EXHIBIT 99.1
PRESS RELEASE
FOR IMMEDIATE RELEASE
PRG-SCHULTZ ANNOUNCES FOURTH QUARTER AND FULL-YEAR 2005 FINANCIAL RESULTS
ATLANTA, March 7, 2006 -- PRG-Schultz International, Inc. (Nasdaq: PRGX), the
world's largest recovery audit firm, today announced financial results for the
fourth quarter and year ended December 31, 2005.
HIGHLIGHTS OF FINANCIAL RESULTS
o Net loss for the fourth quarter, including a non-cash charge of $170.4
million for impairment of goodwill and other intangibles, and a charge
of $3.6 million for severance and other charges related to the expense
restructuring announced on October 3, 2005, was ($175.8) million, or
($2.83) per share, compared to a net loss of ($74.8) million, or
($1.21) per share for the same period in 2004. Fourth quarter 2004 net
loss included a non-cash charge of $76.7 million for a valuation
adjustment of deferred tax assets.
o Adjusted EBITDA for the fourth quarter was $4.1 million. Fourth
quarter adjusted EBITDA is earnings before interest, taxes,
depreciation and amortization (EBITDA) excluding a loss of ($1.1)
million related to discontinued operations, the non-cash charge of
$170.4 million for impairment of goodwill and other intangibles, and
the $3.6 million charge for severance and other charges associated
with the previously announced expense restructuring. Adjusted EBITDA
for the fourth quarter of 2004 was $11.6 million excluding a loss of
($2.2) million related to discontinued operations and accruals of $0.3
million for the retirement benefits of the company's former Chairman
and CEO, John Cook, and its former Vice Chairman, Jack Toma.
o Consolidated revenue for the fourth quarter 2005 was $72.4 million,
compared to $91.7 million for the fourth quarter of 2004.
o Net loss for fiscal year 2005, including the non-cash charge of $170.4
million for impairment of goodwill and other intangibles, a charge of
$11.6 million for severance and other costs related to the expense
restructuring, and a charge of $3.9 million for the severance costs
related to the departure of Mr. Cook and Mr. Toma, was ($207.7)
million, or ($3.35) per share, compared with a net loss of ($71.5)
million, or ($1.16) per share, for fiscal 2004. The prior year results
included the non-cash charge of $76.7 million for the valuation
adjustment of deferred tax assets.
o Adjusted EBITDA for the full-year 2005 was $3.9 million. Adjusted
EBITDA is EBITDA excluding a loss of ($2.2) million related to
discontinued operations and excluding the non-cash charge of $170.4
million for impairment of goodwill and other intangibles, the $11.6
million charge for severance and other costs related to the
restructuring, and the $3.9 million charge for the severance costs
related to the departure of Mr. Cook and Mr. Toma. For 2004, adjusted
EBITDA was $26.2 million, excluding a gain of $4.1 million related to
discontinued operations and accruals of $1.4 million for the
retirement benefits of Messrs. Cook and Toma.
o Consolidated revenue for fiscal 2005 was $292.2 million, down 16.7%
from $350.6 million in 2004.
OTHER KEY FOURTH QUARTER EVENTS
o The company successfully implemented a major expense restructuring
plan which is expected to provide annual expense savings of
approximately $42.2 million.
o An agreement in principle on the terms of a restructuring of the
company's 4.75% Convertible Subordinated Notes due in November 2006
was reached with the ad hoc committee of noteholders.
o The company obtained $10 million in bridge financing from certain of
the current noteholders.
"Our turnaround is underway. Implementation of a major expense restructuring has
gone smoothly, and we are beginning to benefit from a substantially more
streamlined organization," said James B. McCurry, PRG-Schultz's President and
Chief Executive Officer. "Our management team has been strengthened and is
focused on continuing the progress made over the last few months."
GROSS MARGIN AND SELLING GENERAL AND ADMINISTRATIVE EXPENSES
Gross margin for the fourth quarter 2005 was $25.0 million, or 34.5% of
revenues, compared to $37.3 million, or 40.7% of revenues in the fourth quarter
of 2004.
Selling, general and administrative expenses in fourth quarter 2005 were $24.2
million, or 33.5% of revenues, compared to $29.7 million, or 32.4% of revenues
in the same period in 2004 (excluding fourth quarter 2004 accruals of $0.3
million for the retirement benefits of Messrs. Cook and Toma).
For the full-year 2005, gross margin was $97.1 million, or 33.2% of revenues, as
compared to $133.5 million or 38.1% or revenues for all of 2004.
Selling, general and administrative expenses for full-year 2005, excluding the
$3.9 million of charges related to the departure of Messrs. Cook and Toma, were
$107.5 million or 36.8% of revenues in 2005. In 2004, selling, general and
administrative expenses were $123 million, or 35.1% of revenues excluding
accruals of $1.4 million for the retirement benefits of Messrs. Cook and Toma.
IMPAIRMENT OF GOODWILL AND OTHER SIGNIFICANT CHARGES
During the fourth quarter of 2005, as part of its annual intangible asset
impairment testing, the company, together with its independent valuation
advisors, Deloitte & Touche, LLP, performed valuation analyses of its goodwill
balances as well as other intangible assets. As a result of this process, the
company determined that non-cash, pre-tax intangible asset impairment charges
totaling $170.4 million were required during the quarter and year-ended December
31, 2005, in accordance with applicable generally accepted accounting
principles. In addition, during fiscal year 2005 the company recorded a charge
of $3.9 million for severance costs related to the departure from the company of
former Chairman and CEO John Cook and former Vice Chairman Jack Toma. Both
Messrs. Cook and Toma exited the company in July 2005. Also during the fiscal
year, the company recorded a charge of $11.6 million for severance and other
charges associated with the major expense restructuring announced on October 3,
2005. As of December 31, 2005, $8.2 million of restructuring reserve remained.
LIQUIDITY
At December 31, 2005 the company had cash and cash equivalents of $11.8 million.
Total debt at year end included borrowings on a bank credit facility of $6.8
million, a $10 million bridge loan facility from certain of the company's
noteholders and $125 million of convertible subordinated notes which are due in
November 2006. As of March 6, 2006, the company's total debt included borrowings
on a bank credit facility of $2.6 million, the $10 million bridge loan facility
from certain of the company's noteholders, and the $125 million of convertible
subordinated notes.
MANAGEMENT'S ANNUAL ASSESSMENT OF INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of the company is in the process of completing its evaluation of the
Company's internal control over financial reporting as of December 31, 2005 as
required by Section 404 of the Sarbanes-Oxley Act of 2002. Based on its
evaluation to date, management has concluded that the company did not, as of
December 31, 2005, maintain effective internal control over financial reporting
due to the existence of material weaknesses in its (a) control environment and
internal control monitoring function resulting from the employment of accounting
personnel in key roles without the requisite level of technical expertise
commensurate with the company's financial reporting requirements, and (b)
controls over accounting for revenue. Notwithstanding the noted material
weaknesses, management believes that the financial statements of the company
have been accurately reported. A remediation plan to address the noted material
weaknesses is being implemented. The remediation plan to address these
weaknesses has included the hiring of additional key qualified finance and
accounting staff since December 31, 2005 (including, as previously announced, a
new Controller and Principal Accounting Officer), a review of internal revenue
recognition controls, a review of operational and financial responsibilities
relating to revenue recognition, a review of all material contracts to ensure
that revenue recognition criteria have been correctly applied, and the
institution of certain new controls designed to ensure appropriate review of all
new contracts and contract amendments by key finance personnel. The company also
plans to establish a formal process for periodic training of finance personnel
and to be more selective in the process of hiring accounting and finance
personnel. A more detailed assessment of management's evaluation of Section 404
controls and its remediation plan will be included in the company's 2005 Annual
Report on Form 10-K.
ABOUT PRG-SCHULTZ INTERNATIONAL, INC.
Headquartered in Atlanta, PRG-Schultz International, Inc. (PRG) is the world's
leading recovery audit firm, providing clients throughout the world with
insightful value to optimize and expertly manage their business transactions.
Using proprietary software and expert audit methodologies, PRG industry
specialists review client purchases and payment information to identify and
recover overpayments.
NON-GAAP FINANCIAL MEASURES
EBITDA and adjusted EBITDA are both "non-GAAP financial measures" presented as
supplemental measures of our performance. They are not required by, or presented
in accordance with, accounting principles generally accepted in the United
States, or GAAP. The company believes these measures provide additional
meaningful information in evaluating the company's performance over time, and
that the rating agencies and a number of lenders use EBITDA and similar measures
for similar purposes. In addition, a number of restrictive covenants related to
the company's credit facilities use measures similar to EBITDA. However, EBITDA
and adjusted EBITDA have limitations as analytical tools, and you should not
consider them in isolation, or as substitutes for analysis of our results as
reported under GAAP. In addition, in evaluating EBITDA and adjusted EBITDA, you
should be aware that in the future we will incur expenses such as those used in
calculating these measures. Our presentation of these measures should not be
construed as an inference that our future results will be unaffected by unusual
or nonrecurring items.
Schedule 3 provides a reconciliation of net earnings (loss) to each of EBITDA
and adjusted EBITDA.
FORWARD LOOKING STATEMENTS
This press release includes certain forward-looking statements in addition to
historical information. Such statements include both implied and express
statements regarding the potential success of the company's expense
restructuring plan, expected savings resulting therefrom, the ability to
successfully complete the company's operational turnaround (including plans to
streamline the company's organization), successfully negotiate a replacement
credit facility, successfully consummate the company's pending exchange offer
for its outstanding 4.75% convertible subordinated notes and successfully
complete the previously announced overall restructuring plan. If the company is
unable to successfully complete its restructuring plan, the company may be
unable to pay its debts as they come due or continue funding its operations and
may be forced to seek protection from its creditors. Other risks that could
affect the company's future performance include the company's ability to retain
personnel, changes in the market for the company's services, and other risks
generally applicable to the company's business. For a discussion of other risk
factors that may impact the company's business and the success of its
restructuring plan, please see the company's Securities and Exchange Commission
filings, including the offering circular filed as Exhibit 99(A)(1)(a) to the
company's Schedule TO on February 1, 2006, the company's Form 10-K filed with
the Securities and Exchange Commission on March 16, 2005, and the company's
subsequent Forms 10-Q for the first three fiscal quarters of 2005. The company
disclaims any obligation or duty to update or modify these forward-looking
statements.
SCHEDULE 1
PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS TWELVE MONTHS
ENDED DECEMBER 31, ENDED DECEMBER 31,
----------------------------- ----------------------------
2005 2004 2005 2004
------------- ------------- ------------- -------------
Revenues $ 72,428 $ 91,653 $ 292,152 $ 350,602
Cost of revenues 47,442 54,330 195,091 217,059
Gross margin 24,986 37,323 97,061 133,543
Selling, general and administrative expenses 24,228 30,050 111,439 124,365
Impairment charges 170,375 170,375
Restructuring expenses 3,628 11,550
------------- ------------- ------------- -------------
Operating income (loss) (173,245) 7,273 (196,303) 9,178
Interest expense (2,567) (2,349) (8,936) (9,142)
Interest income 136 177 545 593
------------- ------------- ------------- -------------
Earning (Loss) from continuing operations before
income taxes and discontinued operations (175,676) 5,101 (204,694) 629
Income tax expense (benefit) (993) 77,789 821 76,197
------------- ------------- ------------- -------------
Earnings (loss) from continuing operations before
discontinued operations (174,683) (72,688) (205,515) (75,568)
Discontinued operations:
Earnings (loss) from discontinued operations, net
of taxes (1,071) (2,157) (2,225) 4,085
------------- ------------- ------------- -------------
Net earnings (loss) $ (175,754) $ (74,845) $ (207,740) $ (71,483)
============= ============= ============= =============
Basic and diluted earnings (loss) per share:
Loss from continuing operations before discontinued
operations $ (2.81) $ (1.18) $ (3.31) $ (1.22)
Discontinued operations (0.02) (0.03) (0.04) 0.06
------------- ------------- ------------- -------------
Net earnings (loss) $ (2.83) $ (1.21) $ (3.35) $ (1.16)
============= ============= ============= =============
Weighted average shares outstanding:
Basic 62,047 61,837 62,012 61,760
============= ============= ============= =============
Diluted 62,047 61,837 62,012 61,760
============= ============= ============= =============
Certain reclassifications have been made to the 2004 amounts to conform to
the presentation in 2005.
These reclassifications include the reclassification of certain business
units as discontinued operations.
SCHEDULE 2
PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
DECEMBER 31, DECEMBER 31,
2005 2004
---------------- ----------------
ASSETS
Current assets:
Cash and cash equivalents $ 11,848 $ 12,596
Restricted cash 3,096 120
Receivables:
Contract receivables 53,199 70,707
Employee advances and miscellaneous receivables 2,737 3,490
---------------- ----------------
Total receivables 55,936 74,197
Funds held for client obligations 32,479 30,920
Prepaid expenses and other current assets 3,991 6,080
---------------- ----------------
Total current assets 107,350 123,913
Property and equipment 17,453 26,473
Goodwill 4,600 170,684
Intangible assets 24,447 30,232
Other assets 8,730 7,291
---------------- ----------------
Total assets $ 162,580 $ 358,593
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Short term borrowings $ 16,800 $ -
Obligation for client payables 32,479 30,920
Accounts payable and accrued expenses 34,103 38,854
Accrued payroll and related expenses 44,031 41,791
Deferred revenue 4,583 6,466
Convertible notes, net of unamortized discount of $933 124,067 -
---------------- ----------------
Total current liabilities 256,063 118,031
Convertible notes, net of unamortized discount of $1,714 - 123,286
Deferred compensation 1,388 2,195
Other long-term liabilities 7,494 11,497
---------------- ----------------
Total liabilities 264,945 255,009
---------------- ----------------
Shareholders' equity (deficit):
Preferred stock - -
Common stock 68 68
Additional paid-in capital 494,826 493,532
Accumulated deficit (550,719) (342,979)
Accumulated other comprehensive income 2,400 1,740
Less treasury stock at cost (48,710) (48,710)
Unearned portion of restricted stock (230) (67)
---------------- ----------------
Total shareholders' equity (deficit) (102,365) 103,584
---------------- ----------------
Total liabilities and shareholders' equity (deficit) $ 162,580 $ 358,593
================ ================
Certain reclassifications have been made to the 2004 amounts to conform to
the presentation in 2005.
SCHEDULE 3
PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
RECONCILIATION OF NET EARNINGS (LOSS) TO ADJUSTED EBITDA
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
THREE MONTHS TWELVE MONTHS
ENDED DECEMBER 31, ENDED DECEMBER 31,
-------------------------------- ---------------------------------
2005 2004 2005 2004
-------------- -------------- -------------- ---------------
Reconciliation of net loss to Adjusted EBITDA:
Net earnings (loss) $ (175,754) $ (74,845) $ (207,740) $ (71,483)
Adjust for:
Earnings (loss) from discontinued operations (1,071) (2,157) (2,225) 4,085
-------------- -------------- -------------- ---------------
Earnings (loss) from continuing operations (174,683) (72,688) (205,515) (75,568)
Adjust for:
Income taxes (993) 77,789 821 76,197
Interest 2,431 2,172 8,391 8,549
Depreciation and amortization 3,353 4,035 14,375 15,645
-------------- -------------- -------------- ---------------
EBITDA (169,892) 11,308 (181,928) 24,823
-------------- -------------- -------------- ---------------
Impairment Charges 170,375 170,375
Restructuring Charges 3,628 11,550
Messrs. Cook & Toma Retirement/Severance - 337 3,926 1,413
-------------- -------------- -------------- ---------------
Adjusted EBITDA $ 4,111 $ 11,645 $ 3,923 $ 26,236
============== ============== ============== ===============
EBITDA and adjusted EBITDA are both "non-GAAP financial measures" presented as
supplemental measures of our performance. They are not required by, or presented
in accordance with, accounting principles generally accepted in the United
States, or GAAP. The company believes these measures provide additional
meaningful information in evaluating the company's performance over time, and
that the rating agencies and a number of lenders use EBITDA and similar measures
for similar purposes. In addition, a number of restrictive covenants related to
the company's credit facilities use measures similar to EBITDA. However, EBITDA
and adjusted EBITDA have limitations as analytical tools, and you should not
consider them in isolation, or as substitutes for analysis of our results as
reported under GAAP. In addition, in evaluating EBITDA and adjusted EBITDA, you
should be aware that in the future we will incur expenses such as those used in
calculating these measures. Our presentation of these measures should not be
construed as an inference that our future results will be unaffected by unusual
or nonrecurring items.
CONTACT: PRG-SCHULTZ INTERNATIONAL, INC.
Peter Limeri
770-779-6464