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Los Angeles-based Latham & Watkins says it will cross the $1 billion threshold in gross revenues for 2003 — becoming the first California firm to reach that plateau. The 1,500-lawyer powerhouse is leading a stronger than expected year for Los Angeles-area firms. In early 2003, firm managers said they weren’t expecting much in the way of revenue growth. But a surge in capital markets work in the final few months of 2003 has L.A. partners livening up their expectations. “It was a better year than what I think we expected,” said Thomas Sadler, the partner who heads Latham’s corporate group. “It’s safe to say that in the second half of the year, we saw an uptick in the capital markets, and it’s an area where we have a lot of resources.” Latham’s bump to more than $1 billion represents an increase of about 10 percent over 2002 revenue of $906 million. Topping the billion-dollar mark puts Latham into an elite club of firms. In 2002, only Skadden, Arps, Slate, Meagher & Flom and Baker & McKenzie logged in excess of $1 billion in revenue, according to Recorder affiliate The American Lawyer magazine. The fiscal year for several of L.A.’s largest law firms doesn’t end until Jan. 31, so firms have just estimates of the outlook for 2003. But so far, collection activity and revenue projections from the likes of Latham, whose fiscal year ended Dec. 31, suggest L.A. lawyers may be in for a pleasant surprise. “The diversity of our practice in different markets contributed to our very strong performance in 2003,” said Kenneth Doran, chairman at Gibson, Dunn & Crutcher. Doran predicted his firm’s 2003 gross to jump by about 14 percent, to $649 million. The firm generated $569 million in revenue in 2002. Gibson had the highest profits per equity partner in California in 2002, hitting $1.185 million. Doran said he didn’t know yet what the exact profit number would be for 2003, but expects at least a 10 percent bump in profits. Large litigation practices and bankruptcy groups helped cushion many of the L.A. firms during the worst of the technology downturn, when corporate work dried up. But the largest L.A. firms — Latham, Gibson, O’Melveny & Myers and Paul, Hastings, Janofsky & Walker — also have wide geographic reach with numerous national and international offices helping feed revenue growth. Peter Zeughauser, a principal with law firm consultant Zeughauser Group, said the firms have also benefited from a strong local economy in Southern California. The firms were beneficiaries of a booming entertainment business and healthy life sciences practices. Zeughauser said the firms have also tightened up their back offices in recent years, which has helped boost profitability. “As a group, they’ve been more focused on the numbers than they were historically and that caused them to clean up a few things,” Zeughauser said. A prime example is O’Melveny & Myers, which revamped its partner compensation scheme and billing rates in recent years. The firm logged profits per partner in excess of $1 million in the past two years. Chairman Arthur Culvahouse Jr. expects a more modest performance in fiscal 2003. The firm’s year ends Jan. 31, and Culvahouse said he’s monitoring collections closely, but with muted enthusiasm. “It’s looking at least as good as last year,” Culvahouse said. “Our plan is to do somewhat better than in 2002, and we may make plan and we may not. I have my fingers crossed.” O’Melveny grossed $565 million in 2002 and logged $1.1 million in profits per partner. Culvahouse said revenue will likely increase because of an influx of new hires, including 27 lawyers from the defunct Brobeck, Phleger & Harrison. But in the past year, the firm has been absorbing both the costs of lawyer hires and its merger in 2002 with the 90-lawyer New York firm O’Sullivan, he said. O’Melveny is facing excess real estate expenses in Menlo Park and Washington, D.C., after relocating both offices, and it’s planning a major move in New York. “Even if our year is flat, that is, we do as well this year as last but no better,” Culvahouse said, “we did exceedingly well in making substantial investments.”

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