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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 {x}
For the quarterly period ended March 31, 1999
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
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HAGLER BAILLY, INC.
(Exact name of registrant as specified in its charter)
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Delaware 54-1759180
(State or other jurisdiction of incorporation or organization)
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 April 19, 1999, the Registrant had 16,523,966 shares of its common stock
outstanding.
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TABLE OF CONTENTS
PART I
ITEM 1. FINANCIAL STATEMENTS..................................................1
CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 1999 (UNAUDITED) AND DECEMBER 31,
1998...........................................................................1
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31,
1999 AND 1998 (UNAUDITED)......................................................2
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31,
1999 AND 1998 (UNAUDITED)......................................................3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.....................................4
iTEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................................6
PART II
ITEM 1. LEGAL PROCEEDINGS....................................................14
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS............................14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.....................................15
SIGNATURES....................................................................19
PART I
Item 1. Financial Statements
Hagler Bailly, Inc.
Consolidated Balance Sheets
(in thousands)
March 31, December 31,
1999 1998
------------------- -------------------
(unaudited)
Assets
Current assets:
Cash & cash equivalents $ 12,334 $ 16,165
Accounts receivable, net of allowance of $3,839 and $3,888
in 1999 and 1998, respectively 60,189 59,092
Note receivable - 382
Prepaid expenses 3,132 2,620
Other current assets 392 304
------------------- -------------------
Total current assets 76,047 78,563
Property and equipment,net 6,842 6,463
Software development costs, net 720 898
Intangible assets, net 15,268 14,208
Other assets 1,209 1,290
=================== ===================
Total assets $ 100,086 $ 101,422
=================== ===================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 8,922 $ 8,476
Accrued compensation and benefits 8,566 8,713
Billings in excess of cost 2,064 2,288
Current portion of long-term debt 333 345
Income taxes payable 794 2,547
Deferred income taxes 1,900 1,900
------------------- -------------------
Total current liabilities 22,579 24,269
Long-term debt, net of current portion 670 681
Minority interest 223 177
Deferred income taxes 927 927
Other deferred 1,790 1,769
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Total liabilities 26,189 27,823
Stockholders' equity:
Common stock, $0.01 par value, 50,000 shares authorized; 16,636 and
16,483 issued and outstanding at March 31, 1999 and
December 31, 1998, respectively 166 165
Additional capital 71,486 72,322
Retained earnings 2,387 1,206
Foreign currency translation (142) (94)
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Total stockholders' equity 73,897 73,599
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Total liabilities and stockholders' equity $ 100,086 $ 101,422
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See accompanying notes.
Hagler Bailly, Inc.
Consolidated Statements of Operations
(in thousands except per share data)
(Unaudited)
Three Months Ended
March 31,
1999 1998
----------------- -----------------
Revenues:
Consulting revenues $ 39,687 $ 37,931
Other revenues 543 1,315
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Total revenues 40,230 39,246
Cost of services 30,623 28,768
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Gross profit 9,607 10,478
Merger related and other non-recurring costs - 367
Selling, general and administrative expenses 7,583 4,884
Stock and stock option compensation - 2,165
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Income from operations 2,024 3,062
Other income (expenses), net 87 (47)
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Income before income tax expense and loss from
equity investment in joint venture 2,111 3,015
Income tax expense 786 2,074
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Income before loss from equity investment in joint
venture 1,325 941
Loss from equity investment in joint venture (143) -
----------------- -----------------
Net income $ 1,182 $ 941
================= =================
Net income per share:
Basic $ 0.07 $ 0.06
Diluted $ 0.07 $ 0.06
Weighted average shares outstanding:
Basic 16,552 15,606
Diluted 17,171 16,417
See accompanying notes.
Hagler Bailly, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
Three Months Ended March 31,
1999 1998
------------------- --------------------
Operating activities
Net income $ 1,182 $ 941
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization expense 1,317 958
Stock and stock option compensation - 2,165
Provision for deferred income taxes - 279
Provision for accounts receivable 313 215
Loss on equity investment in joint venture 143 -
Minority interest 46 -
Changes in operating assets and liabilities:
Accounts receivable (1,090) (2,615)
Note receivable 382 -
Prepaid expenses (1,361) (2,205)
Other current assets (88) (100)
Other assets (89) 290
Deferred compensation - 40
Accounts payable and accrued expenses 389 (1,450)
Accrued compensation and benefits (409) (3,713)
Billings in excess of cost (256) 17
Income taxes payable (1,753) (832)
Other deferred 21 1,153
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Net cash used in operating activities (1,253) (4,857)
Investing activities
Acquisition of property and equipment (444) (575)
Amount received in liquidation of subsidiary - 160
Sale of investments - 4,247
Purchase of acquired companies - (440)
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Net cash (used in) provided by investing activities (444) 3,392
Financing activities
Issuance of common stock - options 106 21
Purchase of treasury stock (2,217) -
Dividends paid by foreign subsidiary - (333)
Net borrowings from bank line of credit - 1,706
Principal payments on debt (23) (191)
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Net cash (used in) provided by financing activities (2,134) 1,203
Net decrease in cash and cash equivalents (3,831) (262)
Cash and cash equivalents, beginning of period 16,165 5,261
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Cash and cash equivalents, end of period $ 12,334 $ 4,999
=================== ====================
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, 1999.
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.
For the three months ended March 31,
1999 1998
---- ----
Net income $1,182 $ 941
================= =================
Weighted average shares of common stock outstanding
during the period 16,552 15,606
Effect of dilutive securities:
Stock options 619 811
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Weighted average shares of common stock and
dilutive securities 17,171 16,417
================= =================
Note 3. Business Combination
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 $1.3 million.
Note 4. Stock Repurchase Plan
On March 22, 1999, the Company announced that its Board of Directors
authorized the repurchase of up to 1.5 million shares of the Company's common
stock. The purchases will be made from time to time in the open market or in
privately negotiated transactions. As of March 31, 1999, the Company had
repurchased 286,000 shares.
Note 5. Components of Comprehensive Income
Comprehensive income includes the Company's net earnings adjusted for
changes, net of tax, of cumulative translation adjustments. Comprehensive income
for the three months ended March 31, 1999 and 1998 is as follows:
Three Months Ended
March 31,
1999 1998
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Comprehensive Income:
Net Income $ 1,182 $ 941
Foreign translation adjustment (29) (93)
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Total comprehensive income: $ 1,153 $ 848
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Note 6. Subsequent Events
From April 1, 1999 through April 19, 1999, the Company repurchased an
additional 112,500 shares of its common stock through its stock repurchase
program. As of April 19, 1999, the Company was authorized to repurchase
approximately 1.1 million additional shares.
On April 30, 1999, the Company acquired all of the outstanding stock of
Washington International Energy Group Ltd. , a Washington D.C. based worldwide
provider of energy and environmental policy consulting research services, in
exchange for cash and shares of the Company's common stock. The acquisition was
accounted for as a purchase.
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, and the Company's Annual Report on Form 10-K for
the year ended December 31, 1998.
The Company, together with its wholly owned subsidiaries PHB Hagler
Bailly, Hagler Bailly Services, and several of its other domestic and foreign
wholly owned subsidiaries, is a leading provider of professional services to
corporate and government clients on energy, network industries, and the
environment. As of March 31, 1999, Hagler Bailly employed a staff of 848, 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.
These revenues are derived from 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 products and services and
publication of newsletters, reference manuals and data series for the energy and
transportation industries services. The Company's client base includes both the
public and commercial rate sector. Revenue from the commercial rate 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 / commercial rate sector business mix. Through strategic acquisitions and
internal growth, the Company has increased its commercial rate sector client
base, and will continue to pursue such opportunities in the future.
On February 8, 1999, the Company acquired all of the outstanding stock
of Lacuna Consulting Limited, a United Kingdom corporation, in exchange for
65,000 shares of the Company's common stock. The acquisition was accounted for
as a purchase method.
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
increase
(decrease) in
dollars
------------------------ --------------------
Percentage of revenues Three months
------------------------ ended Mar. 31, 1999
compared to
Three months ended three months
March 31, ended Mar. 31, 1998
1999 1998
Revenues:
Consulting 98.6 96.6 4.6
Other 1.4 3.4 (58.7)
Total revenues 100.0 100.0 2.5
Cost of services 76.1 73.3 6.4
Merger related and other non-recurring costs - 0.9 (100.0)
Selling, general, and administrative
expenses 18.8 12.4 55.3
Stock and stock option compensation - 5.5 (100.0)
Income from operations 5.1 7.8 (33.9)
Other income (expenses), net 0.2 (0.1) 285.1
Income before income tax expense and
loss from equity investment in joint
venture 5.3 7.7 (30.0)
Income tax expense 2.0 5.3 (62.1)
Income before loss from equity
investment in joint venture 3.3 2.4 40.8
Loss from joint venture (0.4) - (100.0)
Net income 2.9 2.4 25.6
Three months ended March 31, 1999, compared with three months ended March 31,
1998
Revenues for the three months ended March 31, 1999, increased by
approximately $984,000, or 2.5%, to $40.2 million from the three months ended
March 31, 1998. An increase of approximately $1.8 million in consulting revenues
was offset by a decrease of approximately $770,000 in other revenues. Consulting
revenues increased 4.6% for the three months ended March 31, 1999, as compared
to the comparable period of the prior year. This increase was primarily the
result of acquisitions and internal growth in the commercial rate sector, which
was partially offset by the sale of certain assets of the Company's public
sector consulting practice in September 1998. Other revenues decreased by 58.7%
for the three months ended March 31, 1999, as compared to the comparable period
of the prior year. This decrease was the result of the Company's decision the
cease operations in its financial advisory services business and also a decrease
in revenues from information-based products and services. In the three months
ended March 31, 1999, approximately 98.6% of the Company's revenues were derived
from consulting revenues, as compared with 96.6% in the three months ended March
31, 1998.
Cost of services for the three months ended March 31, 1999 increased by
$1.9 million, or 6.4%, to $30.6 million from the three months ended March 31,
1998. Cost of services as a percentage of revenue increased from 73.3% in the
three months ending March 31, 1998, to 76.1% in the three months ending March
31, 1999. This increase was the result of an increase in staffing costs to
support an anticipated increase of business and an increase in cash compensation
paid to consulting staff.
Selling, general and administrative expenses ("SG&A") for the three
months March 31, 1999, increased by $2.7 million, or 55.3%, to $7.6 million from
the three months ended March 31, 1998. Expressed as a percentage of total
revenues, SG&A expenses increased from 12.4% in the three months ended March 31,
1998, to 18.8% in the three months ended March 31, 1999. This increase is
reflective of increased marketing costs, an increase in administrative staff in
anticipation of increased business and duplication of certain administrative
costs related to the Company's recent business combinations.
There were no merger related and other non-recurring costs for the
three months ended March 31, 1999, compared with approximately $367,000 in the
three months ended March 31, 1998. The majority of these costs in the comparable
period were associated with the Company's business combination with TB&A Group,
Inc. and its wholly-owned subsidiary Theodore Barry & Associates (collectively
"TB&A").
There were no stock and stock option compensation expenses for the
three months ended March 31, 1999, compared with approximately $2.2 million in
the three months ended March 31, 1998. All of these costs in the prior period
were related to the business combination with Putnam, Hayes & Bartlett, Inc.
("PHB") which occurred in August 1998 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. For the three months
ended March 31, 1999, other income (expenses), net increased approximately
$134,000, to income of approximately $87,000 from the three months ended March
31, 1998.
The Company's effective tax rate decreased to 37.2% in the three months
ended March 31, 1999, from 68.8% in the three months ended March 31, 1998. The
effective tax rate for the comparable period was higher than the provisional
rate as a result of the non-deductibility for tax reporting purposes of the
stock compensation charge discussed above.
Net income for the three months ended March 31, 1999, increased by
approximately $241,000, or 25.6%, to approximately $1.2 million, from the three
months ended March 31, 1998, due to reasons discussed above.
Liquidity and Capital Resources
As of March 31, 1999, working capital was $53.5 million as compared to
$54.3 million at December 31, 1998.
Net cash of approximately $1.3 million was used in operating activities
during the three months ended March 31, 1999. The net use of funds is largely
attributable to the payment of income taxes, along with increases in prepaid
expenses and accounts receivable for the three months ended March 31, 1999.
Investment activities used approximately $444,000 during the three
months ended March 31, 1999. The Company used these funds for the purchase of
office and computer related equipment, leasehold improvements and other
resources necessary for the growth of the Company.
Financing activities used approximately $2.1 million for the three
months ended March 31, 1999. Substantially all of these funds were used for the
repurchase of 286,000 shares of the Company's common stock by the Company. The
Company is authorized to repurchase approximately 1.2 million additional shares.
The Company's primary source of liquidity for the past 12 months has been
funds generated from operations and from sales of common stock, periodically
supplemented by borrowings under a bank line of credit. During the year ended
December 31, 1998, the Company established $50.0 million in revolving credit
facilities with NationsBank. The amount available under the line of credit at
March 31, 1999 was $50.0 million. The Company believes that current projected
levels of cash flows and the availability of financing, including borrowings
under the Company's 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 and the foreseeable future. The Company,
depending on market conditions, may consider other sources of financing,
including equity financing.
Year 2000
The Year 2000 issue is the result of a computer hardware and software
design that defines the year field as two digits instead of four digits.
Computer programs and systems with this problem will be unable to properly
distinguish between the year 2000 and the year 1900. As a result, the programs
could fail or yield incorrect results. The Company's business, as well of those
of its principal suppliers and clients, is dependent on the ability of its
software and hardware systems to properly function. Failure of one or more of
these systems of the Company or a material client or supplier could disrupt the
Company's operations and cause a material adverse impact on the Company's
business, results of operations and financial condition.
The Company's Year 2000 Strategy
The Company has established the Year 2000 Readiness Plan (the "Plan") to
prepare for the Year 2000 issue. This Plan is comprised of the following
elements:
1. Audit, assessment, remediation, and testing of internal systems.
2. Obtaining assurance or information on the state of Year 2000 readiness
of our material clients and suppliers who exchange information
electronically with us or upon whom our work product may depend.
3. Developing contingency plans, when practical, to address potential Year 2000
failures.
Except where noted below, the Company's goal is to complete
implementation of the Plan by September 30, 1999.
Audit and Remediation Testing Implementation
Assessment
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IT - Domestic 80% Complete In Progress 3rd Quarter 3rd Quarter
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IT - International 2nd Quarter 3rd Quarter 3rd Quarter 4th Quarter
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Business Operations Complete Complete During 2nd and 3rd Quarter
3rd Quarter
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Embedded 1st - 3rd Quarter 1st - 3rd Quarter 1st - 3rd 3rd Quarter
Quarter
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3rd Party 2nd - 3rd Quarter 3rd - 4th N/A 4th Quarter
Quarter
Year 2000 Readiness Report
The Company made several acquisitions in 1998. It undertook a
comprehensive due diligence examination that identified general Year 2000
Readiness issues for itself and the companies it acquired. The Company recently
formalized its efforts by establishing a Year 2000 Working Committee (the
"Committee") led by its Chief Information Officer to oversee the integration of
its Year 2000 efforts and to implement the Plan. The Committee includes the CEO,
CFO, General Counsel, and other Company executives and outside consultants as
required. The Company has engaged a consultant to complete the assessment of its
domestic offices and to assist in the assessment of its major international
offices.
The Company's front office systems (used for the delivery of services
to clients), both hardware and software, were replaced or significantly upgraded
in 1997 and 1998 and were manufactured to be Year 2000 ready (with minor,
vendor-identified problems). Due to the release of new Year 2000 "software"
fixes from Microsoft, the principal supplier of the Company's front office
software, the Company currently expects that the process of updating those
systems that are not Year 2000 ready will be performed in the 3rd quarter of
1999.
With some exceptions, the Company does not employ significant custom
programming in its front office, work product, or back office systems. The
Company's work product is generated almost exclusively with commercially
available statistical, econometric, word processing, spreadsheet, database, or
mathematical software for which the Company has obtained Year 2000 Readiness
assurances. These software products have been audited and have been or will be
updated where appropriate. In the cases where the Company has supplemented these
commercially available softwares with custom programming, a team is being
established to assess the software. These situations do not represent a
significant percentage of the Company's work product. The Company is
implementing a software application to aide the monitoring of Year 2000
compliance of new work product and to provide a testing mechanism for the re-use
of models, spreadsheets, or databases. This application is a commercially
available Year 2000 audit and remediation product specifically designed for
Microsoft Windows compliant software applications.
A conversion was undertaken in 1998 to replace a significant and
non-compliant analytic system (used to service client analysis needs), including
hardware and software, with a compliant system. The implementation is complete
and the conversion of existing analytic applications will be complete by
September 30, 1999.
Back office systems including financial accounting, project accounting,
fixed asset management, human resources, payroll, and conflict management have
been replaced, updated with vendor supplied Year 2000 fixes, or converted to
compliant versions of the software. During the second quarter 1999, the Company
plans to undertake a comprehensive test of its back office systems. Certain
models of personal computers have been identified as non-compliant and will be
replaced in 1999. The number of Year 2000 replacements will not exceed the
normal annual personal computer turnover.
The Company is contacting the vendors of its principal office systems
in order to obtain proof of Year 2000 readiness. The Company's material office
systems include its telephone, communications and networking equipment, security
and facilities systems, copiers, pagers, voicemail, and faxing systems. Because
the Company is highly decentralized with 21 domestic and international
offices, it does not expect the audit and remediation of these office systems to
be complete before September 30, 1999. Some office systems in the Company's
international offices will not be corrected by December 31, 1999, but the
Company does not expect such systems to materially affect the Company's ability
to complete its engagements.
Clients
The Company's clients include domestic and international companies,
private law firms, the United States and state, local and foreign governments
and governmental agencies and government-owned enterprises. The Company has
responded to Year 2000 compliance surveys from over 50 of its major clients and
shared the readiness information disclosed here. In April 1999, the Company
initiated a survey of a cross section of its largest clients (measured by
revenue generated for the Company in 1998) to determine their Year 2000
readiness. The Company plans to survey other clients if circumstances warrant
and, where practical, to survey new clients upon new engagements.
Material Vendors
The Company performs analytic work on time sensitive matters. Certain
vendors have been identified as critical to implementing the Plan. These vendors
include payroll, credit, transportation, information resources, and certain
maintenance providers of mission critical hardware and software. If one or more
of the Company's principal vendors experiences significant business disruption
as a result of the Year 2000 issue, it could have a material adverse effect on
the Company's business, results of operations and financial condition. For
example, if the Company's principal suppliers of real-time electricity data are
not functioning properly, the Company may be unable to perform analytic work for
clients. Similarly, if hardware used to perform modeling cannot be supported
because of a Year 2000 issue at the vendor, the Company's ability to meet client
demands for time sensitive analysis might be jeopardized. The Committee will be
contacting the Company's principal vendors during the second quarter of 1999.
Based on the responses, the Committee may need to develop contingency plans to
replace those vendors whose ability to certify Year 2000 readiness is in doubt.
The Committee expects that the process of evaluating and working with outside
vendors will continue into the third and fourth quarters of 1999.
Contingency Planning
The Committee is developing a contingency plan in the event that a
material system or vendor will not be Year 2000 ready by December 31, 1999. This
contingency plan is scheduled to be substantially complete by the end of the
third quarter of 1999, although it will be reviewed and refined thereafter as
the Committee continues to evaluate the Company's systems and vendors. The
Company is considering other contingency initiatives with respect to office
systems, personnel, and new engagements.
Costs
The Company will budget $300,000 in each of the next two fiscal years,
1999 and 2000, to cover the costs of evaluating systems, acquiring Year 2000
remediation software, additional testing of hardware and software, hiring an
outside Year 2000 consultant, and administrative costs associated with
implementing the Plan. Although the Company believes this amount will be
sufficient to meet the costs of the Company's Year 2000 readiness efforts, there
can be no assurance that the costs to implement the Plan will not significantly
exceed the Company's current estimates. To date, expenditures for Year 2000
readiness have been nominal and associated with the rapid implementation of
already planned front office and back office systems upgrades.
Risks
At present, the Company perceives that its greatest Year 2000 risk is
its dependence on an external network of information providers, vendors, and
experts to complete its engagements. Even if the Company can satisfy itself that
the systems of its material suppliers and partners are Year 2000 ready, those
suppliers and partners in turn rely on a myriad of suppliers to operate their
businesses. Year 2000-related failures far removed from the Company could
trigger a chain of events that could materially harm the Company's business.
Certain clients, despite their best efforts, may suffer the effects of Year 2000
failures of others and thus delay, cancel, or substantially alter work in
progress resulting in a negative effect on the operations of the Company,
including the failure to meet financial expectations or the loss of key
personnel. Such a chain of events could also lead to litigation against the
Company. The Company also performs work in regions deemed at high risk for Year
2000 disruptions, specifically, Latin America, Eastern Europe, and Asia. Lastly,
the Company perceives that the stability of technical and critical office staff
is important to the Plan and is considering steps to decrease the risk of losing
critical resources. Notwithstanding these efforts, there can be no assurance
that Year 2000 problems will not have a material adverse effect on the Company's
business, results of operations, or financial condition.
PART II
Item 1. Legal Proceedings
Apogee Research, Inc. ("Apogee"), a wholly owned subsidiary of the Company,
received a subpoena in July 1998 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.
Item 2. Changes in Securities and Use of Proceeds
On February 8, 1999, the Company completed the acquisition of Lacuna
Consulting Limited ("Lacuna"), a United Kingdom corporation, and issued 65,000
shares of its common stock to the former shareholders of Lacuna in connection
therewith. The shares of common stock issued in connection with this transaction
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 6. Exhibits and Reports on Form 8-K.
None filed during the period
(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., PHB
Acquisition Corp. and Putnam, Hayes and Bartlett, Inc., dated as of 6/11/98. (5)
3.1 By-Laws of the Company, as amended. (6)
3.2 Amended Restated Certificate of Incorporation of the Company. (7)
4.0 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'
Representation. (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.
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.
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)
10.10 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)
10.11 Extension Agreement by and between Hagler Bailly Consulting, Inc. and
State Street Bank and Trust Company, dated as of August 1, 1996. (1)
10.12 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)
10.13 Term Note by and between Hagler Bailly Consulting, Inc., and State
Street Bank and Trust Company, dated May 26, 1995. (1)
10.14 Revolving Credit Note by and between Hagler Bailly Consulting, Inc.
and State Street Bank and Trust Company dated May 26, 1995. (1)
10.15 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)
10.16 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)
10.17 Promissory Note by Hagler Bailly Consulting, Inc. and Hagler Bailly
Services, Inc. to State Street Bank and Trust Company, dated September 30, 1997.
(2)
10.18 Security Agreement by and between Hagler Bailly Consulting, Inc. and
State Street Bank and Trust Company, dated as of September 30, 1997. (2)
10.19 Security Agreement by and between Hagler Bailly Services, Inc. and
State Street Bank and Trust Company, dated as of September 30, 1997. (2)
10.20 Guaranties by Hagler Bailly, Inc. to State Street Bank and Trust
Company, dated September 30, 1997. (2)
10.21 Guaranties by HB Capital, Inc. to State Street Bank and Trust
Company, dated September 30, 1997. (2)
10.22 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)
10.23 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)
10.24 Guaranty of Monetary Obligations to Bresta Futura V.B.V. by Hagler
Bailly, Inc., dated July 23, 1997. (2)
10.25 Amendment to Credit Agreement by and between Hagler Bailly
Consulting, Inc. and State Street Bank and Trust Company dated May 18, 1998. (6)
10.26 Sublease Agreement by and between Coopers and Lybrand L.L.P. and
Hagler Bailly, Inc. dated December 5, 1997. (6)
10.27 Employment Agreement between the Company and Henri-Claude A. Bailly,
dated August 27, 1998. (7)
10.28 Employment Agreement between the Company and William E. Dickenson,
dated August 27, 1998. (7)
10.29 Employment Agreement between the Company and Howard W. Pifer III,
dated June 10, 1998. (7)
10.30 Hagler Bailly, Inc. Amended and Restated Employee Incentive and
Non-Qualified Stock Option and Restricted Stock Plan. (7)
10.31 Credit 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)
10.32 Revolving Note by and between Hagler Bailly, Inc. and NationsBank,
N.A., dated November 20, 1998. (8)
10.33 Swing 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)
10.35 Form of Security Agreement by and between Hagler Bailly, Inc. and
NationsBank, N.A., dated November 20, 1998. (8)
10.36 Security Agreement by and between Hagler Bailly Consulting, Inc. and
NationsBank, N.A., dated November 20, 1998. (8)
10.37 Security Agreement by and between Hagler Bailly Services, Inc. and
NationsBank, N.A., dated November 20, 1998. (8)
10.38 Security Agreement by and between HB Capital, Inc. and NationsBank,
N.A., dated November 20, 1998. (8)
10.39 Security Agreement by and between Putnam, Hayes & Bartlett, Inc. and
NationsBank, N.A., dated November 20, 1998. (8)
10.40 Security Agreement by and between TB&A Group, Inc. and NationsBank,
N.A., dated November 20, 1998. (8)
10.41 Security Agreement by and between Theodore Barry & Associates and
NationsBank, N.A., dated November 20, 1998. (8)
10.42 Security Agreement by and between PHB Hagler Bailly, Inc. and
NationsBank, N.A., dated February 22, 1999. (8)
10.43 Security Agreement by and between Private Label Energy Services, Inc.
and NationsBank, N.A., dated November 20, 1998. (8)
10.44 Security Agreement by and between Fieldston Publications, Inc. and
NationsBank, N.A., dated November 20, 1998. (8)
10.45 Lease by and between One Memorial Drive Limited Partnership and
Putnam, Hayes & Bartlett, Inc. dated January 1, 1998. (8)
10.46 Lease 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)
10.48 Employment agreement between the Company and Jasjeet S. Cheema, dated
February 2, 1999
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.
10.50 Hagler Bailly, Inc. Amended and Restated Employee Incentive and
Non-Qualified Stock Option and Restricted Stock Plan, amended as of March 31,
1999.
21 Subsidiaries (8)
24 Powers of Attorney (included on Signature Pages) (1)
27.1 Financial Data Schedule - March 31, 1999
- --------------------------------------------------------------------------------
(1) Included in the Company's Registration Statement on Form S-1 (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 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 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 DEF 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 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 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 and incorporated herein by reference thereto.
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.
---------------------------------------
Date: May 14, 1999 William E. Dickenson
President and Chief Executive Officer
/s/William E. Dickenson
---------------------------------------
Date: May 14, 1999 Glenn J. Dozier
Senior Vice President, Chief Financial Officer,
Treasurer and Secretary
/s/ Glenn J. Dozier