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Never mind the shell-shocked stock market, the decline of the dot-com and the burden of high associate salaries, 2000 was still a rockin’ good year at large Texas firms. The 25 highest-grossing Texas firms posted total revenues of $3.3 billion in 2000, a 13.8 percent increase from the $2.9 billion the same firms posted in 1999. Texas Lawyer‘s “Annual Report on Firm Finance” analyzes revenue and profits at the 25 highest-grossing firms. Net income improved as well, to $1.3 billion in 2000, compared to $1.17 billion in 1999. That’s an 11.1 percent increase overall at those 25 large firms. But it’s the increase in gross revenue that’s impressive. The 13.8 percent jump is close to the record-setting increase of 16 percent for 1999. Several factors contributed to the increase: Large firms are getting larger, and associates were motivated to bill hours with large incentive bonuses at stake. Firms raised billing rates as well. ( Texas Lawyer‘s 2001 Salary & Billing Survey indicates billing rates went up across the board regardless of a firm’s size or location.) Those factors, and an energy-sparked Texas economy that bucked some poor economic trends dampening business elsewhere in the country, contributed to heady numbers at large Texas firms. For the third year in a row, Akin, Gump, Strauss, Hauer & Feld, the state’s largest firm, tops the list of the 25 highest-grossing firms. Akin Gump, which operates with more than 10 times the number of lawyers at the 25th firm on the list, brought in $430 million in 2000, up 19.4 percent from 1999. Vinson & Elkins follows, with gross revenue for 2000 of $385.5 million. In fact, the order of the top firms on the list mirrors the order the previous year: Akin Gump and V&E followed by Fulbright & Jaworski, Baker Botts, Jenkens & Gilchrist, Locke Liddell & Sapp, and Haynes and Boone. Sixteen other firms returned to the list, although some changed places. But the two firms that tied for 24th place on the 1999 list, Clark, Thomas & Winters and Porter & Hedges, dropped off in 2000. New to the list in 2000 are the Texas offices of California firm Brobeck, Phleger & Harrison, which more than doubled in size between 1999 and 2000, and Dallas’ Munsch Hardt Kopf & Harr. The gross revenue ranges from Akin Gump’s $430 million down to Munsch Hardt’s $32.5 million. CATCH-UP TIME The year 2000 could have been a tough one for Texas firms. While business was booming in the early months, some financing work, like initial public offerings, stalled in the spring after the stock market took a nose dive. At the same time, overhead increased at firms that decided to follow the market and pay higher associate salaries. But as transactional work slowed, some practice areas, like restructuring, picked up. Higher billing rates benefited all firms, many firms grew larger, and the slight lull in transactional work gave firms an opportunity to catch up on backlogs of work. It was enough, if the revenue results are any indication. “The first eight months of last year carried everybody through the year,” says James Jordan, chairman and chief executive officer of Munsch Hardt. All but one of the firms on the Texas LawyerTop 25 improved on their 1999 revenues. The exception was Howrey Simon Arnold & White in Texas, but it’s not really an apples-to-apples comparison. Howrey Simon lawyers in Texas brought in $32.7 million in 2000, 49.6 percent less than the $64.9 million posted in 1999 by Arnold, White & Durkee, a former Houston firm that merged in 2000 with Washington, D.C.’s Howrey & Simon. Howrey & Simon had only 59 lawyers in Texas at the snapshot date of Aug. 31, 2000, compared to 145 lawyers at Arnold White the year before. Gross revenues, meanwhile, were up dramatically at two firms: litigation boutique Susman Godfrey and the Texas offices of Brobeck. Susman Godfrey brought in $85 million in 2000, nearly double the firm’s 1999 revenue of $44.6 million, thanks in part to a 25 percent contingent fee in an antitrust suit for client Caldera Inc. against Microsoft Corp. The suit settled in January 2000 for an amount reported at $165 million to $275 million, but terms are confidential and partner Stephen Susman says he can’t say how much the firm made off of it. But the firm did so well in 2000 the partners agreed to pay associates year-end bonuses equal to their salaries, ranging from $114,000 for an associate who started work in the fall of 1999 to $165,000. Even without adding in the large fee from the Caldera suit, the firm did better in 2000 than in 1999, partner Lee Godfrey said at the time the associate bonuses were announced. Revenues also skyrocketed at Brobeck, the Silicon Valley firm with offices in Austin and Dallas. Its 2000 revenues of $54.8 million are up 130.3 percent from the $23.8 million the firm’s Texas-based lawyers brought in the previous year. The firm more than doubled the number of lawyers in its Texas office during the year. Jenkens & Gilchrist, which posted the largest increase in gross revenues among the Top 25 in 1997, 1998 and 1999, didn’t keep pace with Susman Godfrey and Brobeck this year, but still brought in 24.4 percent more in 2000 than in 1999. During the year, the firm’s lawyer count increased by about 19 percent. Roger Hayse, executive director at Jenkens, says part of the revenue increase is due to the addition of 20 lawyers from intellectual property firm Arnold White to the firm’s Chicago office in January 2000. But he says Jenkens also is targeting growth in high-profitability practice areas including mergers and acquisitions, corporate securities, debt and equity work, and commercial litigation. HIGH-END WORK V&E leads the net income list again, followed, as in 1999, by Fulbright, Akin Gump, Baker Botts and Locke Liddell. For the report, net income is defined as total income for equity partners, including capital contributions withheld from distributions. Net income declined at seven of the 25 firms on the Top 25 list, with the most dramatic drop of 33.7 percent attributed to the reconfigured Howrey Simon. Some firms, though, had much higher net income in 2000. Susman Godfrey’s went up 122.9 percent, to $70 million from $31.4 million, a jump explained in part by the huge payout from the Caldera litigation. Brobeck’s net improved by 72.1 percent, to $11.7 million from $6.8 million in 1999. Baker Botts, one of the Big Three Houston firms, also posted extraordinarily higher net income in 2000. The firm’s net income increased by 35.2 percent, to $130.5 million from $96.5 million. Managing partner Richard Johnson says the firm reaped the benefits in 2000 of at least one large contingent fee and some large transactional and “mission-critical” projects billed at a premium. Neither Johnson nor James Willis, the firm’s director of administration, would identify the clients, but Willis says the projects were technology- and energy-related. Johnson says he’d like to be talking about a similar increase in profits for 2001. “We had an unusual number of situations like that in the preceding year. But I keep telling our lawyers that while we refer to them as premium fees, and there’s a tendency to refer to them as extraordinary, they aren’t,” Johnson says. “They need to be part and parcel of us meeting our financial goals.” While net income and gross revenue are affected year to year by factors such as contingent-fee investments and growth in size, comparisons of profits per partner and revenue per lawyer may shed more light on the relative financial performance of large Texas firms. With the large Caldera settlement in pocket, partners in Susman Godfrey made an average of $2.5 million in 2000, easily topping the profits per partner chart. The figure was in the seven figures as well for Texas-based partners in Brobeck, where partners made an average of $1,170,000 in 2000. Average profits per partner at Texas offices of Weil, Gotshal & Manges slipped just a little from $1,004,000 in 1999 to a still-impressive $970,000 in 2000. Steven Zager, Brobeck’s partner-in-charge in Texas, says the firm’s work is divided about equally between litigation and transactional work, including a lot of venture capital work. Although IPOs are down, Zager says startups still need money, so the deal lawyers stayed busy in 2000 doing complicated mergers and acquisitions and financings. “The deals are more complicated and in some respects the fees for deals are higher,” he says. Profits per partner at nine other firms topped the half-million mark, and only six of the 25 firms showed declines in their profits per partner in 2000. On average, equity partners in the 25 large Texas firms racked up $614,000 in profits in 2000, a 32.9 percent increase over the $462,000 average profits per partner the previous year. The increase represents an extra $152,000 in income for each partner. It was a profitable year, even when taking Susman Godfrey’s unusually large profits per partner out of the mix. Without the $2.5 million going to Susman Godfrey partners, equity partners in the other 24 firms earned $536,000 on average in 2000. That’s still $74,000 more than in 1999, an increase of 16 percent. Revenue per lawyer improved at every firm on the list, except at Dallas’ Strasburger & Price. The list is topped again by Susman Godfrey, where each lawyer at the firm brought in $1,653,000 on average in 2000. That’s an 85.3 percent increase from the $892,000 posted by the firm in 1999. It’s also more than double the $660,000 in revenue per lawyer at Brobeck, the runner-up on the 2000 list. While revenue per lawyer was up across the board at large Texas firms, the improvement was relatively flat overall. It went up by more than 20 percent at Baker Botts, Locke Liddell & Sapp and at Howrey Simon in Texas. The gross revenue chart is the master chart; only firms ranked among the 25 highest grossing in the state are included on the other charts. While the top of the gross revenue list was identical to the 1999 list, some of the firms hovering near the middle of the list changed places in the rankings. Gardere Wynne Sewell leapfrogged over Andrews & Kurth to take eighth place, and Bracewell & Patterson did the same to Thompson & Knight for 10th place on the list. Except in the case of Susman Godfrey, a large litigation boutique that takes on a lot of contingent-fee work, a firm’s ranking is somewhat related to its size. Clark, Thomas and Porter & Hedges, newcomers to the list in 1999, were bumped off by Brobeck, the fast-growing California firm, and Munsch Hardt, which hovered near the cutoff point in 1999 and grabbed the bottom rung. While Munsch Hardt grew to 82 lawyers in 2000, up from 67 in 1999, Jordan, the Munsch Hardt chairman, says the firm’s strategic plan calls for focusing on highly profitable work. “We do a lot more mergers-and-acquisition and securities work than we used to do. In every one of our practice areas, we tried to push our practices into the high end of the area,” Jordan says. “In the employment area, we tried to push our practice into the trade secrets and covenants not-to-compete area. In litigation in general we tried to focus on securities litigation and types of commercial litigation.” He says, “We have made a push to make sure we are very profitable.” Related Charts: The Largest 100 Law Firms in Texas, By Lawyer Numbers Gross Revenue Net Income Profits Per Partner Revenue Per Lawyer Pro Bono Hours

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