Back to GetFilings.com

Table of Contents

SECURITIES AND EXCHANGE COMMISSION

Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

For the fiscal year ended December 31, 2003

Commission File Number 0-26561

The Keith Companies, Inc.

19 Technology Drive, Irvine, California 92618

Registrant’s telephone number, including area code:

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

          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 filing requirements for the past 90 days.     Yes þ          No o

          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 registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

          Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).     Yes þ          No o

     The number of outstanding shares of the registrant’s common stock as of February 6, 2004 was 7,673,720 shares. Based on the closing sale price on the NASDAQ National Market on June 30, 2003, the aggregate market value of the registrant’s common stock held by non-affiliates was approximately $63,000,000.¹

DOCUMENTS INCORPORATED BY REFERENCE

          Part III incorporates certain information by reference from the registrant’s definitive proxy statement for the Annual Meeting of Shareholders scheduled to be held on May 18, 2004.

      ¹ For purposes of this calculation, shares owned by executive officers and directors have been deemed to be owned by affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

THE KEITH COMPANIES, INC.

ANNUAL REPORT ON FORM 10-K

Table of Contents

i

Table of Contents

PART I

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

      This Annual Report on Form 10-K contains certain forward-looking statements, including and/or concerning among others:

	•	forecasts of earnings, revenue or other financial items;
	•	anticipated growth in the real estate development and public works/infrastructure industry and the energy/industrial industry;
	•	our business strategy for expanding our presence in these industries;
	•	anticipated growth and economic expansion in the Western and Midwestern United States;
	•	anticipated trends in our financial condition and results of operations;
	•	anticipated growth in the pace and size of our acquisitions;
	•	anticipated impact of future acquisitions on the condition of our business by industry and geographic location;
	•	the long-term nature of our projects;
	•	our ability to attract and retain employees;
	•	our business strategy for integrating businesses that we acquire;
	•	our ability to sustain our growth and profitability; and
	•	our ability to distinguish ourselves from our current and future competitors.

      We generally identify forward-looking statements in this Report using words like “believe,” “expect,” “estimate,” “may,” “plan,” “should plan,” “project,” “contemplate,” “anticipate,” “predict” or similar expressions. You may find some of these statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business” and elsewhere is this Report. These statements involve known and unknown risks, uncertainties and other factors, including those described in the “Risk Factors” section, that may cause our or our industry’s actual results, levels of activity, performance or achievements to differ from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Except as required by applicable law, including the securities laws of the United States, and the rules and regulations of the Securities and Exchange Commission, we do not plan to publicly update or revise any forward-looking statements after we file this Report, whether as a result of any new information, future events or otherwise.

General

      We are a full service engineering and consulting services firm providing professional services on a wide range of projects to the real estate development and public works/infrastructure industry, and to the energy/industrial industry. We benefit from a diverse public and private client base including real estate developers, residential and commercial builders, architects, cities, counties, water districts, state and federal agencies, land owners, commercial retailers, energy providers and various manufacturers. Our professional staff and project workers provide a comprehensive menu of services that are needed to effectively manage, engineer and design infrastructure and state-of-the-art facilities.

1

Table of Contents

      The following illustrates the range of services that we offer:

      From 1999 through 2003, our net revenue has grown by a compounded annual growth rate of 23% and our net income from continuing operations has grown at a compounded annual growth rate of 38%. We have accomplished this through both our acquisition strategy to diversify the scope of our services and our geographic presence and through internal growth. We have acquired eight companies since December 1, 1997 and as of March 1, 2004 operate from 14 primary divisions in 7 states: California, Nevada, Utah, Arizona, Oregon, Texas and Michigan. In addition, we also have small operating activities in Brazil.

Industries Served

      We serve the real estate development and public works/infrastructure industry, and the energy/industrial industry.

     Real Estate Development

      Residential, commercial, golf, and other recreational developers use technical consultants to provide planning and environmental services to create land use plans, write the supporting planning and environmental documents and process entitlements and permits through governmental authorities. Technical consultants also assist clients with obtaining approvals and permits from federal, state and local agencies. After projects are approved by governmental agencies, developers need surveying, mapping, and civil engineering services to survey development sites, create accurate boundary and base maps, and provide engineering designs for grading, streets, sewer and water pipelines and facilities, utilities and drainage facilities. Upon completion of the design phase, surveyors provide construction staking services to identify the precise locations of streets, utilities, pipelines, and other facilities. In culturally sensitive areas, developers may also require environmental

2

Table of Contents

      Residential development includes large-scale communities, senior citizen and retirement communities, single family homes, condominiums and apartments. Commercial development includes the development and construction of retail, office, hotel and industrial facilities. Golf and recreational facility development includes golf courses, driving ranges, parks, clubhouses, theme parks, resorts and lakes.

      There are generally two types of real estate development clients: the land developer and the builder. Some take on characteristics of both. Developers generally must look long-term, utilize longer-term investment financing and evaluate the performance of projects across multiple business cycles. The developer pursues land development rights and implements the process of designing and constructing infrastructure utility, roadway and landform grading improvements. A developer’s projects often span several years or even decades. The builder, on the other hand, generally provides an end-user product, including homes, retail stores, restaurants or clubhouses. The builder’s approach is generally based upon current and relatively short-term economic conditions. Financing for a builder’s work is often construction-oriented and anticipates short-term returns. The builder often buys property that has already been zoned, graded and otherwise improved by the land developer.

     Public Works/ Infrastructure

      Water resources, transportation, and other public works projects provide ongoing, more reliable sources of revenue for engineering firms and consultants than private real estate development activities which may decline during unfavorable economic periods. These public projects are often long-term and have historically provided more determinable and consistent revenue streams than non-publicly funded projects. In the last couple of years, the public works/infrastructure industry segment has shown a high interest in assessing the security of these facilities in addition to enhancing the quality and availability of them.

      Water Resources. Water resource services encompass the study and analysis of rainfall, water collection and distribution, use of water for cleanliness, nourishment and irrigation and the treatment and disposal of used or contaminated water. Due to the multiple demands for municipal, environmental and agricultural uses, water is a resource requiring extensive management throughout the United States. As populations continue to grow and higher standards are placed on protecting the environment without sacrificing the supply and quality of water, water districts, public agencies, agricultural users and municipalities are faced with the challenge of managing their water supplies more efficiently.

      Protecting communities from natural disasters such as floods and mudflows, cleaning natural waterways, eliminating pollution from storm runoff flowing into the ocean and protecting and enhancing natural riparian resources are among the missions of public water-managing agencies. Private developers also address these issues as part of their land development.

      Transportation. Highly experienced transportation planners, engineers, and designers provide the entire spectrum of resources necessary to effectively engineer and design state-of-the-art transportation infrastructure. Engineers develop street, major arterial and highway designs in cooperation with federal, state and local agencies to improve transportation networks. Highway and interchange projects require engineering designs for roadways and interchanges for the placement or relocation of sewer and water pipelines and utility lines and for rainfall run-off management. They also require surveying services for establishment of proper rights of way for these facilities.

      The energy/industrial industry consists of manufacturing facilities, processing facilities, power generation and distribution, and production/refining methods and systems. Power plants, machines, assembly lines, factories and refineries require mechanical, electrical and process engineering services to enable utilization of

3

Table of Contents

	•	Design or redesign of electrical, heating, ventilation and air conditioning systems;
	•	Mechanical equipment design;
	•	Equipment selection and purchasing;
	•	Design of integrated computer and monitoring device systems to control manufacturing and process equipment;
	•	Chemical/process engineering;
	•	Energy generation and usage consulting;
	•	Fire protection engineering;
	•	Material handling and process flow planning;
	•	Automation and robotics design;
	•	Construction management and installation supervision;
	•	Plant testing during construction and start-up;
	•	Plant operations and maintenance;
	•	Project management; and
	•	Computer programming.

      Projects that utilize mechanical, electrical and process engineering and consulting services include:

	•	Energy/ Power Generation and Management: power plants, natural gas/electrical systems and distribution systems;
	•	High Tech Facilities: biotechnology, pharmaceutical and laboratory facilities, computer centers, control rooms and research and development facilities;
	•	Heavy Manufacturing: automotive assembly, and pulp and paper processing;
	•	Consumer Products: beverage, household products, packaging, and food processing;
	•	Educational Facilities: school and university buildings and campuses; and
	•	Public Facilities/ Utilities: medical buildings, hospitals, and publicly owned or occupied buildings.

      We believe there is a long-term trend in the manufacturing and assembly industries toward automation and increased efficiency. As these industries grow in the future, so does their need for engineering, design and consulting services to automate and increase the efficiency of new and existing facilities.

The Keith Companies Advantage

      The engineering and consulting services industries are highly fragmented, ranging from a large number of relatively small local firms to large, multi-national firms. Management believes we are among the leading engineering and consulting services firms serving our primary industries. We believe that we can further enhance our position in the industries which we serve for the following reasons:

     Reputation

      We have a reputation for providing high quality services, which is strengthened due to the personal relationships developed between our staff and representatives of clients and agencies. We have been awarded many projects either due to our expertise in working with an agency or project type or because a particular

4

Table of Contents

	•	Three Engineer of Merit Awards from The American Society of Civil Engineering — Orange County Branch
	•	Water Quality Awards for Innovational Excellence from The Michigan Association of County Drain Commissioners
	•	Award of Excellence — Honor Award from the City of Rancho Cucamonga, California for design excellence
	•	Engineering Project Achievement Award from the Orange County Engineering Council
	•	Project Achievement Award from the American Society of Civil Engineers — Orange County Branch
	•	Outstanding Environmental Analysis Document — Large Jurisdiction Award from the Association of Environmental Professionals — Inland Empire Chapter
	•	Outstanding Environmental Analysis Document Award from the Association of Environmental Professionals
	•	Letter of Appreciation from the State of California Department of General Services
	•	Project of the Year from the Orange County Branch of the American Society of Civil Engineers

     Industry and Professional Experience

      We believe that our senior management has the proven ability to execute our business plan and capitalize on new opportunities. Since December 1, 1997, management has closed eight acquisitions, enabling us to diversify both our revenue base and our geographic scope. Acquisitions continue to be a key component of our business plan. In most of the acquisitions, we have retained the management teams of the acquired companies and provided the financial and management controls to promote sustainable growth. This enables the acquired management team to run their business as they know best. In addition, the entire management team, from project manager to senior executive manager, is particularly adept at the relationship side of the business that plays a critical role in the world of engineering and consulting services.

      We recognize that our employees are our most valuable resource for providing continuing quality service and for obtaining new work. During employee selection and as part of the acquisition criteria, we require that the personnel whom we add to our team have significant experience in the industries that we serve. We supplement this industry experience by supporting continuing education seminars, design forums and training programs.

     Full Service Approach

      We provide a full complement of engineering and consulting services. Since many consulting and engineering services firms specialize in only one or a few services, a project owner may often be required to engage several engineering and/or consulting firms during the various phases of a project. The phases range from identifying and evaluating whether to acquire land or facilities, to designing, engineering and managing the construction of the finished project. In many cases, in addition to providing services during various phases of a project, we provide monitoring and maintenance services on projects after construction is complete. We believe that clients realize significant cost and time savings and maintain consistent quality by concentrating their engineering and consulting services in as few firms as practicable.

     Cross-Marketing

      Due to our reputation within industries we serve and due to our varied technical expertise, we have frequently increased the scope of services provided to a client from an initial engagement, such as large-scale land planning, to include other services, for example mapping, surveying and end-user site design. When we

5

Table of Contents

      Because our professionals provide many preliminary services for projects, we are frequently asked to provide additional services as a project progresses. In performing the preliminary services during the initial phases of a project, we obtain background information and data relating to the project that may be inefficient and costly for another firm to compile. Consequently, we are often more knowledgeable about a project, and are able to provide additional services more efficiently. As a result, we are often engaged to perform additional engineering and consulting services as a project progresses.

     Effective Organizational Structure

      We believe that our organizational structure allows us to compete effectively with small- and mid-sized local firms as well as with large regional, national and international firms. Our organizational structure combines the efficiencies associated with centralization and the flexibility of decentralization. When appropriate, our primary administrative functions are centralized in our corporate headquarters in Irvine, California allowing us to reduce duplicative functions and personnel at our divisional offices. We believe that this centralization allows the management at our divisional offices the freedom to focus on identifying new business opportunities and overseeing the services they provide, and also allows our project managers the flexibility to focus on being responsive to client needs. Since our divisions are managed by technical professionals with excellent client relationships and industry reputations, we promote decentralization of those aspects of our business which involve technical and client relationships.

Business Strategy

      Our objective is to strengthen our position as a leading provider of engineering and consulting services while growing our geographic presence and enhancing the services we offer. To achieve this objective, we have developed a strategy with the following key elements:

	•	Maintain High Quality Service. To maintain high quality service, we focus on being responsive to customers and working diligently and responsibly to maintain schedules and budgets. As a result of our focus on quality and timely service, we believe that we have established an excellent reputation in most of the markets we serve. We intend to continue providing high quality services as we expand our geographic presence and our service offerings.
	•	Continue to Recruit and Retain Highly Qualified Personnel. We believe that recruiting and retaining skilled professionals is crucial to our success and growth. As a result, we intend to continue to recruit experienced and talented individuals who can provide quality services and innovative solutions.
	•	Enhance and Strengthen Existing Client Relationships. By maintaining strong relationships with existing clients and promoting the cross-selling of services, we believe that we can further enhance our reputation and business opportunities. By focusing our efforts in this area, we can utilize the time that we spend with our clients on active work to promote additional services to them and gain additional contract opportunities for us. We believe that our existing relationships between our clients and employees is one of our greatest business development assets.
	•	Expand Services in Public Works/ Infrastructure, and Energy/ Industrial Industries. To diminish our susceptibility to the economic cycles affecting any particular industry, we intend to continue expanding our work in public works/infrastructure and energy/industrial. Much of our expertise, including Computer Aided Drafting (“CAD”) work, certain engineering specialties and administrative functions, can provide support across industries in the event that a particular industry segment experiences economic downturns. We believe that by expanding our services into industries which follow different economic cycles, we are able to reassign talented employees to other project types and help provide stability for our core staff, management and profit levels. Our acquisitions of John M. Tettemer & Associates Ltd.; ESI, Engineering Services Incorporated; Thompson-Hysell, Inc.; Pacific Engineering

6

Table of Contents

		Corporation; Universal Energy, Inc.; and ALNM Group Inc. have enhanced our ability to expand our services, some of which follow different economic cycles.
	•	Expand Geographically. To diminish the impact of regional economic cycles and to further enhance cross-selling opportunities, we intend to continue to expand our geographic presence through acquisitions, possibly opening additional divisional offices and by marketing our services to clients with national and international needs. Our geographic growth may provide us with broader access to employee pools, work-sharing between regions and new business opportunities. We believe that our acquisitions of ESI, Engineering Services Incorporated; Thompson-Hysell; Crosby, Mead, Benton & Associates; Hook & Associates Engineering, Inc.; Pacific Engineering Corporation; Universal Energy, Inc. and ALNM Group, Inc. have enabled us to more effectively sell additional services in the entire Southwest and the Midwest.
	•	Expand and Enhance Technical Capabilities. We intend to build upon our reputation as a quality provider of engineering and consulting services as we diversify our services to meet demands of our clients, industry segments and new markets. As part of our effort to continue diversifying the scope of our services, we intend to pursue strategic partnering relationships and acquisitions.

Acquisition Strategy

      We intend to continue to pursue acquisitions that complement our business strategy and enhance our range of services, geographic presence and/or client base. We believe that strategic acquisitions will enable us to more efficiently serve the diverse technical and geographic needs of, and secure additional business from, national and international clients.

      In general, the key criteria we consider when evaluating potential acquisitions include services offered, reputation, corporate culture, price, profitability and geographic location.

      The following table sets forth information regarding our eight acquisitions since December 1, 1997:

      Consideration for the companies we have acquired has included cash, shares of our common stock, promissory notes, or a combination of these forms of consideration. The consideration is sometimes subject to

7

Table of Contents

Services Provided

      We provide a broad range of services, including civil engineering, surveying and mapping, land planning, environmental services, cultural resources services, construction management, site acquisition, water resource engineering, and other services needed by the industrial, process and manufacturing industry, including instrumentation and control systems engineering, fire protection engineering, electrical engineering, mechanical engineering, chemical process engineering, start-up and testing, and operations and maintenance.

      General civil engineering is often referred to as everything “designed from the ground down” because most of the constructed improvements involved lie on the surface of, or below the ground. Our civil engineering services include project feasibility and due diligence analysis; development cost projections; access and circulation analysis; infrastructure design and analysis; pro forma cost studies; project management; preparation of construction documents; tentative mapping; flood plain studies; sewer, water and drainage design; street and highway design; site and sub-division design; and grading design.

      Surveying and mapping services include, among other things, the establishment of boundaries for preliminary engineering, construction layout, as-built surveys and the identification of features of a parcel of land that directly affect a project’s design. It is common for our surveying and mapping teams to be “the first in and the last out” for a construction project. We provide surveying and mapping services through teams of skilled professionals that utilize sophisticated technology, including global positioning systems that utilize satellite technology to survey and navigate land, geographic information systems, and field-to-office digital and electronic data capture to produce information that serves as the foundation for a variety of planning and engineering analysis and design endeavors. We believe that we were among the first engineering and surveying consultants to utilize global positioning systems with geographic information systems to perform precise ground surveys.

      Planning services include both physical planning and policy planning. Physical planning is graphical and includes conceptual drawings, sketches and layouts of communities and identifies land uses and residential and commercial neighborhoods. The resulting plan often becomes the basis for the preparation of engineering plans. To complement a physical plan, policy planning entails the preparation of supporting text and documents that establish procedures, requirements and guidelines for visual appearance or detailed permitting approvals under which the physical plan may be implemented.

      Our planning services are designed to assist clients with maximizing the potential uses of real estate and other limited resources. We provide plans that take into account government regulations, effective and creative use of land assets, and the expectations and needs of the community.

      Our environmental services include biological studies, permit processing, environmental document preparation and mitigation monitoring. We assist clients with the complex federal, state, and local permitting process enabling them to successfully implement private and public projects. Our environmental staff offers the technical proficiency to provide one-stop preparation of environmental documents that conform to current regulatory requirements.

      Our staff is experienced with the preparation of complex and challenging environmental planning documents such as Environmental Impact Reports, Environmental Impact Statements, initial studies and

8

Table of Contents

      We perform archaeological and paleontological studies that range from site review and records analysis to a discussion of measures to protect sensitive or valuable cultural resources. Further, we conduct field sampling and testing to establish or verify findings of a site review and previously documented information to determine both the quantity and quality of culturally valuable materials for a given site. Many environmental impact analyses result in requirements to protect significant cultural resources that may exist on a property, such as native American community settings, artifacts, and burial sites.

      We have provided monitoring of construction activities on numerous projects and have also completed complex excavations in coordination with state and federal agencies and native American representatives.

      Construction management services are an efficient “bundling” of some of the other services that we provide. During construction management assignments, we direct development and construction tasks, including the preparation of cost projections, entitlement and feasibility analysis, professional consultant selection and supervision, contractor bidding and construction supervision. We provide these services in discrete components or as a comprehensive package for private development and public works clients.

      Site acquisition services include the selection of prospective properties that fit defined criteria, identifying and overcoming restrictions against the intended use of properties, negotiating agreements for the acquisition and implementing the acquisition and final use of properties. We provide site acquisition services to assist clients with obtaining the most appropriate real estate for their particular needs or to assist them in assessing the quality and reliability of existing equipment and facilities in the energy industry. For example, a property intended for the development of multi-family housing will have characteristics which vary greatly from that of a property intended for the siting of a heavy industrial facility.

      Our water resources engineering services consist of financial planning, feasibility studies, storm water management, demand forecasting, hydraulic analysis and water flow studies to develop system master plans in addition to designing conventional systems of pipes, channels and dams.

      Our professionals integrate equipment selection, maintenance requirements and spare parts inventory by designing, selecting and reviewing mechanical, piping and electrical layouts, and providing operations and maintenance, training, start-up and emergency procedures during the design of contemporary processes or the automation of outdated manufacturing processes. These services are essential to creating an efficient operating facility.

      We provide fire protection engineering services in connection with both new construction and the renovation or modification of existing facilities to assist clients in defining and providing an acceptable level of fire safety in a cost-effective manner.

9

Table of Contents

      These services include the design of electrical power systems for buildings, manufacturing plants and miscellaneous facilities; design of lighting systems; and selection of other equipment that delivers or uses electrical power. We design various types of electrical power generation systems and power distribution systems. We also provide cogeneration and backup emergency power supply designs for university campuses and multiple building commercial facilities.

      These services are required to design energy systems, heating, ventilation, air conditioning (“HVAC”) systems, plumbing systems, water distribution systems and fire protection systems for facilities and buildings. We provide engineering design for HVAC systems and boiler, chilled water, compressed air, and other building facilities. Additionally, we provide mechanical engineering expertise for production line automation and manufacturing engineering support.

      Our chemical/ process engineers design systems for a variety of manufacturing and industrial facilities and processes like food and beverage, pharmaceutical, chemical and petroleum facilities.

      As plants, whether they are power generation or wastewater treatment, are constructed they require a significant amount of testing during the construction process to insure that various functions are performing as designed and expected. This work includes testing the system processes, electrical equipment, instrument calibration, and numerous other tests to insure that the plant will function as intended when it becomes operational. It then needs to be started and monitored, and the permanent staff for the plant must be trained to operate and manage it. We provide various plant services including testing, start up, and training for power plants. In addition, we provide operations and maintenance services for water and wastewater plants and have the ability to provide the same for power plants.

Business Development and Marketing

      Our business development and marketing activities consist of identifying target markets, developing strategies for pursuing these targets and supporting marketing activities company-wide by coordinating corporate promotional and professional activities. We use a client service value-added approach to our business development and marketing efforts by employing a variety of techniques to obtain contracts with new clients, repeat business with existing clients, and to maintain a positive reputation.

      Additionally, our business development and marketing efforts assist our management and clients in assuring quality performance, client satisfaction, and new opportunities. To accomplish this, we provide our clients with referrals for project partners and financing sources, assist with legislative matters and monitor in-house performance. Finally, we identify new projects and prospective clients in each of the markets in which we are active. This is achieved through the use of many resources including: geographic information systems and aerial maps, project and contact databases, the Internet, lead tracking publications, and industry networking relationships. We pursue the companies, agencies, projects and markets that we believe have financial strength, long-term growth potential and established reputations.

      Our growing list of services provides us with the opportunity to cross-market and sell additional services to our clients. We intend to further promote our broad service capabilities and continue to take advantage of our ability to increase our revenue by cross-selling services to existing clients and thereby to increase the number of services being provided to existing clients.

      One of the keys to being successful in cross-marketing our services is to ensure that all of our managers understand the complete capabilities of our company, including our full range of services and the geographic locations and industries in which we offer and provide our services. We give presentations to our staff to

10

Table of Contents

      One of our most effective methods of developing client relationships and winning new contracts has been our Executive Land Search Program. In our “map rooms”, we have computerized geographic information systems maps, aerial maps and city and county maps. We use these maps along with corresponding database information to identify and track a multitude of existing and potential projects. We meet with existing and prospective clients and refer available projects to them.

Clients

      Our primary private sector clients consist of real estate developers, builders, major manufacturers and energy providers. Our public sector clients include water and school districts, metropolitan planning organizations, transportation authorities and local, state and federal agencies. The following is a partial list of some of our representative clients:

      No individual client accounted for more than 10% of our net revenue in 2001, 2002 or 2003.

Backlog

      Our gross revenue backlog for fixed price contracts and time and material contacts with not-to-exceed provisions as of December 31, 2003, was approximately $58 million as compared to $51 million at December 31, 2002. Our backlog represents an estimate of the remaining future gross revenue from existing signed contracts, and contracts which have been awarded with a defined scope of work and contract value and on which we have begun work with verbal client approval. We do not believe that backlog is fully indicative of the amount of potential future revenue that we may achieve due to the short-term nature of the contracts under which we generally provide our services compared to the long-term nature of the projects and since our contracts are subject to cancellations and/or scope adjustments.

11

Table of Contents

Competition

      The market for our services is highly competitive. We compete with a variety of firms ranging from small, local firms to national and international firms that are much larger than we are. We perform engineering and consulting services for a broad spectrum of markets including energy, residential, commercial, recreational, public works, industrial, process and manufacturing. We believe that our competitive advantages include our multiple industries and services, reputation, organizational structure and business strategy. We believe that the principal factors in the engineering and consulting services selection criteria include:

	•	quality of service,
	•	relevant experience,
	•	staffing capabilities,
	•	reputation,
	•	geographic presence,
	•	stability, and
	•	price.

Employees

      As of January 31, 2004, we had approximately 775 employees and project workers. Believing that our success depends significantly upon attracting and retaining talented, innovative and experienced professionals, we are comprised of highly skilled personnel with significant industry experience and strong client relationships. We employ licensed civil engineers, mechanical engineers, electrical engineers, land surveyors, landscape architects, certified planners, information technology specialists, power plant personnel, geodesists and archaeologists, among others.

      At December 31, 2003, none of our employees were a party to a collective bargaining agreement other than approximately 10% of our employees whom we employ as field surveyors in California. Our field survey employees in our Southern California offices are covered by a Master Labor Agreement between the International Union of Operating Engineers Local Union No. 12 and the Southern California Association of Civil Engineers and Land Surveyors, which expires in October 2004. Our field survey employees in our Northern California offices are covered by a Master Agreement between the Bay Counties Civil and Land Surveyors Association and Operating Engineers Local Union No. 3, which expires in March 2005.

Available Information

      We maintain a website with the address www.keithco.com. We are not including the information contained on our website as a part of, or incorporating it by reference into, this Annual Report on Form 10-K. We make available free of charge, through our website via a hyperlink to a third party service, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after we electronically file that material with, or furnish such material to, the Securities and Exchange Commission.

      We occupy offices and facilities in various locations in California, Nevada, Utah, Arizona, Oregon, Texas and Michigan. Our corporate headquarters are located in Irvine, California and consist of approximately 63,000 square feet of space. Our corporate headquarters lease expires in October 2009. We believe that our existing office space is adequate to meet our current and foreseeable future requirements.

12

Table of Contents

      We are party to various legal proceedings that arise in the ordinary course of our business. Based on our experience, the nature of our current proceedings and our insurance policy coverage for such matters, the ultimate disposition of these matters should not have a material adverse effect on our financial position, liquidity or results of operations.

      No matters were submitted to a vote of security holders during the quarter ended December 31, 2003.

13

Table of Contents

PART II

      Our common stock is traded on the Nasdaq National Market under the symbol “TKCI”. The following table sets forth the low and high closing bid prices per share of our common stock for each calendar quarter indicated as reported on the Nasdaq National Market.

      We have not declared or paid any cash dividends on our capital stock and do not anticipate paying cash dividends on our common stock in the foreseeable future. In addition, our credit agreement with our bank restricts the payment of dividends without the bank’s consent.

Recent Issuances of Unregistered Securities

      In connection with our acquisition of Crosby, Mead, Benton & Associates (“CMB”) in October 2000, the purchase agreement provided for the issuance of unregistered shares of our common stock to the former shareholders of that company, subject to certain adjustments as stated in the agreement. We issued the former shareholders of CMB 35,905 shares of our common stock with a value of $188,000 during 2001, and 32,924 shares of our common stock with a value of $253,000 during 2002. These shares were issued in transactions exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(2) thereof.

      In connection with the acquisition of Hook Associates Engineering, Inc. (“Hook”) in January 2001, the purchase agreement provided for the issuance of unregistered shares of our common stock to the former shareholders of that company, subject to certain adjustments as stated in the agreement. We issued the former shareholders of Hook 34,188 shares of our common stock with a value of $500,000 in 2001. These shares were issued in transactions exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(2) thereof.

      In connection with our acquisition of Universal Energy, Inc. (“UEI”) in November 2001, the former shareholders are eligible for additional consideration, which may affect the purchase price as a result of an earn-out provision. As part of this earn-out, which is based on certain profitability targets for 2002, 2003, and 2004, we may be obligated to issue additional shares of our common stock to be determined under the earn-out provision of the agreement. If issued, these shares are to be issued in three installments in May 2003, May 2004 and May 2005. In May 2003, we issued 70,907 shares of our common stock with a value of $714,000 related to the 2002 portion of the earn-out. UEI did not meet its profitability target related to 2003, and therefore, we do not expect to issue any shares in 2004 related to this. The issuance of future shares is subject to certain adjustments as stated in the agreement. These shares are expected to be issued in transactions exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(2) thereof.

14

Table of Contents

      In connection with our acquisition of ALNM Group, Inc. (“ALNM”) in March 2002, the purchase agreement provided for the issuance of unregistered shares of our common stock to the former shareholders of that company. We issued the former shareholders of ALNM 141,856 shares of our common stock in 2002 with a value of $1,569,000 and estimate approximately 75,000 shares of our common stock or $792,000 in value of shares to be issued in 2004. The issuance of future shares is subject to certain adjustments as stated in the agreement. These shares were, and are expected to be, issued in transactions exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(2) thereof.

      The selected financial data includes the consolidated financial statement data for the periods presented.

      The statement of income data for the years ended December 31, 2001, 2002 and 2003, and the balance sheet data as of December 31, 2002 and 2003, have been derived from our audited consolidated financial statements which are included elsewhere in this Annual Report on Form 10-K. The statements of income data for the years ended December 31, 1999 and 2000, and the balance sheet data as of December 31, 1999, 2000 and 2001, have been derived from our audited consolidated financial statements which are not included in this Annual Report on Form 10-K.

      The following information should be read in conjunction with our consolidated financial statements and the related notes and our Management’s Discussion and Analysis of Financial Condition and Results of Operations which are included elsewhere in this Annual Report on Form 10-K.