SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2001
Commission File Number 0-30911
THE PBSJ CORPORATION
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(Exact name of Registrant as specified in its charter)
FLORIDA 59-1494168
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
2001 N.W. 107th AVENUE
MIAMI, FLORIDA 33172-2507
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(Address of principal executive offices)
(305) 592-7275
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(Registrant's telephone number, including area code)
___________________________________________
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($.00067 Par Value)
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(Title of class)
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filings for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment of this Form 10-K. [_]
The number of shares of Common Stock outstanding as of November 30, 2001
was 9,149,641. The aggregate market value of the voting stock held by non-
affiliates of the registrant based on the $14.20 closing price for the
registrant's Common Stock on December 15, 2001 was approximately $25,297,131.
Directors, executive officers and 10% or greater shareholders are considered
affiliates for purposes of this calculation but should not necessarily be deemed
affiliates for any other purpose.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Report on Form 10-K incorporates information by reference from
the registrant's definitive Proxy Statement to be used in conjunction with its
fiscal 2002 Annual Meeting of Shareholders.
PART I
ITEM 1. BUSINESS
General
The PBSJ Corporation and its subsidiaries is an employee-owned
professional services organization that provides a broad range of planning,
design and construction services to a variety of public and private sector
clients. Our four major business segments are transportation, environmental,
civil engineering and construction management, representing 41%, 24%, 22% and
13%, respectively, of our fiscal 2001 revenues. We utilize our expertise in
engineering, planning, management, environmental, architectural and surveying
disciplines to solve complex problems in each of these basic service areas. We
provide these services through our staff of over 2,750 professional, technical
and support personnel. We believe our multi-disciplinary approach to problems
facilitates our ability to effectively meet the needs of our clients.
Since our founding in 1960, we have grown from a small civil
engineering practice with operations only in South Florida to a national design
firm offering a full range of engineering, architectural and planning services
throughout the United States. Evidencing this, in 2000, Engineering News-Record
ranked PBSJ 12th on its list of the top 100 pure design firms (traditional
design firms with no construction capability) in the United States, based on
design revenue. During fiscal 2001, we provided services to approximately 3,000
clients in the public and private sectors. Approximately 95% of our clients had
previously used our services. In fiscal 2001, 72% of our net revenues were
derived from the public sector and 28% from the private sector.
We have built an organization composed of highly skilled professionals
and top level technical and administrative personnel with a wide variety of
scientific, engineering, architectural and management resources. These resources
enable us to develop and implement innovative long-term solutions to the complex
problems of our clients, many of which are the subject of public concern and
extensive governmental regulation. We assist our clients in responding to these
concerns, in obtaining governmental permits and approvals and in complying with
applicable laws and regulations.
We began operations on February 29, 1960. Our holding company, The PBSJ
Corporation, was incorporated in 1973. We engage in business primarily through
two wholly-owned subsidiaries: Post, Buckley, Schuh & Jernigan, Inc., a Florida
corporation (through which we provide the majority of our engineering,
architectural and planning services) and PBS&J Construction Services, Inc.
(through which we provide the majority of our construction management services).
In addition, we have two other active subsidiaries: Seminole Development
Corporation (through which we hold title to all our real property); and Post,
Buckley International, Inc. (through which we provide services to our
international clients). In this Form 10-K, all references to "PBSJ" or "our"
operations refer to The PBSJ Corporation and its wholly-owned subsidiaries and
the activities of these entities on a consolidated basis. Our executive offices
are located at 2001 N.W. 107th Avenue, Miami, Florida.
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Acquisitions
Throughout our history, PBSJ has made selected strategic acquisitions
to increase the firm's geographic presence in the West and Central regions, to
enhance its technical capabilities firm-wide and to solidify our operations in
the Eastern region. Once we acquire a firm it is integrated and consolidated
into our existing operations and the subsidiary ceases to exist as a separate
operating entity. The following acquisitions occurred in the last three years:
. January 2001 - J. Powell & Associates, Inc.
The Company acquired certain assets from J. Powell and Associates
on January 1, 2001 for $2.2 million less the amount of J. Powell's
accrued vacation at January 1, 2001. The assets acquired include
fixed assets, goodwill of the trade name and deposits on leased
properties. The acquisition of these assets contributes to the
Company's goal of increasing its presence in the Western region.
J. Powell's areas of specialty included civil engineering,
environmental engineering and construction management in both the
private and public sectors. The acquisition will be accounted for
using the purchase method of accounting, and the results of
operations will be included since the respective date of
acquisition, which is January 1, 2001.
Effective October 1, 1998, we merged the following subsidiaries into
our wholly owned subsidiary, Post, Buckley, Schuh & Jernigan, Inc., a Florida
corporation: Post, Buckley, Schuh & Jernigan, Inc., a Texas corporation, Post,
Buckley, Schuh & Jernigan, Inc., a California corporation, Post, Buckley, Schuh
& Jernigan, Inc., a Nevada corporation, Post, Buckley, Schuh & Jernigan, Inc. of
Arizona, Coastal Environmental Services, Inc., Kercheval and effective January
15, 1999, we merged Survey Resources, Inc. and EH&A into Post Buckley Schuh and
Jernigan.
Through our strategic acquisitions, PBSJ has developed solid technical
expertise, in both core services and emerging markets, and a nationwide presence
that allows us to respond to clients in our "local" markets with the advantages
of a national firm. Although we do not currently have any probable plans with
respect to any additional material acquisitions, we will continue to evaluate
possible strategic acquisitions of engineering or related service businesses in
connection with our plan to diversify our sources of business and the geographic
areas in which we operate.
Business Segments
The following table sets forth our revenues, in thousands, from each
of our four basic business segments for each of the three years ended September
30, 2001, 2000, and 1999, and the approximate percentage of our total revenues
attributable to each business segment:
2001 2000 1999
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(Dollars in Thousands)
Revenues % Revenues % Revenues %
--------- --- ------------ --- ------------ ---
Transportation $ 128,098 41% $ 106,580 41% $ 87,464 37%
Environmental 75,676 24 52,757 20 61,278 25
Civil Engineering 70,104 22 69,026 26 65,336 27
Construction Management 40,228 13 34,162 13 27,339 11
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Additional information concerning segment profit and loss and assets is set
forth in Item 7 under the caption entitled "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and in Item 8 in Note 12 of
"Notes to Financial Statements" which are incorporated herein by reference.
Transportation
Industry Overview
The need to modernize and upgrade the transportation infrastructure in
the United States has been a source of continued business for us through the
last ten years. Fueling the initial growth in this market was the Intermodal
Surface Transportation Efficiency Act (ISTEA) of 1991. ISTEA placed funding
emphasis on intermodalism and transportation efficiency, and established
comprehensive planning systems. In 1998, ISTEA was reauthorized as the
Transportation Equity Act for the 21st Century (TEA-21). TEA-21 earmarks $218
billion for highway and transit projects through 2003. Although a U.S. federal
program, TEA-21 provides state and local governments considerable flexibility in
project selection. In 2000, the Federal Government established the Wendell H.
Ford Aviation Act for the 21st Century (AIR-21). This greatly increased aviation
capitol improvement funding nation wide.
Our Services
Our activities in this area generally involve planning, design, right
of way acquisition, development and design of intelligent transportation
services and program construction management services for highways, including
interstate, primary, and arterial roads and toll facilities, bridges, transit,
airports and port facilities. We currently serve 15 state departments of
transportation throughout the U.S. and numerous aviation authorities.
Our Program Management group provides many of our governmental clients
the necessary resources to manage large infrastructure programs from concept
through construction. Our services include planning, programming, and contract
support. During production we develop design standards, manage projects, perform
design reviews and develop cost estimates. Following production, we (1)
facilitate environmental permitting, (2) coordinate right-of-way administration
and (3) provide construction management oversight.
During 2001, projects in our Transportation Division included:
. Overseeing all project planning and pre-construction requirements
and activities and providing bond support services for the Florida
Turnpike's capital improvement program including coordinating
acquisition of the necessary rights-of-way, and reviewing
construction drawings and cost estimates.
. Providing general engineering consulting services to the
Orlando-Orange County Expressway Authority, including the initial
construction of Part C of S.R. 429.
. Preparing final design plans for the 3.8 mile Carson City Bypass
for the Nevada Department of Transportation.
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. Designing the widening and reconstruction of 17 miles of I-30 in
and southwest of Little Rock for the Arkansas State Highway and
Transportation Department.
. Designing the new Runway 8L-26R at George Bush International
Airport, Houston.
. Designing a section of Houston METRO's Light Rail Transit System.
Environmental
Industry Overview
Over the past thirty years, significant environmental laws at the
federal, state and local levels have been enacted in response to public concern
over the health of the nation's air, water, and natural resources. Those laws
and their implementation through regulation affect numerous industrial and
governmental actions and form a key market driver for the services of our
Environmental business segment.
Two federal environmental laws, The Safe Drinking Water Act of 1974
(and amendments) and the Pollution Control Act of 1972, have brought substantial
changes to the regulation and financing of water and wastewater systems.
Pursuant to these laws, Congress has authorized significant monies to assist
state and local governments. According to the EPA, as much as $23 billion a year
will be needed for construction and upgrade of water and wastewater treatment
facilities over the next 20 years.
Our Services
Our Environmental business segment focuses on the delivery of planning,
design and construction management services for private and public sector
clients related to:
Air Quality Management Flood Insurance Studies
Energy Planning Hazardous and Solid Waste
Management
Cultural Resources Assessments Information Solutions
Ecological Studies Wastewater Treatment
Environmental Toxicology Analysis Water Resources
Flood Control Facility Planning and Water Supply and Treatment
Design
During 2001, projects in our Environmental business segment included:
. A multi-year contract with the Federal Emergency Management Agency
("FEMA") to serve as Flood Mapping Coordination Contractor for
FEMA's Central Region V (Illinois, Indiana, Michigan, Ohio,
Minnesota and Wisconsin), Central Region VI (Texas, Oklahoma,
Arkansas, Louisiana and New Mexico) and Central Region VII
(Nebraska, Kansas, Idaho and Missouri).
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. A contract with the San Antonio River Authority to perform
hydrologic, hydraulic, water quality and environmental services to
assist them in developing a concept design to restore and enhance
the historic San Antonio River in San Antonio, Texas.
. Providing engineering services during construction of the
Washington Suburban Sanitary Commission's
20-million-gallons-per-day advanced Seneca Wastewater Treatment
Plant in Montgomery County, Maryland, which utilizes biological
nutrient removal.
. Remote-sensing survey of the Houston Barge Lanes for the Galveston
District COE. Project involved testing and ground truthing new and
experimental technologies in bay-bottom mapping and required
considerable coordination and consultation with other agencies
such as the Texas General Land Office and Parks and Wildlife. This
work may set the standard of how oyster reefs are mapped in Texas
waters and the technology may be applied to other areas.
. Continued to support the New York Power Authority, Consolidated
Edison Company for New York, Orange and Rockland Utilities, and
Central Hudson Gas and Electric Corporation for assessing the
impacts of power plant operations on Hudson River fish
populations.
. Completed the design of an odor control system for City of Athens,
Greece, for solid waste composting facilities that are intended to
provide disposal capacity for the 2004 summer Olympics.
Civil Engineering
Industry Overview
A strong and long-running national economic expansion has fueled demand
for services from our Civil Engineering business segment. As private sector
companies have spent increased dollars on corporate relocations and office,
commercial, industrial and residential development and public sector agencies
have allocated additional funds to replace aging infrastructure and revitalize
their urban cores, the demand for engineering and design services has grown.
However, we recognized the need for a better balance between public sector and
private sector work and added Federal Planning, Municipal Services, and
Education to our markets. In light of the recent events of September 11, 2001,
and the slowing economy, our repositioning was strategic to sustaining our
momentum. We are well positioned to take advantage of the Federal government's
infusion of capital to fund public infrastructure projects and education. By
offering a wide range of design and engineering services, PBS&J believes it is
well positioned to serve both public and private clients over the next several
years.
Our Services
Our Civil Engineering business segment provides general civil
engineering services to public and private clients. Included in these services
are (1) site suitability studies, (2) master infrastructure engineering and
planning, (3) site engineering, (4) regulatory permitting and (5) disaster
planning and response. Within our Civil Engineering Division, we also have three
additional service groups: Surveying Engineering, Planning and Landscape
Architecture, and Architecture.
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Our Surveying Engineering group provides clients GPS-based surveying,
mobile surveying for roadways and other hard surfaces, land platting,
right-of-way mapping, construction layout and control, boundary and topographic
surveys, control networks, tunnel surveying, commercial land title surveys,
hydrographic surveying, movement detection and deformation surveys, and rail and
mass transit surveys.
Our Planning and Landscape Architecture group provides clients master
land use planning, site planning, urban and regional planning, urban design,
environmental planning, cultural resource identification, and landscape
architecture.
Our Architecture group provides clients architectural design, space
planning and interior design, as well as electrical, mechanical and structural
engineering services.
During 2001, projects in our Civil Engineering business segment
included:
. Completed architecture design criteria package for Seminole Indian
Tribe Administration and Classroom buildings.
. Under general consultant contract, completed design criteria package
for improvements to the Florida Department of Transportation Office of
Toll Operations Toll Data Center in Boca Raton, Florida. The project
entailed renovation of a 17,000 square building and a two-story
addition of approximately 14,000 square feet and is currently under
construction.
. Began design and permitting documents for the Orange County Jail
expansion project.
. Continue to work for St. Joe on their marquee project Water Color.
Completed design and permitting documents for Water Sound, a mixed-use,
resort hotel and condominium project.
. Continue to provide preliminary infrastructure design services for
Spring Mountain Ranch in Riverside, California and King's Point in
Denver, Colorado.
. Provided conditions assessments to Veterans Administration for 116
cemeteries throughout the United States and Europe.
Construction Management
Industry Overview
The demand for our construction management services has also been
fueled by the legislation and industry trends that are driving the growth in our
Transportation and Environmental business segments, including ISTEA and TEA-21.
These trends have resulted in a large number of infrastructure projects
throughout the U.S., which are subject to increasingly complex governmental
regulations. The role of the construction manager has become increasingly
important to the success of these projects, requiring a new level of versatility
and a wide range of skills. Both public and private sector entities are under
pressure to complete these projects at accelerated schedules, resulting in a
myriad of project delivery systems. With limited in-house staff, these entities
must rely on experienced construction managers to complete the project on time
and within budget.
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Our Services
In the area of construction management, we provide a wide range of
services as an agent for our clients, including contract administration,
inspection, field testing, scheduling/estimating, instituting project controls
and quality assessment. Although we do not construct or build any projects, we
may act as the program director of a project whereby on behalf of the owner of
the project, we provide scheduling, cost estimating and construction observation
services for the project, or our services may be limited to providing
construction consulting.
During 2001, projects in our Construction Management Division included:
. Providing construction engineering and inspection services to the
Departments of Transportation in Alabama, Arkansas, Colorado,
Nevada, Texas, Florida and North Carolina, as well as to County
Municipalities such as Cobb County Water & Sewer Department and
Collier County, Florida.
. Providing construction administration to the Clark County (Nevada)
Department of Public Works as well as for LMI (Logistics
Management Institute) for the Defense Intelligence Assessment
Center's Building Assessment Re-Capitalization program in
Washington D.C..
. Perform Structural Inspection Services for hurricane shelters for
the State of Florida, Department of Community Affairs.
. Providing comprehensive services, including cost estimating,
scheduling and construction claims reviews, to the school boards
of Miami-Dade County and Broward County, Florida; York County, SC;
Cobb County DOT in Georgia and TTA (Texas Turnpike Authority - now
included as a part of TxDot).
. Providing construction-related services to BellSouth throughout
Florida and Georgia, including quality assurance inspections,
verification of contractor's invoices, damage inspections and
responding to natural disasters.
. Providing construction inspection services nationally to the
National Park Service and Federal Highway Administration's Central
Lands Division.
. Working as the Owner's Representative providing construction
management for a twin highrise vertical project in Miami, Florida.
Other Services
In addition to our four national business segments, we have developed a
National Information Solutions Division to address the digital infrastructure
needs of our clients. Our services include: training, database analysis, system
programming, land planning and design and geographic information systems. Recent
projects which have allowed our information solutions to address client needs
include:
. Continued development of the Florida Department of Transportation
Turnpike District's Turnpike Asset Management System, which will
utilize an interactive Internet-based mapping application.
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. Implementing a Geographic Permit Management and Compliance System
for the City of Tucson, Arizona that will track all environmental
permit requirements and water quality monitoring data.
Clients
Through our four national business segments, we provide our services to
a broad range of clients, including state, local and municipal agencies, the
Federal government and private sector businesses. Our state and local government
clients include approximately 15 state departments of transportation, water
utilities, local power generators, waste water treatment agencies, environmental
protection agencies, schools and colleges, law enforcement, judiciary, hospitals
and healthcare providers. We provide services to Federal agencies, including the
Army Corps of Engineers, Environmental Protection Agency, Navy, Air Force, Coast
Guard, United States Postal Service, Federal Emergency Management Agency and
Department of Energy, and local entities. Our contracts with federal, state and
local entities are subject to various methods of determining fees and costs. See
"Contract Pricing and Terms of Engagement" for a further discussion of our
pricing arrangements with governmental clients.
Our private sector clients include retail and commercial,
entertainment, railroad, petro-chemical, food, telecommunications, oil and gas,
power, semi-conductor, transportation, technology, public utility, mining and
forest products entities. The table below indicates the revenue generated, by
client type, for each of the three years ended September 30, 2001, 2000 and
1999.
2001 2000 1999
---- ---- ----
(Dollars in thousands)
Domestic
Local and state agencies............. $201,037 64% $170,641 65% $155,245 64%
Federal agencies..................... 21,530 7 8,611 3 4,828 2
Private businesses................... 89,735 28 81,383 31 79,668 33
International.......................... 1,804 1 1,890 1 1,676 1
-------- --- -------- --- -------- ---
Total................................ $314,106 100% $262,525 100% $241,417 100%
======== === ======== === ======== ===
In 2001, we derived approximately 19% of our net earned revenue from
various districts and departments of the Florida Department of Transportation
(the "FDOT") under numerous contracts. While we believe the loss of any
individual contract would not have a material adverse effect on our results of
operations and would not adversely impact our ability to continue work under our
other contracts with the FDOT, the loss of all the FDOT contracts would have a
material adverse effect on our results of operations by causing a material
decrease in our revenues and profits.
International Business
During fiscal 2001, revenues from our international operations were
approximately $1.8 million, or less than 1% of our total revenues. We currently
have on-going projects in three countries (Venezuela,
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India and Argentina). Although we do not currently have any plans to expand our
international operations, we anticipate that our international operations will
continue at this same level.
Marketing
Marketing activities are conducted by key operating and executive
personnel, including specifically assigned business development personnel, as
well as through professional personnel who develop and maintain new and existing
client relationships. Our continued ability to compete successfully in the areas
in which we do business is largely dependent upon aggressive marketing, the
development of information regarding client requirements, the submission of
responsive cost-effective proposals and the successful completion of contracts.
Information concerning private and governmental requirements is obtained, during
the course of contract performance, from formal and informal briefings, from
participation in activities of professional organizations, and from literature
published by the government and other organizations.
Contract Pricing and Terms of Engagement
We earn our revenues for the various types of services we provide
through cost-plus, time-and-materials, fixed price, and contracts, which combine
any of the methods.
Cost-Plus Contracts. Under our cost-plus contracts, we charge clients
negotiated rates based on our direct and indirect costs. Labor costs and
subcontractor services are the principal components of our direct costs. Federal
Acquisition Regulations, which are applicable to all Federal government
contracts and which are partially incorporated in many local and state agency
contracts, limit the recovery of certain specified indirect costs or contracts
subject to such regulations. In negotiating a cost-plus contract, we estimate
all recoverable direct and indirect costs and then add a profit component, which
is either a percentage of total recoverable costs or a fixed negotiated fee, to
arrive at a total dollar estimate for the project. We receive payment based on
the total actual number of labor hours expended. If the actual total number of
labor hours is lower than estimated, the revenues from that project will be
lower than estimated. If the actual labor hours expended exceed the initial
negotiated amount, we must obtain a contract modification to receive payment for
such overage. During fiscal 2001, approximately 9% of our contracts were
cost-plus contracts, primarily with state and local government agencies.
Cost-plus contracts covered by Federal Acquisition Regulations and
certain state and local agencies require an audit of actual costs and provide
for upward or downward adjustments if actual recoverable costs differ from
billed recoverable costs. There are no open or pending audits by federal or
state authorities as of September 30, 2001. The result of our last audit for the
year ended September 30, 2000 resulted in no adjustments. Our contracts with
governmental entities, once executed, are not subject to renegotiation of
profits at the election of the government, however, they are subject to
continued funding. Our contracts generally provide that we receive our profit on
a periodic basis through the course of the project. Therefore, if a governmental
agency fails to fund for a successive year, our profit will have been
proportionally received as recognized.
Time-and-Materials Contracts. Under our time-and-materials contracts,
we negotiate hourly billing rates and charge our clients based on actual time
expended. In addition, clients reimburse us for the actual out-of-pocket costs
of materials and other direct incidental expenditures incurred in connection
with performing the contract. Our profit margins on time-and-materials contracts
fluctuate based on actual labor and overhead costs directly charged or allocated
to contracts compared with negotiated billing rates.
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During fiscal 2001, approximately 65% of our contracts were time-and-materials
contracts, primarily with federal, state and local agencies, as well as some
private sector clients.
Fixed-Price Contracts. Under our fixed-price contracts, clients pay us
an agreed sum negotiated in advance for the specified scope of work. Under
fixed-price contracts, we make no payment adjustments if we over-estimate or
under-estimate the number of labor hours required to complete the project,
unless there is a change of scope in the work to be performed. Accordingly, our
profit margin will increase to the extent the number of labor hours and other
costs are below the contracted amounts. The profit margin will decrease and we
may realize a loss on the project if the number of labor hours required and
other costs exceed the estimate. During fiscal 2001, approximately 26% of our
contracts were fixed-price contracts, primarily with private sector clients.
Competition
We face active competition in all areas of our business. As we provide
a wide array of engineering, architectural, planning and construction management
services to companies in various industries throughout the United States, we
encounter a different group of competitors in each of our markets. Our
competitors include (1) national and regional design firms like PBSJ that
provide a wide range of design services to clients in all industries, including
CH2M Hill and Parsons Brickenhoff, (2) industry specific firms that provide
design as well as other services to customers in a specific industry, for
example environmental firms such as Montgomery Watson, Camp Dresser and McKee,
Inc., and (3) local firms that provide some or all of our services in one of our
markets. Some of our competitors are larger, more diversified firms having
substantially greater financial resources and larger professional and technical
staffs than ours. Competition for major contracts is frequently intense and may
entail public submittals and multiple presentations by numerous firms seeking to
be awarded the contract. The extent of competition we will encounter in the
future will vary depending on changing customer requirements in terms of types
of projects and technological developments. It has been our experience that the
principal competitive factors for the type of service business in which we
engage are a firm's demonstrated ability to perform certain types of projects,
the client's own previous experience with competing firms, and the firm's size
and financial condition and the cost of the particular proposal.
No one firm currently dominates a significant portion of the sectors in
which we compete. Given the expanding demand for some of the services provided
by PBSJ, it is likely that additional competitors will emerge. At the same time,
consolidation continues to occur in certain of the sub-segments of the industry
in the United States, including the environmental-focused firms.
We believe that we will retain the ability to compete effectively with
other firms that provide similar services by continuing to offer a broad range
of high-quality consulting and environmental, transportation, and engineering
and construction management services through our network of offices. Among other
things, the wide range of expertise, which we possess, permits us to remain
competitive in obtaining government contracts despite shifts in governmental
spending emphasis. Our multi-disciplinary capabilities enable us to compete more
effectively for clients whose projects require that the expertise of
professionals in a number of different disciplines be brought to bear in the
problem solving effort. We believe that our ability to offer our services over a
large part of the United States is a positive factor in enabling us to attract
and retain clients who have a need for our services in different parts of the
country.
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Backlog
Our backlog for services as of September 30, 2001 was estimated to be
approximately $303.0 million. Our backlog for services as of September 30, 2000
was approximately $268.9 million. We define backlog as contracted task orders
less previously recognized revenue on such task orders. U.S. government
agencies, and many state and local governmental agencies, operate under annual
fiscal appropriations and fund various contracts only on an incremental basis.
Our ability to realize revenues from our backlog depends on the availability of
funding for various federal, state and local government agencies.
A majority of our customer orders or contract awards and additions to
contracts previously awarded are received or occur at random during the year and
may have varying periods of performance. The comparison of backlog amounts on
the same date in successive years is not necessarily indicative of trends in our
business or future revenues.
The major components of our operating costs are payroll and payroll-
related costs. Since our business is dependent upon the reputation and
experience of our personnel and adequate staffing, a reasonable backlog is
important for the scheduling of operations and for the maintenance of a fully-
staffed level of operations.
Regulation
Compliance with federal, state and local regulations, which have been
enacted or adopted relating to the protection of the environment is not expected
to have any material effect upon the capital expenditures, earnings and
competitive position of PBSJ.
Personnel
As of September 30, 2001, we employed 2,750 persons, of which 256 were
part time employees. Most of our employees are professional or technical
personnel having specialized training and skills, including engineers,
architects, analysts, scientists, management specialists, technical writers and
skilled technicians. Although many of our personnel are highly specialized in
certain areas and while there is a nationwide shortage of certain qualified
technical personnel, we are not currently experiencing any material difficulty
in obtaining the personnel we require to perform under our contracts. We believe
that our future growth and success will depend, in large part, upon our
continued ability to attract and retain highly qualified personnel. We believe
our employee relations to be good.
Liabilities and Insurance
When we perform services for our clients, we can become liable for
breach of contract, personal injury, property damage and negligence. Such claims
could include improper or negligent performance or design, failure to meet
specifications and breaches of express or implied warranties. Our clients often
require us to contractually assume liabilities for damage or personal injury to
the client, third parties and their property and for fines and penalties.
Because our projects are typically large enough to affect the lives of many
people, the damages available to a client or third parties are potentially large
and could include punitive and consequential damages. For example, our
transportation projects involve services that affect not only our client, but
also many end users of those services.
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We seek to protect PBSJ from potential liabilities by obtaining
indemnification, where possible, from our public and private sector clients.
However, even when we obtain such indemnification, it is generally not available
if we fail to satisfy specified standards of care in performing our services or
if the indemnifying person has insufficient assets to cover the liability.
Therefore, we also seek to protect PBSJ by maintaining a full range of insurance
coverage, including worker's compensation, general and professional liability
(including pollution liability) and property coverage. Our professional
liability coverage is on a claims made basis (which means that the policy
provides liability coverage for all claims made during the policy period,
regardless of when the action occurred), while the rest of our insurance
coverage is on an occurrence basis (which means that the policy provides
liability coverage only for injury or damage arising from an action that occurs
during the policy period, regardless of when the claim is actually made). Our
professional liability insurance provides for annual coverage of up to $30
million with an annual deductible of $1.5 million. Based upon our previous
experience with such claims and lawsuits, we believe our insurance coverage is
adequate for all our present operational activities, although there can be no
assurances that such coverage will prove to be adequate in all cases. A
successful claim or claims in an amount in excess of our insurance coverage for
which there is not coverage could have a material adverse effect on our results
of operation.
ITEM 2. PROPERTIES
We own our executive offices located at 2001 N.W. 107th Avenue, Miami,
Florida 33172, which consists of approximately 100,000 square feet of office
space. We own our Orlando office located at 482 South Keller Road, Orlando,
Florida 32810, which consists of approximately 90,000 square feet of office
space. This building is held subject to a significant encumbrance. We own three
additional office buildings in Ft. Myers, Florida, Homestead, Florida and
Hollywood, Florida through our wholly-owned subsidiary, Seminole Development
Corporation. All of these properties are currently being leased to third
parties.
We lease an additional 60 offices in 16 states in the United States and
Puerto Rico, all of which are used for our four major business segments.
Aggregate lease payments during fiscal year 2001 were approximately $10.8
million.
We believe that substantially all of our property and equipment are, in
general, well maintained and in good operating condition. They are considered
adequate for present needs, and as supplemented by planned construction, are
expected to remain adequate for the near future.
We are of the opinion that we, or our subsidiaries, have clear title to
the properties owned and used in our business, subject to liens for current
taxes and easements, restrictions and other liens which do not materially
detract from the value of the properties or our interest in the properties or
the use of those properties in our business.
ITEM 3. LEGAL PROCEEDINGS
We are party to various legal proceedings arising from our operations.
We believe that we have sufficient professional liability insurance such that
the outcome of any of these proceedings, individually and in the aggregate, will
not have a material adverse effect on our financial position or results of
operations. However, if our insurance company were to deny coverage for a
significant judgment or if a
13
judgment were entered against us in an amount greater than our coverage, it
could adversely affect our results of operations. Based upon our previous
experience with claims and lawsuits, we believe our insurance coverage is
adequate.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDERS MATTERS
Market Information
There is no established public trading market for our common stock.
As of November 30, 2001 there were no shares of common stock that were
subject to outstanding warrants or options to purchase, or securities
convertible into, our common stock, and no shares of our common stock could be
sold pursuant to Rule 144 under the Securities Act. No shares of our common
stock are being, or have been, publicly offered.
As of November 30, 2001, there were 9,149,641 shares of common stock
outstanding and held of record by 504 shareholders.
Dividends
Each share of our common stock is entitled to share equally in any
dividends declared by our board of directors. Pursuant to the terms of our
credit agreement, we cannot declare or pay dividends in excess of 50% of our net
income. We have not in the past paid cash dividends on our common stock and have
no present intention of paying cash dividends on our common stock in the
foreseeable future. All earnings are retained for investment in our business.
14
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected historical financial data as of
and for the years ended September 30, 2001, 2000, 1999, 1998 and 1997. The
financial data for each of the fiscal years has been derived from, and is
qualified by reference to, our audited financial statements which
PricewaterhouseCoopers LLP, our independent certified public accountants, have
audited. You should read the information set forth below in conjunction with our
consolidated Financial Statements, including the notes thereto, and Management's
Discussion and Analysis of Financial Condition and Results of Operations
included elsewhere in this Form 10-K.
Year Ended September 30,
--------------------------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
(dollars in thousands)
Operating Data:
Engineering fees $ 314,106 $ 262,525 $ 241,417 $ 223,381 $ 172,644
Net earned revenue 236,216 196,830 180,637 167,133 131,423
Net income 12,535 10,490 5,446 4,474 4,000
Balance Sheet Data (at end of
period):
Working capital $ 24,753 $ 18,752 $ 31,721 $ 20,545 $ 19,186
Total assets 129,004 120,306 103,835 96,425 83,457
Long-term debt (less current portion) 9,929 10,800 13,337 8,589 11,064
Total stockholders' equity 58,704 49,198 45,270 37,613 31,508
15
ITEM. 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operation
The following table sets forth the percentage of net earned revenue
represented by the items in our consolidated statements of income:
Year ended September 30,
2001 2000 1999
---------- ---------- ----------
Engineering fees 133.0% 133.4% 133.6%
Direct expenses 33.0 33.4 33.6
---------- ---------- ----------
Net earned revenue 100.0 100.0 100.0
---------- ---------- ----------
Costs and expenses:
Direct salaries 36.5 37.1 36.7
Selling, general and
administrative expenses 55.9 56.2 58.4
---------- ---------- ----------
Operating income 7.6 6.7 4.9
Interest expense (.5) (.6) (.6)
Other, net .2 (.4) .6
---------- ---------- ----------
Income before income taxes 7.3 5.7 4.9
Provision for income taxes 2.0 0.3 1.9
---------- ---------- ----------
Net income 5.3% 5.4% 3.0%
========== ========== ==========
A summary of operating results is as follows for each of the years
ended September 30 (dollars in thousands):
2001 2000 1999
---------------- --------------- ----------------
Engineering fees.................................. $ 314,106 $ 262,525 $ 241,417
Direct expenses................................... 77,890 65,695 60,780
---------------- --------------- ----------------
Net earned revenue................................ 236,216 196,830 180,637
Costs and expenses................................ 218,317 183,748 171,637
---------------- --------------- ----------------
Operating income.................................. 17,899 13,082 9,000
Other expenses.................................... (556) (2,003) (54)
Provision for income taxes........................ 4,808 589 3,500
---------------- --------------- ----------------
Net income........................................ $ 12,535 $ 10,490 $ 5,446
================ =============== ================
16
Segment Results of Operations
Our businesses are reported as four segments, reflecting our management
methodology and structure. The accounting policies of the segments are the same
as those described in the footnotes to the accompanying consolidated financial
statements. We evaluate performance based on operating profit of the respective
segments. The discussion that follows is a summary analysis of the primary
changes in operating results by segment for 2001 as compared to 2000 and 2000 as
compared to 1999.
Transportation
- --------------
2001 % Change 2000 % Change 1999
------ -------- ------ -------- ----
(Dollars in Thousands)
Engineering Fees................... $128,098 20.2% $106,580 21.9% $87,464
Direct Expenses.................... 36,538 24.2 29,397 31.4 22,364
Net Earned Revenue................. 91,560 18.6 77,183 18.6 65,100
Costs and Expenses................. 81,794 19.2 68,632 11.1 61,784
Operating Income................... $ 9,766 14.2% $ 8,551 157.9% $ 3,316
2001 Compared To 2000
- ---------------------
Engineering fees of $128.1 million for 2001 increased 20.2% as compared
to 2000. Higher volumes from continued strength in the transportation services
market and engineering fees from new projects were the primary contributors to
this increase during 2001.
Reported net earned revenue was $91.6 million during 2001 as compared
to $77.2 million in 2000, representing an increase of 18.6%. Net earned revenue
increased at a smaller percentage than engineering fees as a result of the
percentage increase in direct expenses being greater than the percentage
increase in engineering fees. Direct expenses consist of out-of-pocket expenses
related to the delivery of services such as blueprints, reproductions,
CADD/computer charges, and travel and subcontractor expenses. Direct expenses
were $36.5 million during 2001 as compared to $29.4 during 2000, representing an
increase of 24.2%. Direct expenses, as a percentage of net earned revenue was
39.9% in 2001 as compared to 38.1% in 2000. The increase in direct expenses and
direct expenses as a percentage of net earned revenue is due to the increased
use of sub-consultants as a result of the significant growth in engineering
fees. Higher engineering fees discussed above, offset by increased
sub-consultant expenses, were the primary contributors for the overall 2001
increase compared to 2000.
Reported operating income was $9.8 million in 2001 as compared to $8.6
million in 2000, representing an increase of 14.2%. The increase in operating
income is due to higher volumes from continued strength in the transportation
services market, engineering fees from new projects and good cost control. Costs
and expenses consist of direct salaries that are chargeable to clients and
general and administrative expenses. Direct salaries increased at a lesser rate
than the increase in engineering fees due to an extremely competitive hiring
atmosphere in the industry. Therefore, additional labor required to support our
internal growth was supplied through the use of sub-consultants, or direct
expenses. The
17
increase in general and administrative expenses, which was directly related to
the increase in direct salaries and engineering fees, was primarily due to
annual increases in pay rates, increases in the accrual of insurance expenses
relating to our medical plan and increases in expenses related to office
relocations and building/equipment costs associated with those moves. Operating
income as a percentage of net earned revenue was 10.7% in 2001 as compared to
11.1% in 2000. The slight decrease in operating income as a percentage of net
earned revenue is a result of an adjustment made during the third quarter of
fiscal year 2000 to the total allowance for doubtful accounts. Due to improved
collections during fiscal year 2000, the total allowance for doubtful accounts
decreased approximately $2.6 million, from $4.9 million at September 30, 1999 to
$2.3 million at September 30, 2000. This segment's allocation from the
adjustment in the allowance for doubtful accounts approximated $962,000.
Operating income in 2000, without this adjustment, would have been $7.6 million
instead of $8.6 million, thereby making operating income as a percentage of net
earned revenue 9.8% instead of 11.1% during 2000. Therefore, excluding the
adjustment made in 2000, operating income as a percentage of net earned revenue
increased from 9.8% in 2000 to 10.7% in 2001.
2000 Compared to 1999
- ---------------------
Engineering fees of $106.6 million for 2000 increased 21.9% as compared
to 1999. Higher volumes from continued strength in the transportation services
market and engineering fees from new projects were the primary contributors to
this increase during 2000.
Reported net earned revenue was $77.2 million during 2000 as compared
to $65.1 million in 1999, representing an increase of 18.6%. Direct expenses
consist of out-of-pocket expenses related to the delivery of services such as
blueprints, reproductions, CADD/computer charges, and travel and subcontractor
expenses. Direct expenses, as a percentage of net earned revenue was 38.1% in
2000 as compared to 34.3% in 1999. The increase in direct expenses and direct
expenses as a percentage of net earned revenue is due to the increased use of
subconsultants as a result of the significant growth in engineering fees. Higher
engineering fees discussed above offset by increased subconsultant expenses were
the primary contributors for the overall 2000 increase compared to 1999.
Reported operating income was $8.6 million in 2000 as compared to $3.3
million in 1999, representing an increase of 157.9%. Operating income as a
percentage of net earned revenue was 11.1% in 2000 as compared to 5.1% in 1999.
The increase in operating income and operating income as a percentage of net
earned revenue is due to improved operating efficiencies, a more accurate method
of allocating general and administrative costs and improved collections,
allowing for a reduction in the allowance for doubtful accounts. Operating
efficiencies were obtained due to our ability during fiscal 2000 to obtain
significant revenue growth without incurring the same level of direct salaries
and general and administrative expenses. Direct salaries increased due to
additional staff required to support our internal growth, while the increase in
general and administrative expenses increased primarily due to annual increases
in pay rates and an accrual of bonuses and insurance expenses relating to our
medical plan. Under the old method of general and administrative cost
allocation, operating income would have been $3.2 million less. Due to improved
collections during fiscal year 2000, our total allowance for doubtful accounts
decreased approximately $2.6 million, from $4.9 million at September 30, 1999 to
$2.3 million at September 30, 2000. This segment's allocation from the
adjustment in the allowance for doubtful accounts approximated $962,000, or
18.4% of the 157.9% increase in operating income in 2000.
18
Civil Engineering
- -----------------
2001 % Change 2000 % Change 1999
------ -------- ------ -------- ----
(Dollars in Thousands)
Engineering Fees................... $70,104 1.6% $69,026 5.6% $65,336
Direct Expenses.................... 14,022 -9.0 15,406 11.3 13,840
Net Earned Revenue................. 56,082 4.6 53,620 4.1 51,496
Costs and Expenses................. 55,987 2.7 54,514 11.7 48,813
Operating Income (Loss)............ $ 95 110.6% ($ 894) -133.3% $ 2,683
2001 Compared To 2000
- ---------------------
Engineering fees of $70.1 million for 2001 increased 1.6% as compared
to 2000. The smaller than usual increase is directly related to the slowdown in
the economy since late 2000. Civil engineering clients are typically private
sector clients. Therefore, they tend to be affected by the fluctuations in the
economy more than the public sector clients associated with our other segments.
Reported net earned revenue was $56.1 million during 2001 as compared
to $53.6 million in 2000, representing an increase of 4.6%. Net earned revenue
increased at a greater rate than engineering fees as a result of the reduction
in the use of sub-consultants due to the slowdown in the economy. Direct
expenses consist of out-of-pocket expenses related to the delivery of services
such as blueprints, reproductions, CADD/computer charges, and travel and
subcontractor expenses. Direct expenses were $14.0 million during 2001 as
compared to $15.4 million in 2000, representing a decrease of 9.0%. Direct
expenses, as a percentage of net earned revenue decreased to 25.0% in 2001 from
28.7% in 2000. The decrease in direct expenses and direct expenses as a
percentage of net earned revenue is due to the decreased use of sub-consultants
as a result of the slowdown in the economy.
Reported operating income/(loss) was $95,000 in 2001 as compared to
($894,000) in 2000, representing an increase of 110.6%. Operating income as a
percentage of net earned revenue was 0.2% in 2001 as compared to (1.7%) in 2000.
The increase in operating income and operating income as a percentage of net
earned revenue is due to increased efficiencies and good cost control related to
direct salaries and general and administrative expenses. Costs and expenses
consist of direct salaries that are chargeable to clients and general and
administrative expenses. Direct salaries, as a percentage of net earned revenue,
decreased as a result of the downturn in the economy and improved efficiencies.
General and administrative expenses increased more than the increase in
engineering fees due in part to a significant adjustment made in 2000 to the
allowance for doubtful accounts. Due to improved collections during fiscal year
2000, the total allowance for doubtful accounts decreased approximately $2.6
million, from $4.9 million at September 30, 1999 to $2.3 million at September
30, 2000. This segment's allocation from the adjustment in the allowance for
doubtful accounts approximated $806,000. Operating income in 2000, without this
adjustment, would have been ($1.7) million instead of ($894,000), thereby making
operating income as a percentage of net earned revenue (3.2%) instead of (1.7%)
during 2000. Therefore, excluding the adjustment made in 2000, operating income
as a percentage of net earned revenue increased from (3.2%) in 2000 to 0.2% in
2001. In addition, general and administrative expenses increased during
19
2001 due to annual increases in pay rates, increases in the accrual of insurance
expenses relating to our medical plan and increases in expenses related to
office relocations and building/equipment costs associated with those moves.
2000 Compared To 1999
- ---------------------
Engineering fees of $69.0 million for 2000 increased 5.6% as compared
to 1999. Higher volume in the civil engineering market was the primary reason
for the increase during 2000.
Reported net earned revenue was $53.6 million during 2000 as compared
to $51.5 million in 1999, representing an increase of 4.1%. Direct expenses
consist of out-of-pocket expenses related to the delivery of services such as
blueprints, reproductions, CADD/computer charges, and travel and subcontractor
expenses. Direct expenses, as a percentage of net earned revenue increased to
28.7% in 2000 from 26.9% in 1999. The increase in direct expenses and direct
expenses as a percentage of net earned revenue is due to the increased use of
sub-consultants related to the significant growth in engineering fees. Higher
engineering fees discussed above offset by increased sub-consultant expenses
were the primary contributors for the overall 2000 increase compared to 1999.
Reported operating (loss)/ income was ($894,000) million in 2000 as
compared to $2.7 million in 1999, representing a decrease of 133.3%. Operating
income as a percentage of net earned revenue was (1.6%) in 2000 as compared to
5.2% in 1999. The decrease in operating income and operating income as a
percentage of net earned revenue is due primarily to expenses increasing at
higher rates than the engineering fees. The remaining decrease in operating
income is due to a more accurate method of allocating general and administrative
costs, offset by improved collections, allowing for a reduction in the allowance
for doubtful accounts. General and administrative expenses increased due to
annual increases in pay rates and an accrual of bonuses and insurance expenses
relating to our medical plan. Under the old method of general and administrative
cost allocation, operating income would have been $2.6 million higher. Due to
improved collections during fiscal year 2000, our total allowance for doubtful
accounts decreased approximately $2.6 million, from $4.9 million at September
30, 1999 to $2.3 million at September 30, 2000. This segment's allocation from
the adjustment in the allowance for doubtful accounts approximated $806,000,
improving the change in operating income during 2000 from -155.9% to -133.3%.
Environmental
- -------------
2001 % Change 2000 % Change 1999
------ -------- ------ -------- ----
(Dollars in Thousands)
Engineering Fees................... $75,676 43.4% $52,757 -13.9% $61,278
Direct Expenses.................... 16,025 45.9 10,987 -26.8 15,009
Net Earned Revenue................. 59,651 42.8 41,770 -9.7 46,269
Costs and Expenses................. 54,977 38.0 39,852 -10.0 44,257
Operating Income................... $ 4,674 143.7% $ 1,918 -4.7% $ 2,012
20
2001 Compared To 2000
- ---------------------
Engineering fees of $75.7 million for 2001 increased 43.4% as compared to
2000. Higher volumes from renewed strength in the environmental services market
and engineering fees from new projects were the primary contributors to this
increase during 2001. The two biggest contributors to this segment's higher
volumes and new projects were the acquisition of J. Powell and Associates on
January 1, 2001 and the increase in the number of Federal jobs, specifically the
work with the Federal Emergency Management Agency (FEMA). The acquisition of J.
Powell and Associates contributed to more than 25% of the increase and FEMA
contributed to approximately 50% of the increase.
Reported net earned revenue was $59.7 million during 2001 as compared to
$41.8 million in 2000, representing an increase of 42.8%. Net earned revenue
increased at a slightly smaller percentage than engineering fees as a result of
the percentage increase in direct expenses being greater than the percentage
increase in engineering fees. Direct expenses consist of out-of-pocket expenses
related to the delivery of services such as blueprints, reproductions,
CADD/computer charges, and travel and subcontractor expenses. Direct expenses
were $16.0 million during 2001 as compared to $11.0 million for 2000,
representing an increase of 45.9%. Direct expenses, as a percentage of net
earned revenue was 26.9% in 2001 as compared to 26.3% in 2000. The increase in
direct expenses and direct expenses as a percentage of net earned revenue is due
to the increased use of sub-consultants as a result of the significant growth in
engineering fees within this segment.
Reported operating income was $4.7 million in 2001 as compared to $1.9
million in 2000, representing an increase of 143.7%. Operating income as a
percentage of net earned revenue was 7.8% in 2001 as compared to 4.6% in 2000.
The increase in operating income and operating income as a percentage of net
earned revenue is due to the acquisition of J. Powell and Associates, internal
growth and good cost control within this segment. Costs and expenses consist of
direct salaries that are chargeable to clients and general and administrative
expenses. Direct salaries increased at a lesser rate than the increase in
engineering fees due to an extremely competitive hiring atmosphere in the
industry, causing employees to be more efficient and productive. Additional
labor required to support our internal growth was supplied through the use of
sub-consultants, or direct expenses. General and administrative expenses
increased primarily due to annual increases in pay rates, increases in the
accrual of insurance expenses related to our medical plan and increases in
expenses related to office relocations and building/equipment costs associated
with those moves. Additionally, due to improved collections during fiscal year
2000, our total allowance for doubtful accounts decreased during that year
approximately $2.6 million, from $4.9 million at September 30, 1999 to $2.3
million at September 30, 2000. This segment's allocation from the adjustment
made during 2000 reduced general and administrative expenses by approximately
$598,000 during fiscal year 2000. Operating income in 2000, without this
adjustment, would have been $1.3 million instead of $1.9 million, thereby making
operating income as a percentage of net earned revenue 3.2% instead of 4.6%
during 2000. Therefore, excluding the adjustment made in 2000, operating income
as a percentage of net earned revenue increased from 3.2% in 2000 to 7.8% in
2001.
2000 Compared To 1999
- ---------------------
Engineering fees of $52.8 million for 2000 decreased 13.9% as compared to
1999 as a result of a lack of growth, as the segment was unable to obtain a
significant amount of new projects during 2000.
Reported net earned revenue was $41.8 million during 2000 as compared to
$46.3 million in 1999, representing a decrease of 9.7%. Direct expenses consist
of out-of-pocket expenses related to the delivery of services such as
blueprints, reproductions, CADD/computer charges, and travel and subcontractor
21
expenses. Direct expenses, as a percentage of net earned revenue was 26.3% in
2000 as compared to 32.4% in 1999. The decrease in direct expenses and direct
expenses as a percentage of net earned revenue is due to the decreased use of
sub-consultants as a result of lower engineering fees and the disallowance of
other expenses that were allowed in prior years. The industry has seen a trend
in some clients becoming less inclined to allow certain direct expenses to be
directly billed on the invoice, such as CADD/computer charges and travel.
Instead, these clients request to have these expenses billed as a part of our
overhead cost recovery. These terms are negotiated with each client on an
individual basis and are stated in each contract.
Reported operating income was $1.9 million in 2000 as compared to $2.0
million in 1999, representing a decrease of 4.6%. Operating income as a
percentage of net earned revenue was 4.6% in 2000 as compared to 4.3% in 1999.
The decrease in operating income is due primarily to a more accurate method of
allocating general and administrative costs, offset by improved collections,
allowing for a reduction in the allowance for doubtful accounts. Under the old
method of general and administrative cost allocation, operating income would
have been $710,000 higher. Due to improved collections during fiscal year 2000,
our total allowance for doubtful accounts decreased approximately $2.6 million,
from $4.9 million at September 30, 1999 to $2.3 million at September 30, 2000.
This segment's allocation from the adjustment in the allowance for doubtful
accounts approximated $598,000, improving the change in operating income during
2000 from -34.3% to -4.6%.
Construction Management
- -----------------------
2001 % Change 2000 % Change 1999
---- -------- ---- -------- ----
(Dollars in Thousands)
Engineering Fees................ $40,228 17.8% $34,162 25.0% $27,339
Direct Expenses................. 11,305 14.1 9,905 3.5 9,567
Net Earned Revenue.............. 28,923 19.2 24,257 36.5 17,772
Costs and Expenses.............. 25,559 23.2 20,750 23.6 16,783
Operating Income................ $ 3,364 -4.1% $ 3,507 254.6% $ 989
2001 Compared to 2000
- ---------------------
Engineering fees of $40.2 million for 2001 increased 17.8% as compared to
2000. Higher volume from renewed strength in the construction services market
and engineering fees from new projects were the primary contributors to this
increase during 2001.
Reported net earned revenue was $28.9 million during 2001 as compared to
$24.3 million in 2000, representing an increase of 19.2%. Net earned revenue
increased at a greater percentage than engineering fees during 2001 as a result
of the percentage increase in direct expenses being less than the percentage
increase in engineering fees. Direct expenses consist of out-of-pocket expenses
related to the delivery of services such as blueprints, reproductions,
CADD/computer charges, and travel and subcontractor expenses. Direct expenses
were $11.3 million during 2001 as compared to $9.9 million for the same period
in 2000, representing an
22
increase of 14.1%. The increase in direct expenses is directly related to the
increase in engineering fees. Direct expenses, as a percentage of net earned
revenue, decreased from 40.8% in 2000 to 39.1% in 2001. The decrease in direct
expenses, as a percentage of net earned revenue, is due to a decrease in sub-
consultant expenses.
Reported operating income was $3.4 million in 2001 as compared to $3.5
million in 2000, representing a decrease of 4.1%. Operating income as a
percentage of net earned revenue was 11.6% in 2001 as compared to 14.5% in 2000.
The decrease in operating income and operating income as a percentage of net
earned revenue is due to an increase in costs and expenses and an adjustment
made during the third quarter of fiscal year 2000 to the total allowance for
doubtful accounts. Costs and expenses consist of direct salaries that are
chargeable to clients and general and administrative expenses. Direct salaries
increased due to additional staff required to support our internal growth. The
increase in general and administrative expenses increased primarily because of a
first time corporate allocation charge that the Construction segment received.
Prior to October 1, 2000, the construction management business segment never
received a corporate allocation of administrative services because all of its'
administrative work was handled by its own administration personnel. However,
since the beginning of fiscal year 2001, the corporate administrative services
function began performing administrative services for the construction
management business segment, and therefore, began charging construction
management with a corporate allocation charge, just as the other three services
receive. In addition, annual increases in pay rates, increases in the accrual of
insurance expenses related to our medical plan and increases in expenses related
to office relocations and building/equipment costs associated with those moves
contributed to higher administrative costs. Due to improved collections during
fiscal year 2000, the total allowance for doubtful accounts decreased
approximately $2.6 million, from $4.9 million at September 30, 1999 to $2.3
million at September 30, 2000. This segment's allocation from the adjustment in
the allowance for doubtful accounts decreased general and administrative
expenses by approximately $234,000 during fiscal year 2000. Operating income in
2000, without this adjustment, would have been $3.3 million instead of $3.5
million, thereby making operating income as a percentage of net earned revenue
13.5% instead of 14.5% during 2000. Therefore, excluding the adjustment made in
2000, operating income as a percentage of net earned revenue decreased from
13.5% in 2000 to 11.6% in 2001 due to the increased allocation mentioned above.
2000 Compared to 1999
- ---------------------
Engineering fees of $34.2 million for 2000 increased 25.0% as compared to
1999. Higher volume and continued growth in the business were the primary
reasons for the increase during 2000.
Reported net earned revenue was $24.3 million during 2000 as compared to
$17.8 million in 1999, representing an increase of 36.5%. Direct expenses
consist of out-of-pocket expenses related to the delivery of services such as
blueprints, reproductions, CADD/computer charges, and travel and subcontractor
expenses. Direct expenses, as a percentage of net earned revenue, decreased from
53.9% in 1999 to 40.8% in 2000. The decrease in direct expenses, as a percentage
of net earned revenue, is due to a decrease in sub-consultant expenses and the
disallowance of other expenses that were allowed in prior years. The industry
has seen a trend in some clients becoming less inclined to allow certain direct
expenses to be directly billed on the invoice, such as CADD/computer charges and
travel. Instead, these clients request to have these expenses billed as a part
of our overhead cost recovery. These terms are negotiated with each client on an
individual basis and are stated in each contract.
Reported operating income was $3.5 million in 2000 as compared to $1.0 million
in 1999, representing an increase of 254.6%. Operating income as a percentage of
net earned revenue was 14.5% in 2000 as
23
compared to 5.6% in 1999. The increase in operating income and operating income
as a percentage of net earned revenue is due to improved operating efficiencies,
a more accurate method of allocating general and administrative costs and
improved collections, allowing for a reduction in the allowance for doubtful
accounts. Operating efficiencies were obtained due to our ability during fiscal
2000 to obtain significant revenue growth without incurring the same level of
direct salaries and general and administrative expenses. Direct salaries
increased due to additional staff required to support our internal growth, while
the increase in general and administrative expenses increased primarily due to
annual increases in pay rates and an accrual of bonuses and insurance expenses
relating to our medical plan. Under the old method of general and administrative
cost allocation, operating income would have been $1.8 million less. Due to
improved collections during fiscal year 2000, our total allowance for doubtful
accounts decreased approximately $2.6 million, from $4.9 million at September
30, 1999 to $2.3 million at September 30, 2000. This segment's allocation from
the adjustment in the allowance for doubtful accounts approximated $234,000, or
9.3% of the 254.6% increase in operating income in 2000.
Consolidated Results
Other income (expenses):
Other income and expenses primarily consists of interest and dividend
income and interest expense. Other income (expenses) was ($556,000),
($2,003,000) and ($54,000) for fiscal years 2001, 2000 and 1999, respectively.
This increase is directly related to an increase in rental income during 2001
and a real estate commission received during 2001 for subletting the Company's
Houston office. Also, in fiscal year 2000, an investment loss was recognized on
the sale of investments. At September 30, 2000, the fair value of our
investments in marketable securities, all of which were classified as available-
for-sale, was approximately $451,000 as compared to approximately $3.9 million
at September 30, 1999. This decrease was due to a significant impairment in the
value of the common stock that we hold in our portfolio, from $344,000 at
September 30, 1999 to $41,000 at September 30, 2000, combined with the sale of
over 90% of our mutual fund portfolio during 2000 at a loss of $981,000. There
were no factors present at September 30, 1999 indicating such a significant
impairment of value for the mutual fund and common stock investments. For the
mutual fund portfolio, the net asset value fluctuated during fiscal year 1999
due to the volatility of the stock market. For the common stock investment,
subsequent to September 30, 1999, the investee company reported that it would
restate the prior year's financial statements following an internal review of
revenue recognition for cost-of-completion contracts. The impairment of the
common stock was recorded in fiscal 2000, resulting in a cost basis that equals
the fair market value of the investments at September 30, 2000.
Net Income:
Net income was $12.5 million, $10.5 million and $5.4 million for fiscal
2001, 2000 and 1999, respectively. The percentage of net income to net earned
revenue was 5.3%, 5.4% and 3.0% in fiscal 2001, 2000 and 1999. The 19.5%
increase in net income during fiscal 2001 was a result of (1) internal direct
labor growth, (2) the acquisition of J. Powell and Associates and (3) a research
and development tax credit that reduced our provision for income taxes. The
reduction in the provision for income taxes is due to an estimated $1.9 million
research and development tax credit, net of tax effects, to be received in 2001.
The 92.6% increase in fiscal 2000 was a result of (1) internal growth, (2) good
economic conditions, (3) improved efficiencies and (4) a research and
development tax credit that reduced our provision for income taxes from $3.5
million in 1999 to $589,000 in 2000.
24
Liquidity and Capital Resources
Cash Flow From Operating Activities
In fiscal 2001, net cash provided by operating activities totaled $19.0
million as compared to $26.9 million in 2000. The significant decrease is
primarily a result of the increase in accounts receivable and the increase in
accounts payable, offset by an increase in the provision for deferred income
taxes . Fluctuations in accounts payable are related to direct expenses, where
the timing of payment to subcontractors is directly related to the collection of
related receivables.
Net income of $12.5 million for fiscal 2001 was 19.5% greater than net
income of $10.5 million for fiscal 2000 due to the growth in engineering fees.
The increase in engineering fees resulted from internal direct labor growth and
the acquisition of J. Powell and Associates in California. Pursuant to the terms
of our credit agreement, we cannot declare or pay dividends in excess of 50% of
our net income. We have not in the past paid cash dividends on our common stock
and have no present intention of paying cash dividends on our common stock in
the foreseeable future. All earnings are retained for investment in our
business.
In fiscal 2000, net cash provided by operating activities totaled $26.9
million as compared to net cash used in operating activities of $522,000 in
fiscal 1999. The significant change is a result of increases in net income and
accounts payable, offset by a decrease in deferred income taxes. The increase in
accounts payable is due to increased growth in the business, accruals for
incentive bonuses that used to be paid out before the end of the fiscal year and
higher medical expenses for our medical program.
Net income of $10.5 million for fiscal 2000 was 92.6% greater than net
income of $5.4 million for fiscal 1999 due to the growth in engineering fees
being greater than the growth in direct and indirect expenses. In addition, the
provision for income taxes was 83.2% less in fiscal 2000 than in fiscal 1999 as
a result of tax credits.
Approximately 90% of our revenues are billed on a monthly basis. The
remaining amounts are billed when we reach certain stages of completion as
specified in the contract. Payment terms for accounts receivable and unbilled
fees, when billed, are net 30 days. The unbilled fees account decreased $2.0
million, from $27.8 million at September 30, 2000 to $25.8 million at September
30, 2001. The decrease is related to improved efficiencies in the Company's
billings, including electronic billings to some State and Federal clients, which
leads to quicker receipt of payments. During 2000, unbilled fees increased $2.5
million from $25.3 million at September 30, 1999 to $27.8 million at September
30, 2000. The increase in unbilled fees during 2000 is directly related to the
increase in engineering fees. The number of days outstanding for unbilled fees
was 30 days, 39 days and 38 days at September 30, 2001, 2000 and 1999,
respectively. By comparison, according to PSMJ Resources, Inc., the average days
outstanding for unbilled fees for design firms of comparable size was 27.5 days
in 2001 and 32.8 days in 2000.
The allowance for doubtful accounts decreased from $2.3 million at
September 30, 2000 to $2.2 million at September 30, 2001. The decrease in the
allowance during 2001 was due to improved collections of our accounts receivable
balances over 90 days, which decreased 23.4% from $6.4 million at September 30,
2000 to $4.9 million at September 30, 2001. During fiscal year 2000, the
allowance for doubtful accounts decreased approximately $2.6 million from $4.9
million at September 30, 2000 to $2.3 million at September 30, 2001. The number
of days sales outstanding for accounts receivable was approximately 49 days, 53
days and 54 days at September 30, 2001, 2000 and 1999, respectively. By
comparison, according to PSMJ Resources, Inc. the average days sales accounts
receivables for design
25
firms of comparable size to us was 69.8 days in 2001 and 67.4 days in 2000.
During fiscal year 2000, the allowance was reduced due to improved collections
of our accounts receivable balances over 90 days, which decreased 37.3% from
$10.2 million at September 30, 1999 to $6.4 million at September 30, 2000. This
improvement relates to a decrease in our international activity and better
collections of international project revenue
Cash Flow from Investing Activities
Net cash used in investing activities was $15.1 million in fiscal 2001 as
compared to $12.8 million in fiscal 2000. The increase in the use of cash for
investing activities is due to the acquisition of J. Powell and Associates
during 2001 and the sale of marketable securities during fiscal year 2000 and
not in 2001. Net cash used in fiscal 1999 was $7.0 million, comprised
principally of purchases of property and equipment.
Cash Flow from Financing Activities
Net cash used in financing activities for fiscal 2001 was $4.1 million, as
compared to net cash used in financing activities of $13.9 million in fiscal
2000. The change is attributable to increased borrowings related to the
financing of our new office building in Maitland, Florida, increased borrowings
under the line of credit, increased proceeds from the sale of stock and the
decrease in bank overdrafts during 2001.
Net cash used in financing activities for fiscal 2000 was $13.9 million, as
compared to net cash provided by financing activities of $5.7 million in 1999.
The increase in cash used in financing activities is attributable to a smaller
amount of proceeds from the issuance of our stock, combined with the reduction
in the bank overdraft, repayment of borrowings and purchase of our stock. Stock
purchases by employees decreased significantly for the year ended September 30,
2000 due to two items: (i) a reduced number of shares offered and (ii) employees
not being able to purchase stock through our Profit Sharing Plan as was allowed
in the previous year. Bank overdrafts decreased due to the improved cash flow
from operations. The increase in repayment of borrowings is due to the payoff of
the Company's mortgage note.
Capital Resources
On June 30, 1999, we entered into a new revolving line of credit agreement.
The new revolving line of credit increased the availability of funds from $12
million to $37 million. The expiration of the new revolving line of credit is
June 30, 2002. The interest rate on the revolving line of credit ranges from
LIBOR plus 50 basis points to prime minus 125 basis points if our funded debt
average ratio is less than 2.5 (3.13%, 7.12% and 5.87%) at September 30, 2001,
2000 and 1999, respectively. The range increases to LIBOR plus 75 basis points
to prime minus 100 basis points if our funded debt coverage ratio is between 2.5
and 3.0. As of September 30, 2001, we had $0 million outstanding under the
revolving line of credit, which accrued interest at an effective rate of 3.13%
for the fiscal year ended September 30, 2001. By comparison, on September 30,
2000, we had $7.8 million outstanding under the revolving line of credit, which
accrued interest at an effective rate of 7.12% for the year ended September 30,
2000.
On June 30, 1999, we also consolidated our term loans. The new term loan
matures on July 31, 2002, and principal is amortized in annual installments of
$2.0 million. Interest on the term loan is either LIBOR plus 75 basis points or
prime minus 100 basis points. As of September 30, 2001, we had $2.0 million
outstanding under the term loan, a $2.0 million decrease from September 30,
2000. For the fiscal year ended September 30, 2001, the effective interest rate
on the term loan was 3.38% as compared to
26
7.37% for the year ended September 30, 2000. The revolving line of credit and
term loan are collateralized by substantially all of our assets.
On March 19, 2001, we entered into a mortgage note of $9.0 million due in
monthly installments starting on April 16, 2001, with interest. Interest on the
mortgage is LIBOR plus the floating rate margin of not less than 65 basis points
and not greater than 90 basis points. A balloon payment is due on the mortgage
on March 16, 2011. For the fiscal year ended September 30, 2001, the effective
interest rate on the mortgage note was 3.28%. The mortgage note is
collateralized by our office building located in Maitland, Florida.
Pursuant to the terms of our credit agreement, we cannot declare or pay
dividends in excess of 50% of our net income.
Our capital expenditures are generally for purchases of property and
equipment. We spent $14.8 million, $15.8 million and $7.0 million on such
expenditures in fiscal years 2001, 2000 and 1999, respectively. The increase in
capital expenditures in fiscal year 2000 was a result of construction costs for
the new Maitland office building.
We believe that our existing financial resources, together with our cash
flow from operations and availability under our revolving line of credit, will
provide sufficient capital to fund our operations for fiscal 2002.
Inflation
The rate of inflation has not had a material impact on our operations.
Moreover, if inflation remains at its recent levels, it is not expected to have
a material impact on our operations for the foreseeable future.
Significant Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133
established methods of accounting for derivative financial instruments and
hedging activities related to those instruments as well as other hedging
activities. SFAS No. 133 is effective for fiscal years beginning after June 15,
2000. We adopted the new standard during fiscal 2001 and there were no
adjustments upon adoption.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101 summarizes certain areas of the Staff's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. We have adopted SAB 101 for each period presented in the
accompanying statement of operations. There are no significant adjustments
posted as a result of the adoption of SAB 101.
In June 2001, the FASB unanimously voted in favor of SFAS 141, "Business
Combinations," and SFAS 142, "Goodwill and Other Intangible Assets." SFAS 141
requires that the purchase method of accounting be used for all business
combinations completed after June 30, 2001. SFAS 141 also specifies the types of
acquired intangible assets that are required to be recognized and reported
separately from goodwill and those acquired intangible assets that are required
to be included in goodwill. SFAS 142 will
27
require that goodwill no longer be amortized, but instead tested for impairment
at least annually. SFAS 142 will also require recognized intangible assets be
amortized over their respective estimated useful lives and reviewed for
impairment in accordance with SFAS 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of." Any recognized
intangible asset determined to have an indefinite useful life will not be
amortized, but instead tested for impairment in accordance with the Standard
until its life is determined to no longer be indefinite. SFAS 141 is effective
for all business combinations initiated after June 30, 2001, while the
provisions of SFAS 142 are effective for fiscal years beginning after December
15, 2001, and are effective for interim periods in the initial year of adoption.
The Company is currently analyzing the effect the adoption of these standards
will have on its financial statements.
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets ("FAS 144") which is effective for fiscal years
beginning after December 15, 2001. FAS 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and establishes a
single accounting model, based on the framework established in FAS 121, for long
lived assets to be disposed of by sale. The Company does not expect the adoption
of this statement to have a material impact on the Company's results of
operations or its financial position.
Quantitative and Qualitative Disclosures
about Market Risk
We believe that our exposure to market risks is minimal. We do not hold
market-risk sensitive instruments for trading purposes. We entered into one
derivative financial instrument, a swap agreement, to hedge cash flows related
to the LIBOR interest rate risk. Both at inception of the hedge and on an
ongoing basis, we assume there is no ineffectiveness in the hedging relationship
of interest rate risk involving interest-bearing debt and the interest-rate
swap. The effectiveness of the hedge is evaluated on a quarterly basis. Based on
a hypothetical 1% point increase in the period ending market interest rate as of
September 30, 2001, the change in the fair value of this liability would be
approximately $300,000. We believe this instrument will be highly effective in
the hedging of cash flows. We hold no other financial instruments or derivative
commodity instruments to hedge any market risk, nor do we currently plan to
employ them in the near future.
The interest rate on our revolving line of credit ranges from LIBOR plus 50
basis points to prime minus 125 basis points if our funded debt coverage ratio
is less than 2.5 (3.13%, 7.12% and 5.87% at September 30, 2001, 2000 and 1999,
respectively). The range increases to LIBOR plus 75 basis points to prime minus
100 basis points if our funded debt coverage ratio is between 2.5 to 3.0. The
interest rate on our term loan is either LIBOR plus 75 basis points or prime
minus 100 basis points (3.38%, 7.37% and 6.11% at September 30, 2001, 2000 and
1999, respectively). The interest rate on our mortgage note is LIBOR plus the
floating rate margin of not less than 65 basis points and not greater than 90
basis points (3.28% at September 30, 2001). The Company mitigates interest rate
risk by continually monitoring interest rates and electing the lower of the
LIBOR or prime rate option available under the line of credit or term loan. As
of September 30, 2001, the fair value of the debt is consistent with the
outstanding principal balance.
Because the interest rates under our revolving line of credit, term loan
and mortgage note are variable, to the extent that we have borrowings
outstanding, there may be market risk relating to the amount of such borrowings,
however, our exposure is minimal due to the short-term nature of these
borrowings.
28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Certified Public Accountants
To the Board of Directors and
Stockholders of The PBSJ Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, stockholders' equity and cash flows present
fairly, in all material respects, the financial position of The PBSJ Corporation
and its subsidiaries (the "Company") at September 30, 2001 and 2000, and the
results of their operations and their cash flows for each of the three years in
the period ended September 30, 2001, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
November 30, 2001
Miami, Florida
29
THE PBSJ CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share
data)
Years ended September 30,
Assets 2001 2000
- ------ ---- ----
Current Assets:
Cash and cash equivalents $ - $ 173
Marketable securities 686 451
Accounts receivable, net 46,195 38,688
Unbilled fees, net 25,776 27,805
Other current assets 1,564 3,063
-------- --------
Total current assets 74,221 70,180
Property and equipment, net 35,564 29,029
Cash surrender value of life insurance 6,209 5,116
Deferred income taxes 5,028 7,958
Other assets 7,982 8,023
-------- --------
Total assets $129,004 $120,306
======== ========
Liabilities and Stockholders' Equity
- ------------------------------------
Current Liabilities:
Accounts payable and accrued expenses 22,830 24,603
Current portion of long-term debt 2,992 2,422
Accrued vacation 5,851 4,563
Deferred income taxes 16,022 18,185
Bank overdrafts 1,773 1,655
-------- --------
Total current liabilities 49,468 51,428
Long-term debt, less current portion 9,929 10,800
Deferred compensation 6,595 5,915
Other liabilities 4,308 2,965
-------- --------
Total liabilities 70,300 71,108
-------- --------
Stockholders' Equity:
Redeemable common stock, par value $0.00067, 15,000,000 authorized, 9,265,721
and 9,479,750 shares issues and outstanding at September 30, 2001 and 2000,
respectively. Redeemable common stock had a redemption value of 6 6
$99,329 and $74,132 for the fiscal years ended September 30, 2001
and 2000, respectively.
Additional paid in capital - 1,176
Retained earnings 60,635 48,971
Accumulated other comprehensive (loss)/income (283) 36
Unearned compensation (1,654) (991)
-------- --------
Total stockholders' equity 58,704 49,198
-------- --------
Total liabilities and stockholders' equity $129,004 $120,306
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
30
THE PBSJ CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
Years ended September 30,
STATEMENT OF OPERATIONS DATA: 2001 2000 1999
---- ---- ----
Earned revenue:
Engineering fees $ 314,106 $ 262,525 $ 241,417
Direct expenses 77,890 65,695 60,780
--------- ---------- ---------
Net earned revenue 236,216 196,830 180,637
--------- ---------- ---------
Costs and expenses:
Direct salaries 86,332 73,093 66,291
General and administrative expenses 131,985 110,655 105,346
--------- ---------- ---------
Total costs and expenses 218,317 183,748 171,637
Operating income 17,899 13,082 9,000
--------- ---------- ---------
Other income (expenses):
Interest expense (1,211) (1,173) (1,162)
Other, net 655 (830) 1,108
--------- ---------- ---------
Total other expenses (556) (2,003) (54)
Income before income taxes 17,343 11,079 8,946
Provision for income taxes 4,808 589 3,500
--------- ---------- ---------
Net income $ 12,535 $ 10,490 $ 5,446
========= ========== =========
The accompanying notes are an integral part of these consolidated
financial statements.
31
THE PBSJ CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 2001, 2000 AND 1999
(in thousands, except share data)
Accumulated
Redeemable Common Stock Additional Other Total
---------------------------
Paid-in Retained Comprehensive Unearned Stockholders
Shares Amount Capital Earnings Income (Loss) Compensation Equity
----------- ---------- ---------- --------- --------------- -------------- ------------
Balance at October 1, 1998 9,966,735 $ 7 $ 5,310 $ 33,035 $ 331 $ (1,070) $ 37,613
Comprehensive income:
Net income 5,446 5,446
Unrealized loss on investments
(net of tax of $198) (752) (752)
--------
Total comprehensive income 4,694
Sale of stock 1,196,645 1 8,150 8,151
Purchase of stock (781,340) (1) (5,317) (5,318)
Note payments -
Issuance of restricted stock
net of amortization and
cancellations (15,235) 2 128 130
----------- ------- -------- -------- --------- -------- --------
Balance at September 30, 1999 10,366,805 $ 7 $ 8,145 $ 38,481 $ (421) $ (942) $ 45,270
Comprehensive income:
Net income 10,490 10,490
Unrealized gain on investments
(net of tax of $291) 457 457
----------- ------- -------- -------- --------- -------- --------
Total comprehensive income 10,947
Sale of stock 110,225 1 861 862
Purchase of stock (1,022,110) (2) (7,920) (7,922)
Issuance of restricted stock
net of amortization and
cancellations 24,830 90 (49) 41
----------- ------- -------- -------- --------- -------- --------
Balance at September 30, 2000 9,479,750 $ 6 $ 1,176 $ 48,971 $ 36 $ (991) $ 49,198
Comprehensive income:
Net income 12,535 12,535
Unrealized loss on investments (31) (31)
Unrealized loss on derivative
(net of tax of $201) (288) (288)
----------- ------- -------- -------- --------- -------- --------
Total comprehensive income 12,216
Sale of stock 353,385 3,788 3,788
Purchase of stock (647,488) (5,919) (871) (6,790)
Issuance of restricted stock
net of amortization and
cancellations 80,074 955 (663) 292
----------- ------- -------- -------- --------- -------- --------
Balance at September 30, 2001 9,265,721 $ 6 $ - $ 60,635 $ (283) $ (1,654) $ 58,704
----------- ------- -------- -------- --------- -------- --------
The accompanying notes are an integral part of these consolidated financial
statements.
NOTE: All common stock is considered redeemable.
32
THE PBSJ CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years ended September 30,
2001 2000 1999
---- ---- ----
Cash flows from operating activities:
Net income $ 12,535 $ 10,490 $ 5,446
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Realized loss (gain) on sale of investments - 981 (620)
Other - 57 131
Depreciation and amortization 8,715 7,916 6,113
Provision for bad debt and unbillable amounts 1,004 294 1,899
Provision for deferred income taxes 767 (2,875) 880
Provision for deferred compensation 680 825 33
Net investment in life insurance policies (1,093) (260) (279)
Change in operating assets and liabilities, net of
acquisitions:
(Increase) in accounts receivable (7,986) (1,374) (5,617)
Decrease (increase) in unbilled fees 2,029 (2,450) (4,292)
Decrease (increase) in other current assets 1,499 (1,510) 65
Decrease (increase) in other assets 41 (1,143) 1,217
(Decrease) increase in accounts payable and
accrued expenses (1,773) 15,594 (5,375)
Increase in accrued vacation 1,288 868 635
Increase (decrease) in other liabilities 1,343 (474) (758)
--------- --------- ---------
Net cash provided by (used in) operating
activities 19,049 26,939 (522)
--------- --------- ---------
Cash flows from investing activities:
Purchases of marketable securities 266 - (1,968)
Proceeds from sale of marketable securities - 2,940 1,636
Acquisitions, net of cash acquired (984) - -
Sale of property and equipment 360 - 350
Purchase of property and equipment (14,768) (15,769) (7,025)
--------- --------- ---------
Net cash used in investing activities (15,126) (12,829) (7,007)
--------- --------- ---------
Cash flows from financing activities:
Increase (decrease) in bank overdraft 118 (2,168) 3,823
Borrowings under line of credit 171,156 102,348 92,975
Principal payments under line of credit (178,914) (102,310) (93,345)
Principal payments under notes and mortgage
payable (2,454) (4,747) (614)
Proceeds from issuance of note payable 9,000 - -
Proceeds from sale of common stock 3,788 862 8,151
Purchase of common stock (6,790) (7,922) (5,318)
--------- --------- ---------
Net cash (used in) provided by financing
activities: (4,096) (13,937) 5,672
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents (173) 173 (1,857)
Cash and cash equivalents at beginning of year 173 - 1,857
--------- --------- ---------
Cash and cash equivalents at end of year $ - $ 173 $ -
========= ========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
33
NOTES TO FINANCIAL STATEMENTS (in thousands, except for share data)
1. Organization and Summary of Significant Accounting Policies:
Organization and Principles of Consolidation
--------------------------------------------
The consolidated financial statements include the accounts of The PBSJ
Corporation and its wholly-owned subsidiaries, Post, Buckley, Schuh &
Jernigan, Inc., a Florida corporation ("PBS&J"), PBS&J Construction
Services, Inc., Post, Buckley International, Inc., Post Buckley de Mexico,
S.A. de C.V., Seminole Development Corporation and HOH Associates, Inc.
(collectively the "Company"). All material intercompany transactions and
accounts have been eliminated in the accompanying consolidated financial
statements.
During fiscal 1999, PBS&J became the successor to Post, Buckley, Schuh &
Jernigan, Inc., a Texas corporation, Post, Buckley, Schuh & Jernigan, Inc.,
a California corporation, Post, Buckley, Schuh & Jernigan, Inc., a Nevada
corporation, Post, Buckley, Schuh & Jernigan, Inc. of Arizona, Coastal
Environmental Services, Inc., Espey, Huston & Associates, Inc., Survey
Resources, Inc., and Kercheval and Associates, Inc. (collectively "Related
Entities") through the merger of PBS&J and the Related Entities of the
Company. The acquisition of the Related Entities has been accounted for in
a manner similar to a pooling of interests since it was acquired from
companies under common control. There was no consideration given by PBS&J
for the acquisition of these Related Entities. The merger does not have an
effect on the accompanying financial statements.
Revenue Recognition
-------------------
In the course of providing its services, the Company routinely incurs
direct expenses such as subcontracts for services. In addition, the Company
also includes pass-through costs on cost plus contracts which are
customer-reimbursable materials, equipment and subcontractor costs when the
Company determines that it is responsible for engineering specification,
procurement and management of such cost components on behalf of the
customer. These direct expenses are principally passed through to the
Company's clients with minimal or no mark-up and, in accordance with
industry practice, are included in the Company's gross revenues.
Accordingly, the Company also reports net earned revenue, which is gross
revenue less direct expenses. For cost-plus and time and material
contracts, the Company reports fees earned based on actual labor multiplied
by contractual rates or multipliers. For fixed price contracts, the Company
reports fees earned on the percentage of completion basis, which includes
revenue on the basis of costs incurred to date as a percentage of the total
estimated costs.
Anticipated losses are recognized in total in the period in which they
became determinable. Accounts receivable is presented net of an allowance
for doubtful accounts of $2,207 and $2,296 at September 30, 2001 and 2000,
respectively. Unbilled fees are presented net of an allowance for estimated
unbillable amounts of $611 at September 30, 2001 and 2000.
Capital Structure
-----------------
The Company has authorized 15,000,000 shares of common stock (par value
$.00067).
On November 21, 2000, the Company's Board of Directors approved a
five-for-one stock split that was effective on February 1, 2001. The stock
split resulted in an increase in the number of authorized shares from
3,000,000 to 15,000,000. In addition, the adjusted par value and market
price of the Company's Common Stock for the fiscal year ended September 30,
2001 is $.00067 and $10.72, respectively.
34
The by-laws of the Company require the Company to redeem, at fair market
value, common stock held by shareholders who terminate employment with the
Company. Other than agreements with certain retired Directors as noted the
in Proxy, as of September 30, 2001 and 2000, there is no outstanding
redeemable common stock relating to employees no longer employed by the
Company. The redemption value of all outstanding shares for fiscal years
ended September 30, 2001 and 2000 was $99,329 and $74,132, respectively.
Cash and Cash Equivalents
-------------------------
Cash equivalents consist of all highly liquid investments with an original
maturity of three months or less from their dates of purchase. Cash
equivalents consist primarily of money market accounts.
Income Taxes
------------
The Company uses the liability method of accounting for income taxes. The
liability method requires the recognition of deferred tax liabilities and
assets for the expected future tax consequences of temporary differences
between tax bases and financial reporting bases of assets and liabilities.
Such differences relate, primarily, to the Company's use of the accrual
method of accounting for financial reporting purposes, and the cash method
of accounting for tax purposes.
Basic and Diluted Earnings Per Share
------------------------------------
In February of 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share". SFAS No. 128 does not require presentation of
earnings per share (EPS) for entities not currently selling their
securities in a public market or planning to sell their securities in a
public market in the future. Since the Company's securities are not
currently publicly traded or in the process of being registered to be
publicly traded in the future, no presentation has been made.
Marketable Securities
---------------------
Marketable securities consist of equity securities and mutual funds that
are considered available-for-sale and are recorded at fair value. Changes
in unrealized gains and losses for available-for-sale securities are
charged or credited as a component of accumulated other comprehensive
income, net of tax. A decline in the fair value of an available-for-sale
security below cost that is deemed other than temporary is charged to
earnings. Investment security transactions are recorded on a trade date
basis. The cost basis of investments sold is determined by the specific
identification method
Fair Value of Financial Instruments
-----------------------------------
The fair value of the Company's cash, accounts receivables, unbilled fees
and trade accounts payable approximates book value due to the short-term
maturities of these instruments. The carrying amount of marketable
securities is based on quoted market prices at the reporting date for those
investments and approximates fair value. The fair value of the Company's
debt approximates the carrying value, which was based on similar rates,
terms and maturities of existing debt as compared to current market
conditions.
In order to better manage its exposure to interest rate risk on its debt,
the Company entered into an interest rate swap agreement. Such swap
agreement, with a notional amount of $9.0 million, converts the Company's
variable interest rate on its' $9.0 million mortgage to a fixed interest
rate, thereby limiting the variance amount paid or received by the Company.
Under the terms of the Swap, the Company pays 6.28% and receives the 30-day
LIBOR. At September 30, 2001, the fair value of such derivative instrument
of $489,000 is recorded in other liabilities and as an unrealized net loss
in accumulated other comprehensive (loss)/income.
35
Goodwill
--------
Goodwill represents the difference between the purchase price and the fair
value of the net assets of acquired businesses, and is currently being
amortized on a weighted-average basis over 10 to 20 years. A change in
accounting estimate was made effective October 1, 1999, to change the
maximum useful life of goodwill from 40 years to 20 years. The increase in
amortization expense due to this change was $425 for the year ended
September 30, 2000. Amortization expense relating to goodwill amounted to
$439, $656, $201 for the years ended September 30, 2001, 2000 and 1999,
respectively. The Company evaluates the realizability of goodwill based
upon undiscounted forecasted operating earnings over the remaining
amortization period for each investment having a significant goodwill
balance. If an impairment in the value of the goodwill were to occur, the
Company would reflect the impairment through a reduction in the carrying
value of the goodwill based upon the estimated fair value of the
investment. Management believes that no impairment of goodwill exists at
September 30, 2001.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Such estimates include the allowance for
doubtful accounts, unbilled fees, and reserve for litigation. Actual
results could differ from those estimates.
Stock Based Compensation
------------------------
Non-vested, restricted stock awarded to certain employees is measured at
the estimated fair value of the stock at the grant date.
Property and Equipment
----------------------
Property and equipment are stated at cost. Major renewals and improvements
are capitalized, while repairs and maintenance are expensed as incurred.
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets.
Leasehold improvements are amortized over the shorter of the terms of the
leases or their estimated useful lives. Cost and accumulated depreciation
of property and equipment retired or sold are eliminated from the accounts
at the time of retirement or sale and the resulting gain or loss is
recorded in income.
Concentrations of Credit Risk
-----------------------------
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of cash, accounts
receivable and unbilled fees. The Company places its cash with high credit
quality financial institutions. At times, such amounts may be in excess of
the FDIC insurance limits.
Work performed for governmental entities accounted for approximately 71%,
69% and 66% of engineering fees for the years ended September 30, 2001,
2000 and 1999. For the years ended September 30, 2001, 2000 and 1999,
approximately 19%, 17% and 15%, respectively, of earned revenue was derived
from various districts of the Florida Department of Transportation (FDOT)
under numerous contracts. While the loss of any individual contract would
not have a material adverse effect on our results of operations and would
not adversely impact the Company's ability to continue work under other
contracts with the FDOT, the loss of all the FDOT contracts could have a
material adverse effect on results of operations. Ongoing credit
evaluations of customers are performed and generally no collateral is
required. The Company provides an allowance for doubtful accounts based
upon factors surrounding the credit risk of specific customers, historical
trends and other information. Actual losses have historically been within
management's expectations and estimates.
36
Comprehensive Income
--------------------
In 1999, the Company implemented Statement of Financial Accounting
Standards No. 130 ("SFAS No. 130"), "Reporting Comprehensive Income," which
establishes standards for the reporting and display of comprehensive income
and its components in a full set of general purpose financial statements.
This statement requires that an enterprise (a) classify items of other
comprehensive income, such as unrealized holding gains and losses on
investments, 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 equity section of
the balance sheet. The components of accumulated other comprehensive
(loss)/income was as follows for the years ended September 30, 2001, 2000
and 1999:
September 30
---------------------------------
2001 2000 1999
---- ---- ----
Unrealized (loss) gain on investments:
Holding loss arising during period, net of tax ($ 31) ($524) ($132)
Reclassification adjustment, net of tax - 981 (620)
Holding loss on interest rate swap agreement, net of tax (288) - -
----- ----- -----
Net (loss) gain recognized in other comprehensive
income, net of tax ($319) $457 ($752)
===== ==== =====
Recent Accounting Pronouncements
--------------------------------
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"). SAB 101 summarizes certain areas of the Staff's views in
applying generally accepted accounting principles to revenue recognition in
financial statements. The Company has adopted SAB 101 for each period
presented in the accompanying statement of operations. There are no
significant adjustments posted as a result of the adoption of SAB 101.
In June 2001, the FASB unanimously voted in favor of SFAS 141, "Business
Combinations," and SFAS 142, "Goodwill and Other Intangible Assets." SFAS
141 requires that the purchase method of accounting be used for all
business combinations completed after June 30, 2001. SFAS 141 also
specifies the types of acquired intangible assets that are required to be
recognized and reported separately from goodwill and those acquired
intangible assets that are required to be included in goodwill. SFAS 142
will require that goodwill no longer be amortized, but instead tested for
impairment at least annually. SFAS 142 will also require recognized
intangible assets be amortized over their respective estimated useful lives
and reviewed for impairment in accordance with SFAS 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of." Any recognized intangible asset determined to have an
indefinite useful life will not be amortized, but instead tested for
impairment in accordance with the Standard until its life is determined to
no longer be indefinite. SFAS 141 is effective for all business
combinations initiated after June 30, 2001, while the provisions of SFAS
142 are effective for fiscal years beginning after December 15, 2001, and
are effective for interim periods in the initial year of adoption. The
Company is currently analyzing the effect the adoption of these standards
will have on its financial statements.
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets ("FAS 144") which is effective for fiscal
years beginning after December 15, 2001. FAS 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived
assets and establishes a single accounting model, based on the framework
established in FAS 121, for long lived assets to be disposed of by sale.
The Company does not expect the adoption of this statement to have a
material impact on the Company's results of operations or its financial
position.
37
Derivative Instruments and Hedging Activities
---------------------------------------------
In June 1998, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS 133 is effective for all fiscal years beginning after
June 15, 2000. Additionally, in June 2000, the FASB issued Statement No.
138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities - an amendment of FASB Statement No. 133," which needs to be
adopted concurrently with Statement 133. The Company adopted SFAS 133 and
138 as of October 1, 2000.
SFAS 133 requires that all derivative instruments be recorded on the
balance sheet at fair value and that changes in the fair value of the
derivative instruments, designated as cash flow hedges, be recorded in
accumulated other comprehensive income/(loss) (AOCI). The gains and losses
accumulated in AOCI will then be reclassified to earnings in the same
period or periods in which the hedged cash flows affect earnings.
On March 8, 2001, the Company entered into a cash flow hedge. The fair
value of the derivative instrument is recorded in other liabilities at
September 30, 2001, and approximated $489,000. This amount, which has been
deferred to AOCI, will be reclassified to other (expenses) income over the
next five years, the term of the derivative instrument.
2. Marketable Securities:
At September 30, 2001 and 2000, the Company held investments in marketable
securities classified as available-for-sale, which consisted of mutual
funds and equity securities. Available-for-sale securities at September 30,
2001 and 2000 consisted of the following:
Fair Unrealized
Cost Value (Loss) / Gain
---- ----- -------------
September 30, 2001
Mutual funds $ 547 $ 671 $ 124
Common stock 41 15 (26)
------- -------- -------
Total $ 588 $ 686 $ 98
======= ======== =======
September 30, 2000
Mutual funds $ 281 $ 410 $ 129
Common stock 41 41 0
------- ------- -------
Total $ 322 $ 451 $ 129
======= ======= =======
3. Property and Equipment:
Property and equipment consisted of the following:
Estimated September 30,
---------------------
Useful Lives 2001 2000
----------------- --------- ---------
Land - $ 2,226 $ 2,226
Building and building improvements 10 to 40 years 14,845 11,117
Furniture and equipment 5 to 7 years 34,933 34,029
Computer equipment under capital lease 3 years 1,786 1,786
Vehicles 3 years 3,017 3,113
Leasehold improvements 10 years 8,218 6,173
---------- ----------
65,025 58,444
Less accumulated depreciation and amortization (29,461) (29,415)
---------- ----------
$ 35,564 $ 29,029
========== ==========
38
Depreciation and amortization expense relating to property and equipment
amounted to $8,276, $7,916 and $5,908 for the years ended September 30,
2001, 2000 and 1999, respectively. Our capital expenditures amounted to
$14.8 and $15.8 million during fiscal years 2001 and 2000. The capital
expenditures during fiscal year 2000 and 2001 included leasehold
improvements related to several office relocations, information technology
purchases and construction costs for the new Orlando office building.
Accumulated depreciation related to the computer equipment amounted to
$1,017 and $893 at September 30, 2001 and 2000, respectively.
4. Acquisition:
The Company acquired certain assets from J. Powell and Associates on
January 1, 2001 for $2.2 million less the amount of J. Powell's accrued
vacation at January 1, 2001. The assets acquired include fixed assets,
goodwill of the trade name and deposits on leased properties. The
acquisition of these assets contributes to the Company's goal of increasing
its presence in the Western region. J. Powell's areas of specialty included
civil engineering, environmental engineering and construction management in
both the private and public sectors. The acquisition is accounted for using
the purchase method of accounting, and the results of operations are
included from the respective date of acquisition, which is January 1, 2001.
39
5. Income Taxes:
Provisions for income taxes consisted of the following:
Years Ended September 30,
----------------------------------------
2001 2000 1999
------- -------- -------
Current $ 4,041 $ 3,464 $ -
Deferred 767 (2,875) 3,500
-------- -------- --------
Total provision $ 4,808 $ 589 $ 3,500
======== ======== ========
Included in the 2001, 2000 and 1999 provisions for income taxes are
deferred state taxes of $85, $261 and $581, respectively. The current
portion of state taxes was $985, $838 and $0 for the years ended September
30, 2001, 2000 and 1999, respectively. A reconciliation of the income tax
provision to taxes computed at the U.S. federal statutory rate is as
follows:
2001 2000 1999
------- ------- ------
U.S. Statutory Rate 35.0% 35.0% 35.0%
Federal Tax Credits (11.1) (35.5) 0.0
State Taxes, net of Federal Tax Benefit 3.9 3.9 3.9
Nondeductible Expenses 1.9 3.9 0.2
Other (2.0) (2.0) 0.0
--------- -------- -------
Effective tax rate 27.7% 5.3% 39.1%
========= ======== =======
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities consisted
of the following:
September 30,
---------------------------
2001 2000
-------- ---------
Deferred tax liabilities:
Accounts receivable $18,040 $14,435
Unbilled fees 10,028 10,816
Depreciation 2,122 1,381
Other 608 1,192
--------- --------
Gross deferred tax liabilities 30,798 27,824
--------- --------
Deferred tax assets:
Accounts payable and accrued expenses (13,979) (11,019)
Compensation (338) (588)
Federal tax credit carryforwards (6,277) (5,885)
Deferred credits (2,565) (2,301)
Other liabilities (1,676) (1,153)
--------- --------
Gross deferred tax assets (24,835) (20,946)
Valuation allowance of deferred tax asset 4,830 3,349
--------- --------
Net deferred tax assets $20,005 $17,597
--------- --------
Net deferred tax liabilities $10,793 $10,227
========== ==========
The Company has research and development tax credit carryforwards of
approximately $6.3 million as of September 30, 2001, which expire beginning
2017-2021. Valuation allowances of $4.8 and $3.3 million at September 30,
2001 and 2000, respectively, have been provided for tax credit
carryforwards that, in the opinion of management, may not be realized.
40
6. Deferred Compensation Plans:
The Company maintains deferred compensation/consulting plans, which cover
certain present key officers and employees and provides for payments upon
retirement, death, or disability. The contracts fixed a minimum level for
retirement benefits to be paid to participants based on age at retirement
with the Company. The deferred compensation plans are funded through life
insurance and are being provided for currently. Total annual cash surrender
value increase for the years ended September 30, 2001, 2000 and 1999 for
the plans amounted to $1,093, $260 and $279, respectively. Total
compensation expense, included in general and administrative expenses,
relating to the plans amounted to $1,039, $959 and $566 in fiscal years
2001, 2000 and 1999, respectively.
7. Employee Benefit Plan:
The Company has a qualified contributory profit-sharing and employee stock
ownership plan (the "Plan") providing benefits for all eligible employees.
During 1999, the Plan was amended to include an employer matching
contribution up to 3% of the participants' eligible compensation. Prior to
1999, the Plan included an employer matching contribution, equal to 1% of
the participants' eligible compensation. The Company's matching
contribution was $2,630, $2,377 and $1,831 for the years ended September
30, 2001, 2000 and 1999, respectively. In addition, the Company accrued an
additional $1,000, $700 and $400 at September 30, 2001, 2000 and 1999,
respectively, as discretionary contributions to the profit sharing plan.
8. Restricted Stock:
Restricted stock is offered to existing employees, which are subject to
restrictions on transfer, and risk of forfeiture until earned by continued
employment. The restricted stock is subject to total forfeiture if the
employee ceases to be employed prior to the maturity date of the restricted
stock, except in certain limited circumstances described in the individual
restricted stock award agreement. During the restriction period, holders
have the rights of shareholders, including the right to vote, but cannot
transfer ownership. Restricted stock is recorded at fair value on the date
of issuance. The stock vests over the service period, which is usually 5
years. The issuance of restricted stock gives rise to unearned compensation
that is amortized over the vesting period. Through September 30, 2001 and
2000, 577,014 and 482,165 shares of restricted stock have been issued, of
which 118,675 and 87,965 shares had vested or had been canceled. Unearned
compensation is shown as a reduction of stockholders' equity. The total
amount of compensation expense recognized under these agreements during
2001, 2000 and 1999 was $246, $181 and $280, respectively.
41
9. Long Term Debt: September 30,
2001 2000
--------- ---------
Line of credit unused availability of $37,000,
and $29,242 at September 30, 2001 and 2000,
respectively. $ - $ 7,758
Mortgage note payable due in monthly installments
starting on April 16, 2001, with interest,
collateralized by real property; unpaid principal
due March 16, 2011. Interest at LIBOR plus the
floating rate margin of not less than 65 basis
points and not greater than 90 basis points.
(3.28% at September 30, 2001) 8,887 -
Term loan due in annual installments of $2,000
through July 31, 2002. Interest at LIBOR plus 75
basis points or prime minus 50 basis points
(3.38% and 7.37% at September 30, 2001 and
September 30, 2000, respectively). 2,000 4,000
Notes payable to J. Powell & Associates, Inc. due in
three annual installments of $333 with interest of
7.12% through October 17, 2003. 1,000 -
Note payable to current stockholder due in semi-
annual installments with interest of 7.25% through
2002. 47 137
Capital lease of equipment, interest accrues at 8.3%,
collateralized by certain equipment, due in
monthly payments of principal and interest of $36. 987 1,327
--------- ----------
12,921 13,222
Less current portion 2,992 2,422
--------- ----------
$ 9,929 $10,800
========== ===========
Scheduled maturities are as follows:
2002 - $2,992; 2003 - $991; 2004 - $821; 2005 - $290 and 2006 and
thereafter - $7,827.
The expiration date on the line of credit is June 30, 2002. The interest
rate ranges from LIBOR plus 50 basis points to prime minus 125 basis points
if the Company's funded debt coverage ratio is less than 2.5 (3.13% and
7.12% at September 30, 2001 and 2000, respectively). The range increases to
LIBOR plus 75 basis points to prime minus 100 basis points if the Company's
funded debt coverage ratio is between 2.5 to 3.0. The line of credit
contains clauses requiring the maintenance of various covenants and
financial ratios.
42
10. Commitments and Contingencies:
The Company is obligated under various non-cancelable leases for office
facilities, furniture and equipment. Certain leases contain renewal
options, escalation clauses and certain other operating expenses of the
properties. In the normal course of business, leases that expire are
expected to be renewed or replaced by leases for other properties. As of
September 30, 2001, the future minimum annual rental commitments under
operating and capital leases are as follows:
Capitalized Operating
Year ending September 30 Leases Leases
------------------------ --------------- ----------------
2002 $ 438 $ 10,707
2003 438 8,152
2004 219 5,421
2005 - 4,179
2006 + - 2,407
--------- -----------
Total minimum lease payments 1,095 $ 30,866
===========
Less: amount representing interest 108
---------
Present value of minimum lease payments $ 987
=========
Total rent expense included in general and administrative expenses was
$10,784, $10,668 and $8,903 for fiscal years ended 2001, 2000 and 1999,
respectively.
The Company is involved in legal actions arising in the ordinary course of
business. The Company maintains a full range of insurance coverage,
including worker's compensation, general and professional liability
(including pollution liability) and property coverage. The Company's
insurance policies may offset the amount of loss exposure from legal
actions.
As of September 30, 2001, there were approximately 20 cases pending against
the Company, where plaintiffs allege damages resulting from the Company's
engineering services. The plaintiffs' allegations of liability in those
cases seek recovery for damages caused by the Company based on various
theories of negligence, contributory negligence or breach of contract.
As of September 30, 2001, the Company had a reserve of approximately $3.8
million for all potential and existing claims, lawsuits and pending
proceedings that, in management's opinion, are probable. The Company
expects to pay these liabilities over the next one to three years.
Management is of the opinion that the liabilities ultimately resulting from
such existing and other pending proceedings, lawsuits and claims should not
materially affect the Company's financial position, results of operations
or cash flows.
11. Supplemental Cash Flow Information:
Years ended September 30,
2001 2000 1999
---- ---- ----
Cash paid during the year for:
Interest $ 1,151 $ 1,092 $ 1,115
Income taxes 3,814 929 33
Non-cash investing activities:
Computer equipment acquired
through capital leases - - 1,786
Investments received in the
sale of fixed assets - - 618
Details of acquisition:
Fair value of assets acquired $ 244 $ - $ -
Goodwill 1,960 - -
Liabilities assumed (220) - -
-------- ------- --------
43
Cash paid 1,984 - -
Less: note payable and restricted stock to seller (1,000) - -
------- ------- -------
Net cash paid for acquisitions $ 984 $ - $ -
======= ======= =======
12. Segment Reporting
Financial information relating to the Company's operations by service is
as follows:
Year Ended September 30, 2001
Transportation Construction Civil Environmental Total
Engineering fees $128,098 $40,228 $70,104 $75,676 $314,106
Net earned revenue 91,560 28,924 56,082 59,650 236,216
Operating income 9,766 3,364 95 4,674 17,899
Depreciation and amortization 3,531 1,109 1,932 2,086 8,658
Total assets 52,610 16,522 28,792 31,080 129,004
Capital expenditures 6,049 1,900 3,310 3,574 14,833
Year Ended September 30, 2000
Transportation Construction Civil Environmental Total
Engineering fees $106,580 $34,162 $69,026 $52,757 $262,525
Net earned revenue 77,183 24,257 53,620 41,770 196,830
Operating income 8,551 3,507 (894) 1,918 13,082
Depreciation and amortization 3,214 1,030 2,081 1,591 7,916
Total assets 48,842 15,655 31,632 24,177 120,306
Capital expenditures 6,402 2,052 4,146 3,169 15,769
Year Ended September 30, 1999
Transportation Construction Civil Environmental Total
Engineering fees $87,464 $27,339 $65,336 $61,278 $241,417
Net earned revenue 65,100 17,772 51,496 46,269 180,637
Operating income 3,316 989 2,683 2,012 9,000
Depreciation and amortization 2,262 672 1,834 1,345 6,113
Total assets 38,263 11,411 30,953 23,208 103,835
Capital expenditures 2,589 772 2,094 1,570 7,025
44
13. Allowance for Doubtful Accounts and Estimatable Unbillable Amounts
The activity in the allowance for doubtful and estimatable unbillable
amounts were as follows:
ADDITIONS
BALANCE AT CHARGED TO COSTS BALANCE AT
DESCRIPTION BEGINNING OF YEAR AND EXPENSES DEDUCTIONS END OF YEAR
----------- ------------------ ------------ ---------- -----------
YEAR ENDED SEPTEMBER 30, 2001
Allowance for doubtful accounts $2,296 $ 411 $ (500) $2,207
Allowance for estimatable unbillable amounts 611 0 0 611
--------- -------- -------- -------
$2,907 $ 411 $ (500) $2,818
========= ======== ======== =======
YEAR ENDED SEPTEMBER 30, 2000
Allowance for doubtful accounts $4,952 $ 294 $(2,950) $2,296
Allowance for estimatable unbillable amounts 611 0 0 611
--------- -------- ------- -------
$5,563 $ 294 $(2,950) $2,907
========= ======== ======= =======
YEAR ENDED SEPTEMBER 30, 1999
Allowance for doubtful accounts $4,954 $1,262 $(1,264) $4,952
Allowance for estimatable unbillable amounts 295 637 ( 321) 611
--------- -------- ------- --------
$5,249 $1,899 $(1,585) $5,563
========= ======== ======= =======
14. Quarterly Financial Data (Unaudited)
2001 2000
---------------------------------------------------------------------------------
9/30 6/30 3/31 12/31 9/30 6/30 3/31 12/31
---- ---- ---- ----- ---- ---- ---- -----
(dollars in thousands)
Operating Data:
Engineering fees $ 86,482 $ 83,494 $ 78,514 $ 65,616 $ 68,251 $ 68,122 $ 67,462 $ 58,690
Net earned revenues 64,064 62,707 59,917 49,528 50,041 50,059 51,407 45,323
Net income 4,148 3,250 3,791 1,346 4,486 2,101 2,560 1,343
45
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference from the Proxy Statement for the 2002 Annual
Meeting of Shareholders to be held January 18, 2002, a copy of which will be
filed with the Securities and Exchange Commission.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the Proxy Statement for the 2002 Annual
Meeting of Shareholders to be held January 18, 2002, a copy of which will be
filed with the Securities and Exchange Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from the Proxy Statement for the 2002 Annual
Meeting of Shareholders to be held January 18, 2002, a copy of which will be
filed with the Securities and Exchange Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the Proxy Statement for the 2002 Annual
Meeting of Shareholders to be held January 18, 2002, a copy of which will be
filed with the Securities and Exchange Commission.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following is a list of financial information filed as a part of
this Report:
(1) Consolidated Financial Statements - The following financial
statements of PBSJ Corporation and its subsidiaries are contained
in Item 8 of this Form 10-K:
1. Report of PricewaterhouseCoopers LLP, Independent Accountants.
2. Consolidated Balance Sheet at September 30, 2001 and 2000.
3. Consolidated Statement of Operations for each of the three
years in the period ended September 30, 2001.
46
4. Consolidated Statement of Stockholders' Equity at September
30, 2001, 2000 and 1999.
5. Consolidated Statement of Cash Flows for each of the three
years in the period ended September 30, 2001.
6. Notes to Consolidated Financial Statements.
(2) Financial Statement Schedules - The financial statement schedule
information is included as part of the Notes to Consolidated Financial
Statements contained in Item 8 of this Form 10-K.
(3) Exhibits including those incorporated by reference:
Exhibit
Number Description
3.1 - Articles of Incorporation, as amended (*)
3.2 - Amended and Restated Bylaws (*)
4.1 - Form of Specimen Stock Certificate (*)
10.1 - The PBSJ Employee Profit Sharing and Stock Ownership Plan and Trust
(**)
10.1a - Promissory Note previously filed as Exhibit 10.1 in Form 10Q dated
May 15, 2001; Promissory note, dated March 19, 2001, between
Suntrust Bank, a Georgia corporation, and Post, Buckley, Schuh &
Jernigan, Inc., the Registrant's subsidiary
10.2 - Supplemental Income Plan effective as of January 12, 1988 (*)
10.2a - Mortgage Security Agreement previously filed as Exhibit 10.2 in Form
10Q dated May 15, 2001; Agreement, dated March 19, 2001, between
Suntrust Bank, a Georgia corporation, and Post Buckley, Schuh &
Jernigan, Inc., the Registrant's subsidiary.
10.3 - Consulting/Supplemental Retirement/Death Benefits Agreement, dated
November 6, 1987, between the Registrant and H. Michael Dye, as
amended on October 16, 1989, March 1, 1993, February 6, 1995, May
19, 1998 and November 22, 1999 (*)
10.3a - ISDA Master Agreement previously filed as Exhibit 10.3 in Form
10Q dated May 15, 2001; Agreement, dated March 8, 2001, between
Suntrust Bank and Post Buckley, Schuh & Jernigan, Inc., the
Registrant's subsidiary.
10.4 - Supplemental Retirement/Death Benefits Agreement, dated December
17, 1987, between the Registrant and Robert J. Paulsen (*)
10.4a - Schedule to the ISDA Master Agreement previously filed as Exhibit
10.4 in Form 10Q dated May 15, 2001; Agreement, dated March 8, 2001,
between Suntrust Bank and Post Buckley, Schuh & Jernigan, Inc., the
Registrant's subsidiary.
10.5 - Supplemental Income Agreement, dated as of July 29, 1996, between
the Registrant and Robert J. Paulsen (*)
10.5a - Confirmation of Interest Rate Transaction previously filed as
Exhibit 10.5 in Form 10Q dated May 15, 2001; Confirmation, dated
March 9, 2001, between Suntrust Bank and Post Buckley, Schuh &
Jernigan, Inc., the Registrant's subsidiary.
10.6 - Employment/Retirement Benefits Agreement, dated February 15,
1999, between the Registrant and William W. Randolph (*)
10.7 - Supplemental Retirement/Death Benefits Agreement, dated December 17,
1987, between the Registrant and Richard A. Wickett, as amended on
April 27, 1989,
47
Exhibit
Number Description
May 19, 1998 and November 22, 1999 (*)
10.8 - Supplemental Retirement/Death Benefits Agreement dated December
17, 1987, between the Registrant and John B. Zumwalt, III, as
amended on May 19, 1998 and November 22, 1999 (*)
10.9 - Agreement, dated as of April 1, 1993, between the Registrant and
John B. Zumwalt, III (*)
10.10 - Split Dollar Life Insurance Agreement dated February 1, 1999, by
and between The Randolph Insurance Trust and the Registrant (*)
10.11 - Credit Agreement, dated as of June 28, 1996, by and among
Nationsbank, N.A., Suntrust Bank, Miami, N.A., Post, Buckley,
Schuh and Jernigan, Inc., The PBSJ Corporation, and the
subsidiaries named therein, as amended on July 3, 1997 and June
30, 1999 (*)
10.12 - Lease Agreement, dated as of March 25, 1998, by and between Post,
Buckley, Schuh & Jernigan, Inc. and Highwoods/Florida Holdings
L.P. as successor in interest to Cypress-Tampa II L.P., as amended
on May 26, 1998, December 26, 1998, November 29, 1999 and March 1,
2000 (*)
10.13 - Lease Agreement, dated as of November 23, 1999, by and between
Post, Buckley, Schuh & Jernigan, Inc. and 1560 N. Orange Ltd. (*)
10.14 - The PBSJ Corporation Stock Ownership Plan (**)
21 - Subsidiaries (*)
27.1 - Financial Data Schedule - September 30, 2000 (***)
- ---------------
(*) Previously filed with the Registration Statement on Form 10 filed with the
Commission on June 27, 2000.
(**) Previously filed with the Amended Registration Statement on Form 10-A
filed with the Commission on September 26, 2000.
(***) Filed herewith.
(b) Reports on Form 8-K:
Report filed on Form 8-K for February 14, 2001-
Item 5, Other events: On November 21, 2000, the Company's Board of
Directors approved a five-for-one stock split to be effective on
February 1, 2001. The stock split resulted in an increase in the
number of authorized shares to 15,000,000 and an increase to the
number of issued and outstanding shares to 9,247,955. In
addition, the new par value and market price of the Company's
Common Stock's is $.00067 and $10.72, respectively.
48
III. SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
The PBSJ Corporation
Date: December 18, 2001 By: /s/ H. Michael Dye
------------------
H. Michael Dye
Chairman and Chief Executive
Officer
(Principal Executive Officer)
Date: December 18, 2001 By: /s/ Richard A. Wickett
----------------------
Richard A. Wickett
Vice Chairman and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
49
POWER OF ATTORNEY
The undersigned directors and officers of The PBSJ Corporation hereby
constitute and appoint H. Michael Dye and Richard A. Wickett and each of them
with full power to act without the other and with the power of substitution, our
attorneys-in-fact with full power to execute in our name and behalf in the
capacities indicated below this Form 10-K and any and all amendments thereto and
to file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission and hereby ratify and
confirm all that such attorneys-in-fact, or any of them, or their substitutes
shall lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on December 15, 2001.
Signature Capacity Date
----------------------- ------------------------------- -------------
/s/ H. Michael Dye Chairman of the Board December 18, 2001
- ------------------
H. Michael Dye and Chief Executive Officer
(Principal Executive Officer)
/s/ Richard A. Wickett Vice Chairman of the Board, December 18, 2001
- ----------------------
Richard A. Wickett Vice President and
Chief Financial Officer
/s/ William W. Randolph Vice President December 18, 2001
- -----------------------
William W. Randolph
/s/ John B. Zumwalt President/Chief Operating Officer December 18, 2001
- -------------------
John B. Zumwalt
/s/ Todd J. Kenner Executive Vice President December 18, 2001
- ------------------
Todd J. Kenner
/s/ Robert J. Paulsen Senior Vice President/Secretary December 18, 2001
- ---------------------
Robert J. Paulsen
/s/ John S. Shearer Executive Vice President December 18, 2001
- -------------------
John S. Shearer
50