<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 23, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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THE PROFIT RECOVERY GROUP INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
GEORGIA 58-2213805
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
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2300 WINDY RIDGE PARKWAY
SUITE 100 NORTH
ATLANTA, GEORGIA 30339-8426
(770) 779-3900
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
CLINTON MCKELLAR, JR., ESQ.
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC.
2300 WINDY RIDGE PARKWAY
SUITE 100 NORTH
ATLANTA, GEORGIA 30339-8426
(770) 779-3900
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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The Commission is requested to mail copies of all orders, notices and
communications to:
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<S> <C>
LEONARD A. SILVERSTEIN, ESQ. J. VAUGHAN CURTIS, ESQ.
LONG ALDRIDGE & NORMAN LLP ALSTON & BIRD LLP
5300 ONE PEACHTREE CENTER ONE ATLANTIC CENTER
303 PEACHTREE STREET 1201 W. PEACHTREE STREET
ATLANTA, GEORGIA 30308-3201 ATLANTA, GEORGIA 30309-3424
(404) 527-4000 (404) 881-7000
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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<CAPTION>
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PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF SHARES TO BE AGGREGATE PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE(2)
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<S> <C> <C> <C> <C>
Common Stock, no par value
per share........................ 4,025,000 shares $29.375 $118,234,375 $32,870
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</TABLE>
(1) Includes 525,000 shares which the underwriters have the option to purchase
to cover over-allotments, if any.
(2) Calculated pursuant to Rule 457(c) on the basis of the average of the high
and low sale prices of the Registrant's Common Stock as reported on the
Nasdaq National Market on November 17, 1998.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT
AN OFFER TO SELL SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED NOVEMBER 23, 1998
PROFIT RECOVERY LOGO
3,500,000 SHARES
COMMON STOCK
The Profit Recovery Group International, Inc. is offering 2,700,000 shares
of its common stock and the selling shareholders are selling an additional
800,000 shares. The Company's common stock is traded on the Nasdaq National
Market under the symbol "PRGX." The last reported sale price of the common stock
on the Nasdaq National Market on November 19, 1998 was $31.94 per share.
------------------------------
THIS INVESTMENT INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 7.
------------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
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<S> <C> <C>
Public offering price....................................... $ $
Underwriting discounts and commissions......................
Proceeds to the Company.....................................
Proceeds to the selling shareholders........................
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Company and certain other shareholders have granted the underwriters a
30-day option to purchase up to an additional 525,000 shares of common stock to
cover over-allotments. BancBoston Robertson Stephens Inc. expects to deliver the
shares of common stock to purchasers on , 1998.
------------------------------
BANCBOSTON ROBERTSON STEPHENS
MERRILL LYNCH & CO.
HAMBRECHT & QUIST
THE ROBINSON-HUMPHREY COMPANY
, 1998
<PAGE> 3
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO
SELL, AND SEEKING OFFERS TO BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS
WHERE OFFERS AND SALES ARE PERMITTED. THE INFORMATION CONTAINED IN THIS
PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE
TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY SALE OF THE COMMON STOCK. IN THIS
PROSPECTUS, THE "COMPANY," "WE," "US" AND "OUR" REFER TO THE PROFIT RECOVERY
GROUP INTERNATIONAL, INC. AND ITS SUBSIDIARIES.
------------------------
TABLE OF CONTENTS
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Page Page
<S> <C> <C> <C>
Summary............................. 3 Management.......................... 39
Risk Factors........................ 7 Selling Shareholders................ 42
Use of Proceeds..................... 15 Underwriting........................ 43
Dividend Policy..................... 15 Legal Matters....................... 44
Price Range of Common Stock......... 16 Experts............................. 44
Selected Consolidated Financial Incorporation of Certain Documents
Data.............................. 17 by Reference...................... 45
Management's Discussion and Analysis Additional Information.............. 46
of Financial Condition and Results
of Operations..................... 19
Business............................ 30
</TABLE>
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We own or have rights to various copyrights, trademarks and trade names
used in our business. These include AuditPro(R), AuditPro 97(TM), EDI
Inquiry(TM), Claims Management System(TM), FreightPro(TM), Profit Recovery Group
International(R), PRG(R), RBAdvantage(TM), RecoverNow(R), ReportPro(TM),
ScanSearch(TM) and Sentinel(TM). This prospectus also refers to trademarks and
trade names of other companies.
2
<PAGE> 4
SUMMARY
This summary is qualified by more detailed information appearing in other
sections of this prospectus. The other information is important. We urge you to
read the entire prospectus carefully before you decide whether to invest in
shares of our common stock. Unless we otherwise indicate, all information in
this prospectus assumes the underwriters will not exercise their over-allotment
option.
THE COMPANY
The Profit Recovery Group International, Inc. is a leading provider of
accounts payable and other recovery audit services to large
transaction-intensive businesses, including retailers, manufacturers, wholesale
distributors, technology companies and healthcare providers, and to certain
governmental agencies. Our highly trained, experienced recovery audit
specialists use sophisticated proprietary technology and advanced audit
techniques and methodologies to identify overpayments to vendors and tax
authorities. Our clients then pay us a negotiated percentage of the overpayments
they recover.
We principally target large businesses having at least $500.0 million in
annual revenues, although smaller businesses also may be attractive clients.
Businesses with (1) substantial volumes of payment transactions involving
multiple vendors, (2) numerous discounts and allowances, (3) fluctuating prices
or (4) complex tax and pricing arrangements find it difficult to detect all
payment errors. Although these businesses process the vast majority of payment
transactions correctly, a small number of errors do occur. In the aggregate,
these transaction errors can represent meaningful "lost profits" that can be
particularly significant for businesses with relatively narrow profit margins.
For example, we believe that a typical U.S. retailer makes payment errors that
are not discovered internally, which in the aggregate can range from several
hundred thousand dollars to more than $1.0 million per billion dollars of
revenues.
Our revenues increased 61.5% in 1995, 38.0% in 1996, 45.3% in 1997 and
75.1% for the nine months ended September 30, 1998 compared to the same period
in 1997, primarily because of our strategic acquisitions, expansion into
international markets, larger client base and high client retention rate. Of our
accounts payable audit clients in 1996 that had claims exceeding $100,000 in
that year (excluding clients no longer in existence due to such clients'
bankruptcies or acquisitions), more than 90.0% continued to use our services in
1997.
RECOVERY AUDIT INDUSTRY
The domestic and international recovery audit industry is fragmented and
characterized by several large and many small, local and regional firms. Many of
these firms lack the centralized resources or client base to support the
technology investment required to provide comprehensive recovery audit services.
Businesses increasingly have implemented Electronic Data Interchange ("EDI")
technology to transmit order, payment and other transaction information to
vendors electronically. Although EDI streamlines transaction processing, it can
magnify errors because the errors may be replicated automatically in thousands
of transactions. Recovery audit firms, therefore, must use sophisticated
technology to audit EDI accounts payable processes effectively.
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<PAGE> 5
We believe that large businesses increasingly are outsourcing internal
recovery functions to independent recovery audit firms such as ours. Factors
contributing to this trend include (1) a need for significant investments in
technology, especially in an EDI environment, (2) an inability to duplicate the
breadth of auditing expertise of an independent firm, (3) a desire to focus
limited resources on their principal business activities, and (4) a desire for
larger and more timely recoveries.
OUR STRATEGY
Our objective is to be the leading worldwide provider of recovery audit
services. To achieve this objective, we plan to continue the following primary
strategies:
- pursuing strategic acquisitions of domestic and international businesses,
including both direct competitors and businesses providing complementary
recovery audit services;
- expanding our international presence;
- increasing our client base within the industries we currently serve;
- expanding our recovery audit services, including freight,
telecommunications, utilities and sales and property tax; and
- maintaining our technology leadership, including our EDI capabilities.
OUR ADDRESS
Our principal executive offices are located at 2300 Windy Ridge Parkway,
Suite 100 North, Atlanta, Georgia 30339-8426, and our telephone number is (770)
779-3900. Our website is located at www.prgx.com. Information contained in our
website is not a part of this prospectus.
RECENT DEVELOPMENTS
On October 29, 1998, we acquired the business of one of our direct
competitors, Robert Beck & Associates, Inc., and certain related entities
(collectively, "Beck") for $26.1 million in cash and 644,434 unregistered,
restricted shares of our common stock. For accounting purposes, we treat this
transaction as if it occurred on October 1, 1998. Founded in 1982, Beck is an
international accounts payable recovery auditing firm serving clients primarily
in the retail and grocery sectors throughout the U.S. and, on a limited basis,
in Canada and Germany. Beck had revenues of $14.8 million for 1997.
On August 6, 1998, we acquired the business of Loder, Drew & Associates,
Inc. ("Loder Drew") for an initial purchase price of $70.0 million in cash and
803,535 unregistered, restricted shares of our common stock. We also may be
required to pay up to an additional $70.0 million in cash contingent on Loder
Drew meeting certain future financial performance goals through December 31,
1999. For accounting purposes, we treat this transaction as if it occurred on
July 1, 1998. Founded in 1985, Loder Drew performs accounts payable recovery
audit services for a broad variety of Fortune 1000 companies, including those in
sectors we have not historically served, such as telecommunications and
industrial manufacturing. Loder Drew had revenues of $10.9 million for 1996 and
$22.6 million for 1997.
We borrowed $27.2 million to complete the Beck acquisition and $74.0
million to complete the Loder Drew acquisition under our $200.0 million senior
credit facility. We have accounted for each of these transactions under the
purchase method of accounting.
4
<PAGE> 6
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by the Company............ 2,700,000 shares
Common stock offered by the selling
shareholders................................... 800,000 shares
Common stock to be outstanding after the
offering....................................... 26,576,539 shares(1)
Use of proceeds................................ To repay outstanding
indebtedness.
Nasdaq National Market symbol.................. PRGX
</TABLE>
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(1) This information is based on 23,876,539 shares outstanding at November 19,
1998. It excludes 3,217,003 shares of common stock issuable upon the
exercise of stock options outstanding at November 19, 1998 at a weighted
average exercise price of $16.97 per share. It also excludes 1,074,657
shares reserved for issuance under our Stock Incentive Plan.
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<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
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1994 1995(1) 1996(2) 1997(3)(4) 1997 1998(3)(8)
------- ------- ------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF EARNINGS DATA:
Revenues........................... $34,690 $56,031 $77,330 $112,363 $ 76,445 $133,881
Operating income................... 4,184 6,442 11,039 16,175 11,183 19,189
Net earnings....................... 3,640 4,507 3,150 9,623 6,918 10,704
Pro forma net earnings(5).......... 2,220 2,935 6,668
Earnings (pro forma for 1995 and
1996) per share:
Basic........................... .24 .41 .52 .38 .50
Diluted......................... .21 .39 .51 .37 .47
Weighted average common and
dilutive shares outstanding:
Basic........................... 12,000 16,268 18,415 18,184 21,431
Diluted(6)...................... 14,948 17,457 18,909 18,720 22,939
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
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ACTUAL AS ADJUSTED(7)
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<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 15,020 $ 15,249
Working capital........................................... 48,821 49,050
Total assets.............................................. 286,612 286,841
Long-term debt, excluding current installments............ 81,141 --
Total shareholders' equity................................ 142,351 223,721
</TABLE>
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(1) Effective January 1, 1995, we acquired Fial & Associates, Inc. See Note 8 of
Notes to our Consolidated Financial Statements, which we have filed
separately and incorporated by reference in this prospectus.
(2) We have included a $3.7 million net deferred tax charge to expense for 1996
resulting from our predecessors' termination of their Subchapter S and
partnership status. See Note 5 of Notes to our Consolidated Financial
Statements, which we have filed separately and incorporated by reference in
this prospectus.
(3) Effective October 1, 1997, we acquired 98.4% of Financiere Alma S.A. and its
subsidiaries (collectively, "Alma"). See Note 8 of Notes to our Consolidated
Financial Statements, which we have filed separately and incorporated by
reference in this prospectus.
(4) We have included a $1.2 million charge for the year ended December 31, 1997
to restructure and realign certain facets of the European management
structure in recognition of emerging developments such as the Alma
acquisition. See Note 14 of Notes to our Consolidated Financial Statements,
which we have filed separately and incorporated by reference in this
prospectus.
(5) Prior to our initial public offering on March 26, 1996, our predecessor
entities generally were either corporations electing to be taxed as
Subchapter S corporations or partnerships. Pro forma net earnings reflect,
where applicable, a provision for income taxes to include the additional tax
expense as if our predecessor entities had been subject to federal and state
income taxes for all periods presented rather than the individual
shareholders and partners.
(6) We have included all common dilutive shares issued in 1995 as exercised and
outstanding, using the treasury stock method, for 1995 and the first quarter
of 1996. See Note 1(k) of Notes to our Consolidated Financial Statements,
which we have filed separately and incorporated by reference in this
prospectus.
(7) We have adjusted these figures to give effect to our sale of 2,700,000
shares of common stock at an assumed offering price of $31.94 per share and
our receipt of the estimated net proceeds from this sale. See "Use of
Proceeds." These amounts have not been adjusted to reflect our acquisition
of Beck, effective as of October 1, 1998.
(8) We have included the results of Loder Drew since July 1, 1998, the effective
date of the acquisition.
6
<PAGE> 8
RISK FACTORS
Before you invest in our common stock, you should be aware that there are
various risks, including those described below. You should carefully consider
these risk factors, together with all of the other information included in this
prospectus, before you decide whether to purchase shares of our common stock.
Some of the information in this prospectus contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by forward-looking words such as "may," "will," "expect,"
"anticipate," "believe," "estimate" and "continue" or similar words. You should
read statements that contain these words carefully because they: (1) discuss our
future expectations; (2) contain projections of our future results of operations
or of our financial condition; or (3) state other "forward-looking" information.
We believe it is important to communicate our expectations to our investors.
There may be events in the future, however, that we are not accurately able to
predict or over which we have no control. The risk factors listed in this
section, as well as any cautionary language in this prospectus, provide examples
of risks, uncertainties and events that may cause our actual results to differ
materially from the expectations we describe in our forward-looking statements.
Before you invest in our common stock, you should be aware that the occurrence
of any of the events described in these risk factors and elsewhere in this
prospectus could have a material adverse effect on our business, financial
condition and results of operations. In such case, the trading price of our
common stock could decline and you may lose all or part of your investment.
RISKS OF OUR ACQUISITION STRATEGY
From January 1, 1997 through November 15, 1998, we completed 11
acquisitions. Our largest acquisitions to date have been 98.4% of Financiere
Alma S.A. and its subsidiaries (collectively, "Alma") in October 1997, Loder
Drew in August 1998 and Beck in October 1998. Through these and other
acquisitions, we have expanded our geographic presence and the range of our
recovery audit and other services. While we are not currently a party to any
agreements or understandings for any material acquisitions, we expect to
continue to acquire both domestic and foreign companies as part of our growth
strategy. Acquisitions involve risks that could cause our actual growth to
differ from our expectations. For example:
- We may be unable to continue to identify suitable acquisition candidates.
We compete with other companies to acquire recovery audit firms and other
businesses. We expect this competition to continue to increase, making it
more difficult to acquire suitable companies on favorable terms.
- We may issue equity securities in future acquisitions that could be
dilutive to our shareholders. We also may incur additional debt and
amortization expense related to goodwill and other intangible assets in
future acquisitions. This additional debt and amortization expense may
materially and adversely affect our business, financial condition and
results of operations.
- We may be unable to successfully integrate acquired businesses and
realize anticipated economic, operational and other benefits in a timely
manner. Integration of an acquired business is especially difficult when
we acquire a business (1) in a market in which we have limited or no
expertise, or (2) with a corporate culture different from ours. If we are
unable to successfully integrate acquired businesses, we may incur
substantial costs and delays or other operational, technical or financial
problems. In addition, the failure to successfully integrate acquisitions
may
7
<PAGE> 9
divert management's attention from our existing business and may damage
our relationships with our key clients and employees.
OUR DEPENDENCE ON KEY CLIENTS
Our five largest clients accounted for 30.1% of our revenues in 1995, 34.6%
in 1996 and 33.8% in 1997. Wal-Mart Stores, Inc. and its affiliates
(collectively, "Wal-Mart") constituted our largest client during 1995 and 1996,
representing 12.7% of revenues in 1995 and 14.4% in 1996. Wal-Mart was our
second largest client in 1997, representing 10.4% of revenues for that year.
Kmart Corporation ("Kmart") was our largest client in 1997, representing 12.3%
of revenues during the period, principally because we audited multiple years for
Kmart during 1997. We do not expect to continue auditing multiple years
concurrently for Kmart. Although we have decreased our reliance on any single
client and our largest clients since 1995 due to acquisitions and growth of our
existing business, this trend may not continue. Any reliance on one or a small
number of key clients, however, could adversely affect us if we were to lose any
of these clients or if our business relationship with these clients changed. For
example, one of our five largest accounts representing 4.6% of our domestic
revenues for 1996 changed our status from primary recovery auditor in 1996 to
secondary recovery auditor in 1997. This change resulted in significantly lower
revenues from that client in 1997. In addition, should one or more of our large
clients file for bankruptcy or otherwise cease to do business with us, or should
one or more of our large clients' vendors file for bankruptcy, our business,
financial condition and results of operations could be materially and adversely
affected.
OUR RELIANCE ON INTERNATIONAL OPERATIONS
We derived 27.3% of our revenues from international operations in 1997, and
30.2% for the first nine months of 1998. We rely heavily on international
expansion to achieve our long-term growth objectives. We currently operate
outside the United States in the following countries:
- Argentina - Hong Kong - Singapore
- Australia - Indonesia - South Africa
- Belgium - Malaysia - South Korea
- Brazil - Mexico - Switzerland
- Canada - The Netherlands - Taiwan
- China - New Zealand - Thailand
- France - The Philippines - United Kingdom
- Germany
We may commence operations in other countries during 1999, including Italy,
Portugal and Spain.
Although our recovery audit services constitute a generally accepted
business practice among retailers in the U.S. and Canada, our services have not
yet become widely used in many international markets. Prospective clients,
vendors or other involved parties in foreign markets may not accept our
services. The failure of these parties to accept and use our services could have
a material adverse effect on our business, financial condition and results of
operations.
International operations are subject to risks, including:
- fluctuations in political and economic instability;
- difficulties in staffing and managing foreign operations and in
collecting accounts receivable;
8
<PAGE> 10
- fluctuations in currency exchange rates;
- costs associated with adapting our services to our foreign clients'
needs;
- unexpected changes in regulatory requirements and laws;
- difficulties in transferring earnings from our foreign subsidiaries to
us; and
- burdens of complying with a wide variety of foreign laws and labor
practices, including laws that could subject certain tax recovery audit
practices to regulation as the unauthorized practice of law.
We have encountered, and expect to continue to encounter, significant
expense and delays in expanding our international operations because of language
and cultural differences, and staffing, communications and related issues.
In our experience, entry into new international markets requires
considerable management time as well as start-up expenses for market
development, hiring and establishing office facilities before any significant
revenues are generated. As a result, initial operations in a new market
typically operate at low margins or may be unprofitable. Our international
expansion strategy will require substantial financial resources and may result
in the incurrence of additional indebtedness and in dilutive issuances of
additional equity securities. Financing for international expansion may not be
available to us on acceptable terms and conditions. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
UNCERTAINTY OF OUR REVENUE RECOGNITION ESTIMATES AND COLLECTION OF OUR CONTRACT
RECEIVABLES
We recognize revenues from certain of our accounts payable recovery audit
services at the time we present overpayment claims to our clients and they
approve these claims. The revenues from these services constitute a substantial
portion of our total revenues. Our clients may reject for any reason any portion
of an overpayment claim we have identified, in which case we do not recognize
revenue for the portion of the overpayment claim our client has rejected. We do
not recognize revenue for any overpayment claims that we have identified but
which we do not believe will be collected by our clients. We initially establish
our estimate for uncollectible claims for each client based on (1) historical
collection rates, (2) types of claims identified, (3) current industry
conditions and (4) other factors which, in our opinion, deserve consideration.
We may, however, subsequently adjust this estimate as these factors fluctuate.
Despite our experience in providing accounts payable recovery audit services,
our estimates of uncollectible claims may not be adequate. If we underestimate
uncollectible claims, our financial condition and results of operations could be
materially and adversely affected.
Once we present these claims to our clients and they approve them, our
clients generally will take a credit against outstanding payables or future
purchases from their vendors. We will then invoice our clients for our fees. Our
fees typically are equal to a contractually stipulated percentage of the amounts
our clients recover. Our contract receivables as of any balance sheet date are
largely unbilled because we do not control the timing or extent of a client's
claims processing, and because the timing of a client's payments for future
purchases from its vendors are outside our control. Consequently, we may not
collect all of our contract receivables because we are dependent on our clients
to pursue their claims. This lengthy revenue and cash receipts cycle also
subjects us to increased risk that contract receivables will not be collected
because (1) our client or its vendors may file for bankruptcy protection, or (2)
our client may cease doing business with one or more of its vendors and
therefore be unable to take credits against current and future purchases from
such vendors.
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FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS
Our quarterly revenues, expenses and operating results may fluctuate
significantly because of a number of factors, including:
- client engagements commenced and completed during a quarter;
- our ability to consummate acquisitions;
- our ability to compete in a highly competitive market;
- our ability to develop and upgrade our proprietary technology in a timely
manner;
- changes in our employee compensation programs; and
- changes in the mix of domestic and international revenues and the level
of international expansion.
We typically realize higher revenues and operating income in the last two
quarters of our fiscal year. We expect this trend to continue because it
reflects the inherent purchasing and operational cycles of the retailing
industry, which is the principal industry we currently serve. If we do not
continue to realize increased revenues in future third and fourth quarter
periods, our profitability for any affected quarter and the entire year could be
materially and adversely affected because ongoing selling, general and
administrative expenses are largely fixed over the short term. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Quarterly Results."
MANAGEMENT OF OUR RAPID GROWTH
We are growing rapidly. Our rapid growth presents numerous operational
challenges and places significant additional pressure on our managerial,
financial and other resources. Our international expansion compounds these
challenges and pressures, especially in countries where language, cultural or
regulatory barriers exist. Although we have adopted programs to hire and train
auditors and managers, our inability to attract and retain qualified personnel
in both domestic and foreign markets could result in decreased revenue or
increased costs. Our failure to continually improve our internal systems and to
effectively integrate financial reporting systems on a timely basis could
adversely affect our business, financial condition and results of operations.
DEPENDENCE ON PROPRIETARY TECHNOLOGY; INTELLECTUAL PROPERTY RIGHTS
Our operations could be materially and adversely affected if we are not
adequately able to protect our proprietary software, audit techniques and
methodologies, and other proprietary intellectual property rights. We rely on a
combination of trade secret laws, nondisclosure and other contractual
arrangements and technical measures to protect our proprietary rights. Although
we presently hold U.S. and foreign registered trademarks and U.S. registered
copyrights on certain of our proprietary technology, we may be unable to obtain
similar protection on our other intellectual property. In addition, in the case
of foreign registered trademarks, we may not receive the same enforcement
protection on our intellectual property as in the U.S. We generally enter into
confidentiality agreements with our employees, consultants, clients and
potential clients and limit access to, and distribution of, our proprietary
information. Nevertheless, we may be unable to deter misappropriation of our
proprietary information, detect unauthorized use and take appropriate steps to
enforce our intellectual property rights. Our competitors also may independently
develop technologies that are substantially equivalent or superior to our
technology.
10
<PAGE> 12
Although we believe that our services and products do not infringe on the
intellectual property rights of others, we can not prevent someone else from
asserting a claim against us in the future for violating their technology
rights.
YEAR 2000 RISKS
Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without considering
the impact of the upcoming change in the century. If not corrected, many
computer applications could fail or create erroneous results by or at the Year
2000.
We have undertaken, but have not completed, an assessment of our Year 2000
issues. The assessment is scheduled for completion in January 1999. Until we
have completed our assessment, we cannot be sure that our efforts to address
Year 2000 issues are appropriate, adequate or complete.
Based on our preliminary assessment of the Year 2000 issues, we may face
the following concerns:
- We are dependent on personal computer ("PC") systems both for internal
accounting and for completion of audit engagements for our clients. Even
though we have spent approximately $745,000 since January 1, 1998, and
intend to spend an additional $170,000 by December 31, 1998, to replace
older hardware and software, some of our PC systems may not be able to
handle the Year 2000 issue.
- We have not verified that our financial accounting software is capable of
handling the Year 2000 issue. We have, however, decided to replace our
financial accounting software with a system that we believe is fully Year
2000 compatible. This process is scheduled to be completed by mid-year
1999. Failure to complete this process by the end of 1999 may result in
our inability to accurately determine our revenues or calculate incentive
compensation for our employees.
- Certain of our international operations continue to utilize an older (not
ready for Year 2000) version of our proprietary recovery audit software.
Plans are in place to upgrade all operations to the current version by
mid-year 1999. The only significant issue in completing the upgrade is
developing a training plan in the native language of the users. If the
upgrade is not completed, affected international auditors may be required
to utilize other less effective audit tools, techniques and processes,
and as a result, we could suffer a loss of revenues outside the U.S.
- We have made and continue to make acquisitions of other companies. We may
acquire a business with a significant risk from Year 2000 issues.
- We have not assessed the risks within Alma. If we discover that Alma has
a serious Year 2000 problem, we could experience a loss of revenues from
their operations.
- Our business operations involve working with outputs from our clients'
financial systems. While each of our clients may be assessing its own
risks, we have not surveyed our clients and we may experience a temporary
inability to process client-supplied data due to our clients' Year 2000
issues.
As a result of these Year 2000 issues, we may suffer the following
consequences:
- We may experience a significant number of operational inconveniences and
inefficiencies for us and our customers that may divert our time and
attention and financial and human resources from our ordinary business
activities.
11
<PAGE> 13
- We may suffer serious system failures that may require significant
efforts by us or our customers to prevent or alleviate material business
disruptions.
- We may experience a significant loss of revenues or incur a significant
amount of unanticipated expenses.
DEPENDENCE ON KEY PERSONNEL
Our success depends largely on the efforts and skills of our executive
officers and key employees, particularly John M. Cook, Michael A. Lustig and
Ronald K. Loder in the United States, and Marc S. Eisenberg in France. The loss
of the services of one or more of these persons could materially adversely
affect our business, financial condition and results of operations. We have
entered into employment agreements with Messrs. Cook, Lustig, Loder and
Eisenberg, and other members of management. We also maintain key man life
insurance policies in the aggregate amounts of $13.3 million on the life of Mr.
Cook; $5.0 million on the life of Mr. Lustig; $10.0 million on the life of Mr.
Loder; and $5.0 million on the life of Mr. Eisenberg.
DOMESTIC AUDITOR COMPENSATION
On January 1, 1999, we intend to modify the compensation program for our
domestic auditors who serve retailers, wholesale distributors and governmental
agencies (our core domestic business). We currently compensate these auditors
based solely on their individual commissions on client accounts receivable we
collect. After January 1, 1999, we intend to provide individual auditors in this
group with a moderate amount of salaried base compensation. We anticipate that
most of the affected auditors will continue to earn a substantial majority of
their total compensation through commissions paid to them when we collect
accounts receivable from our clients.
If our domestic auditors who serve retailers, wholesale distributors and
governmental agencies are not pleased with their modified compensation program,
they may choose to leave, which could materially and adversely affect our
ability to generate revenues and our results of operations. We also are at risk
if these auditors do not produce a sufficient level of revenues to cover their
salaried base compensation. If a significantly large number of these auditors do
not produce adequate revenues to cover their salaried base compensation, then
this revenue shortfall could materially and adversely affect our business,
financial condition and results of operations.
COMPETITION
The recovery audit business is highly competitive. The competitive factors
affecting the market for our recovery audit services include:
- establishment and maintenance of client relationships;
- quality and quantity of claims identified;
- experience and professionalism of audit staff;
- rates for services;
- technological capabilities; and
- geographic scope of operations.
12
<PAGE> 14
Our principal competitors for accounts payable recovery audit services
include local and regional firms and one firm, Howard Schultz & Associates,
Inc., with a network of affiliate organizations in the U.S. and abroad. Our
competitors for tax recovery audit services in France include major
international accounting firms, tax attorneys and several smaller tax recovery
audit firms. We are uncertain whether we can continue to compete successfully
with our competitors. In addition, our profit margins could decline because of
competitive pricing pressures that may have a material adverse effect on our
business, financial condition and results of operations.
OFFERING BENEFITS TO CERTAIN SELLING SHAREHOLDERS
The selling shareholders will receive substantial proceeds from selling
shares of common stock in this offering. We will pay the offering expenses of
the shareholders who are selling in this offering, other than underwriting
discounts and commissions. After deducting underwriting discounts and
commissions, the net proceeds (at an assumed offering price of $31.94 per share)
to the selling shareholders, all of whom are our affiliates, are approximately
as follows: John M. Toma and affiliates, $1.6 million; and Berkshire Fund III, A
Limited Partnership ("Berkshire Fund III") and affiliates, $22.7 million.
Affiliates of John M. Cook are the only shareholders who have granted the
underwriters an over-allotment option to purchase shares of common stock. If the
underwriters' over-allotment option is exercised in full, the aggregate net
proceeds to the affiliates of Mr. Cook will be approximately $10.1 million.
SIGNIFICANT INFLUENCE BY MANAGEMENT
After we sell shares of common stock in this offering, our executive
officers and directors collectively will beneficially own 22.9% of the
outstanding common stock (21.5% if the underwriters' over-allotment option is
exercised in full), of which John M. Cook will beneficially own 13.2% (11.8% if
the underwriters' over-allotment option is exercised in full). As a result, our
management collectively will continue to have significant influence over (1) the
election of our Board of Directors, (2) the approval or disapproval of any other
matters requiring shareholder approval, and (3) the affairs and policies of the
Company.
CERTAIN ANTI-TAKEOVER PROVISIONS
Our Articles of Incorporation and Bylaws and Georgia law contain provisions
that may delay, defer or inhibit a future acquisition of us not approved by our
Board of Directors. This could occur even if our shareholders are offered an
attractive value for their shares or if a substantial number or even a majority
of our shareholders believe the takeover is in their best interest. These
provisions are intended to encourage any person interested in acquiring us to
negotiate with and obtain the approval of our Board of Directors in connection
with the transaction. These provisions include (1) a staggered Board of
Directors, (2) special meeting call restrictions, and (3) the ability of the
Board of Directors to consider the interests of various constituencies,
including our employees, clients and creditors and the local community. In
addition, our Articles of Incorporation permit the Board of Directors to issue
shares of preferred stock with such designations, powers, preferences and rights
as it determines, without any further vote or action by our shareholders. These
provisions also could discourage bids for your shares of common stock at a
premium and have a material adverse effect on the market price of your shares.
13
<PAGE> 15
LIMITATION ON LIABILITY AND INDEMNIFICATION
Our Articles of Incorporation and Bylaws limit the liability of our Board
of Directors to the fullest extent permitted under Georgia law. Our Bylaws
provide that we will indemnify directors and officers and that we can indemnify
our employees and other agents to the maximum extent possible and in a manner
permitted by Georgia law. In addition, we have entered into individual
agreements to indemnify our directors and certain officers.
CLIENT BANKRUPTCIES
We currently derive the majority of our revenues from clients in the
retailing industry. The retailing industry is an intensely competitive
environment, and retailer bankruptcy filings are not uncommon. Certain of our
domestic retailing clients have filed for bankruptcy protection resulting in
aggregate net charges to operations of $468,000 in 1995, $398,000 in 1996 and
$180,000 in 1997. Future bankruptcy filings by our clients or their vendors,
particularly any of our key clients, could have a material adverse effect on our
business, financial condition and results of operations.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have 26,576,539 shares of common
stock outstanding. Substantially all of these shares will be transferable either
without restriction or registration under the Securities Act of 1933, as amended
(the "Securities Act"), or pursuant to the volume and other limitations of Rule
144 promulgated under the Securities Act.
Approximately 6,711,364 shares of common stock are subject to lock-up
agreements between the holders of those shares and the representatives of the
underwriters, pursuant to which the holders have agreed not to offer, sell,
contract to sell or grant any option to purchase or otherwise dispose of common
stock until 90 days after the date of this prospectus, subject to limited
exceptions. See "Underwriting." Following the expiration of this period,
substantially all of the shares subject to the lock-up agreements will become
available for immediate resale in the public market subject to the volume and
other limitations of Rule 144. Pursuant to the terms of various acquisitions
that we have completed, an additional 2,881,842 shares are subject to
contractual lock-up provisions with us that will expire beyond the lock-up
period.
POSSIBLE VOLATILITY OF STOCK PRICE
Our common stock is traded on the Nasdaq National Market. The market price
of our common stock could fluctuate substantially, based on a variety of
factors, including future announcements concerning us or our key clients or
competitors, technological innovations, government regulations, litigation or
changes in earnings estimates by analysts. Furthermore, stock prices for many
companies fluctuate widely for reasons that may be unrelated to their operating
results. These fluctuations and general economic, political and market
conditions, such as recessions or international currency fluctuations and demand
for our services, may adversely affect the market price of our common stock. See
"Price Range of Common Stock" and "Underwriting."
14
<PAGE> 16
USE OF PROCEEDS
The net proceeds from the sale of the 2,700,000 shares of common stock
offered by the Company are estimated to be approximately $81.4 million
(approximately $87.2 million if the underwriters' over-allotment option is
exercised in full), at an assumed offering price of $31.94 per share and after
deducting underwriting discounts and commissions (approximately $4.3 million)
and estimated offering expenses (approximately $550,000) payable by the Company.
The Company will not receive any proceeds from the sale of shares of common
stock by the selling shareholders.
The Company intends to use the net proceeds solely to repay outstanding
indebtedness under its $200.0 million senior credit facility (the "Credit
Facility") with NationsBank, N.A., as agent, all of which the Company incurred
to finance various business acquisitions. At November 19, 1998, the Company owed
$109.2 million in principal and accrued and unpaid interest under the Credit
Facility at various LIBOR-based interest rates (6.82% weighted average interest
rate as of November 19, 1998). Borrowings under the Credit Facility are due
August 2003 with prepayments permitted. The Company is not currently a party to
any agreements or understandings with respect to any material acquisitions, and
it does not know whether any future material acquisitions will be consummated.
Pending application of the net proceeds as described above, the Company
intends to invest the net proceeds in (1) short-term investment grade
securities, (2) certificates of deposit or (3) direct or guaranteed obligations
of the U.S. government.
DIVIDEND POLICY
The Company has not paid cash dividends since its March 26, 1996 initial
public offering and does not intend to pay cash dividends in the foreseeable
future. Moreover, restrictive covenants included in the Credit Facility
specifically prohibit payments of cash dividends without the written consent of
the Company's lenders. The Company's predecessors paid Subchapter S shareholder
dividends of approximately $860,000 in 1994 and $10.3 million in 1995 and paid
partnership distributions of approximately $215,000 in 1994 and $382,000 in
1995. Immediately prior to the Company's initial public offering, its
predecessors also paid a Subchapter S shareholder distribution of approximately
$4.7 million and a partnership distribution of approximately $178,000.
15
<PAGE> 17
PRICE RANGE OF COMMON STOCK
The following table sets forth the range of high and low sale prices per
share for the Company's common stock as reported on the Nasdaq National Market,
where the stock trades under the symbol "PRGX," for the periods indicated.
<TABLE>
<CAPTION>
PRICE RANGE OF
COMMON STOCK
-------------------
HIGH LOW
-------- -------
<S> <C> <C> <C> <C>
FISCAL 1996
First Quarter (from March 26, 1996 through March 31,
1996)..................................................... $16 1/2 $11 (1)
Second Quarter.............................................. 22 1/2 15 1/4
Third Quarter............................................... 24 1/4 11 1/2
Fourth Quarter.............................................. 21 1/2 11 1/4
FISCAL 1997
First Quarter............................................... $18 1/4 $11 1/16
Second Quarter.............................................. 16 1/8 11 3/4
Third Quarter............................................... 20 1/8 13 5/8
Fourth Quarter.............................................. 19 1/2 13 7/8
FISCAL 1998
First Quarter............................................... $23 $15 1/2
Second Quarter.............................................. 29 1/2 21 3/8
Third Quarter............................................... 34 18 7/8
Fourth Quarter (through November 19, 1998).................. 33 3/8 20 1/8
</TABLE>
- ------------
(1) Initial public offering price.
On November 19, 1998, the last sale price of the common stock as reported
on the Nasdaq National Market was $31 15/16 per share. As of November 19, 1998,
there were 175 holders of record of the common stock. The Company believes there
are in excess of 400 beneficial holders of the common stock.
16
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth the Company's selected consolidated
historical financial data as of and for the five years ended December 31, 1997
and as of September 30, 1998 and for the nine months ended September 30, 1997
and 1998. Such historical consolidated financial data as of and for the five
years ended December 31, 1997 have been derived from the Company's Consolidated
Financial Statements and Notes thereto, which Consolidated Financial Statements
have been audited by KPMG Peat Marwick LLP, independent auditors. Such
historical consolidated financial data as of September 30, 1998 and for the nine
months ended September 30, 1997 and 1998 are derived from the Company's
unaudited Consolidated Financial Statements, and include, in the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the data for the periods. The audited Consolidated
Balance Sheets as of December 31, 1996 and 1997 and the related Consolidated
Statements of Earnings, Shareholders' Equity (Deficit) and Cash Flows for each
of the years in the three-year period ended December 31, 1997 and the report
thereon, which in 1997 is based partially upon the report of other auditors, are
filed separately and incorporated by reference in this prospectus. The selected
pro forma Statements of Earnings data for the four years ended December 31, 1996
are unaudited. The data presented below should be read in conjunction with the
Consolidated Financial Statements and Notes thereto and other financial
information filed separately by the Company and incorporated by reference in
this prospectus. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------ --------------------
1993 1994 1995(1) 1996 1997(2) 1997(2) 1998(2)(7)
------- ------- ------- ------- -------- ------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF EARNINGS DATA:
HISTORICAL
Revenues....................................... $25,262 $34,690 $56,031 $77,330 $112,363 $76,445 $133,881
Cost of revenues............................... 13,299 18,163 30,554 40,330 57,726 39,553 68,360
Selling, general and administrative expenses... 8,899 12,343 19,035 25,961 37,254 25,709 46,332
Restructuring costs(3)......................... -- -- -- -- 1,208 -- --
------- ------- ------- ------- -------- ------- --------
Operating income............................. 3,064 4,184 6,442 11,039 16,175 11,183 19,189
Interest income (expense), net................. (874) (544) (1,630) (100) (403) 132 (1,589)
Debt refinancing expenses...................... 414 -- -- -- -- -- --
------- ------- ------- ------- -------- ------- --------
Earnings before income taxes................. 1,776 3,640 4,812 10,939 15,772 11,315 17,600
Income taxes(4)................................ -- -- 305 7,789 6,149 4,397 6,896
------- ------- ------- ------- -------- ------- --------
Net earnings................................... $ 1,776 $ 3,640 $ 4,507 $ 3,150 $ 9,623 $ 6,918 $ 10,704
======= ======= ======= ======= ======== ======= ========
Cash dividends per share....................... $ -- $ .10 $ .93 $ .28 $ -- $ -- $ --
======= ======= ======= ======= ======== ======= ========
PRO FORMA(5)
Historical earnings before income taxes........ $ 1,776 $ 3,640 $ 4,812 $10,939
Pro forma income taxes......................... 692 1,420 1,877 4,271
------- ------- ------- -------
Pro forma net earnings....................... $ 1,084 $ 2,220 $ 2,935 $ 6,668
======= ======= ======= =======
Earnings (pro forma for 1995 and 1996) per
share:
Basic........................................ $ .24 $ .41 $ .52 $ .38 $ .50
======= ======= ======== ======= ========
Diluted...................................... $ .21 $ .39 $ .51 $ .37 $ .47
======= ======= ======== ======= ========
</TABLE>
17
<PAGE> 19
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------ SEPTEMBER 30,
1993 1994 1995(1) 1996(6) 1997(2) 1998(8)
------- ------- ------- ------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 98 $ 1,284 $ 642 $16,891 $ 19,386 $ 15,020
Working capital....................................... 2,068 4,889 6,738 30,004 34,563 48,821
Total assets.......................................... 11,045 13,779 30,268 68,318 133,885 286,612
Long-term debt, excluding current installments........ 4,256 2,741 17,629 692 24,365 81,141
Loans from shareholders............................... 208 1,075 1,075 -- -- --
Total shareholders' equity (deficit).................. (167) 2,356 (3,402) 40,559 63,072 142,351
</TABLE>
- ------------
(1) Effective January 1, 1995, the Company acquired Fial & Associates, Inc. See
Note 8 of Notes to Consolidated Financial Statements of the Company filed
separately and incorporated by reference in this prospectus.
(2) During 1997, the Company completed five acquisitions including Shaps Group,
Inc. (January), Accounts Payable Recovery Services, Inc. (February), The
Hale Group (May), Alma (October) and TradeCheck, LLC (November). See Note 8
of Notes to Consolidated Financial Statements of the Company filed
separately and incorporated by reference in this prospectus.
(3) Represents a $1.2 million charge to restructure and realign certain facets
of the European management structure in recognition of emerging developments
such as the Alma acquisition. See Note 14 of Notes to Consolidated Financial
Statements of the Company filed separately and incorporated by reference in
this prospectus.
(4) In April 1995, the Company's predecessors reorganized and its international
entities became C corporations. Additionally, in connection with the
Company's March 1996 initial public offering, all domestic entities became C
corporations. As a result of these conversions to C corporations, the
Company incurred charges to operations of $305,000 in 1995 and $3.7 million
in 1996 for cumulative deferred income taxes. The Company's 1996 provision
for income taxes of $7.8 million consists of the above-mentioned $3.7
million charge for cumulative deferred income taxes combined with $4.1
million in tax provisions at a 39.0% composite effective rate for the three
quarters subsequent to the March 26, 1996 initial public offering. See Note
5 of Notes to Consolidated Financial Statements of the Company filed
separately and incorporated by reference in this prospectus.
(5) The Company's predecessor entities prior to its initial public offering on
March 26, 1996 generally were either corporations electing to be taxed as
Subchapter S corporations or partnerships. As a result, any income tax
liabilities were the responsibilities of the respective shareholders and
partners. Pro forma net earnings reflect, where applicable, a provision for
income taxes to include the additional tax expense as if the Company had
been subject to federal and state income taxes for all periods presented
rather than the individual shareholders and partners.
(6) Balance Sheet Data as of December 31, 1996 reflect the receipt of net
proceeds from the Company's March 26, 1996 initial public offering together
with the partial use of such proceeds to repay substantially all debt
obligations other than certain convertible debentures which were converted
to shareholders' equity immediately prior to the offering. See Note 7 of
Notes to Consolidated Financial Statements of the Company filed separately
and incorporated by reference in this prospectus.
(7) Includes the results of Loder Drew since July 1, 1998, the effective date of
the acquisition.
(8) Reflects the net proceeds received by the Company in its March 1998 public
offering of 2,000,000 shares of common stock and the effect of the Loder
Drew acquisition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
18
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is a leading provider of accounts payable and other recovery
audit services to large transaction-intensive businesses, including retailers,
manufacturers, wholesale distributors, technology companies and healthcare
providers, and to certain governmental agencies. In businesses with large
purchase volumes and continuously fluctuating prices, some small percentage of
erroneous overpayments to vendors is inevitable. In addition, the complexity of
various tax laws results in overpayments to governmental agencies. Services such
as freight, telecommunications and utilities provided to businesses under
complex pricing arrangements also can result in overpayments. All of these
overpayments result in "lost profits." The Company's trained, experienced audit
specialists use sophisticated proprietary technology and advanced audit
techniques and methodologies to identify overpayments to vendors and tax
authorities. The Company receives a contractual percentage of overpayments it
identifies and its clients recover.
RESULTS OF OPERATIONS
The following table sets forth the percentage of revenues represented by
certain items in the Company's Consolidated Statements of Earnings for the
periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------- --------------
1995 1996 1997 1997 1998
------ ------ ------ ----- -----
<S> <C> <C> <C> <C> <C>
HISTORICAL
Revenues............................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues....................... 54.5 52.1 51.4 51.8 51.1
Selling, general and administrative
expenses............................ 34.0 33.6 33.2 33.6 34.6
Restructuring costs.................... -- -- 1.0 -- --
----- ----- ----- ----- -----
Operating income............... 11.5 14.3 14.4 14.6 14.3
Interest income (expense), net......... (2.9) (0.2) (0.4) 0.2 (1.2)
----- ----- ----- ----- -----
Earnings before income taxes... 8.6 14.1 14.0 14.8 13.1
Income taxes........................... 0.6 10.0 5.4 5.8 5.1
----- ----- ----- ----- -----
Net earnings................... 8.0% 4.1% 8.6% 9.0% 8.0%
===== ===== ===== ===== =====
PRO FORMA
Historical earnings before income
taxes............................... 8.6% 14.1%
Pro forma income taxes................. 3.3 5.5
----- -----
Pro forma net earnings......... 5.3% 8.6%
===== =====
</TABLE>
NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1998 COMPARED TO CORRESPONDING PERIOD OF
THE PRIOR YEAR
Revenues. The Company's revenues consist principally of contractual
percentages of overpayments recovered for clients that continue to be heavily
concentrated in the retailing industry. For the nine months ended September 30,
1998, revenues were $133.9 million, or 75.1% higher than $76.4 million achieved
in the corresponding period of 1997.
For the first nine months of 1998 domestic revenues were $93.5 million, an
increase of 58.9% over $58.8 million during the comparable period of 1997. Of
this 58.9% increase, (1) 11.2% was contributed
19
<PAGE> 21
by growth from existing retail, wholesale distribution and governmental agency
clients (the Company's historical client base) which were served in the first
nine months of 1998 and the corresponding period in 1997; (2) 37.0% was derived
from the seven domestic complementary recovery audit firms acquired during the
last nine fiscal quarters; and (3) 10.7% was contributed by growth from
provision of services to new clients.
The Company considers international operations to be all operations located
outside of the U.S. For the first nine months of 1998, international revenues
were $40.4 million, a 129.5% increase over $17.6 million during the comparable
period of 1997. Of this 129.5% increase, (1) 93.8% was contributed by operations
of Alma and Novexel S.A., which were acquired in October 1997 and July 1998,
respectively, and (2) 35.7% resulted from existing operations, primarily from
services provided to new clients. The Company continues to believe that the rate
of revenue growth for its international operations will significantly exceed its
rate of domestic revenue growth for the foreseeable future if the revenue effect
of acquired businesses, if any, is excluded. There can be no assurance, however,
that recent international growth trends will continue. See "--Forward-Looking
Statements."
The Company has experienced and expects to continue to experience
significant seasonality in its business. The Company typically realizes higher
revenues and operating income in the last two quarters of its fiscal year. This
trend is expected to continue and reflects the inherent purchasing and
operational cycles of the retailing industry, which continues to be the source
of the majority of the Company's revenues. The Company's recent acquisitions,
including the October 1997 acquisition of Alma, the August 1998 acquisition of
Loder Drew and the October 1998 acquisition of Beck are not expected to
significantly affect this trend because these entities, in the aggregate, have
historically experienced similar seasonality in revenues and operating income.
Should the Company not continue to realize increased revenues in future third
and fourth quarter periods, profitability for any affected quarter and the
entire year could be materially and adversely affected due to ongoing selling,
general and administrative expenses that are largely fixed over the short term.
See "--Forward-Looking Statements."
Cost of Revenues. Cost of revenues consists principally of commissions
paid or payable to the Company's auditors based upon the level of overpayment
recoveries, and salaries and bonuses paid or payable to divisional and regional
managers. Also included are other direct costs incurred by these personnel
including rental of field offices, travel and entertainment, telephone,
utilities, maintenance and supplies, and clerical assistance. For the nine
months ended September 30, 1998 and 1997, cost of revenues was 51.1% and 51.8%,
respectively.
For the nine months ended September 30, 1998, domestic cost of revenues as
a percentage of domestic revenues was 52.8%, up slightly from 52.6% during the
corresponding quarter of 1997. For the nine months ended September 30, 1998,
international cost of revenues as a percentage of international revenues was
47.1%, down from 48.7% for the corresponding period in 1997. International
improvements in the 1998 nine-month period related primarily to various
components of fixed costs being spread over a rapidly growing revenue base.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses include the expenses of sales and marketing activities,
information technology services and the corporate data center, human resources,
legal and accounting, administration, headquarters-related depreciation of
property and equipment, and amortization of intangibles. For the nine months
ended September 30, 1998, selling, general and administrative expenses as a
percentage of revenues was 34.6%, up from 33.6% in the comparable period of
1997.
20
<PAGE> 22
For the first nine months of 1998, domestic selling, general and
administrative expenses as a percentage of domestic revenues increased to 33.0%
from 30.2% in the corresponding period of 1997. The Company's 1998 domestic
selling, general and administrative expenses percentage is higher than the
comparable percentage in 1997 due to increased expenditures for various 1998
initiatives such as significantly expanded auditor hiring and training programs,
significant additional resource commitments in the Company's information
technology functions, and period costs associated with intensified mergers and
acquisitions efforts.
For the nine-month period ended September 30, 1998, international selling,
general and administrative expenses as a percentage of international revenues
improved to 38.4%, down significantly from 45.1% in 1997. Improvements in 1998
related primarily to various components of fixed costs being spread over a
rapidly growing revenue base.
In connection with acquired businesses, the Company has recorded intangible
assets including goodwill and deferred non-compete costs. Amortization of these
intangible assets totaled $3.7 million and $1.0 million for the nine-month
periods ended September 30, 1998 and 1997, respectively.
Operating Income. For the nine months ended September 30, 1998, operating
income increased 71.6% to $19.2 million, up from $11.2 million in the comparable
period of 1997. Operating income did not grow proportionately with revenues
during the 1998 period due to increased domestic selling, general and
administrative expenses associated with various planned initiatives, as
previously discussed.
Interest Income (Expense), Net. For the nine months ended September 30,
1998, net interest expense was $1.6 million, compared to net interest income of
$132,000 during the comparable period of 1997. The 1998 increase relates
principally to interest on bank borrowings in connection with the Company's
purchases of Alma, The Medallion Group, Novexel S.A., Cost Recovery
Professionals Pty Ltd and Loder Drew offset in part by interest income as a
result of the follow-on public offering completed at the end of the first
quarter.
Earnings Before Income Taxes. Earnings before income taxes rose 55.5% in
the nine-month period ended September 30, 1998 compared to the same period of
1997. Earnings before income taxes did not grow proportionately with revenues
during the 1998 period due primarily to increased domestic selling, general and
administrative expenses associated with various planned initiatives and
additional net interest expense, as previously discussed.
Income Taxes. The provisions for income taxes for all periods presented
consist of federal, state and foreign income taxes at a composite effective rate
which approximates 39.0%.
Weighted-Average Shares Outstanding--Basic. For the nine months ended
September 30, 1998, the Company's weighted-average shares outstanding was
21,431,000 compared to 18,184,000 for the same period in 1997. This increase
related primarily to 2,000,000 common shares issued in a public offering on
March 16, 1998 and common shares issued in connection with acquisitions of
various companies.
1997 COMPARED WITH 1996
Revenues. Revenues increased 45.3% to $112.4 million for 1997, up from
$77.3 million in 1996.
Domestic revenues increased 30.2% to $81.7 million in 1997, up from $62.7
million in 1996. Of this 30.2% increase, (1) 9.0% was contributed by existing
clients served in both the 1996 and 1997 periods; (2) 13.3% was contributed by
the four recovery audit firms acquired in 1997; and (3) 7.9% resulted
21
<PAGE> 23
from provision of services to new clients (net of the effect of revenues in 1996
from clients not served in 1997).
The Company considers international operations to be all operations located
outside of the U.S. International revenues increased 109.9% to $30.7 million in
1997, up from $14.6 million in 1996. Of this 109.9% increase, (1) 45.3% was
contributed by operations of Alma subsequent to this October 1997 acquisition
and (2) 64.6% resulted from existing operations, primarily from services
provided to new clients.
Cost of Revenues. Cost of revenues as a percentage of revenues decreased
to 51.4% in 1997 from 52.1% in 1996.
Domestically, cost of revenues as a percentage of revenues increased
slightly to 53.1% in 1997 from 52.7% in 1996. This increase related primarily to
cost of revenues associated with revenues subsequently recognized on claims in
process acquired as part of the Company's May 1997 acquisition of The Hale
Group. These claims carried higher auditor compensation rates than those
customarily paid by the Company. The remainder of these claims in process is
expected to be resolved in 1998.
Internationally, cost of revenues as a percentage of revenues decreased to
46.8% in 1997, from 49.7% in 1996. This reduction was due in part to the
operations of Alma during the fourth quarter of 1997 which were conducted at a
cost of revenue percentage of 44.2%. Excluding Alma's revenues and cost of
revenues from the Company's 1997 international operations, international cost of
revenues as a percentage of international revenues would have been 47.5%, or a
2.2% reduction from 1996. This improvement resulted primarily from gross margin
expansions during 1997 in the Company's more established international
locations.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percentage of revenues decreased to 33.2% in 1997,
from 33.6% in 1996.
Domestic selling, general and administrative expenses as a percentage of
domestic revenues increased to 30.6% in 1997, up from 30.2% in 1996. The
Company's 1997 domestic selling, general and administrative expenses percentage
is higher than the comparable percentage in 1996 due to increased expenditures
for various 1997 initiatives such as significantly expanded training programs
and period costs associated with intensified mergers and acquisitions efforts.
Internationally, selling, general and administrative expenses as a
percentage of revenues decreased to 40.0% in 1997, down significantly from 47.9%
in 1996. This reduction was due in part to the operations of Alma during the
fourth quarter of 1997 which were conducted at a selling, general and
administrative expenses percentage of 26.9%. Excluding Alma's revenues and
selling, general and administrative expenses from the Company's 1997
international operations, international selling, general and administrative
expenses as a percentage of international revenues would have been 43.6%, or a
4.3% reduction from 1996. This improvement resulted primarily from various
components of fixed costs being spread over a rapidly growing revenue base.
In connection with acquired businesses, the Company has recorded intangible
assets including goodwill and deferred non-compete costs. Amortization of these
intangible assets totaled $1.9 million in 1997 and $1.2 million in 1996.
Restructuring Costs. In recognition of emerging developments such as the
Alma acquisition, the Company restructured and realigned certain facets of its
European management structure in the fourth quarter of 1997 and incurred a
pre-tax charge to earnings of $1.2 million. This charge consisted of
22
<PAGE> 24
employment termination costs directly applicable to four of the Company's senior
European executives and residual contract costs due to an independent European
advisor for services no longer required by the Company. Of the $1.2 million
charge, $683,000 had been paid through December 31, 1997.
Operating Income. Operating income increased 46.5% to $16.2 million in
1997, up from $11.0 million in 1996. As a percentage of total revenues,
operating income increased to 14.4% of revenues in 1997, up slightly from 14.3%
in 1996. Excluding the effect of the $1.2 million nonrecurring pre-tax
restructuring charge on 1997 operations, operating income would have been $17.4
million or 15.5% of total revenues.
Interest Expense, Net. Interest expense, net, increased to $403,000 in
1997, up from $100,000 in 1996. Interest expense, net, for 1997 consisted of (1)
interest expense of $730,000, comprised primarily of interest on $24.8 million
of bank borrowings outstanding since October 1997 which were used to finance a
portion of the Alma acquisition, net of (2) $327,000 of interest income derived
primarily from overnight investments.
Earnings Before Income Taxes. Earnings before income taxes increased 44.2%
to $15.8 million, up from $10.9 million in 1996. As a percentage of total
revenues, earnings before income taxes were 14.0% in 1997, down slightly from
14.1% in 1996. Excluding the effect of the $1.2 million nonrecurring pre-tax
restructuring on 1997 operations, earnings before income taxes as a percentage
of total revenues would have been 15.1%.
Income Taxes. The Company's predecessor entities prior to its initial
public offering on March 26, 1996 generally were either corporations electing to
be taxed as Subchapter S corporations or partnerships. As a result, any income
tax liabilities were the responsibilities of the respective shareholders and
partners. In connection with the initial public offering, all domestic entities
became C corporations. As a result of these conversions to C corporations, the
Company incurred a charge to operations of $3.7 million in the first quarter of
1996 for cumulative deferred income taxes.
The provisions for income taxes for all periods subsequent to March 31,
1996 consist of federal, state and foreign income taxes at the Company's
composite effective rate of 39.0%. The Company's 1996 provision for income taxes
of $7.8 million consists of the above-mentioned $3.7 million charge for
cumulative deferred income taxes combined with $4.1 million in tax provisions at
a 39.0% composite effective rate for the three quarters subsequent to the March
26, 1996 initial public offering.
Pro Forma Income Taxes. The results of operations for 1996 have been
adjusted on a pro forma basis to reflect federal, state and foreign income taxes
at a composite effective rate of 39.0% as if the Company's predecessors had been
C corporations throughout the year.
1996 COMPARED WITH 1995
Revenues. Revenues increased 38.0% to $77.3 million for 1996, up from
$56.0 million in 1995. Of this $21.3 million increase, $13.7 million, or 64.3%,
related to existing and new domestic accounts and $7.6 million, or 35.7%,
related to revenue growth from international operations. Domestic revenue growth
in 1996 of $13.7 million consisted of $5.7 million related to 35 new client
accounts and $8.0 million related to provision of additional services to
existing accounts.
International revenues grew 108.1% to $14.6 million for 1996, up from $7.0
million for 1995. International revenues grew from 12.5% of total revenues in
1995 to 18.9% during 1996.
23
<PAGE> 25
Cost of Revenues. Cost of revenues decreased to 52.1% of revenues in 1996,
down from 54.5% for 1995.
Domestically, the Company's cost of revenues as a percentage of revenues
decreased to 52.7% of revenues in 1996, down from 55.6% for 1995 due primarily
to Fial & Associates, Inc. ("Fial") contracts-in-progress acquired in January
1995. These auditor contracts, substantially all of which were concluded by
December 31, 1995, carried higher auditor compensation rates than those
customarily paid by the Company. Excluding the effect of this temporary $1.9
million rate-related differential, domestic cost of revenues as a percentage of
domestic revenues would have been 51.7% in 1995.
Internationally, cost of revenues increased to 49.7% of international
revenues in 1996, up from 47.2% during 1995. This increase resulted from an
increase in initial auditor compensation guarantees resulting from various new
markets entered by the Company in 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percentage of revenues decreased to 33.6% in 1996
from 34.0% in 1995.
Domestic selling, general and administrative expenses as a percentage of
domestic revenues were relatively flat at 30.2% in 1996 and 30.4% in 1995. The
Company's domestic selling, general and administrative expenses grew during 1996
at a rate approximately commensurate with its domestic revenue growth due
primarily to space, equipment and personnel additions at its corporate
headquarters facility in Atlanta, Georgia.
International selling, general and administrative expenses decreased to
47.9% of international revenues in 1996, down from 58.7% during 1995 due
principally to the 108.1% growth in international revenues in 1996 without a
proportionate increase in selling, general and administrative expenses.
Amortization of intangible assets totaled $1.2 million in both 1996 and
1995.
Operating Income. Operating income increased 71.4% to $11.0 million in
1996, up from $6.4 million in 1995. Operating income was 14.3% and 11.5% of
revenues for 1996 and 1995, respectively. Excluding the effect of the temporary
$1.9 million auditor compensation rate differential relating to
contracts-in-progress acquired in January 1995 from Fial, operating income for
1995 would have been $8.3 million, or 15.0% of revenues.
Interest Expense, Net. Interest expense, net, decreased to $100,000 in
1996, down from $1.6 million in 1995. Interest expense, net, for 1996 consisted
of $495,000 of net interest expense incurred in the first quarter prior to the
Company's March 26, 1996 initial public offering, less $395,000 of net interest
income derived primarily from the net initial public offering proceeds during
the remaining three quarters of the year.
Earnings Before Income Taxes. Earnings before income taxes increased
127.3% to $10.9 million, up from $4.8 million in 1995. As a percentage of total
revenues, earnings before income taxes were 14.1% in 1996 and 8.6% in 1995.
Excluding the effect of the temporary $1.9 million auditor compensation rate
differential relating to contracts-in-progress acquired in January 1995 from
Fial, earnings before income taxes for 1995 would have been $6.7 million, or
12.1% of revenues.
Income Taxes. The predecessor business entities that comprised the Company
generally were either Subchapter S corporations or partnerships. As a result,
income tax liabilities were the responsibilities of the respective shareholders
and partners. In April 1995, the Company's predecessors reorganized and its
international entities became C corporations. Additionally, in connection with
the Company's March 26, 1996 initial public offering, all domestic entities
became C corporations. As a
24
<PAGE> 26
result of these conversions to C corporations, the Company incurred charges to
operations of $305,000 in 1995 and $3.7 million in 1996 for cumulative deferred
income taxes. The Company's 1996 provision for income taxes of $7.8 million
consists of the above-mentioned $3.7 million charge for cumulative deferred
income taxes combined with $4.1 million in tax provisions at a 39.0% composite
effective rate for the three quarters subsequent to the March 26, 1996 initial
public offering.
Pro Forma Income Taxes. The results of operations for 1996 and 1995 have
been adjusted on a pro forma basis to reflect federal, state and foreign income
taxes at a composite effective rate of 39.0% as if the Company's predecessors
had been C corporations throughout such periods.
QUARTERLY RESULTS
The following tables set forth certain unaudited quarterly financial data
for each of the Company's last two years and each of the quarters during the
nine-month period ended September 30, 1998 and such data expressed as a
percentage of the Company's revenues for the respective quarters. The
information has been derived from unaudited consolidated financial statements
that, in the opinion of management, reflect all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of such
quarterly information. The operating results for any quarter are not necessarily
indicative of the results to be expected for any future period.
<TABLE>
<CAPTION>
1996 QUARTER ENDED 1997 QUARTER ENDED
-------------------------------------- --------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31
------- ------- -------- ------- ------- ------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............. $15,615 $17,963 $21,964 $21,788 $20,960 $25,858 $29,627 $35,918
Cost of revenues..... 8,623 9,480 11,002 11,225 11,529 13,331 14,693 18,173
Selling, general and
administrative
expenses........... 6,031 6,040 6,623 7,267 8,196 8,723 8,790 11,545
Restructuring
costs.............. -- -- -- -- -- -- -- 1,208
------- ------- ------- ------- ------- ------- ------- -------
Operating
income......... 961 2,443 4,339 3,296 1,235 3,804 6,144 4,992
Interest income
(expense), net...... (495) 106 162 127 63 55 14 (535)
------- ------- ------- ------- ------- ------- ------- -------
Earnings before
income taxes.... 466 2,549 4,501 3,423 1,298 3,859 6,158 4,457
Income taxes......... 3,700 994 1,759 1,336 506 1,491 2,400 1,752
------- ------- ------- ------- ------- ------- ------- -------
Net earnings
(loss).......... $(3,234) $ 1,555 $ 2,742 $ 2,087 $ 792 $ 2,368 $ 3,758 $ 2,705
======= ======= ======= ======= ======= ======= ======= =======
PRO FORMA
Historical earnings
before income
taxes............. $ 466
Pro forma income
taxes............. 182
-------
Pro forma net
earnings........ $ 284
=======
<CAPTION>
1998 QUARTER ENDED
----------------------------
MAR. 31 JUNE 30 SEPT. 30
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues............. $33,144 $38,934 $61,803
Cost of revenues..... 17,956 20,326 30,078
Selling, general and
administrative
expenses........... 13,029 13,991 19,312
Restructuring
costs.............. -- -- --
------- ------- -------
Operating
income......... 2,159 4,617 12,413
Interest income
(expense), net...... (324) 186 (1,451)
------- ------- -------
Earnings before
income taxes.... 1,835 4,803 10,962
Income taxes......... 715 1,884 4,297
------- ------- -------
Net earnings
(loss).......... $ 1,120 $ 2,919 $ 6,665
======= ======= =======
PRO FORMA
Historical earnings
before income
taxes.............
Pro forma income
taxes.............
Pro forma net
earnings........
</TABLE>
<TABLE>
<CAPTION>
1996 QUARTER ENDED 1997 QUARTER ENDED
-------------------------------------- --------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31
------- ------- -------- ------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues..... 55.2 52.8 50.1 51.5 55.0 51.6 49.6 50.6
Selling, general and
administrative
expenses............ 38.6 33.6 30.1 33.4 39.1 33.7 29.7 32.1
Restructuring
costs............... -- -- -- -- -- -- -- 3.4
------- ------- ------- ------- ------- ------- ------- -------
Operating
income.......... 6.2 13.6 19.8 15.1 5.9 14.7 20.7 13.9
Interest income
(expense), net...... (3.2) 0.6 0.7 0.6 0.3 0.2 0.1 (1.5)
------- ------- ------- ------- ------- ------- ------- -------
Earnings before
income taxes.... 3.0 14.2 20.5 15.7 6.2 14.9 20.8 12.4
<CAPTION>
1998 QUARTER ENDED
----------------------------
MAR. 31 JUNE 30 SEPT. 30
------- ------- --------
<S> <C> <C> <C>
Revenues............. 100.0% 100.0% 100.0%
Cost of revenues..... 54.2 52.2 48.7
Selling, general and
administrative
expenses............ 39.3 35.9 31.2
Restructuring
costs............... -- -- --
------- ------- -------
Operating
income.......... 6.5 11.9 20.1
Interest income
(expense), net...... (1.0) 0.4 (2.3)
------- ------- -------
Earnings before
income taxes.... 5.5 12.3 17.8
</TABLE>
25
<PAGE> 27
<TABLE>
<CAPTION>
1996 QUARTER ENDED 1997 QUARTER ENDED
-------------------------------------- --------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31
------- ------- -------- ------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income taxes......... 23.7 5.5 8.0 6.1 2.4 5.8 8.1 4.9
------- ------- ------- ------- ------- ------- ------- -------
Net earnings
(loss).......... (20.7)% 8.7% 12.5% 9.6% 3.8% 9.1% 12.7% 7.5%
======= ======= ======= ======= ======= ======= ======= =======
PRO FORMA
Historical earnings
before income
taxes............. 3.0%
Pro forma income
taxes............. 1.2
-------
Pro forma net
earnings........ 1.8%
=======
<CAPTION>
1998 QUARTER ENDED
----------------------------
MAR. 31 JUNE 30 SEPT. 30
------- ------- --------
<S> <C> <C> <C>
Income taxes......... 2.1 4.8 7.0
------- ------- -------
Net earnings
(loss).......... 3.4% 7.5% 10.8%
======= ======= =======
PRO FORMA
Historical earnings
before income
taxes.............
Pro forma income
taxes.............
Pro forma net
earnings........
</TABLE>
The Company has experienced and expects to continue to experience
significant seasonality in its business. The Company typically realizes higher
revenues and operating income in the last two quarters of its fiscal year. This
trend reflects the inherent purchasing and operational cycles of the retailing
industry, which is the principal industry served by the Company. The Company's
recent acquisitions, including the October 1997 acquisition of Alma, the August
1998 acquisition of Loder Drew and the October 1998 acquisition of Beck are not
expected to affect this trend because these entities have historically
experienced similar seasonality in their revenues and operating income. Should
the Company not continue to realize increased revenues in future third and
fourth quarter periods, profitability for any affected quarter and the entire
year could be materially and adversely affected due to ongoing selling, general
and administrative expenses that are largely fixed over the short term.
LIQUIDITY AND CAPITAL RESOURCES
On July 29, 1998 the Company replaced its existing $30.0 million senior
bank credit facility with a five-year, $150.0 million senior bank credit
facility. Subject to adherence to standard loan covenants, borrowings under the
new credit facility are available for working capital, acquisitions of other
companies in the recovery audit industry, capital expenditures and general
corporate purposes. The Company transferred $5.4 million in outstanding
borrowings to the new credit facility on July 29, 1998 and borrowed an
additional $74.0 million on August 6, 1998 in connection with its acquisition of
Loder Drew and for normal working capital needs. On September 18, 1998 the
Company increased its credit facility from $150.0 million to $200.0 million (the
"Credit Facility") and the facility was syndicated between ten banking
institutions led by NationsBank, N.A. as agent for the group. As of September
30, 1998 the Company had $80.9 million in outstanding borrowings under the
Credit Facility. On October 29, 1998 the Company borrowed an additional $27.2
million to acquire Beck, thereby increasing the outstanding principal balance of
its Credit Facility to $108.1 million.
Net cash used in operating activities was $3.9 million for the first nine
months of 1998 and $2.0 million was provided by operations for the same period
in 1997. The change was primarily a result of an increase in accounts
receivable, offset in part by increased earnings, depreciation and amortization
as a result of internal and acquired growth.
Net cash used in investing activities was $97.1 million in the first nine
months of 1998 and $7.2 million in the first nine months of 1997. In the first
nine months of 1998, $13.0 million was used to acquire property and equipment
(primarily computer-related equipment), and $84.1 million was paid in connection
with business acquisitions. Of the $13.0 million in capital additions, $4.3
million relates to a large-scale systems development project.
Net cash provided by financing activities was $96.7 million for the first
nine months of 1998 and $603,000 for the same period in 1997. For the first nine
months of 1998, net cash provided by financing
26
<PAGE> 28
activities consisted primarily of $79.2 million in Credit Facility borrowings
and $41.2 million in net proceeds from the sale of common stock, offset in part
by a $23.8 million March 1998 principal repayment under the Credit Facility. Net
proceeds from the sale of common stock primarily relate to the Company's March
26, 1998 public offering of 2,000,000 shares.
Net cash provided by operating activities was $2.5 million, $1.9 million
and $8.2 million for 1995, 1996 and 1997, respectively.
Net cash used in investing activities was $2.6 million, $5.1 million and
$30.8 million for 1995, 1996 and 1997, respectively. During 1997, the Company
spent $26.1 million (net of cash acquired) as the cash portion of consideration
paid for four recovery audit firms.
Net cash used in financing activities was $586,000 in 1995. Net cash
provided by financing activities was $19.4 million in 1996 and $25.0 million in
1997. Net cash provided by financing activities in 1997 consists primarily of
$24.8 million borrowed from NationsBank, N.A. in October 1997 to finance a
portion of the Alma acquisition. Net cash provided by financing activities in
1996 reflects proceeds from the Company's initial public offering, net of
repayments of debt and other obligations paid from those proceeds.
During the seven quarters ended September 30, 1998, the Company acquired
ten recovery audit firms. Additionally, the Company subsequently acquired Beck
along with certain related companies in October 1998. The Company is pursuing,
and intends to continue to pursue, the acquisition of domestic and international
businesses including both direct competitors and businesses providing other
types of recovery services. There can be no assurance, however, that the Company
will be successful in consummating further acquisitions due to factors such as
receptivity of potential acquisition candidates and valuation issues.
Additionally, there can be no assurance that future acquisitions, if
consummated, can be successfully assimilated into the Company. See
"--Forward-Looking Statements."
On August 6, 1998, the Company acquired all the assets and assumed certain
liabilities of Loder Drew effective as of July 1, 1998. Loder Drew is an
international recovery auditing firm primarily serving clients in the
manufacturing, financial services and other non-retail sectors. Pursuant to the
acquisition 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, the former owners of 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 performance of Loder Drew
through December 31, 1999. Of this $70.0 million, 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.
The Company believes that its current working capital, availability
remaining under its $200.0 million Credit Facility and cash flow generated from
future operations will be sufficient to meet the Company's working capital and
capital expenditure requirements through September 30, 1999 unless one or more
acquisitions are consummated which require the Company to seek additional debt
or equity financing.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" establishes revised standards
for the manner in which public
27
<PAGE> 29
business enterprises report information about operating segments. The Company
does not believe that this Statement will significantly alter the segment
disclosures it has historically provided. This Statement is effective for fiscal
years beginning after December 15, 1997.
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
"derivatives"), and for hedging activities. This pronouncement is effective for
all fiscal quarters beginning after June 15, 1999 although earlier application
is encouraged. The Company has chosen to adopt this pronouncement effective with
its fiscal year which begins January 1, 2000 and does not believe that it will
materially affect its reported results of operations or financial condition upon
adoption.
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities"
defines such costs and requires that they be expensed as incurred. This
pronouncement is effective for financial statements for fiscal years beginning
after December 15, 1998 although earlier application is encouraged. The Company
has chosen to adopt this pronouncement effective January 1, 1999 and does not
believe that it will materially affect its reported results of operations or
financial condition upon adoption.
YEAR 2000 ISSUE
Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without considering
the impact of the upcoming change in the century. If not corrected, many
computer applications could fail or create erroneous results by or at the Year
2000.
The Company has undertaken, but not completed, an assessment of its Year
2000 issues. The assessment is scheduled for completion in January 1999, pending
receipt of information from third parties whose software and hardware are
integral components of the Company's information technology ("IT") systems.
Preliminary analysis indicates that exposure is limited by the fact that the
Company has virtually no active IT systems that are more than two years old and
has no non-IT systems that could materially impact the Company's operations.
The Company has a significant dependence on personal computer ("PC")
systems both for internal accounting and for completion of audit engagements for
its clients. It recently has completed an inventory of those PC systems and
expended approximately $745,000 during 1998 to replace older hardware and
software which was possibly incapable of handling the Year 2000, and intends to
expend another $170,000 in the fourth quarter of 1998 to complete the process.
The Company has adopted and enforced corporate standards for operating systems
and administrative applications.
The Company has not verified that its financial accounting software is
capable of handling the Year 2000 because it made a decision totally independent
of any Year 2000 issue to replace substantially all of its existing financial
packages. Replacement of certain general accounting components is scheduled for
completion in January 1999. Replacement of the balance of the financial
accounting systems is scheduled for mid-year 1999. One of the existing
internally developed financial system components is not ready for the Year 2000.
The Company has initiated a complete rewrite of that component as part of its
overall plan to replace the existing financial systems. This component is
reasonably complex, and there is some risk that it will not be completed on
schedule. Failure to complete the system by the end of 1999 could result in
inability of the Company's systems to accurately determine its revenues or
calculate incentive compensation for its employees. In the unlikely event that
the replacement is not completed in
28
<PAGE> 30
time to handle Year 2000 transactions, the Company would be forced to hire
temporary staff to perform the tasks manually. The potential cost cannot be
estimated but the Company believes that the impact would be immaterial to its
financial position or results of operations.
Certain of the Company's international operations continue to utilize an
older (not ready for Year 2000) version of the Company's proprietary recovery
audit software. Plans are in place to upgrade all operations to the current
version by mid-year 1999. The only significant issue in completing the upgrade
is developing a training plan in the native language of the users. If the
upgrade is not completed, affected international auditors may be required to
utilize other less effective audit tools, techniques and processes, and the
Company could suffer a loss of revenues outside the U.S. as a result.
The Company has made and continues to make acquisitions of other companies
in the recovery audit business. It is possible that the Company might acquire a
business with a significant risk from Year 2000 issues. The Company's
preliminary risk assessment does not include assessment of risks within Alma,
which was acquired by the Company in October 1997. Alma's financial systems are
separate from and independent of the Company's other financial systems, and are
subject to similar risks which have yet to be specifically identified or
quantified. Should a subsequent Year 2000 Alma risk assessment indicate the
existence of significant problems, the Company could experience a loss of
revenues from Alma's operations. The Company's long-range plan includes
conversion of Alma's financial systems to the same packaged software utilized by
the rest of the Company.
The Company's business operations involve working with outputs from its
clients' financial systems. Each of the Company's clients is assessing its own
risks related to Year 2000 issues which may cause them to upgrade or replace
certain of their systems. The Company believes that its investment in advanced
technology is a competitive advantage as clients and potential clients are
implementing new and more sophisticated accounts payable systems. In the case of
clients which experience a temporary inability to process payables due to Year
2000 issues, the Company's risk of lost revenues is mitigated by the fact that
it audits in arrears and would have advance notice of client problems in making
vendor payments. See "Risk Factors--Year 2000 Risks."
FORWARD-LOOKING STATEMENTS
Statements made in this prospectus which look forward in time involve risks
and uncertainties and are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Such risks and uncertainties
include the Company's assessment of the state of its Year 2000 readiness,
anticipated expenditures and potential risks, the adequacy of the Company's
current working capital and other available sources of funds, the ability of the
Company to successfully implement its operating strategy and acquisition
strategy, the Company's ability to manage rapid expansion, including, without
limitation, the assimilation of acquired companies, changes in economic cycles,
competition from other companies, changes in laws and governmental regulations
applicable to the Company and other risk factors detailed in this prospectus.
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<PAGE> 31
BUSINESS
The following is a discussion of certain key aspects of the Company's
business. It is not intended to be a comprehensive description of all material
aspects of the Company's business, and prospective investors are urged to read
the following discussion in conjunction with the section captioned "Business" in
the Company's Annual Report on Form 10-K for the year ended December 31, 1997,
as amended, and in conjunction with the Company's other securities filings since
that date filed separately and incorporated by reference in this prospectus.
The Company is a leading provider of accounts payable and other recovery
audit services to large transaction-intensive businesses, including retailers,
manufacturers, wholesale distributors, technology companies and healthcare
providers, and to certain governmental agencies. In businesses with large
purchase volumes and continuously fluctuating prices, some small percentage of
erroneous overpayments to vendors is inevitable. In addition, the complexity of
various tax laws results in overpayments to governmental agencies. Services such
as freight, telecommunications and utilities provided to businesses under
complex pricing arrangements also can result in overpayments. All of these
overpayments result in "lost profits." The Company's trained, experienced audit
specialists use sophisticated proprietary technology and advanced audit
techniques and methodologies to identify overpayments to vendors and tax
authorities. The Company receives a contractual percentage of overpayments it
identifies and its clients recover. The Company continuously updates and refines
its proprietary databases that serve as a central repository reflecting its
auditors' experiences, vendor practices and knowledge of regional and national
pricing information, including seasonal allowances, discounts and rebates, but
excluding confidential client data.
THE RECOVERY AUDIT INDUSTRY
Businesses with substantial volumes of payment transactions involving
multiple vendors, numerous discounts and allowances, fluctuating prices and
complex tax and pricing arrangements find it difficult to detect all payment
errors. Although these businesses process the vast majority of payment
transactions correctly, a small number of errors occur principally because of
communication failures between purchasing and payables departments, complex
pricing arrangements, personnel turnover and changes in information and
accounting systems. These errors include vendor pricing errors, missed or
inaccurate discounts, allowances and rebates, incorrect freight charges and
duplicate payments. In the aggregate, these transaction errors can represent
meaningful lost profits that can be particularly significant for businesses with
relatively narrow profit margins. For example, the Company believes that a
typical U.S. retailer makes payment errors that are not discovered internally,
which in the aggregate can range from several hundred thousand dollars to more
than $1.0 million per billion dollars of revenues.
Although internal recovery audit departments identify some payment errors,
independent recovery audit firms often are retained by businesses to identify
additional overpayments. In the U.S. and Canada, large retailers routinely
engage independent recovery audit firms as standard business practice and
businesses in other industries increasingly are using independent recovery audit
firms. Outside the U.S., the Company believes that large retailers and certain
other businesses also increasingly are engaging independent recovery audit
firms.
Increasingly, businesses use technology to manage complex accounts payable
systems and realize greater operating efficiencies. Many businesses worldwide
communicate with vendors electronically to exchange inventory and sales data,
transmit purchase orders, submit invoices, forward shipping and receiving
information and remit payments. These paperless transactions are widely referred
to as "EDI"
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<PAGE> 32
(Electronic Data Interchange), and implementation of this technology is
accelerating. EDI streamlines processing large numbers of transactions, but does
not eliminate payment errors because operator input errors may be replicated
automatically in thousands of transactions. EDI systems typically generate
significantly more individual transaction details in electronic form, making
these transactions easier to audit than traditional paper-based accounts payable
systems. Recovery audit firms, however, require sophisticated technology in
order to audit EDI accounts payable processes effectively.
The Company believes that many businesses increasingly are outsourcing
internal recovery functions to independent recovery audit firms. Factors
contributing to this trend include (1) a need for significant investments in
technology, especially in an EDI environment, which the Company believes are
greater than even large businesses often can justify, (2) an inability to
duplicate the breadth of industry and auditing expertise of independent recovery
audit firms, (3) a desire to focus limited resources on core competencies, and
(4) a desire for larger and more timely recoveries.
The domestic and international recovery audit industry is characterized by
several large and many small, local and regional firms. Many local and regional
recovery audit firms lack the centralized resources or broad client base to
support technology investments required to provide comprehensive recovery audit
services for large, complex accounts payable systems. These firms are even less
equipped to audit large EDI accounts payable systems. In addition, because of
limited resources, most of these firms subcontract work to third parties and may
lack experience and the knowledge of national promotions, seasonal allowances
and current recovery audit practices. As a result, the Company believes
significant opportunities exist for recovery audit firms with a national and
international presence, well-trained and experienced professionals, and the
advanced technology required to audit increasingly complex accounts payable
systems. See "--Competition."
THE PROFIT RECOVERY GROUP SOLUTION
The Company provides its domestic and international clients with
comprehensive recovery audit services by using sophisticated proprietary
technology and advanced audit techniques and methodologies, and by employing
highly trained, experienced recovery audit specialists. As a result, the Company
believes it is able to identify significantly more payment errors in both
traditional paper-based and EDI accounts payable systems. By leveraging its
technology investment across a large client base, the Company is able to
continue developing proprietary software tools and expand its technology
leadership in the recovery audit industry.
The Company is a leader in developing and utilizing sophisticated software
audit tools and techniques that enhance the identification and recovery of
payment errors. In EDI accounts payable systems, the Company's proprietary
software audit tools and data processing capabilities enable auditors to sort,
filter and evaluate transactions in greater line-item detail. The Company has
developed and continuously updates and refines its proprietary databases that
serve as a central repository reflecting its auditors' experiences, vendor
practices and knowledge of regional and national pricing information, including
seasonal allowances, discounts and rebates. These proprietary databases do not
include confidential client information. The Company's technology provides
uniform platforms for its auditors to offer consistent and proven audit
techniques and methodologies based on a client's size, industry or geographic
scope of operations.
The Company also is a leader in establishing new recovery audit practices
to reflect evolving industry trends. The Company's auditors are highly trained
and many have joined the Company from
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<PAGE> 33
finance-related management positions in the industries the Company serves. To
support its auditors, the Company provides data processing, marketing, training
and administrative services.
THE PROFIT RECOVERY GROUP STRATEGY
The Company's objective is to be the leading worldwide provider of recovery
audit services. Its strategy to achieve this objective consists of the following
elements:
- Pursue Strategic Acquisitions. The Company intends to continue pursuing
the acquisition of domestic and international businesses, including both
direct competitors and businesses providing complementary recovery audit
services. The following sets forth a list of acquisitions completed from
January 1, 1997 through November 15, 1998:
<TABLE>
<CAPTION>
PRIMARY PRIMARY RECOVERY
COMPANY ACQUIRED DATE REGION SERVED AUDIT OR OTHER SERVICE
------------------------------------ -------------- ------------- ----------------------
<C> <S> <C> <C> <C>
1. Shaps Group, Inc.................... January 1997 U.S. Accounts Payable
2. Accounts Payable Recovery Services,
Inc............................... February 1997 U.S. Accounts Payable
3. The Hale Group...................... May 1997 U.S. Accounts Payable
4. Financiere Alma S.A. and
subsidiaries...................... October 1997 France Taxation
5. TradeCheck, LLC..................... November 1997 U.S. Ocean Freight
6. Precision Data Link................. March 1998 U.S. Air Freight
7. The Medallion Group................. June 1998 U.S. Air Freight
8. Novexel S.A. ....................... July 1998 France Government Grant
Procurement
9. Loder, Drew & Associates, Inc. ..... August 1998 U.S. Accounts Payable
10. Cost Recovery Professionals Pty
Ltd............................... September 1998 Australia Accounts Payable
11. Robert Beck & Associates, Inc. and
related businesses................ October 1998 U.S. Accounts Payable
</TABLE>
- Expand International Presence. The Company believes international
markets represent significant business opportunities and intends to
continue expanding its international presence through: (1) establishing a
local presence to attract new clients; (2) opening offices to serve the
expanding operations of multi-national clients; and (3) acquiring
established recovery audit companies and other businesses. In the last 12
months, the Company commenced operations in Argentina, Brazil, China, the
Philippines, South Africa and South Korea. The Company may commence
operations during 1999 in additional countries, including Italy, Portugal
and Spain.
- Expand Client Base. The Company seeks to increase its worldwide client
base within the industries it serves. The Company believes that its
typical fee arrangement enhances its ability to attract new clients
because clients pay a contractually negotiated percentage of overpayments
identified by the Company and recovered by its clients. The Company
principally targets large businesses having at least $500.0 million in
annual revenues, although smaller businesses may also be attractive
clients.
- Expand Recovery Audit Services. The Company seeks to expand its recovery
audit services beyond its traditional accounts payable recovery audit
business. Areas targeted for further expansion include freight,
telecommunications, utilities, and sales and property tax recovery
audits. For example, the Company recently began offering air freight
audit services with its acquisitions of Precision Data Link and The
Medallion Group.
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<PAGE> 34
- Maintain High Client Retention Rates. The Company intends to maintain
and improve its high client retention rates by providing comprehensive
recovery audit services, utilizing highly trained auditors, and
continuing to refine its advanced audit technology. Of the Company's
accounts payable audit clients in 1996 that had claims exceeding $100,000
in that year (excluding clients no longer in existence due to such
clients' bankruptcies and acquisitions), more than 90% continued to
utilize the Company's services in 1997.
- Maintain Technology Leadership. The Company believes its proprietary
technology provides a significant competitive advantage, especially in
audits of EDI accounts payable systems. The Company intends to continue
making substantial investments in technology to maintain its leadership
position and systems capabilities.
- Promote Outsourcing Arrangements. The Company seeks to capitalize on the
growing trend of businesses to outsource internal recovery audit efforts.
The Company believes that its outsourcing clients benefit significantly
from these arrangements because the Company generally completes its
audits more quickly and identifies larger claims than internal recovery
audit departments. The Company further believes that as clients convert
their systems to EDI, outsourcing arrangements involving recovery audit
work will become increasingly prevalent due in part to the absence of
traditional "audit trail" documents.
THE PROFIT RECOVERY GROUP SERVICES
The Company provides comprehensive accounts payable and other recovery
audit services. The Company expects that accounts payable recovery audit
services will continue to represent a majority of its revenues in 1998.
Accounts Payable Recovery Audit Services
Using its proprietary technology, audit techniques and methodologies, the
Company conducts either primary or, for retail clients, secondary accounts
payable audits. In primary audits, the Company is the first independent recovery
audit firm engaged. In secondary audits, the Company audits behind another
independent recovery audit firm. A substantial majority of accounts payable
audits conducted by the Company are primary audits.
Primary Audits. Although the Company is flexible in structuring recovery
audit programs to meet the individual needs of its clients, there are two basic
types of primary accounts payable audits conducted by the Company: (1) periodic
audits, which are usually commenced up to 18 months after a client's fiscal year
end; and (2) continuous audits, marketed as RecoverNow, which are commenced more
closely following transaction dates.
In most periodic audits, which constitute the vast majority of the
Company's present audit engagements, the client's internal recovery audit
department conducts a preliminary review of accounts payable records to identify
payment errors. Upon completion of the client's internal recovery audit review
process, which may be as long as nine to 18 months after the client's fiscal
year end, the Company begins its independent recovery audit.
Under the Company's RecoverNow program, clients provide the Company with
accounts payable data on a regular basis, often within 90 days following the
payment transaction. The Company believes its RecoverNow program generates
larger client recoveries for several reasons, including: (i) transaction data,
especially paper-based records, are more complete and accessible; (ii) the
impact of vendor
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<PAGE> 35
bankruptcies is minimized because claims are made more timely and continuously
throughout the year; (iii) certain recoveries are facilitated when claims are
made prior to the expiration of seasonal or other special pricing promotions;
and (iv) vendor relationships are improved because of on-going communications
regarding billing and payment practices.
In some cases, the Company's clients outsource all or a portion of their
internal recovery audit functions to the Company. In these cases, the client
does not conduct an internal review prior to the Company's audit. In its
outsourcing engagements, the Company also may use client staff in the review
process. The Company believes that more businesses will outsource their recovery
audit functions in an effort to control personnel and technology costs, focus
resources on their core business functions, and increase recoveries.
Secondary Audits. In secondary audits, which are conducted primarily for
retail clients, the Company conducts an accounts payable audit after another
independent recovery audit firm has completed its audit. The Company usually
receives a higher percentage recovery fee than it receives from primary audits
because it generally is more difficult to detect payment errors in secondary
audits. In most cases, the Company is able to identify significant payment
errors not previously detected by a client's primary independent recovery audit
firm. The Company utilizes secondary audits as a marketing strategy to obtain
new, primary audit clients and believes it has been successful in implementing
this strategy. Of the 28 secondary audits performed in 1995 which individually
provided revenues to the Company exceeding $100,000, nine were converted to
primary audit clients prior to December 31, 1997.
Other Audit Services
In addition to accounts payable audit services, the Company offers
ancillary recovery audit and other services. These services may be offered
individually or in conjunction with accounts payable audit services.
- Tax Audits. The Company began offering tax recovery audit services in
France with the October 1997 acquisition of Alma. These services include
the identification and recovery of business and personal property,
workers compensation, real property and value added tax overpayments.
- Freight Audits. The Company provides air, ground and ocean freight
audits using its various proprietary freight recovery audit software.
Certain of the Company's auditors specialize in freight audits. The
Company may conduct freight audits in conjunction with accounts payable
recovery audits.
- Lease Compliance Audits. Real estate lease and landlord compliance
audits involve an examination of all aspects of a client's facility lease
arrangements to assist the client in identifying lease overpayments or
expenses incurred through landlord noncompliance with lease terms.
- Telecommunications Audits. This service assists clients in reducing
their overall telecommunications costs. Auditors review clients'
equipment, usage and systems configuration needs and recommend ways to
reduce future telecommunications costs.
- Utility Audits. Auditors review clients' electrical and natural gas
requirements and analyze alternative rates and billing plans to verify
that the billing was proper and that the proper tariff rate was applied.
- Expense Reduction Audits. In France, the Company assists clients in
reducing their costs for building and security services.
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<PAGE> 36
- Government Grant Procurement Audits. With the recent acquisition of
Novexel S.A., the Company assists clients in securing available
government grants and subsidies.
CLIENT CONTRACTS
The Company's typical accounts payable client contract provides that the
Company is entitled to a contractual percentage of overpayments recovered for
clients. Clients generally recover claims by taking credits against outstanding
payables or future purchases from the involved vendors. In many cases, the
Company's auditors work on site with client personnel and continually monitor
credits taken. In other situations, Company auditors schedule periodic
reconciliations with clients to determine which claims have been processed for
credit. The Company's typical accounts payable client contract imposes a duty on
the client to process promptly all claims against vendors. In the interest of
maintaining good vendor relations, however, many clients modify the typical
client contract with the Company to provide that they retain discretion on
whether to pursue collection of a claim. In the Company's experience, a client
rarely foregoes 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 the Company's
standard client contract forms to clarify that the Company is not entitled to
payment of its fee until the client recovers the claim from its vendor.
In addition to the client contracts, most accounts payable clients
establish specific procedural guidelines that the Company must satisfy prior to
submitting claims for client approval. These guidelines are unique to each
client and impose specific requirements on the Company prior to submitting
claims. With respect to accounts payable recovery audits for retailers,
wholesale distributors and governmental agencies, the Company recognizes
revenues at the time overpayment claims are presented to and approved by its
clients, as adjusted for estimated uncollectible claims. Estimated uncollectible
claims initially are established, and subsequently adjusted, for each individual
client based on a number of factors including historical experience. With
respect to accounts payable and other recovery audits for most entities other
than retailers, wholesale distributors and governmental agencies, the Company
recognizes revenues when it invoices clients for its portion of amounts
recovered. See "Risk Factors--Uncertainty of Our Revenue Recognition Estimates
and Collection of Our Contract Receivables."
The Company's typical tax recovery client contract provides that the
Company is entitled to a contractual percentage of the taxes recovered and
anticipated savings for a specified period following the audit. The Company
recognizes revenues from its tax recovery audit services (other than for value
added tax recovery audit services) when it receives notification that the
applicable governmental agency has approved a claim, the client is entitled to a
recovery, and an invoice is sent to the client requesting payment. For value
added tax recovery audit services, the Company recognizes revenues when all
documentation is filed with the appropriate government agency.
TECHNOLOGY
The Company believes that its proprietary software audit tools and
proprietary databases, together with its centralized data processing
capabilities, provide it with a competitive advantage, especially when auditing
complex EDI accounts payable systems. The Company has made substantial financial
investments in developing its proprietary technology and expects to continue to
do so. The Company also maintains an information services department dedicated
to software development activities, including updating and modifying the
Company's existing proprietary software.
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<PAGE> 37
Data Preparation and Verification
At the beginning of a typical accounts payable recovery audit engagement,
the Company obtains transaction data from its client for the time period under
audit. The Company receives this data typically by magnetic media, which is then
reformatted into standardized and proprietary layouts at one of the Company's
data processing facilities using its IBM ES 9000 mainframe, IBM AS 400 midrange
computers, Windows NT and OS/2 Warp Connect servers and other PC-based
platforms. The Company's experienced programmers then prepare statistical
reports to verify the completeness and accuracy of the data. The Company
delivers this reformatted data to its auditors who, using the Company's
proprietary PC-based field audit software, sort, filter and search the data for
overpayments. The Company also produces client-specific standard reports and
statistical data for its auditors. These reports and data often reveal patterns
of activity or unusual relationships suggestive of potential overpayment
situations.
Proprietary Databases
The Company has developed and continuously updates and refines its
proprietary accounts payable databases to assist it in providing recovery audit
services to its domestic retail clients. These databases serve as a central
repository reflecting its auditors' experiences, vendor practices and knowledge
of regional and national pricing information, including seasonal allowances,
discounts and rebates. These proprietary databases, however, do not include
confidential client information. Auditors use these databases to identify
discounts, allowances and other pricing information not previously detected.
AUDITOR HIRING AND TRAINING
Many of the Company's auditors formerly held finance-related management
positions in the industries the Company serves. To meet its growing need for
additional auditors, the Company also hires recent college graduates,
particularly those with multi-lingual capabilities. While the Company has been
able to hire a sufficient number of new auditors to support its growth, the
Company may be unable to continue hiring sufficient numbers of qualified
auditors to meet its future needs.
The Company provides intensive in-house training for auditors utilizing
many self-paced media including specialized computer-based training modules. The
Company utilizes experienced auditors as full-time field trainers to assess each
trainee's progress as he or she completes the training program. The in-house
training program is continuously upgraded based on feedback from auditors and on
changing industry protocols. Additional on-the-job training by experienced
auditors enhances the in-house training and enables newly hired auditors to
refine their skills. Because auditor compensation is based on team performance
results, the Company believes senior auditors are motivated to continue training
new auditors to maximize client recoveries and audit team compensation. As the
Company hires new auditors, it may be unable to continue providing the same
in-depth training or have sufficient numbers of experienced auditors to continue
its on-the-job training program. See "Risk Factors--Domestic Auditor
Compensation."
CLIENT BASE
The Company provides its services principally to large
transaction-intensive businesses, including retailers, such as discount,
department, specialty, grocery and drug stores, manufacturers, wholesale
distributors, technology companies and healthcare providers, and to certain
governmental agencies. The Company principally targets large businesses having
at least $500.0 million in annual revenues, although
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<PAGE> 38
smaller businesses also may be attractive clients. Retailers constitute the
majority of the Company's client and revenue base. Based on 1996 sales, 28 of
the top 100 retailers worldwide, each having sales in excess of $3.9 billion,
were clients of the Company in 1997.
For the years ended December 31, 1995, 1996 and 1997, the Company derived
30.1%, 34.6% and 33.8%, respectively, of its revenues from its five largest
clients. Wal-Mart was the Company's largest client during 1995 and 1996,
representing 12.7% and 14.4% of the revenues during such years, respectively,
and was the Company's second largest client in 1997, representing 10.4% of
revenues for such year. Kmart was the Company's largest client in 1997,
representing 12.3% of the revenues during the period, due in large part to a
nonrecurring situation involving concurrent audits of multiple years. See "Risk
Factors--Our Dependence on Key Clients" and "--Client Bankruptcies."
SEASONALITY
The Company has experienced and expects to continue to experience
significant seasonality in its business. The Company typically realizes higher
revenues and operating income in the last two quarters of its fiscal year.
Should this trend not continue, the Company's profitability for any affected
quarter and the entire year could be materially and adversely impacted due to
ongoing selling, general and administrative expenses that are largely fixed over
the short term. See "Risk Factors--Fluctuations in Our Quarterly Operating
Results" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Quarterly Results."
SALES AND MARKETING
The Company markets its services primarily through one-on-one meetings with
executives of targeted clients. The decision to engage a recovery audit firm is
similar to the decision to engage most professional service firms and usually
involves a lengthy period of familiarization, investigation and evaluation by
the prospective client. The sales cycle often exceeds one year in both domestic
and international markets. In the U.S. and Canadian retailing industry, where
the use of recovery audit services is a generally accepted business practice,
the Company generally must displace a competing firm in order to expand market
share. In many other countries and in other industries, recovery auditing is a
new business service that requires an initial educational process in order to
gain acceptance.
PROPRIETARY RIGHTS
The Company continuously develops new recovery audit software and enhances
existing proprietary software. The Company regards its proprietary software as
protected by trade secret and copyright laws of general applicability. In
addition, the Company attempts to safeguard its software through employee and
third-party nondisclosure agreements and other methods of protection. Despite
these precautions, it may be possible for unauthorized third parties to copy,
obtain or reverse engineer certain portions of the Company's software or
otherwise to obtain or use other information the Company regards as proprietary.
While the Company's competitive position may be affected by its ability to
protect its software and other proprietary information, the Company believes
that the protection afforded by trade secret and copyright laws is less
significant to the Company's success than the continued pursuit and
implementation of its operating strategies and other factors such as the
knowledge, ability and experience of its personnel. See "Risk
Factors--Dependence on Proprietary Technology; Intellectual Property Rights."
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<PAGE> 39
COMPETITION
The recovery audit business is highly competitive. The competitive factors
affecting the market for the Company's recovery audit services include:
establishing and maintaining client relationships, quality and quantity of
claims identified, experience and professionalism of audit staff, rates for
services, technology and geographic scope of operations. The Company's principal
competitors for accounts payable recovery audit services include local and
regional firms and one firm, Howard Schultz & Associates, Inc., with a network
of affiliate organizations in the U.S. and abroad. The Company's competitors for
tax recovery audit services in France include major international accounting
firms, tax attorneys and several smaller tax recovery audit firms. There can be
no assurance that the Company will continue competing successfully with such
competitors.
The Company believes that as large, transaction-intensive businesses expand
internationally and implement EDI accounts payable systems, smaller recovery
audit firms will lack the technology and infrastructure necessary to remain
competitive unless they make substantial investments to upgrade and expand their
skills, technologies and geographic scope of operations. See "Risk
Factors--Competition."
EMPLOYEES
At October 31, 1998, the Company had approximately 1,870 employees, 1,225
of whom were located in the U.S. The majority of the Company's employees are
involved in the audit function. The Company believes its employee relations are
good.
LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings that it believes could
have a material adverse effect on its business, financial condition or results
of operations.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the directors
and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
John M. Cook(1)...................... 56 Chairman of the Board, Chief Executive Officer and
Director
John M. Toma(1)...................... 53 Vice Chairman and Director
Michael A. Lustig.................... 43 President and Director
Marc S. Eisenberg.................... 43 President of the Directorate of Alma and Director
Ronald K. Loder...................... 43 President and Chief Executive Officer of Loder Drew, a
division of the Company, and Director
Raymond T. Kelly..................... 39 Executive Vice President--Sales and Marketing
Robert G. Kramer..................... 55 Executive Vice President and Chief Information Officer
David A. Brookmire................... 46 Senior Vice President--Strategic Planning and Business
Integration
Donald E. Ellis, Jr.................. 47 Senior Vice President--Finance, Treasurer and Chief
Financial Officer
Clinton McKellar, Jr................. 52 Senior Vice President, General Counsel and Secretary
Tony G. Mills........................ 42 Senior Vice President--Corporate Development
Maria A. Neff........................ 40 Senior Vice President--Human Resources
Stanley B. Cohen(1)(2)............... 55 Director
Jonathan Golden(1)(3)................ 61 Director
Garth H. Greimann(2)(3).............. 43 Director
Fred W.I. Lachotzki.................. 51 Director
E. James Lowrey(2)(3)................ 70 Director
</TABLE>
- ------------
(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
John M. Cook is Chairman of the Board, Chief Executive Officer and a
Director of the Company and has served in such capacities since founding the
Company in November 1990. Mr. Cook served as President of the Company from
November 1990 through January 1998. Prior to forming the Company, Mr. Cook
served as President and Chief Operating Officer of Roy Greene Associates from
1989 to 1990. From 1987 to 1989, Mr. Cook served as Senior Vice President of
Caldor Stores, Inc., a division of May Department Stores Co. ("May"). From 1982
to 1987, Mr. Cook served in a similar capacity for Kaufmann's Department Stores,
Inc., also a division of May.
John M. Toma has served as Vice Chairman of the Company since January 1997.
Prior to that, he was Executive Vice President--Administration of the Company
and had served in such capacity since 1992. Mr. Toma has served as a Director of
the Company since co-founding it in November 1990 and as Senior Vice
President--Administration of the Company from 1990 to 1992. Prior to forming the
Company, Mr. Toma served as Senior Vice President--Administration of Roy Greene
Associates from 1989 to 1990. Prior to joining Roy Greene Associates, Mr. Toma
served as Operating Vice President of Caldor Stores, Inc., a division of May.
Mr. Toma is Maria A. Neff's brother-in-law.
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<PAGE> 41
Michael A. Lustig joined the Company in 1995 as Senior Vice
President--Operations. Mr. Lustig was promoted to Executive Vice President in
July 1996, and to President--PRG Worldwide Accounts Payable Audit Operations in
January 1997. In January 1998, Mr. Lustig was elected President of the Company
and elected as a Director of the Company. Prior to joining the Company, Mr.
Lustig worked for The Actava Group, Inc. (formerly Fuqua Industries, Inc.) from
1980 to 1995 where he held various officer positions, most recently as Senior
Vice President of Corporate Development.
Marc S. Eisenberg has served as President of the Directorate of Alma since
the acquisition of Alma by the Company in October 1997 and as a Director of the
Company since October 15, 1997. Prior to October 1997, Mr. Eisenberg served as
President of Alma since its founding in 1986.
Ronald K. Loder joined the Company in August 1998 as President and Chief
Executive Officer of the Company's Loder Drew division in connection with its
acquisition by the Company. He was elected Director of the Company in October
1998. Prior to joining the Company, Mr. Loder was President and Chief Executive
Officer of Loder, Drew & Associates, Inc., which he co-founded in 1985.
Raymond T. Kelly joined the Company in 1998 as Executive Vice
President--Sales and Marketing. Prior to joining the Company, Mr. Kelly worked
for Hewlett-Packard Co., where he held various management positions, most
recently as managing executive of the Retail Distribution and Transportation
Industry Organization. From 1979 to 1995, he held various sales and marketing
positions with NCR Corp., most recently as a Vice President in the Retail
Systems Division.
Robert G. Kramer joined the Company in October 1997 as Executive Vice
President and Chief Information Officer. Prior to joining the Company, Mr.
Kramer had worked for Home Shopping Network, Inc. since 1996 as Executive Vice
President and Chief Information Officer. From 1994 to 1996, Mr. Kramer served as
Executive Vice President and Chief Information Officer with Hanover Direct,
Inc., a direct specialty retailer.
David A. Brookmire joined the Company in 1995 as Senior Vice
President--Human Resources. From 1987 to 1995, Mr. Brookmire held various
positions with Digital Communications Associates, Inc. (now Attachmate Corp.),
most recently as Vice President--Human Resources. In September 1998 he was
elected Senior Vice President--Strategic Planning and Business Integration.
Donald E. Ellis, Jr. joined the Company in 1995 as Senior Vice President,
Treasurer and Chief Financial Officer. From 1993 to 1995, Mr. Ellis served as
Vice President --Finance, Treasurer and Chief Financial Officer of Information
America, Inc., a provider of on-line computer information services, and from
1991 to 1993, he was an independent financial consultant. From 1987 to 1991, Mr.
Ellis served in various positions with KnowledgeWare, Inc., a supplier of
application software, most recently as Senior Vice President, Chief Financial
Officer, Secretary and Treasurer. Mr. Ellis is a certified public accountant.
Clinton McKellar, Jr. joined the Company in June 1997 as Senior Vice
President, General Counsel and Secretary. Prior to joining the Company, from
1989 to May 1997, Mr. McKellar served as Vice President, General Counsel and
Secretary of Engraph, Inc., a manufacturer of consumer product packaging.
Tony G. Mills has served as Senior Vice President--Corporate Development
and Assistant Secretary since June 1997. Prior to that, he was Senior Vice
President--Legal Affairs, General Counsel and Secretary and had served in such
capacities since joining the Company in October 1995. For 11 years prior to
joining the Company, Mr. Mills was a shareholder in the Atlanta, Georgia law
firm of
40
<PAGE> 42
Silfen, Segal, Fryer & Shuster, P.C. ("SSFS") and provided legal services to the
Company through that firm since 1990. Mr. Mills remained as Of Counsel to SSFS
through January 1996.
Maria A. Neff has served as Senior Vice President--Human Resources since
September 1998. From 1991, when she joined the Company, until September 1998,
Ms. Neff held several management positions in operations, sales and marketing
and information technology. Ms. Neff is John M. Toma's sister-in-law.
Stanley B. Cohen has served as a Director of the Company since its founding
in 1990. Mr. Cohen is the Chairman of the Board, Chief Executive Officer and
President of both Advisory Services, Ltd. ("ASL") and SBC Financial Corporation
("SBC"). These companies provide certain financial consulting and investment
services to the Company and certain of its executive officers. In addition, Mr.
Cohen is President of Capital Advisory Corporation, a financial advisory
company.
Jonathan Golden has served as a Director of the Company since its founding
in 1990 and provides consulting services to the Company through Jonathan Golden,
P.C., a wholly owned professional corporation ("JGPC"). Mr. Golden also serves
through JGPC as a partner in the Atlanta, Georgia law firm of Arnall, Golden &
Gregory, LLP which provides legal services to the Company. Mr. Golden also
serves as a director for SYSCO Corporation ("SYSCO"), a distributor of food and
related products.
Garth H. Greimann has served as a Director of the Company since April 1995.
Mr. Greimann joined Berkshire Partners, a general partnership, in 1989 and
served as a general partner from 1994 until February 1996, when Berkshire
Partners was succeeded by Berkshire Partners LLC (Berkshire Partners, a general
partnership, and Berkshire Partners LLC are collectively referred to as
"Berkshire Partners"). Mr. Greimann has served as a member of Berkshire Partners
LLC since February 1996, and as a general partner of Third Berkshire Associates,
A Limited Partnership ("Third Berkshire Associates"), the general partner of
Berkshire Fund III, since 1994. From 1982 to 1989, Mr. Greimann held various
positions with The First National Bank of Boston (the "Bank"), most recently as
Vice President of the Bank's Acquisition Finance Division, and served in the
Bank's offices in Korea and Taiwan. Mr. Greimann also serves as a director of
Trico Marine Services, Inc., an operator of marine vessels active in offshore
energy exploration and production activities.
Fred W.I. Lachotzki has served as a Director of the Company since January
1996. Since 1989, Mr. Lachotzki has served as a Professor of Business Policy at
Nijenrode University, The Netherlands Business School, in The Netherlands. Mr.
Lachotzki also serves as a director of Virgin Blockbuster NV, a chain of music
superstores, NVS Salland Verzekeringen, an insurance company specializing in
healthcare, and Merison Holding NV, a supplier of non-food products to
supermarket chains and owner of a franchised chain of electronics retail stores.
E. James Lowrey has served as a Director of the Company since December
1995. Mr. Lowrey served as Executive Vice President--Finance and Administration
of SYSCO from 1978 until his retirement in 1993 and was a director of SYSCO from
1981 to 1993. He currently serves as a director of Riviana Foods, Inc., a
processor and distributor of rice and other food products.
Except as noted above, no family relationship exists among any of the
directors and executive officers of the Company.
41
<PAGE> 43
SELLING SHAREHOLDERS
The table below sets forth certain information regarding the beneficial
ownership of outstanding common stock by each selling shareholder at November
19, 1998, both before this offering and as adjusted to reflect the sale of
shares of common stock in this offering. Except as otherwise indicated, the
persons or entities listed below have sole voting and investment power with
respect to all shares beneficially owned by them.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OWNED SHARES SHARES OWNED
PRIOR TO THIS OFFERING(1) OFFERED(2) AFTER THIS OFFERING(1)
-------------------------- ---------- ----------------------
SELLING SHAREHOLDERS: NUMBER PERCENT NUMBER PERCENT
<S> <C> <C> <C> <C> <C>
Cook Family Limited Partnership(3)........ 1,232,684 5.2 -- 1,232,684 4.6
Cook Family Foundation, Inc.(3)........... 34,000 * -- 34,000 *
John M. Cook 1998 Revocable Trust(3)...... 200,000 * -- 200,000 *
John M. Toma(4)........................... 590,346 2.5 40,000 537,005 2.0
Toma Family Limited Partnership(4)........ 197,265 * 13,341 183,924 *
Berkshire Fund III(5)..................... 730,931 3.1 730,931 -- --
Kevin T. Callaghan(6)..................... 754,320 3.2 1,385 -- --
Clifford Family Foundation Charitable
Trust.................................. 4,296 * 4,296 -- --
Russell L. Epker(6)....................... 754,320 3.2 4,296 -- --
Ian K. Loring............................. 268 * 268 -- --
Richard K. Lubin Daughters' Trust dtd
8/18/91 fbo Emily...................... 2,516 * 2,516 -- --
Richard K. Lubin Daughters' Trust dtd
8/18/91 fbo Kate....................... 2,516 * 2,516 -- --
Robert J. Small........................... 451 * 451 -- --
</TABLE>
- ------------
* Less than one percent.
(1) Applicable percentage of ownership at November 19, 1998 is based upon
23,876,539 shares of common stock outstanding. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission and includes voting and investment power with respect to the
shares shown as beneficially owned. Shares of common stock subject to
options currently exercisable or exercisable within 60 days are deemed
outstanding for computing the percentage ownership of the person holding
such options, but are not deemed outstanding for computing the percentage
ownership of any other persons.
(2) Amounts indicated reflect actual number of shares offered and assume no
exercise of the underwriters' over-allotment option. In the event such
option is exercised in full, the John M. Cook 1998 Revocable Trust will
sell 200,000 shares, the Cook Family Limited Partnership will sell 100,000
shares and the Cook Family Foundation, Inc. will sell 34,000 shares.
Following these sales, John M. Cook will beneficially own 3,275,502 shares.
(3) John M. Cook, the Chairman of the Board, Chief Executive Officer and a
director of the Company, is the general partner of the Cook Family Limited
Partnership, a director of the Cook Family Foundation, Inc. and the trustee
of the John M. Cook 1998 Revocable Trust.
(4) Includes 38,233 shares held for the benefit of John M. Toma, Vice Chairman
and a director of the Company, for which Mr. Toma's wife serves as trustee.
Includes 197,265 shares held by the Toma Family Limited Partnership, for
which Mr. Toma serves as the general partner. Also includes 50,000 shares
held by Mr. Toma's wife, 3,901 shares held by the Mary Caitlin Cook Trust,
of which Mr. Toma is the trustee, and 40,000 shares subject to options
which either are exercisable or will become exercisable within 60 days from
the date of this Prospectus. Does not include shares held for the benefit
of Mr. Toma's children in the Michael Toma Family Trust and the Michelle
Toma Family Trust.
(5) Garth H. Greimann, a director of the Company, is a general partner of Third
Berkshire Associates, the general partner of Berkshire Fund III.
(6) Includes 730,931 shares held by Berkshire Fund III for which the general
partner is Third Berkshire Associates. Messrs. Callaghan and Epker serve as
general partners of Third Berkshire Associates. These individuals each
disclaim beneficial ownership of the shares owned by Berkshire Fund III,
except to the extent of their respective pecuniary interests therein.
Includes 1,385 shares held by Mr. Callaghan and 4,296 shares held by Mr.
Epker, and 17,708 shares held by certain affiliates of Third Berkshire
Associates for which Messrs. Callaghan and Epker hold shared voting power.
42
<PAGE> 44
UNDERWRITING
The underwriters named below (the "Underwriters"), acting through their
representatives, BancBoston Robertson Stephens Inc., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Hambrecht & Quist LLC and The Robinson-Humphrey
Company, LLC (the "Representatives"), have severally agreed with the Company and
the selling shareholders, subject to the terms and conditions of the
Underwriting Agreement, to purchase from the Company and the selling
shareholders the respective number of shares of common stock set forth opposite
their names below. The Underwriters are committed to purchase and pay for all
shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS: SHARES
<S> <C>
BancBoston Robertson Stephens Inc.........................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................
Hambrecht & Quist LLC.....................................
The Robinson-Humphrey Company, LLC........................
---------
Total.................................................. 3,500,000
=========
</TABLE>
The Representatives have advised the Company and the selling shareholders
that the Underwriters propose to offer the shares of common stock to the public
at the assumed public offering price set forth on the cover page of this
prospectus and to certain dealers at such price less a concession of not in
excess of $ per share, of which $ may be reallowed to other dealers.
After the public offering, the public offering price, concession and reallowance
to dealers may be reduced by the Representatives.
The Company and certain shareholders have granted to the Underwriters an
option, exercisable during the 30-day period after the date of this prospectus,
to purchase up to an aggregate of 525,000 additional shares of common stock at
the same price per share as the Company and the selling shareholders will
receive for the 3,500,000 shares that the Underwriters have agreed to purchase.
To the extent that the Underwriters exercise such option, each of the
Underwriters will have a firm commitment to purchase approximately the same
percentage of such additional shares that the number of shares of common stock
to be purchased by it shown in the above table represents as a percentage of the
3,500,000 shares offered hereby. If purchased, such additional shares will be
sold by the Underwriters on the same terms as those on which the shares are
being sold.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company and the shareholders selling shares in this offering
against certain civil liabilities, including liabilities under the Securities
Act and liabilities arising from breaches of representations and warranties
contained in the Underwriting Agreement.
The Company and certain of its directors and executive officers have agreed
that, subject to limited exceptions, they will not, for a period of 90 days
after the date of this prospectus, sell, offer to sell, contract to sell or
otherwise dispose of any of their shares of common stock (except for sales
described in or contemplated by this prospectus) or other securities of the
Company without the prior written consent of BancBoston Robertson Stephens Inc.
The Underwriters do not intend to confirm sales to accounts over which they
exercise discretionary authority.
43
<PAGE> 45
The Representatives have advised the Company that, pursuant to Regulation M
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
certain persons participating in the offering may engage in transactions,
including stabilizing bids, syndicate covering transactions and the imposition
of penalty bids, which may have the effect of stabilizing or maintaining the
market price of the common stock at a level above that which might otherwise
prevail in the open market. A "stabilizing bid" is a bid for or the purchase of
the common stock on behalf of the Underwriters for the purpose of fixing or
maintaining the price of the common stock. A "syndicate covering transaction" is
the bid for or the purchase of the common stock on behalf of the Underwriters to
reduce a short position incurred by the Underwriters in connection with the
offering. A "penalty bid" is an arrangement permitting the Representatives to
reclaim the selling commission otherwise accruing to an Underwriter or syndicate
member in connection with the offering if the common stock originally sold by
such Underwriter or syndicate member is purchased by the Representatives in a
syndicate covering transaction and has therefore not been effectively placed by
such Underwriter or syndicate member. The Representatives have advised the
Company that such transactions may be effected on the Nasdaq National Market or
otherwise and, if commenced, may be discontinued at any time.
In connection with this offering, certain Underwriters and selling group
members (if any) who are qualified market makers on the Nasdaq National Market
may engage in passive market making transactions in the common stock on the
Nasdaq National Market in accordance with Rule 103 of Regulation M under the
Exchange Act during the business day prior to the pricing of the offering before
the commencement of offers or sales of the common stock. Passive market makers
must comply with applicable volume and price limitations and must be identified
as such. In general, a passive market maker must display its bid at a price not
in excess of the highest independent bid of such security; if all independent
bids are lowered below the passive market maker's bid, however, such bid must
then be lowered when certain purchase limits are exceeded.
LEGAL MATTERS
Certain legal matters with respect to the validity of the shares of common
stock offered hereby will be passed upon for the Company and the selling
shareholders by Long Aldridge & Norman LLP, Atlanta, Georgia. Certain legal
matters related to the offering will be passed upon for the Underwriters by
Alston & Bird LLP, Atlanta, Georgia.
EXPERTS
The Consolidated Financial Statements of the Company as of December 31,
1996 and 1997, and for each of the years in the three-year period ended December
31, 1997, have been filed separately and incorporated by reference herein and in
the registration statement in which this prospectus is contained in reliance
upon the report of KPMG Peat Marwick LLP, independent auditors, filed separately
and incorporated by reference herein and in such registration statement, and
upon the authority of said firm as experts in accounting and auditing.
The Financial Statements of Loder, Drew & Associates, Inc. as of December
31, 1996 and 1997, and for each of the years in the two-year period ended
December 31, 1997, have been filed separately and incorporated by reference
herein and in the registration statement in which this prospectus is contained
in reliance upon the report of KPMG Peat Marwick LLP, independent auditors,
filed separately and incorporated by reference herein and in such registration
statement, and upon the authority of said firm as experts in accounting and
auditing.
44
<PAGE> 46
The Financial Statements of Robert Beck & Associates, Inc. as of December
31, 1997, and for the year then ended, have been filed separately and
incorporated by reference herein and in the registration statement in which this
prospectus is contained in reliance upon the report of KPMG Peat Marwick LLP,
independent auditors, filed separately and incorporated by reference herein and
in such registration statement, and upon the authority of said firm as experts
in accounting and auditing.
The Consolidated Financial Statements of Financiere Alma S.A. and
subsidiaries as of December 31, 1995 and 1996 and June 30, 1997, and for each of
the years in the two-year period ended December 31, 1996 and the six months
ended June 30, 1997, have been filed separately and incorporated by reference
herein and in the registration statement in which this prospectus is contained
in reliance upon the report of ERNST & YOUNG Entrepreneurs, filed separately and
incorporated by reference herein and in such registration statement, and upon
the authority of said firm as experts in accounting and auditing.
The Consolidated Financial Statements of Financiere Alma S.A. and
subsidiaries as of December 31, 1997 and for the three months ended December 31,
1997 have been filed separately and incorporated by reference herein and in the
registration statement in which this prospectus is contained in reliance upon
the report of ERNST & YOUNG Entrepreneurs, filed separately and incorporated by
reference herein and in such registration statement, and upon the authority of
said firm as experts in accounting and auditing.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company has filed the following documents with the Securities and
Exchange Commission (the "Commission") under the Exchange Act, all of which are
incorporated by reference in and made a part of this prospectus:
(a) The Company's Annual Report on Form 10-K for the year ended December
31, 1997, as amended;
(b) The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1998, June 30, 1998 and September 30, 1998;
(c) The Company's Current Reports on Form 8-K filed October 22, 1997
(event date: October 7, 1997), August 12, 1998 (event date: July 30, 1998),
August 12, 1998 (event date: August 6, 1998) and November 10, 1998 (event
date: October 29, 1998), and Current Report on Form 8-K/A filed November
21, 1997 (event date October 7, 1997); and
(d) The description of the common stock contained in the Company's
Registration Statement on Form 8-A dated March 26, 1996 (Commission File
No. 0-28000).
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act: (1) subsequent to the initial filing of this
prospectus and prior to the date it is declared effective; and (2) subsequent to
the date of this prospectus and prior to the termination of this offering are
incorporated by reference and become a part of this prospectus and a part hereof
from the date of filing of such documents. Any statement contained in this
prospectus or in a document incorporated by reference herein is modified or
superseded for purposes of this prospectus to the extent that a statement
contained in this prospectus, or in any other subsequently filed document, which
also is incorporated by reference in this prospectus, modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
prospectus.
45
<PAGE> 47
On request, the Company will provide at no cost to each person, including
any beneficial owner, who receives a copy of this prospectus, a copy of any or
all of the documents incorporated in this prospectus by reference. The Company
will not provide exhibits to any of such documents, however, unless such
exhibits are specifically incorporated by reference into those documents.
Written or telephonic requests for such copies should be addressed to the
Company's principal executive offices, attention: Clinton McKellar, Jr., 2300
Windy Ridge Parkway, Suite 100 North, Atlanta, Georgia 30339-8426, telephone
number (770) 779-3900.
ADDITIONAL INFORMATION
The Company files reports, proxy statements and other information with the
Commission. Those reports, proxy statements and other information may be
obtained:
- At the Public Reference Room of the Commission, Room 1024--Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549;
- At the public reference facilities at the Commission's regional offices
located at Seven World Trade Center, 13th Floor, New York, New York 10048
or Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661;
- From the Commission, Public Reference Section, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549;
- At the offices of The Nasdaq Stock Market, Inc., Reports Section, 1735 K
Street, N.W., Washington, D.C. 20006; or
- From the Internet site maintained by the Commission at
http://www.sec.gov, which contains reports, proxy and information
statements and other information regarding issuers that file
electronically with the Commission.
Some locations may charge prescribed or modest fees for copies.
The Company has filed with the Commission a Registration Statement on Form
S-3 (together with any amendments or supplements thereto, the "Registration
Statement") under the Securities Act covering the shares of common stock offered
hereby. As permitted by the Commission, this prospectus, which constitutes a
part of the Registration Statement, does not contain all the information
included in the Registration Statement. This additional information may be
obtained from the locations described above. Statements contained in this
prospectus as to the contents of any contract or other document are not
necessarily complete. You should refer to the contract or other document for all
the details.
46
<PAGE> 48
[PRG LOGO]
<PAGE> 49
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Estimated expenses of the offering, other than underwriting discounts and
commissions, are:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 32,870
NASD filing fee............................................. 12,324
Nasdaq National Market listing fee.......................... 17,500
Blue sky fees and expenses.................................. 6,000
Printing and engraving expenses............................. 150,000
Legal fees and expenses..................................... 225,000
Accounting fees and expenses................................ 50,000
Transfer Agent and registrar fees........................... 10,000
Miscellaneous expenses...................................... 46,306
--------
Total............................................. $550,000
========
</TABLE>
All amounts except the Securities and Exchange Commission registration fee,
the NASD filing fee and the Nasdaq National Market listing fee are estimated.
The Company intends to pay all expenses of registration with respect to shares
being sold by the selling shareholders hereunder, with the exception of
underwriting discounts and commissions.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 8 of the Company's Articles of Incorporation and Article VII of the
Company's Bylaws set forth the extent to which the Company's directors and
officers may be indemnified against liabilities they may incur while serving in
such capacities. Such indemnification will be provided to the fullest extent
allowed by the Georgia Business Corporation Code, as amended from time to time.
Under these indemnification provisions, the Company is required to indemnify any
of its directors and officers against any reasonable expenses (including
attorneys' fees) incurred by such party in the defense of any action, suit or
proceeding, whether civil, criminal, administrative or investigative, to which
such person was made a party, or in defense to any claim, issue or matter
therein, by reason of the fact that such person is or was a director or officer
of the Company or who, while a director or officer of the Company, is or was
serving at the Company's request as a director, officer, partner, trustee,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, to the extent that such director or
officer has been successful, on the merits or otherwise, in such defense. The
Company also is required to indemnify any of its directors or officers against
any liability incurred in connection with any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the name of the Company, in which
event, additional determinations must be made before indemnification is
provided) by reason of the fact that he or she is or was a director or officer
of the Company who, while a director or officer of the Company, is or was
serving at the Company's request as a director, officer, partner, trustee,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, if such director or officer acted in
a manner he or she believed in good faith to be in, or not opposed to, the best
interests of the Company, and with respect to any criminal proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The Company may
also provide advances of expenses incurred by a director or officer in defending
such action, suit or proceeding upon receipt of a written affirmation
II-1
<PAGE> 50
of such officer or director that he or she has met certain standards of conduct
and an undertaking by or on behalf of such officer or director to repay such
advances unless it is ultimately determined that he or she is entitled to
indemnification by the Company.
The Company's Articles of Incorporation contain a provision which
eliminates, to the fullest extent permitted by law, director liability for
monetary damages for breaches of the fiduciary duty of care or any other duty as
a director.
The Company has entered into indemnification agreements (the
"Indemnification Agreements") with each of its directors and certain executive
officers. The Indemnification Agreements set forth certain procedural matters
relating to indemnification, including the manner in which an indemnified party
may make a claim and the right of an indemnified party to court adjudication of
his or her claim if indemnification is denied by the Company.
The Company has obtained an insurance policy insuring the directors and
officers of the Company against certain liabilities, including liabilities under
the Securities Act of 1933, as amended (the "Securities Act").
Pursuant to the Underwriting Agreement to be entered into by the Company in
connection with the offering of common stock by this registration statement and
the accompanying prospectus, the Underwriters thereunder are expected to
indemnify the directors and officers of the Registrant and certain other persons
against certain civil liabilities.
ITEM 16. EXHIBITS
Exhibits. The following exhibits are filed as part of this Registration
Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
1.1* -- Form of Underwriting Agreement among the Registrant,
BancBoston Robertson Stephens Inc., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Hambrecht & Quist LLC and The
Robinson-Humphrey Company, LLC.
2.1+ -- Agreement and Plan of Reorganization, dated January 4, 1995,
among The Profit Recovery Group, Inc., Fial & Associates,
Inc. and T. Charles Fial (incorporated by reference to the
Exhibit of the same number contained in the Registrant's
Registration Statement on Form S-1 (Registration No.
333-1086)).
2.2+ -- Note Purchase Agreement, dated April 27, 1995, among The
Profit Recovery Group, International, L.P., The Profit
Recovery Group International I, Inc., T. Charles Fial and
certain limited partners and purchasers named therein
(incorporated by reference to the Exhibit of the same number
contained in the Registrant's Registration Statement on Form
S-1 (Registration No. 333-1086)).
2.3+ -- Share Purchase Agreement dated as of October 7, 1997 among
the Company, PRG France S.A. and certain individual
Stockholders of Alma Intervention S.A. (incorporated by
reference to Exhibit 2.1(a) of the Registrant's Form 8-K
filed with the Commission on October 22, 1997).
2.4+ -- Share Purchase Agreement dated as of October 7, 1997 among
the Company, PRG France S.A. and certain individual
Stockholders of Alma Intervention S.A. (incorporated by
reference to Exhibit 2.1(b) of the Registrant's Form 8-K
filed with the Commission on October 22, 1997).
2.5+ -- Share Purchase Agreement dated as of October 7, 1997 among
the Company, PRG France S.A. and Epargne Capitalisation
Intermediare and Epargne Developpement (incorporated by
reference to Exhibit 2.2 of the Registrant's Form 8-K filed
with the Commission on October 22, 1997).
</TABLE>
II-2
<PAGE> 51
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
2.6+ -- Share Purchase Agreement dated as of October 7, 1997 among
the Company, PRG France S.A. and Sophie Davet (incorporated
by reference to Exhibit 2.3 of the Registrant's Form 8-K
filed with the Commission on October 22, 1997).
2.7+ -- Share Purchase Agreement dated as of October 7, 1997 among
the Company, PRG France S.A. and Marc Eisenberg and Eric
Eisenberg (incorporated by reference to Exhibit 2.4 of the
Registrant's Form 8-K filed with the Commission on October
22, 1997).
2.8+ -- Share Purchase Agreement dated as of October 7, 1997 among
the Company, PRG France S.A. and Banque Internationale a
Luxembourg S.A. for share capital of Financiere Alma S.A.
and Alma Intervention S.A. (incorporated by reference to
Exhibit 2.5 of the Registrant's Form 8-K filed with the
Commission on October 22, 1997).
2.9+ -- Share Purchase Agreement dated as of October 7, 1997 among
the Company, PRG France S.A. and Banque Internationale a
Luxembourg S.A for share capital of Alma Intervention S.A.
(incorporated by reference to Exhibit 2.6 of the
Registrant's Form 8-K filed with the Commission on October
22, 1997).
2.10+ -- Warranty Agreement dated as of October 7, 1997 among the
Company, PRG France S.A., Marc Eisenberg and Eric Eisenberg
(incorporated by reference to Exhibit 2.7 of the
Registrant's Form 8-K filed with the Commission on October
22, 1997).
2.11+ -- Indemnity Escrow and Stock Pledge Agreement dated as of
October 7, 1997 among the Company, PRG France S.A., Marc
Eisenberg, Eric Eisenberg, Banque Internationale a
Luxembourg S.A. and Arnall Golden & Gregory, LLP
(incorporated by reference to Exhibit 2.8 of the
Registrant's Form 8-K filed with the Commission on October
22, 1997).
2.12+ -- Asset Purchase Agreement dated as of July 31, 1998 among the
Company, The Profit Recovery Group International I, Inc.,
Loder, Drew & Associates, Inc., Ronald K. Loder and H.
Richard Byrne (incorporated by reference to Exhibit 2.1 to
the Registrant's Form 8-K pertaining to the Loder, Drew &
Associates, Inc. transaction filed with the Commission on
August 12, 1998).
2.13 -- Stock Purchase Agreement dated as of October 29, 1998 among
the Company, The Profit Recovery Group International I,
Inc., Robert Beck & Associates, Inc. and the shareholders of
Robert Beck & Associates, Inc. (incorporated by reference to
Exhibit 2.1 of the Registrant's Form 8-K filed with the
Commission on November 10, 1998).
2.14 -- Stock Purchase Agreement dated as of October 29, 1998 among
the Company, The Profit Recovery Group International I,
Inc., Taylor, Blackburn & Associates, Inc. and the
shareholders of Taylor, Blackburn & Associates, Inc.
(incorporated by reference to Exhibit 2.2 of the
Registrant's Form 8-K filed with the Commission on November
10, 1998).
2.15 -- Stock Purchase Agreement dated as of October 29, 1998 among
the Company, The Profit Recovery Group International I,
Inc., John E. Flatley & Associates, Inc. and the shareholder
of John E. Flatley & Associates, Inc. (incorporated by
reference to Exhibit 2.3 of the Registrant's Form 8-K filed
with the Commission on November 10, 1998).
2.16 -- Asset Purchase Agreement dated as of October 29, 1998 among
the Company, The Profit Recovery Group International I, Inc.
and Vincent Creadon, a sole proprietorship (incorporated by
reference to Exhibit 2.4 of the Registrant's Form 8-K filed
with the Commission on November 10, 1998).
2.17 -- Asset Purchase Agreement dated as of October 29, 1998 among
the Company, The Profit Recovery Group International I, Inc.
and John H. Cavins, a sole proprietorship (incorporated by
reference to Exhibit 2.5 of the Registrant's Form 8-K filed
with the Commission on November 10, 1998).
2.18 -- Asset Purchase Agreement dated as of October 29, 1998 among
the Company, The Profit Recovery Group International I,
Inc., RBA Audits, Inc. and the shareholders of RBA Audits,
Inc. (incorporated by reference to Exhibit 2.6 of the
Registrant's Form 8-K filed with the Commission on November
10, 1998).
</TABLE>
II-3
<PAGE> 52
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
2.19 -- Asset Purchase Agreement dated as of October 29, 1998 among
the Company, The Profit Recovery Group International I, Inc.
and John M. Kirkeide, a sole proprietorship (incorporated by
reference to Exhibit 2.7 of the Registrant's Form 8-K filed
with the Commission on November 10, 1998).
2.20 -- Asset Purchase Agreement dated as of October 29, 1998 among
the Company, The Profit Recovery Group International I, Inc.
and Robert N. Beck, Jr., a sole proprietorship (incorporated
by reference to Exhibit 2.8 of the Registrant's Form 8-K
filed with the Commission on November 10, 1998).
2.21 -- Asset Purchase Agreement dated as of October 29, 1998 among
the Company, The Profit Recovery Group International I,
Inc., Savant Consulting, L.L.C. and the members of Savant
Consulting, L.L.C. (incorporated by reference to Exhibit 2.9
of the Registrant's Form 8-K filed with the Commission on
November 10, 1998).
2.22 -- Representations, Covenants and Indemnification Agreement
(incorporated by reference to Exhibit 2.10 of the
Registrant's Form 8-K filed with the Commission on November
10, 1998).
4.1 -- Specimen Common Stock Certificate (incorporated by reference
to the Exhibit of the same number contained in the
Registrant's Registration Statement on Form S-1
(Registration No. 333-1086)).
4.2 -- Applicable provisions of the Articles of Incorporation and
Bylaws of the Registrant (incorporated by reference to
Exhibits 3.1 and 3.2 of the Registrant's Registration
Statement on Form S-1 (Registration No. 333-1086)).
5.1* -- Opinion of Long Aldridge & Norman LLP.
23.1* -- Consent of Long Aldridge & Norman LLP (included in its
opinion to be filed as Exhibit 5.1).
23.2 -- Consent of KPMG Peat Marwick LLP.
23.3 -- Consent of ERNST & YOUNG Entrepreneurs.
24.1 -- Powers of Attorney (see signature pages to this Registration
Statement).
</TABLE>
- ------------
* To be filed by amendment.
+ The Company has received confidential treatment of portions of this Agreement.
Accordingly, portions thereof have been omitted and filed separately with the
Securities and Exchange Commission. In addition, 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.
+ 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.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or
II-4
<PAGE> 53
otherwise, the Registrant has been advised that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed the initial bona fide offering thereof.
II-5
<PAGE> 54
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended (the
"Act"), the Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Atlanta, State of Georgia, on November 23, 1998.
THE PROFIT RECOVERY GROUP
INTERNATIONAL, INC. (REGISTRANT)
By: /s/ JOHN M. COOK
-----------------------------------
John M. Cook
Chairman of the Board and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints John M. Cook, Donald E. Ellis, Jr. and
Clinton McKellar, Jr., and any of them, his true and lawful attorneys-in-fact,
each acting alone, with full powers of substitution and resubstitution, for him
and his name, place and stead, in any and all capacities, to sign any or all
amendments, including any post-effective amendments, to this registration
statement, and any registration statement filed pursuant to Rule 462(b) of the
Act prepared in connection therewith, and to file the same, with exhibits
thereto, and other documents in connection herewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that said
attorneys-in-fact (or any of them) or their substitutes, each acting alone, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JOHN M. COOK Chairman of the Board, Chief November 23, 1998
- ----------------------------------------------------- Executive Officer and
John M. Cook Director (principal
executive officer)
/s/ DONALD E. ELLIS, JR. Senior Vice November 23, 1998
- ----------------------------------------------------- President--Finance,
Donald E. Ellis, Jr. Treasurer and Chief
Financial Officer
(principal financial
officer)
/s/ MICHAEL R. MELTON Vice President--Finance November 23, 1998
- ----------------------------------------------------- (principal accounting
Michael R. Melton officer)
[Signatures continued on following page]
</TABLE>
II-6
<PAGE> 55
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ STANLEY B. COHEN Director November 23, 1998
- -----------------------------------------------------
Stanley B. Cohen
/s/ MARC EISENBERG Director November 23, 1998
- -----------------------------------------------------
Marc Eisenberg
/s/ JONATHAN GOLDEN Director November 23, 1998
- -----------------------------------------------------
Jonathan Golden
Director November , 1998
- -----------------------------------------------------
Garth H. Greimann
Director November , 1998
- -----------------------------------------------------
Fred W. I. Lachotzki
Director November , 1998
- -----------------------------------------------------
Ronald K. Loder
/s/ E. JAMES LOWREY Director November 23, 1998
- -----------------------------------------------------
E. James Lowrey
/s/ MICHAEL A. LUSTIG Director November 23, 1998
- -----------------------------------------------------
Michael A. Lustig
/s/ JOHN M. TOMA Vice Chairman and Director November 23, 1998
- -----------------------------------------------------
John M. Toma
</TABLE>
II-7
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
The Profit Recovery Group International, Inc.:
We consent to the use of our reports incorporated herein by reference and
to the reference to our firm under the headings "Selected Consolidated Financial
Data" and "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Atlanta, Georgia
November 23, 1998
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
The Profit Recovery Group International, Inc.:
We consent to the use of our reports incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the prospectus.
ERNST & YOUNG Entrepreneurs
Departement d'E&Y Audit
/s/ ANY ANTOLA
--------------------------------------
Any Antola
Paris, France
November 20, 1998
