PRG SCHULTZ INTERNATIONAL INC - 10-Q Quarterly Report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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 June 30, 2004

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.

(Exact name of registrant as specified in its charter)


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 o

Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Exchange Act). Yes þ No o

Common shares of the registrant outstanding at July 31, 2004 were 61,866,566.

PRG-SCHULTZ INTERNATIONAL, INC.

FORM 10-Q

For the Quarter Ended June 30, 2004

INDEX


			Page No.

Part I.	Financial Information
	Item 1.	Financial Statements (Unaudited)		1
		Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2004 and 2003		1
		Condensed Consolidated Balance Sheets as of June 30, 2004 and December 31, 2003		2
		Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2004 and 2003		3
		Notes to Condensed Consolidated Financial Statements		4
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		12
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		24
	Item 4.	Controls and Procedures		24

Part II.	Other Information
	Item 1.	Legal Proceedings		26
	Item 2.	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities		26
	Item 3.	Defaults Upon Senior Securities		26
	Item 4.	Submission of Matters to a Vote of Security Holders		26
	Item 5.	Other Information		27
	Item 6.	Exhibits and Reports on Form 8-K		27
Signatures				28
EX-10.1 PRG SCHULTZ INTERNATIONAL 2004 EXECUTIVE INCENTIVE PLAN
SECTION 302 CERTIFICATION OF THE CEO
SECTION 302 CERTIFICATION OF THE CFO
SECTION 906 CERTIFICATION OF THE CEO AND CFO

PART I. FINANCIAL INFORMATION


Item 1.	Financial Statements (Unaudited)

PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Amounts in thousands, except per share data)



			Three Months Ended						Six Months Ended
			June 30,						June 30,

			2004			2003			2004			2003

Revenues			$	90,406		$	95,023		$	178,055		$	191,616
Cost of revenues				56,494			57,566			114,123			116,600
Selling, general and administrative expenses				33,244			28,940			66,450			57,733

	Operating income (loss)			668			8,517			(2,518	)		17,283
Interest (expense), net				(2,148	)		(2,218	)		(4,244	)		(4,430	)

	Earnings (loss) from continuing operations before income taxes and discontinued operations			(1,480	)		6,299			(6,762	)		12,853
Income tax expense (benefit)				(563	)		2,334			(2,570	)		4,774

	Earnings (loss) from continuing operations before discontinued operations			(917	)		3,965			(4,192	)		8,079
Discontinued operations (Note B):
	Earnings from discontinued operations, net of income tax expense of $260 and $428 in 2003			—			358			—			589
	Gain (loss) on disposal of discontinued operations, including operating results for phase-out period, net of income tax expense (benefit) of $(79) and $5,322 in 2004 and $-0- and $216 in 2003			(1,033	)		—			7,089			324

	Earnings (loss) from discontinued operations			(1,033	)		358			7,089			913

		Net earnings (loss)	$	(1,950	)	$	4,323		$	2,897		$	8,992

Basic earnings (loss) per share:
	Earnings (loss) from continuing operations before discontinued operations		$	(0.01	)	$	0.06		$	(0.07	)	$	0.13
	Discontinued operations			(0.02	)		0.01			0.12			0.01

		Net earnings (loss)	$	(0.03	)	$	0.07		$	0.05		$	0.14

Diluted earnings (loss) per share (Note C):
	Earnings (loss) from continuing operations before discontinued operations		$	(0.01	)	$	0.06		$	(0.07	)	$	0.13
	Discontinued operations			(0.02	)		0.01			0.12			0.01

		Net earnings (loss)	$	(0.03	)	$	0.07		$	0.05		$	0.14

Weighted-average shares outstanding (Note C):
	Basic			61,700			61,658			61,697			62,020

	Diluted			61,700			61,904			61,697			78,482

See accompanying Notes to Condensed Consolidated Financial Statements.

PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Amounts in thousands, except share and per share data)


				June 30,			December 31,
				2004			2003

ASSETS
Current assets:
	Cash and cash equivalents (Note F)			$	19,399		$	26,658
	Restricted cash				240			5,758
	Receivables:
		Contract receivables, less allowance for doubtful accounts of $3,389 in 2004 and $3,236 in 2003			47,312			53,185
		Employee advances and miscellaneous receivables, less allowance of $3,754 in 2004 and $4,760 in 2003			2,563			3,573

			Total receivables		49,875			56,758

	Funds held for client obligations				20,330			18,690
	Prepaid expenses and other current assets				4,792			3,779
	Deferred income taxes				9,211			9,211
	Current assets of discontinued operations				—			3,179

			Total current assets		103,847			124,033

Property and equipment:
	Computer and other equipment				59,701			54,482
	Furniture and fixtures				7,457			7,531
	Leasehold improvements				8,676			8,543

					75,834			70,556
	Less accumulated depreciation and amortization				46,324			41,090

			Property and equipment, net		29,510			29,466

Goodwill					170,495			170,619
Intangible assets, less accumulated amortization of $3,376 in 2004 and $2,683 in 2003					30,924			31,617
Deferred income taxes					65,132			65,370
Other assets					3,162			3,152
Long-term assets of discontinued operations					—			1,792

				$	403,070		$	426,049

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
	Current installments of long-term debt			$	12,100		$	31,600
	Obligations for client payables				20,330			18,690
	Accounts payable and accrued expenses				22,440			25,780
	Accrued payroll and related expenses				37,150			40,256
	Deferred revenue				4,466			4,601
	Current liabilities of discontinued operations				—			1,391

			Total current liabilities		96,486			122,318
Convertible notes, net of unamortized discount of $2,173 in 2004 and $2,605 in 2003					122,827			122,395
Deferred compensation					3,348			3,695
Other long-term liabilities					4,593			4,511

			Total liabilities		227,254			252,919

Shareholders’ equity (Note G):
	Preferred stock, no par value. Authorized 500,000 shares; no shares issued or outstanding in 2004 and 2003				—			—
	Participating preferred stock, no par value. Authorized 500,000 shares; no shares issued or outstanding in 2004 and 2003				—			—
	Common stock, no par value; $.001 stated value per share. Authorized 200,000,000 shares; issued 67,522,370 shares in 2004 and 67,489,608 shares in 2003				68			67
	Additional paid-in capital				492,965			492,878
	Accumulated deficit				(268,599	)		(271,496	)
	Accumulated other comprehensive income				217			616
	Treasury stock at cost, 5,764,525 shares in 2004 and 2003				(48,710	)		(48,710	)
	Unearned portion of restricted stock				(125	)		(225	)

			Total shareholders’ equity		175,816			173,130

Commitments and contingencies (Notes B(3) and H)
				$	403,070		$	426,049

See accompanying Notes to Condensed Consolidated Financial Statements.

PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Amounts in thousands)



					Six Months Ended
					June 30,

					2004			2003

Cash flows from operating activities:
	Net earnings				$	2,897		$	8,992
	Gain on disposal of discontinued operations					(7,089	)		(324	)
	Earnings from discontinued operations					—			(589	)

	Earnings (loss) from continuing operations					(4,192	)		8,079
	Adjustments to reconcile earnings (loss) from continuing operations to net cash provided by operating activities:
		Depreciation and amortization				8,787			8,880
		Restricted stock compensation expense				(35	)		88
		Gain (loss) on sale of property and equipment				32			(51	)
		Deferred compensation expense				(347	)		(343	)
		Deferred income taxes				(5,105	)		2,360
		Income tax benefit relating to stock option exercises				—			35
		Changes in operating assets and liabilities:
			Restricted cash			5,371			—
			Receivables			6,562			13,263
			Prepaid expenses and other current assets			(1,536	)		(922	)
			Other assets			(98	)		(210	)
			Accounts payable and accrued expenses			(4,147	)		(3,270	)
			Accrued payroll and related expenses			(2,893	)		(15,997	)
			Deferred revenue			67			1,753
			Other long-term liabilities			82			(77	)

				Net cash provided by operating activities		2,548			13,588

Cash flows from investing activities:
	Purchases of property and equipment, net of sale proceeds					(7,374	)		(5,098	)
	Proceeds from sale of certain discontinued operations					19,116			—

				Net cash provided by (used in) investing activities		11,742			(5,098	)

Cash flows from financing activities:
	Net repayments of debt					(19,500	)		6,452
	Payments for issuance costs on convertible notes					(21	)		(12	)
	Net proceeds from common stock issuances					223			214
	Purchase of treasury shares					—			(7,528	)

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