10-Q 1 c10q.txt 3RD QTR 2001 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2001 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ___________ Commission file number: 0-19239 Law Companies Group, Inc. ------------------------------------------------- (Exact name of Registrant as specified in its charter) Georgia 58-0537111 ------------------------------------ ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1105 Sanctuary Parkway, Suite 300, Alpharetta, GA 30004 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) (770) 360-0600 --------------------------------------------------- (Registrant's telephone number including area code) LawGibb Group, Inc. -------------------------------------------------------------------------------- (Former name, former address, and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| NO |_| The number of shares of Common Stock of the Company, par value $1.00 per share, outstanding at November 13, 2001 was 2,614,546. TABLE OF CONTENTS PAGE PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Condensed Consolidated Balance Sheets as of September 30, 2001 and December 31, 2000.......................1 Condensed Consolidated Statements of Operations and Comprehensive Income for the Quarters and Nine-Month Periods Ended September 30, 2001 and 2000........................................................2 Condensed Consolidated Statements of Cash Flows for the Nine-Month Periods Ended September 30, 2001 and 2000.........4 . Notes to Condensed Consolidated Financial Statements..................5 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION.......................................8 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...10 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..........10 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.............................11 SIGNATURE.....................................................................12 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS LAW COMPANIES GROUP, INC. (unaudited - dollars in thousands, except per share data) Assets September 30, December 31, 2001 2000 ------------------ ------------------ Current assets: Cash and cash equivalents $ 13,317 $ 2,319 Billed fees receivable, net of allowance 40,372 41,571 Unbilled work in progress 18,934 15,279 Other current assets 5,256 5,079 Current assets of discontinued operations -- 48,020 ------------------ ------------------ Total current assets 77,879 112,268 Property and equipment, net 10,209 10,978 Equity investments 134 175 Goodwill, net 1,525 942 Other assets, net 11,548 5,558 Noncurrent assets of discontinued operations -- 15,783 ------------------ ------------------ Total Assets $ 101,295 $ 145,704 ================== ================== Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 11,400 $ 12,193 Billings in excess of costs and fees earned on contracts in progress 2,687 2,256 Current portion of long-term debt -- 3,955 Other accrued expenses 5,659 6,445 Other current liabilities 13,715 10,147 Current liabilities of discontinued operations -- 29,237 ------------------ ------------------- Total current liabilities 33,461 64,233 Long-term debt -- 10,941 Deferred income taxes 898 1,238 Noncurrent liabilities of discontinued operations -- 5,211 Cumulative convertible redeemable preferred stock; 963,398 shares issued and outstanding 9,945 9,929 Shareholders' equity: Common stock--$1 par value; authorized: 10,000,000 shares; issued and outstanding: 2,615,743 shares in 2001 and 2,613,878 shares in 2000 2,616 2,614 Additional paid-in capital 28,874 28,866 Retained earnings 25,519 33,580 Accumulated other comprehensive loss (18) (10,908) ------------------ ------------------- 56,991 54,152 ------------------ ------------------- Total Liabilities and Shareholders' Equity $ 101,295 $ 145,704 ================== =================== See accompanying notes.
1 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME LAW COMPANIES GROUP, INC. (unaudited - in thousands, except per share data)
For the Quarters For the Nine Months Ended September 30 Ended September 30 ---------------------------------- ----------------------------------- 2001 2000 2001 2000 --------------- --------------- --------------- --------------- Gross fees $ 56,713 $ 54,112 $ 165,309 $ 153,378 Less: Cost of outside services 9,575 9,601 27,294 23,812 --------------- --------------- --------------- --------------- Net fees 47,138 44,511 138,015 129,566 Direct costs and expenses: Payroll 14,235 13,200 42,792 38,658 Job related expenses 4,164 3,131 10,982 8,821 --------------- --------------- --------------- --------------- Gross profit 28,739 28,180 84,241 82,087 Indirect costs and expenses: Payroll 10,482 10,504 34,610 31,977 Other expenses 13,561 13,016 41,964 40,646 --------------- --------------- --------------- --------------- Operating income 4,696 4,660 7,667 9,464 Other: Interest income (expense) 495 (371) 125 (716) Deferred financing costs (14) (14) (43) (42) Other income (expense) (1) 19 18 (6) --------------- --------------- --------------- --------------- Income before income taxes and 5,176 4,294 7,767 8,700 equity investments Income tax provision (1,656) (1,343) (2,640) (2,558) Equity investments -- (4) -- 3 --------------- --------------- --------------- --------------- Income from continuing operations 3,520 2,947 5,127 6,145 Income from discontinued operations, net of tax -- 172 403 1,559 Loss from disposal of discontinued operations, net of tax (8) -- (12,689) -- --------------- --------------- --------------- --------------- Income (loss) from discontinued operations (8) 172 (12,286) 1,559 --------------- --------------- --------------- --------------- Net Income (Loss) $ 3,512 $ 3,119 $ (7,159) $ 7,704 =============== =============== =============== ===============
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME LAW COMPANIES GROUP, INC. (unaudited - in thousands, except per share data) For the Quarters For the Nine Months Ended September 30 Ended September 30 ---------------------------------------- ---------------------------------- 2001 2000 2001 2000 ----------------- ---------------- --------------- --------------- Income Available to Common Shareholders Income from continuing operations $ 3,520 $ 2,947 $ 5,127 $ 6,145 Less: Preferred stock dividend and accretion (282) (282) (846) (846) ----------------- ---------------- --------------- --------------- Income from continuing operations available to 3,238 2,665 4,281 5,299 common shareholders Income (loss) from discontinued operations (8) 172 (12,286) 1,559 ----------------- ---------------- --------------- --------------- Net income (loss) available to common shareholders $ 3,230 $ 2,837 $ (8,005) $ 6,858 ================= ================ =============== =============== Earnings per common share - basic: Continuing operations $ 1.24 $ 1.02 $ 1.64 $ 2.03 Discontinued operations (.01) .07 (4.70) .59 Net income (loss) 1.23 1.09 (3.06) 2.62 Earnings per common share - diluted: Continuing operations $ .94 $ .78 $ 1.25 $ 1.62 Discontinued operations (.01) .04 (3.59) .41 Net income (loss) .93 .82 (2.34) 2.03 Comprehensive Income Net income (loss) $ 3,512 $ 3,119 $ (7,159) $ 7,704 Other comprehensive income: Unrealized holding gains (losses) 11 (3) (10) 3 Foreign currency translation adjustment -- (2,322) -- (4,253) Reclassification adjustment due to foreign currency translation adjustment recognized -- -- 10,900 -- ----------------- ---------------- --------------- --------------- Comprehensive income $ 3,523 $ 794 $ 3,731 $ 3,454 ================= ================ =============== =============== See accompanying notes.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS LAW COMPANIES GROUP, INC. (unaudited - dollars in thousands) For the Nine Months Ended September 30 ------------------------------------ 2001 2000 ----------------- --------------- Operating activities Income from continuing operations $ 5,127 $ 6,145 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 3,348 3,401 Provision for losses on receivables 342 484 Deferred income taxes (1,040) (1,455) Undistributed losses from equity investments -- (3) Loss on disposal of property and equipment 14 81 Changes in operating assets and liabilities: Billed fees receivable 857 (8,531) Unbilled work in progress (3,655) (3,504) Other current assets 160 364 Accounts payable and accrued expenses 887 2,495 Billings in excess of costs and fees earned on contracts in progress 431 (30) ----------------- --------------- Net cash provided by (used in) continuing operations 6,471 (553) Net cash provided by (used in) discontinued operations 4,527 (454) ----------------- --------------- Net cash provided by (used in) operating activities 10,998 (1,007) Investing activities Business acquisitions, net of cash acquired (993) (338) Purchases of property and equipment (2,054) (2,954) Proceeds from disposal of property and equipment 32 74 Discontinued operations, net of cash sold 16,362 (580) Other, net (1,258) 71 ----------------- --------------- Net cash provided by (used in) investing activities 12,089 (3,727) Financing activities Net proceeds (payments) on revolving line of credit and long-term borrowings (14,896) 973 Proceeds from exercise of stock options 52 23 Repurchase and retirement of common stock (98) (191) Preferred dividends paid (600) (600) Discontinued operations 3,269 (540) ----------------- --------------- Net cash used in financing activities (12,273) (335) Increase in cash and cash equivalents from discontinued operations 184 1,523 ----------------- --------------- Increase (decrease) in cash and cash equivalents 10,998 (3,546) Cash and cash equivalents at beginning of period 2,319 4,676 ----------------- --------------- Cash and cash equivalents at end of period $ 13,317 $ 1,130 ================= =============== See accompanying notes.
4 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS LAW COMPANIES GROUP, INC. (unaudited - dollars in thousands, except per share data) NOTE 1 - There have been no significant changes in the accounting policies of Law Companies Group, Inc. (the "Company"), formerly LawGibb Group, Inc., during the periods presented. For a description of these policies, see Note 1 of Notes to Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2000 (the "Form 10-K"). NOTE 2 - The unaudited condensed consolidated financial statements presented herein have been prepared in accordance with accounting principles generally accepted in the United States for interim financial statements and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and note disclosures required by generally accepted accounting principles required for complete financial statements. These statements should be read in conjunction with the Consolidated Financial Statements and Notes for the year ended December 31, 2000 included in the Form 10-K. The accompanying condensed consolidated financial statements for the quarter and nine months ended September 30, 2001 and 2000 have not been audited by independent auditors in accordance with auditing standards generally accepted in the United States, but in the opinion of the Company's management such financial statements include all adjustments, consisting only of normal recurring adjustments, necessary to summarize fairly the Company's consolidated financial position and results of operations. The results of operations for the quarter and nine months ended September 30, 2001 may not be indicative of the results that may occur during the year ending December 31, 2001. NOTE 3 - In June 2001, the Financial Accounting Standards Board issued SFAS No. 141 "Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets." SFAS 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS 141 also specifies the criteria applicable to intangible assets acquired in a purchase method business combination to be recognized and reported apart from goodwill. SFAS 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment, at least annually. SFAS 142 also requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and be reviewed for impairment. The Company does not expect the adoption of SFAS 141 and 142 to have a material impact on its results of operations or financial position. NOTE 4 - In January 2001, the Company acquired the Fort Worth, Texas operation of Maxim Technologies, Inc. ("Maxim") for a purchase price of approximately $1.0 million in cash. The Company received $0.4 million in property and equipment and recorded $0.6 million in goodwill which is being amortized over a period of 15 years. The results of operations of Maxim have been included in the accompanying condensed consolidated statements of operations and comprehensive income since the acquisition date. NOTE 5 - On May 3, 2001, the Company completed the sale of its turnkey engineering services segment for $26.8 million in cash plus an assumption of debt by the purchaser of approximately $7.7 million. The cash proceeds include a $5.0 million escrow for certain defined possible liabilities. These services were provided in the United Kingdom, Europe, Africa and in certain other international locations. This business was a provider of multidisciplinary design, consulting and management services for infrastructure, industrial, and building projects at each stage from project conception to completion, with on going follow-up in the operation and maintenance phases. These services were provided to the owner or general contractors associated with large construction projects. This segment of the business has been accounted for as a discontinued operation and accordingly the accompanying consolidated financial statements reflect the operating results, balance sheet and cash flows of the discontinued operations separately from continuing operations for all periods presented. The continuing operations are composed of engineering support services, which are located in the United States. This business is a provider of geotechnical and materials analysis and testing and environmental services such as regulatory compliance planning, field data collection, laboratory analysis, data evaluation and interpretation, and waste site cleanup planning. Engineering support services are generally provided as a specific service to owners, sub-contractors of a general contractor or a sub-contractor of a sub-contractor of construction and construction related projects. 5 The operating results of the discontinued operations were as follows with the 2001 results including operations through the date of sale:
As of and For the Quarters As of and For the Nine Months Ended September 30 Ended September 30 2001 2000 2001 2000 ------------------- -------------------- -------------------- ------------------- Net fees $ -- $ 21,770 $ 33,313 $ 67,319 Gross profit -- 10,178 15,079 31,864 Operating income -- 337 496 2,895 Net income -- 172 403 1,559
Net assets of the discontinued operations at December 31, 2000 were as follows: Cash $ 4,647 Billed fees receivable, net 25,062 Unbilled work in progress 15,103 Other current assets 3,208 Property, plant & equipment, net 3,553 Intangible assets, net 10,751 Other assets 1,479 Short term borrowings (2,051) Accounts payable and accrued expenses (11,967) Billings in excess of costs (15,219) Long term debt (4,400) Deferred income taxes (679) Minority interest in equity (132) --------------- $ 29,355 =============== 6
NOTE 6 - Computation of Earnings Per Common Share The following table sets forth the computation of basic and diluted earnings per common share: For the Quarters Ended For the Nine Months Ended September 30 September 30 --------------------------------------------------------------------- 2001 2000 2001 2000 ----------------------------------- --------------------------------- Numerator: Income from continuing operations $ 3,520 $ 2,947 $ 5,127 $ 6,145 Preferred stock dividends and accretion (282) (282) (846) (846) ----------------------------------- --------------------------------- Numerator for basic earnings per common share - Income from continuing operations available to common shareholders 3,238 2,665 4,281 5,299 Numerator for basic earnings per common share - Income (loss) from discontinued operations available to common shareholders (8) 172 (12,286) 1,559 ----------------------------------- --------------------------------- Numerator for basic earnings per common share - Net income (loss) available to common shareholders $ 3,230 $ 2,837 $ (8,005) $ 6,858 =================================== ================================= Effect of dilutive securities: Income from continuing operations $ 3,238 $ 2,665 $ 4,281 $ 5,299 Preferred stock dividends and accretion 282 282 -- 846 ----------------------------------- --------------------------------- Numerator for diluted earnings per common share - Income from continuing operations available to common shareholders 3,520 2,947 4,281 6,145 Numerator for diluted earnings per common share - Income (loss) from discontinued operations available to common shareholders (8) 172 (12,286) 1,559 ----------------------------------- --------------------------------- Numerator for diluted earnings per common share - Net income (loss) available to common shareholders $ 3,512 $ 3,119 $ (8,005) $ 7,704 =================================== ================================= Denominator: Denominator for basic earnings per common share - Weighted-average shares 2,616 2,611 2,616 2,614 Effect of dilutive securities: Employee Stock Options 131 147 148 154 Other Stock Options 51 66 57 68 Cumulative Convertible Redeemable Preferred Stock and associated Common Stock Warrants 963 963 594 963 ----------------------------------- --------------------------------- Dilutive potential common shares 1,145 1,176 799 1,185 ----------------------------------- --------------------------------- Denominator for diluted earnings per common share - Adjusted weighted-average shares 3,761 3,787 3,415 3,799 =================================== ================================= Earnings per common share - basic: Continuing operations $ 1.24 $ 1.02 $ 1.64 $ 2.03 Discontinued operations (.01) .07 (4.70) .59 Net income (loss) 1.23 1.09 (3.06) 2.62 Earnings per common share - diluted: Continuing operations $ .94 $ .78 $ 1.25 $ 1.62 Discontinued operations (.01) .04 (3.59) .41 Net income (loss) .93 .82 (2.34) 2.03
7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The following table sets forth, for the quarters and nine months indicated, (i) the percentage of net fees represented by certain items reflected in the Company's condensed consolidated statements of operations and (ii) the percentage increase or decrease in each of these items in the 2001 periods from the comparable periods in the prior year. The Company measures its operating performance on the basis of net fees since a substantial portion of gross fees flow through to clients as costs of subcontractors and other project-specific outside services. Net fees are determined by deducting the cost of these outside services from gross fees. The following table and the subsequent discussion should be read in conjunction with the Condensed Consolidated Financial Statements and Notes to Condensed Consolidated Financial Statements contained elsewhere in this Form 10-Q. On May 3, 2001, the Company completed the sale of its turnkey engineering services segment provided by its International business to Jacobs Engineering Group, Inc. The transaction was consummated pursuant to a Stock Purchase Agreement dated April 28, 2001. These operations have been classified as discontinued operations in the condensed consolidated financial statements and in the following discussion.
Qtr to Qtr YTD Dollar Dollar Quarters Ended Increase Nine Month Periods Ended Increase September 30 (Decrease) September 30 (Decrease) ------------------------- ---------------- --------------------------- ---------------- 2001 2000 2001 vs. 2000 2001 2000 2001 vs. 2000 ----------- ----------- ---------------- ------------ ------------ ---------------- Net fees 100.0% 100.0% 5.9% 100.0% 100.0% 6.5% Gross profit 61.0% 63.3% 2.0% 61.0% 63.4% 2.6% Indirect costs and expenses 51.0% 52.8% 2.2% 55.5% 56.1% 5.4% Operating income from continuing operations 10.0% 10.5% 0.1% 5.6% 7.3% (19.0%) Income after tax from continuing operations 7.5% 6.6% 19.4% 3.7% 4.7% (16.6%) Income (loss) from discontinued operations -- 0.4% (104.7%) (8.9%) 1.2% (888.1%) Net income (loss) 7.5% 7.0% 12.6% (5.2%) 5.9% (192.9%)
RESULTS OF OPERATIONS For the first nine months of 2001, a $12.7 million loss on the disposal of discontinued operations (discussed below) lead to a net loss of $7.2 million. For the third quarter of 2001, the Company recorded net income of $3.5 million ($1.23 per common share - basic and $0.93 per common share - diluted) which is an increase from net income of $3.1 million in 2000 ($1.09 per common share - basic and $0.82 per common share- diluted). For the first nine months of 2001, the Company recorded a net loss of $7.2 million ($3.06 loss per common share - basic and $2.34 loss per common share - diluted) which is a decrease from net income of $7.7 million in 2000 ($2.62 per common share - basic and $2.03 per common share - diluted). Continuing Operations The Company continues to concentrate on growing its net fees and increasing project wins. Net fees increased 5.9% from $44.5 million for the third quarter of 2000 to $47.1 million for the same period in 2001. For the first nine months of 2001, net fees increased 6.5% from $129.6 million for the first nine months of 2000 to $138.0 million. 8 The gross profit margin of 61.0% for the third quarter of 2001 reflected a decrease compared to 63.3% for the same period of 2000. For the nine months ended September 30, 2001, the gross profit margin of 61.0% also reflected a decrease compared to 63.4% for the same period of 2000. Gross profit was adversely affected by project labor inefficiencies experienced on specific projects and in certain regions of the United States during the first nine months of 2001. Indirect costs and expenses, which includes the non-billable labor of professional staff, operations support personnel as well as administrative support functions, were $76.6 million, or 55.5% of net fees, for the first nine months of 2001, compared with $72.6 million, or 56.1% of net fees, for the same period in 2000. Indirect expenses for the first nine months of 2001 include $1.0 million of severance recorded to bring labor costs back into balance with current needs. Indirect costs and expenses were $24.0 million, or 51.0% of net fees, for the third quarter of 2001, compared with $23.5 million, or 52.8% of net fees, for the third quarter of 2000. The improvement in third quarter's indirect costs and expenses reflect management's efforts to maintain appropriate levels of labor and support expenses. Interest income was $0.5 million and $0.1 million for the third quarter and first nine months of 2001, respectively. This compares to interest expense of $0.4 million for the third quarter and $0.7 million for the first nine months of 2000. In the third quarter, the Company recorded interest income of $0.3 million from prior years' tax refunds generated from research and development tax credits and $0.1 million from the interest earned on cash maintained from the sale of the International business in the second quarter. Additionally, $0.1 million of deferred gain from the termination of an interest rate swap was recognized coincident with debt extinguishment at the beginning of the quarter. The company has had no debt, short term or long term, since the beginning of July, 2001. The average debt balance for the first nine months of 2001 decreased to $10.4 million compared to $22.7 million for the first nine months of 2000. The effective income tax rate was 32.0% and 34.0% for the third quarter and the first nine months of 2001, respectively. This compares to 31.3% and 29.4% for the third quarter and the first nine months of 2000, respectively. The annual effective income tax rates benefited from anticipated research and development credits and, in 2000, adjustments for balance sheet tax accruals that were deemed to be no longer necessary. For the third quarter of 2001, the Company recorded income from continuing operations of $3.5 million ($1.24 per common share - basic and $0.94 per common share - diluted) which is an increase from $2.9 million in 2000 ($1.02 per common share - basic and $0.78 per common share- diluted). For the first nine months of 2001, the Company recorded income from continuing operations of $5.1 million ($1.64 per common share - basic and $1.25 per common share - diluted) which is a decrease from $6.1 million in 2000 ($2.03 per common share - basic and $1.62 per common share - diluted). Discontinued Operations In the second quarter of 2001, the Company recognized a loss of $12.7 million on the sale of its International operations. The loss consisted of $12.5 million from the reclassification of the accumulated foreign currency translation losses previously included as a separate component of shareholders' equity and $0.2 million loss on the sale. The proceeds from the sale of $26.8 million, less $5.0 million held in escrow, were used to liquidate all outstanding debt obligations. Discontinued operations net fees in 2001 were $33.3 million with net income of $0.4 million. For the third quarter of 2001, the Company recorded an additional $8 thousand of expense due to the transaction ($0.01 loss per common share - basic and $0.01 loss per common share - diluted) which is a decrease from income of $0.2 million in 2000 ($0.07 per common share - basic and $0.04 per common share- diluted). For the first nine months of 2001, the Company recorded a loss from discontinued operations of $12.3 million ($4.70 loss per common share - basic and $3.59 loss per common share - diluted) which is a decrease from income of $1.6 million in 2000 ($0.59 per common share - basic and $0.41 per common share - diluted). FINANCIAL CONDITION Cash provided by continuing operations over the first nine months of 2001 was $6.5 million as compared to cash used by operations of $0.6 million during the first nine months of 2000. This increase was primarily due to improved working capital management. Capital expenditures during the first nine months of 2001 and the first nine months of 2000 were $2.1 million and $3.0 million, respectively. In order to continue to enhance productivity the Company has continued, and will continue, its capital spending programs, particularly for computers and other technology-related equipment. The Company believes that the capital spending amount allowed by its credit facility ($7.0 million per year) is sufficient to meet foreseeable requirements. 9 Cash balances increased significantly to $13.3 million at September 30, 2001 from $2.3 million at December 31, 2000 as a result of the net proceeds from the sale of the International business. A portion of the proceeds from the sale of discontinued operations was used to repay outstanding debt. As a result, the Company reported no short-term borrowings or debt at September 30, 2001, compared to $14.9 million at December 31, 2000. The Company believes that, in addition to strengthening its balance sheet, the sale and resulting cash balances position the Company to invest in higher return opportunities. While the Company anticipates continuing capital requirements to support growth, expansion of services, and capital expenditures, the Company believes that its cash balances, cash provided by operations and borrowings available under its credit facility will be sufficient to meet its requirements for the foreseeable future. The Company's 401(k) Savings Plan (the "Plan") permitted employees to elect to invest their Plan contributions in Company Common Stock, and provided that the Company's matching contributions, if any, under the Plan be made in the form of Company Common Stock. As of May 10, 1996, the Board of Directors of the Company decided to terminate the use of Company Common Stock under the Plan, whether as employee contributions or as Company matching contributions. Consistent with that decision, employees are allowed to trade out of (but not into) shares of the Company's Common Stock held in their individual 401(k) accounts, in accordance with Plan provisions. Over the first nine months of 2001, 3,504 shares were traded out of the Plan totaling approximately $98,500. Cash dividends on Common Stock have been and continue to be prohibited under the current and previous bank credit facilities. As required by the terms of the Company's outstanding Cumulative Convertible Redeemable Preferred Stock and permitted by the credit facility, the Company paid dividends to the holders of the Preferred Stock. For the third quarter, dividends totaled $0.2 million, or $0.21 per preferred share. For the nine months ended September 30, 2001, dividends totaled $0.6 million, or $0.62 per preferred share. General economic inflation had the effect of increasing the Company's basic costs of operations. These increased costs were generally recovered through increases in contract prices. Forward Looking Statements - This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 which represent the Company's expectations or beliefs. These statements by their nature involve substantial risks and uncertainties, certain of which are beyond the Company's control. The Company cautions that various factors, including, but not limited to, the factors described in the Company's filings with the Securities and Exchange Commission, the uncertain timing of awards and contracts, increasing competition by foreign and domestic competitors, general economic and regulatory conditions in each of the geographic regions served by the Company, industry trends, and other risks could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to various types of market risks in the normal course of business, including the impact of interest rate changes. For a description of these market risks, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Form 10-K. At the end of the third quarter 2001, however, the Company has no debt recorded on its balance sheet. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company's Annual Meeting of Shareholders was held July 30, 2001 in Atlanta, Georgia for the purpose of considering and voting on a proposal (the "Proposal") to elect six (6) directors to serve on the Board of Directors of the Company until the 2002 Annual Meeting and until their successors are duly elected and qualified. The votes for the Proposal are detailed below: Directors For Withheld --------- --- -------- Bruce C. Coles 1,579,732 140,485 Robert B. Fooshee 1,582,210 138,007 Walter T. Kiser 1,652,295 67,922 Steven Muller 1,641,643 78,574 Clay E. Sams 1,658,014 62,203 John Y. Williams 1,647,437 72,780 10 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.28 Second Amendment to Credit Agreement dated March 10, 2000 by and among the Company, Bank of America National Trust and Savings Association, and Bank of America, FSB. 10.29 Third Amendment to Credit Agreement dated May 3, 2001 by and among the Company, Bank of America National Trust and Savings Association, and Bank of America, FSB. (b) Reports on Form 8-K Current Report on Form 8-K, filed September 7, 2001, reporting under Item 5 the announcement of the change of the name of the Company from LawGibb Group, Inc. to Law Companies Group, Inc. 11 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant, Law Companies Group, Inc., has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. LAW COMPANIES GROUP, INC. /s/ Robert B. Fooshee ------------------------------------------------------------ Robert B. Fooshee Executive Vice President, Chief Financial Officer and Treasurer Dated: November 13, 2001 12