SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
- --------------------------------------------------------------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended Commission File Number.
December 31, 1999 0-29292
- --------------------------------------------------------------------------------
HAGLER BAILLY, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 54-1759180
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1530 Wilson Boulevard, Suite 400, Arlington, Virginia
22209
(Address of principal executive offices) (zip code)
(703) 351-0300
(Registrant's telephone number, including area code:)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
As of March 1, 2000, 17,927,812 shares of the Registrant's common
stock, par value $0.01 per share, were outstanding. The aggregate market value
of the voting stock held by non-affiliates* of the Registrant, (based upon the
closing price of such shares on the Nasdaq National Market on March 1, 2000) was
approximately $40,830,202.
The Registrant's Proxy Statement for the Annual Meeting of Stockholders
scheduled to be held May 11, 2000 is incorporated by reference into Part III of
this Annual Report on Form 10-K.
* For the purposes of this calculation, the registrant is not including stock
held by executive officers, directors and beneficial owners of more than five
percent (5%) of the registrant's outstanding common stock.
- --------------------------------------------------------------------------------
i
HAGLER BAILLY, INC. AND SUBSIDIARIES
FORM 10-K ANNUAL REPORT
FOR YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
PART I.......................................................................1
ITEM 1 -BUSINESS...........................................................1
ITEM 2 -PROPERTIES........................................................21
ITEM 3 -LEGAL PROCEEDINGS.................................................21
ITEM 4 -SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............21
PART II......................................................................22
ITEM 5 -MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS......................................................................22
ITEM 6 -- SELECTED FINANCIAL DATA.........................................22
ITEM 7 -MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS........................................................25
Item 7A -Quantitative and Qualitative Disclosures about Market Risk.......35
ITEM 8 -CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA...........36
ITEM 9 -CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCUSSIONS........................................................36
PART III.....................................................................37
ITEM 10 -DIRECTORS AND EXECUTIVE OFFICERS OF HAGLER BAILLY................37
ITEM 11 -EXECUTIVE COMPENSATION...........................................37
ITEM 12 -SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...37
ITEM 13 -CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................38
PART IV......................................................................38
ITEM 14 -EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K...........38
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS...................................39
38
1
Except for any historical information contained herein, the matters
discussed in this Annual Report on Form 10-K of Hagler Bailly, Inc. and its
subsidiaries ("Hagler Bailly" or the "Company") contain forward-looking
statements. For this purpose, any statements contained herein that are not
statements of historical fact, are intended, and are hereby identified as,
"forward-looking statements" for the purpose of the safe harbor provided by
Section 21E of the Securities Exchange Act of 1934, as amended by Public Law
104-67. Without limiting the foregoing, the words "anticipates," "believes,"
"estimates," "expects," "intends," "plans" and similar expressions are intended
to identify forward-looking statements. The important factors discussed below in
this Item 1 under the caption "Risk Factors", as well as other factors
identified in the Company's filings with the Securities and Exchange Commission
("SEC") and those presented elsewhere by management from time to time, could
cause actual results to differ materially from those indicated by
forward-looking statements made herein.
The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934 and files periodic reports, including Current Reports on
Form 8-K, Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K and Proxy
Statements with the SEC.
The public may read and copy materials filed by the Company with the
SEC at the SEC's Public Reference Room at 450 Fifth Street, NW, Washington, DC
20549. The public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0300. The SEC maintains an
Internet site that contains reports, proxy and information statements and other
information regarding companies that file electronically (such as the Company)
with the SEC. The SEC's internet address is http://www.sec.gov.
The Company's Internet address is http://www.haglerbailly.com.
PART I
ITEM 1 - BUSINESS
Introductory Note
On February 8, 1999, the Company acquired all of the outstanding
stock of Lacuna Consulting Limited ("Lacuna"), a United Kingdom corporation, in
exchange for 65,000 shares of the Company's common stock. The acquisition was
accounted for as a purchase. Accordingly, the consolidated financial statements
reflect the results of operations of Lacuna since the date of acquisition.
On March 22, 1999, the Company announced that its Board of Directors
authorized the repurchase of up to 1,500,000 shares of the Company's common
stock from time to time in the open market or in privately negotiated
transactions. As of December 31, 1999, the Company had reacquired 559,700 shares
of its stock at a total net cost of approximately $4.1 million.
On April 30, 1999, the Company acquired all of the outstanding stock of
Washington International Energy Group, Ltd. ("WIEG"), a Washington, D.C.-based
worldwide provider of energy and environmental policy consulting research
services, in exchange for 144,210 shares of the Company's common stock and
approximately $850,000 in cash. The Company has the right to repurchase up to
26,210 of these shares at $ 0.01 cents per share if the price of the Company's
stock meets certain price targets during the three year period following the
acquisition. The transaction was accounted for as a purchase. Accordingly, the
consolidated financial statements reflect the results of operations of WIEG
since the date of acquisition.
On June 1, 1999, the Company received the remaining minority interest
of its joint venture Hagler Bailly Risk Advisors, LLC, a limited liability
company located in Houston, Texas, from Objective Resources Group Risk Advisors,
LLC bringing the Company's ownership to 100%.
On August 12, 1999, the Company acquired all of the outstanding stock
of GKMG, Inc. ("GMKG"), a Washington, D.C.-based consulting firm specializing in
the economic, strategic, financial, and regulatory analysis of the aviation
industry, in exchange for 1,420,000 shares of the Company's common stock. Under
the terms of the Share Exchange Agreement by and among the Company, GKMG and
former shareholders of GKMG, the Company is obligated to issue additional shares
of its common stock to the former shareholders of GKMG with a fair market value
(as defined in the Share Exchange Agreement) up to $15 million if certain
earnings targets for GKMG are met for the periods July 1, 1999-June 30, 2000 and
July 1, 2000-June 30, 2001. In addition, the Company is obligated to issue up to
192,857 additional shares of its common stock to the former shareholders of GKMG
if certain stock price performance contingencies are not met. The transaction
was accounted for as a purchase. Accordingly, the consolidated financial
statements reflect the results of operations of GKMG since the date of
acquisition.
On September 27, 1999, the Company announced that its Board of Directors
retained Banc of America Securities, LLC to assist the Company in exploring
strategic and financial alternatives to maximize shareholder value, including
the potential sale or merger of the Company.
On December 31, 1999, the Company sold the assets of its whollyowned
subsidiary Izsak, Grapin et Associes ("IGA"). As a result of the transaction,
the Company sold assets for approximately $0.6 million, resulting in a loss of
approximately $68,000.
In December 1999, the Company announced a repositioning plan in which
the Company would focus on its core consulting business and streamline
operations to achieve manageable growth levels and enhance shareholder value in
the future.
General
The predecessor of the Company was founded in 1980 as Hagler, Bailly &
Company, Inc. In July 1984, RCG International, Inc. ("RCG"), an indirect
subsidiary of Reliance Group Holdings, Inc., acquired the Company, and in 1987
was renamed RCG/Hagler Bailly, Inc. In May 1995, the management of RCG/Hagler
Bailly, Inc. completed the purchase of RCG/Hagler Bailly, Inc. from RCG and the
successor to RCG/Hagler Bailly, Inc. became a wholly owned subsidiary of the
Company. In July 1997, the Company completed its initial public offering.
Over the past 20 years, the Company has developed expertise in management,
economic and operations consulting to clients in the energy, network (including
electric, gas and water utilities), transportation, and telecommunications
industries, commercial litigation and the environment. By maintaining its
industry focus, the Company has established itself as one of the premier
consulting firms in these fields.
Business Model
The Company's business strategy is to combine proprietary knowledge and
methods with industry expertise and functional consulting skills to develop
customized solutions for its clients' complex business problems, then offer
resources such as information technologies needed to implement and sustain the
solutions, thereby creating tangible long-term value for the client.
To better serve the varying needs of its clients, the Company provides its
services through the following subsidiaries, PHB Hagler Bailly, Inc. ("PHB
Hagler Bailly"), GKMG, Hagler Bailly Services, Inc. ("Hagler Bailly Services"),
Hagler Bailly Risk Advisors, Inc. ("HBRA"), and its joint venture Cap Gemini
Hagler Bailly, LLC ("Cap Gemini Hagler Bailly").
Through PHB Hagler Bailly, the Company provides commercial rate
consulting services in the areas of strategic advice and analysis to commercial
sector clients (including businesses and governments) in developed countries
helping clients solve issues involving energy, telecommunications,
transportation, water resources, the environment, litigation and other matters.
Referred to as the commercial segment, PHB Hagler Bailly's consulting
professionals have first-hand experience in developing sound strategies and
applying business principles that focus on issues and increase enterprise value.
PHB Hagler Bailly has been at the forefront of assessing market strength,
providing asset valuations and performance measurements, analyzing competition,
measuring risks, and improving financial and operating performance.
Through GKMG, the Company provides management and economic consulting
to the aviation industry on how to compete in the deregulated, competitive
transportation environment.
Through Hagler Bailly Services, the Company provides government rate
consulting services in the areas of advisory and technical services to
government sector clients worldwide in energy, transportation, water,
telecommunications, and the environment. Referred to as the government segment,
Hagler Bailly Services, in addition to U.S. federal and state governments,
advises multilateral and bilateral donor and financial organizations as well as
foreign governments, and selected commercial clients in emerging or developing
markets. Hagler Bailly Services' consulting experts provide public policy
assistance by advising governments and business leaders on the evolution of
specific policies in each country and creating a global view of policy reforms.
Hagler Bailly Services has been at the forefront of developing policy and
pricing frameworks, formulating national and provincial strategy and planning,
drafting laws and regulations, managing the transition to competitive markets,
promoting investment and business creation, evaluating assets, and promoting
sustainable development.
Through HBRA, the Company provides enterprise risk management for
energy companies.
Through its joint venture Cap Gemini Hagler Bailly, the Company
provides information technology (IT) consulting services and customized
solutions to electricity, gas and water companies in the United States and
Canada.
Service Offerings
The Company's services are provided through specialized practices that
are designed to work together to provide clients with the full range of services
and capabilities of the Company. From an operational standpoint, the Company
regularly reviews and, as appropriate, restructures these practices and their
services to address the changing business problems, strategic alternatives and
policy issues facing its clients.
PHB Hagler Bailly
Energy Industry Management and Economic Consulting. The Company provides
management and economic consulting to clients in the energy industry through the
following practices:
|X| Corporate Strategy - helps clients reposition and reinvent their
business in a rapidly changing environment to significantly enhance
enterprise value.
|X| Asset Management - helps clients optimize existing portfolios of
assets and evaluate purchases of new assets by providing economic and
financial analysis. These services include analysis and advice
regarding portfolio management, performance improvement involving
benchmarking to assess best practices and relative performance, and
revenue enhancement involving analysis of service line and market
reach extension, bid support systems, market entry strategy and sales
tactics.
|X| Retail Energy and eCommerce - helps clients launch new, or expand
existing, retail businesses in response to the retail utility sector,
which is evolving to encompass all utility content flows. Services
include retail access & implementation, retail strategy and
marketing, utility customer care strategy & implementation, and
energy acquisition strategy involving the negotiation of energy
supply contracts.
|X| Integration of Mergers & Acquisitions - helps clients better
understand and manage the process by which decisions are made and by
which mergers and acquisition are integrated. Services include:
developing acquisition strategy, supporting management through the
merger completion, and incorporating change management and
information technology to achieve the expected results from the
merger.
|X| Competition, Markets and Regulation - provides industry economics
involving: the analysis of the economic ramifications of industry
restructuring; market power and merger assistance to investor-owned
utilities in federal and state regulatory proceedings involving the
proposed business combinations; restructuring and market design and
analysis; and the analysis of the impact of traditional and
pro-competitive regulatory policy.
|X| Fuels - The Company's fuel practice generates current and historical
information on the fuels consumed by generators and their operating
characteristics. This information is used to model power markets and
to assist generators and fuels producers in litigation and contract
matters, and asset owners in their strategic planning activities.
Environmental Litigation and Management Consulting Services. The Company helps
domestic and international clients manage environmental issues and prevent
environmental problems through the following practices:
|X| Insurance Recovery - helps clients pursue and evaluate recovery of
past and future costs through environmental insurance claims, assists
with settlement negotiations as a strategic advisor or as a member of
the negotiation team, and provides services related to litigation or
expert testimony or both.
|X| Environmental Management - helps clients identify their existing
systems that may be creating a business risk, either by exposing the
company to potential violations or by creating unnecessary
liabilities. The Company then designs specific measures to reduce
these risks through improved management systems.
|X| Cost Recovery - provides expert analysis and opinion on the
consistency of incurred costs with the requirements of the National
Oil and Hazardous Substances Pollution Contingency Plan pursuant to
the Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA") actions and actions pursuant to equivalent state
statutes, government agencies or private parties.
|X| Compliance - provides economic analysis and litigation support to
clients and their counsel in environmental noncompliance penalty
cases.
|X| General Environmental Litigation - provides damage testimony in
contract disputes on a variety of environmental issues including the
retention of environmental liabilities, natural resource damages and
property damage rebuttals in toxic tort suits.
General Industries Litigation Consulting. The Company assists law firms and
corporate counsel with litigation, mediation and arbitration matters from
liability and causation issues to determination of damages and prejudgment
interests, litigation strategy and settlement negotiations, and provides
economic and business analysis and expert testimony on liability and damages
issues. In addition, the Company helps clients develop litigation strategies,
identify and select potential witnesses, conduct discovery, and design and
manage technical research as well as assists counsel in reconstructing and
critiquing the work of opposing experts, preparing materials for use in
depositions and cross-examination of those experts.
Telecommunications Consulting. The Company provides a comprehensive approach to
competitive pressures, rapid technological change and unpredictable regulatory
developments in the telecommunications industry to clients through the following
practices:
|X| Market Research and Analysis - provides research on customer issues.
|X| Market Strategy - provides advice on market strategy and the development of
processes and products to support growth strategies.
|X| Litigation Support - provides economic and business evidence and expert
testimony in both commercial disputes and regulatory proceedings.
|X| Asset Valuation - analyzes the financial and operational performance
of clients using proprietary performance measurement and modeling and
provides benchmarking of operational performance to industry leaders.
|X| Restructuring, Mergers and Diversification - provides economic
analysis of the potential competitive impact of proposed mergers and
advice on deal structures and assists in identifying strategic
partners and post-merger integration.
|X| eCommerce - provides analysis of eCommerce markets.
GKMG
Aviation Industry Management and Economic Consulting. Through the Company's
wholly owned subsidiary, GKMG, Hagler Bailly provides the following services to
clients in the aviation industry through the following practices:
|X| Airport Services - provides strategic planning and forecasting, air
service marketing, aeropolitical strategies, airline business
relations and negotiations, cargo development and marketing, airport
finance development plans and financing strategies and airport
privatization involving providing turnkey services to governments
desiring to privatize airports and airport facilities.
|X| Airline Services - provides strategic, technical, and analytic
services to airlines including: alliance planning; negotiation and
implementation; economic and financial feasibility studies; market
analysis and hub analysis; strategic and aeropolitical planning;
compliance with economic, safety and security requirements; labor
strategies; and airline fleet planning, aircraft acquisition, and
leasing strategies.
|X| Vendor Services - supports the business strategies of vendors to the airline
and airport markets.
Hagler Bailly Services
Government Energy Consulting Practice. The Company supports government
clients in emerging market economies through the following practices:
|X| Energy Sector Reform - assists in the reformation of national energy
policy to promote competition and foreign investment, and encourage
privatization. Expert services include drafting and passage of
revised energy legislation, establishment of independent energy
regulatory agencies, assistance with licenses and tariffs and
development of wholesale markets and their rules.
|X| Energy Efficiency - works on energy efficiency issues in emerging
market countries. Global climate change is a key area of focus
wherein the Company's experts conduct energy efficiency audits and
energy management programs in industrial enterprises and district
heating systems.
|X| Engineering - conducts specific engineering projects in support of
the two primary functional areas of energy efficiency and energy
sector reform.
Government Water and Environmental Consulting. The Company provides management
and analytical consulting to government clients in the water industries and the
environment through the following practices:
|X| Water Sector Strategy, Management and Operations - provides business
process improvement, change management, cost, rate and financial
analyses, asset management, revenue enhancement and financial
planning, process benchmarking, performance measurement systems,
regionalization of service and outsourcing and privatization support.
|X| Clean Technology and Environmental Sustainability - provides
technical and engineering services supporting clean technology, water
and energy use efficiency and pollution prevention.
|X| Policy and Applied Economics - provides policy and applied economic
analysis in support of national and local environmental sustainability programs.
|X| Water Resources Systems Management - provides integrated, comprehensive
water resources management services to clients worldwide.
Government Transportation Consulting. The Company provides clients with market
and operations strategy in finance, economics, and competitive positioning
through the following practices:
|X| Intelligent Transportation Systems (ITS) and Technology - provides
innovative solutions to transportation and technology needs through
program management, partnership building, market analysis and
business planning.
|X| Planning and Economics - assists in linking multi-modal
transportation investment plans, project capitalization and economic
development to help government and commercial clients implement
better decisions.
|X| Infrastructure Finance and Strategy - applies cutting-edge analysis
and institutional know-how to help clients develop and implement
infrastructure finance strategies at both the program and project
levels.
|X| Policy and Strategy - provides policy analysis and strategic
solutions that enable decision-makers to address emerging issues in
transportation policy.
HBRA
Supply, Logistics, Trading and Risk Management. Through its wholly owned
subsidiary HBRA, the Company provides clients with enterprise, revenue stream
and supply portfolio risk management services to energy companies and major
energy consumers. These services cover the full value chain of risk management,
from corporate governance and policies and procedures to analytics, business
processes, system selection and integration, and to strategy simulation and
trader training.
Cap Gemini Hagler Bailly
Information Technology (IT) Implementation Services. Though its joint venture
Cap Gemini Hagler Bailly, the Company provides IT implementation services. Cap
Gemini Hagler Bailly's personnel work closely with other Company consultants to
design and implement technology solutions for electricity, gas and water
industries clients, particularly in connection with customer relationship
management ("CRM"), solutions, e-business, merger and acquisition integration
activities, and enterprise risk management platforms.
Information Resources. The Company has assembled and integrated detailed network
industry experience with systems and resources that allow it to package and
deliver information and insights in a variety of forms. These include: a
benchmarking program of utility operations and management practices;
proprietary, comprehensive statistical databases; and state-of-the-art market
research capabilities.
Competitive Conditions
The market for consulting services in energy, network industries and
the environment is intensely competitive, highly fragmented and subject to rapid
change. The market includes a large number of participants from a variety of
consulting market segments, both in the United States and abroad, including
general management consulting firms, the consulting practices of accounting
firms, consulting engineering firms, technical and economic advisory firms and
market research firms. Many information technology-consulting firms also
maintain significant energy, network industry and environmental practices and
others may enter the field in the future. Many of these companies are national
and international in scope and may have greater financial, technical and
marketing resources than the Company.
Hagler Bailly believes that it is in a strong position to compete in
this market. The Company believes that several factors distinguish it from many
of its current and potential competitors in the consulting industry.
|X| Industry Focus. Since its inception, the Company has maintained its
focus on providing a broad array of consulting services to clients in
the energy and network industries and the environment. This focus
differentiates the Company from general management consulting firms
that serve a full range of industries and firms with limited skill
sets and capabilities. The Company believes that the insights gained
by working worldwide allow it to customize leading-edge-consulting
concepts and tools to specific situations and thus provide tangible
value, rather than just theories, to its clients.
|X| Full Service Capabilities. The Company's strategy is to partner with
its clients in conceptualizing and implementing solutions, which
significantly increase enterprise value, by building a broad range of
consulting platforms enabling it to meet its clients' needs. These
include strategy, asset management, marketing and sales, product
development, energy supply, logistics and risk management, operations
management, information systems and technology, economic analysis,
environmental management and commercial litigation.
|X| Worldwide Presence and Reputation. The Company currently has a total of
18 principal offices, 10 of which are outside the continental United States:
Argentina (Buenos Aires), Australia (Melbourne and Sydney), Canada (Toronto),
China (Beijing), France (Paris), Indonesia (Jakarta), New Zealand (Wellington),
and the United Kingdom (London and Rugby). The Company has employees from over
30 nations giving it powerful insights into various cultures and ways of
conducting business. The Company's international business mix and office
locations reflect a conscious blend of business in developed and developing
economies. In addition to its presence in the developed markets of Western
Europe, Australia and New Zealand, the Company is positioned to support the
development and growth of modern network industries in the rapidly evolving
economies of the Asia/Pacific region.
|X| Longstanding Relationships with Substantial Clients. A substantial
share of the Company's business has historically been derived from
additional sales to existing customers. In 1999, the Company received
additional business from approximately 50% of the clients who had
engaged the firm in the prior year. During 1999, approximately 72% of
the Company's revenue was from clients served in the prior year. In
addition to continuity, the Company's client relationships are marked
by the client size and importance in respective markets.
|X| Government Sector Insight. The Company has worked with a number of
government sector organizations, including the United States Agency
for International Development ("USAID"), the Environmental Protection
Agency, the European Union, the U.K. Knowlton Fund, the Asian
Development Bank, the European Bank for Reconstruction and
Development, and the World Bank for many years. This gives the
Company a special perspective on the energy, utility and
environmental industries and enhances the Company's reputation and
ability to compete successfully for consulting business.
|X| Proprietary Knowledge and Methods. The Company has developed
proprietary information bases, analytical tools and methods providing it with
distinct competitive advantages. Examples include: (i) Operating Plant
Experience Code (OPEC), an analytical database of nuclear power experience that
captures the causes and effects of outages and deratings at U.S. nuclear power
plants; (ii) Competitive analysis screening Model (CASm), a proprietary model
used to evaluate market power issues in electric generation; (iii) Strategy
Enablers Protocol (SEP), a proprietary method that offers a highly disciplined
executive level process to identify new avenues of growth; (iv) TB&A
Benchmarking, a leading source of information on utility operations and
management practices in distribution, transmission, customer service and
marketing; and (v) Field Data, a set of linked databases which provides up to
date information on current and historical fuel prices, emission allowances,
power plant characteristics and fuel prediction statistics that are used in the
Company's power modeling efforts and in its economic analysis.
|X| Experienced Team of Management and Consultants. The Company's
management and senior consultants have a wide range of expertise and
experience in the network industries, litigation and environmental
consulting sectors. In addition, many of the senior management and
consultants have worked extensively with one another. Management's
average tenure with the Company is approximately 13 years.
|X| Established Global Visibility. The Company's staff frequently
publishes articles and is invited to present at industry gatherings
and conferences. The staff is also active in several industry groups
and professional associations including elected or appointed
positions.
Marketing and Sales
The Company markets its services from its headquarters in Arlington,
Virginia and through each of its subsidiaries. The Company employs a number of
business development and marketing strategies to communicate with prospective
and current clients, including, but not limited to, on-site presentations;
industry seminars featuring presentations by the Company's management and
consultants; speeches; articles in industry, business, economic, legal and
scientific journals; and through other publications and press releases regarding
the energy, network industries and the environment and the Company's
methodologies. A significant portion of the new business arises from prior
client engagements. The Company often leverages client relationships by
cross-selling its services. Clients often expand the scope of engagements during
delivery to include follow-on complementary activities.
Also, the Company's on-site presence affords it opportunities to become
aware of, and to help define, additional project opportunities as they are
identified by the client. Strong client relationships arising out of many
engagements often facilitate the Company's ability to market additional
capabilities to its clients in the future.
In the commercial sector, client acquisition techniques include
referrals and focused presentations to boards of directors and chief
decision-makers of prospective clients. Presentations generally focus on
opportunities in the market segments most relevant to the prospective clients,
examples of the Company's previous work in related industries and the Company's
international capabilities.
In the government sector, contracts are awarded primarily on the basis
of competitive solicitation. The Company has developed strong capabilities to
prepare proposals that respond to complex requests and often require the
integration and coordination of the services of several subcontractors and
independent consultants. The Company has also developed a detailed understanding
of government and other institutional procurement regulations in the United
States and abroad. In addition, in order to obtain government contracts,
consultants must adhere to stringent cost, accounting and regulatory controls.
In order to comply with such requirements, the Company holds training seminars
to ensure compliance with applicable government regulations and uses a
sophisticated computer-based accounting system that allows it to track costs in
adherence to government standards. The Company also meets government sector
clients' cost guidelines through competitive pricing and internal cost
structures.
Human Resources
As of December 31, 1999, the Company's personnel consisted of 776
full-time employees, including 481 full-time consultants with extensive
expertise in a variety of disciplines, including business, economics, finance
and accounting, decision theory, statistics, operations research and marketing.
Approximately two-thirds of the full-time consulting staff have
advanced degrees. The Company integrates the diverse academic backgrounds and
corporate and government sector experience of its consultants into
multidisciplinary teams with solid analytical skills and broad practical
experience. The Company's management and practice leaders average over 20 years
of experience.
The Company supplements its consultants on certain engagements with
independent contractors and senior advisors. The Company believes that its
practice of retaining independent contractors on a per-engagement basis provides
it with greater flexibility in tailoring professional personnel to meet the
needs of its clients.
Risk Factors
|X| Attraction, Retention and Management of Professional and
Administrative Staff. The Company's business involves the delivery of
professional services and is labor intensive. The Company's future
performance depends in large part upon its ability to attract,
develop, motivate and retain highly skilled consultants, research
associates and administrative staff, particularly senior
professionals with business development skills.
In connection with its recruiting efforts, the Company seeks
employees from top graduate schools with prior relevant consulting
experience and strong project management, analytic and communications
skills in competitive and regulated industries, especially those with
meaningful international experience. The Company also hires
professionals with senior executive experience directly from the
industry.
Qualified consultants are in great demand, and there is significant
competition for employees with these skills from other consulting and
investment banking firms, research firms, energy companies and many
other related enterprises. Although the Company attracts and
motivates its professional and administrative staff by offering
competitive packages of base and incentive cash compensation, stock
options, bonuses and attractive benefits, many competing firms have
greater financial resources than the Company, which they may use to
attract and compensate qualified personnel. There can be no assurance
that the Company will be able to attract and retain sufficient
numbers of highly skilled consultants in the future. The loss of the
services of a significant number of consultants, research associates
or administrative personnel could have a material adverse effect on
the Company's business, operating results and financial condition,
including its ability to secure and complete engagements.
|X| Concentration of Revenues. Over half of the revenues of the Company are
derived from commercial and government clients involved in the energy, network
industries and environment. As a result of this focus, the Company's business,
financial condition and results of operations are influenced by factors
affecting these markets, including, but not limited to, changing political,
economic and regulatory influences that may affect the procurement practices and
operations. In particular, many electric and gas utilities are consolidating to
create larger organizations or strategic alliances. These consolidations and
alliances will reduce the number of potential customers for the Company and may
also create conflicts of interest between clients. In addition, these
consolidations and alliances may result in the acquisition of certain of the
Company's key clients, and such clients may scale back or terminate their
relationship with the Company following their acquisition. Similarly, cutbacks
in the network industries and/or environmental budgets of the United States and
other governments could result in the scale back or termination of some of the
Company's government sector contracts. USAID is the Company's largest government
sector client and accounts for approximately 56% of that segment's sales. The
impact of these developments is difficult to predict and could have a material
adverse effect on the Company's business, financial condition and results of
operations.
|X| Ability to Sustain and Manage Growth. The Company has experienced rapid
growth in recent years. The Company completed five acquisitions in 1998,
including the acquisition of Putnam, Hayes and Bartlett, Inc. ("PHB") and three
acquisitions in 1999. The Company believes that sustaining such growth places a
strain on operational, human and financial resources. In order to manage its
growth, the Company must continue to improve its operating and administrative
systems and to attract and retain qualified management and professional,
scientific and technical-operating personnel. Foreign operations also may
involve the additional risks of assimilating differences in foreign business
practices, hiring and retaining qualified personnel, and overcoming language
barriers. Failure to manage such growth effectively could have a material
adverse effect on the Company's business.
|X| Risks Related to Possible Acquisitions. An element of the Company's
strategy is to expand its operations through the acquisition of complementary
businesses. There can be no assurance that the Company will be able to identify,
acquire, profitably manage or successfully integrate any acquired businesses
into the Company without substantial expenses, delays or other operational or
financial problems. Moreover, competitors of the Company are also soliciting
acquisition candidates, which could result in an increase in the price of
acquisition targets and a decrease in the number of attractive companies
available for acquisition. Further, acquisitions may involve a number of special
risks, including diversion of management's attention, failure to retain key
acquired personnel, increased costs to improve managerial, operational,
financial and administrative systems, unanticipated events or circumstances,
legal liabilities, increased interest expense and amortization of acquired
intangible assets, some or all of which could have a materially adverse impact
on the Company's business, operating results and financial condition. Client
satisfaction or performance problems at a single acquired firm could have a
materially adverse impact on the reputation of the Company as a whole. In
addition, there can be no assurance that acquired businesses, if any, will
achieve anticipated revenues and earnings. The failure of the Company to manage
its acquisition strategy successfully could have a material adverse effect on
the Company's business, operating results and financial condition.
|X| Dependence on Key Clients. The Company derives a significant portion of
its revenues from a relatively limited number of clients. For example, revenues
from the Company's ten most significant clients accounted for approximately 31%,
39% and 35% of its total revenues in 1999, 1998 and 1997, respectively. USAID is
the Company's largest client, accounting for approximately 18%, 22% and 20% of
Hagler Bailly's total revenues in 1999, 1998 and 1997, respectively. Clients
typically retain the Company as needed on an engagement basis rather than
pursuant to long-term contracts, and a client can usually terminate an
engagement at any time without a significant penalty. Moreover, there can be no
assurance that the Company's existing clients will continue to engage it for
additional assignments or do so at the same revenue levels. The loss of any
significant client could have a material adverse effect on the Company's
business, results of operations and financial condition. In addition, the level
of the Company's consulting services required by an individual client can
diminish over the life of its relationship with the Company, and there can be no
assurance that the Company will be successful in establishing relationships with
new clients as this occurs.
|X| Professional and Other Liability. The Company's services involve
risks of professional and other liability. If the Company were found
to have been negligent or to have breached its obligations to its
clients, it could be exposed to significant liabilities and its
reputation could be adversely affected. In connection with many of
its government sector engagements, the Company employs the services
of local staff and uses consultants who are independent contractors.
Negligent or illegal acts, or ethical violations by these independent
contractors could adversely affect the Company.
|X| Government Sector Market and Contracting Risks. A portion of the
Company's revenues were derived from contracts or subcontracts with U.S.
government sector clients. Providing consulting services to U.S. government
sector clients is subject to detailed regulatory requirements and government
policies as well as to funding priorities. Contracts with U.S. government sector
clients may be conditioned upon the continuing availability of public funds,
which in turn depends upon lengthy and complex budgetary procedures, and may be
subject to certain pricing constraints. Moreover, U.S. government sector
contracts may generally be terminated for a variety of factors, including when
it is in the best interests of the respective government. There can be no
assurance that these factors or others unique to contracting with governmental
entities will not have a material adverse effect on the Company's business,
results of operations and financial condition.
|X| Intense Competition. The market for consulting services in the
energy, network and the environment industries is intensely
competitive, highly fragmented and subject to rapid change, and such
competition is likely to increase in the future. Many of the
Company's competitors have greater personnel, financial, technical
and marketing resources than the Company. The Company also competes
with its clients' internal resources, particularly where such
resources represent a fixed cost to the client. This source of
competition may heighten as consolidation of electric and gas utility
and other energy industry companies creates larger organizations.
There can be no assurance that the Company will be able to compete
successfully with its existing competitors or with any new
competitors.
|X| Risk of International Operations. The Company operates either permanent
or project offices in a number of foreign countries. The Company expects to
continue to expand its international operations and offices primarily in Western
Europe and in the Asia-Pacific region. Expansion requires considerable
management and financial resources and may negatively impact the Company's
near-term results of operations. The Company's international operations are
subject to numerous potential challenges and risks, including war, civil
disturbances, other political and economic conditions in various jurisdictions
such as tariffs and other trade barriers, longer accounts receivable collection
cycles, fluctuations in currency and potentially adverse tax consequences. There
can be no assurance that such international factors will not have a material
adverse effect on the Company's business, results of operations and financial
condition.
|X| Dependence on Key Employees. The Company's business consists primarily
of the delivery of professional services and, accordingly, its future success is
highly dependent upon the efforts, abilities, business generation capabilities
and project execution of its consultants. The Company's success is also
dependent upon the managerial, operational and administrative skills of its
officers. The loss of the services of any consultant or the failure of the
Company's consultants to generate business or otherwise perform at or above
historical levels could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company does not
have employment or non-competition agreements with many of its consultants or
officers; accordingly, such individuals may terminate their relationship with
the Company at will and without notice and immediately begin to compete with the
Company.
|X| Concentration of Ownership. As of December 31, 1999, the directors
and senior management of the Company beneficially owned approximately
36% of the Company's outstanding shares of common stock. As a result,
these stockholders will have substantial influence over the outcome
of matters requiring a stockholder vote, including the election of
the members of the Board of Directors. Such control could adversely
affect the market price of the Company's common stock or delay or
prevent a change of control of the Company at a price which might
represent a premium over the market price of its common stock.
|X| Need to Develop New Offerings. The Company's future success will
depend in significant part on its ability to successfully develop and
introduce new service offerings and improved versions of existing
service offerings. There can be no assurance that the Company will be
successful in developing, introducing on a timely basis and marketing
such service offerings, or that any service offerings will be
accepted in the market. Moreover, services offered by others may
render the Company's services non-competitive or obsolete.
|X| Project Risks. Many of the Company's engagements involve projects which
are critical to the operations of its clients' businesses. The Company's failure
or inability to meet a client's expectations in the performance of its services
could result in the incurrence by the Company of a financial loss and could
damage the Company's reputation and adversely affect its ability to attract new
business. In addition, an unanticipated difficulty in completing a project could
have an adverse effect on the Company's business and results of operations. Fees
for the Company's engagements can be based on the project schedule, the
Company's staffing requirements, the level of customer involvement and the scope
of the project as agreed upon with the customer at the project's inception. The
Company generally seeks to obtain an adjustment in its fees in the event of any
significant change in any of the assumptions upon which the original estimate
was based. However, there can be no assurance that the Company will be
successful in obtaining any such adjustment in the future.
|X| Intellectual Property Rights. The Company's performance is in part
dependent upon its internal information and communication systems, databases,
tools, and the methods and procedures that it has developed specifically to
serve its clients. The Company relies on a combination of nondisclosure and
other contractual arrangements and copyright, trademark and trade secret laws to
protect its proprietary systems, information and procedures. There can be no
assurance that the steps taken by the Company to protect its proprietary rights
will be adequate to prevent misappropriation of such rights or that the Company
will be able to detect unauthorized use and take appropriate steps to enforce
its proprietary rights. The Company believes that its systems and procedures and
other proprietary rights do not infringe upon the rights of third parties. There
can be no assurance, however, that third parties will not assert infringement
claims against the Company in the future or that any such claims will not
require the Company to enter into costly litigation or materially adverse
settlements to litigation, regardless of the merits of such claims.
|X| Government Regulation of Immigration. Certain of the Company's
employees are foreign nationals working in the United States under
U.S. work authorizations. Congress and administrative agencies with
jurisdiction over immigration matters have periodically expressed
concerns over the levels of legal and illegal immigration into the
U.S. These concerns have often resulted in proposed legislation,
rules and regulations aimed at reducing the number of work permits
that may be issued. Any changes in such laws making it more difficult
to hire foreign nationals or limiting the ability of the Company to
retain foreign employees could require the Company to incur
additional unexpected labor costs and expenses.
|X| Fluctuations of Operating Results. The Company's future operating
results will continue to be subject to quarterly fluctuations based upon a wide
variety of factors, including the number and significance of client engagements
commenced and completed during a quarter, delays incurred in connection with an
engagement, the number of business days in a quarter, employee hiring and
utilization rates, the ability of clients to terminate engagements without
penalties, the size and scope of engagements, the nature of the fee arrangement,
the seasonality of the spending cycle of government sector clients (especially
that of the U.S. government), the timing of new office openings, return on
investment capital, and the general economy, such as recessionary periods,
political instability, changes in trade policies, fluctuations in interest or
currency exchange rates and other competitive factors. Seasonality also affects
the Company's operating results, particularly in the third and fourth quarters
of each fiscal year. In addition, the Company's operating expenses are
increasing as the Company continues to expand its operations, and future
operating results will be adversely affected if revenues do not increase
accordingly. Additionally, the Company plans to continue to evaluate and, when
appropriate, make acquisitions of complementary businesses. As part of this
process the Company will continue to evaluate the changing value of its assets,
and when necessary, make adjustments thereto. While the Company cannot predict
what effect these various factors may have on its financial results, the
aggregate effect of these and other factors could result in significant
volatility in the Company's future performance and stock price.
|X| Fluctuations in the General Economy. The general level of economic
activity significantly affects demand for the Company's professional
services. When economic activity slows, clients may delay or cancel
plans that involve the hiring of consultants. The Company is unable
to predict the level of economic activity at any particular time, and
fluctuations in the general economy could adversely affect the
Company's business, operating results and financial condition.
|X| Employment Liability Risks. The Company, as a provider of
professional services, employs and places individuals in the
workplace of other businesses. Inherent risks of such activity
include possible claims of errors and omissions, misuse of client
proprietary information, misappropriation of funds, discrimination
and harassment, theft of client property, other criminal activity or
torts and other claims. Although historically the Company has not
experienced any material claims of these types, there can be no
assurance that the Company will not experience such claims in the
future.
|X| Certain Anti-takeover Effects. The Company's Amended and Restated
Certificate of Incorporation, By-laws, and the Delaware General Corporation Law
include provisions that may be deemed to have anti-takeover effects and may
delay, defer or prevent a takeover attempt that stockholders might consider in
their best interests. These include a Board of Directors which is divided into
three classes, each of which is elected to serve staggered three-year terms, and
by-law provisions under which only the President, a majority of the Board of
Directors or stockholders owning at least 50% of the Company's capital stock may
call meetings of the stockholders. Also, the Board of Directors of the Company
is authorized to issue up to 5,000,000 shares of preferred stock and to
determine the price, rights, preferences and privileges of such shares, without
any further stockholder action. The existence of this "blank-check" preferred
stock could render more difficult or discourage an attempt to obtain control of
the Company by means of a tender offer, merger, proxy contest or otherwise.
Furthermore, the Company is subject to the anti-takeover provisions of Section
203 of the Delaware General Corporation Law that prohibits Hagler Bailly from
engaging in a "business combination" with an "interested stockholder" unless the
business combination is approved in a prescribed manner. These provisions could
also have the effect of delaying or preventing a change of control of the
Company, which could adversely affect the market price of the common stock.
|X| Fluctuations in Stock Price. The market price of the Company's common
stock may fluctuate substantially due to a variety of factors, including
quarterly fluctuations in results of operations, announcements or terminations
of new services, offices, contracts, acquisitions or strategic alliances by the
Company or its competitors, as well as changes in the market conditions in the
energy, network and environmental industries, changes in earnings estimates by
analysts, changes in accounting principles, sales of the Company's common stock
by existing holders, loss of key personnel, a relatively small float of shares
that are freely tradable without restriction or registration under the
Securities Act of 1933 and other factors. The stock market has from time to time
experienced extreme price and volume fluctuations that have particularly
affected the market price for many companies and which, on occasion, have been
unrelated to operating performance. To the extent the Company's performance may
not meet expectations published by external sources, public reaction could
result in a sudden and significantly adverse impact on the market price of the
Company's securities, particularly on a short-term basis. In addition, such
stock price volatility may provoke the initiation of securities litigation,
which may divert substantial management resources and may have an adverse effect
on the management of business operations. Any of these results could have a
material adverse effect on the Company's business, operating results and
financial condition.
Executive Officers
The Company's Executive Officers and their respective ages, positions and
biographical information as of March 1, 2000 is as follows:
Name Title Age
- ---- ----- ---
Henri-Claude A. Bailly Chairman of the Board, Hagler Bailly, Inc., Cap
Gemini Hagler Bailly LLC and Hagler Bailly Risk
Advisors, Inc.......................................53
Geoffrey W. Bobsin Senior Vice President and Chief Financial Officer,
Hagler Bailly, Inc..................................44
William E. Dickenson President and Chief Executive Officer, Hagler Bailly,
Inc.................................................51
Roger W. Gale President and Chief Executive Officer, PHB Hagler
Bailly, Inc.........................................53
Howard W. Pifer III Chairman of the Board , PHB Hagler Bailly, Inc......57
Kenneth I. Rubin President and Chief Executive Officer, Hagler Bailly
Services, Inc.......................................47
Stephen V. R. Whitman Senior Vice President and General Counsel, Hagler
Bailly, Inc.........................................53
Henri-Claude A. Bailly - is chairman of Hagler Bailly's Board of Directors and
chairman of the Board of Directors of Cap Gemini Hagler Bailly and HBRA. He
served as the Company's president and chief executive officer from its founding
in 1980 until April 1999. From 1984 to 1995, Mr. Bailly was employed by RCG
International, the consulting arm of Reliance Group Holdings, in a series of
management positions culminating in senior vice president of RCG International
and chairman of the board and chief executive officer of RCG/Hagler Bailly,
Inc., a predecessor to the Company. Mr. Bailly serves on the board of directors
of the United States Energy Association, the Alliance to Save Energy and
Adsavers.com and is a member of the National Coal Council.
Geoffrey W. Bobsin - is senior vice president, chief financial officer,
treasurer and secretary of the Company. Prior to joining the Company, he served
as president and chief executive officer of Environmental Products Corporation
from 1995 to 1999, as the executive vice president and chief financial officer
from 1984 to 1995, and as the controller from 1982 to 1984. Prior to joining
Environmental Products Corporation, he served as audit supervisor at Grant
Thornton and Company from 1978 to 1982. Mr. Bobsin is a Certified Public
Accountant and a member of the American Institute of Certified Public
Accountants.
William E. Dickenson - is president and chief executive officer of the Company.
He served as president and chief executive officer of PHB Hagler Bailly from
March 1999 to February 2000. He served as president and chief executive officer
of PHB from 1992 to August 1998, and was the managing director responsible for
its litigation support practice from 1983 through 1992. From 1978 to 1983, Mr.
Dickenson managed major antitrust litigation and consulting assignments at
Dickenson, O'Brien & Associates, which he founded and served as president. Prior
to forming Dickenson, O'Brien & Associates, he was employed at Cambridge
Research Institute and served in a variety of positions at the Tennessee Valley
Authority.
Roger W. Gale - is president and chief executive officer of PHB Hagler Bailly.
He was president and founder of the WIEG until April 30, 1999 when the firm
merged with and into PHB Hagler Bailly. Dr. Gale leads a number of client
engagements with North American and international energy companies focusing on
strategic decision-making, convergence, and culture change. In addition, he
manages the firm's annual Energy Industry Outlook, an analysis of the advent of
competition in the electric industry. From 1987 to 1988, Dr. Gale was Director
of the Office of External Affairs for the U.S. Federal Energy Regulatory
Commission. From 1984 to 1987, he served as Director of the Office of Policy and
Outreach, Office of Civilian Radioactive Waste Management, at the U.S.
Department of Energy.
Howard W. Pifer III - is chairman of PHB Hagler Bailly's Board of Directors and
was chairman of Hagler Bailly's Board of Directors from August 1998 to August
1999. He served as chairman of the Board of Directors of PHB from 1991 to August
1998, having previously served as PHB's president and chief executive officer.
Prior to founding PHB in 1976, Dr. Pifer was a member of the Harvard Business
School faculty, where he taught courses in managerial economics, finance, public
policy and strategic planning. From 1973 to 1976, Dr. Pifer served as vice
president of the Energy & Environment Group at Temple, Barker & Sloane, Inc.
Kenneth I. Rubin - is president and chief executive officer of Hagler
Bailly Services. He joined the firm in 1997 as a result of Hagler Bailly's
acquisition of Apogee Research, Inc. ("Apogee"), a consulting firm he co-founded
in 1986 and where he served as president and chief executive officer. While at
the U.S. Congressional Budget Office from 1980-1986, Dr. Rubin had
responsibility for budget, finance, and policy research supporting authorizing,
appropriations, and budget committees with jurisdiction over all U.S. water and
environmental infrastructure agencies including the U.S. Army Corps of
Engineers, the Environmental Protection Agency, and the Bureau of Reclamation.
Dr. Rubin previously directed a multi-million technical assistance program
supporting state water management agencies at the U.S. Water Resources Council.
Stephen V. R. Whitman - is senior vice president and general counsel of Hagler
Bailly. Prior to joining the firm in July 1997, he spent four years in his own
private practice and previously was associated with the law firms of Kelley Drye
& Warren and White & Case, and served as attorney advisor (and regional legal
advisor in Lima, Peru) for USAID.
ITEM 2 - PROPERTIES
The Company's headquarters is currently located in approximately 58,402
square feet of leased office space in Arlington, Virginia. The Company leases
office space as listed below. The Company believes that its facilities are
suitable for its current needs and that additional facilities can be leased to
meet future needs.
The Company maintains principal offices in the following locations:
United States International
- ------------------------------------------------------ -------------------------------------------------------
Arlington, VA Beijing, People's Republic of China
Boulder, CO Buenos Aires, Argentina
Cambridge, MA Jakarta, Indonesia
Houston, TX London, England
Los Angeles, CA Melbourne, Australia
New York, NY Paris, France
Palo Alto, CA Rugby, England
Washington, DC Sydney, Australia
Toronto, Canada
Wellington, New Zealand
Each principal office represents a permanent location servicing
multiple clients that is run by a member of Hagler Bailly's senior management.
In addition, from time to time the Company leases a project office to enable it
to service a specific international project involving a particular individual
client, in which case the office is paid for directly by the client. All of the
Company's principal and project offices are electronically linked together and
have access to all of the Company's capabilities and core consulting tools.
ITEM 3 - LEGAL PROCEEDINGS
The Company and its subsidiaries are from time to time parties to
litigation arising in the ordinary course of business. Neither the Company nor
any of its subsidiaries is a party to any pending material litigation nor are
any of them aware of any pending or threatened litigation that would have a
material adverse effect on the Company or its business.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's common stock was first offered to the public on July 3,
1997, and since that time has been traded on the Nasdaq National Market under
the symbol "HBIX." The following table sets forth the range of reported high and
low closing sales price for the Company's common stock, for the periods
indicated, as reported by the Nasdaq National Market.
1999 High Low
January - March $22.313 $6.250
April - June $10.375 $5.625
July - September $10.375 $6.563
October - December $7.750 $4.469
- --------------------------------------------------------------------------------------------------------------------
1998 High Low
January - March $25.000 $18.625
April - June $30.000 $22.500
July - September $30.250 $16.750
October - December $24.000 $13.563
- --------------------------------------------------------------------------------------------------------------------
1997 High Low
January - March N/A N/A
April - June N/A N/A
July 3 - September $25.250 $17.000
October - December $26.375 $18.250
The Company had 244 holders of record of its common stock at March 1,
2000, and approximately 1,000 beneficial owners. The Company has never paid a
cash dividend on its common stock and does not expect to pay a cash dividend on
its common stock in the foreseeable future.
ITEM 6 -- SELECTED FINANCIAL DATA
The following selected consolidated financial data for the year ended
December 31, 1995, combine the financial data of RCG/Hagler Bailly, Inc. (the
"Predecessor"), a wholly-owned subsidiary of RCG International Inc. which was
acquired on May 25, 1995, by the management of RCG/Hagler Bailly, Inc. and the
consolidated financial data of the Company from May 26, 1995 to December 31,
1995 derived from the consolidated financial statements of the Company. The
selected consolidated financial data as of December 31, 1995, is derived from
the consolidated financial statements of the Company. The selected consolidated
financial data as of and for the years ended December 31, 1996, 1997, 1998 and
1999 have been derived from the audited consolidated financial statements of the
Company. The Company's prior years have been restated to include the historical
financial information of Apogee Research, Inc. ("Apogee "), TB&A Group, Inc. and
its wholly owned subsidiary Theodore, Barry & Associates (collectively "TB&A"),
IGA and Putnam Hayes & Bartlett, Inc. ("PHB ") as a result of business
combinations accounted for as poolings of interests.
The results of operations for prior periods are not necessarily
indicative of the results that may be expected for future years. The information
set forth below should be read in conjunction with the Company's consolidated
financial statements and the notes thereto, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Annual Report on Form 10-K.
---------------------------------------------- ----------------------------------------------------------------------
Years ended December 31,
---------------------------------------------- ----------------------------------------------------------------------
1995 (1) (2) 1996 (2) 1997 (2) 1998 1999 (2)
---------------------------------------------- ----------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA: (In thousands, except per share data)
---------------------------------------------- ----------------------------------------------------------------------
Revenues $ 120,566 $ 143,141 $ 160,615 $ 177,462 $ 181,981
Cost of services 94,163 110,500 120,585 126,204 147,294
---------------------------------------------- ------------- ------------- -------------- ------------- -------------
Gross profit 26,403 32,641 40,030 51,258 34,687
Liquidation of subsidiary (4) - 662 328 - -
Merger related and other nonrecurring costs (5) - - 1,235 8,275 292
Asset impairment (8) - - - 1,107 4,591
Selling, general and administrative expenses 21,810 26,047 26,868 25,112 40,440
Stock and stock option compensation (3) - 6,172 9,965 2,595 -
---------------------------------------------- ------------- ------------- -------------- ------------- -------------
Income/(loss) from operations 4,593 (240) 1,634 14,169 (10,636)
Other income (expense), net (7) (799) (853) (400) 269 (73)
---------------------------------------------- ------------- ------------- -------------- ------------- -------------
Income/(loss) before equity investment in
joint venture, income tax expense and
extraordinary gain 3,794 (1,093) 1,234 14,438 (10,709)
Income tax expense (benefit) 1,907 1,786 5,460 7,275 (1,212)
---------------------------------------------- ------------- ------------- -------------- ------------- -------------
Income/(loss) before equity investment in
joint venture and extraordinary gain 1,887 (2,879) (4,226) 7,163 (9,497)
(Loss) from equity investment in joint
venture - - - (463) (427)
---------------------------------------------- ------------- ------------- -------------- ------------- -------------
Income (loss) before extraordinary gain 1,887 (2,879) (4,226) 6,700 (9,924)
Extraordinary gain (6) 1,055 145 2,336 - -
---------------------------------------------- ------------- ------------- -------------- ------------- -------------
Net income (loss) $2,942 $(2,734) $(1,890) $6,700 $(9,924)
=========== ============= ============= ============ ============
Net income (loss) per share
---------------------------------------------- ------------- ------------- -------------- ------------- -------------
Basic
Net (loss) income before extraordinary
gain * $(0.25) $(0.32) $0.42 $(0.58)
Extraordinary gain * $ 0.01 $ 0.17 - -
Net (loss) income * $(0.24) $(0.14) $0.42 $(0.58)
---------------------------------------------- ------------- ------------- -------------- ------------- -------------
Dilutive
Net (loss) income before extraordinary
gain * $(0.25) $(0.32) $0.40 $(0.58)
Extraordinary gain * $ 0.01 $ 0.17 - -
Net (loss) income * $(0.24) $(0.14) $0.40 $(0.58)
---------------------------------------------- ------------- ------------- -------------- ------------- -------------
Weighted average shares outstanding
Basic * 11,321 13,361 15,992 17,059
Dilutive * 11,321 13,361 16,772 17,059
---------------------------------------------- ------------- ------------- -------------- ------------- -------------
* Due to the acquisition on May 25, 1995, and the related change in
capital structure, earnings per share information for this period is
not meaningful and, accordingly, is not presented.
DECEMBER 31,
1995 1996 1997 1998 1999
BALANCE SHEET DATA (In Thousands)
- ----------------------------------------- ---------- ---------- ---------- ---------- ---------
Cash and cash equivalents $ 1,753 $ 3,218 $ 5,261 $ 16,165 $ 9,656
Working capital 5,054 7,382 34,122 54,294 44,354
Total assets 52,703 55,872 84,657 101,422 116,209
Total debt 20,606 16,790 2,752 1,026 666
Total stockholders' equity 3,772 9,958 48,849 73,599 72,292
(1) The operating data for the year-ended December 31, 1995 reflect the
combined results of operations of the Predecessor from January 1, 1995 to
May 24, 1995, the Company from May 25, 1995 to December 31, 1995, and the
annual results of Apogee, TB&A, IGA and PHB.
(2) The statements of operations data for the years ended December 31, 1995,
1996 and 1997 include performance incentive compensation paid to PHB senior
staff members in excess of a standard bonus set for their respective staff
levels. The excess performance incentive compensation was included in cost
of services and selling, general and administrative expenses was $6,260,
$9,588 and $7,294 for the years ended December 31, 1995, 1996 and 1997,
respectively. In addition, the year ended December 31, 1996 includes
approximately $500 of cost of services, representing that portion of
officer compensation that exceeded the compensation that would have been
paid had the compensation plan adopted in January 1997 been in effect for
all of 1996; and the year ended December 31, 1999 includes $10,868 in
bonuses paid to key staff. In 1997 the Board adopted a resolution limiting
the amount that may be set aside for bonuses to forty percent (40%) of net
income before bonuses and taxes. In approving bonuses for 1999 the Board of
Directors made an exception to this limitation.
(3) In connection with an amendment to the Hagler Bailly, Inc. Employee
Incentive and Non-Qualified Stock Option and Restricted Stock Plan (the
"Stock Option Plan") and a reclassification of its common stock, each
effective December 31, 1996, Hagler Bailly incurred non-recurring, non-cash
charges to operations amounting to approximately $4,600 for options and
approximately $1,600 for stock in 1996. In connection with a stock bonus to
an employee, the Company incurred a non-cash compensation charge to
operations in the first quarter of 1997 of $65. PHB common stock issued or
subject to issuance under subscriptions receivable entered into within 12
months preceding the closing of the merger were presumed to have been
issued in contemplation of the proposed transaction and were accounted for
at their fair market value at date of issuance. Accordingly, PHB recognized
a non-recurring, non-cash, non-tax deductible compensation charges for the
years ended December 31, 1997 and 1998 of approximately $9,900 and $2,600,
respectively, representing the difference between the fair market and book
value of shares of common stock then issuable.
(4) On December 31, 1996, PHB liquidated its wholly owned subsidiary in the
U.K. Of PHB's loss of $662 in 1996, $549 represented cumulative foreign
currency translation losses that had previously been recorded as a separate
component of the PHB's shareholders' equity. In 1997, $328 was recorded as
management's estimate of the uncollectable net proceeds resulting from the
liquidation.
(5) For the year ended December 31, 1997, 1998 and 1999, the Company recorded
merger related and other nonrecurring costs of $1,235, $8,275 and $292,
respectively, as a result of business combinations and related costs (see
note 17 to the 1999 financial statements).
(6) For the years ended December 31, 1995, 1996 and 1997, the Company recorded
extraordinary gains of $1,055, $145 and $2,336, respectively, as a result
of extinguishment of debt at beneficial terms by TB&A.
(7) Other income (expenses), net includes interest income, interest expense,
minority interest, other income, and other expenses. (8) For the years
ended December 31, 1998 and 1999, the Company recorded asset impairment
expenses of $1,107 and $4,591, respectively. In 1998, the expense was
recorded as a result of certain software development costs which were
impaired due to the duplication of technologies resulting from the
Company's business combinations and its joint venture with Cap Gemini. In
1999, the expense was recorded as a result of the impairment of goodwill
associated with certain subsidiaries (see note 18 to the 1999 financial
statements).
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
The predecessor of the Company was founded in February 1980 as Hagler,
Bailly & Company, Inc. In July 1984, it was acquired by RCG International, Inc.
("RCG") an indirect subsidiary of Reliance Group Holdings, Inc. and in 1987 was
renamed RCG/Hagler Bailly, Inc. In May 1995, the management of RCG/Hagler
Bailly, Inc. completed the purchase of RCG/Hagler Bailly, Inc. from RCG (the
"Management Buy-Out"), and the successor to RCG/Hagler Bailly, Inc. became a
wholly-owned subsidiary of the Company. In July 1997, the Company completed an
initial public offering (the "IPO").
Hagler Bailly, together with its wholly owned subsidiaries, PHB Hagler
Bailly, Hagler Bailly Services and its other domestic and foreign wholly owned
subsidiaries, is a leading worldwide provider of strategy, economics and
operations consulting services to clients in energy and network industries,
including electric power, natural gas and water utilities, fuel providers,
aviation transportation, telecommunications, commercial litigation and the
environment.
The Company's revenues consist of commercial consulting revenues,
government consulting revenues and other revenues. Commercial consulting
revenues represent revenues billed at commercial rates for professional staff,
subcontractors and independent consultants, and client reimbursable expenses.
Commercial revenues are associated with the Company's primary business of
providing strategic advice and analysis to businesses in developed countries on
issues involving energy, transportation, telecommunications, commercial
litigation, the environment and other matters. Government consulting revenues
represent revenues billed at government rates for professional staff,
subcontractors and independent consultants, and client reimbursable expenses.
Government revenues are associated with providing advisory and technical
services to government sector clients worldwide in the energy and network
industries, particularly in water and transportation, and the environment. Other
revenues include those derived from information-based products and services,
financial advisory services, and publication of newsletters, reference manuals,
and data series for the energy and transportation industries services. Revenue
from commercial consulting is typically characterized by higher gross margins
than government consulting, yet generally requires a higher relative level of
infrastructure support. Consequently, the Company's operating performance is
affected by its commercial consulting / government consulting business mix.
Through strategic acquisitions and internal growth, the Company has increased
its commercial consulting client base, and will continue to pursue such
opportunities in the future.
The Company derives substantially all of its revenues from fees for
professional services. Clients are typically invoiced on a monthly basis. The
majority of revenues are billed at standard daily rates, standard hourly rates,
or cost-plus fixed-fees. Revenues from standard daily rate contracts are
recognized at amounts represented by the agreed-upon billing amounts and costs
are recognized as incurred. Revenues from standard hourly rate engagements are
recognized as hours are recorded and costs are recognized as they are incurred.
Revenue from cost-plus fixed-fee contracts is recognized as costs are incurred
on the basis of direct costs plus allowable indirect costs and a pro rata
portion of estimated fee. The remainder of the revenues are billed on a
fixed-bid basis and by lump sum fee arrangements. Revenues from fixed-bid type
contracts are recognized on the percentage-of-completion method of accounting
with costs and estimated profits included in contract revenues based on the
relationship that contract costs incurred bear to management's estimate of total
contract costs. Losses, if any, are accrued when they become known and the
amount of the loss is reasonably determinable. The Company's most significant
expenses are project personnel costs, which consist of consultant salaries and
benefits (including bonuses), and travel-related direct project expenses.
Project personnel are typically full-time professionals employed by the Company,
although the Company often supplements its professional project staff through
the use of subcontractors and independent consultants. The Company believes that
retaining subcontractors and independent consultants on a per-engagement basis
provides it with greater flexibility and reduced risk in adjusting professional
staff levels in response to changes in demand for its services.
Stock Based Compensation Charges
The Company recognized a non-recurring, non-cash charge to operations
of approximately $10.0 million in the year ended December 31, 1997, and
approximately $2.6 million in the year ended December 31, 1998. These charges
are required under generally accepted accounting principles for stock issued, or
obligated to be issued, during the twelve months preceding the closing of a
pending merger based on the presumption that such issuances were in
contemplation of the merger. Substantially all of these costs were related to
the PHB merger and represent the difference between the fair market and book
value of PHB common stock issuable under subscriptions within one year of the
merger's close.
Recent Mergers and Events
On December 1, 1997, the Company completed the merger of Apogee, whereby
Apogee became a wholly-owned subsidiary of Hagler Bailly. Apogee was a
consulting firm specializing in the economic and financial analysis of
infrastructure, including all aspects of transportation and environment. The
Company issued 409,985 shares of its common stock in exchange for all of the
common stock of Apogee. The business combination is accounted for as a pooling
of interests. Accordingly, the Company's financial statements have been restated
to reflect the merger for all periods presented.
On January 28, 1998, the Company purchased the remaining minority interest
of its consolidated subsidiary, PT Hagler Bailly, a consulting firm located in
Jakarta, Indonesia, for $200,000 whereby PT Hagler Bailly became an indirect,
wholly-owned subsidiary of the Company. Total consideration of the acquisition
was $200,000 in cash. The acquisition was accounted for using the purchase
method.
On February 23, 1998, the Company completed the merger of TB&A, whereby
TB&A became a wholly-owned subsidiary of the Company. TB&A is a management
consulting firm to electric, gas and telecommunication companies. The Company
issued 454,994 shares of its common stock, in exchange for all of the common
stock of TB&A. The business combination is accounted for as a pooling of
interests. Accordingly, the Company's financial statements have been restated to
reflect the merger for all periods presented.
On March 10, 1998, the Company purchased the remaining minority interest
of Hagler Bailly Indonesia, Inc., which holds all of the outstanding stock of PT
Hagler Bailly, whereby Hagler Bailly Indonesia, Inc. became an indirect
wholly-owned subsidiary of the Company. Total consideration of the acquisition
was $240,000 in cash. The acquisition was accounted for as a purchase.
On April 28, 1998, the Company completed the acquisition of Estudio Q
Ingenieros Asociados S.R.L., an Argentinean company ("Estudio Q"), whereby
Estudio Q became a wholly-owned subsidiary of the Company. Total consideration
for the acquisition was approximately $2.4 million in the form of $800,000 cash
and an aggregate of 64,306 shares of the Company's common stock. The acquisition
was accounted for using the purchase method.
On June 16, 1998, the Company and Cap Gemini S.A. and its wholly owned
subsidiary, Cap Gemini America, Inc., entered into an exclusive joint venture to
deliver information technology consulting services and solutions to electric,
gas and water utilities, and service providers in the U.S. and Canada. The
Company expects the joint venture, Cap Gemini Hagler Bailly, L.L.C., to turn
profitable sometime late in the fiscal year ending December 31, 2000. The joint
venture is owned equally by the Company and Cap Gemini America and each has
invested capital in the venture and transferred key senior professionals to it.
Concurrently with the creation of the joint venture, Cap Gemini purchased
470,975 newly issued shares of the Company's stock at the current market price
for total consideration, after commissions and fees, of $11.8 million.
On June 30, 1998, the Company completed the merger of IGA, whereby IGA
became a wholly-owned subsidiary of the Company. The Company issued 183,550
shares of its common stock in exchange for all the common stock of IGA. The
business combination was accounted for as a pooling of interests. Accordingly,
the Company's financial statements were restated to reflect the merger for all
periods presented.
On August 28, 1998, the Company completed the merger of PHB, whereby PHB
became a wholly-owned subsidiary of the Company. Until the merger, PHB was the
largest privately owned independent economic and management consulting firm in
the United States. The Company issued 6,548,953 shares of its common stock in
exchange for all of the common stock of PHB. The business combination was
accounted for as a pooling of interests. Accordingly, the Company's financial
statements were restated to reflect the merger for all periods presented.
On September 30, 1998, the Company sold certain assets of its public
sector environmental consulting operations. As a result of the transaction, the
Company sold assets for approximately $2.9 million, resulting in a gain of
approximately $282,000.
On November 17, 1998, the Company completed the acquisition of certain
assets and the assumption of certain liabilities of The Fieldston Company
("TFC") and all of the outstanding stock of Fieldston Publications, Inc.
("FPI"). Total consideration of the acquisition was approximately $2.3 million
in cash and 232,558 shares of Hagler Bailly common stock. The acquisition was
accounted for using the purchase method.
In December 1998, the Company made the decision to cease operations in
its financial advisory services business, HB Capital, Inc., resulting in
expenses of approximately $1.8 million.
On February 8, 1999, the Company acquired all of the outstanding stock
of Lacuna Consulting Limited ("Lacuna"), a United Kingdom corporation, in
exchange for 65,000 shares of the Company's common stock. The acquisition was
accounted for as a purchase. Accordingly, the consolidated financial statements
reflect the results of operations of Lacuna since the date of acquisition.
On March 22, 1999, the Company announced that its Board of Directors
authorized the repurchase of up to 1,500,000 shares of the Company's common
stock from time to time in the open market or in privately negotiated
transactions. As of December 31, 1999, the Company had reacquired 559,700 shares
of its stock at a total net cost of approximately $4.1 million.
On April 30, 1999, the Company acquired all of the outstanding stock of
Washington International Energy Group, Ltd. ("WIEG"), a Washington, D.C.-based
worldwide provider of energy and environmental policy consulting research
services, in exchange for 144,210 shares of the Company's common stock and
approximately $850,000 in cash. The Company has the right to repurchase up to
26,210 of these shares at $ .01 cents per share if the price of the Company's
stock meets certain price targets during the three year period following the
acquisition. The transaction was accounted for as a purchase. Accordingly, the
consolidated financial statements reflect the results of operations of WIEG
since the date of acquisition.
On June 1, 1999, the Company received the remaining minority interest
of its joint venture Hagler Bailly Risk Advisors, LLC, a limited liability
company located in Houston, Texas, from Objective Resources Group Risk Advisors,
LLC bringing the Company's ownership to 100%.
On August 12, 1999, the Company acquired all of the outstanding stock
of GKMG, a Washington, D.C.-based consulting firm which provides economic,
strategic, financial, and regulatory analysis to the aviation industry, in
exchange for 1,420,000 shares of the Company's common stock. Under the terms of
the Share Exchange Agreement by and among the Company, GKMG and former
shareholders of GKMG, the Company is obligated to issue additional shares of its
common stock to the former shareholders of GKMG with a fair market value (as
defined in the Share Exchange Agreement) up to $15 million if certain earnings
targets for GKMG are met for the periods July 1, 1999-June 30, 2000 and July 1,
2000-June 30, 2001. In addition, the Company is obligated to issue up to 192,857
additional shares of its common stock to the former shareholders of GKMG if
certain stock price performance contingencies are not met. The transaction was
accounted for as a purchase. Accordingly, the consolidated financial statements
reflect the results of operations of GKMG since the date of acquisition.
On September 27, 1999, the Company announced that its Board of
Directors retained Banc of America Securities, LLC to assist the Company in
exploring strategic and financial alternatives to maximize shareholder value,
including the potential sale or merger of the Company.
On December 31, 1999, the Company sold the assets of wholly owned
subsidiary IGA. The Company disposed of this subsidiary due to its inability to
successfully integrate IGA's operations into the Company's other European
operations. As a result of the transaction, the Company sold assets for
approximately $0.6 million, resulting in a loss of approximately $68,000. As a
result of this transaction the Company received a $550,000 note receivable from
the buyers of IGA. The note bears no interest and is secured by 99,516 shares of
the Company's common stock owned by IGA.
Results of Operations
The following table presents for the periods indicated the percentage
of revenues represented by certain income and expense items:
For the years ended December 31,
------------------------------------------- ---------------- -- ---------------- --- ---------------
1997 1998 1999
---- ---- ----
Revenues:
Commercial revenues 63.6% 65.2% 68.0%
Government revenues 35.3 33.7 31.2
Other revenues 1.1 1.1 0.8
------------------------------------------- ---------------- -- ---------------- --- ---------------
Total revenues 100.0 100.0 100.0
Cost of services 75.1 71.1 80.9
Merger related and other nonrecurring
costs 0.8 4.7 0.2
Asset impairment - 0.6 2.5
Liquidation of subsidiary 0.2 - -
Selling, general, and administrative
expenses 16.7 14.2 22.2
Stock and stock option compensation
subscriptions for common stock 6.2 1.5 -
------------------------------------------- ---------------- -- ---------------- --- ---------------
Income from operations 1.0 7.9 (5.8)
Interest income 0.8 0.2 0.1
Interest expense (0.8) (0.2) (0.1)
Other income (expense), net (0.2) 0.2 0.0
Minority interest - 0.0 0.0
------------------------------------------- ---------------- -- ---------------- --- ---------------
Income (loss) before income tax
expense, equity investment in joint
venture and extraordinary gain 0.8 8.1 (5.8)
Income tax expense (benefit) 3.4 4.1 (0.7)
------------------------------------------- ---------------- -- ---------------- --- ---------------
(Loss) income before equity investment in
joint venture and extraordinary gain (2.6) 4.0 (5.1)
(Loss) from equity investment in joint
venture - (0.3) (0.3)
------------------------------------------- ---------------- -- ---------------- --- ---------------
Net income (loss) before
extraordinary gain (2.6) 3.7 (5.4)
Extraordinary gain 1.4 - -
------------------------------------------- ---------------- -- ---------------- --- ---------------
Net income (1.2)% 3.7% (5.4)%
====================================================================================================
1999 Compared to 1998
Revenues for the year ended December 31, 1999, increased by $4.5
million, or 2.5%, to $182.0 million from the year ended December 31, 1998. For
the year ended December 31, 1999, revenues from the Company's commercial
consulting operating segment increased $8.0 million, or 6.9%, to $123.8 million
from the year ended December 31, 1998. This increase was attributable to
approximately $12.7 million of revenues from acquired companies. The increases
resulting from acquisitions was partially offset by the core commercial business
which experienced a decrease in revenues of approximately $4.7 million primarily
due to a reduction in staff and the number of overall contracts. For the year
ended December 31, 1999, revenues from the Company's government consulting
operating segment decreased approximately $2.9 million, or 4.8%, to $56.7
million from the year ended December 31, 1998. Excluding the $5.6 million in
1998 revenues resulting from certain assets of the Company's government sector
consulting practice which was sold in September 1998, the segment's core
government consulting business increased $2.7 million, primarily the result of
increased pass-thru equipment sales and a stronger international presence. Other
revenues for the year ended December 31, 1999 were $1.4 million. In the year
ended December 31, 1999, approximately 68.0% of the Company's revenues were
derived from commercial consulting revenues, as compared with 65.2% in the year
ended December 31, 1998.
Cost of services for the year ended December 31, 1999, increased by
$21.1 million, or 16.7%, to $147.3 million from the year ended December 31,
1998. Cost of services as a percentage of revenue increased from 71.1 % for the
year ended December 31, 1998, to 80.9% for the year ended December 31, 1999,
primarily due to an increase in bonuses paid to key consulting employees as a
result of the repositioning plan, an increase in compensation paid to consulting
staff, an increase in reserves due to issues related to the integration of its
acquired subsidiaries and high pass-thru costs associated with the increase in
volume equipment sales, on which gross margins of typically 1% to 2% are earned.
Selling, general and administrative expenses ("SG&A") for the year
ended December 31, 1999, increased by approximately $15.3 million, or 61.0%, to
$40.4 million from the year ended December 31, 1998. Expressed as a percentage
of total revenues, SG&A expenses increased from 14.2% for the year ended
December 31, 1998, to 22.2% for the year ended December 31, 1999. This increase
is primarily reflective of an increase in bonuses paid to key employees
resulting from the repositioning plan and increased business development costs,
as well as costs related to the centralization of certain operating systems and
administrative functions.
Merger related and other nonrecurring costs for the year ended December
31, 1999, decreased by $8.0 million to $0.3 million as compared to the
comparable period of the prior year. The decrease in merger related and other
nonrecurring costs in 1999 was primarily the result of a decrease in the size
and number of acquisitions in 1999.
Asset impairment costs for the year ended December 31, 1999 increased
by $3.5 million to $4.6 million as compared to the comparable period of the
prior year. Asset impairment expenses in 1999 were the result of the impairment
of intangible assets associated with certain subsidiaries for which management
has determined realizable value of the related goodwill to be in excess of the
future cash flows from operations. Asset impairment expenses in 1998 were the
result of impaired software development costs due to the duplication of
technologies resulting from the Company's business combinations and its joint
venture with Cap Gemini.
There was no stock and stock option compensation for the year ended
December 31, 1999. Stock and stock option compensation in 1998 was substantially
all related to PHB and included non-cash, non-tax deductible compensation based
on the difference between the fair market and book values of PHB common stock
issuable under subscriptions within one year of the companies' merger.
Other income (expenses), net includes interest income, interest
expense, minority interest, and other income and expenses. Other income
(expenses), net decreased by approximately $342,000 from income of $269,000 for
the year ended December 31, 1998 to expense of $73,000 for the year ended
December 31, 1999. The primary reason for this decrease was the loss of
approximately $68,000 from the sale of IGA in December 1999 while the Company
had a gain of approximately $282,000 from the sale of certain assets of the
Company's government sector consulting practice in 1998.
Loss from the Company's joint venture, Cap Gemini Hagler Bailly LLC,
for the fiscal year ending December 31, 1999 decreased by approximately $36,000
from a loss of $463,000 in 1998 to a loss of $427,000 in 1999. Cap Gemini Hagler
Bailly LLC, began operations in the fourth quarter 1998 and was created to
deliver information technology consulting services and solutions to electric,
gas and water utilities and service providers in the U.S. and Canada. Margins on
the joint venture improved significantly over the last six months of 1999 and
the Company expects the joint venture to generate positive earnings for the year
ending December 31, 2000.
The Company recorded an income tax benefit of $1.2 million, resulting
in an effective income tax benefit rate of 11.3% for the year ended December 31,
1999 as compared to a provision of $7.3 million resulting in an effective rate
of 50.4% in the prior period. The effective income tax rates in 1998 and 1999
differed from the provisional rates primarily due to the non-deductibility of
amortization of goodwill, certain non-deductible merger related costs, and the
non-deductibility of the compensation charge in connection with subscriptions
for the issuance of common stock.
Net income for the year ended December 31, 1999 decreased by approximately
$16.6 million, to a net loss of $9.9 million, as a result of the reasons
discussed above.
1998 Compared to 1997
Revenues for the year ended December 31, 1998, increased by $16.8
million, or 10.5%, to $177.5 million from the year ended December 31, 1997.
Revenues from the Company's commercial consulting operating segment increased
$13.7 million, or 13.4%, to $115.8 million. This increase was primarily driven
by the Company's focus on the growth of private-sector engagements resulting in
an increase of $6.5 million, an increase internationally of $6.5 million
resulting primarily from growth in Hagler Bailly France and IGA and $0.7 million
through the purchase of Fieldston Consulting. Revenues from the Company's
government consulting operating segment increased approximately $2.9 million, or
5.1%, to $59.6 million. This increase was primarily attributable to increased
capacity and capabilities through the purchase of Estudio Q, an Argentinean
company, and growth in PT Hagler Bailly Indonesia and Hagler Bailly Pakistan.
Other revenues for the year ended December 31, 1998 were $2.1 million. In the
year ended December 31, 1998, approximately 65.2% of the Company's revenues were
derived from commercial consulting revenues, as compared with 63.6% in the year
ended December 31, 1997.
Cost of services for the year ended December 31, 1998, increased by
$5.6 million, or 4.7%, to $126.2 million from the year ended December 31, 1997.
Cost of services as a percentage of revenue decreased from 75.1 % for the year
ended December 31, 1997, to 71.1% for the year ended December 31, 1998,
primarily the result of a reduction in cash compensation resulting from the
integration of the Company's and merged firms' operations, particularly PHB.
Selling, general and administrative expenses ("SG&A") for the year
ended December 31, 1998, decreased by approximately $1.8 million, or 6.5%, to
$25.1 million from the year ended December 31, 1997. Expressed as a percentage
of total revenues, SG&A expenses decreased from 16.7% for the year ended
December 31, 1997, to 14.2% for the year ended December 31, 1998. This decrease
is primarily reflective of a reduction in cash compensation resulting from the
integration of the Company's and merged firms' operations, particularly PHB.
In the year ended December 31, 1998, there were no expenses related to
the liquidation of a subsidiary, compared to approximately $328,000 in expenses
related to the liquidation of a subsidiary in the year ended December 31, 1997.
Merger related and other nonrecurring costs for the year ended December
31, 1998, increased by $7.0 million to $8.3 million as compared to the
comparable period of the prior year. The majority of the merger related costs in
the year ended December 31, 1998, were associated with the merger of PHB and
exiting from the Company's financial advisory services business, as well as the
business combinations with TB&A, IGA, Apogee, FPI, TFC and Estudio Q.
Asset impairment costs for the year ended December 31, 1998 were $1.1
million. Asset impairment expenses in 1998 were the result of impaired software
development costs due to the duplication of technologies resulting from the
Company's business combinations and its joint venture with Cap Gemini. There
were no asset impairment costs in the year ended December 31, 1997.
Stock and stock option compensation for the year ended December 31,
1998, decreased by $7.4 million from the year ended December 31, 1997, to $2.6
million. Substantially all of these costs in both periods related to PHB and
include non-cash, non-tax deductible compensation based on the difference
between the fair market and book values of PHB common stock issuable under
subscriptions within one year of the companies' merger.
Other income (expenses), net includes interest income, interest
expense, minority interest, and other income and expenses. Other income
(expenses), net increased by approximately $669,000 to income of $269,000 in the
year ended December 31, 1998. The primary reasons for this increase was a gain
of approximately $282,000 from the sale of certain assets of the Company's
environmental consulting business, as well as a decrease in interest expense
from the year ended December 31, 1997, due to the use of IPO proceeds to repay
the Company's outstanding debt.
Loss from joint venture for the fiscal year ending December 31, 1998,
was approximately ($460,000), or (0.2%) expressed as a percentage of total
revenues. The joint venture, Cap Gemini Hagler Bailly LLC, was created to
deliver information technology consulting services and solutions to electric,
gas and water utilities and service providers in the U.S. and Canada.
The Company's effective tax rate for the year ended December 31, 1998,
was 50.4%. The 1998 provision for tax is higher than the provisional tax rate of
39.7% as a result of the non-deductibility for tax reporting purposes of the
compensation charge in connection with subscriptions for the issuance of common
stock, and certain non-deductible merger related costs.
Net income before extraordinary gains for the year ended December 31, 1998,
increased by approximately $10.9 million, to $6.7 million, as a result of a
combination of reasons discussed above.
For the year ended December 31, 1998, there were no extraordinary
gains, compared to approximately $2.3 million in extraordinary gains, net of
income tax expense, for the year ended December 31, 1997. The gains in 1997 were
the result of extinguishment of debt at beneficial terms to the Company.
Net income for the year ended December 31, 1998 increased by approximately
$8.6 million, to $6.7 million, as a result of the reasons discussed above.
Liquidity and Capital Resources
As of December 31, 1999, working capital was $44.4 million as
compared to $54.3 million at December 31, 1998. The decrease was primarily due
to an increase in accrued compensation related to the Company's repositioning
plan, as well as the use of cash associated with the Company's treasury
repurchase program and the acquisition of property, plant and equipment.
Cash provided from operating activities was approximately $3.3 million,
primarily the result of the principal element of the company's repositioning
plan which resulted in a $10.2 million increase in accrued compensation. Net
cash was also provided by approximately $5.8 million of depreciation and
amortization and approximately $8.4 million in other operating activities. These
increases in cash were partially offset by an $8.4 million decrease in taxes
payable, a net loss of approximately $9.9 million for the year and an increase
of approximately $2.8 million in accounts receivable.
Investment activities used $5.5 million during the year ended December
31, 1999. The Company used approximately $4.1 million in the purchase of office
and computer equipment, leasehold improvements, and other resources necessary to
improve operating efficiencies of the Company, $0.7 million for the purchase of
acquired companies and $0.7 million to fund additional capital in the Cap Gemini
Hagler Bailly LLC joint venture.
Financing activities used $4.3 million for the year ended December 31,
1999. The Company used approximately $4.1 million in funds for the repurchase of
559,700 shares of the Company's common stock. Under the stock buyback program
established by the Board of the Directors, as of December 31, 1999, the Company
is authorized to repurchase 940,300 additional shares of the Company's common
stock. Additionally, approximately $0.3 million was used to pay down an
outstanding loan related to the acquisition of TFC in 1998.
The Company's primary source of liquidity for the past 12 months was
cash generated from operations, periodically supplemented by borrowings under a
revolving credit facility with Bank of America (formerly NationsBank.). The
maximum available balance under the line of credit is $50.0 million based on
certain financial formulas. Based on these formulas the current available
balance at December 31, 1999 was $12.2 million, due to charges from the
repositioning plan announced in December 1999. The Company was in non-compliance
with certain covenants that were subsequently waived by Bank of America. The
company is currently re-negotiating the terms of the credit facility to better
meet its future business needs. Based on the Company's current projected cash
flow and the availability of financing, including borrowings under the Company's
credit facility, management of the Company believes it will be able to meet its
anticipated cash requirements for the next 12 months and for the foreseeable
future.
Year 2000
The Company experienced no significant system or application problems
resulting from the Year 2000 roll-over or from the Year 2000 "leap year" on
February 29, 2000. The Company will continue to maintain Year 2000 contingency
plans with regard to its computer programs and systems and those of its clients,
suppliers and vendors.
The Company incurred approximately $0.3 million in 1999 implementing
the Year 2000 readiness plan.
Item 7A - Quantitative and Qualitative Disclosures about Market Risk
The following discussion about the Company's market risk disclosures
involves forward-looking statements. Actual results could differ materially. The
Company is exposed to market risk from changes in interest rates and foreign
exchange rates. Adverse changes in either interest rates or foreign exchange
rates can have a material effect on the Company's operations.
Interest Rate Risk: The Company is subject to risk from changes in
interest rates. The Company utilizes U.S. dollar denominated borrowings to fund
its operational needs, and as of December 31, 1999, had total outstanding debt
of approximately $666,666. A hypothetical 10% adverse change in interest rates
on the Company's total outstanding debt as of December 31, 1999 would not have
been material. Interest rates may move in the Company's favor. While the Company
does not expect to incur material losses as a result of this interest rate risk,
there can be no assurance that losses will not result.
Foreign Currency Exchange Risk: The Company is subject to risk from
changes in foreign exchange rates for its subsidiaries which use a foreign
currency as their functional currency and are translated into U.S. dollars. Such
changes could result in cumulative translation gains or losses that are included
in shareholders' equity.
In the year ended December 31, 1999, approximately 14.1% of the
Company's total revenues were derived from operations in foreign countries
including Argentina, Armenia, Australia, Canada, China, France, Ireland, India,
Indonesia, New Zealand, Pakistan, Russia and the United Kingdom. Exchange rate
fluctuations between the U.S. dollar and the currencies of these countries
result in positive or negative fluctuations in the amounts relating to foreign
operations reported in the Company's consolidated financial statements. None of
the components of the Company's financial statements were materially affected by
exchange rate fluctuations in the years ended December 31, 1997, 1998, or 1999.
The potential loss resulting from a hypothetical uniform 10%
strengthening in the value of the U.S. dollar relative to the foreign currencies
in which some of the Company's sales are denominated would have resulted in a
increase in earnings of approximately $47,000. The potential impact of the same
hypothetical uniform change on the Company's cash flows would have resulted in
an increase in cash flows of approximately $158,000. This calculation assumes
that each exchange rate would change in the same direction relative to the U.S.
dollar. Foreign exchange rates may move not in the Company's favor.
The sensitivity of earnings and cash flows to fluctuations in exchange
rates is periodically assessed by management by applying an appropriate range of
potential rate fluctuations to the Company's assets, liabilities, and projected
results of operations denominated in foreign currency. Historically, the Company
has not used foreign currency options and forward contracts to hedge against the
earnings effects of such fluctuations. While the Company does not expect to
incur material losses as a result of this currency risk, there can be no
assurance that losses will not result.
ITEM 8 - CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The Consolidated Financial Statements of Hagler Bailly are annexed to
the report as pages FS-1 through FS-28. An index to the Financial Statements is
set forth on page 40.
ITEM 9 - CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCUSSIONS
Not applicable.
PART III
The information required by Items 10 through 13 of this Part III will
be provided in the definitive proxy statement for the Company's 1999 Annual
Meeting of Stockholders to be filed pursuant to Regulation 14A of the Securities
Exchange Act of 1934 no later than April 30, 1999, and is incorporated herein by
reference to the extent provided below.
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF HAGLER BAILLY
Certain information regarding executive officers of the Company is
included in Item 1 of Part I of this 1999 Annual Report on Form 10-K. Other
information in response to this item is incorporated by reference herein from
the sections of the Proxy Statement captioned "ELECTION OF DIRECTORS" and
"SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE."
ITEM 11 - EXECUTIVE COMPENSATION
Information in response to this item is incorporated by reference
herein from the section of the Proxy Statement captioned "DIRECTOR
COMPENSATION", "COMPENSATION COMMITTEE REPORT ON COMPENSATION OF EXECUTIVE
OFFICERS OF THE COMPANY", "COMPENSATION INTERLOCKS AND INSIDER PARTICIPATION",
"EXECUTIVE COMPENSATION SUMMARY TABLE", "STOCK OPTION GRANTS DURING 1999",
"STOCK OPTION EXERCISES AND VALUES IN 1999", "EMPLOYMENT ARRANGEMENTS",
"COMPARISON OF FIVE-YEAR TOTAL RETURNS" AND "PERFORMANCE GRAPH".
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information in response to this item is incorporated by reference
herein from the section of the Proxy Statement captioned "SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS".
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information in response to this item is incorporated by reference
herein from the section of the Proxy Statement captioned "CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS".
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
The consolidated financial statements filed as part of this report are
listed in the accompanying Index to Consolidated Financial Statements. The
exhibits filed as part of this report are listed in the accompanying Exhibit
Index, which follows the signature pages to this report.
39
HAGLER BAILLY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors........................................ FS-1
Consolidated Balance Sheets at December 31, 1998
and 1999.............................................................. FS-2
Consolidated Statements of Operations for the years
ended December 31, 1997, 1998 and 1999................................ FS-3
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1997, 1998 and 1999.................. FS-4
Consolidated Statements of Cash Flows for the years ended December 31, 1997,
1998 and 1999.......................................................... FS-5
Notes to Consolidated Financial Statements............................. FS-6
FS-3
Report of Independent Auditors
Board of Directors and Stockholders
Hagler Bailly, Inc.
We have audited the accompanying consolidated balance sheets of Hagler Bailly,
Inc. as of December 31, 1998 and 1999, and the related consolidated statements
of operations, stockholders' equity, and cash flows for each of the three years
in the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Hagler Bailly,
Inc. at December 31, 1998 and 1999, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999 in conformity with accounting principles generally accepted in
the United States.
/s/ Ernst & Young LLP
March 24, 2000
McLean, Virginia
HAGLER BAILLY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31,
1998 1999
------------------- ------------------
Assets
Current assets:
Cash and cash equivalents $ 16,165 $ 9,656
Accounts receivable, net of allowance for doubtful accounts of $3,888
and $5,604 as of December 31, 1998 and 1999, respectively 59,092 63,034
Current portion of notes receivable 382 80
Prepaid expenses 2,620 2,173
Prepaid taxes - 5,915
Deferred income taxes - 1,701
Other current assets 304 960
------------------- ------------------
------------------- ------------------
Total current assets 78,563 83,519
Property and equipment, net 6,463 8,271
Software development costs, net 898 -
Intangible assets, net 14,208 22,449
Other assets 1,290 1,475
Note receivable, net of current portion - 495
------------------- ------------------
Total assets $101,422 $116,209
=================== ==================
Liabilities and stockholders' equity Current liabilities:
Accounts payable and accrued expenses $ 8,476 $ 13,948
Accrued compensation and benefits 8,713 19,072
Billings in excess of cost 2,288 5,812
Current portion of long-term debt 345 333
Income taxes payable 2,547 -
Deferred income taxes 1,900 -
------------------- ------------------
Total current liabilities 24,269 39,165
Long-term debt, net of current portion 681 333
Minority interest 177 8
Deferred income taxes payable 927 2,383
Deferred rent and other deferred liabilities 1,769 2,028
------------------- ------------------
Total liabilities 27,823 43,917
Stockholders' equity
Common stock:
Par value $.01, 50,000 shares authorized, 16,483 and 17,911 issued
and outstanding at December 31, 1998 and 1999, respectively 165 179
Additional capital 72,322 80,996
Retained earnings (deficit) 1,206 (8,718)
Foreign currency translation (94) (165)
------------------- ------------------
Total stockholders' equity 73,599 72,292
------------------- ------------------
Total liabilities and stockholders' equity $ 101,422 $ 116,209
=================== ==================
See accompanying consolidated notes.
HAGLER BAILLY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
For the years ended December 31,
1997 1998 1999
------------------- ------------------- ------------------
Revenues:
Commercial revenues $ 102,097 $ 115,772 $ 123,798
Government revenues 56,766 59,638 56,750
Other revenues 1,752 2,052 1,433
------------------- ------------------- ------------------
Total revenues 160,615 177,462 181,981
Cost of services 120,585 126,204 147,294
------------------- ------------------- ------------------
Gross profit 40,030 51,258 34,687
Merger related and other nonrecurring costs 1,235 8,275 292
Asset impairment costs - 1,107 4,591
Liquidation of subsidiary 328 - -
Selling, general and administrative expenses 26,868 25,112 40,440
Stock and stock option compensation 9,965 2,595 -
------------------- ------------------- ------------------
Income (loss) from operations 1,634 14,169 (10,636)
Other income (expense)
Interest income 1,192 349 127
Interest expense (1,301) (410) (173)
Other (expense) income, net (291) 411 (18)
Minority interest - (81) (9)
------------------- ------------------- ------------------
Income (loss) before income tax expense, equity
investment in joint venture and extraordinary gain 1,234 14,438 (10,709)
Income tax expense (benefit) 5,460 7,275 (1,212)
------------------- ------------------- ------------------
(Loss) income before equity investment in joint venture
and extraordinary gain (4,226) 7,163 (9,497)
Loss from equity investment in joint venture - (463) (427)
------------------- ------------------- ------------------
(Loss) income before extraordinary gain (4,226) 6,700 (9,924)
Extraordinary gain 2,336 - -
------------------- ------------------- ------------------
Net (loss) income $ (1,890) $ 6,700 $ (9,924)
=================== =================== ==================
Net (loss) income per share:
Basic
Net (loss) income per share before extraordinary gain $ (0.32) $ 0.42 $ (0.58)
Net income per share extraordinary gain $ 0.17 - -
Net (loss) income per share $ (0.14) $ 0.42 $ (0.58)
Diluted
Net (loss) income per share before extraordinary gain $ (0.32) $ 0.40 $ (0.58)
Net income per share extraordinary gain $ 0.17 - -
Net (loss) income per share $ (0.14) $ 0.40 $ (0.58)
Weighted average shares outstanding:
Basic 13,361 15,992 17,059
=================== =================== ==================
Diluted 13,361 16,772 17,059
=================== =================== ==================
See accompanying consolidated notes.
HAGLER BAILLY, INC
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
FS-4
Retained Other Total
Common Additional Earnings Comprehensive Stockholders'
Shares Amount Capital (Deficit) Income Equity
Balance, December 31, 1996 11,620 $ 116 $ 12,882 $ (3,038) $ (3) $ 9,957
Issuance of common stock - IPO 2,500 25 30,240 - - 30,265
Issuance of common stock - other 995 10 698 - - 708
Repurchase of common stock (126) (1) (81) - - (82)
Dividends paid - IGA - - - (233) - (233)
Compensatory stock & options - - 9,965 - - 9,965
Exercise of stock options 485 5 133 138
Foreign currency translation - - - - 21 21
Net loss - - - (1,890) - (1,890)
----------------------------------------------- ------- ----------------------- -------
Comprehensive income (1,869)
-------
Balance, December 31, 1997 15,474 155 53,837 (5,161) 18 48,849
Sale of common stock - Cap Gemini 471 5 11,828 - - 11,833
Shares issued for acquisitions 297 3 4,120 - - 4,123
Compensatory stock & options - - 2,595 - - 2,595
Issuance of common stock - other 193 2 544 - - 546
Purchase of common stock - dissenting
shareholder (51) (1) (967) - - (968)
Dividends paid - IGA - - - (333) - (333)
Exercise of stock options 99 1 365 - - 366
Foreign currency translation - - - - (112) (112)
Net income - - - 6,700 - 6,700
--------------------------------------------------- ------ -------------------------- -----
Comprehensive income 6,588
-------
Balance, December 31, 1998 16,483 165 72,322 1,206 (94) 73,599
Shares issued for acquisitions 1,629 16 12,643 - - 12,659
Stock repurchase plan (560) (6) (4,103) - - (4,109)
Exercise of stock options 359 4 134 - - 138
Foreign currency translation - - - - (71) (71)
Net loss - - - (9,924) - (9,924)
-------------------------------------------------- ------- ----------------------- -------
Comprehensive income (9,995)
-------
Balance, December 31, 1999 17,911 $179 $80,996 $8,718 $(165) $72,292
====== ==== ======= ====== ===== =======
See accompanying consolidated notes.
HAGLER BAILLY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
FS-30
For the years ended December 31,
1997 1998 1999
------------------------------------------------------------
Operating activities
Net (loss) income $(1,890) $6,700 $(9,924)
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities
Depreciation and amortization 2,908 4,320 5,772
Provision for accounts receivable allowance 972 15 1,716
Extraordinary gain (2,336) - -
Gain on sale of government sector assets - (282) -
Provision for deferred income taxes (383) 1,530 (2,509)
Stock and stock option compensation 9,965 2,595 -
Impairment of loan receivable - 1,000 -
Minority interest - 177 (169)
Asset impairment - 1,107 4,591
Loss on equity investment in joint venture - 463 427
Loss on liquidation of subsidiary 328 - -
Changes in operating assets and liabilities:
Accounts receivable (17,115) (9,401) (2,837)
Note Receivable - - (193)
Prepaid expenses (328) (1,118) (286)
Deferred compensation 1,050 (3,566) -
Deferred rent and other deferred liabilities 82 182 258
Other current assets (1,411) 1,553 (240)
Other assets (519) 470 (609)
Accounts payable and accrued expenses 1,741 (106) 2,273
Accrued compensation and benefits 670 (5,362) 10,174
Income taxes payable 1,908 595 (8,409)
Billings in excess of cost (409) (1,213) 3,306
------------------------------------------------------------
Net cash (used in) provided by operating activities (4,767) (341) 3,341
------------------------------------------------------------
Investing activities
Proceeds from sale of government sector assets - 2,855 -
Sale of subsidiary - - (27)
Amount paid in connection with liquidation of subsidiary 1,684 - -
Purchase of minority interest in consulting business (531) - -
Investment in note receivable (1,000) - -
(Purchase) sale of investments (6,551) 6,551 -
Purchase of acquired companies, net of cash received - (3,336) (697)
Expenditures for software development (2,512) - -
Equity investment in joint venture - (500) (709)
Acquisition of property and equipment (3,209) (3,988) (4,098)
------------------------------------------------------------
Net cash (used in) provided by investing activities (12,119) 1,582 (5,531)
------------------------------------------------------------
Financing activities
Sale of common stock 31,111 912 138
Sale of common stock - Cap Gemini - 11,833 -
Repurchase of common stock (82) (968) (4,109)
Net payments on bank line of credit (2,500) (1,500) -
Dividends paid (233) (333) -
Proceeds from long-term financing - - -
Principal payments on long-term debt (9,368) (281) (348)
------------------------------------------------------------
Net cash provided by (used in) financing activities 18,928 9,663 (4,319)
------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 2,042 10,904 (6,509)
Cash and cash equivalents, beginning of year 3,219 5,261 16,165
============================================================
Cash and cash equivalents, end of year $5,261 $16,165 $9,656
============================================================
See accompanying consolidated notes.
HAGLER BAILLY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except share and per share data)
1. Organization
Hagler Bailly, Inc. ("Hagler Bailly" or the "Company") is a worldwide
provider of management consulting and other advisory services to the commercial
and government sectors. The Company operates in principally two business
segments: Commercial Consulting and Government Consulting. Commercial Consulting
consists primarily of providing strategic advice and analysis to businesses in
developed countries on issues involving energy, transportation,
telecommunications, the environment, litigation and other matters. Government
Consulting consists primarily of providing advisory and technical services to
government sector clients worldwide in the energy and network industries (mainly
in water and transportation) and the environment. The Company is headquartered
in Arlington, Virginia and has offices in the United States, Asia, Europe, and
Latin America.
On July 3, 1997, the Company consummated an initial public offering of
2,500,000 shares at an offering price of $14 per share. The offering netted the
Company $30,300 used to pay off debt then outstanding, fund acquisitions, and
provide working capital needs.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation.
In 1997, the Company acquired a 7.8% minority ownership interest in a
consulting business in the United Kingdom for cash of $531. Due to the
uncertainty of recovery, the Company established a valuation allowance for this
investment. During 1998 and 1999, the Company provided services to, and
purchased consulting services from, this consulting business of $288 and $362,
$2 and $77, respectively. At December 31, 1998 and 1999, the accounts receivable
from this consulting business amounted to $543 and $617, respectively.
Foreign Currency Translation
The assets and liabilities of the Company's foreign subsidiaries are
translated into U.S. dollars using exchange rates at the balance sheet dates.
Income and expense items are translated at average exchange rates for the
respective periods. The effect of translating these amounts at different rates
is included as a component of comprehensive income in shareholders' equity.
Transaction gains and losses are charged to operations in the period in which
they occur. Transaction (loss) gains in 1997, 1998, and 1999 amounted to ($373),
$420, and $7, respectively.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes, in particular, estimates of revenues and
contract costs used in the earnings recognition process. Actual results could
differ from those estimates.
Cash and Cash Equivalents
Cash equivalents are short-term, highly liquid investments, which have
an original maturity when acquired of three months or less. At December 31, 1998
and 1999, respectively, cash equivalents include $6,810 and $3,040 in money
market funds.
Property and Equipment
Property and equipment are recorded at original cost and depreciated using
a combination of straight-line and accelerated methods over their estimated
useful lives of three to ten years. Leasehold improvements are recorded at cost
and amortized over the shorter of their useful lives or the term of the related
leases by use of the straight-line method.
Revenue Recognition
Consulting revenue represents revenue generated by professional staff
of the Company, and also includes subcontractor revenue that is principally
related to services provided by subcontractors and independent consultants which
are billed by the Company to its clients. Other revenue includes those derived
from information-based products and services, financial advisory services, and
publication services.
Revenue from cost-plus fixed-fee contracts is recognized as costs are
incurred on the basis of direct costs plus allowable indirect costs and a pro
rata portion of estimated fee.
Revenue from fixed-bid type contracts is recognized on the
percentage-of-completion method of accounting with costs and estimated profits
included in revenue based on the relationship that contract costs incurred bear
to management's estimate of total contract costs. Losses, if any, are accrued
when they become known and the amount of the loss is reasonably determinable.
Revenue from time and materials contracts is recognized in the period
the work is performed. Estimated losses, if any, are provided for at the time
such losses become known.
Revenue from standard daily rate contracts is recognized at amounts
represented by the agreed-upon billing amounts and costs are recognized as
incurred. Estimated losses, if any, are provided for at the time such losses
become known.
Amounts billed or received in excess of revenue recognized in
accordance with the Company's revenue recognition policy are classified as
billings in excess of cost in the accompanying balance sheets.
Income Taxes
The Company provides for income taxes in accordance with the liability
method. Under this method, deferred tax assets and liabilities are determined
based on temporary differences between financial and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
Fair Value of Financial Instruments
The Company considers the recorded value of its financial assets and
liabilities, which consist primarily of cash and cash equivalents, accounts
receivable, accounts payable, and accrued compensation to approximate the fair
value of the respective assets and liabilities at December 31, 1998 and 1999.
Intangibles
The purchase price of acquisitions is allocated to the assets acquired
and the liabilities assumed based upon their fair values as of the acquisition
date. The excess of the purchase price over the fair value of assets acquired in
the purchase is recorded as intangible assets, including goodwill, and is
amortized over 5 to 20 years on a straight-line basis. Intangible assets at
December 31, 1998 and 1999 are net of accumulated amortization of $2,441 and
$3,456, respectively. Amortization expense for the years ended December 31,
1997, 1998 and 1999, was $736, $688 and $1,550, respectively.
Statement of Financial Accounting Standards No. 121
The Company assesses the impairment of long-lived assets including
intangible assets in accordance with Statement of Financial Accounting Standards
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of ("SFAS 121"). SFAS 121 requires impairment losses to be
recognized for long-lived assets when indicators of impairment are present and
the undiscounted cash flows are not sufficient to recover the assets' carrying
amount. Intangibles are also evaluated for recoverability by estimating the
projected undiscounted cash flows, excluding interest, of the related business
activities. The impairment loss of these assets, including goodwill, is measured
by comparing the carrying amount of the asset to its fair value with any excess
of carrying value over fair value written off. Fair value is based on market
prices where available, an estimate of market value, or determined by various
valuation techniques including discounted cash flow.
Based on an evaluation of its intangible assets and in connection with
the Company's regular forecasting processes, the Company determined that $4,591
of goodwill associated with Estudio Q Ingenieros Asociados S.R.L ("Estudio Q"),
PT Hagler Bailly and Fieldston Publications, Inc. ("FPI") were permanently
impaired. The write-offs are classified as asset impairment costs in the
consolidated statements of operations (see Note 18).
Merger Related and other Nonrecurring Costs
For the years ended December 31, 1997, 1998 and 1999, merger related
and other nonrecurring costs were approximately $1,235, $8,275 and $292
respectively. Costs of effecting mergers accounted for as poolings of interests
and subsequently integrating the operations of the various companies merged in
either pooling or purchase transactions are recorded as merger related and other
nonrecurring costs when incurred. These costs consist primarily of direct merger
costs such as investment banking, legal, accounting and filing fees, as well as
related costs incurred to realign corporate, administrative, and personnel
functions, implement efficiencies with regard to information systems and
offices, change the corporate identity for the acquired companies, and other
expenses incurred to integrate operations.
Stock Repurchase Plan
The Company is authorized to repurchase up to 1.5 million shares of the
Company's common stock in the open market or in a previously negotiated
transaction. As of December 31, 1999, the Company had repurchased 559,700 shares
for approximately $4,100 in cash.
Reclassification
Certain amounts in the prior period's financial statements have been
reclassified to conform to the 1999 presentation.
3. Business Combinations and Joint Ventures
On December 1, 1997, the Company exchanged 409,985 shares of its common
stock in exchange for all of the outstanding common stock of Apogee Research
Inc. ("Apogee"). The business combination was accounted for as a pooling of
interests. Accordingly, the consolidated financial statements include the
accounts of the Company, its subsidiaries and Apogee for all periods presented.
On January 28, 1998, the Company purchased the remaining minority
interest of PT Hagler Bailly, a consulting firm located in Jakarta, Indonesia,
bringing the Company's ownership to 100 percent. Total consideration of the
acquisition was $200 in cash. Accordingly, the consolidated financial statements
reflect the results of operations of PT Hagler Bailly since the date of
acquisition. As a result of the transaction, the Company recorded intangible
assets of approximately $200.
On February 23, 1998, the Company issued 454,994 shares of its common
stock in exchange for all the stock of TB&A Group ("TB&A"). The transaction was
accounted for as a pooling of interests. Accordingly, the consolidated financial
statements include the accounts of the Company, its subsidiaries and TB&A for
all periods presented. TB&A had revenue and net income of $2,491 and $534,
respectively, for the period from January 1, 1998, to the date of combination.
On March 10, 1998, the Company purchased the remaining minority
interest of Hagler Bailly Indonesia, Inc., and consolidated the subsidiary with
PT Hagler Bailly. Total consideration of the acquisition was $240 in cash. The
acquisition was accounted for as a purchase. The consolidated financial
statements have reflected the results of operations of Hagler Bailly Indonesia,
Inc., since its inception. As a result of the transaction, the Company
recorded intangible assets of approximately $240.
On April 30, 1998, the Company completed the acquisition of Estudio Q,
an Argentinean company, whereby Estudio Q became a wholly-owned subsidiary
of the Company. Total consideration for the acquisition was approximately
$2,400 in the form of $800 cash and an aggregate of 64,306 shares of Hagler
Bailly common stock. The acquisition was accounted for using the purchase
method. Accordingly, the consolidated financial statements reflect the
results of operations of Estudio Q since the date of acquisition. As a result
of the transaction, the Company recorded intangible assets of approximately
$2,700.
On June 16, 1998, the Company and Cap Gemini S.A. and its wholly owned
subsidiary, Cap Gemini America, Inc., entered into an exclusive joint venture to
deliver information technology consulting services and solutions to electric,
gas and water utilities, and service providers in the U.S. and Canada. The
Company has fulfilled it's commitment to provide $1,000 cash under the joint
venture agreements of which approximately $500 cash and approximately $200 in
software development costs were provided during the year ended December 31, 1998
and another $710 in cash was provided during the year ended December 31, 1999.
The Company accounts for its investment under the equity method and,
accordingly, recognized a loss on equity investment of $427 for the year ended
December 31, 1999.
On June 30, 1998, the Company issued 183,550 shares of its common stock
in exchange for all of the stock of Izsak, Grapin et Associes ("IGA"). The
transaction was accounted for as a pooling of interests. Accordingly, the
consolidated financial statements include the accounts of the Company, its
subsidiaries and IGA for all periods presented. IGA had revenue and net income
of $2,342 and $333, respectively, for the period from January 1, 1998, to the
date of combination. On December 31, 1999 the Company sold IGA to its former
owners (see Note 15.)
On August 28, 1998, the Company issued 6,548,953 shares of its common
stock in exchange for all of the stock of Putnam, Hayes & Bartlett, Inc.
("PHB"). The transaction was accounted for as a pooling of interests.
Accordingly, the consolidated financial statements include the accounts of the
Company, its subsidiaries and PHB for all periods presented. PHB had revenue and
net income of $44,903 and $1,869, respectively, for the period from January 1,
1998, to the date of combination.
On November 17, 1998, the Company completed the acquisition of certain
of the assets and the liabilities of TFC and the stock of FPI, which became a
wholly-owned subsidiary of the Company. Total consideration of the acquisition
was approximately $1,300 in cash, 232,558 shares of Hagler Bailly common stock,
and a note payable of $1,000. The acquisition was accounted for as a purchase.
Accordingly, the consolidated financial statements reflect the results of
operations of TFC since the date of acquisition. As a result of the transaction
the Company recorded intangible assets of approximately $5,215.
On February 8, 1999, the Company acquired all of the outstanding stock
of Lacuna Consulting Limited ("Lacuna"), a United Kingdom corporation, in
exchange for 65,000 shares of the Company's common stock. The acquisition was
accounted for as a purchase. Accordingly, the consolidated financial statements
reflect the results of operations of Lacuna since the date of acquisition. As a
result of the transaction, the Company recorded intangible assets of
approximately $1,402.
On April 30, 1999, the Company acquired all of the outstanding stock of
Washington International Energy Group, Ltd. ("WIEG"), a Washington, D.C.-based
worldwide provider of energy and environmental policy consulting research
services, in exchange for 144,210 shares of the Company's common stock and
approximately $850 in cash. The Company has the right to repurchase up to 26,210
of these shares at $ .01 cents per share if the price of the Company's stock
meets certain price targets during the three year period following the
acquisition. The transaction was accounted for as a purchase. Accordingly, the
consolidated financial statements reflect the results of operations of WIEG
since the date of acquisition. As a result of the transaction, the Company
recorded intangible assets of approximately $1,574.
On June 1, 1999, the Company received the remaining minority interest
of its joint venture, Hagler Bailly Risk Advisors, LLC, a limited liability
company located in Houston, Texas, from Objective Resources Group Ris
Advisors, LLC bringing the Company's ownership to 100%.
On August 12, 1999, the Company acquired all of the outstanding stock
of GKMG, Inc. ("GMKG"), a Washington, D.C.-based consulting firm specializing in
the economic, strategic, financial, and regulatory analysis of the aviation
industry, in exchange for 1,420,000 shares of the Company's common stock. Under
the terms of the Share Exchange Agreement by and among the Company, GKMG and
former shareholders of GKMG, the Company is obligated to issue additional shares
of its common stock to the former shareholders of GKMG with a fair market value
(as defined in the Share Exchange Agreement) up to $15 million if certain
earnings targets for GKMG are met for the periods July 1, 1999-June 30, 2000 and
July 1, 2000-June 30, 2001. In addition, the Company is obligated to issue up to
192,857 additional shares of its common stock to the former shareholders of GKMG
if certain stock price performance contingencies are not met. The transaction
was accounted for as a purchase. Accordingly, the consolidated financial
statements reflect the results of operations of GKMG since the date of
acquisition. As a result of the transaction, the Company recorded intangible
assets of approximately $11,042.
Pro forma unaudited operating information reflecting the results of
business combinations accounted for as purchases as if these companies were
acquired on the first date of the respective periods were as follows:
Hagler Bailly Estudio
(1) Fieldston Q WIEG GKMG Lacuna Adj.(2) Consolidated
--------------- ----------- --------- ----------- ----------- ------------ ---------- -------------
Year ended December 31, 1997
Revenues $160,615 $ 4,352 $1,685 $ 2 ,487 $8,978 $ - $ - $ 178,117
Net (loss) income (1,890) 451 310 (35) 258 - (1,067) (1,973)
Dilutive weighted average
shares 13,361 15,261
Dilutive earnings per share (0.14) (0.13)
Year ended December 31, 1998
Revenues $174,588 $ 5,562 $2,707 $ 1,682 $9,964 $1,027 $ - $195,530
Net income (loss) 6,560 1,153 240 (89) 121 148 (984) 7,149
Dilutive weighted average
shares 16,690 18,590
Dilutive earnings per share 0.39 0.38
Year ended December 31, 1999
Revenues $172,744 - $ - $2,366 $11,412 $2,318 $ - $188,840
Net (loss) income (10,195) 529 771 (472) (773) (10,140)
Dilutive weighted average
shares 16,367 17,970
Dilutive earnings per share (0.62) (0.56)
(1) Hagler Bailly balance excludes 1997, 1998 and 1999 results of purchased
companies.
(2) Amortization of estimated goodwill.
4.
Earnings Per Share
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings per Share" ("Statement No. 128"). Statement No. 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. All earnings per share amounts for
all periods have been presented, and where appropriate, restated to conform to
the Statement No. 128 requirements.
The following table sets forth the computation of basic and diluted
earnings per share:
For the years ended December 31,
1997 1998 1999
---------------- ----------------- -----------------
Net (loss) income before extraordinary gain $ (4,226) $ 6,700 $ (9,924)
Extraordinary gain 2,336 - -
---------------- ----------------- -----------------
Net (loss) income $ (1,890) $ 6,700 $ (9,924)
================ ================= =================
Weighted average shares of common stock
outstanding during the period 13,361,000 15,992,000 17,059,000
Effect of dilutive securities:
Stock options - 780,000 -
---------------- ----------------- -----------------
Weighted average shares of common
stock and dilutive securities 13,361,000 16,772,000 17,059,000
================ ================= =================
Basic earnings per share
Net (loss) income before extraordinary gain $ (0.32) $ 0.42 $ (0.58)
Extraordinary gain $ 0.17 $ - $ -
Net (loss) income $ (0.14) $ 0.42 $ (0.58)
Dilutive earnings per share
Net (loss) income before extraordinary gain $ (0.32) $ 0.40 $ (0.58)
Extraordinary gain $ 0.17 $ - $ -
Net (loss) income $ (0.14) $ 0.40 $ (0.58)
5.
Accounts Receivable
As of December 31 the components of accounts receivable are:
1998 1999
------------------------------------------
Billed amounts $38,914 $42,010
Unbilled amounts currently billable 23,305 25,604
Retention not currently billable and other 761 1,024
Allowance for possible losses (3,888) (5,604)
------------------------------------------
Total $59,092 $63,034
==========================================
The activity in the allowance for possible losses for years ended
December 31 is as follows:
1998 1999
------------------------------------------
Balance at beginning of year $3,873 $3,888
Provision for losses charged to expense 1,135 6,520
Charge-offs, net of recoveries (1,120) (4,804)
------------------------------------------
Balance at end of year $3,888 $5,604
==========================================
All billed and unbilled receivable amounts are expected to be collected
during the next fiscal year.
6. Property and Equipment
Components of property and equipment at December 31 are as follows:
1998 1999
--------------------------------------
Office equipment and furniture $17,100 $17,544
Leasehold improvements 3,189 4,702
--------------------------------------
20,289 22,246
Accumulated depreciation and amortization (13,826) (13,975)
--------------------------------------
$6,463 $8,271
======================================
Depreciation and amortization expense on property and equipment for the
years ended December 31, 1997, 1998 and 1999, was approximately $2,123, $3,121
and $3,688 respectively. Costs of repairs and maintenance of property and
equipment are charged to expense as incurred.
7.
Software Development Costs
At December 31, 1998 and 1999 the Company had $898 and $0,
respectively, of capitalized software development costs. Amortization expense
for the years ended December 31, 1997, 1998 and 1999 was approximately $49, $511
and $898, respectively. The Company accounts for these development costs in
accordance with FASB 86, "Accounting for the Costs of Computer Software to Be
Sold, Leased, or Otherwise Marketed."
Capitalized software development costs are amortized on a product by
product basis starting when the product is available for general release to
customers. Amortization is calculated using the straight-line method over the
remaining estimated economic life of the product. The Company periodically
evaluates the net realizable value of all unamortized capitalized costs. During
1998, management determined that certain software development costs were fully
impaired due to the duplication of technologies resulting from the Company's
1998 mergers and the Cap Gemini Hagler Bailly L.L.C. joint venture. As a result
of these impairments, the Company expensed approximately $1,107 which are
classified as asset impairment costs on the statement of operations.
8. Notes Receivable
During 1997, the Company loaned $1,000 to another company in accordance
with a bridge loan agreement. The loan was due in six equal installments
beginning June 1, 1998. The loan accrued interest at 15% and was secured by all
of the assets of the borrower. The loan agreement allowed the Company to
purchase an ownership interest of this company as defined in the loan agreement.
During 1998, the borrower defaulted on its obligation under the note and at that
time management determined that the loan was uncollectable and wrote off the
entire amount of the original loan as other nonrecurring costs.
On December 31, 1999, the Company sold its IGA subsidiary back to its
former owners for $550 payable in three equal annual installments beginning
January 1, 2001.The note bears no interest and is secured by 99,516 shares of
the Company's stock owned by two former shareholders ofIGA.
9. Bank Line of Credit
On November 20, 1998, the Company entered into a line of credit
arrangement with a bank enabling the Company to borrow up to $50,000 subject to
certain restrictions. The Company paid all outstanding balances on its previous
lines of credit, which were terminated upon commencement of the new agreement.
Under the terms of the new agreement, interest is payable at the greater of the
bank's base rate or the Federal Funds effective rate plus 0.5%, or the
applicable London Inter-Bank Offered Rate ("LIBOR") plus an additional
percentage ranging from 0.8% to 1.75% depending on certain financial ratios. The
agreement also requires a commitment fee of 0.19% plus an additional percentage
ranging from 0.01% to 0.06% depending on certain financial ratios, based on the
average daily amount of the unborrowed portion of the commitment, payable
quarterly in arrears. The line of credit matures on November 20, 2001. As of
December 31, 1999, the Company had $0.8 million in letters of credit outstanding
and no borrowings outstanding under the facilities. Based on the financial
formulas mentioned above, the available balance under the line of credit at
December 31, 1999 was $12.2 million. As of December 31, 1999, the Company was in
non-compliance with certain covenants that were subsequently waived by the bank.
10. Notes Payable
The Company has a note payable, related to an acquisition of certain of
the assets and liabilities of TFC. Principal balances under the note were $1,000
and $666 as of December 31, 1998 and 1999, respectively. The note accrues
interest at LIBOR rate plus 1.5%.
For the year ended December 31, 1997, the Company settled several notes
payable with favorable terms to the Company, resulting in extraordinary gains of
approximately $2,336.
11. Income Taxes
Prior to the IPO of the Company's common stock in 1997 the Company had
historically filed its consolidated federal income tax return on the cash basis,
whereby for tax purposes, revenue was recognized when received and expenses were
recognized when paid. In addition, prior to its merger with the Company, PHB had
also filed its consolidated federal income tax return on the cash basis. Under
this basis, the timing of certain transactions, primarily the collections of
accounts receivable and the payments of accounts payable and accrued expenses
were applied to different periods for financial statement and income tax
reporting purposes. Deferred federal and state income taxes were provided for
these temporary differences. Upon consummation of the IPO of the Company's
Common Stock during 1997, the Company was required to change to the accrual
method for income tax reporting.
Components of income tax expense (benefit) consisted of the following:
For the years ended December 31,
1997 1998 1999
---------------- ------------- ----------------
Current:
Federal $4,483 $4,113 $(157)
State 1,098 726 213
Foreign 215 879 1,241
---------------- ------------- ----------------
5,796 5,718 1,297
Deferred (336) 1,557 (2,509)
---------------- ------------- ----------------
Income tax expense (benefit) $5,460 $7,275 $(1,212)
================ ============= ================
The Company paid income taxes of $3,117, $4,995, and $5,820 during
1997, 1998 and 1999, respectively.
Income tax expense varies from the amount computed using statutory
rates as follows:
For the years ended December 31,
1997 1998 1999
-------------- ---------------- ----------------
Tax computed at the Federal statutory rate $428 $4,909 $(3,783)
State income taxes, net of Federal income tax
benefit 35 722 (276)
Non-deductible charge for stock option
compensation 4,000 1,012 -
Other allowances 754 - -
Non-deductible charge for goodwill
amortization/asset impairment - - 1,795
Losses recorded on the equity method - - 231
Foreign tax credit - - (192)
Foreign tax in excess of U.S. statutory rate - - 539
Non-deductible charge for merger related costs - 876 62
Other 243 (244) 412
-------------- ---------------- ----------------
Income tax expense $5,460 $7,275 $(1,212)
============== ================ ================
The components of temporary differences are as follows:
December 31,
1998 1999
----------------- ------------------
Current deferred tax (liabilities) assets:
Accounts receivable $(2,116) $(1,559)
Bad debt - 1,860
Accrued vacation - 1,229
Other 216 171
----------------- ------------------
Total current deferred tax (liabilities) assets (1,900) 1,701
Non-current deferred tax assets:
Merger related costs 448 206
Provisions for losses 954 -
Accrued compensation and benefits 1,427 -
Deferred compensation 1,237 727
Stock options - (359)
Deferred rent 454 498
Property, equipment and leasehold improvements 555 935
Net operating loss carryforwards 20 -
Cash to accrual adjustment (5,941) (4,004)
Other (81) (386)
----------------- ------------------
Total non-current deferred tax liabilities (927) (2,383)
----------------- ------------------
Net deferred tax liabilities $ (2,827) $ (682)
================= ==================
12. Stockholders' Equity
The issuance and repurchase of common stock for the years ended
December 31, 1997 and 1998 is primarily the result of equity transactions
entered into by PHB and TB&A. These transactions were made under established
company plans and in a manner consistent with historic patterns of stock
issuance or repurchase.
In connection with the merger with the Company, PHB recognized
non-cash, non-tax deductible compensation charges for the years ended December
31, 1997 and 1998, of $9,885 and $2,595, respectively. These amounts reflect the
difference between the fair value and the book value of shares of common stock
issuable within one year of the merger's close.
Options granted after 1996 vest over periods ranging from immediately
to four years. The majority of grants vest in equal installments over four
years, commencing one year from date of grant. All such options expire ten years
from date of grant. Options issued prior to 1996 generally vest 50% after
eighteen months and fully after an additional year. The majority of these
options also expire ten years from date of grant.
In August of 1998, the Company's shareholders approved an amendment to
the Stock Option Plan that increased the total number of shares of common stock
reserved for issuance from 3,200,000 to 5,000,000. At December 31, 1999
1,035,058 shares of common stock were available for grant under the Stock Option
Plan.
The Company accounts for stock options issued to employees under APB
25, while provided supplemental pro-forma disclosure under SFAS 123. Pro forma
information regarding net income (loss) and per share data required by SFAS No.
123, has been determined as if the Company had accounted for its stock options
under the fair value method therein. The fair value for options granted from May
25, 1997 to July 9, 1997 was estimated at the date of grant using a minimal
valuation method with the following weighted-average assumptions: risk free
interest rate of 5.25%, no expected dividends and an average expected life of
the options of four years.
For options issued from July 9, 1997 to December 31, 1999, in
accordance with SFAS 123, the fair value was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1997 and 1998: risk-free interest rate of 5.25%; no dividends; a
volatility factor of the expected market price of the Company's common stock of
.40 and a weighted-average expected life of the options of approximately five
years in 1997 and four years in 1998. Options issued from January 1, 1999 to
December 31, 1999 were valued using a risk-free interest rate of 6.44%; no
dividends; a stock price volatility factor of .848 and a weighted-average
expected life of the options of four years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of the pro forma disclosure, the estimated fair value of
the options is amortized to expense over the options' vesting period.
The Company's pro forma information follows:
For the years ended December 31,
1997 1998 1999
--------------------- --------------------- ---------------------
Net (loss) income $ (1,890) $ 6,700 $ (9,924)
FAS 123 expense, net of tax 217 1,045 5,974
--------------------- --------------------- ---------------------
Pro forma net (loss) income $ (2,107) $ 5,655 $ (15,898)
===================== ===================== =====================
Pro forma (loss) earnings per share:
Basic $ (0.16) $ 0.35 $ (0.93)
Diluted $ (0.16) $ 0.34 $ (0.93)
The following summarizes option activity:
Weighted Average
Options Exercise Price
--------------- --------------------
Outstanding at December 31, 1996 936,943 $0.22
1997
Granted 677,135 8.34
Exercised (484,701) 0.20
Canceled (15,000) 10.00
---------------
Outstanding at December 31, 1997 1,114,377 5.21
1998
Granted 1,149,760 20.32
Exercised (99,380) 3.49
Canceled (126,046) 12.60
---------------
Outstanding at December 31, 1998 2,038,711 13.44
1999
Granted 1,686,202 9.24
Exercised (374,420) 0.35
Canceled (370,718) 12.88
---------------
Outstanding at December 31, 1999 2,979,775 12.80
===============
Exercisable at December 31, 1999 975,817 $11.62
===============
The grant date weighted average fair value of options granted in 1997,
1998, and 1999 was $1.98, $20.32 and $6.02, respectively.
At December 31, 1999, the price range of options outstanding are as
follows:
Weighted
Average
Options Exercise
Outstanding Price Per Average Remaining
Share Contractual Life
------------------- -- --------------- -- --------------------
$1.00 - $9.99 1,559,123 $6.61 8.54
$10.00 - $19.99 651,378 16.74 8.81
$20.00 - $29.99 760,274 21.93 8.45
$30.00 & Over 9,000 30.00 8.37
-------------------
Total 2,979,775 12.80 8.57
===================
13. Operating Leases
The Company leases office space and equipment located throughout the
United States and worldwide. Substantially all office space leases provide for
the Company to pay a pro rata share of annual increases above a stated base
amount of the landlords' related real estate taxes and operating expenses.
Management expects that in the normal course of business, operating leases will
be renewed or replaced by other operating leases.
The following is a schedule of the annual minimum rental payments
required under the operating leases that have initial or remaining
non-cancellable lease terms in excess of one year as of December 31, 1999:
Years ended December 31,
2000 $ 9,998
2001 9,488
2002 6,605
2003 5,779
2004 5,758
Thereafter 19,243
-----------------
Total minimum rental payments $ 56,871
=================
Total rental expense for the years ended December 31, 1997, 1998 and 1999,
was approximately, $7,468, $8,451 and $9,885 respectively.
14. Retirement Plan
The Company maintains tax-deferred savings plans under Section 401(k)
of the Internal Revenue Code to provide retirement benefits for all eligible
employees (the "Plan"). The Plan was amended in 1999 to consolidate the
retirement plans of the subsidiaries which the Company merged with or acquired
over the past two years. Employees may voluntarily contribute a percentage of
their annual compensation to the Plan, subject to Internal Revenue Service
limitations. The Company may, but has no obligation to, make matching
contributions. In addition, the Company may, but has no obligation to, make a
discretionary contribution to the Plan. Discretionary contributions are
allocated to participants' accounts in proportion to their compensation and
employment classification. Rights to benefits provided by the Company's
discretionary contributions vest as follows: 20% after two years, 40% after
three years, 60% after four years, 80% after five years and 100% after six years
of service. Participants are fully vested in their voluntary contributions.
The Company's expenses related to its discretionary matching and other
contributions under all plans for 1997, 1998 and 1999 were approximately $2,628,
$925 and $3,289, respectively.
15. Divestitures / Sale of Assets
On September 30, 1998, the Company sold certain assets of a portion
of its government sector consulting practice due to conflicts of interest
resulting from the Company's business combinations. As a result of the
transaction, the Company sold assets for approximately $2,855 resulting in a
gain of approximately $282 which was included in other income.
In December 1998, the Company made the decision to cease operations in
its financial advisory services business, HB Capital, Inc., resulting in
expenses of approximately $1.8 million. In December 1999, the Company sold the
assets of HB Securities, a wholly owned subsidiary of HB Capital, Inc.,
resulting in a gain of approximately $26, which was included in other income.
On December 31, 1999, the Company sold the assets of wholly-owned subsidiary
IGA. The Company disposed of this subsidiary due to its inability to
successfully integrate IGA's operations into the Company's other European
operations. As a result of the transaction, the Company sold assets for
approximately $0.6 million, resulting in a loss of approximately $68,000. As a
result of this transaction the Company received a $550,000 note receivable from
the buyers of IGA. The note bears no interest and is secured by 99,516 shares of
the Company's common stock owned by IGA. 16. Commitments and Contingencies
Cost Subject to Audit
Under its United States government contracts, the Company is subject to
audit by the Defense Contract Audit Agency, whose audits could result in
adjustments of amounts previously billed. Management believes that the results
of such future audits will not have a material adverse effect on the Company's
financial position or results of operations.
Financial Instruments and Risk Management
The Company operates around the world principally in United States
currency. The Company may reduce any periodic exposures to fluctuations in
foreign exchange rates by creating offsetting ("hedge") positions through the
use of derivative financial instruments. The Company currently does not use
derivative financial instruments for trading or speculative purposes, nor is the
Company a party to leverage derivatives. The Company regularly monitors any
foreign currency exposures and ensures that hedge contract amounts do not exceed
the amounts of the underlying exposures. The Company had no open hedge positions
at December 31, 1998 or 1999.
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of cash and cash
equivalents and trade accounts receivable.
The Company maintains cash and cash equivalents with various financial
institutions. These financial institutions are located in many different
countries throughout the world, and the Company's policy is designed to limit
exposure with any one institution. As part of its cash management process, the
Company performs periodic evaluations of the relative credit standing of these
financial institutions.
At December 31, 1998 and 1999, cash of approximately $4,087 and $633,
respectively, was located in foreign bank accounts.
Major Customers
At December 31, 1998 and 1999, included in accounts receivable was
$13,855 and $10,203, respectively, due from agencies of the United States
government. Credit risk with respect to the remaining trade accounts receivable
is generally diversified due to the large number of entities comprising the
Company's customer base and their dispersion across different industries and
countries.
The Company performs ongoing credit evaluations of its customers financial
condition.
The Company generates revenues from contracts with government agencies
and private companies within the United States and worldwide. During 1997, 1998
and 1999, the Company recognized approximately $32,000, $39,000 and $32,000,
respectively, of its revenue from the United States Agency for International
Development ("USAID"), a U.S. government agency. Revenues earned from foreign
customers, both commercial and governmental, were approximately $14,000, $19,000
and $26,000 for the years ended December 31 1997, 1998 and 1999, respectively.
Commitments
Certain officers and directors of the Company have agreements which
provide for severance and other benefits upon the occurrence of certain events,
including termination upon change of control, as defined in the agreements.
On September 27, 1999, the Company retained Bank of America Securities
LLC to assist in exploring strategic and financial alternatives to maximize
shareholder value, including the potential sale or merger of the Company. The
sale or merger of the Company could potentially lead to the payment of benefits
under the agreements as discussed above.
17.
Merger Related and Other Nonrecurring Costs
Merger related and other nonrecurring costs were recorded in connection
with the business combinations during 1997, 1998 and 1999. The following
represents a detail of merger related and other nonrecurring costs:
For the years ended December 31,
1997 1998 1999
Merger related costs $ 1,235 $ 6,495 $ 292
Impairment of investments and related infrastructure
related to termination of financial advisory services
operations - 1,780 -
------------------- --------------- ----------------
Total $ 1,235 $ 8,275 $ 292
=================== =============== ================
Merger related costs consist primarily of direct costs such as
investment banking, legal, accounting, and filing fees related to the Company's
mergers accounted for as poolings of interests, as well as consolidation costs
from the closing of duplicate locations, realigning regional and corporate
functions, and reducing personnel related to mergers accounted for as either
poolings or purchases. At December 31, 1998, the accompanying consolidated
balance sheet included accrued merger related costs of $546, classified as
accrued expenses, consisting of involuntary employee termination costs of $171
and facility related expenses of $375.
During the fourth quarter of 1998, management determined that certain
investments held by the Company and the related infrastructure which managed
such investments, were impaired due to events related to the Company's mergers.
Accordingly, management decided to cease operations of its financial advisory
services operations and determined that certain investments were fully impaired
and recognized a loss of $1,780, which included the write off of a $1,000 note
receivable. At December 31, 1998, the balance sheet included $616 of these
impairment costs classified as accrued expenses, consisting of legal expenses of
$140, involuntary employee termination costs of $170, lease termination and
other facility costs of $200, and other general accrued expenses of $106. The
Company had no accrued merger or merger related costs at December 31, 1999.
18. Asset Impairment
The Company assesses the impairment of long-lived assets including
intangible assets in accordance with Statement of Financial Accounting Standards
No. 121.
During 1998 management evaluated certain software development costs
under FAS 121 and determined that these assets were impaired due to the
duplication of technologies resulting from the Company's business combinations
and its joint venture with Cap Gemini. Management determined that as a result of
these transactions certain capitalized software balances would not generate
future cash flows. Consequently, management determined that the value of the
related assets had been impaired as the software would not be utilized by the
Company and has recorded a write off of approximately $1,107, classified as
asset impairment costs on the statement of operations.
During 1999 management evaluated the net realizable value of
intangibles related to certain 1998 acquisitions. Impairment evaluations were
performed due to the poor performance of these entities as compared to
management's original expectations and the possibility of future disposition of
these subsidiaries. As a result of this analysis, the Company wrote off
approximately $4,591 of goodwill which represented the excess of the carrying
value of these assets as compared to the projected cash flows of the assets as
determined in accordance with SFAS 121.
19. Repositioning plan
In December 1999, the Board of Directors approved management's plan to
undertake a repositioning of the firm to focus on its core consulting business
and market position in order to maximize future shareholder value.
The primary component of the Company's repositioning plan is a
supplemental bonus which consists of $10,868 of additional incentives paid to
the Company's key staff. In 1999 the consulting business experienced high
turnover. The Company's management believes the additional incentives are
essential to retain and motivate staff. At December 31, 1999, the accompanying
consolidated balance sheet includes $7,310 of accrued bonus, classified as
accrued compensation.
In addition, as part of the Company's repositioning plan, management
has and continues to evaluate strategic opportunities for the Company (see Note
16) including the possible disposition of non-performing subsidiaries (see Note
18.)
20. Segment Information
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131 Disclosures about Segments of an
Enterprise and Related Information ("FAS 131"). FAS 131 supercedes FAS 14
Financial Reporting for Segments of a Business Enterprise, replacing the
industry segment approach with the management approach, which requires
segmentation based upon the Company's internal organizational structure that is
used by management for making operating decisions and assessing performance as
the source of the Company's reportable segments.
The Company began organizing, reporting and managing its business as
two segments in 1999. Accordingly, the Company adopted FAS 131 in 1999 and all
prior periods have been presented to conform to the requirements of this
statement. The segments, which are based on differences in its client base, are
Commercial Consulting and Government Consulting. Commercial Consulting consists
primarily of providing strategic advice and analysis to businesses in developed
countries on issues involving energy, transportation, telecommunications, the
environment, litigation and other matters. Government Consulting consists
primarily of providing advisory and technical services to government sector
clients worldwide in the energy and network industries (mainly in water and
transportation) and the environment.
The Company has subsidiaries in 11 countries outside North America
which, in aggregate, represent 12.7% of the Company's consolidated revenues.
There is no single foreign country that exceeds 10% of consolidated revenues.
USAID revenues represent 56% of the Government Consulting segments consolidated
revenues and 17.5% of the Company's consolidated revenues. The loss of this
client could have a material adverse effect on the Company's business, financial
condition and results of operations.
The following table presents revenue and income (loss) from operations
data by segment:
For the years ended December 31,
1997 1998 1999
Segment Information
-------------------------------------- -------------------- -- ----------------- -- --------------------
Revenues
Commercial consulting $102,097 $115,772 $123,798
Government consulting 56,766 59,638 56,750
Other 1,752 2,052 1,433
-------------------- ----------------- --------------------
Total $160,615 $177,462 $181,981
==================== ================= ====================
Income (loss) from operations
Commercial consulting $ * $28,684 $2,820
Government consulting * 2,493 (5,117)
------- -------- --------
Segment Total 13,162 31,177 (2,297)
Merger related and other
non recurring costs (1,235) (8,275) (292)
Asset impairment costs (1,107) (4,591)
Stock and stock option compensation (9,965) (2,595) -
Liquidation of subsidiary (328) - -
Other - (5,031) (3,456)
-------------------- ----------------- --------------------
Total $1,634 $14,169 $(10,636)
==================== ================= ====================
* It was not practicable to present certain 1997 results to conform to
the current presentation. Accordingly, they have not been
presented.
The table below presents information by geographic area. Revenues are
attributed to the countries based on the location of the subsidiary. North
America includes the United States and Canada and International includes all
else.
For the years ended December 31,
Geographic 1997 1998 1999
Segment Information
-------------------------------------- -------------------- -- ----------------- -- --------------------
Revenues
North America $151,646 $159,536 $158,889
International 8,969 17,926 23,092
-------------------- ----------------- --------------------
Total $160,615 $177,462 $181,981
==================== ================= ====================
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
and Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
Dated: March 26, 2000 By:
------------------------------------
William E. Dickenson
President and Chief Executive
Officer, Director
Dated: March 26, 2000 By:
------------------------------------
Geoffrey W. Bobsin
Senior Vice President, Chief
Financial Officer, Treasurer
and Secretary
Dated: March 26, 2000 By:
------------------------------------
Henri-Claude A. Bailly
Director
Dated: March 26, 2000 By:
------------------------------------
R. Gene Brown
Director
Dated: March 26, 2000 By:
------------------------------------
Jasjeet S. Cheema
Director
Dated: March 26, 2000 By:
------------------------------------
Robert W. Fri
Director
Dated: March 26, 2000 By:
------------------------------------
Richard H. O'Toole
Director
Dated: March 26, 2000 By:
------------------------------------
Howard W. Pifer III
Director
Dated: March 26, 1999 By:
------------------------------------
Fred M. Schriever
Director
Dated: March 26, 1999 By:
------------------------------------
Alain M. Streicher
Director
EXHIBIT LIST
Exhibit No. Description
2.1 Sale Agreement between RCG International, Inc., and Hagler Bailly
Consulting, Inc. (1)
2.2 Agreement and Plan of Merger by and among Hagler Bailly, Inc., PHB
Acquisition Corp. and Putnam, Hayes and Bartlett, Inc., dated as of June
11, 1998. (5)
2.3 Share Exchange Agreement dated as of August 12, 1999 by and among Hagler
Bailly, Inc., GKMG, Inc. and certain former shareholders of GKMG, Inc. (11)
3.1 By-Laws of the Company, as amended. (6)
3.2 Amended Restated Certificate of Incorporation of the Company. (7)
4 Specimen Stock Certificates. (1)
4.1 Registration Rights Agreement dated November 18, 1997 by and between Hagler
Bailly, Inc. and Richard R. Mudge, acting as Stockholders' Representative.
(3)
4.2 Form of Escrow Agreement by and among the Company, PHB Acquisition Corp.,
William E. Dickenson as Stockholders' Representative and State Street Bank
and Trust Company, as Escrow Agent. (5)
4.3 Registration Rights Agreement dated February 23, 1998 by and between Hagler
Bailly, Inc. and Michael J. Beck, acting as Stockholders'
Representative.(9)
4.4 Registration Rights Agreement dated November 17, 1998 by and between Hagler
Bailly, Inc. and the stockholders of Fieldston Publications, Inc. and The
Fieldston Company. (9)
4.5 Registration Rights Agreement dated as of August 12, 1999 by and between
Hagler Bailly, Inc. and James F. Miller, acting as Stockholders'
Representative. (11)
10.2 Form of Non-Compete, Confidentiality and Registration Rights Agreement
between the Company and each stockholder. (1)
10.3 Lease by and between Wilson Boulevard Venture and RCG/Hagler Bailly, Inc.
dated October 25, 1991. (1)
10.4 First Amendment to Lease by and between Wilson Boulevard Venture and
RCG/Hagler Bailly, Inc., dated February 26, 1993. (1)
10.5 Second Amendment to Lease by and between Wilson Boulevard Venture and
RCG/Hagler Bailly, Inc., dated December 12, 1994. (1)
10.6 Lease by and between Bresta Futura V.B.V. and Hagler Bailly Consulting,
Inc. dated May 8, 1996. (1)
10.7 Lease by and between L.C. Fulenwider, Inc., and RCG/Hagler Bailly, Inc.
dated December 14, 1994. (1)
10.8 Lease by and between University of Research Park Facilities Corp. and
RCG/Hagler Bailly, Inc., dated April 1, 1995. (1)
10.9 Credit Agreement by and between Hagler Bailly Consulting, Inc. and State
Street Bank and Trust Company, dated May 17, 1995. (1)
10.10Amendment to Credit Agreement by and between Hagler Bailly Consulting,
Inc. and State Street Bank and Trust Company, dated as of June 20,1996. (1)
10.11Extension Agreement by and between Hagler Bailly Consulting, Inc. and
State Street Bank and Trust Company, dated as of August 1, 1996. (1)
10.12Amendment to Credit Agreement by and between Hagler Bailly Consulting,
Inc. and State Street Bank and Trust Company, dated as of November 12,
1996. (1)
10.13Term Note by and between Hagler Bailly Consulting, Inc., and State Street
Bank and Trust Company, dated May 26, 1995. (1)
10.14Revolving Credit Note by and between Hagler Bailly Consulting, Inc. and
State Street Bank and Trust Company dated May 26, 1995. (1)
10.15Amendment to Credit Agreement by and between Hagler Bailly Consulting,
Inc., and State Street Bank and Trust Company, dated as of June 12,1997.
(1)
10.16Credit Agreement by and among Hagler Bailly Consulting, Inc., Hagler
Bailly Services, Inc. and State Street Bank and Trust Company, dated as of
September 30, 1997. (2)
10.17Promissory Note by Hagler Bailly Consulting, Inc. and Hagler Bailly
Services, Inc. to State Street Bank and Trust Company, dated September 30,
1997. (2)
10.18Security Agreement by and between Hagler Bailly Consulting, Inc. and State
Street Bank and Trust Company, dated as of September 30, 1997. (2)
10.19Security Agreement by and between Hagler Bailly Services, Inc. and State
Street Bank and Trust Company, dated as of September 30, 1997. (2)
10.20Guaranties by Hagler Bailly, Inc. to State Street Bank and Trust Company,
dated September 30, 1997. (2)
10.21Guaranties by HB Capital, Inc. to State Street Bank and Trust Company,
dated September 30, 1997. (2)
10.22Subordination Agreement and Negative Pledge/Sale Agreement by and between
Hagler Bailly, Inc. and State Street Bank and Trust Company for Hagler
Bailly Consulting, Inc., dated September 30, 1997. (2)
10.23Subordination Agreement and Negative Pledge/Sale Agreement by and between
Hagler Bailly, Inc. and State Street Bank and Trust Company for Hagler
Bailly Services, Inc., dated September 30, 1997. (2)
10.24Guaranty of Monetary Obligations to Bresta Futura V.B.V. by Hagler Bailly,
Inc., dated July 23, 1997. (2)
10.25Amendment to Credit Agreement by and between Hagler Bailly Consulting,
Inc. and State Street Bank and Trust Company dated May 18, 1998. (6)
10.26Sublease Agreement by and between Coopers and Lybrand L.L.P. and Hagler
Bailly, Inc. dated December 5, 1997. (6)
10.27Employment Agreement between the Company and Henri-Claude A. Bailly, dated
August 27, 1998. (7)
10.28Employment Agreement between the Company and William E. Dickenson, dated
August 27, 1998. (7)
10.29Employment Agreement between the Company and Howard W. Pifer III, dated
June 10, 1998. (7)
10.30Amended and Restated Hagler Bailly, Inc. Employee Incentive and
Non-Qualified Stock Option and Restricted Stock Plan. (10)
10.31Credit Agreement by and between Hagler Bailly, Inc. and The Lenders From
Time to Time a Party thereto, as Lenders and NationsBank, N.A., dated
November 20, 1998. (8)
10.32Revolving Note by and between Hagler Bailly, Inc. and NationsBank, N.A.,
dated November 20, 1998. (8)
10.33Swing Line Note by and between Hagler Bailly, Inc. and NationsBank, N.A.,
dated November 20, 1998. (8)
10.34 Subsidiary Guarantee by and among Hagler Bailly Services, Inc., Hagler
Bailly Consulting, Inc., HB Capital, Inc., Putnam, Hayes & Bartlett,
Inc., TB&A Group, Inc., Theodore Barry & Associates, Private Label
Energy Services, Inc., Fieldston Publications, Inc. and NationsBank,
N.A., dated November 20, 1998. (8)
10.35Form of Security Agreement by and between Hagler Bailly, Inc. and
NationsBank, N.A., dated November 20, 1998. (8)
10.36Security Agreement by and between Hagler Bailly Consulting, Inc. and
NationsBank, N.A., dated November 20, 1998. (8)
10.37Security Agreement by and between Hagler Bailly Services, Inc. and
NationsBank, N.A., dated November 20, 1998. (8)
10.38Security Agreement by and between HB Capital, Inc. and Nations Bank, N.A.,
dated November 20, 1998. (8)
10.39Security Agreement by and between Putnam, Hayes & Bartlett, Inc. and
NationsBank, N.A., dated November 20, 1998. (8)
10.40Security Agreement by and between TB&A Group, Inc. and Nations Bank, N.A.,
dated November 20, 1998. (8)
10.41Security Agreement by and between Theodore Barry & Associates and
NationsBank, N.A., dated November 20, 1998. (8)
10.42Security Agreement by and between PHB Hagler Bailly, Inc. and NationsBank,
N.A., dated February 22, 1999. (8)
10.43Security Agreement by and between Private Label Energy Services, Inc. and
NationsBank, N.A., dated November 20, 1998. (8)
10.44Security Agreement by and between Fieldston Publications, Inc. and
NationsBank, N.A., dated November 20, 1998. (8)
10.45Lease by and between One Memorial Drive Limited Partnership and Putnam,
Hayes & Bartlett, Inc. dated January 1, 1998. (8)
10.46Lease by and between George H. Beuchert, Jr., Trustee, Thomas J. Egan,
Trustee, Oliver T. Carr, Jr., Trustee, William Joseph H. Smith, Trustee,
and the Kiplinger Washington Editors, Inc., Trustee, acting collectively as
trustee on behalf of the beneficial owner, The Greystone Square 127
Associates, and Putnam, Hayes & Bartlett, Inc. dated March 31, 1997. (8)
10.47 First Amendment to Lease by and between Greystone Square 127 Limited
Liability Company, as successor in interest collectively to The
Greystone Square 127 Associates, and George H. Beuchert, Jr., Trustee,
and The Kiplinger Washington Editors, Inc., Trustee, the owners of
record who held legal title to the Building as trustees on behalf of
the Greystone Square 127 Associates, the former beneficial owners of
the Building, and Putnam, Hayes & Bartlett, Inc. dated February 10,
1998. (8)
10.48Employment agreement between Hagler Bailly Consulting, Inc. and Jasjeet S.
Cheema dated February 2, 1998. (9)
10.49 First amendment to revolving credit agreement between Hagler Bailly,
Inc, the lenders from time to time a party thereto, as lenders, and
NationsBank, N.A., dated as of March 22, 1999. (9)
10.50Lease by and between TrizecHahn, 1550 Wilson Blvd. Management and Hagler
Bailly Services, Inc. dated August 29, 1999. (12)
10.51 Second amendment to revolving credit agreement between Hagler Bailly,
Inc., the lenders from time to time a party thereto, as lenders, and
NationsBank, N.A., dated as of August 11, 1999. (12)
10.52 Security Agreement by and between GKMG, Inc. and NationsBank, N.A., dated
August 11, 1999.
10.53Security Agreement by and between GKMG Consulting Services, Inc. and
NationsBank, N.A., dated August 11, 1999. (12)
10.54Employment Agreement between Putnam, Hayes & Bartlett, Inc. and John C.
Butler, dated August 28, 1999.
10.55Employment Agreement between Putnam, Hayes & Bartlett, Inc. and William H.
Hieronymus, dated August 28, 1999.
10.56Employment Agreement between Putnam, Hayes & Bartlett, Inc. and Walter H.
A. Vandaele, dated August 28, 1999.
21 Subsidiaries of the Registrant
23 Consent of Independent Auditors dated March 29, 2000
24 Powers of Attorney (included on Signature Pages) (1)
27.1 Financial Data Schedule
- -----------------------------------------------------------------
(1) Included in the Company's Registration Statement on Form S-1 filed on July
1, 1997 (No. 333-22207) and incorporated herein by reference thereto.
(2) Included in the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997, filed on November 14, 1997 and incorporated
herein by reference thereto.
(3) Included in the Company's Current Report on Form 8-K filed on December 16,
1997 and incorporated herein by reference thereto.
(4) Included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997, filed on March 31, 1998 and incorporated herein by
reference thereto.
(5) Included in the Company's Proxy Statement for Special Meeting of
Stockholders dated July 24, 1998 on Form DEFS 14A and
incorporated herein by reference thereto.
(6) Included in the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998, filed on August 14, 1998 and incorporated herein by
reference thereto.
(7) Included in the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998, filed on November 13, 1998 and incorporated
herein by reference thereto.
(8) Included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998, filed on March 31, 1998 and incorporated herein by
reference thereto.
(9) Included in the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1999, and incorporated herein by reference thereto.
(10) Included in the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999, and incorporated herein by reference thereto.
(11) Included in the Company's Current Report on Form 8-K filed on August 26,
1999 and incorporated herein by reference thereto.
(12) Included in the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999.