Filer:The Profit Recovery Group International, Inc.
Pursuant to Rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 14a-12 under the
Securities Exchange Act of 1934
Subject Company: Howard Schultz & Associates International, Inc.
Commission File No. 000-28000
NEWS RELEASE
FOR IMMEDIATE RELEASE
THE PROFIT RECOVERY GROUP INTERNATIONAL REPORTS
SECOND-QUARTER FINANCIAL RESULTS
Company Reports Earnings per Diluted Share from
Continuing Operations of $0.06; Reconfirms 2001 EPS
Expectation in Lower-end of $0.45-$0.50 Range, Excluding
One-time Charges.
ATLANTA, JULY 26, 2001 - The Profit Recovery Group International, Inc. (Nasdaq:
PRGX) today announced financial results for the second quarter and first six
months of 2001.
RESULTS FROM CONTINUING OPERATIONS
Three Months Ended June 30
Revenues from continuing operations for the second quarter of 2001 totaled $76.8
million, compared to $76.7 million for the second quarter of 2000. The Company
reported net earnings from continuing operations in the second quarter of 2001
of $2.7 million, or $0.06 per diluted share, compared to $6.6 million, or $0.13
per diluted share for the same period in 2000. Reported diluted per-share
amounts are based on 48.5 million shares outstanding for the second quarter of
2001 compared with 50.5 million for the year-earlier period.
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Second quarter 2001 operating income (EBIT) from continuing operations was $6.3
million, or 8.2 percent of revenues, a decrease from $13.6 million or 17.7
percent of revenues, from the year-earlier period. Earnings before interest,
taxes, depreciation and amortization (EBITDA) were $11.9 million or 15.5 percent
of revenues in the second quarter of 2001, compared to $19.7 million or 25.7
percent of revenues in the second quarter of 2000.
Six Months Ended June 30
Revenues from continuing operations for the first six months of 2001 totaled
$142.3 million, compared to $140.6 million for the first six months of 2000.
Excluding non-recurring charges (see "Non-Recurring Charges" below), the Company
reported net earnings from continuing operations in the first six months of 2001
of $1.7 million, or $0.04 per diluted share, compared to $7.2 million, or $0.14
per diluted share for the same period in 2000. Reported diluted per-share
amounts are based on 48.3 million shares outstanding for the first six months of
2001, compared with 50.7 million for the year-earlier period.
Excluding non-recurring charges, operating income (EBIT) from continuing
operations for the first six months of 2001 was $6.6 million, or 4.7 percent of
revenues, a decrease from $16.2 million or 11.5 percent of revenues, during the
year-earlier period. Earnings before interest, taxes, depreciation and
amortization (EBITDA) prior to non-recurring charges were $18.1 million or 12.7
percent of revenues in the first six months of 2001, compared to $28.3 million
or 20.1 percent of revenues in the first six months of 2000.
Non-Recurring Charges
During the first quarter of 2001, the Company incurred non-recurring charges in
the form of severance and other personnel costs of approximately $0.8 million,
or $0.01 per diluted share on an after-tax basis, related to the implementation
of its strategic realignment announced on January 31, 2001. These charges have
been excluded in the discussion of financial results for the six months ended
June 30, 2001.
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Continuing Operations Segment Financial Highlights
Please refer to Schedule 3 of this press release for a presentation of
(pro-forma) segment operating results in table form.
Accounts Payable: Revenues for the second quarter 2001 were $67.1 million, an
increase of 3.1 percent over $65.1 million for the same period a year ago.
Operating income (EBIT) for the second quarter 2001 was $15.6 million (23.3
percent of revenues), compared to $17.2 million (26.5 percent of revenues) in
2000. Earnings before interest, taxes, depreciation and amortization (EBITDA)
were $19.0 million (28.4 percent of revenues) for the second quarter 2001,
compared to $21.2 million (32.7 percent of revenues) in 2000.
Revenues for the first six months of 2001 were $124.7 million, compared to
$122.6 million for the same period a year ago. Excluding non-recurring charges,
operating income (EBIT) for the first six months of 2001 was $26.7 million (21.4
percent of revenues), compared to $29.5 million (24.1 percent of revenues) in
2000. Earnings before interest, taxes, depreciation and amortization (EBITDA),
excluding non-recurring charges, were $33.6 million (27.0 percent of revenues)
for the first six months of 2001, compared to $37.4 million (30.6 percent of
revenues) in 2000.
French Taxation Services: Revenues for the second quarter 2001 were $9.7
million, compared to $11.6 million for the same period a year ago. Operating
loss for the second quarter 2001 was $0.5 million (5.1 percent of revenues),
compared to operating income of $3.0 million (25.4 percent of revenues) in 2000.
Earnings before interest, taxes, depreciation and amortization (EBITDA) were
$0.5 million (5.1 percent of revenues) for the second quarter 2001, compared to
$4.0 million (34.0 percent of revenues) in 2000.
Revenues for the first six months of 2001 were $17.6 million, compared to $18.0
million for the same period a year ago. Operating loss for the first six months
of 2001 was $1.4 million (7.7 percent of revenues), compared to operating income
of $2.1 million (11.7 percent of revenues) in
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2000. Earnings before interest, taxes, depreciation and amortization (EBITDA)
were $0.7 million (4.0 percent of revenues) for the first six months of 2001,
compared to $4.1 million (22.7 percent of revenues) in 2000.
While no final determinations have yet been made, the Company continues to
explore its strategic alternatives with respect to its French Taxation
operations.
Corporate Overhead: Segment operating income (EBIT) as reported above does not
include corporate overhead. For the second quarter 2001, corporate overhead
represented 11.5 percent of total revenues from continuing operations, compared
to 8.6 percent in the second quarter of 2000. For the first six months of 2001,
excluding non-recurring charges, corporate overhead represented 13.2 percent of
total revenues from continuing operations, compared to 10.9 percent in the first
six months of 2000.
RESULTS FROM DISCONTINUED OPERATIONS
The Company generated a loss from discontinued operations in the second quarter
of 2001 of $3.8 million, which has been deferred as required under generally
accepted accounting principles, since it is expected to be recovered upon
ultimate sale of these businesses. Approximately one-half of this loss related
to sale activities and employee retention bonuses. This compares to
approximately breakeven results during the second quarter of 2000, which did not
have similar sale-related costs.
The Company and its investment bankers have made substantial progress in their
efforts to sell the discontinued operations.
CASH FLOW AND DAYS SALES OUTSTANDING (DSO'S)
Net cash from operating activities for the three months ended June 30, 2001 was
approximately $8.1 million, compared to $2.6 million in 2000.
DSO's (Days Sales Outstanding) from continuing operations as of June 30, 2001
stood at 78 days, compared to 79 days a year earlier.
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2001 OUTLOOK
Revenues from continuing operations in the second half of 2001 are expected to
grow approximately 14% over the prior year, with Accounts Payable revenues
growing approximately 18% and French Taxation Services revenues declining
approximately 4%. Earnings per diluted share from continuing operations for the
second half of 2001 are expected to total within the range of $0.41 - $0.42. As
such, the Company expects to achieve the lower end of the $0.45 - $0.50 range
previously provided for earnings per diluted share for the full year 2001,
excluding non-recurring charges incurred in the first quarter.
For the third quarter 2001, revenues from continuing operations are expected to
grow approximately 7% over the prior year, with Accounts Payable revenues
growing approximately 12%. French Taxation Services revenues are expected to
decrease in the third quarter by approximately 21%, as compared to the prior
year. Earnings per diluted share from continuing operations for the third
quarter are expected to be in the range of $0.14 to $0.16.
The preceding outlook excludes any impact in the form of non-recurring charges
or revenue and earnings contribution resulting from the planned acquisition of
Howard Schultz and Associates announced today in a separate press release.
CONFERENCE CALL AND WEBCAST INFORMATION
PRG will hold a conference call today, July 26, 2001 at 10 a.m. EDT to further
discuss the information in this press release, as well as its planned
acquisition of Howard Schultz and Associates announced today in a separate press
release, and to provide an update with respect to other company developments.
Listeners in the U.S. should dial 888.396.0289 at least 5 minutes prior to the
start of the conference. Listeners outside the U.S. should dial 415.228.3887. To
access the conference call, provide the leader's name 'John Cook' and the
passcode 'PRGX.'
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The teleconference will also be audiocast on the Internet at www.prgx.com. Real
Network's Real Player or Microsoft Windows Media Player is required to access
the audiocast. Real Player can be downloaded from www.real.com. Media Player can
be downloaded from www.microsoft.com/windows/mediaplayer.
ABOUT THE PROFIT RECOVERY GROUP INTERNATIONAL, INC.
Headquartered in Atlanta, Ga., The Profit Recovery Group International, Inc.
(PRG) is one of the world's leading providers of recovery audit services. PRG's
continuing operations employ approximately 2,500 employees in 34 countries
providing more than 2,500 clients with insightful value to optimize and expertly
manage their business transactions. PRG's clients represent a variety of
industries including retailing, wholesale distribution, manufacturing,
government, high-tech and healthcare organizations. PRG was founded in 1990 and
became a publicly-traded company in 1996. Shares of PRG are traded on the NASDAQ
National Market under the symbol PRGX. For additional information visit our web
site at www.prgx.com.
FORWARD LOOKING STATEMENTS
Statements made in this news release which look forward in time involve risks
and uncertainties and are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Such risks and uncertainties
include the possibilities that (i) our announced divestitures may require a
longer time to accomplish than we anticipate, or may not be consummated at all,
and we may incur additional losses if, upon disposal, we do not receive the
prices we anticipate for such businesses and may incur unanticipated further
charges as a result of our divestiture initiatives, (ii) the announced intention
to dispose of the discontinued operations may result in the loss of key
personnel and diminished operating results in such operations, (iii) we may not
achieve anticipated expense savings, (iv) our past and future investments in
technology and e-commerce may not benefit our business, (v) our Accounts Payable
and French Taxation Services businesses may not grow as expected, (vi) our
international expansion may prove unprofitable and (vii), we may not be able to
successfully complete the acquisition of Howard Schultz and Associates or
successfully integrate such firm and achieve the substantial planned
post-acquisition synergy cost savings even if the acquisition is completed. If
the acquisition of Howard Schultz and Associates is not completed, the Company
will incur a substantial charge to operations for cumulative out-of-pocket
business combination costs incurred. Other risks and uncertainties that may
affect our business include (i) our ability to effectively manage our business
during the divestitures and our business integration with Howard Schultz and
Associates, (ii) the possibility of an adverse judgment in pending securities
litigation, (iii) the impact of certain accounting pronouncements by the
Financial Accounting Standards Board or the United States Securities and
Exchange Commission, (iv) potential timing issues that could delay revenue
recognition, (v) the effect of strikes, (vi) future weakness in the currencies
of countries in which we transact business, (vii)
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changes in economic cycles, (viii) competition from other companies, (ix) the
effect of bankruptcies of our larger clients, (x) changes in governmental
regulations applicable to us, and other risk factors, detailed in our Securities
and Exchange Commission filings, including the Company's Form 10-K filed March
27, 2001. The Company disclaims any obligation or duty to update or modify these
forward-looking statements.
ADDITIONAL INFORMATION
PRG and Howard Schultz & Associates International, Inc. ("HS&A") will file a
joint proxy statement/prospectus and other relevant documents concerning the
proposed acquisition discussed herein with the SEC. Investors of PRG and HS&A
are urged to read the joint proxy statement/prospectus when it becomes available
and any other relevant documents filed with the SEC because they will contain
important information. You will be able to obtain the documents free of charge
at the website maintained by the SEC at www.sec.gov. In addition, you may obtain
documents filed with the SEC by PRG free of charge by requesting them in writing
from Leslie H. Kratcoski, Director, Investor Relations, The Profit Recovery
Group International, Inc., 2300 Windy Ridge Parkway, Suite 100 N, Atlanta, GA
30339 or by telephone at 770-779-3900
PRG and HS&A, and their respective directors and executive officers, and certain
of their employees, may be deemed to be participants in the solicitation of
proxies from the stockholders of PRG and HS&A in connection with the
acquisition. These participants may have interests in the acquisition, including
interests resulting from holding options or shares of PRG and HS&A common stock.
Information about the interests of directors and executive officers of PRG and
HS&A and their ownership of securities of PRG and HS&A will be set forth in the
joint proxy statement/prospectus.
Investors should read the joint proxy statement/prospectus carefully when it
becomes available before making any voting or investment decisions.
# # #
Contacts:
Investor Contact: Media & Client Contact:
Leslie H. Kratcoski Michelle B. Duncan
Investor Relations Corporate Communications
(770) 779-3099 (770) 779-3295
1380975v1
SCHEDULE 1
The Profit Recovery Group International, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Amounts in thousands, except per share data)
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
---------------------------------------- -----------------------------------
2001 2000 2001 2000
------------------ -------------------- ------------------- --------------
Revenues $ 76,784 $ 76,683 $ 142,311 $ 140,577
Cost of revenues 39,790 38,572 74,789 73,922
Selling, general and administrative expenses 30,697 24,520 61,691 50,430
------------------ -------------------- ------------------- --------------
Operating income
6,297 13,591 5,831 16,225
Interest (expense), net (1,780) (2,171) (3,801) (3,741)
------------------ -------------------- ------------------- --------------
Earnings from continuing operations
before income taxes and earnings
(loss) from discontinued operations 4,517 11,420 2,030 12,484
Income taxes 1,807 4,796 812 5,243
------------------ -------------------- ------------------- --------------
Earnings (loss) from continuing
operations before loss from
discontinued operations 2,710 6,624 1,218 7,241
Discontinued operations:
Earnings (loss) from operations of
discontinued divisions, net of
income taxes of $9 and $(418) in
2000, respectively, and including
cumulative effect of
accounting change of $(26,145) - 24 - (24,389)
Gain (loss) on disposal from
discontinued operations including
operating results for phase-out
period, net of income taxes - - - -
------------------ -------------------- ------------------- --------------
Earnings (loss) from discontinued
operations - 24 - (24,389)
------------------ -------------------- ------------------- --------------
Net earnings (loss) $ 2,710 $ 6,648 $ 1,218 $ (17,148)
================== ==================== =================== ==============
Basic earnings (loss) per share
Earnings from continuing operations
before discontinued operations $ 0.06 $ 0.13 $ 0.03 $ 0.14
Discontinued operations - - - (0.49)
------------------ -------------------- ------------------- --------------
Net earnings (loss) $ 0.06 $ 0.13 $ 0.03 $ (0.35)
================== ==================== =================== ==============
Diluted earnings (loss) per share
Earnings from continuing operations
before discontinued operations $ 0.06 $ 0.13 $ 0.03 $ 0.14
Discontinued operations - - - (0.48)
------------------ -------------------- ------------------- --------------
Net earnings (loss) $ 0.06 $ 0.13 $ 0.03 $ (0.34)
================== ==================== =================== ==============
Weighted average shares outstanding
Basic 48,107 49,620 48,066 49,527
================== ==================== =================== ==============
Diluted 48,486 50,459 48,348 50,701
================== ==================== =================== ==============
SCHEDULE 2
The Profit Recovery Group International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Amounts in thousands)
(Unaudited)
June 30, December 31,
2001 2000
----------------- ---------------
ASSETS
------
Current assets:
Cash and cash equivalents $ 12,812 $ 23,870
Receivables
Contract receivables 66,467 67,399
Employee advances and miscellaneous receivables 5,490 5,073
----------------- ----------------
Total receivables 71,957 72,472
----------------- ----------------
Prepaid expenses and other current assets 3,412 3,470
Deferred income taxes 12,565 12,565
Net assets of discontinued operations 93,556 80,682
----------------- ----------------
Total current assets 194,302 193,059
Property and equipment 23,434 26,904
Noncompete agreements 510 937
Deferred loan costs 2,432 1,701
Goodwill 222,798 235,153
Deferred income taxes 5,673 6,236
Other assets 866 841
----------------- ----------------
Total assets $ 450,015 $ 464,831
================= ================
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current installments of long-term debt $ 386 $ 391
Accounts payable and accrued expenses 17,436 17,284
Accrued business acquisition consideration - 7,567
Accrued payroll and related expenses 28,739 38,017
Deferred tax recovery audit revenue 740 694
---------------- ----------------
Total current liabilities 47,301 63,953
Long-term debt, excluding current installments 161,605 154,563
Deferred compensation 4,107 5,615
Other long-term liabilities 1,471 1,544
---------------- ----------------
Total liabilities 214,484 225,675
---------------- ----------------
Shareholders' equity:
Preferred stock - -
Common stock 51 50
Additional paid-in capital 316,652 316,127
Accumulated deficit (38,817) (40,035)
Accumulated other comprehensive loss (19,870) (14,237)
Less treasury stock at cost (21,024) (21,024)
Unearned portion of restricted stock (1,461) (1,725)
---------------- ---------------
Total shareholders' equity 235,531 239,156
---------------- ---------------
Total liabilities and shareholders' equity $ 450,015 $ 464,831
================ ===============
SCHEDULE 3
The Profit Recovery Group International, Inc. and Subsidiaries
Pro-Forma Operating Results From Continuing Operations By Segment
(Amounts in millions)
(Unaudited)
Three Months Ended June 30
--------------------------------------------------------------------------------------------------------------------
Accounts Payable Services French Taxation Services Corporate Support Total
--------------------------------------------------------------------------------------------------------------------
2001 2000 2001 2000 2001 2000 2001 2000
--------------------------------------------------------------------------------------------------------------------
$ % of $ % of $ % of $ % of $ % of $ % of $ % of $ % of
Revenues Revenues Revenues Revenues Revenues Revenues Revenues Revenues
--------------------------------------------------------------------------------------------------------------------
Revenues 67.1 100.0% 65.1 100.0% 9.7 100.0% 11.6 100.0% - - 76.8 100.0% 76.7 100.0%
Operating 15.6 23.3% 17.2 26.5% (0.5) -5.1% 3.0 25.4% (8.8) -11.5% (6.6) -8.6% 6.3 8.2% 13.6 17.7%
Income
(EBIT)
EBITDA 19.0 28.4% 21.2 32.7% 0.5 5.1% 4.0 34.0% (7.6) -10.0% (5.5) -7.2% 11.9 15.5% 19.7 25.7%
--------------------------------------------------------------------------------------------------------------------
Six Months Ended June 30
--------------------------------------------------------------------------------------------------------------------
Accounts Payable Services French Taxation Services Corporate Support Total
--------------------------------------------------------------------------------------------------------------------
2001 2000 2001 2000 2001 2000 2001 2000
--------------------------------------------------------------------------------------------------------------------
$ % of $ % of $ % of $ % of $ % of $ % of $ % of $ % of
Revenues Revenues Revenues Revenues Revenues Revenues Revenues Revenues
--------------------------------------------------------------------------------------------------------------------
Revenues 124.7 100.0% 122.6 100.0% 17.6 100.0% 18.0 100.0% - - 142.3 100.0% 140.6 100.0%
Pro-Forma 26.7 21.4% 29.5 24.1% (1.4) -7.7% 2.1 11.7% (18.7) -13.2% (15.4) -10.9% 6.6 4.7% 16.2 11.5%
Operating
Income
(EBIT)
Pro-Forma 33.6 27.0% 37.4 30.6% 0.7 4.0% 4.1 22.7% (16.2) -11.4% (13.2) -9.4% 18.1 12.7% 28.3 20.1%
EBITDA
-------------------------------------------------------------------------------------------------------------------
Notes:
------
Pro Forma Operating Income (EBIT) and EBITDA for the six months ended June
30, 2001 excludes non-recurring charges in Q1 2001 of approximately $0.8
million related to implementation of a strategic realignment. Accounts
Payable Services and French Taxation Services "% of Revenues" is calculated
based on segment revenues. Corporate Support and Total "% of Revenues" is
calculated based on total revenues
1381079