<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 June 30, 1997 or
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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
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LAW COMPANIES GROUP, INC.
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(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
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(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 July 31, 1997 was 1,888,556.
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TABLE OF CONTENTS
PAGE
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets
as of June 30, 1997 and December 31, 1996........................ 1
Condensed Consolidated Statements of Income
for the Quarters Ended June 30, 1997 and June 30, 1996
and Six Month Periods Ended June 30, 1997 and June 30, 1996...... 3
Condensed Consolidated Statements of Cash Flows
for the Six Month Periods Ended June 30, 1997 and June 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 2. CHANGES IN SECURITIES................................... 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..... 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K........................ 14
SIGNATURE.................................................................. 16
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
LAW COMPANIES GROUP, INC.
(IN THOUSANDS)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------- -----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 9,224 $ 8,097
Billed fees receivable, net of allowance 56,144 57,015
Unbilled work in progress 28,442 29,961
Other receivables 897 805
Employee advances 410 586
Prepaid expenses 3,426 2,599
Deferred income taxes 199 200
-------- --------
Total current assets 98,742 99,263
Property and equipment:
Land and buildings 12,093 8,448
Vehicles 34,806 34,656
Automobiles 3,284 3,674
Furniture and fixtures 12,107 12,329
Leasehold improvements 3,480 3,792
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65,770 62,899
Less accumulated depreciation and
amortization 41,836 40,263
-------- --------
23,934 22,636
Other Assets:
Equity investments 1,183 1,313
Goodwill, net 13,793 14,136
Deposits and other assets 4,091 1,349
-------- --------
19,067 16,798
-------- --------
$141,743 $138,697
======== ========
</TABLE>
See accompanying notes.
1
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CONDENSED CONSOLIDATED BALANCE SHEETS
LAW COMPANIES GROUP, INC.
(IN THOUSANDS)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------- ------------
<S> <C> <C>
Liabilities and shareholders' equity
Current liabilities:
Short-term borrowings $ 666 $ 240
Accounts payable 16,900 18,383
Billings in excess of costs and fees earned on
contracts in progress 11,150 14,771
Accrued payroll and other employee benefits 11,278 11,584
Accrued professional liability reserve 4,459 4,367
Other accrued expenses 16,753 14,194
Income taxes payable 4,696 5,059
Current portion of long-term debt 27,943 2,206
-------- --------
Total current liabilities 93,845 70,804
Long-term debt 14,374 42,847
Deferred income taxes 3,960 6,363
Minority interest in equity of subsidiaries 1,109 1,093
Cumulative redeemable preferred stock; issued
and outstanding: 956,613 shares in 1997
and 0 shares in 1996 9,854 0
Shareholders' equity:
Common stock--$1 par value; authorized: 10,000,000
shares; issued and outstanding: 1,888,556 shares in
1997 and 1,905,422 in 1996 1,889 1,905
Additional paid in capital 15,088 15,063
Retained earnings 7,310 5,683
Foreign currency translation adjustment (5,686) (5,061)
-------- --------
18,601 17,590
-------- --------
$141,743 $138,697
======== ========
</TABLE>
See accompanying notes.
2
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME
LAW COMPANIES GROUP, INC.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the Quarters For the Six Month Periods
Ended June 30, Ended June 30,
------------------- -------------------------
1997 1996 1997 1996
------- ------- -------- --------
<S> <C> <C> <C> <C>
Gross fees $79,332 $82,241 $154,822 $165,257
Less: Cost of outside services 9,358 9,353 17,455 19,701
------- ------- -------- --------
Net fees 69,974 72,888 137,367 145,556
Direct costs and expenses:
Payroll 20,829 21,425 40,838 42,904
Job related expenses 8,037 7,716 15,706 15,263
------- ------- -------- --------
Gross profit 41,108 43,747 80,823 87,389
Indirect costs and expenses:
Payroll 15,260 15,918 31,228 32,580
Other expenses 22,551 24,528 43,207 49,461
------- ------- -------- --------
Operating income 3,297 3,301 6,388 5,348
Other income (expense):
Interest expense (1,028) (1,295) (1,983) (2,395)
Deferred financing costs (295) (562) (640) (1,632)
Other income (expense) (287) 178 (310) 165
------- ------- -------- --------
Income before income taxes and
equity investments 1,687 1,622 3,455 1,486
Income tax provision (753) (747) (1,566) (847)
Equity investments 34 49 (15) 49
------- ------- -------- --------
Net income 968 924 1,874 688
------- ------- -------- --------
Less: preferred stock dividend and -- --
accretion (175) (175)
------- ------- -------- --------
Net income available to common
shareholders $ 793 $ 924 $ 1,699 $ 688
======= ======= ======== ========
Net income per common share $.42 $.48 $.90 $.36
======= ======= ======== ========
</TABLE>
See accompanying notes.
3
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
LAW COMPANIES GROUP, INC.
(IN THOUSANDS)
<TABLE>
<CAPTION>
For the Six Month Periods
Ended June 30,
----------------------------------------
1997 1996
----------------- -----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,874 $ 688
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 3,998 5,484
Provision for losses on receivables 100 822
Provision for losses on claims 91 107
Deferred income taxes (2,401) (6)
Undistributed (income) losses from equity investments 15 (49)
(Gain) loss on disposal of property and equipment 318 (202)
Changes in operating assets and liabilities:
Billed fees receivable 770 1,607
Unbilled work in progress 1,518 271
Other current assets (743) 286
Accounts payable and accrued expenses 408 2,790
Billings in excess of costs and fees earned on
contracts in progress (3,620) 1,170
----------------- -----------------
Net cash provided by operating activities 2,328 12,968
INVESTING ACTIVITIES
Purchases of property and equipment (4,834) (2,613)
Proceeds from disposal of property and equipment 28 76
Other, net (405) 484
----------------- -----------------
Net cash used in investing activities (5,211) (2,053)
FINANCING ACTIVITIES
Net (payments) proceeds on short-term borrowings 427 (293)
Net (payments) proceeds on revolving line of credit and
long-term borrowings (2,737) (5,939)
Deferred financing costs (3,267) (600)
Issuance of common stock and warrants 150 0
401(k) Company stock match (repurchases) (214) 319
Issuance of redeemable preferred stock 9,850 0
Preferred dividends paid (121) 0
----------------- -----------------
Net cash provided by (used in) financing activities 4,088 (6,513)
Effect of exchange rate changes on cash (78) 3
----------------- -----------------
Increase in cash and cash equivalents 1,127 4,405
Cash and cash equivalents at beginning of period 8,097 4,913
----------------- -----------------
Cash and cash equivalents at end of period $ 9,224 $ 9,318
================= =================
</TABLE>
See accompanying notes.
4
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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, except as noted below. 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 six months ended June 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 $25.8 million under these
amended facilities has been classified as current as of June 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 will no longer accrue to vested participants after 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 majority to the Company's Board of Directors.
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 three months and six months ended
June 30, 1997, the calculation of earnings per share excludes the effect of the
outstanding warrants and options as they are considered anti-dilutive.
5
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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 second quarters and
six months ended June 30, 1997 and June 30, 1996. The impact of Statement 128
on the calculation of fully diluted earnings per share for the second quarters
and six months is not expected to be material.
6
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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 Six Month Periods Ended Increase
June 30, (Decrease) June 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% (4.0%) 100.0% 100.0% (5.6%)
Gross profit 58.7% 60.0% (6.0%) 58.8% 60.0% (7.5%)
Indirect costs and
expenses 54.0% 55.5% (6.5%) 54.2% 56.3% (9.3%)
Operating income 4.7% 4.5% (0.1%) 4.6% 3.7% 19.4%
Net income 1.3% 1.3% (0.6%) 1.3% 0.5% 165.1%
</TABLE>
RESULTS OF OPERATIONS
Consolidated net fees of $137.4 million for the first six months of 1997
decreased 5.6% from net fees of $145.6 million for the same period in 1996.
Second quarter 1997 net fees decreased 4.0% to $70.0 million compared to second
quarter 1996 net fees of $72.9 million. The Domestic Group's net fees decreased
9.2% from $98.1 million for the first six months of 1996 to $89.0 million for
the same period in 1997. Second quarter net fees for the Domestic Group
decreased 8.2% from $49.7 million in 1996 to $45.6 million in 1997. These
decreases were due to the effects of the Company's focus on its cost structure
and competitiveness as opposed to growth, lack of regulatory pressure to drive
environmental markets, and overall competitive pressures in the markets served
by the Domestic Group. The International Group's net fees increased 1.9% from
$47.5 million in the first six months of 1996 to $48.4 million in 1997. Second
quarter net fees for the International Group increased 4.7% from $23.2 million
in 1996 to $24.4 million in
7
<PAGE>
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
6.7% in the first six months of 1997 when compared to the first six months of
1996 and 6.7% when compared to the second quarter of 1996. The International
Group's net fees in pound sterling for the first six months of 1997 were
affected by a hold on government expenditures surrounding the United Kingdom
general election.
The consolidated gross profit margin decreased from 60.0% in the first six
months of 1996 to 58.8% for the same period in 1997. For the second quarter,
the consolidated gross profit margin also decreased from 60.0% in 1996 to 58.7%
in 1997. The Domestic Group's gross profit margin decreased to 64.8% in the
first six months of 1997 from 65.5% for the same period in 1996. For the second
quarter, the Domestic Group's gross profit margin decreased slightly to 64.7% in
1997 from 65.3% in 1996. These slight decreases reflect the Company's focus on
improved operating procedures in response to difficult market conditions
encountered by the Domestic Group. The International Group's gross profit
margin decreased slightly from 48.8% in the first six months of 1996 to 47.9%
for the same period in 1997. For the second quarter, the International Group's
gross profit margin decreased to 47.7% in 1997 from 48.8% 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 $74.4 million, or 54.2% of
net fees, for the first six months of 1997 compared to $82.0 million, or 56.3%
of net fees, in 1996. For the second quarter of 1997, indirect costs and
expenses decreased to $37.8 million, or 54.0% of net fees, compared to $40.4
million, or 55.5% of net fees, for the same period in 1996. These decreases
($7.6 million, or 9.3%, for the first six months of 1997 and $2.6 million, or
6.5%, for the second 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. The activity that produced the greatest level of
savings was re-aligning staffing levels and matching human resources to a lower
level of revenue. Evaluations of specific offices and staff re-alignment have
continued through the first six 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 six months of benefit in
1997 versus partial benefit in the first six 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 six months of 1997 and has recorded
the gain as a reduction of other indirect costs and expenses.
8
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Interest expense decreased to $2.0 million in the first six months of 1997
compared to $2.4 million in 1996. For the second quarter of 1997, interest
expense decreased to $1.0 million compared to $1.3 million for the second
quarter of 1996. These decreases were related to lower average outstanding
debt. Amortization of deferred financing costs of $.6 million related to the
renegotiation of the Company's credit facilities were also recorded in the first
six months of 1997 ($.3 million in the second quarter of 1997) versus $1.6
million in the first six months of 1996 ($.6 million in the second quarter of
1996). The 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 six months of 1997 and 1996 were
45.3% and 56.7%, respectively. The 1997 and 1996 second quarter effective income
tax rates were 44.6% and 46.0%, 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.
Net income for the six months ended June 30, 1997 was $1,874,000. This compares
with net income of $688,000 for the first six months of 1996. The net income
for the second quarter of 1997 was $968,000 compared with net income of $924,000
for the second quarter of 1996.
Net income available to common stockholders for the six months ended June 30,
1997 was $1,699,000, or $0.90 per common share. This compares with net income
available to common shareholders of $688,000, or $0.36 per common share, for the
first six months of 1996. The net income available to common shareholders for
the second quarter of 1997 was $793,000, or $0.42 per common share, compared
with net income available to common shareholders of $924,000, or $.48 per common
share, for the second 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 six months of 1997. The translation of the Company's foreign
subsidiaries' in the first six months of 1997 resulted in a $.6 million change
in the Foreign Currency Translation Adjustment component of shareholders'
equity. This change was caused by a 1.7% decrease in the strength of the dollar
relative to the pound sterling from the rate at December 31, 1996 to the rate at
June 30, 1997.
9
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DEBT AND SHORT-TERM BORROWINGS
The Company reported debt and short-term borrowings of $43.0 million at June 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
$25.8 million under these facilities are classified as current at June 30, 1997.
The 1997 Facilities may be extended by the Company's banks for up to two
additional years. The Company intends to open extension negotiations in the
third quarter of 1997. 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 June 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 $2.0 million in the first six months of 1997 ($1.4 million in the
second quarter) and anticipates additional payments of approximately $2.0
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.
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, other than at minimum levels, 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.
10
<PAGE>
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 six months of 1997, such trades
out of the Plan totaled $214,000 ($203,000 in the second quarter).
CASH PROVIDED BY OPERATIONS
Cash provided by operations in the first six months of 1997 was $2.3 million
compared to $13.0 million for the same period in 1996. While the level of net
income increased from $.7 million in 1996 to $1.8 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 $2.4 million decrease in net cash provided.
While the combination of accounts receivable and work in progress provided $.4
million more cash in the first six months of 1997 versus 1996, certain
prepayments resulted in a $.7 million use of cash in 1997 versus $.3 million
cash provided in 1996. Increases in accounts payable and accrued expenses
balances provided cash of $.4 million in 1997 versus $2.8 million in 1996. This
$2.4 million decrease in cash in the first six months of 1997 versus 1996 is
primarily attributable to the timing of certain payments. Finally, the largest
six months on six 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 $1.2 million in the first six months of 1996,
lower advance payments and advance billings, primarily in the International
Group, caused a reduction, or use of cash, of $3.6 million in the first six
months of 1997.
CAPITAL EXPENDITURES
Capital expenditures for the first six months of 1997 were $4.8 million which
represents an increase of $2.2 million from the first six 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.
DIVIDENDS
Dividends on Common Stock are prohibited under the 1997 bank credit facilities.
On June 30, 1997, as required by the terms of the Preferred Stock, the Company
paid a dividend of $.126 per preferred share, or $120,548 in the aggregate, to
the holders of the Preferred Stock.
11
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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
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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
On May 6, 1997 the Company sold 956,613 shares of 8% Cumulative Redeemable
Preferred Stock (the "Preferred Stock") to Virgil R. Williams and James M.
Williams for $10 million in cash. The sale of the Preferred Stock was exempt
from registration under the Securities Act of 1933, as amended (the "1933 Act")
based upon the Company's reliance on Section 4(2) and Regulation D of the 1933
Act. The shares of Preferred Stock were sold to Virgil R. Williams and James M.
Williams each of whom represented to the Company that they were accredited
investors (as such term is defined in Regulation D of the 1933 Act).
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Shareholders was held May 6, 1997 in Atlanta,
Georgia, for the purpose of considering and voting on three proposals. Proposal
No. 1 was to consider and vote on the approval of the Securities Purchase
Agreement ("Agreement") dated as of March 21, 1997 between Virgil R. Williams
and James M. Williams (collectively, "Investor") and the Company. The Agreement
included the issuance of a number of shares of a newly created Preferred Stock,
equal to approximately one-third of the Company's Common Stock and common stock
equivalents, together with warrants exercisable for a period of twelve (12)
years to purchase the same number of shares of Common Stock. Also included in
this Proposal was the approval of the execution of stock option agreements
between the Company and Investor whereby the Company grants Investor the right
to purchase up to 900,000 shares of Common Stock of the Company and an option to
purchase additional shares of Common Stock representing one-half of the number
of shares subject to any incentive stock options granted as of the closing of
the Agreement, by the Company to certain optionholders, exercisable when and if
such incentive stock options are exercised.
Proposal No. 2 was to consider and vote on a proposal to amend the Company's
Stock Option Plan to increase the maximum number of shares of Common Stock that
may be issued and sold thereunder from 375,000 to 500,000. Finally, Proposal
No. 3 was to elect a Board of thirteen (13) directors of the Company to serve
until the next Annual Meeting and until their successors are duly elected and
qualified.
The votes for Proposal Nos. 1 and 2 are detailed below:
Proposal For Withheld
-------------- ------------ -------------
Number 1 1,377,564 233,333
Number 2 1,236,538 349,528
13
<PAGE>
The votes for Proposal No. 3 are detailed below:
Directors For Withheld
-------------------------- --------- --------
Bruce C. Coles 1,400,953 212,028
James I. Dangar 1,416,827 196,155
Andrew J. Young 1,417,696 195,285
Clarence D. Zimmerman 1,402,677 210,304
Geoffrey J. Brice 1,439,351 173,631
Frank B. Lockridge 1,428,995 183,986
Robert B. Fooshee 1,402,652 210,329
Fredrick J. Krishon 1,427,678 185,303
Steven Muller 1,421,227 191,754
Walter T. Kiser 1,411,822 201,159
John Williams 1,423,199 189,783
Peter D. Brettell 1,431,422 181,559
Clay E. Sams 1,442,848 170,133
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 - Computation of Earnings Per Share Page: 17
(b) Reports on Form 8-K
Form 8-K filed April 23, 1997 Items 5 and 7
14
<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: August 14, 1997
<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 Six Month Periods
Ended June 30, Ended June 30,
------------------------------ --------------------------------------
1997 1996 1997 1996
------------ ------------ ---------------- ----------------
<S> <C> <C> <C> <C>
Net income $ 968 $ 924 $1,874 $ 688
------------ ------------ ---------------- ----------------
Less: preferred stock dividend and
accretion (175) -- (175) --
------------ ------------ ---------------- ----------------
Net income available to common
shareholders $ 793 $ 924 $1,699 $ 688
============ ============ ================ ================
Average number of shares of common
stock outstanding 1,892 1,910 1,894 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 1,892 1,910 1,894 1,907
============ ============ ================ ================
Primary earnings per share $ .42 $ .48 $ .90 $ .36
============ ============ ================ ================
Average number of shares of common
stock outstanding 1,892 1,910 1,894 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 1,892 1,910 1,894 1,907
============ ============ ================ ================
Fully diluted earnings per share $ .42 $ .48 $ .90 $ .36
============ ============ ================ ================
</TABLE>
NOTE: For the quarter ended and the six month period ended June 30, 1997, the
effect of the outstanding warrants and options are considered anti-
dilutive.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 9,224
<SECURITIES> 0
<RECEIVABLES> 58,711
<ALLOWANCES> 2,567
<INVENTORY> 28,442
<CURRENT-ASSETS> 98,742
<PP&E> 65,770
<DEPRECIATION> 41,836
<TOTAL-ASSETS> 141,743
<CURRENT-LIABILITIES> 93,845
<BONDS> 0
9,854
0
<COMMON> 1,889
<OTHER-SE> 16,712
<TOTAL-LIABILITY-AND-EQUITY> 141,743
<SALES> 154,822
<TOTAL-REVENUES> 154,822
<CGS> 0
<TOTAL-COSTS> 73,999
<OTHER-EXPENSES> 74,335
<LOSS-PROVISION> 100
<INTEREST-EXPENSE> 1,983
<INCOME-PRETAX> 3,405
<INCOME-TAX> 1,566
<INCOME-CONTINUING> 1,699
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,699
<EPS-PRIMARY> .90
<EPS-DILUTED> .90
</TABLE>
