FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the fiscal year ended December 31, 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.
Incorporated I.R.S. Employer
In Identification
Georgia Number
58-0537111
1105 Sanctuary Parkway, Suite 300, Alpharetta, Georgia 30004
Telephone Number: (770) 360-0600
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, par value $1.00 per share
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates on
March 22, 1999 was $47,884,081.
The number of shares outstanding of Law Companies Group, Inc. common stock as of
March 22, 1999 was 2,043,863.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's definitive Proxy Statement for the 1999 Annual Meeting
of Shareholders of the Company are incorporated by reference into Parts I and
III.
Portions of the Company's Annual Report to Shareholders for the calendar year
ended December 31, 1998 are incorporated by reference into Parts I and III.
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PART I
ITEM 1 - BUSINESS
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 which represent
the Company's expectations or beliefs. 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, but not limited
to, the factors described in the Company's filings with the Securities and
Exchange Commission (the "Commission"), the uncertain timing of awards and
contracts, increasing competition by foreign and domestic competitors 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, and
other risks could cause actual results or outcomes to differ materially from
those expressed in any forward-looking statements.
Unless the context otherwise requires, the "Company" refers to Law Companies
Group, Inc., a Georgia corporation, and its consolidated subsidiaries. The
Company's principal executive offices are located at 1105 Sanctuary Parkway,
Suite 300, Alpharetta, GA 30004 and its telephone number is (770) 360-0600.
GENERAL DEVELOPMENT OF BUSINESS
Law Companies Group, Inc. is a worldwide professional services firm operating
mainly in the engineering services industry. The Company provides consulting,
design, and management services in the water, environmental, transportation,
commercial construction, and government sectors.
Originally founded in 1946, the Company has grown through a number of
acquisitions and through internal growth. The Company historically has entered
new geographic regions in order to capitalize on economic development in those
regions.
The Company's services are divided into six major service areas: environmental
services, engineered construction, facilities engineering, industrial services,
transportation services, and water engineering. These services are provided
through the following market-focused groups of the Company:
o United States (U.S.) Group - The services provided by this group
include the Company's traditional businesses of geotechnical
engineering, construction services, and materials engineering and
testing as well as environmental services such as regulatory compliance
planning, field data collection, laboratory analysis, data evaluation
and interpretation, engineering design, waste site cleanup, and
consultation services on environmental matters.
o International Group - The Company is a major provider of
multi-disciplinary consulting, design, and management services for
infrastructure, engineering, environmental, industrial, and building
projects at each stage from project conception to completion, with
on-going follow-up in the operations and maintenance phases. These
services are provided in Europe, Africa, Asia, the Middle East, and
Central and South America. A significant portion of the International
Group's work is performed for governmental clients in the United
Kingdom and worldwide.
The Company's U.S. and international operations are based in Atlanta, Georgia
and Reading, Berkshire, United Kingdom, respectively, with approximately one
hundred offices throughout the United States, and in Europe, Africa, Asia, and
the Middle East. For additional information regarding the Company's service
areas, please see pages 4 through 12 of the Company's Annual Report to
Shareholders, which is incorporated herein by reference. For information
regarding revenue, operating profit or loss, and identifiable assets
attributable to these geographic business segments, please see Footnote No. 15
to the Consolidated Financial Statements which are incorporated herein by
reference to the Company's 1998 Annual Report to Shareholders.
RAW MATERIALS AND INVENTORY
Raw materials are not essential to the operation of the Company's business.
Inventory similarly does not play a significant role in the Company's
operations.
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U.S. GOVERNMENT CONTRACTS
The Company derived approximately 5% of its 1998 U.S. operations gross fees from
various agencies of the United States Federal Government (the "U.S.
Government"). The majority of this business came from time and material, and
fixed price contracts which are not renegotiable. Some contracts are on a cost
plus fixed fee or cost plus award fee basis and are renegotiable based on actual
incurred costs. Virtually all U.S. Government contracts contain a standard
clause which allows the U.S. Government to terminate any contract for its
convenience. While the U.S. Government has the right to terminate contracts for
its convenience, the Company does not expect that the U.S. Government will
exercise the option to terminate any existing contracts. However, there can be
no assurances that the U.S. Government will not exercise the right to terminate
such contracts.
TRADEMARKS
The Company and its subsidiaries operate under several registered and
unregistered trademarks and trade names, but these are not significant to the
Company's operations. Registered trade names include: "Law Engineering and
Environmental Services, Inc." (federally registered in the United States) and
"Law/Crandall, Inc." (California only). Registered trademarks include
"Safesoil", registered to Ensite, Inc., a wholly-owned subsidiary of the
above-mentioned Company. The Company is in the process of obtaining approval for
federal registration of the "LawGibb" trademark.
BACKLOG
At December 31, 1998, the Company's contracted backlog was approximately $158
million as compared to $205 million at December 31, 1997. The Company estimates
that approximately $143 million of the December 31, 1998 backlog will be
completed by the end of 1999. The majority of the Company's backlog consists of
long-term contracts ranging from less than $20,000 to approximately $20 million
and having remaining duration from less than one year up to 5 years. The
Company's backlog is subject to revision due to cancellations, modifications,
and changes in the scope of work, design, or scheduling with respect to
particular projects. While management believes that the backlog estimates are
accurate, there can be no assurances as to the amount of such backlog that will
be realized.
COMPETITION
The Company competes on a U.S. and international basis. The markets in which the
Company provides services are all highly competitive and the Company is subject
to competition with respect to each of the services it provides. The Company
competes primarily on the basis of quality of service, expertise, experience and
reputation, availability of personnel, and, to a lesser extent, price. In all
phases of the Company's business, competitors range from small local firms to
major national and international companies. No single entity, however, including
the Company, currently dominates any of the Company's principal areas of
business although some competitors have greater financial resources and may have
more public recognition than the Company. To the knowledge of the Company, no
reliable data is available with respect to the total size of the market for
engineering and consulting services for the full range of services which the
Company and its subsidiaries provide.
REGULATION
Professional
The practice of engineering and architecture is regulated by statute in all
states of the United States and in most other countries. Substantially all such
jurisdictions require an engineer or architect to be licensed by the
jurisdiction's registration board as a condition to rendering professional
services in that jurisdiction. Some jurisdictions require persons providing
geological services to be licensed. There are also numerous requirements for
licenses or certifications involving asbestos consulting. In general, the
Company has not experienced any material difficulty in complying with such
licensing requirements.
Environmental
Public concern over health, safety, and the environment has resulted in the
enactment of a wide range of environmental laws. These laws and their
implementing regulations affect nearly every industrial and commercial activity.
As these laws were implemented, the environmental services industry experienced
rapid growth. The Company believes that the market for environmental services
will not continue to grow at prior levels. There can be no assurances that
future changes in the law will not have an adverse effect on the Company's
business in the environmental area. In addition to the federal environmental
laws and regulations, there are numerous state and local statutes that roughly
parallel the federal legislation and regulate the environment, some of which
impose stricter environmental standards than federal laws and regulations. The
Company works with clients to address compliance with such requirements.
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EMPLOYEES
As of December 31, 1998, the Company employed approximately 3,800 persons, which
included approximately 1,800 engineers and scientists, 1,200 technicians,
construction management, and production support staff, and 800 management and
administrative personnel. The Company's ability to remain competitive will
depend on its ability to retain and attract qualified personnel. None of the
Company's employees are represented by a labor union; however, certain foreign
countries in which the Company has employees have specific statutes governing
certain employee issues which place restrictions on the Company. In 1998, the
Company continued to manage the size and make-up of its workforce to improve
operating efficiency. Work force reductions were limited to specific geographic
areas or specific markets. Management considers relations with its employees to
be satisfactory. See "Market for Registrants' Common Stock and Related
Shareholder Matters."
ITEM 2 - PROPERTIES
The Company and its U.S. subsidiaries lease offices in numerous cities
throughout the United States for executive, administrative, engineering and
environmental services, laboratory and warehouse activities. The leases
generally have terms of three to ten years. The Company also owns buildings
located in Houston, Texas; Jacksonville, Florida; Pensacola, Florida; Raleigh,
North Carolina; and Tampa, Florida.
The Company's foreign subsidiaries lease offices in the United Kingdom,
Indonesia, Kenya, Mauritius, Oman, Portugal, United Arab Emirates, Zimbabwe,
Uganda, South Africa, Poland, and Belgium.
The Company believes that existing U.S. and international facilities are
adequate to meet current requirements and that suitable additional or substitute
space will be available as needed to accommodate any expansion of operations and
offices. (See Note 5 of the Consolidated Financial Statements which are
incorporated herein by reference to the Company's 1998 Annual Report to
Shareholders, as to the Company's lease obligations.)
ITEM 3 - LEGAL PROCEEDINGS
The Company is a party to a number of lawsuits and claims arising in the
ordinary course of its business. While the ultimate results of lawsuits or other
proceedings against the Company cannot be predicted with certainty, management
does not believe the ultimate costs of such actions, if any, in excess of
amounts reserved in the consolidated financial statements will have a material
effect on the Company's consolidated financial position or results of
operations.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Inapplicable.
ITEM 4A - EXECUTIVE OFFICERS OF THE REGISTRANT
In accordance with General Instruction G(3) of Form 10-K and Instruction 3 to
Item 401(b) of Regulation S-K, the following sets forth certain information as
of March 22, 1999, with respect to those individuals who are Executive Officers
of the Company.
BRUCE C. COLES, 54, joined the Company in September 1995 as Chairman of the
Board of Directors and Chief Executive Officer of the Company. In 1996, Mr.
Coles was elected President of the Company. He serves in a similar capacity with
various subsidiaries of the Company, including Law Engineering and Environmental
Services, Inc., and Gibb International Holdings, Inc. Mr. Coles currently serves
as a director of Williams Group International, Inc. which is owned by Virgil R.
Williams and James M. Williams, Jr.
From May 1994 through August 1995, Mr. Coles was President, Chief Executive
Officer, and/or Chairman of Stone & Webster Incorporated, an international
engineering, consulting and construction services company. From June 1968 to
August 1995, Mr. Coles held various technical and management positions with
Stone & Webster Incorporated and its related affiliates. Mr. Coles also serves
on the National Board of Directors of Junior Achievement, the Board of
Councilors of The Carter Center, and the advisory council for the Accreditation
Board for Engineering and Technology.
ROBERT B. FOOSHEE, 56, joined the Company in January 1996 as Executive Vice
President and Chief Financial Officer. Mr. Fooshee also serves as Treasurer of
the Company. Mr. Fooshee has been a director of the Company since 1996. Prior to
joining the Company, Mr. Fooshee provided consulting services for RBF &
Associates, a financial consulting company, from February 1995 until joining the
Company. From August 1994 through January 1995, Mr. Fooshee was Executive Vice
President and Chief Financial Officer for Eddie Haggar Limited, an apparel
manufacturing and marketing company. From June 1992 until August 1994, Mr.
Fooshee was Chief Financial Officer for The Fresh Market, a retail gourmet
grocery market. From April 1986 until June 1992, Mr. Fooshee was Chief Financial
Officer for Kayser-Roth Corporation, a consumer products company.
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W. ALLEN WALKER, 48, joined Sir Alexander Gibb and Partners Ltd., a wholly-owned
subsidiary of the Company, in the United Kingdom as Finance Director in August
1989. He later served as Director of Administration and Finance beginning in
August 1992. Mr. Walker returned to the United States and became Vice President
of Finance for the Company in January 1994. Currently, Mr. Walker serves as an
Executive Vice President of Operations for the Company. Mr. Walker also serves
as a director and Senior Executive Vice President for Law Engineering and
Environmental Services, Inc., the Company's U.S. operating company. Prior to
joining the Company, Mr. Walker was a senior manager in the Audit Department for
Ernst & Young LLP in Atlanta, Georgia.
ROBERT S. GNUSE, 52, joined the Company in 1974. He has served in various
technical and management positions with the Company and/or its related
affiliates. Most recently, Mr. Gnuse serves as Senior Vice President of
Marketing for the Company. Mr. Gnuse also serves as a director of Law
Engineering and Environmental Services, Inc., the Company's U.S. operating
company.
LAWRENCE J. WHITE, 52, joined the Company in 1994 as Chief Information Officer.
He also serves as a Senior Vice President of the Company. Prior to coming to the
Company, Mr. White was the Chief Information Officer of Roy F. Weston, Inc., an
environmental engineering company, from 1989 until June 1994.
JON A. McCARTHY, 44, joined the Company in 1987 as Business Development Manager.
He has since served in various technical and management positions with the
Company and/or its related affiliates. Since January 27, 1997, Mr. McCarthy
serves as Senior Vice President of Human Resources for the Company and has been
a director of Law Engineering and Environmental Services, Inc. since 1998.
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
(a) Market Price of and Dividends on the Registrant's Common Equity.
General
There currently is no established trading market for shares of the Company's
Common Stock, and although substantially all of the outstanding shares have been
registered under applicable securities laws, no assurance can be given that a
liquid market will develop in the future or that quotations for the Common Stock
will be available. Additionally, the Company does not maintain stock price
information from transactions involving purchases and sales of outstanding
shares of Common Stock. The Company did not pay any dividends on its Common
Stock during the fiscal years ended December 31, 1998 or 1997. Further, the
Company's existing credit facility with Bank of America prohibits the payment of
cash dividends on the Company's Common Stock. As of December 31, 1998, there
were 1,460 holders of the Company's common stock.
Stock Bulletin Board Program
In November 1997, the Company established a Stock Bulletin Board Program (the
"Program") pursuant to which the Company maintains a list of (i) shareholders
and employees of the Company who have notified the Company that they are
interested in buying shares of the Company's Common Stock and (ii) shareholders
of the Company who are interested in selling shares of the Company's Common
Stock. The lists include the names of the interested shareholders and employees
together with the number of shares such person is interested in buying or
selling and information regarding how the shareholder or employee can be
contacted. The lists merely set forth the names of persons (including telephone
numbers or other contact mechanisms) who are interested in buying or selling the
specified numbers of shares of the Company's Common Stock, and there is no
assurance that any transaction will occur as to any particular number of shares
or at any particular price. The Company does not have access to any traded price
information in connection with the Program. Each transaction through the Program
must be executed by the buyer and seller independent of the Company. Only
shareholders and employees of the Company are eligible to participate in the
Program.
The Company updates the lists quarterly and distributes the current lists of
interested buyers and sellers (i) annually coinciding with the release of
audited annual financial information, (ii) quarterly coinciding with the release
of unaudited quarterly financial information and (iii) upon the request of an
interested shareholder or employee.
The Company is not a registered national securities exchange, broker, dealer,
securities information processor, clearing agency or investment advisor. Each
offer as well as transaction must be conducted by the buyer and seller in
accordance with applicable federal and state securities laws, including, without
limitation, antifraud and anti-manipulation provisions and registration or
exemption requirements. Any person that is a broker-dealer, an associated person
of a broker-dealer or who has a state securities license is responsible for
identifying that fact when participating in the Program. "Two-sided quotes" in
which a person indicates a bid to buy at one price and an offer to sell at a
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higher price are prohibited. The registration requirements of the federal
securities laws apply to all offers and sales through the Program, absent an
available exemption and any offers and sales of controlled or restricted
securities may be made in reliance upon the Section 4(1) exemption under the
Securities Act of 1933, as amended, if all of the requirements of Rule 144
promulgated by the Securities and Exchange Commission thereunder are satisfied.
Shareholders and employees who have an interest in buying, and shareholders who
have an interest in selling, shares of the Company's Common Stock through the
Program should contact the Program Administrator, Shareholder Relations Manager
at Law Companies Group, Inc., 1105 Sanctuary Parkway, Suite 300, Alpharetta,
Georgia 30004, telephone number (770) 360-0600. The Program Administrator also
serves as transfer agent on behalf of the Company with respect to any transfers
of shares of Common Stock.
401(k) Plan Valuation
Pursuant to the terms of the Law Companies Group, Inc. 401(k) Savings Plan (the
"401(k) Plan"), the Company is required to obtain on a quarterly basis an
independent appraisal of the Company for purposes of determining the "fair
market value" of the Common Stock for purposes of the 401(k) Plan. Accordingly,
the Company engages two independent appraisers to conduct quarterly appraisals
of the Company. The Company utilizes independent appraisals for purposes of the
valuation of the Common Stock of the Company held in the 401(k) Plan. As of
December 31, 1998, the appraised value was $21.65 per share of Common Stock for
purposes of the 401(k) Plan. No assurances can be given that the appraisals
reflect the actual price at which the Common Stock has traded or would have
traded had there been a market for the Common Stock.
(b) Recent Sales of Unregistered Securities.
Inapplicable.
ITEM 6 - SELECTED CONSOLIDATED FINANCIAL DATA
Selected Financial Data on page 14 of the 1998 Annual Report to Shareholders is
incorporated herein by reference.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis included on pages 15 through 18 of the 1998
Annual Report to Shareholders is incorporated herein by reference. The effects
of inflation on operations were not material for the periods being reported.
ITEM 7a - DISCLOSURES ABOUT MARKET RISK
Market Risk information included in Management's Discussion and Analysis which
appears on pages 15 through 18 of the 1998 Annual Report to Shareholders is
incorporated herein by reference
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements are incorporated herein by reference to
portions of the 1998 Annual Report to Shareholders included with this Form 10-K:
Financial Statements
Consolidated Statements of Operations for each of the three years in
the period ended December 31, 1998, Page 20
Consolidated Balance Sheets as of December 31, 1998 and 1997, Page 19
Consolidated Statements of Shareholders' Equity for each of the three
years in the period ended December 31, 1998, Page 21
Consolidated Statements of Cash Flows for each of the three years in
the period ended December 31, 1998, Page 22
Notes to Financial Statements, Pages 23 through 37
Report of Independent Auditors, Page 38
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ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Inapplicable.
PART III
Certain information required by Part III is omitted from this Annual Report but
is incorporated herein by reference from the Company's definitive Proxy
Statement for the 1999 Annual Meeting of Shareholders (the "Proxy Statement").
Such Proxy Statement will be filed with the Securities and Exchange Commission
not later than 120 days after December 31, 1998.
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
In accordance with General Instruction G(3) of Form 10-K, the information
contained with respect to Directors and executive officers of the Company in the
Company's definitive proxy statement is incorporated herein by reference in
response to this item. Pursuant to Instruction 3 of Item 401(b) of Regulation
S-K and General Instruction G(3) of Form 10-K, information relating to the
executive officers of the Company is set forth under the caption "Executive
Officers of the Registrant" in Part I, Item 4(A).
Compliance with Section 16(a) of the Securities Exchange Act of 1934: Section
16(a) of the Securities Exchange Act of 1934, as amended, and regulations of the
Commission thereunder require the Company's directors and executive officers and
any persons who own more than 10% of the Company's Common Stock, as well as
certain affiliates of such persons, to file reports with the Securities and
Exchange Commission with respect to their ownership of the Company's Common
Stock. Directors, executive officers and persons owning more than 10% of the
Company's Common Stock are required by Securities and Exchange Commission
regulations to furnish the Company with copies of all Section 16(a) reports they
file. Based solely on its review of the copies of such reports received by it
and representations that no other reports were required of those persons, the
Company believes that during fiscal 1998, all filing requirements applicable to
its directors and executive officers were complied with in a timely manner
except for the Section 16(a) required Form 4 filings due on July 10, 1998 for
Virgil R. Williams and James M. Williams, Jr. Family Partnership, L.P. which
were filed in July, 1998.
ITEM 11 - EXECUTIVE COMPENSATION
In accordance with General Instruction G(3) of Form 10-K, the information
contained with respect to executive compensation is set forth under the caption
"Executive Compensation" in the Company's definitive proxy statement and is
incorporated herein by reference in response to this item.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
In accordance with General Instruction G(3) of Form 10-K, the information
contained with respect to security ownership of certain beneficial owners and
management is set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the Company's definitive proxy statement
and is incorporated herein by reference in response to this item.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In accordance with General Instruction G(3) of Form 10-K, the information with
respect to certain relationships and related transactions is set forth under the
caption "Certain Relationships and Related Party Transactions" in the Company's
definitive proxy statement and is incorporated herein by reference in response
to this item.
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ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Report:
1. The following financial statements are incorporated herein by
reference to portions of the 1998 Annual Report to
Shareholders included with this Form 10-K:
Consolidated Statements of Operations for each of the three years in the
period ended December 31, 1998, Page 20
Consolidated Balance Sheets as of December 31, 1998 and 1997, Page 19
Consolidated Statements of Shareholders' Equity for each of the three years
in the period ended December 31, 1998, Page 21
Consolidated Statements of Cash Flows for each of the three years in the
period ended December 31, 1998, Page 22
Notes to Financial Statements, Pages 23 through 37
Report of Independent Auditors, Page 38
2. Financial Statement Schedule Schedule II - Valuation and Qualifying Accounts
Schedules not listed above have been omitted as either not applicable,
immaterial, or disclosed in the financial statements or notes thereto.
(b) Reports on Form 8-K:
Inapplicable.
(c) Exhibits
2.01 Agreement for sale and purchase of all the issued shares of Chulsavale
Limited, Gablelane Limited, Grashurst Limited, Gibb Petermuller & Partners
(Cyprus) Limited and Gibb Overseas Limited, dated July 26, 1989 (Incorporated by
reference to Form 10 filed April 26, 1991, as amended August 13, 1991, File No.
0-19239).
2.02 Agreement for sale and purchase of the business of Sir Alexander Gibb &
Partners and related assets and companies, dated August 18, 1989 (Incorporated
by reference to Form 10 filed April 26, 1991, as amended August 13, 1991, File
No. 0-19239).
2.03 Agreement for purchase of Gibb Africa International Limited and grant of
options relating to certain Cypriot andAfrican firms, dated August 18, 1989
(Incorporated by reference to Form 10 filed April 26, 1991, as amended August
13, 1991, File No. 0-19239).
2.04 Agreement for sale and purchase of the partnership of Gibb Petermuller &
Partners O.E., dated August 18, 1989. (Incorporated by reference to Form 10
filed April 26, 1991, as amended August 13, 1991, File No. 0-19239).
2.05 Redemption Agreement dated August 31, 1995 by and between Material
Analytical Services, Inc. and Law Engineering, Inc. (Incorporated by reference
to Form 10-K filed June 11, 1996, File No. 0-19239).
2.06 Asset Purchase Agreement between IAM/Environmental, Inc. and Philip
Environmental Services Corporation dated July 11, 1996 (Incorporated by
reference to Form 10-K filed March 25, 1997, File No. 0-19239).
2.07 Stock Purchase Agreement between Law Companies Group, Inc. and Roy G.
Dispasquale, Jeffrey A. Stocks, John M. Jazesf and E. Bradford Clark dated July
10, 1996 (Incorporated by reference to Form 10-K filed March 25, 1997, File No.
0-19239).
3.01 Third Restated Articles of Incorporation of the Company, as amended through
February 21, 1996. (Incorporated by reference to Form 10-K filed June 11, 1996
File No. 0-19239).
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3.02 Bylaws of the Company, as amended through October, 1996 (Incorporated by
reference to Form 10-K filed March 25, 1997 File No. 0-19239).
3.03 Restated Articles of Incorporation of the Company as amended through May 6,
1997 (Incorporated by reference to Form 10-K filed March 30, 1998, File No.
0-19239).
3.04 Bylaws of the Company as amended through May 6, 1997 (Incorporated by
reference to Form 10-K filed March 30, 1998, File No. 0-19239).
4.01 Form Of Stockholders' Agreement between the Company and each shareholder
(Incorporated by reference to Form 10 filed April 26, 1991, as amended August
13, 1991, File No. 0-19239).
10.01 Law Companies Group, Inc. 1990 Stock Option Plan, as amended (Incorporated
by reference to Form 10 filed April 26, 1991, as amended August 13, 1991, File
No. 0-19239).
10.02 Law Companies Group, Inc. Employee Stock Ownership Plan (Incorporated by
reference to Form 10 filed April 26, 1991, as amended August 13, 1991, File No.
0-19239).
10.03 The Law Companies Group, Inc. 401(k) Savings Plan, as amended.
(Incorporated by reference to Form 10-K filed June 11, 1996, File No. 0-19239).
10.04 Pension Plan, as amended, for Employees of Law Companies Group, Inc. and
Adopting Subsidiaries, as amended and restated effective January 1, 1976
(Incorporated by reference to Form 10 filed April 26, 1991, as amended August
13, 1991, File No. 0-19239).
10.05 Employee Stock Purchase Plan, as amended (Incorporated by reference to
Form 10-K filed April, 1994, File No. 0-19239).
10.06 Agreement between the Company and Walter T. Kiser dated May 21, 1993
(Incorporated by reference to Form 10-K filed July 10, 1995, File No. 0-19239).
10.07 Employment Agreement dated December 12, 1995 between the Company and James
I. Dangar. (Incorporated by reference to Form 10-K, as amended, filed June 11,
1996, File No. 0-19239).
10.08 Second Amendment to the Law Companies Group, Inc. Pension Plan as Amended
and Restated dated February 14, 1997 (Incorporated by reference to Form 10-K
filed March 25, 1997, File No. 0-19239).
10.09 First Amendment to the Law Companies Group, Inc. 401(k) Savings Plan dated
May 10, 1996 (Incorporated by reference to Form 10-K filed March 25, 1997, File
No. 0-19239).
10.10 Second Amendment to the Law Companies Group, Inc. 401(k) Savings Plan
dated August 14, 1996 (Incorporated by reference to Form 10-K filed March 25,
1997, File No. 0-19239).
10.11 Third Amendment to the Law Companies Group, Inc. 401(k) Saving Plan dated
December 21, 1996 (Incorporated by reference to Form 10-K filed March 25, 1997,
File No. 0-19239).
10.12 Fourth Amendment to the Law Companies Group, Inc. 401(k) Savings Plan
dated February 14, 1997 (Incorporated by reference to Form 10-K filed March 25,
1997, File No. 0-19239).
10.13 Employment Agreement between the Company and Peter D. Brettell
(Incorporated by reference to Form 10-K filed March 30, 1998, File No. 0-19239).
10.14 Employment Agreement between the Company and Bruce C. Coles (Incorporated
by reference to Form 10-K filed March 30, 1998, File No. 0-19239).
10.15 Employment Agreement between the Company and W. Allen Walker (Incorporated
by reference to Form 10-K filed March 30, 1998, File No. 0-19239).
10.16 Employment Agreement between the Company and Robert B. Fooshee
(Incorporated by reference to Form 10-K filed March 30, 1998, File No. 0-19239).
9
<PAGE>
10.17 Credit Agreement dated January 15, 1998 by and among the Company, Bank of
America National Trust and Savings Association, and Bank of America, FSB
(Incorporated by reference to Form 10-K filed March 30, 1998, File No. 0-19239).
10.18 Securities Purchase Agreement between the Company and Messrs. Virgil R.
Williams and James Williams, Jr. dated May 6, 1997 (Incorporated by reference to
Form 10-K filed March 30, 1998, File No. 0-19239).
10.19 Third Amendment (Fifth Amendment) to the Law Companies Group, Inc. 401(k)
Savings Plan dated November 14, 1997 (Incorporated by reference to Form 10-K
filed March 30, 1998, File No. 0-19239).
10.20 First Amendment (Third Amendment) to the Law Companies Group, Inc. Pension
Plan dated August 27, 1997 (Incorporated by reference to Form 10-K filed March
30, 1998, File No. 0-19239).
10.21 Second Amendment to the Law Companies Group, Inc. 1990 Stock Option Plan
dated May 6, 1997 (Incorporated by reference to Form 10-K filed March 30, 1998,
File No. 0-19239).
10.22 First Amendment to Credit Agreement dated October 16, 1998 by and among
the Company, Bank of America National Trust and Savings Association, and Bank of
America, FSB (Incorporated by reference to Form 10-Q filed November 13, 1998,
File No. 0-19239).
10.23 Board Resolution reflecting the adoption of the Third Amendment to the Law
Companies Group, Inc. 1990 Stock Option Plan dated August 19, 1998.
10.24 Board Resolution reflecting the adoption of the Fourth Amendment to the
Law Companies Group, Inc. 1990 Stock Option Plan dated February 9, 1999.
10.25 Interest Rate Swap Agreement dated January 15, 1998 by and among the
Company and Bank of America National Trust and Savings Association.
13.01 Portions of the Annual Report to Shareholders for the year ended December
31, 1998 which are specifically incorporated herein by reference.
21.01 Subsidiaries of the Company.
23.01 Consent of Ernst & Young LLP
27.00 Financial Data Schedule.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
LAW COMPANIES GROUP, INC.
March 31, 1999 By: /s/ Bruce C. Coles
-----------------------------------
Bruce C. Coles
Chairman of the Board of Directors,
President, and Chief Executive Officer
11
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/Peter D. Brettell Director March 31, 1999
- -----------------
Peter D. Brettell
/s/Bruce C. Coles Chairman of the Board of Directors, March 31, 1999
- ----------------- President, and Chief Executive Officer
Bruce C. Coles
/s/Robert B. Fooshee Chief Financial Officer, March 31, 1999
- ----------------- Treasurer, and Director
Robert B. Fooshee
/s/Walter T. Kiser Director March 31, 1999
- -----------------
Walter T. Kiser
Director N/A
- -----------------
Zell Miller
/s/Joe A. Mason Director March 31, 1999
- -----------------
Joe A. Mason
/s/Thomas D. Moreland Director March 31, 1999
- -----------------
Thomas D. Moreland
/s/ Steven Muller Director March 31, 1999
- -----------------
Steven Muller
/s/Clay E. Sams Director March 31, 1999
- -----------------
Clay E. Sams
/s/Kendall H. Sherrill Corporate Controller March 31, 1999
- -----------------
Kendall H. Sherrill
/s/Jamse M. Williams, Jr. Director March 31, 1999
- -----------------
James M. Williams, Jr.
/s/John Y. Williams Director March 31, 1999
- -----------------
John Y. Williams
/s/Michael D. Williams Director March 31, 1999
- -----------------
Michael D. Williams
/s/Virgil R. Williams Director March 31, 1999
- -----------------
Virgil R. Williams
</TABLE>
12
<PAGE>
APPENDIX 1
<TABLE>
<CAPTION>
Law Companies Group, Inc.
Schedule II - Valuation and Qualifying Accounts
For the Years Ended December 31, 1998, 1997, and 1996
(in thousands)
Beginning Additions Ending Balance
Description Balance Deductions(2)
- ----------------------------------------------------- ------------- -------------------------------
Expense Other (1)
- ----------------------------------------------------- ------------- --------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1998
Allowance for Doubtful Accounts $3,747 $731 $414 ($ 669) $4,223
Valuation Allowance for Deferred Tax Assets 4,396 -- -- (148) $4,248
============= =============== =============== ================ ===============
$8,143 $731 $414 ($ 817) $8,471
============= =============== =============== ================ ===============
Year Ended December 31, 1997
Allowance for Doubtful Accounts $4,465 $ 172 $ 398 ($1,288) $3,747
Valuation Allowance for Deferred Tax Assets 3,007 1,389 -- -- 4,396
============= =============== =============== ================ ===============
$7,472 $1,561 $ 398 ($1,288) $8,143
============= =============== =============== ================ ===============
Year Ended December 31, 1996
Allowance for Doubtful Accounts $4,388 $ 683 $ 275 ($ 881) $4,465
Valuation Allowance for Deferred Tax Assets 2,332 675 -- -- 3,007
============= =============== =============== ================ ===============
$6,720 $1,358 $ 275 ($ 881) $7,472
============= =============== =============== ================ ===============
</TABLE>
(1) Principally recoveries of previously written-off receivables and effects
of foreign currency exchange adjustments. (2) For Allowance for Doubtful
Accounts, deductions principally represent write-offs of receivables. For
Deferred Tax Assets, deductions represent utilization of tax benefits related
to foreign loss carry-forwards.
Exhibit 10.23
BOARD RESOLUTION
AUGUST 19, 1999
Amendment to the Law Companies Group, Inc. 1990 Stock option Plan
Resolved:
WHEREAS Section 7.5(a) of the Law Companies Group, Inc. 1990 Stock Option Plan
(the "Plan") provides that the Committee charged with the administration of the
Plan shall have discretion to determine the schedule by which the grant of an
option under the Plan shall vest and become exercisable; and
WHEREAS, Section 7.5(b) of the Plan provides that a percentage of the shares of
stock subject to options granted under the Plan shall become vested and
exercisable "On each Valuation Date following the date that an Option is
granted," and "Valuation Dates" under the Plan occur each December 31st; and
WHEREAS, notwithstanding that Section 7.5(a) of the Plan clearly grants complete
discretion to the Committee as to the vesting schedule of any option granted
under the Plan, Section 7.5(b) could be interpreted to conflict with such
provision, is unclear as to its meaning and intent, and thereby could cause
ambiguity within the Plan document and difficulty in its interpretation; and
WHEREAS, Article IV of the Plan allows the Committee to interpret the Plan and
to make all other determinations necessary or advisable for the administration
of the Plan, and pursuant to such authority the Committee has consistently
interpreted subsections (a) and (b) of Section 7.5 of the Plan together allow
the Committee complete discretion with respect to the vesting of options granted
under the Plan; and
WHEREAS, the Board agrees with the interpretation of the Plan by the Committee
with respect to the interpretation of Sections 7.5(a) and (b), and wishes to
ratify and effectuate such interpretation and clarify any potential ambiguity
under Sections 7.5(a) and (b) of the Plan by an amendment to the Plan; and
WHEREAS, Article X of the plan allows the Board to amend and modify the Plan at
any time subject to certain restrictions not relevant to the considerations here
present;
NOW, THEREFORE, BE IT RESOLVED, that the Board does hereby amend the Plan (I) by
deleting subsection (b) of Section 7.5, (ii) striking the phrase
"Notwithstanding Sections 7.5(a) and 7.5(b)," and inserting in lieu thereof
"Notwithstanding Section 7.5(a)," and (ii) relettering subsection (c) of Section
7.5 as subsection (b) of Section 7.5, all effective retroactively as of November
8, 1990; and
BE IT FURTHER RESOLVED, that the Board does hereby ratify and confirm the
administration and interpretation of the Plan by the Committee consistent with
the preceding resolution to November 8, 1990, the original effective date of the
Plan; and
BE IT FURTHER RESOLVED, that such amendment to the Plan shall not be submitted
for approval by the shareholders of the Company because (I) shareholder approval
is not required under Article X of the Plan, (ii) the Plan has consistently been
interpreted in accordance with such amendment to the Plan; and
BE IT FURTHER RESOLVED, that appropriate officers of the Company are authorized
to take all further actions appropriate and/or necessary to effectuate the
foregoing resolutions.
MOVED______/s/__________
SECOND _____/s/___________
ACTION TAKEN _____/s/___________
Exhibit 10.24
BOARD RESOLUTION
February 9, 1999
Amendment to the Law Companies Group, Inc. 1990 Stock Option Plan
Resolved:
WHEREAS Article IV of the Law Companies Group, Inc. 1990 Stock Option Plan (the
"Plan") provides that the Committee charged with the administration of the Plan
shall be authorized to prescribe, amend, and rescind rules and regulations
relating to the Plan... and to make all other determinations necessary or
advisable for the administration of the Plan; and
WHEREAS, Section 2.1 (o) of the Plan defines "Valuation Date" to mean
December 31st of any year; and
WHEREAS, valuations have taken place on a quarterly basis on the 15th of every
February, May, August and November consistent with the Law Companies Group, Inc.
401(k) Savings Plan since February 15, 1996; and
WHEREAS, pursuant to the authority granted to the Committee in Article IV of the
Plan, the Committee has consistently interpreted "Valuation Date" in the Plan to
mean the quarterly valuations conducted on the 15th of each February, May,
August, and November since February 15, 1996; and
WHEREAS, the Board agrees with the interpretation of the Plan by the Committee
with respect to the definition of "Valuation Date" and wishes to ratify and
effectuate such interpretation; and
WHEREAS, Article X of the plan allows the Board to amend and modify the Plan at
any time subject to certain restrictions;
NOW, THEREFORE, BE IT RESOLVED, that the Board does hereby amend the Plan by
adding to the end of subsection (o) of Section 2.1 the following: "through the
end of 195 and the 15th of February, May, August, or November of any year
thereafter"; and BE IT FURTHER RESOLVED, that the Board does hereby ratify and
confirm the administration and interpretation of the Plan by the Committee
consistent with the preceding resolution; and
BE IT FURTHER RESOLVED, that such amendment to the Plan shall not be submitted
for approval by the shareholders of the Company because (I) shareholder approval
is not required under Article X of the Plan, (ii) the Plan has consistently been
interpreted in accordance woth such amendment to the Plan; and
BE IT FURTHER RESOLVED, that appropriate officers of the Company are authorized
to take all further actions appropriate and/or necessary to effectuate the
foregoing resolutions.
MOVED______/s/__________
SECOND _____/s/___________
ACTION TAKEN _____/s/___________
Exhibit 10.25
To: Law Engineering and Environmental Services, Inc & Gibb Limited
("Counterparty")
ATTN: Unknown
FAX: Unknown
FROM: Bank of America National Trust and Savings Association ("BofA")
26 Elmfield Road,
Bromley,
Kent,
BR1 1WA,
England,
Attn: Global Derivative Operations
U.S.A. Toll Free Number U.K. Local Number
Tel No: 1 (888) 624-0164 0181-313-2659
Fax No: 1 (888) 624-0166 0181-313-2694
DATE: January 12, 1998
RE: USD 20,000,000.00 Swap Transaction commencing January 15, 1998
Our Confirmation Reference No. SW36413
Dear Sir/Madam:
The purpose of this letter agreement is to confirm the terms and conditions of
the Transaction entered into between us on the Trade Date specified below (the
"Swap Transaction"). This letter agreement constitutes a "Confirmation" under
the ISDA Agreement defined below.
The definitions and provisions contained in the 1991 ISDA Definitions (as
published by the International Swaps and Derivatives Association, Inc. ("ISDA"))
are incorporated into this Confirmation. In the event of any inconsistency
between those definitions and provisions and this Confirmation, this
Confirmation will govern.
1. The parties agree that the Swap Transaction described in this
Confirmation constitutes their binding obligations. Except as set forth in this
Confirmation, the Swap Transaction shall be subject to all the terms and
conditions of the form of the master agreement entitled "Master Agreement"
("Multicurrency-Cross Border" version) as published in 1992 by the International
Swaps and Derivatives Association, Inc., (and herein called the "ISDA
Agreement"), excluding the "Schedule" thereto. Counterparty and BofA shall
negotiate a Schedule and upon agreement shall sign the ISDA Agreement including
the Schedule so negotiated and agreed upon (hereinafter called the "Agreement"),
whereupon this Confirmation shall be deemed automatically, without further
action of any party, to be a Confirmation under the Agreement; provided,
however, that, unless and until Counterparty and BofA agree upon an design
Agreement, the preceding sentence shall have full force and effect.
THIS FACSIMILE TRANSMISSION WILL BE THE ONLY WRITTEN COMMUNICATION
REGARDING THIS SWAP TRANSACTION. Pursuant to ISDA guidelines, this
facsimile transmission will be sufficient for all purposes to evidence a
binding supplement to the Agreement. However, should you have an internal
requirement for confirmations with an original signature, we request that
you sign and return this Confirmation by facsimile, whereupon, we will add
an original signature to the fully executed Confirmation, and forward it to
you by mail.
<PAGE>
2. The terms of the particular Swap Transaction to which this Confirmation
relates are as follows:
<TABLE>
<S> <C>
Notional Amount: USD 20,000,000.00
Trade Date: January 9, 1998
Effective Date: January 15, 1998
Termination Date: January 15, 2003, subject
to adjustment in accordance
with the Modified Following
Business Day Convention.
Fixed Amounts:
Fixed Rate Payer: Counterparty
Fixed Rate Payer Payment
Dates: Each 15th of each month,
commencing on February 15th,
1998 up to and including
the Termination Date
Fixed Amount: Calculation x Fixed x Fixed Rate Day
Amount Rate Count Fraction
Fixed Rate: 5.86000 percent per annum
Fixed Rate Day Count
Fraction: Actual/360
Floating Amounts:
Floating Rate Payer: BofA
Floating Rate Payer Payment
Dates: Each 15th of each month,
commencing February 15th,
1998 up to and including
the Termination Date
Floating Rate for Initial
Calculation Period: To be determined
Floating Rate Option: USD-LIBOR-BBA
Designated Maturity: 1 month
Spread: None
Floating Rate Day Count
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Fraction: Actual/360
Reset Dates: First day of each Calculation Period
Compounding: Inapplicable
Business day: New York & London
Business Day Convention: Modified Following
Calculation Agent: Bank of America
Governing Law: New York
3. Account Details:
Payments to BofA: Fed Funds to Bank of America NT
and SA San Francisco,
ABA No 1210-0035-8 BISD
Acct No. 33006-83980
Attn: Interest Rate Swap Operations
Payments to Counterparty: Unknown
4. Offices:
Office of BofA: San Francisco
Office of Counterparty: Unknown
Other Provisions Applicable to BofA
Specified Entities of BofA: None
Credit Support Document(s) None
Relating to BofA:
Credit Support Provider Relating to None
BofA:
Agreements of BofA: As per Section 4 of the ISDA Agreement.
Representations of BofA: As pre Section 3 of the ISDA Agreement.
Other Provisions Applicable to Counterparty
Specified Entities of Counterparty: As may be indicated in the Agreement, if at all.
Credit Support Document(s) As may be indicated in the Agreement, if at all.
Relating to Counterparty:
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Credit Support Provider Relating to As may be indicated in the Agreement, if at all.
Counterparty:
Agreements of Counterparty: As per Section 4 of the ISDA Agreement.
Representations of Counterparty: As per Section 3 of the ISDA Agreement.
Other Provisions (General)
(A) Other Agreements: Corporate Resolution, Specimen Signature Certificate and other
documentation as indicated in the Agreement, if at all.
(B) Events of Default: As per Section 5 of the ISDA Agreement and Cross Default as indicated in
the Agreement, if at all.
(C) Termination Events: All the termination Events specified in Section 5(b) of the ISDA Agreement
will apply (including Credit Event upon Merger).
(D) Early Termination: As per Section 6 of the ISDA Agreement, it
being the parties' intent that Section 6 apply to all outstanding
Swap Transactions before (as well as after) execution of the
Agreement.
(E) Tax Representations: Counterparty and BofA make the Payer Representations contained in Part
2 of the Schedule to the ISDA Agreement. Payee Representations may
be indicated in Part 2 of the Schedule to the Agreement, if applicable.
(F) Tax Agreements of BofA and As may be indicated in the Agreement, if at all.
Counterparty:
</TABLE>
(G) Variations to the ISDA Agreement: BofA has made certain amendments
to the ISDA Agreement which it believes are of a noncontentious
nature. These amendments will be specified in the draft Agreement
to be sent by BofA to Counterparty.
(H) Documentation: This confirmation will constitute a binding
agreement with respect to the Swap Transaction described herein.
Without prejudice to the preceding sentence,Counterparty and BofA will
negotiate in good faith to enter into the Agreement as soon as practicable after
the date of this Confirmation.
<PAGE>
Please confirm your agreement to be bound by the terms stated herein by
executing the copy of this Confirmation enclosed for that purpose and returning
it to us or by sending to us a telex or letter, within 24 hours of receipt of
this Confirmation to Bank of America NT & SA San Francisco Telex No. 249839
Answer Back OPRST UR or U.S.A. Toll Free Fax No: 1 (888) 624-0166 or U.K. Local
Fax No: 0181-313-2694 Attention: Global Derivatives Operations, substantially in
the form below:
Quote
We acknowledge receipt of your rapidfax dated January 11, 1998 with
respect to the Swap Transaction entered into on January 9, 1998 between
Law Engineering & Environmental Services, Inc. & Gibb Limited and Bank
of America National Trust and Savings Association with a National
Amount of USD 20,000,000.00 and a Termination Date of January 15, 2003,
and confirm our agreement to be bound by the terms specified in such
rapidfax.
Unquote
This Confirmation shall be Conclusively deemed accurate and complete by
Counterparty if not objected to within two (2) Business Days from the date of
receipt.
Yours sincerely,
For and on behalf of:
Bank of America National
Trust and Savings Association
By: _____________________
Name: ___________________
Title: ____________________
Confirmed as of the Date first above written:
Law Engineering & Environmental Services,
Inc. & Gibb Limited
By: ___________________ By: ______________________
Name: _________________ Name:_____________________
Title: ________________ Title: _____________________
Company Overview
- ----------------
For more than 75 years, LAWGIBB Group has built a reputation as one of the
world's leading engineering, environmental and design consulting services
companies. Providing expertise in a wide array of multi-disciplinary technical
and business services, LAWGIBB serves the industrial, commercial and government
market sectors throughout the world.
[IMAGE]
Lawgibb's Worldwide Corporate Headquarters, Atlanta, Georgia
Global Expanse with Local Presence
- ----------------------------------
Headquartered in Atlanta, the Company's global network of more than 4,000
professionals provides the technical depth and geographic diversity that enables
LAWGIBB to serve clients worldwide while maintaining a strong local presence.
With specialists in more than 30 scientific and engineering disciplines,
LAWGIBB's staff works from 100 local offices in 30 countries. The Company's
projects have spanned over 160 countries.
Leading Edge Solutions to Clients' Multi-Faceted Concerns
- ---------------------------------------------------------
Working side-by side with clients, LAWGIBB's professionals combine seasoned
leadership with innovative technologies to solve complex problems and resolve
pressing issues. The Company's mission is to create full-service solutions for
its clients that save time, reduce costs, and add significant value to their
operations. On each engagement, LAWGIBB's experts strive to address clients'
concerns by converting challenges into opportunities for success and obstacles
into competitive advantages.
[IMAGE]
4
<PAGE>
Corporate Expertise
- -------------------
Our Product is Our People
- -------------------------
At the nucleus of LAWGIBB is the braintrust that fuels our business: our
people. It is only through our people, who are the foundation of our Company and
the fundamental source of our corporate expertise, that we are able to deliver
excellent quality services on-time and on-budget to clients throughout the
world.
A guiding principle of LAWGIBB - intrinsic to every facet of our Company -
is to provide our staff with ongoing extensive technical and business training.
The Company's programs are aimed at continuously improving expertise and
refining talent in order to address our clients' dynamic needs.
[IMAGE]
R. Scott Steedman
Director of Engineering
LAWGIBB - International
"LAWGIBB is far more than a collection of disciplines. Our technical
product is paramount; yet we are a people business - indeed, our sole
product is the intellectual capital of our employees. it is the ebb and
flow of knowledge, shared among our people and across many national
borders, that drives a unique neural network supplementing the formal
systems, and igniting a synergy whose result is ingenuity and excellence."
Delivering Clients Systematic Quality With Assurance
- ----------------------------------------------------
Unique to the industry, LAWGIBB created a worldwide quality assurance
initiative to deliver to clients consistently superior service. Named the
Quality Assurance Program, this systematic process of applying highly
specialized functions and procedures provides clients confidence and assurance
that they receive high quality performance on their engagements. The basis of
the program entails having experienced and highly trained personnel, a worldwide
computer network, and senior technical review of all reports, proposals,
analyses, and test data.
An important element of this initiative is our Principal Professional
Certification Program. this rigorous and comprehensive process involves
technical and business training for selected outstanding professionals with
specific qualifications in education, experience, and registration. These
individuals undergo a stringent series of examinations and scrutiny prior to
achieving Principal status.
The success of these programs is truly a testament to LAWGIBB's dedication
to its employees and commitment to fostering and maintaining long-lasting
relationships with clients.
[IMAGE]
W. Charles Greer, Jr.
Director of Engineering
LAWGIBB - USA
"Our success is based on the ability of our people to divide problems into
basic components and apply our extensive technical experience to these
issues, while keeping the overall problem in the proper business
perspective. This process provides our clients with sound solutions from
both the technical and business viewpoints."
5
<PAGE>
Service Areas
- -------------
LAWGIBB Service Areas and Industries Served
- -------------------------------------------
LAWGIBB's corporate mission to provide clients with technically advances,
cost-effective solutions has earned the Company a distinguished reputation in a
highly competitive marketplace. In order to provide clients with superior
quality service in nearly any location, LAWGIBB has categorized its service
areas into six major groups: Engineered Construction, Environmental Services,
Facilities Engineering, Industrial Services, Transportation Services, and Water
Engineering. The breadth of our design expertise spans all service areas of our
business from multi-story buildings to pipelines.
The primary industries served by LAWGIBB throughout the world include:
Chemical/Petroleum Manufacturing
Commercial Retail & Wholesalers
Education & Healthcare
Financial & Insurance Institutions
Food, beverage, & Tobacco
Telecommunications
Hospitality & Entertainment
Mining
Public Sector Works
Primary Metals Manufacturing
Pulp/Paper & Forest Products
Rubber, Plastics, & Glass
Power & Utilities
Real Estate & Rental Leasing
Strategic Alliances
Transportation
[IMAGE]
6
<PAGE>
Engineered Construction
building with confidence
- -----------------------------
LAWGIBB provides construction engineering services with knowledge,
experience, and advanced data-gathering capability that is uniquely oriented to
our client.
Modern construction requires not only an understanding of the fundamental
properties of construction materials and advanced technologies, but also of
partnerships with other engineers, archtechts, contractors, and owners. As a
provider of new and unique engineering solutions for efficient, economical
construction, LAWGIBB's engineers and technicians are a value-added part of any
construction team.
LAWGIBB's services span all phases of the project process, including
preliminary engineering, design, constructability analysis, peer review,
construction testing and inspection, certified inspection, materials engineering
and design, and laboratory testing.
Our strengths lie in the expertise of the engineers and geologists in our
local offices, backed by networks of experts who consult at top levels to
provide value engineering in areas such as failure analysis, litigation,
construction management, and worldwide construction. Using state-of-the-art
tools and systems, LAWGIBB's professionals meet project objectives by delivering
expert services in a cost-effective, timely, and accurate manner.
[IMAGE]
INTEGRITY FROM THE GROUND UP
LAWGIBB's geotechnical engineering, hydrological studies, and construction
materials testing services are helping to make the Tennessee NFL Stadium a
rock-solid venue. "We've utilized LAWGOBB for over two years now," says Ed
Coon, Vice President of Hellmuth, Obata + Kassabaum's Sports Facilities
Group. "They've provided services in a very thorough, efficient, and
professional manner. We highly recommend their services."
[IMAGE]
BUILDING FOR OUR FUTURE
New, environmentally sustainable dams and hydropower stations such as those
provided by the Lesotho Highlands Water Project will supply water and
provide power, flood control and recreational facilities, while minimizing
adverse environmental impact. At 185 meters high, the Katse arch dam is the
highest in Africa - and is a project designed and supervised by a LAWGIBB
joint venture.
[IMAGE]
BRIDGING THE GAP
LAWGIBB and the California Department of Transportation (Caltrans) are
working closely on this $4.5 billion program, one of the world's largest
bridge and seismic retrofit projects, which entails inspection and testing
of more than 2,200 bridges in California. "LAWGIBB's specialized technical
expertise is not available through the civil system; their professionals
provide the skills necessary for this important project," says Phil
Stolarski, Caltrans' Structural Materials Branch Chief.
7
<PAGE>
Environmental Services
protection and remediation
- -------------------------------
LAWGIBB helps clinets gain competitive advantage through appropriate
environmental compliance, assessment, and risk management strategies.
Environmental, health and safety risks must be identified, analyzed, and
managed just as any other business risk. The wide range of effects business may
have on the environment-from waste release, worker safety, and loss-of-habitat
concerns to remediation and regulatory compliance issues-means most businesses
must plan to deal with the possible impact of their activities.
Few companies deliver the vast range of environmental expertise that
LAWGIBB brings to every project. Through our diverse geographic coverage coupled
with our ability to deliver services from concept to closure, LAWGIBB uses sound
engineering and science to help guide environmental management decisions.
From environment-friendly design to careful remediation, from meticulous
property assessment to process engineering for public safety, LAWGIBB's proven
track record of developing and implementing creative solutions that satisfy our
clients' economic, operational and regulatory requirements has put our firm at
the forefront of the environmental services field.
[IMAGE]
CLEARING THE WAY
LAWGIBB's regulatory assistance and technical support enabled Mansur
Industries to introduce SystemOne, a new line of patented recycling
industrial parts washers which could revolutionize the vehicle maintenance
industry.
[IMAGE]
BOTTOM LINE VALUE
Through air modeling and the innovative design/construction methods used to
build a recovered-water VOC system, LAWGIBB saved Olin Corporation $800,000
in capital costs, as well as $140,000 annually in operations and
maintenance.
[IMAGE]
BALANCE RESTORED
Land contamination on the UK's Ministry of Defence sites is being addresed
worldwide as sites are assessed and cleaned up prior to disposal. LAWGIBB's
teams identify potential contamination, and remediation is prioritized
according the the risk to public health and the environment.
8
<PAGE>
Facilities Engineering
managing life cycle cost
- -----------------------------
Optimizing building design and system performace, while managing costs and
reducing risks, can pay long-term economic dividends by increasing the value of
property over time.
New regulations and increased maintenance required by aging structures,
environmental hazards, and a competitive marketplace, offer significant
challenges to those who acquire, own, or manage property. LAWGIBB's facilities
experts enable clients to enhance their real estate investments through services
that help extend the life of building components and systems.
From roofing systems to underground storage tanks and everything in
between, our facilities engineering team provides property owners and managers
with a comprehensive resource of technical specialists to control operating
expenses and optimize building design and system performance. LAWGIBB's
engineers, architects, and environmental professionals assist the real estate
industry in dealing with the complexities of owning or managing buildings and
facilities.
Primary facilities engineering services involve expertise related to
architecture and structural systems, building exteriors, roofing and
waterproofing, pavements, construction materials, mechanical and electrical
systems, plumbing, asbestos and lead-containing materials, indoor air quality,
forensic studies and expert testimony, information management, and other
technical services required for successful asset management.
[IMAGE]
VALUE ENGINEERING
"LAWGIBB recommended we use a roof management program called ROOFER," says
Walt Petters, Director of Project Management for Brevard County (FL) Public
Schools. "The data they gathered qualified us for over $500,000 in power
company rebates, and convinced the school board to allocate $30 million to
put new roofs on 29 schools. We couldn't be more pleased."
[IMAGE]
AWARD-WINNING DESIGN
LAWGIBB's unique design for the UK's Falkland Islands Memorial Chapel
triumphed over 73 other entries to win a RIBA/RFAC competition. The
building will serve as both a national memorial to those who fell in the
Falklands conflict and an assembly hall for Pangbourne College.
9
<PAGE>
Industrial Services
ensuring operations reliability
- ------------------------------------
Operational and regulatory compliance issues could cost our industrial
clients millions each year in production shutdowns and unanticipated
expenditures.
Success in manufacturing requires that production and utility equipment
perform at capacity, without shutdowns due to failure or safety hazards.
LAWGIBB's industrial services professionals provide our clients with both peace
of mind and a dependable production environment through what we call
"Reliability Technology for the 21st Century." This is a detailed methodology
that LAWGIBB's engineers and technicians use to assess, analyze, and maintain
any physical asset in its operating context.
[IMAGE]
THE POWER TO BUY WITH CONFIDENCE
LAWGIBB's exacting technical investigations, including identifying existing
problems and recommending remedial measures, enabled a client to begin
acquisition negotiations for a major power station in Turkey.
Our industrial services solutions allow our clients to utilize the full
production capacity and useful service life of their assets. LAWGIBB's analysis,
testing, and evaluation services provide valuable data that can alert clients to
potential problems. Our process consulting ensures that advanced technology and
service dependability are built right into the design; and predictive/preventive
maintenance programs allow costly physical assets to operate at peak efficiency.
In short, we help our clients maximize the functional reliability of their
processes, equipment, and worker safety programs. Even better, by doing so we
help significantly increase their operational profitability.
[IMAGE]
THROUGH THE FIRE
Due to LAWGIBB's efforts, Eco-Pak's steel shipping containers can take the
heat...and any of the grueling tests required to manufacture safe packaging
for nuclear material transport. To comply with stringent NRC and DOT
regulations, Eco-Pak Specialty packaging utilizes LAWGIBB for metallurgy
consulting, material selection, and testing services. "We've always
received work of high integrity from LAWGIBB," says William Arnold,
president. "We use them for all our engineering needs."
10
<PAGE>
Transportation Services
spanning the globe
- -----------------------
LAWGIBB's transportation expertise spans all modes of travel worldwide,
identifying existing and future demands and developing solutions to problems.
LAWGIBB's team provides consulting and construction services for all types
of transportation projects. We provide planning, strategies and solutions,
identify funding sources, and assist clients from the onset of a project through
completion.
Our worldwide rail team has planned and designed high speed, mainline,
metro and light rail projects, providing a full range of financial and technical
advice. LAWGIBB's highways team has provided expert design and consulting
services for thousands of miles of road and hundreds of bridges worldwide. In
addition, sophisticated computer modeling and information management tools
enable our airport specialists to forecast human traffic through gates and
terminals, and our highway experts to better predict the costs and challenges of
building new roads.
Our goal is to successfully integrate transportation and communication,
people and services, to provide first-rate solutions. Across the spectrum of
transportation services, LAWGIBB's experts offer the diversity and flexibility
of service required to help our clients meet their needs today and in the
future.
[IMAGE]
GETTING THERE FOR LESS
LAWGIBB won the appointment as lead engineer for London Underground Limited
and the borough of Croydon's light rail scheme, providing the client major
cost saving improvements in the value engineering phase.
[IMAGE]
MORE INFORMATION, LESS COST
A sophisticated geographic information system computer application for
Georgia Department of Transportation was developed by LAWGIBB, allowing the
client to optimize placement of transportation corridors with minimum
environmental impact and cnstruction costs, reducing evaluation time by
60%, and substantially reducing project time and cost.
[IMAGE]
BETTER SAFETY DOWN THE ROAD
LAWGIBB is assisting the Federal Highway Administration (FHWA) with a
20-year study of in-service pavements intended to develop new pavement
design and maintenance technologies, resulting in improved, longer-lasting
road systems.
11
<PAGE>
Water Engineering
cost-effective solutions
- -----------------------------
LawGIBB is experienced in many aspects of water resources and wastewater
systems, supporting projects ranging from small rural developments to master
plans for large water infrastructures.
Throughout the world, the demand for clean water often competes with
economic growth and development. At LawGibb, our experienced teams help clients
develop balanced, cost-effective water engineering and environmental solutions
for a wide range of issues.
Our experts offer broad-based services such as water resources management,
water quality studies, stormwater drainage analysis and permitting, wastewater
surveys, water reclamation schemes, industrial/municipal wastewater treatment
works, sludge disposal, incinerators, and sea outfalls.
In response to the global drive towards modernization of water management
and privatization of utilities, LAWGIBB has developed a team of experts with a
particular focus upon economics, institutional studies, and regulatory advice.
[IMAGE]
FACILITATING PROGRESS
"LAWGIBB has been a tremendous asset to our Company in the execution of
water projects," says Ed Matta of Puerto Rico's Dick Construction Company.
"Their deft integration of the permitting process into our design/build
project delivery method is excellent. They've helped us maintain project
schedules within a constantly changing environment.
[IMAGE]
CLEAN WATER, CLEANER ENVIRONMENT
From 1994 to 2005, the population of Antalya in Turkey will have increased
by as much as 84%. LAWGIBB's team is overseeing the construction involved
in upgrading the existing water supply, sewerage, and stormwater drainiage
systems, a wastewater treatment plant, and a deep marine outfall for
treated effluent.
[IMAGE]
CREATING AN ENVIRONMENTALLY SOUND THEME PARK
Located outside Cape Town, Century City is one of the largest urban
developments in South Africa, which includes the Ratanga Junction theme
park, pictured here. LAWGIBB is responsible for the design and project
management of a multi-function wetland for water treatment and
conservation, canals, stormwatersystems, bridges, structures for the theme
park, and treatment of effluent.
12
<PAGE>
EXHIBIT 13.01
SELECTED FINANCIAL DATA
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Gross Fees $311,162 $310,791 $323,179 $368,417 $361,653
Net Fees $274,920 $277,701 $286,282 $314,873 $314,102
Net Income (Loss) $ 8,422 $ 4,081 $ 1,910 $ (2,266) $(11,464)
Earnings (Loss) Per Share:
Basic $ 3.71 $ 1.77 $ 1.00 $ (1.19) $ (5.32)
Diluted $ 2.82 $ 1.60 $ 1.00 $ (1.19) $ (5.32)
Cash Dividends Per Share $ -- $ -- $ -- $ -- $ 0.26
BALANCE SHEET DATA:
Working Capital $ 39,060 $ 32,415 $ 28,459 $ 30,384 $ 28,895
Total Assets $150,911 $145,768 $138,697 $148,304 $155,612
Long Term Liabilities $ 54,056 $ 54,935 $ 50,303 $ 59,915 $ 58,807
Shareholders' Equity $ 29,042 $ 19,341 $ 17,590 $ 15,825 $ 19,375
- ----------------------------------------------------------------------------------------------------
</TABLE>
GROSS FEES
[GRAPH]
OPERATING INCOME
[GRAPH]
NET INCOME
[GRAPH]
YEAR END STOCK VALUATION
[GRAPH]
* Beginning in 1995, Year-End Stock Valuation represents the fair market value
for purposes of, and in compliance with, the requirements of the Law Companies
Group, Inc. 401(k) Savings Plan. These values are the fair market values of Law
Stock for purposes of the 401(k) Savings Plan only, until such time as another
appraisal is requested or as required by the 401(k) Savings Plan.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
The following is management's discussion and analysis of certain significant
factors that have affected the results of operations and financial condition of
Law Companies Group, Inc. (the "Company") for the periods indicated. The Company
measures its operating performance on the basis of net fees, since a substantial
portion of gross fees are a pass-through to clients as costs of subcontractors
and other project-specific outside services. The following table sets forth the
percentage of net fees represented by certain items reflected in the Company's
consolidated statements of operations and the percentage increase (decrease) in
the underlying dollar amounts of each of these items from the prior year. This
discussion should be read in conjunction with the Company's consolidated
financial statements and accompanying notes.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Year to Year Dollar
Year Ended December 31, Increase (Decrease)
1998 1997 1996 1998 vs. 1997 1997 vs. 1996
---- ---- ---- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net Fees 100.0% 100.0% 100.0% (1.0%) (3.0%)
Gross Profit 58.6% 58.2% 59.3% (0.3%) (4.8%)
Indirect Costs and Expenses 51.7% 53.2% 55.2% (3.8%) (6.5%)
Operating Income 6.9% 5.0% 4.1% 37.8% 18.2%
Net Income 3.1% 1.5% 0.7% 106.4% 113.7%
</TABLE>
COMPARISON OF 1998 AND 1997 - Continuing the positive trends established in
previous years, the Company recorded significant improvements in operating
income, income before income taxes and equity investments, and net income as
compared to 1997. Additionally, the volume of gross fees for 1998 also reflected
an improvement over the prior year. All primary margin measurements: gross
profit, indirect costs and expenses, operating income, and net income improved
as a percentage of net fees compared to 1997.
Consolidated gross fees for 1998 increased by 0.1% to $311.2 million from $310.8
million in 1997. For U.S. Operations, gross fees for the year increased by 0.2%
as compared to 1997 to $208.4 million. For International Operations, gross fees
were flat compared to 1997 at $102.8 million. Consolidated net fees for 1998
decreased 1.0% to $274.9 million from $277.7 million in 1997. Net fees for the
U.S. operations decreased to $179.3 million in 1998, or 1.1%, from $181.3
million in 1997. The International Group's net fees decreased to $95.6 million
for 1998 from $96.4 million in 1997. The International Group's net fees in pound
sterling for 1998 were adversely affected by the continuing effects of the hold
on government expenditures which surrounded the 1997 United Kingdom general
election. Also contributing to these decreases was a minor strengthening of the
value of the U.S. dollar as compared to the pound sterling. The average value of
the dollar increased by 1.2% in 1998 as compared to 1997.
The consolidated gross profit margin increased to 58.6% in 1998 from 58.2% for
1997. The U.S. Group's gross profit margin decreased slightly from 64.6% for the
year ended 1997 to 64.3% for the year ended 1998, primarily due to increased
labor costs. The International Group's gross profit margin improved from 46.2%
in 1997 to 47.7% in 1998. This improvement was primarily attributable to
improvements in job related expenses. Consolidated indirect costs and expenses
were $142.2 million in 1998 compared to $147.8 million in 1997. This decrease of
$5.6 million, or 3.8%, is attributable to the continued positive impact of the
Company's cost reduction initiatives.
Interest expense increased from $4.0 million in 1997 to $4.4 million in 1998,
primarily as a result of higher average outstanding bank debt as compared to
1997. Lower interest rates in the Company's re-negotiated credit facilities
contributed to partially offset these increases. During 1998 and 1997, the
Company expensed $0.1 million and $1.5 million, respectively, related to the
amortization of costs associated with re-negotiating and securing its credit
facilities. This $1.4 million decrease is directly attributable to the lower
level of fees and the 3-year term associated with the 1998 facility versus the
1997 facility renegotiation.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
In 1998, the Company recorded net income of $8.4 million compared to $4.1
million in 1997. A portion of this improvement was related to the decrease in
the effective tax rate from 49.8% in 1997 to 43.8% in 1998. Earnings per common
share for 1998 were $3.71 per common share - basic ($2.77 per common share -
diluted) compared to $1.77 per common share - basic ($1.60 per common share -
diluted) in 1997.
COMPARISON OF 1997 AND 1996 - Consolidated gross fees for 1997 decreased by 3.8%
to $310.8 million from $323.2 million in 1996. Consolidated net fees for 1997
decreased 3.0% to $277.7 million from $286.3 million in 1996. Net fees for the
U.S. operations decreased to $181.3 million in 1997, or 4.8%, from $190.4
million in 1996. These decreases were largely the result of two factors. First,
having emerged from losses in 1994 and 1995, the Company placed its primary
focus during 1996 on cost structure and competitiveness which adversely affected
fee growth. Second, the lack of environmental regulatory pressure softened the
demand in the environmental markets and resulted in increased competition. These
decreases were partly mitigated by the Company's efforts to improve its business
development initiatives during the year, to return net fees to 1996 levels, and
grow fees in subsequent periods.
The International Group's net fees increased to $96.4 million for 1997 from
$95.9 million in 1996. This small increase was largely the result of a weaker
U.S. dollar when compared to the pound sterling. The average value of the dollar
decreased by 4.8% in 1997 when compared to 1996. The International Group's net
fees in pound sterling for 1997 were negatively affected by a hold on government
expenditures surrounding the United Kingdom general election.
The consolidated gross profit margin decreased to 58.2% in 1997 from 59.3% for
1996. The U.S. Group's gross profit margin decreased slightly from 64.9% for the
year ended 1996 to 64.6% for the year ended 1997. The small decrease in margin
reflects competitive pressures, beginning in 1996, faced in the markets served
by the U.S. Group. The International Group's gross profit margin decreased from
48.2% in 1996 to 46.2% in 1997. This decrease was 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
produces a smaller profit margin.
Consolidated indirect costs and expenses were $147.8 million in 1997 compared to
$158.1 million in 1996. This decrease of $10.3 million, or 6.5%, was
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 labor utilization. In 1997, the Company also advanced
its efforts to lower real estate and office occupancy costs. Reductions in
corporate overhead functions, primarily departmental re-alignment, position
elimination, and attrition were also a contributing factor to the overall
decrease in indirect expenses. Additionally, in the first quarter of 1997, the
U.S. Group curtailed its defined benefit pension plan. As a result, the Company
recognized a gain on curtailment of $1.8 million. This gain was a direct
reduction of other indirect costs and expenses.
Interest expense decreased from $4.7 million in 1996 to $4.0 million in 1997.
This decrease was primarily due to lower average outstanding bank debt and lower
interest rates in the Company's re-negotiated credit facilities in 1997 compared
to 1996. During 1997 and 1996, the Company expensed $1.5 million and $2.6
million, respectively, related to the amortization of costs associated with
re-negotiating and securing its credit facilities. This $1.1 million decrease
was directly attributable to the lower level of fees associated with the 1997
facility renegotiation versus the 1996 facility renegotiation.
In 1997, the Company recorded net income of $4.1 million compared to $1.9
million in 1996. Earnings per common share for 1997 were $1.77 per common share
- - basic ($1.60 per common share - diluted) compared to $1.00 per common share
(basic and diluted) in 1996.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
FINANCIAL CONDITION
The increase in cash provided by operations from $3.8 million in 1997 to $6.4
million in 1998 was primarily the result of the increase in net income from $4.1
million in 1997 to $8.4 million in 1998. Depreciation has been reduced as the
Company has taken a more deliberate approach to capital expenditures over the
prior two years. The components of working capital, which used $4.9 million in
1997, used cash of $6.6 million in 1998.
Capital expenditures for 1998 were $6.8 million, which represents a decrease of
$1.4 million from 1997. Total capital expenditures were 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 1998 credit facility of $7.0 million per year is
sufficient to meet foreseeable requirements. The Company has no other material
commitments for purchases of additional equipment.
The Company reported debt and short-term borrowings of $48.1 million at December
31, 1998, compared to $45.6 million at the end of 1997. Debt and short-term
borrowings as a percentage of total capitalization amounted to 55% at December
31, 1998 compared to 61% at December 31, 1997.
On January 15, 1998, the Company refinanced its credit facilities into one
credit facility with a global bank. See Note 4 to the Consolidated Financial
Statements. The 1998 credit facility bears a three-year term and two one-year
extension options, the first of which was exercised concurrent with the
amendment of the facility in September, 1998. The credit facility contains
certain restrictions which, among other things, limit capital expenditures;
require minimum earnings before interest, taxes, depreciation and amortization;
and specify achievement of certain leverage and fixed charge. In addition, cash
dividends on common stock are prohibited. The repurchase of shares for cash or
notes is restricted and payments on existing or future notes payable to
shareholders are permitted, subject to certain limitations. The 1998 Facility is
secured by substantially all of the assets of the Company's United States and
United Kingdom operating subsidiaries.
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 were invested in initiatives to further reduce real estate and insurance
costs as well as fund improvements in technology and increased sales and
marketing activities.
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.
MARKET RISKS - The Company is exposed to various types of market risks in the
normal course of business, including the impact of interest rate changes and
foreign currency exchange rate fluctuations. In order to manage interest rate
risk relative to its credit facility, the Company employs an interest rate swap
agreement. Based on the Company's debt profile at December 31, 1998 and December
31, 1997, a 1% increase in market interest rates would have increased interest
expense and decreased income before income taxes by approximately $150,000 and
$280,000, respectively. The company does not hold derivative instruments for
trading purposes. As part of its foreign exchange risk management strategy, the
Company occasionally borrows funds in the appropriate local currency where debt
financing is required to support foreign operating activities, resulting in a
reduction in exchange rate risk. The Company typically does not employ
derivative instruments for purposes of managing foreign currency exchange rate
risk and as a result, could be exposed to the risk that certain revenue and cost
transactions originated in foreign
17
<PAGE>
currencies may be realized at different exchange rates than those which had been
in effect historically. The primary foreign currencies in which the company has
exchange rate risk are pound sterling, South African rand, and the euro. Due to
the historical stability of these currencies, (and, in the case of the euro, the
related currencies which underlie the value of the euro itself), combined with
the steps that the Company has taken to manage foreign exchange risk, the
Company does not believe that these risks represent a material exposure to its
financial position or results of operations.
Year-2000 - The Company recognizes the need to address potential problems in
both information technology and non-information technology systems which could
result in improper handling of the date change to the year 2000. As the
Company's core business services are engineering and environmental science
professional consulting services, 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 are not considered likely to experience
year-2000 related problems. For certain applications which are used to support
administrative operations of the Company and certain systems and applications
used to support the Company's international operations, year-2000 readiness
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 readiness issue,
inclusive of internal systems and software applications and those systems 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. The Company expects
all phases to be substantially complete by mid-1999.
While the Company is taking 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
follow this section.
FORWARD LOOKING STATEMENTS - This Annual Report contains "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 which represent the Company's expectations or beliefs. 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, but not limited to, the factors described in the Company's filings
with the Securities and Exchange Commission (the "Commission"), the uncertain
timing of awards and contracts, increasing competition by foreign and domestic
competitors 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, and other risks could cause actual results or outcomes to
differ materially from those expressed in any forward-looking statements.
18
<PAGE>
CONSOLIDATED BALANCE SHEETS
Law Companies Group, Inc.
(Dollars in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
AT DECEMBER 31, 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and Cash Equivalents $ 11,022 $ 9,527
Billed Fees Receivable 55,346 56,808
Unbilled Work in Progress 31,464 32,105
Other Receivables 1,579 2,199
Deferred Income Taxes 3,074 --
Prepaid Expenses 4,388 3,268
--------- ---------
Current Assets 106,873 103,907
Property and Equipment, net 23,442 23,506
Equity Investments 1,587 1,361
Intangible Assets 13,250 13,775
Other Assets 5,759 3,219
--------- ---------
Total Assets $ 150,911 $ 145,768
========= =========
- -----------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-Term Borrowings $ 902 $ 904
Accounts Payable 15,858 17,887
Billings in Excess of Costs and Fees Earned on Contracts in Progress 13,805 15,168
Accrued Payroll and Other Employee Benefits 7,127 5,990
Accrued Professional Liability Reserve 3,518 3,504
Other Accrued Expenses 16,745 21,339
Income Taxes Payable 4,638 3,768
Current Portion of Long-Term Debt 5,220 2,231
Deferred Income Taxes -- 701
--------- ---------
Current Liabilities 67,813 71,492
Long-Term Debt 41,979 42,483
Deferred Income Taxes 1,983 1,528
Minority Interest in Equity of Subsidiaries 208 1,060
Cumulative Convertible Redeemable Preferred Stock -
956,613 Shares Issued and Outstanding 9,886 9,864
Common Stock - $1 par value, 10,000,000 shares authorized,
2,045,870 and 1,872,000 shares issued and outstanding 2,046 1,872
Additional Paid-In Capital 18,046 14,957
Retained Earnings 15,931 8,855
Accumulated Other Comprehensive Income (6,981) (6,343)
--------- ---------
Total Shareholders' Equity 29,042 19,341
--------- ---------
Total Liabilities and Shareholders' Equity $ 150,911 $ 145,768
========= =========
</TABLE>
See Accompanying Notes.
19
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
Law Companies Group, Inc. (Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross Fees $311,162 $310,791 $323,179
Less: Cost of Outside Services 36,242 33,090 36,897
-------- -------- --------
Net Fees 274,920 277,701 286,282
Direct Costs and Expenses:
Payroll 81,160 81,613 83,109
Job-Related Expenses 32,591 34,450 33,402
-------- -------- --------
Gross Profit 161,169 161,638 169,771
Indirect Costs and Expenses:
Payroll 62,474 60,604 61,527
Other Expenses 79,688 87,240 96,570
-------- -------- --------
Operating Income 19,007 13,794 11,674
Other Income (Expense):
Interest Expense (4,365) (3,995) (4,715)
Deferred Financing Costs (141) (1,539) (2,553)
Other Income (Expense) 197 (198) 12
-------- -------- --------
Income Before Income Taxes
and Equity Investments 14,698 8,062 4,418
Income Tax Provision (6,432) (4,012) (2,615)
Equity Investments 156 31 107
-------- -------- --------
Net Income 8,422 4,081 1,910
Less: Preferred Stock Dividend and Accretion (1,128) (742) --
-------- -------- --------
Net Income Available to Common Shareholders $ 7,294 $ 3,339 $ 1,910
======== ======== ========
Earnings Per Common Share - Basic $ 3.71 $ 1.77 $ 1.00
======== ======== ========
Earnings per Common Share - Diluted $ 2.77 $ 1.60 $ 1.00
======== ======== ========
RECONCILIATION OF COMPREHENSIVE INCOME
Net Income $ 8,422 $ 4,081 $ 1,910
Other Comprehensive Income:
Foreign Currency Translation Adjustment (638) (1,282) (376)
-------- -------- --------
Comprehensive Income $ 7,784 $ 2,799 $ 1,534
======== ======== ========
</TABLE>
See Accompanying Notes.
20
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Law Companies Group, Inc. (Dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
Year Ended December 31, 1998 1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A Common Stock
Balance at Beginning of Year $ -- $ -- $ 1,533
Conversion of 1,533,106 Shares of Class A Stock
To Common Stock -- -- (1,533)
------- ------- -------
Balance at End of Year -- -- --
Common Stock
Balance at Beginning of Year 1,872 1,905 361
Conversion of 1,533,106 Shares of Class A Stock
To Common Stock -- -- 1,533
Issuance of Common Stock 21 -- 19
Repurchase and Retirement of Common Stock (22) (33) (8)
Exercise of Options to Purchase Common Stock 175 -- --
------- ------- -------
Balance at End of Year 2,046 1,872 1,905
Additional Paid-In Capital
Balance at Beginning of Year 14,957 15,063 14,823
Issuance of Common Stock 558 -- 300
Repurchase and Retirement of Common Stock (182) (256) (60)
Exercise of Options to Purchase Common Stock 2,713 -- --
Issuance of Common Stock Warrants -- 150 --
------- ------- -------
Balance at End of Year 18,046 14,957 15,063
Retained Earnings
Balance at Beginning of Year 8,855 5,683 3,794
Net Income 8,422 4,081 1,910
Preferred Stock Dividends (800) (521) --
Preferred Stock Accretion (327) (221) --
Repurchase and Retirement of Common Stock (219) (167) (21)
------- ------- -------
Balance at End of Year 15,931 8,855 5,683
Accumulated Other Comprehensive Income
Balance at Beginning of Year (6,343) (5,061) (4,685)
Foreign Currency Translation Adjustment (638) (1,282) (376)
------- ------- -------
Balance at End of Year (6,981) (6,343) (5,061)
------- ------- -------
Total Shareholders' Equity $29,042 $19,341 $17,590
======= ======= =======
</TABLE>
See Accompanying Notes.
21
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Law Companies Group, Inc. (Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31, 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities:
Net Income $ 8,422 $ 4,081 $ 1,910
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 6,724 6,782 7,744
Financing Costs Amortization 141 1,539 2,553
Provision for Losses on Receivables 731 172 683
Deferred Income Taxes (3,320) (4,034) (3,169)
Provision for Losses on Claims 219 -- 919
Undistributed Earnings From
Equity Investments (156) (31) (107)
Loss (Gain) on Disposal of Property and Equipment 205 228 (161)
Changes in Operating Working Capital Assets and
Liabilities, net of Effects of Business Acquisitions (6,599) (4,932) 4,587
------- ------- -------
Net Cash Provided by Operating Activities 6,367 3,805 14,959
Investing Activities:
Business Acquisitions, net of Cash Acquired (187) (415) --
Purchases of Property and Equipment (6,635) (7,793) (3,992)
Proceeds from Disposal of Property and Equipment 120 227 494
Other, net (1,903) 236 (195)
------- ------- -------
Net Cash Used in Investing Activities (8,605) (7,745) (3,693)
Financing Activities:
Net Proceeds (Payments) on Short-Term Borrowings 182 606 (855)
Net Proceeds (Payments) on Revolving Line of
Credit and Long-Term Borrowings 2,701 (46) (6,573)
Deferred Financing and Preferred Stock Issuance Costs (369) (3,602) (921)
Issuance of Cumulative Convertible Redeemable
Preferred Stock -- 9,850 --
Issuance of Common Stock and Warrants -- 150 319
Repurchase and Retirement of Shares (423) (456) (89)
Preferred Dividends Paid (800) (521) --
Exercise of Options to Purchase Common Stock 2,888 -- --
------- ------- -------
Net Cash Provided by (Used in) Financing Activities 4,179 5,981 (8,119)
Effect of Exchange Rate Changes on Cash (446) (611) 37
------- ------- -------
Increase in Cash and Cash Equivalents 1,495 1,430 3,184
Cash and Cash Equivalents at Beginning of Year 9,527 8,097 4,913
------- ------- -------
Cash and Cash Equivalents at End of Year $11,022 $ 9,527 $ 8,097
======= ======= =======
</TABLE>
See Accompanying Notes.
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998, 1997, and 1996, Law Companies Group, Inc.
(Dollars in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
1. Accounting Policies
DESCRIPTION OF BUSINESS - Law Companies Group, Inc. and its subsidiaries
(collectively, the "Company") provide comprehensive environmental and
specialized engineering consulting services to governmental, commercial and
industrial entities. During 1998, 1997, and 1996, the Company derived
approximately 5%, 8%, and 10%, respectively, of gross fees from various agencies
of the United States Government.
BASIS OF PRESENTATION - The consolidated financial statements include the
accounts of Law Companies Group, Inc. and its subsidiaries. All significant
intercompany accounts and transactions are eliminated.
USE OF ESTIMATES - The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
REVENUE RECOGNITION - In general, the Company recognizes revenues at the time
services are performed. On cost-reimbursable contracts, revenue is recognized as
costs are incurred, and includes applicable fees earned through the date
services are provided. On fixed-price contracts, revenues are recorded using the
percentage-of-completion method of accounting by relating contract costs
incurred to date to total estimated contract costs at completion. Contract costs
include both direct and indirect costs. Contract losses are provided for in
their entirety in the period they become known, without regard to the
percentage-of-completion. Some of the Company's contracts with the U.S. federal
government, as well as certain contracts with commercial clients, provide that
contract costs (including indirect costs) are subject to audit and adjustment.
For all such contracts, revenues have been recorded based upon those amounts
expected to be realized upon final settlement.
DERIVATIVES - The Company has entered into an interest rate swap agreement to
synthetically manage the interest rate characteristics of its outstanding debt
and to partially limit the Company's exposure to rising interest rates. Amounts
to be received or paid as a result of this agreement are accrued and recognized
as an adjustment to interest expense related to the designated debt. Gains and
losses on terminations of interest rate swap agreements would be deferred as an
adjustment to the carrying amount of the outstanding debt and amortized as an
adjustment to interest expense related to the debt over the remaining term of
the original contract life of the terminated swap agreement. In the event of the
early extinguishment of a designated debt obligation, any realized or unrealized
gain or loss from the swap would be recognized in income coincident with the
extinguishment gain or loss.
RECEIVABLES AND UNBILLED WORK IN PROGRESS - Unbilled work in progress represents
amounts earned under contracts in progress, but not yet billable under the terms
of those contracts. These amounts become billable according to the contract
terms which usually consider the passage of time, achievement of certain
milestones, or completion of the project. Included in accounts receivable at
December 31, 1998 and 1997 were contract retentions totaling $765 and $537,
respectively. Substantially all unbilled receivables are billed and collected in
the subsequent fiscal year. Billed fees receivable, net, at December 31, 1998 of
$55,346 and at December 31, 1997 of $56,808 were net of allowances for doubtful
accounts of $4,223 and $3,747, respectively.
CASH EQUIVALENTS - The Company considers all highly liquid investments with
maturities of three months or less when purchased to be cash equivalents.
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998, 1997, and 1996, Law Companies Group, Inc.
(Dollars in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost. Depreciation
and amortization are provided over estimated useful lives using both
straight-line and accelerated methods. Useful lives range as follows: buildings
40 years; equipment 3-6 years; furniture and fixtures 5-10 years; automobiles
3-6 years; and leasehold improvements utilizing the shorter of the lease term or
the remaining useful life of the asset. Depreciation expense was $5,316, $6,243,
and $7,165 in 1998, 1997, and 1996, respectively.
INCOME TAXES - The liability method is used in accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the tax rates and laws that will be in effect when the
differences are expected to reverse.
INTANGIBLE ASSETS - Goodwill, representing amounts paid in excess of the fair
values of the net assets acquired in acquisition transactions, is amortized
using the straight-line method over periods of 10-40 years. If facts and
circumstances indicate that the goodwill or other intangible assets may be
impaired, the Company's policy is to compare the carrying amount for those
assets to the undiscounted cash flows associated with those assets in order to
determine if a write-down to fair market value is required.
OTHER ASSETS - Included in Other Assets are other intangible assets, primarily
debt financing costs and trademarks which are amortized on a straight-line basis
over the terms of the related agreement. Accumulated amortization approximated
$959 and $1,603 at December 31, 1998 and 1997, respectively. Additionally,
certain long-term prepaid expenses and prepaid pension costs also are
represented in the balances at December 31, 1998.
FOREIGN CURRENCY TRANSLATION - The functional currency for most foreign
operations is the local currency. The cumulative effects of translating the
balance sheet accounts from the functional currency into the U.S. dollar at
current exchange rates are included in Foreign Currency Translation Adjustment
in Shareholders' Equity. For all operations, gains or losses from remeasuring
foreign currency transactions into the functional currency are included in
income.
COMMON STOCK RESERVED - The Company has reserved 1,574,541 shares of common
stock for issuance relative to employee stock option plans, other stock option
plans, convertible securities, and common stock warrants.
STOCK BASED COMPENSATION - The Company grants to employees stock options for a
fixed number of shares with an exercise price equal to the fair value of the
shares at the date of grant. The Company has elected to account for stock option
grants in accordance with APB Opinion No. 25, Accounting for Stock Issued to
Employees, and, accordingly, recognizes no compensation expense for the stock
option grants. (See Note 7.)
EARNINGS PER COMMON SHARE - In 1997, the Financial Accounting Standards Board
issued Statement No. 128, Earnings per Share (SFAS 128). SFAS 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants, and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. All earnings per share amounts for
all periods have been presented, and where appropriate, restated to conform to
the SFAS 128 requirements. (See Note 10.)
RECENT PRONOUNCEMENT - In June 1998, the Financial Accounting Standards Board
issued Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which is required to be adopted in years beginning after June 15,
1999. Because of the Company's minimal use of derivatives, management does not
anticipate that the adoption of the new Statement will have a material effect on
earnings or the financial position of the Company.
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998, 1997, and 1996, Law Companies Group, Inc.
(Dollars in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
2. PROPERTY AND EQUIPMENT
Property and Equipment are presented at cost less accumulated depreciation and
are detailed as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Land and Buildings $ 12,398 $ 12,094
Equipment 38,773 36,507
Furniture and Fixtures 12,074 12,386
Automobiles 2,606 3,088
Leasehold Improvements 2,316 3,526
-------- --------
68,167 67,601
Less: Accumulated Depreciation (44,725) (44,095)
-------- --------
Total Net Property and Equipment $ 23,442 $ 23,506
======== ========
</TABLE>
3. CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED STOCK
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. The warrants had an
exercise price of $10.45 per share until June 30, 1998 after which the price
will range from $0.01 to $10.45 based upon the Company's performance against
stipulated net income benchmarks. In addition, the agreement included options to
acquire up to 900,000 shares of Common Stock at a price of $16.50 per share from
July 1, 1997 through June 30, 1998, increasing on July 1 of each year thereafter
to $20.00, $24.50, $29.00, and $33.00 through December 31, 2006. As of December
31, 1998, as a result of the exercise of 175,000 options and the subsequent
cancellation, per the terms of the agreement, of an additional 140,972 options,
there were options remaining to acquire up to 584,028 shares of Common Stock.
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 as expressly provided in the Company's bylaws and articles of
incorporation and under applicable law. The Preferred Stock is entitled to elect
Preferred Directors representing one less than a majority of the Company's Board
of Directors. The liquidation preference of each preferred share is its original
issue price of approximately $10.45 per share, totalling $10 million. The value
assigned to the options and warrants of $150 and the costs of issuance of $2,149
are being accreted/amortized over the period to redemption, reducing the net
income available to common shareholders.
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998, 1997, and 1996, Law Companies Group, Inc.
(Dollars in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
4. DEBT
Debt obligations consist of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Revolving Lines of Credit:
United States (Average interest rate of 7.5% at December 31, 1998) $28,700 $26,586
International (Average interest rate of 8.3% at December 31, 1998) 4,342 1,796
Notes Payable to former shareholders, interest at prime, 8.0%, and 8.5% 12,868 12,868
Note Payable, interest at 7.5% -- 1,526
Various Notes Payable, interest at rates ranging from
5.4% to 17.5% due in installments through the year 2002 1,289 1,938
------- -------
Total Lines of Credit and Notes Payable 47,199 44,714
Less: Current Portion 5,220 2,231
------- -------
Total Long-Term Debt $41,979 $42,483
======= =======
</TABLE>
On January 15, 1998, the Company refinanced its credit facilities into one
credit facility with a global bank. The 1998 Facility bears a three-year term
and two one-year extension options, the first of which was exercised concurrent
with the amendment of the facility in September, 1998. The credit facility
contains certain restrictions which, among other things, limit capital
expenditures; require minimum earnings before interest, taxes, depreciation and
amortization; and specify achievement of certain leverage and fixed charge
ratios. In addition, cash dividends on common stock are prohibited. The
repurchase of shares for cash or notes is restricted and payments on existing or
future notes payable to shareholders are permitted, subject to certain
limitations. The 1998 Facility is secured by substantially all of the assets of
the Company's United States and United Kingdom operating subsidiaries.
CREDIT FACILITY
<TABLE>
<CAPTION>
MAXIMUM
NATURE AMOUNT (C) INTEREST RATE EXPIRATION DATE
------ ---------- ------------- ---------------
<S> <C> <C> <C>
Revolving Line of Credit (A) $40,000 Base less 0.25% to Base and LIBOR + 1.5% to 2.0% January 15, 2002
Letters of Credit sub-facility $ 3,000 1.25% to 1.5% Per Annum January 15, 2002
Revolving Line of Credit and
Overdraft Facility (pound)11,000 Base + 1.5% to 2.0% and LIBOR + 1.5% to 2.0% January 15, 2002
Letters of Credit sub-facility (pound)11,000 1.75% Per Annum January 15, 2002
Capital Expenditure Facility (B) $ 7,992 Base - 0.25% + 0% and LIBOR + 1.5% to 2.0% January 15, 2002
Capital Expenditure Facility (B) (pound) 2,400 LIBOR + 1.5% to 2.0% January 15, 2002
</TABLE>
(A) The total revolving facility will be reduced by $10,000 on January 1,
2000 and by an additional $5,000 on January 1, 2001.
(B) The capital expenditure dollar facility has an initial availability of
$2,664, increasing to $5,328 on January 15, 1999, and $7,992 on January
15, 2000. The capital expenditure pounds sterling facility has an
initial availability of (pound)800, increasing to(pound)1,600 on
January 15, 1999, and(pound)2,400 on January 15, 2000.
(C) Amounts available under the revolving credit facility will be subject
to a borrowing base limitation based upon the Company's earnings before
interest, taxes, depreciation, and amortization measured on a monthly
basis. Borrowings under the capital expenditure facilities are
repayable quarterly over a five-year period.
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998, 1997, and 1996, Law Companies Group, Inc.
(Dollars in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
Interest payments totaled $5,366, $4,236, and $5,212 in 1998, 1997, and 1996,
respectively. The weighted average interest rate on short-term borrowings ($902
of short-term borrowings denominated in South African rand ) approximated 24.0%
in 1998. Future maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1999 $ 5,220
2000 4,279
2001 6,316
2002 30,654
2003 730
Thereafter --
-------
$47,199
=======
</TABLE>
In January 1998, the Company entered into an interest rate swap agreement
effectively to fix the LIBOR rate on $20,000 of variable rate borrowings at
5.86% per annum until January 2003. At December 31, 1998, the Company had
provided guarantees of $2,419 under United States letters of credit and $8,642
under international bonds, guarantees, and indemnities.
5. LEASES
The Company leases certain office space, equipment, automobiles, and furniture
under noncancellable operating leases. The following is a schedule of future
minimum lease payments required under those leases which have initial or
remaining noncancellable terms of one year or more:
<TABLE>
<S> <C>
1999 $13,077
2000 10,157
2001 7,788
2002 5,076
2003 5,232
Thereafter 26,710
-------
$68,040
=======
</TABLE>
Rent expense, net of income from subleases, aggregated $14,803, $17,307, and
$17,079 in 1998, 1997, and 1996, respectively.
27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998, 1997, and 1996, Law Companies Group, Inc.
(Dollars in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
6. BENEFIT PLANS
PENSION PLANS
The Company has a noncontributory, defined benefit pension plan covering
substantially all of its United States employees over the age of 21. The
benefits are based on each eligible employee's years of service and compensation
during the last ten years of employment. A curtailment in the plan, which was
effective March 28, 1997, ceased benefit accruals to vested participants on that
date. As a result, the Company recognized a gain on curtailment of $1,816 in the
first quarter of 1997.
The Company's funding policy is to contribute amounts annually to the plan
sufficient to meet minimum funding requirements as set forth in the Employee
Retirement Income Security Act of 1974, plus additional amounts, if any, as may
be determined to be appropriate by the Company's Board of Directors.
During 1998, the Company adopted SFAS No. 132 - Employers' Discussions about
Pensions and Other Postretirement Benefits. Adoption of this standard requires
expanded disclosures regarding the roll-forward of the changes in benefit
obligation and the changes in plan assets. These disclosures are reflected in
the tables which follow.
Net periodic pension costs consist of the following components for the years
ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Service Cost $ -- $ 560 $ 2,898
Interest Cost 2,687 2,635 2,859
Actual Return on Plan Assets (3,639) (2,845) (4,511)
Net Amortization and Deferral (160) 2 2,656
------- ------- -------
Net Periodic Pension (Benefit) Cost $(1,112) $ 352 $ 3,902
======= ======= =======
</TABLE>
28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998, 1997, and 1996, Law Companies Group, Inc.
(Dollars in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
The following table sets forth the funded status and net liability recognized
for the plan:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Change in Benefit Obligation
Benefit Obligation at Beginning of Year $35,669 $41,099
Service Cost -- 560
Interest Cost 2,687 2,635
Amendments -- (11,362)
Actuarial Gain (Loss) 1,467 2,779
Benefits Paid (142) (42)
------- -------
Benefit Obligation at End of Year $39,681 $35,669
Change in Plan Assets
Fair Value of Plan Assets at Beginning of Year $34,926 $27,319
Actual Return on Plan Assets 5,169 4,075
Employer Contributions 813 3,573
Benefits Paid (399) (42)
------- -------
Fair Value of Plan Assets at End of Year $40,509 $34,925
------- -------
Funded Status $ 828 $ (744)
Unrecognized Actuarial Gain 1,253 1,059
Unrecognized Prior Service Cost -- --
Unrecognized Transition Asset (480) (639)
------- -------
Net Amount Recognized $ 1,601 $ (324)
======= =======
Amounts Recognized in the Balance Sheet
Consist of:
Prepaid Benefit Cost $ 1,601 $ --
Accrued Benefit Liability -- (324)
Intangible Asset -- --
Accumulated Other Comprehensive Income -- --
------- -------
Net Amount Recognized $ 1,601 $ (324)
======= =======
</TABLE>
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998, 1997, and 1996, Law Companies Group, Inc.
(Dollars in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
Actuarial assumptions used to determine net periodic pension costs are as
follows for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Weighted Average Discount Rate 7.25% 7.25% 7.80%
Rate of Increase in Future Compensation Levels
Pre-Curtailment 4.00% 4.00% 4.00%
Post-Curtailment 0.00% 0.00% N/A
Expected Long-Term Rate of Return
on Plan Assets 10.00% 10.00% 10.00%
</TABLE>
The Company periodically revises the actuarial assumptions used for calculation
of net periodic pension cost and the projected benefit obligation to better
reflect current economic and market conditions. Effective January 1, 1997, the
Company revised the weighted average discount rate assumption. The net effect of
this change in assumption, as indicated above, was to increase net periodic
pension cost by $454 in 1997.
The Company also has a defined contribution savings plan which qualifies under
section 401(k) of the Internal Revenue Code, covering substantially all United
States employees, in which Company stock was one of several elective investment
options. As of May 10, 1996, the Board of Directors of the Company decided to
terminate the option 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. Employees may transfer funds out of this option quarterly
(transfers out are limited to 25% per quarter of the employee's balance if the
employee's balance in this option is greater than $5), resulting in the sale or
repurchase of stock by the Company. At December 31, 1998, the Plan holds 60,615
shares of the Company's stock with a value of $1,312.
The Company's international subsidiaries have defined contribution pension plans
covering substantially all full-time employees over the age of 21. Eligible
employees can elect contributory or noncontributory status, with contributions
related to compensation. Expenses related to these plans aggregated $1,680 in
1998, $1,699 in 1997, and $1,782 in 1996.
EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
Effective January 1, 1991, the Company's shareholders approved the establishment
of an ESOP, to provide substantially all of the Company's full-time United
States employees an additional opportunity to share in the ownership of the
Company's Common Stock. The ESOP is intended to be a "qualified" stock bonus
plan, as defined in the Internal Revenue Code. Contributions to the ESOP's trust
fund are discretionary based upon the operating performance of the Company and
will be used to purchase shares of Common Stock (see Note 7). The Company
reserves the right to amend, modify, or terminate the Plan, but in no event will
any portion of the contributions made revert to the Company. No contributions
were made for 1998, 1997, or 1996.
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998, 1997, and 1996, Law Companies Group, Inc.
(Dollars in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
7. SHAREHOLDERS' EQUITY
STOCK OPTION PLAN
The Company is authorized under the 1990 Stock Option Plan (the "Plan"), as
amended, to issue up to 500,000 shares of Common Stock to key employees. All
options granted have 10 year terms and vest and become fully exercisable at a
rate of 20% per year for five years of continued employment. The option price
per share and the date of exercise are determined by the Compensation Committee
of the Board of Directors at the time of grant. However, the option price per
share may not be less than the fair market value of the Company's Common Stock
on the grant date, with the options expiring ten years or less from the grant
date. At December 31, 1998, options to acquire 57,500, 500, 20,000, 7,500,
75,000, 201,000, 7,000, 10,000, and 78,000 shares of the Company's Common Stock
at $17.80, $29.63, $26.31, $16.91, $11.64, $12.61, $14.33, $14.82, and $19.54
per share, respectively, were outstanding under this Plan. At that date, options
to acquire 152,600 shares were exercisable.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25) and related Interpretations,
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
Accounting for Stock-Based Compensation (SFAS 123), requires use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB 25, because the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is required by
SFAS 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a Minimum Value
option pricing model with the following weighted-average assumptions for 1998,
1997, and 1996, respectively: risk-free interest rates of 5.6%, 5.7%, and 6.4%;
dividend yields of 0%; and a weighted-average expected life of the option of 7.6
years.
Option valuation models require the input of highly subjective assumptions
including the expected stock price volatility. Because the Company's employee
stock options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows.
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Pro Forma Net Income Available to Common
Shareholders $6,877 $3,043 $1,768
Pro Forma Earnings Per Common Share
Basic $ 3.49 $ 1.61 $ 0.93
Diluted $ 2.63 $ 1.48 $ 0.93
</TABLE>
Because SFAS 123 is applicable only to options granted subsequent to December
31, 1994, its pro forma effect will not be fully reflected until December 31,
1999.
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998, 1997, and 1996, Law Companies Group, Inc.
(Dollars in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
A summary of the Company's stock option activity, and related information for
the years ended December 31 follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Outstanding - Beginning of Year 398,000 330,750 274,500
Granted 89,000 228,000 136,500
Exercised -- -- --
Cancelled 30,500 160,750 80,250
Outstanding - End of Year 456,500 398,000 330,750
Exercisable - End of Year 152,600 98,600 177,250
Weighted Average Fair Value of Options Granted
During the Year $ 6.20 $ 4.16 $ 5.08
Weighted Average Exercise Price:
Outstanding - Beginning of Year $ 14.27 $ 17.61 $ 20.20
Granted $ 19.01 $ 12.66 $ 14.01
Exercised $ -- $ -- $ --
Cancelled $ 16.42 $ 18.86 $ 20.33
Outstanding - End of Year $ 15.05 $ 14.27 $ 17.61
Exercisable - End of Year $ 16.33 $ 18.77 $ 19.50
</TABLE>
Exercise prices for options outstanding as of December 31, 1998 ranged from
$11.64 to $29.63. The weighted-average remaining contractual life of those
options is 7.5 years.
SHARE REPURCHASES
As described in Note 6, Company Common Stock was previously an investment option
in the Company's 401(k) plan. In accordance with plan provisions, 20,913 and
33,422 shares were repurchased during 1998 and 1997 for $408 and $456,
respectively, related to transfers out of this investment option.
32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998, 1997, and 1996, Law Companies Group, Inc.
(Dollars in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
8. INCOME TAXES - The federal, state, and foreign components of the provision
for income taxes are as follows at December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
CURRENT INCOME TAXES:
Federal $7,390 $5,796 $3,243
State 1,677 1,156 478
Foreign 685 1,094 2,063
------ ------ ------
Total Current 9,752 8,046 5,784
DEFERRED INCOME TAXES:
Federal (3,709) (3,533) (2,513)
State (695) (643) (472)
Foreign 1,084 142 (184)
------ ------ ------
Total Deferred (3,320) (4,034) (3,169)
------ ------ ------
PROVISION FOR INCOME TAXES $6,432 $4,012 $2,615
====== ====== ======
</TABLE>
The foreign provision for income taxes is based on pre-tax earnings from foreign
operations of $4,367 in 1998, $3,112 in 1997, and $5,005 in 1996.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows at December 31:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Cash Basis of Accounting for Income Tax Purposes $ -- $ 4,501
Software Capitalization 2,281 2,238
Mark to Market Accounting for Accounts Receivable 1,030 1,224
Other - net 3,101 1,893
------- -------
Total Deferred Tax Liabilities 6,412 9,856
DEFERRED TAX ASSETS:
Depreciation 2,221 1,499
Employee Benefits 780 953
Non-Deductible Reserves 2,902 3,545
Loss Carry-Forwards 5,660 5,808
Other - net 188 218
------- -------
11,751 12,023
Valuation Allowance for Deferred Tax Assets (4,248) (4,396)
------- -------
Total Deferred Tax Assets 7,503 7,627
------- -------
Net Deferred Tax Assets (Liabilities) $ 1,091 $(2,229)
======= =======
</TABLE>
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998, 1997, and 1996, Law Companies Group, Inc.
(Dollars in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
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 was included in taxable income
over a four year period beginning in 1995.
Because the Company plans to continue to finance foreign expansion and operating
requirements by reinvestment of undistributed earnings of its foreign
subsidiaries, United States income taxes have not been provided on such
earnings. The amount of undistributed earnings which are considered to be
indefinitely reinvested is approximately $21,122 at December 31, 1998.
A reconciliation of the statutory U.S. income tax rate to the Company's
effective income tax rate is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Statutory U.S. Income Tax Rate 34.0% 34.0% 34.0%
State Taxes, net of Federal Benefit 4.4% 4.2% 0.1%
Income Tax in Jurisdictions Other than 34.0% 3.6% 2.4% (4.5%)
Permanent Differences Between
Book and Taxable Income 3.0% 13.0% 21.7%
Losses for Which No Benefit is Recognized -- -- 8.5%
Other (1.2%) (3.8%) (0.6%)
---- ---- ----
Effective Income Tax Rate 43.8% 49.8% 59.2%
</TABLE>
At December 31, 1998 the Company had $951 of operating loss carryforwards
related to foreign subsidiaries; $939 can be carried forward indefinitely. The
remaining $12 will expire in 2002. The Company has $3,152 of capital loss
carryforwards in foreign jurisdictions that can be carried forward indefinitely.
A valuation allowance has been provided for deferred tax assets related to loss
carryforwards and other reserves. The valuation allowance as of January 1, 1997
and 1996 was $3,007 and $2,332, respectively. Income tax payments amounted to
$8,639, $9,236, and $4,906 in 1998, 1997, and 1996, respectively.
9. CONSOLIDATED STATEMENTS OF CASH FLOWS
The changes in operating working capital as shown in the Consolidated Statements
of Cash Flows includes:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Decrease (Increase) in:
Billed Fees Receivable 44 (1,190) 1,473
Unbilled Work in Progress 433 (2,408) 2,734
Other Current Assets (824) (714) 2,322
Increase (Decrease) in:
Accounts Payable and Accrued Expenses (5,025) (1,568) (6,686)
Billings in Excess of Costs and Fees
Earned on Contracts in Progress (1,227) 948 4,744
------- ------- -------
Changes in Operating Working Capital Assets and
Liabilities, net of Effects of Business Acquisitions $(6,599) $(4,932) $ 4,587
======= ======= =======
</TABLE>
34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998, 1997, and 1996, Law Companies Group, Inc.
(Dollars in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
10. EARNINGS PER COMMON SHARE
The following table sets forth the computation of basic and diluted earnings per
common share:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- ------
<S> <C> <C> <C>
NUMERATOR:
Net Income $ 8,422 $ 4,081 $1,910
Preferred stock dividends and accretion (1,128) (742) --
------- ------- ------
Numerator for basic earnings per common share -
Income available to common shareholders 7,294 3,339 1,910
Effect of Dilutive Securities:
Preferred stock dividends and accretion 1,128 742 --
------- ------- ------
Numerator for diluted earnings per common share -
Income available to common shareholders $ 8,422 $ 4,081 $1,910
DENOMINATOR:
Denominator for basic earnings per common share -
Weighted-average shares 1,968 1,892 1,907
Effect of dilutive securities:
Employee Stock Options 93 22 --
Cumulative Convertible Redeemable Preferred Stock
And Associated Common Stock Warrants 957 638 --
Other Stock Options 29 -- --
------- ------- ------
Dilutive potential common shares 1,079 660 --
------- ------- ------
Denominator for diluted earnings per common
share - Adjusted weighted-average shares 3,047 2,552 1,907
======= ======= ======
Basic earnings per common share $ 3.71 $ 1.77 $ 1.00
======= ======= ======
Diluted earnings per common share $ 2.77 $ 1.60 $ 1.00
======= ======= ======
</TABLE>
11. COMPREHENSIVE INCOME
During 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. The new
disclosures required by SFAS 130 are recorded on the Statement of Operations in
the section entitled Reconciliation of Comprehensive Income.
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998, 1997, and 1996, Law Companies Group, Inc.
(Dollars in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
12. COMMITMENTS AND CONTINGENCIES
The Company is a party to a number of lawsuits and claims arising in the
ordinary course of its business. While the ultimate results of lawsuits or other
proceedings against the Company cannot be predicted with certainty, management
does not believe the ultimate costs of such actions, if any, in excess of
amounts provided in the consolidated financial statements will have a material
effect on the Company's consolidated financial position or results of
operations.
Beginning August 1, 1995, the holders of preferred stock of a wholly-owned
subsidiary issued in connection with the 1994 acquisition of HKS (the Company's
South African subsidiary) have had the option to require the Company to redeem
their shares at any time at a price equal to the appraised value per share as of
the preceding year-end.
13. SPECIAL CHARGES TO OPERATIONS
During 1998, 1997, and 1996, the Company recorded a $1,347, $2,126, and $410
charge, respectively, against operations to cover severance and related benefits
costs, early termination of leases and expected sublease shortfalls, disposition
of leasehold improvements and selected real estate, office relocation costs, and
other corporate charges related to its cost reduction initiatives. The majority
of these charges were paid in cash during the year in which they were recorded.
Any accrual amounts related primarily to severance liabilities were not material
as of December 31, 1998, 1997, and 1996.
14. FINANCIAL INSTRUMENTS
The Company's financial instruments at December 31, 1998 and 1997 consist
primarily of cash and cash equivalents and loans payable. Due to the short
maturities of the cash and cash equivalents, carrying amounts approximate the
respective fair values. The carrying amount for loans payable approximates fair
market value since the interest rates on these instruments are reset
periodically. Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of cash
investments and trade accounts receivable. Concentrations of credit risk with
respect to trade accounts receivable are limited due to the large number of
entities comprising the Company's customer base. The Company performs ongoing
credit evaluations of its customers' financial condition.
At December 31, 1998, the fair value of the Company's interest rate swap
agreement was ($552). There is no carrying amount associated with this
instrument.
15. BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION
During 1998, the Company adopted Statement of Financial Accounting Standards 131
(SFAS 131). SFAS 131 requires companies to disclose certain information on
operating segments in agreement with how those segments are managed. The
Company's operations are conducted principally in the United States and Europe.
Accordingly, the Company considers its operating segments to be defined as
United States Operations and International Operations. For financial reporting
purposes, International results are presented separately for operations in the
United Kingdom, Europe, Africa and other countries. The net fees for each
segment as described in the table below correspond directly to the net revenues
attributable to the geographic areas which are represented by these segments.
The table which follows represents combined disclosure for both business segment
and geographic area information.
36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998, 1997, and 1996, Law Companies Group, Inc.
(Dollars in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- ------
<S> <C> <C> <C>
NET FEES
United States Operations $179,315 $181,331 $190,401
International Operations United Kingdom 45,629 51,181 53,430
Europe - Other 22,799 19,769 20,171
Africa 22,347 20,087 17,018
Other 4,830 5,333 5,262
-------- -------- --------
Total $274,920 $277,701 $286,282
======== ======== ========
OPERATING INCOME
United States Operations $ 13,632 $ 9,361 $ 4,797
International Operations United Kingdom 1,696 1,499 4,019
Europe - Other 848 579 1,517
Africa 2,260 1,914 1,166
Other 571 441 175
-------- -------- --------
Total $ 19,007 $ 13,794 $ 11,674
======== ======== ========
IDENTIFIABLE ASSETS
United States Operations $ 84,801 $ 79,393 $ 72,530
International Operations United Kingdom 41,326 38,791 43,374
Europe - Other 4,875 2,987 2,756
Africa 15,636 19,388 15,420
Other 4,273 5,209 4,617
-------- -------- --------
Total $150,911 $145,768 $138,697
======== ======== ========
DEPRECIATION AND AMORTIZATION
United States Operations $ 4,562 $ 4,895 $ 5,822
International Operations United Kingdom 920 923 996
Europe - Other 459 356 376
Africa 686 512 452
Other 97 96 98
-------- -------- --------
Total $ 6,724 $ 6,782 $ 7,744
======== ======== ========
LONG LIVED ASSETS
United States Operations $ 24,163 $ 21,674 $ 19,030
International Operations United Kingdom 13,529 13,263 14,445
Europe - Other 1,596 1,021 918
Africa 3,351 4,122 3,503
Other 1,399 1,781 1,538
-------- -------- --------
Total $ 44,038 $ 41,861 $ 39,434
======== ======== ========
CAPITAL EXPENDITURES
United States Operations $ 5,446 $ 5,998 $ 2,313
International Operations United Kingdom 616 951 790
Europe - Other 307 367 298
Africa 388 793 513
Other 65 99 78
-------- -------- --------
Total $ 6,822 $ 8,208 $ 3,992
======== ======== ========
</TABLE>
37
<PAGE>
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
The Board of Directors and Shareholders
Law Companies Group, Inc.
We have audited the accompanying consolidated balance sheets of Law Companies
Group, Inc. as of December 31, 1998 and 1997, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Law Companies
Group, Inc. at December 31, 1998 and 1997, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Atlanta, Georgia
March 16, 1999
- --------------------------------------------------------------------------------
COMMON STOCK OUTSTANDING
There currently is no established trading market for shares of the Company's
Common Stock, and although substantially all of the outstanding shares have been
registered under applicable securities laws, no assurance can be given that a
liquid market will develop in the future or that quotations for the Common Stock
will be available. Additionally, the Company does not maintain stock price
information from transactions involving purchases and sales of outstanding
shares of Common Stock. The Company did not pay any dividends on its Common
Stock during the fiscal years ended December 31, 1998 or 1997. Further, the
Company's existing credit facility with Bank of America prohibits the payment of
cash dividends on the Company's Common Stock. As of December 31, 1998, there
were 1,460 holders of the Company's common stock.
38
EXHIBIT 21.01
LAW COMPANIES GROUP, INC.
DOMESTIC SUBSIDIARIES (INCLUDING PARTNERSHIPS)
<TABLE>
<CAPTION>
PLACE OF
SUBSIDIARY INCORPORATION OWNERSHIP
- -------------------------------- ----------------- ---------------------------------
<S> <C> <C>
Law International, Inc. Georgia Law Companies Group, Inc. (100%)
Gibb U.S.A., Inc. Delaware Law International, Inc. (100%)
Gibb International Holdings, Inc. Delaware Law International, Inc. (100%)
Law Engineering and
Environmental Services, Inc. Georgia Law Companies Group, Inc. (100%)
Law Environmental Consultants, Inc. Georgia LEES (100%)
Ensite, Inc. Kentucky LEES (100%)
LeRoy Crandall & Associates California Law Companies Group, Inc. (100%)
Law/Spear L.L.C. Georgia LE2S (50%);The Spear Group, Inc. (50%)
Law Testing Company, Inc. Georgia Law Companies Group, Inc. (100%)
Law Environmental - Caribe Georgia Partnership owned by various Company employees
Law Engineering &
Environmental Services/Michigan, Inc. Georgia LEES (100%)
Law Engineering & Environmental
Services of Oklahoma, Inc. Oklahoma LEES (100%)
IAM/Environmental, Inc. Texas Law Companies Group, Inc. (50%)
LEES (30%) , Ensite (20%)
</TABLE>
<PAGE>
LAW COMPANIES GROUP, INC.
INTERNATIONAL SUBSIDIARIES (INCLUDING PARTNERSHIPS)
<TABLE>
<CAPTION>
PLACE OF
SUBSIDIARY INCORPORATION OWNERSHIP
- -------------------------------- ----------------- ---------------------------------
<S> <C> <C>
Law International Thai Ltd Thailand Law International, Inc. (100%)
Gibb Africa Consulting Cyprus Gibb International Holdings, Inc. (100%)
Engineers Limited
Gibb Africa International Limited Cyprus Gibb Africa Consulting
Engineers Limited (100%)
Sir Alexander Gibb (Namibia) Republic of Gibb Africa International Limited (100%)
(Proprietary) Limited Namibia
Gibb Swaziland (Pty) Limited Swaziland Gibb Africa International Limited (100%)
Gibb (Lesotho) (Pty) Ltd Kingdom of Gibb Africa International Limited (100%)
Lesotho
Gibb (Botswana) (Proprietary) Limited Botswana Gibb Africa International Limited (100%)
Gibb Eastern Africa Limited Kenya Gibb Africa International Limited (100%)
Gibb (Malawi) Limited Malawi Gibb Africa International Limited (100%)
Gibb (Mauritius) Ltd Mauritius Gibb Africa International Limited (100%)
Gibb Africa SA (Pty) Ltd S. Africa Gibb Africa International Limited (100%)
Gibb Zimbabwe (Private) Limited Zimbabwe Gibb Africa International Limited (100%)
HKS-Law Gibb Share Trust S. Africa Gibb Africa (Pty) Ltd (70%)
(Proprietary) Limited
MAM Services (Pty) Ltd S. Africa Gibb Africa (Pty) Ltd (100%)
Geoscience Laboratories (Pty) Limited S. Africa Gibb Africa (Pty) Ltd (100%)
Hill Kaplan Scott (Ciskei) Incorporated Republic of Gibb Africa (Pty) Ltd (100%)
Ciskei
Hill Kaplan Scott (Transkei) Republic of Gibb Africa (Pty) Ltd (100%)
Incorporated Transkei
HKS Agriland (Proprietary) Limited S. Africa Hill Kaplan Scott (Ciskei)
Incorporated (51%)
Gibb Petermuller & Partners Cyprus Gibb International Holdings, Inc. (100%)
(Cyprus) Limited
Giban Danismanlik ve Muhendislik
Limited Siketi Turkey Gibb International Holdings, Inc. (50%)
Sir Alexander Gibb (Polska) Sp z o.o. Poland Gibb International Holdings, Inc. (100%)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Gibb Petermuller & Partners England Gibb International Holdings, Inc. (100%)
(Europe) Limited
Gibb Petermuller & Partners England Gibb International Holdings, Inc. (100%)
(Middle East) Limited
Gibb Petermuller & Partners, O.E. Greece Gibb Petermuller & Partners
(Midde East) Limited (50%)
Gibb Petermuller & Partners
(Europe) Limited (50%)
Gibb Holdings Ltd England Gibb International Holdings, Inc. (100%)
Sir Alexander Gibb Limited England Gibb Ltd (100%)
Gibb Ltd England Gibb Holdings Ltd (100%)
Law Companies Group, Ltd Jersey Law Companies Group, Inc. (98%)
Gibb Ltd. (1%)
Gibb-Anglian Limited England Gibb Ltd (50%)
Sir Alexander Gibb & Partners Ltd England Gibb Ltd (100%)
Westminster and Earley England Gibb Holdings Ltd (100%)
Services Limited
Gibb Tanacsadasi Kft Hungary Gibb Holdings Ltd (100%)
The Gibb Foundation Ltd England Gibb Holdings Ltd (100%)
WCML Development England Gibb Holdings Ltd (25%)
Company Limited
Prointec, S.A. Spain Gibb Holdings Ltd (20%)
Cripin Wride Architectural England Gibb Holdings Ltd (100%)
Design Studio Ltd
Nick Derbyshire Design England Gibb Holdings Ltd (100%)
Associates Limited
Gibb Overseas (Jersey) Limited Channel Islands Gibb International Holdings, Inc. (100%)
Gibb Hellas Consulting Engineers SA Greece Gibb International Holdings, Inc. (100%)
Gibb (Hong Kong) Limited Hong Kong Gibb Overseas (Jersey) Limited (100%)
Gibb Overseas Limited England Gibb Overseas (Jersey) Limited (100%)
Gibb Gulf E.C. State of Bahrain Gibb Overseas Limited (100%)
Gibb Australia Pty Limited Australia Gibb Overseas Limited (47%)
Gibb Africa (Pty) Ltd S. Africa Gibb Africa Consulting Engineers
Limited (100%)
African Consulting Engineers Botswana Gibb Africa (Pty) Ltd (!00%)
(Botswana) (Pty) Limited
Help Zone Ltd England Gibb Holdings Ltd (!00%)
LEX International Insurance Co. Ltd. Bermuda Law Companies Group, Inc. (100%)
Law Mexico, S.A. de C.V. (D.F. Max) Mexico LEES (90%)
Law Companies Group, Inc (10%)
Gibb Portugal Lda Portugal Gibb International Holdings, Inc.(99.95%)
Gibb Ltd (.05%)
</TABLE>
EXHIBIT 23.01
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-46702) pertaining to the 1990 Stock Option Plan of Law
Companies Group, Inc., the Registration Statement (Form S-8 No. 33-48096)
pertaining to the Employee Stock Purchase Plan of Law Companies Group, Inc., and
the Registration Statement (Form S-8 No. 33-99114) pertaining to the 401(k)
Savings Plan of Law Companies Group, Inc. of our report dated March 16, 1999,
with respect to the consolidated financial statements of Law Companies Group,
Inc. incorporated by reference in the Annual Report (Form 10-K) for the year
ended December 31, 1998.
Our audits also included the financial statement schedules of Law Companies
Group, Inc. listed in Item 14(a). These schedules are the resonsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedules referred to above,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth herein.
/s/ Ernst & Young LLP
------------------------
Ernst & Young LLP
Atlanta, Georgia
March 25, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1998, ITS
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1998 AND SCHEDULE II AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 11,022
<SECURITIES> 0
<RECEIVABLES> 59,569
<ALLOWANCES> 4,223
<INVENTORY> 31,464
<CURRENT-ASSETS> 106,873
<PP&E> 68,167
<DEPRECIATION> 44,725
<TOTAL-ASSETS> 150,911
<CURRENT-LIABILITIES> 67,813
<BONDS> 0
9,886
0
<COMMON> 2,046
<OTHER-SE> 26,996
<TOTAL-LIABILITY-AND-EQUITY> 150,911
<SALES> 311,162
<TOTAL-REVENUES> 311,162
<CGS> 0
<TOTAL-COSTS> 113,020
<OTHER-EXPENSES> 142,162
<LOSS-PROVISION> 731
<INTEREST-EXPENSE> 4,365
<INCOME-PRETAX> 14,698
<INCOME-TAX> 6,432
<INCOME-CONTINUING> 8,422
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,422
<EPS-PRIMARY> 3.71
<EPS-DILUTED> 2.77
</TABLE>
