-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q2q4jemguHr3h3Pv0BbSGhXBAEGtclGUdB6wcawJj1whsfbNI8u07DhFObs0ZLWg 1U6huca8adO2U6S8ta6Wrg== 0000853323-00-000002.txt : 20000411 0000853323-00-000002.hdr.sgml : 20000411 ACCESSION NUMBER: 0000853323-00-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LAWGIBB GROUP INC CENTRAL INDEX KEY: 0000853323 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ENGINEERING SERVICES [8711] IRS NUMBER: 580537111 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-19239 FILM NUMBER: 582148 BUSINESS ADDRESS: STREET 1: 1105 SANCTUARY PARKWAY STREET 2: SUITE 300 CITY: ALPHARETTA STATE: GA ZIP: 30004 BUSINESS PHONE: 7703600600 MAIL ADDRESS: STREET 1: 1105 SANCTUARY PARKWAY STREET 2: SUITE 300 CITY: ALPHARETTA STATE: GA ZIP: 30004 FORMER COMPANY: FORMER CONFORMED NAME: LAW COMPANIES GROUP INC DATE OF NAME CHANGE: 19951130 10-K 1 FORM 10-K 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, 1999. 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. 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 20, 2000 was $59,243,188. The number of shares outstanding of LawGibb Group, Inc. common stock as of March 20, 2000 was 2,614,724. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Company's definitive Proxy Statement for the 2000 Annual Meeting of Shareholders of the Company are incorporated by reference into Part III. Portions of the Company's Annual Report to Shareholders for the calendar year ended December 31, 1999 are incorporated by reference into Parts I, II, and III. 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 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 LawGibb 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 LawGibb 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 1 and 6 through 15 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 appears in the Company's 1999 Annual Report to Shareholders and is incorporated herein by reference. RAW MATERIALS AND INVENTORY Raw materials are not essential to the operation of the Company's business. Similarly, inventory does not play a significant role in the Company's operations. 2 U.S. GOVERNMENT CONTRACTS The Company derived approximately 5% of its 1999 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", "LawGibb Group", "LawGibb Group Member" and "Law/Crandall, Inc. + Design" (all registered with the U.S. Patent and Trademark Office). Registered trademarks include "Safesoil", registered to Ensite, Inc., a wholly-owned subsidiary of Law Engineering and Environmental Services, Inc. On May 14, 1999, the Company announced that it had completed all steps necessary to change its name from Law Companies Group, Inc. to LawGibb Group, Inc. BACKLOG At December 31, 1999, the Company's contracted backlog was approximately $175 million as compared to $158 million at December 31, 1998. The Company estimates that approximately $139 million of the December 31, 1999 backlog will be completed by the end of 2000. 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 five 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. However, no single entity, 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 the full range of engineering and consulting 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 also require persons providing geological services to be licensed. Additionally, 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 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 the federal laws and regulations. The Company works with clients to address compliance with such requirements. 3 EMPLOYEES As of December 31, 1999, the Company employed approximately 3,700 persons, which included approximately 1,800 engineers and scientists, 1,100 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 1999, 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; Raleigh, North Carolina; and Tampa, Florida. The Company's foreign subsidiaries lease offices in the United Kingdom, Indonesia, Kenya, Mauritius, Portugal, United Arab Emirates, Zimbabwe, Uganda, South Africa, Poland, Belgium, Rwanda, Ethiopia, Botswana, Tanzania, Malawi, and Zambia. 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 its operations and offices. (See Footnote 5 of the Consolidated Financial Statements which appears in the Company's 1999 Annual Report to Shareholders, and is incorporated herein by reference 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 20, 2000, with respect to those individuals who are Executive Officers of the Company. BRUCE C. COLES, 55, 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, 57, 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 company. From April 1986 until June 1992, Mr. Fooshee was Chief Financial Officer for Kayser-Roth Corporation, a consumer products company. 4 W. ALLEN WALKER, 49, 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, 53, 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, 53, 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, 45, 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 has served 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 with respect to 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, 1999 or 1998. Further, the Company's existing credit facility prohibits the payment of cash dividends on the Company's Common Stock. As of December 31, 1999, there were 1,322 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 5 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, 1999, the appraised value was $28.42 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 Information on page 16 of the 1999 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 17 through 20 of the 1999 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 page 20 of the 1999 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 1999 Annual Report to Shareholders included with this Form 10-K: Financial Statements Consolidated Statements of Income and Comprehensive Income for each of the three years in the period ended December 31, 1999, Page 23 Consolidated Balance Sheets as of December 31, 1999 and 1998, Page 22 Consolidated Statements of Shareholders' Equity for each of the three years in the period ended December 31, 1999, Page 24 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1999, Page 25 Notes to Financial Statements, Pages 26 through 40 Report of Independent Auditors, Page 41 6 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 2000 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, 1999. ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT In accordance with General Instruction G(3) of Form 10-K, the information contained in the Company's definitive proxy statement with respect to directors and executive officers of the Company 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 1999, 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 June 10, 1999 for Robert B. Fooshee, Jon A. McCarthy, and W. Allen Walker were filed on August 17, 1999; filings due on June 10, 1999, August 10, 1999, and September 10, 1999 for Virgil R. Williams and James M. Williams, Jr. were filed on July 2, 1999, August 26, 1999, and October 1, 1999, respectively. 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 in the Company's definitive proxy statement under the caption "Executive Compensation" 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, information with respect to security ownership of certain beneficial owners and management is set forth in the Company's definitive proxy statement under the caption "Security Ownership of Certain Beneficial Owners and Management" 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, information with respect to certain relationships and related transactions is set forth in the Company's definitive proxy statement under the caption "Certain Relationships and Related Party Transactions" and is incorporated herein by reference in response to this item. 7 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 1999 Annual Report to Shareholders included with this Form 10-K: Consolidated Statements of Income and Comprehensive Income for each of the three years in the period ended December 31, 1999, Page 23 Consolidated Balance Sheets as of December 31, 1999 and 1998, Page 22 Consolidated Statements of Shareholders' Equity for each of the three years in the period ended December 31, 1999, Page 24 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1999, Page 25 Notes to Financial Statements, Pages 26 through 40 Report of Independent Auditors, Page 41 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 and African 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 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). 8 3.01 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). 3.02 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). 3.03 Articles of Amendment to the Restated Articles of Incorporation of Law Companies Group, Inc., dated as of May 12, 1999, as filed with the Georgia Secretary of State on May 14, 1999 (Incorporated by reference to Form 8-K filed May 18, 1999, 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 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 (Incorporated by reference to Form 10-K filed March 31, 1999, File No. 0-19239). 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 (Incorporated by reference to Form 10-K filed March 31, 1999, File No. 0-19239). 10.25 Interest Rate Swap Agreement dated January 15, 1998 by and among the Company and Bank of America National Trust and Savings Association (Incorporated by reference to Form 10-K filed March 31, 1999, File No. 0-19239). 10.26 Supplemental Executive Retirement Plan dated May 10, 1986 (Incorporated by reference to 10-Q filed August 13, 1999, File No. 0-19239). 10.27 First Amendment to Supplemental Executive Retirement Plan dated August 10, 1999 (Incorporated by reference to 10-Q filed August 13, 1999, File No. 0-19239). 13.01 Portions of the Annual Report to Shareholders for the year ended December 31, 1999 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 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. LAWGIBB GROUP, INC. March 29, 2000 By:/s/ Bruce C. Coles ----------------------------------- Bruce C. Coles Chairman of the Board of Directors, President, and Chief Executive Officer 11 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.
Signature Title Date /s/Peter D. Brettell Director March 29, 2000 - ----------------- Peter D. Brettell /s/Bruce C. Coles Chairman of the Board of Directors, March 29, 2000 - ----------------- President, and Chief Executive Officer Bruce C. Coles /s/Robert B. Fooshee Executive Vice President, Chief Financial March 29, 2000 - ----------------- Officer, Treasurer, and Director Robert B. Fooshee /s/Walter T. Kiser Director March 29, 2000 - ----------------- Walter T. Kiser /s/ Zell Miller Director March 29, 2000 - ----------------- Zell Miller /s/Joe A. Mason Director March 29, 2000 - ----------------- Joe A. Mason /s/Thomas D. Moreland Director March 29, 2000 - ----------------- Thomas D. Moreland /s/ Steven Muller Director March 29, 2000 - ----------------- Steven Muller /s/Clay E. Sams Director March 29, 2000 - ----------------- Clay E. Sams /s/Kendall H. Sherrill Corporate Controller March 29, 2000 - ----------------- Kendall H. Sherrill /s/James M. Williams, Jr. Director March 29, 2000 - ----------------- James M. Williams, Jr. /s/John Y. Williams Director March 29, 2000 - ----------------- John Y. Williams /s/Michael D. Williams Director March 29, 2000 - ----------------- Michael D. Williams /s/Virgil R. Williams Director March 29, 2000 - ----------------- Virgil R. Williams
12 APPENDIX 1
LawGibb Group, Inc. Schedule II - Valuation and Qualifying Accounts For the Years Ended December 31, 1999, 1998, and 1997 (in thousands) Beginning Additions Ending Balance Description Balance Deductions(2) - ----------------------------------------------------- ------------- ------------------------------- Expense Other (1) - ----------------------------------------------------- ------------- --------------- --------------- ---------------- --------------- Year Ended December 31, 1999 Allowance for Doubtful Accounts $4,223 $603 ($754) ($47) $4,025 Valuation Allowance for Deferred Tax Assets 4,248 449 -- (2,848) 1,849 ============= =============== =============== ================ =============== $8,471 $1,052 ($754) ($2,895) $5,874 ============= =============== =============== ================ =============== 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 ============= =============== =============== ================ ===============
(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 and write-offs of capital loss carryforwards related to a dissolved subsidiary. EX-13.01 2 1999 ANNUAL REPORT TO SHAREHOLDERS [IMAGE] Overview As one of the world's leading engineering, environmental and design consulting companies, LawGibb Group provides a wide array of multi-disciplinary services to the industrial, commercial and government markets. Headquartered in Atlanta, the Company's global network of more than 3,500 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 over 100 offices in 30 countries with projects spanning across 160 countries. Locations Asia Africa Europe Middle East North America South America Clients Commercial Education & Health Entertainment & Hospitality Federal Real Estate Telecommunications Transportation Services Engineered Construction Environmental Services Facilities Services Industrial Services Telecommunications Transportation Services Water Engineering 1 Cape Hatteras Lighthouse v 130 years old v 200 feet high v Tallest brick masonry lighthouse in the world v 5,000 tons v Moved 2,900 feet The ceremony to relight Cape Hatteras Lighthouse took place on November 13, 1999, designating the official completion of the relocation phase. [IMAGE] "The design/build process was created to put together the most capable technical talent to accomplish this job. The project was totally congruent with the desires of the Park Service. That's critical when you're working on a national icon like this. Our goal was to find the best people to get the job done, and I think we succeeded." Bob Reynolds, Superintendent of the Cape Hatteras National Seashore. 6 Historic Monument Survives Time One of the most exciting and impressive achievements for LawGibb in 1999 was its role in the highly publicized relocation of the Cape Hatteras Light Station in North Carolina. The extraordinary proposal effort, led by Randy Knott and other key LawGibb professionals, resulted in winning the prestigious contract involving one of the U.S.'s most enduring landmarks. This nationally significant project received media attention internationally, not only for its historic importance but also for its complex nature, representing one of the most challenging structural relocations ever undertaken. [IMAGE] The $9.8 million design/build contract awarded by the National Park Service involved a seven-firm team with the monumental task of moving the Light Station, a complex which includes the lighthouse, the keeper's quarters and all associated structures. Its relocation to a new site 2,900 feet from its original location was precipitated by 130 years of shoreline erosion that threatened the lighthouse. The complexity of the project required that LawGibb harness an array of multi-disciplinary services, including more than fifteen technical disciplines as well as a team encompassing over thirty company members. After months of work, the lighthouse was moved in only three weeks - half the time originally estimated. "We were exuberant about the success of this unique project," stated LawGibb's Randy Knott, Chief Engineer. "Our team exceeded the goals set forth to place this national icon safely in its new location with precision. We are honored to have been instrumental in the preservation of the lighthouse for future generations." Created by LawGibb and critical to the project's success was a peer review program that provided quality assurance throughout the project. [IMAGE] Trip Through Time Integral to the highly successful performance of the transportation system - jacks, roadbed, mats, rails and steel framing - was the proper design of the move corridor by LawGibb. LEADERSHIP IN THREE PHASES Planning v Conceptual design v Lump sum project cost v Design and construction management v Design/build delivery Design v Site characterization, including geotechnical and hazardous materials v Project QA manual and QA/QC plan v Health and safety plan v Construction specifications and drawings Construction v QC documentation and supervision v Testing and inspection of construction materials v Deflection monitoring v Health and safety audits 7 The Art of Design [IMAGE] Noted for his award-winning designs, Crispin Wride, head of LawGibb's architectural division, believes that when designing any project it is the responsibility of the architect to demonstrate an understanding of the client's emotional as well as technical needs. Excellence Through Innovation Quality and excellence, together with an innovative approach to problem solving, distinguish LawGibb's design services group. The breadth of LawGibb's design expertise, provided by our Crispin Wride Architectural Design Studio (CWADS), spans all sectors of our business, from multi-story buildings to pipelines, and our commitment to the highest standards means that we are continually improving the quality of our service. LawGibb's teams are expert in assimilating and balancing the influential parameters of context and culture, proposal and program, construction and technology, energy and environment, economy and efficiency. This careful analysis ensures that the end product will meet or exceed the client's expectations. For nearly eighty years, LawGibb has been involved with some of the world's most prestigious projects, from the Cardiff Bay Barrage in the UK to the Lesotho Highlands water project in Africa. The Company's history of design success stems from the ability to see beyond the technical requirements and understand the wider environment in which a particular project has been conceived. The future of design lies more in meeting the widest range of parameters with an integrated holistic response that satisfies not only technical needs, but also the more subjective emotional aspirations of the client or building user. Loch Lomond Footbridge An example of CWADS' holistic approach is evident in the recent award-winning design of a pedestrian footbridge at Loch Lomond in western Scotland. The bridge, which links Balloch Castle Country Park with a new visitors' center, is designed to open the full width of the water, permitting the two cantilevers to open and allowing the image of the bridge to vanish into the banks, thus preserving the full view. The challenge was to design a pedestrian footbridge with an open section - while realizing the emotional requirement of preserving the view and designing a bridge that, when open, would literally disappear into its environment. Curved cables reflect the shape of the hills in the background while the masts are designed to match the scale of the trees. [IMAGE] So that boats can continue to navigate the Loch, the bridge will dramatically open with the two halves of the structure swinging apart toward the banks. 8 Falkland Islands Chapel In the case of CWADS' award-winning design for the Falkland Islands Chapel at Pangbourne College in Berkshire, England, the emotional agenda as well as technical issues guided the design. The project specifications required that the building should serve both as a memorial chapel dedicated to British servicemen killed in the Falklands conflict and as a functional church for the nautical college on whose grounds it has been built. The answer to address these unique design specifications lies in the shape of the building, where two curved walls produce a ship-like nautical form while also creating a sense of protection like two cupped hands. The two walls that envelop the space are separated at the front and to the rear to allow access and natural light through the tall stained glass screens. A u-shaped upper gallery level around the assembly hall minimizes the scale of the interior, allowing adequate seating space for 550 people without compromising the intimacy of the memorial chapel. The overall interior effect is one of protection, comfort and light. The Chapel, which was formally opened by Her Majesty the Queen in March 2000, also had to harmonize with its external context. Set in an informal woodland courtyard, the building stands alongside a circular memorial garden that reflects the shape of the two memorials on the Falkland Islands. Carved into a landscaped mound, the small enclosed space has stone seating oriented towards a simple water feature. A map of the Falkland Islands is carved into a black granite panel over which the water falls. Completed in 1999, the Falkland Islands Chapel is dedicated to British servicemen killed in the Falklands conflict. [IMAGE] LawGibb works side-by-side with clients through all of the design stages of their projects: v Architectural design v Structural design v Concept design v Planning design v Detail design [IMAGE] A u-shaped upper gallery level around the assembly hall minimizes the scale of the interior, allowing adequate seating space for 550 people. 9 Asset Reliability Management Services Working with a team of over 600 professionals with diverse, but related backgrounds, we deliver Asset Reliability Management Services through a proven process of: v Evaluating physical assets v Establishing asset worth v Tracking depletion rates v Optimizing budgets v Prioritizing investments v Managing and staffing the implementation of solutions v Administering contracts We are not only able to develop solutions in theory, but to implement them in fact. Creating Shareholder Value Since the mid-1980s, and particularly in recent years, the global standard for measuring business performance has been shareholder value. We at LawGibb recognize the pressures on our valued clients to produce exceptional shareholder value while achieving aggressive business objectives in a highly competitive global market economy. [IMAGE] Asset Reliability Management Services Our Asset Reliability Management Services (ARMS) group focuses upon designing and implementing innovative management programs and IT-enabling information processes that maximize the value of what is historically one of the most overlooked and undervalued of our clients' assets - their facilities and infrastructure. ARMS concentrates upon the critical need to convert physical assets into financial terms, and manage these assets with attention to the client's bottom-line return on investment (ROI). Our expert staff and information management tools, combined with our flexible and adaptable approach to strategic asset management, uniquely position LawGibb at the forefront of an emerging market. [IMAGE] At the core of LawGibb's ARMS program is FaMIS(C) - our computerized condition analysis and budgeting program. It embeds the financial solutions into an implementation plan maximized for ROI. [IMAGE] Enterprise Asset Management Increasing marketplace challenges have compelled companies to create integrated, enterprise-wide facilities management solutions essential to organizations in which change and flexibility are critical for success. LawGibb recently entered into an exclusive relationship with one of the nation's leaders in Enterprise Asset Management (EAM) solutions. LawGibb, statusgo.com (a division of Carolina Power and Light) and Indus International have joined forces to deliver holistic asset management solutions through the implementation of Indus' PassPort EAM software. In this relationship, Indus International provides the application, statusgo.com is the host, and LawGibb designs, implements and manages the life of the program. 10 Telecommunications Services Tackling The Telecommunications Market During the next five years, the deployment of personal communications systems (PCS), cellular/wireless voice services base stations and tower sites around the world is expected to more than double. The result has been an explosion in the volume of work available for engineering solution providers as operators scramble to improve population and territorial coverage and achieve a lead position in the fiercely competitive market for wireless communications services. LawGibb has responded to the challenges presented by the growth in this industry with a team of multi-disciplined professionals highly experienced in telecommunications implementation feasibility, design, and construction management services. We provide a myriad of services to our clients on raw land (greenfields) and co-locate sites, including rooftops, monopoles, lattice towers, guyed wire towers, water tanks, existing lattice power structures and flagpoles. Leaders In The Industry LawGibb's telecommunications group has taken a leadership role by leveraging its technical expertise, experience, and local market presence in order to provide single-source turnkey engineering design services to this important market sector. Having recently entered into client agreements to provide a full range of engineering design services in numerous states throughout the U.S., LawGibb is now pursuing opportunities in the Caribbean, Mexico and Europe. To support the single-source design solution, the Company's local offices provide the following services: v Environmental assessment v Geotechnical investigation v Foundation design v Construction testing and inspection v Structural evaluation v Construction and project management v Site construction engineering design v National Environmental Policy Act compliance v Electrical resistivity testing v Wetland evaluation v Endangered species survey v Pay application and submittal review v Building attachment evaluation and design v Preliminary cell site assessment The accomplishments of LawGibb's team in winning major contracts and strategically positioning the Company as a leader in the market have been significant. Two contract wins of noteworthy importance include work for a worldwide communications company for which LawGibb will provide geotechnical exploration, resistivity testing, environmental services, construction design engineering and required regulatory reconnaissance on over 200 sites in Texas. Additionally, two major telecommunications firms selected LawGibb to provide permitting and installation design engineering on thousands of sites in the U.S. [IMAGE] Allen Kibler and Clovis Prince lead LawGibb's efforts in providing engineering design services to the telecommunications market. [IMAGE] LawGibb has provided environmental and engineering design services for over 13,000 sites in the U.S. 11 Land Redevelopment Redevelopment Of Environmentally Impacted Properties Throughout the world there are hundreds of thousands of acres of land - often in highly desirable locations sitting idle or abandoned. Once home to various types of industrial operations, these properties, known as brownfields, are tainted by environmental contamination. Typically located near population centers, these sites are equipped with existing infrastructure, such as highways, bridges and rail systems, and, therefore, present favorable conditions for reuse. Undertaking redevelopment of these environmentally impacted properties offers tremendous opportunities to urban communities by creating a central location in which people may live and work. LawGibb's professionals have pioneered remediation technologies, working with property owners and developers, to create strategies for potential productive reuse of such contaminated land. Through innovative methodologies, turnkey design and construction capabilities, as well as strategic alliances with developers, owners and corporations, LawGibb provides clients with a single source to manage clean-up of their properties. The Company has been integrally involved in numerous high-profile redevelopment projects. LawGibb's professionals bring to each client a unique and competitive advantage that is rooted in the Company's extensive experience with federal and state regulators, as well as an in-depth knowledge of international environmental regulations. Based upon these factors, LawGibb plays a critical role in successfully transforming contaminated properties into useful sites. LawGibb's multi-disciplinary, turnkey approach entails providing clients with the following services: v Zoning/rezoning properties v Environmental investigations v Environmental regulatory strategies v Risk-based (human health and ecological) management v Engineering remediation design v Oversight direction during remediation v Developing design and construction management for infrastructure v Conducting geotechnical investigations for future building sites v Facilitating environmental insurance to cover liability/limit liability Papa John's University of Louisville Cardinal Stadium To observe the impressive new Louisville Cardinal Stadium, one would never imagine that this land was once used as a railcar and locomotive repair shop for a major rail company. For ninety years, activities on the site included motor cleaning, use of solvents, varnishes, diesel fuel, lead lubricants and plating solutions, building up a massive area of contamination. Initial estimates for remediation of the site were approximately $40 million. Through LawGibb's technical leadership, extensive experience, and cooperative teamwork with all concerned parties, a risk management plan was developed to sufficiently cap the site, protecting both construction workers and future users from exposure and eliminating the need for costly remediation. Ultimately, the remediation costs amounted to only $6.8 million. [IMAGE] THE PHOENIX AWARD LawGibb's Nick Schmitt displays the prestigious 1999 Grand Prize Phoenix Award. The work performed on the Louisville Cardinal Stadium project received commendation for its significant benefit to the community and for demonstrating extraordinary innovation and cooperation among various stakeholders. [IMAGE] Activities at the railroad site over a ninety-year period left a legacy of contamination. [IMAGE] "This project exemplifies a commitment to cure an environmental problem and turn it into a regional asset of the greatest significance." -- U.S. Senator Mitch McConnell 12 Atlantic Steel Site - Prime Property To Be Renewed In the heart of Atlanta lies the Atlantic Steel site, a 134-acre property that was used for steel and iron-working operations from 1901-1998. LawGibb was jointly engaged by Atlantic Steel and the Atlanta-based firm, Jacoby Development, Inc., to provide environmental regulatory strategy in order to convert the property which held limited promise for future potential - into an ambitious new redevelopment program. The project's objective is to transform the property into a multi-use development, offering work facilities, recreational facilities, residential space and transportation, transforming the land into a thriving live-work-play community. The project is significant in that it is the first major national urban redevelopment to be approved under EPA's XL program (Excellence and Leadership). This program allows companies to adopt creative strategies to meet environmental standards. Due to LawGibb's innovative approach of integrating risk analysis procedures into the infrastructure development, a remediation plan for the site was designed and developed. As a result, the anticipated $20 million-plus remediation cost to the seller was reduced to approximately $8 million. Following the remediation process, construction will begin on the site. LawGibb will provide site development design, including geotechnical, infrastructure and construction management. The redevelopment plan will transform the massive downtown Atlanta site into a 15-million square foot residential, office, retail and entertainment space. [IMAGE] BEFORE The Atlantic Steel site served as a massive steel and iron working operation for nearly a century until it closed in 1998. [IMAGE] AFTER Construction on the Atlantic Steel site will begin in 2000, and will continue over a span of approximately ten years, resulting in a $2 billion development. [IMAGE] Twigden Homes Limited - Waltham Abbey LawGibb's environmental team provided the project management and surveillance of remedial work and subsequent highway construction at a 282-acre former munitions factory in the UK. The remedial work includes building decontamination and demolition, assessment and testing of all streams running through the site, excavation and on-site relocation of contaminated soil and construction of a 65,000 cubic yard landfill. The site is being redeveloped for residential and business parks and a parkland area. 13 Transportation Global Transportation Services The vast global transportation market continues to broaden as urban and rural areas increasingly require reliable, modern infrastructure to support economic growth and population expansion. With experts in all facets of transportation - from rail systems, airports, highways, bridges, tunnels, to intermodal facilities - LawGibb's professionals are highly trained in the most advanced technology available today. Transportation engineering is increasingly more complex, and planners of new transportation systems must concern themselves not only with the traditional physical design issues, but with operational, safety, environmental, geotechnical and construction considerations. LawGibb's approach to solving its clients' transportation needs revolves around identifying existing and future transportation demands and providing innovative thinking to develop solutions. With a versatility keenly in tune with our clients' specific project needs, we evaluate demand across all modes of transportation, assess alternative strategies and solutions, identify necessary funding sources and assist clients to project completion. Porto Metro Rail System Having previously won a contract for the design conception and construction phases of the Porto Metro light rail system, LawGibb, in partnership with two Portuguese firms, was recently awarded a new contract to manage construction of the project. This high-profile project is of great significance to Portugal, a country whose existing transportation system is being upgraded to meet the requirements of its population and its role in Europe. The new Metro system will provide a much needed public transportation system for the metropolitan area of Porto in Northern Portugal. The project is particularly exciting as it entails one of the largest public investments within the European Community and is one of the largest railway projects ever undertaken in Portugal. In addition to the complexity of work currently underway and the numerous disciplines required to form the new rail system, plans are being developed for a series of enlargements and extensions to the proposed network. These will include new connections to the Porto International Airport and extensions of certain service lines to the eastern suburbs of the city and neighboring municipality of Gondomar. [IMAGE] The construction works on the Porto Metro Rail project include the creation of new lines on the surface, sub-surface, and underground, passing through urban and suburban zones and into the rural districts of the Porto metropolitan area. The consortium will provide the client, Metro do Porto SA, with project and construction management services for all aspects of civil, mechanical and electrical areas of this multi-disciplinary project, including: v Quality, safety and environmental management systems v Planning and cost control v Design review v Information management 14 London City Airport LawGibb's extensive experience with airports throughout the world has earned the Company a distinguished reputation for excellence in this market. A current example of LawGibb's airport work may be observed in the development of the London City Airport, located in the inner city area of London known as London Docklands, where dramatic growth in the regional economy precipitated the onset of this project. The LawGibb team has worked closely with the airport management to ensure the project's success, focusing upon the client's own business objectives and maintaining excellent working relationships via intensive scrutiny of work performed, as well as open and consistent communication. LawGibb's experts are providing ongoing services in a broad range of areas, including environmental impact assessments, airport planning and capacity analysis, specialist airfield pavement engineering and architectural services. Current projects include apron extensions, a fixed base operator terminal development and strategic advice on airside capacity issues. LawGibb has also carried out infrastructure inspections as part of an asset management initiative by the airport. [IMAGE] Located on an abandoned wharf in the heart of London, the London City Airport has helped create the strong economic growth in the area. [IMAGE] Creek Turnpike The Oklahoma Turnpike Authority's 6-mile extension of the Creek Turnpike around the south side of Broken Arrow, Oklahoma, was a complex project - including several miles of roadway, a bridge widening, ramp improvements, a mile-long viaduct, 12 bridges, 17 culverts, 4 retaining walls, a utility relocation and several embankments and cut sections. As a key member of the team, LawGibb provided pavement design, quality assurance testing and geotechnical exploration services on the project. The total value of LawGibb's contract is in excess of $1 million. 15 EXHIBIT 13.01 SELECTED FINANCIAL DATA (Dollars in thousands except per share data)
- ---------------------------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 - ---------------------------------------------------------------------------------------------------- INCOME STATEMENT DATA: Gross Fees $293,128 $311,162 $310,791 $323,179 $368,417 Net Fees $257,195 $274,920 $277,701 $286,282 $314,873 Net Income (Loss) $ 8,220 $ 8,422 $ 4,081 $ 1,910 $(2,266) Earnings (Loss) Per Share: Basic $ 3.04 $ 3.71 $ 1.77 $ 1.00 $ (1.19) Diluted $ 2.17 $ 2.77 $ 1.60 $ 1.00 $ (1.19) Cash Dividends Per Share $ -- $ -- $ -- $ -- $ -- BALANCE SHEET DATA: Working Capital $ 40,202 $ 39,060 $ 32,415 $ 28,459 $ 30,384 Total Assets $138,831 $150,911 $145,768 $138,697 $148,304 Long Term Liabilities $ 30,104 $ 54,056 $ 54,935 $ 50,303 $ 59,915 Shareholders' Equity $ 46,020 $ 29,042 $ 19,341 $ 17,590 $ 15,825 - ----------------------------------------------------------------------------------------------------
16 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 LawGibb 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 income 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
Year to Year Dollar Year Ended December 31, Increase (Decrease) 1999 1998 1997 1999 vs. 1998 1998 vs. 1997 ---- ---- ---- ------------- ------------- Net Fees 100.0% 100.0% 100.0% (6.4%) (1.0%) Gross Profit 58.6% 58.6% 58.2% (6.5%) (0.3%) Indirect Costs and Expenses 51.8% 51.7% 53.2% (6.3%) (3.8%) Operating Income 6.8% 6.9% 5.0% (8.2%) 37.8% Net Income 3.2% 3.1% 1.5% (2.4%) 106.4%
Comparison of 1999 and 1998 - The Company improved its net income margin in 1999 to its highest level in 8 years (at 3.2% of net fees), although net fees fell short of 1998 levels. The Company achieved this improvement through continued effective programs of cost containment and cash management. The Company believes these programs are significant in maintaining profitability as markets are pursued to generate fee growth. Consolidated net fees for 1999 decreased 6.4% to $257.2 million from $274.9 million in 1998. This decrease, however, reduced net income by only $0.2 million (to $8.2 million) compared to 1998's net income of $8.4 million. Net fees for the U.S. Operations decreased to $170.3 million in 1999, or 5.0%, from $179.3 million in 1998. The primary factor leading to this reduction was a decision to exit certain high-risk markets where the Company believed it was not being compensated relative to the risks undertaken. The International Group's net fees decreased to $86.9 million in 1999, or 9.1% from $95.6 million in 1998. Two main issues are behind this decrease. First, delayed startup of certain projects due to an earthquake in Eastern Europe and other client delays produced reductions in net fees. The delayed projects are expected to commence in future periods. Second, a broad reduction in South African government-funded projects severely impacted net fees from this segment of International Operations. The Company believes that it has taken appropriate steps to position itself ahead of its competitors when the South African economic conditions improve and its government project funding increases. The consolidated gross profit margin remained constant at 58.6% for 1999. The U.S. Operations' gross profit margin decreased slightly from 64.3% in 1998 to 64.0% in 1999. The decrease is generally a result of increased competitive pressures in some of the U.S. markets. The International Operations' gross profit margin improved from 47.7% in 1998 to 48.1% in 1999. Consolidated indirect costs and expenses were $133.2 million in 1999 compared to $142.2 million in 1998. This decrease of $9.0 million, or 6.3%, is attributable to the continued positive impact of the Company's cost reduction and cost containment initiatives. 17 MANAGEMENT'S DISCUSSION AND ANALYSIS - -------------------------------------------------------------------------------- Consolidated operating income decreased by 8.2% to $17.5 million in 1999 from $19.0 million in 1998. The U.S. Operations' operating income margin improved from 8.4% in 1998 to 9.6% in 1999, while the International Operations' operating income margin decreased from 4.2% in 1998 to 1.4% in 1999. The nature of the U.S. Operations and its 1999 net fee challenges allowed it to aggressively reduce costs in tandem with net fee reductions, thereby improving its operating margin. The longer-term project nature of the International Operations and the project delays it experienced necessitated maintaining certain labor and indirect costs in anticipation of project startups. Interest expense decreased 27.0% from $4.4 million in 1998 to $3.2 million in 1999, as a result of reducing revolving and long-term debt by $25.7 million from 1998 to 1999. The significant debt reduction was partially a result of $11.7 million in proceeds received from the exercise of stock options (See Financial Condition discussion). Additionally, improved cash flows from operations were used to reduce outstanding debt balances, resulting in lower interest expense. In 1999, the Company recorded net income of $8.2 million compared to $8.4 million in 1998. The effective tax rate decreased from 43.8% in 1998 to 41.9% in 1999. This decrease was primarily attributable to changes in items not deductible for tax purposes. Earnings per common share for 1999 were $3.04 per common share - basic ($2.17 per common share - diluted) compared to $3.71 per common share - basic ($2.77 per common share - diluted) in 1998. Comparison of 1998 and 1997 - 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 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. These decreases were partially offset by 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%, was 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 was directly attributable to the lower level of fees and the 3-year term associated with the 1998 facility renegotiation versus the 1997 facility renegotiation. 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. 18 MANAGEMENT'S DISCUSSION AND ANALYSIS - -------------------------------------------------------------------------------- FINANCIAL CONDITION Cash provided by operations increased significantly in 1999 to $16.5 million from $6.4 million in 1998. In addition to sustained profitability, the cash provided resulted from improved working capital management ($7.1 million improvement over 1998) and the conclusion in 1998 of tax payments associated with a change in tax accounting methods ($4.5 million). Capital expenditures for 1999 were $3.0 million, which represents a decrease of $3.6 million from 1998. Although significantly reduced, the total capital expenditures were in line with the Company's 1999 capital expenditures plan. In the previous two years, the Company upgraded its personal computer and network systems. This effort, combined with a continued deliberate approach to capital expenditures, has resulted in less requirement for such expenditures in 1999. In order to continue to enhance productivity and potentially increase earnings, the Company has continued, and will continue, its capital spending programs, particularly for computer and other technology-related equipment. The Company believes that the limit of capital spending imposed by its credit facility 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 $22.8 million at December 31, 1999, compared to $48.1 million at the end of 1998. The significant debt reduction was partially a result of $11.7 million in proceeds received from the exercise of stock options (See discussion below). Additionally, improved cash flows from operations were used to reduce outstanding debt balances. Finally, on September 30, 1999, the Company consummated a transaction to sell its laboratory facility in Pensacola, Florida for $3.7 million. The proceeds were used to pay down bank debt to further position the Company for future growth initiatives. As a result, debt and short-term borrowings as a percentage of total capitalization improved to 28.9% at December 31, 1999, compared to 55.3% at December 31, 1998. The Company maintains one primary credit facility with a global bank. (See Note 4 to the Consolidated Financial Statements.) The credit facility has a three-year term and two one-year extension options, both of which have been exercised to extend the maturity date to January 15, 2003. 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 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, 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, the Investors 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. On June 30, 1999, the Investors exercised their remaining Options to purchase an aggregate of 584,028 shares of the Company's Common Stock at an exercise price of $20.00 per share. The proceeds of $11.7 million received by the Company were invested to further enhance the capital structure and financial position of the Company. As a result, there are no remaining Options held by the Investors under the above transaction. The agreement also includes an option granted to the holders of the preferred stock for the right to purchase up to 161,452 shares of common stock for an average price of $13.97 per share. These options are exercisable only in conjunction with exercises by holders of options under the Company's Stock Option Plan. 19 While the Company anticipates continuing capital requirements to support growth, expansion of services, and capital expenditures, the Company believes that 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 employed an interest rate swap agreement. Based on the Company's debt profile at December 31, 1999 and December 31, 1998, a 1% increase in market interest rates would have increased interest expense and decreased income before income taxes by approximately $71,000 and $150,000, 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 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 - In prior years, the Company discussed the nature and progress of its plans to become Year 2000 ready. The Company completed in 1999 its remediation and testing of systems. As a result of those planning and implementation efforts, the Company experienced no disruptions in critical information technology and non-information technology systems and believes those systems successfully responded to the Year 2000 date change. The Company expensed approximately $150,000 during 1999 in connection with remediating its systems. The Company is not aware of any material problems resulting from Year 2000 issues, either with its services, its internal systems, or the products and services of third parties. The Company will continue to monitor its critical computer applications and those of its suppliers and vendors throughout the year 2000 to ensure that any latent Year 2000 matters that may arise are addressed promptly. 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 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. 20 FINANCIAL INFORMATION
LawGibb Group, Inc. Consolidated Financial Statements As of December 31, 1999 and 1998 And for the three years ended December 31, 1999 Consolidated Balance Sheets 22 Consolidated Statements of Income and Comprehensive Income 23 Consolidated Statements of Shareholders' Equity 24 Consoldiated Statements of Cash Flows 25 Notes to Consolidated Financial Statements 26-40 Report of Independent Auditors 41
21 CONSOLIDATED BALANCE SHEETS LawGibb Group, Inc. (Dollars in thousands, except share and per share amounts)
AT DECEMBER 31, 1999 1998 - ----------------------------------------------------------------------------------------------------------- ASSETS Cash and Cash Equivalents $ 11,612 $ 11,022 Billed Fees Receivable, net 56,274 55,346 Unbilled Work in Progress 26,853 31,464 Other Receivables 1,119 1,579 Deferred Income Taxes 3,866 3,074 Prepaid Expenses 3,185 4,388 --------- --------- Current Assets 102,909 106,873 Property and Equipment, net 16,527 23,442 Equity Investments 2,132 1,587 Intangible Assets, net 12,270 13,250 Other Assets, net 4,993 5,759 --------- --------- Total Assets $ 138,831 $ 150,911 ========= ========= - ----------------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Short-Term Borrowings $ 1,213 $ 902 Accounts Payable 13,870 15,858 Billings in Excess of Costs and Fees Earned on Contracts in Progress 16,537 13,805 Accrued Payroll and Other Employee Benefits 6,143 7,127 Accrued Professional Liability Reserve 3,931 3,518 Other Accrued Expenses 11,655 16,745 Income Taxes Payable 4,809 4,638 Current Portion of Long-Term Debt 4,549 5,220 --------- --------- Current Liabilities 62,707 67,813 Long-Term Debt 16,995 41,979 Deferred Income Taxes 3,026 1,983 Minority Interest in Equity of Subsidiaries 176 208 Cumulative Convertible Redeemable Preferred Stock - 963,398 Shares Issued and Outstanding 9,907 9,886 Common Stock - $1 par value, 10,000,000 shares authorized, 2,615,605 and 2,045,870 shares issued and outstanding 2,616 2,046 Additional Paid-In Capital 28,984 18,046 Retained Earnings 22,703 15,931 Accumulated Other Comprehensive Income (8,283) (6,981) --------- --------- Total Shareholders' Equity 46,020 29,042 --------- --------- Total Liabilities and Shareholders' Equity $ 138,831 $ 150,911 ========= =========
See Accompanying Notes. 22 CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME LawGibb Group, Inc. (Dollars in thousands, except per share amounts)
YEAR ENDED DECEMBER 31, 1999 1998 1997 - --------------------------------------------------------------------------------------------------- Gross Fees $293,128 $311,162 $310,791 Less: Cost of Outside Services 35,933 36,242 33,090 -------- -------- -------- Net Fees 257,195 274,920 277,701 Direct Costs and Expenses: Payroll 78,055 81,160 81,613 Job-Related Expenses 28,496 32,591 34,450 -------- -------- -------- Gross Profit 150,644 161,169 161,638 Indirect Costs and Expenses: Payroll 60,823 62,474 60,604 Other Expenses 72,364 79,688 87,240 -------- -------- -------- Operating Income 17,457 19,007 13,794 Other Income (Expense): Interest Expense (3,186) (4,365) (3,995) Deferred Financing Costs (84) (141) (1,539) Other Income (Expense) (71) 197 (198) -------- -------- -------- Income Before Income Taxes and Equity Investments 14,116 14,698 8,062 Income Tax Provision (5,919) (6,432) (4,012) Equity Investments 23 156 31 -------- -------- -------- Net Income 8,220 8,422 4,081 Less: Preferred Stock Dividend and Accretion (1,128) (1,128) (742) -------- -------- -------- Net Income Available to Common Shareholders $ 7,092 $ 7,294 $ 3,339 ======== ======== ======== Earnings Per Common Share - Basic $ 3.04 $ 3.71 $ 1.77 ======== ======== ======== Earnings Per Common Share - Diluted $ 2.17 $ 2.77 $ 1.60 ======== ======== ======== RECONCILIATION OF COMPREHENSIVE INCOME Net Income $ 8,220 $ 8,422 $ 4,081 Other Comprehensive Income: Foreign Currency Translation Adjustment (1,302) (638) (1,282) -------- -------- -------- Comprehensive Income $ 6,918 $ 7,784 $ 2,799 ======== ======== ========
See Accompanying Notes. 23 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY LawGibb Group, Inc. (Dollars in thousands)
Year Ended December 31, 1999 1998 1997 - -------------------------------------------------------------------------------------------------------- Common Stock Balance at Beginning of Year 2,046 1,872 1,905 Issuance of Common Stock -- 21 -- Repurchase and Retirement of Common Stock (18) (22) (33) Exercise of Options to Purchase Common Stock 588 175 -- ------- ------- ------- Balance at End of Year 2,616 2,046 1,872 Additional Paid-In Capital Balance at Beginning of Year 18,046 14,957 15,063 Issuance of Common Stock -- 558 -- Repurchase and Retirement of Common Stock (185) (182) (256) Exercise of Options to Purchase Common Stock 11,123 2,713 -- Issuance of Common Stock Warrants -- -- 150 ------- ------- ------- Balance at End of Year 28,984 18,046 14,957 Retained Earnings Balance at Beginning of Year 15,931 8,855 5,683 Net Income 8,220 8,422 4,081 Preferred Stock Dividends (800) (800) (521) Preferred Stock Accretion (328) (327) (221) Repurchase and Retirement of Common Stock (320) (219) (167) ------- ------- ------- Balance at End of Year 22,703 15,931 8,855 Accumulated Other Comprehensive Income Balance at Beginning of Year (6,981) (6,343) (5,061) Foreign Currency Translation Adjustment (1,302) (638) (1,282) ------- ------- ------- Balance at End of Year (8,283) (6,981) (6,343) ------- ------- ------- Total Shareholders' Equity $46,020 $29,042 $19,341 ======= ======= =======
See Accompanying Notes. 24 CONSOLIDATED STATEMENTS OF CASH FLOWS LawGibb Group, Inc. (Dollars in thousands)
Year Ended December 31, 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------- Operating Activities: Net Income $ 8,220 $ 8,422 $ 4,081 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization 6,604 6,724 6,782 Financing Costs Amortization 84 141 1,539 Provision for Losses on Receivables 603 731 172 Deferred Income Taxes 251 (3,320) (4,034) Undistributed Earnings From Equity Investments (23) (156) (31) Loss on Disposal of Property and Equipment 93 205 228 Changes in Operating Working Capital Assets and Liabilities, net of Effects of Business Acquisitions 705 (6,380) (4,932) ------- ------- ------- Net Cash Provided by Operating Activities 16,537 6,367 3,805 Investing Activities: Business Acquisitions, net of Cash Acquired -- (187) (415) Purchases of Property and Equipment (3,031) (6,635) (7,793) Proceeds from Disposal of Property and Equipment 3,889 120 227 Other, net (1,227) (1,903) 236 ------- ------- ------- Net Cash Used in Investing Activities (369) (8,605) (7,745) Financing Activities: Net Proceeds on Short-Term Borrowings 337 182 606 Net Proceeds (Payments) on Revolving Line of Credit and Long-Term Borrowings (25,560) 2,701 (46) Deferred Financing and Preferred Stock Issuance Costs -- (369) (3,602) Issuance of Cumulative Convertible Redeemable Preferred Stock -- -- 9,850 Issuance of Common Stock and Warrants -- -- 150 Repurchase and Retirement of Shares (523) (423) (456) Preferred Dividends Paid (800) (800) (521) Exercise of Options to Purchase Common Stock 11,711 2,888 -- ------- ------- ------- Net Cash Provided by (Used in) Financing Activities (14,835) 4,179 5,981 Effect of Exchange Rate Changes on Cash (743) (446) (611) ------- ------- ------- Increase in Cash and Cash Equivalents 590 1,495 1,430 Cash and Cash Equivalents at Beginning of Year 11,022 9,527 8,097 ------- ------- ------- Cash and Cash Equivalents at End of Year $11,612 $11,022 $ 9,527 ======= ======= =======
See Accompanying Notes. 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1999, 1998, and 1997, LawGibb Group, Inc. (Dollars in thousands, except share and per share amounts) - -------------------------------------------------------------------------------- 1. Accounting Policies Description of Business - LawGibb Group, Inc. and its subsidiaries (collectively, the Company) provide comprehensive environmental and specialized engineering consulting services to governmental, commercial, and industrial entities. Basis of Presentation - The consolidated financial statements include the accounts of LawGibb 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, 1999 and 1998 were contract retentions totaling $634 and $765, respectively. Substantially all unbilled receivables are billed and collected in the subsequent fiscal year. Billed fees receivable, net, at December 31, 1999 of $56,274 and at December 31, 1998 of $55,346 were net of allowances for doubtful accounts of $4,025 and $4,223, respectively. Cash Equivalents - The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1999, 1998, and 1997, LawGibb 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 $5,172, $5,316, and $6,243 in 1999, 1998, and 1997, 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. Accumulated amortization of goodwill approximated $605 and $557 at December 31, 1999 and 1998, respectively. 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 primarily debt financing costs and trademarks which are amortized on a straight-line basis over the terms of the related agreement. Accumulated amortization approximated $1,418 and $959 at December 31, 1999 and 1998, respectively. Additionally, certain long-term prepaid expenses and prepaid pension costs also are represented in the balances at December 31, 1999 and 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 1,041,495 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). 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, 2000. 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. Reclassification - Certain prior year amounts have been reclassified to conform to the 1999 presentation. 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1999, 1998, and 1997, LawGibb 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:
1999 1998 -------- -------- Land and Buildings $ 8,342 $ 12,398 Equipment 33,999 38,773 Furniture and Fixtures 11,661 12,074 Automobiles 1,856 2,606 Leasehold Improvements 2,191 2,316 -------- -------- 58,049 68,167 Less: Accumulated Depreciation (41,522) (44,725) -------- -------- Total Net Property and Equipment $ 16,527 $ 23,442 ======== ========
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 $10.38 per share until June 30, 1998 after which the price will range from $0.01 to $10.38 based upon the Company's performance against stipulated net income benchmarks. As of December 31, 1999, the exercise price of the warrants is $10.38 per share. 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, 1999, all options have been exercised. The agreement also includes an option granted to the holders of the preferred stock for the right to purchase up to 161,452 shares of common stock for an average price of $13.97 per share. These options are exercisable only in conjunction with exercises by holders of options under the Company's Stock Option Plan (See Note 7). 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 $10.38 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. 28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1999, 1998, and 1997, LawGibb Group, Inc. (Dollars in thousands, except share and per share amounts) - -------------------------------------------------------------------------------- 4. DEBT Debt obligations consist of the following at December 31:
1999 1998 ------- ------- Revolving Lines of Credit: United States (Average interest rate of 7.7% at December 31, 1999) $ 7,000 $28,700 International (Average interest rate of 6.8% at December 31, 1999) 4,192 3,576 Notes Payable to former shareholders, interest at prime, 8.0%, and 8.5% 8,868 12,868 Various Notes Payable, interest at rates ranging from 5.4% to 17.5% due in installments through the year 2003 1,484 2,055 ------- ------- Total Lines of Credit and Notes Payable 21,544 47,199 Less: Current Portion 4,549 5,220 ------- ------- Total Long-Term Debt $16,995 $41,979 ======= =======
The Company maintains one credit facility with a global bank. The facility bears a three-year term and two one-year extension options, both of which have been exercised. 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 facility is secured by substantially all of the assets of the Company's United States and United Kingdom operating subsidiaries. CREDIT FACILITY
MAXIMUM NATURE AMOUNT (C) INTEREST RATE EXPIRATION DATE ------ ---------- ------------- --------------- Revolving Line of Credit (A) $40,000 Base less 0.25% to Base and LIBOR + 1.5% to 2.0% January 15, 2003 Letters of Credit sub-facility $ 3,000 1.25% to 1.5% Per Annum January 15, 2003 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, 2003 Letters of Credit sub-facility (pound)11,000 1.75% Per Annum January 15, 2003 Capital Expenditure Facility (B) (pound) 2,400 LIBOR + 1.5% to 2.0% January 15, 2003
(A) The total revolving facility will be reduced by $10,000 on January 1, 2001 and by an additional $5,000 on January 1, 2002. (B) The capital expenditure pounds sterling facility has an availability of (pound)1,600 at December 31, 1999, increasing to (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 facility are repayable quarterly over a five-year period. 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1999, 1998, and 1997, LawGibb Group, Inc. (Dollars in thousands, except share and per share amounts) - -------------------------------------------------------------------------------- Interest payments totaled $3,864, $5,366, and $4,236 in 1999, 1998, and 1997, respectively. The weighted average interest rate on short-term borrowings ($1,213 of short-term borrowings denominated in South African rand ) approximated 16.5% in 1999. Future maturities of long-term debt are as follows: 2000 $ 4,549 2001 4,430 2002 1,035 2003 11,424 2004 106 Thereafter -- ------- $21,544 =======
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 (See Note 14). At December 31, 1999, the Company had provided guarantees of $1,855 under United States letters of credit and $5,306 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: 2000 $13,235 2001 9,844 2002 7,360 2003 6,284 2004 5,120 Thereafter 26,961 ------- $68,804 =======
Rent expense, net of income from subleases, aggregated $14,992, $14,803, and $17,307 in 1999, 1998, and 1997, respectively. 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1999, 1998, and 1997, LawGibb 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 its United States employees over the age of 21 who were hired before March 28, 1996. 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 management. Net periodic pension costs consist of the following components for the years ended December 31:
1999 1998 1997 ------- ------- ------- Service Cost $ -- $ -- $ 560 Interest Cost 2,889 2,687 2,635 Actual Return on Plan Assets (3,226) (3,639) (2,845) Net Amortization and Deferral (160) (160) 2 ------- ------- ------- Net Periodic Pension (Benefit) Cost $ (497) $(1,112) $ 352 ======= ======= =======
31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1999, 1998, and 1997, LawGibb 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:
1999 1998 ------- ------- Change in Benefit Obligation Benefit Obligation at Beginning of Year $39,681 $35,669 Interest Cost 2,889 2,687 Actuarial (Gain) Loss (974) 1,467 Benefits Paid (614) (142) ------- ------- Benefit Obligation at End of Year $40,982 $39,681 Change in Plan Assets Fair Value of Plan Assets at Beginning of Year $40,509 $36,459 Actual Return on Plan Assets 2,857 3,379 Employer Contributions -- 813 Benefits Paid (614) (142) ------- ------- Fair Value of Plan Assets at End of Year $42,752 $40,509 ------- ------- Funded Status $ 1,770 $ 828 Unrecognized Actuarial Loss 647 1,253 Unrecognized Transition Asset (319) (480) ------- ------- Net Amount Recognized $ 2,098 $ 1,601 ======= ======= Amounts Recognized in the Balance Sheet Consist of: Prepaid Benefit Cost $ 2,098 $ 1,601 ======= =======
32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1999, 1998, and 1997, LawGibb 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:
1999 1998 1997 ----- ----- ----- Weighted Average Discount Rate 7.50% 7.25% 7.25% Rate of Increase in Future Compensation Levels Pre-Curtailment N/A N/A 4.00% Expected Long-Term Rate of Return on Plan Assets 8.00% 10.00% 10.00%
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, 1999, the Company revised the weighted average discount rate and the expected long-term rate of return assumptions. These revisions had an immaterial effect on net periodic pension cost during 1999. 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, 1999, the Plan holds 44,491 shares of the Company's stock with a value of $1,264. 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 $1,497 in 1999, $1,680 in 1998, and $1,699 in 1997. 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 1999, 1998, or 1997. 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1999, 1998, and 1997, LawGibb 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, 1999, options to acquire 49,403; 500; 16,000; 6,000; 75,000; 176,000; 7,000; 74,000 and 18,000 shares of the Company's Common Stock at $17.80, $29.63, $26.36, $16.91, $11.64, $12.61, $14.33, $19.54, and $28.48 per share, respectively, were outstanding under this Plan. At that date, options to acquire 202,503 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 1999, 1998, and 1997, respectively: risk-free interest rates of 5.6%, 5.6%, and 5.7%, 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.
1999 1998 1997 ------ ------ ------ Pro Forma Net Income Available to Common Shareholders $6,623 $6,877 $3,043 Pro Forma Earnings Per Common Share Basic $ 2.84 $ 3.49 $ 1.61 Diluted $ 2.02 $ 2.63 $ 1.48
34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1999, 1998, and 1997, LawGibb 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:
1999 1998 1997 -------- -------- -------- Outstanding - Beginning of Year 456,500 398,000 330,750 Granted 18,000 89,000 228,000 Exercised 7,097 -- -- Cancelled 45,500 30,500 160,750 Outstanding - End of Year 421,903 456,500 398,000 Exercisable - End of Year 202,503 152,600 98,600 Weighted Average Fair Value of Options Granted During the Year $ 9.29 $ 6.20 $ 4.16 Weighted Average Exercise Price: Outstanding - Beginning of Year $ 15.05 $ 14.27 $ 17.61 Granted $ 28.48 $ 19.01 $ 12.66 Exercised $ 18.27 $ -- $ -- Cancelled $ 15.25 $ 16.42 $ 18.86 Outstanding - End of Year $ 15.57 $ 15.05 $ 14.27 Exercisable - End of Year $ 15.40 $ 16.33 $ 18.77
Exercise prices for options outstanding as of December 31, 1999 ranged from $11.64 to $29.63. The weighted-average remaining contractual life of those options is 6.7 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, 16,128 and 20,913 shares were repurchased during 1999 and 1998 for $457 and $408, respectively, related to transfers out of this investment option. 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1999, 1998, and 1997, LawGibb 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:
1999 1998 1997 ------ ------ ------ CURRENT INCOME TAXES: Federal $4,051 $7,390 $5,796 State 1,317 1,677 1,156 Foreign 300 685 1,094 ------ ------ ------ Total Current 5,668 9,752 8,046 DEFERRED INCOME TAXES: Federal (121) (3,709) (3,533) State (21) (695) (643) Foreign 393 1,084 142 ------ ------ ------ Total Deferred 251 (3,320) (4,034) ------ ------ ------ PROVISION FOR INCOME TAXES $5,919 $6,432 $4,012 ====== ====== ======
The foreign provision for income taxes is based on pre-tax earnings from foreign operations of $477 in 1999, $4,367 in 1998, and $3,112 in 1997. 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:
1999 1998 ------- ------- DEFERRED TAX LIABILITIES: Software Capitalization $ 2,291 $ 2,281 Mark to Market Accounting for Accounts Receivable 687 1,030 Other - net 3,402 3,101 ------- ------- Total Deferred Tax Liabilities 6,380 6,412 DEFERRED TAX ASSETS: Depreciation 2,612 2,221 Employee Benefits 492 780 Non-Deductible Reserves 2,427 2,902 Loss Carry-Forwards 3,299 5,660 Other - net 240 188 ------- ------- 9,070 11,751 Valuation Allowance for Deferred Tax Assets (1,850) (4,248) ------- ------- Total Deferred Tax Assets 7,220 7,503 ------- ------- Net Deferred Tax Assets $ 840 $ 1,091 ======= =======
36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1999, 1998, and 1997, LawGibb Group, Inc. (Dollars in thousands, except share and per share amounts) - -------------------------------------------------------------------------------- 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 $20,701 at December 31, 1999. A reconciliation of the statutory U.S. income tax rate to the Company's effective income tax rate is as follows:
1999 1998 1997 ---- ---- ---- Statutory U.S. Income Tax Rate 34.0% 34.0% 34.0% State Taxes, net of Federal Benefit 6.1% 4.4% 4.2% Income Tax in Jurisdictions Other than 34.0% 0.7% 3.6% 2.4% Permanent Differences Between Book and Taxable Income (0.6%) 2.4% 4.0% Losses for Which No Benefit is Recognized 3.1% -- -- Other (1.4%) (0.6%) 5.2% ---- ---- ---- Effective Income Tax Rate 41.9% 43.8% 49.8% ==== ==== ====
At December 31, 1999 the Company had $2,236 of operating loss carryforwards related to foreign subsidiaries; $2,093 can be carried forward indefinitely. The remaining $143 will expire in 2002 - 2005. 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, 1998 and 1997 was $4,396 and $3,007, respectively. Income tax payments amounted to $5,497, $8,639, and $9,236 in 1999, 1998, and 1997, respectively. 9. CONSOLIDATED STATEMENTS OF CASH FLOWS The changes in operating working capital as shown in the Consolidated Statements of Cash Flows includes:
1999 1998 1997 ------- ------- ------- Decrease (Increase) in: Billed Fees Receivable (2,268) 44 (1,190) Unbilled Work in Progress 4,325 433 (2,408) Other Current Assets 1,606 (824) (714) Increase (Decrease) in: Accounts Payable and Accrued Expenses (5,354) (4,806) (1,568) Billings in Excess of Costs and Fees Earned on Contracts in Progress 2,396 (1,227) 948 ------- ------- ------- Changes in Operating Working Capital Assets and Liabilities, net of Effects of Business Acquisitions $ 705 $(6,380) $ (4,932) ======= ======= =======
37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1999, 1998, and 1997, LawGibb 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:
1999 1998 1997 ------- ------- ------ NUMERATOR: Net Income $ 8,220 $ 8,422 $4,081 Preferred stock dividends and accretion (1,128) (1,128) (742) ------- ------- ------ Numerator for basic earnings per common share - Income available to common shareholders 7,092 7,294 3,339 Effect of Dilutive Securities: Preferred stock dividends and accretion -- 1,128 742 ------- ------- ------ Numerator for diluted earnings per common share - Income available to common shareholders $ 7,092 $ 8,422 $4,081 ======= ======= ====== DENOMINATOR: Denominator for basic earnings per common share - Weighted-average shares 2,334 1,968 1,892 Effect of dilutive securities: Employee Stock Options 192 93 22 Cumulative Convertible Redeemable Preferred Stock And Associated Common Stock Warrants 597 957 638 Other Stock Options 150 29 -- ------- ------- ------ Dilutive potential common shares 939 1,079 660 ------- ------- ------ Denominator for diluted earnings per common share - Adjusted weighted-average shares 3,273 3,047 2,552 ======= ======= ====== Basic earnings per common share $ 3.04 $ 3.71 $ 1.77 ======= ======= ====== Diluted earnings per common share $ 2.17 $ 2.77 $ 1.60 ======= ======= ======
Options to purchase 750; 30,750; and 153,000 shares of common stock were excluded from the diluted earnings per share calculations in 1999, 1998, and 1997, respectively because their effect would have been anti-dilutive. 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 disclosures required by SFAS No. 130 are recorded on the Statements of Income and Comprehensive Income in the section entitled Comprehensive Income. 38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1999, 1998, and 1997, LawGibb 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 1999, 1998, and 1997, the Company recorded a $1,428, $1,347, and $2,126 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, 1999, 1998, and 1997. 14. Financial Instruments The Company's financial instruments at December 31, 1999 and 1998 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. Collateral is generally not required and credit losses have been within management's expectations. At December 31, 1999, the fair value of the Company's interest rate swap agreement was $396. The Company has recorded no carrying amount associated with this instrument. The interest rate swap agreement was terminated effective January, 2000. 15. Business Segment and Geographic Area Information 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. Segment operating income has been restated for prior years to reflect the allocation of corporate expenses to the operating segments. These measures are consistent with those currently being used by management to assess performance. The table which follows represents combined disclosure for both business segment and geographic area information. 39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1999, 1998, and 1997, LawGibb Group, Inc. (Dollars in thousands, except share and per share amounts) - --------------------------------------------------------------------------------
1999 1998 1997 -------- -------- -------- NET FEES United States Operations $170,275 $179,315 $181,331 International Operations United Kingdom 39,770 45,629 51,181 Europe - Other 23,562 22,799 19,769 Africa 18,607 22,347 20,087 Other 4,981 4,830 5,333 -------- -------- -------- Total $257,195 $274,920 $277,701 ======== ======== ======== OPERATING INCOME United States Operations $ 16,262 $ 15,020 $ 10,983 International Operations United Kingdom 230 1,034 638 Europe - Other 130 517 246 Africa 373 1,936 1,576 Other 462 500 351 -------- -------- -------- Total $ 17,457 $ 19,007 $ 13,794 ======== ======== ======== IDENTIFIABLE ASSETS United States Operations $ 71,947 $ 84,801 $ 79,393 International Operations United Kingdom 45,205 41,326 38,791 Europe - Other 5,283 4,875 2,987 Africa 11,814 15,636 19,388 Other 4,582 4,273 5,209 -------- -------- -------- Total $138,831 $150,911 $145,768 ======== ======== ======== DEPRECIATION AND AMORTIZATION United States Operations $ 4,719 $ 4,562 $ 4,895 International Operations United Kingdom 1,155 920 923 Europe - Other 93 459 356 Africa 467 686 512 Other 170 97 96 -------- -------- -------- Total $ 6,604 $ 6,724 $ 6,782 ======== ======== ======== LONG LIVED ASSETS United States Operations $ 12,585 $ 18,815 $ 18,398 International Operations United Kingdom 3,039 3,524 3,753 Europe - Other 228 181 96 Africa 637 869 1,191 Other 38 53 68 -------- -------- -------- Total $ 16,527 $ 23,442 $ 23,506 ======== ======== ======== CAPITAL EXPENDITURES United States Operations $ 2,044 $ 5,259 $ 5,998 International Operations United Kingdom 675 616 951 Europe - Other 113 307 367 Africa 192 388 378 Other 7 65 99 -------- -------- -------- Total $ 3,031 $ 6,635 $ 7,793 ======== ======== ========
40 REPORT OF INDEPENDENT AUDITORS - -------------------------------------------------------------------------------- The Board of Directors and Shareholders LawGibb Group, Inc. We have audited the accompanying consolidated balance sheets of LawGibb Group, Inc. as of December 31, 1999 and 1998, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1999. 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 auditing standards generally accepted in the United States. 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 LawGibb Group, Inc. at December 31, 1999 and 1998, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Atlanta, Georgia March 10, 2000 41 EX-21.01 3 SUBSIDIARIES EXHIBIT 21.01 LAWGIBB GROUP, INC. DOMESTIC SUBSIDIARIES (INCLUDING PARTNERSHIPS)
PLACE OF SUBSIDIARY INCORPORATION OWNERSHIP - -------------------------------- ----------------- --------------------------------- Law International, Inc. Georgia LawGibb 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. ("LEES") Georgia LawGibb Group, Inc. (100%) Law Environmental Consultants, Inc. Georgia LEES (100%) Ensite, Inc. Georgia LEES (100%) LeRoy Crandall & Associates California LawGibb Group, Inc. (100%) Law/Spear L.L.C. Georgia LEES (50%);The Spear Group, Inc. (50%) Law Testing Company, Inc. Georgia LEES (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%) Envirosource, Inc. Georgia LEES (50%) Law/Sundt, Inc. California LEES (50%)
LAWGIBB GROUP, INC. INTERNATIONAL SUBSIDIARIES (INCLUDING PARTNERSHIPS)
PLACE OF SUBSIDIARY INCORPORATION OWNERSHIP - -------------------------------- ----------------- --------------------------------- Law International Thai Ltd Thailand Law International, Inc. (100%) Gibb Africa Consulting Cyprus Gibb International Holdings, Inc. (100%) Engineers Ltd Gibb Africa International Ltd Cyprus Gibb Africa Consulting Engineers Ltd (100%) Sir Alexander Gibb & Partners Republic of Gibb Africa International Ltd (100%) (Namibia)(Pty) Ltd Namibia Gibb Swaziland (Pty) Ltd Swaziland Gibb Africa International Ltd (100%) Gibb (Lesotho) (Pty) Ltd Kingdom of Gibb Africa International Ltd (100%) Lesotho Gibb (Botswana) (Pty) Ltd Botswana Gibb Africa International Ltd (100%) Gibb Eastern Africa Ltd Kenya Gibb Africa International Ltd (100%) Gibb (Malawi) Ltd Malawi Gibb Africa International Ltd (100%) Gibb (Mauritius) Ltd Mauritius Gibb Africa International Ltd (100%) Gibb Africa SA (Pty) Ltd S. Africa Gibb Africa International Ltd (100%) Gibb Zimbabwe (Private) Ltd Zimbabwe Gibb Africa International Ltd (100%) HKS-Law Gibb Share Trust S. Africa Gibb Africa (Pty) Ltd (70%) (Pty) Ltd Geoscience Laboratories (Pty) Ltd S. Africa Gibb Africa (Pty) Ltd (100%) Hill Kaplan Scott (Ciskei) Inc. Republic of Gibb Africa (Pty) Ltd (100%) Ciskei Hill Kaplan Scott (Transkei) Republic of Gibb Africa (Pty) Ltd (100%) Inc. Transkei Giban Danismanlik ve Muhendislik Ltd Siketi Turkey Gibb International Holdings, Inc. (50%) Sir Alexander Gibb (Polska) Sp z o.o. Poland Gibb International Holdings, Inc. (100%)
Gibb Petermuller & Partners England Gibb International Holdings, Inc. (100%) (Europe) Ltd Gibb Petermuller & Partners England Gibb International Holdings, Inc. (100%) (Middle East) Ltd Gibb Petermuller & Partners, O.E. Greece Gibb Petermuller & Partners (Middle East) Ltd (50%) Gibb Petermuller & Partners (Europe) Ltd (50%) Gibb Holdings Ltd England Gibb International Holdings, Inc. (100%) Gibb Ltd England Gibb Holdings Ltd (100%) Law Companies Group, Ltd Jersey Gibb Ltd (98%) Gibb-Anglian Ltd England Gibb Ltd (50%) Sir Alexander Gibb & Partners Ltd England Gibb Ltd (100%) Westminster and Earley England Gibb Holdings Ltd (100%) Services Ltd Gibb Tanacsadasi Kft Hungary Gibb Holdings Ltd (100%) The Gibb Foundation Ltd England Gibb Holdings Ltd (100%) Prointec, S.A. Spain Gibb Holdings Ltd (20%) Crispin Wride Architectural England Gibb Holdings Ltd (100%) Design Studio Ltd Nick Derbyshire Design England Gibb Holdings Ltd (100%) Associates Ltd Gibb Overseas (Jersey) Ltd Channel Islands Gibb International Holdings, Inc. (100%) Gibb Hellas Consulting Engineers SA Greece Gibb International Holdings, Inc. (100%) Gibb (Hong Kong) Ltd Hong Kong Gibb Overseas (Jersey) Ltd (100%) Gibb Overseas Ltd England Gibb Overseas (Jersey) Ltd (100%) Gibb Gulf E.C. State of Bahrain Gibb Overseas Ltd (100%) Gibb Africa (Pty) Ltd S. Africa Gibb Africa Consulting Engineers Ltd (100%) African Consulting Engineers Botswana Gibb Africa (Pty) Ltd (100%) (Botswana) (Pty) Ltd Help Zone Ltd England Gibb Holdings Ltd (100%) LEX International Insurance Co. Ltd Bermuda LawGibb Group, Inc. (100%) Law Mexico, S.A. de C.V. (D.F. Max) Mexico LEES (90%) LawGibb Group, Inc. (10%) Gibb Portugal Lda Portugal Gibb International Holdings, Inc.(100%) Sir Alexander Gibb & Partners Ltd England Gibb Holdings Ltd (100%) Gibb Angola Lda Angola Gibb Portugal Lda (85%) Keir Gibb Remediation Ltd England Gibb Ltd (50%)
EX-23.01 4 CONSENT OF INDEPENDENT AUDITORS EXHIBIT 23.01 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement Form S-8 No. 33-49293 and 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 LawGibb Group, Inc., and the Registration Statement (Form S-8 No.33-99114) pertaining to the 401(k) Savings Plan of LawGibb Group, Inc. of our report dated March 10, 2000, with respect to the consolidated financial statements of LawGibb Group, Inc. incorporated by reference in the Annual Report (Form 10-K) for the year ended December 31, 1999. Our audits also included the financial statement schedule of LawGibb Group, Inc. listed in Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule 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 therein. /s/ Ernst & Young LLP ------------------------ Ernst & Young LLP Atlanta, Georgia March 29, 2000 EX-27 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1999, ITS CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1999 AND SCHEDULE II AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 11,612 0 60,299 4,025 26,853 102,909 58,049 41,522 138,831 62,707 0 9,907 0 2,616 43,404 138,831 293,128 293,128 0 105,948 133,187 603 3,186 14,116 5,919 8,220 0 0 0 8,220 3.04 2.17
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