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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, 1998
( ) 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
LAI WORLDWIDE, INC.
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(Exact Name of Registrant as Specified in its Charter)
Florida 59-2776441
- ------------------------------- -------------------------------
(State of Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
200 Park Avenue
New York, New York
10166-0136
----------------------------------------
(Address of Principal Executive Offices)
(212) 953-7900
----------------------------------------------------
(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
--- ---
At December 31, 1998, the Registrant had outstanding 8,027,057 shares
of $.01 par value common stock.
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LAI WORLDWIDE, INC.
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Income
for the three- and nine-month periods
ended November 30, 1998 and 1997 3
Condensed Consolidated Balance Sheets at
November 30, 1998 and February 28, 1998 4
Condensed Consolidated Statements of Cash Flows
for the nine-month periods ended
November 30, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II. OTHER INFORMATION 15
SIGNATURES 18
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LAI WORLDWIDE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
Three Months Ended Nine Months Ended
November 30, November 30,
-------------------- --------------------
1998 1997 1998 1997
------- ------- ------- -------
Fee revenue, net $23,311 $15,349 $70,984 $45,847
Operating expenses:
Compensation and benefits 17,404 11,651 51,151 35,152
General and administrative 4,945 1,997 13,920 5,872
Goodwill amortization 182 -- 582 --
------- ------- ------- -------
Total operating expenses 22,531 13,648 65,653 41,024
------- ------- ------- -------
Operating income 780 1,701 5,331 4,823
Other income, net 170 153 358 45
------- ------- ------- -------
Income before provision for income taxes 950 1,854 5,689 4,868
Provision for income taxes 939 798 3,309 2,094
------- ------- ------- -------
Net income $ 11 $ 1,056 $ 2,380 $ 2,774
======= ======= ======= =======
Basic net income per common share $ -- $ .20 $ .33 $ .64
======= ======= ======= =======
Weighted average common shares 8,016 5,348 7,116 4,310
======= ======= ======= =======
Diluted net income per common and
common equivalent share
$ -- $ .19 $ .33 $ .63
======= ======= ======= =======
Weighted average common and common
equivalent shares
8,094 5,559 7,389 4,423
======= ======= ======= =======
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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LAI WORLDWIDE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
(unaudited)
ASSETS November 30, February 28,
1998 1998
------------ ------------
Current assets:
Cash and cash equivalents $ 3,375 $ 23,780
Short-term investments 33,850 --
Accounts receivable, less allowance of $1,700
and $2,120, respectively 27,582 22,219
Prepaid expenses 2,609 1,420
Refundable income taxes -- 1,822
Deferred tax assets 1,721 486
--------- ---------
Total current assets 69,137 49,727
--------- ---------
Property and equipment, net of accumulated depreciation
and amortization of $3,609 and $2,608, respectively 10,161 5,612
Non-current deferred tax assets 5,441 3,698
Goodwill, net of accumulated amortization of $599 and
$17, respectively 22,720 24,790
Other assets 8,065 5,089
---------- ---------
Total assets $ 115,524 $ 88,916
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 4,439 $ 6,807
Accrued compensation 11,069 20,573
Income taxes payable 546 --
Current maturities of long-term debt 2,994 3,070
Other current liabilities 886 8,976
--------- ---------
Total current liabilities 19,934 39,426
--------- ---------
Accrued rent 1,100 1,013
Deferred compensation 8,977 6,951
Long-term debt, less current maturities 5,772 6,055
--------- ---------
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; 8,027,057 and 5,576,446 shares issued
and outstanding, respectively 80 56
Additional paid-in capital 74,837 32,873
Cumulative translation adjustment (98) --
Retained earnings 4,922 2,542
--------- ---------
Total stockholders' equity 79,741 35,471
--------- ---------
Total liabilities and stockholders' equity $ 115,524 $ 88,916
========= =========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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LAI WORLDWIDE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months
Ended November 30,
-------------------------------
1998 1997
-------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,380 $ 2,774
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 1,001 592
Goodwill amortization 582 --
Amortization of deferred compensation 508 --
Changes in operating assets and liabilities (17,416) (4,426)
-------- --------
Net cash used in operating activities (12,945) (1,060)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short term investments, net (33,363) --
Capital expenditures (5,550) (1,308)
Investment in life insurance (1,416) (998)
Acquisition of Ward Howell International, Inc. (8,384) --
-------- --------
Net cash used in investing activities (48,713) (2,306)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings 1,000 4,576
Repayments (1,129) (6,359)
Proceeds from public offering of common stock 41,392 25,226
Other issuances of common stock 88 --
-------- --------
Net cash provided by financing activities 41,351 23,443
-------- --------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (20,307) 20,077
CASH AND CASH EQUIVALENTS, at beginning of period 23,780 1,662
Foreign currency translation adjustment (98) --
-------- --------
CASH AND CASH EQUIVALENTS, at end of period $ 3,375 $ 21,739
======== ========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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LAI WORLDWIDE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1. Organization
Effective at the close of business on December 31, 1998, Lamalie Associates,
Inc., a Florida corporation ("LAI"), reorganized into a holding company
structure (the "Reorganization") in which LAI Worldwide, Inc., a Florida
corporation, became the new holding company with its shares of common stock
registered under the Securities Exchange Act of 1934 (the "1934 Act") under the
Commission file number on the cover of this Quarterly Report. In this and
certain other respects, LAI Worldwide, Inc. is the successor to LAI, which
became a wholly owned subsidiary of the new holding company in the
Reorganization. Prior to the Reorganization, LAI Worldwide, Inc. had been an
indirect wholly-owned subsidiary of LAI. Prior to the Reorganization, shares of
LAI's common stock were registered under the 1934 Act and LAI was assigned the
same Commission file number as is now used by LAI Worldwide, Inc. In the
Reorganization, each share of LAI common stock outstanding immediately prior to
the Reorganization, together with the preferred stock purchase right associated
therewith, was converted into one share of the common stock of LAI Worldwide,
Inc., together with one preferred stock purchase right associated therewith. As
a result, persons who were LAI stockholders before the Reorganization now hold
common stock and preferred stock purchase rights of the LAI Worldwide, Inc.
(instead of LAI). For additional information regarding the Reorganization, see
the Current Report on Form 8-K and the exhibits thereto filed with the
Commission on January 5, 1999.
As used in the Notes to Condensed Consolidated Financial Statements, unless the
context otherwise requires, references to the "Company" are intended to refer
to LAI and its consolidated subsidiaries with respect to events occurring prior
to the effectiveness of the Reorganization and to the new holding company, LAI
Worldwide, Inc., and its consolidated subsidiaries with respect to events
occurring from and after the effectiveness of the Reorganization.
Note 2. Condensed Consolidated Financial Statements
In the opinion of the Company, the accompanying unaudited condensed
consolidated 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, 1998, and February 28, 1998, and the
results of operations for the three- and nine-month periods ended November 30,
1998 and 1997 and cash flows for the nine-month periods ended November 30, 1998
and 1997.
The condensed consolidated financial statements include the financial position
and results of operations of the Company and its wholly-owned subsidiaries. All
material intercompany profits, transactions and balances have been eliminated.
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These condensed consolidated financial statements, including the condensed
consolidated balance sheet as of February 28, 1998, 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 consolidated
financial statements and related notes should be read in conjunction with the
Company's Annual Report on Form 10-K/A as filed with the Securities and
Exchange Commission on June 12, 1998.
Certain prior year balances have been reclassified in order to conform to the
current year financial statement presentation.
Note 3. Short-term Investments
As of November 30, 1998, short-term investments consists of investments in
commercial paper, certificates of deposit, and investments in Federal Home Loan
Bank discount notes. These securities are classified as available-for-sale, and
accounted for in accordance with Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities."
All securities mature within fiscal 1999 with the latest maturity date being
February 1, 1999. Unrealized holding gains/losses are immaterial as of November
30, 1998, and there have been no sales or transfers of securities during the
current year.
Note 4. Net Income Per Common and Common Equivalent Share
Basic net earnings per common share ("basic EPS") was determined by dividing
the net income by the weighted average number of shares of common stock
outstanding during the period. Diluted net earnings per common and common
equivalent share ("diluted EPS") was determined by dividing the net income by
the weighted average number of shares of common stock outstanding and dilutive
common equivalent shares from stock options using the treasury stock method and
from convertible debt assuming conversion upon issuance. The following
reconciles the numerator and denominator of basic EPS to diluted EPS:
Three Months Ended Three Months Ended
November 30, 1998 November 30, 1997
---------------------------------------------- --------------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
(dollars in thousands)
BASIC EPS
Income available to common
stockholders $ 11 8,016 $ -- $ 1,056 5,348 $ .20
EFFECT OF DILUTIVE SECURITIES
Options -- 22 -- 211
Convertible promissory note 12 56 -- --
---- ----- ------- -----
DILUTED EPS
Income available to common
stockholders + assumed
conversions $ 23 8,094 $ -- $ 1,056 5,559 $ .19
==== ===== ===== ======= ===== ======
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Nine Months Ended Nine Months Ended
November 30, 1998 November 30, 1997
---------------------------------------------- --------------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
(dollars in thousands)
BASIC EPS
Income available to common
stockholders $ 2,380 7,116 $ .33 $ 2,774 4,310 $ .64
EFFECT OF DILUTIVE SECURITIES
Options -- 216 -- 113
Convertible promissory note 35 57 -- --
------- ----- ------- -----
DILUTED EPS
Income available to common
stockholders + assumed
conversions $ 2,415 7,389 $ .33 $ 2,774 4,423 $ .63
======= ===== ====== ======= ===== ======
All share and per share information in these condensed consolidated financial
statements has been adjusted to give effect to the 1,000 for 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 5. 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 the financial statements and (b)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in-capital in the stockholders' equity
section of the consolidated balance sheets for annual financial statements. The
Company adopted SFAS 130 in fiscal 1999 and accordingly, comprehensive income
is as follows:
Three Months Ended Nine Months Ended
November 30, November 30,
------------------------ -----------------------
1998 1997 1998 1997
----- ------- ------- -------
(in thousands)
Net income $ 11 $ 1,056 $ 2,380 $ 2,774
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment (73) -- (98) --
------ ------- ------- -------
Comprehensive income $ (62) $ 1,056 $ 2,282 $ 2,774
====== ======= ======= =======
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
(SFAS 131). SFAS 131 establishes standards for the way companies report
information about operating segments
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including the related disclosures about the different economic environments in
which it operates. The Company has elected to adopt SFAS 131 during the period
ended November 30, 1998. See Note 6 where the Company discloses information
about its operating segments.
Note 6. Segment Reporting
The Company is divided into two operating segments, domestic and international.
Domestic operations are conducted from 17 offices located throughout the United
States. International operations are focused primarily in Europe and Asia. Both
segments provide consulting services aimed specifically at solving their
clients' leadership needs by identifying, evaluating, and recommending
qualified candidates for senior executive positions primarily at Fortune 500
and large private companies exclusively on a retained basis.
The Company evaluates each segment's performance based on its operating profit
or loss. Information concerning the operations in these reportable segments is
as follows:
Three Months Ended Nine Months Ended
November 30, November 30,
------------------------- ------------------------
1998 1997 1998 1997
------------------------- ------------------------
(in thousands)
Fee revenue, net:
Domestic $ 22,148 $15,349 $ 68,139 $45,847
International 1,163 -- 2,845 --
--------- ------- -------- -------
Consolidated $ 23,311 $15,349 $ 70,984 $45,847
========= ======= ======== =======
Compensation and benefits:
Domestic $ 14,615 $11,651 $ 46,377 $35,152
International 2,789 -- 4,774 --
--------- ------- -------- -------
Consolidated $ 17,404 $11,651 $ 51,151 $35,152
========= ======= ======== =======
General and administrative:
Domestic $ 3,010 $ 1,997 $ 10,440 $ 5,872
International 1,935 -- 3,480 --
--------- ------- -------- -------
Consolidated $ 4,945 $ 1,997 $ 13,920 $ 5,872
========= ======= ======== =======
Operating income/(loss):
Domestic $ 4,340 $ 1,701 $ 10,738 $ 4,823
International (3,560) -- (5,407) --
--------- ------- -------- -------
Consolidated $ 780 $ 1,701 $ 5,331 $ 4,823
========= ======= ======== =======
November 30, February 28,
------------ ------------
1998 1998
------------ ------------
Total assets:
Domestic $ 107,827 $ 88,916
International 7,697 --
--------- --------
Consolidated $ 115,524 $ 88,916
========= ========
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
Effective at the close of business on December 31, 1998, Lamalie Associates,
Inc., a Florida corporation ("LAI"), reorganized into a holding company
structure and began doing business under the name of the new holding company,
LAI Worldwide, Inc. The reorganization is intended to provide greater
flexibility for international and domestic expansion, broaden the alternatives
available for future financing and generally provide for greater administrative
and operational flexibility. In certain respects, the new holding company is
the successor to LAI, which became a wholly owned subsidiary of the new holding
company in the reorganization. In the reorganization, each share of LAI common
stock outstanding immediately prior to the reorganization was converted into
one share of the new holding company's common stock. As a result, persons who
were LAI stockholders before the reorganization now hold common stock of LAI
Worldwide, Inc. (instead of LAI). Prior to the reorganization, LAI's common
stock traded on the Nasdaq Stock Market under the ticker symbol "LAIX." After
the reorganization, the new holding company's common stock continues to trade
on the Nasdaq Stock Market under the same ticker symbol "LAIX." As used herein,
unless the context otherwise requires, references to the "Company" are intended
to refer to LAI and its consolidated subsidiaries with respect to events
occurring prior to the effectiveness of the reorganization, and to the new
holding Company, LAI Worldwide, Inc., and its consolidated subsidiaries with
respect to events occurring from and after the effectiveness of the
reorganization. See "Note 1 to Notes to Condensed Consolidated Financial
Statements."
FISCAL 1999 COMPARED TO FISCAL 1998
Fee revenue. The Company's fee revenue increased 51.9% and 54.8%, respectively,
to $23.3 million and $71.0 million for the three- and nine-month periods ended
November 30, 1998, compared to $15.3 million and $ 45.8 million for the same
periods in fiscal 1998.
The Company's domestic revenue increased 44.3% and 48.6%, respectively, for the
three- and nine-month periods ended November 30, 1998. This increase is
attributable to an increase in the number of consultants. As of November 30,
1998, the Company employed 114 consultants domestically, a net increase of 43
since November 30, 1997. The increase was primarily attributable to the hiring
of 35 consultants in connection with two acquisitions during the fourth quarter
of fiscal 1998. The average revenue per consultant employed for a full year
decreased 14.1%, to $652,000 for the nine-month period ended November 30, 1998,
compared to $759,000 for the same period in fiscal 1998. This decrease resulted
from consultants added through acquisitions of companies that had historically
lower consultant productivity. The average first-year cash compensation of
positions for which the Company conducted searches decreased 11.6% to $208,000
for the nine-month period ended November 30, 1998, compared to $233,000 for the
same period in fiscal 1998, also attributable primarily to acquisitions.
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International revenues accounted for 5.0% and 4.0% of total Company revenue for
the three- and nine-month periods ended November 30, 1998. International
operations commenced in May 1998, with the opening of the London, England
office. As of November 30, 1998, there were 16 consultants employed
internationally.
Compensation and benefits. Compensation and benefits increased 49.4% and 45.5%,
respectively, to $17.4 and $51.2 million for the three- and nine-month periods
ended November 30, 1998, compared to $11.7 million and $35.2 million for the
same periods in fiscal 1998. As a percentage of fee revenue, compensation and
benefits decreased to 74.7% and 72.1%, respectively, for the three- and
nine-month periods ended November 30, 1998, compared to 75.9% and 76.7%,
respectively, for the same periods in fiscal 1998.
Domestic compensation and benefits increased 25.4% and 31.9%, respectively, for
the three- and nine-month periods ended November 30, 1998. As a percentage of
domestic fee revenue, domestic compensation and benefits decreased to 66.0% and
68.1%, respectively, compared to 75.9% and 76.7% for the same periods in fiscal
1998. This decrease was due to lower discretionary compensation accruals and
revisions to the consultant compensation plan.
International compensation and benefits accounted for 16.0% and 9.3% of total
Company compensation and benefits expense for the three- and nine-month periods
ended November 30, 1998. In order to attract qualified executive search
consultants, and consistent with industry practice, the Company generally
provides for new consultants to be paid under a compensation system with much
higher fixed salaries for a specified transitional period. After the end of the
transitional period, consultants are generally paid based on a formula applied
to their productivity. The higher fixed salaries resulted in compensation and
benefits as a percentage of revenue for international operations being higher
than the Company typically experiences domestically.
General and administrative expenses. General and administrative expenses
increased approximately $2.9 million and $8.0 million, respectively, to $4.9
and $13.9 million for the three- and nine-month periods ended November 30,
1998, compared to $2.0 and $5.9 million for the same periods in fiscal 1998. As
a percentage of fee revenue, general and administrative expenses increased to
21.2% and 19.6% for the three- and nine-month periods ended November 30, 1998,
compared to 13.0% and 12.8% for the same period in fiscal 1998.
Domestic general and administrative expenses increased $1.0 million and $4.6
million or 50.7% and 77.8%, respectively, for the three- and nine-month periods
ended November 30, 1998. As a percentage of domestic fee revenue, domestic
general and administrative expenses increased to 13.6% and 15.3%, respectively,
compared to 13.0% and 12.8% for these same periods in fiscal 1998. These
increases were primarily due to travel and meeting expenses related to
conferences designed to focus marketing efforts within practice group areas,
provide post-acquisition cultural integration, and train new consultants. These
expenses were higher than the Company has typically experienced due to the
significant number of new employees hired in connection with acquisitions in
the fourth quarter of fiscal 1998. The Company also incurred higher occupancy,
consulting, legal and accounting expenses.
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International general and administrative expenses accounted for 39.1% and 25.0%
of total Company general and administrative expenses for the three- and
nine-month periods ended November 30, 1998. General and administrative expenses
as a percentage of revenues was substantially higher than initially anticipated
for international operations due to revenues being generated at levels less
than originally planned.
Goodwill amortization. Goodwill amortization was $182,000 and $582,000,
respectively, for the three- and nine-month periods ended November 30, 1998,
compared to no amortization for the same periods in fiscal 1998. This change
was a result of goodwill acquired in connection with two acquisitions during
the fourth quarter of fiscal 1998.
Operating income. Operating income decreased 54.1% to $780,000 for the
three-month period ended November 30, 1998, compared to $1.7 million for the
same period in fiscal 1998. This decrease was primarily due to operating losses
experienced in the Company's international operations. Total operating income
increased 10.5% to $5.3 million for the nine-month period ended November 30,
1998, compared to $4.8 million for the same period in fiscal 1998. This change
was primarily due to domestic revenue growth as the result of two acquisitions
during the fourth quarter of fiscal 1998. The decrease in compensation and
benefits as a percentage of fee revenue which was partially offset by an
increase in general and administrative expenses as a percentage of fee revenue
also contributed to the increase.
Other income, net. Other income, net increased $17,000 and $313,000,
respectively, to $170,000 and $358,000 for the three- and nine-month periods
ended November 30, 1998, compared to $153,000 and $45,000 for the same periods
in fiscal 1998. These changes were a result of earnings associated with
investment of the net proceeds from the secondary public offering in June 1998,
which was partially offset by foreign currency transaction losses.
Provision for income taxes. The effective income tax rate for the nine-month
period ended November 30, 1998, of 58.2% varied from the statutory rates of 35%
and 31% for domestic and international operations, respectively. A significant
portion of the difference between the statutory rate and the effective rates
was due to the losses from international operations which are carried on
through a foreign subsidiary corporation. The remainder of the difference was a
result of state and local income tax effects and the non-deductibility of
certain expenses, including goodwill amortization, premiums on key person life
insurance policies, and a portion of meals and entertainment.
LIQUIDITY AND CAPITAL RESOURCES
On June 9, 1998, the Company completed a secondary public offering covering 3.2
million shares of its common stock (including an exercised over-allotment),
approximately 2.3 million of which were offered by the Company, with the
balance being offered by certain stockholders of the Company. Net proceeds to
the Company from the offering were approximately $41.4 million.
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The Company has used and expects to continue to use the net proceeds of the
offering to support its international expansion, to pursue strategic domestic
and international acquisitions, to support continued enhancements to the
Company's technology-based infrastructure and for general corporate purposes.
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, 1998, cash used in operations was
approximately $12.9 million. A significant portion of the Company's
compensation expense for fiscal 1998 was accrued and paid shortly after the end
of the Company's fiscal year. This resulted in significant cash outflows during
the Company's first quarter. In addition, the Company experienced significant
cash outflows during the second and third quarters of fiscal 1999 to provide
the working capital for the start-up of the London office. To provide
additional liquidity, the Company has obtained a line of credit from a bank to
provide credit facilities of approximately $25 million. Borrowings under these
facilities will accrue 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
borrowings on the line of credit were outstanding at November 30, 1998 or 1997.
Capital expenditures totaled approximately $5.6 million for the nine-month
period ended November 30, 1998, including $2.4 million related to the London
office. These expenditures consisted primarily of upgrades to information
systems, purchases of office furniture and equipment and leasehold
improvements. Additionally, investments in life insurance policies intended to
fund the Company's deferred compensation liabilities were approximately $1.4
million.
The Company believes that funds from operations, its expanded credit
facilities, and the net proceeds from its 1998 secondary public offering will
be sufficient to meet its anticipated working capital, capital expenditure, and
general corporate requirements for the foreseeable future.
YEAR 2000 COMPLIANCE
The Company has completed its assessment of its internal systems and believes
that the cost to ensure all internal systems are Year 2000 compliant and to
make necessary enhancements will not be material. The Company is currently
assessing Year 2000 issues related to its third-party vendors' states of Year
2000 readiness and the potential impact, if any, of any lack of readiness on
the Company's operations. This analysis is expected to be complete by the end
of fiscal 1999. Based on its preliminary assessment, the Company does not
expect to be materially affected by any non-compliant third-party vendors.
Nevertheless, the Company intends to identify alternate vendors during its
assessment. The Company believes that costs associated with Year 2000
compliance will not have a material impact on the Company's financial
statements.
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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 currently available to, the Company's management. Such statements
include those regarding general economic and executive search industry trends
and the Company's ability to successfully execute its operational and growth
strategies.
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, 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 Annual Report on Form 10-K/A filed with the Securities and
Exchange Commission on June 12, 1998.
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits
Exhibit
Number Description
------ -----------
2.1 (4) - Agreement and Plan of Merger dated February 27, 1998, by and among Lamalie Associates, Inc.,
LAI Mergersub, Inc. and Ward Howell International, Inc.
2.2 (4) - Asset Purchase Agreement dated December 29, 1997, by and among Lamalie Associates, Inc.,
Chartwell Partners International, Inc. and David DeWilde
2.3 (6) - Agreement and Plan of Merger dated December 23, 1998, by and among Lamalie Associates, Inc.,
Registrant and LAI MergerSub, Inc.
3.1 (6) - Articles of Incorporation of the Registrant as now in effect
3.2 (6) - Bylaws of the Registrant as now in effect
4.1 (6) - Form of Common Stock Certificate
4.2 (6) - Stockholder Rights Agreement dated December 30, 1998, between Registrant and ChaseMellon
Shareholder Services, L.L.C.
10.1 (6) - 1997 Omnibus Stock and Incentive Plan as now in effect
10.2 (6) - Non-Employee Directors' Stock Option Plan as now in effect
10.3 (6) - Profit Sharing and Savings Plan as now in effect
10.4 (6) - 1997 Employee Stock Purchase Plan as now in effect
10.5 (1) - Form of Agreement for Deferred Compensation Plan
10.6 (1) - Managing Partners' Compensation Plan
10.7 (1) - Partners' Compensation Plan
10.8 (1) - Employment Agreement for Mr. Gow
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Exhibit
Number Description
------ -----------
10.9 (6) - 1998 Omnibus Stock and Incentive Plan as now in effect
10.10 (1) - Employment Agreement for Mr. Rothschild +
10.11 (2) - 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 (6) - Directors' Deferral Plan as now in effect
10.13 (3) - Employment Agreement with Robert L. Pearson dated October 8, 1997
10.14 (4) - Form of Employment Agreement for Former Ward Howell International, Inc. Shareholders
10.15 (5) - Employment Agreement with Patrick J. McDonnell dated September 15, 1998
10.16 - Letter Agreement with Philip R. Albright dated November 9, 1998
10.17 - Credit Agreement with NationsBank, including amendment thereto
27 - Financial Data Schedule (for SEC use only)
(1) 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.
(2) Incorporated by reference to the correspondingly numbered exhibit to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended May 31,
1997, filed on August 8, 1997.
(3) Incorporated by reference to the correspondingly numbered exhibit to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended November
30, 1997, filed on January 13, 1998.
(4) Incorporated by reference to the correspondingly numbered exhibit to the
Registrant's current Report on Form 8-K filed March 13, 1998.
16
17
(5) Incorporated by reference to the correspondingly numbered exhibit to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended August
31, 1998, filed on October 14, 1998.
(6) Incorporated by reference to the correspondingly numbered exhibit to the
Registrant's current Report on Form 8-K filed January 5, 1999.
+ Confidential treatment has been granted with respect to portions of this
Exhibit.
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LAI WORLDWIDE, 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 11, 1999 LAI WORLDWIDE, INC.
(Registrant)
By: /s/ Philip R. Albright
---------------------------------
Philip R. Albright
Chief Financial Officer
(Authorized officer of Registrant
and principal financial officer)
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