<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 June 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.
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(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)
114 TownPark Drive, Suite 500, Kennesaw, GA 30144
- --------------------------------------------------------------------------------
(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 July 31, 1998 was 2,052,407.
<PAGE>
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets
as of June 30, 1998 and December 31, 1997............................1
Condensed Consolidated Statements of Income
for the Quarters and Six Months Ended June 30, 1998 and 1997.........3
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 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 2. CHANGES IN SECURITIES.....................................11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..........................12
SIGNATURE.....................................................................13
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
LAW COMPANIES GROUP, INC.
(in thousands)
June 30 December 31
1998 1997
------------ -----------
Assets
Current assets:
Cash and cash equivalents $ 10,103 $ 9,527
Billed fees receivable, net of allowance 57,363 56,808
Unbilled work in progress 34,580 32,105
Other receivables 887 1,779
Employee advances 488 420
Prepaid expenses 4,659 3,268
Deferred income taxes 1,982 0
------------ -----------
Total current assets 110,062 103,907
Property and equipment:
Land and buildings 12,086 12,094
Equipment 38,597 36,507
Automobiles 2,719 3,088
Furniture and fixtures 12,247 12,386
Leasehold improvements 3,311 3,526
------------ -----------
68,960 67,601
Less accumulated depreciation and
amortization 45,992 44,095
------------ -----------
22,968 23,506
Other Assets:
Equity investments 1,335 1,361
Goodwill, net 13,333 13,775
Other assets 5,374 3,219
------------ -----------
20,042 18,355
------------ -----------
$ 153,072 $ 145,768
============ ===========
See accompanying notes
<PAGE>
CONDENSED CONSOLIDATED BALANCE SHEETS
LAW COMPANIES GROUP, INC.
(in thousands)
June 30 December 31
1998 1997
------------ -----------
Liabilities and shareholders' equity
Current liabilities:
Short-term borrowings $ 652 $ 904
Accounts payable 17,600 17,887
Billings in excess of costs and fees earned
on contracts in progress 13,576 15,168
Accrued payroll and other employee benefits 10,080 5,990
Accrued professional liability reserve 3,205 3,504
Other accrued expenses 18,374 21,339
Income taxes payable 6,518 3,768
Current portion of long-term debt 3,717 2,231
Deferred income taxes - 701
------------ -----------
Total current liabilities 73,722 71,492
Long-term debt 42,767 42,483
Deferred income taxes 1,405 1,528
Minority interest in equity of subsidiaries 352 1,060
Cumulative redeemable preferred stock; issued and
outstanding: 956,613 shares in 1998 and 956,613
shares in 1997 9,875 9,864
Shareholders' equity:
Common stock--$1 par value:
authorized: 10,000,000 shares;
issued and outstanding:
2,052,407 shares in 1998
and 1,872,000 shares in 1997 2,052 1,872
Additional paid in capital 18,104 14,957
Retained earnings 11,147 8,855
Foreign currency translation adjustment (6,352) (6,343)
------------ -----------
24,951 19,341
------------ -----------
$ 153,072 $ 145,768
============ ===========
See accompanying notes
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
LAW COMPANIES GROUP, INC.
(in thousands, except per share data)
For the Quarters For the Six Months
Ended June 30, Ended June 30,
--------------------------------- ----------------------------------
1998 1997 1998 1997
--------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Gross fees $ 77,855 $ 79,332 $ 151,510 $ 154,822
Less: Cost of outside 8,810 9,358 16,742 17,455
--------------- -------------- --------------- ---------------
Net fees 69,045 69,974 134,768 137,367
Direct costs and expenses:
Payroll 20,481 20,829 40,139 40,838
Job related expenses 8,156 8,037 15,499 15,706
--------------- -------------- --------------- ---------------
Gross profit 40,408 41,108 79,130 80,823
Indirect costs and expenses:
Payroll 15,617 15,260 31,245 31,228
Other expenses 20,601 22,551 40,290 43,207
--------------- -------------- --------------- ---------------
Operating income 4,190 3,297 7,595 6,388
Other income (expense):
Interest expense (1,136) (1,028) (2,191) (1,983)
Deferred financing costs (24) (295) (61) (640)
Other income (expense) 236 (287) 237 (310)
--------------- -------------- --------------- ---------------
Income before income taxes
and equity investments 3,266 1,687 5,580 3,455
Income tax provision (1,502) (753) (2,567) (1,566)
Equity investments 1 34 (7) (15)
--------------- -------------- --------------- ---------------
Net income 1,765 968 3,006 1,874
--------------- -------------- --------------- ---------------
Less: Preferred stock dividend
and accretion (282) (175) (564) (175)
--------------- -------------- --------------- ---------------
Net income available to common
shareholders $ 1,483 $ 793 $ 2,442 $ 1,699
=============== ============== =============== ===============
Basic earnings per
common share $ .78 $ .42 $ 1.29 $ .90
=============== ============== =============== ===============
Diluted earnings per
common share $ .58 $ .39 $ 1.02 $ .86
=============== ============== =============== ===============
</TABLE>
See accompanying notes
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
LAW COMPANIES GROUP, INC.
(in thousands)
For the Six Months
Ended June 30,
------------------------------
1998 1997
-------------- ------------
<S> <C> <C>
Operating activities
Net income $ 3,006 $ 1,874
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 3,344 3,998
Provision for losses on receivables 398 100
Provision for losses on claims - 91
Deferred income taxes (2,805) (2,401)
Undistributed losses from equity investments 7 15
Gain on disposal of property and equipment 62 318
Changes in operating assets and liabilities:
Billed fees receivable (1,541) 770
Unbilled work in progress (2,830) 1,518
Other current assets (656) (743)
Accounts payable and accrued expense 3,906 408
Billings in excess of costs and fees
earned on contracts in progress (1,299) (3,620)
-------------- ------------
Net cash provided by operating activities 1,592 2,328
Investing activities
Purchases of property and equipment (2,732) (4,834)
Proceeds from disposal of property and equipment 13 28
Other, net (1,657) (405)
-------------- ------------
Net cash used by investing activities (4,376) (5,211)
Financing activities
Net (payments) proceeds on short-term borrowings (234) 427
Net (payments) proceeds on revolving
line of credit and long-term borrowings 1,782 (2,737)
Deferred financing and preferred
stock issuance costs (369) (3,267)
Issuance of common stock and warrants 2,888 150
Repurchase and retirement of shares (291) (214)
Issuance of redeemable preferred stock - 9,850
Preferred dividends paid (400) (121)
-------------- ------------
Net cash provided by financing activities 3,376 4,088
Effect of exchange rate changes on cash (16) (78)
-------------- ------------
Increase in cash and cash equivalents 576 1,127
Cash and cash equivalents at beginning of period 9,527 8,097
-------------- ------------
Cash and cash equivalents at end of period $ 10,103 $ 9,224
============== ============
</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 six months ended June 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 six months ended June 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 this Statement 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 six months of 1998 and 1997, total comprehensive income
amounted to $3,000,000 and $1,612,000, respectively. For the second quarter of
1998 and 1997, total comprehensive income was $1,227,000 and $1,101,000,
respectively.
<PAGE>
<TABLE>
<CAPTION>
NOTE 5 - Computation of Earnings Per Share
LAW COMPANIES GROUP, INC.
COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share data)
For the Quarter Ended June 30, For the Six Months Ended June 30,
-----------------------------------------------------------------------------
1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Numerator:
Net income $ 1,765 $ 968 $ 3,006 $ 1,874
Preferred stock dividends and accretion (282) (175) (564) (175)
---------------------------------------------------------------------------
Numerator for basic earnings per share -
income available to common shareholders 1,483 793 2,442 1,699
Effect of dilutive securities:
Preferred stock dividends and accretion 282 175 282 175
---------------------------------------------------------------------------
Numerator for diluted earnings per
share - income available to common
shareholders $ 1,765 $ 968 $ 2,724 $ 1,874
Denominator:
Denominator for basic earnings per share -
weighted-average shares 1,893 1,892 1,893 1,884
Effect of dilutive securities:
Employee stock options 79 23 74 13
Other stock options 91 - 48 -
Convertible preferred stock 957 578 478 289
Common stock warrants - - 168 -
---------------------------------------------------------------------------
Dilutive potential common shares 1,127 601 768 302
---------------------------------------------------------------------------
Denominator for diluted earnings per
share-adjusted weighted-average shares 3,020 2,493 2,661 2,186
===========================================================================
Basic earnings per common share $ .78 $ .42 $ 1.29 $ .90
===========================================================================
Diluted earnings per common share $ .58 $ .39 $ 1.02 $ .86
===========================================================================
</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 six 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 Six Month Periods Ended Increase
June 30, (Decrease) June 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% (1.3%) 100.0% 100.0% (1.9%)
Gross profit 58.5% 58.7% (1.7%) 58.7% 58.8% (2.1%)
Indirect costs
and expenses 52.5% 54.0% (4.2%) 53.1% 54.2% (3.9%)
Operating income 6.1% 4.7% 27.1% 5.6% 4.7% 18.9%
Net income 2.6% 1.4% 82.3% 2.2% 1.4% 60.4%
</TABLE>
Results of Operations
Consolidated net fees of $134.8 million for the first six months of 1998
decreased 1.9% from net fees of $137.4 million for the same period in 1997. For
the second quarter of 1998, net fees of $69.0 million decreased 1.3% from net
fees of $70.0 million in the second quarter of 1997. Net fees from United States
operations decreased 1.2% from $89.0 million for the first six months of 1997 to
$87.9 million for the same period in 1998. Net fees from United States
operations for the second quarter decreased 1.1% from $45.6 million in 1997 to
$45.1 million for the same period in 1998. United States net fees continue to be
negatively impacted by increased competitive pressures in the environmental
markets. Reduced federal appropriations for defense-related projects have also
adversely impacted the Company's net fees from government markets. These
decreases were largely offset by ongoing improvements in business development
initiatives, including sales and marketing programs introduced over the last 12
months.
The International Group's net fees for the first six months of 1998 decreased
3.1% from $48.4 million in 1997 to $46.9 million in 1998. For the second
quarter, the International Group's net fees decreased 1.6% from $24.4 million in
1997 to $24.0 million. This quarter to quarter decrease is attributable to
continued reductions in government expenditures in the United Kingdom resulting
in a lower volume of public sector work.
<PAGE>
The Company's gross profit margin of 58.7% for the first six months of 1998
decreased slightly compared to 58.8% for the same period in 1997. The gross
profit margin for the second quarter of 1998 of 58.5% also decreased slightly
compared to 58.7% for the previous year. The gross profit margin from United
States operations increased slightly to 65.0% over the first six months of 1998
from 64.8% for the same period in 1997. The small improvement in U.S. gross
margin reflects the Company's continuing drive to proactively manage and improve
project management discipline, operating procedures, and service delivery
quality. The International Group's gross profit margin decreased from 47.9% in
the first six months of 1997 to 47.0% 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 were $71.5 million, or 53.1% of net fees, for the
first six months of 1998, compared with $74.4 million, or 54.2% of net fees, for
the same period in 1997. This decrease of 3.9% is attributable to the continued
positive impact of the Company's labor utilization improvements and expense
reduction initiatives. The Company's drive to lower real estate and office
occupancy costs continued over the first six months of 1998, with positive
results.
Interest expense for the first six months and second quarter of 1998 was $2.2
million and $1.1 million, respectively. This compares to interest expense of
$2.0 million and $1.0 million for the same periods of 1997. This increase is
attributable to higher average outstanding debt over the first six months of
1998. Interest rates charged on bank borrowings, however, have improved over
rates charged in the first half of 1997. The amortization of deferred financing
costs declined significantly (from $0.6 million in the first six months of 1997
to $0.06 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 was obtained in January of 1998.
The effective income tax rate was 46.0% for the first six months of both 1998
and 1997. 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 six months of 1998, the Company recorded net income of $3,006,000,
or $1.29 per common share (basic), compared to net income of $1,874,000, or
$0.90 per common share (basic), for the same period of 1997. Net income for the
second quarter of 1998 was $1,765,000, or $0.78 per common share (basic),
compared to net income of $968,000, or $0.42 per common share (basic), for the
second quarter of 1997.
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 six months of 1998. The translation of the Company's
foreign subsidiaries for the first six months of 1998 resulted in a change of
$9,000 in the Foreign Currency Translation Adjustment component of shareholders'
equity. This small fluctuation was caused by a slight decrease in the strength
of the U.S. dollar relative to the pound sterling from December 31, 1997 to June
30, 1998, partially offset by a strengthening of the U.S. dollar relative to the
South African rand over the same period.
<PAGE>
Debt and Short-term Borrowings
The Company reported debt and short-term borrowings of $47.1 million at June 30,
1998, compared to $45.6 million at December 31, 1997. Debt and short-term
borrowings as a percentage of total capitalization amounted to 57.3% at June 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. 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 bank credit
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 will be included in taxable
income over a four-year period, which began 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 $2.25
million during the second half 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 six months of 1998, 15,248
shares were traded out of the Plan totaling $291,000.
On May 6, 1997, the shareholders of the Company authorized and approved a
transaction between the Company and Virgil R. Williams and James M. Williams,
Jr., each a director of the Company (collectively, the "Investors"), pursuant to
which the Company sold to the Investors (including, in the case of James M.
Williams, a family partnership that he controls) a combination of Preferred
Stock, Common Stock warrants, and options to purchase shares of Common Stock
(the "Options"). The Options are eligible to be exercised in various quantities
and at various prices through December 31, 2006. On June 25, 1998, Virgil R.
Williams and the James M. Williams Family Partnership exercised options to
purchase an aggregate of 175,000 shares of the Company's Common Stock at an
exercise price of $16.50 per share The proceeds of $2.9 million received by the
Company will be invested in initiatives to further reduce real estate and
insurance costs as well as fund improvements in technology and increased sales
and marketing activities.
Cash Provided by Operations
Cash provided by operations over the first six months of 1998 of $1.6 million
decreased from $2.3 million provided by operations in the first six months of
1997. This decrease was primarily due to increased net working capital
requirements in the first six months of 1998 compared to the same period in the
prior year.
<PAGE>
Capital Expenditures
Capital expenditures for the first six months of 1998 were $2.7 million compared
to $4.8 million for the first six 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 Preferred Stock and permitted by the 1998 credit facility,
the Company paid dividends to the holders of the Preferred Stock. These
dividends totaled $0.4 million, or $0.42 per preferred share for the six months
ended June 30, 1998 and $0.2 million, or $0.21 per preferred share for the
second quarter of 1998.
Year 2000 Consequences
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
applications. Where computer applications are used to support the delivery of
services to clients, the applications are largely personal computer based and
essentially year-2000 compliant.
Of the Company's administrative support systems that are not year-2000
compliant, the Company does not anticipate adverse difficulties or material
costs associated with migrating to year-2000 compliant systems. Implementation
plans for compliant systems have been developed and are currently being executed
so that all administrative support systems will be fully year-2000 compliant by
mid-1999.
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 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 2. CHANGES IN SECURITIES
On May 6, 1997, the shareholders of the Company authorized and approved a
transaction between the Company and Virgil R. Williams and James M. Williams,
Jr., each a director of the Company (collectively, the "Investors"), pursuant to
which the Company sold to the Investors (including, in the case of James M.
Williams, a family partnership that he controls) a combination of Preferred
Stock, Common Stock warrants, and options to purchase shares of Common Stock
(the "Options"). The Options are eligible to be exercised in various quantities
and at various prices through December 31, 2006. On June 25, 1998, Virgil R.
Williams and the James M. Williams Family Partnership exercised options to
purchase an aggregate of 175,000 shares of the Company's Common Stock at an
exercise price of $16.50 per share. The proceeds of $2.9 million received by the
Company will be invested in initiatives to further reduce real estate and
insurance costs as well as fund improvements in technology and increased sales
and marketing activities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Shareholders was held May 11, 1998 in Atlanta,
Georgia for the purpose of considering and voting on a proposal (the "Proposal")
to elect six (6) common directors and one (1) swing director to serve on the
Board of Directors of the Company until the 1999 Annual Meeting and until their
successors are duly elected and qualified.
Each nominee for director was elected as a director at the meeting. The votes
for each of the nominees for director included in the Proposal are detailed
below:
Directors For Withheld
- ---------------------------------------- --------- ---------
Bruce C. Coles 1,388,220 41,911
Peter D. Brettell 1,386,816 43,315
Robert B. Fooshee 1,373,481 56,650
Walter T. Kiser 1,368,122 62,009
Frank B. Lockridge 1,377,485 52,646
Clay E. Sams 1,378,235 51,896
John Y. Williams 1,376,295 53,836
Additionally, the Company's Articles of Incorporation provide that the holders
of the Company's outstanding Preferred Stock have the right to elect six (6)
preferred directors. On February 20, 1998, the holders of Preferred Stock,
acting by unanimous written consent, elected the following persons as directors:
Joe A. Mason, Thomas D. Moreland, Steven Muller, James M. Williams, Michael D.
Williams, and Virgil R. Williams.
ITEM 5. OTHER INFORMATION
Shareholder Proposals
The Securities and Exchange Commission has made recent changes to the proxy
rules in Regulation 14A under the Securities Exchange Act of 1934, as amended,
including Rule 14a-4 and Rule 14a-5. Shareholders are entitled to submit
proposals on matters appropriate for shareholder action consistent with the
rules and regulations of the Securities and Exchange Commission and with the
Company's Bylaws.
In connection with a shareholder's proposal to be presented at the 1999 Annual
Meeting of Shareholders where such shareholder has not sought inclusion of the
proposal in the Company's proxy statement and form of proxy, a proxy granted to
the Company's management will give management discretionary authority to vote on
any such shareholder proposal at the 1999 Annual Meeting of Shareholders if:
(i) the Company's Corporate Secretary, Law Companies Group, Inc.,
1105 Sanctuary Parkway, Suite 300, Alpharetta, Georgia 30004, receives
such proposal after February 17, 1999; or
(ii) if the Company's Corporate Secretary receives such proposal on or
before February 17, 1999 and management describes the proposal and how
it intends to exercise its discretionary voting authority with respect
to such proposal in its proxy statement relating to the 1999 Annual
Meeting of Shareholders; provided that, even if the Company includes
such information in its proxy statement, the Company's management may
not exercise its discretionary voting authority if, among other things,
the shareholder submitting the proposal provides the Company's
Corporate Secretary with a written statement on or before February 17,
1999 that such shareholder intends to deliver a proxy statement and
form of proxy to the number of shareholders required to carry the
proposal.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
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: August 14, 1998
<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> 6-mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Jun-30-1998
<CASH> 10,103
<SECURITIES> 0
<RECEIVABLES> 60,293
<ALLOWANCES> 2,930
<INVENTORY> 34,580
<CURRENT-ASSETS> 110,062
<PP&E> 68,960
<DEPRECIATION> 45,992
<TOTAL-ASSETS> 153,072
<CURRENT-LIABILITIES> 73,722
<BONDS> 0
9,875
0
<COMMON> 2,052
<OTHER-SE> 22,899
<TOTAL-LIABILITY-AND-EQUITY> 153,072
<SALES> 151,510
<TOTAL-REVENUES> 151,510
<CGS> 0
<TOTAL-COSTS> 72,380
<OTHER-EXPENSES> 71,137
<LOSS-PROVISION> 398
<INTEREST-EXPENSE> 2,191
<INCOME-PRETAX> 5,580
<INCOME-TAX> 2,567
<INCOME-CONTINUING> 3,006
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,006
<EPS-PRIMARY> 1.29
<EPS-DILUTED> 1.02
</TABLE>
