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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): OCTOBER 29, 1998
THE PROFIT RECOVERY GROUP
INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Commission File Number 0-28000
GEORGIA 58-2213805
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation)
2300 WINDY RIDGE PARKWAY
SUITE 100 NORTH
ATLANTA, GEORGIA 30339-8426
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (770) 779-3900
(Former name or former address, if changed since last report) NOT APPLICABLE
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On October 29, 1998, The Profit Recovery Group International, Inc., a
Georgia corporation (the "Company"), through its wholly owned subsidiary, The
Profit Recovery Group International I, Inc. ("PRGI"), acquired all the issued
and outstanding common stock of Robert Beck & Associates, Inc. ("RBA"), pursuant
to the terms of a Stock Purchase Agreement dated October 29, 1998, effective
October 1, 1998, by and among the Company, PRGI, RBA and the shareholders of
RBA. RBA is an international recovery auditing firm serving clients primarily in
the retail and grocery sectors.
The Company also acquired, pursuant to separate Stock Purchase Agreements
dated October 29, 1998, all of the issued and outstanding common stock of John
E. Flatley & Associates, Inc. and Taylor, Blackburn & Associates, Inc., and,
pursuant to separate Asset Purchase Agreements dated October 29, 1998, acquired
substantially all of the assets and assumed certain liabilities of RBA Audits,
Inc., Savant Consulting, L.L.C., and the sole proprietorships of John H. Cavins,
Vincent Creadon, John M. Kirkeide, and Robert N. Beck, Jr. (collectively
referred to as the "RBA Companies"). The RBA Companies performed management
services for RBA, and received a percentage of cash receipts from RBA's clients
for these management services. All recovery auditing operations were performed
through RBA, and all client and auditor contracts were with RBA.
The aggregate consideration paid consisted of $26.1 million in cash and
644,434 unregistered, restricted shares of the Company's common stock. The
consideration given was determined as a result of arm's length negotiations
among unrelated parties, and the acquisition will be accounted for using the
purchase method of accounting. The Company borrowed $27.2 million from
NationsBank N.A. under its $200.0 million senior credit facility to fund the
cash portion of the consideration and a portion of the direct
acquisition-related costs estimated at $1.3 million.
The description of the acquisitions contained herein is qualified in its
entirety by reference to the agreements dated October 29, 1998 by and among the
Company, PRGI, RBA, the shareholders of RBA, the RBA Companies and the
shareholders, members and sole proprietors of the RBA Companies and the
Representations, Covenants and Indemnification Agreement entered into in
connection therewith attached hereto as Exhibits 2.1 through 2.10 and
incorporated herein by reference.
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PAGE
NUMBER
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of business acquired
ROBERT BECK & ASSOCIATES, INC.
Independent Auditors' Report.............................. 4
Statements of Earnings for the year ended December 31,
1997 and the six months ended June 30, 1997 and 1998... 5
Balance Sheets as of December 31, 1997 and June 30,
1998................................................... 6
Statements of Shareholders' Equity for the year ended
December 31, 1997 and the six months ended June 30,
1998................................................... 7
Statements of Cash Flows for the year ended December 31,
1997 and the six months ended June 30, 1997 and 1998... 8
Notes to Financial Statements............................. 9
(b) Pro Forma Financial Information
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
Unaudited Pro Forma Consolidated Financial Information.... 14
Unaudited Pro Forma Consolidated Statement of Earnings for
the year ended December 31, 1997....................... 15
Unaudited Pro Forma Consolidated Statement of Earnings for
the six months ended June 30, 1998..................... 16
Notes to Unaudited Pro Forma Consolidated Statements of
Earnings............................................... 17
Unaudited Pro Forma Condensed Consolidated Balance Sheet
as of June 30, 1998.................................... 18
Notes to Unaudited Pro Forma Condensed Consolidated
Balance Sheet.......................................... 19
(c) Exhibits.............................................. 20
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4
(a) Financial statements of business acquired
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Robert Beck & Associates, Inc.:
We have audited the accompanying balance sheet of Robert Beck & Associates,
Inc. as of December 31, 1997 and the related statements of earnings,
shareholders' equity 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 Robert Beck & Associates,
Inc. as of December 31, 1997 and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
October 30, 1998
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ROBERT BECK & ASSOCIATES, INC.
STATEMENTS OF EARNINGS
SIX MONTHS
ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, ---------------
1997 1997 1998
------------ ------ ------
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
Revenues.................................................... $14,750 $7,487 $8,158
Cost of revenues............................................ 11,633 5,894 6,244
Selling, general and administrative expenses................ 2,452 1,228 1,208
------- ------ ------
Operating income.......................................... 665 365 706
Interest income, net........................................ 11 3 5
------- ------ ------
Net earnings.............................................. $ 676 $ 368 $ 711
======= ====== ======
Pro forma:
Historical net earnings................................... $ 676 $ 368 $ 711
Pro forma income taxes (Note 5)........................... 264 144 277
------- ------ ------
Pro forma net earnings................................. $ 412 $ 224 $ 434
======= ====== ======
See accompanying notes to financial statements.
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ROBERT BECK & ASSOCIATES, INC.
BALANCE SHEETS
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
(AMOUNTS IN THOUSANDS,
EXCEPT SHARE AND
PER SHARE DATA)
ASSETS
Current assets:
Cash...................................................... $ 286 $ 432
Receivables:
Billed contract receivables............................ 980 143
Unbilled contract receivables.......................... 3,838 5,038
------ ------
Total receivables................................. 4,818 5,181
------ ------
Note receivable from Beck Lease Services, Inc. (Note 2)... 124 --
Other current assets...................................... 27 50
------ ------
Total current assets.............................. 5,255 5,663
------ ------
Property and equipment:
Automobiles............................................... 128 128
Furniture and fixtures.................................... 226 226
------ ------
354 354
Less accumulated depreciation............................. 158 177
------ ------
196 177
------ ------
Prepaid pension cost (Note 4)............................... 186 186
------ ------
$5,637 $6,026
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 58 $ 93
Accrued commissions and related expenses.................. 3,844 3,937
------ ------
Total current liabilities......................... 3,902 4,030
------ ------
Shareholders' equity:
Common stock, no par value. Authorized 10,000 shares;
issued and outstanding, 891 shares..................... 249 249
Retained earnings......................................... 1,486 1,747
------ ------
Total shareholders' equity........................ 1,735 1,996
Commitments (Note 6)
------ ------
$5,637 $6,026
====== ======
See accompanying notes to financial statements.
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ROBERT BECK & ASSOCIATES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1997 AND SIX MONTHS ENDED
JUNE 30, 1998
COMMON STOCK TOTAL
--------------- RETAINED SHAREHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
------ ------ -------- -------------
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
Balance at December 31, 1996.............................. 891 $249 $1,064 $1,313
Net earnings.............................................. -- -- 676 676
Distributions to shareholders............................. -- -- (254) (254)
--- ---- ------ ------
Balance at December 31, 1997.............................. 891 249 1,486 1,735
Net earnings (unaudited).................................. -- -- 711 711
Distributions to shareholders (unaudited)................. -- -- (450) (450)
--- ---- ------ ------
Balance at June 30, 1998 (unaudited)...................... 891 $249 $1,747 $1,996
=== ==== ====== ======
See accompanying notes to financial statements.
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ROBERT BECK & ASSOCIATES, INC.
STATEMENTS OF CASH FLOWS
SIX MONTHS
ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, -------------
1997 1997 1998
------------ ----- -----
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
Cash flows from operating activities:
Net earnings.............................................. $ 676 $ 368 $ 711
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation......................................... 60 25 19
Change in assets and liabilities:
Receivables....................................... (1,193) (171) (363)
Other assets...................................... (87) 26 (23)
Accounts payable and accrued expenses............. 43 71 36
Accrued commissions and related expenses.......... 938 76 93
------- ----- -----
Net cash provided by operating activities....... 437 395 473
------- ----- -----
Cash flows used in investing activities -- purchase of
property and equipment.................................... (138) (109) (1)
------- ----- -----
Cash flows from financing activities:
Distributions to shareholders............................. (254) -- (450)
Proceeds from note receivable from Beck Lease Services,
Inc.................................................... -- -- 124
------- ----- -----
Net cash used in financing activities............. (254) -- (326)
------- ----- -----
Net increase in cash.............................. 45 286 146
Cash at beginning of period................................. 241 241 286
------- ----- -----
Cash at end of period....................................... $ 286 $ 527 $ 432
======= ===== =====
See accompanying notes to financial statements.
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ROBERT BECK & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND JUNE 30, 1997 AND 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business
The principal business of Robert Beck & Associates, Inc. ("RBA") is
providing accounts payable and other recovery audit services primarily to large
retailers and grocers. RBA provides its services throughout the United States
and, on a limited basis, in Canada and Germany.
RBA's services are managed by John E. Flatley & Associates, Inc., RBA
Audits, Inc., Taylor, Blackburn & Associates, Inc., Savant Consulting, L.L.C.,
and the sole proprietorships of Vincent Creadon, John H. Cavins, Robert N. Beck,
Jr. and John M. Kirkeide (collectively referred to as the "RBA Companies"). The
RBA Companies manage the day-to-day operations and client relationships, and
receive a percentage of the cash receipts from their respective clients for
these management services. All recovery auditing operations were performed
through RBA, and all client and auditor contracts are with RBA.
Basis of Presentation
The financial statements have been prepared in conformity with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets, liabilities and shareholders' equity as of the date
of the balance sheet and income and expenses for the period. Actual results
could differ from those estimates. A material estimate that is particularly
susceptible to change is the estimation of uncollectible claims (see note (1)(b)
Revenue Recognition).
The accompanying unaudited condensed financial statements of RBA as of June
30, 1998 and for the six months ended June 30, 1997 and 1998 have been prepared
in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles 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 six month period ended June 30, 1998
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1998.
(B) REVENUE RECOGNITION
RBA's revenues are based on specific contracts with its clients. Such
contracts generally specify (a) time periods covered by the audit, (b) nature
and extent of audit services to be provided by RBA, (c) client's duties in
assisting and cooperating with RBA, and (d) fee payable to RBA expressed as a
specified percentage of the amounts recovered by the client resulting from
liability overpayment claims identified. In addition to contractual provisions,
most clients also establish specific procedural guidelines which RBA must
satisfy prior to submitting claims for client approval. These guidelines are
unique to each client and impose specific requirements on RBA such as adherence
to vendor interaction protocols, provision of advance written notification to
vendors of forthcoming claims, securing written claim validity concurrence from
designated client personnel and, in limited cases, securing written claim
validity concurrence from the involved vendors. RBA defers revenue recognition
until client guidelines, of whatever nature, have been satisfied.
Accepted claims basis of revenue recognition
With respect to accounts payable and ancillary audit services for retailers
and grocers (RBA's historical client base), RBA recognizes revenues at the time
overpayment claims are presented to and approved by its clients, as adjusted for
estimated uncollectible claims.
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ROBERT BECK & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
For accounts payable and ancillary audit services provided to retailers and
grocers, RBA believes that it has completed substantially all contractual
obligations to its client at the time an identified and documented claim which
satisfies all client-imposed guidelines is presented to, and approved by,
appropriate client personnel. RBA further believes that at the time a claim is
submitted and accepted by its client, such claim represents a valid overpayment
due to the client from its vendor. Accordingly, RBA believes that it is entitled
to its fee upon acceptance of such claim by its client, subject to (a) customary
and routine claim disallowance adjustments by the vendor resulting primarily
from the receipt of previously unknown information, and (b) applicable laws.
Disallowances of client-approved claims are susceptible to experience-based
estimation.
RBA's standard client contract for accounts payable and ancillary audit
services provided to retailers and grocers imposes a duty on the client to
process promptly all claims against vendors. In the interest of vendor
relations, however, many clients modify the standard client contract with RBA to
provide that they retain discretion whether to pursue collection of a claim. In
RBA's experience, it is extremely unusual for a client to forego the collection
of a large, valid claim. In some cases, a vendor may dispute a claim by
providing additional documentation or information supporting its position.
Consequently, many clients revise RBA's standard client contract to clarify that
RBA is not entitled to payment of its fee until the client recovers the claim
from its vendor.
Submitted claims for accounts payable and ancillary audit services provided
to retailers and grocers that are not approved by clients for whatever reason
are not considered when recognizing revenues. Estimated uncollectible claims are
initially established, and subsequently adjusted, for each individual client
based on historical collection rates, types of claims identified, current
industry conditions, and other factors which, in the opinion of management,
deserve recognition. RBA records revenues for accounts payable and ancillary
audit services provided to retailers and grocers at estimated net realizable
value without reserves. Accordingly, adjustments to uncollectible claim
estimates are directly charged or credited to earnings, as appropriate.
Approved claims for accounts payable and ancillary audit services provided
to retailers and grocers are processed by clients and generally taken as credits
against outstanding payables or future purchases from the vendors involved. Once
credits are taken, RBA invoices its clients for a contractually stipulated
percentage of the amounts recovered. RBA's contract receivables for accounts
payable and ancillary audit services provided to retailers and grocers are
largely unbilled because it does not control (a) the timing of a client's claims
processing activities, or (b) the timing of a client's payments for current and
future purchases. In RBA's experience, material receivables are expected to be
collected within one year after such receivables are recorded.
Invoice basis of revenue recognition
With regard to accounts payable and other recovery audit services provided
to entities other than retailers and grocers, RBA recognizes revenues primarily
when it invoices clients for its portion of amounts already recovered. This
deferral of revenue recognition for these types of clients results principally
from RBA's lack of a historical experience base to accurately estimate
uncollectible claims. Revenues recognized in 1997 on the invoice basis
represented less than 1% of total revenues for the year.
(C) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets.
(D) DIRECT EXPENSES
Direct expenses incurred during the course of the accounts payable audits
and other recovery audit services are expensed as incurred. Previously
established auditor compensation and management fee accruals
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ROBERT BECK & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
are subsequently adjusted on a monthly basis to correspond with adjustments to
uncollectible claim estimates. All non-auditor RBA employees are compensated on
the basis of salary and in certain cases, bonuses, which are charged to
operations as incurred.
(E) SOFTWARE DEVELOPMENT COSTS
Software development costs related to the development of RBA's proprietary
audit software are expensed as incurred.
(F) INCOME TAXES
RBA is a Subchapter S Corporation. As such, the Federal and state income
taxes with regard to this entity historically have been the responsibility of
the respective shareholders. The results of operations for all periods presented
have been adjusted on a pro forma basis to reflect Federal and state income
taxes at a composite rate of 39% as if RBA had been a C corporation throughout
such periods.
(2) NOTE RECEIVABLE FROM BECK LEASE SERVICES, INC.
At December 31, 1997, RBA held a note receivable from Beck Lease Services,
Inc. In February 1998, such note was assigned to the majority owner of RBA in
consideration for full payment on the balance of the note. There are no common
ownership interests between RBA and Beck Lease Services, Inc.
(3) CREDIT FACILITY
RBA has an available line of credit in the amount of $101,000 which is
personally guaranteed by the majority owner of RBA. No amounts were outstanding
under this line of credit at December 31, 1997 or June 30, 1998.
(4) PENSION BENEFITS
RBA has a qualified noncontributory defined benefit pension plan covering
certain employees. The benefits are based on years of service and defined levels
of compensation. RBA makes contributions to the plan based on amounts determined
by its actuaries. The following table sets forth the plan's funded status and
amounts recognized in the accompanying balance sheet at December 31, 1997
(amounts in thousands):
Actuarial present value of benefit obligations:
Vested benefit obligation................................. $2,617
======
Accumulated benefit obligation............................ $2,617
======
Projected benefit obligation................................ $2,702
Plan assets at fair value (primarily common stock).......... 2,778
------
Plan assets in excess of projected benefit obligation....... 76
Unrecognized net gain....................................... (71)
Unrecognized net transition liability....................... 181
------
Prepaid pension cost.............................. $ 186
======
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ROBERT BECK & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Net pension cost for the year ended December 31, 1997 includes the
following components (amounts in thousands):
Service cost........................................... $ 155
Interest cost.......................................... 152
Actual return on assets................................ (218)
Amortization of net gain............................... (9)
Amortization of transition liability................... 13
-----
Net pension cost.................................. $ 93
=====
The assumptions used in accounting for the plan as of December 31, 1997 were as
follows:
Discount rate.......................................... 7.0%
Rate of increase in compensation levels................ 5.0
Expected long-term rate of return on assets............ 10.0
Effective July 1998, RBA curtailed the plan.
(5) INCOME TAXES
The pro forma provision for income taxes reflects the income taxes as if
RBA were subject to all Federal and state income taxes for all periods
presented, rather than primarily by the individual shareholders. All pro forma
income taxes have been calculated using a 39% composite effective rate.
(6) LEASE COMMITMENTS
RBA is committed under an operating lease for office space. The lease
expires on October 31, 2001 and payments increase based on the change between a
base index and the Consumer Price Index with October 31, 1996 being the base
index date. Future minimum annual lease payments under this lease agreement,
assuming an annual inflation rate of 3.4%, are summarized as follows (amounts in
thousands):
YEAR ENDED DECEMBER 31,
-----------------------
1998........................................................ $128
1999........................................................ 132
2000........................................................ 137
2001........................................................ 122
Rent expense for the year ended December 31, 1997 and for the six months
ended June 30, 1997 and 1998 was $119,000, $61,000, and $58,000, respectively.
The lessor of the facility is a trust controlled by the majority owner of RBA.
(7) MAJOR CLIENT
RBA had one client during 1997 which provided 10.5% of total revenues. Such
client is in the grocery industry.
(8) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts for cash, receivables and notes receivable, accounts
payable and accrued expenses, and accrued commissions and related expenses,
approximate fair value because of the short maturity of these instruments.
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ROBERT BECK & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(9) SALE OF COMPANY
On October 29, 1998, The Profit Recovery Group International, Inc. (the
"Company") through its wholly owned subsidiary, The Profit Recovery Group
International I, Inc. ("PRGI"), acquired all issued and outstanding common stock
of RBA, pursuant to the terms of a Stock Purchase Agreement dated October 29,
1998, effective October 1, 1998, by and among the Company, PRGI, RBA and RBA's
shareholders. In addition, the Company acquired the management rights of the RBA
Companies pursuant to respective Stock and Asset Purchase Agreements dated
October 29, 1998, effective October 1, 1998.
Pursuant to the purchase agreements, the total consideration paid for RBA
and the RBA Companies consisted of $26.1 million in cash and 644,434
unregistered, restricted shares of the Company's common stock.
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(b) Pro Forma Financial Information
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
On October 29, 1998, The Profit Recovery Group International, Inc. (the
"Company"), through its wholly owned subsidiary, The Profit Recovery Group
International I, Inc. ("PRGI") acquired all the issued and outstanding common
stock of Robert Beck & Associates, Inc. ("RBA"), an international recovery
auditing firm primarily serving clients in the retail and grocery sectors. In
addition, the Company acquired all of the issued and outstanding common stock of
John E. Flatley & Associates, Inc. and Taylor, Blackburn & Associates, Inc., and
acquired substantially all the assets and assumed certain liabilities of RBA
Audits, Inc., Savant Consulting, L.L.C., and the sole proprietorships of John H.
Cavins, Vincent Creadon, John M. Kirkeide, and Robert N. Beck, Jr. (collectively
referred to as the "RBA Companies"). The RBA Companies performed management
services for RBA, and received a percentage of cash receipts from their
respective clients for these management services. All recovery auditing
operations were performed through RBA, and all client and auditor contracts were
with RBA.
The transactions were accounted for using the purchase method of
accounting, effective as of October 1, 1998, with total consideration of $26.1
million in cash and 644,434 unregistered, restricted shares of the Company's
common stock. Approximately $1.3 million in direct acquisition-related costs
were also incurred and capitalized as part of this transaction.
The Company borrowed $27.2 million from NationsBank N.A. under its $200.0
million senior credit facility to pay the cash consideration and a portion of
the direct acquisition-related expenses incurred in connection with the
acquisition of RBA and the RBA Companies.
The following unaudited pro forma consolidated statements of earnings for
the year ended December 31, 1997 and the six months ended June 30, 1998 present
the consolidated historical accounts of the Company, adjusted to give effect to
the acquisition of RBA and the RBA Companies as of the beginning of the periods
presented. The following unaudited pro forma condensed consolidated balance
sheet as of June 30, 1998 presents the consolidated historical accounts of the
Company as of that date, adjusted to give effect to the acquisition of RBA and
the RBA Companies as if the transaction had occurred on June 30, 1998.
The unaudited pro forma consolidated financial information and accompanying
notes should be read in conjunction with the consolidated financial statements
of the Company and related notes, as well as the financial statements and
related notes of RBA. The Company believes that the assumptions set forth in the
notes on pages 17 and 19 provide a reasonable basis on which to present the pro
forma financial information, which is provided for informational purposes only
and should not be construed to be indicative of the Company's financial
condition or results of operations had the transactions and events described
above been consummated on the dates assumed. The unaudited pro forma financial
information is not intended to project the Company's financial condition on any
future date or results of operations for any future period.
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THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1997
THE PROFIT
RECOVERY
GROUP
INTERNATIONAL, PRO FORMA
INC. RBA ADJUSTMENTS PRO FORMA
--------------- --------- ------------ ------------
(AMOUNTS IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
Revenues........................................ $112,363 $ 14,750 $ -- $127,113
Cost of revenues................................ 57,726 11,633 (2,477)(A) 66,882
Selling, general and administrative expenses.... 37,254 2,452 1,534(B) 41,240
Restructuring costs............................. 1,208 -- -- 1,208
-------- -------- ------- --------
Operating income.............................. 16,175 665 943 17,783
Interest income (expense), net.................. (403) 11 (1,945)(C) (2,337)
-------- -------- ------- --------
Earnings before income taxes.................. 15,772 676 (1,002) 15,446
Income taxes.................................... 6,149 -- 280(D) 6,429
-------- -------- ------- --------
Net earnings.................................. $ 9,623 $ 676 $(1,282) $ 9,017
======== ======== ======= ========
Earnings per share:
Basic......................................... $ 0.52 $ .47
======== ========
Diluted....................................... $ 0.51 $ .46
======== ========
Weighted average shares outstanding:
Basic......................................... 18,415 644(E) 19,059
======== ======= ========
Diluted....................................... 18,909 644(E) 19,553
======== ======= ========
See accompanying notes to unaudited pro forma consolidated statements of
earnings.
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THE PROPERTY RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
SIX MONTHS ENDED JUNE 30, 1998
THE PROFIT
RECOVERY
GROUP
INTERNATIONAL, PRO FORMA
INC. RBA ADJUSTMENTS PRO FORMA
--------------- ------- ------------ ------------
(AMOUNTS IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
Revenues......................................... $72,078 $8,158 $ -- $80,236
Cost of revenues................................. 38,282 6,244 (1,496)(A) 43,030
Selling, general and administrative expenses..... 27,020 1,208 767(B) 28,995
------- ------ ------- -------
Operating income............................ 6,776 706 729 8,211
Interest income (expense), net................... (138) 5 (973)(C) (1,106)
------- ------ ------- -------
Earnings before income taxes................ 6,638 711 (244) 7,105
Income taxes..................................... 2,599 -- 386(D) 2,985
------- ------ ------- -------
Net earnings................................ $ 4,039 $ 711 $ (630) $ 4,120
======= ====== ======= =======
Earnings per share:
Basic....................................... $ .20 $ .19
======= =======
Diluted..................................... $ .19 $ .19
======= =======
Weighted average shares outstanding:
Basic....................................... 20,650 644(E) 21,294
======= ======= =======
Diluted..................................... 21,257 644(E) 21,901
======= ======= =======
See accompanying notes to unaudited pro forma consolidated statements of
earnings.
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THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF EARNINGS
YEAR ENDED DECEMBER 31, 1997 AND SIX MONTHS ENDED JUNE 30, 1998
The following explanations describe the assumptions used in determining the
unaudited pro forma adjustments necessary to present the historical results of
operations, giving effect to the acquisition of RBA and the RBA Companies as of
the beginning of each period presented.
(A) Adjustment relates to historical RBA Companies' management fees in 1997
and 1998 in excess of compensation levels to be paid prospectively to these
former owners of the RBA Companies pursuant to employment agreements.
(B) Adjustment relates to amortization of the estimated goodwill amounting
to $37.6 million over a 25-year period and the noncompete agreements with a
combined estimated fair value of $150,000 over a five-year period.
(C) Adjustment relates to the $27.2 million of indebtedness, at an interest
rate of 7.15%, incurred in connection with the acquisitions.
(D) Adjustment relates to the tax benefit derived from the partial
deductibility (32%) of the goodwill amortization and full deductibility of
interest expense assuming a combined Federal and state income tax rate of 39%,
and also reflects RBA's results of operations on a pro forma basis to include
Federal and state income taxes at a composite rate of 39% as if RBA had been a C
corporation throughout the periods presented.
(E) Adjustment reflects the issuance of 644,434 unregistered, restricted
shares in connection with the RBA acquisitions.
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THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
THE PROFIT
RECOVERY
GROUP
INTERNATIONAL, PRO FORMA
INC. RBA ADJUSTMENTS PRO FORMA
-------------- ------ ----------- ---------
(AMOUNTS IN THOUSANDS OF DOLLARS)
Current assets:
Cash and cash equivalents............................. $ 18,710 $ 432 $ -- $ 19,142
Receivables:
Billed contract receivables......................... 12,735 143 -- 12,878
Unbilled contract receivables....................... 53,272 5,038 -- 58,310
Employee advances................................... 2,927 -- -- 2,927
-------- ------ ------- --------
Total receivables.............................. 68,934 5,181 -- 74,115
-------- ------ ------- --------
Prepaid expenses and other current assets............. 2,130 50 -- 2,180
-------- ------ ------- --------
Total current assets........................... 89,774 5,663 -- 95,437
Property and equipment, net............................. 13,981 177 -- 14,158
Noncompete agreements, less accumulated amortization.... 2,969 -- 150(A) 3,119
Goodwill, less accumulated amortization................. 58,569 -- 37,554(A) 96,123
Deferred income taxes................................... 3,083 -- -- 3,083
Other assets............................................ 554 186 -- 740
-------- ------ ------- --------
$168,930 $6,026 $37,704 $212,660
======== ====== ======= ========
Current liabilities:
Note payable to bank.................................. $ 38 $ -- $ -- $ 38
Current installments of long term-debt................ 82 -- -- 82
Accounts payable and accrued expenses................. 7,116 93 -- 7,209
Accrued payroll and related expenses.................. 25,527 3,937 -- 29,464
Deferred income taxes................................. 9,813 -- -- 9,813
Deferred revenues..................................... 977 -- -- 977
-------- ------ ------- --------
Total current liabilities...................... 43,553 4,030 -- 47,583
Long-term debt, excluding current installments.......... 5,348 -- 27,200(B) 32,548
Deferred compensation................................... 2,909 -- -- 2,909
Other long-term liabilities............................. 410 -- -- 410
-------- ------ ------- --------
Total liabilities.............................. 52,220 4,030 27,200 83,450
-------- ------ ------- --------
Shareholders' equity:
Preferred stock....................................... -- -- -- --
Common stock.......................................... 22 249 (248)(C) 23
Additional paid-in capital............................ 98,521 -- 12,499(C) 111,020
Cumulative translation adjustments.................... (1,879) -- -- (1,879)
Retained earnings..................................... 20,046 1,747 (1,747)(C) 20,046
-------- ------ ------- --------
Total shareholders' equity..................... 116,710 1,996 10,504 129,210
-------- ------ ------- --------
$168,930 $6,026 $37,704 $212,660
======== ====== ======= ========
See accompanying notes to unaudited pro forma condensed consolidated balance
sheet.
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19
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
The following describe the assumptions used in determining the unaudited
pro forma adjustments necessary to present the historical financial position,
giving effect to the acquisition of RBA and the RBA Companies, as of June 30,
1998.
(A) The acquisitions are accounted for as a purchase in accordance with
Accounting Principles Board Opinion 16, "Business Combinations." The purchase
price is allocated first to the tangible and identifiable assets and liabilities
of the acquired company and the noncompete agreements based on preliminary
estimates of their fair value, with the remainder allocated to goodwill. The
following schedule presents the goodwill computation (amounts in thousands):
Purchase price:
Cash paid................................................. $26,100
Fair value of restricted, unregistered shares issued...... 12,300
-------
38,400
Estimated direct acquisition-related costs.................. 1,300
Less estimated fair value of net assets acquired from RBA
and the RBA Companies..................................... (1,996)
Less estimated value of noncompete agreements............... (150)
-------
Goodwill............................................... $37,554
=======
(B) The Company incurred indebtedness of $27.2 million to finance the cash
paid and a portion of the direct acquisition-related costs incurred in
connection with the acquisitions.
(C) The changes in components of shareholders' equity are a result of
recording the acquisition date equity in RBA.
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20
(c) Exhibits
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2.1+ -- Stock Purchase Agreement dated as of October 29, 1998 among
the Company, PRGI, Robert Beck & Associates, Inc., and the
shareholders of Robert Beck & Associates, Inc.
2.2+ -- Stock Purchase Agreement dated as of October 29, 1998 among
the Company, PRGI, Taylor, Blackburn & Associates, Inc., and
the shareholders of Taylor, Blackburn & Associates, Inc.
2.3+ -- Stock Purchase Agreement dated as of October 29, 1998 among
the Company, PRGI, John E. Flatley & Associates, Inc., and
the shareholder of John E. Flatley & Associates, Inc.
2.4+ -- Asset Purchase Agreement dated as of October 29, 1998 among
the Company, PRGI, and Vincent Creadon, a sole
proprietorship.
2.5+ -- Asset Purchase Agreement dated as of October 29, 1998 among
the Company, PRGI, and John H. Cavins, a sole
proprietorship.
2.6+ -- Asset Purchase Agreement dated as of October 29, 1998 among
the Company, PRGI, RBA Audits, Inc., and the shareholders of
RBA Audits, Inc.
2.7+ -- Asset Purchase Agreement dated as of October 29, 1998 among
the Company, PRGI, and John M. Kirkeide, a sole
proprietorship.
2.8+ -- Asset Purchase Agreement dated as of October 29, 1998 among
the Company, PRGI, and Robert N. Beck, Jr., a sole
proprietorship.
2.9+ -- Asset Purchase Agreement dated as of October 29, 1998 among
the Company, PRGI, Savant Consulting, L.L.C., and the
members of Savant Consulting, L.L.C.
2.10+ -- Representations, Covenants and Indemnification Agreement.
23.1+ -- Consent of KPMG Peat Marwick LLP.
- ---------------
+ Filed herewith.
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SIGNATURE
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 hereunto duly authorized.
THE PROFIT RECOVERY GROUP
INTERNATIONAL, INC.
By: /s/ DONALD E. ELLIS, JR.
------------------------------------
Donald E. Ellis, Jr.
Senior Vice President, Chief
Financial
Officer and Treasurer
Date: November 10, 1998
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