Form 10-Q
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(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 |
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| For the quarterly period ended September 30, 2002 | ||
| 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 |
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| For the transition period from to | ||
Commission File Number 0-28000
PRG-Schultz International, Inc.
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Georgia
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58-2213805 | |
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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2300 Windy Ridge Parkway Suite 100 North Atlanta, Georgia (Address of principal executive offices) |
30339-8426 (Zip Code) |
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Registrant’s telephone number, including area code: (770) 779-3900
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ Noo
Common shares of the registrant outstanding at October 31, 2002 were 63,336,271.
PRG-SCHULTZ INTERNATIONAL, INC.
FORM 10-Q
INDEX
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Part I.
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Financial Information | 1 | ||||||
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Item 1.
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Financial Statements (Unaudited) | 1 | ||||||
| Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2002 and 2001 | 1 | |||||||
| Condensed Consolidated Balance Sheets as of September 30, 2002 and December 31, 2001 | 2 | |||||||
| Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2002 and 2001 | 3 | |||||||
| Notes to Condensed Consolidated Financial Statements | 4 | |||||||
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 18 | ||||||
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk | 38 | ||||||
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Item 4.
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Controls and Procedures | 38 | ||||||
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Part II.
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Other Information | 39 | ||||||
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Item 1.
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Legal Proceedings | 39 | ||||||
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Item 2.
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Changes in Securities and Use of Proceeds | 39 | ||||||
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Item 3.
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Defaults Upon Senior Securities | 39 | ||||||
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Item 4.
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Submission of Matters to a Vote of Security Holders | 39 | ||||||
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Item 5.
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Other Information | 39 | ||||||
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Item 6.
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Exhibits and Reports on Form 8-K | 40 | ||||||
| Signatures | 42 | |||||||
| Certifications | 43 | |||||||
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
| Three Months Ended | Nine Months Ended | |||||||||||||||||
| September 30, | September 30, | |||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||||
| (Unaudited) | ||||||||||||||||||
| (Amounts in thousands, except per share data) | ||||||||||||||||||
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Revenues
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$ | 116,116 | $ | 74,690 | $ | 344,699 | $ | 227,652 | ||||||||||
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Cost of revenues
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64,758 | 42,528 | 196,695 | 130,401 | ||||||||||||||
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Selling, general and administrative expenses
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34,097 | 27,341 | 105,187 | 84,800 | ||||||||||||||
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Operating income
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17,261 | 4,821 | 42,817 | 12,451 | ||||||||||||||
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Interest (expense), net
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(2,484 | ) | (2,969 | ) | (7,158 | ) | (7,798 | ) | ||||||||||
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Earnings from continuing operations before income
taxes, discontinued operations and cumulative effect of
accounting change
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14,777 | 1,852 | 35,659 | 4,653 | ||||||||||||||
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Income taxes
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5,468 | 978 | 13,194 | 2,457 | ||||||||||||||
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Earnings from continuing operations before
discontinued operations and cumulative effect of accounting
change
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9,309 | 874 | 22,465 | 2,196 | ||||||||||||||
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Discontinued operations (Note B):
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Gain (loss) from discontinued operations, net of
income tax benefit of $(113) and $(1,392) in 2001
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— | 140 | — | (1,303 | ) | |||||||||||||
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Gain (loss) on disposal/retention of discontinued
operations including operating results for phase-out period, net
of income tax expense (benefit) of $265 and $9,604 in 2002 and
$(4,595) in 2001
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406 | (28,807 | ) | 2,716 | (28,807 | ) | ||||||||||||
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Earnings (loss) from discontinued operations
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406 | (28,667 | ) | 2,716 | (30,110 | ) | ||||||||||||
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Earnings (loss) before cumulative effect of
accounting change
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9,715 | (27,793 | ) | 25,181 | (27,914 | ) | ||||||||||||
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Cumulative effect of accounting change, net of
income tax benefit of $(11,118) in 2002 (Note C)
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— | — | (17,208 | ) | — | |||||||||||||
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Net earnings (loss)
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$ | 9,715 | $ | (27,793 | ) | $ | 7,973 | $ | (27,914 | ) | ||||||||
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Basic earnings (loss) per share (Note D):
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Earnings from continuing operations before
discontinued operations and cumulative effect of accounting
change
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$ | 0.14 | $ | 0.02 | $ | 0.36 | $ | 0.05 | ||||||||||
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Discontinued operations
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0.01 | (0.59 | ) | 0.04 | (0.63 | ) | ||||||||||||
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Cumulative effect of accounting change
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— | — | (0.27 | ) | — | |||||||||||||
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Net earnings (loss)
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$ | 0.15 | $ | (0.57 | ) | $ | 0.13 | $ | (0.58 | ) | ||||||||
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Diluted earnings (loss) per share (Note
D):
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Earnings from continuing operations before
discontinued operations and cumulative effect of accounting
change
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$ | 0.13 | $ | 0.02 | $ | 0.32 | $ | 0.05 | ||||||||||
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Discontinued operations
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— | (0.58 | ) | 0.03 | (0.62 | ) | ||||||||||||
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Cumulative effect of accounting change
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— | — | (0.21 | ) | — | |||||||||||||
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Net earnings (loss)
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$ | 0.13 | $ | (0.56 | ) | $ | 0.14 | $ | (0.57 | ) | ||||||||
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Weighted-average shares outstanding (Note
D):
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Basic
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64,362 | 48,414 | 62,616 | 48,182 | ||||||||||||||
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Diluted
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81,861 | 49,338 | 80,099 | 48,678 | ||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
1
PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
| September 30, | December 31, | ||||||||||
| 2002 | 2001 | ||||||||||
| (Unaudited) | |||||||||||
| (Amounts in thousands, | |||||||||||
| except share and per | |||||||||||
| share data) | |||||||||||
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ASSETS |
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Current assets:
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Cash and cash equivalents (Note G)
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$ | 24,579 | $ | 33,334 | |||||||
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Receivables:
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Contract receivables, less allowance for doubtful
accounts of $5,901 in 2002 and $7,002 in 2001.
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67,142 | 52,851 | |||||||||
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Employee advances and miscellaneous receivables,
less allowance of $3,809 in 2002 and $2,796 in 2001.
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5,492 | 4,917 | |||||||||
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Total receivables
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72,634 | 57,768 | |||||||||
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Funds held for client obligations
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8,894 | 8,784 | |||||||||
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Prepaid expenses and other current assets
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5,427 | 4,860 | |||||||||
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Deferred income taxes
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12,443 | 21,216 | |||||||||
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Total current assets
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123,977 | 125,962 | |||||||||
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Property and equipment:
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Computer and other equipment
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65,706 | 52,399 | |||||||||
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Furniture and fixtures
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7,496 | 5,358 | |||||||||
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Leasehold improvements
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9,966 | 7,355 | |||||||||
| 83,168 | 65,112 | ||||||||||
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Less accumulated depreciation and amortization
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47,919 | 40,583 | |||||||||
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Property and equipment, net
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35,249 | 24,529 | |||||||||
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Noncompete agreements, less accumulated
amortization of $358 in 2002 and $7,655 in 2001.
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117 | 188 | |||||||||
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Deferred loan costs, less accumulated
amortization of $336 in 2002 and $-0- in 2001.
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1,098 | 875 | |||||||||
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Goodwill, less accumulated amortization of
$27,577 in 2001.
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372,382 | 196,820 | |||||||||
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Intangible assets, less accumulated amortization
of $2,700 in 2002.
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36,610 | — | |||||||||
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Deferred income taxes
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25,336 | 20,048 | |||||||||
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Other assets
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3,617 | 10,838 | |||||||||
| $ | 598,386 | $ | 379,260 | ||||||||
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Current liabilities:
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Notes payable
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$ | — | $ | 11,564 | |||||||
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Current installments of long-term debt
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10,355 | 20 | |||||||||
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Obligations for client payables
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8,894 | 8,784 | |||||||||
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Accounts payable and accrued expenses
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25,022 | 23,937 | |||||||||
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Accrued payroll and related expenses
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51,178 | 37,089 | |||||||||
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Deferred revenue
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2,501 | 4,581 | |||||||||
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Total current liabilities
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97,950 | 85,975 | |||||||||
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Long-term debt, excluding current installments
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34,773 | — | |||||||||
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Convertible notes, net of unamortized discount of
$3,703 in 2002 and $3,834 in 2001.
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121,297 | 121,166 | |||||||||
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Deferred compensation
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4,529 | 4,024 | |||||||||
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Other long-term liabilities
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653 | — | |||||||||
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Total liabilities
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259,202 | 211,165 | |||||||||
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Shareholders’ equity (Notes H, I and
J):
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Preferred stock, no par value. Authorized 500,000
shares; no shares issued or outstanding in 2002 and 2001.
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— | — | |||||||||
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Participating preferred stock, no par value.
Authorized 500,000 shares; no shares issued or outstanding in
2002 and 2001.
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— | — | |||||||||
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Common stock, no par value; $.001 stated value
per share. Authorized 200,000,000 shares; issued 67,213,096
shares in 2002 and 51,206,610 shares in 2001.
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67 | 51 | |||||||||
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Additional paid-in capital
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491,286 | 320,126 | |||||||||
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Accumulated deficit
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(115,773 | ) | (123,746 | ) | |||||||
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Accumulated other comprehensive loss
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(2,071 | ) | (6,385 | ) | |||||||
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Treasury stock at cost, 3,882,158 shares in 2002
and 2,435,990 shares in 2001.
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(33,634 | ) | (21,024 | ) | |||||||
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Unearned portion of restricted stock
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(691 | ) | (927 | ) | |||||||
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Total shareholders’ equity
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339,184 | 168,095 | |||||||||
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Commitments and contingencies (Note J)
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| $ | 598,386 | $ | 379,260 | ||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
2
PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
| Nine Months Ended | |||||||||||
| September 30, | |||||||||||
| 2002 | 2001 | ||||||||||
| (Unaudited) | |||||||||||
| (Amounts in thousands) | |||||||||||
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Cash flows from operating activities:
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Net earnings (loss)
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$ | 7,973 | $ | (27,914 | ) | ||||||
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Earnings (loss) from discontinued operations
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(2,716 | ) | 30,110 | ||||||||
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Cumulative effect of accounting change
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17,208 | — | |||||||||
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Earnings from continuing operations
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22,465 | 2,196 | |||||||||
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Adjustments to reconcile earnings from continuing
operations to net cash provided by operating activities:
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Depreciation and amortization
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14,380 | 16,760 | |||||||||
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Loss on sale of property and equipment
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(10 | ) | — | ||||||||
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Restricted stock compensation expense
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183 | 252 | |||||||||
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Deferred compensation expense
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505 | (1,319 | ) | ||||||||
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Deferred income taxes
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6,076 | — | |||||||||
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Income tax benefit on stock option exercises
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2,868 | 675 | |||||||||
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Changes in assets and liabilities (net of effects
of acquisitions):
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Receivables
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(2,855 | ) | 420 | ||||||||
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Prepaid expenses and other current assets
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131 | (382 | ) | ||||||||
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Other assets
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(397 | ) | (16 | ) | |||||||
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Accounts payable and accrued expenses
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(10,925 | ) | (2,295 | ) | |||||||
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Accrued payroll and related expenses
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427 | (3,329 | ) | ||||||||
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Deferred revenue
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(4,436 | ) | (2,485 | ) | |||||||
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Other long-term liabilities
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(896 | ) | (715 | ) | |||||||
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Net cash provided by operating activities
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27,516 | 9,762 | |||||||||
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Cash flows from investing activities:
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Purchases of property and equipment
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(19,412 | ) | |||||||||