<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 March 31, 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
- -------------------------------------------------------------------------------
(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 May 11, 2000 was 2,615,199.
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TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets
as of March 31, 2000 and December 31, 1999...........................1
Condensed Consolidated Statements of Income and Comprehensive Income
for the Quarters Ended March 31, 2000 and 1999.......................2
Condensed Consolidated Statements of Cash Flows
for the Quarters Ended March 31, 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 6. EXHIBITS AND REPORTS ON FORM 8-K....................8
SIGNATURE......................................................................9
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
LAWGIBB GROUP, INC.
(unaudited - dollars in thousands, except per share data)
March 31, December 31,
2000 1999
----------------- -----------------
Assets
Current assets:
Cash and cash equivalents $ 7,631 $ 11,612
Billed fees receivable,
net of allowance 59,767 56,274
Unbilled work in progress 28,572 26,853
Other current assets 7,727 8,170
----------------- -----------------
Total current assets 103,697 102,909
Property and equipment, net 15,677 16,527
Equity investments 1,959 2,132
Goodwill, net 12,673 12,270
Other assets, net 5,158 4,993
----------------- -----------------
Total assets $ 139,164 $ 138,831
================= =================
Liabilities and Shareholders' Equity
Current liabilities:
Short-term borrowings $ 1,330 $ 1,213
Accounts payable 14,086 13,870
Billings in excess of costs and fees
earned on contracts in progress 17,139 16,537
Current portion of long-term debt 4,442 4,549
Other accrued expenses 12,947 11,655
Other current liabilities 15,242 14,883
----------------- -----------------
Total current liabilities 65,186 62,707
Long-term debt 15,829 16,995
Deferred income taxes 2,959 3,026
Minority interest in equity of subsidiaries 176 176
Cumulative convertible redeemable preferred
stock; 963,398 issued and outstanding 9,913 9,907
Shareholders' equity:
Common stock--$1 par value:
authorized: 10,000,000 shares;
issued and outstanding: 2,614,724
shares in 2000 and 2,615,605 shares
in 1999 2,615 2,616
Additional paid - in capital 28,944 28,984
Retained earnings 23,588 22,703
Accumulated other comprehensive
loss (10,046) (8,283)
----------------- -----------------
45,101 46,020
----------------- -----------------
Total Liabilities and
Shareholders' Equity $ 139,164 $ 138,831
================= =================
See accompanying notes.
1
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
LAWGIBB GROUP, INC.
(unaudited - dollars in thousands, except per share data)
For the Quarter
Ended March 31
----------------------------------------------
2000 1999
------------------ -------------------
Gross fees $ 72,486 $ 74,905
Less: Cost of outside services 8,504 8,277
------------------ -------------------
Net fees 63,982 66,628
Direct costs and expenses:
Payroll 19,570 20,275
Job related expenses 7,100 7,039
------------------ -------------------
Gross profit 37,312 39,314
Indirect costs and expenses:
Payroll 15,842 16,469
Other expenses 19,376 18,772
------------------ -------------------
Operating income 2,094 4,073
Other:
Interest expense (180) (1,002)
Deferred financing costs (21) (23)
Other income (39) 27
------------------ -------------------
Income before income taxes
and equity investments 1,854 3,075
Income tax provision (686) (1,292)
Equity investments 41 (1)
------------------ -------------------
Net income 1,209 1,782
Less: Preferred stock dividend
and accretion (282) (282)
------------------ -------------------
Net income available to common
shareholders $ 927 $ 1,500
================== ===================
Earnings per common share
- basic $ .35 $ .73
================== ===================
Earnings per common share
- diluted $ .27 $ .53
================== ===================
Comprehensive Income
Net income $ 1,209 $ 1,782
Other comprehensive income:
Foreign currency
translation adjustment (1,763) (792)
------------------ -------------------
Comprehensive income (loss) $ (554) $ 990
================== ===================
See accompanying notes.
2
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
LAWGIBB GROUP, INC.
(unaudited - dollars in thousands)
For the Quarter
Ended March 31
-----------------------------
2000 1999
------------- ------------
Operating activities
Net income $ 1,209 $ 1,782
Adjustments to reconcile net income
to net cash used in operating
activities:
Depreciation and amortization 1,586 1,683
Provision for losses on receivables 123 119
Deferred income taxes (380) (34)
Undistributed losses from equity investments 41 1
Loss on disposal of property and equipment 45 5
Changes in operating assets and liabilities excluding
effect of acquired business:
Billed fees receivable (4,398) (1,435)
Unbilled work in progress (1,984) (735)
Other current assets 678 966
Accounts payable and accrued expenses (39) (2,507)
Billings in excess of costs and fees earned
on contracts in progress 1,314 (616)
------------- ------------
Net cash used in operating activities (1,805) (771)
Investing activities
Business acquisition, net of cash acquired (82) -
Purchases of property and equipment (626) (731)
Proceeds from disposal of property and equipment 42 29
Other, net (340) 524
------------- ------------
Net cash used by investing activities (1,006) (178)
Financing activities
Net proceeds on short-term borrowings 206 498
Net payments on revolving line of
credit and long-term borrowings (1,010) (2,395)
Proceeds from exercise of stock options 1 13
Repurchase and retirement of shares (84) (82)
Preferred dividends paid (200) (200)
------------- ------------
Net cash used in financing activities (1,087) (2,166)
Effect of exchange rate changes on cash (83) (86)
------------- ------------
Decrease in cash and cash equivalents (3,981) (3,201)
Cash and cash equivalents at beginning of period 11,612 11,022
------------- ------------
Cash and cash equivalents at end of period $ 7,631 $ 7,821
============= ============
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 SX. 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 at and for the first quarter ended
March 31, 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 first quarter ended March 31, 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.
BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION
For the Quarter Ended March 31
2000 1999
----------- ------------
Net Fees
United States Operations $ 41,128 $ 44,826
International Operations United Kingdom 11,883 7,656
Europe 5,711 4,371
Africa 4,145 5,985
Other 1,115 3,790
----------- -----------
$ 63,982 $ 66,628
Total =========== ===========
Operating Income
United States Operations $ 1,351 $ 3,579
International Operations United Kingdom 375 151
Europe 307 262
Africa (3) 26
Other 64 55
----------- -----------
Total $ 2,094 $ 4,073
=========== ===========
4
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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 Quarter Ended
March 31
-------------------------------------
2000 1999
-------------------------------------
Numerator:
Net income $ 1,209 $ 1,782
Preferred stock dividends and accretion (282) (282)
-------------------------------------
Numerator for basic earnings per common share -
Income available to common shareholders 927 1,500
Effect of dilutive securities:
Preferred stock dividends and accretion - -
-------------------------------------
Numerator for diluted earnings per common share-
Income available to common shareholders $ 927 $ 1,500
Denominator:
Denominator for basic earnings per common
share - Weighted-average shares 2,616 2,044
Effect of dilutive securities:
Employee Stock Options 169 157
Other Stock Options 73 106
Cumulative Convertible Redeemable
Preferred Stock and associated
Common Stock Warrants 583 548
-------------------------------------
Dilutive potential common shares 825 811
-------------------------------------
Denominator for diluted earnings per
common share - Adjusted weighted-
average shares 3,441 2,855
=====================================
Basic earnings per common share $ .35 $ .73
=====================================
Diluted earnings per common share $ .27 $ .53
=====================================
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following table sets forth, for the three 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 such items in the 2000 period from the comparable period in
the prior year. The Company measures its operating performance on the basis of
net fees since a substantial portion of gross fees flow through to clients as
costs of subcontractors and other project-specific outside services. Net fees
are determined by deducting the cost of these outside services from gross fees.
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.
Qtr to Qtr
Dollar
Quarters Ended Increase
March 31 (Decrease)
------------------------- -----------------
2000 1999 2000 vs. 1999
----------- ----------- -----------------
Net fees 100.0% 100.0% (4.0%)
Gross profit 58.3% 59.0% (5.1%)
Indirect costs and
expenses 55.1% 52.9% 0%
Operating income 3.3% 6.1% (48.6%)
Net income 1.9% 2.7% (32.2%)
RESULTS OF OPERATIONS
The International operations' operating income has increased 50.4% from $0.5
million in the first quarter of 1999 to $0.7 million in the first quarter of
2000. Net fees from International operations have increased 4.8% from $21.8
million in the first quarter of 1999 to $22.9 million in the first quarter of
2000 and the gross profit margin for the International operations has increased
to 48.7% in the first three months of 2000 from 48.4% for the same period in
1999. These improvements are due to the improved performance in European
markets, concentrated regionalization efforts which placed LawGibb's locations
closer to clients, and the start-up of projects that were delayed at the end of
1999.
The United States operations produced net fees of $41.1 million in the quarter
ended March 31, 2000. This represented a decrease of $3.7 million (8.3%) from
the first quarter of 1999. The gross profit margin for the United States
operations decreased slightly to 63.7% in the first quarter of 2000 from 64.2%
in the first quarter of 1999. This lower level of net fees produced operating
income for the United States operations of $1.4 million in the first three
months of 2000 versus $3.6 million in the same period in 1999. The net fees
decrease is primarily attributable to the decision in 1999 to exit certain
markets.
Consolidated net fees of $64.0 million for the first quarter of 2000 represented
a 4.0% decrease from net fees of $66.6 million for the same period in 1999. This
decrease is the result of decisions made in 1999 to exit certain markets,
changes made to strengthen the Company's contract terms in order to reduce risk
and avoid the heavy costs associated with high-risk contractual conditions, and
marketing efforts focused on larger and longer term projects. The Company
believes its' successful sales efforts in the first quarter of 2000 should
positively impact net fees in future periods.
The Company's gross profit margin approximated 58.3% for the first three months
of 2000 compared to 59.0% for the same period in 1999. Indirect costs and
expenses, which include expenses related to both operations support as well as
administrative support functions, were $35.2 million for the first quarter of
2000 as well as the first quarter of 1999. The Company continues to pursue cost
containment initiatives throughout the organization.
Interest expense decreased 82.0% from $1.0 million in the first three months of
1999 to $0.2 million in the first three months of 2000. The reason for this
decrease is due primarily to a reduction in Company debt. Debt has been
significantly reduced by $24.6 million from $46.2 million in the first quarter
of 1999 to $21.6 million in the first quarter of 2000.
6
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The effective income tax rate was 37.0% for the first quarter of 2000, compared
to 42.0% for the first quarter of 1999. This difference is primarily due to
losses recognized in 1999 for which no tax benefit was recorded.
For the first quarter of 2000, the Company recorded net income of $1.2 million
($.35 per common share - basic and $.27 per common share - diluted) which is a
decrease from $1.8 million in 1999 ($.73 per common share - basic and $.53 per
common share - diluted).
FINANCIAL CONDITION
Cash used in operations over the first quarter of 2000 of $1.8 million increased
from cash used in operations of $0.8 million during the first quarter of 1999.
This increase was primarily due to increased working capital requirements for
billed fees receivable as well as unbilled work in progress.
Capital expenditures during the first quarter of 2000 and the first quarter of
1999 were $0.6 million and $0.7 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 $21.6 million at March
31, 2000, compared to $22.8 million at December 31, 1999. Debt and short-term
borrowings as a percentage of total capitalization amounted to 28.2% at March
31, 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 three months of 2000, 3,497
shares were traded out of the Plan totaling $84,000.
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. These dividends totaled $0.2 million, or $0.21 per
preferred share for the three months ended March 31, 2000.
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 impact of foreign currency translation was significant during the first
quarter of 2000. The translation of the Company's foreign subsidiaries for the
first three months of 2000 resulted in a change of $1.8 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 March 31,
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
7
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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. On January 31, 2000, the Company received
approximately $0.5 million for the early termination of its interest rate swap
agreement. Except for the effect of foreign currency translation discussed
previously, there have been no other 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 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.00 Financial Data Schedule
(b) Reports on Form 8-K
None
8
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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: May 11, 2000
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-Q
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
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<FISCAL-YEAR-END> Dec-31-2000
<PERIOD-START> Jan-01-2000
<PERIOD-END> Mar-31-2000
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<COMMON> 2,615
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<SALES> 72,486
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