-----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, TXML0RIn0CO/AS/3h0MTD1r9QUYJLHoFP+cXYkBRNc1WdfD9JuSV3xl/hrlLJFMt vRT1NlCr0GyYxPgXnOsQaA== 0000853323-99-000005.txt : 19990402 0000853323-99-000005.hdr.sgml : 19990402 ACCESSION NUMBER: 0000853323-99-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LAW COMPANIES GROUP INC CENTRAL INDEX KEY: 0000853323 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT CONSULTING SERVICES [8742] 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: 99581575 BUSINESS ADDRESS: STREET 1: 1105 SANCTUARY PARKWAY STREET 2: SUITE 300 CITY: ALPHARETTA STATE: GA ZIP: 30004 BUSINESS PHONE: 770-360-0600 MAIL ADDRESS: STREET 1: 1105 SANCTUARY PARKWAY STREET 2: SUITE 300 CITY: ALPHARETTA STATE: GA ZIP: 30004 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, 1998. 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. 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 22, 1999 was $47,884,081. The number of shares outstanding of Law Companies Group, Inc. common stock as of March 22, 1999 was 2,043,863. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Company's definitive Proxy Statement for the 1999 Annual Meeting of Shareholders of the Company are incorporated by reference into Parts I and III. Portions of the Company's Annual Report to Shareholders for the calendar year ended December 31, 1998 are incorporated by reference into Parts I 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 impact of year-2000 issues and 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 Law Companies 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 Law Companies 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 4 through 12 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 are incorporated herein by reference to the Company's 1998 Annual Report to Shareholders. RAW MATERIALS AND INVENTORY Raw materials are not essential to the operation of the Company's business. Inventory similarly does not play a significant role in the Company's operations. 2 U.S. GOVERNMENT CONTRACTS The Company derived approximately 5% of its 1998 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, Inc." (federally registered in the United States) and "Law/Crandall, Inc." (California only). Registered trademarks include "Safesoil", registered to Ensite, Inc., a wholly-owned subsidiary of the above-mentioned Company. The Company is in the process of obtaining approval for federal registration of the "LawGibb" trademark. BACKLOG At December 31, 1998, the Company's contracted backlog was approximately $158 million as compared to $205 million at December 31, 1997. The Company estimates that approximately $143 million of the December 31, 1998 backlog will be completed by the end of 1999. 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 5 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. No single entity, however, 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 engineering and consulting services for the full range of 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 require persons providing geological services to be licensed. 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 the 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 federal laws and regulations. The Company works with clients to address compliance with such requirements. 3 EMPLOYEES As of December 31, 1998, the Company employed approximately 3,800 persons, which included approximately 1,800 engineers and scientists, 1,200 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 1998, 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; Pensacola, Florida; Raleigh, North Carolina; and Tampa, Florida. The Company's foreign subsidiaries lease offices in the United Kingdom, Indonesia, Kenya, Mauritius, Oman, Portugal, United Arab Emirates, Zimbabwe, Uganda, South Africa, Poland, and Belgium. 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 operations and offices. (See Note 5 of the Consolidated Financial Statements which are incorporated herein by reference to the Company's 1998 Annual Report to Shareholders, 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 22, 1999, with respect to those individuals who are Executive Officers of the Company. BRUCE C. COLES, 54, 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, 56, 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 market. From April 1986 until June 1992, Mr. Fooshee was Chief Financial Officer for Kayser-Roth Corporation, a consumer products company. 4 W. ALLEN WALKER, 48, 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, 52, 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, 52, 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, 44, 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 serves 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 from 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, 1998 or 1997. Further, the Company's existing credit facility with Bank of America prohibits the payment of cash dividends on the Company's Common Stock. As of December 31, 1998, there were 1,460 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, 1998, the appraised value was $21.65 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 Data on page 14 of the 1998 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 15 through 18 of the 1998 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 pages 15 through 18 of the 1998 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 1998 Annual Report to Shareholders included with this Form 10-K: Financial Statements Consolidated Statements of Operations for each of the three years in the period ended December 31, 1998, Page 20 Consolidated Balance Sheets as of December 31, 1998 and 1997, Page 19 Consolidated Statements of Shareholders' Equity for each of the three years in the period ended December 31, 1998, Page 21 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1998, Page 22 Notes to Financial Statements, Pages 23 through 37 Report of Independent Auditors, Page 38 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 1999 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, 1998. ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT In accordance with General Instruction G(3) of Form 10-K, the information contained with respect to Directors and executive officers of the Company in the Company's definitive proxy statement 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 1998, 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 July 10, 1998 for Virgil R. Williams and James M. Williams, Jr. Family Partnership, L.P. which were filed in July, 1998. 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 under the caption "Executive Compensation" in the Company's definitive proxy statement 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, the information contained with respect to security ownership of certain beneficial owners and management is set forth under the caption "Security Ownership of Certain Beneficial Owners and Management" in the Company's definitive proxy statement 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, the information with respect to certain relationships and related transactions is set forth under the caption "Certain Relationships and Related Party Transactions" in the Company's definitive proxy statement 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 1998 Annual Report to Shareholders included with this Form 10-K: Consolidated Statements of Operations for each of the three years in the period ended December 31, 1998, Page 20 Consolidated Balance Sheets as of December 31, 1998 and 1997, Page 19 Consolidated Statements of Shareholders' Equity for each of the three years in the period ended December 31, 1998, Page 21 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1998, Page 22 Notes to Financial Statements, Pages 23 through 37 Report of Independent Auditors, Page 38 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 andAfrican 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 Redemption Agreement dated August 31, 1995 by and between Material Analytical Services, Inc. and Law Engineering, Inc. (Incorporated by reference to Form 10-K filed June 11, 1996, File No. 0-19239). 2.06 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). 2.07 Stock Purchase Agreement between Law Companies Group, Inc. and Roy G. Dispasquale, Jeffrey A. Stocks, John M. Jazesf and E. Bradford Clark dated July 10, 1996 (Incorporated by reference to Form 10-K filed March 25, 1997, File No. 0-19239). 3.01 Third Restated Articles of Incorporation of the Company, as amended through February 21, 1996. (Incorporated by reference to Form 10-K filed June 11, 1996 File No. 0-19239). 8 3.02 Bylaws of the Company, as amended through October, 1996 (Incorporated by reference to Form 10-K filed March 25, 1997 File No. 0-19239). 3.03 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). 3.04 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). 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. 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. 10.25 Interest Rate Swap Agreement dated January 15, 1998 by and among the Company and Bank of America National Trust and Savings Association. 13.01 Portions of the Annual Report to Shareholders for the year ended December 31, 1998 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. LAW COMPANIES GROUP, INC. March 31, 1999 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 31, 1999 - ----------------- Peter D. Brettell /s/Bruce C. Coles Chairman of the Board of Directors, March 31, 1999 - ----------------- President, and Chief Executive Officer Bruce C. Coles /s/Robert B. Fooshee Chief Financial Officer, March 31, 1999 - ----------------- Treasurer, and Director Robert B. Fooshee /s/Walter T. Kiser Director March 31, 1999 - ----------------- Walter T. Kiser Director N/A - ----------------- Zell Miller /s/Joe A. Mason Director March 31, 1999 - ----------------- Joe A. Mason /s/Thomas D. Moreland Director March 31, 1999 - ----------------- Thomas D. Moreland /s/ Steven Muller Director March 31, 1999 - ----------------- Steven Muller /s/Clay E. Sams Director March 31, 1999 - ----------------- Clay E. Sams /s/Kendall H. Sherrill Corporate Controller March 31, 1999 - ----------------- Kendall H. Sherrill /s/Jamse M. Williams, Jr. Director March 31, 1999 - ----------------- James M. Williams, Jr. /s/John Y. Williams Director March 31, 1999 - ----------------- John Y. Williams /s/Michael D. Williams Director March 31, 1999 - ----------------- Michael D. Williams /s/Virgil R. Williams Director March 31, 1999 - ----------------- Virgil R. Williams
12 APPENDIX 1
Law Companies Group, Inc. Schedule II - Valuation and Qualifying Accounts For the Years Ended December 31, 1998, 1997, and 1996 (in thousands) Beginning Additions Ending Balance Description Balance Deductions(2) - ----------------------------------------------------- ------------- ------------------------------- Expense Other (1) - ----------------------------------------------------- ------------- --------------- --------------- ---------------- --------------- 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 ============= =============== =============== ================ =============== Year Ended December 31, 1996 Allowance for Doubtful Accounts $4,388 $ 683 $ 275 ($ 881) $4,465 Valuation Allowance for Deferred Tax Assets 2,332 675 -- -- 3,007 ============= =============== =============== ================ =============== $6,720 $1,358 $ 275 ($ 881) $7,472 ============= =============== =============== ================ ===============
(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. EX-10.23 2 RESOLUTION TO AMEND 1990 STOCK OPTION PLAN (#3) Exhibit 10.23 BOARD RESOLUTION AUGUST 19, 1999 Amendment to the Law Companies Group, Inc. 1990 Stock option Plan Resolved: WHEREAS Section 7.5(a) of the Law Companies Group, Inc. 1990 Stock Option Plan (the "Plan") provides that the Committee charged with the administration of the Plan shall have discretion to determine the schedule by which the grant of an option under the Plan shall vest and become exercisable; and WHEREAS, Section 7.5(b) of the Plan provides that a percentage of the shares of stock subject to options granted under the Plan shall become vested and exercisable "On each Valuation Date following the date that an Option is granted," and "Valuation Dates" under the Plan occur each December 31st; and WHEREAS, notwithstanding that Section 7.5(a) of the Plan clearly grants complete discretion to the Committee as to the vesting schedule of any option granted under the Plan, Section 7.5(b) could be interpreted to conflict with such provision, is unclear as to its meaning and intent, and thereby could cause ambiguity within the Plan document and difficulty in its interpretation; and WHEREAS, Article IV of the Plan allows the Committee to interpret the Plan and to make all other determinations necessary or advisable for the administration of the Plan, and pursuant to such authority the Committee has consistently interpreted subsections (a) and (b) of Section 7.5 of the Plan together allow the Committee complete discretion with respect to the vesting of options granted under the Plan; and WHEREAS, the Board agrees with the interpretation of the Plan by the Committee with respect to the interpretation of Sections 7.5(a) and (b), and wishes to ratify and effectuate such interpretation and clarify any potential ambiguity under Sections 7.5(a) and (b) of the Plan by an amendment to the Plan; and WHEREAS, Article X of the plan allows the Board to amend and modify the Plan at any time subject to certain restrictions not relevant to the considerations here present; NOW, THEREFORE, BE IT RESOLVED, that the Board does hereby amend the Plan (I) by deleting subsection (b) of Section 7.5, (ii) striking the phrase "Notwithstanding Sections 7.5(a) and 7.5(b)," and inserting in lieu thereof "Notwithstanding Section 7.5(a)," and (ii) relettering subsection (c) of Section 7.5 as subsection (b) of Section 7.5, all effective retroactively as of November 8, 1990; and BE IT FURTHER RESOLVED, that the Board does hereby ratify and confirm the administration and interpretation of the Plan by the Committee consistent with the preceding resolution to November 8, 1990, the original effective date of the Plan; and BE IT FURTHER RESOLVED, that such amendment to the Plan shall not be submitted for approval by the shareholders of the Company because (I) shareholder approval is not required under Article X of the Plan, (ii) the Plan has consistently been interpreted in accordance with such amendment to the Plan; and BE IT FURTHER RESOLVED, that appropriate officers of the Company are authorized to take all further actions appropriate and/or necessary to effectuate the foregoing resolutions. MOVED______/s/__________ SECOND _____/s/___________ ACTION TAKEN _____/s/___________ EX-10.24 3 RESOLUTION TO AMEND 1990 STOCK OPTION PLAN (#4) Exhibit 10.24 BOARD RESOLUTION February 9, 1999 Amendment to the Law Companies Group, Inc. 1990 Stock Option Plan Resolved: WHEREAS Article IV of the Law Companies Group, Inc. 1990 Stock Option Plan (the "Plan") provides that the Committee charged with the administration of the Plan shall be authorized to prescribe, amend, and rescind rules and regulations relating to the Plan... and to make all other determinations necessary or advisable for the administration of the Plan; and WHEREAS, Section 2.1 (o) of the Plan defines "Valuation Date" to mean December 31st of any year; and WHEREAS, valuations have taken place on a quarterly basis on the 15th of every February, May, August and November consistent with the Law Companies Group, Inc. 401(k) Savings Plan since February 15, 1996; and WHEREAS, pursuant to the authority granted to the Committee in Article IV of the Plan, the Committee has consistently interpreted "Valuation Date" in the Plan to mean the quarterly valuations conducted on the 15th of each February, May, August, and November since February 15, 1996; and WHEREAS, the Board agrees with the interpretation of the Plan by the Committee with respect to the definition of "Valuation Date" and wishes to ratify and effectuate such interpretation; and WHEREAS, Article X of the plan allows the Board to amend and modify the Plan at any time subject to certain restrictions; NOW, THEREFORE, BE IT RESOLVED, that the Board does hereby amend the Plan by adding to the end of subsection (o) of Section 2.1 the following: "through the end of 195 and the 15th of February, May, August, or November of any year thereafter"; and BE IT FURTHER RESOLVED, that the Board does hereby ratify and confirm the administration and interpretation of the Plan by the Committee consistent with the preceding resolution; and BE IT FURTHER RESOLVED, that such amendment to the Plan shall not be submitted for approval by the shareholders of the Company because (I) shareholder approval is not required under Article X of the Plan, (ii) the Plan has consistently been interpreted in accordance woth such amendment to the Plan; and BE IT FURTHER RESOLVED, that appropriate officers of the Company are authorized to take all further actions appropriate and/or necessary to effectuate the foregoing resolutions. MOVED______/s/__________ SECOND _____/s/___________ ACTION TAKEN _____/s/___________ EX-10.25 4 INTEREST RATE SWAP AGREEMENT Exhibit 10.25 To: Law Engineering and Environmental Services, Inc & Gibb Limited ("Counterparty") ATTN: Unknown FAX: Unknown FROM: Bank of America National Trust and Savings Association ("BofA") 26 Elmfield Road, Bromley, Kent, BR1 1WA, England, Attn: Global Derivative Operations U.S.A. Toll Free Number U.K. Local Number Tel No: 1 (888) 624-0164 0181-313-2659 Fax No: 1 (888) 624-0166 0181-313-2694 DATE: January 12, 1998 RE: USD 20,000,000.00 Swap Transaction commencing January 15, 1998 Our Confirmation Reference No. SW36413 Dear Sir/Madam: The purpose of this letter agreement is to confirm the terms and conditions of the Transaction entered into between us on the Trade Date specified below (the "Swap Transaction"). This letter agreement constitutes a "Confirmation" under the ISDA Agreement defined below. The definitions and provisions contained in the 1991 ISDA Definitions (as published by the International Swaps and Derivatives Association, Inc. ("ISDA")) are incorporated into this Confirmation. In the event of any inconsistency between those definitions and provisions and this Confirmation, this Confirmation will govern. 1. The parties agree that the Swap Transaction described in this Confirmation constitutes their binding obligations. Except as set forth in this Confirmation, the Swap Transaction shall be subject to all the terms and conditions of the form of the master agreement entitled "Master Agreement" ("Multicurrency-Cross Border" version) as published in 1992 by the International Swaps and Derivatives Association, Inc., (and herein called the "ISDA Agreement"), excluding the "Schedule" thereto. Counterparty and BofA shall negotiate a Schedule and upon agreement shall sign the ISDA Agreement including the Schedule so negotiated and agreed upon (hereinafter called the "Agreement"), whereupon this Confirmation shall be deemed automatically, without further action of any party, to be a Confirmation under the Agreement; provided, however, that, unless and until Counterparty and BofA agree upon an design Agreement, the preceding sentence shall have full force and effect. THIS FACSIMILE TRANSMISSION WILL BE THE ONLY WRITTEN COMMUNICATION REGARDING THIS SWAP TRANSACTION. Pursuant to ISDA guidelines, this facsimile transmission will be sufficient for all purposes to evidence a binding supplement to the Agreement. However, should you have an internal requirement for confirmations with an original signature, we request that you sign and return this Confirmation by facsimile, whereupon, we will add an original signature to the fully executed Confirmation, and forward it to you by mail. 2. The terms of the particular Swap Transaction to which this Confirmation relates are as follows: Notional Amount: USD 20,000,000.00 Trade Date: January 9, 1998 Effective Date: January 15, 1998 Termination Date: January 15, 2003, subject to adjustment in accordance with the Modified Following Business Day Convention. Fixed Amounts: Fixed Rate Payer: Counterparty Fixed Rate Payer Payment Dates: Each 15th of each month, commencing on February 15th, 1998 up to and including the Termination Date Fixed Amount: Calculation x Fixed x Fixed Rate Day Amount Rate Count Fraction Fixed Rate: 5.86000 percent per annum Fixed Rate Day Count Fraction: Actual/360 Floating Amounts: Floating Rate Payer: BofA Floating Rate Payer Payment Dates: Each 15th of each month, commencing February 15th, 1998 up to and including the Termination Date Floating Rate for Initial Calculation Period: To be determined Floating Rate Option: USD-LIBOR-BBA Designated Maturity: 1 month Spread: None Floating Rate Day Count
Fraction: Actual/360 Reset Dates: First day of each Calculation Period Compounding: Inapplicable Business day: New York & London Business Day Convention: Modified Following Calculation Agent: Bank of America Governing Law: New York 3. Account Details: Payments to BofA: Fed Funds to Bank of America NT and SA San Francisco, ABA No 1210-0035-8 BISD Acct No. 33006-83980 Attn: Interest Rate Swap Operations Payments to Counterparty: Unknown 4. Offices: Office of BofA: San Francisco Office of Counterparty: Unknown Other Provisions Applicable to BofA Specified Entities of BofA: None Credit Support Document(s) None Relating to BofA: Credit Support Provider Relating to None BofA: Agreements of BofA: As per Section 4 of the ISDA Agreement. Representations of BofA: As pre Section 3 of the ISDA Agreement. Other Provisions Applicable to Counterparty Specified Entities of Counterparty: As may be indicated in the Agreement, if at all. Credit Support Document(s) As may be indicated in the Agreement, if at all. Relating to Counterparty:
Credit Support Provider Relating to As may be indicated in the Agreement, if at all. Counterparty: Agreements of Counterparty: As per Section 4 of the ISDA Agreement. Representations of Counterparty: As per Section 3 of the ISDA Agreement. Other Provisions (General) (A) Other Agreements: Corporate Resolution, Specimen Signature Certificate and other documentation as indicated in the Agreement, if at all. (B) Events of Default: As per Section 5 of the ISDA Agreement and Cross Default as indicated in the Agreement, if at all. (C) Termination Events: All the termination Events specified in Section 5(b) of the ISDA Agreement will apply (including Credit Event upon Merger). (D) Early Termination: As per Section 6 of the ISDA Agreement, it being the parties' intent that Section 6 apply to all outstanding Swap Transactions before (as well as after) execution of the Agreement. (E) Tax Representations: Counterparty and BofA make the Payer Representations contained in Part 2 of the Schedule to the ISDA Agreement. Payee Representations may be indicated in Part 2 of the Schedule to the Agreement, if applicable. (F) Tax Agreements of BofA and As may be indicated in the Agreement, if at all. Counterparty:
(G) Variations to the ISDA Agreement: BofA has made certain amendments to the ISDA Agreement which it believes are of a noncontentious nature. These amendments will be specified in the draft Agreement to be sent by BofA to Counterparty. (H) Documentation: This confirmation will constitute a binding agreement with respect to the Swap Transaction described herein. Without prejudice to the preceding sentence,Counterparty and BofA will negotiate in good faith to enter into the Agreement as soon as practicable after the date of this Confirmation. Please confirm your agreement to be bound by the terms stated herein by executing the copy of this Confirmation enclosed for that purpose and returning it to us or by sending to us a telex or letter, within 24 hours of receipt of this Confirmation to Bank of America NT & SA San Francisco Telex No. 249839 Answer Back OPRST UR or U.S.A. Toll Free Fax No: 1 (888) 624-0166 or U.K. Local Fax No: 0181-313-2694 Attention: Global Derivatives Operations, substantially in the form below: Quote We acknowledge receipt of your rapidfax dated January 11, 1998 with respect to the Swap Transaction entered into on January 9, 1998 between Law Engineering & Environmental Services, Inc. & Gibb Limited and Bank of America National Trust and Savings Association with a National Amount of USD 20,000,000.00 and a Termination Date of January 15, 2003, and confirm our agreement to be bound by the terms specified in such rapidfax. Unquote This Confirmation shall be Conclusively deemed accurate and complete by Counterparty if not objected to within two (2) Business Days from the date of receipt. Yours sincerely, For and on behalf of: Bank of America National Trust and Savings Association By: _____________________ Name: ___________________ Title: ____________________ Confirmed as of the Date first above written: Law Engineering & Environmental Services, Inc. & Gibb Limited By: ___________________ By: ______________________ Name: _________________ Name:_____________________ Title: ________________ Title: _____________________ EX-13.01 5 1998 ANNUAL REPORT TO SHAREHOLDERS Company Overview - ---------------- For more than 75 years, LAWGIBB Group has built a reputation as one of the world's leading engineering, environmental and design consulting services companies. Providing expertise in a wide array of multi-disciplinary technical and business services, LAWGIBB serves the industrial, commercial and government market sectors throughout the world. [IMAGE] Lawgibb's Worldwide Corporate Headquarters, Atlanta, Georgia Global Expanse with Local Presence - ---------------------------------- Headquartered in Atlanta, the Company's global network of more than 4,000 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 100 local offices in 30 countries. The Company's projects have spanned over 160 countries. Leading Edge Solutions to Clients' Multi-Faceted Concerns - --------------------------------------------------------- Working side-by side with clients, LAWGIBB's professionals combine seasoned leadership with innovative technologies to solve complex problems and resolve pressing issues. The Company's mission is to create full-service solutions for its clients that save time, reduce costs, and add significant value to their operations. On each engagement, LAWGIBB's experts strive to address clients' concerns by converting challenges into opportunities for success and obstacles into competitive advantages. [IMAGE] 4 Corporate Expertise - ------------------- Our Product is Our People - ------------------------- At the nucleus of LAWGIBB is the braintrust that fuels our business: our people. It is only through our people, who are the foundation of our Company and the fundamental source of our corporate expertise, that we are able to deliver excellent quality services on-time and on-budget to clients throughout the world. A guiding principle of LAWGIBB - intrinsic to every facet of our Company - is to provide our staff with ongoing extensive technical and business training. The Company's programs are aimed at continuously improving expertise and refining talent in order to address our clients' dynamic needs. [IMAGE] R. Scott Steedman Director of Engineering LAWGIBB - International "LAWGIBB is far more than a collection of disciplines. Our technical product is paramount; yet we are a people business - indeed, our sole product is the intellectual capital of our employees. it is the ebb and flow of knowledge, shared among our people and across many national borders, that drives a unique neural network supplementing the formal systems, and igniting a synergy whose result is ingenuity and excellence." Delivering Clients Systematic Quality With Assurance - ---------------------------------------------------- Unique to the industry, LAWGIBB created a worldwide quality assurance initiative to deliver to clients consistently superior service. Named the Quality Assurance Program, this systematic process of applying highly specialized functions and procedures provides clients confidence and assurance that they receive high quality performance on their engagements. The basis of the program entails having experienced and highly trained personnel, a worldwide computer network, and senior technical review of all reports, proposals, analyses, and test data. An important element of this initiative is our Principal Professional Certification Program. this rigorous and comprehensive process involves technical and business training for selected outstanding professionals with specific qualifications in education, experience, and registration. These individuals undergo a stringent series of examinations and scrutiny prior to achieving Principal status. The success of these programs is truly a testament to LAWGIBB's dedication to its employees and commitment to fostering and maintaining long-lasting relationships with clients. [IMAGE] W. Charles Greer, Jr. Director of Engineering LAWGIBB - USA "Our success is based on the ability of our people to divide problems into basic components and apply our extensive technical experience to these issues, while keeping the overall problem in the proper business perspective. This process provides our clients with sound solutions from both the technical and business viewpoints." 5 Service Areas - ------------- LAWGIBB Service Areas and Industries Served - ------------------------------------------- LAWGIBB's corporate mission to provide clients with technically advances, cost-effective solutions has earned the Company a distinguished reputation in a highly competitive marketplace. In order to provide clients with superior quality service in nearly any location, LAWGIBB has categorized its service areas into six major groups: Engineered Construction, Environmental Services, Facilities Engineering, Industrial Services, Transportation Services, and Water Engineering. The breadth of our design expertise spans all service areas of our business from multi-story buildings to pipelines. The primary industries served by LAWGIBB throughout the world include: Chemical/Petroleum Manufacturing Commercial Retail & Wholesalers Education & Healthcare Financial & Insurance Institutions Food, beverage, & Tobacco Telecommunications Hospitality & Entertainment Mining Public Sector Works Primary Metals Manufacturing Pulp/Paper & Forest Products Rubber, Plastics, & Glass Power & Utilities Real Estate & Rental Leasing Strategic Alliances Transportation [IMAGE] 6 Engineered Construction building with confidence - ----------------------------- LAWGIBB provides construction engineering services with knowledge, experience, and advanced data-gathering capability that is uniquely oriented to our client. Modern construction requires not only an understanding of the fundamental properties of construction materials and advanced technologies, but also of partnerships with other engineers, archtechts, contractors, and owners. As a provider of new and unique engineering solutions for efficient, economical construction, LAWGIBB's engineers and technicians are a value-added part of any construction team. LAWGIBB's services span all phases of the project process, including preliminary engineering, design, constructability analysis, peer review, construction testing and inspection, certified inspection, materials engineering and design, and laboratory testing. Our strengths lie in the expertise of the engineers and geologists in our local offices, backed by networks of experts who consult at top levels to provide value engineering in areas such as failure analysis, litigation, construction management, and worldwide construction. Using state-of-the-art tools and systems, LAWGIBB's professionals meet project objectives by delivering expert services in a cost-effective, timely, and accurate manner. [IMAGE] INTEGRITY FROM THE GROUND UP LAWGIBB's geotechnical engineering, hydrological studies, and construction materials testing services are helping to make the Tennessee NFL Stadium a rock-solid venue. "We've utilized LAWGOBB for over two years now," says Ed Coon, Vice President of Hellmuth, Obata + Kassabaum's Sports Facilities Group. "They've provided services in a very thorough, efficient, and professional manner. We highly recommend their services." [IMAGE] BUILDING FOR OUR FUTURE New, environmentally sustainable dams and hydropower stations such as those provided by the Lesotho Highlands Water Project will supply water and provide power, flood control and recreational facilities, while minimizing adverse environmental impact. At 185 meters high, the Katse arch dam is the highest in Africa - and is a project designed and supervised by a LAWGIBB joint venture. [IMAGE] BRIDGING THE GAP LAWGIBB and the California Department of Transportation (Caltrans) are working closely on this $4.5 billion program, one of the world's largest bridge and seismic retrofit projects, which entails inspection and testing of more than 2,200 bridges in California. "LAWGIBB's specialized technical expertise is not available through the civil system; their professionals provide the skills necessary for this important project," says Phil Stolarski, Caltrans' Structural Materials Branch Chief. 7 Environmental Services protection and remediation - ------------------------------- LAWGIBB helps clinets gain competitive advantage through appropriate environmental compliance, assessment, and risk management strategies. Environmental, health and safety risks must be identified, analyzed, and managed just as any other business risk. The wide range of effects business may have on the environment-from waste release, worker safety, and loss-of-habitat concerns to remediation and regulatory compliance issues-means most businesses must plan to deal with the possible impact of their activities. Few companies deliver the vast range of environmental expertise that LAWGIBB brings to every project. Through our diverse geographic coverage coupled with our ability to deliver services from concept to closure, LAWGIBB uses sound engineering and science to help guide environmental management decisions. From environment-friendly design to careful remediation, from meticulous property assessment to process engineering for public safety, LAWGIBB's proven track record of developing and implementing creative solutions that satisfy our clients' economic, operational and regulatory requirements has put our firm at the forefront of the environmental services field. [IMAGE] CLEARING THE WAY LAWGIBB's regulatory assistance and technical support enabled Mansur Industries to introduce SystemOne, a new line of patented recycling industrial parts washers which could revolutionize the vehicle maintenance industry. [IMAGE] BOTTOM LINE VALUE Through air modeling and the innovative design/construction methods used to build a recovered-water VOC system, LAWGIBB saved Olin Corporation $800,000 in capital costs, as well as $140,000 annually in operations and maintenance. [IMAGE] BALANCE RESTORED Land contamination on the UK's Ministry of Defence sites is being addresed worldwide as sites are assessed and cleaned up prior to disposal. LAWGIBB's teams identify potential contamination, and remediation is prioritized according the the risk to public health and the environment. 8 Facilities Engineering managing life cycle cost - ----------------------------- Optimizing building design and system performace, while managing costs and reducing risks, can pay long-term economic dividends by increasing the value of property over time. New regulations and increased maintenance required by aging structures, environmental hazards, and a competitive marketplace, offer significant challenges to those who acquire, own, or manage property. LAWGIBB's facilities experts enable clients to enhance their real estate investments through services that help extend the life of building components and systems. From roofing systems to underground storage tanks and everything in between, our facilities engineering team provides property owners and managers with a comprehensive resource of technical specialists to control operating expenses and optimize building design and system performance. LAWGIBB's engineers, architects, and environmental professionals assist the real estate industry in dealing with the complexities of owning or managing buildings and facilities. Primary facilities engineering services involve expertise related to architecture and structural systems, building exteriors, roofing and waterproofing, pavements, construction materials, mechanical and electrical systems, plumbing, asbestos and lead-containing materials, indoor air quality, forensic studies and expert testimony, information management, and other technical services required for successful asset management. [IMAGE] VALUE ENGINEERING "LAWGIBB recommended we use a roof management program called ROOFER," says Walt Petters, Director of Project Management for Brevard County (FL) Public Schools. "The data they gathered qualified us for over $500,000 in power company rebates, and convinced the school board to allocate $30 million to put new roofs on 29 schools. We couldn't be more pleased." [IMAGE] AWARD-WINNING DESIGN LAWGIBB's unique design for the UK's Falkland Islands Memorial Chapel triumphed over 73 other entries to win a RIBA/RFAC competition. The building will serve as both a national memorial to those who fell in the Falklands conflict and an assembly hall for Pangbourne College. 9 Industrial Services ensuring operations reliability - ------------------------------------ Operational and regulatory compliance issues could cost our industrial clients millions each year in production shutdowns and unanticipated expenditures. Success in manufacturing requires that production and utility equipment perform at capacity, without shutdowns due to failure or safety hazards. LAWGIBB's industrial services professionals provide our clients with both peace of mind and a dependable production environment through what we call "Reliability Technology for the 21st Century." This is a detailed methodology that LAWGIBB's engineers and technicians use to assess, analyze, and maintain any physical asset in its operating context. [IMAGE] THE POWER TO BUY WITH CONFIDENCE LAWGIBB's exacting technical investigations, including identifying existing problems and recommending remedial measures, enabled a client to begin acquisition negotiations for a major power station in Turkey. Our industrial services solutions allow our clients to utilize the full production capacity and useful service life of their assets. LAWGIBB's analysis, testing, and evaluation services provide valuable data that can alert clients to potential problems. Our process consulting ensures that advanced technology and service dependability are built right into the design; and predictive/preventive maintenance programs allow costly physical assets to operate at peak efficiency. In short, we help our clients maximize the functional reliability of their processes, equipment, and worker safety programs. Even better, by doing so we help significantly increase their operational profitability. [IMAGE] THROUGH THE FIRE Due to LAWGIBB's efforts, Eco-Pak's steel shipping containers can take the heat...and any of the grueling tests required to manufacture safe packaging for nuclear material transport. To comply with stringent NRC and DOT regulations, Eco-Pak Specialty packaging utilizes LAWGIBB for metallurgy consulting, material selection, and testing services. "We've always received work of high integrity from LAWGIBB," says William Arnold, president. "We use them for all our engineering needs." 10 Transportation Services spanning the globe - ----------------------- LAWGIBB's transportation expertise spans all modes of travel worldwide, identifying existing and future demands and developing solutions to problems. LAWGIBB's team provides consulting and construction services for all types of transportation projects. We provide planning, strategies and solutions, identify funding sources, and assist clients from the onset of a project through completion. Our worldwide rail team has planned and designed high speed, mainline, metro and light rail projects, providing a full range of financial and technical advice. LAWGIBB's highways team has provided expert design and consulting services for thousands of miles of road and hundreds of bridges worldwide. In addition, sophisticated computer modeling and information management tools enable our airport specialists to forecast human traffic through gates and terminals, and our highway experts to better predict the costs and challenges of building new roads. Our goal is to successfully integrate transportation and communication, people and services, to provide first-rate solutions. Across the spectrum of transportation services, LAWGIBB's experts offer the diversity and flexibility of service required to help our clients meet their needs today and in the future. [IMAGE] GETTING THERE FOR LESS LAWGIBB won the appointment as lead engineer for London Underground Limited and the borough of Croydon's light rail scheme, providing the client major cost saving improvements in the value engineering phase. [IMAGE] MORE INFORMATION, LESS COST A sophisticated geographic information system computer application for Georgia Department of Transportation was developed by LAWGIBB, allowing the client to optimize placement of transportation corridors with minimum environmental impact and cnstruction costs, reducing evaluation time by 60%, and substantially reducing project time and cost. [IMAGE] BETTER SAFETY DOWN THE ROAD LAWGIBB is assisting the Federal Highway Administration (FHWA) with a 20-year study of in-service pavements intended to develop new pavement design and maintenance technologies, resulting in improved, longer-lasting road systems. 11 Water Engineering cost-effective solutions - ----------------------------- LawGIBB is experienced in many aspects of water resources and wastewater systems, supporting projects ranging from small rural developments to master plans for large water infrastructures. Throughout the world, the demand for clean water often competes with economic growth and development. At LawGibb, our experienced teams help clients develop balanced, cost-effective water engineering and environmental solutions for a wide range of issues. Our experts offer broad-based services such as water resources management, water quality studies, stormwater drainage analysis and permitting, wastewater surveys, water reclamation schemes, industrial/municipal wastewater treatment works, sludge disposal, incinerators, and sea outfalls. In response to the global drive towards modernization of water management and privatization of utilities, LAWGIBB has developed a team of experts with a particular focus upon economics, institutional studies, and regulatory advice. [IMAGE] FACILITATING PROGRESS "LAWGIBB has been a tremendous asset to our Company in the execution of water projects," says Ed Matta of Puerto Rico's Dick Construction Company. "Their deft integration of the permitting process into our design/build project delivery method is excellent. They've helped us maintain project schedules within a constantly changing environment. [IMAGE] CLEAN WATER, CLEANER ENVIRONMENT From 1994 to 2005, the population of Antalya in Turkey will have increased by as much as 84%. LAWGIBB's team is overseeing the construction involved in upgrading the existing water supply, sewerage, and stormwater drainiage systems, a wastewater treatment plant, and a deep marine outfall for treated effluent. [IMAGE] CREATING AN ENVIRONMENTALLY SOUND THEME PARK Located outside Cape Town, Century City is one of the largest urban developments in South Africa, which includes the Ratanga Junction theme park, pictured here. LAWGIBB is responsible for the design and project management of a multi-function wetland for water treatment and conservation, canals, stormwatersystems, bridges, structures for the theme park, and treatment of effluent. 12 EXHIBIT 13.01 SELECTED FINANCIAL DATA (Dollars in thousands except per share data)
- ---------------------------------------------------------------------------------------------------- 1998 1997 1996 1995 1994 - ---------------------------------------------------------------------------------------------------- INCOME STATEMENT DATA: Gross Fees $311,162 $310,791 $323,179 $368,417 $361,653 Net Fees $274,920 $277,701 $286,282 $314,873 $314,102 Net Income (Loss) $ 8,422 $ 4,081 $ 1,910 $ (2,266) $(11,464) Earnings (Loss) Per Share: Basic $ 3.71 $ 1.77 $ 1.00 $ (1.19) $ (5.32) Diluted $ 2.82 $ 1.60 $ 1.00 $ (1.19) $ (5.32) Cash Dividends Per Share $ -- $ -- $ -- $ -- $ 0.26 BALANCE SHEET DATA: Working Capital $ 39,060 $ 32,415 $ 28,459 $ 30,384 $ 28,895 Total Assets $150,911 $145,768 $138,697 $148,304 $155,612 Long Term Liabilities $ 54,056 $ 54,935 $ 50,303 $ 59,915 $ 58,807 Shareholders' Equity $ 29,042 $ 19,341 $ 17,590 $ 15,825 $ 19,375 - ----------------------------------------------------------------------------------------------------
GROSS FEES [GRAPH] OPERATING INCOME [GRAPH] NET INCOME [GRAPH] YEAR END STOCK VALUATION [GRAPH] * Beginning in 1995, Year-End Stock Valuation represents the fair market value for purposes of, and in compliance with, the requirements of the Law Companies Group, Inc. 401(k) Savings Plan. These values are the fair market values of Law Stock for purposes of the 401(k) Savings Plan only, until such time as another appraisal is requested or as required by the 401(k) Savings Plan. 14 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 Law Companies 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 operations 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) 1998 1997 1996 1998 vs. 1997 1997 vs. 1996 ---- ---- ---- ------------- ------------- Net Fees 100.0% 100.0% 100.0% (1.0%) (3.0%) Gross Profit 58.6% 58.2% 59.3% (0.3%) (4.8%) Indirect Costs and Expenses 51.7% 53.2% 55.2% (3.8%) (6.5%) Operating Income 6.9% 5.0% 4.1% 37.8% 18.2% Net Income 3.1% 1.5% 0.7% 106.4% 113.7%
COMPARISON OF 1998 AND 1997 - Continuing the positive trends established in previous years, 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 gross fees for 1998 increased by 0.1% to $311.2 million from $310.8 million in 1997. For U.S. Operations, gross fees for the year increased by 0.2% as compared to 1997 to $208.4 million. For International Operations, gross fees were flat compared to 1997 at $102.8 million. 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. Also contributing to these decreases was a 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%, is 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 is directly attributable to the lower level of fees and the 3-year term associated with the 1998 facility versus the 1997 facility renegotiation. 15 MANAGEMENT'S DISCUSSION AND ANALYSIS - -------------------------------------------------------------------------------- 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. COMPARISON OF 1997 AND 1996 - Consolidated gross fees for 1997 decreased by 3.8% to $310.8 million from $323.2 million in 1996. Consolidated net fees for 1997 decreased 3.0% to $277.7 million from $286.3 million in 1996. Net fees for the U.S. operations decreased to $181.3 million in 1997, or 4.8%, from $190.4 million in 1996. These decreases were largely the result of two factors. First, having emerged from losses in 1994 and 1995, the Company placed its primary focus during 1996 on cost structure and competitiveness which adversely affected fee growth. Second, the lack of environmental regulatory pressure softened the demand in the environmental markets and resulted in increased competition. These decreases were partly mitigated by the Company's efforts to improve its business development initiatives during the year, to return net fees to 1996 levels, and grow fees in subsequent periods. The International Group's net fees increased to $96.4 million for 1997 from $95.9 million in 1996. This small increase was largely the result of a weaker U.S. dollar when compared to the pound sterling. The average value of the dollar decreased by 4.8% in 1997 when compared to 1996. The International Group's net fees in pound sterling for 1997 were negatively affected by a hold on government expenditures surrounding the United Kingdom general election. The consolidated gross profit margin decreased to 58.2% in 1997 from 59.3% for 1996. The U.S. Group's gross profit margin decreased slightly from 64.9% for the year ended 1996 to 64.6% for the year ended 1997. The small decrease in margin reflects competitive pressures, beginning in 1996, faced in the markets served by the U.S. Group. The International Group's gross profit margin decreased from 48.2% in 1996 to 46.2% in 1997. This decrease was due to project performance issues and increased competitive pressures in several of the International Group's markets as well as an increase in direct job-related expenses, which produces a smaller profit margin. Consolidated indirect costs and expenses were $147.8 million in 1997 compared to $158.1 million in 1996. This decrease of $10.3 million, or 6.5%, was attributable to the continued positive impact of the Company's cost reduction and labor utilization initiatives. These initiatives were designed to maximize efficiency and profitability, to effect substantive change in the culture of the Company, and to improve labor utilization. In 1997, the Company also advanced its efforts to lower real estate and office occupancy costs. Reductions in corporate overhead functions, primarily departmental re-alignment, position elimination, and attrition were also a contributing factor to the overall decrease in indirect expenses. Additionally, in the first quarter of 1997, the U.S. Group curtailed its defined benefit pension plan. As a result, the Company recognized a gain on curtailment of $1.8 million. This gain was a direct reduction of other indirect costs and expenses. Interest expense decreased from $4.7 million in 1996 to $4.0 million in 1997. This decrease was primarily due to lower average outstanding bank debt and lower interest rates in the Company's re-negotiated credit facilities in 1997 compared to 1996. During 1997 and 1996, the Company expensed $1.5 million and $2.6 million, respectively, related to the amortization of costs associated with re-negotiating and securing its credit facilities. This $1.1 million decrease was directly attributable to the lower level of fees associated with the 1997 facility renegotiation versus the 1996 facility renegotiation. In 1997, the Company recorded net income of $4.1 million compared to $1.9 million in 1996. Earnings per common share for 1997 were $1.77 per common share - - basic ($1.60 per common share - diluted) compared to $1.00 per common share (basic and diluted) in 1996. 16 MANAGEMENT'S DISCUSSION AND ANALYSIS - -------------------------------------------------------------------------------- FINANCIAL CONDITION The increase in cash provided by operations from $3.8 million in 1997 to $6.4 million in 1998 was primarily the result of the increase in net income from $4.1 million in 1997 to $8.4 million in 1998. Depreciation has been reduced as the Company has taken a more deliberate approach to capital expenditures over the prior two years. The components of working capital, which used $4.9 million in 1997, used cash of $6.6 million in 1998. Capital expenditures for 1998 were $6.8 million, which represents a decrease of $1.4 million from 1997. Total capital expenditures were in line with the Company's 1998 capital expenditures plan. 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 1998 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 $48.1 million at December 31, 1998, compared to $45.6 million at the end of 1997. Debt and short-term borrowings as a percentage of total capitalization amounted to 55% at December 31, 1998 compared to 61% at December 31, 1997. On January 15, 1998, the Company refinanced its credit facilities into one credit facility with a global bank. See Note 4 to the Consolidated Financial Statements. The 1998 credit facility bears a three-year term and two one-year extension options, the first of which was exercised concurrent with the amendment of the facility in September, 1998. 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. 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 1998 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, in 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, Virgil R. Williams and the James M. Williams Family Partnership 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. While the Company anticipates continuing capital requirements to support growth, expansion of services, and capital expenditures, the Company believes that its cash provided by operations and borrowings available under 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 employs an interest rate swap agreement. Based on the Company's debt profile at December 31, 1998 and December 31, 1997, a 1% increase in market interest rates would have increased interest expense and decreased income before income taxes by approximately $150,000 and $280,000, 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 17 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 - The Company recognizes the need to address potential problems in both information technology and non-information technology systems which could result in improper handling of the date change to the year 2000. As the Company's core business services are engineering and environmental science professional consulting services, delivery of these services is not critically dependent on any mainframe, mini-computer or personal computer-based systems or software applications. Where computer systems and software applications are used to support the delivery of services to clients, these systems and applications are largely personal computer-based and are not considered likely to experience year-2000 related problems. For certain applications which are used to support administrative operations of the Company and certain systems and applications used to support the Company's international operations, year-2000 readiness projects are currently in the process of being implemented. These projects are expected to be completed in mid-1999. The Company expects to spend a total of approximately $150,000 to address known year-2000 issues, with approximately $35,000 of the total spent to date. Additionally, the Company does not anticipate a material adverse effect on the Company's business, results of operations, or financial condition associated with any currently identified or anticipated year-2000 readiness issue, inclusive of internal systems and software applications and those systems of other parties with whom the Company does business. As part of the Company's contingency plan to address year-2000 matters, a centralized task force has been established to coordinate identification, evaluation, and implementation of any year-2000 contingency plans or future compliance requirements. This task force is evaluating all of its major external providers of essential goods and services for year-2000 readiness. Based on the critical nature of any good or service, the task force is developing a contingency plan regardless of the reported year-2000 readiness of the provider or industry. The Company expects all phases to be substantially complete by mid-1999. While the Company is taking steps that it believes to be reasonable and prudent to assess the year-2000 readiness of third parties with whom the Company does business, the failure of any of these third parties to correct a material year-2000 problem could result in an interruption in, or a failure of, certain normal business activities or operations. Due to the general uncertainty inherent in the year-2000 problem, resulting in part from the uncertainty of the year-2000 readiness of third party suppliers and customers, the Company is unable to determine at this time whether the consequences of year-2000 failures will have a material impact on the Company's results of operations, liquidity, or financial condition. Readers are cautioned that forward-looking statements contained in the year-2000 update should be read in conjunction with the Company's disclosures under the heading: "Forward Looking Statements", which follow this section. 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 the impact of year-2000 issues and 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. 18 CONSOLIDATED BALANCE SHEETS Law Companies Group, Inc. (Dollars in thousands, except share and per share amounts)
AT DECEMBER 31, 1998 1997 - ----------------------------------------------------------------------------------------------------------- ASSETS Cash and Cash Equivalents $ 11,022 $ 9,527 Billed Fees Receivable 55,346 56,808 Unbilled Work in Progress 31,464 32,105 Other Receivables 1,579 2,199 Deferred Income Taxes 3,074 -- Prepaid Expenses 4,388 3,268 --------- --------- Current Assets 106,873 103,907 Property and Equipment, net 23,442 23,506 Equity Investments 1,587 1,361 Intangible Assets 13,250 13,775 Other Assets 5,759 3,219 --------- --------- Total Assets $ 150,911 $ 145,768 ========= ========= - ----------------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Short-Term Borrowings $ 902 $ 904 Accounts Payable 15,858 17,887 Billings in Excess of Costs and Fees Earned on Contracts in Progress 13,805 15,168 Accrued Payroll and Other Employee Benefits 7,127 5,990 Accrued Professional Liability Reserve 3,518 3,504 Other Accrued Expenses 16,745 21,339 Income Taxes Payable 4,638 3,768 Current Portion of Long-Term Debt 5,220 2,231 Deferred Income Taxes -- 701 --------- --------- Current Liabilities 67,813 71,492 Long-Term Debt 41,979 42,483 Deferred Income Taxes 1,983 1,528 Minority Interest in Equity of Subsidiaries 208 1,060 Cumulative Convertible Redeemable Preferred Stock - 956,613 Shares Issued and Outstanding 9,886 9,864 Common Stock - $1 par value, 10,000,000 shares authorized, 2,045,870 and 1,872,000 shares issued and outstanding 2,046 1,872 Additional Paid-In Capital 18,046 14,957 Retained Earnings 15,931 8,855 Accumulated Other Comprehensive Income (6,981) (6,343) --------- --------- Total Shareholders' Equity 29,042 19,341 --------- --------- Total Liabilities and Shareholders' Equity $ 150,911 $ 145,768 ========= =========
See Accompanying Notes. 19 CONSOLIDATED STATEMENTS OF OPERATIONS Law Companies Group, Inc. (Dollars in thousands, except per share amounts)
YEAR ENDED DECEMBER 31, 1998 1997 1996 - --------------------------------------------------------------------------------------------------- Gross Fees $311,162 $310,791 $323,179 Less: Cost of Outside Services 36,242 33,090 36,897 -------- -------- -------- Net Fees 274,920 277,701 286,282 Direct Costs and Expenses: Payroll 81,160 81,613 83,109 Job-Related Expenses 32,591 34,450 33,402 -------- -------- -------- Gross Profit 161,169 161,638 169,771 Indirect Costs and Expenses: Payroll 62,474 60,604 61,527 Other Expenses 79,688 87,240 96,570 -------- -------- -------- Operating Income 19,007 13,794 11,674 Other Income (Expense): Interest Expense (4,365) (3,995) (4,715) Deferred Financing Costs (141) (1,539) (2,553) Other Income (Expense) 197 (198) 12 -------- -------- -------- Income Before Income Taxes and Equity Investments 14,698 8,062 4,418 Income Tax Provision (6,432) (4,012) (2,615) Equity Investments 156 31 107 -------- -------- -------- Net Income 8,422 4,081 1,910 Less: Preferred Stock Dividend and Accretion (1,128) (742) -- -------- -------- -------- Net Income Available to Common Shareholders $ 7,294 $ 3,339 $ 1,910 ======== ======== ======== Earnings Per Common Share - Basic $ 3.71 $ 1.77 $ 1.00 ======== ======== ======== Earnings per Common Share - Diluted $ 2.77 $ 1.60 $ 1.00 ======== ======== ======== RECONCILIATION OF COMPREHENSIVE INCOME Net Income $ 8,422 $ 4,081 $ 1,910 Other Comprehensive Income: Foreign Currency Translation Adjustment (638) (1,282) (376) -------- -------- -------- Comprehensive Income $ 7,784 $ 2,799 $ 1,534 ======== ======== ========
See Accompanying Notes. 20 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Law Companies Group, Inc. (Dollars in thousands, except share amounts)
Year Ended December 31, 1998 1997 1996 - -------------------------------------------------------------------------------------------------------- Class A Common Stock Balance at Beginning of Year $ -- $ -- $ 1,533 Conversion of 1,533,106 Shares of Class A Stock To Common Stock -- -- (1,533) ------- ------- ------- Balance at End of Year -- -- -- Common Stock Balance at Beginning of Year 1,872 1,905 361 Conversion of 1,533,106 Shares of Class A Stock To Common Stock -- -- 1,533 Issuance of Common Stock 21 -- 19 Repurchase and Retirement of Common Stock (22) (33) (8) Exercise of Options to Purchase Common Stock 175 -- -- ------- ------- ------- Balance at End of Year 2,046 1,872 1,905 Additional Paid-In Capital Balance at Beginning of Year 14,957 15,063 14,823 Issuance of Common Stock 558 -- 300 Repurchase and Retirement of Common Stock (182) (256) (60) Exercise of Options to Purchase Common Stock 2,713 -- -- Issuance of Common Stock Warrants -- 150 -- ------- ------- ------- Balance at End of Year 18,046 14,957 15,063 Retained Earnings Balance at Beginning of Year 8,855 5,683 3,794 Net Income 8,422 4,081 1,910 Preferred Stock Dividends (800) (521) -- Preferred Stock Accretion (327) (221) -- Repurchase and Retirement of Common Stock (219) (167) (21) ------- ------- ------- Balance at End of Year 15,931 8,855 5,683 Accumulated Other Comprehensive Income Balance at Beginning of Year (6,343) (5,061) (4,685) Foreign Currency Translation Adjustment (638) (1,282) (376) ------- ------- ------- Balance at End of Year (6,981) (6,343) (5,061) ------- ------- ------- Total Shareholders' Equity $29,042 $19,341 $17,590 ======= ======= =======
See Accompanying Notes. 21 CONSOLIDATED STATEMENTS OF CASH FLOWS Law Companies Group, Inc. (Dollars in thousands)
Year Ended December 31, 1998 1997 1996 - ----------------------------------------------------------------------------------------------------------- Operating Activities: Net Income $ 8,422 $ 4,081 $ 1,910 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization 6,724 6,782 7,744 Financing Costs Amortization 141 1,539 2,553 Provision for Losses on Receivables 731 172 683 Deferred Income Taxes (3,320) (4,034) (3,169) Provision for Losses on Claims 219 -- 919 Undistributed Earnings From Equity Investments (156) (31) (107) Loss (Gain) on Disposal of Property and Equipment 205 228 (161) Changes in Operating Working Capital Assets and Liabilities, net of Effects of Business Acquisitions (6,599) (4,932) 4,587 ------- ------- ------- Net Cash Provided by Operating Activities 6,367 3,805 14,959 Investing Activities: Business Acquisitions, net of Cash Acquired (187) (415) -- Purchases of Property and Equipment (6,635) (7,793) (3,992) Proceeds from Disposal of Property and Equipment 120 227 494 Other, net (1,903) 236 (195) ------- ------- ------- Net Cash Used in Investing Activities (8,605) (7,745) (3,693) Financing Activities: Net Proceeds (Payments) on Short-Term Borrowings 182 606 (855) Net Proceeds (Payments) on Revolving Line of Credit and Long-Term Borrowings 2,701 (46) (6,573) Deferred Financing and Preferred Stock Issuance Costs (369) (3,602) (921) Issuance of Cumulative Convertible Redeemable Preferred Stock -- 9,850 -- Issuance of Common Stock and Warrants -- 150 319 Repurchase and Retirement of Shares (423) (456) (89) Preferred Dividends Paid (800) (521) -- Exercise of Options to Purchase Common Stock 2,888 -- -- ------- ------- ------- Net Cash Provided by (Used in) Financing Activities 4,179 5,981 (8,119) Effect of Exchange Rate Changes on Cash (446) (611) 37 ------- ------- ------- Increase in Cash and Cash Equivalents 1,495 1,430 3,184 Cash and Cash Equivalents at Beginning of Year 9,527 8,097 4,913 ------- ------- ------- Cash and Cash Equivalents at End of Year $11,022 $ 9,527 $ 8,097 ======= ======= =======
See Accompanying Notes. 22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1998, 1997, and 1996, Law Companies Group, Inc. (Dollars in thousands, except share and per share amounts) - -------------------------------------------------------------------------------- 1. Accounting Policies DESCRIPTION OF BUSINESS - Law Companies Group, Inc. and its subsidiaries (collectively, the "Company") provide comprehensive environmental and specialized engineering consulting services to governmental, commercial and industrial entities. During 1998, 1997, and 1996, the Company derived approximately 5%, 8%, and 10%, respectively, of gross fees from various agencies of the United States Government. BASIS OF PRESENTATION - The consolidated financial statements include the accounts of Law Companies 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, 1998 and 1997 were contract retentions totaling $765 and $537, respectively. Substantially all unbilled receivables are billed and collected in the subsequent fiscal year. Billed fees receivable, net, at December 31, 1998 of $55,346 and at December 31, 1997 of $56,808 were net of allowances for doubtful accounts of $4,223 and $3,747, respectively. CASH EQUIVALENTS - The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1998, 1997, and 1996, Law Companies 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 $5,316, $6,243, and $7,165 in 1998, 1997, and 1996, 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. 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 other intangible assets, primarily debt financing costs and trademarks which are amortized on a straight-line basis over the terms of the related agreement. Accumulated amortization approximated $959 and $1,603 at December 31, 1998 and 1997, respectively. Additionally, certain long-term prepaid expenses and prepaid pension costs also are represented in the balances at December 31, 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 1,574,541 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.) EARNINGS PER COMMON SHARE - In 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings per Share (SFAS 128). SFAS 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants, and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. All earnings per share amounts for all periods have been presented, and where appropriate, restated to conform to the SFAS 128 requirements. (See Note 10.) 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, 1999. 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. 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1998, 1997, and 1996, Law Companies 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:
1998 1997 -------- -------- Land and Buildings $ 12,398 $ 12,094 Equipment 38,773 36,507 Furniture and Fixtures 12,074 12,386 Automobiles 2,606 3,088 Leasehold Improvements 2,316 3,526 -------- -------- 68,167 67,601 Less: Accumulated Depreciation (44,725) (44,095) -------- -------- Total Net Property and Equipment $ 23,442 $ 23,506 ======== ========
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 $10.45 per share until June 30, 1998 after which the price will range from $0.01 to $10.45 based upon the Company's performance against stipulated net income benchmarks. 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, 1998, as a result of the exercise of 175,000 options and the subsequent cancellation, per the terms of the agreement, of an additional 140,972 options, there were options remaining to acquire up to 584,028 shares of Common Stock. 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 $10.45 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. 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1998, 1997, and 1996, Law Companies Group, Inc. (Dollars in thousands, except share and per share amounts) - -------------------------------------------------------------------------------- 4. DEBT Debt obligations consist of the following at December 31:
1998 1997 ------- ------- Revolving Lines of Credit: United States (Average interest rate of 7.5% at December 31, 1998) $28,700 $26,586 International (Average interest rate of 8.3% at December 31, 1998) 4,342 1,796 Notes Payable to former shareholders, interest at prime, 8.0%, and 8.5% 12,868 12,868 Note Payable, interest at 7.5% -- 1,526 Various Notes Payable, interest at rates ranging from 5.4% to 17.5% due in installments through the year 2002 1,289 1,938 ------- ------- Total Lines of Credit and Notes Payable 47,199 44,714 Less: Current Portion 5,220 2,231 ------- ------- Total Long-Term Debt $41,979 $42,483 ======= =======
On January 15, 1998, the Company refinanced its credit facilities into one credit facility with a global bank. The 1998 Facility bears a three-year term and two one-year extension options, the first of which was exercised concurrent with the amendment of the facility in September, 1998. 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 1998 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, 2002 Letters of Credit sub-facility $ 3,000 1.25% to 1.5% Per Annum January 15, 2002 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, 2002 Letters of Credit sub-facility (pound)11,000 1.75% Per Annum January 15, 2002 Capital Expenditure Facility (B) $ 7,992 Base - 0.25% + 0% and LIBOR + 1.5% to 2.0% January 15, 2002 Capital Expenditure Facility (B) (pound) 2,400 LIBOR + 1.5% to 2.0% January 15, 2002
(A) The total revolving facility will be reduced by $10,000 on January 1, 2000 and by an additional $5,000 on January 1, 2001. (B) The capital expenditure dollar facility has an initial availability of $2,664, increasing to $5,328 on January 15, 1999, and $7,992 on January 15, 2000. The capital expenditure pounds sterling facility has an initial availability of (pound)800, increasing to(pound)1,600 on January 15, 1999, and(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 facilities are repayable quarterly over a five-year period. 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1998, 1997, and 1996, Law Companies Group, Inc. (Dollars in thousands, except share and per share amounts) - -------------------------------------------------------------------------------- Interest payments totaled $5,366, $4,236, and $5,212 in 1998, 1997, and 1996, respectively. The weighted average interest rate on short-term borrowings ($902 of short-term borrowings denominated in South African rand ) approximated 24.0% in 1998. Future maturities of long-term debt are as follows: 1999 $ 5,220 2000 4,279 2001 6,316 2002 30,654 2003 730 Thereafter -- ------- $47,199 =======
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. At December 31, 1998, the Company had provided guarantees of $2,419 under United States letters of credit and $8,642 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: 1999 $13,077 2000 10,157 2001 7,788 2002 5,076 2003 5,232 Thereafter 26,710 ------- $68,040 =======
Rent expense, net of income from subleases, aggregated $14,803, $17,307, and $17,079 in 1998, 1997, and 1996, respectively. 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1998, 1997, and 1996, Law Companies 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 substantially all of its United States employees over the age of 21. 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 Board of Directors. During 1998, the Company adopted SFAS No. 132 - Employers' Discussions about Pensions and Other Postretirement Benefits. Adoption of this standard requires expanded disclosures regarding the roll-forward of the changes in benefit obligation and the changes in plan assets. These disclosures are reflected in the tables which follow. Net periodic pension costs consist of the following components for the years ended December 31:
1998 1997 1996 ------- ------- ------- Service Cost $ -- $ 560 $ 2,898 Interest Cost 2,687 2,635 2,859 Actual Return on Plan Assets (3,639) (2,845) (4,511) Net Amortization and Deferral (160) 2 2,656 ------- ------- ------- Net Periodic Pension (Benefit) Cost $(1,112) $ 352 $ 3,902 ======= ======= =======
28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1998, 1997, and 1996, Law Companies 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:
1998 1997 ------- ------- Change in Benefit Obligation Benefit Obligation at Beginning of Year $35,669 $41,099 Service Cost -- 560 Interest Cost 2,687 2,635 Amendments -- (11,362) Actuarial Gain (Loss) 1,467 2,779 Benefits Paid (142) (42) ------- ------- Benefit Obligation at End of Year $39,681 $35,669 Change in Plan Assets Fair Value of Plan Assets at Beginning of Year $34,926 $27,319 Actual Return on Plan Assets 5,169 4,075 Employer Contributions 813 3,573 Benefits Paid (399) (42) ------- ------- Fair Value of Plan Assets at End of Year $40,509 $34,925 ------- ------- Funded Status $ 828 $ (744) Unrecognized Actuarial Gain 1,253 1,059 Unrecognized Prior Service Cost -- -- Unrecognized Transition Asset (480) (639) ------- ------- Net Amount Recognized $ 1,601 $ (324) ======= ======= Amounts Recognized in the Balance Sheet Consist of: Prepaid Benefit Cost $ 1,601 $ -- Accrued Benefit Liability -- (324) Intangible Asset -- -- Accumulated Other Comprehensive Income -- -- ------- ------- Net Amount Recognized $ 1,601 $ (324) ======= =======
29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1998, 1997, and 1996, Law Companies 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:
1998 1997 1996 ----- ----- ----- Weighted Average Discount Rate 7.25% 7.25% 7.80% Rate of Increase in Future Compensation Levels Pre-Curtailment 4.00% 4.00% 4.00% Post-Curtailment 0.00% 0.00% N/A Expected Long-Term Rate of Return on Plan Assets 10.00% 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, 1997, the Company revised the weighted average discount rate assumption. The net effect of this change in assumption, as indicated above, was to increase net periodic pension cost by $454 in 1997. 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, 1998, the Plan holds 60,615 shares of the Company's stock with a value of $1,312. 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 $1,680 in 1998, $1,699 in 1997, and $1,782 in 1996. 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 1998, 1997, or 1996. 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1998, 1997, and 1996, Law Companies 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, 1998, options to acquire 57,500, 500, 20,000, 7,500, 75,000, 201,000, 7,000, 10,000, and 78,000 shares of the Company's Common Stock at $17.80, $29.63, $26.31, $16.91, $11.64, $12.61, $14.33, $14.82, and $19.54 per share, respectively, were outstanding under this Plan. At that date, options to acquire 152,600 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 1998, 1997, and 1996, respectively: risk-free interest rates of 5.6%, 5.7%, and 6.4%; 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.
1998 1997 1996 ------ ------ ------ Pro Forma Net Income Available to Common Shareholders $6,877 $3,043 $1,768 Pro Forma Earnings Per Common Share Basic $ 3.49 $ 1.61 $ 0.93 Diluted $ 2.63 $ 1.48 $ 0.93
Because SFAS 123 is applicable only to options granted subsequent to December 31, 1994, its pro forma effect will not be fully reflected until December 31, 1999. 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1998, 1997, and 1996, Law Companies 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:
1998 1997 1996 -------- -------- -------- Outstanding - Beginning of Year 398,000 330,750 274,500 Granted 89,000 228,000 136,500 Exercised -- -- -- Cancelled 30,500 160,750 80,250 Outstanding - End of Year 456,500 398,000 330,750 Exercisable - End of Year 152,600 98,600 177,250 Weighted Average Fair Value of Options Granted During the Year $ 6.20 $ 4.16 $ 5.08 Weighted Average Exercise Price: Outstanding - Beginning of Year $ 14.27 $ 17.61 $ 20.20 Granted $ 19.01 $ 12.66 $ 14.01 Exercised $ -- $ -- $ -- Cancelled $ 16.42 $ 18.86 $ 20.33 Outstanding - End of Year $ 15.05 $ 14.27 $ 17.61 Exercisable - End of Year $ 16.33 $ 18.77 $ 19.50
Exercise prices for options outstanding as of December 31, 1998 ranged from $11.64 to $29.63. The weighted-average remaining contractual life of those options is 7.5 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, 20,913 and 33,422 shares were repurchased during 1998 and 1997 for $408 and $456, respectively, related to transfers out of this investment option. 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1998, 1997, and 1996, Law Companies 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:
1998 1997 1996 ------ ------ ------ CURRENT INCOME TAXES: Federal $7,390 $5,796 $3,243 State 1,677 1,156 478 Foreign 685 1,094 2,063 ------ ------ ------ Total Current 9,752 8,046 5,784 DEFERRED INCOME TAXES: Federal (3,709) (3,533) (2,513) State (695) (643) (472) Foreign 1,084 142 (184) ------ ------ ------ Total Deferred (3,320) (4,034) (3,169) ------ ------ ------ PROVISION FOR INCOME TAXES $6,432 $4,012 $2,615 ====== ====== ======
The foreign provision for income taxes is based on pre-tax earnings from foreign operations of $4,367 in 1998, $3,112 in 1997, and $5,005 in 1996. 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:
1998 1997 ------- ------- DEFERRED TAX LIABILITIES: Cash Basis of Accounting for Income Tax Purposes $ -- $ 4,501 Software Capitalization 2,281 2,238 Mark to Market Accounting for Accounts Receivable 1,030 1,224 Other - net 3,101 1,893 ------- ------- Total Deferred Tax Liabilities 6,412 9,856 DEFERRED TAX ASSETS: Depreciation 2,221 1,499 Employee Benefits 780 953 Non-Deductible Reserves 2,902 3,545 Loss Carry-Forwards 5,660 5,808 Other - net 188 218 ------- ------- 11,751 12,023 Valuation Allowance for Deferred Tax Assets (4,248) (4,396) ------- ------- Total Deferred Tax Assets 7,503 7,627 ------- ------- Net Deferred Tax Assets (Liabilities) $ 1,091 $(2,229) ======= =======
33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1998, 1997, and 1996, Law Companies Group, Inc. (Dollars in thousands, except share and per share amounts) - -------------------------------------------------------------------------------- Prior to 1995, certain of the Company's subsidiaries filed their federal income tax returns on the cash basis of accounting. Effective January 1, 1995, these subsidiaries changed their method of accounting from the cash to the accrual method for federal income tax purposes. Accordingly, previously deferred income of approximately $47 million at January 1, 1995 was included in taxable income over a four year period beginning in 1995. 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 $21,122 at December 31, 1998. A reconciliation of the statutory U.S. income tax rate to the Company's effective income tax rate is as follows:
1998 1997 1996 ---- ---- ---- Statutory U.S. Income Tax Rate 34.0% 34.0% 34.0% State Taxes, net of Federal Benefit 4.4% 4.2% 0.1% Income Tax in Jurisdictions Other than 34.0% 3.6% 2.4% (4.5%) Permanent Differences Between Book and Taxable Income 3.0% 13.0% 21.7% Losses for Which No Benefit is Recognized -- -- 8.5% Other (1.2%) (3.8%) (0.6%) ---- ---- ---- Effective Income Tax Rate 43.8% 49.8% 59.2%
At December 31, 1998 the Company had $951 of operating loss carryforwards related to foreign subsidiaries; $939 can be carried forward indefinitely. The remaining $12 will expire in 2002. 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, 1997 and 1996 was $3,007 and $2,332, respectively. Income tax payments amounted to $8,639, $9,236, and $4,906 in 1998, 1997, and 1996, respectively. 9. CONSOLIDATED STATEMENTS OF CASH FLOWS The changes in operating working capital as shown in the Consolidated Statements of Cash Flows includes:
1998 1997 1996 ------- ------- ------- Decrease (Increase) in: Billed Fees Receivable 44 (1,190) 1,473 Unbilled Work in Progress 433 (2,408) 2,734 Other Current Assets (824) (714) 2,322 Increase (Decrease) in: Accounts Payable and Accrued Expenses (5,025) (1,568) (6,686) Billings in Excess of Costs and Fees Earned on Contracts in Progress (1,227) 948 4,744 ------- ------- ------- Changes in Operating Working Capital Assets and Liabilities, net of Effects of Business Acquisitions $(6,599) $(4,932) $ 4,587 ======= ======= =======
34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1998, 1997, and 1996, Law Companies 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:
1998 1997 1996 ------- ------- ------ NUMERATOR: Net Income $ 8,422 $ 4,081 $1,910 Preferred stock dividends and accretion (1,128) (742) -- ------- ------- ------ Numerator for basic earnings per common share - Income available to common shareholders 7,294 3,339 1,910 Effect of Dilutive Securities: Preferred stock dividends and accretion 1,128 742 -- ------- ------- ------ Numerator for diluted earnings per common share - Income available to common shareholders $ 8,422 $ 4,081 $1,910 DENOMINATOR: Denominator for basic earnings per common share - Weighted-average shares 1,968 1,892 1,907 Effect of dilutive securities: Employee Stock Options 93 22 -- Cumulative Convertible Redeemable Preferred Stock And Associated Common Stock Warrants 957 638 -- Other Stock Options 29 -- -- ------- ------- ------ Dilutive potential common shares 1,079 660 -- ------- ------- ------ Denominator for diluted earnings per common share - Adjusted weighted-average shares 3,047 2,552 1,907 ======= ======= ====== Basic earnings per common share $ 3.71 $ 1.77 $ 1.00 ======= ======= ====== Diluted earnings per common share $ 2.77 $ 1.60 $ 1.00 ======= ======= ======
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 new disclosures required by SFAS 130 are recorded on the Statement of Operations in the section entitled Reconciliation of Comprehensive Income. 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1998, 1997, and 1996, Law Companies 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 1998, 1997, and 1996, the Company recorded a $1,347, $2,126, and $410 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, 1998, 1997, and 1996. 14. FINANCIAL INSTRUMENTS The Company's financial instruments at December 31, 1998 and 1997 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. At December 31, 1998, the fair value of the Company's interest rate swap agreement was ($552). There is no carrying amount associated with this instrument. 15. BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION During 1998, the Company adopted Statement of Financial Accounting Standards 131 (SFAS 131). SFAS 131 requires companies to disclose certain information on operating segments in agreement with how those segments are managed. 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. The table which follows represents combined disclosure for both business segment and geographic area information. 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1998, 1997, and 1996, Law Companies Group, Inc. (Dollars in thousands, except share and per share amounts) - --------------------------------------------------------------------------------
1998 1997 1996 -------- -------- ------ NET FEES United States Operations $179,315 $181,331 $190,401 International Operations United Kingdom 45,629 51,181 53,430 Europe - Other 22,799 19,769 20,171 Africa 22,347 20,087 17,018 Other 4,830 5,333 5,262 -------- -------- -------- Total $274,920 $277,701 $286,282 ======== ======== ======== OPERATING INCOME United States Operations $ 13,632 $ 9,361 $ 4,797 International Operations United Kingdom 1,696 1,499 4,019 Europe - Other 848 579 1,517 Africa 2,260 1,914 1,166 Other 571 441 175 -------- -------- -------- Total $ 19,007 $ 13,794 $ 11,674 ======== ======== ======== IDENTIFIABLE ASSETS United States Operations $ 84,801 $ 79,393 $ 72,530 International Operations United Kingdom 41,326 38,791 43,374 Europe - Other 4,875 2,987 2,756 Africa 15,636 19,388 15,420 Other 4,273 5,209 4,617 -------- -------- -------- Total $150,911 $145,768 $138,697 ======== ======== ======== DEPRECIATION AND AMORTIZATION United States Operations $ 4,562 $ 4,895 $ 5,822 International Operations United Kingdom 920 923 996 Europe - Other 459 356 376 Africa 686 512 452 Other 97 96 98 -------- -------- -------- Total $ 6,724 $ 6,782 $ 7,744 ======== ======== ======== LONG LIVED ASSETS United States Operations $ 24,163 $ 21,674 $ 19,030 International Operations United Kingdom 13,529 13,263 14,445 Europe - Other 1,596 1,021 918 Africa 3,351 4,122 3,503 Other 1,399 1,781 1,538 -------- -------- -------- Total $ 44,038 $ 41,861 $ 39,434 ======== ======== ======== CAPITAL EXPENDITURES United States Operations $ 5,446 $ 5,998 $ 2,313 International Operations United Kingdom 616 951 790 Europe - Other 307 367 298 Africa 388 793 513 Other 65 99 78 -------- -------- -------- Total $ 6,822 $ 8,208 $ 3,992 ======== ======== ========
37 REPORT OF INDEPENDENT AUDITORS - -------------------------------------------------------------------------------- The Board of Directors and Shareholders Law Companies Group, Inc. We have audited the accompanying consolidated balance sheets of Law Companies Group, Inc. as of December 31, 1998 and 1997, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1998. 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 generally accepted auditing standards. 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 Law Companies Group, Inc. at December 31, 1998 and 1997, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Atlanta, Georgia March 16, 1999 - -------------------------------------------------------------------------------- COMMON STOCK OUTSTANDING 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 from 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, 1998 or 1997. Further, the Company's existing credit facility with Bank of America prohibits the payment of cash dividends on the Company's Common Stock. As of December 31, 1998, there were 1,460 holders of the Company's common stock. 38 EX-21.01 6 SUBSIDIARIES EXHIBIT 21.01 LAW COMPANIES GROUP, INC. DOMESTIC SUBSIDIARIES (INCLUDING PARTNERSHIPS)
PLACE OF SUBSIDIARY INCORPORATION OWNERSHIP - -------------------------------- ----------------- --------------------------------- Law International, Inc. Georgia Law Companies 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. Georgia Law Companies Group, Inc. (100%) Law Environmental Consultants, Inc. Georgia LEES (100%) Ensite, Inc. Kentucky LEES (100%) LeRoy Crandall & Associates California Law Companies Group, Inc. (100%) Law/Spear L.L.C. Georgia LE2S (50%);The Spear Group, Inc. (50%) Law Testing Company, Inc. Georgia Law Companies Group, Inc. (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%) IAM/Environmental, Inc. Texas Law Companies Group, Inc. (50%) LEES (30%) , Ensite (20%)
LAW COMPANIES 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 Limited Gibb Africa International Limited Cyprus Gibb Africa Consulting Engineers Limited (100%) Sir Alexander Gibb (Namibia) Republic of Gibb Africa International Limited (100%) (Proprietary) Limited Namibia Gibb Swaziland (Pty) Limited Swaziland Gibb Africa International Limited (100%) Gibb (Lesotho) (Pty) Ltd Kingdom of Gibb Africa International Limited (100%) Lesotho Gibb (Botswana) (Proprietary) Limited Botswana Gibb Africa International Limited (100%) Gibb Eastern Africa Limited Kenya Gibb Africa International Limited (100%) Gibb (Malawi) Limited Malawi Gibb Africa International Limited (100%) Gibb (Mauritius) Ltd Mauritius Gibb Africa International Limited (100%) Gibb Africa SA (Pty) Ltd S. Africa Gibb Africa International Limited (100%) Gibb Zimbabwe (Private) Limited Zimbabwe Gibb Africa International Limited (100%) HKS-Law Gibb Share Trust S. Africa Gibb Africa (Pty) Ltd (70%) (Proprietary) Limited MAM Services (Pty) Ltd S. Africa Gibb Africa (Pty) Ltd (100%) Geoscience Laboratories (Pty) Limited S. Africa Gibb Africa (Pty) Ltd (100%) Hill Kaplan Scott (Ciskei) Incorporated Republic of Gibb Africa (Pty) Ltd (100%) Ciskei Hill Kaplan Scott (Transkei) Republic of Gibb Africa (Pty) Ltd (100%) Incorporated Transkei HKS Agriland (Proprietary) Limited S. Africa Hill Kaplan Scott (Ciskei) Incorporated (51%) Gibb Petermuller & Partners Cyprus Gibb International Holdings, Inc. (100%) (Cyprus) Limited Giban Danismanlik ve Muhendislik Limited 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) Limited Gibb Petermuller & Partners England Gibb International Holdings, Inc. (100%) (Middle East) Limited Gibb Petermuller & Partners, O.E. Greece Gibb Petermuller & Partners (Midde East) Limited (50%) Gibb Petermuller & Partners (Europe) Limited (50%) Gibb Holdings Ltd England Gibb International Holdings, Inc. (100%) Sir Alexander Gibb Limited England Gibb Ltd (100%) Gibb Ltd England Gibb Holdings Ltd (100%) Law Companies Group, Ltd Jersey Law Companies Group, Inc. (98%) Gibb Ltd. (1%) Gibb-Anglian Limited England Gibb Ltd (50%) Sir Alexander Gibb & Partners Ltd England Gibb Ltd (100%) Westminster and Earley England Gibb Holdings Ltd (100%) Services Limited Gibb Tanacsadasi Kft Hungary Gibb Holdings Ltd (100%) The Gibb Foundation Ltd England Gibb Holdings Ltd (100%) WCML Development England Gibb Holdings Ltd (25%) Company Limited Prointec, S.A. Spain Gibb Holdings Ltd (20%) Cripin Wride Architectural England Gibb Holdings Ltd (100%) Design Studio Ltd Nick Derbyshire Design England Gibb Holdings Ltd (100%) Associates Limited Gibb Overseas (Jersey) Limited Channel Islands Gibb International Holdings, Inc. (100%) Gibb Hellas Consulting Engineers SA Greece Gibb International Holdings, Inc. (100%) Gibb (Hong Kong) Limited Hong Kong Gibb Overseas (Jersey) Limited (100%) Gibb Overseas Limited England Gibb Overseas (Jersey) Limited (100%) Gibb Gulf E.C. State of Bahrain Gibb Overseas Limited (100%) Gibb Australia Pty Limited Australia Gibb Overseas Limited (47%) Gibb Africa (Pty) Ltd S. Africa Gibb Africa Consulting Engineers Limited (100%) African Consulting Engineers Botswana Gibb Africa (Pty) Ltd (!00%) (Botswana) (Pty) Limited Help Zone Ltd England Gibb Holdings Ltd (!00%) LEX International Insurance Co. Ltd. Bermuda Law Companies Group, Inc. (100%) Law Mexico, S.A. de C.V. (D.F. Max) Mexico LEES (90%) Law Companies Group, Inc (10%) Gibb Portugal Lda Portugal Gibb International Holdings, Inc.(99.95%) Gibb Ltd (.05%)
EX-23.01 7 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. 33-46702) 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 Law Companies Group, Inc., and the Registration Statement (Form S-8 No. 33-99114) pertaining to the 401(k) Savings Plan of Law Companies Group, Inc. of our report dated March 16, 1999, with respect to the consolidated financial statements of Law Companies Group, Inc. incorporated by reference in the Annual Report (Form 10-K) for the year ended December 31, 1998. Our audits also included the financial statement schedules of Law Companies Group, Inc. listed in Item 14(a). These schedules are the resonsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedules 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 herein. /s/ Ernst & Young LLP ------------------------ Ernst & Young LLP Atlanta, Georgia March 25, 1998 EX-27 8 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1998, ITS CONSOLIDATED STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998 AND SCHEDULE II AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 11,022 0 59,569 4,223 31,464 106,873 68,167 44,725 150,911 67,813 0 9,886 0 2,046 26,996 150,911 311,162 311,162 0 113,020 142,162 731 4,365 14,698 6,432 8,422 0 0 0 8,422 3.71 2.77
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