UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): September 1, 1999
333-46235
(Commission File Number)
PRODUCTION RESOURCE GROUP, L.L.C.
(Exact name of Registrant as specified in its charter)
Delaware 14-1786937
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(State or other jurisdiction of formation) (IRS Employer Identification No.)
539 Temple Hill Road, New Windsor, New York 12553
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(Address of principal executive offices) (Zip code)
(914) 567-5700
(Registrant's telephone number, including area code)
Explanatory Note
The Current Report on Form 8-K of Production Resource Group, L.L.C. (the
"Company" or "PRG"), initially filed with the Securities and Exchange Commission
(the "Commission") on September 14, 1999 is hereby amended by this Form 8-K/A so
as to comply with Item 7 of Form 8-K and the provisions of Rule 3-05 of
Regulation S-X. The Form 8-K filed on September 14, 1999 reported, in Item 2
thereof, the acquisition on September 1, 1999 of Total Technical Excellence,
Inc. ("TTE").
The combined historical financial statements for the most recent fiscal year
preceding the acquisition of TTE have been included in this Form 8-K/A. The pro
forma effects of the acquisition of TTE on the Company's financial position at
December 31, 1998 and results of operations for the year ended December 31, 1998
are also presented in this Form 8-K/A.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Businesses Acquired
TTE was acquired by the Company on September 1, 1999. The audited financial
statements of TTE, as of December 31, 1998 and for the year ended December 31,
1998, and the related Report of Independent Auditors are located at Addendum I.
(b) Pro Forma Financial Information
The pro forma combined balance sheet as of December 31, 1998 and pro forma
combined statement of operations for the year ended December 31, 1998 are
located at Addendum II.
(c) Exhibits
10.15 ACQUISITION AGREEMENT (the "Agreement"), dated as of August 31, 1999 by
and among PRODUCTION RESOURCE GROUP, L.L.C. a Delaware limited liability
company as Buyer, TOTAL TECHNICAL EXCELLENCE, INC. d/b/a TTE SCENIC
STUDIO, a Georgia corporation as Seller, and MITCH ACKER as Shareholder.
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.
PRODUCTION RESOURCE GROUP, L.L.C.
Dated: November 15, 1999 By /s/ Robert A. Manners
--------------------------------------------
Robert A. Manners
Sr. Vice President, Business Affairs and
General Counsel
Independent Auditors' Report
The Shareholders
Total Technical Excellence, Inc.
Atlanta, Georgia
We have audited the accompanying balance sheet of Total Technical Excellence,
Inc. as of December 31, 1998, and the related statement of operations and
retained earnings (deficit), and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Total Technical Excellence,
Inc. as of December 31, 1998, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
CRISP HUGHES EVANS LLP
Atlanta, Georgia
November 2, 1999
TOTAL TECHNICAL EXCELLENCE, INC.
Balance Sheet
December 31, 1998
Assets
Current assets:
Cash and cash equivalents $ 119,607
Accounts receivable 311,036
Other assets 7,362
--------------
Total current assets 438,005
Fixed assets at cost, net of
accumulated depreciation 201,327
--------------
$ 639,332
==============
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt $ 69,577
Accounts payable 167,434
Payroll and sales taxes payable 2,805
Deferred revenue 226,125
Other current liabilities 101,477
--------------
Total current liabilities 567,418
Long-term debt 86,816
--------------
Total liabilities 654,234
Shareholders' deficit:
Class A common stock, voting $0.10 par value
per share, 10,000 shares authorized,
5,000 shares issued and outstanding 500
Class B common stock, non-voting $0.10 par
value per share, 90,000 shares authorized,
16,052 shares issued and outstanding 1,605
Additional paid in capital 18,000
Accumulated deficit (35,007)
--------------
Total shareholders' deficit (14,902)
--------------
$ 639,332
==============
See accompanying notes to financial statements
TOTAL TECHNICAL EXCELLENCE, INC.
Statement of Operations and Retained Earnings (Deficit)
For the Year Ended December 31, 1998
Revenue $ 5,561,148
Cost of revenue 3,511,078
--------------
Gross profit 2,050,070
Selling, general and administrative expenses 1,920,259
--------------
Operating income 129,811
Other income (expense):
Gain on sale of investments 129,255
Interest income 246
Interest expense (11,250)
Other income 8,895
--------------
127,146
--------------
Net income 256,957
Retained earnings, beginning of year 48,036
Distributions to shareholders (340,000)
--------------
Accumulated deficit, end of year $ (35,007)
==============
See accompanying notes to financial statements.
TOTAL TECHNICAL EXCELLENCE, INC
Statement of Cash Flows
For the Year Ended December 31, 1998
Cash flows from operating activities:
Net income $ 256,957
Adjustments to arrive at net cash (used) provided
by operating activities:
Depreciation 33,470
Gain on sale of investments (129,255)
Decrease (increase) in:
Accounts receivable (116,010)
Increase (decrease) in:
Accounts payable 15,742
Payroll and sales tax payable 2,059
Deferred revenue 85,137
Other current liabilities 100,983
--------------
Net cash provided by operating activities 249,083
--------------
Cash flows from investing activities:
Purchases of fixed assets (80,366)
Purchases of investments (422,028)
Proceeds from sale of investments 551,283
--------------
Net cash provided by investing activities 48,889
--------------
Cash flows from financing activities:
Proceeds from borrowings 125,000
Principle repayments under debt agreements (50,347)
Shareholder distributions (340,000)
Issuance of common stock 105
--------------
Net cash used by financing activities (265,242)
--------------
Net increase in cash and cash equivalents 32,730
Cash and cash equivalents at beginning of year 86,877
--------------
Cash and cash equivalents at end of year $ 119,607
==============
Supplemental Information
Interest received $ 246
==============
Interest paid $ 11,250
==============
See accompanying notes to financial statements.
TOTAL TECHNICAL EXCELLENCE, INC.
Notes to Financial Statements
December 31, 1998
(1) Summary of Significant Accounting Policies
The accounting and reporting policies of Total Technical Excellence, Inc.
("Company") conform to generally accepted accounting principles and to
general practices of contractor accounting. The following is a description
of the more significant of those policies.
Business
The Company was incorporated as a Subchapter S Corporation on February 20,
1989. The Company is a fabricator and supplier of scenery and provides
automated motion and show control equipment for the live entertainment
(theater, concert touring and special events), corporate events (trade and
industrial shows) and retail marketing environments. The Company provides
its services to corporate clients throughout the United States.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates. Material estimates that are particularly susceptible to
significant change relate to the recognition of contract revenue and
related costs.
Contract Revenue and Cost Recognition
The Company uses the percentage-of-completion method of accounting for
contract revenue. Under this method, revenue recognized is that percentage
of estimated total revenue that costs incurred to date bear to estimated
total costs. A provision is made for the entire amount of future estimated
losses (if any) on contracts in progress at the time such losses become
known. Amounts received in advance on sales, which exceed revenue
recognized to date, are recorded as deferred revenue and recognized when
earned. Amounts recognized as revenue in excess of billings to date are
recorded as work in progress. No revenue is recognized on contracts which
have not progressed to a point where experience can be used to estimate
final results.
Contract costs include all direct material and labor costs, and those
indirect costs related to contract performance. Selling, general and
administrative costs are charged to expense as incurred.
Changes in job performance, job conditions, and estimated profitability,
including those arising from contract penalty provisions, claims, and
final contract settlements may result in revisions to costs and income,
and are recognized in the period in which the revisions are determined.
Credit Risk
Items which potentially subject the Company to concentrations of credit
risk consist primarily of cash on deposit with banks and accounts
receivable. The Company maintains deposit relationships exclusively with
high credit quality financial institutions. The Company's receivables
result primarily from the sale of special order fabricated scenery to a
large number of corporate clients throughout the United States. The
Company provides an allowance for doubtful receivables based on factors
surrounding the credit risk of specific customers, historical trends, and
other information. Historically, the Company has not incurred significant
credit related losses.
TOTAL TECHNICAL EXCELLENCE, INC.
Notes to Financial Statements, continued
December 31, 1998
(1) Summary of Significant Accounting Policies, continued
Fixed Assets
Fixed assets are stated at acquisition cost less accumulated depreciation
which is computed using both accelerated and straight-line methods over
the estimated remaining useful lives of the respective assets.
Expenditures for maintenance and repairs are expensed as incurred while
major additions and improvements are capitalized. Upon disposition, the
cost and related accumulated depreciation are removed from the accounts
and the resulting gain or loss is reflected in operations.
Income Taxes
Since February 20, 1989, the Company has operated as a Subchapter S
Corporation and is, therefore, not subject to federal, state and local
income taxes. Income taxes are payable by the individual shareholders of
the Company based on their respective shares of the Company's income and,
accordingly, have not been reflected in the accompanying financial
statements.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, deposits with banks, and certain highly liquid investments
purchased with a maturity of less than three months.
(2) Accounts Receivable
Accounts receivable at December 31, 1998, consist of the following:
Billings on fabrication contracts:
Completed contracts $ 110,588
Uncompleted contracts 133,190
-----------
243,778
Receivables from shareholders 67,258
-----------
311,036
Less allowance for doubtful accounts --
-----------
$ 311,036
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(3) Fixed Assets
Fixed assets at December 31, 1998, are summarized as follows:
Machinery and equipment $ 197,594
Office furniture, fixtures and equipment 78,244
Automobiles 6,415
Leasehold improvements 33,338
-----------
315,591
Less accumulated depreciation (114,264)
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$ 201,327
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TOTAL TECHNICAL EXCELLENCE, INC.
Notes to Financial Statements, continued
December 31, 1998
(4) Contracts in Progress
Contracts in progress at December 31, 1998, consisting of 5 contracts, are
summarized as follows:
Costs incurred on uncompleted contracts to date $ 122,801
Estimated earnings recognized to date 40,820
-----------
163,621
Less contract billings to date (389,746)
-----------
$ (226,125)
===========
The above activity is included in the accompanying balance sheets as
deferred revenue.
The Company's contingencies include the usual liabilities for performance
and completion of construction contracts.
(5) Long-term Debt
Long-term debt at December 31, 1998 consisted of the following:
Note payable to bank secured by equipment,
payable in monthly installments of $1,861 including
interest at 9.5%, through July 1999 $ 12,592
Note payable to bank secured by fixed assets
payable in monthly installments of $1,534 including
interest at 9.625%, through January 2000 18,801
Note payable to bank secured by fixed assets
payable in monthly installments of $3,968 including
interest at 8.75%, through December 2001 125,000
-----------
156,393
Current portion (69,577)
-----------
Long-term portion $ 86,816
===========
Estimated maturities on long-term debt for the next three years are as
follows:
1999 69,577
2000 41,662
2001 45,154
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156,393
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TOTAL TECHNICAL EXCELLENCE, INC.
Notes to Financial Statements, continued
December 31, 1998
(6) Line of Credit
At December 31, 1998, the Company had an unused $100,000 line of credit
secured by the Company's trade accounts receivable. The line of credit
accrues interest at 8.75% per annum and expires April 2000.
(7) Operating Leases
The Company leases certain real property for its office, warehouse and
fabrication space and equipment under operating leases with terms in
excess of one year and certain other leases on a month to month basis. The
following summarizes rental commitments for the significant leases:
Office &
Equipment Fabrication Warehouse Total
--------- ----------- --------- -----
1999 1,498 190,027 19,275 210,800
2000 1,498 195,627 10,500 207,625
2001 1,498 201,227 -- 202,725
2002 374 206,827 -- 207,201
2003 -- 212,427 -- 212,427
2004 -- 144,107 -- 144,107
--------- --------- --------- ---------
4,868 1,150,242 29,775 1,184,885
========= ========= ========= =========
Rental expense for all real property for the year ended December 31, 1998
was $194,387.
The Company also subleases a portion of the real property referred to
above. The following summarizes the sublease income commitments to the
Company:
Office &
Fabrication Warehouse Total
----------- --------- -----
1999 58,092 15,475 73,567
2000 39,752 -- 39,752
Sublease rental income for the year ended December 31, 1998 was $69,480.
(8) Marketable Securities
During 1998, the Company bought and sold certain marketable securities
consisting of publicly traded common stocks. Such securities were
classified as "trading securities" and held on a short term basis. Realized
gains and losses on these trading securities were determined using the
specific identification method and are included in the statement of
operations and retained earnings (deficit) upon sale.
Realized gains and losses for the year ended December 31, 1998 are
summarized as follows:
Gains $152,705
Losses (23,450)
--------
$129,255
========
TOTAL TECHNICAL EXCELLENCE, INC.
Notes to Financial Statements, continued
December 31, 1998
(9) Commitments and Contingencies
(a) Employee Benefit Plans
The Company maintains a qualified 401(k) plan and a qualified profit
sharing plan for the benefit of all eligible employees. The 401(k)
plan does not provide for employer matching contributions. The
Company's annual contribution to the profit sharing plan is determined
by the Board of Directors. The approved annual contribution for 1998
was $85,582.
(b) Contractual Commitments
The Company enters into various contractual commitments to deliver
products and services in the ordinary course of business. The Company
believes that all such contractual commitments will be met or
renegotiated and no material adverse financial impact will result from
these commitments
(10) Year 2000
The Year 2000 issue relates to limitations in computer systems and
applications that may prevent proper recognition of the Year 2000. The
potential effect of the Year 2000 issue on the Company and its business
partners will not be fully determinable until the Year 2000 and thereafter.
If the Year 2000 modifications are not properly completed by the Company or
entities with which the Company conducts business, the Company's revenues
and financial condition could be adversely impacted.
(11) Subsequent Events
On August 31, 1999, Production Resource Group, LLC ("PRG") acquired
substantially all of Company's assets and assumed substantially all of the
Company's liabilities. The assets acquired by PRG now operate as a division
of PRG.
Addendum II.
Pro Forma Combined Financial Information
In 1998 and 1999, PRG completed the following acquisitions (collectively
referred to as "Other Acquisitions"):
In January 1998, PRG acquired substantially all the assets and assumed
certain liabilities of Pro-Mix, Inc. ("Pro-Mix")
In June 1998, PRG acquired Light and Sound Designs Holdings Limited
("Holdings"). In addition, PRG acquired substantially all the assets and
assumed certain liabilities of Production Arts Lighting Inc. and
affiliated companies (collectively "Production Arts").
In July 1998, PRG acquired substantially all the assets and assumed
certain liabilities of CBE Events and Exhibits, Inc. ("CBE").
In August 1998, PRG acquired Signal Perfection, Ltd. ("SPL").
In October 1998, PRG acquired Production Lighting Systems, Inc. ("PLS").
In November 1998, PRG acquired Haas Multiples Environmental Marketing &
Design, Inc. ("Haas").
In April 1999, the Company acquired substantially all the assets and
assumed certain liabilities of A-1 Audio, Inc. ("A-1").
In April 1999, PRG acquired substantially all the assets and
assumed certain liabilities of Ancha Electronics, Inc. ("Ancha").
In December 1997, PRG issued $100,000,000 of Senior Subordinated Notes (the
"Offering"). The proceeds from the Offering were used to repay existing bank
indebtedness and to purchase the net assets of Pro-Mix and for working capital
requirements.
The following unaudited pro forma combined statements of operations for the year
ended December 31, 1998 give effect to the TTE acquisition, the Other
Acquisitions, the Offering and financing under the Company's Credit Facility. In
addition, they are based on the historical financial statements of the Company,
TTE and the historical results of operations of the Other Acquisitions. The 1998
financial statements for Holdings are for period January 1, 1998 to June 19,
1998. The historical results of operations of Holdings have been adjusted to
conform to generally accepted accounting principles of the United States and
have been translated into United States dollars based upon appropriate exchange
rates. The historical results of operations of SPL are for the period January 1,
1998 to August 13, 1998. The unaudited pro forma combined statements of
operations gives effect to the combinations under the purchase method of
accounting.
The unaudited pro forma combined balance sheet as of December 31, 1998 reflects
the effect of the acquisition of TTE on the Company's balance sheet. The effect
of the Other Acquisitions, which closed prior to December 31, 1998, was
reflected in the Company's December 31, 1998 balance sheet, which was included
in the Form 10-K filed for such period.
The unaudited pro forma combined statements of operations have been prepared by
the management of the Company, TTE, and the Other Acquisitions based upon
historical information included herein and other financial information. These
pro forma statements do not purport to be indicative of the combined results of
operations or financial position which would have been achieved had the
transactions described above taken place at the dates indicated and should not
be construed as representative of the Company's combined financial position or
combined results of operations for any future date or period. The pro forma
combined statements of operations should be read in conjunction with (i) the
Company's historical financial statements and notes contained in the Company's
annual reports on Form S-4 and Form 10-K and the Company's quarterly reports on
Form 10-Q and (ii) the historical financial statements of TTE and the Other
Acquisitions contained in Forms 8-K filed by the Company in connection with its
various acquisitions.
PRODUCTION RESOURCE GROUP, L.L.C.
Unaudited Pro Forma Combined Statements of Operations
For the Year ended December 31, 1998
($ In thousands)
Other
Acquisitions TTE
Other Pro Forma Pro Forma Pro Forma
PRG Acquisitions TTE Adjustments Adjustments Combined
---------------------------------------------------------------------------------------
Revenues $ 174,603 $ 84,969 $ 5,561 $ 265,133
Direct production expenses:
Direct production costs 107,857 56,557 3,511 167,925
Depreciation expense 11,257 3,283 14,540
---------------------------------------------------------------------------------------
119,114 59,840 3,511 182,465
---------------------------------------------------------------------------------------
Gross profit 55,489 25,129 2,050 82,668
Selling, general and administrative
expenses 37,393 18,677 1,920 $ (1,171) 1 56,819
Other depreciation and amortization 4,005 228 744 2 $ 193 4 5,170
Other (income) expense (138) (138)
---------------------------------------------------------------------------------------
Operating profit 14,091 6,224 268 427 (193) 20,817
Loss on impairment and restructuring
charges 1,822 832 2,654
Interest expense 14,769 595 11 2,149 3 184 5 17,708
Interest (income) (674) (110) (784)
---------------------------------------------------------------------------------------
Income (loss) before income taxes and
minority interest (1,826) 4,907 257 (1,722) (377) 1,239
Provision for (benefit from) income taxes 1,712 1,022 2,734
---------------------------------------------------------------------------------------
Income (loss) from continuing operations (3,538) 3,885 257 (1,722) (377) (1,495)
Discontinued operations:
Loss from discontinued Themed Attraction
Permanent Installation Business (2,357) (2,357)
Minority interest (72) (72)
=======================================================================================
Net income (loss) $ (5,967) $ 3,885 $ 257 $ (1,722) $ (377) $ (3,924)
=======================================================================================
1. To record the difference between certain executive compensation from
historical levels to amounts payable under employment contracts entered
into in connection with the acquisitions of the net assets of Bash,
PLS and Haas.
2. To record the estimated increase in goodwill amortization attributable to
the acquisitions of Holdings, Production Arts, CBE, SPL, PLS, Haas
and Ancha.
3. To record the estimated effect of interest expense on borrowings incurred
by the Company to fund the acquisitions of Holdings, Production Arts, CBE,
PLS, SPL and Ancha.
4. To record the estimated goodwill amortization attributed to TTE, amortized
over 15 years.
5. To record the estimated additional interest expense on borrowings related
to the TTE acquisition.
PRODUCTION RESOURCE GROUP, L.L.C.
Unaudited Pro Forma Combined Balance Sheet
December 31, 1998
($ In thousands)
PRG TTE Pro Forma Company Pro
Adjustments Forma
------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 6,014 $ 120 $ (2,306) 6 $ 3,828
Accounts receivable - net 35,415 311 35,726
Deferred production expenses 958 -- 958
Inventories 10,755 -- 10,755
Other current assets 6,760 8 6,768
------------------------------------------------------------------
59,902 439 (2,306) 58,035
Property and equipment - net 82,096 201 82,297
Goodwill - net 46,116 -- 2,820 7 48,936
Other assets 7,992 -- 7,992
==================================================================
Total assets $ 196,106 $ 640 $ 514 $ 197,260
==================================================================
Liabilities and Members' Equity (Deficit)
Current liabilities:
Current portion of long-term debt $ 8,046 $ 70 $ 8,116
Accounts payable 16,725 167 16,892
Payroll and related costs 3,164 3 3,167
Income taxes payable (receivable) 1,659 -- 1,659
Deferred revenue 4,797 226 5,023
Other current liabilities 12,368 101 12,469
------------------------------------------------------------------
Total current liabilities 46,759 567 47,326
Long-term debt
Senior Subordinated Notes 100,000 -- 100,000
Credit Facilities 45,638 -- 45,638
Other long-term debt 3,557 87 3,664
Minority interest 233 -- 233
Members' equity (deficit) (81) $ 500 6 419
Common stock -- 1 (1) 8 --
Additional paid-in-capital -- 20 (20) 8 --
Retained earnings -- (35) 35 8 --
==================================================================
$ 196,106 $ 640 $ 514 $ 197,260
==================================================================
6. To record the cash used to purchase TTE and to record the issuance of PRG
Inc. shares to the seller.
7. To record the estimated goodwill attributable to the acquisition of TTE
based on their December 31, 1998 balance sheet.
8. To eliminate TTE's stockholders' equity.