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Even with the economy in the doldrums and early ripples of layoffs disturbing the peace of mind of associates, 2001 was a good year for most large Texas firms. The 25 highest-grossing Texas firms posted total revenues of $3.8 billion in 2001, up 15.1 percent from the $3.3 billion in gross revenues at the same group of firms in 2000. Texas Lawyer‘s Annual Report on Firm Finance analyzes revenue and profits at the 25 highest-grossing firms. The 15.1 percent uptick in gross revenues for 2001 comes close to matching the record-setting increase of 16 percent in 1999, the tail end of the dot-com boom that did so much to pump up the fortunes of large firms. Net income improved at the 25 firms as well in 2001, jumping to a total of $1.4 billion in 2001 from $1.3 billion the previous year. The overall increase is 7.7 percent at those 25 firms. But despite the strength in those numbers, two key measures of firm finance — profits per partner and revenue per lawyer — were flat in 2001 at the 25 highest-grossing firms. Profits per partner declined by less than 1 percent, while revenue per lawyer improved by only 1.9 percent in 2001. It was a tough year for the stock market and the nation’s economy in general, but strength in the energy industry helped cushion Texas firms from a falloff in business in 2001. The much ballyhooed downfall of Houston’s Enron Corp. last fall, and the resulting impact on the energy industry, likely had little impact on the financial results of large Texas firms in 2001. Enron’s legacy will show up this year, as energy companies, particularly those that trade energy, devote more attention to shoring up their balance sheets than acquiring competitors. There is a bright side to the Enron debacle, though. Bankruptcy lawyers are working on Enron’s Chapter 11, the largest ever filed, and trial lawyers are lining up on both sides of class action securities litigation pending in federal court in Houston. There’s also white-collar crime work stemming from the criminal investigation by a task force of federal prosecutors probing the Enron mess. Enron had been the largest client at Houston-based Vinson & Elkins, Andrews & Kurth and Bracewell & Patterson, and the effect of that loss in business won’t show up until 2002 numbers. The effect will be muted at Andrews & Kurth, which is one of Enron’s bankruptcy counsel. But going beyond Enron, the litigation practice in general in Texas improved in 2001. It reflects the normal ebb and flow of business — as the deals business declines, litigation improves. “After 9/11, people pulled back — less M&A, fewer IPOs, less in the technology sector,” says William McCormack, managing partner of Dallas-based Hughes & Luce. “But while the transactional side has been slower, litigation has been busier.” For the fourth year in a row, Akin, Gump, Strauss, Hauer & Feld, Texas’ largest firm, tops the gross revenue chart, with $553 million in revenues in 2001, a solid increase of 28.6 percent from 2000. Vinson & Elkins is next, with $455.7 million in revenues in 2001, an increase of 17.9 percent from $386.5 million the previous year. The next five firms on the list are Fulbright & Jaworski; Baker Botts; Jenkens & Gilchrist; Locke Liddell & Sapp; and Haynes and Boone. The order of the top seven firms is unchanged from 2000 and 1999. Andrews & Kurth is next on the 2001 list, moving up one slot from 2000, when it was ranked ninth. Andrews & Kurth posted gross revenues of $164 million in 2001, compared to $114.7 million in 2000, a 43 percent increase that is largely due to its merger in 2001 with Mayor, Day, Caldwell & Keeton. Fifteen other firms returned to the list in 2001, although the rankings shifted. Two firms are newcomers to the ranking in 2001 — Beirne, Maynard & Parsons of Houston and Dallas’ Carrington, Coleman, Sloman & Blumenthal. Mayor Day gave up its spot on the list with its merger with Andrews & Kurth, and Houston’s Chamberlain, Hrdlicka, White, Williams & Martin slipped off in 2001. The gross revenues range from Akin Gump’s $553 million to $34.8 million at Munsch Hardt Kopf & Harr of Dallas. All but two large Texas firms improved on their 2000 revenues — Susman Godfrey of Houston and the Texas offices of San Francisco-based Brobeck, Phleger & Harrison. Both firms had successful financial results in 2000, partly explaining Susman Godfrey’s 17.6 percent decline in gross revenues in 2001 and Brobeck’s 8 percent decline. Brobeck, which expanded dramatically in Texas in 1999 and 2000 with the high-tech boom, is scaling back in Texas and elsewhere and laid off lawyers in early 2001. Ed Fernandes, the firm’s managing partner in Texas, says the firm is rebuilding and diversifying this year. And Susman, a litigation boutique that’s the smallest firm among the Top 25, received a large contingent fee in 2000 in an antitrust suit for client Caldera Inc. against Microsoft Corp., which gave a big boost to its revenues that year. (The suit settled in January 2000 for an amount reported at $165 million to $275 million.) Several large firms improved on their 2000 results in a big way. For Andrews & Kurth and the Dallas office of Jones, Day, Reavis & Pogue, the increase in revenues comes with a substantially higher lawyer count. Andrews & Kurth’s gross revenues went up by 43 percent in 2001, compared to 2000, but the firm has 46 percent more lawyers than in 2000. Jones Day’s 2001 gross revenues were $99.6 million, a 46.9 percent increase from $67.8 million in 2000. The Cleveland-based firm has 34 percent more lawyers in Texas than the previous year. Jenkens & Gilchrist, which has posted large gross revenue increases going back to 1997, came in with a 25.4 percent increase in 2001, but the firm also has 25 percent more lawyers than in 2000. Many came with the firm’s merger in January 2001 with New York’s Parker Chapin. At five other firms, Bracewell, Winstead Sechrest & Minick; the Texas offices of Weil, Gotshal & Manges; Brown McCarroll and Beirne Maynard, the percentage increase in gross revenues exceeded 20 percent. BACK TO BASICS Vinson & Elkins again leads the net income chart, followed by Fulbright, Akin Gump, and Baker Botts. Those four firms are repeating their places on that list from 2000, but the order switches around below them. Nineteen of the firms made more net income in 2001 than in 2000, and six firms made less. Three firms showed hefty improvement in profits — Andrews & Kurth, up 66.3 percent from 2000; Jones Day, where net income improved by 48.9 percent; and Weil Gotshal, where net income went up by 47.4 percent. Howard Ayers, managing partner of Andrews & Kurth, says the firm’s management is pleased with the firm’s numbers in 2001 because they include the cost of the merger of the two firms. Additionally, Mayor Day officed in the Bank of America building in downtown Houston, which was closed for several weeks because of flooding from Tropical Storm Allison in June 2001. Glenn West, managing partner of Weil Gotshal’s office in Dallas, says the improved financial performance in 2001 was due primarily to a back-to-basics approach, particularly in the firm’s Houston office. He says the firm focuses its Texas practice in three areas — mergers and acquisitions and private equity, business reorganization, and high-stakes commercial litigation — and the firm had strayed from those areas in the couple years before 2001. He says the firm added some key lateral hires in 2001 in Texas, and a litigation workload that was “off the charts” during the year helped boost the firm’s financial performance in Texas last year. That’s a precursor to this year — the firm is Enron’s lead bankruptcy counsel, a project that is ongoing and lucrative. At most of the firms on the Top 25 where net income declined in 2001, the percentage change was in the single digits, except at Susman Godfrey, where net income declined by 25.7 percent in 2001. THE NEWCOMERS The profits per partner and revenue per lawyer statistics may come closer than gross or net in providing a means of comparing the financial performance of the 25 highest-grossing firms. Gross revenues are affected by the size of the firm, big premium billing projects and contingent-fee litigation. Profits per partner improved at 16 of the 25 firms and dipped at eight of them. The biggest declines were posted by Susman Godfrey and Brobeck, with decreases of 25.7 percent and 43.6 percent respectively. Still, partners in Susman Godfrey topped the list with average profits of $1,857,000 in 2001, compared to $2.5 million on average in 2000. Weil Gotshal partners moved back over the million-dollar mark, with average profits per partner of $1,362,000, a 40.4 percent increase over the $970,000 earned on average by partners in 2000. Jones Day comes in at the third spot, with average profits of $815,000 in 2001, trailed by Beirne Maynard at $788,000, and Washington, D.C.’s Howrey Simon Arnold & White, which has a Houston office, at $762,000. Profits per partner also increased substantially at Beirne Maynard and Locke Liddell, where they went up by 26.5 and 26 percent respectively. Partners in 15 of the firms made a half-million dollars or more on average in 2001, compared to only 12 firms in 2000. Taken as a whole, the average partner at the 25 firms made $625,000 in profits in 2001, a slight decline from the $631,000 made by the average partner in the same group of firms the previous year. While more firms posted increases in average profits per partner than declines in 2001, the decreases at Susman Godfrey and Brobeck had a big impact on the overall average. Revenue per lawyer improved at 18 of the 25 firms and declined at only six of them. Most of the changes were relatively small. Lawyers at the 25 firms brought in $534,000 in revenue on average in 2001, compared to $524,000 at the same firms in 2000, a slight increase of 1.9 percent. Akin Gump pulled in the largest increase in revenue per lawyer, increasing by 20.2 percent with $583,000 compared to $485,000 in 2000. Weil Gotshal wasn’t far behind with an increase of 19.4 percent in 2001, up from $608,000 in 2000 to $726,000 in 2001. Carrington Coleman, a newcomer to the list, also was trailing close behind, with revenue per lawyer of $543,000 in 2001, an increase of 18.3 percent over $459,000 in 2000. The biggest decline in revenue per lawyer was at Susman Godfrey, where lawyers brought in $1,373,000 on average in 2001, compared to $1,653,000 in 2000, a 16.9 percent decline. At Brobeck, revenue per lawyer declined by 15.2 percent, from $660,000 per lawyer on average in 2000, to $560,000 on average in 2001. Lawyers at 14 of the firms brought in $500,000 or more on average in revenue in 2001. That compares to lawyers at only nine firms in 2000 reaching the half-million dollar mark. 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 2000 list, some of the firms located in the midrange of the list changed places in the rankings. Andrews & Kurth and Bracewell & Patterson passed Gardere Wynne Sewell on the list, coming in at the eighth and ninth spots on the chart. Strasburger & Price moved to 15th from 17th and Brown McCarroll moved to 19th from 21st. The newcomers — Beirne Maynard and Carrington Coleman — took 21st and 22nd places respectively, and Munsch Hardt, new to the list in 2000, returned in the last spot on the list. Beirne Maynard, an unusually large litigation-only firm, has been adding lawyers in recent years and finally grew enough to make the list. Compared to 2000, the firm’s gross revenues in 2001 were up 23.3 percent to $45 million. Managing partner Martin Beirne says the firm’s growth plan is kicking in. In 2001, litigation in two areas, pharmaceuticals and energy, was particularly strong, he says. While the firm had 70 lawyers on Aug. 31, 2001, the snapshot date for the firm finance report, it’s grown by nearly 30 lawyers since then. The firm is on track to bulk up to between 150 and 175 lawyers, Beirne says, and it presumably will move up on the Top 25 ranking. “I really don’t see any limitations,” Beirne says. “We’re not faced with the limitations of a full-service firm, by a conflicts standpoint. The trial lawyer is faced mostly with the tradition of one side or another.” The biggest deterrent to new business at Beirne, Maynard is issues conflicts, he says, but the firm hasn’t reached the size where issues conflicts would hamper growth. But the larger size of the firm makes it easier for it to land big litigation. Notes Beirne, “It’s a question of having the firepower.” Related charts: Gross Revenue Profits per Partner Net Income Revenue per Lawyer Profitability Index Pro Bono Hours

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