We remain steadfastly committed to this goal. Although the past 12 months have been an extremely challenging period for PRG, I am pleased to report that, as we begin 2001, we are in the process of positioning the Company to regain the growth momentum we have enjoyed in the past – the growth you expect and deserve in the future. In the process, we will create a win-win situation for our shareholders, clients, and employees through a renewed focus on what we do best – recovery audit services – and by taking advantage of the compelling growth opportunities in this business.

As you may know, PRG made several investments in businesses outside of our core Accounts Payable business over the past several years. The intent was to assemble a diverse but synergistic suite of services that could fully serve the needs of our clients. While the outlook and potential for these acquired businesses as stand-alone enterprises remain strong, it has required a significant amount of management time and capital investment to fully realize the potential of this combined business model. As a result, we concluded that it was not the best course for PRG to pursue.

Several factors led us to this conclusion. Our financial performance throughout 2000 was not satisfactory, with revenues and net earnings falling short of our expectations. While some of the drivers behind these results were beyond our control, such as a tax strike in France and a number of currency valuation issues, others were clearly a matter of execution. Wall Street’s disappointment in the financial performance was reflected in a declining stock price. Although we did take advantage of a lower valuation by repurchasing more than $21 million of the Company’s stock, it became increasingly evident that we needed to seriously evaluate the Company’s strategic direction. During the fourth quarter, the management team began a comprehensive strategic review of each of our business lines with the assistance of strategy consultants Bain & Company. Out of this process came a strategic realignment plan that we believe will resolve many of the challenges of the past year. Even more importantly, this plan will enable PRG to fully capitalize on the true potential of our core business – Accounts Payable.

Our realignment strategy has four key components. First, we are divesting most of our non-core business lines outside the Accounts Payable area. These divestitures will include the Meridian VAT Reclaim business and the Company’s communications, logistics, and ship & debit divisions. Second, we will use the proceeds from these divestitures to reduce bank debt. Third, we expect to realize substantial cost savings through reductions in corporate overhead. Fourth, we will refocus our technology investments, including next-generation software tools, on our core Accounts Payable business.

The objectives for this plan are remarkably simple. Strategically, the Company is focusing on the significant growth prospects that are unfolding in the recovery services industry. Operationally, this is a back-to-basics approach. PRG is already the industry-leading expert in recovery audit services, and we intend to find new ways to be even better. Financially, the Company is committed to regaining the top- and bottom-line growth that contributed to our success in the past and that, I believe, will do so again. We expect market expansion and technology advances to be the key drivers of this growth.

Although PRG has an enviable and prominent position in today’s U.S. Accounts Payable market, there remains a vast amount of upside to this business. PRG currently does business with nearly half of the top 100 U.S. retailers while our market penetration among major U.S. retailers with annual revenues of more than $500 million is nearly 30%. Additionally, 30% of the Fortune 1000 use PRG to help them recover profits and contain costs. Our base is strong, and the growth potential within these existing clients remains substantial. These numbers clearly illustrate that the U.S. market opportunity is tremendous. Simply put – if PRG did nothing else but concentrate on the U.S. market, there would be ample room for significant growth over the next few years.

Our vision, however, extends beyond the United States. Our Accounts Payable client base today spans more than 2,500 clients in 34 countries around the globe. Indeed, international growth in the Accounts Payable business has been one of the Company’s most successful endeavors, with annual sales increases averaging more than 30% since 1998. Even with established operations in Europe, Latin America, Canada, and Asia, we have barely penetrated the international recovery audit market. More than half of the top 200 retailers worldwide are located outside of the U.S., yet relatively few engage in recovery audit services. An even greater market opportunity emerges beyond the retail segment. With an established, seasoned management team in place to lead the expansion and acceleration of the delivery of commercial audit services internationally, we intend to step up our efforts on this front as part of our strategic realignment.

To appreciate the role that technology will play in PRG’s future, it is helpful to understand how technology has contributed to our past success. More than a decade ago, recovery auditing required burdensome and time-consuming paper examinations. The adoption of EDI in the early 1990s was a key factor in the growth of the industry since it provided purchase information at a line-item level and it therefore allowed for automation of much of the audit process. EDI systems require large investments, limiting penetration to bigger, well-capitalized companies. Even today, only 55% of department stores utilize EDI, while an even smaller percentage of grocery chains do so.

The Internet has the ability to substantially change this landscape. By reducing electronic commerce costs, the Web can extend this technology to mid-size companies as well as companies with smaller margins, who stand to benefit from both the efficiency of the new technology and the profits from a recovery audit. This will open new marketplaces for recovery audit and process improvement services. In fact, Internet technology has the power to revolutionize our entire business. More electronic data is a natural by-product of the technology, and more electronic data provides PRG with even more ways to recover profits for our clients. Additionally, the potential growth of business-to-business digital marketplaces also creates new dynamics in purchasing and electronic transactions that will lead to new products and new client bases.

As the Internet revolution has swept across the economy in recent years, nearly everyone, from industry analysts to corporate management, has studied and tried to predict the ramifications of Web-based technology on every type of business – ours included. We are convinced that the Internet presents nothing but opportunity for us. The audit recovery and cost analysis process will exist regardless of the medium. The Internet will make our job more efficient for us and for our clients.

PRG is in an exceptionally strong position to capitalize on the market expansion and technological innovations that lie before us. Our confidence in our ability to turn this potential into growth and value for our shareholders is rooted in the competitive strengths that we have today:

• A global client base of more than 2,500 companies that includes strong and longstanding client relationships with 30% of the Fortune 1000 companies.
  
• A team of almost 2,500 full-time professionals whose combined knowledge, commitment, and experience provide a significant edge in the identification and realization of profit recovery and process improvement.
  
• Global leadership that enables us to tap into new territories and to assist the world’s largest multinational corporations.
  
• Unsurpassed technological resources that include proprietary software and tools, a vast proprietary database and a data center capable of processing up to 17 terabytes of online data – one of the largest of its kind in North America. In 2000 alone, PRG’s data center processed more than 20 billion client records.
  
• Financial wherewithal and access to capital that stems from our position as the only publicly-traded recovery audit firm in the industry.

These strengths, combined with our renewed focus and a commitment to our core business, make a very strong case for a new era of growth and success. In fact, this particular moment reminds me of the extraordinary opportunity I saw and tremendous excitement I felt when PRG was founded a decade ago. Once again, we have a singular focus on a business in which we have proven expertise and market leadership. Once again, technological innovation is about to elevate the industry to an entirely new level that will create vast new capabilities and markets. And once again, we have the opportunity to capitalize on these possibilities from a base of strong fundamentals.

In closing, I want to thank our clients, who challenge us to exceed their expectations on a daily basis – our team is privileged to have your business. Thank you to the PRG employees who consistently meet that challenge, contributing not only to our past success, but providing an instrumental force in our future success. And to our shareholders, we appreciate your patience and support during this year of challenge. Nothing is more important to us than rewarding our shareholders, clients, and employees with new growth and value creation. Together, we will endeavor to seize the opportunity ahead – with singular focus on what we do best, unmatched dedication to capitalize on the opportunities in our marketplace and the integrity of our leadership.

We’re ready to win.

John M. Cook
Chairman and CEO

March 28, 2001