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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 1997
( ) 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 0-22645
LAMALIE ASSOCIATES, INC.
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(Exact Name of Registrant as Specified in its Charter)
Florida 59-2776441
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(State of Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
200 Park Avenue
New York, New York
10166-0136
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(Address of Principal Executive Offices)
(212) 953-7900
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(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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At December 31, 1997, the Registrant had outstanding 5,352,161 shares
of $.01 par value common stock.
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LAMALIE ASSOCIATES, INC.
INDEX
Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Statements of Operations
for the three- and nine-month periods
ended November 30, 1997 and 1996 3
Condensed Balance Sheets at
November 30, 1997 and February 28, 1997 4
Condensed Statements of Cash Flows
for the nine-month periods ended
November 30, 1997 and 1996 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II. OTHER INFORMATION 9
SIGNATURES 11
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LAMALIE ASSOCIATES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
(unaudited)
Three Months Ended Nine Months Ended
November 30, November 30,
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1997 1996 1997 1996
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Fee revenue, net $15,349 $11,706 $45,847 $34,319
Operating expenses:
Compensation and benefits 11,651 10,077 35,152 29,515
General and administrative expenses 1,997 1,829 5,872 4,657
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Total operating expenses 13,648 11,906 41,024 34,172
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Operating income 1,701 (200) 4,823 147
Interest income (expense), net 153 (106) 45 (252)
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Income (loss) before provision for
income taxes 1,854 (306) 4,868 (105)
Provision for income taxes 798 (62) 2,094 136
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Net income (loss) $ 1,056 $ (244) $ 2,774 $ (241)
======= ======= ======= =======
Net income (loss) per common and common
equivalent share $ .19 $ (.08) $ .63 $ (.07)
======= ======= ======= =======
Weighted average common and common
equivalent shares outstanding 5,538,000 3,112,000 4,413,000 3,239,000
========= ========= ========= =========
The accompanying notes are an integral part
of these condensed financial statements.
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LAMALIE ASSOCIATES, INC.
CONDENSED BALANCE SHEETS
(dollars in thousands)
(unaudited)
ASSETS November 30, February 28,
1997 1997
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Current assets:
Cash and cash equivalents $21,739 $ 1,662
Accounts receivable, less allowance of $1,300 and $890, respectively 14,920 14,392
Prepaid expenses 1,445 879
Refundable income taxes 1,419 58
Deferred tax assets 376 --
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Total current assets 39,899 16,991
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Property and equipment, net of accumulated depreciation and amortization of
$2,318 and $1,726, respectively 4,901 4,184
Non-current deferred tax assets 2,949 1,958
Other assets 3,878 2,428
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Total assets $51,627 $25,561
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,122 $ 1,914
Accrued compensation 11,740 13,255
Deferred tax liabilities -- 643
Current maturities of long-term debt 114 387
Other current liabilities 192 175
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Total current liabilities 13,168 16,374
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Accrued rent 1,015 1,038
Long-term debt, less current maturities 140 1,650
Deferred compensation 6,676 3,872
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Commitments and contingencies
Stockholders' equity:
Preferred stock; $0.01 par value; 3,000,000 shares authorized; no
shares issued and outstanding -- --
Common stock; $0.01 par value; 35,000,000 shares authorized;
5,352,161 and 3,075,000 shares issued and outstanding, respectively 54 31
Additional paid-in capital 29,138 4,087
Subscriptions receivable -- (153)
Retained earnings (accumulated deficit) 1,436 (1,338)
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Total stockholders' equity 30,628 2,627
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Total liabilities and stockholders' equity $51,627 $25,561
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The accompanying notes are an integral part
of these condensed financial statements.
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LAMALIE ASSOCIATES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
Nine Months Ended
November 30,
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1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,774 $ (241)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization 592 668
Changes in operating assets and liabilities (4,426) (4,516)
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Net cash used in operating activities (1,060) (4,089)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,308) (776)
Investment in whole life insurance (998) (759)
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Net cash used in investing activities (2,306) (1,535)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under long-term debt 4,576 3,995
Repayments of long-term debt (6,359) (1,853)
Proceeds from issuance of common stock 25,226 1,197
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Net cash provided by financing activities 23,443 3,339
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NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 20,077 (2,285)
CASH AND CASH EQUIVALENTS, at beginning of period 1,662 2,529
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CASH AND CASH EQUIVALENTS, at end of period $ 21,739 $ 244
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The accompanying notes are an integral part
of these condensed financial statements.
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LAMALIE ASSOCIATES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
Note 1. Condensed Financial Statements
In the opinion of the Company, the accompanying unaudited condensed financial
statements reflect all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the financial position of the Company
as of November 30, 1997 and February 28, 1997, and the results of operations
for the three- and nine-month periods ended November 30, 1997 and 1996, and
cash flows for the nine-month periods ended November 30, 1997 and 1996.
These financial statements, including the condensed balance sheet as of
February 28, 1997, which has been derived from audited financial statements,
are presented in accordance with the requirements of Form 10-Q and consequently
may not include all disclosures normally required by generally accepted
accounting principles or those normally made in the Company's Annual Report on
Form 10-K. The accompanying condensed financial statements and related notes
should be read in conjunction with the Company's Registration Statement on Form
S-1 (File No. 333-26027) as declared effective by the Securities and Exchange
Commission on July 1, 1997.
Note 2. Net Income Per Common and Common Equivalent Share
Net income per common and common equivalent share is determined by dividing net
income by the weighted average number of shares of common stock outstanding and
dilutive common equivalent shares outstanding using the treasury stock method.
Common equivalent shares outstanding during the nine-month period ended
November 30, 1997, included options to purchase common stock. There were no
common equivalent shares outstanding during the nine-month period ended
November 30, 1996.
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
("SAB") No. 83, shares of common stock issued by the Company during the 12
months preceding the initial filing date have been included in the calculation
of weighted average shares of common stock outstanding, using the treasury
stock method, as if the shares were outstanding for all periods presented.
All share and per share information in the financial statements has been
adjusted to give effect to the 1,000 to one common stock split and par value
restatement which became effective June 3, 1997, in connection with the
reincorporation of the Company in Florida.
Note 3. Long-Term Debt
The Company has obtained a commitment letter from a bank to provide credit
facilities of approximately $15.0 million. Outstanding borrowings under these
facilities will bear interest at various rates based on either a LIBOR index or
the bank's prime lending rate, as determined at the Company's option. No
amounts were outstanding under these facilities as of November 30, 1997.
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Note 4. Newly Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS
130). SFAS 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. SFAS 130 is effective for financial statements for periods
beginning after December 15, 1997. Management believes the effect of adopting
SFAS 130 would not have a material impact on the accompanying financial
statements.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
FISCAL 1998 COMPARED TO FISCAL 1997
Fee revenue. The Company's fee revenue increased 31.1% and 33.6%,
respectively, to $15.3 million and $45.8 million for the three- and nine-month
periods ended November 30, 1997, as compared to $11.7 million and $34.3 million
for the same periods in fiscal 1997. The average fee revenue per consultant
employed for a full year for the nine-month period ended November 30, 1997,
increased 32.7%, to $759,000 from $572,000 for the same period in fiscal 1997.
As of November 30, 1997, the total number of consultants employed was 72, an
increase of 10 since the beginning of the fiscal year. The average first-year
cash compensation of positions for which the Company conducted searches
increased by 2.6%, to $233,000 from $227,000 for the nine-month period ended
November 30, 1997.
Compensation and benefits. Compensation and benefits increased 15.6% and
19.1%, respectively, to $11.7 million and $35.2 million for the three- and
nine-month periods ended November 30, 1997, as compared to $10.1 million and
$29.5 million for the same periods in fiscal 1997. As a percentage of fee
revenue, compensation and benefits decreased to 75.9% and 76.7%, respectively,
for the three- and nine-month periods ended November 30, 1997, as compared to
86.1% and 86.0% for the same periods in fiscal 1997. This decrease was
primarily the result of changes to the Company's compensation system for
consultants implemented effective March 1, 1997.
General and administrative expenses. General and administrative expenses
increased 9.2% and 26.1%, respectively, to $2.0 million and $5.9 million for
the three- and nine-month periods ended November 30, 1997, as compared to $1.8
million and $4.7 million for the same periods in fiscal 1997. As a percentage
of fee revenue, general and administrative expenses decreased to 13.0% and
12.8% for the three- and nine-month periods ended November 30, 1997, as
compared to 15.6% and 13.6% for the same periods in fiscal 1997. These
decreases were primarily due to revenues increasing faster than fixed overhead
expenses. Fiscal 1997 also included expenses related to new office openings in
Boston, Massachusetts and Stamford, Connecticut and certain technology-related
expenses which did not recur in fiscal 1998.
Operating income. Operating income increased $1.9 million and $4.7 million,
respectively, to $1.7 million and $4.8 million for the three- and nine-month
periods ended November 30, 1997, as compared to a loss of $200,000 and income
of $147,000 for the same periods in fiscal 1997. This change was primarily the
result of the decreases in compensation and benefits.
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Net interest income (expense). The Company received net interest income of
$153,000 and $45,000, respectively, for the three- and nine-month periods ended
November 30, 1997, as compared to net interest expense incurred of $106,000 and
$252,000 for the same periods in fiscal 1997. This decrease in interest expense
was the result of the Company repaying all outstanding indebtedness under its
credit facilities with proceeds from the issuance of its common stock during
its initial public offering, as well as investment earnings from the remaining
net proceeds.
Provision for income taxes. The effective income tax rate for the nine-month
period ended November 30, 1997, of 43% varied from the statutory rate of 34%
due to state and local income taxes and because certain expenses, including
premiums on keyperson life insurance policies, a portion of meals and
entertainment, and dues expense are non-deductible for income tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
On July 8, 1997, the Company completed an initial public offering covering 2.3
million shares of its common stock. Net proceeds from the offering were
approximately $24.6 million of which $3.9 million was used to repay all
outstanding indebtedness under the Company's credit facilities.
The Company intends to use approximately $2.0 million of the offering proceeds
over the next 12 to 24 months for computer hardware and software purchases,
upgrades, and enhancements. The remaining proceeds will be used for general
corporate purposes, including expansion of the Company's client base, industry
coverage, and geographic reach through selective acquisitions.
The Company relies primarily upon cash flows from operations and available
borrowings under its credit facilities to finance its operations. During the
nine-month period ended November 30, 1997, cash used in operations was
approximately $1.1 million. To provide additional liquidity, the Company has
obtained a commitment letter from a bank to provide credit facilities of
approximately $15.0 million. Outstanding borrowings under these facilities
will bear interest at various rates based on either a LIBOR index or the bank's
prime lending rate, as determined at the Company's option.
Capital expenditures totaled approximately $1.3 million for the nine-month
period ended November 30, 1997. These expenditures consisted primarily of
purchases of office furniture and equipment, upgrades to information systems,
and leasehold improvements. Additionally, investments in whole life insurance
policies intended to fund the Company's deferred compensation plan were
approximately $1.0 million.
The Company believes that funds from operations, its expanded credit
facilities, and the net proceeds from the offering will be sufficient to meet
its anticipated working capital, capital expenditures, and general corporate
requirements for the foreseeable future.
FORWARD-LOOKING STATEMENTS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this Quarterly Report on Form 10-Q contain
forward-looking statements that are based on the current beliefs and
expectations of the Company's management, as well as assumptions made by, and
information
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currently available to, the Company's management. Such statements
include those regarding general economic and executive search industry trends.
Because such statements involve risks and uncertainties, actual actions and
strategies and the timing and expected results thereof may differ materially
from those expressed or implied by such forward-looking statements, and the
Company's future results, performance, or achievements could differ materially
from those expressed in, or implied by, any such forward-looking statements.
Future events and actual results could differ materially from those set forth
in or underlying the forward-looking statements.
Forward-looking statements are inherently subject to risks and uncertainties,
some of which cannot be predicted. These potential risks and uncertainties
include dependence on attracting and retaining qualified executive search
consultants, portability of client relationships, restrictions imposed by
blocking arrangements, competition, relationship with Amrop International
alliance of executive search firms, implementation of acquisition strategy,
reliance on information processing systems, and employment liability risk. In
addition to the factors noted above, other risks, uncertainties, assumptions,
and factors that could affect the Company's financial results are described in
the Company's Registration Statement on Form S-1 (File No. 333-26027),
originally filed with the Securities and Exchange Commission April 29, 1997, as
amended and as effective July 1, 1997.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
On January 2, 1998, the Company completed the acquisition of substantially all
of the operating assets of Chartwell Partners International, Inc., a San
Francisco-based retained executive search firm ("Chartwell"). Since completion
of the acquisition, the Company has operated Chartwell's business as the
Company's San Francisco office. The assets acquired from Chartwell consisted
principally of certain intangible assets, including goodwill, software and
leasehold rights, and office equipment and computers. The Company and David
deWilde, Chartwell's sole stockholder, established the purchase price and other
terms of the acquisition as a result of arms' length negotiations. Prior to
this transaction, the Company and Mr. deWilde had no material relationship.
The purchase consideration was valued at approximately $3.1 million and
consisted of (1) approximately $1.4 million cash, (2) a convertible subordinated
promissory note of the Company in the principal amount of $1.2 million, payable
over three years, accruing interest on the unpaid balance at the rate of 6.75%
per annum and convertible into shares of the Company's common stock at each
anniversary date at prices specified in the asset purchase agreement, and (3)
25,707 shares of the Company's common stock. Approximately $1.4 million of the
purchase consideration was derived from the proceeds of the Company's initial
public offering which had been invested in short-term investment securities
since July 1997.
The Company is in the process of compiling financial statements and related
information to determine whether the assets acquired from Chartwell constitute
a "significant amount of assets" within the meaning of Item 2 of Form 8-K.
Once such determination has been made, any Chartwell financial statements
required to be filed under applicable regulations will be filed as soon as
practicable, but in any event, no later than 60 days after January 20, 1998,
the date on which a Current Report on Form 8-K would have been due to have been
filed in respect of the Chartwell acquisition.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits
Exhibit
Number Description
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10.1 -Definitive 1997 Omnibus Stock and Incentive Plan
10.2 -Non-Employee Directors' Stock Option Plan*
10.3 -Profit Sharing Plan*
10.4 -1997 Employee Stock Purchase Plan*
10.5 -Form of Agreement for Deferred Compensation Plan*
10.6 -Managing Partners' Compensation Plan*
10.7 -Partners' Compensation Plan*
10.8 -Employment Agreement for Mr. Gow*
10.10 -Employment Agreement for Mr. Rothschild*
10.11 -Form of Indemnification Agreement entered into with Messrs. Philip R. Albright, Michael Brenner, Arthur J.
Davidson, Mark P. Elliott, David W. Gallagher, Joe D. Goodwin, Roderick C. Gow, Ray J. Groves, Harold
E. Johnson, John F. Johnson, Robert L. Pearson, Richard W. Pogue, John C. Pope, John S. Rothschild,
Thomas M. Watkins III, Jack P. Wissman**
10.12 -Directors' Deferral Plan*
10.13 -Employment Agreement with Robert L. Pearson dated October 8, 1997
27 -Financial Data Schedule (for SEC use only)
* Incorporated by reference to the correspondingly numbered exhibit to the
Registrant's Registration Statement on Form S-1 (File No. 333-26027),
originally filed April 29, 1997, as amended and as effective July 1, 1997.
** Incorporated by reference to the correspondingly numbered exhibit to the
Registrant's first quarter 10-Q filed on August 8, 1997.
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LAMALIE ASSOCIATES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, Registrant's principal financial officer, thereunto duly
authorized.
January 12, 1998 LAMALIE ASSOCIATES, INC.
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(Registrant)
/s/ JACK P. WISSMAN
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Jack P. Wissman
Executive Vice President
(Authorized officer of
Registrant and principal
financial officer)
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