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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 12(g) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________ to _________
Commission File No. 000-30911
THE PBSJ CORPORATION
--------------------
(Exact name of registrant as specified in its charter)
FLORIDA 59-1494168
------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
2001 N.W. 107th AVENUE
MIAMI, FLORIDA 33172-2507
-------------------------
(Address of principal executive offices)
(305) 592-7275
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 12(g) 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 filing
requirements for the past 90 days. YES [X] NO[ ]
As of April 30, 2003 there were 8,032,460 shares of Common Stock,
$.00067 par value per share, outstanding.
THE PBSJ CORPORATION
FORM 10-Q
MARCH 31, 2003
TABLE OF CONTENTS
Item
Number CAPTION PAGE
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial Condition Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk 22
Item 4. Controls and Procedures 22
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 2. Changes in Securities and Use of Proceeds 23
Item 3. Defaults Upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 25
SIGNATURES 26
CERTIFICATIONS 27
2
PART I
ITEM 1. FINANCIAL STATEMENTS
THE PBSJ CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
March 31, 2003 September 30, 2002
-------------- ------------------
(Unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 2,172 $ 2,967
Marketable securities 503 432
Accounts receivable, net 45,681 45,275
Unbilled fees, net 41,721 30,149
Other current assets 11,631 4,826
-------------- ------------------
Total current assets 101,708 83,649
Property and equipment, net 32,773 32,601
Cash surrender value of life insurance 7,090 6,622
Deferred income taxes 8,012 6,141
Other assets 11,312 7,390
-------------- ------------------
Total assets 160,895 136,403
============== ==================
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued expenses 26,659 24,793
Current portion of long-term debt 1,007 991
Accrued vacation 6,535 6,565
Deferred income taxes 19,818 13,652
-------------- ------------------
Total current liabilities 54,019 46,001
Long-term debt, less current portion 38,932 20,996
Deferred compensation 6,193 5,932
Other liabilities 4,297 4,727
-------------- ------------------
Total liabilities 103,441 77,656
-------------- ------------------
Stockholders' Equity:
Redeemable common stock, par value $0.00067, 15,000,000
shares authorized, 8,073,922 and 8,346,524 shares issued
and outstanding at March 31, 2003 and September 30, 2002,
respectively. Redeemable common stock had a redemption
value of $143,716 and $118,521 at March 31, 2003 and
September 30, 2002, respectively. 5 6
Retained earnings 64,155 60,981
Accumulated other comprehensive loss (407) (501)
Notes receivable from stockholders (4,511) -
Unearned compensation (1,788) (1,739)
-------------- ------------------
Total stockholders' equity 57,454 58,747
-------------- ------------------
Total liabilities and stockholders' equity $ 160,895 $ 136,403
============== ==================
The accompanying notes are an integral part of these consolidated financial
statements.
3
THE PBSJ CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands)
STATEMENTS OF OPERATIONS Three months ended March 31, Six months ended March 31,
DATA: 2003 2002 2003 2002
---------- ---------- ---------- ----------
Earned revenue:
Engineering fees $ 97,365 $ 84,620 $ 182,449 $ 168,174
Direct expenses 20,572 17,970 39,255 38,192
---------- ---------- ---------- ----------
Net earned revenue 76,793 66,650 143,194 129,982
Costs and expenses:
Direct salaries 27,394 24,236 51,236 47,134
General and administrative expenses 41,887 37,334 80,231 73,116
---------- ---------- ---------- ----------
Total costs and expenses 69,281 61,570 131,467 120,250
Operating income 7,512 5,080 11,727 9,732
Other income (expenses):
Interest expense (256) (300) (515) (542)
Other, net 182 58 417 254
---------- ---------- ---------- ----------
Total other expenses (74) (242) (98) (288)
Income before income taxes 7,438 4,838 11,629 9,444
Provision for income taxes 2,529 1,402 3,954 2,934
---------- ---------- ---------- ----------
Net income $ 4,909 $ 3,436 $ 7,675 $ 6,510
========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
4
THE PBSJ CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six months ended March 31,
2003 2002
------------- -------------
Cash flows from operating activities:
Net income $ 7,675 $ 6,510
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Other (185) (205)
Depreciation and amortization 4,104 4,793
Provision for bad debt and unbillable amounts 26 326
Provision for deferred income taxes 2,017 -
Provision for deferred compensation 511 293
Changes in operating assets and liabilities, net of
acquisitions:
Decrease in accounts receivable 924 3,315
Increase in unbilled fees (10,774) (2,789)
Increase in other current assets (6,773) (891)
Decrease in other assets 172 72
Decrease in accounts payable and accrued
expenses (1,549) (8,774)
(Decrease) increase in accrued vacation (110) 143
Decrease in other liabilities (414) (314)
------------- -------------
Net cash (used in) provided by operating
activities (4,376) 2,479
------------- -------------
Cash flows from investing activities:
Investment in life insurance policies (283) (283)
Acquisition of DTI, net of cash acquired (1,465) -
Acquisition of Welker, net of cash acquired (3,600) -
Sale of property and equipment 25 140
Purchase of property and equipment (4,197) (3,803)
------------- -------------
Net cash used in investing activities (9,520) (3,946)
------------- -------------
Cash flows from financing activities:
Decrease in bank overdraft - (1,773)
Borrowings under line of credit 79,982 102,933
Principal payments under line of credit (61,373) (86,711)
Principal payments under notes and mortgage
payable (656) (683)
Proceeds from sale of common stock 3,800 2,749
Purchase of common stock (8,652) (13,411)
------------- -------------
Net cash provided by financing activities 13,101 3,104
------------- -------------
Net (decrease) increase in cash and cash equivalents (795) 1,637
Cash and cash equivalents at beginning of year 2,967 -
------------- -------------
Cash and cash equivalents at end of period $ 2,172 $ 1,637
============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
5
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The accompanying financial information has been prepared in accordance
with the interim reporting rules and regulations of the Securities and Exchange
Commission, and therefore does not necessarily include all information and
footnotes necessary for a fair presentation of financial position, results of
operations and cash flows in conformity with accounting principles generally
accepted in the United States of America. The preparation of financial
statements, in conformity with accounting principles generally accepted in the
United States of America, requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingencies at the date of the financial statements as well as the reported
amounts of revenues and expenses during the reporting period. Estimates have
been prepared on the basis of the most current and best available information
and actual results could differ from those estimates.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements of the interim period contain all adjustments
necessary to present fairly the financial position of The PBSJ Corporation as of
March 31, 2003 and the results of their operations and their cash flows for the
periods presented. All such adjustments are of a normal recurring nature. The
condensed consolidated balance sheet as of September 30, 2002 was derived from
the Company's audited financial statements included in the Company's Form 10-K
for the year ended September 30, 2002. The accompanying financial statements
should be read in conjunction with the Company's Form 10-K for the year ended
September 30, 2002. The results of operations for the three and six month
periods ended March 31, 2003 are not necessarily indicative of the results to be
expected for the full fiscal year.
BASIC AND DILUTED EARNINGS PER SHARE
Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings
per Share, 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 for public trading in the future, no presentation has been made.
REVENUE RECOGNITION
In the course of providing its services, the Company routinely incurs
direct expenses such as sub-contracts for services. In addition, the Company
also includes pass-through costs on cost-plus contracts which are
customer-reimbursable materials, equipment and sub-contractor 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 and unbilled fees are presented net of
an allowance for doubtful accounts of $1.3 million and $1.4 million at March 31,
2003 and September 30, 2002, respectively.
6
CAPITAL STRUCTURE
The Company has authorized 15,000,000 shares of common stock (par value
$.00067).
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 in the
Proxy, as of March 31, 2003 and September 30, 2002 there is no outstanding
redeemable common stock relating to employees no longer employed by the Company.
The redemption value of all outstanding shares was $143.7 million and $118.5
million at March 31, 2003 and September 30, 2002, respectively.
2. CONTINGENCIES:
The Company is involved in legal actions arising in the ordinary course
of business. The Company maintains certain insurance coverage, covering
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 March 31, 2003, the Company was involved in litigation 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 March 31, 2003, the Company had a reserve of approximately $4.0
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.
7
3. INCOME TAXES:
The provision for income taxes for the six-month periods ended March 31,
2003 and 2002 was 34.0% and 31.1%, respectively. The Company's effective income
tax rate is lower than the marginal federal rate primarily as a result of the
Company's ability to utilize research and development tax credits.
4. SEGMENT REPORTING:
Financial information relating to the Company's operations by service is
as follows (dollars in thousands):
THREE MONTHS ENDED MARCH 31, 2003
TRANSPORTATION CONSTRUCTION CIVIL ENVIRONMENTAL TOTAL
Engineering fees $ 39,688 $ 14,480 $ 16,557 $ 26,640 $ 97,365
Net earned revenue 30,779 10,638 14,392 20,984 76,793
Operating income 3,470 1,305 655 2,082 7,512
Depreciation and amortization 727 166 515 622 2,030
Total assets 65,702 23,647 27,123 44,423 160,895
Capital expenditures 634 212 350 487 1,683
THREE MONTHS ENDED MARCH 31, 2002
TRANSPORTATION CONSTRUCTION CIVIL ENVIRONMENTAL TOTAL
Engineering fees $ 35,602 $ 10,626 $ 15,658 $ 22,734 $ 84,620
Net earned revenue 26,451 8,019 14,033 18,147 66,650
Operating income 2,371 603 238 1,868 5,080
Depreciation and amortization 1,007 300 443 643 2,393
Total assets 54,332 16,584 25,266 33,861 130,043
Capital expenditures 847 254 375 540 2,016
SIX MONTHS ENDED MARCH 31, 2003
TRANSPORTATION CONSTRUCTION CIVIL ENVIRONMENTAL TOTAL
Engineering fees $ 74,503 $ 26,815 $ 30,757 $ 50,374 $ 182,449
Net earned revenue 57,702 19,735 26,511 39,246 143,194
Operating income 5,671 2,151 583 3,322 11,727
Depreciation and amortization 1,470 335 1,055 1,244 4,104
Total assets 65,702 23,647 27,123 44,423 160,895
Capital expenditures 1,588 534 870 1,205 4,197
SIX MONTHS ENDED MARCH 31, 2002
TRANSPORTATION CONSTRUCTION CIVIL ENVIRONMENTAL TOTAL
Engineering fees $ 70,263 $ 21,446 $ 32,675 $ 43,790 $ 168,174
Net earned revenue 51,320 16,027 27,316 35,319 129,982
Operating income (loss) 4,766 1,405 (31) 3,592 9,732
Depreciation and amortization 2,003 611 931 1,248 4,793
Total assets 54,332 16,584 25,266 33,861 130,043
Capital expenditures 1,589 485 739 990 3,803
8
5. LONG-TERM DEBT (dollars in thousands):
MARCH 31, SEPTEMBER 30,
2003 2002
------------ -------------
Line of credit unused availability of $9,332
and $27,940 at March 31, 2003 and
September 30, 2002, respectively. $ 30,668 $ 12,060
Mortgage note payable due in monthly installments
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. (1.95% and 2.46% at March 31, 2003
and September 31, 2002, respectively). 8,519 8,645
Note payable to J. Powell & Associates, Inc.
due in three annual installments of $333
with interest of 7.12% through October 17, 2003. 334 667
Capital lease of equipment, interest accrues
at 8.3%, collateralized by certain equipment, due in
monthly payments of principal and interest of $36. 418 615
------------ -------------
39,939 21,987
Less current portion 1,007 991
------------ -------------
Long-term debt $ 38,932 $ 20,996
============ =============
On March 31, 2003, the Company had a $40 million line of credit
agreement, inclusive of $3 million in letters of credit, with a bank. On
May 6, 2003, this agreement was amended to increase the line of credit
availability from $37 million to $55 million. All other terms of the
agreement remain the same. The expiration date on the amended line of
credit is June 30, 2005. The interest rate (1.80% and 2.31% at March 31,
2003 and September 30, 2002, respectively) 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. 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.
9
6. COMPREHENSIVE INCOME:
Three months ended March 31, Six months ended March 31,
2003 2002 2003 2002
------------ ----------- ------------- -----------
(dollars in thousands) (dollars in thousands)
Net income $ 4,909 $ 3,436 $ 7,675 $ 6,510
Other comprehensive income,
net of tax 49 28 94 123
------------ ----------- ------------- -----------
Comprehensive income $ 4,958 $ 3,464 $ 7,769 $ 6,633
============ =========== ============= ===========
Other comprehensive income is comprised of unrealized gains and losses on
marketable securities and changes in the value of a derivative financial
instrument.
7. GOODWILL:
During the first quarter of fiscal year 2003, the Company adopted SFAS
No. 142, Goodwill and Other Intangible Assets. Under SFAS No. 142, purchased
goodwill and intangible assets with indefinite lives are no longer amortized,
but instead tested for impairment at least annually. In connection with the
adoption of SFAS No. 142, the Company expects that it will no longer record
approximately $0.5 million annually of amortization relating to its existing
goodwill. The required initial assessment was completed at December 31, 2002 and
no impairment was determined. The following table sets forth a reconciliation of
net income for the three months ended and six months ended March 31, 2003 and
2002 respectively, adjusted for the non-amortization provisions of SFAS No. 142:
Three months ended March 31, Six months ended March 31,
2003 2002 2003 2002
------------ ----------- ------------- -----------
(dollars in thousands) (dollars in thousands)
Net income $ 4,909 $ 3,436 $ 7,675 $ 6,510
Add: Goodwill amortization,
net of tax - 109 - 192
------------ ----------- ------------- -----------
Adjusted net income $ 4,909 $ 3,545 $ 7,675 $ 6,702
============ =========== ============= ===========
8. ACQUISITIONS:
The Company acquired the stock of Durham Technologies, Inc. ("DTI") on
December 1, 2002 for $1.3 million, net of cash acquired. The acquisition of DTI
contributes to the Company's goal of enhancing its presence in the growing
civil engineering market in the surrounding Atlanta area. DTI's area of
specialty includes risk management and risk assessment for public sector
clients, primarily Federal. The purchase price has been preliminarily allocated
to the respective assets and liabilities based upon their estimated fair values
as of the acquisition date. The allocation of the purchase price resulted in
assets of $1.7 million, including approximately $1.1 million of identifiable and
unidentifiable intangible assets and liabilities of $400,000. The results of
operations are included from the date of acquisition.
10
On March 19, 2003, the Company acquired the stock of Welker &
Associates, Inc. ("Welker") for $4.0 million, comprised of $3.6 million in cash
and $400,000 of the Company's common stock. The acquisition of Welker
contributes to the Company's goal of enhancing its presence in the growing
Atlanta market. Welker's areas of specialty include water, wastewater and
stormwater management for Georgia's local governments. The purchase price has
been preliminarily allocated to the respective assets and liabilities based upon
their estimated fair values as of the acquisition date. The allocation of the
purchase price resulted in assets of $4.7 million, including approximately $2.9
million of identifiable and unidentifiable intangible assets and liabilities of
$700,000.
The Company is in the process of reviewing the purchase price
allocations of the DTI and Welker acquisitions. The allocations of the purchase
price represent preliminary allocations which are subject to change upon
completion of the Company's review. The pro forma impact of both of these
acquisitions is not material.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis is provided to increase an
understanding of, and should be read in conjunction with, the condensed
consolidated financial statements and accompanying notes. As you read this
section, you should also refer to the Company's Annual Report filed on Form 10-K
for the fiscal year ended September 30, 2002.
This Form 10-Q for the second quarter ended March 31, 2003 contains
"forward-looking statements" within the meaning of the securities laws that
involve risks and uncertainties. These statements contain or express our
intentions, beliefs, expectations, strategies or predictions for the future.
Although the Company's management believes that its expectations are reasonable
and are based on reasonable assumptions, theses assumptions are subject to a
wide range of business risks and uncertainties, explained in detail in the
Company's Form 10 Registration Statement and Form 10-K, that may cause actual
results, performance or achievements to differ materially from those stated or
implied by these forward-looking statements. We do not intend nor assume any
obligation to update any forward-looking statements.
RESULTS OF OPERATIONS
The following table sets forth the percentage of net earned revenue
represented by the items in our consolidated statements of operations:
THREE MONTHS ENDED MARCH 31, SIX MONTHS ENDED MARCH 31,
2003 2002 2003 2002
-------------- -------------- -------------- -------------
Engineering fees 126.8% 127.0% 127.4% 129.4%
Direct expenses 26.8 27.0 27.4 29.4
-------------- -------------- -------------- -------------
Net earned revenue 100.0 100.0 100.0 100.0
Costs and expenses:
Direct salaries 35.7 36.4 35.8 36.3
General and administrative
expenses 54.5 56.0 56.0 56.2
-------------- -------------- -------------- -------------
Operating income 9.8 7.6 8.2 7.5
Interest expense (0.3) (0.5) (0.4) (0.4)
Other, net 0.2 0.1 0.3 0.2
-------------- -------------- -------------- -------------
Income before income taxes 9.7 7.2 8.1 7.3
Provision for income taxes 3.3 2.1 2.8 2.3
-------------- -------------- -------------- -------------
Net income 6.4% 5.1% 5.3% 5.0%
============== ============== ============== =============
12
A summary of operating results is as follows for the three and six months ended
March 31 (dollars in thousands):
THREE MONTHS ENDED MARCH 31,
2003 2002
------------ -------------
Engineering fees........................ $ 97,365 $ 84,620
Direct expenses......................... 20,572 17,970
------------ -------------
Net earned revenue...................... 76,793 66,650
Costs and expenses...................... 69,281 61,570
------------ -------------
Operating income........................ 7,512 5,080
Other expenses.......................... 74 242
Provision for income taxes.............. 2,529 1,402
------------ -------------
Net income.............................. $ 4,909 $ 3,436
============ =============
SIX MONTHS ENDED MARCH 31,
2003 2002
------------ -------------
Engineering fees........................ $ 182,449 $ 168,174
Direct expenses......................... 39,255 38,192
------------ -------------
Net earned revenue...................... 143,194 129,982
Costs and expenses...................... 131,467 120,250
------------ -------------
Operating income........................ 11,727 9,732
Other expenses.......................... 98 288
Provision for income taxes.............. 3,954 2,934
------------ -------------
Net income.............................. $ 7,675 $ 6,510
============ =============
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 the three and six months ended March
31, 2003 as compared to 2002.
13
TRANSPORTATION
THREE MONTHS ENDED MARCH 31, SIX MONTHS ENDED MARCH 31,
---------------------------------- ----------------------------------
2003 % Change 2002 2003 % Change 2002
---------- --------- ---------- ---------- --------- ----------
(dollars in thousands) (dollars in thousands)
---------------------------------- ----------------------------------
Engineering Fees...................... $ 39,688 11.5% $ 35,602 $ 74,503 6.0% $ 70,263
Direct Expenses....................... 8,909 (2.7) 9,152 16,801 (11.3) 18,943
Net Earned Revenue.................... 30,779 16.4 26,451 57,702 12.4 51,320
Costs and Expenses.................... 27,309 13.4 24,080 52,031 11.8 46,554
Operating Income...................... $ 3,470 46.4% $ 2,371 $ 5,671 19.0% $ 4,766
Engineering fees of $39.7 million for the three-month period ended March
31, 2003 increased 11.5% as compared to $35.6 million for the same period in
2002. For the six-month period ended March 31, 2003, engineering fees were $74.5
million compared to $70.3 million in 2002, representing a 6.0% increase. Higher
volumes from continued strength in the transportation services market and
engineering fees from new projects were the primary contributors to this
increase during 2003.
Reported net earned revenue was $30.8 million during the three-month
period ended March 31, 2003 as compared to $26.5 million for the same period in
2002, representing an increase of 16.4%. For the six-month period ended March
31, 2003, net earned revenue was $57.7 million compared to $51.3 million in
2002, representing a 12.4% increase. Net earned revenue increased at a greater
percentage than engineering fees as a result of the decrease in direct expenses.
Direct expenses consist of out-of-pocket expenses related to the delivery of
service such as blueprints, reproductions, CADD/computer charges, and travel
and sub-contractor expenses. Direct expenses were $8.9 million during the
three-month period ended March 31, 2003 as compared to $9.2 million for the same
period in 2002, representing a decrease of 2.7%. For the six-month period ended
March 31, 2003, direct expenses were $16.8 million compared to $18.9 million in
2002, representing an 11.3% decrease. Direct expenses, as a percentage of net
earned revenue, were 28.9% for the three-month period ended March 31, 2003 as
compared to 34.6% for the same period in 2002. For the six-month period ended
March 31, 2003, direct expenses, as a percentage of net earned revenue, were
29.1% compared to 36.9% in 2002. The decrease in direct expenses as a percentage
of net earned revenue is due to the decreased use of sub-consultants as a result
of additional hiring and a reduction in employee turnover.
Reported operating income was $3.5 million for the three-month periods
ended March 31, 2003 as compared to $2.4 million for the same period in 2002,
representing a 46.4% increase. For the six-month period ended March 31, 2003,
operating income was $5.7 million compared to $4.8 million in 2002, representing
a 19.0% increase. Operating income as a percentage of net earned revenue was
11.3% for the three-month period ended March 31, 2003 as compared to 9.0% for
the same period in 2002. For the six-month period ended March 31, 2003,
operating income, as a percentage of net earned revenue, was 9.8% compared to
9.3% in 2002. The increase in operating income and operating income as a
percentage of net earned revenue for the three-month and six-month periods ended
March 31, 2003, is due to improved chargeability and improved general and
administrative cost control, allowing for a reduction in total costs and
expenses as a percentage of net earned revenue.
Costs and expenses consist of direct salaries that are chargeable to
clients and general and administrative expenses. Direct salaries increased
15.5%, from $9.7 million for the three-month period ended March 31, 2002 to
$11.2 million for the same period in 2003. For the six-month period ended
14
March 31, 2003, direct salaries increased 12.3% to $21.0 million from $18.7
million for the same period in 2002. The increase in direct salaries is directly
related to the growth in net earned revenue, and results from the decreased use
of sub-consultants, increased chargeability and a reduced employee turnover rate
since 2002. General and administrative expenses increased 11.8%, from $14.4
million during the three-month period ended March 31, 2002 to $16.1 million for
the same period in 2003. For the six-month period ended March 31, 2003, general
and administrative expenses were $31.0 million, representing an 11.1% increase
compared to $27.9 million for the same period in 2002. The increase in general
and administrative expenses is due to annual increases in pay rates and medical
plan insurance accruals, as well as an increase in personnel. However, for the
three-month and six-month periods ended March 31, 2003, general and
administrative expenses, as percentages of net earned revenue, decreased
compared to the same periods in 2002. This decrease was primarily due to
increased chargeability, allowing for slower growth in indirect labor, or
non-chargeable time.
CIVIL ENGINEERING
THREE MONTHS ENDED MARCH 31, SIX MONTHS ENDED MARCH 31,
---------------------------------- -----------------------------------
2003 % Change 2002 2003 % Change 2002
---------- -------- ---------- ---------- --------- ---------
(dollars in thousands) (dollars in thousands)
Engineering Fees...................... $ 16,557 5.7% $ 15,658 $ 30,757 (5.9)% $ 32,675
Direct Expenses....................... 2,165 33.2 1,625 4,246 (20.8) 5,359
Net Earned Revenue.................... 14,392 2.6 14,033 26,511 (2.9) 27,316
Costs and Expenses.................... 13,737 (0.4) 13,795 25,928 (5.2) 27,347
Operating Income (loss)............... $ 655 175.2% $ 238 583 (1,980.6)% (31)
15
Engineering fees of $16.6 million for the three-month period ended March
31, 2003 increased 5.7% as compared to $15.7 million for the same period in
2002. For the six-month period ended March 31, 2003, engineering fees were $30.8
million compared to $32.7 million for the same period in 2002, representing a
5.9% decrease. Although this segment experienced a loss during the first quarter
of fiscal year 2003 as a result of the slowdown in the economy, several factors
have contributed to a turnaround during the three-month period ended March 31,
2003, or the second quarter of fiscal year 2003. One of these factors was the
acquisition of Durham Technologies, Inc. ("DTI") on December 1, 2002. DTI
specializes in risk and emergency management services for public sector clients,
primarily Federal. Another factor in the improvement of this segment is a
profitable emergency response project involving ice storm clean up in the
Eastern region of the United States. Lastly, this segment has made significant
steps toward improving project and contract management.
Reported net earned revenue was $14.4 million for the three-month period
ended March 31, 2003 as compared to $14.0 million for the same period in 2002,
representing an increase of 2.6%. For the six-month period ended March 31, 2003,
net earned revenue decreased 2.9%, to $26.5 million, compared to $27.3 million
for the same period in 2002. Fluctuations in net earned revenue are affected by
the changes in direct expenses. 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 $2.2 million during the three-month period ended March 31, 2003 as compared
to $1.6 million for the same period in 2002, representing an increase of 33.2%.
For the six-month period ended March 31, 2003, direct expenses were $4.2 million
compared to $5.4 million in 2002, representing a 20.8% decrease. Direct
expenses, as a percentage of net earned revenue, increased to 15.0% for the
three-month period ended March 31, 2003 from 11.6% for the same period in 2002.
For the six-month period ended March 31, 2003, direct expenses, as a percentage
of net earned revenue, were 16.0%, as compared to 19.6% for the same period in
2002.
Reported operating income was $655,000 for the three-month period ended
March 31, 2003 as compared to $238,000 for the same period in 2002, representing
an increase of 175.2%. For the six-month period ended March 31, 2003, operating
income was $583,000, as compared to an operating loss of $31,000 for the same
period in 2002. Operating income as a percentage of net earned revenue was 4.6%
for the three months ended March 31, 2003 as compared to 1.7% for the same
period in 2002. For the six-month period ended March 31, 2003, operating income
(loss), as a percentage of net earned revenue, was 2.2% as compared to (0.1%)
for the same period in 2002. The increase in operating income and operating
income as a percentage of net earned revenue for the three-month and six-month
periods ended March 31, 2003, is due to improved chargeability during the
three-month period ended March 31, 2003, and improved general and administrative
cost control, allowing for a reduction in total costs and expenses as a
percentage of net earned revenue, for both the three-month and six-month periods
ended March 31, 2003.
Costs and expenses consist of direct salaries that are chargeable to
clients and general and administrative expenses. Direct salaries remained
consistent at $5.1 million for the three-month periods ended March 31, 2003 and
2002. For the six-month period ended March 31, 2003, direct salaries decreased
4.5% to $9.4 million from $9.9 million for the same period in 2002. The decrease
in direct salaries during the six-month period ended March 31, 2003 is a direct
result of the slowed economy and the direct labor personnel cut-backs made in
this segment. General and administrative expenses decreased both during the
three-month and six-month periods ended March 31, 2003. For the three-month
period ended March 31, 2003, general and administrative expenses were $8.6
million, as compared to $8.7 million for the same period in 2002. For the
six-month period ended March 31, 2003,
16
general and administrative expenses were $16.5 million, as compared to $17.4
million for the same period in 2002. The decrease in general and administrative
expenses is directly related to the cut-backs made in direct labor personnel.
Some areas affected by this include medical costs, payroll taxes, vacation
accruals and corporate allocations.
ENVIRONMENTAL
THREE MONTHS ENDED MARCH 31, SIX MONTHS ENDED MARCH 31,
---------------------------------- ----------------------------------
2003 % Change 2002 2003 % Change 2002
---------- --------- ---------- ---------- --------- ---------
(dollars in thousands) (dollars in thousands)
Engineering Fees...................... $ 26,640 17.2% $ 22,734 $ 50,374 15.0% $ 43,790
Direct Expenses....................... 5,656 23.3 4,587 11,128 31.4 8,471
Net Earned Revenue.................... 20,984 15.6 18,147 39,246 11.1 35,319
Costs and Expenses.................... 18,902 16.1 16,279 35,924 13.2 31,727
Operating Income...................... $ 2,082 11.5% $ 1,868 $ 3,322 (7.5)% $ 3,592
Engineering fees of $26.6 million for the three-month period ended March
31, 2003 increased 17.2% as compared to $22.7 million for the same period in
2002. For the six-month period ended March 31, 2003, engineering fees were $50.4
million compared to $43.8 million in 2002, representing a 15.0% increase. Higher
volumes from continued strength in the environmental services market and
engineering fees from new projects were the primary contributors to this
increase during 2003.
Reported net earned revenue was $21.0 million during the three-month
period ended March 31, 2003 as compared to $18.1 million for the same period in
2002, representing an increase of 15.6%. For the six-month period ended March
31, 2003, net earned revenue was $39.2 million compared to $35.3 million in
2002, representing an 11.1% increase. Net earned revenue increased at smaller
percentages than engineering fees due to larger increases in direct expenses,
specifically sub-contractor expenses. 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 $5.7 million during the three-month period ended March 31, 2003 as compared
to $4.6 million for the same period in 2002, representing an increase of 23.3%.
For the six-month period ended March 31, 2003, direct expenses were $11.1
million compared to $8.5 million in 2002, representing a 31.4% increase. Direct
expenses, as a percentage of net earned revenue, were 27.0% for the three-month
period ended March 31, 2003 as compared to 25.3% for the same period in 2002.
For the six-month period ended March 31, 2003, direct expenses, as a percentage
of net earned revenue, were 28.4% compared to 24.0% in 2002. The increase in
direct expenses and direct expenses, as a percentage of net earned revenue, is
due primarily to a video inspection sub-consultant hired to assist with a large
job in California, combined with the increased use of sub-consultants in other
states to accommodate the internal growth in engineering fees nationwide.
Reported operating income was $2.1 million for the three-month period
ended March 31, 2003 as compared to $1.9 million for the same period in 2002
representing an increase of 11.5%. For the six-month period ended March 31,
2003, operating income was $3.3 million, as compared to $3.6 million in 2002,
representing a decrease of 7.5%. Operating income as a percentage of net earned
revenue was 9.9% for the three-month period ended March 31, 2003 as compared to
10.3% for the same period in
17
2002. For the six-month period ended March 31, 2003, operating income, as a
percentage of net earned revenue, was 8.5% compared to 10.2% in 2002. The
decrease in operating income and operating income, as a percentage of net earned
revenue, is primarily due to a reduction in chargeability. A reduction in
chargeability reduces the number of hours that are chargeable to clients,
thereby decreasing the potential revenue associated with those hours. At the
same time, an increase in non-chargeable hours will increase indirect labor
costs, thereby increasing general and administrative costs.
Costs and expenses consist of direct salaries that are chargeable to
clients and general and administrative expenses. Direct salaries increased
11.3%, from $6.2 million for the three-month period ended March 31, 2002, to
$6.9 million for the same period in 2003. For the six-month period ended March
31, 2003, direct salaries increased 7.5%, to $12.9 million, from $12.0 million
for the same period in 2002. The increase in direct salaries is directly related
to the increase in net earned revenue. However, as a result of significantly
higher sub-consultant costs and lower chargeability, direct salaries did not
increase proportionately to net earned revenue. General and administrative
expenses increased 18.8%, from $10.1 million during the three-month period ended
March 31, 2002 to $12.0 million for the same period in 2003. For the six-month
period ended March 31, 2003, general and administrative expenses were $23.0
million, representing a 16.8% increase, as compared to $19.7 million for the
same period in 2002. The increase in general and administrative expenses is
primarily due to the increases in indirect labor, as a result of the reduction
in chargeability. In addition, the increase in general and administrative
expenses is due to annual increases in pay rates and medical plan insurance
accruals.
CONSTRUCTION MANAGEMENT
THREE MONTHS ENDED MARCH 31, SIX MONTHS ENDED MARCH 31,
---------------------------------- ----------------------------------
2003 % Change 2002 2003 % Change 2002
---------- -------- ---------- ---------- --------- ---------
(dollars in thousands) (dollars in thousands)
Engineering Fees...................... $ 14,480 36.3% $ 10,626 $ 26,815 25.0% $ 21,446
Direct Expenses....................... 3,842 47.4 2,607 7,080 30.7 5,419
Net Earned Revenue.................... 10,638 32.7 8,019 19,735 23.1 16,027
Costs and Expenses.................... 9,333 25.8 7,416 17,584 20.3 14,622
Operating Income...................... $ 1,305 116.4% $ 603 $ 2,151 53.1% $ 1,405
Engineering fees of $14.5 million for the three-month period ended March
31, 2003 increased 36.3% as compared to $10.6 million for the same period in
2002. For the six-month period ended March 31, 2003, engineering fees were $26.8
million as compared to $21.4 million in 2002, representing a 25.0% increase. The
increase in fees is partly attributable to a profitable emergency response
project involving ice storm clean up in the Eastern region of the United States.
Higher volumes from renewed strength in the construction services market and
engineering fees from new projects were the primary contributors to this
increase during 2003.
Reported net earned revenue was $ 10.6 million during the three-month
period ended March 31, 2003 as compared to $8.0 million for the same period in
2002, representing an increase of 32.5%. For the six-month period ended March
31, 2003, net earned revenue was $19.7 million compared to $16.0 million in
2002, representing a 23.1% increase. Net earned revenue increased at smaller
percentages than engineering fees due to larger increases in direct expenses,
specifically sub-contractor expenses.
18
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. For the three-month period ended March 31, 2003,
direct expenses increased 47.4%, to $3.8 million, as compared to $2.6 million
for the same period in 2002. For the six-month period ended March 31, 2003,
direct expenses were $7.1 million compared to $5.4 million in 2002, representing
a 30.7% increase. Direct expenses, as a percentage of net earned revenue, were
36.1% for the three-month period ended March 31, 2003 as compared to 32.5% for
the same period in 2002. For the six-month period ended March 31, 2003, direct
expenses, as a percentage of net earned revenue, were 35.9% as compared to 33.8%
in 2002. The increase in direct expenses, as a percentage of net earned revenue,
is due to the increased use of sub-consultants.
Reported operating income was $1.3 million for the three-month period
ended March 31, 2003 as compared to $603,000 for the same period in 2002,
representing an increase of 116.4%. For the six-month period ended March 31,
2003, operating income was $2.2 million compared to $1.4 million for the same
period in 2002, representing a 53.1% decrease. Operating income as a percentage
of net earned revenue was 12.3% for the three-month period ended March 31, 2003
as compared to 7.5% for the same period in 2002. For the six-month period ended
March 31, 2003, operating income, as a percentage of net earned revenue, was
10.9% as compared to 8.8% for the same period in 2002. The increase in operating
income and operating income as a percentage of net earned revenue for the
three-month and six-month periods ended March 31, 2003, is due to improved
chargeability and improved profitability.
Costs and expenses consist of direct salaries that are chargeable to
clients and general and administrative expenses. Direct salaries increased
27.3, from $3.3 million for the three-month period ended March 31, 2002 to $4.2
million for the same period in 2003. For the six-month period ended March 31,
2003, direct salaries increased 18.2% to $7.8 million from $6.6 million for the
same period in 2002. The increase in direct salaries is directly related to the
growth in net earned revenue, increased chargeability and a reduced employee
turnover rate since 2002. General and administrative expenses increased 24.4%,
from $4.1 million during the three-month period ended March 31, 2002 to $5.1
million for the same period in 2003. For the six-month period ended March 31,
2003, general and administrative expenses were $9.7 million, representing a
21.3% increase compared to $8.0 million for the same period in 2002. The
increase in general and administrative expenses is due to annual increases in
pay rates and medical plan insurance accruals, as well as an increase in
personnel. However, for the three-month and six-month periods ended March 31,
2003, general and administrative expenses, as percentages of net earned revenue,
decreased compared to the same periods in 2002. This decrease was primarily due
to increased chargeability, allowing for slower growth in indirect labor, or
non-chargeable time.
CONSOLIDATED RESULTS
OTHER INCOME (expenses):
Other income and expenses primarily consists of interest and dividend
income and interest expense. Other expenses were $74,000 and $242,000 for
the three-month periods ended March 31, 2003 and 2002, respectively. For the
six-month periods ended March 31, 2003 and 2002, other expenses were $98,000
and $288,000, respectively. This decrease is due to an increase in interest
expense, offset by an increase in other income. Interest expense increased as a
result of higher average debt balances, which were offset by lower average
interest rates. Increases in other income are due to rental income and gains on
the sale of fixed assets.
19
NET INCOME:
Net income was $4.9 million and $3.4 million for the three-month periods
ended March 31, 2003 and 2002. For the six-month period ended March 31, 2003,
net income was $7.7 million as compared to $6.5 million for the same period in
2002. The percentage of net income to net earned revenue increased from 5.1% for
the three-month period ended March 31, 2002 to 6.4% for the same period in 2003,
as a result of increased chargeability and improved cost control. For the
six-month period ended March 31, 2003, the percentage of net income to net
earned revenue was 5.3% as compared to 5.0% for the same period in 2002. The
increase in 2003 was a result of increased overall chargeability, combined with
improved cost control, offset by an increased effective tax rate. As a result of
improved cost control and improved profitability, direct expenses, direct
salaries and general and administrative expenses increased at a smaller
percentage than net earned revenue. General and administrative costs increased
due to annual increases in pay rates and increases in the accrual of insurance
expenses related to our medical plan. In addition, the Company's employment
turnover rate has been decreasing, allowing for additional general and
administrative cost savings.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows From Operating Activities
Net cash used in operating activities totaled $4.4 million for the six
months ended March 31, 2003 as compared to net cash provided by operating
activities of $2.5 million for the same period in 2002. The decrease is
primarily a result of the increase in unbilled fees and other current assets,
combined with the decrease in accounts payable. The increase in unbilled fees is
attributable, in part, to a new electronic billing system labeled Consultant
Invoice Transmittal System ("CITS"), implemented by FDOT on new contracts. The
new electronic billing procedures have temporarily delayed some of our FDOT
billings by several months as a result of set-up procedures FDOT must under-go
with each new contract, and each contract amendment thereafter. Once the
contract set-up is complete, billing will resume on a monthly basis, with
payments expected within one month's time. Thereafter, billing and payment can
be delayed for the set-up of contract amendments and contract changes.
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 $7.7 million for the six months ended March 31, 2003
increased 17.9% as compared to net income of $6.5 million for the same period in
2002. The increase in 2003 was a result of internal growth, improved
profitability and improved cost control, offset by an increased effective tax
rate. As a result, direct expenses, direct salaries and general and
administrative expenses increased at a lower cost than net earned revenue.
General and administrative costs increased due to annual increases in pay rates
and increases in the accrual of insurance expenses related to our medical plan.
In addition, the Company's employment turnover rate has been decreasing,
allowing for additional general and administrative cost savings.
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 previously 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.
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
20
accounts receivable and unbilled fees, when billed, are net 30 days. The
unbilled fees account increased $10.8 million, from $30.1 million at September
30, 2002 to $41.7 million at March 31, 2003. The number of days outstanding for
unbilled fees was 42 days and 32 days at March 31, 2003 and September 30, 2002,
respectively. By comparison, according to PSMJ Resources, Inc., the average days
outstanding for unbilled fees for design firms of comparable size was 29.7 days
in 2002 and 27.5 days in 2001.
The allowance for doubtful accounts decreased from $1.4 million at
September 30, 2002 to $1.3 million at March 31, 2003. The number of day's sales
outstanding for accounts receivable was approximately 46 days and 49 days at
March 31, 2003 and September 30, 2002, respectively. According to PSMJ
Resources, Inc. the average days sales accounts receivables for design firms of
comparable size to us was 66.5 days in 2002 and 69.8 days in 2001.
Cash Flows from Investing Activities
Net cash used in investing activities was $9.5 million for the six
months ended March 31, 2003 as compared to $3.9 million for the same period in
2002. Investing activity typically consists of fixed asset purchases, such as
survey equipment, computer equipment, furniture and leasehold improvements.
However, on December 1, 2002, the Company acquired 100% of the stock of Durham
Technologies, Inc. ("DTI") for $1.3 million, net of cash acquired. The
acquisition of DTI contributes to the Company's goal of enhancing its presence
in the growing Emergency Management Services market. DTI's area of specialty
includes risk management and risk assessment for public sector clients,
primarily Federal. The acquisition is accounted for using the purchase method of
accounting, and the results of operations are included from the respective date
of acquisition.
In addition, on March 19, 2003, the company signed a purchase agreement
to acquire 100% of the stock of Welker & Associates, Inc. ("Welker") for $3.6
million in cash and $400,000 in restricted stock, totaling a purchase price of
$4.0 million. Welker contributes to the Company's goal of enhancing its presence
in the growing Atlanta market. Welker's areas of specialty include water,
wastewater and storm-water management for Georgia's local governments.
Cash Flows from Financing Activities
Net cash provided by financing activities for the six months ended March
31, 2003 was $13.1 million, as compared to $3.1 million for the same period in
2002. The increase in cash provided by financing activities is primarily
attributable to a smaller amount of re-purchased common stock from retired
directors during 2003 than in 2002, combined with an increase in the net
borrowings under the line of credit.
Capital Resources
As of March 31, 2003, the Company had a $40 million revolving line of
credit agreement, inclusive of $3 million in letters of credit, with a bank. On
May 6, 2003, this agreement was amended to increase the maximum aggregate
principal amount from $37 million to $55 million. All other terms of the
agreement remain the same. The revolving line of credit expires June 30, 2005.
The interest rate (1.80% and 2.31% at March 31, 2003 and September 30, 2002,
respectively) 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. 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.
21
The amounts outstanding under the revolving line of credit were $30.7 million
and $12.1 million as of March 31, 2003 and September 30, 2002, respectively. The
increase in the line of credit was directly related to the reduction in accounts
payable, the payment of employee bonuses related to fiscal year 2002, the DTI
acquisition and the Welker acquisition.
The revolving line of credit is collateralized by substantially all of
our assets.
Our capital expenditures are generally for purchases of property and
equipment. The Company spent $4.2 million and $3.8 million on such expenditures
for the six months ended March 31, 2003 and 2002, respectively.
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 year 2003.
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.
ITEM 3. 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
March 31, 2003, the change in the fair value of this liability would be
approximately $200,000. 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 (1.80% and 2.31% at March 31, 2003 and September 30,
2002, respectively) on our revolving line of credit and term loan ranges from
LIBOR plus 50 basis points to prime minus 125 basis points if our funded debt
coverage ratio is less than 2.5. 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 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 March 31, 2003,
the fair value of the debt is consistent with the outstanding principal balance.
Because the interest rates under our revolving line of credit and term
loan 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.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures:
22
John B. Zumwalt, III, our Chief Executive Officer, and Richard A.
Wickett, our Chief Financial Officer, have performed an evaluation of the
Company's disclosure controls and procedures, as that term is defined in Rule
13a-14 (c) of the Securities Exchange Act of 1934, as amended ("the Exchange
Act"), within 90 days of the date of this report and each has concluded that
such disclosure controls and procedures are effective to ensure that information
required to be disclosed in our periodic reports filed under the Exchange Act is
recorded, processed, summarized and reported, within the time period specified
by the Securities and Exchange Commission's rules and regulations.
Changes in internal controls:
No significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
the evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses, were made as a result of the evaluation.
PART II
ITEM 1. 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 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 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
23
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's regularly scheduled annual meeting of shareholders held on
January 31, 2003, the following proposals were adopted by the margins indicated:
1. To elect a Board of Directors to hold office until the next annual meeting
of shareholders and until their successors are elected and qualified, or
until their earlier death or resignation.
NUMBER OF SHARES
FOR AGAINST WITHHELD
------------------------------------------------
H. Michael Dye............. 6,318,686 82,137 1,037,274
Todd J. Kenner............. 6,283,811 116,388 1,037,898
Robert J. Paulsen.......... 6,356,339 44,191 1,037,567
John S. Shearer............ 6,384,944 15,745 1,037,408
Richard A. Wickett......... 6,354,370 46,007 1,037,720
John B. Zumwalt, III....... 6,359,709 40,912 1,037,476
2. To authorize the Company to modify the Company's by-laws to restrict stock
ownership to full-time employees only unless exceptions are made through a
formal written agreement approved by the Board of Directors.
NUMBER OF SHARES
For................... 5,587,484
Against............... 1,137,564
Withheld.............. 713,049
3. To approve reappointment of PricewaterhouseCoopers L.L.P. as the Company's
independent auditors for the fiscal year 2003.
NUMBER OF SHARES
For................... 6,604,353
Against............... 114,365
Withheld.............. 719,379
ITEM 5. OTHER INFORMATION
None.
24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Number Description
-------------- -----------
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, June 30, 1999, June 30,
2002 and May 6, 2003. (*) (**)
99.1 Chief Executive Officer Certification Pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
99.2 Chief Financial Officer Certification Pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
(*) Previously filed with the Registration Statement on Form 10 filed with
the Commission on June 27, 2000.
(**) Previously filed with the Form 10-K, filed with the Commission on
December 19, 2002.
(b) Reports on Form 8-K
None.
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
The PBSJ Corporation
Dated: May 9, 2003 By /s/Richard A. Wickett
--------------------------
Richard A. Wickett
Chairman,
Chief Financial Officer,
and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following on behalf of the Registrant and in the
capacities and on the dates indicated.
Signature Capacity Date
- --------------------------- ---------------------------- -----------
/s/Richard A. Wickett Chairman, Chief Financial May 9, 2003
- -------------------------- Officer and Treasurer
Richard A. Wickett
/s/John B. Zumwalt Vice Chairman, President and May 9, 2003
- -------------------------- Chief Executive Officer
John B. Zumwalt
/s/Robert J. Paulsen Executive Vice President and May 9, 2003
- -------------------------- Secretary
Robert J. Paulsen
/s/John S. Shearer Senior Vice President May 9, 2003
- --------------------------
John S. Shearer
/s/Todd J. Kenner Senior Vice President May 9, 2003
- --------------------------
Todd J. Kenner
/s/H. Michael Dye Vice President May 9, 2003
- --------------------------
H. Michael Dye
26
CERTIFICATIONS
I, John B. Zumwalt, III, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The PBSJ Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 9, 2003
By: /s/ John B. Zumwalt, III
-------------------------
John B. Zumwalt, III
Vice Chairman and
Chief Executive Officer
27
I, Richard A. Wickett, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The PBSJ Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 9, 2003
By: /s/ Richard A. Wickett
------------------------
Richard A. Wickett
Chairman and
Chief Financial Officer
28
Exhibit Index
Exhibit Number Exhibit Description
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, June 30, 1999, June 30, 2002 and May 6, 2003. (*)
(**)
99.1 Chief Executive Officer Certification Pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Chief Financial Officer Certification Pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.