<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997 or
------------------
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 0-19239
---------
LAW COMPANIES GROUP, INC.
--------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-0537111
------------------------------------- ------------------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
114 TownPark Drive, Kennesaw, Georgia 30144
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 590-4600
----------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 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
---- ----
The number of shares of Common Stock of the Company, par value $1.00 per share,
outstanding at October 31, 1997 was 1,882,101.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
PART I. FINANCIAL INFORMATION
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets
as of September 30, 1997 and December 31, 1996 ...................................1
Condensed Consolidated Statements of Income
for the Quarters Ended September 30, 1997 and September 30, 1996
and Nine Month Periods Ended September 30, 1997 and September 30, 1996 ...........3
Condensed Consolidated Statements of Cash Flows
for the Nine Month Periods Ended September 30, 1997 and September 30, 1996........4
Notes to Condensed Consolidated
Financial Statements..............................................................5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS ...................................................7
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................13
SIGNATURE...................................................................................14
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
LAW COMPANIES GROUP, INC.
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
----------------- ------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 9,572 $ 8,097
Billed fees receivable, net of allowance 54,304 57,015
Unbilled work in progress 32,057 29,961
Other receivables 1,207 805
Employee advances 415 586
Prepaid expenses 3,795 2,599
Deferred income taxes 0 200
---------------- -----------------
Total current assets 101,350 99,263
Property and equipment:
Land and buildings 12,027 8,448
Equipment 36,040 34,656
Vehicles 3,265 3,674
Furniture and fixtures 12,255 12,329
Leasehold improvements 3,499 3,792
---------------- -----------------
67,086 62,899
Less accumulated depreciation and
amortization 42,991 40,263
---------------- -----------------
24,095 22,636
Other assets:
Equity investments 1,130 1,313
Goodwill, net 13,356 14,136
Deposits and other assets 3,802 1,349
---------------- -----------------
18,288 16,798
---------------- -----------------
$ 143,733 $ 138,697
================ =================
</TABLE>
See accompanying notes.
1
<PAGE>
CONDENSED CONSOLIDATED BALANCE SHEETS
LAW COMPANIES GROUP, INC.
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
----------------- -----------------
<S> <C> <C>
Liabilities and shareholders' equity
Current liabilities:
Short-term borrowings $ 678 $ 240
Accounts payable 15,998 18,383
Billings in excess of costs and fees earned on contracts in
progress 13,123 14,771
Accrued payroll and other employee benefits 9,655 11,584
Accrued professional liability reserve 4,279 4,367
Other accrued expenses 17,541 14,194
Income taxes payable 5,149 5,059
Current portion of long-term debt 30,373 2,206
Deferred income taxes 969 0
---------------- ------------------
Total current liabilities 97,765 70,804
Long-term debt 13,919 42,847
Deferred income taxes 2,691 6,363
Minority interest in equity of subsidiaries 1,093 1,093
Cumulative redeemable preferred stock; issued
and outstanding: 956,613 shares in 1997
and 0 shares in 1996 9,859 0
Shareholders' equity:
Common stock--$1 par value; authorized: 10,000,000 shares;
issued and outstanding: 1,882,114 shares in 1997 and
1,905,422 in 1996 1,882 1,905
Additional paid in capital 15,037 15,063
Retained earnings 7,961 5,683
Foreign currency translation adjustment (6,474) (5,061)
---------------- ------------------
18,406 17,590
---------------- ------------------
$ 143,733 $ 138,697
================ ==================
</TABLE>
See accompanying notes.
2
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
LAW COMPANIES GROUP, INC.
(in thousands, except per share data)
<TABLE>
<CAPTION>
For the Quarters For the Nine Month Periods
Ended September 30 Ended September 30
--------------------------------- ----------------------------------
1997 1996 1997 1996
--------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Gross fees $ 78,131 $ 78,607 $ 232,954 $ 243,864
Less: Cost of outside services 8,459 8,960 25,914 28,662
--------------- -------------- --------------- ---------------
Net fees 69,672 69,647 207,040 215,202
Direct costs and expenses:
Payroll 20,663 20,506 61,501 63,410
Job related expenses 7,994 8,225 23,701 23,488
--------------- -------------- --------------- ---------------
Gross profit 41,015 40,916 121,838 128,304
Indirect costs and expenses:
Payroll 15,067 14,848 46,296 47,428
Other expenses 22,513 23,028 65,720 72,488
--------------- -------------- --------------- ---------------
Operating income 3,435 3,040 9,822 8,388
Other income (expense):
Interest expense (1,042) (1,164) (3,025) (3,560)
Deferred financing costs (275) (315) (915) (1,947)
Other income (expense) 43 (22) (267) 144
--------------- -------------- --------------- ---------------
Income before income taxes and
equity investments 2,161 1,539 5,615 3,025
Income tax provision (1,152) (983) (2,718) (1,830)
Equity investments (39) 18 (53) 67
--------------- -------------- --------------- ---------------
Net income $ 970 $ 574 $ 2,844 $ 1,262
--------------- -------------- --------------- ---------------
Less: preferred stock dividend
and accretion (283) -- (458) --
--------------- -------------- --------------- ---------------
Net income available to common
shareholders $ 687 $ 574 $ 2,386 $ 1,262
=============== ============== =============== ===============
Net income per common share $ .36 $ .30 $ 1.26 $ .66
=============== ============== =============== ===============
</TABLE>
See accompanying notes.
3
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
LAW COMPANIES GROUP, INC.
(in thousands)
<TABLE>
<CAPTION>
For the Nine Month Periods
Ended September 30
--------------------------------------
1997 1996
----------------- -----------------
<S> <C> <C>
Operating activities
Net income $ 2,844 $ 1,262
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 5,974 7,694
Provision for losses on receivables 127 748
Provision for losses on claims (89) 280
Deferred income taxes (2,502) (1,307)
Undistributed (income) losses from equity investments 53 (67)
(Gain) loss on disposal of property and equipment 325 (121)
Changes in operating assets and liabilities:
Billed fees receivable (2,878) 2,593
Unbilled work in progress 1,245 1,342
Other current assets (1,426) 1,579
Accounts payable and accrued expenses (870) (968)
Billings in excess of costs and fees earned on
contracts in progress (1,654) 2,424
----------------- -----------------
Net cash provided by operating activities 1,856 15,459
Investing activities
Purchases of property and equipment (6,313) (3,333)
Proceeds from disposal of property and equipment 82 28
Other, net 483 305
----------------- -----------------
Net cash used in investing activities (5,748) (3,000)
Financing activities
Net (payments) proceeds on short-term borrowings 438 (443)
Net (payments) proceeds on revolving line of credit and
long-term borrowings (762) (9,365)
Deferred financing costs (3,447) (643)
Issuance of common stock and warrants 150 0
401(k) Company stock match (repurchases) (306) 319
Issuance of redeemable preferred stock 9,850 0
Preferred dividends paid (321) 0
----------------- -----------------
Net cash provided by (used in) financing activities 5,602 (10,132)
Effect of exchange rate changes on cash (235) 24
----------------- -----------------
Increase in cash and cash equivalents 1,475 2,351
Cash and cash equivalents at beginning of period 8,097 4,913
----------------- -----------------
Cash and cash equivalents at end of period $ 9,572 $ 7,264
================= =================
</TABLE>
See accompanying notes.
4
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
LAW COMPANIES GROUP, INC.
NOTE 1 - There have been no significant changes in the accounting policies of
the Company during the periods presented. For a description of these policies,
see Note 1 of Notes to Consolidated Financial Statements for the year ended
December 31, 1996 in the Company's Form 10-K.
NOTE 2 - The unaudited condensed consolidated financial statements presented
herein have been prepared in accordance with the instructions to Form 10-Q and
do not include all of the information and note disclosures required by generally
accepted accounting principles. These statements should be read in conjunction
with the Consolidated Financial Statements and Notes for the year ended December
31, 1996 included in the Company's Form 10-K. The accompanying condensed
consolidated financial statements have not been audited by independent auditors
in accordance with generally accepted auditing standards, but in the opinion of
management, such financial statements include all adjustments, consisting only
of normal recurring adjustments, necessary to summarize fairly the Company's
consolidated financial position and results of operations. The results of
operations for the nine months ended September 30, 1997 may not be indicative of
the results that may occur during the year ending December 31, 1997.
NOTE 3 - On February 7, 1997, the Company obtained an amendment to its credit
facilities from its banks, extending the maturity date through February 6, 1998.
Consequently, the long-term debt of approximately $27.5 million under these
amended facilities has been classified as current as of September 30, 1997. For
a description of these credit facilities, see Note 3 of Notes to Consolidated
Financial Statements for the year ended December 31, 1996 in the Company's Form
10-K.
NOTE 4 - On February 14, 1997, the Board of Directors approved a curtailment in
the United States defined benefit pension plan effective March 28, 1997.
Benefits ceased accruing to vested participants on March 28, 1997. As a result,
the Company recognized a gain on curtailment of $1.8 million in the first
quarter of 1997.
NOTE 5 - On March 14, 1997, the Board of Directors approved an agreement to
issue to an investor $10 million of 8% Cumulative Redeemable Preferred Stock
(redeemable on or after the seventh anniversary of issuance), together with
separate warrants exercisable for a period of 12 years and representing
approximately 33% of the Common Stock outstanding as of the date of issuance,
plus options to acquire up to 900,000 shares of Common Stock through December
31, 2006. On May 6, 1997, this transaction was approved by shareholders and
consummated on the same date. The liquidation preference of each preferred share
is its original issue price of approximately $10.45 per share, totaling $10
million. The value assigned to the options and warrants of $150 and the costs of
issuance of $2,133 are being accreted over the period to redemption. This
accretion reduces net income available to common shareholders.
The Preferred Stock is entitled to voting rights equal to the number of common
shares represented by the warrants. The Preferred Stock may vote on all matters
except those expressly provided in the Company's bylaws and articles and in
applicable law. The Preferred Stock is entitled to elect Preferred Directors
representing one less than a majority of the Company's Board of Directors.
5
<PAGE>
NOTE 6 - Earnings per share are computed by dividing net income less the
preferred stock dividend and the accretion of discount on the preferred stock
issuance by the weighted average number of common shares outstanding. Under
earnings per share calculations, warrants and options are considered to be
common stock equivalents. However, for the nine months ended September 30, 1997,
the calculation of earnings per share excludes the effect of the outstanding
warrants and options as they are considered anti-dilutive.
NOTE 7 - In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings Per Share, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options will be excluded. The impact is expected to
result in no change to primary earnings per share for the third quarter and
nine months ended September 30, 1997 and September 30, 1996. The impact of
Statement 128 on the calculation of fully diluted earnings per share for the
third quarter and nine months is not expected to be material.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, (i) the percentage of
net fees represented by certain items reflected in the Company's condensed
consolidated statements of income and (ii) the percentage increase or decrease
in each of such items in 1997 from the comparable period in the prior year. The
Company measures its operating performance on the basis of net fees since a
substantial portion of gross fees flow through to clients as costs of
subcontractors and other project-specific outside services. Net fees are
determined by deducting the cost of these outside services from gross fees. This
table and the subsequent discussion should be read in conjunction with the
Condensed Consolidated Financial Statements and notes to Condensed Consolidated
Financial Statements contained elsewhere in this Form 10-Q.
<TABLE>
<CAPTION>
Qtr to Qtr Year to Year
Dollar Dollar
Quarters Ended Increase Nine Month Periods Ended Increase
September 30 (Decrease) September 30 (Decrease)
-------------------------- ----------------- ---------------------------- -----------------
1997 1996 1997 Vs 1996 1997 1996 1997 Vs 1996
------------ ------------ ----------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Net fees 100.0% 100.0% 0.0% 100.0% 100.0% (3.8%)
Gross profit 58.9% 58.7% 0.2% 58.9% 59.6% (5.0%)
Indirect costs and
expenses 53.9% 54.4% (0.8%) 54.1% 55.7% (6.6%)
Operating income 4.9% 4.4% 13.0% 4.7% 3.9% 17.1%
Net income 1.4% 0.8% 69.1% 1.4% 0.6% 125.5%
</TABLE>
Results of Operations
Consolidated net fees of $207.0 million for the first nine months of 1997
decreased 3.8% from net fees of $215.2 million for the same period in 1996.
Third quarter 1997 net fees of $69.7 million were virtually unchanged when
compared to third quarter 1996 net fees of $69.6 million. The Domestic Group's
net fees decreased 6.7% from $144.5 million for the first nine months of 1996 to
$134.8 million for the same period in 1997. This decrease is largely the result
of two factors. First, having emerged from losses in 1994 and 1995, the Company
placed its primary focus during 1996 on cost structure and competitiveness which
was purposefully at variance with fee growth. Second, the lack of environmental
regulatory pressure has stabilized the environmental markets and has resulted in
increased competition. The Company has seen its environmental business decline
from 1996 to 1997. Third quarter net fees for the Domestic Group decreased 1.4%
from $46.4 million in 1996 to $45.9 million in 1997. This smaller quarter to
quarter decrease (versus the larger nine months to nine months decrease)
reflects the Company's efforts to improve its business development initiatives
during the quarter, to return fees to 1996 levels and grow fees in subsequent
periods. The International Group's net fees increased 2.1% from $70.7 million in
the first nine months of 1996 to $72.2 million in 1997. Third quarter net fees
for the International Group increased 2.8%
7
<PAGE>
from $23.2 million in 1996 to $23.8 million in 1997. These net fee increases
were primarily due to a weaker US dollar when compared to the pound sterling.
The average value of the dollar decreased by 6.1% in the first nine months of
1997 when compared to the first nine months of 1996 and 4.9% when compared to
the third quarter of 1996. The International Group's net fees in pound sterling
for the first nine months of 1997 were negatively affected by a hold on
government expenditures surrounding the United Kingdom general election.
The consolidated gross profit margin decreased from 59.6% in the first nine
months of 1996 to 58.9% for the same period in 1997. For the third quarter, the
consolidated gross profit margin showed an increase from 58.7% in 1996 to 58.9%
in 1997. The Domestic Group's gross profit margin decreased slightly to 64.8% in
the first nine months of 1997 from 65.0% for the same period in 1996. For the
third quarter, the Domestic Group's gross profit margin increased slightly to
64.7% in 1997 from 64.0% in 1996. The slight decrease for the first nine months
reflects competitive pressures, beginning in 1996, faced in the markets served
by the Domestic Group. In response, the Company has focused on improving project
execution and service delivery, which has resulted in an increased gross profit
margin for the third quarter as compared to the third quarter of 1996. The
International Group's gross profit margin decreased slightly from 48.6% in the
first nine months of 1996 to 47.8% for the same period in 1997. For the third
quarter, the International Group's gross profit margin decreased to 47.6% in
1997 from 48.1% in 1996. These decreases were due to project performance issues
and increased competitive pressures in several of the International Group's
markets as well as an increase in direct job-related expenses, which produce a
smaller profit margin.
Consolidated indirect costs and expenses decreased to $112.0 million, or 54.1%
of net fees, for the first nine months of 1997 compared to $119.9 million, or
55.7% of net fees, in 1996. For the third quarter of 1997, indirect costs and
expenses decreased to $37.6 million, or 53.9% of net fees, compared to $37.9
million, or 54.4% of net fees, for the same period in 1996. These decreases
($7.9 million, or 6.6%, for the first nine months of 1997 and $.3 million, or
.8%, for the third quarter of 1997) were attributable to the continued positive
impact of the Company's cost reduction and labor utilization initiatives. These
initiatives were designed to maximize efficiency and profitability, to effect
substantive change in the culture of the Company, and to improve utilization. A
significant level of savings has been produced from re-aligning staffing levels
and matching human resources to a lower level of revenue, resulting in severance
and termination benefits totalling $0.5 million. Evaluations of specific offices
and staff re-alignment have continued through the first nine months of 1997. The
Company has continued to improve procurement activities in order to reduce
material and services costs by taking advantage of negotiated national contracts
which leverage the Company's purchasing power for its U.S. operations. National
contracts which consolidated the purchasing of office supplies, travel services,
office equipment, telecommunications and cellular services, off-site data
management, forms management, and vehicle leasing have provided a full nine
months of benefit in 1997 versus partial benefit in the first nine months of
1996. Reductions in corporate overhead functions, primarily departmental
re-alignment, position elimination, and attrition, have also been a factor in
the overall decrease in indirect expenses.
Additionally, in the first quarter of 1997, the Company curtailed its United
States defined benefit pension plan. As a result, the Company recognized a gain
on curtailment of $1.8 million in the first quarter of 1997 and has recorded the
gain as a reduction of other indirect costs and expenses.
8
<PAGE>
Interest expense decreased to $3.0 million in the first nine months of 1997
compared to $3.6 million in the first nine months of 1996. For the third quarter
of 1997, interest expense decreased to $1.0 million compared to $1.2 million for
the third quarter of 1996. These decreases were related to lower average
outstanding debt. Amortization of deferred financing costs of $.9 million
related to the renegotiation of the Company's credit facilities were also
recorded in the first nine months of 1997 ($.3 million in the third quarter of
1997) versus $1.9 million in the first nine months of 1996 ($.3 million in the
third quarter of 1996). This $1.0 million decrease is directly attributable to
the lower level of fees associated with the 1997 facility renegotiation versus
the 1996 facility renegotiation.
The effective income tax rates for the first nine months of 1997 and 1996 were
48.4% and 60.5%, respectively. The 1997 and 1996 third quarter effective income
tax rates were 53.3% and 63.9%, respectively. The effective tax rates were
higher than the statutory federal rate of 34% due primarily to the effect of
state income taxes and certain nondeductible expenses. The reduction in the
effective tax rates from 1996 to 1997 is attributable to the growth of pretax
profits in 1997, which bear income tax expense at marginal income tax rates.
Net income for the nine months ended September 30, 1997 was $2,844,000. This
compares with net income of $1,262,000 for the first nine months of 1996. The
net income for the third quarter of 1997 was $970,000 compared with net income
of $574,000 for the third quarter of 1996.
Net income available to common stockholders for the nine months ended September
30, 1997 was $2,386,000, or $1.26 per common share. This compares with net
income available to common shareholders of $1,262,000, or $.66 per common share,
for the first nine months of 1996. The net income available to common
shareholders for the third quarter of 1997 was $687,000, or $.36 per common
share, compared with net income available to common shareholders of $574,000, or
$.30 per common share, for the third quarter of 1996.
Currency Translation
The translation of the Company's foreign subsidiaries' financial statements into
U.S. dollars is done in multiple steps. First, all foreign operations are
measured into the functional currencies of the foreign subsidiaries' economic
environments by utilizing a combination of current, average, and historic
exchange rates, with translation impacts being included in income. The foreign
subsidiaries functional currency financial statements are translated into U.S.
dollars, the Company's reporting currency, utilizing current and average
exchange rates, resulting in an adjustment to shareholders' equity. In addition,
transactions denominated in different currencies result in exchange gains or
losses which are included in income. The impact of foreign currency translation
and exchange transactions included in income was not significant in the first
nine months of 1997. The translation of the Company's foreign subsidiaries' in
the first nine months of 1997 resulted in a $1.4 million change in the Foreign
Currency Translation Adjustment component of shareholders' equity. This change
was caused by a 5.1% decrease in the strength of the dollar relative to the
pound sterling from the rate at December 31, 1996 to the rate at September 30,
1997.
9
<PAGE>
Debt and Short-term Borrowings
The Company reported debt and short-term borrowings of $45.0 million at
September 30, 1997, compared to $45.3 million at December 31, 1996. On February
7, 1997, the Company amended and restated its current credit facilities (the
"1997 Facilities") with an extension to February 6, 1998. Consequently,
borrowings of $27.5 million under these facilities are classified as current at
September 30, 1997. The 1997 Facilities may be extended by the Company's banks
for up to two additional years. In the third quarter, the Company has solicited
proposals to refinance its credit facilities. The Company has received three
separate proposals from three banks for long-term credit facilities and is
currently engaged in an evaluation and negotiation process. The Company intends
to secure long-term credit facilities prior to the expiration of its current
credit facilities.
The 1997 Facilities include certain restrictions relating to, among other
things, maintaining debt within approved limits, limitations on capital
expenditures and share repurchases, achievement of certain fixed charge and
interest coverage ratios, and other financial covenants, and are secured by
substantially all assets of the Company and substantially all stock of its
subsidiaries. As of September 30, 1997, the Company was in compliance with all
of these covenants and restrictions.
Liquidity and Capital Resources
Prior to 1995, certain of the Company's subsidiaries filed their federal income
tax returns on the cash basis of accounting. Effective January 1, 1995, these
subsidiaries changed their method of accounting from the cash to the accrual
method for federal income tax purposes. Accordingly, previously deferred income
of approximately $47 million at January 1, 1995 will be included in taxable
income over a four year period, which began in 1995, resulting in an accelerated
tax liability of $16 million. The Company made income tax payments of
approximately $3.4 million in the first nine months of 1997 ($1.1 million in the
third quarter) and anticipates additional payments of approximately $1.1 million
for the remainder of 1997 related to this change in income tax accounting.
On May 6, 1997, shareholders approved a transaction to issue equity securities
to Virgil R. Williams and James M. Williams for $10 million in cash. The Company
believes the equity investment should provide improved financial strength and
stability because it is long-term equity capital. The Company has applied the
proceeds of the equity investment to the reduction of its credit facilities. As
a result of this equity investment, the Company should have the ability, among
other things, to address longer-term opportunities such as devoting capital
resources and management time to the growth of its market share in the U.S. and
internationally, and to strategically integrate its U.S. and international
operations with expanded business development efforts. Additionally, the Company
believes that a stronger equity base will allow it to maintain and broaden
relationships with its customers, employees and suppliers as a result of these
constituencies' increased confidence in the Company's stability and in the
Company's enhanced flexibility to service particular needs.
10
<PAGE>
The Company believes that its cash provided by operations and borrowings
available under the bank credit facilities will be sufficient to meet its base
operating requirements and capital expenditures through December 31, 1997. The
Company's ability to fund growth will depend on profitability and working
capital management, primarily in the areas of accounts receivable and work in
progress. Management believes that the Company's operating performance is
improving, thus reducing the likelihood of both operating profit and working
capital management falling below acceptable levels.
The Company's 401(k) Savings Plan (the "Plan") permitted employees to elect to
invest their Plan contributions in Company Common Stock, and provided that the
Company's matching contributions, if any, under the Plan be made in the form of
Company Common Stock. As of May 10, 1996, the Board of Directors of the Company
decided to terminate the Company Common Stock fund under the Plan, whether as
employee contributions or as Company matching contributions. Consistent with
that decision, employees are allowed to trade out of (but not into) shares of
the Company's Common Stock held in their individual 401(k) accounts, in
accordance with Plan provisions. In the first nine months of 1997, such trades
out of the Plan totaled $306,000 ($92,000 in the third quarter).
Cash Provided by Operations
Cash provided by operations in the first nine months of 1997 was $1.9 million
compared to $15.5 million for the same period in 1996. While the level of net
income increased from $1.3 million in 1996 to $2.8 million in 1997, several
factors attributed to the overall decrease in cash from operations. As noted
previously, financing costs amortization in 1996 was $1.0 million greater than
1997. The timing of the deferred tax reversal related to the change from cash to
accrual methods for income tax reporting and its impact on quarterly estimated
tax payments resulted in a $2.5 million decrease in net cash provided. The
combination of accounts receivable and work in progress provided $5.6 million
less cash in the first nine months of 1997 versus 1996. This is reflective of
the progress made in invoicing and collections in 1996 to position the Company
at a level of balance for 1997. Certain prepayments resulted in a $1.4 million
use of cash in 1997 versus $1.6 million cash provided in 1996. Finally, the
largest nine months on nine months decrease in cash provided by operations was
due to the reduction in the billings in excess of costs and fees earned on
contracts in progress. While providing cash of $2.4 million in the first nine
months of 1996, lower advanced payments and advanced billings, primarily in the
International Group, caused a reduction, or use of cash, of $1.7 million in the
first nine months of 1997.
Capital Expenditures
Capital expenditures for the first nine months of 1997 were $6.3 million which
represents an increase of $3.0 million from the first nine months of 1996. This
increase includes a $3.7 million expenditure for the buyout of a building
previously leased under a leveraged lease facility. Total capital expenditures
were in line with the Company's 1997 capital expenditures plan, as well as
within the limits imposed by the revised credit facilities. The Company is
required to limit capital spending to approximately $9.6 million in 1997. In
order to continue to enhance productivity and potentially increase earnings, the
Company has continued, and will continue, its capital spending programs,
particularly for computer and other technology-related equipment. The Company
has no other material commitments for purchases of additional equipment.
11
<PAGE>
Acquisitions
In August 1997, the Company acquired African Consulting Engineers, Inc. (ACE),
an engineering consulting firm located in South Africa, for a purchase price of
approximately $0.6 million in cash and notes payable. The Company believes that
the transportation planning and design services provided by ACE form a natural
extension of the services currently provided in that region. The acquisition has
been recorded using the purchase method of accounting and is not significant to
the Company's results for the quarter ended September 30, 1997.
Dividends
Dividends on Common Stock are prohibited under the 1997 bank credit facilities.
As required by the terms of the Preferred Stock, the Company paid dividends to
the holders of the Preferred Stock. These dividends included $.126 per preferred
share on June 30, 1997 and $.209 per preferred share on September 30, 1997 for
an aggregate of $320,547.
Forward Looking Statements
The above statements contained herein under the caption "Management's Discussion
and Analysis of Financial Condition and Results of Operations" constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1996. Such forward-looking statements involve known and
unknown risks, uncertainties, and other factors which may cause the actual
results, performance, or achievements of the Company to be materially different
from any future results, performance, or achievements expressed or implied by
such forward-looking statements. Such factors include, among other things,
business conditions and growth in the economy, including the construction sector
in particular, competitive factors, including price pressures, the ability to
control internal costs that are not passed on to the Company's clients, the
ability to manage cash flow and working capital, the ability to obtain longer
term financing on acceptable terms to support the Company's operations and other
factors referenced elsewhere herein.
Effect of Inflation
General economic inflation had a minimal effect of increasing the Company's
basic costs of operations. These increased costs were generally recovered
through increases in contract prices.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 - Computation of Earnings Per Share Page: 15
27 - Financial Data Schedule (SEC Use Only)
(b) Reports on Form 8-K
None
13
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant, Law Companies Group, Inc., has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
LAW COMPANIES GROUP, INC.
/s/ R. B. Fooshee
- -----------------------------------------
Robert B. Fooshee
Chief Financial Officer and Treasurer
Dated: November 13, 1997
14
<PAGE>
EXHIBIT 11
LAW COMPANIES GROUP, INC.
COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share data)
<TABLE>
<CAPTION>
For the Quarters For the Nine Month Periods
Ended September 30 Ended September 30
-------------------------- ------------------------------
1997 1996 1997 1996
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income $ 970 $ 574 $ 2,844 $ 1,262
Less: preferred stock dividend and
accretion (283) -- (458) --
--------- ---------- ---------- ----------
Net income available to common
shareholders $ 687 $ 574 $ 2,386 $ 1,262
========= ========== ========== ==========
Average number of shares of common stock
outstanding 1,886 1,913 1,892 1,907
Assuming exercise of options based on the
treasury stock method using average
market price -- -- -- --
--------- ---------- ---------- ----------
Average number of primary shares of
common stock outstanding 1,886 1,913 1,892 1,907
========= ========== ========== ==========
Primary earnings per share $ .36 $ .30 $ 1.26 $ .66
========= ========== ========== ==========
Average number of shares of common stock
outstanding 1,886 1,913 1,892 1,907
Assuming exercise of options based on the
treasury stock method using previous
year end market price -- -- -- --
--------- ---------- ---------- ----------
Average number of shares of
common stock outstanding
assuming full dilution 1,886 1,913 1,892 1,907
========= ========== ========== ==========
Fully diluted earnings per share $ .36 $ .30 $ 1.26 $ .66
========= ========== ========== ==========
</TABLE>
NOTE: For the quarter ended and the nine month period ended September 30, 1997,
the effect of the outstanding warrants and options are considered
anti-dilutive.
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 9,572
<SECURITIES> 0
<RECEIVABLES> 56,748
<ALLOWANCES> 2,444
<INVENTORY> 32,057
<CURRENT-ASSETS> 101,350
<PP&E> 67,086
<DEPRECIATION> 42,991
<TOTAL-ASSETS> 143,733
<CURRENT-LIABILITIES> 97,765
<BONDS> 0
9,859
0
<COMMON> 1,882
<OTHER-SE> 16,524
<TOTAL-LIABILITY-AND-EQUITY> 143,733
<SALES> 232,954
<TOTAL-REVENUES> 232,954
<CGS> 0
<TOTAL-COSTS> 111,116
<OTHER-EXPENSES> 111,889
<LOSS-PROVISION> 127
<INTEREST-EXPENSE> 3,025
<INCOME-PRETAX> 5,615
<INCOME-TAX> 2,718
<INCOME-CONTINUING> 2,844
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,844
<EPS-PRIMARY> 1.26
<EPS-DILUTED> 1.26
</TABLE>
