<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 7, 1999
REGISTRATION NO. 333-67711
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3
TO
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)
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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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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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PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF SHARES TO BE AGGREGATE PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED 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 $38.1875 $153,704,688 $42,730*
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</TABLE>
* A registration fee of $32,870 was paid when the Registration Statement was
first filed on November 23, 1998.
(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 January 4, 1999.
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 JANUARY 7, 1999
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. PRG'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 January 5, 1999 was $36.25 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 PRG.............................................
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.
PRG and certain 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
MERRILL LYNCH & CO.
HAMBRECHT & QUIST
THE ROBINSON-HUMPHREY COMPANY
, 1999
<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, "PRG," "WE," "US" AND "OUR" REFER TO THE PROFIT RECOVERY GROUP
INTERNATIONAL, INC. AND ITS SUBSIDIARIES.
------------------------
TABLE OF CONTENTS
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Page
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Summary............................. 3
Risk Factors........................ 7
Use of Proceeds..................... 15
Dividend Policy..................... 16
Price Range of Common Stock......... 16
Selected Consolidated Financial
Data.............................. 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 19
Business............................ 32
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
Management.......................... 41
Selling Shareholders................ 44
Underwriting........................ 45
Legal Matters....................... 46
Experts............................. 47
Incorporation of Certain Documents
by Reference...................... 47
Additional Information.............. 48
</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 PROFIT RECOVERY GROUP INTERNATIONAL, INC.
The Profit Recovery Group International, Inc. is a leading provider of
accounts payable and other recovery audit services to large businesses and
certain governmental agencies having numerous payment transactions with many
vendors. These businesses include:
<TABLE>
<S> <C>
- - retailers - technology companies
- - manufacturers - healthcare providers
- - wholesale distributors
</TABLE>
We principally target large businesses having at least $500.0 million in
annual revenues, although smaller businesses also may be attractive clients.
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 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.
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 acquisitions, expansion into international
markets, new clients and the large number of clients that continue to use our
services. Of our accounts payable audit clients in 1996 that had claims
exceeding $100,000 in that year, more than 90.0% continued to use our services
in 1997. This percentage excludes clients no longer in existence due to
bankruptcy or acquisition by other companies.
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 resources or client base to support the technology
investment required to audit client data more completely. Businesses
increasingly have implemented Electronic Data Interchange 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.
3
<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:
- a need for significant investments in technology, especially in an EDI
environment;
- an inability to duplicate the breadth of auditing expertise of an
independent firm;
- a desire to focus limited resources on their principal business
activities; and
- 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 acquisitions of domestic and international businesses, including
both direct competitors and businesses providing complementary recovery
audit services;
- expanding international operations;
- 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.
We could face several difficulties in attempting to achieve our objectives.
For example, we have pursued acquisitions of businesses since our founding,
although most of our acquisitions have occurred within the last two years. We
may encounter difficulties in integrating these businesses as well as in
identifying, implementing and integrating future acquisitions into our
operations. Also, we derive a significant portion of our revenues from
international operations. Our international expansion may not succeed because of
a lack of demand for our services or our inability to manage successfully our
overseas operations.
THE OFFERING
The following information is based on 24,037,919 shares outstanding at
January 5, 1999. This number excludes 3,156,763 shares of common stock issuable
upon the exercise of stock options outstanding at January 5, 1999 at a weighted
average exercise price of $16.93 per share. It also excludes 1,022,557 shares
reserved for issuance under our Stock Incentive Plan.
Common stock offered by PRG.................... 2,700,000 shares
Common stock offered by the selling
shareholders................................... 800,000 shares
Common stock to be outstanding after the
offering....................................... 26,737,919 shares
Use of proceeds................................ To repay outstanding
indebtedness.
Nasdaq National Market symbol.................. PRGX
4
<PAGE> 6
RECENT DEVELOPMENTS
On October 29, 1998, we acquired the business of one of our direct
competitors, Robert Beck & Associates, Inc. and certain related entities, for
$26.1 million in cash and 644,434 unregistered, restricted shares of our common
stock. 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. 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. 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.
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.
5
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SUMMARY CONSOLIDATED FINANCIAL DATA
The comparability of amounts reflected in the following summary of
consolidated financial data is impacted by several factors. First, it includes
the results of Fial & Associates, Inc. since January 1, 1995, the results of
Financiere Alma S.A. and subsidiaries since October 1, 1997, and the results of
Loder Drew since July 1, 1998. Second, we have included a $3.7 million net
deferred tax charge for 1996 resulting from our predecessors' termination of
their Subchapter S and partnership status. Third, we have included a $1.2
million charge for the year ended December 31, 1997 to restructure and realign
certain aspects of our European management structure. See Notes to our
Consolidated Financial Statements, which we have filed separately and
incorporated by reference in this prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
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1994 1995 1996 1997 1997 1998
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(IN THOUSANDS, EXCEPT PER SHARE DATA)
<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(1)........... 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(2)....................... 14,948 17,457 18,909 18,720 22,939
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
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ACTUAL AS ADJUSTED(3)
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(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 15,020 $ 26,310
Working capital........................................... 48,821 60,111
Intangible assets, net(4)................................. 158,187 158,187
Total assets.............................................. 286,612 297,902
Long-term debt, excluding current installments............ 81,141 --
Total shareholders' equity................................ 142,351 234,782
</TABLE>
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(1) 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.
(2) 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.
(3) 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 $36.25 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.
(4) This balance consists primarily of the excess of purchase price over the
estimated fair market value of net assets of acquired businesses. Such
amounts are amortized over periods ranging from seven to 25 years.
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.
WE MAY BE UNABLE TO IDENTIFY AND IMPLEMENT ACQUISITIONS
From January 1, 1997 through January 6, 1999, we completed 13 acquisitions.
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. However, 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. If we are unable to make acquisitions, we
may not meet our growth expectations and our business, financial condition and
results of operations could be materially and adversely affected.
WE MAY BE UNABLE TO INTEGRATE ACQUIRED COMPANIES PROFITABLY
Even though we may acquire additional companies in the future, we may be
unable to successfully integrate the 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 in a market
in which we have limited or no expertise, or 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 divert management's attention from our existing business and
may damage our relationships with our key clients and employees.
WE MAY ISSUE EQUITY SECURITIES IN FUTURE ACQUISITIONS THAT COULD BE DILUTIVE TO
OUR SHAREHOLDERS OR WE MAY INCUR ADDITIONAL DEBT AND AMORTIZATION EXPENSE
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 DEPEND ON CERTAIN CLIENTS FOR SIGNIFICANT REVENUES
Our five largest clients accounted for 30.1% of our revenues in 1995, 34.6%
in 1996 and 33.8% in 1997. Our business, financial condition and results of
operations could be materially and adversely affected if one or more of our
large clients:
- file for bankruptcy or otherwise cease to do business with us;
- change our status from primary to secondary recovery auditor; or
- experience a bankruptcy of one of their significant vendors.
7
<PAGE> 9
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. See "Business -- Client Base."
WE RELY ON INTERNATIONAL OPERATIONS FOR SIGNIFICANT REVENUES
We derived 27.3% of our revenues from international operations in 1997, and
30.2% for the first nine months of 1998. 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;
- 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.
Because a significant portion of our revenues come from international
operations, the occurrence of any of the above events may materially and
adversely affect our business, financial condition and results of operations.
Currently, we operate outside the United States in the following countries:
- Argentina
- Australia
- Belgium
- Brazil
- Canada
- China
- France
- Germany
- Hong Kong
- Indonesia
- Malaysia
- Mexico
- The Netherlands
- New Zealand
- The Philippines
- Singapore
- South Africa
- South Korea
- Switzerland
- Taiwan
- Thailand
- United Kingdom
POTENTIAL CLIENTS IN INTERNATIONAL MARKETS MAY NOT ACCEPT OUR RECOVERY AUDIT
SERVICES
We rely heavily on international expansion to achieve our long-term growth
objectives. 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.
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<PAGE> 10
WE REQUIRE SIGNIFICANT RESOURCES TO OPERATE AND EXPAND OUR RECOVERY AUDIT
SERVICES INTERNATIONALLY
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. In addition, 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. We generally pay
the costs associated with international expansion before any significant
revenues are generated. As a result, initial operations in a new market
typically operate at low margins or may be unprofitable. Because our
international expansion strategy will require substantial financial resources,
we may incur additional indebtedness or issue additional equity securities which
could be dilutive to our shareholders. In addition, 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."
OUR REVENUE RECOGNITION POLICY AND COLLECTION OF OUR CONTRACT RECEIVABLES
INVOLVE ESTIMATES AND UNCERTAINTY
Our revenue recognition policy involves estimating uncollectible claims.
Despite our experience in providing accounts payable recovery audit services,
our estimates of uncollectible claims may not be adequate. If we overestimate
the amount of claims we expect to collect, then our future earnings will be
reduced, and, as a result, our stock price could decline.
We initially establish our estimate for uncollectible claims for each
client based on the following:
- historical collection rates;
- types of claims identified;
- current industry conditions; and
- other factors which, in our opinion, deserve consideration.
We may, however, subsequently adjust this estimate as these factors change.
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.
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 our client or its vendors may file for bankruptcy protection, or 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.
9
<PAGE> 11
OUR THIRD AND FOURTH QUARTER OPERATING RESULTS IMPACT SIGNIFICANTLY OUR ANNUAL
FINANCIAL PERFORMANCE
We currently provide recovery audit services principally to the retailing
industry. The purchasing and operational cycles of the retailing industry
typically cause us to realize higher revenues and operating income in the last
two quarters of our fiscal year. 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."
WE MAY BE UNABLE TO PROTECT AND MAINTAIN THE COMPETITIVE ADVANTAGE OF OUR
PROPRIETARY TECHNOLOGY AND 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. 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.
WE MAY LOSE REVENUE OR INCUR ADDITIONAL COSTS BECAUSE OF FAILURE TO ADEQUATELY
ADDRESS THE 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.
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.
As a result, we may suffer the following consequences:
- We may experience a significant number of operational inconveniences and
inefficiencies for us and our clients that may divert our time and
attention and financial and human resources from our ordinary business
activities.
- We may suffer serious system failures that may require significant
efforts by us or our clients to prevent or alleviate material business
disruptions.
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<PAGE> 12
- We may experience a significant loss of revenues or incur a significant
amount of unanticipated expenses.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Year 2000 Issue."
OUR NEED TO RETAIN THE SERVICES OF MESSRS. COOK, LUSTIG, LODER AND EISENBERG
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.
CHANGES IN OUR DOMESTIC AUDITOR COMPENSATION PROGRAM MAY ADVERSELY AFFECT OUR
EARNINGS
On April 1, 1999, we intend to modify the compensation program for our
domestic auditors who serve our core domestic businesses, which include
retailers, wholesale distributors and governmental agencies. We currently
compensate these auditors based solely on their individual commissions on client
accounts receivable we collect. After April 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.
WE MAY NOT BE ABLE TO CONTINUE TO COMPETE SUCCESSFULLY WITH OTHER RECOVERY AUDIT
FIRMS
The recovery audit business is highly competitive. Our principal
competitors for accounts payable recovery audit services include local and
regional firms and one firm 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.
11
<PAGE> 13
THREE OF OUR DIRECTORS WILL SIGNIFICANTLY REDUCE THEIR FINANCIAL INTEREST IN PRG
IN THIS OFFERING
John M. Toma and affiliates, affiliates of John M. Cook, and affiliates of
Garth H. Greimann will receive substantial proceeds from selling shares of
common stock in this offering. We will pay the offering expenses of these
shareholders, other than underwriting discounts and commissions. Messrs. Toma
and Cook are directors and executive officers of PRG. Mr. Greimann is a director
of PRG. Because the future financial performance of PRG will have less impact on
these directors, they may not be as motivated to achieve the same level of
performance as they have in the past. After deducting underwriting discounts and
commissions, the net proceeds to the selling shareholders, all of whom are our
affiliates, at an assumed offering price of $36.25 per share, are approximately
as follows: John M. Toma and affiliates, $1.8 million; and Berkshire Fund III, A
Limited Partnership and affiliates, $25.7 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 $11.5 million.
OUR EXECUTIVE OFFICERS AND DIRECTORS OWN OR CONTROL A SIGNIFICANT AMOUNT OF OUR
SHARES AND COULD, THEREFORE, INFLUENCE OUR AFFAIRS
After we sell shares of common stock in this offering, our executive
officers and directors collectively will beneficially own 22.8% of the
outstanding common stock, or 21.4% if the underwriters' over-allotment option is
exercised in full. Of such amounts, John M. Cook will beneficially own 13.1%, or
11.8% if the underwriters' over-allotment option is exercised in full. As a
result of their ownership, our management collectively will continue to have
significant influence over:
- the election of our Board of Directors;
- the approval or disapproval of any other matters requiring shareholder
approval; and
- the affairs and policies of PRG.
OUR ARTICLES OF INCORPORATION AND BYLAWS AND GEORGIA LAW MAY INHIBIT A TAKEOVER
OF PRG
Our Articles of Incorporation and Bylaws and Georgia law contain provisions
that may delay, deter 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. Provisions that could delay, deter or inhibit a future
acquisition include the following:
- a staggered Board of Directors;
- special meeting call restrictions; and
- 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
12
<PAGE> 14
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.
CLIENT AND VENDOR BANKRUPTCIES COULD REDUCE OUR EARNINGS
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.
FUTURE SALES OF OUR COMMON STOCK COULD CAUSE THE PRICE OF OUR SHARES TO DECLINE
Upon completion of this offering, we will have 26,737,919 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, or pursuant to the volume and other limitations of Rule 144 promulgated
under the Securities Act. Following this offering, resales of a substantial
number of shares of common stock into the public market could cause the price of
our common stock to decline.
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. 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 2,772,382 shares are subject to contractual lock-up provisions with
us that will expire beyond the lock-up period. See "Underwriting."
THE PRICE OF OUR STOCK HAS BEEN VOLATILE AND COULD CONTINUE TO FLUCTUATE
SUBSTANTIALLY
Our common stock is traded on the Nasdaq National Market. The market price
of our common stock has been volatile and could fluctuate substantially, based
on a variety of factors, including the following:
- future announcements concerning us or our key clients or competitors;
- technological innovations;
- government regulations; and
- 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."
13
<PAGE> 15
FORWARD LOOKING STATEMENTS
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 for the following reasons:
- the statements discuss our future expectations;
- the statements contain projections of our future results of operations or
of our financial condition; and
- the statements 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.
14
<PAGE> 16
USE OF PROCEEDS
The net proceeds from the sale of the 2,700,000 shares of common stock
offered by PRG are estimated to be approximately $92.4 million at an assumed
offering price of $36.25 per share and after deducting underwriting discounts
and commissions of approximately $4.9 million and estimated offering expenses of
approximately $550,000 payable by PRG. If the underwriters' over-allotment
option is exercised in full, the net proceeds to PRG are estimated to be
approximately $99.0 million after deducting underwriting discounts and
commissions of approximately $5.2 million and estimated offering expenses of
approximately $550,000 payable by PRG. PRG will not receive any proceeds from
the sale of shares of common stock by the selling shareholders.
PRG intends to use the net proceeds solely to repay outstanding
indebtedness under its $200.0 million senior credit facility with NationsBank,
N.A., as agent, all of which PRG incurred to finance various business
acquisitions. At December 31, 1998, PRG owed $113.0 million in principal and
accrued and unpaid interest under its credit facility at various LIBOR-based
interest rates. The weighted average interest rate as of December 31, 1998 was
6.98%. Borrowings under the credit facility are due July 29, 2003. The
outstanding indebtedness under PRG's credit facility consists of the following
three borrowings:
<TABLE>
<CAPTION>
ORIGINAL PRINCIPAL DATE PREPAYABLE
AMOUNT WITHOUT PENALTY
- ------------------ ----------------
<S> <C> <C>
$82.8 million.................................................. January 8, 1999
2.0 million................................................... January 15, 1999
27.5 million................................................... February 3, 1999
</TABLE>
These borrowings are automatically eligible to be rolled over if not repaid
on the dates listed above. PRG expects to repay these borrowings without penalty
on such dates except for the $82.8 million borrowing, which PRG expects to roll
over and repay without penalty promptly following the closing of this offering.
PRG 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. Although PRG generated negative cash
flows from operating activities for the first nine months of 1998, it had cash
available of $15.0 million as of September 30, 1998. Consequently, PRG has no
present intent to borrow additional monies from its credit facility.
Pending application of the net proceeds as described above, PRG intends to
invest the net proceeds in the following:
- short-term investment grade securities;
- certificates of deposit; and
- direct or guaranteed obligations of the U.S. government.
15
<PAGE> 17
DIVIDEND POLICY
PRG 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 PRG's credit facility specifically
prohibit payments of cash dividends without the written consent of PRG's
lenders. PRG'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 PRG'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.
PRICE RANGE OF COMMON STOCK
The following table sets forth the range of high and low sale prices per
share for PRG'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.............................................. 39 1/8 20 1/8
FISCAL 1999
First Quarter (through January 5, 1999)..................... $38 7/8 $36
</TABLE>
- ------------
(1) Initial public offering price.
On January 5, 1999, the last sale price of the common stock as reported on
the Nasdaq National Market was $36 1/4 per share. As of January 5, 1999, there
were 205 holders of record of the common stock. PRG 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 PRG'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 PRG's Consolidated Financial Statements
and Notes thereto, which Consolidated Financial Statements have been audited by
KPMG 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 PRG'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 PRG 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, PRG acquired Fial. See Note 8 of Notes to
Consolidated Financial Statements of PRG filed separately and incorporated
by reference in this prospectus.
(2) During 1997, PRG 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 PRG 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 developments such as
the Alma acquisition. See Note 14 of Notes to Consolidated Financial
Statements of PRG filed separately and incorporated by reference in this
prospectus.
(4) In April 1995, PRG's predecessors reorganized and its international entities
became C corporations. Additionally, in connection with PRG's March 1996
initial public offering, all domestic entities became C corporations. As a
result of these conversions to C corporations, PRG incurred charges to
operations of $305,000 in 1995 and $3.7 million in 1996 for cumulative
deferred income taxes. PRG'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 PRG filed separately and incorporated by reference in this
prospectus.
(5) PRG'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 PRG 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 PRG'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 PRG 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 PRG 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
PRG is a leading provider of accounts payable and other recovery audit
services to large businesses and certain governmental agencies having numerous
payment transactions with many vendors. These businesses include:
<TABLE>
<S> <C>
- - retailers - technology companies
- - manufacturers - healthcare providers
- - wholesale distributors
</TABLE>
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." PRG's trained, experienced audit specialists use
sophisticated proprietary technology and advanced audit techniques and
methodologies to identify overpayments to vendors and tax authorities. PRG
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 PRG'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. PRG'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
19
<PAGE> 21
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. The
following are components of this 58.9% increase:
- 11.2% was contributed by increased claims volume derived from retail,
wholesale distribution and governmental agency clients which were served
in both the first nine months of 1998 and the corresponding period in
1997;
- 37.0% was derived from the seven domestic complementary recovery audit
firms acquired during the last seven fiscal quarters; and
- 10.7% was contributed by increased claims volume derived from the
provision of services to new clients.
PRG 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, 93.8% was contributed by operations of Alma and
Novexel S.A., which were acquired in October 1997 and July 1998, respectively,
and 35.7% resulted from existing operations, primarily increased claims volume
derived from services provided to new clients. PRG 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."
PRG has experienced and expects to continue to experience significant
seasonality in its business. PRG 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
PRG's revenues. PRG'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 PRG 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 PRG'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 such
as the following:
- rental of field offices;
- travel and entertainment;
- telephone and other utilities;
- maintenance and supplies; and
- clerical assistance.
20
<PAGE> 22
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.
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. PRG'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 PRG'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, PRG 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 PRG's purchases of
Alma, The Medallion Group, Novexel, 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.
21
<PAGE> 23
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, PRG'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. The following are components of this 30.2% increase:
- 9.0% was contributed by increased claims volume derived from existing
clients served in both the 1996 and 1997 periods;
- 13.3% was contributed by the four recovery audit firms acquired in 1997;
and
- 7.9% was contributed by increased claims volume derived from the
provision of services to new clients, net of the effect of revenues in
1996 from clients not served in 1997.
International revenues increased 109.9% to $30.7 million in 1997, up from
$14.6 million in 1996. Of this 109.9% increase, 45.3% was contributed by
operations of Alma subsequent to this October 1997 acquisition and 64.6%
resulted from existing operations, primarily related to increased claims volume
derived 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 PRG's May 1997 acquisition of The Hale Group. These
claims carried higher auditor compensation rates than those customarily paid by
PRG. The remainder of these claims in process were 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 PRG'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 PRG'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. PRG'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.
22
<PAGE> 24
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 PRG'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, PRG 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. As result of the Alma acquisition, PRG 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 employment termination costs directly applicable to four of
PRG's senior European executives and residual contract costs due to an
independent European advisor for services no longer required by PRG. 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. PRG'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, PRG
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 PRG's composite
effective rate of 39.0%. PRG'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.
23
<PAGE> 25
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 PRG'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, principally due to claims volume increases. 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.
Cost of Revenues. Cost of revenues decreased to 52.1% of revenues in 1996,
down from 54.5% for 1995.
Domestically, PRG'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
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 PRG. 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 PRG 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. PRG'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.
24
<PAGE> 26
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 PRG'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 PRG
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, PRG's predecessors reorganized and its
international entities became C corporations. Additionally, in connection with
PRG's March 26, 1996 initial public offering, all domestic entities became C
corporations. As a result of these conversions to C corporations, PRG incurred
charges to operations of $305,000 in 1995 and $3.7 million in 1996 for
cumulative deferred income taxes. PRG'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 PRG's predecessors had been C
corporations throughout such periods.
25
<PAGE> 27
QUARTERLY RESULTS
The following tables set forth certain unaudited quarterly financial data
for each of PRG'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 PRG'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
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>
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
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>
26
<PAGE> 28
PRG has experienced and expects to continue to experience significant
seasonality in its business. PRG 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 PRG. PRG'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
PRG 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, PRG 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. PRG 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, PRG increased its credit facility
from $150.0 million to $200.0 million and the facility was syndicated between
ten banking institutions led by NationsBank, N.A. as agent for the group. As of
September 30, 1998, PRG had $80.9 million in outstanding borrowings under its
credit facility. On October 29, 1998, PRG 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
at September 30, 1998 from two large domestic audits in their start-up phases,
offset in part by increased earnings, depreciation and amortization as a result
of internal and acquired growth. Excluding the effect of increased accounts
receivable at September 30, 1998 from the two large domestic audits which were
in their start-up phases, net cash provided by operating activities would have
been $1.8 million for the first nine months of 1998.
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,
consisting primarily of 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 activities consisted primarily of
$79.2 million in borrowings under its credit facility 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 PRG'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.
27
<PAGE> 29
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, PRG 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 PRG's initial public offering, net of repayments of
debt and other obligations paid from those proceeds.
During the seven quarters ended September 30, 1998, PRG acquired ten
recovery audit firms. Additionally, PRG subsequently acquired Beck along with
certain related companies in October 1998, IP Strategies SA in November 1998,
and Industrial Traffic Consultants, Inc. in December 1998. PRG 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 PRG 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 PRG. See "--Forward-Looking
Statements."
On August 6, 1998, PRG 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 PRG'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. PRG 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. Of the
above-mentioned $70.0 million, up to $40.0 million in additional purchase price
consideration is payable in the Spring of 2000 based upon the financial
performance of the Loder Drew division during calendar 1999. PRG is presently
unable to estimate what portion, if any, of this $40.0 million will ultimately
become due and payable since the required financial performance payment
thresholds for 1999 significantly exceed Loder Drew's actual and forecasted
financial performance for 1998. PRG currently anticipates that any portion of
the $40.0 million which ultimately becomes due and payable will be borrowed
under its existing $200.0 million credit facility to the extent that excess cash
derived from the increased financial performance of the Loder Drew division is
insufficient to satisfy any required payment.
PRG from time to time issues unregistered, restricted common stock in
partial consideration for the business entities it acquires. The timing and
quantity of any future securities issuances are not susceptible to estimation
since PRG presently has no acquisitions which are likely to occur. Additionally,
if PRG is successful in arranging for future acquisitions which individually or
collectively are large relative to PRG's size, it may need to secure additional
debt or equity financing. There are no current plans to seek such financing
beyond the equity securities now in registration.
PRG 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 PRG's working capital
28
<PAGE> 30
and capital expenditure requirements through September 30, 1999 unless one or
more acquisitions are consummated which require PRG 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 business enterprises report information about
operating segments. PRG 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, and for hedging activities. This
pronouncement is effective for all fiscal quarters beginning after June 15, 1999
although earlier application is encouraged. PRG 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. PRG 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.
PRG 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 PRG's information technology systems. Preliminary
analysis indicates that exposure is limited by the fact that PRG has virtually
no active information technology systems that are more than two years old and
has no non-information technology systems that could materially impact PRG's
operations.
PRG has a significant dependence on personal computer systems both for
internal accounting and for completion of audit engagements for its clients. It
recently has completed an inventory of those personal computer 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.
PRG has adopted and enforced corporate standards for operating systems and
administrative applications.
PRG 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
29
<PAGE> 31
scheduled for mid-year 1999. As of September 30, 1998, PRG has estimated that it
will incur additional capital expenditures of approximately $5.0 million through
mid-year 1999 to complete its financial accounting systems project. Any portion
of this cost which cannot be funded from current operations will be financed
under PRG's existing $200.0 million credit facility.
One of the existing internally developed financial system components is not
ready for the Year 2000. PRG 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 PRG'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 time to handle Year 2000 transactions, PRG
would be forced to hire temporary staff to perform the tasks manually. The
potential cost cannot be estimated but PRG believes that the impact would be
immaterial to its financial position or results of operations.
Certain of PRG's international operations continue to utilize an older
version of PRG's proprietary recovery audit software which is not ready for the
Year 2000. 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 PRG could suffer
a loss of revenues outside the U.S. as a result.
PRG has made and continues to make acquisitions of other companies in the
recovery audit business. It is possible that PRG might acquire a business with a
significant risk from Year 2000 issues. PRG's preliminary risk assessment does
not include assessment of risks within Alma, which was acquired by PRG in
October 1997. Alma's financial systems are separate from and independent of
PRG'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, PRG could
experience a loss of revenues from Alma's operations. PRG's long-range plan
includes conversion of Alma's financial systems to the same packaged software
utilized by the rest of PRG.
PRG's business operations involve working with outputs from its clients'
financial systems. Each of PRG's clients is assessing its own risks related to
Year 2000 issues which may cause them to upgrade or replace certain of their
systems. PRG 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,
PRG'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.
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<PAGE> 32
FORWARD-LOOKING STATEMENTS
Statements made in Management's Discussion and Analysis of Financial
Condition and Results of Operations 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 following:
- PRG's assessment of the state of its Year 2000 readiness;
- anticipated expenditures and potential risks;
- the adequacy of PRG's current working capital and other available sources
of funds;
- the ability of PRG to successfully implement its operating strategy and
acquisition strategy;
- PRG'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 PRG; and
- other risk factors detailed in this prospectus.
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<PAGE> 33
BUSINESS
The following is a discussion of the material aspects of PRG's business. It
is not intended to be a comprehensive description of all aspects of PRG's
business, and prospective investors are urged to read the following discussion
in conjunction with the section captioned "Business" in PRG's Annual Report on
Form 10-K for the year ended December 31, 1997, as amended, and in conjunction
with PRG's other securities filings since that date filed separately and
incorporated by reference in this prospectus.
PRG is a leading provider of accounts payable and other recovery audit
services to large businesses and certain governmental agencies having numerous
payment transactions with many vendors. These businesses include:
- retailers such as discount, department, specialty, grocery and drug
stores;
- manufacturers of pharmaceuticals, consumer electronics, chemicals and
aerospace and medical products;
- wholesale distributors of computer components, food products and
pharmaceuticals;
- technology companies that engage in telecommunications, computer
equipment assembly and software development; and
- healthcare providers such as hospitals and health maintenance
organizations.
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." PRG's trained, experienced audit specialists use
sophisticated proprietary technology and advanced audit techniques and
methodologies to identify overpayments to vendors and tax authorities. PRG
receives a contractual percentage of overpayments it identifies and its clients
recover. PRG 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, PRG 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
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<PAGE> 34
businesses in other industries increasingly are using independent recovery audit
firms. Outside the U.S., PRG 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, 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.
PRG believes that many businesses increasingly are outsourcing internal
recovery functions to independent recovery audit firms. Factors contributing to
this trend include the following:
- a need for significant investments in technology, especially in an EDI
environment, which PRG believes are greater than even large businesses
often can justify;
- an inability to duplicate the breadth of industry and auditing expertise
of independent recovery audit firms;
- a desire to focus limited resources on core competencies; and
- 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, PRG 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 PRG SOLUTION
PRG 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, PRG 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, PRG is able to continue developing proprietary software tools
and expand its technology leadership in the recovery audit industry.
PRG 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, PRG's proprietary software audit tools
and data processing capabilities enable auditors to sort, filter and
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<PAGE> 35
evaluate transactions in greater line-item detail. PRG 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. PRG'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.
PRG also is a leader in establishing new recovery audit practices to
reflect evolving industry trends. PRG's auditors are highly trained and many
have joined PRG from finance-related management positions in the industries PRG
serves. To support its auditors, PRG provides data processing, marketing,
training and administrative services.
THE PRG STRATEGY
PRG'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 Acquisitions. PRG 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 December 23, 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
12. IP Strategies SA.................... November 1998 Belgium Government Grant
Procurement
13. Industrial Traffic Consultants,
Inc............................... December 1998 U.S. Ground Freight
</TABLE>
- Expand International Operations. PRG believes international markets
represent significant business opportunities and intends to continue
expanding its international operations in the following ways:
- establishing a local presence to attract new clients;
- opening offices to serve the expanding operations of multi-national
clients; and
- acquiring established recovery audit companies and other businesses.
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<PAGE> 36
In the last 12 months, PRG commenced operations in the following
countries:
<TABLE>
<S> <C>
- - Argentina - the Philippines
- - Brazil - South Africa
- - China - South Korea
</TABLE>
PRG may commence operations during 1999 in additional countries, including
Italy, Portugal and Spain.
- Expand Client Base. PRG seeks to increase its worldwide client base
within the industries it serves. PRG believes that its typical fee
arrangement enhances its ability to attract new clients because clients
pay a contractually negotiated percentage of overpayments identified by
PRG and recovered by its clients. PRG 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. PRG 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, PRG
recently began offering air freight audit services with its acquisitions
of Precision Data Link and The Medallion Group.
- Maintain High Client Retention Rates. PRG 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 PRG's accounts
payable audit clients in 1996 that had claims exceeding $100,000 in that
year, more than 90% continued to utilize PRG's services in 1997. This
percentage excludes clients no longer in existence due to bankruptcy or
acquisition by other companies.
- Maintain Technology Leadership. PRG believes its proprietary technology
provides a significant competitive advantage, especially in audits of EDI
accounts payable systems. PRG intends to continue making substantial
investments in technology to maintain its leadership position and systems
capabilities.
- Promote Outsourcing Arrangements. PRG seeks to capitalize on the growing
trend of businesses to outsource internal recovery audit efforts. PRG
believes that its outsourcing clients benefit significantly from these
arrangements because PRG generally completes its audits more quickly and
identifies larger claims than internal recovery audit departments. PRG
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.
PRG SERVICES
PRG provides accounts payable and other recovery audit services. PRG
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, PRG
conducts either primary or, for retail clients, secondary accounts payable
audits. In primary audits, PRG is the first independent recovery audit firm
engaged. In secondary audits, PRG audits behind another independent recovery
audit firm. A substantial majority of accounts payable audits conducted by PRG
are primary audits.
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<PAGE> 37
Primary Audits. Although PRG 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 PRG: (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 PRG'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,
PRG begins its independent recovery audit.
Under PRG's RecoverNow program, clients provide PRG with accounts payable
data on a regular basis, often within 90 days following the payment transaction.
PRG believes its RecoverNow program generates larger client recoveries for
several reasons, including the following:
- transaction data, especially paper-based records, are more complete and
accessible;
- the impact of vendor bankruptcies is minimized because claims are made
more timely and continuously throughout the year;
- certain recoveries are facilitated when claims are made prior to the
expiration of seasonal or other special pricing promotions; and
- vendor relationships are improved because of on-going communications
regarding billing and payment practices.
In some cases, PRG's clients outsource all or a portion of their internal
recovery audit functions to PRG. In these cases, the client does not conduct an
internal review prior to PRG's audit. In its outsourcing engagements, PRG also
may use client staff in the review process. PRG 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, PRG conducts an accounts payable audit after another independent
recovery audit firm has completed its audit. PRG 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, PRG is able to identify significant payment errors not previously
detected by a client's primary independent recovery audit firm. PRG 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 PRG
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, PRG offers ancillary
recovery audit and other services. These services may be offered individually or
in conjunction with accounts payable audit services.
- Tax Audits. PRG 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.
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- Freight Audits. PRG provides air, ground and ocean freight audits using
its various proprietary freight recovery audit software. Certain of PRG's
auditors specialize in freight audits. PRG 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, PRG assists clients in reducing
their costs for building and security services.
- Government Grant Procurement Audits. With the recent acquisitions of
Novexel S.A. and IP Strategies SA, PRG assists clients in securing
available government grants and subsidies.
CLIENT CONTRACTS
PRG's typical accounts payable client contract provides that PRG 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, PRG'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. PRG'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 PRG to
provide that they retain discretion on whether to pursue collection of a claim.
In PRG'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 PRG's standard client contract forms to clarify that PRG 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 PRG must satisfy prior to
submitting claims for client approval. These guidelines are unique to each
client and impose specific requirements on PRG prior to submitting claims. With
respect to accounts payable recovery audits for retailers, wholesale
distributors and governmental agencies, PRG 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, PRG recognizes revenues when
it invoices clients for its portion of amounts recovered.
PRG's typical tax recovery client contract provides that PRG is entitled to
a contractual percentage of the taxes recovered and anticipated savings for a
specified period following the audit. PRG recognizes
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<PAGE> 39
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, PRG recognizes revenues when all documentation is filed
with the appropriate government agency.
Ancillary recovery audit services other than tax recovery audits include
freight audits, lease compliance audits, telecommunications audits, utility
audits and expense reduction audits. PRG recognizes revenues for these audits at
the time overpayment claims are presented to and approved by its clients, as
adjusted for estimated uncollectible claims.
On average, PRG collects its accounts receivable between 150 and 168 days
after revenues are recognized.
TECHNOLOGY
PRG 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. PRG has made substantial financial investments in developing
its proprietary technology and expects to continue to do so. PRG also maintains
an information services department dedicated to software development activities,
including updating and modifying PRG's existing proprietary software.
Data Preparation and Verification
At the beginning of a typical accounts payable recovery audit engagement,
PRG obtains transaction data from its client for the time period under audit.
PRG receives this data typically by magnetic media, which is then reformatted
into standardized and proprietary layouts at one of PRG's data processing
facilities using the following:
- an IBM ES 9000 mainframe;
- IBM AS 400 midrange computers;
- Windows NT and OS/2 Warp Connect servers; and
- other PC-based platforms.
PRG's experienced programmers then prepare statistical reports to verify
the completeness and accuracy of the data. PRG delivers this reformatted data to
its auditors who, using PRG's proprietary PC-based field audit software, sort,
filter and search the data for overpayments. PRG 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
PRG 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.
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<PAGE> 40
AUDITOR HIRING AND TRAINING
Many of PRG's auditors formerly held finance-related management positions
in the industries PRG serves. To meet its growing need for additional auditors,
PRG also hires recent college graduates, particularly those with multi-lingual
capabilities. While PRG has been able to hire a sufficient number of new
auditors to support its growth, PRG may be unable to continue hiring sufficient
numbers of qualified auditors to meet its future needs.
PRG provides intensive in-house training for auditors utilizing many
self-paced media including specialized computer-based training modules. PRG
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, PRG believes senior auditors are motivated to continue training new
auditors to maximize client recoveries and audit team compensation. As PRG 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.
CLIENT BASE
PRG provides its services principally to large businesses and certain
governmental agencies having numerous payment transactions with many vendors.
PRG principally targets large businesses having at least $500.0 million in
annual revenues, although smaller businesses also may be attractive clients.
Retailers constitute the majority of PRG'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 PRG in 1997.
For the years ended December 31, 1995, 1996 and 1997, PRG derived 30.1%,
34.6% and 33.8%, respectively, of its revenues from its five largest clients.
Wal-Mart Stores, Inc. and affiliates constituted our largest client during 1995
and 1996, representing 12.7% and 14.4% of the revenues during such years,
respectively, and our second largest client in 1997, representing 10.4% of
revenues for such year. Kmart Corporation was PRG'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.
SEASONALITY
PRG has experienced and expects to continue to experience significant
seasonality in its business. PRG typically realizes higher revenues and
operating income in the last two quarters of its fiscal year.
SALES AND MARKETING
PRG 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,
PRG generally must displace a competing firm in order to expand market share. In
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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
PRG continuously develops new recovery audit software and enhances existing
proprietary software. PRG regards its proprietary software as protected by trade
secret and copyright laws of general applicability. In addition, PRG attempts to
safeguard its software through employee and third-party nondisclosure agreements
and other methods of protection. While PRG's competitive position may be
affected by its ability to protect its software and other proprietary
information, PRG believes that the protection afforded by trade secret and
copyright laws is less significant to PRG'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.
COMPETITION
The recovery audit business is highly competitive. The competitive factors
affecting the market for PRG'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.
PRG'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. PRG's
competitors for tax recovery audit services in France include major
international accounting firms, tax attorneys and several smaller tax recovery
audit firms.
PRG believes that as large 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.
EMPLOYEES
At December 31, 1998, PRG had approximately 1,880 employees, 1,230 of whom
were located in the U.S. The majority of PRG's employees are involved in the
audit function. PRG believes its employee relations are good.
LEGAL PROCEEDINGS
PRG 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 PRG:
<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 PRG, 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 PRG and has served in such capacities since founding PRG in November
1990. Mr. Cook served as President of PRG from November 1990 through January
1998. Prior to forming PRG, 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. From 1982 to 1987, Mr. Cook served in a similar capacity
for Kaufmann's Department Stores, Inc., also a division of May Department
Stores.
John M. Toma has served as Vice Chairman of PRG since January 1997. Prior
to that, he was Executive Vice President--Administration of PRG and had served
in such capacity since 1992. Mr. Toma has served as a Director of PRG since
co-founding it in November 1990 and as Senior Vice President--Administration of
PRG from 1990 to 1992. Prior to forming PRG, 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 Department Stores. Mr. Toma is Maria A.
Neff's brother-in-law.
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Michael A. Lustig joined PRG 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 PRG and elected as a Director
of PRG. Prior to joining PRG, 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 PRG in October 1997 and as a Director of PRG since
October 15, 1997. Prior to October 1997, Mr. Eisenberg served as President of
Alma since its founding in 1986.
Ronald K. Loder joined PRG in August 1998 as President and Chief Executive
Officer of PRG's Loder Drew division in connection with its acquisition by PRG.
He was elected Director of PRG in October 1998. Prior to joining PRG, Mr. Loder
was President and Chief Executive Officer of Loder, Drew & Associates, Inc.,
which he co-founded in 1985.
Raymond T. Kelly joined PRG in 1998 as Executive Vice President--Sales and
Marketing. Prior to joining PRG, 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 PRG in October 1997 as Executive Vice President and
Chief Information Officer. Prior to joining PRG, 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 PRG 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 PRG 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 PRG in June 1997 as Senior Vice President,
General Counsel and Secretary. Prior to joining PRG, 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 PRG in October 1995. For 11 years prior to joining PRG,
Mr. Mills was a shareholder in the Atlanta, Georgia law firm of Silfen, Segal,
Fryer & Shuster, P.C. and provided legal services to PRG through that firm since
1990. Mr. Mills remained as Of Counsel to that firm through January 1996.
42
<PAGE> 44
Maria A. Neff has served as Senior Vice President--Human Resources since
September 1998. From 1991, when she joined PRG, 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 PRG since its founding in
1990. Mr. Cohen is the Chairman of the Board, Chief Executive Officer and
President of both Advisory Services, Ltd. and SBC Financial Corporation. These
companies provide certain financial consulting and investment services to PRG
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 PRG since its founding in 1990
and provides consulting services to PRG through Jonathan Golden, P.C., a wholly
owned professional corporation. Mr. Golden also serves through his professional
corporation as a partner in the Atlanta, Georgia law firm of Arnall, Golden &
Gregory, LLP which provides legal services to PRG. Mr. Golden also serves as a
director for SYSCO Corporation, a distributor of food and related products.
Garth H. Greimann has served as a Director of PRG 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. 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, 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, 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 PRG since January 1996.
Since 1989, Mr. Lachotzki has served as a professor at Nijenrode University, The
Netherlands Business School, in The Netherlands, most recently as a Philip
Morris Professor of Strategic Entrepreneurship. Mr. Lachotzki also serves as a
director of NVS 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 PRG since December 1995. Mr.
Lowrey served as Executive Vice President--Finance and Administration of SYSCO
Corporation from 1978 until his retirement in 1993 and was a director of SYSCO
Corporation 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 PRG.
43
<PAGE> 45
SELLING SHAREHOLDERS
The table below sets forth certain information regarding the beneficial
ownership of outstanding common stock by each selling shareholder at January 5,
1999, 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)
-------------------------- ---------- ----------------------
NUMBER PERCENT NUMBER PERCENT
SELLING SHAREHOLDERS: ------------ ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
Cook Family Limited Partnership(3)........ 1,232,684 5.1 -- 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)........................... 595,346 2.5 40,000 542,005 2.0
Toma Family Limited Partnership(4)........ 197,265 * 13,341 183,924 *
Berkshire Fund III(5)..................... 730,931 3.0 730,931 -- --
Kevin T. Callaghan(6)..................... 763,499 3.2 1,385 -- --
Clifford Family Foundation Charitable
Trust.................................. 4,296 * 4,296 -- --
Russell L. Epker(6)....................... 763,499 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 January 5, 1999 is based upon
24,037,919 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 PRG, 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 PRG, 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 45,000 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 PRG, 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 2,765 shares held by Mr. Callaghan and 4,296 shares held by Mr.
Epker, and 25,507 shares held by certain other affiliates of Third
Berkshire Associates for which Messrs. Callaghan and Epker hold shared
voting power. Of such shares, 1,380 shares held by Mr. Callaghan and 2,765
shares held by other affiliates of Third Berkshire Associates will be
gifted to unrelated charities as of the consummation of the offering.
44
<PAGE> 46
UNDERWRITING
BancBoston Robertson Stephens Inc., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Hambrecht & Quist LLC and The Robinson-Humphrey Company, LLC are
acting as representatives of the underwriters named below. The underwriters have
severally agreed with PRG and the selling shareholders, subject to the terms and
conditions of the underwriting agreement, to purchase from PRG 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
SHARES
UNDERWRITERS: ---------
<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 underwriters propose to offer the shares of common stock (1) to the
public at the assumed public offering price set forth on the cover page of this
prospectus and (2) 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.
PRG and certain shareholders have granted to the underwriters an option
which is exercisable during the 30-day period after the date of this prospectus.
This option permits the underwriters to purchase up to 525,000 additional shares
of common stock at the same price per share as PRG 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 as such underwriter will purchase of the
3,500,000 shares that the underwriters have agreed to purchase. 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 following table shows the underwriting fees to be paid to the
underwriters by PRG and the selling shareholders in connection with this
offering. These amounts are shown assuming both no exercise and full exercise of
the underwriters' option to purchase additional shares of common stock.
<TABLE>
<CAPTION>
NO FULL
EXERCISE EXERCISE
BY PRG: ----------- -------------
<S> <C> <C>
Per share................................................. $ $
Total..................................................... $ $
BY THE SELLING SHAREHOLDERS:
Per share................................................. $ $
Total..................................................... $ $
</TABLE>
BancBoston Robertson Stephens Inc. expects to deliver the shares of common
stock to purchasers on , 1999.
45
<PAGE> 47
The underwriting agreement contains covenants of indemnity among the
underwriters, PRG 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.
PRG 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 or other securities of PRG
without the prior written consent of BancBoston Robertson Stephens Inc. When
determining whether to release shares from the lock-up agreements, BancBoston
Robertson Stephens Inc. may consider, among other factors, market conditions at
the time, the number of shares for which the release is requested and the
shareholder's reasons for requesting the release.
The underwriters do not intend to confirm sales to accounts over which they
exercise discretionary authority.
The representatives have advised PRG that, pursuant to Regulation M under
the Securities Exchange Act of 1934, as amended, certain persons participating
in the offering may engage in transactions that 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. These transactions
include stabilizing bids, syndicate covering transactions and the imposition of
penalty bids. 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 a 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 due to an underwriter in connection with the
offering if the common stock originally sold by such underwriter is purchased by
the representatives in a syndicate covering transaction and has therefore not
been effectively placed by such underwriter. The representatives have advised
PRG 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. Passive market making would commence 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 PRG 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.
46
<PAGE> 48
EXPERTS
The Consolidated Financial Statements of PRG 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 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 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 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 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
PRG has filed the following documents with the Securities and Exchange
Commission under the Exchange Act, all of which are incorporated by reference in
and made a part of this prospectus:
(a) PRG's Annual Report on Form 10-K for the year ended December 31,
1997, as amended by Forms 10-K/A on March 16, 1998, April 28, 1998 and May
15, 1998;
(b) PRG's Quarterly Reports on Form 10-Q for the quarters ended March
31, 1998, June 30, 1998 and September 30, 1998, as amended by Form 10-Q/A
on December 4, 1998;
(c) PRG'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), November 10, 1998 (event date:
October 29, 1998) and December 4, 1998 (event date:
47
<PAGE> 49
December 4, 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 PRG's Registration
Statement on Form 8-A dated March 26, 1996 (Commission File No. 0-28000).
All documents filed by PRG 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.
On request, PRG 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. PRG 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 PRG'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
PRG 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.
PRG has filed with the Commission a Registration Statement on Form S-3 and
certain amendments thereto 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
48
<PAGE> 50
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.
49
<PAGE> 51
[PRG LOGO]
<PAGE> 52
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......... $ 42,730
NASD filing fee............................................. 15,870
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...................................... 32,900
--------
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> 53
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> 54
<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> 55
<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 filed as Exhibit 5.1).
23.2 -- Consent of KPMG LLP.
23.3 -- Consent of ERNST & YOUNG Entrepreneurs.
24.1* -- Powers of Attorney.
</TABLE>
- ------------
* Previously filed.
@ PRG 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. PRG
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. PRG will furnish supplementally a copy of any omitted schedule to
the Commission upon request.
II-4
<PAGE> 56
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
Amendment to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Atlanta, State of Georgia, on January 6, 1999.
THE PROFIT RECOVERY GROUP
INTERNATIONAL, INC. (REGISTRANT)
By: /s/ JOHN M. COOK
-----------------------------------
John M. Cook
Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
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 January 6, 1999
- ----------------------------------------------------- Executive Officer and
John M. Cook Director (principal
executive officer)
/s/ DONALD E. ELLIS, JR. Senior Vice January 6, 1999
- ----------------------------------------------------- President--Finance,
Donald E. Ellis, Jr. Treasurer and Chief
Financial Officer (principal
financial officer)
/s/ MICHAEL R. MELTON Vice President--Finance January 6, 1999
- ----------------------------------------------------- (principal accounting
Michael R. Melton officer)
/s/ * Director January 6, 1999
- -----------------------------------------------------
Stanley B. Cohen
/s/ * Director January 6, 1999
- -----------------------------------------------------
Marc Eisenberg
/s/ * Director January 6, 1999
- -----------------------------------------------------
Jonathan Golden
[Signatures continued on following page]
</TABLE>
II-5
<PAGE> 57
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Director
- -----------------------------------------------------
Garth H. Greimann
Director
- -----------------------------------------------------
Fred W. I. Lachotzki
Director
- -----------------------------------------------------
Ronald K. Loder
/s/ * Director January 6, 1999
- -----------------------------------------------------
E. James Lowrey
/s/ * Director January 6, 1999
- -----------------------------------------------------
Michael A. Lustig
/s/ * Vice Chairman and Director January 6, 1999
- -----------------------------------------------------
John M. Toma
*By: /s/ JOHN M. COOK January 6, 1999
------------------------------------------------
John M. Cook,
Attorney-in-fact
</TABLE>
II-6
<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 LLP
KPMG LLP
Atlanta, Georgia
January 6, 1999
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
The Profit Recovery Group International, Inc.:
We consent to (1) the use of our report, incorporated by reference dated January
31, 1998 relating to the consolidated balance sheet of Financiere Alma, S.A. and
subsidiaries as of December 31, 1997, and the related consolidated statements of
earnings, shareholders' equity and cash flows for the three months ended
December 31, 1997, which report appears in the December 31, 1997 annual report
on Form 10-K of The Profit Recovery Group International, Inc. (2) the use of our
report, incorporated by reference dated September 30, 1997 (except for note 12
which is as of October 7, 1997) relating to the consolidated balance sheets of
Financiere Alma, S.A. and subsidiaries as of December 31, 1995 and 1996 and June
30, 1997, and the related consolidated statements of earnings, shareholders'
equity and cash flows for each of the years in the two-year period ended
December 31, 1996, and for the six months ended June 30, 1997, which report
appears in the current report on Form 8-K/A, filed November 21, 1997, of The
Profit Recovery Group International, Inc., and (3) the reference to our firm
under the heading 'Experts' in the prospectus.
ERNST & YOUNG Entrepreneurs
Departement d'E&Y Audit
Any Antola
Paris, France
January 6, 1999
