<PAGE> 1
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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
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
Commission File Number: 000-21629
THE KROLL-O'GARA COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
OHIO 31-1470817
(STATE OR OTHER JURISDICTION (IRS EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
9113 LESAINT DRIVE
FAIRFIELD, OHIO 45014
(513) 874-2112
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE
OF PRINCIPAL EXECUTIVE OFFICES)
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 [ X ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares of each of the issuer's classes of common stock,
as of the latest practicable date.
22,256,882
------------------------------
(SHARES OF COMMON STOCK OUTSTANDING AS OF MAY 12, 2000)
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<PAGE> 2
THE KROLL-O'GARA COMPANY
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED
MARCH 31, 2000
PAGE
----
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
Consolidated Balance Sheets (unaudited) as of
December 31, 1999 and March 31, 2000....................... 1
Consolidated Statements of Operations (unaudited) for
the three months ended March 31, 1999 and 2000............. 3
Consolidated Statements of Cash Flows (unaudited)
for the three months ended March 31, 1999 and 2000......... 4
Notes to Consolidated Unaudited Financial Statements....... 5
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS......................... 11
PART II - OTHER INFORMATION............................................... 20
ITEM 1: LEGAL PROCEEDINGS........................................... 20
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K............................ 20
SIGNATURES........................................................... 21
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE KROLL-O'GARA COMPANY
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
AS OF DECEMBER 31, 1999 AND MARCH 31, 2000
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
------------ ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents (Note 6) $ 13,835 $ 9,483
Trade accounts receivable, net of allowance for doubtful accounts of
$4,879 and $5,547 at December 31, 1999 and March 31, 2000, respectively 68,017 64,800
Unbilled revenues 18,034 25,429
Related party receivables 2,096 2,192
Costs and estimated earnings in excess of billings on uncompleted contracts 24,160 23,296
Inventories (Note 7) 26,264 31,106
Prepaid expenses and other 11,579 10,480
Deferred tax asset 824 824
--------- ---------
Total current assets 164,809 167,610
--------- ---------
Property, Plant and Equipment, at cost
Land 2,164 2,137
Buildings and improvements 8,587 8,364
Leasehold improvements 7,452 7,456
Furniture and fixtures 10,131 10,964
Machinery and equipment 36,769 37,601
--------- ---------
65,103 66,522
Less: accumulated depreciation (26,195) (27,841)
--------- ---------
38,908 38,681
--------- ---------
Databases, net of accumulated amortization of $26,187 and $27,042 at
December 31, 1999 and March 31, 2000, respectively 9,696 9,376
Costs in Excess of Assets Acquired and Other Intangible Assets, net of
accumulated amortization of $9,028 and $9,906 at December 31, 1999 and
March 31, 2000, respectively 81,676 79,479
Other assets 4,304 4,413
--------- ---------
95,676 93,268
--------- ---------
$ 299,393 $ 299,559
========= =========
</TABLE>
The accompanying notes are an integral part
of these consolidated balance sheets.
1
<PAGE> 4
THE KROLL-O'GARA COMPANY
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
AS OF DECEMBER 31, 1999 AND MARCH 31, 2000
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
------------ ---------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank lines of credit (Note 10(c)) $ 26,583 $ 28,419
Current portion of other debt 3,737 1,873
Trade accounts payable 38,823 39,260
Billings in excess of costs and estimated earnings on uncompleted contracts 361 361
Accrued liabilities 28,299 31,063
Customer deposits 4,196 4,116
Income taxes currently payable 768 934
--------- ---------
Total current liabilities 102,767 106,026
--------- ---------
Other Long-Term Liabilities 2,673 1,947
Deferred Income Taxes 1,821 1,821
Long-Term Debt, net of current portion 36,264 36,378
--------- ---------
Total liabilities 143,525 146,172
Shareholders' Equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized, none issued -- --
Common stock, $.01 par value, 50,000,000 shares authorized, 22,255,510
and 22,256,882 shares issued and outstanding at December 31, 1999 and
March 31, 2000, respectively 223 223
Additional paid-in capital 170,102 170,117
Retained deficit (12,640) (13,020)
Deferred compensation (1,630) (1,443)
Accumulated other comprehensive loss (187) (2,490)
--------- ---------
Total shareholders' equity 155,868 153,387
--------- ---------
$ 299,393 $ 299,559
========= =========
</TABLE>
The accompanying notes are an integral part
of these consolidated balance sheets.
2
<PAGE> 5
THE KROLL-O'GARA COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1999 2000
------------ ------------
<S> <C> <C>
NET SALES $ 71,499 $ 84,775
COST OF SALES 45,245 54,105
------------ ------------
Gross profit 26,254 30,670
OPERATING EXPENSES:
Selling and marketing expenses 6,275 7,325
General and administrative 13,244 20,607
Failed merger expenses (Note 10(a)) -- 1,370
Merger expenses (Note 3) 208 39
Restructuring expense (Note 2) 511 --
------------ ------------
Operating income 6,016 1,329
------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (1,055) (1,401)
Other, net 337 (28)
------------ ------------
Income (loss) before provision for income taxes
and cumulative effect of change in accounting principle 5,298 (100)
Provision for income taxes 1,992 280
------------ ------------
Income (loss) before cumulative effect of change
in accounting principle 3,306 (380)
Cumulative effect of change in accounting principle,
net of applicable tax benefit of $408 (Note 5) (778) --
------------ ------------
Net income (loss) $ 2,528 $ (380)
------------ ------------
Other comprehensive loss, net of tax:
Foreign currency translation adjustment, net of
$1,009 and $1,535 tax benefit, respectively (1,513) (2,303)
------------ ------------
Other comprehensive loss (1,513) (2,303)
------------ ------------
Comprehensive income (loss) $ 1,015 $ (2,683)
============ ============
PER SHARE DATA:
BASIC EARNINGS (LOSS) PER SHARE (Note 4)
Earnings (loss) per share $ 0.12 $ (0.02)
------------ ------------
Weighted Average Shares Outstanding 21,738,731 22,255,751
============ ============
DILUTED EARNINGS (LOSS) PER SHARE (Note 4)
Earnings (loss) per share $ 0.11 $ (0.02)
============ ============
Weighted Average Shares Outstanding 22,553,851 22,255,751
============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
3
<PAGE> 6
THE KROLL-O'GARA COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (NOTE 6)
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1999 2000
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,528 $ (380)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities-
Depreciation and amortization 2,500 4,143
Bad debt expense 430 1,289
Non-cash compensation expense 268 187
Change in assets and liabilities, net of effects of acquisitions and dispositions-
Receivables - trade and unbilled (3,373) (5,467)
Costs and estimated earnings in excess of billings on uncompleted contracts 3,170 864
Inventories, prepaid expenses and other assets (1,420) (2,918)
Accounts payable and income taxes currently payable (10,458) 603
Amounts due to/from related parties 71 (96)
Customer deposits (1,419) (80)
Accrued liabilities 6,217 2,764
Long-term liabilities 629 (726)
-------- --------
Net cash provided by (used in) operating activities (857) 183
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net (4,041) (1,744)
Additions to databases (533) (589)
Sale of marketable securities 3,699 --
-------- --------
Net cash used in investing activities (875) (2,333)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under bank lines of credit -- 1,836
Payments of long-term debt (97) (1,750)
Proceeds from exercise of stock options and warrants 887 15
Foreign currency translation (1,116) (2,202)
-------- --------
Net cash used in financing activities (326) (2,101)
-------- --------
NET DECREASE IN CASH AND EQUIVALENTS (2,058) (4,251)
Effects of foreign currency exchange rates on cash (397) (101)
-------- --------
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 14,041 13,835
-------- --------
CASH AND EQUIVALENTS, END OF PERIOD $ 11,586 $ 9,483
======== ========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
4
<PAGE> 7
THE KROLL-O'GARA COMPANY
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND MARCH 31, 2000
(1) GENERAL
The Kroll-O'Gara Company, an Ohio corporation, together with its
subsidiaries (collectively "Kroll-O'Gara"), is a leading global provider of a
broad range of specialized products and services that are designed to provide
solutions to a variety of security needs. Kroll-O'Gara's Security Products and
Services Group markets ballistic and blast protected vehicles and security
services. The Investigations and Intelligence Group offers business intelligence
and investigation services. The Voice and Data Communications Group offers
secure satellite communication equipment, satellite navigation systems and
computer hardware and software security. The Information Security Group offers
information and computer security services.
The consolidated financial statements include all majority-owned
subsidiaries. All material intercompany accounts and transactions are
eliminated. Investments in 20% to 50% owned entities are accounted for using the
equity method. Affiliated entities are not included in the accompanying
consolidated financial statements.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for fair presentation have
been included. Operating results for the three month period ended March 31,
2000, are not necessarily indicative of the results that may be expected for the
year ended December 31, 2000. The accompanying financial statements should be
read in conjunction with the consolidated financial statements and notes thereto
included in Kroll-O'Gara's annual report on Form 10-K for the year ended
December 31, 1999.
(2) RESTRUCTURING OF OPERATIONS
In the first quarter of 1999, Kroll-O'Gara began implementation of a
restructuring plan (the "Plan") to reduce costs and improve operating
efficiencies. The Plan was substantially completed by the end of the second
quarter of 1999. Including the first quarter 1999 charge of $0.5 million, the
total non-recurring pre-tax restructuring charge recorded pursuant to the Plan
was approximately $4.4 million. Total payments or writeoffs made pursuant to the
Plan through March 31, 2000 were $3.3 million. Kroll-O'Gara does not expect to
incur any other significant restructuring charges in future periods related to
this Plan. The principal elements of the restructuring plan were the closure of
two Investigations and Intelligence Group offices and the elimination of
approximately 82 employees. The primary components of the restructuring charge,
including accrued balances as of March 31, 2000, were as follows:
5
<PAGE> 8
<TABLE>
<CAPTION>
DESCRIPTION EXPENSE ACCRUAL
------------------------------------------------------------ ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Severance and related costs $ 3,116 $ 448
Writedown of property, plant and equipment 150 --
Lease termination costs 1,064 596
Other 34 --
------- ------
$ 4,364 1,044
=======
Less - Current portion 602
------
$ 442
======
</TABLE>
(3) ACQUISITIONS AND MERGERS
Kroll-O'Gara has completed several business combinations in the periods
presented. These transactions, accounted for as either purchase business
combinations or pooling of interests business combinations were as follows:
On June 16, 1999, Kroll-O'Gara acquired all of the outstanding capital
stock of Background America, Inc. ("Background America") for approximately
989,000 shares of Kroll-O'Gara common stock, including approximately 90,000
shares reserved for issuance for outstanding common stock equivalents.
Background America provides employment screening and compliance services to a
variety of industries and is included in Kroll-O'Gara's Investigations and
Intelligence Group.
The merger with Background America constituted a tax-free
reorganization and has been accounted for as a pooling of interests transaction.
Accordingly, all prior period consolidated financial statements presented have
been restated to include the combined results of operations, financial position
and cash flows of Background America as though they had always been a part of
Kroll-O'Gara.
There were no transactions between Kroll-O'Gara and Background America
prior to the combination and immaterial adjustments were recorded to conform
Background America's accounting policies. Certain reclassifications were made to
Kroll-O'Gara's and Background America's financial statements to conform
presentation. The results of operations for the separate companies and the
combined amounts presented in the consolidated financial statements follow
(dollars in thousands):
6
<PAGE> 9
<TABLE>
<CAPTION>
KROLL-O'GARA BACKGROUND
HISTORICAL AMERICA COMBINED
------------ ---------- --------
<S> <C> <C> <C>
Three months ended March 31, 1999
(unaudited)
Revenue $69,007 $ 2,492 $71,499
Net income (loss) $ 2,418 $ 110 $ 2,528
</TABLE>
On June 3, 1999, Kroll-O'Gara acquired substantially all of the assets
and assumed certain liabilities of Buchler Phillips, a partnership headquartered
in London, England. The purchase price of $20.0 million was satisfied with cash
of $12.0 million and 366,469 shares of stock valued at $8.0 million, or $21.86
per share. The acquisition has been accounted for as a purchase and was
effective on April 1, 1999. Goodwill related to this transaction was
approximately $20.7 million which is being amortized over 25 years. Buchler
Phillips specializes in corporate advisory practices which includes work related
to corporate rescue, insolvency, financial consulting and corporate finance.
Buchler Phillips' revenues are included in the Investigations and Intelligence
Group.
On March 1, 1999, Kroll-O'Gara acquired all of the capital stock of
Financial Research, Inc. for approximately $3.3 million, consisting of 101,555
shares of common stock. Financial Research, Inc. provides business valuation and
economic damage analysis services and is included in Kroll-O'Gara's
Investigations and Intelligence Group. The acquisition has been accounted for as
a pooling of interests.
(4) EARNINGS PER SHARE
In accordance with Statement of Financial Accounting Standards No. 128,
"Earnings Per Share", basic earnings per share are computed by dividing net
income by the weighted average number of shares of common stock outstanding
during the period. Diluted earnings per share are computed by dividing net
income by the weighted average number of shares of common stock and common stock
equivalents outstanding during the period. Dilutive common stock equivalents
represent shares issuable upon assumed exercise of stock options and warrants
and upon assumed issuance of restricted stock. The following is a reconciliation
of the numerator and denominator for basic and diluted earnings per share for
the three months ended March 31, 1999 and 2000 (in thousands, except per share
data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999
---------------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Basic earnings per share $ 2,528 21,739 $0.12
=======
Effect of dilutive securities:
Options -- 796
Warrants -- 6
Restricted Stock -- 13
--------- --------
Diluted earnings per share $ 2,528 22,554 $0.11
========= ======== =======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 2000
---------------------------------------------
LOSS SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Basic and diluted loss per share $ (380) 22,256 $ (0.02)
========= =======
Effect of dilutive securities:
Options 325
Warrants 1
Restricted stock 48
--------
Diluted shares 22,630
========
</TABLE>
As a result of the net loss recorded in the first quarter of 2000,
basic and diluted earnings per share are identical as all options and warrants
are anti-dilutive.
Basic and diluted earnings per share based on income before cumulative
effect of change in accounting principle were $0.15 for the three months ended
March 31, 1999. The basic and diluted per share impact of the change in
accounting principle was $0.03 and $0.04, respectively.
7
<PAGE> 10
(5) NEW PRONOUNCEMENTS
In April 1998, the American Institute of Certified Public Accountants
released Statement of Position (SOP) 98-5 "Reporting on the Cost of Start-Up
Activities". The SOP requires costs of start-up activities, including
pre-operating costs, organization costs and start-up costs to be expensed as
incurred. Kroll-O'Gara's practice was to capitalize these expenses and amortize
them over periods ranging from one to five years. Kroll-O'Gara adopted SOP 98-5
in the first quarter of 1999 and recorded a cumulative effect of an accounting
change of $0.8 million, net of a tax benefit of $0.4 million.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). SFAS 133 establishes accounting
and reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
133 requires that changes in the derivative's fair value be recognized currently
in earnings unless specific hedge accounting criteria are met. SFAS 133, as
amended, is effective for fiscal years beginning after June 15, 2000.
Kroll-O'Gara has ten forward contracts in place in association with demand notes
from two subsidiaries. These instruments qualify for hedge accounting.
Kroll-O'Gara has not yet quantified the impact of adopting SFAS 133 on its
financial statements and has not determined the timing of or method of adoption
of SFAS 133. However, SFAS 133 could increase volatility in earnings and other
comprehensive income.
(6) SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash equivalents consist of all highly liquid debt instruments with an
initial maturity of three months or less at the date of purchase. Kroll-O'Gara
invests excess cash in overnight repurchase agreements, which are government
collateralized securities. The carrying amount of cash and cash equivalents
approximates fair value of those instruments due to their short maturity.
<TABLE>
<CAPTION>
1999 2000
------- -----
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Cash paid for taxes $ 547 $ 256
Cash paid for interest $ 192 $ 568
Non-cash activity:
Deferred compensation related to options and restricted stock $ 1,572 $ --
</TABLE>
(7) INVENTORIES
Inventories are stated at the lower of cost or market using the
first-in, first-out (FIFO) method and include the following (dollars in
thousands):
<TABLE>
<CAPTION>
INVENTORY CATEGORY DECEMBER 31, 1999 MARCH 31, 2000
------------------------------------------------ ----------------- --------------
(UNAUDITED)
<S> <C> <C>
Raw materials $ 14,495 $ 13,890
Vehicle costs and work-in-process 11,769 17,216
-------- --------
Total inventory $ 26,264 $ 31,106
======== ========
</TABLE>
8
<PAGE> 11
(8) DERIVATIVE FINANCIAL INSTRUMENTS
Financial instruments in the form of foreign currency exchange
contracts are utilized by Kroll-O'Gara to hedge its exposure to movements in
foreign currency exchange rates. Kroll-O'Gara does not hold or issue derivative
financial instruments for trading purposes. Gains and losses on foreign exchange
contracts are deferred and amortized as an adjustment to the cumulative foreign
currency translation adjustment component of equity over the terms of the
agreements in accordance with hedge accounting standards.
Kroll-O'Gara has entered into ten foreign currency exchange contracts
to hedge its exposure to certain foreign currency rate fluctuations on demand
loans to two subsidiaries that are denominated in the foreign currencies. By
virtue of these contracts, Kroll-O'Gara has fixed the total dollar amount that
they will receive under the aforementioned subsidiary loans through the maturity
dates of the contracts regardless of the fluctuations in the exchange rate. At
March 31, 2000, the total notional amount of the contracts, which mature between
June 2000 and January 2002, was $17.9 million. Kroll-O'Gara's foreign currency
translation adjustment component of shareholder's equity was increased by $0.6
million in the three months ended March 31, 2000 as a result of these
agreements.
Kroll-O'Gara has estimated the fair value of the foreign exchange
contracts based on information obtained from the counterparty of the amount
Kroll-O'Gara would receive at March 31, 2000 in order to terminate the
agreements. As of March 31, 2000, Kroll-O'Gara would have received approximately
$1.4 million upon cancellation of all contracts.
(9) SEGMENT DATA
During 1999 and 2000, Kroll-O'Gara operated in four business segments,
the Security Products and Services Group, the Investigations and Intelligence
Group, the Voice and Data Communications Group and the Information Security
Group.
The following summarizes information about Kroll-O'Gara's business
segments:
<TABLE>
<CAPTION>
INVESTIGATIONS
SECURITY AND VOICE AND DATA INFORMATION
PRODUCTS AND INTELLIGENCE COMMUNICATIONS SECURITY
SERVICES GROUP GROUP GROUP GROUP OTHER CONSOLIDATED
-------------- -------------- -------------- ----------- --------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
THREE MONTHS ENDED MARCH 31, 2000
Net sales to unaffiliated customers $ 30,352 $ 49,011 $ 4,549 $ 863 $ -- $ 84,775
======== ======== ======== ======== ========= ========
Gross profit $ 8,599 $ 21,819 $ 627 $ (375) $ -- $ 30,670
======== ======== ======== ======== ========= ========
Operating income (loss) $ 3,551 $ 5,068 $ (178) $ (2,383) $ (4,729) $ 1,329
======== ======== ======== ======== ========= ========
Identifiable assets at March 31, 2000 $111,147 $158,817 $ 12,719 $ 3,351 $ -- $286,034
======== ======== ======== ======== =========
Corporate assets 15,109
--------
Total assets at March 31, 2000 $301,143
========
THREE MONTHS ENDED MARCH 31, 1999
Net sales to unaffiliated customers $ 28,721 $ 38,135 $ 3,434 $ 1,209 $ -- $ 71,499
======== ======== ======== ======== ========= ========
Gross profit $ 8,576 $ 16,504 $ 555 $ 619 $ -- $ 26,254
======== ======== ======== ======== ========= ========
Operating income (loss) $ 3,745 $ 4,246 $ (198) $ 164 $ (1,941) $ 6,016
======== ======== ======== ======== ========= ========
</TABLE>
(10) SUBSEQUENT EVENTS
(a) Failed Merger and Other Strategic Alternatives
On November 15, 1999, Kroll-O'Gara announced that it had entered into a
definitive agreement with Blackstone Capital Partners III Merchant Banking
Fund L.P. (Blackstone) pursuant to which shares held by all Kroll-O'Gara
shareholders, other than certain members of management, would be acquired
by Blackstone for $18.00 per share in cash. On April 12, 2000, Kroll-O'Gara
announced that Blackstone
9
<PAGE> 12
had withdrawn its offer to acquire Kroll-O'Gara shares. Costs associated
with the failed merger in the three months ended March 31, 2000 were
approximately $1.4 million ($0.8 million after taxes, or $0.04 per diluted
share) and consisted primarily of fees for attorneys, accountants, travel
and other related charges. Kroll-O'Gara anticipates additional expenses
will be incurred in the second quarter of 2000.
On April 18, 2000, Kroll-O'Gara announced it will explore structuring a
transaction that will result in the separation of its two principal
operating segments, the Security Products and Services Group and the
Investigations and Intelligence Group, as well as to seek an equity
investment for its Information Security Group. The Board of Directors has
directed management to explore structuring a series of transactions that
will establish these three Groups as stand-alone companies as soon as
practicable. Transactions that will be explored may include sale, joint
venture or spin-off of the Groups to Kroll-O'Gara's shareholders.
(b) Discontinued Operations Subsequently Retained
On April 28, 1999, the Board of Directors approved a formal plan to
discontinue operations of the Voice and Data Communications Group pursuant
to several outside expressions of interest to purchase this business. In
May 2000, Kroll-O'Gara terminated all negotiations to sell this business
due to an inability to agree to terms of a sale with outside third parties.
Accordingly, the results of operations of the Voice and Data Communications
Group for all prior periods have been reclassified from discontinued
operations to continuing operations.
Kroll-O'Gara had not anticipated a loss on disposal of the Voice and
Data Communications Group and, accordingly, had not recorded any estimated
loss on disposal. Kroll-O'Gara continues to monitor the potential for
impairment of the net assets of this Group and will record impairment
reserves as facts and circumstances warrant. Based on its most recent
analysis, Kroll-O'Gara believes no impairment existed at March 31, 2000.
(c) Amendment of Credit Facility
On May 12, 2000, Kroll-O'Gara amended its credit agreement to provide
for a temporary increase in its revolving line of credit from $25.0 million
to $40.0 million. Pursuant to the amended credit agreement, the increase in
the revolving line of credit is effective until September 30, 2000, at
which time all borrowings in excess of $25.0 million must be repaid. The
credit facility continues to provide for a letter of credit facility of
approximately $7.6 million. Both the letter of credit facility and the line
of credit mature on May 31, 2001. Advances under the revolving line of
credit during the period of the temporary increase bear interest at prime,
or, at Kroll-O'Gara's option, LIBOR plus 1.75%. On September 30, 2000,
advances under the revolving line of credit will bear interest at rates
ranging from prime less 1.75% to prime, or, at Kroll-O'Gara's option, LIBOR
plus .75% to LIBOR plus 1.75%, dependent upon a defined financial ratio.
Borrowings under this line of credit were approximately $22.8 million and
$24.6 million at December 31, 1999 and March 31, 2000, respectively.
This credit agreement includes financial covenants which, among other
restrictions, require the maintenance of certain financial ratios and other
financial requirements, including an interest coverage ratio and net worth
minimum, and impose limitations on foreign investment, goodwill, additional
indebtedness and capital expenditures. Kroll-O'Gara was not in compliance
with certain of these covenants at March 31, 2000. All such events of
non-compliance were subsequently waived or amended by the lender. Pursuant
to the amended credit agreement, certain of these financial ratios were
revised.
10
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of results of operations and financial
condition is based upon and should be read in conjunction with Kroll-O'Gara's
Consolidated Financial Statements and Notes. As a result of the acquisitions
made by Kroll-O'Gara in 1999, financial results from period-to-period may lack
comparability. In May 2000, Kroll-O'Gara decided to retain the Voice and Data
Communications Group which had been classified as discontinued operations.
Historical amounts have been reclassified to conform to the current categories.
RECENT DEVELOPMENTS
Failed Merger and Other Strategic Alternatives
On November 15, 1999, Kroll-O'Gara announced that it had entered into a
definitive agreement with Blackstone Capital Partners III Merchant Banking Fund
L.P. (Blackstone) pursuant to which shares held by all Kroll-O'Gara
shareholders, other than certain members of management, would be acquired by
Blackstone for $18.00 per share in cash. On April 12, 2000, Kroll-O'Gara
announced that Blackstone had withdrawn its offer to acquire Kroll-O'Gara
shares.
On April 18, 2000, Kroll-O'Gara announced it will explore structuring a
transaction that will result in the separation of its two principal operating
segments, the Security Products and Services Group and the Investigations and
Intelligence Group, as well as to seek an equity investment for its Information
Security Group. The Board of Directors has directed management to explore
structuring a series of transactions that will establish these Groups as
stand-alone companies as soon as practicable. Transactions that will be explored
may include sale, joint venture or spin-off of the Groups to Kroll-O'Gara's
shareholders. The possible effects of this effort and of any resulting
transactions on Kroll-O'Gara's future business, financial condition, results of
operations and cash flow currently are unknown.
Discontinued Operations Subsequently Retained
On April 28, 1999, the Board of Directors approved a formal plan to
discontinue operations of the Voice and Data Communications Group pursuant to
several outside expressions of interest to purchase this business. In May 2000,
Kroll-O'Gara terminated all negotiations to sell this business to outside third
parties. Accordingly, the results of operations of the Voice and Data
Communications Group for all prior periods have been reclassified from
discontinued operations to continuing operations. See Note 10(b) to the Notes to
Consolidated Unaudited Financial Statements for more information.
GENERAL
Kroll-O'Gara is a leading global provider of a broad range of
specialized products and services that are designed to provide solutions to a
variety of security needs. Kroll-O'Gara reports its revenue through four groups.
The Security Products and Services Group markets ballistic and blast protected
vehicles and security services. The Investigations and Intelligence Group offers
business intelligence and investigation services. The Voice and Data
Communications Group offers secure satellite communication equipment, satellite
navigation systems and computer hardware and software security. The Information
Security Group offers information and computer security services.
Other Acquisitions. Kroll-O'Gara completed several acquisitions in
1999, some of which were accounted for as pooling of interests and another of
which was accounted for as a purchase.
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<PAGE> 14
On June 16, 1999, Kroll-O'Gara acquired all of the capital stock of
Background America, Inc. of Nashville, Tennessee, in exchange for 899,243 shares
of Kroll-O'Gara common stock. Background America provides background
investigation services to a variety of industries. The transaction was accounted
for as a pooling of interests. Background America's revenues are included in the
Investigations and Intelligence Group.
On June 3, 1999, Kroll-O'Gara acquired substantially all of the assets
and assumed certain liabilities of Buchler Phillips, a partnership headquartered
in London, England. The purchase price of $20.0 million was satisfied with cash
of $12.0 million and 366,469 shares of stock valued at $8.0 million, or $21.86
per share. The acquisition has been accounted for as a purchase and was
effective on April 1, 1999. Goodwill related to this transaction was
approximately $20.8 million, which will be amortized over 25 years. Buchler
Phillips specializes in corporate advisory practices which includes work related
to corporate rescue, insolvency, financial consulting and corporate finance.
Buchler Phillips' revenues are included in the Investigations and Intelligence
Group.
On March 1, 1999, Kroll-O'Gara acquired all of the capital stock of
Financial Research, Inc. of Fort Washington, Pennsylvania, in exchange for
101,555 shares of Kroll-O'Gara common stock valued at approximately $3.3
million, or $32.49 per share. The acquisition has been accounted for as a
pooling of interests. Financial Research, Inc. provides business valuation and
economic damage analysis services throughout the United States. Its revenues are
included in the Investigations and Intelligence Group.
Revenue recognition. Kroll-O'Gara recognizes net sales from military
and most commercial armoring contracts using the percentage-of-completion method
calculated utilizing the cost-to-cost approach. Under this method, Kroll-O'Gara
recognizes estimated contract revenues based generally on the percentage that
costs to date bear to total estimated costs and recognizes estimated contract
losses in full when it becomes likely that a loss will occur. Accordingly,
Kroll-O'Gara periodically reviews and revises contract revenues and total cost
estimates as the work progresses and as change orders are approved. It reflects
adjustments in contract revenues, based upon the percentage of completion, in
the period when the estimates are revised. To the extent that these adjustments
result in an increase, a reduction or an elimination of previously reported
contract revenues, Kroll-O'Gara recognizes a credit or a charge against current
earnings, which could be material. Contract costs include all direct material
and labor costs, along with certain direct overhead costs related to contract
production. Kroll-O'Gara records provisions for any estimated total contract
losses on uncompleted contracts in the period in which it concludes that the
losses will occur. Changes in estimated total contract costs result in revisions
to contract revenue. The revisions are recognized when determined.
Kroll-O'Gara recognizes revenue from investigative and intelligence
services as the services are performed. It records either billed or unbilled
accounts receivable based on case-by-case invoicing determinations.
Kroll-O'Gara recognizes revenue from telecommunications equipment and
services as equipment is shipped or as services are provided. Revenue and
related direct costs of brokered satellite time are recorded when payments are
received from customers.
Kroll-O'Gara recognizes information security service revenues, which
consist of consulting fees on information security projects, ratably over the
period of the agreement or according to the completed contract method of
accounting for contract revenues, depending on the nature of the agreement.
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<PAGE> 15
RESTRUCTURING OF OPERATIONS
Due to the large number of acquisitions Kroll-O'Gara completed in 1997 and
1998, integration of the operations of the acquired companies with existing
operations was a strategic initiative for Kroll-O'Gara's management in 1999. As
part of this initiative, management continuously evaluates its business segments
to ensure that its core businesses within the segments are operating
efficiently. In 1998, most of the businesses were acquired as part of the
Investigations and Intelligence Group. As a result of management's evaluation of
this Group, the decision was made to close several less profitable operating
facilities so that the Group could focus on integration of existing facilities
with the newly acquired businesses. In 1997, the Security Products and Services
Group completed several acquisitions as well. In evaluating the operations of
this Group, management concluded that a cost savings initiative was required and
would be achieved largely through operating process improvements and a
corresponding decrease in personnel.
In the first quarter of 1999, Kroll-O'Gara began implementation of such a
plan to reduce costs and improve operating efficiencies and recorded a
non-recurring pre-tax restructuring charge of approximately $0.5 million. In the
second quarter of 1999, Kroll-O'Gara completed the restructuring plan with an
additional non-recurring pre-tax restructuring charge of $3.9 million. The
principal elements of the restructuring plan were the closure of two
Investigations and Intelligence Group offices and the elimination of
approximately 82 employees. The primary components of the restructuring charge
were severance costs and lease termination costs. See Note 2 to the Notes to
Consolidated Unaudited Financial Statements for more information.
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<PAGE> 16
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the items noted
as a percentage of net sales:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
--------------------------
1999 2000
----- -----
<S> <C> <C>
Security Products and Services
Military 15.1% 9.8%
Commercial 25.1% 26.0%
Investigations and Intelligence 53.3% 57.8%
Voice and Data Communications 4.8% 5.4%
Information Security 1.7% 1.0%
----- -----
Total net sales 100.0% 100.0%
Cost of sales 63.3 63.8
----- -----
Gross profit 36.7 36.2
Operating expenses:
Selling and marketing 8.8 8.6
General and administrative 18.5 24.3
Failed merger expenses -- 1.6
Merger expenses 0.3 --
Restructuring charge 0.7 --
----- -----
Operating income 8.4 1.6
Other income (expense):
Interest expense (1.5) (1.7)
Other, net 0.5 --
----- -----
Income (loss) before provision for income
taxes and cumulative effect of
accounting change 7.4 (0.1)
Provision for income taxes 2.8 0.3
----- -----
Income (loss) before cumulative effect of
accounting change 4.6 (0.4)
Cumulative effect of accounting change, net
of tax benefit (1.1) --
----- -----
Net income (loss) 3.5% (0.4)%
===== =====
</TABLE>
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
NET SALES. Net sales for the three months ended March 31, 2000
increased $13.3 million, or 19%, from $71.5 million in 1999 to $84.8 million in
2000.
Security Products and Services Group. Net sales for the Security
Products and Services Group for the three months ended March 31, 2000 increased
$1.6 million, or 6%, from $28.7 million in 1999 to $30.4 million in 2000. The
increase results from an increase in commercial armoring products and services,
which increased $4.1 million, or 23%, from $17.9 million in 1999 to $22.1
million in 2000. The increase in sales was due to a large contract from the U.S.
government to produce over 300 armored vehicles which Kroll-O'Gara received at
the end of the first quarter of 1999.
Also included in net sales for the Security Products and Services Group
are sales of military products and services, which decreased $2.5 million, or
23%, from $10.8 million in 1999 to $8.3 million in 2000. The decrease in net
sales of military products and services was a result of the completion in the
fourth quarter of 1999 of a contract with the U.S. Military to supply 738
armored
14
<PAGE> 17
High Mobility Multi-Purpose Wheeled Vehicles ("HMMWVs") to the U.S. Army
and the U.S. Air Force (the "738 Contract"). The "738 Contract" which began in
1998 resulted in higher levels of production and net sales as a result of an
aggressive delivery schedule required by the U.S. Air Force. In 2000,
Kroll-O'Gara's military product sales were based solely on a newer contract for
245 Up-Armored HMMWVs, which does not provide for an aggressive
delivery schedule.
Investigations and Intelligence Group. Net sales for the Investigations
and Intelligence Group increased $10.9 million, or 29%, from $38.1 million in
the first quarter of 1999 to $49.0 million in 2000. A portion of this increase
is a result of the Buchler Phillips acquisition completed for the Group in the
second quarter of 1999. This acquisition has increased Kroll-O'Gara's presence
in Europe and has strengthened the Financial Services practice on a global
scale. Excluding the Buchler Phillips purchase acquisition, sales increased $5.9
million. This increase primarily stems from internal growth in the Group's
domestic Business Investigations and Intelligence and Corporate Services
practices.
Voice and Data Communications Group. Net sales for the Voice and Data
Communications Group increased $1.1 million, or 32%, from $3.4 million in 1999
to $4.5 million in 2000. The increase in net sales is a result of a large
foreign satellite communications integration contract received in the fourth
quarter of 1999. In addition, the Group focused efforts on reducing its
inventory of satellite communications equipment in order to improve cash flow
and offered slightly discounted prices in order to move certain inventory.
Information Security Group. Net sales for the Information Security
Group decreased $0.3 million, or 29%, from $1.2 million in 1999 to $0.9 million
in 2000. Net sales decreased due to a continuing focus on development of this
Group's service capabilities and the related inability to establish a firm
customer base until the development of the business is complete.
COST OF SALES. Cost of sales for the three months ended March 31, 2000
increased $8.9 million, or 20%, from $45.2 million in 1999 to $54.1 million in
2000. The increase in cost of sales was partially due to the Buchler Phillips
acquisition completed in the second quarter of 1999. Excluding this acquisition,
cost of sales increased $5.9 million. Gross margin was 36.2% as compared with
36.7% for the same period in 1999. The slight decrease in gross margin is
primarily the result of the Information Security Group's loss of $0.4 million
included in gross profit. This loss was a result of decreased sales from 1999
and an increase in client consulting personnel to prepare for future growth as
the Information Security Group's service business is developed. In 1999, the
Information Security Group contributed $0.6 million to Kroll-O'Gara's gross
profit.
Gross margin for the Security Products and Services Group decreased
approximately 1.6 percentage points from 29.9% in 1999 to 28.3% in 2000. This
decrease relates to poor gross margin performance in most foreign operations as
a result of competitive pricing pressures and pricing concessions necessitated
by foreign economic conditions. Additionally, currency devaluations in South
America hurt margins and slowed sales.
Gross margin increased approximately 1.2 percentage points from 43.3%
in 1999 to 44.5% in 2000 for the Investigations and Intelligence Group. The
increase in gross margin is due to the Group's increased leveraging of its
subcontractor network. This has resulted in increased utilization of fixed labor
and lower outside services cost as a percentage of net sales.
Gross margin at the Voice and Data Communications Group decreased
approximately 2.4 percentage points from 16.2% in 1999 to 13.8% in 2000. This
decrease relates to the movement of certain inventory at slight discounts in
order to improve the cash flow performance of the Group.
Historically, Kroll-O'Gara has experienced a higher gross margin
associated with revenue from its Investigations and Intelligence Group in
comparison with the Security Products and Services
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<PAGE> 18
Group. Management expects the level of gross margin to remain relatively
consistent within each Group.
OPERATING EXPENSES. Operating expenses for the three months ended March
31, 2000 increased $9.1 million, or 45%, from $20.2 million in 1999 to $29.3
million in 2000. Included in this increase are non-recurring expenses which
increased $0.7 million, from $0.7 million in 1999 to $1.4 million in 2000.
Non-recurring charges in 2000 primarily consisted of costs associated with the
failed recapitalization merger with Blackstone. In 1999, non-recurring expenses
included $0.5 million of costs associated with the restructuring plan and $0.2
million of merger-related costs for mergers completed in December 1998 that were
accounted for as poolings of interest.
Excluding non-recurring expenses, operating expenses increased $8.4
million. Approximately $1.6 million of this increase is due to operating
expenses incurred by Buchler Phillips in the first quarter of 2000. The Buchler
Phillips acquisition was not completed until the second quarter of 1999 and its
operating expenses are not included in Kroll-O'Gara's historical financial
information until the effective date of the acquisition. Excluding this
acquisition, operating expenses increased $6.8 million. Included in this
increase were $1.6 million for depreciation and amortization of intangible
assets including goodwill and $0.9 million for bad debt expense. In the first
quarter of 2000, a combination of slow customer payments and several customer
bankruptcies prompted Kroll-O'Gara to increase its reserve for uncollectible
accounts receivable. The remaining increase relates to an increase in expenses
related to the additional legal, accounting, insurance and information system
costs required to administer the growth experienced by Kroll-O'Gara due to the
acquisitions completed in December 1998 and throughout 1999.
As a percent of net sales, operating expenses, before non-recurring
expenses, increased from 27.3% in 1999 to 32.9% in 2000. As mentioned
previously, the increase in operating expenses as a percentage of net sales is
primarily a result of increased fixed costs to administer the growth experienced
by Kroll-O'Gara due to the acquisitions completed in December 1998 and
throughout 1999.
INTEREST EXPENSE. Interest expense for the three months ended March 31,
2000 increased $0.3 million, or 33%, from $1.1 million in 1999 to $1.4 million
in 2000. This increase was the result of increased borrowings on Kroll-O'Gara's
revolving credit facility. In the first quarter of 1999, Kroll-O'Gara had excess
funds as a result of a public offering of stock completed in May 1998 and no
additional borrowings were required on the revolving credit facility.
PROVISION FOR INCOME TAXES. The provision for income taxes for the
three months ended March 31, 2000 was $0.3 million compared to $2.0 million in
1999. Despite a pre-tax loss in the first quarter of 2000, Kroll-O'Gara recorded
a provision for income taxes for certain foreign subsidiaries which generated
income in the period. Certain foreign jurisdictions realized losses in the first
quarter of 2000 from which Kroll-O'Gara was not able to benefit for tax purposes
due to the uncertainty relating to the future realizability of the net operating
loss carryforward.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE. Kroll-O'Gara had
previously capitalized costs associated with the start-up of activities,
including pre-operating costs, organization costs and other start-up costs.
These capitalized costs were amortized over periods ranging from one to five
years. The capitalized amount, $1.2 million before tax, was expensed in 1999 in
accordance with the American Institute of Certified Public Accountants Statement
of Position 98-5, "Reporting on the Cost of Start-Up Activities". The amount
expensed is shown net of applicable tax benefit of $0.4 million.
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<PAGE> 19
LIQUIDITY AND CAPITAL RESOURCES
General. Kroll-O'Gara historically has met its operating cash needs by
utilizing borrowings under its credit arrangements to supplement cash provided
by operations and other financing activities, excluding non-cash charges such as
depreciation and amortization.
Credit Facility. On May 12, 2000, Kroll-O'Gara amended its credit
agreement to provide for a temporary increase in its revolving line of credit
from $25.0 million to $40.0 million. Pursuant to the amended credit agreement,
the increase in the revolving line of credit is effective until September 30,
2000, at which time all borrowings in excess of $25.0 million must be repaid.
The credit facility continues to provide for a letter of credit facility of
approximately $7.6 million. Both the letter of credit facility and the line of
credit mature on May 31, 2001. Advances under the revolving line of credit
during the period of the temporary increase bear interest at prime, or, at
Kroll-O'Gara's option, LIBOR plus 1.75%. On September 30, 2000, advances under
the revolving line of credit will bear interest at rates ranging from prime less
1.75% to prime, or, at Kroll-O'Gara's option, LIBOR plus .75% to LIBOR plus
1.75%, dependent upon a defined financial ratio. Borrowings under this line of
credit were approximately $22.8 million and $24.6 million at December 31, 1999
and March 31, 2000, respectively.
This credit agreement includes financial covenants which, among other
restrictions, require the maintenance of certain financial ratios and other
financial requirements, including an interest coverage ratio and net worth
minimum, and impose limitations on foreign investment, goodwill, additional
indebtedness and capital expenditures. Kroll-O'Gara was not in compliance with
certain of these covenants at March 31, 2000. All such events of non-compliance
were subsequently waived or amended by the lender. Pursuant to the amended
credit agreement, certain of these financial ratios were revised.
Effective June 3, 1999, with the acquisition of Buchler Phillips,
Kroll-O'Gara acquired a demand note with maximum borrowings of (Pound)2.5
million. The demand note bears interest at the Bank of England's base rate plus
1.5%. Maximum borrowings permitted and borrowings outstanding pursuant to this
demand note were approximately $4.0 million and $3.4 million, respectively, as
translated at December 31, 1999 and March 31, 2000.
As described above, Kroll-O'Gara will explore structuring a series of
transactions that would result in each Group except the Voice and Data
Communications Group becoming a stand-alone company. Kroll-O'Gara cannot predict
at this time what the effect of such a transaction would be on its funding
requirements. However, without giving effect to any such transaction, additional
sources of capital will be required to supplement operating cash flow for the
next twelve months either through amending and increasing Kroll-O'Gara's credit
facilities or through an equity offering of one of its subsidiaries.
Cash flows from operating activities. In the first quarter of 2000,
cash provided by operating activities was $0.2 million. In the first quarter of
1999, cash used in operating activities was $0.9 million. In both periods, cash
was used primarily to fund working capital investments. However, in 2000,
non-cash addbacks for depreciation and amortization and increases in bad debt
expense completely offset the working capital investments.
Cash flows from investing activities. In the first quarter of 2000,
Kroll-O'Gara incurred $1.7 million of capital expenditures primarily related to
upgrades of general information systems. In the first quarter of 1999,
Kroll-O'Gara incurred capital expenditures of $4.0 million primarily related to
the acquisition and implementation of two new enterprise systems, one at its
Security Products and
17
<PAGE> 20
Services Group and one at its Investigations and Intelligence Group. In 1999,
Kroll-O'Gara sold $3.7 million of its marketable securities in order to fund its
increased capital expenditure requirements. Additions to databases totaled $0.5
million and $0.6 million for the three months ended March 31, 1999 and 2000,
respectively.
Cash flows from financing activities. In the first three months of
2000, cash used by financing activities was $2.1 million and was the result of
unfavorable foreign currency translation adjustments. Cash used in financing
activities for the first three months of 1999 was $0.3 million and was a result
of unfavorable foreign currency translation adjustments, net of proceeds
provided by the exercise of stock options and warrants.
Foreign operations. Kroll-O'Gara attempts to mitigate the risks of
doing business in foreign countries by separately incorporating its operations
in those countries; maintaining reserves for credit losses; maintaining
insurance on equipment to protect against losses related to political risks and
terrorism, and using financial instruments to hedge Kroll-O'Gara's risk from
translation gains and losses.
Kroll-O'Gara utilizes derivative financial instruments, in the form of
forward contracts, to hedge some of its exposure to foreign currency rate
fluctuations. At March 31, 2000, ten such contracts, maturing between June 2000
and January 2002, were outstanding in connection with intercompany demand notes
with certain subsidiaries. These contracts are intended to hedge Kroll-O'Gara's
exposure to deterioration in the amount outstanding due to changes in currency
translation rates. The notional amount, together with amortized premium, and the
fair market value associated with these forward contracts was $17.9 million and
$1.4 million, respectively. Gains or losses on existing forward instruments are
offset against the translation effects reflected in shareholders' equity. The
fair value of forward contracts is not recognized in the consolidated financial
statements since they are accounted for as hedges. Kroll-O'Gara does not hold or
issue derivative financial instruments for trading purposes.
Quarterly fluctuations. Kroll-O'Gara's operations may fluctuate on a
quarterly basis as a result of the timing of contract costs and revenues of its
Security Products and Services Group, particularly from its military and
governmental contracts which are generally awarded in a periodic and/or sporadic
basis. Kroll-O'Gara generally does not have long-term contracts with its clients
in its Investigations and Intelligence Group and its ability to generate net
sales is dependant upon
18
<PAGE> 21
obtaining many new projects each year, most of which are of a relatively short
duration. Period-to-period comparisons within a given year or between years may
not be meaningful or indicative of operating results over a full fiscal year.
Forward-Looking Statements. This quarterly report contains statements which
Kroll-O'Gara believes are forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934. These statements are made
particularly in this Management's Discussion and Analysis of Financial Condition
and Results of Operations, but also appear elsewhere in this document.
Forward-looking statements can be identified by the use of language such as
"may," "will," "expect," "anticipate," "estimate," "continue" or other similar
words. Such statements are based upon management's estimates, assumptions and
projections and are subject to substantial risks and uncertainties that could
cause actual results to differ materially from those set forth in the
forward-looking statements. Factors that could cause actual results to differ
materially from those in the forward-looking statements include, among other
things: contract delays, reductions or cancellations; cost overruns with regard
to fixed price contracts; problems and costs associated with integrating past
and future business combinations; various political and economic risks of
conducting business outside the United States, including foreign economic
conditions and currency rate fluctuations; changes in laws and regulations;
adjustments associated with percentage-of-completion accounting; inability of
subcontractors to perform on schedule and meet demand; unexpected competitive
pressures resulting in lower margins and volumes; uncertainties in connection
with start-up operations and opening new offices; higher-than-anticipated costs
of financing the business; loss of senior personnel; and changes in general
level of business activity.
19
<PAGE> 22
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Kroll-O'Gara has been named as a defendant in eight lawsuits alleging
that its officers and directors breached their fiduciary duties in connection
with the now terminated proposed acquisition of a majority of Kroll-O'Gara's
shares by a company formed by Blackstone Capital Partners III Merchant Banking
Fund L.P. Five of the lawsuits were filed in the Court of Common Pleas, Butler
County, Ohio and were consolidated on November 29, 1999. The remaining three
lawsuits were filed in the United States District Court for the Southern
District of New York and were consolidated on November 30, 1999. In amended
complaints, plaintiffs allege that Kroll-O'Gara's officers and directors
breached their fiduciary duties by deferring acquisitions, by negotiating an
inadequate acquisition price, by failing to engage in arms-length negotiations
and by failing to seek redress from Blackstone after Blackstone terminated the
proposed transaction. The plaintiffs also allege that Blackstone Capital
Partners III and AIG aided and abetted the directors' and officers' alleged
breaches of fiduciary duties. The plaintiffs seek to bring their claims
derivatively on behalf of the Company and also seek class certification. On
behalf of Kroll-O'Gara and the putative plaintiff classes of shareholders, they
seek a declaration that the individual defendants breached their fiduciary duty
and damages and attorneys' fees in an unspecified amount. The defendants believe
that the allegations in the complaints are wholly meritless and will defend the
suits vigorously.
Kroll-O'Gara has learned that an individual has filed a qui tam suit,
which is under seal, against Kroll-O'Gara under the Civil False Claims Act, 31
U.S.C. Section 3729 alleging that Kroll-O'Gara and three of its vendors
knowingly violated their contractual requirements with the Army. On January 18,
2000, an attorney for the U.S. Department of Justice stated that it was his
intention to recommend that the Government intervene and take over the suit and
estimated Kroll-O'Gara's liability to be as high as $16,000,000 stemming from
its vendors' alleged failure to have certified welders. Kroll-O'Gara strongly
disputes the Government's contention against it and will vigorously contest the
Government's claims.
In addition to the matters discussed above, Kroll-O'Gara is involved in
litigation from time to time in the ordinary course of its business; however,
Kroll-O'Gara does not believe that there is any such additional currently
pending litigation, individually or in the aggregate, that is likely to have a
material adverse effect on its business, financial condition, results of
operations or cash flows.
ITEM 6. EXHIBITS
(a) Exhibits
10.1 Third Amendment to Loan Agreement
27 Financial Data Schedule (Edgar version only)
20
<PAGE> 23
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 as of the 22nd day of May, 2000.
THE KROLL-O'GARA COMPANY
By /s/ Nicholas P. Carpinello
Nicholas P. Carpinello
Controller and Treasurer
21
<PAGE> 1
Exhibit 10.1
THIRD AMENDMENT TO LOAN AGREEMENT
THE KROLL-O'GARA COMPANY, O'GARA - HESS & EISENHARDT ARMORING COMPANY,
KROLL HOLDINGS, INC., and KROLL ASSOCIATES, INC. (individually and collectively
the "Borrower"), and KEYBANK NATIONAL ASSOCIATION ("Lender"), hereby agree as
follows:
1. RECITALS.
1.1 On October 30, 1998, Borrower and Lender entered into an
Amended and Restated Loan Agreement (the "Loan Agreement"),
which Loan Agreement was amended by an Amendment to Loan
Agreement dated as of June 25, 1999, and by a Second Amendment
to Loan Agreement dated as of October __, 1999 [sic].
Capitalized terms used herein and not otherwise defined will
have the meanings given such terms in the Loan Agreement.
1.2 Borrower and Lender desire to further amend the Loan Agreement
pursuant to this Third Amendment to Loan Agreement (the
"Amendment").
2. AMENDMENT.
2.1 Section 3.1.1 of the Loan Agreement is amended to provide as
follows:
2.2 TOTAL FACILITY. Lender will make available to Borrower a
revolving credit facility of up to $25,000,000 ("Total
Facility"), subject to the terms and conditions and made upon
the representations and warranties of Borrower set forth in
this Agreement. Amounts outstanding under the revolving credit
facility from time to time will be referred to as the
"Revolving Credit Loan". The Revolving Credit Loan will be
represented by the promissory note of Borrower of even date
with the Amendment to Loan Agreement and all amendments,
extensions and renewals thereto and restatements and
replacements thereof ("Revolving Credit Note"). The Revolving
Credit Loan will bear interest and will be payable in the
manner set forth in the Revolving Credit Note, the terms of
which are incorporated herein by reference. Notwithstanding
any of the foregoing to the contrary, the Total Facility will
be increased from $25,000,000 to $40,000,000 until September
30, 2000 (the "Reduction Date"), at which time it will reduce
from $40,000,000 to $25,000,000, and Borrower will pay to
Lender on the Reduction Date the principal balance outstanding
hereunder that is in excess of $25,000,000.
2.3 Section 3.2.3 of the Loan Agreement is amended to change "May
31, 2000" to "May 31, 2001."
2.4 Section of 5.3 of the Loan Agreement is amended to provide as
follows:
5.3 RECENT ADVERSE CHANGES. Except as specifically disclosed
in the Disclosure Schedule and/or the Proxy
Statement/Prospectus, since the dates of the most recent of
its Current Financial Statements, it has not suffered any
damage,
<PAGE> 2
destruction or loss which has materially and adversely
affected its business or assets and no event or condition of
any character has occurred which has materially and adversely
affected TKOGC and its Subsidiaries' assets, liabilities,
business or financial condition taken as a whole, and it has
no knowledge of any event or condition currently existing or
threatened which may materially and adversely affect TKOGC and
its Subsidiaries' assets, liabilities, business or financial
condition taken as a whole.
2.5 Sections 7.1, 7.3, 8.12, 8.13, and 14.40 of the Loan Agreement
are amended to change all references from "Indebtedness" to
"Debt".
2.6 Section 7.4 of the Loan Agreement is amended to provide as
follows:
7.4 GUARANTEES. Other than with respect to the Senior Notes
and guarantees by one or more of the Persons constituting
Borrower of the obligations of one or more other Persons
constituting Borrower or of the obligations of any Guarantor
or real estate rental obligations of any Subsidiary,
guarantee, endorse or become contingently liable for the
obligations of any person, firm or corporation, except in
connection with the endorsement and deposit of checks in the
ordinary course of business for collection or accounts payable
incurred by Subsidiaries in the ordinary course of business.
2.7 Section 7.5 of the Loan Agreement is amended to provide as
follows:
7.5 INTEREST COVERAGE RATIO. Permit the ratio of Borrower's
consolidated earnings before interest and taxes divided by the
interest expenses to be less than the following amounts for
the following periods: (i) 0.75 to 1.0 for the four quarters
ending June 30, 2000; (ii) 0.85 to 1.0 for the four quarters
ending September 30, 2000; and (iii) 2.5 to 1.0 for the four
quarters ending December 31, 2000 and on each March 31, June
30, September 30 and December 31 thereafter on a rolling four
quarter basis.
2.8 Section 7.9 of the Loan Agreement is amended to provide as
follows:
7.9 FUNDED DEBT TO EBITDA. Permit the ratio of Consolidated
Funded Debt to consolidated earnings before interest, taxes,
depreciation and amortization and excluding any gains from
sales of assets, other non-cash gains and extra-ordinary gains
("EBITDA"), to exceed the following amounts for the following
periods: (i) 3.5 to 1.0 for the four quarters ending June 30,
2000; (ii) 3.25 to 1.0 for the four quarters ending September
30, 2000, and (iii) 3.0 to 1.0 for the four quarters ending
December 31, 2000 and as measured on each March 31, June 30,
September 30 and December 31 on a rolling four quarter basis.
2.9 The Loan Agreement is amended to add a new Section 7.18 that
provides as follows:
7.18 NOTE PURCHASE AGREEMENT. Permit Borrower to take any
action under this Agreement that could or would with the
passage of time result in the
2
<PAGE> 3
occurrence of a default or an Event of Default under the Note
Purchase Agreement dated as of May 30, 1997.
2.10 The Loan Agreement is amended to add a new sentence at the end
of Section 14.13 that provides as follows: "For the purposes
of any future date on which the representations and warranties
contained in SECTION 5 hereof are deemed to be remade, the
most current financial statements, tax returns or other
documents with respect to Borrower or any Guarantor delivered
to Lender pursuant to SECTION 6 above will be deemed the
"Current Financial Statements"."
2.11 The Loan Agreement is amended to add a new Section 14.13A,
which provides as follows:
14.13A "Debt" will mean, without duplication: (i) all
obligations (including capitalized lease obligations) which in
accordance with generally accepted accounting principles would
be shown on a balance sheet as a liability; (ii) all
obligations for borrowed money or for the deferred purchase
price of property or services; (iii) all guarantees,
reimbursement, payment or similar obligations, absolute,
contingent or otherwise, under acceptance, letter of credit or
similar facilities, and (iv) all obligations for any Swap. For
the purposes of this Section, "Swap" shall mean, with respect
to any Person, payment obligations with respect to interest
rate swaps, currency swaps, and similar obligations obligating
such Person making payments, whether periodically or upon the
happening of a contingency. The amount of the obligation under
any Swap shall be the amount determined by Lender in its
reasonable calculation to be that portion of the Swap
obligation that represents the credit risk of such Person
under the Swap.
2.12 Section 14.25 of the Loan Agreement is hereby amended to
provide as follows:
14.25 "Indebtedness" will mean, without duplication: (i) all
obligations for borrowed money or for the deferred purchase
price of property (including capitalized lease obligations) or
services; (ii) all guarantees, reimbursement, payment or
similar obligations, absolute, contingent or otherwise, under
acceptance, letter of credit or similar facilities, and (iii)
all obligations for any Swap. For the purposes of this
Section, "Swap" shall mean, with respect to any Person,
payment obligations with respect to interest rate swaps,
currency swaps, and similar obligations obligating such Person
making payments, whether periodically or upon the happening of
a contingency. The amount of the obligation under any Swap
shall be the amount determined by Lender in its reasonable
calculation to be that portion of the Swap obligation that
represents the credit risk of such Person under the Swap.
2.13 Section 14.39 of the Loan Agreement is hereby amended to
provide as follows:
14.39 "Prime Rate" means the higher of: (i) that interest rate
established from time to time by Lender as Lender's Prime
Rate, whether or not such rate is publicly announced, or (ii)
one half of one percent (0.5%) plus the Federal
3
<PAGE> 4
Funds Effective Rate. The Prime Rate may not be the lowest
interest rate charged by Lender for commercial or other
extensions of credit. As used herein, the "Federal Funds
Effective Rate" will mean a fluctuating interest rate per
annum equal for each day during such period to the weighted
average of the rates on overnight Federal funds transactions
with members of the Federal Reserve System arranged by Federal
funds brokers, as published for the prior day (or, if such day
is not a Business Day, for the next preceding Business Day) by
the Federal Reserve Bank of New York, or, if such rate is not
so published for any day that is a Business Day, the average
of the opening quotations for such day for such transactions
received by Lender from three Federal funds brokers of
recognized standing selected by it.
2.14 Add a new Section 14.40A to the Loan Agreement that provides
as follows:
14.40A "Proxy Statement/Prospectus" will mean any document for
disclosure or reporting purposes filed with the Securities and
Exchange Commission and publicly available.
3. REPRESENTATIONS AND WARRANTIES. To induce Lender to enter into this
Amendment, Borrower represents and warrants as follows:
3.1 The representations and warranties of Borrower contained in
Section 5 of the Loan Agreement are deemed to have been made
again on and as of the date of execution of this Amendment and
will apply to this Amendment; provided that Lender
acknowledges that Borrower has unusual and extraordinary
expenses for which it has no reserve resulting from the failed
Blackstone transaction and the resulting plans of Borrower to
divide Borrower's business.
3.2 No Event of Default (as such term is defined in Section 8 of
the Loan Agreement) or event or condition which with the lapse
of time or giving of notice or both would constitute an Event
of Default exists on the date hereof.
3.3 Each person executing this Amendment and the loan documents to
be executed in connection herewith is a duly elected and
acting officer of Borrower and is duly authorized by the Board
of Directors of Borrower to execute and deliver such documents
on behalf of Borrower.
4. CONDITIONS. Lender's consent to this Amendment is subject to the
following conditions:
4.1 Borrower will have provided Lender with consolidating
statements of Borrower and each of Borrower's subsidiaries
that are required to be consolidated with Borrower according
to generally accepted accounting principles.
4.2 Borrower will have executed and delivered to Lender the
Amendment to the Revolving Credit Note.
4
<PAGE> 5
4.3 Lender will have been furnished copies, certified by the
Secretary or Assistant Secretary of Borrower, of resolutions
of the Board of Directors of Borrower authorizing the
execution of this Amendment and all other documents executed
in connection herewith.
4.4 The representations and warranties of Borrower in SECTION 3
herein will be true.
4.5 Borrower will pay to Lender a facility fee of $125,000 for the
increase, and $100,000 fee for waiving certain covenant
violations.
4.6 Borrower shall pay all expenses and attorneys' fees incurred
by Lender in connection with the preparation, execution, and
delivery of this Amendment in the amount of $1,750, and
related documents, including but not limited to outstanding
legal bills for other matters, which outstanding legal bills
total $7,574.80, for a combined total of $9,324.80. Borrower
hereby authorizes Lender to pay these sums by making an
advance under the Revolving Credit Note.
5. GENERAL.
5.1 Except as expressly modified herein, the Loan Agreement, as
amended, and the Revolving Credit Note, as amended, are and
remain in full force and effect.
5.2 Nothing contained herein will be construed as waiving any
default or Event of Default under the Loan Agreement or will
affect or impair any right, power or remedy of Lender under or
with respect to the Loan, the Loan Agreement, as amended, the
Revolving Credit Note, as amended, or any agreement or
instrument guaranteeing, securing or otherwise relating to the
Loan.
5.3 This Amendment will be binding upon and inure to the benefit
of Borrower and Lender and their respective successors and
assigns.
5.4 All representations, warranties and covenants made by Borrower
herein will survive the execution and delivery of this
Amendment.
5.5 This Amendment will in all respects be governed and construed
in accordance with the laws of the State of Ohio.
[SIGNATURES ON NEXT PAGE]
5
<PAGE> 6
Signed on May , 2000.
----
THE KROLL-O'GARA COMPANY
By:
---------------------------------
Print Name:
--------------------------
Title:
-------------------------------
Date:
--------------------------------
O'GARA-HESS & EISENHARDT
ARMORING COMPANY
By:
---------------------------------
Print Name:
--------------------------
Title:
-------------------------------
Date:
--------------------------------
KROLL HOLDINGS, INC.
By:
---------------------------------
Print Name:
--------------------------
Title:
-------------------------------
Date:
--------------------------------
KROLL ASSOCIATES, INC.
By:
---------------------------------
Print Name:
--------------------------
Title:
-------------------------------
Date:
--------------------------------
KEYBANK NATIONAL ASSOCIATION
By:
---------------------------------
Print Name:
--------------------------
Title:
-------------------------------
Date:
--------------------------------
<PAGE> 7
AMENDMENT TO REVOLVING CREDIT NOTE
Cincinnati, Ohio Dated as of May __, 2000
On June 25, 1999, the undersigned, THE KROLL-O'GARA COMPANY, O'GARA -
HESS & EISENHARDT ARMORING COMPANY, KROLL HOLDINGS, INC., and KROLL ASSOCIATES,
INC. (individually and collectively the "Borrower"), executed and delivered a
Revolving Credit Note to KEYBANK NATIONAL ASSOCIATION, in the principal amount
of $25,000,000 (the "Note").
By this Amendment to Revolving Credit Note, the Note hereby is amended
as follows:1. The first full paragraph on the first page of the Note is amended
to provide as follows:
FOR VALUE RECEIVED, THE KROLL-O'GARA COMPANY, O'GARA
- HESS & EISENHARDT ARMORING COMPANY, KROLL HOLDINGS, INC.,
and KROLL ASSOCIATES, INC. (individually and collectively the
"Borrower"), jointly and severally promise to pay to the order
of KEYBANK NATIONAL ASSOCIATION ("Lender"), at its offices
located at 525 Vine Street, Cincinnati, Ohio 45202 or such
other location as Lender may from time to time designate, the
principal sum of TWENTY FIVE MILLION DOLLARS ($25,000,000)
(the "Total Facility") or such greater or lesser amount as may
be advanced and outstanding hereunder, together with interest
thereon as provided below from the date of disbursement
thereof until paid, all in lawful money of the United States
of America and in immediately available funds. Notwithstanding
any of the foregoing to the contrary, the Total Facility will
be increased from $25,000,000 to $40,000,000 until September
30, 2000 (the "Reduction Date"), at which time it will reduce
from $40,000,000 to $25,000,000, and Borrower will pay to
Lender on the Reduction Date the principal balance outstanding
hereunder that is in excess of $25,000,000.
2. The following sentence will be added to the end of Section 1.1.2 of
the Note as follows:
Notwithstanding any of the foregoing to the contrary, on May __, 2000,
the Applicable Margin will be set as if Borrower's Funded Debt to
EBITDA Ratio is greater than or equal to 2.5 to 1.0, which Applicable
Margin will apply until the Reduction Date.
Except as expressly modified hereby, all terms and conditions of the
Note remain in full force and effect.
THE KROLL-O'GARA COMPANY
By:
----------------------------------
Print Name:
--------------------------
Title:
-------------------------------
Date:
--------------------------------
7
<PAGE> 8
O'GARA-HESS & EISENHARDT
ARMORING COMPANY
By:
----------------------------------
Print Name:
--------------------------
Title:
-------------------------------
Date:
--------------------------------
KROLL HOLDINGS, INC.
By:
----------------------------------
Print Name:
--------------------------
Title:
-------------------------------
Date:
--------------------------------
KROLL ASSOCIATES, INC.
By:
----------------------------------
Print Name:
--------------------------
Title:
-------------------------------
Date:
--------------------------------
ACCEPTED:
KEYBANK NATIONAL ASSOCIATION
By:
----------------------------
Print Name:
--------------------
Title:
-------------------------
Date:
-------------------------
8
<PAGE> 9
CERTIFICATE OF THE SECRETARY
OF
THE KROLL-O'GARA COMPANY
The undersigned, Secretary of THE KROLL-O'GARA COMPANY ("Corporation")
hereby certifies to KEYBANK NATIONAL ASSOCIATION ("Lender") as follows:
1. The following Resolution was duly adopted and is a binding resolution
of the Corporation:
RESOLVED, that the Corporation amend the Amended and Restated
Loan Agreement by and between Corporation, O'Gara-Hess & Eisenhardt
Armoring Company, Kroll Holdings, Inc. and Kroll Associates, Inc.
(collectively, "Borrowers") and Lender dated October 30, 1998, as
amended, and the Revolving Credit Note (the "Note") given by Borrowers
to Lender on June 25, 1999, to extend the maturity date of the letter
of credit facility, to increase the amount of the Note until September
30, 2000, and to amend certain other financial provisions, and that the
President or any Vice President be, and they hereby are, authorized to
execute any and all documents to effectuate and secure such loan
including, without limitation, a Third Amendment to Loan Agreement, an
Amendment to Revolving Credit Note and other necessary or appropriate
documents in connection herewith.
2. The following is a complete and accurate list of the Officers of the
Corporation as of May __, 2000:
President.................
--------------------------
Vice President............
--------------------------
Secretary.................
--------------------------
Assistant Secretary.......
--------------------------
Treasurer.................
--------------------------
--------------------------
Secretary
9
<PAGE> 10
CERTIFICATE OF THE SECRETARY
OF
O'GARA-HESS & EISENHARDT ARMORING COMPANY
The undersigned, Secretary of O'GARA-HESS & EISENHARDT ARMORING COMPANY
("Corporation") hereby certifies to KEYBANK NATIONAL ASSOCIATION ("Lender") as
follows:
1. The following Resolution was duly adopted and is a binding resolution
of the Corporation:
RESOLVED, that the Corporation amend the Amended and Restated
Loan Agreement by and between Corporation, The Kroll-O'Gara Company,
Kroll Holdings, Inc. and Kroll Associates, Inc. (collectively,
"Borrowers") and Lender dated October 30, 1998, as amended, and the
Revolving Credit Note (the "Note") given by Borrowers to Lender on June
25, 1999, to extend the maturity date of the letter of credit facility,
to increase the amount of the Note until September 30, 2000, and to
amend certain other financial provisions, and that the President or any
Vice President be, and they hereby are, authorized to execute any and
all documents to effectuate and secure such loan including, without
limitation, a Third Amendment to Loan Agreement, an Amendment to
Revolving Credit Note and other necessary or appropriate documents in
connection herewith.
2. The following is a complete and accurate list of the Officers of the
Corporation as of May __, 2000:
President.................
--------------------------
Vice President............
--------------------------
Secretary.................
--------------------------
Assistant Secretary.......
--------------------------
Treasurer.................
--------------------------
--------------------------
Secretary
10
<PAGE> 11
CERTIFICATE OF THE SECRETARY
OF
KROLL HOLDINGS, INC.
The undersigned, Secretary of KROLL HOLDINGS, INC. ("Corporation")
hereby certifies to KEYBANK NATIONAL ASSOCIATION ("Lender") as follows:
1. The following Resolution was duly adopted and is a binding resolution
of the Corporation:
RESOLVED, that the Corporation amend the Amended and Restated
Loan Agreement by and between Corporation, O'Gara-Hess & Eisenhardt
Armoring Company, The Kroll-O'Gara Company and Kroll Associates, Inc.
(collectively, "Borrowers") and Lender dated October 30, 1998, as
amended, and the Revolving Credit Note (the "Note") given by Borrowers
to Lender on June 25, 1999, to extend the maturity date of the letter
of credit facility, to increase the amount of the Note until September
30, 2000, and to amend certain other financial provisions, and that the
President or any Vice President be, and they hereby are, authorized to
execute any and all documents to effectuate and secure such loan
including, without limitation, a Third Amendment to Loan Agreement, an
Amendment to Revolving Credit Note and other necessary or appropriate
documents in connection herewith.
2. The following is a complete and accurate list of the Officers of the
Corporation as of May __, 2000:
President.................
--------------------------
Vice President............
--------------------------
Secretary.................
--------------------------
Assistant Secretary.......
--------------------------
Treasurer.................
--------------------------
--------------------------
Secretary
11
<PAGE> 12
CERTIFICATE OF THE SECRETARY
OF
KROLL ASSOCIATES, INC.
The undersigned, Secretary of KROLL ASSOCIATES, INC. ("Corporation")
hereby certifies to KEYBANK NATIONAL ASSOCIATION ("Lender") as follows:
1. The following Resolution was duly adopted and is a binding resolution
of the Corporation:
RESOLVED, that the Corporation amend the Amended and Restated
Loan Agreement by and between Corporation, O'Gara-Hess & Eisenhardt
Armoring Company, Kroll Holdings, Inc. and The Kroll-O'Gara Company
(collectively, "Borrowers") and Lender dated October 30, 1998, as
amended, and the Revolving Credit Note (the "Note") given by Borrowers
to Lender on June 25, 1999, to extend the maturity date of the letter
of credit facility, to increase the amount of the Note until September
30, 2000, and to amend certain other financial provisions, and that the
President or any Vice President be, and they hereby are, authorized to
execute any and all documents to effectuate and secure such loan
including, without limitation, a Third Amendment to Loan Agreement, an
Amendment to Revolving Credit Note and other necessary or appropriate
documents in connection herewith.
3. The following is a complete and accurate list of the Officers of the
Corporation as of May __, 2000:
President.................
--------------------------
Vice President............
--------------------------
Secretary.................
--------------------------
Assistant Secretary.......
--------------------------
Treasurer.................
--------------------------
--------------------------
Secretary
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<FISCAL-YEAR-END> DEC-31-2000
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<ARTICLE> 5
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
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