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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): DECEMBER 4, 1998
THE PROFIT RECOVERY GROUP
INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Commission File Number 0-28000
<TABLE>
<S> <C>
GEORGIA 58-2213805
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation)
</TABLE>
<TABLE>
<S> <C>
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) 779-3900
(Former name or former address, if changed since last report) NOT APPLICABLE
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ITEM 5. OTHER EVENTS
On August 6, 1998, The Profit Recovery Group International, Inc., a Georgia
corporation (the "Company"), and its wholly owned subsidiary, The Profit
Recovery Group International I, Inc. ("PRGI"), acquired substantially all the
assets and assumed certain liabilities of Loder, Drew & Associates ("Loder
Drew"), pursuant to the terms of an Asset Purchase Agreement ("Agreement") dated
July 31, 1998, effective July 1, 1998, by and among the Company, PRGI, Loder
Drew and the shareholders of Loder Drew. Loder Drew is an international recovery
auditing firm primarily serving clients in the manufacturing, financial services
and other non-retail sectors.
Pursuant to the Agreement, the initial consideration paid for Loder Drew
consisted of $70.0 million in cash and 803,535 unregistered, restricted shares
of the Company's common stock. Additionally, Loder Drew will be eligible to
receive additional purchase price consideration up to a maximum of $70.0 million
in cash conditioned on the future financial performance of Loder Drew through
December 31, 1999. The consideration given to acquire substantially all the
assets and assume certain liabilities of Loder Drew was determined as a result
of arm's length negotiations among unrelated parties, and the acquisition was
accounted for using the purchase method of accounting. The Company borrowed
$73.0 million from NationsBank N.A. under its $150.0 million senior credit
facility to fund the cash portion of the initial consideration and the direct
acquisition-related costs estimated at $3.0 million. The Company's credit
facility was subsequently syndicated and increased to $200.0 million.
The description of the acquisition contained herein is qualified in its
entirety by reference to the Agreement dated July 31, 1998 by and among the
Company, PRGI, Loder Drew and the shareholders of Loder Drew previously filed as
Exhibit 2.1 to the Company's Form 8-K filed August 12, 1998, and incorporated
herein by reference.
The Company's previous Form 8-K, which was filed on August 12, 1998 in
connection with the Loder Drew acquisition, included all required financial
statements and pro forma financial information based upon a March 31, 1998
cutoff. This current Form 8-K is provided to update certain unaudited Loder Drew
financial statements and unaudited pro forma financial information through June
30, 1998.
2
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<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
FINANCIAL STATEMENTS
(a) Financial Statements of Loder Drew
Statements of Earnings (Loss) for the six months ended
June 30, 1997 and 1998 (unaudited)..................... 4
Balance Sheet as of June 30, 1998 (unaudited)............. 5
Statement of Shareholders' Equity for the six months ended
June 30, 1998 (unaudited).............................. 6
Statements of Cash Flows for the six months ended June 30,
1997 and 1998 (unaudited).............................. 7
Notes to Financial Statements............................. 8
(b) Pro Forma Financial Information
Unaudited Pro Forma Consolidated Financial Information.... 9
Unaudited Pro Forma Consolidated Statement of Earnings for
the six months ended June 30, 1998..................... 10
Notes to Unaudited Pro Forma Consolidated Statement of
Earnings............................................... 11
Unaudited Pro Forma Condensed Consolidated Balance Sheet
as of June 30, 1998.................................... 12
Notes to Unaudited Pro Forma Condensed Consolidated
Balance Sheet.......................................... 13
Signature................................................. 14
</TABLE>
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LODER, DREW & ASSOCIATES
STATEMENTS OF EARNINGS (LOSS)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------
1997 1998
------ -------
(UNAUDITED)
<S> <C> <C>
Revenues.................................................... $9,949 $16,430
Cost of revenues............................................ 5,061 12,358
------ -------
Gross profit.............................................. 4,888 4,072
Selling, general and administrative expenses................ 1,850 4,318
------ -------
Operating income (loss)................................... 3,038 (246)
Interest expense, net....................................... 1 --
------ -------
Earnings (loss) before income taxes....................... 3,037 (246)
Income taxes................................................ 26 --
------ -------
Net earnings (loss)....................................... $3,011 $ (246)
====== =======
</TABLE>
See accompanying notes to financial statements.
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LODER, DREW & ASSOCIATES
BALANCE SHEET
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30,
1998
-----------
(UNAUDITED)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $4,440
Marketable securities..................................... 33
Trade accounts receivable, less allowance for doubtful
accounts of $372,000................................... 1,471
Other current assets...................................... 217
------
Total current assets.............................. 6,161
Property and equipment, net................................. 505
Deposits and other assets................................... 26
------
$6,692
======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 295
Accrued payroll........................................... 5,135
Accrued expenses.......................................... 237
------
Total current liabilities......................... 5,667
------
Shareholders' equity:
Common stock, no par value. Authorized 100,000 shares;
issued and outstanding 10,000 shares................... 1,201
Retained earnings......................................... 818
Accumulated other comprehensive loss...................... (102)
Notes receivable from shareholders........................ (892)
------
Total shareholders' equity........................ 1,025
------
$6,692
======
</TABLE>
See accompanying notes to financial statements.
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LODER, DREW & ASSOCIATES
STATEMENT OF SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED NOTES
COMMON STOCK OTHER RECEIVABLE TOTAL
--------------- RETAINED COMPREHENSIVE FROM SHAREHOLDERS'
SHARES AMOUNT EARNINGS LOSS SHAREHOLDERS EQUITY
------ ------ ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997.... 9 $ 751 $1,064 $(133) $(500) $1,182
Unrealized gain on investment
(unaudited)................... -- -- -- 31 -- 31
Exercise of stock option for
note (unaudited).............. 1 450 -- -- (450) --
Net payments received on notes
receivable from shareholders
(unaudited)................... -- -- -- -- 58 58
Net loss (unaudited)............ -- -- (246) -- -- (246)
-- ------ ------ ----- ----- ------
Balance at June 30, 1998
(unaudited)................... 10 $1,201 $ 818 $(102) $(892) $1,025
== ====== ====== ===== ===== ======
</TABLE>
See accompanying notes to financial statements.
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LODER, DREW & ASSOCIATES
STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1997 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss)....................................... $ 3,011 $ (246)
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Depreciation and amortization........................ 35 102
Increase in provision for bad debts.................. 50 372
Change in assets and liabilities:
Trade accounts receivable......................... (1,084) 1,120
Other current assets.............................. (186) (81)
Deposits and other assets......................... (6) 94
Accounts payable and accrued expenses............. 1,590 (194)
Accrued payroll................................... (738) 4,545
Accrued legal..................................... -- (575)
Shareholder distributions payable................. -- (3,510)
----------- -----------
Net cash provided by operating activities....... 2,672 1,627
----------- -----------
Cash flows from investing activities -- purchase of property
and equipment............................................. (77) (97)
----------- -----------
Cash flows from financing activities -- net payments on
notes receivable from officer............................. 100 58
----------- -----------
Net increase in cash and cash equivalents......... 2,695 1,588
Cash and cash equivalents at beginning of period............ 739 2,852
----------- -----------
Cash and cash equivalents at end of period.................. $ 3,434 $ 4,440
=========== ===========
Supplemental disclosures of cash flow information -- cash
paid during the period for income taxes................... $ 26 $ --
=========== ===========
Supplemental disclosure of noncash transactions:
Exercise of stock option for note......................... $ -- $ 450
=========== ===========
Change in valuation allowance for unrealized holding
losses (gains) on available for sale marketable
securities............................................. $ -- $ 31
=========== ===========
</TABLE>
See accompanying notes to financial statements.
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LODER, DREW & ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of Loder Drew 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.
NOTE B -- RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130 ("SFAS No. 130") "Reporting
Comprehensive Income," which establishes standards for reporting and disclosures
of comprehensive income (loss) and its components (revenues, expenses, gains and
losses) in a full set of general purpose financial statements. SFAS No. 130 is
effective for fiscal years beginning after December 16, 1997 and requires
reclassification of financial statements for earlier periods to be provided for
comparative purposes. Loder Drew has not determined the manner in which it will
present the information required by SFAS No. 130 in its financial statements for
the year ending December 31, 1998. Loder Drew's total comprehensive loss for the
six months ended June 30, 1998 approximated its reported net loss for the
period.
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THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
On August 6, 1998, The Profit Recovery Group International, Inc. (the
"Company"), and its wholly owned subsidiary, The Profit Recovery Group
International I, Inc. acquired substantially all the assets and assumed certain
liabilities of Loder, Drew & Associates ("Loder Drew"), an international
recovery auditing firm primarily serving clients in the manufacturing, financial
services and other non-retail sectors. The transaction was accounted for as a
purchase, effective as of July 1, 1998, with consideration of $70.0 million in
cash and 803,535 restricted, unregistered shares of the Company's common stock.
Approximately $3.0 million in direct acquisition-related costs were also
incurred and capitalized as part of this transaction. Additionally, Loder Drew
will be eligible to receive further purchase price consideration up to a maximum
of $70.0 million in cash conditioned on future financial performance of Loder
Drew through December 31, 1999.
The Company borrowed $73.0 million from NationsBank N.A. under its $150.0
million senior credit facility to pay the cash consideration and direct
acquisition-related expenses incurred in connection with the acquisition of
Loder Drew. The credit facility was subsequently syndicated and increased to
$200.0 million.
The following unaudited pro forma consolidated statement of earnings for
the six months ended June 30, 1998 presents the consolidated historical accounts
of the Company, adjusted to give effect to the acquisition of Loder Drew as of
the beginning of the period 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 Loder Drew 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 Loder Drew. Audited historical financial statements of Loder
Drew are included in the Company's Form 8-K which was filed on August 12, 1998.
The Company believes that the assumptions set forth in the notes on pages 11 and
13 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 PROPERTY RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
THE PROFIT
RECOVERY
GROUP
INTERNATIONAL, LODER PRO FORMA PRO FORMA
INC. DREW ADJUSTMENTS AS ADJUSTED
--------------- -------- ------------ ------------
(AMOUNTS IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues........................................ $72,078 $16,430 $ -- $88,508
Cost of revenues................................ 38,282 12,358 (3,460)(A) 47,180
Selling, general and administrative expenses.... 27,020 4,318 1,712(B) 33,050
------- ------- ------- -------
Operating income (loss).................... 6,776 (246) 1,748 8,278
Interest income (expense), net.................. (138) -- (2,463)(C) (2,601)
------- ------- ------- -------
Earnings (loss) before income taxes........... 6,638 (246) (715) 5,677
Income taxes.................................... 2,599 -- (375)(D) 2,224
------- ------- ------- -------
Net earnings (loss)........................ $ 4,039 $ (246) $ (340) $ 3,453
======= ======= ======= =======
Earnings per share:
Basic......................................... $ 0.20 $ .16
======= =======
Diluted....................................... $ 0.19 $ .16
======= =======
Weighted average shares outstanding:
Basic......................................... 20,650 804(E) 21,454
======= ======= =======
Diluted....................................... 21,257 804(E) 22,061
======= ======= =======
</TABLE>
See accompanying notes to unaudited pro forma consolidated statement of
earnings.
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THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
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 Loder Drew, as of the beginning
of the period presented.
(A) Adjustment relates to historical Loder Drew compensation in excess of
compensation levels to be paid prospectively to the executive officers pursuant
to employment agreements.
(B) Adjustment relates to amortization of the estimated goodwill amounting
to $84.5 million over a 25-year period and the noncompete agreements with a
combined estimated fair value of $225,000 over a five-year period. Loder Drew is
also eligible to receive additional purchase price consideration up to a maximum
of $70.0 million in cash conditioned on the future financial performance of
Loder Drew through December 31, 1999. To the extent that additional purchase
price consideration, if any, becomes due, goodwill and related amortization
could be substantially increased. Of the $70.0 million earnout potential, up to
$30.0 million is payable in the Spring of 1999 based on the financial
performance of Loder Drew for the six months ending December 31, 1998. The
Company considers it probable that the entire $30.0 million will ultimately
become due and payable, and intends to borrow the entire amount of any required
payment under its existing $200.0 million credit facility.
(C) Adjustment relates to the $73.0 million of indebtedness, at an interest
rate of 6.75%, incurred in connection with the Loder Drew acquisition.
(D) 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%, and also reflects Loder Drew's results of
operations on a pro forma basis to include Federal and state income taxes at a
composite rate of 39% as if Loder Drew had been a C corporation throughout the
period presented.
(E) Adjustment reflects the issuance of 803,585 shares in connection with
the Loder Drew acquisition.
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THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
<TABLE>
<CAPTION>
THE PROFIT
RECOVERY
GROUP
INTERNATIONAL, LODER PRO FORMA PRO FORMA
INC. DREW ADJUSTMENTS AS ADJUSTED
-------------- ------ ----------- -----------
(AMOUNTS IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents............................ $ 18,710 $4,440 $(3,940)(A) $ 19,210
Marketable securities................................ -- 33 (33)(A) --
Receivables:
Billed contract receivables........................ 12,735 1,471 -- 14,206
Unbilled contract receivables...................... 53,272 -- -- 53,272
Employee and shareholder advances.................. 2,927 96 -- 3,023
-------- ------ ------- --------
Total receivables............................. 68,934 1,567 -- 70,501
Prepaid expenses and other current assets............ 2,130 121 (87)(A) 2,164
-------- ------ ------- --------
Total current assets.......................... 89,774 6,161 (4,060) 91,875
-------- ------ ------- --------
Property and equipment, net............................ 13,981 505 -- 14,486
Noncompete agreements, less accumulated amortization... 2,969 -- 225(B) 3,194
Goodwill, less accumulated amortization................ 58,569 -- 84,474(B) 143,043
Deferred income taxes.................................. 3,083 -- -- 3,083
Other assets........................................... 554 26 -- 580
-------- ------ ------- --------
$168,930 $6,692 $80,639 $256,261
======== ====== ======= ========
Current liabilities:
Note payable to bank................................. $ 38 $ -- $ -- $ 38
Current installments of long term-debt............... 82 -- -- 82
Accounts payable and accrued expenses................ 7,116 532 (38)(A) 7,610
Accrued payroll and related expenses................. 25,527 5,135 (4,345)(A) 26,317
Deferred income taxes................................ 9,813 -- -- 9,813
Deferred revenues.................................... 977 -- -- 977
-------- ------ ------- --------
Total current liabilities..................... 43,553 5,667 (4,383) 44,837
-------- ------ ------- --------
Long-term debt, excluding current installments......... 5,348 -- 73,000(C) 78,348
Deferred compensation.................................. 2,909 -- -- 2,909
Other long-term liabilities............................ 410 -- -- 410
-------- ------ ------- --------
Total liabilities............................. 52,220 5,667 68,617 126,504
-------- ------ ------- --------
Shareholders' equity:
Preferred stock...................................... -- -- -- --
Common stock......................................... 22 1,201 (1,200)(D) 23
Additional paid-in capital........................... 98,521 -- 13,046(D) 111,567
Notes receivable from shareholders................... -- (892) 892(A) --
Accumulated other comprehensive loss................. -- (102) 102(A) --
Cumulative translation adjustments................... (1,879) -- -- (1,879)
Retained earnings.................................... 20,046 818 (818)(D) 20,046
-------- ------ ------- --------
Total shareholders' equity.................... 116,710 1,025 12,022 129,757
-------- ------ ------- --------
$168,930 $6,692 $80,639 $256,261
======== ====== ======= ========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated balance
sheet.
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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 Loder Drew, as of June 30, 1998.
(A) Assets not acquired or liabilities not assumed.
(B) The acquisition was accounted for as a purchase in accordance with
Accounting Principles Board Opinion 16, "Business Combinations." The purchase
price was 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 (with amounts in thousands):
<TABLE>
<S> <C>
Purchase price:
Cash paid................................................. $70,000
Fair value of restricted, unregistered shares issued...... 13,321
-------
83,321
Estimated direct acquisition-related costs.................. 3,000
Less net book value of net assets acquired from Loder Drew,
which approximates fair value............................. (1,622)
Less estimated value of noncompete agreements............... (225)
-------
Goodwill............................................... $84,474
=======
</TABLE>
(C) The Company incurred indebtedness of $73.0 million to finance the cash
paid and direct acquisition-related costs incurred in connection with the
acquisition of Loder Drew.
(D) The changes in components of shareholders' equity are a result of
recording the initial acquisition date equity in Loder Drew.
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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: December 4, 1998
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