<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(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, 1998
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 of (I.R.S. Employer
incorporation or organization) Identification No.)
1105 Sanctuary Parkway, Suite 300, Alpharetta, GA 30004
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(770) 360-0600
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(Registrant's telephone number including area code)
N/A
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(Former name,former address,and former fiscal year,if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X NO
--- ---
The number of shares of Common Stock of the Company, par value $1.00 per share,
outstanding at October 31, 1998 was 2,049,745.
<PAGE>
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets
as of September 30, 1998 and December 31, 1997.......................1
Condensed Consolidated Statements of Income
for the Quarters and Nine Months Ended September 30, 1998 and 1997...3
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 1998 and 1997 ...............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..........................11
SIGNATURE.....................................................................12
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
LAW COMPANIES GROUP, INC.
(unaudited - in thousands)
September 30 December 31
1998 1997
------------ -----------
Assets
Current assets:
Cash and cash equivalents $ 11,940 $ 9,527
Billed fees receivable, net of allowance 60,097 56,808
Unbilled work in progress 34,612 32,105
Other receivables 799 1,779
Employee advances 504 420
Prepaid expenses 4,393 3,268
Deferred income taxes 2,596 0
------------ -----------
Total current assets 114,941 103,907
Property and equipment:
Land and buildings 12,426 12,094
Equipment 38,403 36,507
Automobiles 2,702 3,088
Furniture and fixtures 12,203 12,386
Leasehold improvements 1,894 3,526
------------ -----------
67,628 67,601
Less accumulated depreciation and
amortization 44,778 44,095
------------ -----------
22,850 23,506
Other Assets:
Equity investments 1,417 1,361
Goodwill, net 13,559 13,775
Other assets 4,636 3,219
------------ -----------
19,612 18,355
------------ -----------
Total assets $ 157,403 $ 145,768
============ ===========
See accompanying notes
<PAGE>
CONDENSED CONSOLIDATED BALANCE SHEETS
LAW COMPANIES GROUP, INC.
(unaudited - in thousands)
September 30 December 31
1998 1997
------------ -----------
Liabilities and shareholders' equity
Current liabilities:
Short-term borrowings $ 600 $ 904
Accounts payable 14,038 17,887
Billings in excess of costs and fees earned
on contracts in progress 15,319 15,168
Accrued payroll and other employee benefits 11.600 5,990
Accrued professional liability reserve 2,988 3,504
Other accrued expenses 20,226 21,339
Income taxes payable 5,853 3,768
Current portion of long-term debt 4,713 2,231
Deferred income taxes - 701
------------ -----------
Total current liabilities 75,337 71,492
Long-term debt 42,660 42,483
Deferred income taxes 1,162 1,528
Minority interest in equity of subsidiaries 355 1,060
Cumulative redeemable preferred stock; issued and
outstanding: 956,613 shares in 1998 and 956,613
shares in 1997 9,880 9,864
Shareholders' equity:
Common stock--$1 par value:
authorized: 10,000,000 shares;
issued and outstanding:
2,049,745 shares in 1998
and 1,872,000 shares in 1997 2,050 1,872
Additional paid in capital 18,080 14,957
Retained earnings 13,435 8,855
Foreign currency translation adjustment (5,556) (6,343)
------------ -----------
28,009 19,341
------------ -----------
$ 157,403 $ 145,768
============ ===========
See accompanying notes
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
LAW COMPANIES GROUP, INC.
(unaudited - in thousands, except per share data)
For the Quarters For the Nine Months
Ended September 30, Ended September 30,
--------------------------------- ----------------------------------
1998 1997 1998 1997
--------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Gross fees $ 79,462 $ 78,131 $ 230,972 $ 232,954
Less: Cost of outside services 9,817 8,459 26,559 25,914
--------------- -------------- --------------- ---------------
Net fees 69,645 69,672 204,413 207,040
Direct costs and expenses:
Payroll 20,303 20,663 60,442 61,501
Job related expenses 8,396 7,994 23,895 23,701
--------------- -------------- --------------- ---------------
Gross profit 40,946 41,015 120,076 121,838
Indirect costs and expenses:
Payroll 16,053 15,067 47,298 46,296
Other expenses 19,310 22,513 59,600 65,720
--------------- -------------- --------------- ---------------
Operating income 5,583 3,435 13,178 9,822
Other income (expense):
Interest expense (1,038) (1,042) (3,229) (3,025)
Deferred financing costs (31) (275) (92) (915)
Other income (expense) (104) 43 133 (267)
--------------- -------------- --------------- ---------------
Income before income taxes
and equity investments 4,410 2,161 9,990 5,615
Income tax provision (1,829) (1,152) (4,396) (2,718)
Equity investments 16 (39) 9 (53)
--------------- -------------- --------------- ---------------
Net income 2,597 970 5,603 2,844
--------------- -------------- --------------- ---------------
Less: Preferred stock dividend
and accretion (283) (283) (847) (458)
--------------- -------------- --------------- ---------------
Net income available to common
shareholders $ 2,314 $ 687 $ 4,756 $ 2,386
=============== ============== =============== ===============
Basic earnings per
common share $ 1.13 $ .36 $ 2.45 $ 1.26
=============== ============== =============== ===============
Diluted earnings per
common share $ .81 $ .31 $ 1.87 $ 1.17
=============== ============== =============== ===============
</TABLE>
See accompanying notes.
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
LAW COMPANIES GROUP, INC.
(unaudited - in thousands)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
------------------------------
1998 1997
-------------- ------------
<S> <C> <C>
Operating activities
Net income $ 5,603 $ 2,844
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 5,019 5,974
Provision for losses on receivables 399 127
Provision for losses on claims - (89)
Deferred income taxes (3,663) (2,502)
Undistributed (earnings) losses from equity investments (9) 53
Gain on disposal of property and equipment 200 325
Changes in operating assets and liabilities:
Billed fees receivable (3,176) (2,878)
Unbilled work in progress (2,204) 1,245
Other current assets (191) (1,426)
Accounts payable and accrued expense 3,320 (163)
Billings in excess of costs and fees
earned on contracts in progress (1,099) (1,654)
-------------- ------------
Net cash provided by operating activities 4,199 1,856
Investing activities
Cash used for acquisitions (187) (415)
Purchases of property and equipment (4,187) (5,898)
Proceeds from disposal of property and equipment 34 82
Other, net (1,482) 483
-------------- ------------
Net cash used by investing activities (5,822) (5,748)
Financing activities
Net (payments) proceeds on short-term borrowings (305) 438
Net (payments) proceeds on revolving
line of credit and long-term borrowings 2,659 (762)
Deferred financing and preferred
stock issuance costs (369) (3,447)
Issuance of common stock and warrants 2,888 150
Repurchase and retirement of shares (343) (306)
Issuance of redeemable preferred stock - 9,850
Preferred dividends paid (600) (321)
-------------- ------------
Net cash provided by financing activities 3,930 5,602
Effect of exchange rate changes on cash 106 (235)
-------------- ------------
Increase in cash and cash equivalents 2,413 1,475
Cash and cash equivalents at beginning of period 9,527 8,097
-------------- ------------
Cash and cash equivalents at end of period $ 11,940 $ 9,572
============== ============
</TABLE>
See accompanying notes.
<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, 1997 in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997 (the "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, 1997 included in the Form 10-K. The accompanying condensed consolidated
financial statements at and for the quarter and nine months ended September 30,
1998 and 1997 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
quarter and nine months ended September 30, 1998 may not be indicative of the
results that may occur during the year ending December 31, 1998.
NOTE 3 - On January 15, 1998, the Company refinanced its credit facilities into
one credit facility with a global bank. For a description of these credit
facilities, see Note 4 of Notes to Consolidated Financial Statements for the
year ended December 31, 1997 in the Company's Form 10-K.
NOTE 4 - As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS 130"). SFAS
130 establishes new rules for the reporting and display of comprehensive income
and its components; however, the adoption of SFAS 130 had no impact on the
Company's net income or shareholders' equity. SFAS 130 requires foreign currency
translation adjustments or other adjustments, if any, which prior to adoption
were reported separately in shareholders' equity to be included in other
comprehensive income.
During the first nine months of 1998 and 1997, total comprehensive income
amounted to $6,091,000 and $1,968,000, respectively. For the third quarter of
1998 and 1997, total comprehensive income was $3,091,000 and $356,000,
respectively.
<PAGE>
NOTE 5 - Computation of Earnings Per Share
<TABLE>
<CAPTION>
LAW COMPANIES GROUP, INC.
COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share data)
For the Quarter Ended September 30, For the Nine Months Ended September 30,
-----------------------------------------------------------------------------
1998 1997 1998 1997
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Numerator:
Net income $ 2,597 $ 970 $ 5,603 $ 2,844
Preferred stock dividends and accretion (283) (283) (847) (458)
---------------------------------------------------------------------------
Numerator for basic earnings per share -
income available to common shareholders 2,314 687 4,756 2,386
Effect of dilutive securities:
Preferred stock dividends and accretion 283 - 565 175
---------------------------------------------------------------------------
Numerator for diluted earnings per
share - income available to common
shareholders $ 2,597 $ 687 $ 5,321 $ 2,561
Denominator:
Denominator for basic earnings per share -
weighted-average shares 2,051 1,886 1,941 1,892
Effect of dilutive securities:
Employee stock options 90 41 79 22
Other stock options 115 - 70 -
Cumulative convertible redeemable
preferred stock 957 - 638 193
Common stock warrants - 258 112 86
---------------------------------------------------------------------------
Dilutive potential common shares 1,162 299 899 301
---------------------------------------------------------------------------
Denominator for diluted earnings per
share-adjusted weighted-average shares 3,213 2,185 2,840 2,193
===========================================================================
Basic earnings per common share $ 1.13 $ .36 $ 2.45 $ 1.26
===========================================================================
Diluted earnings per common share $ .81 $ .31 $ 1.87 $ 1.17
===========================================================================
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following table sets forth, for the quarters and nine month 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 the 1998 periods from
the comparable periods 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. The following 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)
-------------------- --------------- ------------------------ ----------------
1998 1997 1998 vs 1997 1998 1997 1998 vs 1997
--------- --------- --------------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Net fees 100.0% 100.0% (0.1%) 100.0% 100.0% (1.3%)
Gross profit 58.8% 58.9% (0.2%) 58.7% 58.8% (1.4%)
Indirect costs
and expenses 50.8% 53.9% (5.9%) 52.3% 54.1% (4.6%)
Operating income 8.0% 4.9% 62.5% 6.4% 4.7% 34.2%
Net income 3.7% 1.4% 167.5% 2.7% 1.4% 96.9%
</TABLE>
Results of Operations
Effective control of indirect labor and expenses for the third quarter and nine
months ended September 30, 1998 resulted in significant improvements in net
income, although net fees were slightly unfavorable compared to the previous
year. Consolidated net fees of $204.4 million for the first nine months of 1998
decreased 1.3% from net fees of $207.0 million for the same period in 1997. For
the third quarter of 1998, net fees of $69.6 million were substantially even
with the third quarter of 1997.
Net fees from the Company's United States operations decreased 0.4% from $134.8
million for the first nine months of 1997 to $134.2 million for the same period
in 1998. Net fees from United States operations for the third quarter increased
1.1% from $45.8 million in 1997 to $46.3 million for the same period in 1998.
While year-to-date United States net fees continue to be negatively impacted by
increased competitive pressures in the environmental markets, the improvement
for the third quarter is the result of ongoing improvements in business
development initiatives, including sales and marketing programs introduced since
1997.
Net fees from the Company's International Group for the first nine months of
1998 decreased 2.8% from $72.2 million in 1997 to $70.2 million in 1998. For the
third quarter, the International Group's net fees decreased 1.7% from $23.8
million in 1997 to $23.4 million. This period to period decrease is attributable
to continued reductions in government expenditures in the United Kingdom
resulting in a lower volume of public sector work.
The Company's gross profit margin of 58.7% for the first nine months of 1998 and
58.8% for the third quarter of 1998 were substantially even compared to the
corresponding periods in 1997. The gross profit margin from United States
operations was flat compared to the first nine months of 1997, remaining at
64.8%. The International Group's gross profit margin decreased from 47.8% in the
first nine months of 1997 to 47.1% for the same period in 1998. This decrease
was primarily due to project performance issues combined with increased
competition in international markets. Indirect costs and expenses, which include
expenses related to both operations support as well as administrative support
functions, were $106.9 million, or 52.3% of net fees, for the first nine months
of 1998, compared with $112.0 million, or 54.1% of net fees, for the same period
in 1997. This decrease of 4.6% is attributable to the continued positive impact
of the Company's expense reduction initiatives in insurance costs and other
areas. The Company's drive to lower real estate and office occupancy costs
continued over the first nine months of 1998, with positive results.
Interest expense for the first nine months and third quarter of 1998 was $3.2
million and $1.0 million, respectively. This compares to interest expense of
$3.0 million and $1.0 million for the same periods of 1997. This increase is
attributable to higher average outstanding debt over the first nine months of
1998. Interest rates charged on bank borrowings during the 1998 periods,
however, have improved over rates charged in the comparable periods of 1997. The
amortization of deferred financing costs declined significantly (from $0.9
million in the first nine months of 1997 to $0.09 million during the same period
of 1998) reflecting the successful efforts to negotiate a bank credit facility
with reduced fees and related legal costs. This new credit facility replaced the
old credit facility in January of 1998.
The effective income tax rate was 44.0% for the first nine months of 1998. For
the first nine months of 1997, the effective income tax rate was 46.0%. 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.
For the first nine months of 1998, the Company recorded an increase in net
income of $2.8 million or 97.0% from $2.8 million in 1997 ($1.17 per common
share - diluted) to $5.6 million in 1998, ($1.87 per common share - diluted).
For the third quarter of 1998, net income increased $1.6 million or 167.0% from
$1.0 million ($0.31 per common share - diluted) to $2.6 million ($0.81 per
common share - diluted).
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' operating
environments by utilizing a combination of current, monthly average, and
historic exchange rates, with translation impacts included in income. The
foreign subsidiaries' functional currency financial statements are translated
into U.S. dollars, the Company's reporting currency, utilizing month-end and
monthly 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 over the first nine months of 1998. The translation of the Company's
foreign subsidiaries for the first nine months of 1998 resulted in a change of
$787,000 in the Foreign currency translation adjustment component of
shareholders' equity. This fluctuation was caused primarily by increased
strength of the U.S. dollar relative to the pound sterling and the South African
rand from December 31, 1997 to September 30, 1998.
Debt and Short-Term Borrowings
The Company reported debt and short-term borrowings of $48.0 million at
September 30, 1998, compared to $45.6 million at December 31, 1997. The renewal
of the company's professional indemnity insurance coverage for a three-year term
also contributed to higher borrowings during the third quarter of 1998 compared
to the end of 1997. Debt and short-term borrowings as a percentage of total
capitalization amounted to 55.9% at September 30, 1998, compared to 61.0% at
December 31, 1997.
On January 15, 1998, the Company refinanced its credit facilities (the "1998
Facility") with a bank with which the Company had no previous relationship. For
a description of these credit facilities, see Note 4 of Notes to Consolidated
Financial Statements for the year ended December 31, 1997 in the Company's Form
10-K. The 1998 Facility bears a three-year term expiring in January 2001, with
two one-year extension periods at the Company's option. Subsequent to the end of
the third quarter of 1998, the Company exercised the first of these two
extension period options so that the 1998 Facility now expires in January, 2002.
The 1998 Facility includes certain restrictions relating to, among other things,
limitations on capital expenditures and achievement of certain leverage and
fixed charge ratios, as well as other customary covenants. The 1998 Facility is
secured by substantially all of the assets of the Company's United States and
United Kingdom operating subsidiaries. See also "Liquidity and Capital
Resources."
Liquidity and Capital Resources
While the Company anticipates continuing capital requirements to support growth,
expansion of services, and capital expenditures, the Company believes that its
cash provided by operations and borrowings available under the 1998 Facility
will be sufficient to meet its requirements for the foreseeable future.
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 $47.0 million at January 1, 1995 is included in taxable income
over a four-year period, beginning in 1995, resulting in an accelerated tax
liability of $16.0 million. The Company will make the final payment of this
liability in the form of additional income tax payments of approximately $1.1
million during the fourth quarter of 1998 related to this change in income tax
accounting.
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 use of Company Common Stock 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. Over the first nine months of 1998, 17,911
shares were traded out of the Plan totaling $343,000.
Cash Provided by Operations
Cash provided by operations over the first nine months of 1998 of $4.2 million
increased from $1.9 million provided by operations in the first nine months of
1997. This increase was primarily due to increased net income in the first nine
months of 1998 compared to the same period in the prior year.
Capital Expenditures
Capital expenditures for the first nine months of 1998 were $4.2 million
compared to $6.3 million for the first nine months of 1997. This decrease was in
line with the Company's 1998 capital expenditures plan. 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 believes that the
limit of capital spending imposed by its credit facility ($7.0 million per year)
is sufficient to meet foreseeable requirements.
Dividends
Cash dividends on Common Stock have been and continue to be prohibited under the
current and previous bank credit facilities. As required by the terms of the
Company's outstanding Cumulative Convertible Redeemable Preferred Stock and
permitted by the 1998 Facility, the Company paid dividends to the holders of the
Preferred Stock. These dividends totaled $0.6 million, or $0.63 per preferred
share for the nine months ended September 30, 1998, including $0.2 million, or
$0.21 per preferred share for the third quarter of 1998.
<PAGE>
Year-2000
As the Company's core business services are engineering and environmental
science professional consulting services, the delivery of these services is not
critically dependent on any mainframe, mini-computer or personal computer-based
systems or software applications. Where computer systems and software
applications are used to support the delivery of services to clients, these
systems and applications are largely personal computer-based and essentially
year-2000 compliant. For certain applications which are used to support the
administrative operations of the Company and certain systems and applications
used to support the Company's international operations, year-2000 compliance
projects are currently in the process of being implemented. These projects are
expected to be completed in mid-1999.
The Company expects to spend a total of approximately $150,000 to address known
year-2000 issues, with approximately $35,000 of the total spent to date.
Additionally, the Company does not anticipate a material adverse effect on the
Company's business, results of operations, or financial condition associated
with any currently identified or anticipated year-2000 compliance issue,
inclusive of both internal systems and software applications as well as those of
other parties with whom the Company does business. As part of the Company's
contingency plan to address year-2000 matters, a centralized task force has been
established to coordinate identification, evaluation, and implementation of any
year-2000 contingency plans or future compliance requirements. This task force
is evaluating all of its major external providers of essential goods and
services for year-2000 readiness. Based on the critical nature of any good or
service, the task force is developing a contingency plan regardless of the
reported year-2000 readiness of the provider or industry.
While the Company is taking all steps that it believes to be reasonable and
prudent to assess the year-2000 readiness of third parties with whom the Company
does business, the failure of any of these third parties to correct a material
year-2000 problem could result in an interruption in, or a failure of, certain
normal business activities or operations. Due to the general uncertainty
inherent in the year-2000 problem, resulting in part from the uncertainty of the
year-2000 readiness of third party suppliers and customers, the Company is
unable to determine at this time whether the consequences of year-2000 failures
will have a material impact on the Company's results of operations, liquidity,
or financial condition. Readers are cautioned that forward-looking statements
contained in the year-2000 update should be read in conjunction with the
Company's disclosures under the heading: "Forward Looking Statements", which
follows this section.
Forward Looking Statements
This Quarterly Report on Form 10-Q contains "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995 which
represent the Company's expectations or beliefs. When used in this report, the
words "may," "could," "should," "would," "believe," "anticipate," "estimate,"
"expect," "intend," "plan" and similar expressions are intended to identify
forward-looking statements. These statements by their nature involve substantial
risks and uncertainties, certain of which are beyond the Company's control. The
Company cautions that various factors, including the factors described in the
Company's filings with the Securities and Exchange Commission (the
"Commission"), as well as the impact of year-2000 issues and general economic
and regulatory conditions in each of the geographic regions served by the
Company and industry trends could cause actual results or outcomes to differ
materially from those expressed in any forward-looking statements of the
Company. Any forward-looking statement speaks only as of the date of this report
and the Company undertakes no obligation to update any forward-looking statement
or statements to reflect events or circumstances after the date on which such
statement is made or to reflect the occurrence of an unanticipated event. New
factors emerge from time to time, and it is not possible for the Company to
predict all of such factors. Further, the Company cannot assess the impact of
each such factor on its business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.
Effect of Inflation
General economic inflation had the effect of increasing the Company's basic
costs of operations. These increased costs were generally recovered through
increases in contract prices.
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.00 First Amendment to the Credit
Agreement dated October 16, 1998
by and among the Company, Bank of
America National Trust and Savings
Association, and Bank of America, FSB.
27.00 Financial Data Schedule
(b) Reports on Form 8-K
None
<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, 1998
AMENDMENT NO. 1 TO CREDIT AGREEMENT
PREAMBLE: THIS AMENDMENT NO. 1 TO CREDIT AGREEMENT, dated as of October 16,
1998 ("the Amendment"), is made by and among LAW COMPANIES GROUP, INC., a
corporation organized under the laws of the State of Georgia, United States
("LCGI"), as Borrower's Representative and as a Guarantor, LAW ENGINEERING AND
ENVIRONMENTAL SERVICES, INC., a corporation organized under the laws of the
State of Georgia, United States ("U.S. Borrower"), and GIBB LTD, a company
organized under the laws of the United Kingdom ("International Borrower"; the
International Borrower and the U.S. Borrower sometimes hereinafter called,
collectively, herein the "Borrowers" or, individually, a "Borrower"), as
Borrowers; LAW ENVIRONMENTAL CONSULTANTS, INC., a corporation organized under
the laws of the State of Georgia, United States ("LECI"), LAW INTERNATIONAL,
INC., a corporation organized under the laws of the State of Georgia, United
States ("LII"), GIBB INTERNATIONAL HOLDINGS, INC., a corporation organized under
the laws of the State of Delaware ("GIH"), and GIBB HOLDINGS LTD., a corporation
organized under the laws of the United Kingdom ("GHL"; GHL, GIH, LII, and LECI,
together with the other Subsidiaries becoming Guarantors hereafter pursuant to
the operation and effect of Section 7.15, are sometimes hereinafter called,
collectively, the "Subsidiary Guarantors" and, individually, a "Subsidiary
Guarantor"), as additional Guarantors; BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, a national banking association organized under the laws of
the United States ("BOA"), acting individually and through its London Branch (in
such latter capacity, BOA is sometimes called herein, "BOAL"), as Issuing Bank,
Overdraft Bank, International Agent and a Lender; BANK OF AMERICA, FSB, a
federal savings bank organized under the laws of the United States ("BOAFSB"),
as U.S. Agent and a Lender; and any other financial institutions party hereto
from time to time (herein sometimes called, collectively, together with BOA,
BOAL, and BOAFSB, the "Lenders" or, individually, a "Lender"), as Lenders; for
the purpose of setting forth certain modifications and amendments to that
certain Credit Agreement, dated as January 15, 1998, among the above-named
parties (hereinafter referred to herein as the "Credit Agreement"), to which
said parties have agreed.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. Definitions. Capitalized terms used herein, but not otherwise expressly
defined herein, shall have the meanings given to such terms in the Credit
Agreement.
2. Amendments.
(a) Maturity Date. Responsive to the request of Borrowers'
Representative, made in writing to the U.S. Agent on a timely basis in
accordance with the procedures set forth in the definition of "Maturity Date" in
Section 1.1 of the Credit Agreement, the Lenders hereby extend the Maturity Date
by one (1) year, that is, to January 15, 2002.
(b) Revolving Loan Amount. The "Revolving Loan Amount" definition, set
forth in Section 1.1 of the Credit Agreement, is hereby deleted, and the
following revised definition of "Revolving Loan Amount" is set forth in lieu
thereof:
"Revolving Loan Amount" means the sum of Fifty-Eight Million Dollars
($58,000,000), reducing to Forty-Eight Million Dollars ($48,000,000),
effective on January 1, 2000; and reducing further to Forty-Three
Million Dollars ($43,000,000) effective on January 1, 2001.
(c) Mandatory Reduction of Commitments. The dates "January 1, 1999" and
"January 1, 2000," set forth in Section 2.7 of the Credit Agreement, at clauses
(i) and (ii), respectively, thereof, in the first sentence thereof, shall be
amended to read, instead, "January 1, 2000" and "January 1, 2001," respectively.
(d) Subordinated Debt. Subsection (g) to Section 8.6 of the Credit
Agreement shall be amended by adding thereto, after the words "Funded Debt" and
before "determined" in the last line of said subsection (g), the following
words:
(less amounts owed to former shareholders as represented by those
subordinated promissory notes listed on Schedule 8.6)
3. MISCELLANEOUS
(a) Effect of Amendment. The amendments to the Credit Agreement specified
hereinabove shall have retroactive effect to the Agreement Date, as if such
amendments were an integral part of the Loan Agreement as of that date. Except
as set forth expressly herein, all terms of the Credit Agreement and the other
Loan Documents, as amended hereby, shall be and remain in full force and effect
and shall constitute the legal, valid, binding and enforceable obligations of
Obligors. To the extent any terms and conditions in any of the Loan Documents
shall contradict or be in conflict with any terms or conditions of the Credit
Agreement, after giving effect to this Amendment, such terms and conditions are
hereby deemed modified and amended accordingly to reflect the terms and
conditions of the Credit Agreement as modified and amended hereby.
(b) Reaffirmation of Representatives and Warranties. Obligors hereby
ratify and reaffirm all of the representations and warranties set forth in the
Credit Agreement and the other Loan Documents, except to the extent that such
representations and warranties relate to an earlier date or may be untrue or
incorrect solely as a result of occurrences permitted under the Credit
Agreement, and subject to the updates thereto set forth on Exhibit "A" hereto.
(c) Ratification. Obligors hereby restate, ratify, and reaffirm each
and every term and condition set forth in the Loan Agreement, as amended hereby,
and the Loan Documents effective as of the date hereof.
(d) Estoppel. Obligors hereby acknowledge and agree that, as of the
date hereof, and after giving effect to this Amendment, no Default or Event of
Default has occurred and is continuing.
(e) Governing Law. This Amendment shall be governed by Georgia law, and
shall constitute a Loan Document.
(f) Costs and Expense. Obligors agree to pay all reasonable costs and
expenses of Lenders, Issuers and Agents incurred in connection with the
preparation, execution, delivery and enforcement of this Amendment and all other
Loan Documents executed in connection herewith, the closing hereof, and any
other transactions contemplated hereby, including the reasonable fees and
out-of-pocket expenses of counsel.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered and have hereunto affixed their respective seals by,
through and in the presence of their respective proper and duly authorized
officers as of the day and year first above written.
U.S. Agent: BANK OF AMERICA, FSB (SEAL)
By:
-------------------------------------------
Title:
-------------------------------------------
U.S. Lender: BANK OF AMERICA, FSB (SEAL)
By:
-------------------------------------------
Title:
-------------------------------------------
International Lender: BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, acting through its
London Branch (SEAL)
By:
-------------------------------------------
Title:
-------------------------------------------
<PAGE>
International Agent: BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, acting through its
London Branch (SEAL)
By:
-------------------------------------------
Title:
-------------------------------------------
Issuing Bank BANK OF AMERICA NATIONAL TRUST AND
(International): SAVINGS ASSOCIATION, acting through its
London Branch (SEAL)
By:
-------------------------------------------
Title:
-------------------------------------------
Overdraft Bank: BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, acting through its
London Branch (SEAL)
By:
-------------------------------------------
Title:
-------------------------------------------
<PAGE>
Issuing Banks (U.S.): BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION (SEAL)
By:
-------------------------------------------
Title:
-------------------------------------------
<PAGE>
Borrowers' Representative LAW COMPANIES GROUP, INC. (SEAL)
And Guarantor:
By:
-------------------------------------------
Title:
-------------------------------------------
Borrowers: LAW ENGINEERING AND ENVIRONMENTAL
SERVICES, INC. (SEAL)
By:
-------------------------------------------
Title:
-------------------------------------------
Attest:
-------------------------------------------
Title:
-------------------------------------------
GIBB LTD. (SEAL)
By:
-------------------------------------------
Title:
-------------------------------------------
Attest:
-------------------------------------------
Title:
-------------------------------------------
<PAGE>
Additional Guarantors: LAW ENVIRONMENTAL CONSULTANTS, INC.
(SEAL)
By:
-------------------------------------------
Title:
-------------------------------------------
LAW INTERNATIONAL, INC.
(SEAL)
By:
-------------------------------------------
Title:
-------------------------------------------
GIBB INTERNATIONAL HOLDINGS, INC.
(SEAL)
By:
-------------------------------------------
Title:
-------------------------------------------
GIBB HOLDINGS LTD. (SEAL)
By:
-------------------------------------------
Title:
-------------------------------------------
<PAGE>
Updates to Law Companies Group, Inc. Credit Agreement Schedules
Schedule 6.16(a)
Amend as follows:
(i) U.S. Obligors - 1105 Sanctuary Parkway
Suite 300
Alpharetta, Georgia 30004
(ii) U.S. Obligors - 1105 Sanctuary Parkway
Suite 300
Alpharetta, Georgia 30004
Schedule 6.18
Add the following:
Gibb International Holdings, Inc. has applied to the U.S. Patent
And Trademark office for trademark protection for the following:
LAWGIBB GROUP + Design
LAW LAWGIBB GROUP MEMBER + Design
Schedule 6.19
Add the following:
Law Engineering and Environmental
Services/Michigan, Inc. Michigan LEES (100%)
Law Engineering and Environmental
Services of Oklahoma, Inc. Oklahoma LEES (100%)
(Note: Neither is a Material Subsidiary)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-Q
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Sep-30-1998
<CASH> 11,940
<SECURITIES> 0
<RECEIVABLES> 60,097
<ALLOWANCES> 3,019
<INVENTORY> 34,612
<CURRENT-ASSETS> 114,941
<PP&E> 67,628
<DEPRECIATION> 44,778
<TOTAL-ASSETS> 157,403
<CURRENT-LIABILITIES> 75,337
<BONDS> 0
9,880
0
<COMMON> 2,050
<OTHER-SE> 25,959
<TOTAL-LIABILITY-AND-EQUITY> 157,403
<SALES> 230,972
<TOTAL-REVENUES> 230,972
<CGS> 0
<TOTAL-COSTS> 110,896
<OTHER-EXPENSES> 106,499
<LOSS-PROVISION> 399
<INTEREST-EXPENSE> 3,229
<INCOME-PRETAX> 9,990
<INCOME-TAX> 4,396
<INCOME-CONTINUING> 5,603
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,603
<EPS-PRIMARY> 2.45
<EPS-DILUTED> 1.87
</TABLE>
