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 December 31, 2003
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to 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 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)
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 x NO ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12-b-2 of the Exchange Act). YES ¨ NO x
As of January 31, 2004 there were 7,721,609 shares of Common Stock, $.00067 par value per share, outstanding.
FORM 10-Q
DECEMBER 31, 2003
TABLE OF CONTENTS
| Item |
CAPTION |
PAGE | ||
| PART I: FINANCIAL INFORMATION | ||||
| Item 1. | Financial Statements | 3 | ||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 13 | ||
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 23 | ||
| Item 4. | Controls and Procedures | 21 | ||
| PART II: OTHER INFORMATION | ||||
| Item 1. | Legal Proceedings | 22 | ||
| Item 2. | Changes in Securities and Use of Proceeds | 22 | ||
| Item 3. | Defaults Upon Senior Securities | 22 | ||
| Item 4. | Submission of Matters to a Vote of Security Holders | 22 | ||
| Item 5. | Other Information | 22 | ||
| Item 6. | Exhibits and Reports on Form 8-K | 22 | ||
| SIGNATURES | 24 | |||
2
PART I
THE PBSJ CORPORATION
CONDENSED CONSOLIDATED BALANCE
SHEETS
(in thousands, except share data)
| December 31, 2003 |
September 30, 2003 |
|||||||
| (Unaudited) | ||||||||
| Assets |
||||||||
| Current Assets: |
||||||||
| Cash and cash equivalents |
$ | 2,152 | $ | 3,290 | ||||
| Marketable securities |
616 | 550 | ||||||
| Accounts receivable, net |
52,590 | 52,510 | ||||||
| Unbilled fees, net |
34,312 | 39,916 | ||||||
| Other current assets |
7,364 | 4,316 | ||||||
| Total current assets |
97,034 | 100,582 | ||||||
| Property and equipment, net |
32,288 | 31,599 | ||||||
| Cash surrender value of life insurance |
7,706 | 7,357 | ||||||
| Deferred income taxes |
6,389 | 5,701 | ||||||
| Other assets |
11,579 | 11,638 | ||||||
| Total assets |
$ | 154,996 | $ | 156,877 | ||||
| Liabilities and Stockholders’ Equity |
||||||||
| Current Liabilities: |
||||||||
| Accounts payable and accrued expenses |
31,921 | 33,060 | ||||||
| Current portion of long-term debt |
386 | 820 | ||||||
| Accrued vacation |
6,302 | 7,598 | ||||||
| Deferred income taxes |
17,836 | 16,691 | ||||||
| Total current liabilities |
56,445 | 58,169 | ||||||
| Long-term debt, less current portion |
18,061 | 17,350 | ||||||
| Deferred compensation |
6,721 | 6,544 | ||||||
| Other liabilities |
5,405 | 5,351 | ||||||
| Total liabilities |
86,632 | 87,414 | ||||||
| Stockholders’ Equity: |
||||||||
| Common stock, par value $0.00067, 15,000,000 shares authorized, 7,754,578 and 7,969,780 shares issued and outstanding at December 31, 2003 and September 30, 2003, respectively. |
5 | 5 | ||||||
| Retained earnings |
70,573 | 71,792 | ||||||
| Accumulated other comprehensive loss |
(176 | ) | (314 | ) | ||||
| Unearned compensation |
(2,038 | ) | (2,020 | ) | ||||
| Total stockholders’ equity |
68,364 | 69,463 | ||||||
| Total liabilities and stockholders’ equity |
$ | 154,996 | $ | 156,877 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
THE PBSJ CORPORATION
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(in thousands)
| Three months ended December 31, |
||||||||
| 2003 |
2002 |
|||||||
| (Unaudited) | ||||||||
| STATEMENTS OF OPERATIONS DATA: |
||||||||
| Earned revenue: |
||||||||
| Engineering fees |
$ | 103,495 | $ | 85,084 | ||||
| Direct expenses |
21,270 | 18,683 | ||||||
| Net earned revenue |
82,225 | 66,401 | ||||||
| Costs and expenses: |
||||||||
| Direct salaries |
29,228 | 23,842 | ||||||
| General and administrative expenses |
46,726 | 38,344 | ||||||
| Total costs and expenses |
75,954 | 62,186 | ||||||
| Operating income |
6,271 | 4,215 | ||||||
| Other income (expenses): |
||||||||
| Interest expense |
(237 | ) | (259 | ) | ||||
| Other, net |
487 | 235 | ||||||
| Total other expenses |
250 | (24 | ) | |||||
| Income before income taxes |
6,521 | 4,191 | ||||||
| Provision for income taxes |
2,869 | 1,425 | ||||||
| Net income |
$ | 3,652 | $ | 2,766 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
THE PBSJ CORPORATION
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS
(in thousands)
| Three months ended December 31, |
||||||||
| 2003 |
2002 |
|||||||
| (Unaudited) | ||||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | 3,652 | $ | 2,766 | ||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
||||||||
| Other |
(178 | ) | (47 | ) | ||||
| Depreciation and amortization |
2,228 | 2,074 | ||||||
| Gain on sale of property |
(31 | ) | — | |||||
| Provision for bad debt and unbillable amounts |
50 | 72 | ||||||
| Provision for deferred income taxes |
365 | 1,000 | ||||||
| Provision for deferred compensation |
329 | 294 | ||||||
| Change in operating assets and liabilities, net of acquisitions: |
||||||||
| (Increase) decrease in accounts receivable |
(131 | ) | 5,903 | |||||
| Decrease (increase) in unbilled fees |
5,604 | (1,408 | ) | |||||
| Increase in other current assets |
(3,048 | ) | (2,039 | ) | ||||
| Increase in other assets |
(31 | ) | (15 | ) | ||||
| Decrease in accounts payable and accrued expenses |
(4,462 | ) | (5,954 | ) | ||||
| Decrease in accrued vacation |
(1,296 | ) | (1,311 | ) | ||||
| Increase in other liabilities |
218 | 406 | ||||||
| Net cash provided by operating activities |
3,269 | 1,741 | ||||||
| Cash flows from investing activities: |
||||||||
| Investment in life insurance policies |
(142 | ) | (91 | ) | ||||
| Acquisitions, net of cash acquired |
— | (1,331 | ) | |||||
| Sale of property and equipment |
34 | 15 | ||||||
| Purchase of property and equipment |
(2,830 | ) | (2,514 | ) | ||||
| Net cash used in investing activities |
(2,938 | ) | (3,921 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Borrowings under line of credit |
44,400 | 40,993 | ||||||
| Principal payments under line of credit |
(43,618 | ) | (33,412 | ) | ||||
| Principal payments under notes and mortgage payable |
(505 | ) | (514 | ) | ||||
| Proceeds from sale of common stock |
3,323 | 3,183 | ||||||
| Purchase of common stock |
(5,069 | ) | (6,464 | ) | ||||
| Net cash (used in) provided by financing activities: |
(1,469 | ) | 3,786 | |||||
| Net decrease in cash and cash equivalents |
(1,138 | ) | 1,606 | |||||
| Cash and cash equivalents at beginning of year |
|
3,290 |
|
|
2,967 |
| ||
| Cash and cash equivalents at end of year |
$ | 2,152 | $ | 4,573 | ||||
The accompanying notes are an integral part of these condensed 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 December 31, 2003 and the results of operations and cash flows for the periods presented. All such adjustments are of a normal recurring nature. The condensed consolidated balance sheet as of September 30, 2003 was derived from the Company’s audited financial statements included in the Company’s Form 10-K for the year ended September 30, 2003. The accompanying financial statements should be read in conjunction with the Company’s Form 10-K for the year ended September 30, 2003. The results of operations for the three-month period ended December 31, 2003 and 2002 are not necessarily indicative of the results to be expected for the 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.
6
Anticipated losses are recognized in total in the period in which they become determinable. Accounts receivable is presented net of an allowance for doubtful accounts of $1.1 million and $1.1 million at December 31, 2003 and September 30, 2003, respectively. Unbilled fees are presented net of an allowance for estimated unbillable amounts of $0 at December 31, 2003 and September 30, 2003.
Recent Accounting Pronouncements
In January 2003, the FASB issued FASB interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46) and amended it in October 2003, such that it is now effective for the Company in the first quarter of fiscal 2004. Variable interest entities (VIE’s) are entities that lack sufficient equity to finance their activities without additional financial support from another party or whose equity holders lack adequate decision making ability based on criteria set forth in the interpretation. The current FIN 46 guidance is still evolving with several proposed amendments and clarifications recently issued through an exposure draft release. The company has evaluated the total impact of FIN 46, based on the current exposure draft, and the Company does not expect FIN 46 to have a material impact on its results of operations or financial position.
Capital Structure
The Company has authorized 15,000,000 shares of common stock (par value $.00067).
The by-laws of the Company give the Company the right to purchase back its common stock, at fair market value, held by shareholders who terminate employment with the Company. However, the by-laws also grant the Company the first right of refusal to repurchase these shares, at which time the shares would be sold to any other eligible fulltime employee of the Company by the selling shareholder. Other than agreements with certain retired Directors as noted in the Proxy, as of December 31, 2003 and 2002, there is no outstanding common stock relating to employees no longer employed by the Company.
| 2. | Contingencies: |
The Company is involved in legal actions arising in the ordinary course of business. The Company maintains a full range of insurance coverage, including worker’s compensation, general and professional liability (including pollution liability) and property coverage. The Company’s insurance policies may offset some of the amount of loss exposure from legal actions.
As of December 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 December 31, 2003, the Company has an accrual of approximately $5.2 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 income tax provision was $2.9 million and $1.4 million, or an effective tax rate of 44.0% and 34.0%, for the three-month periods ended December 31, 2003 and 2002, respectively. The increase in the effective tax rate in 2003 was primarily due to the increase in the valuation allowance for the deferred taxes related to research and development tax credit carry-forwards. These research and development tax credit carry-forwards, which expire beginning 2017 through 2022, were approximately $10.2 million and $8.4 million as of December 31, 2003 and September 30, 2003, respectively. A valuation allowance of $2.6 million and $2.1 million at December 31, 2003 and September 30, 2003, respectively, has been provided for against the deferred tax asset related to these tax credit carry-forwards.
| 4. | Segment Reporting: |
Financial information relating to the Company’s operations by service is as follows (dollars in thousands):
| Three Months Ended December 31, 2003 |
||||||||||||||||
| Transportation |
Construction |
Civil |
Environmental |
Total | ||||||||||||
| Engineering fees |
$ | 41,060 | $ | 16,679 | $ | 19,129 | $ | 26,627 | $ | 103,495 | ||||||
| Net earned revenue |
31,102 | 13,020 | 16,637 | 21,466 | 82,225 | |||||||||||
| Operating income |
2,366 | 1,375 | 1,522 | 1,008 | 6,271 | |||||||||||
| Depreciation and amortization |
793 | 207 | 562 | 666 | 2,228 | |||||||||||
| Total assets |
61,493 | 24,978 | 28,648 | 39,877 | 154,996 | |||||||||||
| Capital expenditures |
1,049 | 411 | 560 | 810 | 2,830 | |||||||||||
| Three Months Ended December 31, 2002 |
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