<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 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.
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(Exact name of Registrant as specified in its charter)
Georgia 58-0537111
------------------------------------ ----------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
1105 Sanctuary Parkway, Suite 300, Alpharetta, GA 30004
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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 November 13, 2000 was 2,609,954.
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TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets
as of September 30, 2000 and December 31, 1999.......................1
Condensed Consolidated Statements of Income and Comprehensive
Income for the Quarters and Nine-Month Periods Ended
September 30, 2000 and 1999..........................................2
Condensed Consolidated Statements of Cash Flows
for the Nine-Month Periods Ended September 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 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)
September 30, December 31,
2000 1999
----------------- -----------------
Assets
Current assets:
Cash and cash equivalents $ 6,542 $ 11,612
Billed fees receivable,
net of allowance 63,249 56,274
Unbilled work in progress 32,064 26,853
Other current assets 8,553 8,170
----------------- -----------------
Total current assets 110,408 102,909
Property and equipment, net 15,697 16,527
Equity investments 1,251 2,132
Goodwill, net 11,869 12,270
Other assets, net 4,480 4,993
----------------- -----------------
Total Assets $ 143,705 $ 138,831
================= =================
Liabilities and Shareholders' Equity
Current liabilities:
Short-term borrowings $ 1,234 $ 1,213
Accounts payable 15,072 13,870
Billings in excess of costs and fees
earned on contracts in progress 16,622 16,537
Current portion of long-term debt 4,498 4,549
Other accrued expenses 13,177 11,655
Other current liabilities 15,111 14,883
----------------- -----------------
Total current liabilities 65,714 62,707
Long-term debt 17,817 16,995
Deferred income taxes 1,683 3,026
Minority interest in equity of subsidiaries 148 176
Cumulative convertible redeemable preferred
stock; 963,398 issued and outstanding 9,923 9,907
Shareholders' equity:
Common stock--$1 par value;
authorized: 10,000,000 shares;
issued and outstanding: 2,609,954
shares in 2000 and 2,615,605 shares
in 1999 2,610 2,616
Additional paid-in capital 28,894 28,984
Retained earnings 29,449 22,703
Accumulated other comprehensive
loss (12,533) (8,283)
----------------- -----------------
48,420 46,020
----------------- -----------------
Total Liabilities and
Shareholders' Equity $ 143,705 $ 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 Nine Months
Ended September 30 Ended September 30
---------------------------------- -----------------------------------
2000 1999 2000 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Gross fees $79,029 $76,243 $227,359 $228,237
Less: Cost of outside services 12,748 12,346 30,473 30,394
--------------- --------------- --------------- ---------------
Net fees 66,281 63,897 196,886 197,843
Direct costs and expenses:
Payroll 20,364 19,306 59,950 59,837
Job related expenses 7,559 7,655 22,984 22,103
--------------- --------------- --------------- ---------------
Gross profit 38,358 36,936 113,952 115,903
Indirect costs and expenses:
Payroll 15,236 15,106 46,089 47,088
Other expenses 18,125 18,329 55,504 55,083
--------------- --------------- --------------- ---------------
Operating income 4,997 3,501 12,359 13,732
Other:
Interest expense (482) (648) (1,107) (2,621)
Deferred financing costs (14) (17) (42) (63)
Other income (expense) 19 (143) (6) (93)
--------------- --------------- --------------- ---------------
Income before income taxes and
equity investments 4,520 2,693 11,204 10,955
Income tax provision (1,446) (1,131) (3,585) (4,601)
Equity investments 45 20 85 2
--------------- --------------- --------------- ---------------
Net income 3,119 1,582 7,704 6,356
Less: Preferred stock dividend and
accretion (282) (282) (846) (846)
--------------- --------------- --------------- ---------------
Net income available to common
shareholders $ 2,837 $ 1,300 $ 6,858 $ 5,510
=============== =============== =============== ===============
Earnings per common share - basic $ 1.09 $ 0.50 $ 2.62 $ 2.46
=============== =============== =============== ===============
Earnings per common share - diluted $ 0.82 $ 0.38 $ 2.03 $ 1.77
=============== =============== =============== ===============
Comprehensive Income
Net income $ 3,119 $ 1,582 $ 7,704 $ 6,356
Other comprehensive income:
Foreign currency translation
adjustment (2,325) 936 (4,250) (723)
--------------- --------------- --------------- ---------------
Comprehensive income $ 794 $ 2,518 $ 3,454 $ 5,633
=============== =============== =============== ===============
</TABLE>
See accompanying notes.
2
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
LAWGIBB GROUP, INC.
(unaudited - dollars in thousands)
For the Nine Months
Ended September 30
-----------------------------
2000 1999
------------- ------------
Operating activities
Net income $ 7,704 $ 6,356
Adjustments to reconcile net income
to net cash provided by (used in) operating
activities:
Depreciation and amortization 4,782 5,097
Provision for losses on receivables 345 475
Deferred income taxes (2,322) 1
Undistributed losses from equity investments 85 2
Loss on disposal of property and equipment 81 100
Changes in operating assets and liabilities:
Billed fees receivable (10,019) (6,628)
Unbilled work in progress (6,391) 1,084
Other current assets 118 1,754
Accounts payable and accrued expenses 2,511 (3,162)
Billings in excess of costs and fees earned
on contracts in progress 1,773 448
------------- ------------
Net cash (used in) provided by operating activities (1,333) 5,527
Investing activities
Business acquisitions, net of cash acquired (433) -
Purchases of property and equipment (3,723) (2,461)
Proceeds from disposal of property and equipment 113 3,815
Other, net (174) (124)
------------- ------------
Net cash (used in) provided by investing activities (4,217) 1,230
Financing activities
Net proceeds on short-term borrowings 223 127
Net proceeds (payments) on revolving line of
credit and long-term borrowings 1,563 (18,393)
Proceeds from exercise of stock options 23 11,727
Repurchase and retirement of shares (191) (420)
Preferred dividends paid (600) (600)
------------- ------------
Net cash provided by (used in)financing activities 1,018 (7,559)
Effect of exchange rate changes on cash (538) (228)
------------- ------------
Decrease in cash and cash equivalents (5,070) (1,030)
Cash and cash equivalents at beginning of period 11,612 11,022
------------- ------------
Cash and cash equivalents at end of period $ 6,542 $ 9,992
============= ============
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 nine months
ended September 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 nine months ended September 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. Certain
prior period amounts have been reclassified to be consistent with the September
30, 2000 and December 31, 1999 presentation.
For the Quarters Ended For the Nine Months Ended
September 30 September 30
----------------------- -------------------------
2000 1999 2000 1999
----------- ----------- ------------ -----------
Net Fees
United States Operations $ 44,510 $ 42,456 $ 129,566 $ 132,508
International Operations
United Kingdom 10,915 9,811 34,069 29,897
Europe 5,157 5,813 16,356 17,712
Africa 4,670 4,591 13,671 13,988
Other 1,029 1,226 3,224 3,738
----------- ----------- ------------ -----------
Total $ 66,281 $ 63,897 $ 196,886 $ 197,843
=========== =========== ============ ===========
Operating Income
United States Operations $ 4,924 $ 4,100 $ 10,360 $ 12,749
International Operations
United Kingdom (200) (301) 615 551
Europe 5 (186) 557 272
Africa 292 (204) 758 (17)
Other (24) 92 69 177
----------- ----------- ------------ -----------
Total $ 4,997 $ 3,501 $ 12,359 $ 13,732
=========== =========== ============ ===========
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 Nine Months Ended
September 30 September 30
-------------------------------------------------------------------------
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Numerator:
Net income $ 3,119 $ 1,582 $ 7,704 $ 6,356
Preferred stock dividends and accretion (282) (282) (846) (846)
----------------------------------- -------------------------------------
Numerator for basic earnings per common
share - Income available to common
shareholders 2,837 1,300 6,858 5,510
Effect of dilutive securities:
Preferred stock dividends and accretion 282 -- 846 --
----------------------------------- -------------------------------------
Numerator for diluted earnings per common
share - Income available to common
shareholders $ 3,119 $ 1,300 $ 7,704 $ 5,510
=================================== =====================================
Denominator:
Denominator for basic earnings per common
share - Weighted-average shares 2,611 2,622 2,614 2,239
Effect of dilutive securities:
Employee Stock Options 147 199 154 191
Other Stock Options 66 68 90
Cumulative Convertible Redeemable
Preferred Stock and associated Common
Stock Warrants 963 614 963 588
----------------------------------- -------------------------------------
Dilutive potential common shares 1,176 813 1,185 869
----------------------------------- -------------------------------------
Denominator for diluted earnings per common
share - Adjusted weighted-average shares 3,787 3,435 3,799 3,108
=================================== =====================================
Basic earnings per common share $ 1.09 $ 0.50 $ 2.62 $ 2.46
=================================== =====================================
Diluted earnings per common share $ 0.82 $ 0.38 $ 2.03 $ 1.77
=================================== =====================================
</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 nine 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 Nine Month Dollar
Quarters Ended Increase Periods Ended Increase
September 30 (Decrease) September 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% 3.7% 100.0% 100.0% (0.5%)
Gross profit 57.9% 57.8% 3.9% 57.9% 58.6% (1.7%)
Indirect costs and
expenses 50.3% 52.3% (0.2%) 51.6% 51.6% (0.6%)
Operating income 7.5% 5.5% 42.7% 6.3% 6.9% (10.0%)
Net income 4.7% 2.5% 97.2% 3.9% 3.2% 21.2%
</TABLE>
RESULTS OF OPERATIONS
Third quarter 2000 produced several positive results, highlighting the Company's
efforts to grow revenues while continuing to contain costs: consolidated net
fees increased 3.7% ($2.4 million) to $66.3 million from $63.9 million in the
third quarter 1999; gross profit margin improved slightly from 57.8% to 57.9%
when comparing third quarter 1999 with third quarter 2000; and indirect costs
and expenses, operating income and net income each improved as a percentage of
net fees compared to third quarter 1999. While the nine month period ended
September 30, 2000 produced a 0.5% decrease in consolidated net fees (from
$197.8 million in 1999 to $196.9 million in 2000), the Company believes that the
third quarter 2000 results position it positively moving into the fourth quarter
of 2000.
Net fees from the Company's United States operations increased 4.8% from $42.5
million for the third quarter of 1999 to $44.5 million for the same period in
2000 as the United States operations continued to show consecutive month to
month improvement in net fees per workday. For the first nine months of 2000,
net fees from the Company's United States operations decreased 2.2% from $132.5
million for the first nine months of 1999 to $129.6 million.
Net fees from the Company's International operations increased 1.5% from $21.4
million for the third quarter of 1999 to $21.8 million for the same period in
2000. For the first nine months of 2000, net fees from the Company's
International operations increased 3.0% from $65.3 million for the first nine
months of 1999 to $67.3 million for the same period in 2000. The International
operations improvements are due to the improved performance in the European and
South African markets. At the same time, the International operations results
have been adversely impacted by the weakening of the pound sterling and the
South African rand as compared to the U.S. Dollar.
The Company's gross profit margin of 57.9% for the third quarter of 2000
reflected a small increase compared to 57.8% for the same period in 1999. For
the nine months ended September 30, 2000, the Company's gross profit margin of
57.9% reflected a decrease compared to 58.6% for the same period of 1999. For
the nine month period ended September 30, 2000, the gross profit margin of 63.4%
for United States operations decreased compared to 64.1% during the nine months
of 1999. The decrease is generally a result of increased competitive pressure in
some of the U.S. markets. The International Group's gross profit margin
decreased to 47.3% from 47.5% for the first nine months of 2000 compared to the
same period in 1999. Indirect costs and expenses, which include expenses related
to both operations support as well as administrative support functions, were
$101.6 million, or 51.6% of net fees, for the first nine months of 2000,
compared with $102.2 million, or 51.6% of net fees, for the same period in 1999.
6
<PAGE>
Interest expense was $0.5 million and $1.1 million for the third quarter and
first nine months of 2000, respectively. This compares to interest expense of
$0.6 million and $2.6 million for the third quarter and first nine months of
1999, respectively. The decrease is due to the reduction in the company's
average debt balances from $39.9 million as of September 30, 1999 to $22.7
million as of September 30, 2000.
The effective income tax rate was 32.0% for the first nine months of 2000,
compared to 42.0% for the first nine 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 third quarter of 2000, the Company recorded net income of $3.1 million
($1.09 per common share - basic and $0.82 per common share - diluted) which is
an increase from $1.6 million in 1999 ($0.50 per common share basic and $0.38
per common share- diluted). For the first nine months of 2000, the Company
recorded net income of $7.7 million ($2.62 per common share - basic and $2.03
per common share - diluted) which is an increase from $6.4 million in 1999
($2.46 per common share - basic and $1.77 per common share - diluted).
FINANCIAL CONDITION
Cash used in operations over the first nine months of 2000 was $1.3 million as
compared to cash provided by operations of $5.5 million during the first nine
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 nine months of 2000 and the first nine
months of 1999 were $3.7 million and $2.5 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 $23.6 million at
September 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 28.8% at
September 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 nine months of 2000, 8,037
shares were traded out of the Plan totaling $191,000.
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 third quarter, dividends totaled $0.2 million, or
$0.21 per preferred share. For the nine months ended September 30, 2000,
dividends totaled $0.6 million, or $0.62 per preferred share.
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 nine months of 2000 resulted in a change of $4.3 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 September
30, 2000.
7
<PAGE>
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 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule for the nine months
ended September 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: November 13, 2000
9
