Attached files
file | filename |
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EX-31.1 - EX-31.1 - PRGX GLOBAL, INC. | g25303exv31w1.htm |
EX-10.1 - EX-10.1 - PRGX GLOBAL, INC. | g25303exv10w1.htm |
EX-31.2 - EX-31.2 - PRGX GLOBAL, INC. | g25303exv31w2.htm |
EX-32.1 - EX-32.1 - PRGX GLOBAL, INC. | g25303exv32w1.htm |
EXCEL - IDEA: XBRL DOCUMENT - PRGX GLOBAL, INC. | Financial_Report.xls |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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, 2011
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
PRGX Global, Inc.
(Exact name of registrant as specified in its charter)
Georgia (State or other jurisdiction of incorporation or organization) |
58-2213805 (I.R.S. Employer Identification No.) |
600 Galleria Parkway Suite 100 Atlanta, Georgia (Address of principal executive offices) |
30339-5986 (Zip Code) |
Registrants 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 has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See definitions of large
accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check One):
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes o No þ
Common shares of the registrant outstanding at August 2, 2011 were 24,459,934.
PRGX GLOBAL, INC.
FORM 10-Q
For the Quarter Ended June 30, 2011
For the Quarter Ended June 30, 2011
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EX-32.1 | ||||||||
EX-101 INSTANCE DOCUMENT | ||||||||
EX-101 SCHEMA DOCUMENT | ||||||||
EX-101 CALCULATION LINKBASE DOCUMENT | ||||||||
EX-101 LABELS LINKBASE DOCUMENT | ||||||||
EX-101 PRESENTATION LINKBASE DOCUMENT |
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PRGX GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
(Unaudited)
(In thousands, except per share data)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenues |
$ | 50,704 | $ | 45,507 | $ | 101,422 | $ | 86,836 | ||||||||
Cost of revenues |
34,523 | 30,936 | 69,117 | 60,769 | ||||||||||||
Gross margin |
16,181 | 14,571 | 32,305 | 26,067 | ||||||||||||
Selling, general and administrative expenses |
12,297 | 10,344 | 24,727 | 20,343 | ||||||||||||
Depreciation and amortization |
2,343 | 2,202 | 4,645 | 4,312 | ||||||||||||
Operating income |
1,541 | 2,025 | 2,933 | 1,412 | ||||||||||||
Foreign currency transaction (gains) losses on
intercompany balances |
(431 | ) | 1,091 | (879 | ) | 1,712 | ||||||||||
Interest expense, net |
478 | 271 | 825 | 655 | ||||||||||||
Loss on debt extinguishment |
| | | 1,381 | ||||||||||||
Earnings (loss) before income taxes |
1,494 | 663 | 2,987 | (2,336 | ) | |||||||||||
Income tax expense |
784 | 628 | 1,905 | 1,064 | ||||||||||||
Net earnings (loss) |
$ | 710 | $ | 35 | $ | 1,082 | $ | (3,400 | ) | |||||||
Basic earnings (loss) per common share (Note B) |
$ | 0.03 | $ | 0.00 | $ | 0.04 | $ | (0.14 | ) | |||||||
Diluted earnings (loss) per common share (Note B) |
$ | 0.03 | $ | 0.00 | $ | 0.04 | $ | (0.14 | ) | |||||||
Weighted-average common shares outstanding (Note B): |
||||||||||||||||
Basic |
24,522 | 23,624 | 24,391 | 23,575 | ||||||||||||
Diluted |
24,949 | 23,806 | 24,742 | 23,575 | ||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
1
Table of Contents
PRGX GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
June 30, | December 31, | ||||||||
2011 | 2010 | ||||||||
(Unaudited) | |||||||||
ASSETS |
|||||||||
Current assets: |
|||||||||
Cash and cash equivalents (Note F) |
$ | 22,904 | $ | 18,448 | |||||
Restricted cash |
67 | 64 | |||||||
Receivables: |
|||||||||
Contract receivables, less allowances of $1,171 in 2011 and $591 in 2010: |
|||||||||
Billed |
31,326 | 31,144 | |||||||
Unbilled |
6,691 | 4,749 | |||||||
38,017 | 35,893 | ||||||||
Employee advances and miscellaneous receivables, less allowances of $335 in 2011 and
$669 in 2010 |
1,383 | 827 | |||||||
Total receivables |
39,400 | 36,720 | |||||||
Prepaid expenses and other current assets |
4,799 | 3,622 | |||||||
Total current assets |
67,170 | 58,854 | |||||||
Property and equipment |
47,293 | 43,068 | |||||||
Less accumulated depreciation and amortization |
(29,648 | ) | (27,373 | ) | |||||
Property and equipment, net |
17,645 | 15,695 | |||||||
Goodwill |
5,196 | 5,196 | |||||||
Intangible assets, less accumulated amortization of $19,873 in 2011 and $17,573 in 2010 |
21,806 | 23,855 | |||||||
Noncurrent portion of unbilled receivables |
1,746 | 1,462 | |||||||
Other assets |
1,514 | 1,259 | |||||||
$ | 115,077 | $ | 106,321 | ||||||
LIABILITIES AND SHAREHOLDERS EQUITY |
|||||||||
Current liabilities: |
|||||||||
Accounts payable and accrued expenses |
$ | 17,355 | $ | 14,365 | |||||
Accrued payroll and related expenses |
19,110 | 13,871 | |||||||
Refund liabilities |
6,947 | 7,179 | |||||||
Deferred revenues |
1,075 | 1,381 | |||||||
Current portion of debt (Note G) |
3,000 | 3,000 | |||||||
Business acquisition obligations |
2,204 | 1,380 | |||||||
Total current liabilities |
49,691 | 41,176 | |||||||
Long-term debt (Note G) |
7,500 | 9,000 | |||||||
Noncurrent business acquisition obligations |
349 | 2,435 | |||||||
Noncurrent refund liabilities |
1,053 | 982 | |||||||
Other long-term liabilities |
5,154 | 3,885 | |||||||
Total liabilities |
63,747 | 57,478 | |||||||
Commitments and contingencies (Note I) |
|||||||||
Shareholders equity (Note B): |
|||||||||
Common stock, no par value; $.01 stated value per share. Authorized 50,000,000 shares;
24,461,859 shares issued and outstanding as of June 30, 2011 and 23,932,774 shares
issued and outstanding as of December 31, 2010 |
245 | 239 | |||||||
Additional paid-in capital |
567,706 | 566,328 | |||||||
Accumulated deficit |
(520,326 | ) | (521,408 | ) | |||||
Accumulated other comprehensive income |
3,705 | 3,684 | |||||||
Total shareholders equity |
51,330 | 48,843 | |||||||
$ | 115,077 | $ | 106,321 | ||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
2
Table of Contents
PRGX GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
(In thousands)
Six Months Ended | ||||||||
June 30, | ||||||||
2011 | 2010 | |||||||
Cash flows from operating activities: |
||||||||
Net earnings (loss) |
$ | 1,082 | $ | (3,400 | ) | |||
Adjustments to reconcile net earnings (loss) from operations to net cash
provided by (used in) operating activities: |
||||||||
Depreciation and amortization |
4,645 | 4,312 | ||||||
Amortization of deferred loan costs (Note G) |
91 | 1,451 | ||||||
Stock-based compensation expense |
2,202 | 1,876 | ||||||
Loss on sale of property and equipment |
2 | 2 | ||||||
Deferred income taxes |
(269 | ) | (540 | ) | ||||
Foreign currency transaction (gains) losses on intercompany balances |
(879 | ) | 1,712 | |||||
Changes in assets and liabilities: |
||||||||
Restricted cash |
(3 | ) | 86 | |||||
Billed receivables |
488 | 1,951 | ||||||
Unbilled receivables |
(2,226 | ) | 495 | |||||
Prepaid expenses and other current assets |
(1,807 | ) | (641 | ) | ||||
Other assets |
(52 | ) | 20 | |||||
Accounts payable and accrued expenses |
2,525 | (3,060 | ) | |||||
Accrued payroll and related expenses |
4,806 | (3,258 | ) | |||||
Refund liabilities |
(161 | ) | (331 | ) | ||||
Deferred revenue |
(322 | ) | 267 | |||||
Noncurrent compensation obligations |
170 | (855 | ) | |||||
Other long-term liabilities |
(109 | ) | (421 | ) | ||||
Net cash provided by (used in) operating activities |
10,183 | (334 | ) | |||||
Cash flows from investing activities: |
||||||||
Business acquisition |
| (3,059 | ) | |||||
Purchases of property and equipment, net of disposal proceeds |
(4,227 | ) | (3,978 | ) | ||||
Net cash used in investing activities |
(4,227 | ) | (7,037 | ) | ||||
Cash flows from financing activities: |
||||||||
Repayment of former credit facility (Note G) |
| (14,070 | ) | |||||
Repayments of long-term debt and capital lease obligations |
(1,500 | ) | (1,671 | ) | ||||
Proceeds from term loan (Note G) |
| 15,000 | ||||||
Restricted stock remitted by employees for taxes |
(994 | ) | (201 | ) | ||||
Proceeds from option exercises |
308 | | ||||||
Payments for deferred loan costs |
| (619 | ) | |||||
Payments of deferred acquisition consideration |
| (782 | ) | |||||
Net cash used in financing activities |
(2,186 | ) | (2,343 | ) | ||||
Effect of exchange rates on cash and cash equivalents |
686 | (1,003 | ) | |||||
Net change in cash and cash equivalents |
4,456 | (10,717 | ) | |||||
Cash and cash equivalents at beginning of period |
18,448 | 33,026 | ||||||
Cash and cash equivalents at end of period |
$ | 22,904 | $ | 22,309 | ||||
Supplemental disclosure of cash flow information: |
||||||||
Cash paid during the period for interest |
$ | 221 | $ | 380 | ||||
Cash paid during the period for income taxes, net of refunds received |
$ | 1,924 | $ | 942 | ||||
See accompanying Notes to Condensed Consolidated Financial Statements.
3
Table of Contents
Note A - Basis of Presentation
The accompanying Condensed Consolidated Financial Statements (Unaudited) of PRGX Global, Inc.
and its wholly owned subsidiaries have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial information and with the
instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three-month and six-month periods ended June 30, 2011 are not
necessarily indicative of the results that may be expected for the year ending December 31, 2011.
Except as otherwise indicated or unless the context otherwise requires, PRGX, we, us,
our and the Company refer to PRGX Global, Inc. and its subsidiaries. For further information,
refer to the Consolidated Financial Statements and Footnotes thereto included in the Companys Form
10-K for the year ended December 31, 2010.
Certain reclassifications have been made to the 2010 financial statements to conform to the
presentations adopted in 2011. We now reflect depreciation and amortization as a separate line item
in our condensed consolidated statements of operations. We also now reflect net foreign currency
transaction gains and losses on intercompany balances (previously included in selling, general and
administrative expenses) as a non-operating item excluded from operating income (loss).
New Accounting Standards
A summary of new accounting standards issued by the Financial Accounting Standards Board
(FASB) and included in the Accounting Standards Codification (ASC) that apply to PRGX is as
follows:
FASB ASC 985-605. In September 2009, the Emerging Issues Task Force (EITF) reached final
consensus on Issue 08-1, Revenue Arrangements with Multiple Deliverables (Issue 08-1), which
updates FASB ASC 985-605 Software-Revenue Recognition and changes the accounting for certain
revenue arrangements. The new requirements change the allocation methods used in determining how to
account for multiple payment streams and will result in the ability to separately account for more
deliverables, and potentially less revenue deferrals. Additionally, Issue 08-1 requires enhanced
disclosures in financial statements. Issue 08-1 is effective for revenue arrangements entered into
or materially modified in fiscal years beginning after June 15, 2010 on a prospective basis, with
early application permitted. The adoption of FASB ASC 985-605 effective January 1, 2011 did not
have a material impact on our consolidated results of operations, financial position or cash flows.
FASB ASC Update No. 2011-04. In May 2011, the FASB issued Accounting Standards Update No.
2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S.
GAAP and IFRSs (ASU No. 2011-04). ASU No. 2011-04 develops common requirements for measuring fair
value and for disclosing information about fair value measurements in accordance with U.S.
generally accepted accounting principles (GAAP) and international financial reporting standards
(IFRS). This amendment is effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2011. We do not believe that the adoption of ASU No. 2011-04
will have a material impact on our consolidated results of operations, financial position or cash
flows.
FASB ASC Update No. 2011-05. In June 2011, the FASB issued Accounting Standards Update No.
2011-05, Presentation of Comprehensive Income (ASU 2011-05). ASU 2011-05 eliminates the option to
report other comprehensive income and its components in the statement
of shareholders equity. The
amendments in ASU 2011-05 allow an entity the option to present the total of comprehensive income,
the components of net income, and the components of other comprehensive income either in a single
continuous statement of comprehensive income or in two separate but consecutive statements. In both
choices, an entity is required to present each component of net income along with total net income,
each component of other comprehensive income along with a total for other comprehensive income, and
a total amount for comprehensive income. The amendments in ASU 2011-05 do not change the items that
must be reported in other comprehensive income or when an item of other comprehensive income must
be reclassified to net income. The Company must adopt these changes no later than its fiscal
quarter ended March 31, 2012, but may adopt the changes earlier than that period. We believe that
the adoption of ASU No. 2011-05 will only impact the presentation of our financial statements and
will not have a material impact on our consolidated results of operations, financial position or
cash flows.
4
Table of Contents
Note B - Earnings (Loss) Per Common Share
The following tables set forth the computations of basic and diluted earnings (loss) per
common share for the three and six months ended June 30, 2011 and 2010 (in thousands, except per
share data):
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Basic earnings (loss) per common share: |
||||||||||||||||
Numerator: |
||||||||||||||||
Net earnings (loss) |
$ | 710 | $ | 35 | $ | 1,082 | $ | (3,400 | ) | |||||||
Denominator: |
||||||||||||||||
Weighted-average common shares outstanding |
24,522 | 23,624 | 24,391 | 23,575 | ||||||||||||
Basic earnings (loss) per common share |
$ | 0.03 | $ | 0.00 | $ | 0.04 | $ | (0.14 | ) | |||||||
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Diluted earnings (loss) per common share: |
||||||||||||||||
Numerator: |
||||||||||||||||
Net earnings (loss) |
$ | 710 | $ | 35 | $ | 1,082 | $ | (3,400 | ) | |||||||
Denominator: |
||||||||||||||||
Weighted-average common shares outstanding |
24,522 | 23,624 | 24,391 | 23,575 | ||||||||||||
Incremental shares from stock-based compensation plans |
427 | 182 | 351 | | ||||||||||||
Denominator for diluted earnings (loss) per
common share |
24,949 | 23,806 | 24,742 | 23,575 | ||||||||||||
Diluted earnings (loss) per common share |
$ | 0.03 | $ | 0.00 | $ | 0.04 | $ | (0.14 | ) | |||||||
For the three and six months ended June 30, 2011, options to purchase 1.7 million shares of
common stock were excluded from the computation of diluted earnings (loss) per common share because
the options exercise prices were greater than the average market price of the common shares during
the period and were therefore antidilutive. For the three months ended June 30, 2010, options to
purchase 1.9 million shares of common stock were excluded from the computation of diluted earnings
(loss) per common share because the options exercise prices were greater than the average market
price of the common shares during the period and were therefore antidilutive. For the six months
ended June 30, 2010, 89,662 Performance Units related to the Companys 2006 Management Incentive
Plan and options to purchase 2.3 million shares of common stock were excluded from the computation
of diluted earnings (loss) per common share due to their antidilutive effect to loss per common
share. We consider nonvested restricted shares and nonvested restricted share units to be
participating securities, thus for the three and six months ended June 30, 2011 and 2010, 1.2
million nonvested restricted shares and 0.3 million nonvested restricted share units were included
in our basic and diluted earnings (loss) per share calculations.
5
Table of Contents
Note C - Stock-Based Compensation
The Company currently has three stock-based compensation plans under which awards have been
granted: (1) the Stock Incentive Plan, (2) the 2006 Management Incentive Plan (2006 MIP) and (3)
the 2008 Equity Incentive Plan (2008 EIP) (collectively, the Plans). The Plans are described in
the Companys Annual Report on Form 10K for the fiscal year ended December 31, 2010.
Stock options granted under the 2008 EIP generally have a term of seven years and vest in
equal annual increments over the vesting period, which typically is three years for employees and
one year for directors. The following table summarizes stock option grants during the six months
ended June 30, 2011 and 2010:
Weighted | ||||||||||||||||
Grantee | # of Options | Vesting | Average | Grant Date | ||||||||||||
Type | Granted | Period | Exercise Price | Fair Value | ||||||||||||
2011 |
||||||||||||||||
Director | 4,273 | 5 months | $ | 6.11 | $ | 14,497 | ||||||||||
Director group | 53,837 | 1 year | 7.41 | 225,292 | ||||||||||||
Director | 8,546 | 3 years | 6.11 | 33,723 | ||||||||||||
Employee group | 140,000 | 2 years | 6.09 | 521,108 | ||||||||||||
Employee group | 470,064 | 3 years | 7.38 | 2,035,602 | ||||||||||||
2010 |
||||||||||||||||
Director group | 42,730 | 1 year | 3.96 | 103,184 | ||||||||||||
Employee group | 600,010 | 3 years | 4.02 | 1,564,873 |
Nonvested stock awards, including both restricted stock and restricted stock units,
generally are nontransferable until vesting and the holders are entitled to receive dividends with
respect to the nonvested shares. Prior to vesting, the grantees of restricted stock are entitled to
vote the shares, but the grantees of restricted stock units are not entitled to vote the shares.
Generally, nonvested stock awards vest in equal annual increments over the vesting period, which
typically is three years for employees and one year for directors. The following table summarizes
nonvested stock award grants (restricted stock and restricted stock units) during the six months
ended June 30, 2011 and 2010:
Grantee | # of Shares | Vesting | Grant Date | |||||||||
Type | Granted | Period | Fair Value | |||||||||
2011 |
||||||||||||
Director | 4,273 | 5 months | $ | 52,216 | ||||||||
Director group | 53,837 | 1 year | 398,932 | |||||||||
Director | 8,546 | 3 years | 26,108 | |||||||||
Employee group | 60,000 | 2 years | 365,400 | |||||||||
Employee group | 455,064 | 3 years | 3,372,024 | |||||||||
2010 |
||||||||||||
Director group | 42,730 | 1 year | 169,211 | |||||||||
Employee group | 600,010 | 3 years | 2,410,965 |
2006 MIP Performance Units
All of the 2006 MIP Performance Units outstanding as of December 31, 2010 were settled by an
executive officer on May 2, 2011. This settlement resulted in the issuance of 26,898 shares of
common stock and a cash payment totaling $0.1 million.
Selling, general and administrative expenses for the three months ended June 30, 2011 and 2010
include $1.3 million and $1.1 million, respectively, related to stock-based compensation charges.
Selling, general and administrative expenses for the six months ended June 30, 2011 and 2010
include $2.2 million and $1.9 million, respectively, related to stock-based compensation charges.
At June 30, 2011, there was $9.8 million of unrecognized stock-based compensation expense related to stock options, restricted stock and restricted
stock unit awards which we expect to recognize over a weighted-average period of 2.0 years.
6
Table of Contents
Note D - Operating Segments and Related Information
The Company is comprised of the following three reportable operating segments:
Recovery Audit Services Americas represents recovery audit services (other than healthcare
claims recovery audit services) provided in the United States of America (U.S.), Canada and Latin
America.
Recovery Audit Services Europe/Asia-Pacific represents recovery audit services (other than
healthcare claims recovery audit services) provided in Europe, Asia and the Pacific region.
New Services represents healthcare claims recovery audit services and our business analytics
and advisory services.
Additionally, Corporate Support includes the unallocated portion of corporate selling, general
and administrative expenses not specifically attributable to the three operating segments.
We evaluate the performance of our operating segments based upon revenues and measures of
profit or loss we refer to as EBITDA and Adjusted EBITDA. We define Adjusted EBITDA as earnings
from continuing operations before interest, taxes, depreciation and amortization (EBITDA) as
adjusted for unusual and other significant items that management views as distorting the operating
results of the various segments from period to period. Adjustments include restructuring charges,
stock-based compensation, bargain purchase gains, acquisition obligations classified as
compensation, intangible asset impairment charges, litigation settlements, severance charges
(including severance charges relating to the transformation of our recovery audit service delivery
model, or transformation severance) and foreign currency transaction gains and losses on
intercompany balances viewed by management as individually or collectively significant. We do not
have any inter-segment revenues. Segment information for the three and six months ended June 30,
2011 and 2010 (in thousands) is as follows:
7
Table of Contents
Recovery | Recovery Audit | |||||||||||||||||||
Audit | Services | |||||||||||||||||||
Services | Europe/Asia | New | Corporate | |||||||||||||||||
Americas | Pacific | Services | Support | Total | ||||||||||||||||
Three Months Ended June 30, 2011 |
||||||||||||||||||||
Revenues |
$ | 27,901 | $ | 15,753 | $ | 7,050 | $ | | $ | 50,704 | ||||||||||
Operating income (loss) |
$ | 6,312 | $ | 1,852 | $ | (1,714 | ) | $ | (4,909 | ) | $ | 1,541 | ||||||||
Depreciation and amortization. |
1,340 | 435 | 568 | | 2,343 | |||||||||||||||
Foreign currency transaction
gains (losses) on
intercompany balances |
14 | 416 | 1 | | 431 | |||||||||||||||
EBITDA |
7,666 | 2,703 | (1,145 | ) | (4,909 | ) | 4,315 | |||||||||||||
Foreign currency transaction
(gains) losses on
intercompany balances |
(14 | ) | (416 | ) | (1 | ) | | (431 | ) | |||||||||||
Acquisition obligations
classified as compensation |
| | 131 | | 131 | |||||||||||||||
Transformation severance and
related expenses |
270 | | | | 270 | |||||||||||||||
Stock-based compensation |
| | | 1,301 | 1,301 | |||||||||||||||
Adjusted EBITDA |
$ | 7,922 | $ | 2,287 | $ | (1,015 | ) | $ | (3,608 | ) | $ | 5,586 | ||||||||
Three Months Ended June 30, 2010 |
||||||||||||||||||||
Revenues |
$ | 29,870 | $ | 12,957 | $ | 2,680 | $ | | $ | 45,507 | ||||||||||
Operating income (loss) |
$ | 6,812 | $ | 1,440 | $ | (1,956 | ) | $ | (4,271 | ) | $ | 2,025 | ||||||||
Depreciation and amortization. |
1,477 | 399 | 326 | | 2,202 | |||||||||||||||
Foreign currency transaction
gains (losses) on
intercompany balances |
(78 | ) | (1,013 | ) | | | (1,091 | ) | ||||||||||||
EBITDA |
8,211 | 826 | (1,630 | ) | (4,271 | ) | 3,136 | |||||||||||||
Foreign currency transaction
(gains) losses on
intercompany balances |
78 | 1,013 | | | 1,091 | |||||||||||||||
Acquisition obligations
classified as compensation |
| | 158 | | 158 | |||||||||||||||
Stock-based compensation |
| | | 1,058 | 1,058 | |||||||||||||||
Adjusted EBITDA |
$ | 8,289 | $ | 1,839 | $ | (1,472 | ) | $ | (3,213 | ) | $ | 5,443 | ||||||||
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Recovery | Recovery Audit | |||||||||||||||||||
Audit | Services | |||||||||||||||||||
Services | Europe/Asia | New | Corporate | |||||||||||||||||
Americas | Pacific | Services | Support | Total | ||||||||||||||||
Six Months Ended June 30, 2011 |
||||||||||||||||||||
Revenues |
$ | 57,014 | $ | 30,505 | $ | 13,903 | $ | | $ | 101,422 | ||||||||||
Operating income (loss) |
$ | 12,059 | $ | 3,431 | $ | (2,985 | ) | $ | (9,572 | ) | $ | 2,933 | ||||||||
Depreciation and amortization |
2,687 | 855 | 1,103 | | 4,645 | |||||||||||||||
Foreign currency transaction
gains (losses) on
intercompany balances |
23 | 854 | 2 | | 879 | |||||||||||||||
EBITDA |
14,769 | 5,140 | (1,880 | ) | (9,572 | ) | 8,457 | |||||||||||||
Foreign currency transaction
(gains) losses on
intercompany balances |
(23 | ) | (854 | ) | (2 | ) | | (879 | ) | |||||||||||
Acquisition obligations
classified as compensation |
| | 228 | | 228 | |||||||||||||||
Transformation severance and
related expenses |
937 | 160 | | | 1,097 | |||||||||||||||
Stock-based compensation |
| | | 2,202 | 2,202 | |||||||||||||||
Adjusted EBITDA |
$ | 15,683 | $ | 4,446 | $ | (1,654 | ) | $ | (7,370 | ) | $ | 11,105 | ||||||||
Six Months Ended June 30, 2010 |
||||||||||||||||||||
Revenues |
$ | 54,844 | $ | 27,695 | $ | 4,297 | $ | | $ | 86,836 | ||||||||||
Operating income (loss) |
$ | 10,642 | $ | 3,181 | $ | (3,416 | ) | $ | (8,995 | ) | $ | 1,412 | ||||||||
Depreciation and amortization |
2,957 | 804 | 551 | | 4,312 | |||||||||||||||
Foreign currency transaction
gains (losses) on
intercompany balances |
(71 | ) | (1,641 | ) | | | (1,712 | ) | ||||||||||||
EBITDA |
13,528 | 2,344 | (2,865 | ) | (8,995 | ) | 4,012 | |||||||||||||
Foreign currency transaction
(gains) losses on
intercompany balances |
71 | 1,641 | | | 1,712 | |||||||||||||||
Acquisition obligations
classified as compensation |
| | 158 | | 158 | |||||||||||||||
Stock-based compensation |
| | | 1,876 | 1,876 | |||||||||||||||
Adjusted EBITDA |
$ | 13,599 | $ | 3,985 | $ | (2,707 | ) | $ | (7,119 | ) | $ | 7,758 | ||||||||
Note E - Comprehensive Income (Loss)
Consolidated comprehensive income (loss) consists of consolidated net earnings (loss) and
foreign currency translation adjustments and consisted of the following for the three and six
months ended June 30, 2011 and 2010 (in thousands):
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net earnings (loss) |
$ | 710 | $ | 35 | $ | 1,082 | $ | (3,400 | ) | |||||||
Foreign currency translation adjustments |
(257 | ) | 127 | 21 | 285 | |||||||||||
Comprehensive income (loss) |
$ | 453 | $ | 162 | $ | 1,103 | $ | (3,115 | ) | |||||||
Note F - Cash Equivalents
Cash and cash equivalents include all cash balances and highly liquid investments with an
initial maturity of three months or less from date of purchase. We place our temporary cash
investments with high credit quality financial institutions. At times, certain investments may be
in excess of the Federal Deposit Insurance Corporation (FDIC) insurance limit, or otherwise may
not be covered by FDIC insurance.
Our cash and cash equivalents included short-term investments of approximately $2.5 million as
of June 30, 2011 and $1.7 million as of December 31, 2010 which were held at a bank in Brazil.
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Note G - Long-Term Debt
Long-term debt consisted of the following (in thousands):
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
SunTrust term loan due quarterly through January 2014 |
$ | 10,500 | $ | 12,000 | ||||
Less current portion |
3,000 | 3,000 | ||||||
$ | 7,500 | $ | 9,000 | |||||
On January 19, 2010, we entered into a four-year revolving credit and term loan agreement with
SunTrust Bank (SunTrust). The SunTrust credit facility consists of a $15.0 million committed
revolving credit facility and a $15.0 million term loan. The SunTrust credit facility is guaranteed
by the Company and all of its material domestic subsidiaries and secured by substantially all of
the assets of the Company. Availability under the SunTrust revolver is based on eligible accounts
receivable and other factors. As of June 30, 2011, we had no outstanding borrowings under the
SunTrust revolver.
The SunTrust term loan requires quarterly principal payments of $0.8 million each which
commenced in March 2010, and a final principal payment of $3.0 million in January 2014. The loan
agreement requires mandatory prepayments with the net cash proceeds from certain asset sales,
equity offerings and insurance proceeds received by the Company. The loan agreement also requires
an annual additional prepayment contingently payable in April of each year based on excess cash
flow (ECF) if our leverage ratio, as defined in the agreement, exceeds a certain threshold. No
ECF payment was required in April 2011.
Interest on both the revolver and term loan is payable monthly and accrues at an index rate
using the one-month LIBOR rate, plus an applicable margin as determined by the loan agreement. The
applicable interest rate margin varies from 2.25% per annum to 3.5% per annum, dependent on our
consolidated leverage ratio, and is determined in accordance with a pricing grid under the SunTrust
loan agreement. The applicable margin was 2.5% and the interest rate was approximately 2.69% at
June 30, 2011. We also must pay a commitment fee of 0.5% per annum, payable quarterly, on the
unused portion of the $15.0 million SunTrust revolving credit facility. We made mandatory principal
payments on the SunTrust term loan totaling $1.5 million during the six months ended June 30, 2011.
We used substantially all the funds from the SunTrust term loan in January 2010 to repay in
full the principal of $14.1 million outstanding under a term loan with Ableco LLC (Ableco). In
conjunction with terminating the Ableco credit facility, we recorded a loss on extinguishment of
debt totaling $1.4 million consisting of unamortized deferred loan costs.
Note H - Fair Value of Financial Instruments
Cash and cash equivalents are stated at cost, which we believe approximates fair market value.
We believe the carrying values for billed and unbilled receivables, accounts payable and other
accrued liabilities reasonably approximate fair market value due to the nature of the financial
instrument and the short term maturity of these items.
Long-term debt of $10.5 million as of June 30, 2011 and $12.0 million as of December 31, 2010
represents the outstanding balance of the SunTrust term loan and is reported at the unpaid
principal balance as of those dates. We believe that the fair value of such instrument is
approximately equal to its carrying value as of those dates.
Reported liabilities include business acquisition obligations of $4.3 million as of June 30,
2011 and $3.8 million as of December 31, 2010 representing the fair value of deferred consideration
and earn-out payments estimated to be due as of those dates. We determine the estimated fair values
based on our projections of relevant future revenues and other factors used in the calculation of
the ultimate payment to be made. We use the discount rate that was initially used to value the
liability at the acquisition date which we based on specific business risk, cost of capital, and
other factors. We consider these factors to be Level 3 inputs (significant unobservable inputs).
We test our reported goodwill and other intangible assets for impairment at least annually.
The annual impairment tests are based on fair value measurements using Level 3 inputs primarily
consisting of estimated discounted cash flows expected to result from the use of the relevant
assets. As of the date of the last test, which was
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October 1, 2010, management concluded that there was no impairment of goodwill or other
intangible assets as of that date and no events have occurred since then that would indicate
impairment.
Note I - Commitments and Contingencies
Legal Proceedings
In the normal course of business, the Company is involved in and subject to various claims,
disputes and uncertainties. After reviewing with legal counsel all of such matters, we believe that
the aggregate losses, if any, related to such matters will not have a material adverse effect on
the Companys financial position or results of operations.
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Overview
We conduct our operations through three reportable operating segments: Recovery Audit Services
Americas, Recovery Audit Services Europe/Asia-Pacific and New Services. The Recovery Audit
Services Americas segment represents recovery audit services (other than healthcare claims
recovery audit services) we provide in the U.S., Canada and Latin America. The Recovery Audit
Services Europe/Asia-Pacific segment represents recovery audit services (other than healthcare
claims recovery audit services) we provide in Europe, Asia and the Pacific region. The New Services
segment includes business analytics and advisory services as well as healthcare claims recovery
audit services. We include the unallocated portion of corporate selling, general and administrative
expenses not specifically attributable to the three operating segments in Corporate Support.
Recovery auditing is a business service focused on finding overpayments created by errors in
payment transactions, such as missed or inaccurate discounts, allowances and rebates, vendor
pricing errors, erroneous coding and duplicate payments. Generally, we earn our recovery audit
revenues by identifying overpayments made by our clients, assisting our clients in recovering the
overpayments from their vendors, and collecting a specified percentage of the recoveries from our
clients as our fee. The fee percentage we earn is based on specific contracts with our clients that
generally also specify: (a) time periods covered by the audit; (b) the nature and extent of
services we are to provide; and (c) the clients duties in assisting and cooperating with us.
Clients generally recover claims by either taking credits against outstanding payables or future
purchases from the relevant vendors, or receiving refund checks directly from those vendors. The
manner in which a claim is recovered by a client is often dictated by industry practice. In
addition, many clients establish client-specific procedural guidelines that we must satisfy prior
to submitting claims for client approval. For some services we provide, such as advisory services,
we earn our compensation in the form of a flat fee, a fee per hour, or a fee per other unit of
service.
We earn the vast majority of our recovery audit revenues from clients in the retail industry
due to the high volume of purchases and the complicated discount programs typical in this industry.
Changes in consumer spending associated with economic fluctuations such as the recent global
downturn generally impact our revenues to a lesser degree than they affect individual retailers due
to several factors, including:
| Diverse client base our clients include a diverse mix of discounters, grocery, pharmacy, department and other stores that tend to be impacted to varying degrees by general economic fluctuations, and even in opposite directions from each other depending on their position in the market and their market segment; | ||
| Motivation when our clients experience a downturn, they frequently are more motivated to use our services to recover prior overpayments to make up for relatively weaker financial performance in their own business operations; | ||
| Nature of claims the relationship between the dollar amount of recovery audit claims identified and client purchases is non-linear. Claim volumes are generally impacted by purchase volumes, but a number of other factors may have an even more significant impact on claim volumes, including new items being purchased, changes in discount programs offered by vendors and changes in a clients or a vendors information processing systems; and | ||
| Timing the client purchase data on which we perform our recovery audit services is historical data that typically reflects transactions between our clients and their vendors that took place 3 to 15 months prior to the data being provided to us for audit. As a result, we generally experience a delayed impact from economic changes that varies by client and the impact may be positive or negative depending on the individual clients circumstances. |
While the net impact of changes in the current economic environment on our recovery audit
revenues is difficult to determine or predict, we believe that for the foreseeable future, our
revenues will remain at a level that will not have a significant adverse impact on our liquidity,
and we have taken steps to mitigate any adverse impact of an economic downturn on our revenues and
overall financial health. These steps include devoting substantial efforts to the development of a
lower cost service delivery model to enable us to more cost effectively serve our clients.
Further, we are working diligently to expand our business beyond our core recovery audit services
to retailers by growing the portion of our business that provides recovery audit services to
enterprises other than retailers and growing our New Services segment which includes our healthcare
claims recovery audit services and our business
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analytics and advisory services. Our healthcare claims recovery audit services include
services we provide as a participant in the Medicare Recovery Audit Contractor program (the
Medicare RAC program).
The investments we are making in connection with our growth initiatives have had a significant
negative impact on our recent reported financial results. While we generated $9.6 million of
incremental revenues in our New Services segment in the first six months of 2011 compared to the
first six months of 2010, we continue to generate operating losses in this segment. These operating
losses primarily relate to our healthcare claims recovery audit services, which generated improved
revenues in the first six months of 2011 and which we believe will continue to generate increasing
revenues through the remainder of 2011. We will continue to monitor the performance of the New
Services segment, and will focus on achieving profitability and reducing and/or reversing the
negative impact that these efforts have had on our financial position and results of operations.
Results of Operations
The following table sets forth the percentage of revenues represented by certain items in the
Companys Condensed Consolidated Statements of Operations (Unaudited) for the periods indicated:
Three Months | Six Months | |||||||||||||||
Ended | Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenues |
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Cost of revenues |
68.1 | 68.0 | 68.1 | 70.0 | ||||||||||||
Gross margin |
31.9 | 32.0 | 31.9 | 30.0 | ||||||||||||
Selling, general and administrative expenses |
24.3 | 22.7 | 24.4 | 23.4 | ||||||||||||
Depreciation and amortization |
4.6 | 4.8 | 4.6 | 5.0 | ||||||||||||
Operating income |
3.0 | 4.5 | 2.9 | 1.6 | ||||||||||||
Foreign currency transaction (gains) losses on
intercompany balances |
(0.8 | ) | 2.4 | (0.9 | ) | 2.0 | ||||||||||
Interest expense, net |
0.9 | 0.6 | 0.8 | 0.7 | ||||||||||||
Loss on debt extinguishment |
0.0 | 0.0 | 0.0 | 1.6 | ||||||||||||
Earnings (loss) before income taxes |
2.9 | 1.5 | 3.0 | (2.7 | ) | |||||||||||
Income tax expense |
1.5 | 1.4 | 1.9 | 1.2 | ||||||||||||
Net earnings (loss) |
1.4 | % | 0.1 | % | 1.1 | % | (3.9 | %) | ||||||||
Three and Six Months Ended June 30, 2011 Compared to the Corresponding Periods of the Prior Year
Revenues. Revenues were as follows (in thousands):
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Recovery Audit Services Americas |
$ | 27,901 | $ | 29,870 | $ | 57,014 | $ | 54,844 | ||||||||
Recovery Audit Services
Europe/Asia-Pacific |
15,753 | 12,957 | 30,505 | 27,695 | ||||||||||||
New Services |
7,050 | 2,680 | 13,903 | 4,297 | ||||||||||||
Total |
$ | 50,704 | $ | 45,507 | $ | 101,422 | $ | 86,836 | ||||||||
Total revenues increased for the three months ended June 30, 2011 by $5.2 million, or 11.4%,
compared to the same period in 2010. Total revenues increased for the six months ended June 30,
2011 by $14.6 million, or 16.8%, compared to the same period in 2010.
Recovery Audit Services Americas revenues decreased by 6.6% for the second quarter of 2011
compared to the second quarter of 2010. For the six months ended June 30, 2011, revenues increased
by 4.0% compared to the same period in the prior year. We experience changes in our reported
revenues based on the strength of the U.S. dollar relative to foreign currencies. Changes in the
value of the U.S. dollar relative to currencies in Canada and Latin America positively impacted
reported revenues in both the second quarter of 2011 and six months ended June 30,
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2011. On a constant dollar basis, adjusted for changes in foreign exchange (FX) rates,
revenues for the second quarter of 2011 decreased by 8.8% compared to a decrease of 6.6% as
reported and increased by 1.9% during the first six months of 2011 compared to an increase of 4.0%
as reported.
The decrease in our Recovery Audit Services Americas revenues in the second quarter of 2011
is due to a number of factors. A portion of this decrease was attributable to some atypical
revenues at several clients during the first quarter of 2011, including revenues from client-driven
audit accelerations, which impacted revenues in the second quarter of 2011. Additionally, revenues
in this segment may vary significantly from period to period due to numerous recurring factors,
including the timing of individually significant claims, audit scope changes, variances in audit
start dates and receipt of client approval of claims. While these factors led to significant
variances in the year over year quarterly comparisons, they had a lesser impact on revenues for the
six months ended June 30, 2011 compared to the same period in 2010.
Although we generated year over year increases in revenues in this segment for the first six
months of 2011, we have experienced declining revenues in this segment in recent years due to
reduced liquidity of our clients vendors, competitive rate pressures, client attrition, and the
impact of our clients developing and strengthening their own internal audit capabilities as a
substitute for our services. To address these issues, offset their impact and generate growth in
this segment, we began implementing several growth strategies in late 2009. We reinstituted a sales
function in 2010, resulting in a significant increase in our client count in recent quarters. We
continue to implement our service delivery model transformation designed to make our recovery audit
process more cost efficient and effective. We concluded successful pilots of our new service
delivery platform in the first half of 2011, and expect to continue to expand its use. We also are
providing greater value to our existing and potential clients by offering adjacent services in the
procure-to-pay value chain and to the CFO suite, and by capitalizing on our existing data mining
and related competencies. While we are encouraged by some of our recent successes, we can provide
no assurances that we will be able to build on them in the future or that we will be able to
sustain our current revenue levels in this segment. We are near completion of our previously
disclosed investment program; however, we believe that a certain level of ongoing investments will
be necessary for us to continue to grow our revenues in the Recovery Audit Services Americas
segment.
Recovery Audit Services Europe/Asia-Pacific revenues increased by 21.6% for the three
months ended June 30, 2011 compared to the same period in 2010. For the six months ended June 30,
2011, revenues increased by 10.1% compared to the six months ended June 30, 2010. The weakening
of the U.S. dollar relative to foreign currencies in Europe, Asia and Australia positively impacted
reported revenues in both the second quarter and first half of 2011. On a constant dollar basis,
adjusted for changes in FX rates, revenues for the second quarter of 2011 increased by 7.7%
compared to an increase of 21.6% as reported and increased by 1.5% during the first six months of
2011 compared to an increase of 10.1% as reported. These increases on a constant dollar basis
primarily are attributable to additional audit areas at existing clients and new audit clients in
the 2011 periods, partially offset by audit delays experienced in the first half of 2011 at key
clients for which we expect to record the related revenues in the third and fourth quarters of
2011. As in our Recovery Audit Services Americas segment, we experience competitive and other
pressures in this segment, but to a lesser degree due to the smaller number of competitors with
global capabilities. We are implementing many of the same strategic initiatives for this segment
as we are in the Recovery Audit Services Americas segment. Also, as in the Recovery Audit
Services Americas segment, revenues in this segment may vary significantly from period to period
due to numerous recurring factors as discussed above.
New Services revenues increased by $4.4 million, or 163.1%, for the three months ended June
30, 2011 compared to the same period in 2010. For the six months ended June 30, 2011, revenues
increased by $9.6 million, or 223.6%, compared to the corresponding prior year period. New Services
revenues have grown from less than 5% of consolidated revenues in the first half of 2010 to almost
14% of consolidated revenues in the first half of 2011. We generate New Services revenues from our
advisory services, business analytics services and from our participation in the Medicare RAC
program. We generated increases in our first half of 2011 revenues in each of these areas,
particularly in our advisory services due in part to our November 2010 acquisition of The Johnsson
Group. We expect New Services revenues to continue to increase in 2011 in the aggregate. We were
awarded our first state Medicaid RAC contract early in the first quarter of 2011 and are continuing
to evaluate and bid for additional state Medicaid RAC opportunities and healthcare claims recovery
auditing opportunities in the private sector. While the magnitude and timing of additional
healthcare claims recovery audit revenues are difficult to predict, we expect those revenues to
increase in the third and fourth quarters of 2011 compared to the first half of the year.
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Cost of Revenues (COR). COR consists principally of commissions and other forms of variable
compensation we pay to our auditors based primarily upon the level of overpayment recoveries and/or
profit margins derived therefrom, fixed auditor salaries, compensation paid to various types of
hourly support staff and salaries for operational and client service managers for our recovery
audit, business analytics and advisory services businesses. COR also includes other direct and
indirect costs incurred by these personnel, including office rent, travel and entertainment,
telephone, utilities, maintenance and supplies and clerical assistance. A significant portion of
the components comprising COR is variable and will increase or decrease with increases or decreases
in revenues.
COR was as follows (in thousands):
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Recovery Audit Services Americas |
$ | 15,597 | $ | 17,146 | $ | 32,240 | $ | 33,301 | ||||||||
Recovery Audit Services
Europe/Asia-Pacific |
12,068 | 10,170 | 23,658 | 21,413 | ||||||||||||
New Services |
6,858 | 3,620 | 13,219 | 6,055 | ||||||||||||
Total |
$ | 34,523 | $ | 30,936 | $ | 69,117 | $ | 60,769 | ||||||||
COR as a percentage of revenues for Recovery Audit Services Americas was 55.9% and 57.4%
for the three months ended June 30, 2011 and 2010, respectively. This equates to gross margin
percentages of 44.1% and 42.6% in the 2011 and 2010 periods, respectively. For the six months ended
June 30, 2011 and 2010, COR as a percentage of revenues for Recovery Audit Services Americas was
56.5% and 60.7%, respectively. This equates to gross margin percentages of 43.5% and 39.3% in the
2011 and 2010 periods, respectively. The increase in gross margins for the three and six months
ended June 30, 2011 compared to the same periods in 2010 is attributable primarily to decreases in
auditor compensation relative to revenues. Gross margins in the Recovery Audit Services Americas
segment in both 2011 and 2010 were negatively impacted by the inclusion in COR of significant
portions of the non-capitalized amounts of the costs of the previously disclosed recovery audit
service delivery model transformation. This transformation involves the centralization of audit
functions and other process improvements that we believe will improve the efficiency and lower the
costs of delivering our recovery audit services.
COR as a percentage of revenues for Recovery Audit Services Europe/Asia-Pacific was 76.6%
and 78.5% for the three months ended June 30, 2011 and 2010, respectively. This equates to gross
margin percentages of 23.4% and 21.5% in the 2011 and 2010 periods, respectively. For the six
months ended June 30, 2011 and 2010, COR as a percentage of revenues for Recovery Audit Services
Europe/Asia-Pacific was 77.6% and 77.3%, respectively. This equates to gross margin percentages of
22.4% and 22.7% in the 2011 and 2010 periods, respectively. The slight changes in the gross margins
in these periods primarily resulted from changes in the mix of audit revenues and from changes in
our methods of providing audit services in Europe. We subcontract a significant portion of our
audit services in Europe to third-party audit firms. We currently are migrating several of the
larger audits to an employee model. Although we incur some increased costs during this migration
process, we expect that the migrations ultimately will result in higher gross margins for this
segment and for the Company as a whole.
The higher COR as a percentage of revenues for Recovery Audit Services Europe/Asia-Pacific
(76.6% for the second quarter of 2011 and 77.6% for the six months ended June 30, 2011) compared to
Recovery Audit Services Americas (55.9% for the second quarter of 2011 and 56.5% for the six
months ended June 30, 2011) is due primarily to differences in service delivery models, scale and
geographic fragmentation. The Recovery Audit Services Europe/Asia-Pacific segment generally
serves fewer clients in each geographic market and on average generates lower revenues per client
than those served by the Companys Recovery Audit Services Americas segment.
New Services COR relates primarily to costs of advisory services and costs associated with our
participation in the Medicare RAC program. COR as a percentage of revenues for New Services was
97.3% and 95.1% for the three and six months ended June 30, 2011, reflecting New Services gross
profits of $0.2 million and $0.7 million for these periods, respectively. New Services COR exceeded
revenues by $0.9 million and $1.8 million for the three and six months ended June 30, 2010,
respectively. The increases in New Services gross margins are due to revenue growth in all of the
Companys newly incubated Client Value Propositions, including spend optimization and profit
performance. However, COR exceeded revenues for the healthcare claims recovery audit unit by $1.0
million and $1.2 million for the three and six months ended June 30, 2011, respectively. Despite
significant growth in revenues in this unit during 2011, we continued to incur losses as we
expanded our service capacity in anticipation of greater healthcare claims recovery audit activity.
We expect to increase these revenues and adjust our cost structure in the second half of 2011 in
order to improve our operating performance in our healthcare claims recovery audit unit.
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Selling, General and Administrative Expenses (SG&A). SG&A expenses of the Recovery Audit
and New Services segments include the expenses of sales and marketing activities, information
technology services and allocated corporate data center costs, human resources, legal, accounting,
administration, foreign currency transaction gains and losses on other than intercompany balances
and gains and losses on asset disposals related to the Recovery Audit and New Services segments.
Corporate Support SG&A represents the unallocated portion of SG&A expenses which are not
specifically attributable to our segment activities and include the expenses of information
technology services, the corporate data center, human resources, legal, accounting, treasury,
administration and stock-based compensation charges.
SG&A expenses were as follows (in thousands):
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Recovery Audit Services Americas |
$ | 4,652 | $ | 4,435 | $ | 10,028 | $ | 7,944 | ||||||||
Recovery Audit Services
Europe/Asia-Pacific |
1,398 | 948 | 2,561 | 2,297 | ||||||||||||
New Services |
1,338 | 690 | 2,566 | 1,107 | ||||||||||||
Corporate support |
4,909 | 4,271 | 9,572 | 8,995 | ||||||||||||
Total |
$ | 12,297 | $ | 10,344 | $ | 24,727 | $ | 20,343 | ||||||||
Recovery Audit Services Americas SG&A increased 4.9% for the three months ended June 30,
2011 and 26.2% for the six months ended June 30, 2011 from the comparable periods in 2010. These
increases resulted primarily from severance costs related to the transformation of our recovery
audit service delivery model and incentive compensation accruals, combined with higher selling and
marketing costs we incurred in connection with our efforts to increase revenues in this segment. In
addition, the first quarter of 2010 included a reversal of a portion of our provision for bad debts
that resulted in lower reported SG&A expenses in the six months ended June 30, 2010.
Recovery Audit Services Europe/Asia-Pacific SG&A increased 47.5% and 11.5% for the three
and six months ended June 30, 2011, respectively, compared to the same periods in 2010. These
increases are due to increased sales efforts in the segment coupled with increased provisions for
bad debts in the 2011 periods compared to reversals of provisions for bad debts and a reduction of
a business acquisition earn-out estimate in the 2010 periods.
New Services SG&A increased 93.9% and 131.8% in the three and six months ended June 30, 2011,
respectively, compared to the same periods in 2010. These increases are related to our growth in
New Services revenues and are attributable to several factors, including: the additional operating
costs of our 2010 acquisitions, including Etesius Limited in February 2010 and The Johnsson Group
in November 2010; higher costs relating to our participation in the Medicare RAC program
subcontracts; and the hiring of additional sales and business development personnel.
Corporate Support SG&A increased 14.9% and 6.4% for the three and six months ended June 30,
2011, respectively, when compared to the same periods in 2010. These increases are due primarily to
higher stock-based compensation charges, incentive compensation accruals and marketing costs.
Depreciation and Amortization. Depreciation and amortization was as follows (in thousands):
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Recovery Audit Services Americas |
$ | 1,340 | $ | 1,477 | $ | 2,687 | $ | 2,957 | ||||||||
Recovery Audit Services
Europe/Asia-Pacific |
435 | 399 | 855 | 804 | ||||||||||||
New Services |
568 | 326 | 1,103 | 551 | ||||||||||||
Total |
$ | 2,343 | $ | 2,202 | $ | 4,645 | $ | 4,312 | ||||||||
During the second quarter of 2010, we revised our estimate of the useful lives of certain
fixed assets for the purpose of calculating depreciation expense based on a review of our planned
fixed asset replacement cycle. The effects of these changes reduced depreciation expense in the
three and six months ended June 30, 2011 but was not significant in the three and six months ended
June 30, 2010. The increase in depreciation and amortization expense in the New Services segment is
primarily due to amortization of intangible assets recorded in connection with our
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acquisitions of Etesius Limited and The Johnsson Group, as well as an increase in the
depreciation of capitalized software development costs.
Foreign Currency Transaction (Gains) Losses on Intercompany Balances. Foreign currency
transaction gains and losses on intercompany balances result from the remeasurement of the foreign
subsidiaries balances payable to the U.S. parent from their local currency to their U.S. dollar
equivalent. Substantial changes from period to period in foreign currency exchange rates may
significantly impact the amount of such gains and losses. The strengthening of the U.S. dollar
relative to other currencies results in recorded losses on intercompany balances receivable from
our foreign subsidiaries while the weakening of the U.S. dollar results in recorded gains. In the
three months ended June 30, 2011, we recorded foreign currency gains of $0.4 million on
intercompany balances, while we recorded foreign currency losses of $1.1 million on intercompany
balances in the three months ended June 30, 2010, a change of $1.5 million between periods. For the
first six months of 2011, we recorded foreign currency gains of $0.9 million on intercompany
balances, while we recorded foreign currency losses of $1.7 million on intercompany balances for
the first six months of 2010, a change of $2.6 million between periods.
Net Interest Expense and Loss on Debt Extinguishment. Net interest expense was $0.5 million
and $0.3 million for the three months ended June 30, 2011 and 2010, respectively. Net interest
expense was $0.8 million and $0.7 million for the six months ended June 30, 2011 and 2010,
respectively. We entered into a new credit facility with SunTrust Bank in the first quarter of 2010
(see Secured Credit Facility below for additional information regarding this transaction) and
repaid our prior term loan from Ableco LLC. In connection with our repayment of the Ableco term
loan we recorded a $1.4 million loss on extinguishment of debt representing the write-off of the
unamortized deferred loan costs. The increase in net interest expense in the 2011 periods is
primarily due to interest expense associated with business acquisition obligations.
Income Tax Expense. Our income tax expense amounts as reported in the accompanying Condensed
Consolidated Financial Statements (Unaudited) do not reflect amounts that normally would be
expected due to several factors. The most significant of these factors is that for U.S. tax
reporting purposes we have net operating loss carryforwards and other tax attributes which created
deferred tax assets on our balance sheet. We reduce our deferred tax assets by a valuation
allowance if it is more likely than not that some portion or all of a deferred tax asset will not
be realized. Generally, these factors result in our recording no net income tax expense or benefit
relating to our operations in the United States. Reported income tax expense for the three and six
months ended June 30, 2011 and 2010 primarily results from taxes on the income of our foreign
subsidiaries.
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Liquidity and Capital Resources
As of June 30, 2011, we had $22.9 million in cash and cash equivalents and no borrowings under
the revolver portion of our credit facility. The revolver had approximately $8.1 million of
calculated availability for borrowings. The Company was in compliance with the covenants in its
SunTrust credit facility as of June 30, 2011.
Operating Activities. Net cash provided by (used in) operating activities was $10.2 million
and $(0.3 million) during the six months ended June 30, 2011 and 2010, respectively. These amounts
consist of two components, specifically, net earnings (loss) adjusted for certain non-cash items
(such as depreciation, amortization and stock-based compensation expense) and changes in assets and
liabilities, primarily working capital, as follows:
Six Months Ended | ||||||||
June 30, | ||||||||
2011 | 2010 | |||||||
Net earnings (loss) |
$ | 1,082 | $ | (3,400 | ) | |||
Adjustments for certain non-cash items |
5,792 | 8,813 | ||||||
6,874 | 5,413 | |||||||
Changes in assets and liabilities |
3,309 | (5,747 | ) | |||||
Net cash provided by (used in) operating activities |
$ | 10,183 | $ | (334 | ) | |||
The $10.5 million improvement in cash provided by operating activities in the first half of
2011 compared to the first half of 2010 was due to a $1.5 million increase in net earnings (loss)
adjusted for non-cash items and a $9.0 million improvement from changes in assets and liabilities,
primarily working capital. 2011 working capital improvements resulted primarily from $7.1 million
of increases in accounts payable and compensation accruals offset by $3.5 million in increases in
receivables and prepaid expenses. 2010 working capital deterioration resulted primarily from $7.2
million of decreases in accounts payable and compensation accruals offset by $2.4 million of
decreases in receivables. We include an itemization of these changes in our Consolidated Statements
of Cash Flows included in Item 1 of this Form 10-Q.
We incurred operating losses in our healthcare claims recovery audit unit within our New
Services segment of approximately $2.8 million and $2.3 million during the first six months of 2011
and 2010, respectively, primarily related to the Medicare RAC program. As of June 30, 2011, we had
contract receivables of $1.0 million, deferred costs (included in other current assets) of $1.0
million, as well as capitalized software development costs and other fixed assets associated with
this program. These losses and investments have had a significant negative impact on our liquidity
and cash flows. We expect to continue to incur losses, increase receivables and other current
assets, and incur capital expenditures relating to this program in the second half of 2011.
Investing Activities and Depreciation and Amortization. Depreciation and amortization for the
six months ended June 30, 2011 and 2010 amounted to $4.6 million and $4.3 million, respectively.
Net cash used for property and equipment capital expenditures was $4.2 million and $4.0 million
during the six months ended June 30, 2011 and 2010, respectively. These capital expenditures
primarily related to investments we made to upgrade our information technology infrastructure,
redesign our recovery audit services delivery model to reduce our cost to serve, and improve our
processes to generate efficiencies in the performance of our healthcare claims recovery audit
procedures.
Capital expenditures are discretionary and we currently expect future capital expenditures to
continue at slightly reduced levels over the next several quarters as we continue to enhance our
service delivery capabilities. We may alter our capital expenditure plans should we experience
changes in our operating results which cause us to adjust our operating plans.
In February 2010, the Company acquired all of the issued and outstanding capital stock of
Etesius Limited for a purchase price valued at $3.1 million. The purchase price included an initial
cash payment of $2.8 million and payment of obligations on behalf of Etesius shareholders of $0.3
million that we paid in February 2010.
Financing Activities and Interest Expense. Net cash used in financing activities was $2.2
million and $2.3 million for the six months ended June 30, 2011 and 2010, respectively. During the
first six months of 2011, we made mandatory payments totaling $1.5 million on our new term loan,
received $0.3 million in proceeds from stock option exercises and paid $1.0 million for restricted
stock remitted by employees as payment for taxes they incurred upon vesting of their restricted
stock. As described in more detail below, in January 2010, we entered into a new $15.0 million term
loan, the proceeds of which were used to repay the remaining $14.1 million of outstanding
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principal from the Ableco LLC term loan and to pay $0.5 million of the loan costs we incurred
in connection with the new SunTrust credit facility.
In January 2010, the Company made the first of two deferred payments required as part of the
acquisition of First Audit Partners LLP in the amount of £0.5 million ($0.8 million). The second
payment of £0.8 million ($1.3 million) was made in July 2010.
Secured Credit Facility
On January 19, 2010, we entered into a four-year revolving credit and term loan agreement with
SunTrust Bank (SunTrust). We used substantially all the funds from the SunTrust term loan to
repay in full the $14.1 million outstanding under our then-existing Ableco LLC term loan. The
SunTrust credit facility consists of a $15.0 million committed revolving credit facility and a
$15.0 million term loan. The SunTrust credit facility is guaranteed by the Company and its domestic
subsidiaries and is secured by substantially all of our assets. Amounts available for borrowing
under the SunTrust revolver are based on our eligible accounts receivable and other factors.
Borrowing availability under the SunTrust revolver at June 30, 2011 was $8.1 million. We had no
borrowings outstanding under the SunTrust revolver as of June 30, 2011.
The SunTrust term loan requires quarterly principal payments of $0.8 million from March 2010
through December 2013, and a final payment of $3.0 million in January 2014. The loan agreement
requires mandatory prepayments with the net cash proceeds from certain asset sales, equity
offerings and insurance claims. The loan agreement also requires an additional annual prepayment
based on excess cash flow (ECF) if our leverage ratio, as defined in the agreement, exceeds a
certain threshold. The first of any such ECF payments would have been payable in April 2011, but
our leverage ratio did not exceed the threshold and we were not required to make an ECF payment in
April 2011.
Interest on both the revolver and term loan is payable monthly and accrues at an index rate
based on the one-month LIBOR rate, plus an applicable margin as determined by the loan agreement.
The applicable interest rate margin varies from 2.25% per annum to 3.5% per annum, depending on our
consolidated leverage ratio, and is determined in accordance with a pricing grid under the SunTrust
loan agreement. The applicable margin was 2.5% and the interest rate was approximately 2.69% at
June 30, 2011. We also must pay a commitment fee of 0.5% per annum, payable quarterly, on the
unused portion of the $15.0 million SunTrust revolving credit facility.
The SunTrust credit facility includes customary affirmative, negative, and financial covenants
binding on the Company, including delivery of financial statements and other reports, maintenance
of existence, and transactions with affiliates. The negative covenants limit the ability of the
Company, among other things, to incur debt, incur liens, make investments, sell assets, repurchase
shares of its capital stock or declare or pay dividends on its capital stock. The financial
covenants included in the SunTrust credit facility, among other things, limit the amount of capital
expenditures the Company can make, set forth maximum leverage and net funded debt ratios for the
Company and a minimum fixed charge coverage ratio, and also require the Company to maintain minimum
consolidated earnings before interest, taxes, depreciation and amortization. In addition, the
SunTrust credit facility includes customary events of default.
We believe that we will have sufficient borrowing capacity and cash generated from operations
to fund our capital and operating needs for at least the next twelve months.
Off Balance Sheet Arrangements
As of June 30, 2011, the Company did not have any material off-balance sheet arrangements, as
defined in Item 303(a)(4)(ii) of the SECs Regulation S-K.
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Critical Accounting Policies
We describe the Companys significant accounting policies in Note 1 of Notes to Consolidated
Financial Statements of the Companys Annual Report on Form 10-K for the year ended December 31,
2010. We consider certain of these accounting policies to be critical to the portrayal of the
Companys financial position and results of operations, as they require the application of
significant judgment by management. As a result, they are subject to an inherent degree of
uncertainty. We identify and discuss these critical accounting policies in the Managements
Discussion and Analysis of Financial Condition and Results of Operations section of the Companys
Annual Report on Form 10-K for the year ended December 31, 2010. Management bases its estimates and
judgments on historical experience and on various other factors that management believes to be
reasonable under the circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or conditions. On an
ongoing basis, management evaluates its estimates and judgments, including those considered
critical. Management has discussed the development, selection and evaluation of accounting
estimates, including those deemed critical, and the associated disclosures in this Form 10-Q with
the Audit Committee of the Board of Directors.
Forward-Looking Statements
Some of the information in this Form 10-Q contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934, which statements involve substantial risks and uncertainties including, without
limitation, (1) statements that contain projections of the Companys future results of operations
or of the Companys financial condition, (2) statements regarding the adequacy of the Companys
current working capital and other available sources of funds, (3) statements regarding goals and
plans for the future, including the Companys strategic initiatives and growth opportunities, (4)
expectations regarding future accounts payable services revenue trends, and (5) the anticipated
impact of the Companys participation in the Medicare RAC program. All statements that cannot be
assessed until the occurrence of a future event or events should be considered forward-looking.
These statements are forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 and can be identified by the use of forward-looking words such as
may, will, expect, anticipate, believe, estimate and continue or similar words. Risks
and uncertainties that may potentially impact these forward-looking statements include, without
limitation, those set forth under Part I, Item 1A Risk Factors in the Companys Annual Report on
Form 10-K for the year ended December 31, 2010 and its other periodic reports filed with the
Securities and Exchange Commission. The Company disclaims any obligation or duty to update or
modify these forward-looking statements.
There may be events in the future, however, that the Company cannot accurately predict or over
which the Company has no control. The risks and uncertainties listed in this section, as well as
any cautionary language in this Form 10-Q, provide examples of risks, uncertainties and events that
may cause our actual results to differ materially from the expectations we describe in our
forward-looking statements. You should be aware that the occurrence of any of the events denoted
above as risks and uncertainties and elsewhere in this Form 10-Q could have a material adverse
effect on our business, financial condition and results of operations.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency Market Risk. Our reporting currency is the U.S. dollar, although we transact
business in various foreign locations and currencies. As a result, our financial results could be
significantly affected by factors such as changes in foreign currency exchange rates or weak
economic conditions in the foreign markets in which we provide our services. Our operating results
are exposed to changes in exchange rates between the U.S. dollar and the currencies of the other
countries in which we operate. When the U.S. dollar strengthens against other currencies, the value
of foreign functional currency revenues decreases. When the U.S. dollar weakens, the value of the
foreign functional currency revenues increases. Overall, we are a net receiver of currencies other
than the U.S. dollar and, as such, benefit from a weaker dollar. We therefore are adversely
affected by a stronger dollar relative to major currencies worldwide. During the three and six
months ended June 30, 2011, we recognized $4.5 million and $8.7 million, respectively, of operating
income from operations located outside the U.S., virtually all of which was originally accounted
for in currencies other than the U.S. dollar. Upon translation into U.S. dollars, such operating
income would increase or decrease, assuming a hypothetical 10% change in weighted-average foreign
currency exchange rates against the U.S. dollar, by approximately $0.5 million and $0.9 million,
respectively, for the three and six months ended June 30, 2011.
Interest Rate Risk. Our interest income and expense are sensitive to changes in the general
level of U.S. interest rates. In this regard, changes in U.S. interest rates affect the interest
earned on our cash equivalents as well as interest paid on our debt. We had $10.5 million
outstanding under a term loan and $8.1 million of calculated borrowing availability under our
revolving credit facility as of June 30, 2011, but had no amounts drawn under the revolving credit
facility as of that date. Interest on both the revolver and the term loan are payable monthly and
accrue at an index rate using the one-month LIBOR rate plus an applicable margin as determined by
the loan agreement. The applicable interest rate margin varies from 2.25% per annum to 3.5% per
annum. The applicable margin was 2.5% and the interest rate was approximately 2.69% at June 30,
2011. Assuming full utilization of the revolving credit facility, a hypothetical 100 basis point
change in interest rates applicable to the revolver would result in an approximate $0.1 million
change in annual pre-tax income. A hypothetical 100 basis point change in interest rates applicable
to the term loan would result in an approximate $0.1 million change in annual pre-tax income.
In order to mitigate some of this interest rate risk, we entered into an interest rate swap
agreement with SunTrust Bank in October 2010 under which we pay additional interest on a notional
amount of $3.8 million through December 31, 2013 to the extent that the one-month LIBOR rate is
below 1.23%, and receive payments from SunTrust Bank to the extent the index exceeds this level.
The notional amount is equal to the final two payments due under the term loan in December 2013 and
January 2014. Currently, onemonth LIBOR is below 1.23% and we are paying a minimal
amount of additional interest under this agreement. Should onemonth LIBOR rates increase
above the 1.23% level, we will incur additional interest expense on all of the amounts outstanding
under our credit facility, but will offset a portion of this additional expense with the income we
earn from the swap agreement.
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Item 4. Controls and Procedures
The Company carried out an evaluation, under the supervision and with the participation of its
management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness
of the design and operation of the Companys disclosure controls and procedures (as defined in
the Exchange Act Rule 13a-15(e)) as of the end of the period covered by this report. Based upon
that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the
Companys disclosure controls and procedures were effective as of June 30, 2011.
There were no changes in the Companys internal control over financial reporting
during the quarter ended June 30, 2011 that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In the normal course of business, the Company is involved in and subject to various claims,
disputes and uncertainties. After reviewing with legal counsel all of such matters, we believe that
the aggregate losses, if any, related to such matters will not have a material adverse effect on
the Companys financial position or results of operations.
Item 1A. Risk Factors
There have been no material changes in the risks facing the Company as described in the
Companys Form 10-K for the year ended December 31, 2010.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The Companys current credit facility prohibits the payment of any cash dividends on the
Companys capital stock.
The following table sets forth information regarding the purchases of the Companys equity
securities made by or on behalf of the Company or any affiliated purchaser (as defined in Exchange
Act Rule 10b-18) during the three-month period ended June 30, 2011:
Total Number of | Maximum Approximate | |||||||||||||||
Shares Purchased | Dollar Value of Shares | |||||||||||||||
Total Number | Average | as Part of Publicly | that May Yet Be | |||||||||||||
of Shares | Price Paid | Announced Plans | Purchased Under the | |||||||||||||
2011 | Purchased (a) | per Share | or Programs | Plans or Programs | ||||||||||||
(millions of dollars) | ||||||||||||||||
April 1 April 30 |
305 | $ | 6.09 | | $ | | ||||||||||
May 1 May 31 |
33,482 | $ | 7.76 | | $ | | ||||||||||
June 1 June 30 |
52,514 | $ | 6.75 | | $ | | ||||||||||
86,301 | $ | 7.14 | | |||||||||||||
(a) | All shares purchased during the quarter were surrendered by employees to satisfy tax withholding obligations upon vesting of restricted stock. |
Item 3. Defaults Upon Senior Securities
None.
Item 4. [Reserved]
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Item 5. Other Information
On
August 4, 2011, we entered into the Eighth Amendment (the Amendment) to our Shareholder
Protection Rights Agreement with American Stock Transfer and Trust Company, our Rights Agent, dated
as of August 9, 2000, as amended (the Shareholder Rights Plan), to extend the expiration date of
the Shareholder Rights Plan for one year. Following the Amendment, the Shareholder Rights Plan
will continue in effect until August 10, 2012, unless the rights issued thereunder are earlier
redeemed or amended by the Board of Directors of the Company.
A copy of the Amendment is attached as Exhibit 10.1 to this report and is incorporated herein
by reference. The foregoing description of the Amendment and the Shareholder Rights Plan does not
purport to be complete and is qualified in its entirety by reference to the Amendment and the
Shareholder Rights Plan.
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Item 6. Exhibits
Exhibit | ||
Number | Description | |
3.1
|
Restated Articles of Incorporation of the Registrant, as amended and corrected through August 11, 2006 (restated solely for the purpose of filing with the Commission) (incorporated by reference to Exhibit 3.1 to the Registrants Report on Form 8-K filed on August 17, 2006). | |
3.1.1
|
Articles of Amendment to the Registrant dated January 20, 2010 (incorporated by reference to Exhibit 3.1 to the Registrants Form 8-K filed on January 15, 2010). | |
3.2
|
Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrants Form 8-K filed on December 11, 2007). | |
4.1
|
Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Registrants Form 10-K for the year ended December 31, 2001). | |
4.2
|
See Restated Articles of Incorporation and Bylaws of the Registrant, filed as Exhibits 3.1 and 3.2, respectively. | |
4.3
|
Shareholder Protection Rights Agreement, dated as of August 9, 2000, between the Registrant and Rights Agent, effective May 1, 2002 (incorporated by reference to Exhibit 4.3 to the Registrants Form 10-Q for the quarterly period ended June 30, 2002). | |
4.3.1
|
First Amendment to Shareholder Protection Rights Agreement, dated as of March 12, 2002, between the Registrant and Rights Agent (incorporated by reference to Exhibit 4.3 to the Registrants Form 10-Q for the quarterly period ended September 30, 2002). | |
4.3.2
|
Second Amendment to Shareholder Protection Rights Agreement, dated as of August 16, 2002, between the Registrant and Rights Agent (incorporated by reference to Exhibit 4.3 to the Registrants Form 10-Q for the quarterly period ended September 30, 2002). | |
4.3.3
|
Third Amendment to Shareholder Protection Rights Agreement, dated as of November 7, 2006, between the Registrant and Rights Agent (incorporated by reference to Exhibit 4.1 to the Registrants Form 8-K filed on November 14, 2005). | |
4.3.4
|
Fourth Amendment to Shareholder Protection Rights Agreement, dated as of November 14, 2006, between the Registrant and Rights Agent (incorporated by reference to Exhibit 4.1 to the Registrants Form 8-K filed on November 30, 2005). | |
4.3.5
|
Fifth Amendment to Shareholder Protection Rights Agreement, dated as of March 9, 2006, between the Registrant and Rights Agent (incorporated by reference to Exhibit 4.9 to the Registrants Form 10-K for the year ended December 31, 2005). | |
4.3.6
|
Sixth Amendment to Shareholder Protection Rights Agreement, dated as of September 17, 2007, between the Registrant and Rights Agent (incorporated by reference to Exhibit 4.1 to the Registrants Form 8-K filed on September 21, 2007). | |
4.3.7
|
Seventh Amendment to Shareholder Protection Rights Agreement, dated as of August 9, 2010, between the Registrant and Rights Agent (incorporated by reference to Exhibit 4.1 to the Registrants Form 8-K filed on August 9, 2010). | |
10.1
|
Eighth Amendment, dated August 4, 2011, to the Registrants Shareholder Protection Rights Agreement between the Registrant and American Stock Transfer and Trust Company, as Rights Agent, dated as of August 9, 2000, as amended. | |
31.1
|
Certification of the Chief Executive Officer, pursuant to Rule 13a-14(a) or 15d-14(a), for the quarter ended June 30, 2011. | |
31.2
|
Certification of the Chief Financial Officer, pursuant to Rule 13a-14(a) or 15d-14(a), for the quarter ended June 30, 2011. | |
32.1
|
Certification of the Chief Executive Officer and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, for the quarter ended June 30, 2011. | |
101
|
The following financial information from the Registrants Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2011, formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Statements of Operations, (ii) Consolidated Balance Sheets, (iii) Consolidated Statements of Cash Flows and (iv) Notes to Consolidated Financial Statements.* |
* | Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not to be filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Act of 1934, as amended, and otherwise are not subject to liability under these sections. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PRGX GLOBAL, INC. |
||||
August 9, 2011 | By: | /s/ Romil Bahl | ||
Romil Bahl | ||||
President, Chief Executive Officer, Director (Principal Executive Officer) |
||||
August 9, 2011 | By: | /s/ Robert B. Lee | ||
Robert B. Lee | ||||
Chief Financial Officer and Treasurer (Principal Financial Officer) |
||||
26