accrued payroll and related expenses |
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(4,701 |
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(6,864 |
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Refund liabilities |
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(840 |
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(3,844 |
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Deferred revenue |
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915 |
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(197 |
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Noncurrent compensation obligations |
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(1,363 |
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(4,561 |
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Other long-term liabilities |
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(500 |
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(608 |
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Net cash provided by operating activities |
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7,240 |
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7,930 |
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Cash flows from investing activities: |
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Business acquisition |
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(1,629 |
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— |
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Purchases of property and equipment, net of disposal proceeds |
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(2,065 |
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(2,211 |
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Net cash used in investing activities |
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(3,694 |
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(2,211 |
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Cash flows from financing activities: |
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Repayments of debt |
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(3,983 |
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(24,956 |
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Repurchases of common stock |
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(246 |
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— |
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Restricted stock remitted by employees for taxes |
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(50 |
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— |
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Proceeds from option exercises |
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26 |
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— |
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Payments for deferred loan costs |
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— |
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(59 |
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Net cash used in financing activities |
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(4,253 |
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(25,015 |
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Effect of exchange rates on cash and cash equivalents |
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1,348 |
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(280 |
) |
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Net change in cash and cash equivalents |
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641 |
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(19,576 |
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Cash and cash equivalents at beginning of period |
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26,688 |
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42,364 |
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Cash and cash equivalents at end of period |
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$ |
27,329 |
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$ |
22,788 |
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Supplemental disclosure of cash flow information: |
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Cash paid during the period for interest |
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$ |
1,517 |
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$ |
2,564 |
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Cash paid during the period for income taxes, net of refunds |
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$ |
3,434 |
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$ |
1,918 |
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Liabilities assumed in a business acquisition (Note J) |
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$ |
4,210 |
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$ |
— |
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See accompanying Notes to Condensed Consolidated Financial Statements.
3
PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note A – Basis of Presentation
The accompanying Condensed Consolidated Financial Statements (Unaudited) of PRG-Schultz
International, Inc. and its wholly owned subsidiaries (the “Company”) have been prepared in
accordance with accounting principles generally accepted in the United States of America for
interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes required by accounting
principles generally accepted in the United States of America for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the three-month and
nine-month periods ended September 30, 2009 are not necessarily indicative of the results that may
be expected for the year ending December 31, 2009.
For further information, refer to the Consolidated Financial Statements and Footnotes thereto
included in the Company’s Form 10-K for the year ended December 31, 2008.
During the first quarter of 2008, management revised its estimation of expected refund rates
in its Domestic Accounts Payable Services segment. Such change in estimate resulted from a decline
in actual refund rates observed during 2007. The impact of the change in estimate resulted in a
$0.8 million reduction in the March 31, 2008 refund liability and a corresponding increase in first
quarter 2008 revenues. The impact on the quarter ended September 30, 2008 and quarter and nine
months ended September 30, 2009 was not significant and management does not expect that the change
in estimate will have a material impact on future period results.
The Company has determined that no material events took place after its balance
sheet date of September 30, 2009 through financial statement issuance date of November 9, 2009.
New Accounting Standards
FASB ASC 105-10-65. In June 2009, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 168, “The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 168” and
“FASB ASC 105-10-65”). The FASB Accounting Standards Codification (“ASC”) will become the source of
authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be
applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange
Commission (“SEC”) under authority of federal securities laws are also sources of authoritative
GAAP for SEC registrants. The ASC supersedes all existing non-SEC accounting and reporting
standards. All other nongrandfathered non-SEC accounting literature not included in the ASC has
become nonauthoritative. Following this statement, the FASB will not issue new standards in the
form of statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts. Instead, it will
issue Accounting Standards Updates (“ASU”). ASU will serve only to update the ASC, provide
background information about the guidance, and provide the bases for conclusions on the changes in
the ASC. In conjunction with the adoption by the Company of FASB ASC 105-10-65 effective September
30, 2009, all references to accounting standards issued prior to SFAS No. 168 have been amended to
additionally reflect the corresponding ASC topic.
FASB ASC 718. In December 2007 the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations” (“SFAS No. 141(R)” and “FASB ASC 718”). FASB ASC 718 establishes principles and
requirements for how an acquirer recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in an
acquiree; recognizes and measures the goodwill acquired in a business combination or a gain from a
bargain purchase; determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of a business combination; and requires
that costs associated with business combinations be expensed as incurred. The adoption by the
Company of FASB ASC 718 effective January 1, 2009 did not have any material impact on the Company’s
consolidated financial statements except as described in Note J below.
FASB ASC 810-10-65. In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements” (“SFAS No. 160” and “FASB ASC 810-10-65”). FASB ASC 810-10-65
establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary
and for the deconsolidation of a subsidiary. Specifically, this statement requires the recognition
of a noncontrolling interest (minority interest) as equity in the consolidated financial statements
and separate from the parent’s equity. The amount of net income attributable to the noncontrolling
interest will be included in consolidated net income on the
4
PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
face of the income statement. FASB ASC 810-10-65 clarifies that changes in a parent’s ownership
interest in a subsidiary that do not result in deconsolidation are equity transactions if the
parent retains its controlling financial interest. In addition, this statement requires that a
parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or
loss will be measured using the fair value of the noncontrolling equity investment on the
deconsolidation date. FASB ASC 810-10-65 also includes expanded disclosure requirements regarding
the interests of the parent and its noncontrolling interest. The adoption by the Company of FASB
ASC 810-10-65 effective January 1, 2009 did not have any material impact on the Company’s
consolidated financial statements.
FASB ASC 815. In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities – an amendment of FASB Statement No. 133” (“SFAS No. 161” and
“FASB ASC 815”), which requires additional disclosures about the objectives of derivative
instruments and hedging activities, the method of accounting for such instruments under SFAS
No. 133, “Accounting for Derivative Instruments and Hedging Activities” and its related
interpretations, and a tabular disclosure of the effects of such instruments and related hedged
items on a company’s financial position, financial performance, and cash flows. The adoption by the
Company of FASB ASC 815 effective January 1, 2009 did not have any material impact on the Company’s
consolidated financial statements.
FASB ASC 855. In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS No. 165”
and “FASB ASC 855”), which establishes principles and requirements regarding the reporting of
subsequent events including disclosure of the date through which subsequent events have been
evaluated and whether that is the date that the financial statements were issued or available to be
issued. The Company adopted FASB ASC 855 effective June 30, 2009.
FASB ASC 860. In June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of
Financial Assets, an amendment of SFAS No. 140” (“SFAS No. 166” and “FASB ASC 860”), which
eliminates the exceptions for qualifying special-purpose entities from the consolidation guidance
in FASB ASC 860, changes the requirements for derecognizing financial assets, and requires
additional disclosures in order to enhance information reported to users of financial statements by
providing greater transparency about transfers of financial assets, including securitization
transactions, and an entity’s continuing involvement in and exposure to the risks related to
transferred financial assets. This statement is effective for fiscal years beginning after November
15, 2009 and for transfers occurring on or after the effective date. The Company has not determined
the impact, if any, FASB ASC 860 will have on its future financial statements.
FASB ASC 810-10-25. In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB
Interpretation No. 46(R)” (“SFAS No. 167” and “FASB ASC 810-10-25”), which amends FASB
Interpretation No. 46(R) to require an analysis to determine whether a variable interest gives a
company a controlling financial interest in a variable interest entity and requires ongoing
reassessments of whether an enterprise is the primary beneficiary of a variable interest entity.
This statement is effective for fiscal years beginning after November 15, 2009. The Company has not
determined the impact, if any, FASB ASC 810-10-25 will have on its future financial statements.
FASB ASC 470-20. In May 2008, the FASB issued Staff Position No. APB 14-1, “Accounting for
Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash
Settlement)” (“FSP APB 14-1” and “FASB ASC 470-20”). FASB ASC 470-20 requires that the liability
and equity components of convertible debt instruments that may be settled in cash upon conversion
(including partial cash settlement) be separately accounted for in a manner that reflects an
issuer’s nonconvertible debt borrowing rate. The resulting debt discount is amortized over the
period the convertible debt is expected to be outstanding as additional non-cash interest expense.
Upon adoption, the provisions of FASB ASC 470-20 are required to be applied retrospectively to all
periods presented. The adoption by the Company of FASB ASC 470-20 effective January 1, 2009 did not
have any material impact on the Company’s consolidated financial statements.
FASB ASC 260-10-45. In June 2008, the FASB issued Staff Position No. EITF 03-6-1, “Determining
Whether Instruments Granted in Share-Based Transactions Are Participating Securities” (“FSP EITF
03-6-1” and “FASB ASC 260-10-45”). FASB ASC 260-10-45 requires that unvested share-based payment
awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or
unpaid) be accounted for as participating securities and should be included in the computation of
earnings per share. The adoption by the Company of FASB ASC 260-10-45 effective January 1, 2009 did
not have any material impact on the Company’s consolidated financial statements.
5
PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note B – Earnings Per Common Share
The following tables set forth the computations of basic and diluted earnings per common share
for the three and nine months ended September 30, 2009 and 2008 (in thousands, except per share
data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Basic
earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for earnings per common share calculations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
6,401 |
|
|
$ |
4,206 |
|
|
$ |
13,299 |
|
|
$ |
12,308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per common share
– weighted-average common shares outstanding
during the period |
|
|
23,404 |
|
|
|
21,919 |
|
|
|
22,735 |
|
|
|
21,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share |
|
$ |
0.27 |
|
|
$ |
0.19 |
|
|
$ |
0.59 |
|
|
$ |
0.57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Diluted
earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for earnings per common share calculations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
6,401 |
|
|
$ |
4,206 |
|
|
$ |
13,299 |
|
|
$ |
12,308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per common share
– weighted-average common shares outstanding
during the period |
|
|
23,404 |
|
|
|
21,919 |
|
|
|
22,735 |
|
|
|
21,726 |
|
Incremental shares from stock-based compensation
plans |
|
|
429 |
|
|
|
1,083 |
|
|
|
718 |
|
|
|
1,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per common share |
|
|
23,833 |
|
|
|
23,002 |
|
|
|
23,453 |
|
|
|
22,942 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share |
|
$ |
0.27 |
|
|
$ |
0.18 |
|
|
$ |
0.57 |
|
|
$ |
0.54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three and nine months ended September 30, 2009, options to purchase 1.7 million shares
of common stock were not included in the computation of diluted earnings per common share because
the options’ exercise prices were greater than the average market price of the common shares during
the periods and were therefore antidilutive. For the three and nine months ended September 30,
2008, options to purchase 1.0 million shares of common stock were not included in the computation
of diluted earnings per common share because the options’ exercise prices were greater than the
average market price of the common shares during the periods and were therefore antidilutive.
Weighted-average common shares outstanding for the three and nine month periods ended September 30,
2009 include 0.7 million nonvested restricted shares and 0.2 million nonvested restricted share
units which are considered to be participating securities.
Note C – Stock-Based Compensation
The Company currently has outstanding awards granted under the following three stock-based
compensation plans: (1) the Stock Incentive Plan, (2) the 2006 Management Incentive Plan (“2006
MIP”) and (3) the 2008 Equity Incentive Plan (“2008 EIP”) — (collectively, the “Plans”). The Plans
are described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31,
2008.
6
PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
2009 Grants
During the first quarter of 2009, in connection with his joining the Company as its President
and Chief Executive Officer, the Company made inducement grants outside its existing stock-based
compensation plans to Mr. Romil Bahl. Mr. Bahl received an option to purchase 296,296 shares of
the common stock of the Company and nonvested stock awards (restricted stock) representing 344,445
shares of the Company’s common stock.
Mr. Bahl’s options were granted in two tranches, the first of which consists of 111,111 shares
that vest in four equal annual installments beginning in January 2010. The second tranche consists
of 185,185 shares and vests 50% on each of the second and fourth anniversaries of the grant date.
The options have an exercise price of $3.57 per share and expire seven years after their grant
date. The option awards had an aggregate grant date fair value of $0.8 million.
Mr. Bahl’s nonvested stock awards were also granted in two tranches, the first of which
consists of 233,334 shares that vest in four equal annual installments beginning in January 2010.
The second tranche consists of 111,111 shares and vests 50% on each of the second and fourth
anniversaries of the grant date. These restricted stock grants had an aggregate grant date fair
value of $1.2 million. During the vesting period, Mr. Bahl will be entitled to receive dividends
with respect to the nonvested shares, if any, and to vote the shares.
On May 26, 2009, non-qualified options to purchase an aggregate of 483,255 shares of the
Company’s common stock were granted to 72 executive and non-executive employees of the Company
pursuant to the 2008 EIP. The options have an exercise price of $2.82 per share, expire seven years
after their grant date and vest in three equal annual installments beginning on the first
anniversary of the grant date. The option awards had an aggregate grant date fair value of $1.0
million.
On May 26, 2009, nonvested stock awards (restricted stock and restricted stock units)
representing 485,332 shares in aggregate of the Company’s common stock were granted to 72 executive
and non-executive employees of the Company pursuant to the Company’s 2008 EIP. The shares of
restricted stock and the restricted stock units vest in three equal annual installments beginning
on the first anniversary of the grant date. These awards had an aggregate grant date fair value of
$1.4 million. During the vesting period, the restricted stock grantees will be entitled to receive
dividends, if any, with respect to the nonvested shares and to vote the shares. During the vesting
period, grantees of restricted stock units will be entitled to receive dividends, if any, with
respect to the nonvested shares, but will not be entitled to vote the shares underlying the units.
On May 26, 2009, non-qualified stock options to purchase an aggregate of 42,730 shares of the
Company’s common stock were granted under the 2008 EIP to the Company’s five non-employee directors
at an exercise price of $2.82. The options vest in full upon the earlier of (i) May 26, 2010 and
(ii) the date of, and immediately prior to, the Company’s 2010 annual meeting of shareholders,
provided the director has been continuously serving as a member of the Board from the date of grant
until the earlier of such times. Unvested options are forfeited when a director leaves the Board.
The options terminate on May 25, 2016, except that vested options held by a director who leaves the
Board before a change of control will terminate three years after termination of Board service, if
such date occurs before May 25, 2016. These awards had an aggregate grant date fair value of $0.1
million.
On May 26, 2009, nonvested stock awards (restricted stock) representing 42,730 shares in
aggregate of the Company’s common stock were granted to the Company’s five non-employee directors
pursuant to the 2008 EIP. The shares of restricted stock will vest upon the earlier of (i) May 26,
2010, and (ii) the date of, and immediately prior to, the Company’s 2010 annual meeting of
shareholders, provided the director has been continuously serving as a member of the Board from the
date of grant until the earlier of such times. Unvested shares of restricted stock will be
forfeited when a director leaves the Board. The shares are generally nontransferable until vesting.
During the vesting period, the grantees of the restricted stock will be entitled to receive
dividends with respect to the nonvested shares and to vote the shares. These restricted stock
grants had an aggregate grant date fair value of $0.1 million.
On July 29, 2009, non-qualified options to purchase 10,000 shares of the Company’s common
stock were granted to an employee of the Company pursuant to the 2008 EIP. The options have an
exercise price of $3.50 per share, expire seven years after their grant date and vest in three
equal annual installments beginning on the first anniversary of the grant date. The option award
had an aggregate grant date fair value of $26 thousand.
During the quarter ended September 30, 2009, nonvested stock awards (restricted stock)
representing 25,000 shares in aggregate of the Company’s common stock were granted to two employees
of the Company pursuant to the Company’s 2008 EIP. The shares of restricted stock vest in three
equal annual installments beginning on the first
7
PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
anniversary of the grant date. These awards had an aggregate grant date fair value of $0.1
million. During the vesting period, the restricted stock grantees will be entitled to receive
dividends, if any, with respect to the nonvested shares and to vote the shares.
2008 Grants
On May 29, 2008, non-qualified stock options to purchase an aggregate of 60,135 shares of the
Company’s common stock were granted under the 2008 EIP to the Company’s five non-employee directors
at an exercise price of $9.87. The options expire seven years from their grant date and became
fully vested on May 27, 2009, the date of the Company’s 2009 annual meeting of the shareholders.
These awards had an aggregate grant date fair value of $0.4 million.
On May 29, 2008, nonvested stock awards (restricted stock) representing 25,325 shares in
aggregate of the Company’s common stock were granted to the Company’s five non-employee directors
pursuant to the 2008 EIP. The shares of restricted stock vested on May 27, 2009, the date of the
Company’s 2009 annual meeting of shareholders. These restricted stock grants had an aggregate grant
date fair value of $0.2 million.
On September 17, 2008, options to purchase an aggregate of 211,460 shares were granted to 68
employees of the Company pursuant to the 2008 EIP. The options have an exercise price of $9.51 per
share, expire seven years after their grant date and vest in three equal annual installments
beginning on the first anniversary of the grant date. The option awards had an aggregate grant date
fair value of $1.3 million.
On September 17, 2008, nonvested stock awards (restricted stock and restricted stock units)
representing 171,323 shares in aggregate of the Company’s common stock were granted to 68 executive
and non-executive employees of the Company pursuant to the 2008 EIP. These shares of restricted
stock and restricted stock units vest in three equal annual installments beginning on the first
anniversary of the grant date. These awards had an aggregate grant date fair value of $1.6 million.
During the vesting period, the award recipients of restricted stock will be entitled to receive
dividends with respect to the nonvested shares and to vote the shares. During the vesting period,
award recipients of restricted stock units will be entitled to receive dividends with respect to
the nonvested shares, but will not be entitled to vote the shares underlying the units.
On September 17, 2008, nonvested stock awards (restricted stock and restricted stock units)
representing 317,192 shares in aggregate of the Company’s common stock were granted to 68 executive
and non-executive employees of the Company pursuant to the Company’s 2008 EIP. These shares of
restricted stock and restricted stock units will vest on December 31, 2011 provided that Company
performance goals outlined in the stock award agreements are met for the three-year period ending
December 31, 2011. These awards had an aggregate grant date fair value of $3.0 million. During the
vesting period, the award recipients of restricted stock will be entitled to receive dividends with
respect to the nonvested shares and to vote the shares. During the vesting period, award recipients
of restricted stock units will be entitled to receive dividends with respect to the nonvested
shares, but will not be entitled to vote the shares underlying the units.
2006 MIP Performance Units
On April 30, 2008, an aggregate of 493,137 Performance Units under the 2006 MIP were settled
by six executive officers. These settlements resulted in the issuance of 295,879 shares of common
stock and cash payments totaling $2.0 million. During the second quarter of 2009, an aggregate of
1,040,766 Performance Units under the 2006 MIP were settled by seven then current and former
executive officers. These settlements resulted in the issuance of 624,456 shares of common stock and
cash payments totaling $1.3 million.
In July 2009, 224,154 Performance Units were settled by a former executive officer. This
settlement resulted in the issuance of 134,492 shares of common stock and a cash payment of $0.3
million. As of September 30, 2009, a total of 478,195 Performance Units were outstanding and fully
vested under the 2006 MIP.
Selling, general and administrative expenses for the three months ended September 30, 2009 and
2008 include $1.5 million and $0.4 million, respectively, related to stock-based compensation
charges. Selling, general and administrative expenses for the nine months ended September 30, 2009
and 2008 include $2.5 million and $5.0 million, respectively, related to stock-based compensation
charges. At September 30, 2009, there was $6.3 million
8
PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
of unrecognized stock-based compensation expense related to stock options, restricted stock
and restricted stock unit awards which is expected to be recognized over a weighted-average period
of 2.6 years.
Note D – Operating Segments and Related Information
The Company is comprised of the following reportable operating segments:
Domestic Accounts Payable Services
The Domestic Accounts Payable Services segment represents business conducted in the United
States of America (“USA”).
International Accounts Payable Services
The International Accounts Payable Services segment represents business conducted in countries
other than the USA.
Corporate Support
The Company includes the unallocated portion of corporate selling, general and administrative
expenses not specifically attributable to the Accounts Payable Services segments in a category
referred to as Corporate Support.
9
PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Management evaluates the performance of its operating segments based upon revenues and
measures of profit or loss it refers to as EBITDA and adjusted EBITDA. Adjusted EBITDA is earnings
from continuing operations before interest, taxes, depreciation and amortization (“EBITDA”) as
adjusted for unusual and other significant items that management views as distorting the operating
results of the various segments from period to period. Adjustments include restructuring charges,
stock-based compensation, bargain purchase gains, intangible asset impairment charges, litigation
settlements, severance charges and foreign currency gains and losses on intercompany balances
viewed by management as individually or collectively significant. The Company does not have any
inter-segment revenues. Segment information for the three and nine months ended September 30, 2009
and 2008 follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
|
International |
|
|
|
|
|
|
|
|
|
Accounts |
|
|
Accounts |
|
|
|
|
|
|
|
|
|
Payable |
|
|
Payable |
|
|
Corporate |
|
|
|
|
|
|
Services |
|
|
Services |
|
|
Support |
|
|
Total |
|
Three Months Ended September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
24,435 |
|
|
$ |
20,886 |
|
|
$ |
— |
|
|
$ |
45,321 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
6,458 |
|
|
$ |
7,904 |
|
|
$ |
(4,994 |
) |
|
$ |
9,368 |
|
Foreign currency (gains) losses on
intercompany balances |
|
|
— |
|
|
|
(678 |
) |
|
|
— |
|
|
|
(678 |
) |
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
1,496 |
|
|
|
1,496 |
|
Gain on bargain purchase |
|
|
— |
|
|
|
(2,788 |
) |
|
|
— |
|
|
|
(2,788 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
6,458 |
|
|
$ |
4,438 |
|
|
$ |
(3,498 |
) |
|
$ |
7,398 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
27,853 |
|
|
$ |
21,329 |
|
|
$ |
— |
|
|
$ |
49,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
8,167 |
|
|
$ |
2,850 |
|
|
$ |
(3,962 |
) |
|
$ |
7,055 |
|
Foreign currency (gains) losses on
intercompany balances |
|
|
— |
|
|
|
1,801 |
|
|
|
— |
|
|
|
1,801 |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
377 |
|
|
|
377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
8,167 |
|
|
$ |
4,651 |
|
|
$ |
(3,585 |
) |
|
$ |
9,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
74,113 |
|
|
$ |
55,931 |
|
|
$ |
— |
|
|
$ |
130,044 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
21,579 |
|
|
$ |
14,439 |
|
|
$ |
(14,456 |
) |
|
$ |
21,562 |
|
Foreign currency (gains) losses on
intercompany balances |
|
|
— |
|
|
|
(1,752 |
) |
|
|
— |
|
|
|
(1,752 |
) |
Litigation settlement |
|
|
— |
|
|
|
— |
|
|
|
650 |
|
|
|
650 |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
2,500 |
|
|
|
2,500 |
|
Gain on bargain purchase |
|
|
— |
|
|
|
(2,788 |
) |
|
|
— |
|
|
|
(2,788 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
21,579 |
|
|
$ |
9,899 |
|
|
$ |
(11,306 |
) |
|
$ |
20,172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
84,347 |
|
|
$ |
62,746 |
|
|
$ |
— |
|
|
$ |
147,093 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
26,310 |
|
|
$ |
9,752 |
|
|
$ |
(15,440 |
) |
|
$ |
20,622 |
|
Foreign currency (gains) losses on
intercompany balances |
|
|
— |
|
|
|
1,335 |
|
|
|
— |
|
|
|
1,335 |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
4,961 |
|
|
|
4,961 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
26,310 |
|
|
$ |
11,087 |
|
|
$ |
(10,479 |
) |
|
$ |
26,918 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table reconciles net earnings to EBITDA and adjusted EBITDA for each of the
three-month and nine-month periods ended September 30, 2009 and 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Net earnings |
|
$ |
6,401 |
|
|
$ |
4,206 |
|
|
$ |
13,299 |
|
|
$ |
12,308 |
|
Income taxes |
|
|
605 |
|
|
|
879 |
|
|
|
1,767 |
|
|
|
1,872 |
|
Interest, net |
|
|
728 |
|
|
|
789 |
|
|
|
2,154 |
|
|
|
2,545 |
|
Depreciation and amortization |
|
|
1,634 |
|
|
|
1,181 |
|
|
|
4,342 |
|
|
|
3,897 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
|
9,368 |
|
|
|
7,055 |
|
|
|
21,562 |
|
|
|
20,622 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency (gains) losses on
intercompany balances |
|
|
(678 |
) |
|
|
1,801 |
|
|
|
(1,752 |
) |
|
|
1,335 |
|
Litigation settlement |
|
|
— |
|
|
|
— |
|
|
|
650 |
|
|
|
— |
|
Stock-based compensation |
|
|
1,496 |
|
|
|
377 |
|
|
|
2,500 |
|
|
|
4,961 |
|
Gain on bargain purchase |
|
|
(2,788 |
) |
|
|
— |
|
|
|
(2,788 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
7,398 |
|
|
$ |
9,233 |
|
|
$ |
20,172 |
|
|
$ |
26,918 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note E – Comprehensive Income
The Company applies the provisions of FASB ASC 220, “Comprehensive Income” (“FASB ASC 220”).
This standard establishes items that are required to be recognized under accounting standards as
components of comprehensive income. FASB ASC 220 requires, among other things, that an enterprise
report a total for comprehensive income in condensed financial statements of interim periods issued
to shareholders. For the three-month periods ended September 30, 2009 and 2008, the Company’s
consolidated comprehensive income was $6.5 million and $4.7 million, respectively. For the
nine-month periods ended September 30, 2009 and 2008, the Company’s consolidated comprehensive
income was $13.2 million and $12.0 million, respectively. The difference between consolidated
comprehensive income, as disclosed here, and traditionally determined consolidated net earnings, as
set forth on the accompanying Condensed Consolidated Statements of Operations (Unaudited), results
from foreign currency translation adjustments.
Note F – Cash Equivalents
Cash and cash equivalents include all cash balances and highly liquid investments with an
initial maturity of three months or less. The Company places its temporary cash investments with
high credit quality financial institutions. At times, certain investments may be in excess of the
Federal Deposit Insurance Corporation insurance limit.
At September 30, 2009 and December 31, 2008, the Company had cash and cash equivalents of
$27.3 million and $26.7 million, respectively, of which cash equivalents represented approximately
$18.8 million and $23.3 million, respectively. The Company had $15.2 million and $18.5 million in
cash equivalents at U.S. banks at September 30, 2009 and December 31, 2008, respectively. At
September 30, 2009 and December 31, 2008, certain of the Company’s international subsidiaries held
$3.6 million and $4.8 million, respectively, in temporary investments. Most of the temporary
investments held by international subsidiaries at September 30, 2009 were held in Canada.
Note G – Long Term Debt
Total debt outstanding at September 30, 2009 was $15.7 million which included a $15.4 million
outstanding balance on a variable rate term loan due 2011 and a $0.3 million capital lease
obligation. At September 30, 2009, there were no borrowings outstanding under the revolver portion
of the Company’s Amended and Restated Financing Agreement (“credit facility”).
The Company made mandatory principal payments on its term loan totaling $3.8 million during
the nine months ended September 30, 2009. In March 2009, the Company entered into the second
amendment of its credit facility,
11
PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
lowering certain debt covenant thresholds through March 10, 2010 and revising the borrowing
base calculation, which had the effect of reducing the borrowing capacity under the revolver
portion of the facility by $6.6 million as of September 30, 2009. The borrowing capacity is reduced
over the term of the credit facility and availability is based on eligible accounts receivable and
other factors. Availability under the revolver at September 30, 2009 was $16.8 million.
During the first quarter of 2008, the Company reduced the balance on its term loan under the
credit facility by $22.2 million. This reduction included $7.2 million of mandatory payments as
well as a voluntary payment of $15.0 million. In March 2008, the Company completed the first
amendment of its credit facility, permitting the $15.0 million pre-payment without penalty and
increasing the initial borrowing capacity under the revolver portion of the facility by $10.0
million. Additional mandatory principal payments totaling $2.5 million in aggregate were made in
the second and third quarters of 2008.
Note H - Commitments and Contingencies
Legal Proceedings
On April 1, 2003, Fleming Companies (“Fleming”), one of the Company’s larger U.S. Accounts
Payable Services clients at the time filed for Chapter 11 bankruptcy reorganization. During the
quarter ended March 31, 2003, the Company received approximately $5.6 million in payments on
account from Fleming. On January 24, 2005, the Company received a demand from the Fleming Post
Confirmation Trust (“PCT”), a trust which was created pursuant to Fleming’s Chapter 11
reorganization plan to represent the client, for preference payments received by the Company. The
demand stated that the PCT’s calculation of the preference payments was approximately $2.9 million.
The Company disputed the claim. Later in 2005, the PCT filed suit against the Company seeking to
recover approximately $5.6 million in payments that were made to the Company by Fleming during the
90 days preceding Fleming’s bankruptcy filing, and that were alleged to be avoidable either as
preferences or fraudulent transfers under the Bankruptcy Code.
On July 29, 2009, the Company entered into a settlement agreement in connection with the PCT
lawsuit. Under the terms of the settlement agreement, the Company paid the PCT $1.7 million to
resolve all claims made by the PCT in the litigation. In connection with the settlement, the
Company also agreed to dismiss all proofs of claim it may have against Fleming in connection with
the bankruptcy. Selling, general and administrative expenses for the nine-month period ended
September 30, 2009 includes a charge of $0.7 million related to the settlement with the PCT for
amounts not previously accrued.
In the normal course of business, the Company is involved in and subject to other claims,
disputes and uncertainties. Management, after reviewing with legal counsel all of
such matters, believes that the aggregate losses, if any, related to
such matters will not have a material
adverse effect on the Company’s financial position or results of operations.
Note I - Fair Value Measurements
Effective January 1, 2008, the Company adopted FASB ASC 820, “Fair Value Measurements and
Disclosures” (“FASB ASC 820”), for all financial instruments and non-financial assets and
liabilities accounted for at fair value on a recurring basis. Effective January 1, 2009, the
Company adopted FASB ASC 820 for all non-financial assets and liabilities accounted for at fair
value on a non-recurring basis.
12
PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Information regarding assets and liabilities measured at fair value on a recurring basis as of
September 30, 2009 and December 31, 2008 follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date |
|
|
|
|
|
|
|
Using |
|
|
|
|
|
|
|
Quoted |
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in |
|
|
|
|
|
|
|
|
|
|
|
|
|
Active |
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
Markets for |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|
|
Identical |
|
|
Observable |
|
|
Unobservable |
|
|
|
Reporting |
|
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
|
|
Value |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
As of September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
27,329 |
|
|
$ |
27,329 |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
26,688 |
|
|
$ |
26,688 |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information regarding non-financial assets and liabilities measured at fair value on a
nonrecurring basis as of September 30, 2009 and December 31, 2008 follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using |
|
|
|
|
|
|
|
Quoted |
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in |
|
|
|
|
|
|
|
|
|
|
|
|
|
Active |
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
Markets for |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|
|
Identical |
|
|
Observable |
|
|
Unobservable |
|
|
|
Reporting |
|
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
|
|
Value |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
As of September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
$ |
4,600 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
4,600 |
|
Intangible assets, net |
|
|
24,866 |
|
|
|
— |
|
|
|
— |
|
|
|
24,866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
29,466 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
29,466 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business acquisition
obligations |
|
$ |
2,064 |
|
|
|
— |
|
|
|
— |
|
|
$ |
2,064 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
$ |
4,600 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
4,600 |
|
Intangible assets, net |
|
|
18,968 |
|
|
|
— |
|
|
|
— |
|
|
|
18,968 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
23,568 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
23,568 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In accordance with the provisions of FASB ASC 350 “Intangibles—Goodwill and Other” (“FASB ASC
350”), the Company tests its goodwill and other intangible assets for impairment at least annually.
The annual impairment tests are based on fair value measurements using Level 3 inputs primarily
consisting of estimated discounted cash flows expected to result from the use of the assets. As of
the date of the last test, which was October 1, 2008, management concluded that there was no
impairment of goodwill or other intangible assets as of that date. FASB ASC 350 requires that
intangible assets with finite lives be amortized over their expected lives. During the three months
ended September 30, 2009 and 2008, the Company recorded amortization expense of $0.8 million and
$0.6 million, respectively, related to intangible assets with finite lives. During the nine months
ended September 30, 2009 and 2008, the Company recorded amortization expense of $1.8 million and
$1.7 million, respectively, related to intangible assets with finite lives.
Debt and capital lease obligations of $15.7 million and $19.6 million as of September 30, 2009
and December 31, 2008, respectively, are reported at their unpaid balances as of those dates based
on their effective borrowing rates and repayment terms when originated. Management believes that
the fair values of such instruments are approximately equal to their carrying values as of those
dates. Fair value measurements of debt and capital lease obligations are based on Level 2 inputs as
defined in FASB ASC 820 (significant other observable inputs).
13
PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Significant other observable inputs
would include effective borrowing rates for comparable instruments given the Company’s perceived
credit risk.
Note J - Business Acquisition
Effective July 16, 2009, the Company’s UK subsidiary acquired the business and certain assets
of First Audit Partners LLP (“FAP”), a privately-held European provider of recovery audit services
based in Cambridge, England. The business and assets of FAP have been integrated into the Company’s
European operations (included in the International Accounts Payable Services operating segment) and
expanded the growing list of major European retailers to whom the Company provides services.
The financial terms of the FAP Asset Purchase Agreement (“APA”) are denominated in British
pounds sterling; parenthetical references to U.S. dollar equivalents below are based on September
30, 2009 foreign exchange rates. The APA required an initial payment to the FAP owners of £1.0
million ($1.6 million) and requires additional deferred payments of £0.5 million ($0.8 million) in
January 2010 and £0.8 million ($1.3 million) in July 2010. Additional variable consideration
(“earn-out”) may also be due based on the operating results generated by the acquired business over
the next four years. The Company recorded an additional £1.3 million ($2.1 million) payable based
on management’s estimate of the earn-out liability which resulted in a total estimated purchase
price value of approximately $5.8 million.
The preliminary estimated fair values of the assets acquired and purchase price is summarized
as follows (in thousands):
|
|
|
|
|
Fair values of assets acquired: |
|
|
|
|
Equipment |
|
$ |
56 |
|
Current assets, primarily work in progress |
|
|
741 |
|
Intangible assets, primarily customer relationships |
|
|
7,830 |
|
|
|
|
|
|
|
|
8,627 |
|
|
|
|
|
|
Fair value of purchase price |
|
|
5,839 |
|
|
|
|
|
|
|
|
|
|
Gain on bargain purchase |
|
$ |
2,788 |
|
|
|
|
|
The preliminary estimated fair values of intangible assets were based on management’s
estimates of future operating results. The excess of fair values of assets acquired over the
purchase price resulted in a gain on bargain purchase of $2.8 million.
14
|
|
|
Item 2. |
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Introduction
The Company conducts its operations through two reportable operating segments — Domestic
Accounts Payable Services and International Accounts Payable Services. The Company includes the
unallocated portion of corporate selling, general and administrative expenses not specifically
attributable to the Accounts Payable Services segments in a category referred to as Corporate
Support. The Domestic and International Accounts Payable Services segments principally consist of
services that entail the review of client accounts payable disbursements to identify and recover
overpayments. These operating segments include accounts payable services provided to retailers and
wholesale distributors (the Company’s historical client base) and accounts payable and other
services provided to various other types of business entities and governmental agencies. The
Company conducts business in North America, South America, Europe, Australia and Asia.
The Company’s revenues are based on specific contracts with its clients. Such contracts
generally specify: (a) time periods covered by the audit; (b) the nature and extent of audit
services to be provided by the Company; (c) the client’s duties in assisting and cooperating with
the Company; and (d) fees payable to the Company, generally expressed as a specified percentage of
the amounts recovered by the client resulting from overpayment claims identified. Clients generally
recover claims by either taking credits against outstanding payables or future purchases from the
involved vendors, or receiving refund checks directly from those vendors. The manner in which a
claim is recovered by a client is often dictated by industry practice. In addition, many clients
establish client-specific procedural guidelines that the Company must satisfy prior to submitting
claims for client approval. For some services provided by the Company, client contracts provide for
compensation to the Company in the form of a flat fee, a fee per hour, or a fee per other unit of
service.
The vast majority of the Company’s recovery audit clients are in the retail industry segment,
which the Company believes has been significantly impacted by the recent global downturn. The
decrease in consumer spending associated with the economic downturn has resulted in many of the
Company’s clients reducing their purchases from vendors, which makes it more difficult for those
clients to offset recovery claims that the Company discovers against current vendor invoices. In
addition, many client vendors are experiencing their own financial issues, and the liquidity of
these vendors can also negatively impact the claims recovery process. Because the vast majority
of the Company’s current revenues are based on such recoveries, these factors may negatively impact
the Company’s revenues in future periods. In addition, management is also aware of an increased
risk of retailer bankruptcies because of the current economic downturn. Client bankruptcy or
insolvency proceedings could further adversely impact the Company’s future revenues.
The effect of the current global economic downturn on the Company’s financial results has
generally been delayed, as the Company did not begin to experience any material negative effects
from the downturn until the first half of 2009. One factor insulating the Company somewhat from
the economic downturn is that during this phase of an economic cycle, the Company’s clients are
frequently more motivated to use the Company’s services to recover prior overpayments to make up
for relatively weaker financial performance in their own business operations. Also, the client
purchase data on which the Company performs its recovery audit services is historical data, the age
of which varies from client to client; however, such data typically reflects transactions between
the Company’s clients and their vendors that generally took place 3 to 15 months prior to the data
being provided to the Company for audit. The fact that the Company’s audits typically lag current
client spending by up to 15 months has also delayed somewhat the corresponding adverse impact of
the current economic downturn on the Company’s revenues.
Given that the data on which the Company performs its recovery audit services is typically 3
to 15 months removed from the actual dates of transactions between the Company’s clients and their
vendors, the Company expects that it will not begin to recognize increased revenues from its
clients in the retail industry as a result of improving economic conditions until well after the
positive effects of such improved conditions have been realized by such clients. While the net
impact of the global economic downturn on the Company’s recovery audit revenues is difficult to
precisely determine or predict, the Company believes that its revenues will remain at a level that
will not have a significant adverse impact on the Company’s liquidity, and management has taken
steps to mitigate any adverse impact of the economic downturn on the Company’s revenues and overall
financial health. These steps include limiting salary increases for Company employees and devoting
substantial efforts in the development of a “lower-cost-to-serve” service model to enable the
Company to more cost effectively serve non-retail/commercial clients in an effort to reduce the
Company’s dependency on customers in the retail industry. Further, management is working
diligently to expand the Company’s business beyond its core recovery audit services to retailers,
such as the Company’s efforts to expand its consulting services business and provide other services
leveraging its data mining and analytics competencies.
15
Another area in which the Company continues to devote considerable effort to expand its
business beyond its core service of retail recovery auditing is the Company’s work in the recovery
audit contractor (“RAC”) program of the Centers for Medicare and Medicaid Services (“CMS”), the
federal agency that administers the Medicare program. The Company’s results over the past several
years (primarily 2006 and 2007) were affected by its involvement in CMS’s demonstration RAC
program. The demonstration RAC program was designed by CMS to recover Medicare overpayments and
identify Medicare underpayments through the use of recovery auditing. CMS awarded the Company a
contract to audit Medicare spending in the State of California in 2005 as part of the RAC
demonstration program. As a result of the expiration of the Company’s RAC demonstration program
contract in March 2008, revenues from the auditing of Medicare payments in California made only a
small contribution to the Company’s overall revenues in the three and nine months ended September
30, 2008. Pursuant to the Company’s agreement with CMS, there will be no additional revenues to the
Company or repayments to CMS relating to the RAC demonstration program.
In late 2006, legislation was enacted that mandated that recovery auditing of Medicare be
extended beyond the March 2008 end of the RAC demonstration program and that CMS enter into
additional contracts with recovery audit contractors to expand recovery auditing of Medicare
spending to all 50 states by January 1, 2010. On February 9, 2009, the Company announced that it
had entered into subcontracts with three of the four national RAC program contract awardees. While
the magnitude and exact timing of revenues from the Company’s participation as a RAC subcontractor
is difficult to predict, management currently does not expect to receive any meaningful revenues
from its Medicare auditing work until the second half of 2010. In preparation for its work as a RAC
subcontractor, the Company has incurred costs primarily relating to staffing and upgrading its
technology systems.
16
Results of Operations
The following table sets forth the percentage of revenues represented by certain items in the
Company’s Condensed Consolidated Statements of Operations (Unaudited) for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
Nine Months |
|
|
Ended |
|
Ended |
|
|
September 30, |
|
September 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Revenues |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of revenues |
|
|
62.8 |
|
|
|
63.4 |
|
|
|
63.6 |
|
|
|
64.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
37.2 |
|
|
|
36.6 |
|
|
|
36.4 |
|
|
|
35.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
26.3 |
|
|
|
24.7 |
|
|
|
25.3 |
|
|
|
24.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
10.9 |
|
|
|
11.9 |
|
|
|
11.1 |
|
|
|
11.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on bargain purchase |
|
|
6.2 |
|
|
|
— |
|
|
|
2.1 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before interest and income taxes |
|
|
17.1 |
|
|
|
11.9 |
|
|
|
13.2 |
|
|
|
11.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
1.6 |
|
|
|
1.6 |
|
|
|
1.6 |
|
|
|
1.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes |
|
|
15.5 |
|
|
|
10.3 |
|
|
|
11.6 |
|
|
|
9.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes |
|
|
1.3 |
|
|
|
1.8 |
|
|
|
1.4 |
|
|
|
1.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
14.2 |
% |
|
|
8.5 |
% |
|
|
10.2 |
% |
|
|
8.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three and Nine Months Ended September 30, 2009 Compared to the Corresponding Periods of the Prior
Year
Accounts Payable Services
Revenues. Domestic and International Accounts Payable Services revenues for the three and
nine months ended September 30, 2009 and 2008 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Nine Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Domestic Accounts Payable Services |
|
$ |
24.4 |
|
|
$ |
27.9 |
|
|
$ |
74.1 |
|
|
$ |
84.3 |
|
International Accounts Payable Services |
|
|
20.9 |
|
|
|
21.3 |
|
|
|
55.9 |
|
|
|
62.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Accounts Payable Services |
|
$ |
45.3 |
|
|
$ |
49.2 |
|
|
$ |
130.0 |
|
|
$ |
147.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Accounts Payable Services revenues for the quarter ended September 30, 2009 decreased by
$3.9 million, or 7.9%, compared to the quarter ended September 30, 2008. Total Accounts Payable
Services revenues for the nine months ended September 30, 2009 decreased by $17.1 million, or
11.6%, compared to the prior period.
Domestic Accounts Payable Services revenues decreased by $3.4 million, or 12.3%, in the third
quarter of 2009 compared to the third quarter of 2008. For the nine months ended September 30,
2009, revenues decreased by $10.2 million, or 12.1%, compared to the prior year period. Since the
vast majority of the Company’s recovery audit clients are in the retail industry segment, the
Company’s operations are subject to the economic pressures the retail industry faces. Unfavorable
economic conditions which have adversely impacted the U.S. retail industry have negatively impacted
the Company’s revenues. Many of the Company’s clients’ purchases have declined, making it more
difficult to offset recovery claims. In addition, the liquidity of the Company’s clients’ vendor
partners can significantly impact claim production, the claim approval process and the ability of
clients to offset or otherwise make recoveries from their vendors. Management believes that the
year over year decreases in Domestic Accounts Payable Services revenues for the three and nine
months ended September 30, 2009 are also related to several additional factors, including
competitive rate pressures, the impact of the Company’s clients developing and strengthening their
own internal audit capabilities as a substitute for the
Company’s services and the impact of improved
client processes and fewer recurring transaction errors. However, the impact of improved client
processes and fewer
17
recurring transaction errors is offset somewhat by the Company’s use of best practices and
innovation to identify additional audit claim categories and recovery opportunities. Future
revenues could be adversely impacted by an increase in retailer bankruptcies resulting from the
current economic downturn. Finally, the first nine months of 2008 included a small amount of
revenue earned from auditing Medicare payments in California under the CMS demonstration program
and there were no such revenues in the first nine months of 2009.
Revenues in the International Accounts Payable Services segment for the three months ended
September 30, 2009 decreased by $0.4 million, or 2.1%, compared to the same period in 2008. For the
nine months ended September 30, 2009, revenues decreased by $6.8 million, or 10.9%, compared to the
prior year period. Reported international revenues are impacted by the strength of the U.S. dollar
relative to foreign currencies throughout the world. On a constant dollar basis, adjusted for
changes in foreign exchange (“FX”) rates, International Accounts Payable Services revenues
increased by 6.2% during the third quarter of 2009 as compared to the third quarter of 2008 and
increased by 5.2% during the first nine months of 2009 compared to the prior year period. These
increases are principally attributable to revenue gains in Canada and Europe and were derived from
both incremental revenues from existing clients and, to a lesser extent, revenues from new clients,
including those served by the Company as a result of its acquisition of First Audit Partners LLP
(“FAP”) in July 2009.
Management believes there is opportunity to increase revenues in its core accounts payable
services segments as a result of both market share growth and the growth of the addressable market
for such services. Management also believes that the Company has growth opportunities related to
the provision of adjacent services in the procure-to-pay value chain and to the CFO suite of its
core client base, and from capitalizing on the Company’s existing data mining and related
competencies. Management believes that the pursuit of such opportunities will require investments
and that without such investments, a reversal of the Company’s overall declining revenue trend is
not likely. Management intends to execute newly developed strategic initiatives to pursue these
opportunities. No assurances can be provided, however, as to when any revenues from these
opportunities will be recognized or the magnitude of any such revenues.
The Company also expects future revenues from its participation as a subcontractor in three of
the Medicare RAC program’s four geographic regions; however, the magnitude and timing of such
revenues is difficult to predict. Management currently does not expect to receive any meaningful
revenues from Medicare auditing until the second half of 2010.
Cost of Revenues (“COR”). COR consists principally of commissions and other forms of variable
compensation paid or payable to the Company’s auditors based primarily upon the level of
overpayment recoveries and/or profit margins derived therefrom, fixed auditor salaries,
compensation paid to various types of hourly support staff, and salaried operational and client
service managers. Also included in COR are other direct and indirect costs incurred by these
personnel, including office rent, travel and entertainment, telephone, utilities, maintenance and
supplies, clerical assistance, and depreciation. A significant portion of the components comprising
COR is variable and will increase or decrease with increases and decreases in revenues.
Accounts Payable Services COR for the three and nine months ended September 30, 2009 and 2008
were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Nine Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Domestic Accounts Payable Services |
|
$ |
14.6 |
|
|
$ |
16.8 |
|
|
$ |
43.7 |
|
|
$ |
49.3 |
|
International Accounts Payable Services |
|
|
13.9 |
|
|
|
14.3 |
|
|
|
39.0 |
|
|
|
45.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Accounts Payable Services |
|
$ |
28.5 |
|
|
$ |
31.1 |
|
|
$ |
82.7 |
|
|
$ |
94.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COR as a percentage of revenue for Domestic Accounts Payable Services was 59.8% and 60.3% for
the three months ended September 30, 2009 and 2008, respectively. This equates to gross margin
percentages of 40.2% and 39.7%, respectively, for the Domestic Accounts Payable Services segment
for the quarters ended September 30, 2009 and 2008. For the nine months ended September 30, 2009
and 2008, COR as a percentage of revenue for Domestic Accounts Payable Services was 59.0% and
58.4%, respectively. This equates to gross margin percentages of 41.0% and 41.6%, respectively, for
the Domestic Accounts Payable Services segment for the nine-month periods ended September 30, 2009
and 2008. The slight improvement in third quarter 2009 gross margin is primarily attributable to a
reduction in spending in the Company’s healthcare audit business compared to the third quarter of
2008.
18
COR as a percentage of revenue for International Accounts Payable Services was 66.6% and 67.0%
for the three months ended September 30, 2009 and 2008, respectively. This equates to gross margin
percentages of 33.4% and 33.0%, respectively. For the nine months ended September 30, 2009 and 2008
COR as a percentage of revenue for International Accounts Payable Services was 69.7% and 71.9%,
respectively. This equates to gross margin percentages of 30.3% and 28.1%, respectively. COR as a
percentage of revenue has historically, and continues to be, higher in the International Accounts
Payable Services segment compared to the Domestic segment because of differences in the service
delivery models which, in turn, are principally attributable to scale. The margin increases in the
three-month and nine-month periods ended September 30, 2009 compared to the same periods in 2008
are largely due to a higher percentage of International Accounts Payable Services revenues coming
from geographic territories that have historically experienced higher margins.
Selling, General and Administrative Expenses (“SG&A”). SG&A expenses of the Accounts Payable
Services segments include the expenses of sales and marketing activities, information technology
services and allocated corporate data center costs, human resources, legal, accounting,
administration, foreign currency transaction gains and losses, gains and losses on assets
disposals, depreciation of property and equipment and amortization of intangibles related to the
Accounts Payable Services segments.
Accounts Payable Services SG&A for the three and nine months ended September 30, 2009 and 2008
were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Nine Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Domestic Accounts Payable Services |
|
$ |
4.6 |
|
|
$ |
3.9 |
|
|
$ |
12.5 |
|
|
$ |
12.2 |
|
International Accounts Payable Services |
|
|
2.2 |
|
|
|
4.3 |
|
|
|
5.9 |
|
|
|
8.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Accounts Payable Services |
|
$ |
6.8 |
|
|
$ |
8.2 |
|
|
$ |
18.4 |
|
|
$ |
20.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Accounts Payable Services SG&A expenses for the third quarter of 2009 increased by
$0.7 million, or 17.9%, and increased for the nine months ended September 30, 2009 by $0.3 million,
or 2.5%, from the same periods in 2008. These increases are primarily attributable to costs
associated with the development and early stage execution of new strategic initiatives as discussed
above, such as development of a lower-cost-to-serve service model and development of services
adjacent to its core recovery audit offering.
International Accounts Payable Services SG&A includes foreign currency transaction gains and
losses, including the gains and losses related to intercompany balances. Gains and losses result
from the re-translation of the foreign subsidiaries payable to the U.S. parent from their local
currency to their U.S. dollar equivalent. Substantial changes from period to period in FX rates can
significantly impact the amount of such gains and losses. During the three months ended September
30, 2009, the Company recognized $0.7 million of FX gains related to intercompany balances as
compared to $1.8 million of FX losses for the same period in 2008. For the first nine months of
2009, the Company recognized $1.8 million of FX gains related to intercompany balances as compared
to $1.3 million of FX losses for the same period in 2008.
International Accounts Payable Services SG&A, excluding the FX gains and losses related to
intercompany balances, increased by $0.4 million for the three months ended September 30, 2009
compared to the same period in 2008. For the nine months ended September 30, 2009, International
Accounts Payable Services SG&A excluding the FX gains and losses related to intercompany balances
increased by $0.5 million compared to the same period in 2008. Most of such increase is
attributable to amortization expense associated with the acquisition of the business and certain
assets of FAP, which was completed in July 2009 (see Note J — Business Acquisition in Notes to
Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q).
Corporate Support
Corporate Support SG&A represents the unallocated portion of SG&A expenses which are not
specifically attributable to Domestic or International Accounts Payable Services and include the
expenses of information technology services, the corporate data center, human resources, legal,
accounting, treasury, administration, hedging activities and stock-based compensation charges.
Corporate Support SG&A totaled the following for the three and nine months ended September 30,
2009 and 2008 (in millions):
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
Nine Months |
|
|
Ended |
|
Ended |
|
|
September 30, |
|
September 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Corporate Support |
|
$ |
5.0 |
|
|
$ |
4.0 |
|
|
$ |
14.5 |
|
|
$ |
15.4 |
|
Corporate Support SG&A increased by $1.0 million in the third quarter of 2009 and decreased by
$0.9 million for the nine months ended September 30, 2009, when compared to the same periods of
2008. The third quarter of 2009 includes $1.5 million of stock-based compensation expense as
compared to $0.4 million of stock-based compensation expense included in the third quarter of 2008.
The first nine months of 2009 includes $2.5 million of stock-based compensation expense as
compared to $5.0 million of stock-based compensation expense included in the same period in 2008.
Excluding the stock-based compensation charges for both periods, Corporate Support SG&A decreased
by $0.1 million in the third quarter of 2009 and increased by $1.5 million in the nine months ended
September 30, 2009 as compared to the same periods in 2008. The increase for the 2009 nine-month
period is attributable to a $0.7 million additional accrual for the settlement of the Fleming Post
Confirmation Trust (“PCT”) litigation (see Part II, Item 1 — Legal Proceedings), severance
charges, and increased compensation and recruiting costs associated with hiring a new chief
executive officer.
Other Items
Interest Expense. Net interest expense was $0.7 million and $0.8 million for the three months
ended September 30, 2009 and 2008, respectively. Net interest expense was $2.2 million and $2.5
million for the nine months ended September 30, 2009 and 2008, respectively. The decrease in
interest expense resulted from the $26.3 million of debt repayments made during 2008. Interest
expense in the nine months ended September 30, 2009 primarily related to the term loan under the
Company’s credit facility, which had an outstanding balance of $15.4 million as of September 30,
2009.
Income Tax Expense. The Company’s effective income tax expense rates as indicated in the
accompanying Condensed Consolidated Financial Statements (Unaudited) do not reflect amounts that
would normally be expected because of the Company’s valuation allowance against its deferred tax
assets. Reported income tax expense for the three-month and nine-month periods ended September 30,
2009 and 2008 primarily results from taxes on income of foreign subsidiaries.
20
Liquidity and Capital Resources
As of September 30, 2009, the Company had $27.3 million in cash and cash equivalents and no
borrowings under the revolver portion of its credit facility. The revolver had approximately $16.8
million of calculated availability for borrowings.
While management believes that the recent global economic downturn has contributed to a
decrease in the revenues that the Company would have otherwise earned in recent periods, this
decrease has not resulted in the need for the Company to draw down on its revolving credit facility
to fund its operations and has not materially adversely impacted the Company’s overall liquidity
position. In addition, the Company was in compliance with the covenants in its credit facility as
of September 30, 2009 and expects to continue to be in compliance for the foreseeable future.
Operating Activities. Net cash provided by operating activities was $7.2 million and $7.9
million during the nine months ended September 30, 2009 and 2008, respectively. The changes in
operating assets and liabilities resulted in operating cash flow of approximately $3.4 million more
for the nine months ended September 30, 2009 compared to same period in 2008. This improvement was
the result of significant payments for long term compensation and severance liabilities in 2008
combined with a significant decrease in the refund liability in 2008 compared to 2009. These
improvements in cash flow in 2009 were offset by significant payments for foreign income taxes, the
PCT legal settlement, and other accrued liabilities made during the nine months ended September 30,
2009. In addition to these payments, the Company significantly improved its accounts receivable
collection efforts in 2008 resulting in a $4.0 million increase in operating cash flow. Such
changes are itemized in the Company’s Condensed Consolidated Statements of Cash Flows included in
Part I, Item 1 of this Form 10-Q.
Investing Activities and Depreciation Expense. Depreciation and amortization expense for the
nine months ended September 30, 2009 and 2008 amounted to $4.3 million and $3.9 million,
respectively. Net cash used in investing activities was $3.7 million and $2.2 million during the
nine months ended September 30, 2009 and 2008, respectively. In July 2009, the Company acquired the
business and certain assets of FAP for a purchase price valued at $5.8 million. The purchase price
included an initial cash payment of $1.6 million which was paid in July 2009. Purchases of
property, plant and equipment during the first nine months of 2009 and 2008 primarily related to
investments to upgrade the Company’s information technology infrastructure.
Capital expenditures are discretionary and management currently expects future capital
expenditures to increase over the next several quarters as the Company continues to enhance its
healthcare audit systems in preparation for its performance of the CMS RAC subcontracts and other
healthcare audits and in preparation and execution of the Company’s strategic initiatives discussed
above. Changes in operating plans and results could change these expectations.
Financing Activities and Interest Expense. Net cash used in financing activities was $4.2
million and $25.0 million for the nine months ended September 30, 2009 and 2008, respectively.
During the first nine months of 2009, the Company made mandatory payments totaling $3.8 million on
its term loan, reduced its capital lease obligations by $0.2 million and repurchased 78,754 shares
of its outstanding common stock for approximately $0.2 million.
During the first nine months of 2008, the Company reduced the balance of its term loan by
$24.7 million. This amount included $9.7 million of mandatory payments as well as a voluntary
prepayment of $15.0 million. The Company also reduced its capital lease obligations by $0.2 million
during the first nine months of 2008.
Management believes that the Company will have sufficient borrowing capacity and cash
generated from operations to fund its capital and operational needs for at least the next twelve
months.
Credit Facility
In September 2007, the Company entered into the Amended and Restated Financing Agreement,
(“credit facility”) with Ableco LLC (“Ableco”) consisting of a $20 million revolving credit
facility and a $45 million term loan which was funded in October 2007. The principal portion of the
$45 million term loan with Ableco must be repaid in quarterly installments of $1.25 million which
began in April 2008. The loan agreement also requires an annual additional payment contingently
payable based on an excess cash flow calculation as defined in the agreement. During the first nine
months of 2008, the Company reduced the balance on its term loan by $25.0
21
million. This reduction included $10.0 million of mandatory payments as well as a voluntary
payment of $15.0 million. During the first quarter of 2008, the Company entered into an amendment
of its credit facility, permitting the $15.0 million pre-payment without penalty and increasing the
initial borrowing capacity under the revolver portion of its facility by $10 million.
The Company reduced the balance on its term loan by $3.8 million during the first nine months
of 2009. In March 2009, the Company entered into the second amendment of its credit facility,
lowering certain of the debt covenant thresholds through March 10, 2010 and revising the borrowing
base calculation, which had the effect of reducing the borrowing capacity under the revolver
portion of the facility by $6.6 million as of September 30, 2009. The borrowing capacity is reduced
over the term of the credit facility and availability is based on eligible accounts receivable and
other factors. Availability under the revolver at September 30, 2009 was $16.8 million.
The remaining balance of the term loan is due on September 17, 2011. Interest on the term loan
balance is payable monthly and accrues at the Company’s option at either prime plus 2.0% or at
LIBOR plus 4.75%, but under either option may not be less than 9.75%. Interest on outstanding
balances under the revolving credit facility, if any, will accrue at the Company’s option at either
prime plus 0.25% or at LIBOR plus 2.25%. The Company must also pay a commitment fee of 0.5% per
annum, payable monthly, on the unused portion of the revolving credit facility. As of September 30,
2009, there were no outstanding borrowings under the revolving credit facility. The
weighted-average interest rates on term loan balances outstanding under the credit facility during
the third quarter of 2009 and 2008, including fees, were 11.01% and 11.25%, respectively. The
weighted-average interest rates on term loan balances outstanding under the credit facility during
the first nine months of 2009 and 2008, including fees, were 10.93% and 10.91%, respectively.
Due to the $15.0 million voluntary payment made in the first quarter of 2008, the annual
additional contingent payment based on 2008 excess cash flow due in April 2009 was not required.
The credit facility is guaranteed by each of the Company’s direct and indirect domestic wholly
owned subsidiaries and certain of its foreign subsidiaries and is secured by substantially all of
the Company’s assets (including the stock of the Company’s domestic subsidiaries and two-thirds of
the stock of certain of the Company’s foreign subsidiaries). The credit facility will mature on
September 17, 2011.
Stock Repurchase Program
In February 2008, the Board of Directors of the Company approved a stock repurchase program.
Under the terms of the program, the Company may repurchase up to $10 million of its common stock
from time to time through March 30, 2009. In March 2009, the Company’s Board of Directors extended
the stock repurchase program through March 31, 2010. The second amendment to the Company’s credit
facility permits the Company to repurchase up to $5.0 million of the Company’s common stock during
the period from April 1, 2009 to March 31, 2010. For the nine months ended September 30, 2009, the
Company repurchased 78,754 shares at an average price of $3.13 for a total purchase price of
approximately $0.2 million. All of the 2009 share repurchases were made in the first quarter. This
equates to approximately 0.4% of the then outstanding shares.
2006 Management Incentive Plan
At the annual meeting of shareholders held on August 11, 2006, the shareholders of the Company
approved a proposal granting authorization to issue up to 2.1 million shares of the Company’s
common stock under the Company’s 2006 Management Incentive Plan (“2006 MIP”). On September 29,
2006, an aggregate of 682,301 Performance Units were awarded under the 2006 MIP to the seven
executive officers of the Company. At Performance Unit settlement dates (which vary by
participant), participants are paid in common stock and in cash. Participants will receive a number
of shares of Company common stock equal to 60% of the number of Performance Units being paid out,
plus a cash payment equal to 40% of the fair market value of that number of shares of common stock
equal to the number of Performance Units being paid out. On March 28, 2007, an additional executive
officer of the Company was granted 20,000 Performance Units under the 2006 MIP. The awards contain
certain anti-dilution and change of control provisions. Also, the number of Performance Units
awarded were automatically adjusted on a pro-rata basis upon the conversion into common stock of
the Company’s senior convertible notes and Series A convertible preferred stock. During 2006 and
2007, an additional 1,558,557 Performance Units were granted as a result of this automatic
adjustment provision.
All Performance Units must be settled before April 30, 2016. On April 30, 2009, an aggregate
of 323,478 Performance Units were settled by six executive officers.
These settlements resulted in
the issuance of 194,084 shares
22
of common stock and cash payments totaling $0.4 million. On June 1, 2009, an aggregate of
717,287 Performance Units were settled by a former executive officer. This settlement resulted in
the issuance of 430,372 shares of common stock and a cash payment of $0.9 million. On July 1,
2009, 224,154 Performance Units were settled by a former executive officer. This settlement
resulted in the issuance of 134,492 shares of common stock and a cash
payment of $0.3 million.
As of September 30, 2009, total Performance Unit awards outstanding were 478,195 with an aggregate
intrinsic value of $2.7 million.
Off Balance Sheet Arrangements
As of September 30, 2009, the Company did not have any material off-balance sheet
arrangements, as defined in Item 303(a)(4)(ii) of the SEC’s Regulation S-K.
Critical Accounting Policies
The Company’s significant accounting policies have been fully described in Note 1 of Notes to
Consolidated Financial Statements of the Company’s Annual Report on Form 10-K for the year ended
December 31, 2008. Certain of these accounting policies are considered “critical” to the portrayal
of the Company’s financial position and results of operations, as they require the application of
significant judgment by management. As a result, they are subject to an inherent degree of
uncertainty. These “critical” accounting policies are identified and discussed in the Management’s
Discussion and Analysis of Financial Condition and Results of Operations section of the Company’s
Annual Report on Form 10-K for the year ended December 31, 2008. Management bases its estimates and
judgments on historical experience and on various other factors that are believed to be reasonable
under the circumstances, the results of which form the basis for making judgments about the
carrying values of assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or conditions. On an ongoing
basis, management evaluates its estimates and judgments, including those considered “critical”. The
development, selection and evaluation of accounting estimates, including those deemed “critical,”
and the associated disclosures in this Form 10-Q have been discussed with the Audit Committee of
the Board of Directors.
During the first quarter of 2008, management revised its estimation of expected refund rates
in its Domestic Accounts Payable Services segment. Such change in estimate resulted from a decline
in actual refund rates observed during 2007. The impact of the change in estimate resulted in a
$0.8 million reduction in the March 31, 2008 refund liability and a corresponding increase in first
quarter 2008 revenues. The impact on the quarter ended September 30, 2008 and the quarter and nine
months ended September 30, 2009 was not significant and management does not expect that the change
in estimate will have a material impact on future period results.
Forward-Looking Statements
Some of the information in this Form 10-Q contains “forward-looking statements” within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934, which statements involve substantial risks and uncertainties including, without
limitation, (1) statements that contain projections of the Company’s future results of operations
or of the Company’s financial condition, (2) statements regarding the adequacy of the Company’s
current working capital and other available sources of funds, (3) statements regarding goals and
plans for the future, including the Company’s growth opportunities, (4) expectations regarding
future accounts payable services revenue trends, and (5) the anticipated impact of Medicare
recovery audit services on the Company’s business. All statements that cannot be assessed until the
occurrence of a future event or events should be considered forward-looking. These statements are
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of
1995 and can be identified by the use of forward-looking words such as “may,” “will,” “expect,”
“anticipate,” “believe,” “estimate” and “continue” or similar words. Risks and uncertainties that
may potentially impact these forward-looking statements include, without limitation, those set
forth under Part I, Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K for the year
ended December 31, 2008. The Company disclaims any obligation or duty to update or modify these
forward-looking statements.
There may be events in the future, however, that the Company cannot accurately predict or over
which the Company has no control. The risks and uncertainties listed in this section, as well as
any cautionary language in this Form 10-Q, provide examples of risks, uncertainties and events that
may cause our actual results to differ materially from the expectations we describe in our
forward-looking statements. You should be aware that the occurrence of any of the events denoted
above as risks and uncertainties and elsewhere in this Form 10-Q could have a material adverse
effect on our business, financial condition and results of operations.
23
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency Market Risk. Our reporting currency is the U.S. dollar although we transact
business in various foreign locations and currencies. As a result, our financial results could be
significantly affected by factors such as changes in foreign currency exchange rates, or weak
economic conditions in the foreign markets in which we provide services. Our operating results are
exposed to changes in exchange rates between the U.S. dollar and the currencies of the other
countries in which we operate. When the U.S. dollar strengthens against other currencies, the value
of foreign functional currency revenues decreases. When the U.S. dollar weakens, the value of the
foreign functional currency revenues increases. Overall, we are a net receiver of currencies other
than the U.S. dollar and, as such, benefit from a weaker dollar. We are therefore adversely
affected by a stronger dollar relative to major currencies worldwide. During the three and nine
months ended September 30, 2009, we recognized $4.8 million and $11.0 million, respectively, of
operating income from our International Accounts Payable Services segment, virtually all of which
was originally accounted for in currencies other than the U.S. dollar. Upon translation into U.S.
dollars, such operating income would increase or decrease, assuming a hypothetical 10% change in
weighted-average foreign currency exchange rates against the U.S. dollar, by approximately $0.5
million and $1.1 million, respectively, for the three and nine months ended September 30, 2009.
Interest Rate Risk. Our interest income and expense are sensitive to changes in the general
level of U.S. interest rates. In this regard, changes in U.S. interest rates affect the interest
earned on our cash equivalents as well as interest paid on our debt. As of September 30, 2009, the
Company had $16.8 million of calculated borrowing availability under its revolving credit facility
and $15.4 million outstanding under a term loan. The interest rate on outstanding revolving credit
loans is based on a floating rate equal to LIBOR plus 2.25% (or, at our option, a published prime
lending rate plus 0.25%). At September 30, 2009, there were no borrowings outstanding under the
revolving credit facility. However, assuming full utilization of the revolving credit facility, a
hypothetical 100 basis point change in interest rates applicable to the revolver would result in an
approximate $0.2 million change in annual pre-tax income. Interest on the term loan accrues at the
Company’s option at either prime plus 2.0% or at LIBOR plus 4.75%, but under either option may not
be less than 9.75%. A hypothetical 100 basis point change in interest rates applicable to the term
loan would result in an approximate $0.2 million change in annual pre-tax income.
Stock-Based Compensation. The Company estimates the fair value of awards of restricted shares
and nonvested shares, as defined in FASB ASC 505-50, as being equal to the market value of the
common stock. In addition, companies must classify their share-based payments as either
liability-classified awards or as equity-classified awards. Liability-classified awards are
remeasured to fair value at each balance sheet date until the award is settled. The Company has
classified its share-based payments that are settled in cash as liability-classified awards. The
liability for liability-classified awards is generally equal to the fair value of the award as of
the balance sheet date times the percentage vested at the time. The change in the liability amount
from one balance sheet date to another is charged (or credited) to compensation cost. Based on the
number of liability-classified awards outstanding as of September 30, 2009, a hypothetical $1.00
change in the market value of the Company’s common stock would result in a $0.2 million change in
pre-tax income.
24
Item 4. Controls and Procedures
The Company’s management carried out an evaluation, under the supervision and with the
participation of its President and Chief Executive Officer (“CEO”) and its Chief Financial Officer
(“CFO”), of the effectiveness of the design and operation of the Company’s disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange
Act”)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that
evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were
effective as of September 30, 2009.
There were no changes in the Company’s internal control over financial reporting during the
quarter ended September 30, 2009 that have materially affected, or are reasonably likely to
materially affect, the Company’s internal control over financial reporting.
25
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On April 1, 2003, Fleming Companies (“Fleming”), one of the Company’s larger U.S. Accounts
Payable Services clients at the time filed for Chapter 11 bankruptcy reorganization. During the
quarter ended March 31, 2003, the Company received approximately $5.6 million in payments on
account from Fleming. On January 24, 2005, the Company received a demand from the Fleming Post
Confirmation Trust (“PCT”), a trust which was created pursuant to Fleming’s Chapter 11
reorganization plan to represent the client, for preference payments received by the Company. The
demand stated that the PCT’s calculation of the preference payments was approximately $2.9 million.
The Company disputed the claim. Later in 2005, the PCT filed suit against the Company seeking to
recover approximately $5.6 million in payments that were made to the Company by Fleming during the
90 days preceding Fleming’s bankruptcy filing, and that were alleged to be avoidable either as
preferences or fraudulent transfers under the Bankruptcy Code.
On July 29, 2009, the Company entered into a settlement agreement in connection with the PCT
lawsuit. Under the terms of the settlement agreement, the Company paid the PCT $1.7 million to
resolve all claims made by the PCT in the litigation. In connection with the settlement, the
Company also agreed to dismiss all proofs of claim it may have against Fleming in connection with
the bankruptcy.
Item 1A. Risk Factors
There have been no material changes in the risks facing the Company as described in the
Company’s Form 10-K for the year ended December 31, 2008.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The Company’s credit facility entered into on March 17, 2006 and amended on September 17,
2007, March 28, 2008 and March 30, 2009 prohibits the payment of any cash dividends on the
Company’s capital stock.
The following table sets forth information regarding the purchases of the Company’s equity
securities made by or on behalf of the Company or any affiliated purchaser (as defined in Exchange
Act Rule 10b-18) during the three-month period ended September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
Maximum Approximate |
|
|
|
|
|
|
|
|
|
|
Shares Purchased |
|
Dollar Value of Shares |
|
|
Total Number |
|
Average |
|
as Part of Publicly |
|
that May Yet Be |
|
|
of Shares |
|
Price Paid |
|
Announced Plans |
|
Purchased Under the |
2009 |
|
Purchased (a) |
|
per Share |
|
or Programs |
|
Plans or Programs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(millions of dollars) |
July 1 —
July 31 |
|
— |
|
$ |
— |
|
|
— |
|
$ |
— |
|
August 1 — August
31 |
|
— |
|
$ |
— |
|
|
— |
|
$ |
— |
|
September 1 —
September 30 |
|
8,979 |
|
$ |
5.65 |
|
|
— |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,979 |
|
$ |
5.65 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
All shares reported during the quarter were surrendered by employees to satisfy tax
withholding obligations upon vesting of restricted stock. |
26
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
27
Item 6. Exhibits
|
|
|
Exhibit |
|
|
Number |
|
Description |
3.1
|
|
Restated Articles of Incorporation of the Registrant, as amended
and corrected through August 11, 2006 (restated solely for the
purpose of filing with the Commission) (incorporated by reference
to Exhibit 3.1 to the Registrant’s Report on Form 8-K filed on
August 17, 2006). |
|
|
|
3.2
|
|
Amended and Restated Bylaws of the Registrant (incorporated by
reference to Exhibit 3.1 to the Registrant’s Form 8-K filed on
December 11, 2007). |
|
|
|
4.1
|
|
Specimen Common Stock Certificate (incorporated by reference to
Exhibit 4.1 to the Registrant’s Form 10-K for the year ended
December 31, 2001). |
|
|
|
4.2
|
|
See Restated Articles of Incorporation and Bylaws of the
Registrant, filed as Exhibits 3.1 and 3.2, respectively. |
|
|
|
4.3
|
|
Shareholder Protection Rights Agreement, dated as of August 9,
2000, between the Registrant and Rights Agent, effective May 1,
2002 (incorporated by reference to Exhibit 4.3 to the Registrant’s
Form 10-Q for the quarterly period ended June 30, 2002). |
|
|
|
4.3.1
|
|
First Amendment to Shareholder Protection Rights Agreement, dated
as of March 12, 2002, between the Registrant and Rights Agent
(incorporated by reference to Exhibit 4.3 to the Registrant’s Form
10-Q for the quarterly period ended September 30, 2002). |
|
|
|
4.3.2
|
|
Second Amendment to Shareholder Protection Rights Agreement, dated
as of August 16, 2002, between the Registrant and Rights Agent
(incorporated by reference to Exhibit 4.3 to the Registrant’s Form
10-Q for the quarterly period ended September 30, 2002). |
|
|
|
4.3.3
|
|
Third Amendment to Shareholder Protection Rights Agreement, dated
as of November 7, 2006, between the Registrant and Rights Agent
(incorporated by reference to Exhibit 4.1 to the Registrant’s Form
8-K filed on November 14, 2005). |
|
|
|
4.3.4
|
|
Fourth Amendment to Shareholder Protection Rights Agreement, dated
as of November 14, 2006, between the Registrant and Rights Agent
(incorporated by reference to Exhibit 4.1 to the Registrant’s Form
8-K filed on November 30, 2005). |
|
|
|
4.3.5
|
|
Fifth Amendment to Shareholder Protection Rights Agreement, dated
as of March 9, 2006, between the Registrant and Rights Agent
(incorporated by reference to Exhibit 4.9 to the Registrant’s Form
10-K for the year ended December 31, 2005). |
|
|
|
4.3.6
|
|
Sixth Amendment to Shareholder Protection Rights Agreement, dated
as of September 17, 2007, between the Registrant and Rights Agent
(incorporated by reference to Exhibit 4.1 to the Registrant’s Form
8-K filed on September 21, 2007). |
|
|
|
4.4
|
|
Indenture dated as of March 17, 2006 governing 10% Senior
Convertible Notes due 2011, with Form of Note appended
(incorporated by reference to Exhibit 4.1 to the Registrant’s Form
8-K filed on March 23, 2006). |
|
|
|
4.4.1
|
|
Supplemental Indenture to 10% Senior Convertible Notes Indenture
dated September 4, 2007 (incorporated by reference to Exhibit 10.2
to the Registrant’s Form 8-K filed on September 5, 2007). |
|
|
|
4.5
|
|
Indenture dated as of March 17, 2006 governing 11% Senior Notes
due 2011, with Form of Note appended (incorporated by reference to
Exhibit 4.2 to the Registrant’s Form 8-K filed on March 23, 2006). |
|
|
|
4.5.1
|
|
Supplemental Indenture to 11% Senior Notes Indenture dated
September 4, 2007 (incorporated by reference to Exhibit 10.1 to
the Registrant’s Form 8-K filed on September 5, 2007). |
|
|
|
31.1
|
|
Certification of the Chief Executive Officer, pursuant to Rule
13a-14(a) or 15d-14(a), for the quarter ended September 30, 2009. |
|
|
|
31.2
|
|
Certification of the Chief Financial Officer, pursuant to Rule
13a-14(a) or 15d-14(a), for the quarter ended September 30, 2009. |
|
|
|
32.1
|
|
Certification of the Chief Executive Officer and Chief Financial
Officer, pursuant to 18 U.S.C. Section 1350, for the quarter ended
September 30, 2009. |
28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
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|
|
|
|
PRG-SCHULTZ INTERNATIONAL, INC.
|
|
November 9, 2009 |
By: |
/s/ Romil Bahl
|
|
|
|
Romil Bahl |
|
|
|
President, Chief Executive Officer, Director
(Principal Executive Officer) |
|
|
|
|
|
November 9, 2009 |
By: |
/s/ Robert B. Lee
|
|
|
|
Robert B. Lee |
|
|
|
Chief Financial Officer and Treasurer
(Principal Financial Officer) |
|
29