<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MAY 31, 1998
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From _____ to _____
Commission File Number 0-22645
LAMALIE ASSOCIATES, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Florida 59-2776441
- ---------------------------------- ------------------------
(State of Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
200 Park Avenue
New York, New York
10166-0136
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices)
(212) 953-7900
-------------------------------
(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, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
At June 30, 1998, the Registrant had outstanding 7,761,956 shares of
$.01 par value common stock.
<PAGE> 2
LAMALIE ASSOCIATES, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
----
<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Statements of Income
for the three-month periods
ended May 31, 1998 and 1997
3
Condensed Consolidated Balance Sheets at
May 31, 1998 and February 28, 1998 4
Condensed Consolidated Statements of Cash Flows
for the three-month periods ended
May 31, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements
6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
II. OTHER INFORMATION 11
SIGNATURES 13
</TABLE>
<PAGE> 3
LAMALIE ASSOCIATES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
May 31,
---------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Fee revenue, net $ 23,494 $ 13,725
Operating expenses:
Compensation and benefits 17,358 10,544
General and administrative 3,677 1,804
Goodwill amortization 206 --
----------- -----------
Total operating expenses 21,241 12,348
----------- -----------
Operating income 2,253 1,377
Interest expense, net 118 145
----------- -----------
Income before provision for income taxes 2,135 1,232
Provision for income taxes 938 530
----------- -----------
Net income $ 1,197 $ 702
=========== ===========
Basic net income per common share $ .21 $ .23
=========== ===========
Weighted average common shares 5,625 3,042
=========== ===========
Diluted net income per common and common equivalent share
$ .20 $ .23
=========== ===========
Weighted average common and common equivalent shares
6,005 3,042
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
<PAGE> 4
LAMALIE ASSOCIATES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
(unaudited)
ASSETS May 31, February 28,
1998 1998
----------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,358 $ 23,780
Accounts receivable, less allowance of $1,874 and $2,120, respectively 24,378 22,219
Prepaid expenses 1,725 1,420
Refundable income taxes -- 1,822
Deferred tax assets 1,130 486
--------- ---------
Total current assets 30,591 49,727
--------- ---------
Property and equipment, net of accumulated depreciation and amortization of $2,903 and
$2,608, respectively 6,092 5,612
Non-current deferred tax assets 5,680 3,698
Goodwill, net of accumulated amortization of $223 and $17, respectively 23,824 24,790
Other assets 5,812 5,089
--------- ---------
Total assets $ 71,999 $ 88,916
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 4,287 $ 6,807
Accrued compensation 11,342 20,573
Income taxes payable 761 --
Current maturities of long-term debt 3,070 3,070
Other current liabilities 1,003 8,976
--------- ---------
Total current liabilities 20,463 39,426
--------- ---------
Accrued rent 1,013 1,013
Deferred compensation 7,744 6,951
Long-term debt, less current maturities 6,024 6,055
--------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred stock; $0.01 par value; 3,000,000 shares authorized; no
shares issued and outstanding -- --
Common stock; $0.01 par value; 35,000,000 shares authorized;
5,672,416 and 5,576,446 shares issued and outstanding, respectively 57 56
Additional paid-in capital 32,955 32,873
Cumulative translation adjustment 4 --
Retained earnings 3,739 2,542
--------- ---------
Total stockholders' equity 36,755 35,471
========= =========
Total liabilities and stockholders' equity $ 71,999 $ 88,916
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
<PAGE> 5
LAMALIE ASSOCIATES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months
Ended May 31,
----------------------------
1998 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,197 $ 702
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 295 194
Goodwill amortization 206 --
Amortization of deferred compensation 88 --
Changes in operating assets and liabilities (12,843) (6,113)
--------- ---------
Net cash used in operating activities (11,057) (5,217)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (775) (189)
Investment in life insurance (467) (746)
Acquisition of Ward Howell International, Inc. (8,092) --
--------- ---------
Net cash used in investing activities (9,334) (935)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings -- 4,500
Repayments (31) (109)
Proceeds from issuance of common stock -- 114
--------- ---------
Net cash (used in) provided by financing activities (31) 4,505
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (20,422) (1,647)
CASH AND CASH EQUIVALENTS, at beginning of period 23,780 1,662
--------- ---------
CASH AND CASH EQUIVALENTS, at end of period $ 3,358 $ 15
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
<PAGE> 6
LAMALIE ASSOCIATES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1. Condensed Consolidated Financial Statements
In the opinion of the Company, the accompanying unaudited condensed consolidated
financial statements reflect all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the financial position of the
Company as of May 31, 1998 and February 28, 1998, and the results of operations
and cash flows for the three-month periods ended May 31, 1998 and 1997.
The condensed consolidated financial statements include the financial position
and results of operations of the Company and its wholly-owned subsidiaries. All
material intercompany profits, transactions and balances have been eliminated.
These condensed consolidated financial statements, including the condensed
consolidated balance sheet as of February 28, 1998, which has been derived from
audited financial statements, are presented in accordance with the requirements
of Form 10-Q and consequently may not include all disclosures normally required
by generally accepted accounting principles or those normally made in the
Company's Annual Report on Form 10-K. The accompanying condensed consolidated
financial statements and related notes should be read in conjunction with the
Company's Annual Report on Form 10-K/A as filed with the Securities and Exchange
Commission on June 12, 1998.
Note 2. Net Income Per Common and Common Equivalent Share
Basic net earnings per common share ("basic EPS") was determined by dividing the
net income by the weighted average number of shares of common stock outstanding
during the year. Diluted net earnings per common and common equivalent share
("diluted EPS") was determined by dividing the net income by the weighted
average number of shares of common stock outstanding and dilutive common
equivalent shares from stock options using the treasury stock method and from
convertible debt assuming conversion upon issuance. The following reconciles the
numerator and denominator of basic EPS to diluted EPS:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
May 31, 1998 May 31, 1997
------------------------------------------- --------------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Income available to common
stockholders $ 1,197 5,625 $ .21 $ 702 3,042 $ .23
Effect of dilutive securities -- 322 -- --
Convertible promissory note 12 58 -- --
-------- ----- ----- -----
Diluted EPS
Income available to common
stockholders + assumed
conversions $ 1,209 6,005 $ .20 $ 702 3,042 $ .23
======== ===== ===== ===== ===== =====
</TABLE>
6
<PAGE> 7
All share and per share information in these condensed consolidated financial
statements has been adjusted to give effect to the 1,000 to one common stock
split and par value restatement which became effective June 3, 1997, in
connection with the reincorporation of the Company in Florida.
Note 3. Newly Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income" (SFAS
130). SFAS 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in the financial statements and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in-capital in the stockholders' equity section of
the consolidated balance sheets for annual financial statements. The Company
adopted SFAS 130 in 1998 and accordingly, comprehensive income is as follows:
<TABLE>
<CAPTION>
Three Months Ended
May 31,
-------------------------------
1998 1997
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<S> <C> <C>
Net income $ 1,197 $ 702
Other comprehensive income, net of tax:
Translation adjustment 4 --
-------- ----------
Comprehensive income $ 1,201 $ 702
======== ==========
</TABLE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS:
FISCAL 1999 COMPARED TO FISCAL 1998
Fee revenue. The Company's fee revenue increased 71.2% to $23.5 million for the
three-month period ended May 31, 1998, compared to $13.7 million for the same
period in fiscal 1998. As of May 31, 1998, the total number of consultants
employed was 115, an increase of 52 since May 31, 1997, including 32 consultants
hired in connection with two acquisitions during the fourth quarter of fiscal
l998. The average fee revenue per consultant employed for a full year increased
3.8%, to $221,000 for the three-month period ended May 31, 1998 compared to
$213,000 for the same period in fiscal 1998. The average first-year cash
compensation of positions for which the Company conducted searches decreased
13.0% to $201,000 for the three-month period ended May 31, 1998, compared to
$231,000 for the same period in fiscal 1998.
7
<PAGE> 8
Compensation and benefits. Compensation and benefits increased 64.6% to $17.4
million for the three-month period ended May 31, 1998, compared to $10.5 million
for the same period in fiscal 1998. As a percentage of fee revenue, compensation
and benefits decreased to 73.9% for the three-month period ended May 31, 1998,
compared to 76.8% for the same period in fiscal 1998. This decrease was
primarily the result of lower discretionary compensation as a percentage of
revenues.
General and administrative expenses. General and administrative expenses
increased 103.8% to $3.7 million for the three-month period ended May 31, 1998,
compared to $1.8 million for the same period in fiscal 1998. As a percentage of
fee revenue, general and administrative expenses increased to 15.6% for the
three-month period ended May 31, 1998, compared to 13.2% for the same period in
fiscal 1998. These increases were primarily due to integration of Ward Howell
International, Inc. which was acquired on the last day of fiscal 1998, higher
occupancy costs associated with real estate integration and startup costs
associated with the London, England office which was opened in May 1998.
Goodwill amortization. Goodwill amortization was $206,000 for the three-month
period ended May 31, 1998, compared to no amortization for the same period in
fiscal 1998. This change was a result of goodwill acquired in connection with
two acquisitions during the fourth quarter of fiscal 1998.
Operating income. Operating income increased $876,000 to $2.3 million for the
three-month period ended May 31, 1998, compared to $1.4 million for the same
period in fiscal 1998. This change was primarily the result of an increase in
fee revenue and a decrease in compensation and benefits as a percentage of fee
revenue which were partially offset by an increase in general and administrative
expenses as a percentage of fee revenue.
Interest expense, net. Interest expense, net decreased 18.6% to $118,000 for the
three-month period ended May 31, 1998, compared to $145,000 for the same period
in fiscal 1998. This decrease was the result of the Company having repaid all
outstanding indebtedness under its credit facilities with proceeds from its July
1997 initial public offering, as well as investment earnings from the remaining
net proceeds.
Provision for income taxes. The effective income tax rate for the three-month
period ended May 31, 1998, of 43.9% varied from the statutory rate of 34% due to
state and local income taxes and because certain expenses, including goodwill
amortization, premiums on keyperson life insurance policies, a portion of meals
and entertainment, and dues expense are non-deductible for income tax purposes.
8
<PAGE> 9
LIQUIDITY AND CAPITAL RESOURCES
On June 9, 1998, the Company completed a public offering covering 3 million
shares of its common stock, approximately 2.1 million of which were offered by
the Company, with the balance being offered by certain stockholders of the
Company. Net proceeds to the Company from the offering were approximately $38.3
million. The Company expects to use the net proceeds of the offering to pursue
strategic domestic and international acquisitions, to support continued
enhancements to the Company's technology-based infrastructure and for general
corporate purposes.
The Company relies primarily upon cash flows from operations and available
borrowings under its credit facilities to finance its operations. During the
three-month period ended May 31, 1998, cash used in operations was approximately
$11.1 million. A significant portion of the Company's compensation expense is
accrued and paid shortly after the end of the Company's fiscal year. This
results in significant operating cash outflows during the Company's first
quarter which are expected to be offset by cash generated from operations in the
second, third and fourth quarters. To provide additional liquidity, the Company
has obtained a commitment letter from a bank to provide credit facilities of
approximately $25.0 million. Outstanding borrowings under these facilities will
accrue interest at various rates based on either a LIBOR index or the bank's
prime lending rate, as determined at the Company's option.
Capital expenditures totaled approximately $775,000 for the three-month period
ended May 31, 1998. These expenditures consisted primarily of upgrades to
information systems, purchases of office furniture and equipment and leasehold
improvements. Additionally, investments in life insurance policies intended to
fund the Company's deferred compensation plan were approximately $467,000.
The Company believes that funds from operations, its expanded credit facilities,
and the net proceeds from the recently completed secondary offering will be
sufficient to meet its anticipated working capital, capital expenditure, and
general corporate requirements for the foreseeable future.
FORWARD-LOOKING STATEMENTS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this Quarterly Report on Form 10-Q contain
forward-looking statements that are based on the current beliefs and
expectations of the Company's management, as well as assumptions made by, and
information currently available to, the Company's management. Such statements
include those regarding general economic and executive search industry trends
and the Company's ability to successfully execute its international acquisition
and growth strategies. Because such statements involve risks and uncertainties,
actual actions and strategies and the timing and expected results thereof may
differ materially from those expressed or implied by such forward-looking
statements, and the Company's future results, performance, or achievements could
differ materially from those expressed in, or implied by, any such
forward-looking statements. Future events and actual results could differ
materially from those set forth in or underlying the forward-looking statements.
9
<PAGE> 10
Forward-looking statements are inherently subject to risks and uncertainties,
some of which cannot be predicted. These potential risks and uncertainties
include dependence on attracting and retaining qualified executive search
consultants, portability of client relationships, restrictions imposed by
blocking arrangements, competition, implementation of acquisition strategy,
reliance on information processing systems, and employment liability risk. In
addition to the factors noted above, other risks, uncertainties, assumptions,
and factors that could affect the Company's financial results are described in
the Company's Annual Report on Form 10-K/A filed with the Securities and
Exchange Commission on June 12, 1998.
10
<PAGE> 11
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
2.1 (4) -Agreement and Plan of Merger dated February 27, 1998, by
and among Lamalie Associates, Inc., LAI Mergersub, Inc.
and Ward Howell International, Inc.
2.2 (4) -Asset Purchase Agreement dated December 29, 1997, by and
among Lamalie Associates, Inc., Chartwell Partners
International, Inc. and David DeWilde
3.1 (1) -Articles of Incorporation if the Registrant as now in effect
3.2 (1) -Bylaws of the Registrant as now in effect
4 (1) -Form of Common Stock Certificate
10.1 (3) -Definitive 1997 Omnibus Stock and Incentive Plan
10.2 (1) -Non-Employee Directors' Stock Option Plan
10.3 (1) -Profit Sharing Plan
10.4 (1) -1997 Employee Stock Purchase Plan
10.5 (1) -Form of Agreement for Deferred Compensation Plan
10.6 (1) -Managing Partners' Compensation Plan
10.7 (1) -Partners' Compensation Plan
10.8 (1) -Employment Agreement for Mr. Gow
10.9 (5) -1998 Omnibus Stock and Incentive Plan
10.10 (1) -Employment Agreement for Mr. Rothschild +
</TABLE>
11
<PAGE> 12
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
10.11 (2) -Form of Indemnification Agreement entered into with Messrs.
Philip R. Albright, Michael Brenner, Arthur J.
Davidson, Mark P. Elliott, David W. Gallagher, Joe D.
Goodwin, Roderick C. Gow, Ray J. Groves, Harold E.
Johnson, John F. Johnson, Robert L. Pearson, Richard
W. Pogue, John C. Pope, John S. Rothschild, Thomas M.
Watkins III, Jack P. Wissman
10.12 (1) -Directors' Deferral Plan
10.13 (3) -Employment Agreement with Robert L. Pearson dated October 8,
1997
10.14 (4) -Form of Employment Agreement for Former Ward Howell
International, Inc. Shareholders
27 -Financial Data Schedule (for SEC use only)
</TABLE>
(1) Incorporated by reference to the correspondingly numbered exhibit to
the Registrant's Registration Statement on Form S-1 (File No.
333-26027), originally filed April 29, 1997, as amended and as
effective July 1, 1997.
(2) Incorporated by reference to the correspondingly numbered exhibit to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
May 31, 1997, filed on August 8, 1997.
(3) Incorporated by reference to the correspondingly numbered exhibit to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
November 30, 1997, filed on January 13, 1998.
(4) Incorporated by reference to the correspondingly numbered exhibit to
the Registrant's current Report on Form 8-K filed March 13, 1998.
(5) Incorporated by reference to the correspondingly numbered exhibit to
the Registrant's Annual Report on Form 10-K/A for the year ended
February 28, 1998, filed on June 12, 1998.
+ Confidential treatment has been granted with respect to portions of
this Exhibit.
12
<PAGE> 13
LAMALIE ASSOCIATES, INC.
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, Registrant's principal financial officer, thereunto duly
authorized.
July 15, 1998 LAMALIE ASSOCIATES, INC.
(Registrant)
By: /s/
-------------------------------------
Jack P. Wissman
Executive Vice President
(Authorized officer of Registrant
and principal financial officer)
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF LAMALIE ASSOCIATES, INC. FOR THE THREE MONTHS ENDED MAY
31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-START> MAR-01-1998
<PERIOD-END> MAY-31-1998
<CASH> 3,358
<SECURITIES> 0
<RECEIVABLES> 26,252
<ALLOWANCES> 1,874
<INVENTORY> 0
<CURRENT-ASSETS> 30,591
<PP&E> 8,995
<DEPRECIATION> 2,903
<TOTAL-ASSETS> 71,999
<CURRENT-LIABILITIES> 20,463
<BONDS> 0
0
0
<COMMON> 57
<OTHER-SE> 36,698
<TOTAL-LIABILITY-AND-EQUITY> 71,999
<SALES> 0
<TOTAL-REVENUES> 23,494
<CGS> 0
<TOTAL-COSTS> 21,241
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 118
<INCOME-PRETAX> 2,135
<INCOME-TAX> 938
<INCOME-CONTINUING> 1,197
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,197
<EPS-PRIMARY> .21
<EPS-DILUTED> .20
</TABLE>
