<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2000
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
LawGibb Group, Inc.
-------------------------------------------------
(Exact name of Registrant as specified in its charter)
Georgia 58-0537111
------------------------------------ ----------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
1105 Sanctuary Parkway, Suite 300, Alpharetta, GA 30004
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(Address of principal executive offices) (Zip code)
(770) 360-0600
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| NO |_|
The number of shares of Common Stock of the Company, par value $1.00 per share,
outstanding at August 11, 2000 was 2,612,061.
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TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets
as of June 30, 2000 and December 31, 1999............................1
Condensed Consolidated Statements of Income and Comprehensive
Income for the Quarters and Six-Month Periods Ended
June 30, 2000 and 1999...............................................2
Condensed Consolidated Statements of Cash Flows
for the Six-Month Periods Ended June 30, 2000 and 1999...............3
.
Notes to Condensed Consolidated
Financial Statements.................................................4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL
CONDITION ..........................................6
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK...................................8
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.............................................8
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K....................8
SIGNATURE......................................................................9
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
LAWGIBB GROUP, INC.
(unaudited - dollars in thousands, except per share data)
June 30, December 31,
2000 1999
----------------- -----------------
Assets
Current assets:
Cash and cash equivalents $ 6,076 $ 11,612
Billed fees receivable,
net of allowance 62,920 56,274
Unbilled work in progress 31,212 26,853
Other current assets 7,539 8,170
----------------- -----------------
Total current assets 107,747 102,909
Property and equipment, net 16,119 16,527
Equity investments 2,003 2,132
Goodwill, net 12,108 12,270
Other assets, net 4,746 4,993
----------------- -----------------
Total Assets $ 142,723 $ 138,831
================= =================
Liabilities and Shareholders' Equity
Current liabilities:
Short-term borrowings $ 1,274 $ 1,213
Accounts payable 14,130 13,870
Billings in excess of costs and fees
earned on contracts in progress 15,157 16,537
Current portion of long-term debt 4,463 4,549
Other accrued expenses 10,628 11,655
Other current liabilities 16,923 14,883
----------------- -----------------
Total current liabilities 62,575 62,707
Long-term debt 20,120 16,995
Deferred income taxes 2,003 3,026
Minority interest in equity of subsidiaries 148 176
Cumulative convertible redeemable preferred
stock; 963,398 issued and outstanding 9,918 9,907
Shareholders' equity:
Common stock--$1 par value;
authorized: 10,000,000 shares;
issued and outstanding: 2,612,061
shares in 2000 and 2,615,605 shares
in 1999 2,612 2,616
Additional paid-in capital 28,917 28,984
Retained earnings 26,638 22,703
Accumulated other comprehensive
loss (10,208) (8,283)
----------------- -----------------
47,959 46,020
----------------- -----------------
Total Liabilities and
Shareholders' Equity $ 142,723 $ 138,831
================= =================
See accompanying notes.
1
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<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
LAWGIBB GROUP, INC.
(unaudited - in thousands, except per share data)
For the Quarters For the Six Months
Ended June 30 Ended June 30
---------------------------------- -----------------------------------
2000 1999 2000 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Gross fees $75,844 $77,090 $148,330 $151,995
Less: Cost of outside services 9,221 9,772 17,725 18,049
--------------- --------------- --------------- ---------------
Net fees 66,623 67,318 130,605 133,946
Direct costs and expenses:
Payroll 20,016 20,256 39,586 40,531
Job related expenses 8,325 7,409 15,425 14,448
--------------- --------------- --------------- ---------------
Gross profit 38,282 39,653 75,594 78,967
Indirect costs and expenses:
Payroll 15,011 15,513 30,853 31,982
Other expenses 18,003 17,982 37,379 36,754
--------------- --------------- --------------- ---------------
Operating income 5,268 6,158 7,362 10,231
Other:
Interest expense (445) (971) (625) (1,973)
Deferred financing costs (7) (23) (28) (46)
Other income (expense) 14 23 (25) 50
--------------- --------------- --------------- ---------------
Income before income taxes and
equity investments 4,830 5,187 6,684 8,262
Income tax provision (1,453) (2,178) (2,139) (3,470)
Equity investments (1) (17) 40 (18)
--------------- --------------- --------------- ---------------
Net income 3,376 2,992 4,585 4,774
Less: Preferred stock dividend and
accretion (282) (282) (564) (564)
--------------- --------------- --------------- ---------------
Net income available to common
shareholders $ 3,094 $ 2,710 $ 4,021 $ 4,210
=============== =============== =============== ===============
Earnings per common share - basic $ 1.18 $ 1.33 $ 1.54 $ 2.06
=============== =============== =============== ===============
Earnings per common share - diluted $ .89 $ .89 $ 1.18 $ 1.44
=============== =============== =============== ===============
Comprehensive Income
Net income $ 3,376 $ 2,992 $ 4,585 $ 4,774
Other comprehensive income:
Foreign currency translation
adjustment (162) (867) (1,925) (1,658)
--------------- --------------- --------------- ---------------
Comprehensive income $ 3,214 $ 2,125 $ 2,660 $ 3,116
=============== =============== =============== ===============
</TABLE>
See accompanying notes.
2
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
LAWGIBB GROUP, INC.
(unaudited - dollars in thousands)
For the Six Months
Ended June 30
-----------------------------
2000 1999
------------- ------------
Operating activities
Net income $ 4,585 $ 4,774
Adjustments to reconcile net income
to net cash provided by (used in) operating
activities:
Depreciation and amortization 3,176 3,397
Provision for losses on receivables 208 333
Deferred income taxes (1,835) 3
Undistributed losses from equity investments 40 18
Loss on disposal of property and equipment 57 34
Changes in operating assets and liabilities:
Billed fees receivable (8,470) (2,462)
Unbilled work in progress (5,120) (1,337)
Other current assets 957 1,151
Accounts payable and accrued expenses 894 (3,218)
Billings in excess of costs and fees earned
on contracts in progress (81) (1,398)
------------- ------------
Net cash (used in) provided by operating activities (5,589) 1,295
Investing activities
Business acquisitions, net of cash acquired (423) -
Purchases of property and equipment (2,467) (1,812)
Proceeds from disposal of property and equipment 70 71
Other, net (115) 1,172
------------- ------------
Net cash used in investing activities (2,935) (569)
Financing activities
Net proceeds on short-term borrowings 189 431
Net proceeds (payments) on revolving line of
credit and long-term borrowings 3,632 (4,160)
Proceeds from exercise of stock options 23 11,700
Repurchase and retirement of shares (139) (184)
Preferred dividends paid (400) (400)
------------- ------------
Net cash provided by financing activities 3,305 7,387
Effect of exchange rate changes on cash (317) (89)
------------- ------------
(Decrease) increase in cash and cash equivalents (5,536) 8,024
Cash and cash equivalents at beginning of period 11,612 11,022
------------- ------------
Cash and cash equivalents at end of period $ 6,076 $ 19,046
============= ============
See accompanying notes.
3
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
LAWGIBB GROUP, INC.
(unaudited - dollars in thousands, except per share data)
NOTE 1 - There have been no significant changes in the accounting policies of
the Company during the periods presented. For a description of these policies,
see Note 1 of Notes to Consolidated Financial Statements for the year ended
December 31, 1999 in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999 (the "Form 10-K").
NOTE 2 - The unaudited condensed consolidated financial statements presented
herein have been prepared in accordance with generally accepted accounting
principles for interim financial statements and the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and note disclosures required by generally accepted accounting
principles required for complete financial statements. These statements should
be read in conjunction with the Consolidated Financial Statements and Notes for
the year ended December 31, 1999 included in the Form 10-K. The accompanying
condensed consolidated financial statements for the quarter and six months ended
June 30, 2000 and 1999 have not been audited by independent auditors in
accordance with generally accepted auditing standards, but in the opinion of
management such financial statements include all adjustments, consisting only of
normal recurring adjustments, necessary to summarize fairly the Company's
consolidated financial position and results of operations. The results of
operations for the six months ended June 30, 2000 may not be indicative of the
results that may occur during the year ending December 31, 2000.
NOTE 3 - The Company's operations are conducted principally in the United
States, Europe, and Africa. Accordingly, the Company considers its operating
segments to be defined as United States Operations and International Operations.
For financial reporting purposes, International Operations 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
that are represented by these segments. Inter-segment revenues related to these
geographic areas were not material. The table that follows represents combined
disclosure for both business segment and geographic area information.
For the Quarters Ended For the Six Months Ended
June 30 June 30
----------------------- -------------------------
2000 1999 2000 1999
----------- ----------- ------------ -----------
Net Fees
United States Operations $ 43,928 $ 45,226 $ 85,056 $ 90,052
International Operations
United Kingdom 11,273 7,372 23,156 15,028
Europe 5,488 4,460 11,199 8,831
Africa 4,856 6,490 9,001 12,475
Other 1,078 3,770 2,193 7,560
----------- ----------- ------------ -----------
Total $ 66,623 $ 67,318 $ 130,605 $ 133,946
=========== =========== ============ ===========
Operating Income
United States Operations $ 4,085 $ 5,070 $ 5,436 $ 8,649
International Operations
United Kingdom 430 122 815 273
Europe 229 345 552 607
Africa 500 483 466 509
Other 24 138 93 193
----------- ----------- ------------ -----------
Total $ 5,268 $ 6,158 $ 7,362 $ 10,231
=========== =========== ============ ===========
4
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<TABLE>
<CAPTION>
NOTE 4 - Computation of Earnings Per Common Share
The following table sets forth the computation of basic and diluted earnings per
common share:
For the Quarters Ended For the Six Months Ended
June 30 June 30
-------------------------------------------------------------------------
2000 1999 2000 1999
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Numerator:
Net income $ 3,376 $ 2,992 $ 4,585 $ 4,774
Preferred stock dividends and accretion (282) (282) (564) (564)
----------------------------------- -------------------------------------
Numerator for basic earnings per common
share - Income available to common
shareholders 3,094 2,710 4,021 4,210
Effect of dilutive securities:
Preferred stock dividends and accretion 282 282 -- 564
----------------------------------- -------------------------------------
Numerator for diluted earnings per common
share - Income available to common
shareholders $ 3,376 $ 2,992 $ 4,021 $ 4,774
=================================== =====================================
Denominator:
Denominator for basic earnings per common
share - Weighted-average shares 2,614 2,042 2,615 2,044
Effect of dilutive securities:
Employee Stock Options 147 178 158 167
Other Stock Options 65 165 69 136
Cumulative Convertible Redeemable
Preferred Stock and associated Common
Stock Warrants 963 963 563 963
----------------------------------- -------------------------------------
Dilutive potential common shares 1,175 1,306 790 1,266
----------------------------------- -------------------------------------
Denominator for diluted earnings per common
share - Adjusted weighted-average shares 3,789 3,348 3,405 3,310
=================================== =====================================
Basic earnings per common share $ 1.18 $ 1.33 $ 1.54 $ 2.06
=================================== =====================================
Diluted earnings per common share $ .89 $ .89 $ 1.18 $ 1.44
=================================== =====================================
</TABLE>
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATION AND
FINANCIAL CONDITION
The following table sets forth, for the quarters and six months indicated, (i)
the percentage of net fees represented by certain items reflected in the
Company's condensed consolidated statements of income and (ii) the percentage
increase or decrease in each of these items in the 2000 periods from the
comparable periods in the prior year. The Company measures its operating
performance on the basis of net fees since a substantial portion of gross fees
flow through to clients as costs of subcontractors and other project-specific
outside services. Net fees are determined by deducting the cost of these outside
services from gross fees. The following table and the subsequent discussion
should be read in conjunction with the Condensed Consolidated Financial
Statements and Notes to Condensed Consolidated Financial Statements contained
elsewhere in this Form 10-Q.
<TABLE>
<CAPTION>
Qtr to Qtr YTD
Dollar Dollar
Quarters Ended Increase Six Month Periods Ended Increase
June 30 (Decrease) June 30 (Decrease)
-------------------------- ---------------- --------------------------- -----------------
2000 1999 2000 vs. 1999 2000 1999 2000 vs. 1999
----------- ------------ ---------------- ------------- ------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
Net fees 100.0% 100.0% (1.0%) 100.0% 100.0% (2.5%)
Gross profit 57.5% 58.9% (3.5%) 57.9% 59.0% (4.3%)
Indirect costs and
Expenses 49.6% 49.8% (1.4%) 52.2% 51.3% (0.7%)
Operating income 7.9% 9.1% (14.5%) 5.6% 7.6% (28.0%)
Net income 5.1% 4.4% 12.8% 3.5% 3.6% (4.0%)
</TABLE>
RESULTS OF OPERATIONS
The International operations' operating income has increased 21.8% from $1.6
million in the first six months of 1999 to $1.9 million in the first six months
of 2000. Operating income from International operations for the second quarter
of 2000 increased 8.7% to $1.2 million in the second quarter of 2000 from $1.1
million in the second quarter of 1999. Net fees from International operations
have increased 2.7% to $22.7 million for the second quarter of 2000 from $22.1
million for the second quarter of 1999 and increased 3.8% to $45.5 million for
the six months ended June 30, 2000 compared to $43.9 million for the first six
months of 1999. These improvements are due to the improved performance in
European markets, concentrated regionalization efforts which placed LawGibb's
locations closer to clients, the start-up of projects that were delayed at the
end of 1999, and improved performance in South Africa as a result of cost
reductions implemented in the latter half of 1999.
The United States operations produced net fees of $43.9 million in the quarter
ended June 30, 2000. This represented a decrease of $1.3 million (2.9%) from the
second quarter of 1999. Net fees for the United States operations for the six
months ended June 30, 2000 were $85.1 million compared to $90.1 million for the
first six months of 1999. The gross profit margin for the United States
operations decreased slightly to 63.4% for the first six months of 2000 from
64.1% in the first six months of 1999. The United States operations gross profit
margin for the second quarter of 2000 and 1999 were 63.1% and 64.0%,
respectively. Operating income for the United States operations was $4.1 million
in the second quarter of 2000 versus $5.1 million in the same period in 1999.
For the six months ended June 30, 2000 and 1999, operating income was $5.4
million and $8.6 million, respectively. The United States operations continue to
concentrate on growing net fees which have been affected by the decision in 1999
to exit certain markets. Since January 2000 net fees per workday in the United
States operations have shown a consecutive improvement on a month to month
basis.
Consolidated net fees of $130.6 million for the first six months of 2000
represented a 2.5% decrease from net fees of $133.9 million for the same period
in 1999. Consolidated net fees for the second quarter of 2000 and 1999 were
$66.6 million and $67.3 million, respectively, which represent a 1.0% decrease.
The Company believes its successful sales efforts in the first six months of
2000 should positively impact net fees in future periods.
6
<PAGE>
The Company's gross profit margin was 57.9% for the first six months of 2000
compared to 59.0% for the same period in 1999. The Company's gross profit margin
was 57.5% for the second quarter of 2000 compared to 58.9% for the same period
in 1999. The Company experienced increased project related costs during these
periods, which negatively impacted its gross profit margin. Indirect costs and
expenses, which include expenses related to both operations support as well as
administrative support functions, were $68.2 million for the first six months of
2000 compared to $68.7 in the first six months of 1999. The Company continues to
maintain effective control of indirect expenses.
Interest expense was $0.4 million and $0.6 million for the second quarter and
first six months of 2000, respectively. This compares to interest expense of
$1.0 million and $2.0 million for the second quarter and first six months of
1999, respectively. These decreases were primarily the result of the reduction
of the Company's outstanding debt. Debt has been significantly reduced by $18.5
million from $44.4 million in the second quarter of 1999 to $25.9 million in the
second quarter of 2000.
The effective income tax rate was 32.0% for the first six months of 2000,
compared to 42.0% for the first six months of 1999. The decrease in the
effective tax rate results from adjustments for balance sheet tax accruals that
were deemed to be no longer necessary.
For the second quarter of 2000, the Company recorded net income of $3.4 million
($1.18 per common share - basic and $.89 per common share - diluted) which is an
increase from $3.0 million in 1999 ($1.33 per common share basic and $.89 per
common share - diluted). For the first six months of 2000, the Company recorded
net income of $4.6 million ($1.54 per common share - basic and $1.18 per common
share - diluted) which is a decrease from $4.8 million in 1999 ($2.06 per common
share - basic and $1.44 per common share - diluted).
FINANCIAL CONDITION
Cash used in operations over the first six months of 2000 was $5.6 million as
compared to cash provided by operations of $1.3 million during the first six
months of 1999. This increased need for cash was primarily due to increased
working capital requirements for billed fees receivable as well as unbilled work
in progress.
Capital expenditures during the first six months of 2000 and the first six
months of 1999 were $2.5 million and $1.8 million, respectively. In order to
continue to enhance productivity the Company has continued, and will continue,
its capital spending programs, particularly for computer and other
technology-related equipment. The Company believes that the capital spending
amount allowed by its credit facility ($7.0 million per year) is sufficient to
meet foreseeable requirements.
The Company reported debt and short-term borrowings of $25.9 million at June 30,
2000, compared to $22.8 million at December 31, 1999. This increase reflects
increased working capital and capital expenditure needs, offset by effective
utilization of existing cash balances. Debt and short-term borrowings as a
percentage of total capitalization amounted to 30.9% at June 30, 2000, compared
to 28.9% at December 31, 1999.
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 its credit facility
will be sufficient to meet its requirements for the foreseeable future.
The Company's 401(k) Savings Plan (the "Plan") permitted employees to elect to
invest their Plan contributions in Company Common Stock, and provided that the
Company's matching contributions, if any, under the Plan be made in the form of
Company Common Stock. As of May 10, 1996, the Board of Directors of the Company
decided to terminate the use of Company Common Stock under the Plan, whether as
employee contributions or as Company matching contributions. Consistent with
that decision, employees are allowed to trade out of (but not into) shares of
the Company's Common Stock held in their individual 401(k) accounts, in
accordance with Plan provisions. Over the first six months of 2000, 5,934 shares
were traded out of the Plan totaling $139,000.
Cash dividends on Common Stock have been and continue to be prohibited under the
current and previous bank credit facilities. As required by the terms of the
Company's outstanding Cumulative Convertible Redeemable Preferred Stock and
permitted by the credit facility, the Company paid dividends to the holders of
the Preferred Stock. For the second quarter, dividends totaled $0.2 million, or
$0.21 per preferred share. For the six months ended June 30, 2000, dividends
totaled $0.4 million, or $0.42 per preferred share.
7
<PAGE>
General economic inflation had the effect of increasing the Company's basic
costs of operations. These increased costs were generally recovered through
increases in contract prices.
The foreign currency translation of the Company's foreign subsidiaries for the
first six months of 2000 resulted in a change of $1.9 million in the foreign
currency translation adjustment component of shareholders' equity. This
component is reported on the Company's condensed consolidated balance sheet in
the line item entitled Accumulated Other Comprehensive Loss. This fluctuation
was caused primarily by increased strength of the U.S. dollar relative to the
pound sterling and the South African rand from December 31, 1999 to June 30,
2000.
Forward Looking Statements - This Quarterly Report on Form 10-Q contains
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 which represent the Company's expectations or
beliefs. 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 uncertain timing of awards and contracts, increasing competition by foreign
and domestic competitors, general economic and regulatory conditions in each of
the geographic regions served by the Company, industry trends, and other risks
could cause actual results or outcomes to differ materially from those expressed
in any forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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. Except for the effect of foreign currency
translation discussed previously, there have been no material changes in these
exposures during the periods presented. For a description of these market risks,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Company's Form 10-K.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Shareholders was held May 8, 2000 in Alpharetta,
Georgia for the purpose of considering and voting on a proposal (the" Proposal")
to elect seven (7) directors to serve on the Board of Directors of the Company
until the 2001 Annual Meeting and until their successors are duly elected and
qualified.
The votes for the Proposal are detailed below:
Directors For Withheld
------------------------ ----------- -----------
Bruce C. Coles 1,693,266 106,993
Peter D. Brettell 1,757,244 43,015
Robert B. Fooshee 1,668,498 131,762
Walter T. Kiser 1,766,202 34,057
Steven Muller 1,771,089 29,170
Clay E. Sams 1,766,143 34,116
John Y. Williams 1,773,414 26,846
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule for the six months ended
June 30, 2000.
(b) Reports on Form 8-K
None
8
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant, LawGibb Group, Inc., has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
LAWGIBB GROUP, INC.
/s/ Robert B. Fooshee
------------------------------------------------------------
Robert B. Fooshee
Executive Vice President, Chief Financial Officer and
Treasurer
Dated: August 11, 2000
9
