10-Q
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 March 31, 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
(State or other jurisdiction of
incorporation or organization)
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58-2213805
(I.R.S. Employer
Identification No.) |
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600 Galleria Parkway
Suite 100
Atlanta, Georgia
(Address of principal executive offices)
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30339-5986
(Zip Code) |
Registrants 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 the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
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 April 30, 2009 were 22,068,725.
PRG-SCHULTZ INTERNATIONAL, INC.
FORM 10-Q
For the Quarter Ended March 31, 2009
INDEX
PART I. FINANCIAL INFORMATION
Item 1. 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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March 31, |
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2009 |
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2008 |
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Revenues |
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$ |
39,252 |
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$ |
48,263 |
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Cost of revenues |
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26,167 |
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30,252 |
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Gross margin |
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13,085 |
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18,011 |
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Selling, general and administrative expenses |
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9,969 |
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12,843 |
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Operating income |
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3,116 |
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5,168 |
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Interest expense, net |
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699 |
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991 |
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Earnings before income taxes |
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2,417 |
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4,177 |
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Income tax expense |
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544 |
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593 |
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Net earnings |
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$ |
1,873 |
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$ |
3,584 |
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Basic earnings per common share (Note B) |
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$ |
0.08 |
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$ |
0.17 |
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Diluted earnings per common share (Note B) |
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$ |
0.08 |
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$ |
0.16 |
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Weighted-average common shares outstanding (Note B): |
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Basic |
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22,146 |
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21,524 |
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Diluted |
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23,136 |
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22,843 |
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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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March 31, |
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2009 (Unaudited) |
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December
31, 2008 |
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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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$ |
24,459 |
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$ |
26,688 |
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Restricted cash |
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120 |
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61 |
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Receivables: |
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Contract receivables, less allowances of $756 in 2009 and $921 in 2008 |
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Billed |
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22,397 |
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28,143 |
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Unbilled |
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4,367 |
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5,568 |
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26,764 |
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33,711 |
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Employee advances and miscellaneous receivables, less allowances of $244 in 2009
and $311 in 2008 |
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204 |
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285 |
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Total receivables |
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26,968 |
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33,996 |
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Prepaid expenses and other current assets |
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1,704 |
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2,264 |
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Total current assets |
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53,251 |
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63,009 |
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Property and equipment, at cost |
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30,598 |
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30,041 |
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Less accumulated depreciation and amortization |
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(22,776 |
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(22,140 |
) |
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Property and equipment, net |
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7,822 |
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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 $11,439 in 2009 and $10,932 in 2008
(Note I) |
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18,461 |
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18,968 |
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Unbilled receivables |
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1,387 |
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1,789 |
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Other assets |
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2,308 |
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2,516 |
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$ |
87,829 |
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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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$ |
11,795 |
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$ |
16,275 |
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Accrued payroll and related expenses |
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16,268 |
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22,536 |
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Refund liabilities |
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7,068 |
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7,870 |
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Deferred revenue |
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521 |
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502 |
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Current portions of debt and capital lease obligations |
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5,323 |
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5,314 |
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Total current liabilities |
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40,975 |
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52,497 |
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Long-term debt and capital lease obligations (Note G) |
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12,996 |
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14,331 |
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Deferred income taxes |
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333 |
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234 |
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Noncurrent compensation obligations |
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2,133 |
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2,849 |
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Refund liabilities |
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807 |
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|
897 |
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Other long-term liabilities |
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5,158 |
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5,265 |
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Total liabilities |
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62,402 |
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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; $.01 stated value per share. Authorized 50,000,000 shares;
22,068,725 shares issued and outstanding in 2009 and 21,789,645 shares
issued and outstanding in 2008 |
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221 |
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218 |
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Additional paid-in capital |
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559,986 |
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559,359 |
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Accumulated deficit |
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(538,115 |
) |
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(539,988 |
) |
Accumulated other comprehensive income |
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3,335 |
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3,121 |
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Total shareholders equity |
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25,427 |
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22,710 |
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$ |
87,829 |
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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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Three Months Ended |
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March 31, |
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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 |
|
$ |
1,873 |
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$ |
3,584 |
|
Adjustments to reconcile net earnings to net cash provided by
(used in) operating activities: |
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Depreciation and amortization |
|
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1,291 |
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|
|
1,401 |
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Amortization of deferred loan costs |
|
|
197 |
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|
194 |
|
Stock-based compensation expense |
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15 |
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|
3,034 |
|
Loss on sale of property and equipment |
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|
1 |
|
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|
8 |
|
Deferred income taxes |
|
|
99 |
|
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|
199 |
|
Changes in assets and liabilities: |
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Restricted cash |
|
|
(59 |
) |
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|
(80 |
) |
Billed receivables |
|
|
5,156 |
|
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|
(13,982 |
) |
Unbilled receivables |
|
|
1,603 |
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|
|
2,091 |
|
Prepaid expenses and other current assets |
|
|
525 |
|
|
|
206 |
|
Other assets |
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4 |
|
|
|
(78 |
) |
Accounts payable and accrued expenses |
|
|
(3,583 |
) |
|
|
(4,230 |
) |
Accrued payroll and related expenses |
|
|
(5,927 |
) |
|
|
9,515 |
|
Refund liabilities |
|
|
(892 |
) |
|
|
(1,922 |
) |
Deferred revenue |
|
|
27 |
|
|
|
130 |
|
Noncurrent compensation obligations |
|
|
145 |
|
|
|
(376 |
) |
Other long-term liabilities |
|
|
(107 |
) |
|
|
(137 |
) |
|
|
|
|
|
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Net cash provided by (used in) operating activities |
|
|
368 |
|
|
|
(443 |
) |
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Cash flows from investing activities: |
|
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Purchases of property and equipment, net of disposal proceeds |
|
|
(745 |
) |
|
|
(417 |
) |
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Net cash used in investing activities |
|
|
(745 |
) |
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(417 |
) |
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Cash flows from financing activities: |
|
|
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|
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Repayments of debt |
|
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(1,326 |
) |
|
|
(22,315 |
) |
Repurchases of common stock |
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(246 |
) |
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Payments for deferred loan costs |
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(30 |
) |
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|
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Net cash used in financing activities |
|
|
(1,572 |
) |
|
|
(22,345 |
) |
|
|
|
|
|
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|
|
|
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|
|
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Effect of exchange rates on cash and cash equivalents |
|
|
(280 |
) |
|
|
281 |
|
|
|
|
|
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Net change in cash and cash equivalents |
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|
(2,229 |
) |
|
|
(22,924 |
) |
|
|
|
|
|
|
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Cash and cash equivalents at beginning of period |
|
|
26,688 |
|
|
|
42,364 |
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|
|
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Cash and cash equivalents at end of period |
|
$ |
24,459 |
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$ |
19,440 |
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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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$ |
545 |
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$ |
1,133 |
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Cash paid during the period for income taxes, net of refunds |
|
$ |
1,820 |
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$ |
874 |
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|
See
accompanying Notes to Condensed Consolidated Financial Statements.
3
PRG-SCHULTZ INTERNATIONAL, INC.
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 period
ended March 31, 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 Companys 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 March 31, 2009 was not significant and
management does not expect that the change in estimate will have a material impact on future period
results.
New Accounting Standards
SFAS No. 141(R). In December 2007 the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141 (revised 2007), Business
Combinations (SFAS No. 141(R)). SFAS No. 141(R) 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 SFAS No. 141(R) effective
January 1, 2009 did not have any material impact on the Companys consolidated financial
statements.
SFAS No. 160. In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements (SFAS No. 160). SFAS No. 160 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
parents equity. The amount of net income attributable to the noncontrolling interest will be
included in consolidated net income on the face of the income statement. SFAS No. 160 clarifies
that changes in a parents 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. SFAS No. 160 also includes expanded disclosure
requirements regarding the interests of the parent and its noncontrolling interest. The adoption by
the Company of SFAS No. 160 effective January 1, 2009 did not have any material impact on the
Companys consolidated financial statements.
SFAS No. 161. 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),
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 companys financial
position, financial performance, and cash flows. The adoption by the Company of SFAS No. 161
effective January 1, 2009 did not have any material impact on the Companys consolidated financial
statements.
4
PRG-SCHULTZ INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FSP APB 14-1. 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). FSP APB 14-1 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 issuers 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 FSP APB 14-1 are required to be applied retrospectively to all periods presented. The adoption
by the Company of FSP APB 14-1 effective January 1, 2009 did not have any material impact on the
Companys consolidated financial statements.
FSP EITF 03-6-1. 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). FSP EITF 03-6-1 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 EPS. The adoption by
the Company of FSP EITF 03-6-1 effective January 1, 2009 did not have any material impact on the
Companys consolidated financial statements.
Note B Earnings Per Common Share
The following tables set forth the computations of basic and diluted earnings per common share
for the three months ended March 31, 2009 and 2008 (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
Basic earnings per common share: |
|
|
|
|
|
|
|
|
Numerator for earnings per common share calculations: |
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
1,873 |
|
|
$ |
3,584 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
Denominator for basic earnings per common share
weighted-average common shares outstanding during the period |
|
|
22,146 |
|
|
|
21,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share |
|
$ |
0.08 |
|
|
$ |
0.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
Diluted earnings per common share: |
|
|
|
|
|
|
|
|
Numerator for earnings per common share calculations: |
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
1,873 |
|
|
$ |
3,584 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
Denominator for basic earnings per common share
weighted-average common shares outstanding during the period |
|
|
22,146 |
|
|
|
21,524 |
|
Incremental shares from stock-based compensation plans |
|
|
990 |
|
|
|
1,319 |
|
|
|
|
|
|
|
|
Denominator for diluted earnings per common share |
|
|
23,136 |
|
|
|
22,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share |
|
$ |
0.08 |
|
|
$ |
0.16 |
|
|
|
|
|
|
|
|
For the three months ended March 31, 2009 and 2008, options to purchase 1.3 million shares and
0.8 million shares, respectively, 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 month period ended March 31, 2009 include 0.4 million nonvested restricted shares and 0.1
million nonvested restricted share units which are considered to be participating securities
pursuant to FSP EITF 03-6-1.
5
PRG-SCHULTZ INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 (collectively, the Plans). The Plans are described
in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2008.
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 Companys common stock.
Mr. Bahls 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% each on 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. Bahls 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% each on 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.
As of March 31, 2009, a total of 1,767,721 Performance Units were outstanding under the 2006
MIP, 1,745,168 of which were vested. On April 30, 2009, an aggregate of 323,478 Performance Units
were settled by six executive officers. Such settlements resulted in the issuance of 194,084 shares
of common stock and cash payments totaling $0.4 million.
Selling, general and administrative expenses for the three months ended March 31, 2009 and
2008 include $15.0 thousand and $3.0 million, respectively, related to stock-based compensation
charges. At March 31, 2009, there was $6.4 million of unrecognized stock-based compensation expense
related to stock options and 2006 MIP Performance Unit awards which is expected to be recognized
over a weighted-average period of 2.73 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.
6
PRG-SCHULTZ INTERNATIONAL, INC.
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 net
earnings before interest, taxes, depreciation and amortization (EBITDA) adjusted for
restructuring charges, stock-based compensation, intangible asset impairment charges, 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 months ended March 31, 2009 and 2008 follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
|
International |
|
|
|
|
|
|
|
|
|
Accounts |
|
|
Accounts |
|
|
|
|
|
|
|
|
|
Payable |
|
|
Payable |
|
|
Corporate |
|
|
|
|
|
|
Services |
|
|
Services |
|
|
Support |
|
|
Total |
|
Quarter Ended March 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
23,235 |
|
|
$ |
16,017 |
|
|
$ |
|
|
|
$ |
39,252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
6,488 |
|
|
$ |
1,713 |
|
|
$ |
(3,794 |
) |
|
$ |
4,407 |
|
Foreign currency (gains) losses on
intercompany balances |
|
|
|
|
|
|
605 |
|
|
|
|
|
|
|
605 |
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
15 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
6,488 |
|
|
$ |
2,318 |
|
|
$ |
(3,779 |
) |
|
$ |
5,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended March 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
28,214 |
|
|
$ |
20,049 |
|
|
$ |
|
|
|
$ |
48,263 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
9,384 |
|
|
$ |
3,784 |
|
|
$ |
(6,599 |
) |
|
$ |
6,569 |
|
Foreign currency (gains) losses on
intercompany balances |
|
|
|
|
|
|
(557 |
) |
|
|
|
|
|
|
(557 |
) |
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
3,034 |
|
|
|
3,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
9,384 |
|
|
$ |
3,227 |
|
|
$ |
(3,565 |
) |
|
$ |
9,046 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table reconciles net earnings to EBITDA and adjusted EBITDA for each of the
three month periods ended March 31, 2009 and 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
|
Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
Net earnings |
|
$ |
1,873 |
|
|
$ |
3,584 |
|
|
|
|
|
|
|
|
|
|
Income taxes |
|
|
544 |
|
|
|
593 |
|
Interest, net |
|
|
699 |
|
|
|
991 |
|
Depreciation and amortization |
|
|
1,291 |
|
|
|
1,401 |
|
|
|
|
|
|
|
|
EBITDA |
|
|
4,407 |
|
|
|
6,569 |
|
|
|
|
|
|
|
|
|
|
Foreign currency (gains) losses on
intercompany balances |
|
|
605 |
|
|
|
(557 |
) |
Stock-based compensation |
|
|
15 |
|
|
|
3,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
5,027 |
|
|
$ |
9,046 |
|
|
|
|
|
|
|
|
Note E Comprehensive Income
The Company applies the provisions of SFAS No. 130, Reporting Comprehensive Income (SFAS
No. 130). This Statement establishes items that are required to be recognized under accounting
standards as components of comprehensive income. SFAS No. 130 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 March 31, 2009 and 2008, the
Companys consolidated comprehensive income was $2.1 million and $2.6 million, respectively. The
difference between consolidated comprehensive income, as disclosed
7
PRG-SCHULTZ INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 March 31, 2009 and December 31, 2008, the Company had cash and cash equivalents of $24.5
million and $26.7 million, respectively, of which cash equivalents represented approximately $20.3
million and $23.3 million, respectively. The Company had $15.5 million and $18.5 million in cash
equivalents at U.S. banks at March 31, 2009 and December 31, 2008, respectively. At each of March
31, 2009 and December 31, 2008, certain of the Companys international subsidiaries held $4.8
million in temporary investments. Most of the temporary investments held by international
subsidiaries at March 31, 2009 were held in Canada.
Note G Long Term Debt
Total debt outstanding at March 31, 2009 was $18.3 million which included a $17.8 million
outstanding balance on a variable rate term loan due 2011 and a $0.5 million capital lease
obligation.
The Company made mandatory principal payments on its term loan of $1.3 million during the
first quarter 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 $6.5 million as of March 31, 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 March 31, 2009 was $15.9 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 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 the facility by $10.0 million.
Note H Commitments and Contingencies
Legal Proceedings
On April 1, 2003, Fleming Companies, one of the Companys 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 Flemings Chapter 11 reorganization plan to
represent the client, for preference payments received by the Company. The demand stated that the
PCTs 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
Flemings bankruptcy filing, and that are alleged to be avoidable either as preferences or
fraudulent transfers under the Bankruptcy Code. The Company believes that it has valid defenses to
certain of the PCTs claims in the proceeding. In December 2005, the PCT offered to settle the case
for $2 million. The Company countered with an offer to waive its bankruptcy claim and to pay the
PCT $250,000. The PCT rejected the Companys settlement offer. In February 2009, the PCT increased
its settlement demand to $3.5 million. On or about February 24, 2009, the Bankruptcy Court entered
a revised scheduling order that, among other things established a deadline of June 15, 2009 for
completion of discovery, and set a trial for September 24-25, 2009. The parties are scheduled to
participate in a non-binding mediation in May 2009 in an effort to settle the case. The litigation
is ongoing.
8
PRG-SCHULTZ INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Retirement Obligations
The July 31, 2005 retirements of the Companys former Chairman, President and CEO, John M.
Cook, and the Companys former Vice Chairman, John M. Toma, resulted in an obligation to pay
retirement benefits of approximately $7.6 million (present value basis) to be paid in monthly cash
installments principally over a three-year period, beginning February 1, 2006. On March 16, 2006,
the terms of the applicable severance agreements were amended in conjunction with the Companys
financial restructuring. Pursuant to the terms of the severance agreements, as amended (1) the
Companys obligations to pay monthly cash installments to Mr. Cook and Mr. Toma were extended from
36 months to 58 months and from 24 months to 46 months, respectively; however, the total dollar
amount of monthly cash payments to be made to each remained unchanged, and (2) the Company agreed
to pay a fixed sum of $150,000 to defray the fees and expenses of the legal counsel and financial
advisors to Messrs. Cook and Toma. The original severance agreements, and the severance agreements,
as amended, also provide for an annual reimbursement, beginning on or about February 1, 2007, to
Mr. Cook and Mr. Toma for the cost of health insurance for themselves and their respective spouses
(not to exceed $25,000 and $20,000, respectively, subject to adjustment based on changes in the
Consumer Price Index), continuing until each reaches the age of 80. At March 31, 2009, accrued
payroll and related expenses and noncurrent compensation obligations include $1.4 million and $1.6
million, respectively, related to these obligations.
Note I Fair Value Measurements
Effective January 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements (SFAS
No. 157), 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 SFAS No. 157 for
all non-financial assets and liabilities accounted for at fair value on a non-recurring basis.
Information regarding assets and liabilities measured at fair value on a recurring basis as of
March 31, 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 March 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
24,459 |
|
|
$ |
24,459 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
26,688 |
|
|
$ |
26,688 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
PRG-SCHULTZ INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Information regarding non-financial assets and liabilities measured at fair value on a
nonrecurring basis as of March 31, 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 March 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
$ |
4,600 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4,600 |
|
Intangible assets, net |
|
|
18,461 |
|
|
|
|
|
|
|
|
|
|
|
18,461 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
23,061 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
23,061 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 SFAS No. 142, Goodwill and Other Intangible Assets
(SFAS No. 142), 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. SFAS No. 142
requires that intangible assets with finite lives be amortized over their expected lives. During
the three months ended March 31, 2009 and 2008, the Company recorded amortization expense of $0.5
million and $0.6 million, respectively, related to intangible assets with finite lives.
10
Item 2. Managements 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 Companys 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 Companys 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 clients 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 Companys results over the past several years have been affected by its involvement in the
demonstration recovery audit contractor (RAC) program of the Centers for Medicare and Medicaid
Services (CMS), the federal agency that administers the Medicare 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 Companys RAC demonstration program contract in March 2008, revenues from
the auditing of Medicare payments in California made only a small contribution to the Companys
overall revenues in the three months ended March 31, 2008. Pursuant to the Companys 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. The
Company expects future revenues from its participation as a RAC subcontractor; however, the
magnitude of such revenues is not predictable and management does not expect any revenues in 2009
from its work under the subcontracts.
11
Results of Operations
The following table sets forth the percentage of revenues represented by certain items in the
Companys Condensed Consolidated Statements of Operations (Unaudited) for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
|
|
2009 |
|
2008 |
Revenues |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of revenues |
|
|
66.7 |
|
|
|
62.7 |
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
33.3 |
|
|
|
37.3 |
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
25.4 |
|
|
|
26.6 |
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
7.9 |
|
|
|
10.7 |
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
1.7 |
|
|
|
2.1 |
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes |
|
|
6.2 |
|
|
|
8.6 |
|
Income taxes |
|
|
1.4 |
|
|
|
1.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
4.8 |
% |
|
|
7.4 |
% |
|
|
|
|
|
|
|
|
|
Accounts Payable Services
Revenues. Domestic and International Accounts Payable Services revenues for the three months
ended March 31, 2009 and 2008 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Domestic Accounts Payable Services revenue |
|
$ |
23.3 |
|
|
$ |
28.2 |
|
International Accounts Payable Services revenue |
|
|
16.0 |
|
|
|
20.1 |
|
|
|
|
|
|
|
|
Total Accounts Payable Services revenue |
|
$ |
39.3 |
|
|
$ |
48.3 |
|
|
|
|
|
|
|
|
Total Accounts Payable Services revenues for the quarter ended March 31, 2009 decreased by
$9.0 million, or 18.7%, compared to the quarter ended March 31, 2008.
Domestic Accounts Payable Service revenues decreased by $4.9 million, or 17.6%, in the first
quarter of 2009 compared to the first quarter of 2008. The vast majority of the Companys recovery
audit clients are in the retail industry segment. Thus, the Companys operations are subject to the
economic pressures the retail industry is currently facing. The current economic conditions which
have adversely impacted the U.S. retail industry have negatively impacted the Companys revenues.
Many of the Companys clients purchases have declined making it more difficult to offset recovery
claims. In addition, the liquidity of the Companys 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 expects that if the retail industry
economic conditions continue to erode, it could have negative impacts on Company revenues.
Management is also aware of speculation regarding an increase in retailer bankruptcies, which, if
correct, could adversely impact future revenues. In addition, the 2008 first quarter included a
small amount of revenue earned from the finalization of auditing Medicare payments in California
under the CMS demonstration program and there were no such revenues in the first quarter of 2009.
Revenues in the International Accounts Payable Services segment for the three months ended
March 31, 2009 decreased by $4.1 million, or 20.1%, compared to the same period in 2008. The
reported international revenues were adversely impacted by strengthening of the U.S. dollar
relative to foreign currencies throughout the world during the latter half of 2008 and the first
quarter of 2009. On a constant dollar basis adjusted for changes in foreign exchange (FX) rates,
International Accounts Payable Services revenues increased by 2.4% during the first quarter of 2009
as compared to the first quarter of 2008.
The Company intends to maximize the value it delivers to its historical base of clients by
identifying and auditing new categories of potential errors. The Company also intends to increase
its emphasis on using its technology and
12
professional experience to assist its clients in achieving objectives that do not directly
involve recovery of past overpayments. These objectives are related to such things as transaction
accuracy and compliance, managing trade and vendor promotional programs, purchasing effectiveness,
M&A due diligence analysis, and processing efficiency in the procure-to-pay value chain.
The Company also expects future revenues from its participation as a subcontractor in three of
the Medicare RAC programs four geographic regions; however, the magnitude of such revenues is not
predictable and management does not expect any revenues in 2009 from its work under the
subcontracts.
Cost of Revenues (COR). COR consists principally of commissions and other forms of variable
compensation paid or payable to the Companys 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.
Domestic and International Accounts Payable Services COR for the three months ended March 31,
2009 and 2008 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Domestic Accounts Payable Services COR |
|
$ |
14.6 |
|
|
$ |
15.7 |
|
International Accounts Payable Services COR |
|
|
11.6 |
|
|
|
14.6 |
|
|
|
|
|
|
|
|
Total Accounts Payable Services COR |
|
$ |
26.2 |
|
|
$ |
30.3 |
|
|
|
|
|
|
|
|
COR as a percentage of revenue for Domestic Accounts Payable Services was 62.7% and 55.7% for
the three months ended March 31, 2009 and 2008, respectively. This equates to gross margin
percentages of 37.3% and 44.3%, respectively, for the Domestic Accounts Payable Services segment.
The total Domestic Accounts Payable Services gross margin percentage decline in the first
quarter of 2009 compared to the first quarter of 2008 was partially attributable to comparable
dollar amounts of fixed costs incurred during the periods while experiencing a decline in revenues
in 2009 as described above. Also negatively impacting COR in the first quarter of 2009 were costs
related to the Companys CMS RAC subcontracts for which there was no revenue in the first quarter
of 2009.
COR as a percentage of revenue for International Accounts Payable Services was 72.5% and 72.6%
for the three months ended March 31, 2009 and 2008, respectively. This equates to gross margin
percentages of 27.5% and 27.4%, respectively. The reported dollar reduction in International
Accounts Payable Services COR was primarily attributable to the previously discussed change in FX
rates since the first quarter of 2008. 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.
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.
13
Domestic and International Accounts Payable Services SG&A for the three months ended March 31,
2009 and 2008 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Domestic Accounts Payable Services SG&A |
|
$ |
3.4 |
|
|
$ |
4.3 |
|
International Accounts Payable Services SG&A |
|
|
2.8 |
|
|
|
1.9 |
|
|
|
|
|
|
|
|
Total Accounts Payable Services SG&A |
|
$ |
6.2 |
|
|
$ |
6.2 |
|
|
|
|
|
|
|
|
Domestic Accounts Payable Services SG&A expenses for the quarter ended March 31, 2009
decreased by $0.9 million, or 20.9%, from the same period in 2008. Domestic Accounts Payable
Services SG&A expenses as a percentage of revenues for Domestic Accounts Payable were 14.6% and
15.2% for the three months ended March 31, 2009 and 2008, respectively. This decrease resulted
primarily from the Companys continued focus on managing its expenses. Specifically, the Company
undertook additional reductions in the first quarter 2009 primarily related to non-auditor
compensation and occupancy related costs.
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 and substantial changes from period to period in FX rates
can significantly impact the amount of such gains and losses. During the three months ended March
31, 2009, the Company recognized $0.6 million of FX losses related to intercompany balances as
compared to $0.6 million of FX gains for the same period in 2008.
International Accounts Payable Services SG&A excluding the FX gains and losses related to
intercompany balances decreased by $0.3 million, or 12.0%, for the three months ended March 31,
2009 compared to the same period in 2008. The 2009 decrease primarily resulted from reductions in
professional fees and travel costs.
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 months ended March 31, 2009 and
2008 (in millions):
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Corporate Support SG&A |
|
$ |
3.8 |
|
|
$ |
6.6 |
|
|
|
|
|
|
|
|
For the period ended March 31, 2009, total Corporate Support SG&A expenses decreased by $2.8
million when compared to the same period of 2008. The first quarter of 2009 includes a negligible
net charge of stock-based compensation expense as compared to $3.0 million of stock-based
compensation expense included in the first quarter of 2008. Excluding the stock-based compensation
charges for both periods, Corporate Support SG&A increased by $0.2 million, or 5.6%, in the first
quarter of 2009 as compared to the same period in 2008.
Other Items
Interest Expense. Net interest expense was $0.7 million and $1.0 million for the three months
ended March 31, 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 first quarter of 2009
primarily related to the term loan under the Companys senior credit facility with an outstanding
balance of $17.8 million as of March 31, 2009.
Income Tax Expense. The Companys 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 Companys valuation allowance against its deferred tax
assets. Reported income tax expense for the three month periods ended March 31, 2009 and 2008
primarily results from taxes on income of foreign subsidiaries.
14
Liquidity and Capital Resources
As of March 31, 2009, the Company had $24.5 million in cash and cash equivalents and no
borrowings under the revolver portion of its credit facility. The revolver had approximately $15.9
million of calculated availability for borrowings, however, management does not currently
anticipate any borrowings under the revolver. As of March 31, 2009, the Company was in compliance
with all of its debt covenants.
Operating Activities. Net cash provided by (used in) operating activities was $0.4 million
and $(0.4 million) during the first quarter of 2009 and 2008, respectively. Significant amounts of
cash were generated in both first quarter periods from operating income after consideration of the
charges which do not necessarily use cash in the same period as the charges are recognized. Such
charges are itemized in the Companys Condensed Consolidated Statements of Cash Flows included in
Item 1 of this Form 10-Q and include depreciation and amortization and stock-based compensation
expense. Operating income, excluding these charges, decreased by $5.2 million in the first quarter
of 2009 compared to the first quarter of 2008. This decrease was offset by an approximate $5.8
million decreased use of cash related to net changes in assets and liabilities on the Companys
balance sheet. Details of these changes are itemized in the Companys Condensed Consolidated
Statements of Cash Flows included in Item 1 of this Form 10-Q. The most significant differences
between the 2009 and 2008 first quarter asset and liability changes reflected in the Condensed
Consolidated Statements of Cash Flows relate to the final settlements resulting from the CMS
demonstration project in 2008.
Investing Activities and Depreciation Expense. Depreciation and amortization expense for the
three months ended March 31, 2009 and 2008 amounted to $1.3 million and $1.4 million, respectively.
Net cash used in investing activities was $0.7 million and $0.4 million during the three months
ended March 31, 2009 and 2008, respectively. Cash used in investing activities for both periods was
solely attributable to capital expenditures. The increase in capital expenditure spending in the
first quarter of 2009 compared to the first quarter of 2008 was primarily related to investments to
upgrade the Companys 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. Changes in operating plans and results could change these expectations.
Financing Activities and Interest Expense. Net cash used in financing activities was $1.6
million and $22.3 million for the three months ended March 31, 2009 and 2008, respectively. During
the first quarter of 2009, the Company made a mandatory payment of $1.3 million on its term loan,
reduced its capital lease obligations by $0.1 million and repurchased 78,754 shares of its
outstanding common stock for approximately $0.2 million. During the first quarter of 2008, the
Company reduced the balance of its term loan by $22.2 million. This amount included $7.2 million of
mandatory payments as well as a voluntary prepayment of $15.0 million. The Company also reduced its
capital lease obligations by $0.1 million during the first quarter 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; however, current projections reflect that the Companys core Accounts Payable Services
business will continue to decline. Therefore, the Company must continue to successfully manage its
expenses and grow its other business lines in order to stabilize and increase revenues and improve
profitability.
Secured Credit Facility
In September 2007, the Company entered into an amended and restated 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 each commencing 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 quarter of 2008, the Company
reduced the balance on its term loan by $22.2 million. This reduction included $7.2 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-
15
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 $1.3 million during the first quarter 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 $6.5 million as of March 31, 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 March 31, 2009 was $15.9 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 Companys 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 Companys 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 March 31,
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 first quarter 2009 and 2008, including fees, were 11.1% and 10.1%, respectively.
Due to the $15 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 Companys direct and indirect domestic wholly
owned subsidiaries and certain of its foreign subsidiaries and is secured by substantially all of
the Companys assets (including the stock of the Companys domestic subsidiaries and two-thirds of
the stock of certain of the Companys 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 Companys Board of Directors extended
the stock repurchase program through March 31, 2010. The second amendment to the Companys secured
credit facility permits the Company to repurchase up to $5.0 million of the Companys common stock
during the period from April 1, 2009 to March 31, 2010. For the quarter ended March 31, 2009, the
Company repurchased 78,754 shares at an average price of $3.13 for a total purchase price of
approximately $0.2 million. 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 Companys
common stock under the Companys 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 Companys 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. Such settlements resulted in
the issuance of 194,084 shares
16
of common stock and cash payments totaling $0.4 million. As of May 1, 2009, total Performance
Unit awards outstanding are 1,444,243 with an aggregate intrinsic value of $4.4 million.
Executive Severance Payments
The July 31, 2005 retirements of the Companys former Chairman, President and CEO, John M.
Cook, and the Companys former Vice Chairman, John M. Toma, resulted in an obligation to pay
retirement benefits of approximately $7.6 million (present value basis) to be paid in monthly cash
installments principally over a three-year period, beginning February 1, 2006. On March 16, 2006,
the terms of the applicable severance agreements were amended in conjunction with the Companys
financial restructuring. Pursuant to the terms of the severance agreements, as amended (1) the
Companys obligations to pay monthly cash installments to Mr. Cook and Mr. Toma were extended from
36 months to 58 months and from 24 months to 46 months, respectively; however, the total dollar
amount of monthly cash payments to be made to each remained unchanged, and (2) the Company agreed
to pay a fixed sum of $150,000 to defray the fees and expenses of the legal counsel and financial
advisors to Messrs. Cook and Toma. The original severance agreements, and the severance agreements,
as amended, also provide for an annual reimbursement, beginning on or about February 1, 2007, to
Mr. Cook and Mr. Toma for the cost of health insurance for themselves and their respective spouses
(not to exceed $25,000 and $20,000, respectively, subject to adjustment based on changes in the
Consumer Price Index), continuing until each reaches the age of 80. At March 31, 2009, accrued
payroll and related expenses and noncurrent compensation obligations include $1.4 million and $1.6
million, respectively, related to these obligations.
Off Balance Sheet Arrangements
As of March 31, 2009, the Company did not have any material off-balance sheet arrangements, as
defined in Item 303(a)(4)(ii) of the SECs Regulation S-K.
Critical Accounting Policies
The Companys significant accounting policies have been fully described in Note 1 of Notes to
Consolidated Financial Statements of the Companys 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 Companys 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 Managements
Discussion and Analysis of Financial Condition and Results of Operations section of the Companys
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 March 31, 2009 was not significant and
management does not expect that the change in estimate will have a material impact on future period
results.
New Accounting Standards
SFAS No. 141(R). In December 2007 the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141 (revised 2007), Business
Combinations (SFAS No. 141(R)). SFAS No. 141(R) 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
17
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 SFAS No. 141(R) effective January 1, 2009 did not have any material impact on the
Companys consolidated financial statements.
SFAS No. 160. In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements (SFAS No. 160). SFAS No. 160 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
parents equity. The amount of net income attributable to the noncontrolling interest will be
included in consolidated net income on the face of the income statement. SFAS No. 160 clarifies
that changes in a parents 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. SFAS No. 160 also includes expanded disclosure
requirements regarding the interests of the parent and its noncontrolling interest. The adoption by
the Company of SFAS No. 160 effective January 1, 2009 did not have any material impact on the
Companys consolidated financial statements.
SFAS No. 161. 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),
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 companys financial
position, financial performance, and cash flows. The adoption by the Company of SFAS No. 161
effective January 1, 2009 did not have any material impact on the Companys consolidated financial
statements.
FSP APB 14-1. 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). FSP APB 14-1 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 issuers 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 FSP APB 14-1 are required to be applied retrospectively to all periods presented. The adoption
by the Company of FSP APB 14-1 effective January 1, 2009 did not have any material impact on the
Companys consolidated financial statements.
FSP EITF 03-6-1. 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). FSP EITF 03-6-1 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 EPS. The adoption by
the Company of FSP EITF 03-6-1 effective January 1, 2009 did not have any material impact on the
Companys consolidated financial statements.
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 Companys future results of operations
or of the Companys financial condition, (2) statements regarding the adequacy of the Companys
current working capital and other available sources of funds, (3) statements regarding goals and
plans for the future, (4) expectations regarding future accounts payable services revenue trends,
and (5) the anticipated impact of Medicare recovery audit services on the Companys 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
18
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 Companys Annual Report on Form 10-K for the year ended December 31,
2008.
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.
19
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 months ended
March 31, 2009, we recognized $1.6 million 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 $0.2 million.
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 March 31, 2009, the
Company had $15.9 million of calculated borrowing availability under its revolving credit facility
and $17.8 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 March 31, 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
Companys 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 SFAS No. 123(R), as being equal to the market value of the
common stock. Also, under SFAS No. 123(R), 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 March 31, 2009, a hypothetical $1.00 change
in the market value of the Companys common stock would result in a $0.7 million change in pre-tax
income.
20
Item 4. Controls and Procedures
The Companys 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 Companys 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 Companys disclosure controls and procedures were
effective in reporting, on a timely basis, information required to be disclosed by the Company in
the reports the Company files or submits under the Exchange Act.
There were no changes in our internal control over financial reporting during the quarter
ended March 31, 2009 that have materially affected, or are reasonably likely to materially affect,
the Companys internal control over financial reporting.
21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note H of Notes to Condensed Consolidated Financial Statements (Unaudited) included in
Part I. Item 1. of this Form 10-Q which is incorporated by reference.
Item 1A. Risk Factors
There have been no material changes in the risks facing the Company as described in the
Companys Form 10-K for the year ended December 31, 2008.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The Companys senior 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
Companys capital stock.
Issuer Purchases of Equity Securities
A summary of the Companys repurchases of its common stock during the first quarter ended
March 31, 2009 is set forth below.
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|
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Maximum |
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|
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Total |
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Approximate |
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|
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|
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Number of |
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Dollar Value of |
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|
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Shares |
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Shares that |
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Purchased as |
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May Yet Be |
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Part of |
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Purchased |
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|
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Total |
|
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Average |
|
|
Publicly |
|
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Under the |
|
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|
Number |
|
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Price |
|
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Announced |
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Plans or |
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of Shares |
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Paid per |
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Plans or |
|
|
Programs |
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2009 |
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Purchased |
|
|
Share |
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|
Programs |
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|
$(000s) |
|
January 1
January 31 |
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|
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February 1
February 28 |
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|
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|
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|
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|
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|
|
March 1 March 31 |
|
|
78,754 |
|
|
$ |
3.13 |
|
|
|
78,754 |
|
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|
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|
|
|
|
|
|
|
|
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|
|
|
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|
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Total |
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|
78,754 |
|
|
$ |
3.13 |
|
|
|
78,754 |
|
|
$ |
8,067 |
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Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
22
Item 6. Exhibits
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Exhibit |
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Number |
|
Description |
3.1
|
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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 Registrants Report on Form 8-K filed on
August 17, 2006). |
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3.2
|
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Amended and Restated Bylaws of the Registrant (incorporated by
reference to Exhibit 3.1 to the Registrants Form 8-K filed on
December 11, 2007). |
|
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4.1
|
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Specimen Common Stock Certificate (incorporated by reference to
Exhibit 4.1 to the Registrants Form 10-K for the year ended
December 31, 2001). |
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4.2
|
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See Restated Articles of Incorporation and Bylaws of the
Registrant, filed as Exhibits 3.1 and 3.2, respectively. |
|
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4.3
|
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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 Registrants
Form 10-Q for the quarterly period ended June 30, 2002). |
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4.3.1
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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 Registrants Form
10-Q for the quarterly period ended September 30, 2002). |
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|
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4.3.2
|
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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 Registrants 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 Registrants 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 Registrants 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 Registrants 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 Registrants 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 Registrants 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 Registrants 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 Registrants 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 Registrants Form 8-K filed on September 5, 2007). |
|
|
|
10.1
|
|
Amendment Number Two to the Amended and Restated Financing
Agreement, dated as of March 30, 2009, by and among the Registrant
and Ableco Finance LLC, as collateral agent, Wells Fargo Foothill,
Inc., as administrative agent, and the lenders from time to time
party thereto (incorporated by reference to Exhibit 10.1 to the
Registrants Form 8-K filed on April 3, 2009). |
|
|
31.1
|
|
Certification of the Chief Executive Officer, pursuant to Rule
13a-14(a) or 15d-14(a), for the quarter ended March 31, 2009. |
23
|
|
|
Exhibit |
|
|
Number |
|
Description |
31.2
|
|
Certification of the Chief Financial Officer, pursuant to Rule
13a-14(a) or 15d-14(a), for the quarter ended March 31, 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
March 31, 2009. |
24
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.
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May 6, 2009 |
By: |
/s/ Romil Bahl
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|
|
Romil Bahl |
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President, Chief Executive
Officer, Director
(Principal Executive Officer) |
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|
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|
|
May 6, 2009 |
By: |
/s/ Peter Limeri
|
|
|
|
Peter Limeri |
|
|
|
Chief Financial Officer and
Treasurer
(Principal Financial Officer) |
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25