<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
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 7, 1997
THE PROFIT RECOVERY GROUP
INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Commission File Number 0-28000
<TABLE>
<C> <C>
GEORGIA 58-2213805
(State or other jurisdiction of incorporation) (IRS Employer Identification No.)
2300 WINDY RIDGE PARKWAY
SUITE 100 NORTH
ATLANTA, GEORGIA 30339-8426
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number including area code (770) 955-3815
(Former name or former address, if changed since last report) N/A
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<PAGE> 2
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC.
FORM 8-K/A
AMENDMENT NO. 1
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 7, 1997
EXPLANATORY NOTE: On October 22, 1997, The Profit Recovery Group
International, Inc. (the "Registrant") filed with the Securities and Exchange
Commission (the "Commission") a Report on Form 8-K (the "Initial 8-K Report")
with respect to the Registrant's October 7, 1997 acquisition of all of the
outstanding capital stock of Financiere Alma S.A., a French Company, and
substantially all of the outstanding capital stock (98.3%) of Alma Intervention,
S.A., a French Company, together with all of the equity interests of the
wholly-owned subsidiaries of Alma Intervention, S.A. (collectively, "Alma").
In accordance with Item 7(a)(4) of Form 8-K, the Initial 8-K Report did not
include the historical Alma financial statements or the unaudited pro forma
consolidated financial information of the Registrant (collectively, the
"Financial Information") and instead contained an undertaking to file the
Financial Information with the Commission in an amendment to the Initial 8-K
Report as soon as practicable, but not later than December 22, 1997. This
amendment is being filed for the purpose of satisfying the Registrant's
undertaking to file the Financial Information, and this amendment should be read
in conjunction with the Initial 8-K Report.
<PAGE> 3
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC.
FORM 8-K/A
AMENDMENT NO. 1
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 7, 1997
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
FINANCIERE ALMA, S.A. AND SUBSIDIARIES
Independent Auditors' Report.............................. 1
Consolidated Statements of Earnings for the years ended
December 31, 1995 and 1996, the six months ended June
30, 1997 and the nine months ended September 30, 1996
and 1997............................................... 2
Consolidated Balance Sheets as of December 31, 1995 and
1996, June 30, 1997 and September 30, 1997............. 3
Consolidated Statements of Shareholders' Equity for years
ended December 31, 1995 and 1996, six months ended June
30, 1997 and three months ended September 30, 1997..... 4
Consolidated Statements of Cash Flows for the years ended
December 31, 1995 and 1996, six months ended June 30,
1997 and nine months ended September 30, 1996 and
1997................................................... 5
Notes to Consolidated Financial Statements................ 6
(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
year ended December 31, 1996........................... 15
Unaudited Pro Forma Consolidated Statement of Earnings for
nine months ended September 30, 1997................... 16
Notes to Unaudited Pro Forma Consolidated Statements of
Earnings............................................... 17
Unaudited Pro Forma Condensed Consolidated Balance Sheet
as of September 30, 1997............................... 18
Notes to Unaudited Pro Forma Condensed Consolidated
Balance Sheet.......................................... 19
(c) Exhibits.............................................. 20
Signature................................................. 21
</TABLE>
<PAGE> 4
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
INDEPENDENT AUDITORS' REPORT
The Directors and Shareholders of
Financiere Alma, S.A.
We have audited the accompanying consolidated balance sheets of Financiere
Alma, S.A. and subsidiaries as of December 31, 1995 and 1996 and June 30, 1997,
and the related consolidated statements of earnings, shareholders' equity and
cash flows for each of the years in the two-year period ended December 31, 1996,
and for the six months ended June 30, 1997. 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 audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated statements referred to above present
fairly, in all material respects, the financial position of Financiere Alma,
S.A. and subsidiaries as of December 31, 1995 and 1996 and June 30, 1997, and
the results of their operations and their cash flows for each of the years in
the two-year period ended December 31, 1996, and for the six months ended June
30, 1997 in conformity with accounting principles generally accepted in the
United States.
ERNST & YOUNG Entrepreneurs
Departement d'E&Y Audit
Any Antola
Paris, France, September 30, 1997, except
for note 12 which is as
of October 7, 1997
1
<PAGE> 5
FINANCIERE ALMA, S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS NINE MONTHS ENDED
DECEMBER 31, ENDED SEPTEMBER 30,
----------------- JUNE 30, -----------------
1995 1996 1997 1996 1997
------- ------- ---------- ------- -------
(AMOUNTS IN THOUSANDS OF US DOLLARS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues........................................ $20,858 $21,256 $9,557 $14,241 $15,046
Cost of revenues................................ 8,265 10,597 4,875 7,539 7,706
Selling, general and administrative expenses.... 7,536 8,085 3,650 5,461 5,174
------- ------- ------ ------- -------
Operating income.............................. 5,057 2,574 1,032 1,241 2,166
Interest income, net............................ 224 41 61 105 76
------- ------- ------ ------- -------
Earnings before income taxes and minority
interest................................... 5,281 2,615 1,093 1,346 2,242
Income taxes.................................... 1,862 974 425 511 820
------- ------- ------ ------- -------
Earnings before minority interest............. 3,419 1,641 668 835 1,422
Minority interest............................... 1,547 498 119 182 431
------- ------- ------ ------- -------
Net earnings.................................. $ 1,872 $ 1,143 $ 549 $ 653 $ 991
======= ======= ====== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 6
FINANCIERE ALMA, S.A. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30, SEPTEMBER 30,
1995 1996 1997 1997
------- ------- -------- -------------
(AMOUNTS IN THOUSANDS OF US DOLLARS,
EXCEPT SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (note 3)..................... $ 5,783 $ 7,389 $ 3,254 $ 3,528
Accounts receivable, less allowance of $1,706, $2,245
and $2,271 at December 31, 1995 and 1996 and June 30,
1997, respectively................................... 7,876 5,600 5,502 7,239
Due from affiliates (note 2)........................... 564 2,052 1,698 47
Prepaid expenses and other current assets.............. 565 1,120 919 973
Deferred income taxes (note 7)......................... 957 1,058 1,037 1,058
------- ------- ------- -------
Total current assets............................ 15,745 17,219 12,410 12,845
------- ------- ------- -------
Property and equipment:
Computer and other equipment........................... 630 710 677 732
Furniture and fixtures................................. 189 203 163 205
Leasehold improvements................................. 510 157 417 413
------- ------- ------- -------
1,329 1,070 1,257 1,350
Less accumulated depreciation and amortization......... 672 737 738 892
------- ------- ------- -------
657 333 519 458
Other assets............................................. 248 138 49 44
------- ------- ------- -------
$16,650 $17,690 $12,978 $13,347
======= ======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank overdrafts........................................ $ 141 $ 1,023 $ 113 $ 147
Due to shareholders (note 2)........................... 179 1,460 780 29
Due to affiliates (note 2)............................. 196 180 161 87
Current installments of long-term debt (note 4)........ 88 410 435 124
Accounts payable and accrued expenses.................. 3,050 3,644 1,383 1,627
Accrued payroll and related expenses................... 4,303 4,495 3,379 4,709
Dividends and distributions payable.................... 1,734 -- 414 --
VAT payable............................................ 1,933 1,813 1,758 2,065
Deferred revenues...................................... 1,106 851 756 984
------- ------- ------- -------
Total current liabilities....................... 12,730 13,876 9,179 9,772
Other long-term liabilities.............................. 569 540 482 167
Long-term debt, excluding current installments (note
4)..................................................... 156 1,065 1,087 478
------- ------- ------- -------
Total liabilities............................... 13,455 15,481 10,748 10,417
Minority interest (note 11).............................. 1,274 539 184 476
Shareholders' equity:
Common stock, FRF 100 ($18) par value, 3,884
authorized, issued and outstanding shares at December
31, 1995 and 1996, June 30, 1997 and September 30,
1997................................................. 69 69 69 69
Additional paid-in capital............................. 12 12 12 12
Cumulative translation adjustment...................... 222 103 (70) (104)
Retained earnings...................................... 1,618 1,486 2,035 2,477
------- ------- ------- -------
Total shareholders' equity...................... 1,921 1,670 2,046 2,454
Commitments and contingencies (notes 6 and 9)............
------- ------- ------- -------
$16,650 $17,690 $12,978 $13,347
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 7
FINANCIERE ALMA, S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1996 AND
SIX MONTHS ENDED JUNE 30, 1997 AND THREE
MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
CUMULATIVE TOTAL
COMMON ADDITIONAL TRANSLATION RETAINED SHAREHOLDERS'
STOCK PAID-IN CAPITAL ADJUSTMENT EARNINGS EQUITY
------ --------------- ----------- -------- -------------
(AMOUNTS IN THOUSANDS OF US DOLLARS)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994.............. $57 $-- $ -- $ 1,208 $ 1,265
Net earnings.............................. -- -- -- 1,872 1,872
Dividends................................. -- -- -- (1,751) (1,751)
Contribution of minority interest (note
11)..................................... 12 12 -- 289 313
Cumulative translation adjustment......... -- -- 222 -- 222
--- --- ----- ------- -------
Balance at December 31, 1995............ 69 12 222 1,618 1,921
Net earnings.............................. -- -- -- 1,143 1,143
Dividends................................. -- -- -- (1,275) (1,275)
Cumulative translation adjustment......... -- -- (119) -- (119)
--- --- ----- ------- -------
Balance at December 31, 1996............ 69 12 103 1,486 1,670
Net earnings.............................. -- -- -- 549 549
Cumulative translation adjustment......... -- -- (173) -- (173)
--- --- ----- ------- -------
Balance at June 30, 1997................ 69 12 (70) 2,035 2,046
Net earnings.............................. -- -- -- 442 442
Cumulative translation adjustment......... -- -- (34) -- (34)
--- --- ----- ------- -------
Balance at September 30, 1997
(unaudited).......................... $69 $12 $(104) $ 2,477 $ 2,454
=== === ===== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 8
FINANCIERE ALMA, S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SIX MONTHS ENDED SEPTEMBER 30,
----------------- JUNE 30, -----------------
1995 1996 1997 1996 1997
------- ------- ----------------- ------- -------
(AMOUNTS IN THOUSANDS OF US DOLLARS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings....................................... $ 1,872 $ 1,143 $ 549 $ 653 $ 991
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization.................... 195 243 176 179 347
Loss from sale of property and equipment......... -- 178 -- -- --
Minority interest................................ 1,547 498 119 182 431
Deferred income taxes............................ (88) (165) (70) 99 (125)
Changes in assets and liabilities:
Accounts receivable............................ (3,223) 1,811 (516) 2,325 (2,320)
Prepaid expenses and other current assets...... (345) (606) 79 (993) 16
Other assets................................... (152) 111 64 58 79
VAT payable.................................... 427 4 144 (655) 469
Accounts payable and accrued expenses.......... 1,581 810 (1,881) 195 (1,601)
Accrued payroll and related expenses........... 362 480 (631) 139 739
Deferred revenues.............................. (236) (188) (2) (81) 235
Other long-term liabilities.................... 485 8 2 4 2
------- ------- -------- ------- -------
Net cash provided by (used in) operating
activities.............................. 2,425 4,327 (1,967) 2,105 (737)
------- ------- -------- ------- -------
Cash flows from investing activities:
Purchases of property and equipment.............. (266) (149) (443) (137) (552)
Proceeds from sale of property and equipment..... 14 17 21 16 37
Net change in due from affiliates................ 16 (1,561) 132 (969) 1,787
------- ------- -------- ------- -------
Net cash provided by (used in) investing
activities.............................. (236) (1,693) (290) (1,090) 1,272
------- ------- -------- ------- -------
Cash flows from financing activities:
Bank overdraft changes, net...................... 133 913 (805) (29) (765)
Proceeds from issuance of long-term debt......... -- 1,369 257 1,344 223
(Repayments) proceeds from loans to (from)
shareholders, net.............................. (7) 1,324 (525) (2) (1,275)
(Repayments) proceeds from loans from affiliates,
net............................................ -- (4) -- 1 (73)
Repayments of long-term debt..................... (80) (88) (34) (76) (1,246)
Dividends and distributions...................... (3,144) (4,101) -- (2,779) (415)
------- ------- -------- ------- -------
Net cash used in financing activities..... (3,098) (587) (1,107) (1,541) (3,551)
------- ------- -------- ------- -------
Effect of foreign exchange rate changes on cash and
cash equivalents................................. 428 (441) (771) (303) (845)
------- ------- -------- ------- -------
Net change in cash and cash equivalents... (481) 1,606 (4,135) (829) (3,861)
Cash and cash equivalents at beginning of period... 6,264 5,783 7,389 5,783 7,389
------- ------- -------- ------- -------
Cash and cash equivalents at end of
period.................................. $ 5,783 $ 7,389 $ 3,254 $ 4,954 $ 3,528
======= ======= ======== ======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for interest......... $ 25 $ 66 $ 47 $ 58 $ 61
======= ======= ======== ======= =======
Cash paid during the period for income taxes..... $ 2,355 $ 1,117 $ 422 $ 756 $ 626
======= ======= ======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 9
FINANCIERE ALMA, S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996 AND JUNE 30, 1997
(AMOUNTS IN US DOLLARS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF PRESENTATION
The consolidated financial statements consist of Financiere Alma and,
except for Negociation Achat Creances Contentieuses, S.A. ("NACC"), its majority
owned subsidiaries Alma Intervention, S.A., Club Affairs Alma, S.A.R.L.,
Meridian VAT Reclaim France, S.A.R.L., B&F Associes, S.A.R.L., and STEP, S.A.
(collectively referred to as "Alma"). A majority owned subsidiary, NACC, has
been excluded from the consolidation as certain of Alma's shareholders have
agreed to acquire the investment at its carrying value (see note 2). Alma
acquired B&F Associes, S.A.R.L. in March 1996 and Meridian VAT Reclaim France,
S.A.R.L. in January 1996 for amounts equivalent to their net tangible assets.
The results of operations include these two companies from their respective
acquisition dates. Pro forma and other acquisition related information is not
material.
The separate legal entities are all registered in France and prepare their
financial statements in French francs and in accordance with accounting
principles generally accepted in France. For the purpose of the proposed
acquisition of Alma by the US corporation, The Profit Recovery Group
International, Inc., the financial statements of Alma have been restated to
comply with US generally accepted accounting principles and are presented in US
dollars. The principal differences between French and US generally accepted
accounting principles relate to the timing of the recognition of revenues, the
carrying values of work-in-progress and the recognition of deferred income
taxes.
For the purpose of the translation of French franc amounts into US dollars,
the closing exchange rate has been applied for the consolidated balance sheets
and the average exchange rate has been applied for the consolidated statements
of earnings. Translation differences are recorded in shareholders' equity under
"cumulative translation adjustment." Average exchange rates of French francs to
US dollars for the years ended December 31, 1995 and 1996 and the six month
period ended June 30, 1997 were 4.9917, 5.1148 and 5.8296, respectively. The
closing exchange rate of French francs to US dollars as of December 31, 1995 and
1996 and June 30, 1997 were 4.9000, 5.2370 and 5.8777, respectively.
The accompanying unaudited condensed consolidated financial statements of
Alma as of September 30, 1997 and for the nine months ended September 30, 1996
and 1997 have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Article 10 of Regulation S-X. 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 nine months ended
September 30, 1997 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1997.
B. DESCRIPTION OF BUSINESS
Alma is headquartered in Paris, France. Founded in 1986, Alma provides its
services exclusively within France. Alma is a recovery audit firm which
primarily assists businesses in the identification and recovery of tax
overpayments, including business and personal property taxes (referred to in
France as "fiscal"), workers compensation taxes (referred to in France as
"social"), real property taxes (referred to in France as "foncier") and value
added taxes ("VAT" referred to in France as "TVA").
Alma also provides certain consulting services. Club Affairs Alma, S.A.R.L.
is a "buying" club that assists small companies in obtaining volume discounts
primarily for office supplies and equipment. Alma Intervention, S.A. also
assists French companies obtain grants and subsidies and negotiate contracts for
security and cleaning services.
6
<PAGE> 10
FINANCIERE ALMA, S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
C. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements have been prepared in accordance with
US generally accepted accounting principles. In preparing these consolidated
financial statements, management is required to make a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities. Actual results could differ
from those estimates.
The consolidated financial statements of Alma include the financial
statements of the aforementioned entities. All significant intercompany balances
and transactions have been eliminated in consolidation.
The 1996 acquisitions of B&F Associes, S.A.R.L. and Meridian VAT Reclaim
France, S.A.R.L., as mentioned above, do not have a significant impact on cash.
As such, the cash flows related to these transactions are not presented
separately in the consolidated statement of cash flows.
D. REVENUE RECOGNITION
Alma's tax recovery audit services revenues are based on specific contracts
with its clients. Such contracts generally specify:
- time periods covered by the audit;
- nature and extent of the audit services to be provided;
- client duties in assisting and cooperating with Alma; and
- fee payable to Alma expressed as a specified percentage of the amounts
recovered by the client resulting from liability overpayments claims
identified.
Liability overpayment claims identified for fiscal, social and foncier tax
services are presented to the respective government agency for review and
approval. Claims for VAT services are filed directly with the respective
government agency.
For the fiscal, social and foncier services, Alma recognizes revenues when
(a) it receives notification of the government agency approval and (b) its
clients are entitled to the recovery. For VAT services, Alma recognizes revenues
when all documentation is filed with the appropriate government agency. Alma
generally invoices its clients concurrently with the point of revenue
recognition. Amounts received before meeting the above criteria are classified
as deferred revenue on the accompanying consolidated balance sheets.
Alma recognizes revenues for its other services as they are provided to its
clients.
E. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of 3 years for computer
and other equipment, and 5 years for furniture and fixtures. Leasehold
improvements are amortized using the straight-line method over the term of the
lease, including extension options.
F. DIRECT AND COMPENSATION EXPENSE
Direct expenses incurred during the course of the recovery audit services
are expensed as incurred.
Non-management auditors have an element of their compensation which is
commission based and the compensation expense is recorded at the time of the
related revenue recognition, and subsequently paid as such revenue is collected.
Previously established auditor compensation accruals are subsequently adjusted
to correspond with adjustments for doubtful accounts. The salary portion of the
non-management auditors'
7
<PAGE> 11
FINANCIERE ALMA, S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
compensation is charged to operations as incurred. All other Alma employees are
compensated on the basis of salary and, in certain cases, bonuses, which are
charged to operations as incurred.
G. CASH EQUIVALENTS
Alma considers all highly liquid debt instruments with original maturities
of three months or less to be cash equivalents. Cash equivalents consist
primarily of temporary cash investments with original maturity of 90 days or
less.
H. CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject Alma to concentrations of
credit risk consist principally of cash and cash equivalents and trade
receivables.
Alma has cash investment policies that limit investments to short-term low
risk instruments. Alma's cash is held principally in French francs and
concentrated in several major French banks.
Alma provides services to customers in a variety of industries in France.
Alma performs ongoing credit evaluations of its customers and maintains
allowances for potential credit losses. To date, such losses have been within
management's expectations. Alma generally requires no collateral.
I. INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases, and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
2. RELATED PARTY TRANSACTIONS
Alma leases vehicles and posters from a company owned by the Chief
Executive Officer of Alma. In addition, Alma leases office space from a relative
of the Chief Executive Officer. Total rent expense for the posters, vehicles and
office for the years ended December 31, 1995 and 1996 and the six months ended
June 30, 1997 were $269,000, $306,000 and $123,000, respectively.
Alma also contributes 40 percent of the rental payment for an apartment in
Paris, France for the Chief Executive Officer. Total rent expense for the
apartment for the years ended December 31, 1995 and 1996 and the six months
ended June 30, 1997 was approximately $26,000, $25,000, and $22,000,
respectively.
Alma subleases a portion of its corporate headquarters to certain
affiliates. Rental income recorded on these subleases for the years ended
December 31, 1995 and 1996 and the six months ended June 30, 1997 were
approximately $27,000, $35,000 and $20,000, respectively.
Consulting services have been provided to Alma by a major shareholder who
is also a director of Alma. Consulting fees for the years ended December 31,
1995 and 1996 and the six months ended June 30, 1997 were $194,000, $227,000 and
$100,000, respectively.
The amounts contained in "Due from affiliates" represent mainly a loan to
and the net book value of NACC. In September 1997, Alma's interest in NACC was
sold to certain of Alma's shareholders at book value for cash.
8
<PAGE> 12
FINANCIERE ALMA, S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The amounts in "Due to shareholders" and "Due to affiliates" represent
interest free advances by the Chief Executive Officer to Alma for operating
purposes and expenses paid on behalf of Alma by affiliated companies,
respectively.
Prior to 1994, Alma had guaranteed one half of a FF10,000,000 loan held by
NACC. The amount of the guarantee was approximately $851,000 at June 30, 1997.
This guarantee was secured by a pledge of the shares in Alma Intervention, S.A.
Subsequent to June 30, 1997, the guarantee given and security pledged by Alma
has been released.
During 1995, Financiere Alma loaned approximately $292,000 to a shareholder
who was also an employee of Alma. The full amount of the loan was repaid prior
to December 31, 1995.
3. CASH AND CASH EQUIVALENTS
Cash and cash equivalents include:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- JUNE 30,
1995 1996 1997
------ ------ --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Cash held at bank........................................... $2,420 $1,485 $ 676
Temporary investments held at bank.......................... 3,363 5,904 2,578
------ ------ ------
$5,783 $7,389 $3,254
====== ====== ======
</TABLE>
The fair value of cash equivalents, all classified as available-for-sale,
approximate book value at December 31, 1995 and 1996 and at June 30, 1997.
4. LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------- JUNE 30,
1995 1996 1997
---- ------ --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Term loan with interest rate of PIBOR plus 2% (5.39% at June
30, 1997) with final payment due December 1999(a)......... $ -- $1,336 $1,190
Term loan with interest rate of 7.5% requiring quarterly
payments of FF 75,000, or $12,864 at June 30, 1997, plus
interest with final payment due February 1998............. 146 72 39
Term loan with interest rate of PIBOR plus 1.25% (4.64% at
June 30, 1997) requiring quarterly payments of FF 44,704,
or $7,668 at June 30, 1997, plus interest with final
payment due April 2000.................................... -- -- 245
Other....................................................... 98 67 48
---- ------ ------
244 1,475 1,522
Less current installments................................... 88 410 435
---- ------ ------
Long-term debt, excluding current installments.... $156 $1,065 $1,087
==== ====== ======
</TABLE>
- ---------------
(a) This loan is secured by a pledge of 6,307 shares of Alma Intervention, S.A.
Alma would be liable to a 2% per year indemnity in case of early repayment.
A merger, transfer of assets, or change in ownership constitutes an event
default which could cause early repayment (see note 12).
9
<PAGE> 13
FINANCIERE ALMA, S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum annual principal payments for long-term debt for each of the
years subsequent to December 31, 1996 are as follows:
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS)
<S> <C>
YEARS ENDING DECEMBER 31,
1997........................................................ $ 410
1998........................................................ 501
1999........................................................ 553
2000........................................................ 11
-------
Total............................................. $1,475
=======
</TABLE>
5. SHAREHOLDERS' EQUITY
In September 1995, Alma increased its ownership interest in Alma
Intervention, S.A. from 50.7% to 60.6% by the issuance of 561 ordinary shares.
The Alma Intervention, S.A. shares were purchased from the Chief Executive
Officer, and valued for an amount which was considerably lower than the fair
value of the interest acquired. As this transaction involved entities under
common control, the excess of fair value over book value has been accounted for
as a contribution by minority interests to retained earnings.
6. LEASES
Alma is committed under non-cancelable operating lease arrangements for
facilities, vehicles and artwork, including related party leases (see note 2).
Rent expense for the years ended December 31, 1995 and 1996 and the six months
ended June 30, 1997 was $694,000, $803,000 and $242,000, respectively. The
future minimum lease payments under these leases, net of related party subleases
(see note 2), are summarized as follows:
<TABLE>
<CAPTION>
RELATED OTHER
PARTIES LEASES TOTAL
------- ------ ------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
YEARS ENDING DECEMBER 31,
1997........................................................ $ 83 $ 267 $ 350
1998........................................................ 214 462 676
1999........................................................ 104 517 621
2000........................................................ 4 -- 4
---- ------ ------
Total............................................. $405 $1,246 $1,651
==== ====== ======
</TABLE>
7. INCOME TAXES
The provision for income taxes for the years ended December 31, 1995 and
1996 and the six months ended June 30, 1997 consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS
DECEMBER 31, ENDED
--------------- JUNE 30,
1995 1996 1997
------ ------ --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Current..................................................... $1,950 $1,139 $495
Deferred.................................................... (88) (165) (70)
------ ------ ----
Total............................................. $1,862 $ 974 $425
====== ====== ====
</TABLE>
10
<PAGE> 14
FINANCIERE ALMA, S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of income taxes computed at the French statutory rate
(36.66% in 1995, 1996 and 1997) to income tax expense is as follows:
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS
DECEMBER 31, ENDED
------------- JUNE 30,
1995 1996 1997
------ ---- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Income tax expense computed at the French statutory rate.... $1,935 $960 $417
Other....................................................... (73) 14 8
------ ---- ----
Total............................................. $1,862 $974 $425
====== ==== ====
</TABLE>
Deferred taxes reflect the net tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the
Company's deferred taxes consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- JUNE 30,
1995 1996 1997
------ ------ --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax liabilities:
Accrued payroll and related expenses...................... $ 46 $ 68 $ 60
Accumulated depreciation.................................. 2 -- --
------ ------ ------
Total deferred tax liabilities......................... 48 68 60
------ ------ ------
Deferred tax assets:
Deferred revenues......................................... 702 824 759
Accounts payable and accrued expenses..................... 260 236 239
Other..................................................... 43 66 99
------ ------ ------
Total deferred tax assets.............................. 1,005 1,126 1,097
------ ------ ------
Net deferred tax assets................................ $ 957 $1,058 $1,037
====== ====== ======
</TABLE>
A proposal to increase the statutory tax rate from 36.7% to 41.6% effective
January 1, 1997 will be the subject of a vote by the members of the French
National Assembly. If approved, income tax expense for the six months ended June
30, 1997 would increase by $64,000 and the net deferred tax asset would increase
by $156,000.
No valuation allowances were deemed necessary since all deductible
temporary differences could be carried back to recover income taxes previously
paid.
8. EMPLOYEE BENEFIT PLANS
Alma contributes to pensions for personnel in France in accordance with
French law, by contributions based on salaries to the relevant state-sponsored
organizations. Alma has no further liability in connection with these plans.
French law also requires payment of a lump sum retirement indemnity to
employees, based upon years of service and compensation at retirement. Benefits
do not vest prior to retirement. Alma's estimated obligations at December 31,
1995 and 1996 and June 30, 1997 were determined using actuarial methods.
Expenses related to this plan for the years ended December 31, 1995 and 1996 and
six months ended June 30, 1997 were $4,000, $4,000 and $2,000, respectively.
In March 1992, Alma Intervention, S.A. implemented a profit sharing
agreement as required under French corporate law. This agreement was
subsequently renewed in December, 1996 and extended to
11
<PAGE> 15
FINANCIERE ALMA, S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
employees of all companies except B&F Associes, S.A.R.L. The agreement allows
all qualified employees with at least six months of service to receive a benefit
equal to a percentage of Alma's taxable income, based on the employee's length
of service and amount of salary. The benefit is deposited in a venture capital
fund and cannot be used by the employee for a five year period, except under
circumstances defined by the plan, such as death or resignation. B&F Associes,
S.A.R.L. adopted a similar benefit plan for its employees on November 13, 1995,
which terminates on November 12, 1998, with the option to renew. Expenses
related to these plans for the years ended December 31, 1995 and 1996 and six
months ended June 30, 1997 were $424,000, $384,000 and $185,000, respectively.
In October 1993, Alma entered into an employee savings agreement which
entitles employees with at least six months of service to contribute, either
directly in cash or by transferring part or all of the sums deposited in the
venture capital fund referred to above, to a fund that purchases either
short-term investments or acquires shares in Alma Intervention, S.A. The shares
purchased cannot be transferred by the employees for a five year period, except
under circumstances defined by the plan such as death, retirement or
resignation. Employees have the right to purchase shares under this plan at
their estimated fair value only during periods designated by Alma. Since the
inception of the plan, only one sale was offered to employees, on October 1993,
resulting in 341 shares of Alma Intervention, S.A. being purchased.
In June 1994, a bonus incentive agreement was adopted by Alma Intervention,
S.A. for a three year period for all employees having at least six months
service. The agreement allows all qualified employees to receive a benefit as a
result of achieving certain corporate goals. The amount of the benefit and
specific corporate goals are generally established at the beginning of each
fiscal year. By adopting this plan, Alma receives tax benefits such as lower
social taxes on employee wages. The agreement was renewed for three years in
June 1997. Expenses related to this plan for the years ended December 31, 1995
and 1996 and six months ended June 30, 1997 were $444,000, $480,000 and
$218,000, respectively.
9. COMMITMENTS AND CONTINGENCIES
Alma guarantees the validity of the claims identified by providing a
commitment to refund fees earned on successful claims which are later determined
to be unsuccessful. Since Alma's fees are a percentage of the recovery received
by its clients, the refunds for unsuccessful claims arise if the favorable
ruling during a tax audit for fiscal, social and foncier tax claims is
subsequently overturned or a VAT tax claim is denied (see note 1.D). Alma
secures certain guarantees with a bank guarantee in favor of its client. The
terms of these bank guarantees generally correspond with the remaining statutory
period for tax audits of the related claim identified. Bank guarantees
outstanding at June 30, 1997 totaled $799,000. Historically, Alma has rarely
been required to refund its fees. Management believes that any future
reimbursement of fees received will not be material.
Alma is subject to legal proceedings and claims which arise in the ordinary
course of its business. While these actions are being contested, management
believes that any liability resulting from these matters, after taking into
consideration insurance coverage and amounts already accrued, should not have a
material adverse effect on the consolidated financial position or results of
operations.
During December 1995, Alma entered into an agreement with Lasseri, Durand
et Associes ("LDA") to secure legal, audit and research services at
pre-established invoicing rates, based on Alma's request. The contract
stipulates that Alma's yearly demand for LDA's services is not to fall below 25%
of the highest annual fees paid to LDA during the previous three years ("the
standard fee level"). Failure on the part of Alma to fulfill this level of
request for services from LDA will result in a penalty to be paid to LDA in the
amount of the decrease in the demand of services from the standard fee level. If
Alma terminates the contract prior to expiration, Alma will be required to pay
to LDA an amount equal to the highest annual fees invoiced by LDA during the
last three years. The agreement covers a period of five years ending December
2000. Fees
12
<PAGE> 16
FINANCIERE ALMA, S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
paid to LDA for the years ended December 31, 1995 and 1996 and the six months
ended June 30, 1997 were $366,000, $410,000 and $101,000, respectively.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
At December 31, 1995 and 1996, and June 30, 1997, the carrying values of
financial instruments such as cash and cash equivalents, accounts receivable,
due from affiliates and current liabilities approximated their market values,
based on the short-term maturities of these instruments. The fair values of
Alma's long-term debt instruments are based on the amount of future cash flows
associated with each instrument discounted using Alma's current borrowing rate
for similar debt instruments of comparable maturity. The estimated fair value of
the Company's long-term debt instruments, excluding current installments of
long-term debt (see note 4), at December 31, 1995 and 1996 and June 30, 1997 was
$198,000, $1,298,000 and $1,126,000, respectively.
11. MINORITY INTEREST
As of June 30, 1997, Financiere Alma owned either directly or indirectly
through Alma Intervention, S.A., 61% of Alma Intervention, S.A., 90% of Step,
S.A., 99% of B&F Associes, S.A.R.L., 85% of Club Affaires Alma, S.A.R.L., and
90% of Meridian VAT Reclaim France, S.A.R.L. Minority interest distributions
during the years ended December 31, 1995 and 1996, and the six months ended June
30, 1997 were $1,456,000, $1,163,000 and $414,000, respectively. During
September 1995, approximately $289,000 was transferred from minority interest to
retained earnings (see note 5).
In September 1997, Alma Intervention, S.A. purchased the minority ownership
in Club Affairs Alma, S.A.R.L., Meridian VAT Reclaim France, S.A.R.L., B&F
Associes, S.A.R.L. and Step, S.A. for amounts that approximated the net book
value of the minority interest. The net book value approximates the fair value.
12. SUBSEQUENT EVENT
On October 7, 1997, The Profit Recovery Group International, Inc. ("PRG")
acquired substantially all ownership interests of Alma for a consideration of
approximately $24,602,000 in cash and 859,000 restricted, unregistered shares of
PRG's common stock. PRG has the obligation to purchase the remaining ownership
(approximately 1.6%) of Alma by January 1999 for terms similar to the October
1997 transaction.
13
<PAGE> 17
(b) Pro Forma Financial Information
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
On October 7, 1997, The Profit Recovery Group International, Inc. (the
"Company") acquired 98.4% of Financiere Alma, S.A. and subsidiaries ("Alma"), a
French company providing primarily corporate tax recovery services in France.
The transaction was accounted for as a purchase, effective as of October 1,
1997, with consideration of $24,602,000 in cash and 859,000 restricted,
unregistered shares of the Company's common stock. Approximately $1,700,000 in
direct acquisition-related costs were also incurred and capitalized as part of
this transaction. The Company has an obligation to purchase the remaining 1.6%
of Alma by January 1999 for $398,000 in cash and 13,900 unregistered shares of
the Company's common stock.
The Company incurred debt to pay the cash consideration and a minor portion
of the direct acquisition-related expenses incurred in connection with the
acquisition of Alma.
The following unaudited pro forma consolidated statements of earnings for
the year ended December 31, 1996 and the nine months ended September 30, 1997
present the consolidated historical accounts of the Company, adjusted to give
effect to the acquisition of Alma as of the beginning of the periods presented.
The following unaudited pro forma condensed consolidated balance sheet as of
September 30, 1997 presents the consolidated historical accounts of the Company
as of that date, adjusted to give effect to the acquisition of Alma as if the
transaction had occurred on September 30, 1997.
The unaudited pro forma financial data and accompanying notes should be
read in conjunction with the consolidated financial statements of the Company
and related notes, as well as the consolidated financial statements and related
notes of Alma. 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 data, 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 data is not intended to
project the Company's financial condition on any future date or results of
operations for any future period.
14
<PAGE> 18
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
THE PROFIT
RECOVERY
GROUP
INTERNATIONAL, PRO FORMA
INC. ALMA ADJUSTMENTS PRO FORMA
-------------- ------- ----------- -----------
(AMOUNTS IN THOUSANDS OF US DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues.................................. $77,330 $21,256 $ -- $98,586
Cost of revenues.......................... 40,330 10,597 -- 50,927
Selling, general and administrative
expenses................................ 25,961 8,085 1,669 (A) 35,715
------- ------- ------- -------
Operating income........................ 11,039 2,574 (1,669) 11,944
Interest income (expense), net............ (100) 41 (2,104)(B) (2,163)
------- ------- ------- -------
Earnings before income taxes and
minority interest.................... 10,939 2,615 (3,773) 9,781
Income taxes.............................. 7,789 974 (1,471)(C) 7,292
------- ------- ------- -------
Earnings before minority interest....... 3,150 1,641 (2,302) 2,489
Minority interest......................... -- 498 (509)(D) (11)
------- ------- ------- -------
Net earnings............................ $ 3,150 $ 1,143 $(1,793) $ 2,500
======= ======= ======= =======
Pro forma information:
Historical earnings before income taxes
and minority interest................ $10,939 $ 2,615 $(3,773) $ 9,781
Pro forma income taxes.................. 4,271 974 (1,471) 3,774
Minority interest....................... -- 498 (509) (11)
------- ------- ------- -------
Pro forma net earnings.................. $ 6,668 $ 1,143 $(1,793) $ 6,018
======= ======= ======= =======
Pro forma earnings per common and common
equivalent share..................... $ 0.39 $ 0.33
======= =======
Weighted average common and common
equivalent shares outstanding........ 17,457 859 (E) 18,316
======= ======= =======
</TABLE>
See accompanying notes to unaudited pro forma consolidated statements of
earnings.
15
<PAGE> 19
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
THE PROFIT
RECOVERY GROUP PRO FORMA
INTERNATIONAL, INC. ALMA ADJUSTMENTS PRO FORMA
-------------------- -------- ------------ ------------
(AMOUNTS IN THOUSANDS OF US DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues................................ $76,445 $15,046 $ -- $91,491
Cost of revenues........................ 39,553 7,706 -- 47,259
Selling, general and administrative
expenses.............................. 25,709 5,174 1,252 (A) 32,135
------- ------- ------- -------
Operating income...................... 11,183 2,166 (1,252) 12,097
Interest income (expense), net.......... 132 76 (1,578)(B) (1,370)
------- ------- ------- -------
Earnings before income taxes and
minority interest.................. 11,315 2,242 (2,830) 10,727
Income taxes............................ 4,397 820 (1,104)(C) 4,113
------- ------- ------- -------
Earnings before minority interest..... 6,918 1,422 (1,726) 6,614
Minority interest....................... -- 431 (436)(D) (5)
------- ------- ------- -------
Net earnings.......................... $ 6,918 $ 991 $(1,290) $ 6,619
======= ======= ======= =======
Earnings per common and common
equivalent share...................... $ 0.37 $ 0.34
======= =======
Weighted average common and common
equivalent shares outstanding......... 18,720 859 (E) 19,579
======= ======= =======
</TABLE>
See accompanying notes to unaudited pro forma consolidated statements of
earnings.
16
<PAGE> 20
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF EARNINGS
YEAR ENDED DECEMBER 31, 1996 AND NINE MONTHS ENDED SEPTEMBER 30, 1997
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 Alma.
(A) Adjustment relates to amortization of the goodwill amounting to
$33,379,000 over a 20-year period.
(B) Adjustment relates to the $24,750,000 of indebtedness, at an interest
rate of 8.5%, incurred in connection with the Alma acquisition.
(C) Adjustment relates to the tax benefit derived from the deductibility of
the goodwill and interest expense assuming a combined Federal and state
effective income tax rate of 39%.
(D) Adjustment to reduce minority interest to reflect minority interest
ownership of 1.6% of Alma.
(E) Adjustment reflects the issuance of 859,000 shares in connection with
the Alma acquisition.
(F) The pro forma adjustments do not reflect the anticipated pre-tax charge
to operations in the fourth quarter of 1997 to restructure and realign certain
facets of the Company's European management structure in recognition of emerging
developments such as the Alma acquisition. This charge is expected to
approximate $1.0 million to $1.2 million.
17
<PAGE> 21
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
THE PROFIT
RECOVERY
GROUP
INTERNATIONAL, PRO FORMA
INC. ALMA ADJUSTMENTS PRO FORMA
-------------- ------- ----------- ---------
(AMOUNTS IN THOUSANDS OF US DOLLARS)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents....................... $12,231 $ 3,528 $ -- $ 15,759
Contract receivables............................ 45,301 7,239 -- 52,540
Other receivables............................... 2,160 47 -- 2,207
Prepaid expenses and other current assets....... 1,292 973 -- 2,265
Deferred income taxes........................... -- 1,058 -- 1,058
------- ------- ------- --------
Total current assets.................... 60,984 12,845 -- 73,829
Property and equipment, net....................... 8,581 458 -- 9,039
Noncompete agreements, net........................ 3,734 -- -- 3,734
Deferred loan costs, net.......................... 32 -- -- 32
Goodwill, net..................................... 6,204 -- 33,379 (A) 39,583
Deferred income taxes............................. 1,174 -- -- 1,174
Other assets...................................... 537 44 -- 581
------- ------- ------- --------
$81,246 $13,347 $33,379 $127,972
======= ======= ======= ========
Current liabilities:
Bank overdraft.................................. $ -- $ 147 $ -- $ 147
Due to shareholders and affiliates.............. -- 116 -- 116
Current installments of long term-debt.......... 83 124 -- 207
Accounts payable and accrued expenses........... 1,719 1,627 1,552 (B) 4,898
Accrued payroll and related expenses............ 17,788 4,709 -- 22,497
VAT payable..................................... -- 2,065 -- 2,065
Deferred revenues............................... -- 984 -- 984
Deferred income taxes........................... 7,607 -- -- 7,607
------- ------- ------- --------
Total current liabilities............... 27,197 9,772 1,552 38,521
Long-term debt, excluding current installments.... 707 167 24,750 (B) 25,624
Deferred compensation............................. 2,263 -- -- 2,263
Other long-term liabilities....................... -- 478 -- 478
------- ------- ------- --------
Total liabilities....................... 30,167 10,417 26,302 66,886
Minority interest................................. -- 476 (428)(C) 48
Shareholders' equity:
Common stock.................................... 18 69 (68)(D) 19
Additional paid-in capital...................... 37,815 12 9,946 (D) 47,773
Cumulative translation adjustments.............. (56) (104) 104 (D) (56)
Retained earnings............................... 13,302 2,477 (2,477)(D) 13,302
------- ------- ------- --------
Total shareholders' equity.............. 51,079 2,454 7,505 61,038
------- ------- ------- --------
$81,246 $13,347 $33,379 $127,972
======= ======= ======= ========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated balance
sheet.
18
<PAGE> 22
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
The following explanations describe the assumptions used in determining the
unaudited pro forma adjustments necessary to present the historical financial
position, giving effect to the acquisition of Alma.
(A) The acquisition is 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 based on preliminary estimates of their fair value, with
the remainder allocated to goodwill. The following schedule presents the
goodwill computation (amounts in thousands of US dollars):
<TABLE>
<S> <C>
Purchase price:
Cash paid................................................. $24,602
Fair value of restricted, unregistered shares issued...... 9,959
-------
34,561
Estimated direct acquisition-related costs.................. 1,700
Less net book value of Alma, which approximates fair value,
and minority interest..................................... (2,930)
Plus minority interest for 1.6% of Alma not purchased....... 48
-------
Goodwill............................................... $33,379
=======
</TABLE>
(B) The Company incurred indebtedness of $24,750,000 to fund the cash paid
and a minor portion of direct acquisition-related costs incurred in connection
with the acquisition of Alma, and accrued an additional $1,552,000 to pay the
remaining unpaid direct acquisition-related costs incurred.
(C) Adjustment is a reduction of minority interest to reflect minority
interest ownership of 1.6% of Alma.
(D) The changes in components of shareholders' equity are a result of (a)
the elimination of the equity of Alma and (b) the reclassification of the
portion of the minority interest purchased.
19
<PAGE> 23
(c) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
<C> <C> <S>
2.1(a)* -- Share Purchase Agreement dated as of October 7, 1997 among
the Company, PRG France and certain individual Stockholders
of Alma Intervention S.A.
2.1(b)* -- Share Purchase Agreement dated as of October 7, 1997 among
the Company, PRG France and certain individual Stockholders
of Alma Intervention S.A.
2.2* -- Share Purchase Agreement dated as of October 7, 1997 among
the Company, PRG France and Epargne Capitalisation
Intermediaire and Epargne Developpement.
2.3* -- Share Purchase Agreement dated as of October 7, 1997 among
the Company, PRG France and Sophie Davet.
2.4* -- Share Purchase Agreement dated as of October 7, 1997 among
the Company, PRG France and Marc Eisenberg and Eric
Eisenberg.
2.5* -- Share Purchase Agreement dated as of October 7, 1997 among
the Company, PRG France and Banque Internationale a
Luxembourg S.A. for share capital of Financiere Alma S.A.
and Alma Intervention S.A.
2.6* -- Share Purchase Agreement dated as of October 7, 1997 among
the Company, PRG France and Banque Internationale a
Luxembourg S.A. for share capital of Alma Intervention S.A.
2.7* -- Warranty Agreement dated as of October 7, 1997 among the
Company, PRG France, Marc Eisenberg and Eric Eisenberg.
2.8* -- Indemnity Escrow and Stock Pledge Agreement dated as of
October 7, 1997 among the Company, PRG France, Marc
Eisenberg, Eric Eisenberg, Banque Internationale a
Luxembourg S.A. and Arnall Golden & Gregory, LLP.
23.1+ -- Consent of Ernst & Young Entrepreneurs.
</TABLE>
- ---------------
* Previously filed. In accordance with Item 601(b)(2) of Regulation S-K, the
schedules have been omitted and a list briefly describing the schedules is
contained at the end of the Exhibit. The Company will furnish supplementally a
copy of any omitted schedule to the Commission upon request.
+ Filed herewith.
20
<PAGE> 24
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 21, 1997
21
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
The Profit Recovery Group International, Inc.
We consent to the incorporation by reference in Registration Statement Nos.
333-8707 and 333-30885 on Form S-8 of The Profit Recovery Group International,
Inc. of our report dated September 30, 1997 (except for note 12, which is as of
October 7, 1997), with respect to the financial statements of Financiere Alma,
S.A. and subsidiaries, included in The Profit Recovery Group International, Inc.
Form 8-K/A (Amendment No. 1) dated October 22, 1997 and filed with the
Securities and Exchange Commission on November 21, 1997.
ERNST & YOUNG Entrepreneurs
Departement d'E&Y Audit
Any Antola
Paris, France
November 21, 1997
