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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended September 30, 2002
Commission File Number 0-30911
THE PBSJ CORPORATION
(Exact name of Registrant
as specified in its charter)
| FLORIDA |
|
59-1494168 |
| (State or other jurisdiction of
Incorporation or organization) |
|
(I.R.S. Employer Identification No.) |
2001 N.W. 107th AVENUE
MIAMI, FLORIDA 33172-2507
(Address of principal executive offices)
(305) 592-7275
(Registrant’s telephone
number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant
to Section 12(g) of the Act:
Common Stock ($.00067 Par Value)
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2) has been subject to such filings for the past 90 days. Yes x No ¨
Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment of this Form 10-K. ¨
The number of shares of Common Stock outstanding as of November 30, 2002 was 8,146,974. The aggregate market value of the voting stock
held by non-affiliates of the registrant based on the $17.80 closing price for the registrant’s Common Stock on December 15, 2002 was approximately $52,088,656. Directors, executive officers and 10% or greater shareholders are considered
affiliates for purposes of this calculation but should not necessarily be deemed affiliates for any other purpose.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Report on Form 10-K incorporates
information by reference from the registrant’s definitive Proxy Statement to be used in conjunction with its fiscal 2003 Annual Meeting of Shareholders.
THE PBSJ CORPORATION
FORM 10-K
SEPTEMBER 30, 2002
| Item Number
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CAPTION
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PAGE
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| PART I: |
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| Item 1. |
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3 |
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| Item 2. |
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15 |
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| Item 3. |
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15 |
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| Item 4. |
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15 |
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| PART II: |
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| Item 5. |
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16 |
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| Item 6. |
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17 |
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| Item 7. |
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| Item 8. |
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33 |
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| Item 9. |
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50 |
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| PART III: |
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| Item 10. |
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50 |
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| Item 11. |
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50 |
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| Item 12. |
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| Item 13. |
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50 |
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| Item 14. |
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50 |
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| PART IV: |
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| Item 15. |
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50 |
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54 |
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55 |
2
PART I
General
The PBSJ Corporation and its subsidiaries is an employee-owned professional services organization that provides a broad range of planning, design and construction services
to a variety of public and private sector clients. Our four major business segments are transportation, environmental, civil engineering and construction management, representing 42%, 26%, 19% and 13%, respectively, of our fiscal 2002 revenues. We
utilize our expertise in engineering, planning, management, environmental, architectural and surveying disciplines to solve complex problems in each of these basic service areas. We provide these services through our staff of 2,800 professional,
technical and support personnel. We believe our multi-disciplinary approach to problems facilitates our ability to effectively meet the needs of our clients.
Since our founding in 1960, we have grown from a small civil engineering practice with operations only in South Florida to a national design firm offering a full range of engineering, architectural and
planning services throughout the United States. Evidencing this, in 2002, Engineering News-Record ranked Post, Buckley, Schuh & Jernigan, Inc. 8th on its list of the top 100 pure design firms (traditional design firms with no construction
capability) in the United States, based on design revenue. During fiscal 2002, we provided services to approximately 3,000 clients in the public and private sectors. Approximately 95% of our clients had previously used our services. In fiscal 2002,
77% of our net revenues were derived from the public sector and 23% from the private sector.
We have built an
organization composed of highly skilled professionals and top level technical and administrative personnel with a wide variety of scientific, engineering, architectural and management resources. These resources enable us to develop and implement
innovative long-term solutions to the complex problems of our clients, many of which are the subject of public concern and extensive governmental regulation. We assist our clients in responding to these concerns, in obtaining governmental permits
and approvals and in complying with applicable laws and regulations.
We began operations on February 29, 1960.
Our holding company, The PBSJ Corporation, was incorporated in 1973. We engage in business primarily through two wholly-owned subsidiaries: Post, Buckley, Schuh & Jernigan, Inc., a Florida corporation (through which we provide the majority of
our engineering, architectural and planning services) and PBS&J Construction Services, Inc. (through which we provide the majority of our construction management services). In addition, we have two other active subsidiaries: Seminole Development
Corporation (through which we hold title to all our real property); and Post, Buckley International, Inc. (through which we provide services to our international clients). In this Form 10-K, all references to “PBSJ” or “our”
operations refer to The PBSJ Corporation and its wholly-owned subsidiaries and the activities of these entities on a consolidated basis. Our executive offices are located at 2001 N.W. 107th Avenue, Miami, Florida.
3
Acquisitions
Throughout our history, PBSJ has made selected strategic acquisitions to increase the firm’s geographic presence in the West and Central regions, to enhance its
technical capabilities firm-wide and to solidify our operations in the Eastern region. Once we acquire a firm it is integrated and consolidated into our existing operations and the subsidiary ceases to exist as a separate operating entity. The
following acquisitions occurred in the last three years:
| |
• |
|
January 2001 – J. Powell & Associates, Inc. |
The Company acquired certain assets from J. Powell & Associates, Inc., on January 1, 2001 for $2.2 million less the amount of J. Powell’s accrued vacation at January 1, 2001. The assets acquired include fixed assets,
goodwill of the trade name and deposits on leased properties. The acquisition of these assets contributes to the Company’s goal of increasing its presence in the Western region. J. Powell’s areas of specialty included civil engineering,
environmental engineering and construction management in both the private and public sectors. The acquisition was accounted for using the purchase method of accounting, and the results of operations were included as of the respective date of
acquisition, which is January 1, 2001.
Through our strategic acquisitions, PBSJ has developed solid technical
expertise, in both core services and emerging markets, and a nationwide presence that allows us to respond to clients in our “local” markets with the advantages of a national firm. Since the close of the fiscal year ended September 30,
2002, we acquired the stock of Durham Technologies, Inc. (DTI) on December 1, 2002, for $1.5 million. Although we do not currently have any probable plans with respect to any additional material acquisitions, we will continue to evaluate possible
strategic acquisitions of engineering or related service businesses in connection with our plan to diversify our sources of business and the geographic areas in which we operate.
Business Segments
The following table sets forth our
revenues, in thousands, from each of our four basic business segments for each of the three years ended September 30, 2002, 2001, and 2000, and the approximate percentage of our total revenues attributable to each business segment:
| |
|
2002
|
|
|
2001
|
|
|
2000
|
|
| |
|
Revenues
|
|
%
|
|
|
Revenues
|
|
%
|
|
|
Revenues
|
|
%
|
|
| |
|
(dollars in thousands) |
|
| Transportation |
|
$ |
143,655 |
|
42 |
% |
|
$ |
128,098 |
|
41 |
% |
|
$ |
106,580 |
|
41 |
% |
| Environmental |
|
|
91,124 |
|
26 |
|
|
|
75,676 |
|
24 |
|
|
|
52,757 |
|
20 |
|
| Civil Engineering |
|
|
65,115 |
|
19 |
|
|
|
70,104 |
|
22 |
|
|
|
69,026 |
|
26 |
|
| Construction Management |
|
|
44,567 |
|
13 |
|
|
|
40,228 |
|
13 |
|
|
|
34,162 |
|
13 |
|
Additional information concerning segment profit and loss and assets is set forth in Item
7 under the caption entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in Item 8, Note 12 of “Notes to Financial Statements” which are incorporated herein by reference.
4
Transportation
Industry Overview
The need to modernize and upgrade the
transportation infrastructure in the United States has been a source of continued business for us through the last ten years. Fueling the initial growth in this market was the Intermodal Surface Transportation Efficiency Act (“ISTEA”) of
1991. ISTEA placed funding emphasis on intermodalism and transportation efficiency, and established comprehensive planning systems. In 1998, ISTEA was reauthorized as the Transportation Equity Act for the 21st Century (“TEA-21”). TEA-21
earmarks $218 billion for highway and transit projects through 2003. Although a United.States federal program, TEA-21 provides state and local governments considerable flexibility in project selection. In 2000, the Federal Government established the
Wendell H. Ford Aviation Act for the 21st Century (“AIR-21”). This greatly increased aviation
capitol improvement funding nationwide.
Our Services
Our activities in this area generally involve planning, design, right of way acquisition, development and design of intelligent transportation services and program
construction management services for highways, including interstate, primary, and arterial roads and toll facilities, bridges, transit, airports and port facilities. We currently serve 15 state departments of transportation throughout the U.S. and
numerous aviation authorities.
Our Program Management group provides many of our governmental clients the
necessary resources to manage large infrastructure programs from concept through construction. Our services include planning, programming, and contract support. During production we develop design standards, manage projects, perform design reviews
and develop cost estimates. Following production, we (1) facilitate environmental permitting, (2) coordinate right-of-way administration and (3) provide construction management oversight.
During 2002, projects in our Transportation Division included:
| |
• |
|
Overseeing all project planning and pre-construction requirements and activities and providing bond support services for the Florida Turnpike Enterprise’s
capital improvement program including coordinating acquisition of the necessary rights-of-way, and reviewing construction drawings and cost estimates. |
| |
• |
|
Providing general engineering consulting services to the Orlando-Orange County Expressway Authority, including the reconstruction of S.R. 408.
|
| |
• |
|
Preparing final design plans for the reconstruction of U.S. 95 in Las Vegas, Nevada Department of Transportation. |
| |
• |
|
Designing the widening and reconstruction of 17 miles of I-30 in and southwest of Little Rock for the Arkansas State Highway and Transportation Department.
|
| |
• |
|
Site preparation plans for the construction of the new fifth runway at Atlanta Hartsfield Airport. |
5
| |
• |
|
Planning and design services for the Charlotte 2025 Land Use/Transit plan for light rail and bus transit facilities. |
Environmental
Industry Overview
Over the past thirty years, significant environmental laws at the federal, state and local levels have been
enacted in response to public concern over the health of the nation’s air, water, and natural resources. Those laws and their implementation through regulation affect numerous industrial and governmental actions and form a key market driver for
the services of our Environmental business segment.
Two federal environmental laws, The Safe Drinking Water Act
of 1974 and the Clean Water Act of 1972, continue to drive this segment of our business. Pursuant to these laws, Congress has authorized significant monies to assist state and local governments. According to the Environmental Protection Agency
(“EPA”), as much as $23 billion a year will be needed for construction and upgrade of water and wastewater treatment facilities over the next 20 years.
Our Services
Our Environmental business segment focuses on the delivery of
planning, design and construction management services for private and public sector clients related to:
| |
| |
|
|
| Air Quality Management |
|
Flood Insurance Studies |
| Energy Planning |
|
Hazardous and Solid Waste Management |
| Cultural Resources Assessments |
|
Information Solutions |
| Ecological Studies |
|
Wastewater Treatment |
| Environmental Toxicology Analysis |
|
Water Resources |
| Aquatic Treatment Systems |
|
Water Supply and Treatment |
During 2002, projects in our Environmental business segment included:
| |
• |
|
A multi-year contract with the Federal Emergency Management Agency (“FEMA”) to serve as Flood Mapping Coordination Contractor for FEMA’s Central
Region V (Illinois, Indiana, Michigan, Ohio, Minnesota and Wisconsin), Central Region VI (Texas, Oklahoma, Arkansas, Louisiana and New Mexico) and Central Region VII (Nebraska, Kansas, Idaho and Missouri). |
| |
• |
|
Providing engineering services during construction of the Washington Suburban Sanitary Commission’s 20-million-gallons-per-day advanced Seneca Wastewater
Treatment Plant in Montgomery County, Maryland, which utilizes biological nutrient removal. |
6
| |
• |
|
Continued to support the New York Power Authority, Consolidated Edison Company for New York, Orange and Rockland Utilities, and Central Hudson Gas and Electric
Corporation for assessing the impacts of power plant operations on Hudson River fish populations. |
| |
• |
|
The state of Florida and the Federal government have reached an agreement to implement a Comprehensive Everglades Restoration Project (“CERP”) in
south Florida. The CERP is budgeted to cost over $8 billion and the cost is to be shared equally between the Federal Government and the state and local agencies. The PBS&J team was selected by the Corps of Engineers to provide program management
support activities on the Federal portion of the CERP. The joint venture contract is budgeted for up to $6 million/year and the contract is for 3 years with provisions for up to 5 renewal periods. |
| |
• |
|
The City of San Diego, California, has retained PBSJ to conduct a series of condition assessment investigations as part of a 10-year, $1.2-billion sewer
assessment and rehabilitation program (one of the largest undertakings in the country) with the express purpose of reducing overflows and beach closures in San Diego County. With offices in Encinitas and San Diego; an existing, strong relationship
with the City; and substantial national resources to support this effort, PBSJ is uniquely poised to assist the City with this important program. The overall 10-year potential fee from this effort for PBSJ is in the $20 to $40 million range.
|
Civil Engineering
Industry Overview
The strong and long running national
economic climate we have all enjoyed came to an abrupt halt with the attack on September 11, 2001 and the resulting stock market plunge. The private sector slowed as companies reevaluated the impact of the terrorist attacks and “guarded
optimism” became their business mantra. Corporate relocations, new office buildings, commercial tracts, and retail centers slowed as the stock market continued to drop. Residential development maintained its momentum due to declining interest
rates and “guarded” feelings of job security. As corporate scandals began to emerge and the market refused to rebound, private sector development, and more particularly, residential development began to feel the pains of significant
layoffs and an increase in jobless rates. The momentum of the past decade was slowing.
Prior to the September 11,
2001 tragedy, our Civil Engineering business segment recognized the need for a better balance between public sector and private sector work, and subsequently developed a strategic plan to penetrate growth markets in the public sector areas in need
of civil engineering services. As a result of that effort, we have added federal planning, municipal services, education, ports, and emergency management services to our core business. This new mix of public sector clients has allowed our service to
better reflect the company’s vision and market direction, and position Civil to take advantage of a down turn in the private sector.
Our Services
Our Civil Engineering business segment provides general civil
engineering services to public and private clients. Included in these services are (1) site suitability studies, (2) master infrastructure engineering and planning, (3) site engineering, (4) municipal engineering, (5) regulatory permitting, (6)
7
construction phase services, (7) disaster planning and response and (8) homeland security and force
protection. Within our Civil Engineering business segment, we also have three additional service groups: Surveying and Mapping, Planning and Landscape Architecture, and Architecture.
Our Surveying and Mapping group provides clients GPS-based surveying, mobile surveying for roadways and other hard surfaces, land platting, right-of-way mapping,
construction layout and control, boundary and topographic surveys, control networks, tunnel surveying, commercial land title surveys, hydrographic surveying, movement detection and deformation surveys, and rail and mass transit surveys.
Our Planning and Landscape Architecture group provides clients master land use planning, site planning, urban and
regional planning, urban design, environmental planning, cultural resource identification, and landscape architecture.
Our Architecture group provides comprehensive architectural design, space planning and interior design, as well as electrical, mechanical and structural engineering services for educational, commercial, industrial transportation,
military, and other public and private entities.
During 2002, projects in our Civil Engineering business segment included:
| |
• |
|
Master planning services for Europe District Army Bases (EUD ACOE) located within Europe, the Middle East, Africa and former Soviet states.
|
| |
• |
|
General civil engineering services for $1.5 billion/ 5-year expansion program of the Centers for Disease Control facilities in Atlanta, Georgia.
|
| |
• |
|
Entitlement processing, final engineering design, and construction surveying for over 1,000 single-family homes for American West Development throughout Clark
County. |
| |
• |
|
Completed grading, drainage, and infrastructure engineering for 800 student housing units at the University of California Los Angeles for VTBS, Architects.
|
| |
• |
|
Water Sound North Development of Regional Impact for St. Joe/Arvida. |
| |
• |
|
Texas Veterans’ Land Board and General Land office, State cemetery programs for architectural and engineering services. |
Construction Management
Industry Overview
The demand for our construction management services has also been fueled
by the legislation and industry trends that are driving the growth in our Transportation and Environmental business segments, including ISTEA and TEA-21. These trends have resulted in a large number of infrastructure projects throughout the United
States, which are subject to increasingly complex governmental regulations. The role of the construction manager has become increasingly important to the success of these projects, requiring a new level of versatility and a wide range of skills.
Both public and private sector entities are under pressure to complete these projects at accelerated schedules, resulting in a myriad of project delivery
8
systems. With limited in-house staff, these entities must rely on experienced construction managers to
complete the project on time and within budget.
Our Services
In the area of construction management, we provide a wide range of services as an agent for our clients, including contract administration, inspection, field-testing,
scheduling/estimating, instituting project controls and quality assessment. Although we do not construct or build any projects, we may act as the program director of a project whereby on behalf of the owner of the project, we provide scheduling,
cost estimating and construction observation services for the project, or our services may be limited to providing construction consulting.
During 2002, projects in our Construction Management Division included:
| |
• |
|
Providing construction engineering and inspection services to the Departments of Transportation in Alabama, Arkansas, Colorado, Nevada, Texas, Florida, Georgia
and North Carolina, as well as to County Municipalities such as Cobb County Water & Sewer Department and Collier County, Florida. |
| |
• |
|
Providing construction administration to the Clark County (Nevada) Department of Public Works, as well as the City of Oceanside (California).
|
| |
• |
|
Performing Structural Inspection Services for hurricane shelters for the State of Florida, Department of Community Affairs. |
| |
• |
|
Providing comprehensive services, including cost estimating, scheduling and construction claims reviews, to the school boards of Miami-Dade County and Broward
County, Florida; York County, SC; Cobb County DOT in Georgia and TTA (Texas Turnpike Authority – now included as a part of TxDot). |
| |
• |
|
Providing construction-related services to BellSouth throughout Florida and Georgia, including quality assurance inspections, verification of contractor’s
invoices, damage inspections and responding to natural disasters. |
| |
• |
|
Providing construction inspection services nationally to the National Park Service and Federal Highway Administration’s Central Lands Division.
|
| |
• |
|
Working as the Owner’s Representative providing construction management for a twin high-rise vertical project in Miami, Florida.
|
Other Services
In addition to our four national business segments, we have developed a National Information Solutions Division to address the digital infrastructure needs of our clients.
Our services include: training,
9
database analysis, system programming, land planning and design and geographic information systems.
Recent projects which have allowed our information solutions to address client needs include:
| |
• |
|
Development and implementation of an enterprise GIS system for Polk County, Florida Utilities department, including automated data access for planning and
mobile data collection tools for streamlining the utility locate process. |
| |
• |
|
Extensive GIS and database support for various utility master planning contracts in southern California, Nevada and Florida. |
| |
• |
|
Development of a Corridor Constraints Analysis tool for automating data calculations in the support of FERC permit filing in pipeline alignment studies.
|
| |
• |
|
Implementation of a web-based project collaboration system for approximately a dozen major program management contracts allowing team members to share
documents, events and messages over the web. |
| |
• |
|
Implementation of a web-based GIS system for management of all flood study data related to FEMA MCC program management efforts. |
Clients
Through our four national business segments, we provide our services to a broad range of clients, including state, local and municipal agencies, the Federal government and private sector businesses. Our state and local government
clients include approximately 15 state departments of transportation, water utilities, local power generators, waste water treatment agencies, environmental protection agencies, schools and colleges, law enforcement, judiciary, hospitals and
healthcare providers. We provide services to Federal agencies, including the Army Corps of Engineers, EPA, Navy, Air Force, Coast Guard, United States Postal Service, FEMA and Department of Energy, and local entities. Our contracts with federal,
state and local entities are subject to various methods of determining fees and costs. See “Contract Pricing and Terms of Engagement” for further discussion of our pricing arrangements with governmental clients.
10
Our private sector clients include retail and commercial, entertainment,
railroad, petro-chemical, food, telecommunications, oil and gas, power, semi-conductor, transportation, technology, public utility, mining and forest products entities. The table below indicates the revenue generated, by client type, for each of the
three years ended September 30, 2002, 2001 and 2000.
| |
|
2002
|
|
|
2001
|
|
|
2000
|
|
| |
|
(dollars in thousands) |
|
| Domestic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Local and state agencies |
|
$ |
237,165 |
|
69 |
% |
|
$ |
201,037 |
|
64 |
% |
|
$ |
170,641 |
|
65 |
% |
| Federal agencies |
|
|
26,494 |
|
8 |
|
|
|
21,530 |
|
7 |
|
|
|
8,611 |
|
3 |
|
| Private businesses |
|
|
80,562 |
|
23 |
|
|
|
89,735 |
|
28 |
|
|
|
81,383 |
|
31 |
|
| International |
|
|
240 |
|
0 |
|
|
|
1,804 |
|
1 |
|
|
|
1,890 |
|
1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Total |
|
$ |
344,461 |
|
100 |
% |
|
$ |
314,106 |
|
100 |
% |
|
$ |
262,525 |
|
100 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2002, we derived approximately 18% of our engineering fees from
various districts and departments of the Florida Department of Transportation (“FDOT”) under numerous contracts. While we believe the loss of any individual contract would not have a material adverse effect on our results of operations and
would not adversely impact our ability to continue work under our other contracts with the FDOT, the loss of all the FDOT contracts would have a material adverse effect on our results of operations by causing a material decrease in our revenues and
profits.
International Business
During fiscal 2002, revenues from our international operations were approximately $240,000, or less than 1% of our total revenues, from a project in Venezuela, which is now closed. We do not currently
have any plans to expand or grow our international operations.
Marketing
Marketing activities are conducted by key operating and executive personnel, including specifically assigned business development personnel, as well as through
professional personnel who develop and maintain new and existing client relationships. Our continued ability to compete successfully in the areas in which we do business is largely dependent upon aggressive marketing, the development of information
regarding client requirements, the submission of responsive cost-effective proposals and the successful completion of contracts. Information concerning private and governmental requirements is obtained, during the course of contract performance,
from formal and informal briefings, from participation in activities of professional organizations, and from literature published by the government and other organizations.
11
Contract Pricing and Terms of Engagement
We earn our revenues for the various types of services we provide through cost-plus, time-and-materials, fixed price, and contracts, which combine any of the methods.
Cost-Plus Contracts. Under our cost-plus contracts, we charge clients negotiated rates based on our direct and
indirect costs. Labor costs and sub-contractor services are the principal components of our direct costs. Federal Acquisition Regulations, which are applicable to all Federal government contracts and which are partially incorporated in many local
and state agency contracts, limit the recovery of certain specified indirect costs or contracts subject to such regulations. In negotiating a cost-plus contract, we estimate all recoverable direct and indirect costs and then add a profit component,
which is either a percentage of total recoverable costs or a fixed negotiated fee, to arrive at a total dollar estimate for the project. We receive payment based on the total actual number of labor hours expended. If the actual total number of labor
hours is lower than estimated, the revenues from that project will be lower than estimated. If the actual labor hours expended exceed the initial negotiated amount, we must obtain a contract modification to receive payment for such overage. During
fiscal 2002, approximately 18% of our contracts were cost-plus contracts, primarily with state and local government agencies.
Cost-plus contracts covered by Federal Acquisition Regulations and certain state and local agencies require an audit of actual costs and provide for upward or downward adjustments if actual recoverable costs differ from billed
recoverable costs. There are no open or pending audits by federal or state authorities as of September 30, 2002. The result of our last audit for the year ended September 30, 2001 resulted in no adjustments. Our contracts with governmental entities,
once executed, are not subject to renegotiation of profits at the election of the government, however, they are subject to continued funding. Our contracts generally provide that we receive our profit on a periodic basis through the course of the
project. Therefore, if a governmental agency fails to fund for a successive year, our profit will have been proportionally received as recognized.
Time-and-Materials Contracts. Under our time-and-materials contracts, we negotiate hourly billing rates and charge our clients based on actual time expended. In addition, clients reimburse us for the
actual out-of-pocket costs of materials and other direct incidental expenditures incurred in connection with performing the contract. Our profit margins on time-and-materials contracts fluctuate based on actual labor and overhead costs directly
charged or allocated to contracts compared with negotiated billing rates. During fiscal 2002, approximately 51% of our contracts were time-and-materials contracts, primarily with federal, state and local agencies, as well as some private sector
clients.
Fixed-Price Contracts. Under our fixed-price contracts, clients pay us an agreed sum negotiated in
advance for the specified scope of work. Under fixed-price contracts, we make no payment adjustments if we over-estimate or under-estimate the number of labor hours required to complete the project, unless there is a change of scope in the work to
be performed. Accordingly, our profit margin will increase to the extent the number of labor hours and other costs are below the contracted amounts. The profit margin will decrease and we may realize a loss on the project if the number of labor
hours required and other costs exceed the estimate. During fiscal 2002, approximately 31% of our contracts were fixed-price contracts, primarily with private sector clients.
12
Competition
We face active competition in all areas of our business. As we provide a wide array of engineering, architectural, planning and construction management services to
companies in various industries throughout the United States, we encounter a different group of competitors in each of our markets. Our competitors include (1) national and regional design firms like PBSJ that provide a wide range of design services
to clients in all industries, including CH2M Hill and Parsons Brickerhoff, (2) industry specific firms that provide design as well as other services to customers in a specific industry, for example environmental firms such as Montgomery Watson, Camp
Dresser and McKee, Inc., and (3) local firms that provide some or all of our services in one of our markets. Some of our competitors are larger, more diversified firms having substantially greater financial resources and larger professional and
technical staffs than ours. Competition for major contracts is frequently intense and may entail public submittals and multiple presentations by numerous firms seeking to be awarded the contract. The extent of competition we will encounter in the
future will vary depending on changing customer requirements in terms of types of projects and technological developments. It has been our experience that the principal competitive factors for the type of service business in which we engage are a
firm’s demonstrated ability to perform certain types of projects, the client’s own previous experience with competing firms, the firm’s size and financial condition and the cost of the particular proposal.
No one firm currently dominates a significant portion of the sectors in which we compete. Given the expanding demand for some of the
services provided by PBSJ, it is likely that additional competitors will emerge. At the same time, consolidation continues to occur in certain of the sub-segments of the industry in the United States, including the environmental-focused firms.
We believe that we will retain the ability to compete effectively with other firms that provide similar services
by continuing to offer a broad range of high-quality consulting and environmental, transportation, and engineering and construction management services through our network of offices. Among other things, the wide range of expertise, which we
possess, permits us to remain competitive in obtaining government contracts despite shifts in governmental spending emphasis. Our multi-disciplinary capabilities enable us to compete more effectively for clients whose projects require that the
expertise of professionals in a number of different disciplines be brought to bear in the problem solving effort. We believe that our ability to offer our services over a large part of the United States is a positive factor in enabling us to attract
and retain clients who have a need for our services in different parts of the country.
Backlog
Our backlog for services was estimated to be approximately $339.0 million and $303.0 million as of September 30, 2002 and 2001,
respectively. We define backlog as contracted task orders less previously recognized revenue on such task orders. U.S. government agencies, and many state and local governmental agencies, operate under annual fiscal appropriations and fund various
contracts only on an incremental basis. Our ability to realize revenues from our backlog depends on the availability of funding for various federal, state and local government agencies.
A majority of our customer orders or contract awards and additions to contracts previously awarded are received or occur at random during the year and may have varying
periods of performance. The comparison of backlog amounts on the same date in successive years is not necessarily indicative of trends in our business or future revenues.
13
The major components of our operating costs are payroll and payroll-related
costs. Since our business is dependent upon the reputation and experience of our personnel and adequate staffing, a reasonable backlog is important for the scheduling of operations and for the maintenance of a fully-staffed level of operations.
Regulation
Compliance with federal, state and local regulations, which have been enacted or adopted relating to the protection of the environment is not expected to have any material effect upon the capital expenditures, earnings and
competitive position of PBSJ.
Personnel
As of September 30, 2002, we employed 2,800 persons, of which 275 were part time employees. Most of our employees are professional or technical personnel having specialized training and skills,
including engineers, architects, analysts, scientists, management specialists, technical writers and skilled technicians. Although many of our personnel are highly specialized in certain areas and while there is a nationwide shortage of certain
qualified technical personnel, we are not currently experiencing any material difficulty in obtaining the personnel we require to perform under our contracts. We believe that our future growth and success will depend, in large part, upon our
continued ability to attract and retain highly qualified personnel. We believe our employee relations to be good.
Liabilities and
Insurance
When we perform services for our clients, we can become liable for breach of contract, personal
injury, property damage and negligence. Such claims could include improper or negligent performance or design, failure to meet specifications and breaches of express or implied warranties. Our clients often require us to contractually assume
liabilities for damage or personal injury to the client, third parties and their property and for fines and penalties. Because our projects are typically large enough to affect the lives of many people, the damages available to a client or third
parties are potentially large and could include punitive and consequential damages. For example, our transportation projects involve services that affect not only our client, but also many end users of those services.
We seek to protect PBSJ from potential liabilities by obtaining indemnification, where possible, from our public and private sector
clients. However, even when we obtain such indemnification, it is generally not available if we fail to satisfy specified standards of care in performing our services or if the indemnifying person has insufficient assets to cover the liability.
Therefore, we also seek to protect PBSJ by maintaining a full range of insurance coverage, including worker’s compensation, general and professional liability (including pollution liability) and property coverage. Our professional liability
coverage is on a claims made basis (which means that the policy provides liability coverage for all claims made during the policy period, regardless of when the action occurred), while the rest of our insurance coverage is on an occurrence basis
(which means that the policy provides liability coverage only for injury or damage arising from an action that occurs during the policy period, regardless of when the claim is actually made). Our professional liability insurance provides for annual
coverage of up to $30 million with an annual deductible of $3.0 million. Based upon our previous experience with such claims and lawsuits, we believe our insurance coverage is adequate for all our present operational activities, although there can
14
be no assurances that such coverage will prove to be adequate in all cases. A successful claim or claims in an amount in excess of our insurance
coverage for which there is not coverage could have a material adverse effect on our results of operation.
We own our executive offices located at 2001 N.W. 107th Avenue, Miami,
Florida 33172, which consists of approximately 100,000 square feet of office space. We own our Orlando office located at 482 South Keller Road, Orlando, Florida 32810, which consists of approximately 90,000 square feet of office space. The Orlando
office building is held as collateral under the Company’s mortgage note. We own three additional office buildings in Ft. Myers, Florida, Homestead, Florida and Hollywood, Florida through our wholly-owned subsidiary, Seminole Development
Corporation. All of these properties are currently being leased to third parties.
We lease an additional 60
offices in 16 states in the United States and Puerto Rico, all of which are used for our four major business segments. Aggregate lease payments during fiscal year 2002 were approximately $9.9 million.
We believe that substantially all of our property and equipment are, in general, well maintained and in good operating condition. They are
considered adequate for present needs, and as supplemented by planned construction, are expected to remain adequate for the near future.
We are of the opinion that we, or our subsidiaries, have clear title to the properties owned and used in our business, subject to liens for current taxes and easements, restrictions and other liens, which do not materially
detract from the value of the properties or our interest in the properties or the use of those properties in our business.
ITEM 3.
LEGAL PROCEEDINGS
We are party to various legal proceedings arising from our
operations. We believe that we have sufficient professional liability insurance such that the outcome of any of these proceedings, individually and in the aggregate, will not have a material adverse effect on our financial position or results of
operations. However, if our insurance company were to deny coverage for a significant judgment or if a judgment were entered against us in an amount greater than our coverage, it could adversely affect our results of operations. Based upon our
previous experience with claims and lawsuits, we believe our insurance coverage is adequate.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5.
MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
There is no established public trading market for our common stock.
As of November 30, 2002 there were no shares of common stock that were subject to outstanding warrants or options to purchase, or
securities convertible into, our common stock, and no shares of our common stock could be sold pursuant to Rule 144 under the Securities Act. No shares of our common stock are being, or have been, publicly offered.
As of November 30, 2002, there were 8,146,974 shares of common stock outstanding and held of record by 555 shareholders.
Dividends
Each share of our common stock is entitled to share equally in any dividends declared by our board of directors. Pursuant to the terms of our credit agreement, we cannot declare or pay dividends in excess of 50% of our net income. We
have not in the past paid cash dividends on our common stock and have no present intention of paying cash dividends on our common stock in the foreseeable future. All earnings are retained for investment in our business.
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ITEM 6.
SELECTED FINANCIAL DATA
The following table sets forth selected historical financial
data as of and for the years ended September 30, 2002, 2001, 2000, 1999 and 1998. The financial data for each of the fiscal years has been derived from, and is qualified by reference to, our audited financial statements. You should read the
information set forth below in conjunction with our consolidated Financial Statements, including the notes thereto, and Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Form 10-K.
| |
|
Year Ended September 30,
|
| |
|
2002
|
|
2001
|
|
2000
|
|
1999
|
|
1998
|
| |
|
(dollars in thousands) |
| Operating Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Engineering fees |
|
$ |
344,461 |
|
$ |
314,106 |
|
$ |
262,525 |
|
$ |
241,417 |
|
$ |
223,381 |
| Net earned revenue |
|
|
266,326 |
|
|
236,216 |
|
|
196,830 |
|
|
|