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
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC.
INVESTOR FACT SHEET
Q2 2001
CORPORATE PROFILE
[GRAPHIC]
The Profit Recovery Group International, Inc. (Nasdaq: PRGX) is a leading
worldwide provider of recovery audit services, with 2,500 clients in 34
countries. Using proprietary software and expert audit methodologies, PRG
industry specialists review client invoices, purchase orders, receiving
documents, databases, and correspondence files to recover lost profits due to
overpayment or under-deductions. The company is retained on a
pay-for-performance basis, receiving a percentage of each dollar recovered.
SECOND QUARTER 2001 RESULTS*
Three months Six months
ended 6/30 ended 6/30
2001 2000 2001 2000
(in millions, except EPS)
Revenues.......................................... $76.8 $76.7 $142.3 $140.6
Operating Income.................................. 6.3 13.6 6.6 16.2
EBITDA............................................ 11.9 19.7 18.1 28.3
Net Income........................................ 2.7 6.6 1.7 7.2
Diluted EPS....................................... $0.06 $0.13 $0.04 $0.14
Cash Flow from Operations......................... 8.1 2.6 3.8 (1.4)
*Results from continuing operations, excluding non-recurring charges
INVESTMENT RATIONALE
Focus on Accounts Payable
PRG has realigned operations to focus on what it has always done best -
accounts payable recovery auditing - and is in the process of divesting of most
other non-core businesses. Proceeds will be used to pay down debt. PRG is
dedicated to restoring sustained and profitable corporate growth from its core
Accounts Payable operations, a business model with attractive characteristics
including strong operating cash flow generation and a significant portion of
recurring revenues.
Large Market Potential
While PRG has a prominent position in today's US Accounts Payable market,
increasingly complex business trends, including consolidation, price volatility,
larger transaction volumes, global commerce, and web-based procurement, are
significantly expanding future market opportunities. With a strong client base,
PRG is well-positioned to capitalize on additional business opportunities from
both new and existing clients. Internationally, audit recovery services are
still in their infancy, and the market potential is significant.
Proven Services Offering
PRG's highly trained audit specialists use sophisticated proprietary
technology and advanced techniques and methodologies to recover unrealized
profits. The Company has developed proven audit techniques that allow for
increased identification of transaction errors, benchmarketing of a client's
results against industry standards, and recommendations for process improvement.
Leveraging Technology
The adoption of EDI in the early 1990's was a key factor in the growth of
the industry since it provided electronic purchase information at the line-item
level and allowed for automation of much of the audit process. Increased use of
the Web in business-to-business commerce is expected to increase the
availability of electronic data, providing PRG with increased profit recovery
potential, new markets to address, and greater efficiencies in service delivery.
Planned Combination with Howard Schultz & Associates
PRG's planned acquisition of Howard Schultz & Associates International,
Inc. (HS&A) is a significant milestone in PRG's evolution. As the world of
technology continues to rapidly evolve, and the volume of business transactions
processed continues to grow, significant investments and resources are required
to service our client's businesses. Combining forces with HS&A is a natural
extension of PRG's strategy of focusing on its core Accounts Payable business.
The resulting combination is expected to be able to offer more comprehensive
accounts payable recovery audit services and leverage a vast base of knowledge
and expertise to further extend and innovate our service offering within the
accounts payable market.
STRATEGIC GROWTH PLAN
Key Strategic Growth Initiatives:
o Align service levels to meet client needs while maximizing profit
potential.
o Maximize audit effectiveness by deploying best practices and focussed
business analysis across audit teams.
o Increase investment in highest-potential international markets.
o Employ a linked sales and operations approach to drive profitable new
client acquisition and expand profitable growth in existing ones.
o Focus technology development to enable most effective and profitable
service delivery.
Planned Combination with Howard Schultz and Associates:
On July 26, 2001, PRG and HS&A announced they had entered into a letter of
intent under which PRG would acquire the privately-held HS&A companies in an
all-stock transaction. Upon completion of the transaction, the combined company
will be renamed PRG-Schultz and headquartered in Atlanta.
Transaction Summary:
o PRG expects to issue approximately 14.6 million shares and assume vested
`in the money' stock options equal to approximately 0.5 million additional
shares of PRG stock for purposes of calculating fully diluted EPS, based on
7/25/01 closing price of $10.51.
o PRG expects to assume approximately $32-37 million HS&A debt.
o PRG expects to assume or incur approximately $13-14 million in additional
debt to acquire HS&A UK and German licensees.
o The transaction is subject to execution of a definitive agreement, approval
of both companies shareholders, approval of PRG's bank syndicate including
modifications of credit agreement, and customary regulatory approvals.
o Following closing, expected in Q4 2001, current PRG shareholders will own
approximately 77% of combined company, while HS&A and affiliates will own
approximately 23%.
[GRAPHIC] "This combination makes perfect sense," said John Cook, chief
executive officer of PRG. "It is consistent with our strategy to focus on our
core Accounts Payable recovery audit services; it reflects the trends of
consolidation and globalization in the industries we serve; our strategic
initiatives are as applicable to HS&A as they are to PRG; and we have
complementary strengths in the accounts payable arena. Our two businesses mirror
each other in such a way as to allow significant operating synergies. Following
the closing and a transition period of about 12-18 months, we anticipate that
the combined company can achieve annualized revenue and earnings growth of
approximately 15% and 20%, respectively, and EBITDA margins of over 20%."
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SHAREHOLDER INFORMATION
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Industry Sector: Business Services
Exchange/Symbol: (Nasdaq: PRGX)
Price 7/27/01: $10.53
52-Week Price Range: $3.06 - $14.00
Market Capitalization: $512 million
Shares Outstanding: 48.6 million
Daily volume (3 month average): 342,872
(All share data as of 7/27/01)
Analyst Coverage
Argus Research - Daniel Peris
Barrington Research - Alexander Paris, Jr.
J.P. Morgan H&Q - Adam Holt
Lanyi Research at CIBC Oppenheimer - Hemant Wadhwa
Merrill Lynch - Thatcher Thompson
Robertson Stephens - Andrew Jeffrey
Contact Information:
The Profit Recovery Group Donald E. (Gene) Ellis, Jr. Leslie H. Kratcoski
International, Inc. Chief Financial Officer Director, Investor Relations
www.prgx.com Phone: (770) 779-3900 Phone: (770) 779-3099
Email: leslie.kratcoski@prgx.com
(Graphic)
Financial Highlights
Years Ended December 31
Income Statement 2000 1999 1998
Revenues ($MM) $297.1 $280.4 $206.9
Operating Income ($MM) $33.2 $43.5 $28.9
Net Income ($MM) $14.5 $23.6 $16.9
Diluted Earnings per Share $0.29 $0.48 $0.42
Net Cash from Operating ($MM) $33.5 $5.5 $15.4
Results from continuing operations, excluding non-recurring charges and
cumulative effect of accounting charge
Balance Sheet Highlights (June 30, 2001)
Cash & Equivalents $ 12.8 million
Working Capital $ 147.0 million
Long-Term Debt $ 161.6 million
Shareholders Equity $235.5 million
Book Value per Share: $ 4.85
Statements made in this document 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 weaknesses in the currencies
of countries in which we transact business, (vii) 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 HS&A will file a joint proxy statement/prospectus and other relevant
documents concerning the proposed acquisition 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, PRG
International, Inc., 2300 Windy Ridge Parkway, Suite 100N, 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.