1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
Commission File Number 0-26561
THE KEITH COMPANIES, INC.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 33-0203193
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2955 REDHILL AVENUE, COSTA MESA, CALIFORNIA 92626
--------------------------------------------------------------------------------
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (714) 540-0800
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
--- ---
The number of outstanding shares of the registrant's common stock as of May 1,
2001 was 5,405,784.
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THE KEITH COMPANIES, INC. AND SUBSIDIARIES
INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets 2
Consolidated Statements of Income 3
Consolidated Statements of Cash Flows 4
Notes to the Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, December 31,
2001 2000
----------- -----------
(Unaudited)
ASSETS
Current assets: ..........................................
Cash and cash equivalents .............................. $ 1,478,000 $ 1,043,000
Contracts and trade receivables, net of allowance
for doubtful accounts of $1,153,000 and $1,166,000
at March 31, 2001 and December 31, 2000, respectively 14,490,000 12,089,000
Other receivables ...................................... 200,000 211,000
Costs and estimated earnings in excess of billings ..... 7,448,000 6,334,000
Prepaid expenses and other current assets .............. 554,000 555,000
Deferred offering costs ................................ 285,000 --
----------- -----------
Total current assets ............................... 24,455,000 20,232,000
Equipment and leasehold improvements, net ................ 5,380,000 4,713,000
Goodwill, net of accumulated amortization of $437,000
and $329,000 at March 31, 2001 and December 31, 2000,
respectively ........................................... 10,720,000 8,128,000
Other assets ............................................. 273,000 239,000
----------- -----------
Total assets .................................. $40,828,000 $33,312,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit ......................................... $ 1,669,000 $ 2,025,000
Current portion of long-term debt and capital lease
obligations .......................................... 3,253,000 3,359,000
Trade accounts payable ................................. 2,295,000 1,689,000
Accrued employee compensation .......................... 3,042,000 2,467,000
Current portion of deferred tax liabilities ............ 1,541,000 1,541,000
Other accrued liabilities .............................. 2,141,000 807,000
Billings in excess of costs and estimated earnings ..... 1,620,000 1,001,000
----------- -----------
Total current liabilities .......................... 15,561,000 12,889,000
Long-term debt and capital lease obligations, less
current portion ........................................ 1,649,000 361,000
Issuable common stock .................................... 1,700,000 1,000,000
Deferred tax liabilities ................................. 719,000 719,000
Accrued rent ............................................. 120,000 104,000
----------- -----------
Total liabilities ............................. 19,749,000 15,073,000
----------- -----------
Shareholders' equity:
Preferred stock, $0.001 par value. Authorized 5,000,000
shares; no shares issued or outstanding .............. -- --
Common stock, $0.001 par value. Authorized 100,000,000
shares at March 31, 2001 and December 31, 2000;
issued and outstanding 5,376,846 and 5,115,882
shares at March 31, 2001 and December 31, 2000,
respectively ......................................... 5,000 5,000
Additional paid-in capital ............................. 13,919,000 12,453,000
Retained earnings ...................................... 7,155,000 5,781,000
----------- -----------
Total shareholders' equity ......................... 21,079,000 18,239,000
----------- -----------
Total liabilities and shareholders' equity ......... $40,828,000 $33,312,000
=========== ===========
See accompanying notes to the consolidated financial statements.
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THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
For the Three Months Ended
----------------------------
March 31, March 31,
2001 2000
----------- -----------
Gross revenue .................................. $18,702,000 $13,107,000
Subcontractor costs ............................ 2,080,000 688,000
----------- -----------
Net revenue ............................ 16,622,000 12,419,000
Costs of revenue .............................. 10,897,000 8,382,000
----------- -----------
Gross profit ........................... 5,725,000 4,037,000
Selling, general and administrative expenses ... 3,284,000 2,650,000
----------- -----------
Income from operations ................. 2,441,000 1,387,000
Interest expense ............................... 142,000 107,000
Other expenses, net ............................ 9,000 10,000
----------- -----------
Income before provision for income taxes 2,290,000 1,270,000
Provision for income taxes ..................... 916,000 508,000
----------- -----------
Net income ............................. 1,374,000 762,000
=========== ===========
Earnings per share data:
Basic .................................. $ 0.26 $ 0.15
=========== ===========
Diluted ................................ $ 0.24 $ 0.15
=========== ===========
Weighted average number of shares outstanding:
Basic .................................. 5,243,887 4,959,107
=========== ===========
Diluted ................................ 5,839,877 5,241,667
=========== ===========
See accompanying notes to the consolidated financial statements.
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THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
For the Three Months Ended
-------------------------------
March 31, March 31,
2001 2000
----------- -----------
Cash flows from operating activities:
Net income ............................................... $ 1,374,000 $ 762,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ............................ 545,000 353,000
Loss (gain) on sale of equipment ......................... (4,000) 4,000
Tax benefit from exercise of stock options ............... 548,000 --
Changes in operating assets and liabilities, net
of effects from acquisition:
Contracts and trade receivables, net ................. (254,000) (694,000)
Other receivables .................................... 11,000 (7,000)
Costs and estimated earnings in excess of billings ... (1,002,000) (720,000)
Prepaid expenses and other current assets ............ 13,000 231,000
Other assets ......................................... (37,000) (14,000)
Trade accounts payable and accrued liabilities ....... 1,307,000 741,000
Billings in excess of costs and estimated earnings ... 421,000 83,000
----------- -----------
Net cash provided by operating activities .......... 2,922,000 739,000
----------- -----------
Cash flows from investing activities:
Net cash expended for acquisition ........................ (1,530,000) --
Additions to equipment and leasehold improvements, net ... (409,000) (280,000)
Proceeds from sale of equipment .......................... 6,000 --
----------- -----------
Net cash used in investing activities .............. (1,933,000) (280,000)
----------- -----------
Cash flows from financing activities:
Payments on line of credit, net .......................... (625,000) (985,000)
Principal payments on long-term debt and capital lease
obligations, including current portion ................. (348,000) (374,000)
Repurchase of common stock ............................... -- (101,000)
Proceeds from exercise of stock options .................. 419,000 17,000
----------- -----------
Net cash used in financing activities .............. (554,000) (1,443,000)
----------- -----------
Net increase (decrease) in cash and cash equivalents 435,000 (984,000)
Cash and cash equivalents, beginning of period ............. 1,043,000 1,569,000
----------- -----------
Cash and cash equivalents, end of period ................... $ 1,478,000 $ 585,000
=========== ===========
See supplemental cash flow information at Note 6.
See accompanying notes to the consolidated financial statements.
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THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying consolidated balance sheet as of March 31, 2001, and the
consolidated statements of income and cash flows for the three months ended
March 31, 2001 and 2000, are unaudited and in the opinion of management
include all adjustments necessary to present fairly the information set
forth therein, which consist solely of normal recurring adjustments. All
significant intercompany transactions have been eliminated and certain
reclassifications have been made to prior periods' consolidated financial
statements to conform to the current period presentation. The results of
operations for these interim periods are not necessarily indicative of
results for the full year. The consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes
thereto included in the Annual Report on Form 10-K/A of The Keith
Companies, Inc. (together with its subsidiaries, the "Company") for the
fiscal year ended December 31, 2000 as certain disclosures which would
substantially duplicate those contained in such audited financial
statements have been omitted from this report.
2. PER SHARE DATA
Basic earnings per share ("EPS") is computed by dividing net income during
the period by the weighted average number of common shares outstanding
during each period. Diluted EPS is computed by dividing net income during
the period by the weighted average number of shares that would have been
outstanding assuming the issuance of common shares for all dilutive
potential common shares outstanding during the reporting period, net of
shares assumed to be repurchased using the treasury stock method.
The following is a reconciliation of the denominator for the basic EPS
computation to the denominator of the diluted EPS computation:
For the Three Months Ended
--------------------------
March 31, March 31,
2001 2000
---------- ----------
Weighted average shares used for the basic EPS
computation .................................... 5,243,887 4,959,107
Incremental shares from the assumed exercise of
dilutive stock options and stock warrants,
issuable shares and contingently issuable shares 595,990 282,560
--------- ---------
Weighted average shares used for the diluted EPS
computation .................................... 5,839,877 5,241,667
========= =========
In conjunction with certain acquisitions, the Company agreed to pay
consideration consisting of shares of its common stock. As a result, the
Company estimated and included 149,882 and 120,000 weighted average
issuable and contingently issuable shares in its weighted average shares
used for the diluted EPS computation for the three months ended March 31,
2001 and 2000, respectively. These estimates are based upon the number of
shares that are issuable at March 31, 2001 and that would have been
issuable at March 31, 2000 and through the date of issuance in 2001,
weighted for the assumed period the shares were outstanding (commencing the
later of the date of acquisition or the beginning of the fiscal year).
Anti-dilutive weighted potential common shares excluded from the above
calculations were 2,383 and 546,356 for the three months ended March 31,
2001 and 2000, respectively.
3. ACQUISITIONS
On January 31, 2001, the Company acquired substantially all of the assets
and assumed substantially all of the liabilities of Hook & Associates
Engineering, Inc. ("Hook") for an estimated purchase price of $4,430,000.
The purchase price consisted of $1,530,000 in cash, $1,200,000 of issuable
common stock of the Company, a subordinated promissory note in the original
amount of $1,300,000 and an estimated $400,000 to be paid in cash related
to the income tax effects to the seller. The common stock of the Company is
to be issued in two
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THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
installments; 34,188 shares were issued in February 2001 with a value of
$500,000, with the remaining $700,000 to be issued in 2002. The issuance of
the $700,000 of common stock and the amount of the subordinated promissory
note are subject to certain adjustments extending up to one year from the
date of acquisition related to the book values of net assets acquired,
cash, accounts receivable, costs and estimated earnings in excess of
billings and billings in excess of costs and estimated earnings as of
December 31, 2000.
This acquisition was accounted for using the purchase method of accounting.
Accordingly, the Company recorded goodwill of $2,716,000, which represents
the excess of the purchase price over the fair value of the net tangible
and identifiable intangible assets acquired and liabilities assumed. Such
amount is being amortized over a period of 25 years.
The following unaudited pro forma data presents information as if the
acquisition of Hook had occurred on January 1, 2000. The pro forma data is
provided for information purposes only and is based on historical
information. The pro forma data does not necessarily reflect the actual
results of operations that would have occurred had Hook and the Company
comprised a single entity during the periods presented, nor is it
necessarily indicative of future results of operations of the combined
entities.
PRO FORMA FOR THE
THREE MONTHS ENDED
MARCH 31,
-----------------------------
2001 2000
----------- -----------
Net revenue.......................... $17,281,000 $13,949,000
Net income........................... $ 1,401,000 $ 824,000
Basic earnings per share............. $ 0.27 $ 0.17
4. INDEBTEDNESS
In September 1999, the Company entered into a line of credit agreement with
a bank, which consists of a working capital component with a maximum
outstanding principal balance of $6.0 million, maturing on September 3,
2001, and an equipment component which matured on January 3, 2001. The
Company elected not to amend or extend the equipment component and may
reestablish this component when the Company renews the working capital
component in 2001. At March 31, 2001, the outstanding borrowings under the
working capital component of the line of credit was approximately
$1,700,000, bearing interest at prime (8.0%, at such date). The borrowings
on the line of credit agreement were used primarily to fund the Company's
working capital needs and the acquisition of Hook.
5. SEGMENT AND RELATED INFORMATION
The Company evaluates performance and makes resource allocation decisions
based on the overall type of services provided to customers. For financial
reporting purposes, the Company has grouped its operations into two primary
reportable segments; Real Estate Development, Public Works/Infrastructure
and Communications ("REPWIC") and Industrial/Energy ("IE"). The REPWIC
segment includes engineering and consulting services for the development of
both private projects, such as residential communities, commercial and
industrial properties and recreational projects; public
works/infrastructure projects, such as transportation and water/sewage
facilities; and site acquisition and construction management services for
wireless telecommunications. The IE segment provides the technical
expertise and management required to design and test manufacturing
facilities and processes and to facilitate the construction of alternate
electrical power systems that supplement public power supply and large
scale power consumers.
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THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
The following tables set forth certain information regarding the Company's
operating segments for the three months ended March 31, 2001 and 2000:
FOR THE THREE MONTHS ENDED MARCH 31, 2001
------------------------------------------------------
CORPORATE
REPWIC IE COSTS CONSOLIDATED
----------- ---------- ----------- ------------
Net revenue ................. $15,394,000 $1,228,000 $ -- $16,622,000
Income (loss) from operations $ 3,728,000 $ 125,000 $(1,412,000) $ 2,441,000
Identifiable assets ......... $38,788,000 $2,040,000 $ -- $40,828,000
FOR THE THREE MONTHS ENDED MARCH 31, 2000
------------------------------------------------------
CORPORATE
REPWIC IE COSTS CONSOLIDATED
----------- ---------- ----------- ------------
Net revenue ................. $11,282,000 $1,137,000 $ -- $12,419,000
Income (loss) from operations $ 2,376,000 212,000 $(1,201,000) $ 1,387,000
Identifiable assets ......... $22,553,000 $1,366,000 $ -- $23,919,000
6. SUPPLEMENTAL CASH FLOW INFORMATION
FOR THE THREE MONTHS
ENDED MARCH 31,
-------------------
2001 2000
-------- --------
Supplemental disclosure of cash flow information:
Cash paid for interest .......................... $ 55,000 $114,000
======== ========
Cash paid for income taxes ...................... $ -- $204,000
======== ========
Noncash financing and investing activities:
Purchase price adjustment to goodwill and
accrued liabilities ........................... $(16,000) $ --
======== ========
Insurance financing ............................. $ -- $115,000
======== ========
Deferred offering costs ......................... $285,000 $ --
======== ========
Issuable common stock issued .................... $500,000 $ --
======== ========
The acquisition of Hook on January 31, 2001 resulted in the following increases:
Contracts and trade receivables ........................ $(2,147,000)
Costs and estimated earnings in excess of billings ..... (112,000)
Other current assets ................................... (12,000)
Goodwill ............................................... (2,716,000)
Equipment and leasehold improvements ................... (696,000)
Other assets ........................................... (12,000)
Line of credit ......................................... 269,000
Billings in excess of costs and estimated earnings ..... 198,000
Long term debt, including current portion .............. 1,530,000
Accounts payable, accrued expenses and other liabilities 968,000
Issuable common stock .................................. 1,200,000
-----------
Net cash expended for acquisition ................. $(1,530,000)
===========
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THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
7. SUBSEQUENT EVENT
On May 7, 2001, the Company completed a secondary offering of an aggregate
of 2.0 million shares of common stock, of which 1,750,000 shares were sold
by the Company and 250,000 shares were sold by selling shareholders. The
public offering price was $16.00 per share which resulted in proceeds to
the Company, net of underwriting fees and estimated offering expenses, of
approximately $25,633,000.
The Company and the selling shareholders have granted the underwriters an
over-allotment option, which is exercisable through June 15, 2001, to
purchase up to an aggregate of 300,000 additional shares of common stock at
the public offering price of $16.00 per share, less underwriting fees. If
the over-allotment option is exercised by the underwriters, the Company
anticipates that 150,000 of such over-allotment shares will be sold by the
Company with the remaining sold by the selling shareholders.
The Company intends to use the net proceeds from the secondary offering for
general corporate purposes, including working capital, and may use the
proceeds for the repayment of the line of credit balance. In addition, the
Company may use a portion of the net proceeds to acquire other businesses.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements of the Company and the related notes included elsewhere in
this Form 10-Q and the Annual Report on Form 10-K/A for the fiscal year ended
December 31, 2000 filed by the Company. This discussion contains forward-looking
statements that involve risks and uncertainties. Our actual results could differ
materially from those anticipated in these forward-looking statements as a
result of any number of factors, including those set forth under "Risk Factors"
and elsewhere in the Annual Report on Form 10-K/A filed by the Company. In this
Management's Discussion and Analysis of Financial Condition and Results of
Operations section, references to "TKCI", "we", "our" and "us" mean the Company.
OVERVIEW
We derive most of our revenue from professional service activities. The majority
of these activities are billed under various types of contracts with our
clients, including fixed price and time and material contracts. Most of our time
and material contracts have not-to-exceed provisions. Revenue is recognized on
the percentage of completion method of accounting based on the proportion of
actual direct contract costs incurred to total estimated direct contract costs.
We believe that costs incurred are the best available measure of progress
towards completion on the contracts. In the course of providing services, we
sometimes subcontract for various services. These costs are included in billings
to clients and, in accordance with industry practice, are included in our gross
revenue. Because subcontractor services can change significantly from project to
project, changes in gross revenue may not be indicative of business trends.
Accordingly, we also report net revenue, which is gross revenue less
subcontractor costs. Our revenue is generated from a large number of relatively
small contracts.
A substantial portion of our net revenue is derived from services rendered in
connection with commercial and residential real estate development projects. The
real estate market has historically experienced pronounced business cycles. Our
consolidated results of operations can be adversely impacted by downturns in the
real estate market. Based upon the number of building permits issued, the last
peak of the business cycle in the southern California real estate market was in
1989 and the last trough was in 1996. A majority of our net revenue for the
periods presented, was derived from services rendered in southern California.
Consequently, adverse economic conditions affecting the southern California
economy could also have an adverse effect on our consolidated results of
operations. We anticipate that as we consummate acquisitions in the future, the
concentration of revenue from both real estate development and in southern
California may decline.
Costs of revenue include labor, non-reimbursable subcontract costs, materials
and various direct and indirect overhead costs including rent, utilities and
depreciation. Selling, general, and administrative expenses consist primarily of
corporate costs related to finance and accounting, information technology,
business development and marketing, contract proposal, executive salaries,
amortization of goodwill, provisions for doubtful accounts and other indirect
overhead costs.
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RESULTS OF OPERATIONS
The following table sets forth unaudited historical consolidated operating
results for each of the periods presented as a percentage of net revenue:
FOR THE THREE
MONTHS ENDED
MARCH 31,
------------------
2001 2000
---- ----
Gross revenue................................. 113% 106%
Subcontractor costs........................... 13% 6%
--- ---
Net revenue.............................. 100% 100%
Costs of revenue.............................. 66% 67%
--- ---
Gross profit............................. 34% 33%
Selling, general and administrative expenses.. 20% 21%
--- ---
Income from operations................... 14% 12%
Interest expense.............................. 1% 2%
--- ---
Income before provision for income taxes. 13% 10%
Provision for income taxes.................... 5% 4%
--- ---
Net income.............................. 8% 6%
=== ===
THREE MONTHS ENDED MARCH 31, 2001 AND MARCH 31, 2000
Net Revenue. Net revenue for the three months ended March 31, 2001 was $16.6
million compared to $12.4 million for the three months ended March 31, 2000, an
increase of $4.2 million, or 34%. The growth in net revenue resulted primarily
from the acquisitions of Crosby Mead Benton & Associates in October 2000 and
Hook & Associates Engineering, Inc. in January 2001, which together contributed
$2.8 million of net revenue. Excluding the revenue from these acquisitions, net
revenue grew $1.4 million, or 11%, compared to the three months ended March 31,
2000. This net revenue growth is attributable largely to growth in the Company's
surveying and civil engineering services, resulting primarily from the strong
demand for real estate in California and Nevada. Subcontractor costs, as a
percentage of net revenue, increased to 13% for the three months ended March 31,
2001 compared to 6% for the three months ended March 31, 2000. The percentage
increase in subcontractor costs for the three months ended, resulted primarily
from a significant increase in subcontract services for a large contract in our
industrial/energy segment.
Gross Profit. Gross profit for the three months ended March 31, 2001 was $5.7
million compared to $4.0 million for the three months ended March 31, 2000, an
increase of $1.7 million, or 42%. As a percentage of net revenue, gross profit
increased to 34% for the three months ended March 31, 2001 compared to 33% for
the three months ended March 31, 2000. The gross profit percentage for the three
months ended March 31, 2001 was negatively impacted by lower margins related to
the acquisition of Hook & Associates Engineering, Inc. in January 2001, while
the gross profit percentage for the three months ended March 31, 2000 was
reduced by lower margins on two large projects. Excluding the effects of these
items, the gross profit percentage increased to 35% compared to 34% for the
three months ended March 31, 2001 compared to 2000, respectively.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended March 31, 2001 was $3.3
million compared to $2.7 million for the three months ended March 31, 2000, an
increase of $634,000, or 24%. This increase resulted primarily from the
acquisitions of Crosby Mead Benton and Associates and Hook & Associates
Engineering, Inc. and the related goodwill amortization. As a percentage of net
revenue, selling, general and administrative expenses decreased to 20% for the
three months ended March 31, 2001 from 21% for the three months ended March 31,
2000. The percentage decreases were due principally to economies of scale
associated with our acquisitions which have resulted in lower administrative
costs in comparison to net revenues generated.
Interest Expense. Interest expense for the three months ended March 31, 2001 was
$142,000 compared to $107,000 for the three months ended March 31, 2000, an
increase of $35,000, or 33%. The increase in interest expense resulted largely
from the issuance of a $1.3 million note in connection with the Hook &
Associates Engineering, Inc. acquisition and a $1.0 million increase to an
existing note related to the 1999 Thompson-Hysell, Inc. acquisition as a result
of the attainment of certain 2000 earning targets.
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Income Taxes. For the three months ended March 31, 2001, the provision for
income taxes was $916,000 compared to $508,000 for the three months ended March
31, 2000, an increase of $408,000. The increase in income tax expense was due to
higher taxable income. Our effective income tax rate has remained at
approximately 40%, consistent with our effective tax rate during 2000.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our working capital needs and capital expenditure requirements
through a combination of internally generated funds, bank borrowings, leases and
the sale of our common stock.
Cash and cash equivalents as of March 31, 2001, was $1.5 million compared to
$1.0 million as of December 31, 2000. Working capital as of March 31, 2001 was
$8.9 million compared to $7.3 million as of December 31, 2000, an increase of
$1.6 million or 21%, resulting mainly from the growth in contracts and trade
receivables and costs and estimated earnings in excess of billings, primarily
due to our acquisitions of Crosby Mead Benton and Associates and Hook &
Associates Engineering, Inc. and higher revenue levels. This was partially
offset by an increase in other accrued liabilities associated with the
acquisition of Hook & Associates Engineering, Inc., deferred offering costs and
income tax payable. The debt to equity ratio as of March 31, 2001 remained at
0.31 to 1 compared to December 31, 2000. Net cash provided by operating
activities increased $2.2 million to $2.9 million for the three months ended
March 31, 2001 compared to $739,000 for the three months ended March 31, 2000.
The increase in net cash provided by operating activities was a result of higher
income before the effects of depreciation and amortization, tax benefit from the
exercise of stock options, an increase in billings in excess of costs and
estimated earnings and an increase in trade accounts payable and accrued
liabilities. The cash generated from operating activities was used primarily to
make principal payments on debt and capital leases, paydown our line of credit,
fund capital expenditures, and partially fund our acquisition of Hook &
Associates Engineering, Inc. in January 2001.
In September 1999, we entered into a line of credit agreement with a bank, which
consists of a working capital component with a maximum outstanding principal
balance of $6.0 million, maturing on September 3, 2001, and an equipment
component which matured on January 3, 2001. We elected not to amend or extend
the equipment component and may reestablish this component when we renew the
working capital component in 2001. At March 31, 2001, the outstanding borrowings
under the working capital component of the line of credit was approximately
$1.7 million, bearing interest at prime (8.0%, at such date). The borrowings on
the line of credit agreement were used primarily to fund our working capital
needs and the acquisition of Hook & Associates Engineering, Inc.
Our primary sources of cash include cash generated by operations, net proceeds
from our secondary offering and funding under our credit facility. Based upon
the successful closing of our secondary public offering and assuming our credit
facility is renewed in September 2001, or we are able to arrange for a
replacement credit facility with a similar availability, we expect to have
sufficient cash resources to fund our anticipated operations, planned capital
expenditures and debt reductions for the next 12 months.
INFLATION
Although our operations can be influenced by general economic trends, we do not
believe that inflation had a significant impact on our results of operations for
the periods presented. Due to the short-term nature of most of our contracts, if
costs of revenue increase, we attempt to pass these increases onto our clients.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to interest rate changes primarily as a result of our line of
credit and long-term debt, which are used to maintain liquidity and to fund
capital expenditures and our expansion. Due to the relatively immaterial levels
of our current borrowings, our earnings and cash flows are not materially
impacted by changes in interest rates. Promissory notes delivered in connection
with our acquisitions have generally been at fixed rates. Our bank line of
credit is based on variable interest rates and is therefore affected by changes
in market rates. We do not enter into derivative or interest rate transactions
for speculative purposes.
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The table below presents the principal amounts of debt (excluding capital lease
obligations of $586,000 and notes payable of $2,372,000 and $1,300,000),
weighted average interest rates, fair values and other items required by year of
expected maturity to evaluate the expected cash flows and sensitivity to
interest rate changes as of March 31, 2001.
Fair
2001 2002 2003 2004 Total Value(1)
---------- -------- ------- ------- ---------- ----------
Fixed rate debt (2)...... $ 402,000 $125,000 $90,000 $29,000 $ 646,000 $ 646,000
Weighted average
interest rate ......... 8.4% 7.8% 7.6% 7.7% 8.1% 8.1%
Variable rate debt....... $1,669,000 -- -- -- $1,669,000 $1,669,000
Weighted average
interest rate ......... 8.0% -- -- -- 8.0% 8.0%
------------
(1) The fair value of fixed rate debt and variable rate debt was determined
based on current rates offered for debt instruments with similar risks and
maturities.
(2) Fixed rate debt excludes notes payable with carrying amounts of $2,372,000
and $1,300,000 due to the nature of the financing.
As the table incorporates only those exposures that existed as of March 31,
2001, it does not consider those exposures or positions which could arise after
that date. Moreover, because firm commitments are not presented in the table
above, the information presented in the table has limited predictive value. As a
result, our ultimate realized gain or loss with respect to interest rate
fluctuations will depend on those exposures or positions that arise during the
period and interest rates.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In March 2000, Clayton Engineering filed a claim against The Irvine Company
alleging that The Irvine Company failed to pay Clayton Engineering for the
removal of 30,000 cubic yards of dirt in the Peters Wash located in Irvine,
California. JMTA had provided engineering design services for The Irvine Company
in connection with this project. JMTA was our wholly-owned subsidiary at the
time the claim by Clayton was filed and was subsequently merged with and into
the Company in December 2000. In January 2001, The Irvine Company filed a claim
against JMTA for indemnity. Clayton Engineering is demanding damages in the sum
of $2,000,000 against The Irvine Company for construction services rendered and
$10,000,000 as a result of consequential loss of business opportunity. Clayton
Engineering has made the allegation that plans prepared by JMTA were inaccurate
as to the elevation of the bottom of the Peters Wash. The Irvine Company has not
stated that JMTA violated the standard of care, but has filed an equitable
indemnity cross-complaint against JMTA. No demand for settlement has been made
against JMTA. The Company believes that the claim made against it is without
merit and intends to defend itself vigorously in this action.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
-------- -----------
1.1 Form of Underwriting Agreement (incorporated herein by
this reference to Exhibit 1.1 from the registrant's
registration statement on Form S-1, registration number
333-58088).
2.2 Asset Purchase Agreement dated January 31, 2001 among Hook
& Associates Engineering, Inc., the shareholders of Hook &
Associates Engineering, Inc., HEA Acquisition, Inc. and
the registrant (incorporated herein by this reference to
Exhibit 2.1 from the registrant's current report on Form
8-K filed with the Commission on February 15, 2001).
(b) Reports on Form 8-K
On February 15, 2001, we filed a Current Report on Form 8-K,
relating to the announcement of the acquisition of Hook & Associates
Engineering, Inc.
On March 7, 2001, we filed a Current Report on Form 8-K/A to
correct the reporting on the original 8-K filed on February 15, 2001.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 14, 2001 THE KEITH COMPANIES, INC.
By: /s/ Aram H. Keith
---------------------------
Aram H. Keith
Chairman of the Board
of Directors and Chief
Executive Officer
By: /s/ Gary C. Campanaro
---------------------------
Gary C. Campanaro
Chief Financial Officer
and Secretary
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
1.1 Form of Underwriting Agreement (incorporated herein by this
reference to Exhibit 1.1 from the registrant's registration
statement on Form S-1, registration number 333-58088).
2.2 Asset Purchase Agreement dated January 31, 2001 among Hook &
Associates Engineering, Inc., the shareholders of Hook &
Associates Engineering, Inc., HEA Acquisition, Inc. and the
registrant (incorporated herein by this reference to Exhibit 2.1
from the registrant's current report on Form 8-K filed with the
Commission on February 15, 2001).