PRG-Schultz International Inc. is a leading provider of accounts payable and other recovery audit services to large and mid-size businesses and certain governmental agencies having numerous payment transactions with many vendors. The company has four distinct operating segments consisting of Accounts Payable Services Freight Services Tax Services and Facilities Services. Each segment represents a strategic business unit that offers a different type of recovery audit service. PRGSchultz International Inc. has a market cap of $112.3 million; its shares were traded at around $5.09 with a P/E ratio of 8 and P/S ratio of 0.6.
Highlight of Business Operations:Corporate Support SG&A increased by $0.8 million in the second quarter of 2009 and decreased by $2.0 million for the six months ended June 30, 2009, when compared to the same periods of 2008. The second quarter of 2009 includes $1.0 million of stock-based compensation expense as compared to $1.6 million of stock-based compensation expense included in the second quarter of 2008. The first six months of 2009 includes $1.0 million of stock-based compensation expense as compared to $4.6 million of stock-based compensation expense included in the same period in 2008. Excluding the stock-based compensation charges for both periods, Corporate Support SG&A increased by $1.4 million in the second quarter of 2009 and increased by $1.6 million in the six months ended June 30, 2009 as compared to the same periods in 2008. Such increases are attributable to a $0.7 million additional accrual for the settlement of the Fleming Post Confirmation Trust (PCT) litigation (see Part II, Item 1 Legal Proceedings), professional fees related to the litigation, severance charges, and increased compensation associated with hiring a new chief executive officer.
Interest Expense. Net interest expense was $0.7 million and $0.8 million for the three months ended June 30, 2009 and 2008, respectively. Net interest expense was $1.4 million and $1.8 million for the six months ended June 30, 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 six months ended June 30, 2009 primarily related to the term loan under the Companys senior credit facility, which had an outstanding balance of $16.6 million as of June 30, 2009.
Financing Activities and Interest Expense. Net cash used in financing activities was $2.9 million and $23.7 million for the six months ended June 30, 2009 and 2008, respectively. During the first six months of 2009, the Company made mandatory payments totaling $2.5 million on its term loan, reduced its capital lease obligations by $0.2 million and repurchased 78,754 shares of its outstanding common stock for approximately $0.2 million. During the first six months of 2008, the Company reduced the balance of its term loan by $23.4 million. This amount included $8.4 million of mandatory payments as well as a voluntary prepayment of $15.0 million. The Company also reduced its capital lease obligations by $0.2 million during the first six months of 2008.
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 six months of 2008, the Company reduced the balance on its term loan by $23.4 million. This reduction included $8.4 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-payment without penalty and increasing the initial borrowing capacity under the revolver portion of its facility by $10 million.
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 six months ended June 30, 2009, the Company repurchased 78,754 shares at an average price of $3.13 for a total purchase price of approximately $0.2 million, all of which were made in the first quarter. This equates to approximately 0.4% of the then outstanding shares.
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 June 30, 2009, accrued payroll and related expenses included $1.3 million and noncurrent compensation obligations included an additional $1.3 million related to these obligations.
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