UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Form 10-Q
|
(Mark One)
|
||
|
þ
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
| For the quarterly period ended September 30, 2003 | ||
| OR | ||
|
o
|
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.
|
Georgia
|
58-2213805 | |
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
|
600 Galleria Parkway Suite 100 Atlanta, Georgia (Address of principal executive offices) |
30339-5986 (Zip Code) |
|
Registrant’s telephone number, including area code: (770) 779-3900
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No
Common shares of the registrant outstanding at October 31, 2003 were 61,585,083.
PRG-SCHULTZ INTERNATIONAL, INC.
FORM 10-Q
INDEX
| Page No. | ||||||||
|
Part I.
|
Financial Information | |||||||
|
Item 1.
|
Financial Statements (Unaudited)
|
1 | ||||||
|
Condensed Consolidated Statements of Operations
for the Three and Nine Months Ended September 30, 2003 and
2002
|
1 | |||||||
|
Condensed Consolidated Balance Sheets as of
September 30, 2003 and December 31, 2002
|
2 | |||||||
|
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 2003 and 2002
|
3 | |||||||
|
Notes to Condensed Consolidated Financial
Statements
|
4 | |||||||
|
Item 2.
|
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
|
15 | ||||||
|
Item 3.
|
Quantitative and Qualitative Disclosures About
Market Risk
|
29 | ||||||
|
Item 4.
|
Controls and Procedures
|
29 | ||||||
|
Part II.
|
Other Information | |||||||
|
Item 1.
|
Legal Proceedings
|
31 | ||||||
|
Item 2.
|
Changes in Securities and Use of Proceeds
|
31 | ||||||
|
Item 3.
|
Defaults Upon Senior Securities
|
31 | ||||||
|
Item 4.
|
Submission of Matters to a Vote of Security
Holders
|
31 | ||||||
|
Item 5.
|
Other Information
|
31 | ||||||
|
Item 6.
|
Exhibits and Reports on Form 8-K
|
31 | ||||||
| Signatures | 33 | |||||||
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, | |||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||||
| (Unaudited) | ||||||||||||||||||
| (Amounts in thousands, except per share data) | ||||||||||||||||||
|
Revenues
|
$ | 92,576 | $ | 116,116 | $ | 292,489 | $ | 344,699 | ||||||||||
|
Cost of revenues
|
60,104 | 64,758 | 182,665 | 196,695 | ||||||||||||||
|
Selling, general and administrative expenses
|
33,301 | 34,097 | 92,354 | 105,187 | ||||||||||||||
|
Operating income (loss)
|
(829 | ) | 17,261 | 17,470 | 42,817 | |||||||||||||
|
Interest (expense), net
|
(2,234 | ) | (2,484 | ) | (6,664 | ) | (7,158 | ) | ||||||||||
|
Earnings (loss) from continuing operations
before income taxes, discontinued operations and cumulative
effect of accounting change
|
(3,063 | ) | 14,777 | 10,806 | 35,659 | |||||||||||||
|
Income taxes
|
(1,149 | ) | 5,468 | 4,052 | 13,194 | |||||||||||||
|
Earnings (loss) from continuing operations
before discontinued operations and cumulative effect of
accounting change
|
(1,914 | ) | 9,309 | 6,754 | 22,465 | |||||||||||||
|
Discontinued operations (Note B):
|
||||||||||||||||||
|
Gain on disposal/retention of discontinued
operations, net of income tax expense of $138 and $354 in 2003
and $265 and $9,604 in 2002.
|
206 | 406 | 530 | 2,716 | ||||||||||||||
|
Earnings from discontinued operations
|
206 | 406 | 530 | 2,716 | ||||||||||||||
|
Earnings (loss) before cumulative effect of
accounting change
|
(1,708 | ) | 9,715 | 7,284 | 25,181 | |||||||||||||
|
Cumulative effect of accounting change, net of
income tax benefit of $(11,118) in 2002 (Note A)
|
— | — | — | (17,208 | ) | |||||||||||||
|
Net earnings (loss)
|
$ | (1,708 | ) | $ | 9,715 | $ | 7,284 | $ | 7,973 | |||||||||
|
Basic earnings (loss) per share:
|
||||||||||||||||||
|
Earnings (loss) from continuing operations
before discontinued operations and cumulative effect of
accounting change
|
$ | (0.03 | ) | $ | 0.14 | $ | 0.11 | $ | 0.36 | |||||||||
|
Discontinued operations
|
— | 0.01 | 0.01 | 0.04 | ||||||||||||||
|
Cumulative effect of accounting change
|
— | — | — | (0.27 | ) | |||||||||||||
|
Net earnings (loss)
|
$ | (0.03 | ) | $ | 0.15 | $ | 0.12 | $ | 0.13 | |||||||||
|
Diluted earnings (loss) per share (Note
C):
|
||||||||||||||||||
|
Earnings (loss) from continuing operations
before discontinued operations and cumulative effect of
accounting change
|
$ | (0.03 | ) | $ | 0.13 | $ | 0.11 | $ | 0.32 | |||||||||
|
Discontinued operations
|
— | — | 0.01 | 0.03 | ||||||||||||||
|
Cumulative effect of accounting change
|
— | — | — | (0.21 | ) | |||||||||||||
|
Net earnings (loss)
|
$ | (0.03 | ) | $ | 0.13 | $ | 0.12 | $ | 0.14 | |||||||||
|
Weighted-average shares outstanding
(Note C):
|
||||||||||||||||||
|
Basic
|
61,450 | 64,362 | 61,830 | 62,616 | ||||||||||||||
|
Diluted
|
61,450 | 81,861 | 62,090 | 80,099 | ||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
1
PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, | December 31, | ||||||||||
| 2003 | 2002 | ||||||||||
| (Unaudited) | |||||||||||
| (Amounts in thousands, except | |||||||||||
| share and per share data) | |||||||||||
| ASSETS | |||||||||||
|
Current assets:
|
|||||||||||
|
Cash and cash equivalents (Note F)
|
$ | 21,260 | $ | 14,860 | |||||||
|
Restricted cash (Note H)
|
5,756 | — | |||||||||
|
Receivables:
|
|||||||||||
|
Contract receivables, less allowance for doubtful
accounts of $4,726 in 2003 and $5,144 in 2002
|
51,984 | 69,976 | |||||||||
|
Employee advances and miscellaneous receivables,
less allowance of $4,766 in 2003 and $4,188 in 2002
|
3,602 | 3,600 | |||||||||
|
Total receivables
|
55,586 | 73,576 | |||||||||
|
Funds held for client obligations
|
16,960 | 9,043 | |||||||||
|
Prepaid expenses and other current assets
|
4,450 | 4,068 | |||||||||
|
Deferred income taxes
|
25,243 | 25,930 | |||||||||
|
Total current assets
|
129,255 | 127,477 | |||||||||
|
Property and equipment:
|
|||||||||||
|
Computer and other equipment
|
61,187 | 66,292 | |||||||||
|
Furniture and fixtures
|
7,894 | 7,934 | |||||||||
|
Leasehold improvements
|
8,279 | 7,596 | |||||||||
| 77,360 | 81,822 | ||||||||||
|
Less accumulated depreciation and amortization
|
45,326 | 46,765 | |||||||||
|
Property and equipment, net
|
32,034 | 35,057 | |||||||||
|
Goodwill
|
372,412 | 371,833 | |||||||||
|
Intangible assets, less accumulated amortization
of $2,433 in 2003 and $3,096 in 2002
|
34,980 | 36,214 | |||||||||
|
Deferred income taxes
|
11,075 | 10,628 | |||||||||
|
Other assets
|
4,454 | 4,571 | |||||||||
| $ | 584,210 | $ | 585,780 | ||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||
|
Current liabilities:
|
|||||||||||
|
Current installments of long-term debt
|
$ | — | $ | 5,527 | |||||||
|
Obligations for client payables
|
16,960 | 9,043 | |||||||||
|
Accounts payable and accrued expenses
|
24,891 | 24,269 | |||||||||
|
Accrued payroll and related expenses
|
39,311 | 50,411 | |||||||||
|
Deferred revenue
|
4,588 | 2,665 | |||||||||
|
Total current liabilities
|
85,750 | 91,915 | |||||||||
|
Long-term debt, excluding current installments
|
29,000 | 26,363 | |||||||||
|
Convertible notes, net of unamortized discount of
$2,832 in 2003 and $3,509 in 2002
|
122,168 | 121,491 | |||||||||
|
Deferred compensation
|
3,581 | 4,011 | |||||||||
|
Other long-term liabilities
|
4,051 | 4,115 | |||||||||
|
Total liabilities
|
244,550 | 247,895 | |||||||||
|
Shareholders’ equity (Note G):
|
|||||||||||
|
Preferred stock, no par value. Authorized 500,000
shares; no shares issued or outstanding
|
— | — | |||||||||
|
Participating preferred stock, no par value.
Authorized 500,000 shares; no shares issued or outstanding
|
— | — | |||||||||
|
Common stock, no par value; $.001 stated value
per share. Authorized 200,000,000 shares; issued 67,349,608
shares in 2003 and 67,281,819 shares in 2002
|
67 | 67 | |||||||||
|
Additional paid-in capital
|
492,377 | 491,894 | |||||||||
|
Accumulated deficit
|
(103,394 | ) | (110,678 | ) | |||||||
|
Accumulated other comprehensive loss
|
(384 | ) | (1,601 | ) | |||||||
|
Treasury stock at cost, 5,764,525 shares in 2003
and 4,690,158 shares in 2002
|
(48,710 | ) | (41,182 | ) | |||||||
|
Unearned portion of restricted stock
|
(296 | ) | (615 | ) | |||||||
|
Total shareholders’ equity
|
339,660 | 337,885 | |||||||||
|
Commitments and contingencies (Note H)
|
$ | 584,210 | $ | 585,780 | |||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
2
PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
| Nine Months Ended | |||||||||||
| September 30, | |||||||||||
| 2003 | 2002 | ||||||||||
| (Unaudited) | |||||||||||
| (Amounts in thousands) | |||||||||||
|
Cash flows from operating activities:
|
|||||||||||
|
Net earnings
|
$ | 7,284 | $ | 7,973 | |||||||
|
Gain on disposal/retention of discontinued
operations
|
(530 | ) | (2,716 | ) | |||||||
|
Cumulative effect of accounting change
|
— | 17,208 | |||||||||
|
Earnings from continuing operations
|
6,754 | 22,465 | |||||||||
|
Adjustments to reconcile earnings from continuing
operations to net cash provided by operating activities:
|
|||||||||||
|
Depreciation and amortization
|
13,972 | 14,380 | |||||||||
|
Gain (loss) on disposal of property and
equipment
|
115 | (10 | ) | ||||||||
|
Restricted stock compensation expense
|
271 | 183 | |||||||||
|
Deferred income taxes, net of cumulative effect
of accounting change
|
(114 | ) | 6,076 | ||||||||
|
Income tax benefit relating to stock option
exercises
|
88 | 2,868 | |||||||||
|
Changes in assets and liabilities, net of effects
of acquisitions:
|
|||||||||||
|
Restricted cash
|
(5,756 | ) | — | ||||||||
|
Receivables
|
19,201 | (2,855 | ) | ||||||||
|
Prepaid expenses and other current assets
|
(408 | ) | 131 | ||||||||
|
Other assets
|
(315 | ) | (397 | ) | |||||||
|
Accounts payable and accrued expenses
|
(910 | ) | (10,925 | ) | |||||||
|
Accrued payroll and related expenses
|
(11,723 | ) | 427 | ||||||||
|
Deferred revenue
|
1,923 | (4,436 | ) | ||||||||
|
Deferred compensation expense (benefit)
|
(430 | ) | 505 | ||||||||
|
Other long-term liabilities
|
(64 | ) | (896 | ) | |||||||
|
Net cash provided by operating activities
|
22,604 | 27,516 | |||||||||
|
Cash flows from investing activities:
|
|||||||||||
|
Purchases of property and equipment
|
(8,155 | ) | (19,412 | ) | |||||||
|
Cash acquired from acquisitions (net of cash paid)
|
— | 4,023 | |||||||||
|
Net cash used in investing activities
|
(8,155 | ) | (15,389 | ) | |||||||