================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________________
Commission File Number: 0-29292
- --------------------------------------------------------------------------------
HAGLER BAILLY, INC.
(Exact name of registrant as specified in its charter)
- --------------------------------------------------------------------------------
Delaware
(State or other jurisdiction of incorporation or organization)
54-1759180
I.R.S. Employer Identification Number
1530 Wilson Boulevard, Suite 400, Arlington, VA 22209
(Address of principal executive offices) (Zip Code)
703-351-0300
(Registrant's telephone number, including area code)
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 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. [X] Yes [ ] No
As of October 31, 1998, the Registrant had 16,212,602 shares of its common stock
outstanding.
TABLE OF CONTENTS
PART I
Item 1. Financial Statements..................................................1
CONSOLIDATED BALANCE SHEETS (RESTATED UNAUDITED)............................1
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)...........................2
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)...........................3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS..................................4
PART II
Item 1. Legal Proceedings....................................................12
Item 2. Changes in Securities................................................12
Item 4. Submission of Matters to a Vote of Security Holders...................12
Item 6. Exhibits and Reports on Form 8-K......................................13
SIGNATURES....................................................................17
PART I
Item 1. Financial Statements
Hagler Bailly, Inc.
Consolidated Balance Sheets
September 30, December 31,
1998 1997
---------------------------------------
(restated
Assets (unaudited) unaudited)
Current assets:
Cash & cash equivalents $ 7,560,450 $ 11,813,067
Accounts receivable, net of allowance of $3,247,015 and $3,872,703
in 1998 and 1997, respectively 66,805,838 51,856,553
Prepaid expenses 6,458,801 1,501,447
Other current assets 4,781,593 2,867,444
---------------------------------------
Total current assets 85,606,682 68,038,511
Property and equipment, net of accumulated depreciation of $12,823,124
and $11,063,142, respectively 6,640,658 5,512,634
Software development costs, net of accumulated amortization of $515,648
and $49,000, respectively 1,399,929 2,463,173
Intangible assets, net of accumulated amortization of $2,333,100
and $1,752,712, respectively 9,045,270 6,925,960
Deferred taxes 24,355 1,269,684
Other assets 1,333,845 1,598,410
---------------------------------------
Total assets $ 104,050,739 $ 85,808,372
=======================================
Liabilities and stockholders' equity
Current liabilities:
Bank line of credit $ 4,700,000 $ 1,500,000
Accounts payable and accrued expenses 7,837,460 9,555,716
Accrued compensation and benefits 11,918,217 17,033,297
Billings in excess of cost 2,584,733 3,125,738
Current portion of long-term debt 249,647 947,367
Income taxes currently payable 4,360,804 3,107,946
Deferred taxes 887,210 -
------------------- -------------------
Total current liabilities 32,538,071 35,270,064
Long-term debt, net of current portion - 305,424
Deferred income taxes - 1,383,688
------------------- -------------------
Total liabilities 32,538,071 36,959,176
Stockholders' equity:
Common stock, $0.01 par value, 50,000,000 shares authorized;
16,210,102 and 15,473,735 issued and outstanding 162,101 154,737
Additional capital 70,701,275 53,837,452
Retained earnings (deficit) 841,669 (5,161,356)
Foreign currency translation (192,377) 18,363
------------------- -------------------
Total stockholders' equity 71,512,668 48,849,196
------------------- -------------------
=================== ===================
Total liabilities and stockholders' equity $ 104,050,739 $ 85,808,372
=================== ===================
See accompanying notes.
Hagler Bailly, Inc.
Consolidated Statements of Operations
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
1998 1997 1998 1997
(restated) (restated)
----------------- ----------------- ----------------- -------------------
Revenues:
Consulting revenues $ 44,201,405 $42,441,400 $ 127,339,475 $ 119,665,349
Other revenues 2,288,712 910,954 4,742,949 1,696,475
----------------- ----------------- ----------------- -------------------
Total revenues 46,490,117 43,352,354 132,082,424 121,361,824
Cost of services 33,130,823 33,445,979 94,812,408 92,647,211
----------------- ----------------- ----------------- -------------------
Gross profit 13,359,294 9,906,375 37,270,016 28,714,613
Merger and related costs 2,493,213 - 4,212,143 -
Selling, general and administrative expenses 6,905,116 6,790,595 18,297,979 18,596,898
Stock and stock option compensation - - 2,595,200 64,869
----------------- ----------------- ----------------- -------------------
Income from operations 3,960,965 3,115,780 12,164,694 10,052,846
Other income (expenses), net 258,230 217,033 179,684 (409,075)
----------------- ----------------- ----------------- -------------------
Income before income tax expense 4,219,195 3,332,813 12,344,378 9,643,771
Income tax expense 1,713,593 1,150,187 6,008,042 3,992,671
----------------- ----------------- ----------------- -------------------
Net income before extraordinary gain 2,505,602 2,182,626 6,336,336 5,651,100
Extraordinary gain, net of income tax expense of
$1,739 and $57,645 for the three and nine months
ended September 30, 1997 - 22,943 - 760,652
----------------- ----------------- ----------------- -------------------
Net income $ 2,505,602 $ 2,205,569 $6,336,336 $ 6,411,752
================= ================= ================= ===================
Net income per share:
Basic:
Net income before extraordinary gain $ 0.15 $ 0.15 $ 0.38 $ 0.44
Extraordinary gain, net of income tax expense $ - $ - $ - $ 0.06
Net income $ 0.15 $ 0.15 $ 0.38 $ 0.50
Diluted:
Net income before extraordinary gain $ 0.15 $ 0.14 $ 0.36 $ 0.41
Extraordinary gain, net of income tax expense $ - $ - $ - $ 0.06
Net income $ 0.15 $ 0.14 $ 0.36 $ 0.47
Weighted average shares outstanding:
Basic 16,195,462 14,611,447 16,635,737 12,790,923
================= ================= ================= ===================
Diluted 16,939,346 15,439,613 17,427,411 13,715,075
================= ================= ================= ===================
Comprehensive income:
Net Income $2,505,602 $ 2,205,569 $ 6,336,336 $ 6,411,752
Foreign currency translation adjustment, net of tax
expense (benefit) of ($12,292) and $82,199 for the
three and nine months in 1998, and $6,084 and
$7,772 for the three and nine months in 1997 19,227 (9,517) (128,551) (12,156)
----------------- ----------------- ----------------- -------------------
================= ================= ================= ===================
Comprehensive income $ 2,524,829 $ 2,196,052 $ 6,207,785 $ 6,399,596
================= ================= ================= ===================
See accompanying notes.
Hagler Bailly, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Nine months ended September 30,
1998 1997
(restated)
------------------- --------------------
Operating activities
Net income $ 6,336,336 $ 6,411,752
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization 2,864,637 1,981,391
Amortization of software development costs 615,798 -
Extraordinary gain - (22,943)
Provision for deferred income taxes 748,850 1,502,494
Provision for accounts receivable (625,689) (553,718)
Disposal of fixed assets 174,650 -
Asset impairment 456,493 -
Amortization of deferred stock compensation 2,595,200 64,869
Changes in operating assets and liabilities:
Accounts receivable (14,323,597) (9,831,411)
Prepaid expenses (4,957,354) (1,294,315)
Other current assets (1,914,149) (1,007,626)
Other assets - non current 264,562 (179,519)
Accounts payable and accrued expenses (1,718,250) 644,900
Accrued compensation and benefits (5,115,080) 8,094,547
Billings in excess of cost (541,005) (918,295)
Income taxes payable 1,252,858 124,065
------------------- --------------------
Net cash (used in) provided by operating activities (13,885,740) 5,016,191
Investing activities
Acquisition of property and equipment (3,595,971) (1,841,659)
Investment in common stock of subsidiaries (1,099,765) -
------------------- --------------------
Net Cash used in investing activities (4,695,736) (1,841,659)
Financing activities
Issuance of common stock, net of offering costs - 30,579,973
Sale of common stock 12,676,054 -
Dividends paid by foreign subsidiary (333,311) (233,333)
Net borrowings (payments) from bank line of credit 3,200,000 (3,750,000)
Principal payments on debt (1,003,144) (10,696,818)
------------------- --------------------
Net cash provided by financing activities 14,539,599 15,899,822
Net (decrease) increase in cash and cash equivalents (4,041,877) 19,074,354
Foreign currency loss (210,740) (19,928)
Cash and cash equivalents, beginning of period 11,813,067 3,218,708
------------------- --------------------
Cash and cash equivalents, end of period $ 7,560,450 $ 22,273,134
=================== ====================
See accompanying notes.
HAGLER BAILLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The accompanying unaudited interim consolidated financial statements of
Hagler Bailly, Inc. (the "Company") have been prepared pursuant to the rules of
the Securities and Exchange Commission ("SEC") for quarterly reports on Form
10-Q and do not include all of the information and note disclosures required by
generally accepted accounting principles. The information furnished herein
reflects all adjustments, of a normal recurring nature, which are, in the
opinion of management, necessary for a fair presentation of results for these
interim periods.
The interim results of operations are not necessarily indicative of the
results to be expected for the entire fiscal year ending December 31, 1998.
As a result of a business combination completed in the third quarter which
was accounted for as a pooling of interests as described in Note 3 below, all
consolidated financial statements presented for the three-month and nine-month
periods ended September 30, 1998 and 1997 and as of December 31, 1997 have been
restated to include the results of operations and financial position of Putnam,
Hayes & Bartlett, Inc. ("PHB"). These financial statements should be read in
conjunction with the Company's audited consolidated financial statements and
notes thereto for the year ended December 31, 1997, included in the Company's
Proxy Statement for its Special Meeting of Stockholders dated July 24, 1998 and
the Form 8-K filed on November 13, 1998.
Note 2. Earnings per Share
Basic earnings per share is computed based on the weighted average number
of shares of common stock outstanding during the respective periods. Diluted
earnings per share is inclusive of the dilutive effect of unexercised stock
options using the treasury stock method.
Note 3. Pooling of Interests
On August 28, 1998, the Company exchanged 6,548,953 shares of the Company's
common stock for all of the stock of PHB. The transaction was accounted for as a
pooling of interests. Accordingly, the Company's financial statements have been
restated to include the results of PHB for all periods presented.
Note 4. Cash Dividend
Retained earnings for 1998 were reduced by the payment of the annual cash
dividend of $333,311 paid to shareholders by Izsak, Grapin et Associes ("IGA")
consistent with IGA's historical practice and prior to its merger with the
Company. The acquisition was accounted for as a pooling of interests transaction
in the second quarter.
Note 5. Merger and Related Costs
Cost of effecting mergers and subsequently integrating the operations of
the various merged companies are recorded as merger and related 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. Also included were non-recurring charges including
certain asset impairments relating to software development costs as a result of
the Company's evaluation of the fair value of these assets.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview
Statements included in Management's Discussion and Analysis of Financial
Condition and Results of Operations which are not historical in nature, are
intended to be, and are hereby identified as, "forward looking statements" for
purposes of the safe harbor provided by Section 21E of the Securities Exchange
Act of 1934, as amended by Public Law 104-67. Forward-looking statements may be
identified by words including "anticipate," "believe," "estimate," "expect" and
similar expressions. The Company cautions readers that forward-looking
statements, including without limitation, those relating to the Company's future
business prospects, revenues, working capital, liquidity, and income, are
subject to certain risks and uncertainties that would cause actual results to
differ materially from those indicated in the forward-looking statements, due to
several important factors such as concentration of the Company's revenues from a
relatively limited number of public and private clients involved in the energy
and network industries, the Company's ability to attract, retain and manage
professional and administrative staff, fluctuations in quarterly results, risks
related to acquisitions, and the fact that historical operations and performance
are not necessarily indicative of future operations and performance, among
others, and other risks and factors identified from time to time in the
Company's reports filed with the SEC, including the risk factors identified in
the Company's Registration Statement (No. 333-22207) on Form S-1, the Company's
Annual Report on Form 10-K for the year ended December 31, 1997, and the
Company's Proxy Statement for its Special Meeting of Stockholders dated July 24,
1998.
The Company, together with its wholly owned subsidiaries Hagler Bailly
Services, Inc., Hagler Bailly Consulting, Inc., HB Capital, Inc., Apogee
Research, Inc. ("Apogee"), TB&A Group, Inc. ("TB&A"), and as of August 28, 1998,
PHB, and several of its foreign wholly owned subsidiaries, is a worldwide
provider of consulting, research and other professional services to corporations
and governments on energy, telecommunication, transportation, and the
environment. As of September 1, 1998, Hagler Bailly employed a staff of 700, of
which over two-thirds were consulting and technical professionals. The Company's
common stock is quoted on the NASDAQ National Market under the symbol, "HBIX".
The Company's revenues consist of consulting revenues and other revenues.
Consulting revenues represent revenues associated with professional staff,
subcontractors and independent consultants, and client reimbursable expenses and
are associated with the Company's primary business of offering corporate clients
strategy and business operations consulting, economic counsel and litigation
support, and market research and survey analysis. Other revenues include those
derived from information-based product and services, and financial advisory
services. The Company's client base includes both the public and private sector.
Revenue from the private sector is typically characterized by higher gross
margins than the public sector, yet generally requires a higher relative level
of infrastructure support. Consequently, the Company's operating performance is
affected by its public sector / private sector business mix. Through strategic
acquisitions and internal growth, the Company has increased its private sector
client base, and will continue to pursue such opportunities in the future.
On February 23, 1998, the Company issued 454,994 shares of its common stock
in exchange for all the stock of TB&A. The transaction was accounted for as a
pooling of interests.
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 to turn profitable sometime late in the fiscal
year ending 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 IGA. The transaction was accounted for as a
pooling of interests.
On August 28, 1998, the Company issued 6,548,953 shares of its common stock
in exchange for all of the stock of PHB. The transaction was accounted for as a
pooling of interests.
On September 30, 1998, the Company exited from certain public sector
environmental consulting business.
Results of Operations
The following table presents for the periods indicated the percentage of
revenues represented by certain income and expense items, and the percentage
period-to-period increase (decrease) in such items:
% Period-to-Period
Percentage of Revenues Increase (Decrease) of Dollars
------------------------------------------------------------------------------------------
Three months Nine months
ended Sept. ended Sept.
Three months ended Nine months ended 30, 1998 30, 1998
September 30, September 30, compared to compared to
------------------------ -------------------- three months nine months
1998 1997 1998 1997 ended Sept ended Sept
30, 1998 30, 1997
------------------------------------------------------------------------------------------
Revenues:
Consulting 95.1 97.9 96.4 98.6 4.1 6.4
Other 4.9 2.1 3.6 1.4 151.2 179.6
Total revenues 100.0 100.0 100.0 100.0 7.2 8.8
Cost of services 71.3 77.2 71.8 76.3 (0.9) 2.3
Merger and related costs 5.4 - 3.2 - 100.0 100.0
Selling, general, and administrative
expenses 14.9 15.7 13.9 15.3 1.7 (1.6)
Compensation in connection with
subscriptions for common stock - - 2.0 0.1 - -
Income from operations 8.5 7.2 9.2 8.3 27.1 21.0
Other income (expenses), net 0.6 0.5 0.1 (0.3) 19.0 100.0
Income before income taxes 9.1 7.7 9.3 8.0 26.6 28.0
Income tax expense 3.7 2.7 4.5 3.3 49.0 50.5
Net income before extraordinary gain 5.4 5.0 4.8 4.7 14.8 12.1
Extraordinary gain - 0.1 - 0.6 (100.0) (100.0)
Net income 5.4 5.1 4.8 5.3 13.6 (1.2)
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH THREE MONTHS ENDED SEPTEMBER
30, 1997
Revenues for the three months ended September 30, 1998 increased by $3.1
million, or 7.2%, to $46.5 million from the three months ended September 30,
1997. Of this increase, $1.8 million is attributable to consulting revenues, and
$1.3 million is attributable to other revenues. Consulting revenues increased
4.1% for the three months ended September 30, 1998, as compared to the
comparable period of the prior year. This increase was primarily the result of
internal growth. Other revenues increased by 151.2% for the three months ended
September 30, 1998, as compared to the comparable period of the prior year. This
increase was attributable to increased revenues from information-based products
and services associated with a contract the Company was awarded in the current
fiscal year. In the three months ended September 30, 1998, approximately 95.1%
of the Company's revenues were derived from consulting revenues, as compared
with 97.9% in the three months ended September 30, 1997.
Cost of services for the three months ended September 30, 1998 decreased by
approximately $315,000, or 0.9%, to $33.1 million from the three months ended
September 30, 1997. Cost of services as a percentage of revenue decreased from
77.2% in the three months ending September 30, 1997, to 71.3% in the three
months ending September 30, 1998, primarily the result of cost savings
associated with integration of the Company's and PHB's operations, and the
diversion of direct billable professional staff to support the merger.
Selling, general and administrative expenses ("SG&A") for the three months
ended September 30, 1998 increased by approximately $115,000, or 1.7%, to $6.9
million from the three months ended September 30, 1997. The increase was due an
increase in the overall volume of business as compared to the comparable period
of the prior year. Expressed as a percentage of total revenues, SG&A expenses
decreased from 15.7% in the three months ended September 30, 1997 to 14.9% in
the three months ended September 30, 1998. This decrease is reflective of cost
savings resulting from the integration of the Company and PHB.
Merger and related costs for the three months ended September 30, 1998 were
$2.5 million, or 5.4% expressed as a percentage of revenues. There were no
merger and related costs for the three months ended September 30, 1997. The
majority of these costs were associated with PHB, as well as residual expenses
associated with the business combinations of TB&A, Apogee, and IGA.
Other income (expenses), net includes interest expense, interest income,
and other non-operating income, including the proceeds from exiting certain
environmental consulting business. For the three months ended September 30, 1998
other income (expenses), net increased approximately $40,000, or 19.0%, to
approximately $255,000 from the three months ended September 30, 1997.
The Company's effective tax rate increased to 40.6% in the three months
ended September 30, 1998 from 34.5% in the three months ended September 30,
1997. Historically, the Company has accrued income tax at 39% of income before
tax expense. The three months ended September 30, 1997 had a decreased effective
tax rate due to a tax credit.
Net income for the three months ended September 30, 1998 increased by
approximately $300,000, or 13.6%, to $2.5 million, from the three months ended
September 30, 1997, due to reasons discussed above.
Nine months ended September 30, 1998 compared with nine months ended September
30, 1997
Revenues for the nine months ended September 30, 1998 increased by $10.7
million, or 8.8%, to $132.1 million from the nine months ended September 30,
1997. Of this increase, $7.7 million is attributable to consulting revenues, and
$3.0 million is attributable to other revenues. Consulting revenues increased
6.4% for the nine months ended September 30, 1998, as compared to the comparable
period of the prior year. This increase was primarily the result of the
Company's focus on the growth of international private sector engagements by
increasing capacity through the purchase of Estudio Q, Ingenieros Asociados
S.R.L ("Estudio Q"), an Argentinean company, and the merger with IGA, a French
company. Other revenues increased by 179.6% for the nine months ended September
30, 1998, as compared to the comparable period of the prior year. The increase
in other revenues was primarily driven by information-based products and
services associated with a contract the Company was awarded in the current
fiscal year, as well as an increase in financial advisory services. In the nine
months ended September 30, 1998, approximately 96.4% of the Company's revenues
were derived from consulting revenues, as compared with 98.6% in the nine months
ended September 30, 1997.
Cost of services for the nine months ended September 30, 1998 increased by
$2.2 million, or 2.3%, to $94.8 million from the nine months ended September 30,
1997. Cost of services as a percentage of revenue decreased from 76.3% in the
nine months ending September 30, 1997, to 71.8% in the nine months ending
September 30, 1998, primarily the result of cost savings associated with
integration of the Company's and PHB's operations, and the diversion of direct
billable professional staff to support the merger.
SG&A for the nine months ended September 30, 1998 decreased by
approximately $300,000 or 1.6%, to $18.3 million from the nine months ended
September 30, 1997. Expressed as a percentage of total revenues, SG&A expenses
decreased from 15.3% in the three months ended September 30, 1997 to 13.9% in
the nine months ended September 30, 1998. This decrease is reflective of cost
savings resulting from the integration of the Company and PHB.
Merger and related costs for the nine months ended September 30, 1998 were
$4.2 million, or 3.2% expressed as a percentage of revenues. There were no
merger and related costs for the nine months ended September 30, 1997. The
majority of these costs were associated with PHB, as well as expenses associated
with the business combinations of TB&A, Apogee, and IGA.
Stock and stock option compensation for the nine months ended September 30,
1998 increased by $2.5 million, from the nine months ended September 30, 1997,
to $2.6 million. Substantially all of these costs were 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 merger's close.
Other income (expenses), net increased by approximately $590,000, to
approximately $180,000 in the nine months ended September 30, 1998 from the
comparable prior period. The primary reasons for this increase were proceeds
from exiting certain environmental consulting business, as well as an increase
in interest income from the nine months ended September 30, 1997.
The Company's effective tax rate increased to 48.7% in the nine months
ended September 30, 1998 from 41.4% in the nine months ended September 30, 1997.
This increase in effective tax rate for the nine months ended September 30, 1998
is primarily attributable to PHB non-cash, non-tax deductible compensation.
Net income before extraordinary gains for the nine months ended September
30, 1998 increased by approximately $685,000, or 12.1%, to $6.3 million, from
the nine months ended September 30, 1997, due to reasons discussed above.
In the nine months ended September 30, 1998, there were no extraordinary
gains, compared to approximately $760,000 in extraordinary gains, net of income
tax expense, for the nine months ended September 30, 1997.
Liquidity and Capital Resources
As of September 30, 1998, working capital was $53.1 million as compared to
$32.8 million, at December 31, 1997. The increase was primarily due to an
increase in the volume of business in the nine months ended September 30, 1998,
which resulted in significantly higher accounts receivable balances, as well as
a decrease in accrued compensation and benefits.
Net cash of approximately $13.9 million was used in operating activities
during the nine months ended September 30, 1997. The net use of funds is largely
attributable to a significant increase in accounts receivable, along with
increases in prepaid expenses, distribution of bonuses, and funding of 401(k)
matching and profit sharing benefits, for the nine months of 1998.
Investment activities used $4.7 million during the nine months ended
September 30, 1998. The Company invested $3.6 million in the purchase of office
and computer related equipment, leasehold improvements, and other resources
necessary for the growth of the Company, as well as $1.1 million to purchase the
stock of Estudio Q and the balance of the company's interest in a previously
majority owned foreign subsidiary PT Hagler Bailly Indonesia.
Financing activities provided $14.5 million for the nine months ended
September 30, 1998. Cash provided by the issuance of 470,975 shares of the
Company's common stock, for consideration of $12.5 million to Cap Gemini
America, Inc. in connection with the formation of a joint venture and an
increase in net borrowings from the Company's line of credit, partially offset
by principal payments on debt. Net proceeds from equity financing are invested
in short-term, interest-bearing investment grade securities.
The Company's primary source of liquidity for the past 12 months has been
cash flows from equity sources, periodically supplemented by borrowings under a
bank line of credit. During the year ended December 31, 1997, the Company,
through its subsidiaries, established $19 million in revolving credit facilities
through two sources and began borrowing under the facilities. The balance under
the line of credit at September 30, 1998 was $4.7 million. Currently, the
Company is evaluating proposals to increase its bank line of credit to $50
million. The Company believes that current projected levels of cash flows and
the availability of financing, including borrowings under the Company's current
and proposed credit facility, will be adequate to fund its anticipated cash
needs, which may include future acquisitions of complementary businesses, for at
least the next 12 months. The Company, depending on market conditions, may
consider other sources of financing, including equity financing.
Prior to its acquisition by Hagler Bailly and consistent with its
historical dividend policy, IGA paid cash dividends of $333,311 in 1998.
The Company currently anticipates that it will retain all of its earnings
for development of the Company's business and does not anticipate paying any
cash dividends in the foreseeable future.
YEAR 2000
The Year 2000 ("Y2K") issue is a result of certain information systems and
programs using a two-digit format, as opposed to four digits, to indicate the
years. Such systems and programs will be unable to correctly interpret dates
beyond the year 1999, which could lead to system failure or certain other
problems, leading to disruption in operations.
The Company is currently developing a formal, phased plan for Y2K
information systems compliance. Detailed below are the status of progress and
timetables for each of the phases of the plan.
--------------------- ------------------------- -------------------------- ----------------------
ASSESSMENT REMEDIATION TESTING IMPLEMENTATION
--------------------- ------------------------- -------------------------- ----------------------
- ----------------------- --------------------- ------------------------- -------------------------- ----------------------
IT - Domestic Completed Current Current By 2nd quarter 1999
- ----------------------- --------------------- ------------------------- -------------------------- ----------------------
- ----------------------- --------------------- ------------------------- -------------------------- ----------------------
IT - International By 1st quarter 1999 During 2nd quarter 1999 During 2nd quarter 1999 By 3rd quarter 1999
- ----------------------- --------------------- ------------------------- -------------------------- ----------------------
- ----------------------- --------------------- ------------------------- -------------------------- ----------------------
Accounting Completed By year end 1998 By year end 1998 By year end 1998
- ----------------------- --------------------- ------------------------- -------------------------- ----------------------
- ----------------------- --------------------- ------------------------- -------------------------- ----------------------
Embedded By year end 1998 1st - 3rd quarter 1999 1st - 3rd quarter 1999 1st - 3rd quarter
1999
- ----------------------- --------------------- ------------------------- -------------------------- ----------------------
- ----------------------- --------------------- ------------------------- -------------------------- ----------------------
3rd Party By year end 1998 By 1st quarter 1999 1st - 3rd quarter 1999 1st - 3rd quarter
1999
- ----------------------- --------------------- ------------------------- -------------------------- ----------------------
The Company plans to implement a Y2K compliant upgrade to its current core
financial and reporting systems software by the end of the year.
At the present time, the Company's management believes that the costs
associated with Y2K compliance should not have a material adverse effect on the
results of operations or financial position of the Company in future periods.
Historical and estimated costs are, at this time deemed immaterial.
Nevertheless, the Company is not certain that it has fully identified all
potential impacts or effects on it that could result from Y2K non-compliance,
either internally or with respect to the various third-party enterprises with
which it interacts. Implementation of Y2K solutions will not have an impact on
other IT projects. The Company plans to evaluate the status of the Y2K
compliance plan in the first quarter of 1999 to determine risks and whether or
not a contingency plan is necessary.
PART II
Item 1. Legal Proceedings
The Company's indirect subsidiary, Theodore Barry & Associates, is a
defendant in a lawsuit brought in the United States District Court for the
Northern District of Illinois, Michael A. Laros v. Theodore Barry & Associates,
No. 95-C4175, by one of its former executives seeking payment of a bonus and
salary allegedly due him and payment of principal and interest on a subordinated
note of TB&A Group, Inc. ("TB&A") held by Mr. Laros, prejudgment interest and
costs and fees. Theodore Barry & Associates is defending the suit. Hagler Bailly
does not believe that the resolution of this lawsuit will have a material
adverse effect on its business, financial condition or results of operations.
Apogee has received a subpoena from the Office of the Inspector General of
the Environmental Protection Agency (the "EPA") requesting records from April
1993 through October 1995 pertaining to a contract between Apogee and the EPA.
Apogee has provided records in response to the subpoena. The work under this
contract has been completed. The subpoena was served in connection with an EPA
investigation relating to the submission of potential false statements and false
claims under the contract. Hagler Bailly is unable to determine at this time
what effect, if any, the investigation will have on its business, financial
condition or results of operations.
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, financial condition or
results of operations.
Item 2. Changes in Securities
On August 28, 1998, the Company acquired PHB, a Massachusetts corporation,
for stock. The Company issued an aggregate of 6,548,953 shares of its common
stock to the shareholders of PHB. The shares of common stock issued in
connection with the acquisition were exempt from registration pursuant to Rule
506 of the Securities and Exchange Commission's Regulation D and Section 4(2) of
the Securities Act of 1933.
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Special Meeting of Stockholders on August 27, 1998
stockholders approved the issuance of additional shares of the Company's common
stock to stockholders of PHB as part of the Company's acquisition of PHB as
follows:
For Against Abstain Broker Non-Vote
7,531,736 11,000 2,500 309,096
At the meeting, stockholders also approved an amendment to the Company's
Certificate of Incorporation to increase the number of authorized shares of
Hagler Bailly's common stock from 20,000,000 to 50,000,000 as follows:
For Against Abstain Broker Non-Vote
6,918,461 933,471 2,500 0
At the meeting, the stockholders also approved an amendment to the
Company's Employee Incentive and Non-Qualified Stock Option and Restricted Stock
Plan to increase the number of shares authorized to be issued under the plan
from 3,200,000 to 5,000,000 as follows:
For Against Abstain Broker Non-Vote
4,914,902 2,614,266 14,200 311,064
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
No. Description
2 Sale Agreement between RCG International, Inc., and Hagler Bailly Consulting, Inc. (1)
2.1 Agreement and Plan of Merger by and among Hagler Bailly, Inc., Hagler Bailly Acquisition Corp. 1997-1 and Apogee
Research, Inc., dated as of November 18, 1997. (3)
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)
3.1 Amended and Restated Certificate of Incorporation of the Company. (1)
3.2 By-Laws of the Company, as amended. (6)
3.3 Amended Certificate of Incorporation of the Company.
4 Specimen Stock Certificates. (1)
4.1 Escrow Agreement dated December 1, 1997 by and among Hagler Bailly, Inc., Hagler Bailly Acquisition Corp.
1997-1, Richard R. Mudge as Stockholders' Representative and State Street Bank and Trust Company, as Escrow
Agent. (3)
4.2 Registration Rights Agreement dated November 18, 1997 by and between Hagler Bailly, Inc. and Richard R. Mudge, acting as
Stockholders' Representation. (3)
4.3 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)
4.4 Form of Registration Rights Agreement between the Company and certain PHB Stockholders. (5)
10.1 Hagler Bailly, Inc. Amended and Restated 1996 Employee Incentive and Non-Qualified Stock Option and Restricted Stock Plan
(including forms of option agreements). (1)
10.2 Form of Non-Compete, Confidentiality and Registration Rights
Agreement between the Company and each stockholder. (1)
10.3 Form of Amended and Restated Employment Agreement between the Company and Henri-Claude A. Bailly. (1)
10.4 Lease by and between Wilson Boulevard Venture and RCG/Hagler Bailly, Inc. dated October 25, 1991. (1)
10.5 First Amendment to Lease by and between Wilson Boulevard Venture and RCG/Hagler Bailly, Inc., dated February 26,
1993. (1)
10.6 Second Amendment to Lease by and between Wilson Boulevard Venture and RCG/Hagler Bailly, Inc., dated December
12, 1994. (1)
10.7 Lease by and between Bresta Futura V.B.V. and Hagler Bailly Consulting, Inc. dated May 8, 1996. (1)
10.8 Lease by and between L.C. Fulenwider, Inc., and RCG/Hagler Bailly, Inc. dated December 14, 1994. (1)
10.9 Lease by and between University of Research Park Facilities Corp. and RCG/Hagler Bailly, Inc., dated April 1,
1995. (1)
10.10 Credit Agreement by and between Hagler Bailly Consulting, Inc. and State Street Bank and Trust Company, dated
May 17, 1995. (1)
10.11 Amendment to Credit Agreement by and between Hagler Bailly Consulting, Inc. and State Street Bank and Trust
Company, dated as of June 20, 1996. (1)
10.12 Extension Agreement by and between Hagler Bailly Consulting, Inc. and State Street Bank and Trust Company, dated
as of August 1, 1996. (1)
10.13 Amendment to Credit Agreement by and between Hagler Bailly Consulting, Inc. and State Street Bank and Trust
Company, dated as of November 12, 1996. (1)
10.14 Term Note by and between Hagler Bailly Consulting, Inc., and State Street Bank and Trust Company, dated May 26,
1995. (1)
10.15 Revolving Credit Note by and between Hagler Bailly Consulting, Inc. and State Street Bank and Trust Company
dated May 26, 1995. (1)
10.16 Amendment to Credit Agreement by and between Hagler Bailly Consulting, Inc., and State Street Bank and Trust
Company, dated as of June 12, 1997. (1)
10.17 Credit 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)
10.18 Promissory Note by Hagler Bailly Consulting, Inc. and Hagler Bailly Services, Inc. to State Street Bank and
Trust Company, dated September 30, 1997. (2)
10.19 Security Agreement by and between Hagler Bailly Consulting, Inc. and State Street Bank and Trust Company, dated
as of September 30, 1997. (2)
10.20 Security Agreement by and between Hagler Bailly Services, Inc. and State Street Bank and Trust Company, dated as
of September 30, 1997. (2)
10.21 Guaranties by Hagler Bailly, Inc. to State Street Bank and Trust Company, dated September 30, 1997. (2)
10.22 Guaranties by HB Capital, Inc. to State Street Bank and Trust Company, dated September 30, 1997. (2)
10.23 Subordination 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)
10.24 Subordination 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)
10.25 Guaranty of Monetary Obligations to Bresta Futura V.B.V. by Hagler Bailly, Inc., dated July 23, 1997. (2)
10.26 Amendment to Credit Agreement by and between Hagler Bailly Consulting, Inc. and State Street Bank and Trust
Company dated May 18, 1998. (6)
10.27 Sublease Agreement by and between Coopers and Lybrand L.L.P. and Hagler Bailly, Inc. dated December 5, 1997. (6)
10.28 Employment Agreement between the Company and Henri-Claude A. Bailly, dated June 10, 1998.
10.29 Employment Agreement between the Company and William E. Dickenson, dated June 10, 1998.
10.30 Employment Agreement between the Company and Howard W. Pifer III, dated June 10, 1998.
10.31 Hagler Bailly, Inc. Amended and Restated Employee Incentive and Non-Qualified Stock Option and Restricted Stock Plan.
21 Subsidiaries (4)
24 Powers of Attorney (included on Signature Pages) (1)
27.1 Financial Data Schedule - September 30, 1998
27.2 Restated Financial Data Schedule - June 30, 1998
27.3 Restated Financial Data Schedule - March 31, 1998
27.4 Restated Financial Data Schedule - December 31, 1997
27.5 Restated Financial Data Schedule - September 30, 1997
27.6 Restated Financial Data Schedule - June 30, 1997
27.7 Restated Financial Data Schedule - March 31, 1997
27.8 Restated Financial Data Schedule - December 31, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Included in the Company's Registration Statement on Form S-1 (No. 333-22207)
(2) Included in the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997.
(3) Included in the Company's Current Report on Form 8-K filed on December 16, 1997.
(4) Included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997.
(5) Included in the Company's Proxy Statement for Special Meeting of Stockholders dated July 24, 1998 on Form DEF 14A.
(6) Included in the Company Quarterly Report on Form 10Q for the quarter ended June 30, 1998.
(b) Reports on Form 8-K
On September 14, 1998 the Company filed a current report on Form 8-K. On
November 13, 1998 the Company filed an amendment to the current report on
Form 8-K that was filed on September 14, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
/s/ Henri-Claude Bailly
----------------------------------------------------
Date: November 14, 1998 Henri-Claude Bailly
President, Chief Executive Officer and
Chairman of the Board
/s/ Glenn J. Dozier
----------------------------------------------------
Date: November 14, 1998 Glenn J. Dozier
Senior Vice President, Chief Financial Officer
and Treasurer