Item 1. BUSINESS
Reynolds, Smith and Hills, Inc. (the "Company") is a professional service firm operating in the engineering, architectural design and environmental services industry. The Company was incorporated in the State of Florida in 1989. As used herein, the "Company" refers to Reynolds, Smith and Hills, Inc. and its subsidiaries.
The Company provides a full range of architectural, engineering, planning and environmental services to public and private sector clients primarily in the southeastern United States. Specific industry markets are also served nationally and internationally. Services are provided through the following market-focused programs:
* Transportation - Provides a full array of services to state, and local authorities for all modes of transportation including highways, transit, rail and ports.
* Aviation - Serves airports, airlines, governmental agencies and private clients providing services for terminals and support buildings, airfield facilities, and planning and environmental services.
* Aerospace and Defense - Services NASA, Department of Defense, and commercial aerospace contractors in the development of launch and other facilities.
* Public Infrastructure - Serves the needs of local governmental and quasi-governmental agencies supporting water, storm water, wastewater, parks and public buildings.
* Commercial - Provides comprehensive services to corporate, commercial and industrial clients. Comprehensive services include facility design, land development, facility planning, and construction management.
* Institutional - Provides services to educational, governmental and research-oriented clients. Services include planning and designing schools, courthouses, research and technical facilities.
Competition. The engineering and architectural services industry is highly ----------- competitive. The Company's competitors include large national firms as well as many small local firms. The Company competes with these firms on the basis of technical capabilities, qualifications of personnel, reputation, quality and price. Additionally, a local presence is important in certain areas. No one firm currently dominates a significant portion of the industry.
Major Customers. For each of the years ended March 31, 2001, 2000 and 1999, --------------- approximately 80% of the Company's business was with departments or agencies of federal, state and local governments. Contracts with the Florida Department of Transportation provided approximately 25%, 30%, and 35% of total revenues for each of the fiscal years 2001, 2000 and 1999, respectively. The loss of a significant client such as the Florida Department of Transportation would have a material adverse effect on the Company. No other customer accounted for 10% or more of total revenues.
Backlog. Gross revenue backlog is the estimated revenue from contracts ------- entered into with clients, less that portion which has been recognized as revenue. Backlog is subject to revision due to cancellations, modifications or changes in the scope of projects. There can be no assurance that signed contracts will ultimately be authorized or will not be canceled by clients in accordance with their terms. Net revenue backlog is estimated revenue excluding subconsultant and other direct costs and more accurately reflects the amounts to be earned for activities performed by the Company.
The Company's gross backlog at March 31, 2001 was $53.8 million compared to $35.7 million at March 31, 2000. Net backlog was $37.6 million at March 31, 2001 as compared to $25.3 million at March 31, 2000. Approximately $33 million of services included in the Company's gross backlog as of March 31, 2001 will be performed in fiscal year 2002. The Company will receive additional revenue in fiscal year 2002 from sales generated during the year which are not included in the March 31, 2001 backlog.
Governmental Contracts. Some service contracts with departments or agencies ---------------------- of federal, state, and local governments are subject to renegotiation of profits or termination at the election of the government. The Company is not aware of any adjustments that would have a material impact on the Company.
Compliance with Environmental Laws. 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 the Company. However, such compliance by the Company's clients may require the need for the environmental-related services that the Company provides.
Employees. At March 31, 2001 the Company employed 530 persons. ---------
Item 2.
Item 2. PROPERTIES
The Company leases its principal office space in Jacksonville, Florida, and seven branches occupy leased office space in the following Florida locations: Fort Myers, Merritt Island, Miami, Orlando, Plantation, Tallahassee, and Tampa. The Company also maintains leased offices in Flint, Michigan; Houston, Texas; Naperville, Illinois; Duluth, Minnesota; and Charlotte, North Carolina.
In addition, the Company leases space at construction sites in various locations. These leases expire at various dates through fiscal year 2007. The current facilities are sufficient for the operation of the business.
Item 3.
Item 3. LEGAL PROCEEDINGS
The Company is subject to lawsuits that arise in the normal course of business involving claims typical of those filed against the engineering and architectural professions. These suits primarily allege professional errors and/or omissions. The Company maintains professional liability insurance which insures against risk within the policy limits. There can be no assurances that the policy limits are sufficient to cover all claims. There are no legal proceedings pending or, to the knowledge of the Company, threatened against the Company which are not covered by insurance and which would have a material adverse effect on the Company's financial position, results of operations, or cash flows. However, the Company's professional liability insurance carrier for the two-year period ended June, 2000, is having financial difficulties and on May 29, 2001, a Pennsylvania Court entered an order appointing the Pennsylvania Insurance Commissioner as Rehabilitator and directing the Rehabilitator to take immediate possession of the insurance carrier's assets and business. The insurance carrier's parent company, Reliance Group Holdings Inc., filed for Chapter 11 bankruptcy protection on June 11, 2001. As a result of these combined actions, this insurance carrier may not be able to honor all future insured claims against the Company. It is not possible to predict the outcome of litigation against the Company and the amount of future claims that could be presented to the Company's insurance carrier. As such, management is unable to estimate the amount or range of loss that could arise from this situation.
Item 4.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter ended March 31, 2001.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following persons serve as the executive officers of the Company:
Name Age Position Held - ---- --- -------------
Leerie T. Jenkins, Jr 52 Chairman of the Board and Chief Executive Officer
David K. Robertson 49 Chief Operating Officer, Executive Vice President, Secretary, Treasurer, and Director
Kenneth R. Jacobson 51 Chief Financial Officer, Executive Vice President, and General Counsel
J. Ronald Ratliff 52 Executive Vice President and Director
Darold F. Cole 59 Senior Vice President and Director
Mr. Jenkins' principal positions are Chairman of the Board and Chief Executive Officer of the Company, which he has held since 1990. He holds a Masters and Bachelors degree in Landscape Architecture from the University of Michigan and University of Georgia, respectively.
Mr. Robertson's principal positions are Chief Operating Officer, which he has held since June 1999, Secretary, Treasurer, and Director of the Company, which he has held since 1990. From 1990 to 1999, Mr. Robertson also held the position of Chief Financial Officer. He graduated from Florida State University with a degree in Business.
Mr. Jacobson joined the Company in December 1999 and his principal positions are Chief Financial Officer, Executive Vice President, and General Counsel. Prior to joining the Company, Mr. Jacobson was a Senior Partner at the law firm of Jacobson & Beavers from 1986 to 1999. Mr. Jacobson serves as a member on several companies' board of directors, including Pisgah Astronomical Research Institute, a non-profit scientific research entity. He graduated from Georgia Tech with a degree in Industrial Management. He received a Juris Doctorate degree from Wake Forest University and an MBA from the University of North Carolina.
Mr. Ratliff's principal positions are Executive Vice President, to which he was appointed in June 1999, and Director of the Company which he has held since 1990. From 1990 to 1999, Mr. Ratliff served as Senior Vice President of the Company. He holds a Masters degree in Urban and Regional Planning, and Bachelors degrees in Geology and Urban and Regional Planning from the University of South Florida.
Mr. Cole's principal positions are Senior Vice President and Director of the Company, which he has held since 1990. He holds a degree in Electrical Engineering from Kansas State University.
PART II
Item 5.
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's securities are not presently traded on any public stock exchange or other public market. The Company had 227 shareholders of record at March 31, 2001, including persons owning stock through the Company's 401(k) plan. The Company pays no dividends on its common stock but instead reinvests earnings into the Company to fund growth. The Company does not intend on paying any cash dividends in the foreseeable future.
Item 6.
Item 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the financial statements of the Company, including the notes thereto, and Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 7.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Gross revenue for fiscal 2001 was $58.5 million as compared to $51.8 million for fiscal 2000. This $6.7 million increase (13%) was due primarily to increased revenues in the transportation, aviation, aerospace/defense, and commercial programs. Current and prior year marketing efforts in these programs resulted in several large project awards. Revenue for fiscal 2000 was $51.8 million as compared to $42.9 million for fiscal 1999. This 21% increase was due primarily to increased revenues in the aviation, aerospace/defense and institutional programs.
For each of the fiscal years ended March 31, 2001, 2000, and 1999, approximately 80% of the Company's revenues were generated from public sector clients.
Subcontract and other direct costs were 32%, 36% and 36% of net service revenues for fiscal years 2001, 2000, and 1999, respectively. The institutional program reduced its use of sub-consultants in fiscal year 2000 by performing more engineering services in-house.
Net service revenue more accurately reflects revenue for services performed by the Company. Net service revenue was $44.4 million for fiscal 2001, $38.1 million for fiscal 2000, and $31.6 million for fiscal 1999. The respective 17% and 21% increases correspond primarily to the increases in gross revenues.
Cost of services represents direct labor costs associated with the generation of net service revenues. Cost of services, as a percentage of net service revenue, remained consistent at 37%, 39%, and 38%, respectively for fiscal years ended March 31, 2001, 2000, and 1999. Gross profit, as a result, was 63%, 61% and 62% for fiscal years 2001, 2000, and 1999, respectively.
Selling, general and administrative (SG&A) expenses consist of labor costs of production personnel not utilized on projects (i.e. indirect labor), labor costs of administrative and support personnel, office rent, depreciation, insurance, and other operating expenses. SG&A expenses remained fairly consistent as a percentage of net service revenue ranging from approximately 58% to 60% for each of the three previous fiscal years.
SG&A expenses increased to $26.6 million in fiscal 2001 from $22.1 million in fiscal 2000. This 20% increase was due primarily to increases in personnel and associated costs. The number of employees increased to 530 from 470 throughout fiscal year 2001 in response to an increased workload. Other increases in SG&A expenses were experienced in rent expense relating to expanded office space, marketing costs, equipment leases, consultants, and insurance. Also, as a result of the Company's increased earnings before incentive compensation in fiscal 2001 and the implementation of a new long-term incentive plan, incentive compensation increased $400,000 from fiscal 2000.
SG&A expenses increased 18% to $22.1 million in fiscal 2000 from $18.7 million in fiscal 1999. This increase was due primarily to increases in personnel expenses relating to increased workload. The number of employees grew to 470 from 420 during fiscal year 2000. Other increases in SG&A expenses were experienced in rent expense relating to new office locations in Flint, Michigan, Houston, Texas, and Naperville, Illinois, along with expanded office space in both Orlando, Florida and Ft. Myers, Florida. In addition, increased expense occurred in hiring and relocation, communication, reprographic, depreciation, and office supplies. Incentive compensation increased $500,000 as a result of increased earnings over fiscal year 1999.
Net income was $738,000 in 2001, $790,000 in 2000, and $581,000 in 1999. The decrease in fiscal 2001 was primarily a result of increased incentive compensation expense. Fiscal 2000 net income increased from fiscal 1999 primarily due to increased net service revenues.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity and capital measurements are set forth below:
March 31 -------- 2001 2000 1999 ---- ---- ----
Working capital (in thousands) $4,965 $3,960 $3,508
Current ratio 1.49:1 1.45:1 1.53:1
Ratio of liabilities to equity 1.31:1 1.29:1 1.16:1
Cash flows from operations were positive for fiscal year ended March 31, 2001 due primarily to net income. Accounts receivable and unbilled service revenue increased in conjunction with the increase in revenues, and were mostly offset by increases in accounts payable and unearned service revenue. Combined days outstanding for accounts receivable and unbilled service revenue were 79 and 75 days for fiscal years ended March 31, 2001 and 2000, respectively. For fiscal year ended March 31, 2000 cash flows from operations were positive due primarily to net income. Increased revenues caused increases in accounts receivable and unbilled service revenues, offset by increases in accounts payable and unearned service revenues. For fiscal year ended March 31, 1999 cash flows from operations were negative.
The Company has in place a line of credit that provides for borrowings up to $3,000,000 as of March 31, 2001, with interest at the lower of the bank's prime rate plus 0.1% or LIBOR plus 2.8%. There were no borrowings outstanding under the line of credit as of March 31, 2001. The borrowing agreement, which expires September 30, 2001, contains covenants related to working capital and debt to net worth. Substantially all of the Company's tangible assets are pledged as security pursuant to the borrowing agreement. The Company is in compliance with all provisions and expects that the agreement will be renewed.
The Company believes that its existing financial resources, together with its cash flow from operations and its unused bank line of credit, will provide sufficient capital to fund its operations for fiscal 2002. This statement is based on information that is currently available.
Cautionary Notice Regarding Forward-Looking Statements
Certain information contained in this report consists of forward-looking statements based on current expectations and plans that involve risks and uncertainties. Forward-looking statements frequently are identified by the use of terms such as "expect", "believe", "estimate", "may", "should", "will" or similar expressions. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause the Company's actual results and experiences to differ materially from the anticipated results or other expectations expressed in the forward-looking statements. All forward-looking statements in this report are based on information that currently is available.
The risks and uncertainties that may affect the operations, development and results of the Company's business, in addition to those discussed elsewhere in this report, include the following, among other factors: (a) the ability to attract and retain qualified professional personnel; (b) periodic fluctuations in general business conditions and in demand for the types of services provided by the Company; (c) the timing of new awards and of funding for such awards; and (d) the ability of the Company to meet performance or schedule guarantees; cost overruns on fixed or maximum priced contracts.
Item 7a.
Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company believes that its exposure to market risks is immaterial. The Company holds no market-risk sensitive instruments for trading purposes. At present, the Company does not employ any derivative financial instruments, other financial instruments or derivative commodity instruments to hedge any market risk, and the Company does not currently plan to employ them in the near future. To the extent that the Company has borrowings outstanding under its credit facility, there may be market risk relating to the amount of borrowings due to the fact that the interest rate under the credit facility is variable.
Item 8.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated Financial Statements of the registrant are set forth beginning on page 15 of this report.
Item 9.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Items 10 through 13.
The information required by Items 10 through 13 is included in the Company's definitive proxy statement dated June 22, 2001 and is incorporated herein by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K PAGE ----
(a)(1) Financial Statements
Independent Auditors' Report 15
Consolidated Statements of Income, years ended March 31, 2001, 2000 and 1999 16
Consolidated Balance Sheets as of March 31, 2001 and 2000 17
Consolidated Statements of Shareholders' Equity, years ended March 31, 2001, 2000 and 1999 18
Consolidated Statements of Cash Flows, years ended March 31, 2001, 2000 and 1999 19
Notes to Consolidated Financial Statements 20
(a)(2) Financial Statement Schedule
Independent Auditors' Report 30
Schedule II - Valuation and Qualifying Accounts 31
(a)(3) Exhibits
3.1* Articles of Incorporation of the Company, as amended
3.2* By-Laws of the Company
10.1** Reynolds, Smith and Hills, Inc. Amended and Restated 1991 Employee Stock Bonus Plan
10.2** Reynolds, Smith and Hills, Inc. Amended and Restated 1991 Nonqualified Stock Option Plan
10.3** Reynolds, Smith and Hills, Inc. Amended and Restated 1991 Incentive Stock Option Plan
21 List of Subsidiaries 32
23 Consent of Deloitte & Touche LLP 33
* Filed in connection with and incorporated by reference to Registration Statement on Form 10 (filed January 15, 1991). ** Filed in connection with and incorporated by reference to the Company's September 30, 1997 Quarterly Report on Form 10-Q (filed November 12, 1997).
(b) Reports on Form 8-K
No report on Form 8-K was filed during the quarter ended March 31, 2001.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Reynolds, Smith and Hills, Inc.
Dated: June 22, 2001 By /s/ Kenneth R. Jacobson ----------------------- Kenneth R. Jacobson Chief Financial Officer, Executive Vice President, and General Counsel
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Capacity Date --------- -------- ----
/s/ Leerie T. Jenkins, Jr. Chairman of the Board June 22, 2001 - ------------------------- and Chief Executive Officer Leerie T. Jenkins, Jr. (Principal Executive Officer)
/s/ David K. Robertson Chief Operating Officer, Executive - ------------------------- Vice President, Secretary, David K. Robertson Treasurer, and Director June 22, 2001
/s/ Kenneth R. Jacobson Chief Financial Officer, Executive - ------------------------- Vice President, and General Counsel Kenneth R. Jacobson (Principal Financial and Accounting Officer) June 22, 2001
/s/ Darold F. Cole Director June 22, 2001 - ------------------------- Darold F. Cole
/s/ J. Ronald Ratliff Director June 22, 2001 - ------------------------- J. Ronald Ratliff
- ------------------------- David E. Thomas, Jr. Director
- ------------------------- R. Ray Goode Director
- ------------------------- James W. Apthorp Director
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders Reynolds, Smith and Hills, Inc. Jacksonville, Florida
We have audited the accompanying consolidated balance sheets of Reynolds, Smith and Hills, Inc. and its subsidiaries as of March 31, 2001 and 2000 and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended March 31, 2001. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Reynolds, Smith and Hills, Inc. and its subsidiaries as of March 31, 2001 and 2000 and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2001 in conformity with accounting principles generally accepted in the United States of America.
/s/ Deloitte and Touche LLP - --------------------------- Certified Public Accountants Jacksonville, Florida June 18, 2001
REYNOLDS, SMITH AND HILLS, INC. CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED MARCH 31 - ---------------------------------------------
REYNOLDS, SMITH AND HILLS, INC. CONSOLIDATED BALANCE SHEETS MARCH 31 - --------------------------------------------------------------------------------
REYNOLDS, SMITH AND HILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - Reynolds, Smith and Hills, Inc. (the Company) is a --------------------- professional service firm operating in the engineering and architectural design services industry. The Company provides a full range of architectural, engineering, planning and environmental services.
The financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States. The financial statements include the accounts of the Company and its wholly-owned subsidiaries. Significant intercompany transactions and balances have been eliminated.
Use of Estimates - The preparation of financial statements in conformity ---------------- with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.
Revenue Recognition - Revenue from contract services is recognized on the -------------------- percentage-of-completion method. Revenue is recorded as costs are incurred, and profit is recognized on each contract based on the percentage that incurred costs bear to estimated total costs. In the event of an anticipated loss, the entire amount of the loss is charged to current operations.
The Company incurs subcontract and other direct costs (out-of-pocket expenses) some of which are passed through directly to its clients. The Company believes that revenue excluding subcontract and other direct costs, more accurately reflects the amounts earned for activities performed by the Company. Accordingly, the Company reports such costs as a reduction of gross revenue to arrive at net service revenue.
Unbilled service revenue represents revenues recognized in excess of amounts billed. Unearned service revenue represents billings in excess of revenues recognized. Unbilled service revenues which will not be collected during the next year are not significant.
Property and Equipment - Property and equipment is stated at cost. ------------------------ Depreciation is computed principally on the straight-line method over the estimated useful lives of the assets. Property and equipment is periodically reviewed by management for impairment whenever changes in circumstances indicate that the carrying value may not be recoverable.
REYNOLDS, SMITH AND HILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------
Cost in Excess of Net Assets of Acquired Businesses - Cost in excess of net --------------------------------------------------- assets of acquired businesses is being amortized on the straight-line method over periods varying from fifteen to twenty years. The carrying value of cost in excess of net assets of acquired business is periodically reviewed by management and impairment, if any, is recognized when the projected undiscounted cash flows are less than the carrying value.
Income Taxes - The Company and its subsidiaries file consolidated Federal ------------ income tax returns. Deferred income taxes result from temporary differences which arise from certain transactions being reported in different periods for financial statement purposes than for tax purposes. Deferred tax assets and liabilities are recognized using an asset and liability approach and are based on differences between the financial statement and tax basis of assets and liabilities using presently enacted tax rates.
Basic Earnings Per Share - Basic earnings per share is computed by dividing ------------------------ net income by the weighted average number of common shares outstanding. Options outstanding to purchase common stock had no significant dilutive effect.
Cash Equivalents - The Company considers cash on hand and cash held in ----------------- banks subject to immediate withdrawal to represent cash.
New Accounting Standard - In 1998 the Financial Accounting Standards Board ----------------------- issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" which establishes accounting and reporting standards for such activities. In 1999 the FASB deferred the effective date of the standard to fiscal years beginning after June 15, 2000. Effective April 1, 2001, the Company adopted the provisions of SFAS 133. There was no impact to the financial statements.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at March 31:
2001 2000 ---- ----
Leasehold improvements $ 384,000 $ 349,000 Furniture & equipment 4,862,000 6,147,000 --------- --------- 5,246,000 6,496,000 Accumulated depreciation (2,949,000) (3,983,000) ---------- ---------- $ 2,297,000 $ 2,513,000 =========== ===========
REYNOLDS, SMITH AND HILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------
The Company recorded depreciation expense of $818,000, $807,000, and $694,000 for the years ended March 31, 2001, 2000 and 1999, respectively.
3. ACCRUED EXPENSES
Accrued expenses consist of the following at March 31:
2001 2000 ---- ----
Accrued payroll $ 554,000 $ 466,000 Accrued vacation pay 375,000 363,000 Accrued incentive compensation 1,325,000 883,000 Other 913,000 905,000 ------- ------- $3,167,000 $2,617,000 ========== ==========
4. DEBT
Long-term debt consists of the following at March 31:
2001 2000 Note payable; interest at 8% maturing May 7, 2001 $100,000 due annually $ 100,000 $ 200,000
Less current portion (100,000) (100,000) -------- -------- Total long-term debt $ ----- $ 100,000 ========= =========
The Company has in place a line of credit that provides for borrowings up to $3,000,000 as of March 31, 2001, with interest at the lower of the bank's prime rate plus 0.1% or LIBOR plus 2.8%. There were no borrowings outstanding under the line of credit as of March 31, 2001. The borrowing agreement, which expires September 30, 2001, contains covenants related to working capital and debt to net worth. Substantially all of the Company's tangible assets are pledged as security pursuant to the borrowing agreement.
REYNOLDS, SMITH AND HILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------
5. INCOME TAXES
The provision for income taxes for the years ended March 31 consist of the following:
2001 2000 1999 ---- ---- ---- Current: Federal $ 667,000 $ 629,000 $ 354,000 State 136,000 128,000 84,000 Deferred: Federal (215,000) (184,000) (19,000) State ( 42,000) (38,000) ( 4,000) -------- ------- ------- $ 546,000 $ 535,000 $ 415,000 ========= ========= =========
The differences between the provision for income taxes and income taxes computed using the U.S. Federal statutory rate are as follows:
2001 2000 1999 Amount computed using statutory rate $ 437,000 $ 450,000 $ 339,000 Increase in taxes resulting from: State income taxes 70,000 68,000 53,000 Goodwill amortization 20,000 8,000 9,000 Meals and entertainment 82,000 59,000 53,000 Other (63,000) (50,000) (39,000) ------- ------- ------- $ 546,000 $ 535,000 $ 415,000 ========= ========= =========
The following table identifies net deferred taxes recognized in the Company's balance sheet at March 31: 2001 2000
Deferred tax asset $ 800,000 $ 680,000 Deferred tax liability (286,000) (422,000) -------- -------- Total deferred taxes $ 514,000 $ 258,000 ========= =========
REYNOLDS, SMITH AND HILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------
The types of temporary differences and their related tax effects which create deferred taxes at March 31 are summarized as follows:
2001 2000 ---- ---- Assets: Allowance for doubtful accounts $ 45,000 $ 50,000 Allowance for warranty claims 105,000 109,000 Excess rental expense over payments 48,000 75,000 Accruals not currently deductible 602,000 446,000 ------- ------- $ 800,000 $ 680,000 ========= ========= Liability: Excess of tax over book depreciation $(253,000) $(249,000) Accrued Liabilities ( 33,000) ( 59,000) Capitalized expenses -0- (114,000) -------- -------- $(286,000) $(422,000) ========= =========
6. LEASES
The Company leases certain facilities and equipment under noncancellable leases expiring in various years through 2007. Some of the operating leases provide that the Company pay taxes, maintenance, insurance and other occupancy costs. Rent expense for the years ended March 31, 2001, 2000 and 1999 amounted to $2,994,000, $2,567,000 and $2,402,000, respectively.
Future minimum payments under noncancellable operating leases are as follows:
Operating Leases ------
2002 $ 2,822,000 2003 2,442,000 2004 1,114,000 2005 594,000 2006 152,000 2007 42,000 ------ Total minimum payments $ 7,166,000 ===========
REYNOLDS, SMITH AND HILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------
7. CONTINGENCIES
The Company is subject to lawsuits that arise in the normal course of business involving claims typical of those filed against the engineering and architectural professions. These suits primarily allege professional errors and/or omissions. The Company maintains professional liability insurance which insures against risk within the policy limits. There can be no assurances that the policy limits are sufficient to cover all claims. There are no legal proceedings pending or, to the knowledge of the Company, threatened against the Company which are not covered by insurance and which would have a material adverse effect on the Company's financial position, results of operations, or cash flows. However, the Company's professional liability insurance carrier for the two-year period ended June, 2000, is having financial difficulties and on May 29, 2001, a Pennsylvania Court entered an order appointing the Pennsylvania Insurance Commissioner as Rehabilitator and directing the Rehabilitator to take immediate possession of the insurance carrier's assets and business. The insurance carrier's parent company, Reliance Group Holdings Inc., filed for Chapter 11 bankruptcy protection on June 11, 2001. As a result of these combined actions, this insurance carrier may not be able to honor all future insured claims against the Company. It is not possible to predict the outcome of litigation against the Company and the amount of future claims that could be presented to the Company's insurance carrier. As such, management is unable to estimate the amount or range of loss that could arise from this situation.
For each of the years ended March 31, 2001, 2000 and 1999, approximately 80% of the Company's business is with departments or agencies of federal, state and local governments. These contracts may be subject to renegotiation or termination at the election of the government. The Company is subject to examination by certain governmental agencies for which it provides services. In management's opinion the results of any examination would not have a significant effect on the Company's financial position.
8. EMPLOYEE BENEFIT PLAN
The Company sponsors a Profit Sharing Plan that qualifies under Section 401(k) of the Internal Revenue Code. The Plan allows participating employees to contribute from 2% to 15% of their earned compensation to the plan. The Company contributes to the plan 50% of each participant's contribution, up to the 6% level of the participant's contribution. In fiscal 2000 the Company's matching percentage was increased to 50% from 25%. For the years ended March 31, 2001, 2000 and 1999, the Company contributed $576,000, $362,000 and $161,000, respectively. Participants in the plan have the option to purchase shares of the Company's common stock.
REYNOLDS, SMITH AND HILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------
9. STOCK COMPENSATION PLANS
The Company has stock-based compensation plans under which selected employees receive stock awards and stock options. The plans provide for the grant of stock, incentive stock options, and non-qualified stock options.
The total number of shares of common stock represented by awards granted to employees for the years ended March 31, 2001, 2000, and 1999, was 1,000, zero, and 1,000, respectively.
Stock options generally are granted with an exercise price equal to 100% of the market value of a share of common stock on the date of grant, have no more than a 10-year term and vest within five years from the date of grant.
The Company has adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," and as permitted by that standard applies Accounting Principles Board Opinion No. 25. The impact on net income and earnings per share had the Company adopted the optional recognition provisions of SFAS 123 would not be material.
Presented below is a summary of the stock options and the related transactions for the years ended March 31, 2001 and 2000.
2001 2000 ------------------ ----------------- Weighted Weighted Average Average Exercise Exercise Shares Price Shares Price ------ ----- ------ ----- Outstanding, 39,000 $13 29,000 $12 beginning of year Granted - - 14,000 15 Exercised - - - - Forfeited ( 3,000) 11 (4,000) 11 ------- -- ------ -- Outstanding, end of year 36,000 $14 39,000 $13 ======= ====== Exercisable 22,000 14,000
REYNOLDS, SMITH AND HILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------
The following table summarizes the status of stock options outstanding at March 31, 2001:
Options Outstanding Options Exercisable ------------------- -------------------
Weighted Average Weighted Weighted Range of Remaining Average Average Exercise Contractual Exercise Exercise Prices Shares Life (years) Price Shares Price ------ ------ ------------------------- ------ -----
$12-$17 36,000 5 14 22,000 13
10. FINANCIAL INSTRUMENTS
The Company used the following methods and assumptions to estimate the fair value of the following financial instrument:
Debt. Interest rates that are currently available to the Company ---- for issuance of debt with similar terms and remaining maturities are used to estimate fair value for debt instruments. The Company believes the carrying amount is a reasonable estimate of such fair value.
11. RELATED PARTY TRANSACTION
The Company has notes receivable outstanding from officers of the Company totaling $95,000 and $108,000 at March 31, 2001 and 2000, respectively. The loans, with interest at 8.5% per year, mature in 2006. Principal and interest are paid biweekly.
12. SEGMENT INFORMATION
The Company's organizational structure is based on the needs of its customers, with each unit serving a particular group of customers that have common characteristics. The Company's reportable segments are Transportation, Aviation, Aerospace/Defense, Public Infrastructure, Commercial, and Institutional.
REYNOLDS, SMITH AND HILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------
The Transportation segment is responsible for providing a full array of services to state and local authorities for all modes of transportation including highway, transit, rail, and ports. The Aviation segment serves airports, airlines, governmental agencies and private clients providing services for terminals, support buildings, and airfields. Aerospace/Defense services NASA, Department of Defense, and commercial aerospace contractors in the development of launch and other facilities. Public Infrastructure serves the needs of local governmental and quasi-governmental agencies supporting water, storm water, wastewater, parks and public buildings. The Commercial segment provides comprehensive services to corporate, commercial and industrial clients. Institutional provides services to educational, governmental and research-oriented clients.
Management evaluates the performance of its operating segments separately to individually monitor the different factors affecting financial performance. Segment performance is evaluated based on income before income taxes. The accounting policies of the reportable segments are the same as those described in the Summary of Significant Accounting Policies (see Note 1). Reconciling amounts include incentive compensation expense not allocated to the segments. Assets of the segment groups are not relevant for management of the businesses nor for disclosure.
Revenues from the Florida Department of Transportation account for approximately 25%, 30%, and 35% of consolidated revenues in the years ended March 31, 2001, 2000, and 1999, respectively, all in the Transportation segment. The loss of this customer could materially and adversely affect the Company's operating results.
REYNOLDS, SMITH AND HILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------
13. QUARTERLY RESULTS (UNAUDITED)
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders Reynolds, Smith and Hills, Inc. Jacksonville, FL
We have audited the accompanying consolidated financial statements of Reynolds, Smith and Hills, Inc. and its subsidiaries as of March 31, 2001 and 2000 and for each of the three years in the period ended March 31, 2001, and have issued our report thereon dated June 18, 2001; such report is included elsewhere in this Form 10-K. Our audits also included the consolidated financial statement schedule of Reynolds, Smith and Hills, Inc., listed in Item 14. This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
/s/ Deloitte and Touche LLP - ---------------------------- Certified Public Accountants Jacksonville, FL June 18, 2001
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
REYNOLDS, SMITH AND HILLS, INC.
Exhibit 21
List of Material Subsidiaries -----------------------------
1. Reynolds, Smith and Hills CS, Incorporated (a Florida corporation)
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements number 33-33536, 33-40551, 33-40552, 33-40553, 33-40554, 33-51100, 33-51102, 33-51320, and 333-40237 of Reynolds, Smith and Hills, Inc. on Form S-8 of our report dated June 18, 2001 appearing in this Annual Report on form 10-K of Reynolds, Smith and Hills, Inc. for the years ended March 31, 2001, 2000 and 1999.
/s/ Deloitte and Touche LLP - ---------------------------- Certified Public Accountants Jacksonville, FL June 22, 2001
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K PAGE ----
(a)(1) Financial Statements
Independent Auditors' Report 15
Consolidated Statements of Income, years ended March 31, 2001, 2000 and 1999 16
Consolidated Balance Sheets as of March 31, 2001 and 2000 17
Consolidated Statements of Shareholders' Equity, years ended March 31, 2001, 2000 and 1999 18
Consolidated Statements of Cash Flows, years ended March 31, 2001, 2000 and 1999 19
Notes to Consolidated Financial Statements 20
(a)(2) Financial Statement Schedule
Independent Auditors' Report 30
Schedule II - Valuation and Qualifying Accounts 31
(a)(3) Exhibits
3.1* Articles of Incorporation of the Company, as amended
3.2* By-Laws of the Company
10.1** Reynolds, Smith and Hills, Inc. Amended and Restated 1991 Employee Stock Bonus Plan
10.2** Reynolds, Smith and Hills, Inc. Amended and Restated 1991 Nonqualified Stock Option Plan
10.3** Reynolds, Smith and Hills, Inc. Amended and Restated 1991 Incentive Stock Option Plan
21 List of Subsidiaries 32
23 Consent of Deloitte & Touche LLP 33
* Filed in connection with and incorporated by reference to Registration Statement on Form 10 (filed January 15, 1991). ** Filed in connection with and incorporated by reference to the Company's September 30, 1997 Quarterly Report on Form 10-Q (filed November 12, 1997).
(b) Reports on Form 8-K
No report on Form 8-K was filed during the quarter ended March 31, 2001.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Reynolds, Smith and Hills, Inc.
Dated: June 22, 2001 By /s/ Kenneth R. Jacobson ----------------------- Kenneth R. Jacobson Chief Financial Officer, Executive Vice President, and General Counsel
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Capacity Date --------- -------- ----
/s/ Leerie T. Jenkins, Jr. Chairman of the Board June 22, 2001 - ------------------------- and Chief Executive Officer Leerie T. Jenkins, Jr. (Principal Executive Officer)
/s/ David K. Robertson Chief Operating Officer, Executive - ------------------------- Vice President, Secretary, David K. Robertson Treasurer, and Director June 22, 2001
/s/ Kenneth R. Jacobson Chief Financial Officer, Executive - ------------------------- Vice President, and General Counsel Kenneth R. Jacobson (Principal Financial and Accounting Officer) June 22, 2001
/s/ Darold F. Cole Director June 22, 2001 - ------------------------- Darold F. Cole
/s/ J. Ronald Ratliff Director June 22, 2001 - ------------------------- J. Ronald Ratliff
- ------------------------- David E. Thomas, Jr. Director
- ------------------------- R. Ray Goode Director
- ------------------------- James W. Apthorp Director
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders Reynolds, Smith and Hills, Inc. Jacksonville, Florida
We have audited the accompanying consolidated balance sheets of Reynolds, Smith and Hills, Inc. and its subsidiaries as of March 31, 2001 and 2000 and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended March 31, 2001. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Reynolds, Smith and Hills, Inc. and its subsidiaries as of March 31, 2001 and 2000 and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2001 in conformity with accounting principles generally accepted in the United States of America.
/s/ Deloitte and Touche LLP - --------------------------- Certified Public Accountants Jacksonville, Florida June 18, 2001
REYNOLDS, SMITH AND HILLS, INC. CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED MARCH 31 - ---------------------------------------------
REYNOLDS, SMITH AND HILLS, INC. CONSOLIDATED BALANCE SHEETS MARCH 31 - --------------------------------------------------------------------------------
REYNOLDS, SMITH AND HILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - Reynolds, Smith and Hills, Inc. (the Company) is a --------------------- professional service firm operating in the engineering and architectural design services industry. The Company provides a full range of architectural, engineering, planning and environmental services.
The financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States. The financial statements include the accounts of the Company and its wholly-owned subsidiaries. Significant intercompany transactions and balances have been eliminated.
Use of Estimates - The preparation of financial statements in conformity ---------------- with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.
Revenue Recognition - Revenue from contract services is recognized on the -------------------- percentage-of-completion method. Revenue is recorded as costs are incurred, and profit is recognized on each contract based on the percentage that incurred costs bear to estimated total costs. In the event of an anticipated loss, the entire amount of the loss is charged to current operations.
The Company incurs subcontract and other direct costs (out-of-pocket expenses) some of which are passed through directly to its clients. The Company believes that revenue excluding subcontract and other direct costs, more accurately reflects the amounts earned for activities performed by the Company. Accordingly, the Company reports such costs as a reduction of gross revenue to arrive at net service revenue.
Unbilled service revenue represents revenues recognized in excess of amounts billed. Unearned service revenue represents billings in excess of revenues recognized. Unbilled service revenues which will not be collected during the next year are not significant.
Property and Equipment - Property and equipment is stated at cost. ------------------------ Depreciation is computed principally on the straight-line method over the estimated useful lives of the assets. Property and equipment is periodically reviewed by management for impairment whenever changes in circumstances indicate that the carrying value may not be recoverable.
REYNOLDS, SMITH AND HILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------
Cost in Excess of Net Assets of Acquired Businesses - Cost in excess of net --------------------------------------------------- assets of acquired businesses is being amortized on the straight-line method over periods varying from fifteen to twenty years. The carrying value of cost in excess of net assets of acquired business is periodically reviewed by management and impairment, if any, is recognized when the projected undiscounted cash flows are less than the carrying value.
Income Taxes - The Company and its subsidiaries file consolidated Federal ------------ income tax returns. Deferred income taxes result from temporary differences which arise from certain transactions being reported in different periods for financial statement purposes than for tax purposes. Deferred tax assets and liabilities are recognized using an asset and liability approach and are based on differences between the financial statement and tax basis of assets and liabilities using presently enacted tax rates.
Basic Earnings Per Share - Basic earnings per share is computed by dividing ------------------------ net income by the weighted average number of common shares outstanding. Options outstanding to purchase common stock had no significant dilutive effect.
Cash Equivalents - The Company considers cash on hand and cash held in ----------------- banks subject to immediate withdrawal to represent cash.
New Accounting Standard - In 1998 the Financial Accounting Standards Board ----------------------- issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" which establishes accounting and reporting standards for such activities. In 1999 the FASB deferred the effective date of the standard to fiscal years beginning after June 15, 2000. Effective April 1, 2001, the Company adopted the provisions of SFAS 133. There was no impact to the financial statements.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at March 31:
2001 2000 ---- ----
Leasehold improvements $ 384,000 $ 349,000 Furniture & equipment 4,862,000 6,147,000 --------- --------- 5,246,000 6,496,000 Accumulated depreciation (2,949,000) (3,983,000) ---------- ---------- $ 2,297,000 $ 2,513,000 =========== ===========
REYNOLDS, SMITH AND HILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------
The Company recorded depreciation expense of $818,000, $807,000, and $694,000 for the years ended March 31, 2001, 2000 and 1999, respectively.
3. ACCRUED EXPENSES
Accrued expenses consist of the following at March 31:
2001 2000 ---- ----
Accrued payroll $ 554,000 $ 466,000 Accrued vacation pay 375,000 363,000 Accrued incentive compensation 1,325,000 883,000 Other 913,000 905,000 ------- ------- $3,167,000 $2,617,000 ========== ==========
4. DEBT
Long-term debt consists of the following at March 31:
2001 2000 Note payable; interest at 8% maturing May 7, 2001 $100,000 due annually $ 100,000 $ 200,000
Less current portion (100,000) (100,000) -------- -------- Total long-term debt $ ----- $ 100,000 ========= =========
The Company has in place a line of credit that provides for borrowings up to $3,000,000 as of March 31, 2001, with interest at the lower of the bank's prime rate plus 0.1% or LIBOR plus 2.8%. There were no borrowings outstanding under the line of credit as of March 31, 2001. The borrowing agreement, which expires September 30, 2001, contains covenants related to working capital and debt to net worth. Substantially all of the Company's tangible assets are pledged as security pursuant to the borrowing agreement.
REYNOLDS, SMITH AND HILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------
5. INCOME TAXES
The provision for income taxes for the years ended March 31 consist of the following:
2001 2000 1999 ---- ---- ---- Current: Federal $ 667,000 $ 629,000 $ 354,000 State 136,000 128,000 84,000 Deferred: Federal (215,000) (184,000) (19,000) State ( 42,000) (38,000) ( 4,000) -------- ------- ------- $ 546,000 $ 535,000 $ 415,000 ========= ========= =========
The differences between the provision for income taxes and income taxes computed using the U.S. Federal statutory rate are as follows:
2001 2000 1999 Amount computed using statutory rate $ 437,000 $ 450,000 $ 339,000 Increase in taxes resulting from: State income taxes 70,000 68,000 53,000 Goodwill amortization 20,000 8,000 9,000 Meals and entertainment 82,000 59,000 53,000 Other (63,000) (50,000) (39,000) ------- ------- ------- $ 546,000 $ 535,000 $ 415,000 ========= ========= =========
The following table identifies net deferred taxes recognized in the Company's balance sheet at March 31: 2001 2000
Deferred tax asset $ 800,000 $ 680,000 Deferred tax liability (286,000) (422,000) -------- -------- Total deferred taxes $ 514,000 $ 258,000 ========= =========
REYNOLDS, SMITH AND HILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------
The types of temporary differences and their related tax effects which create deferred taxes at March 31 are summarized as follows:
2001 2000 ---- ---- Assets: Allowance for doubtful accounts $ 45,000 $ 50,000 Allowance for warranty claims 105,000 109,000 Excess rental expense over payments 48,000 75,000 Accruals not currently deductible 602,000 446,000 ------- ------- $ 800,000 $ 680,000 ========= ========= Liability: Excess of tax over book depreciation $(253,000) $(249,000) Accrued Liabilities ( 33,000) ( 59,000) Capitalized expenses -0- (114,000) -------- -------- $(286,000) $(422,000) ========= =========
6. LEASES
The Company leases certain facilities and equipment under noncancellable leases expiring in various years through 2007. Some of the operating leases provide that the Company pay taxes, maintenance, insurance and other occupancy costs. Rent expense for the years ended March 31, 2001, 2000 and 1999 amounted to $2,994,000, $2,567,000 and $2,402,000, respectively.
Future minimum payments under noncancellable operating leases are as follows:
Operating Leases ------
2002 $ 2,822,000 2003 2,442,000 2004 1,114,000 2005 594,000 2006 152,000 2007 42,000 ------ Total minimum payments $ 7,166,000 ===========
REYNOLDS, SMITH AND HILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------
7. CONTINGENCIES
The Company is subject to lawsuits that arise in the normal course of business involving claims typical of those filed against the engineering and architectural professions. These suits primarily allege professional errors and/or omissions. The Company maintains professional liability insurance which insures against risk within the policy limits. There can be no assurances that the policy limits are sufficient to cover all claims. There are no legal proceedings pending or, to the knowledge of the Company, threatened against the Company which are not covered by insurance and which would have a material adverse effect on the Company's financial position, results of operations, or cash flows. However, the Company's professional liability insurance carrier for the two-year period ended June, 2000, is having financial difficulties and on May 29, 2001, a Pennsylvania Court entered an order appointing the Pennsylvania Insurance Commissioner as Rehabilitator and directing the Rehabilitator to take immediate possession of the insurance carrier's assets and business. The insurance carrier's parent company, Reliance Group Holdings Inc., filed for Chapter 11 bankruptcy protection on June 11, 2001. As a result of these combined actions, this insurance carrier may not be able to honor all future insured claims against the Company. It is not possible to predict the outcome of litigation against the Company and the amount of future claims that could be presented to the Company's insurance carrier. As such, management is unable to estimate the amount or range of loss that could arise from this situation.
For each of the years ended March 31, 2001, 2000 and 1999, approximately 80% of the Company's business is with departments or agencies of federal, state and local governments. These contracts may be subject to renegotiation or termination at the election of the government. The Company is subject to examination by certain governmental agencies for which it provides services. In management's opinion the results of any examination would not have a significant effect on the Company's financial position.
8. EMPLOYEE BENEFIT PLAN
The Company sponsors a Profit Sharing Plan that qualifies under Section 401(k) of the Internal Revenue Code. The Plan allows participating employees to contribute from 2% to 15% of their earned compensation to the plan. The Company contributes to the plan 50% of each participant's contribution, up to the 6% level of the participant's contribution. In fiscal 2000 the Company's matching percentage was increased to 50% from 25%. For the years ended March 31, 2001, 2000 and 1999, the Company contributed $576,000, $362,000 and $161,000, respectively. Participants in the plan have the option to purchase shares of the Company's common stock.
REYNOLDS, SMITH AND HILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------
9. STOCK COMPENSATION PLANS
The Company has stock-based compensation plans under which selected employees receive stock awards and stock options. The plans provide for the grant of stock, incentive stock options, and non-qualified stock options.
The total number of shares of common stock represented by awards granted to employees for the years ended March 31, 2001, 2000, and 1999, was 1,000, zero, and 1,000, respectively.
Stock options generally are granted with an exercise price equal to 100% of the market value of a share of common stock on the date of grant, have no more than a 10-year term and vest within five years from the date of grant.
The Company has adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," and as permitted by that standard applies Accounting Principles Board Opinion No. 25. The impact on net income and earnings per share had the Company adopted the optional recognition provisions of SFAS 123 would not be material.
Presented below is a summary of the stock options and the related transactions for the years ended March 31, 2001 and 2000.
2001 2000 ------------------ ----------------- Weighted Weighted Average Average Exercise Exercise Shares Price Shares Price ------ ----- ------ ----- Outstanding, 39,000 $13 29,000 $12 beginning of year Granted - - 14,000 15 Exercised - - - - Forfeited ( 3,000) 11 (4,000) 11 ------- -- ------ -- Outstanding, end of year 36,000 $14 39,000 $13 ======= ====== Exercisable 22,000 14,000
REYNOLDS, SMITH AND HILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------
The following table summarizes the status of stock options outstanding at March 31, 2001:
Options Outstanding Options Exercisable ------------------- -------------------
Weighted Average Weighted Weighted Range of Remaining Average Average Exercise Contractual Exercise Exercise Prices Shares Life (years) Price Shares Price ------ ------ ------------------------- ------ -----
$12-$17 36,000 5 14 22,000 13
10. FINANCIAL INSTRUMENTS
The Company used the following methods and assumptions to estimate the fair value of the following financial instrument:
Debt. Interest rates that are currently available to the Company ---- for issuance of debt with similar terms and remaining maturities are used to estimate fair value for debt instruments. The Company believes the carrying amount is a reasonable estimate of such fair value.
11. RELATED PARTY TRANSACTION
The Company has notes receivable outstanding from officers of the Company totaling $95,000 and $108,000 at March 31, 2001 and 2000, respectively. The loans, with interest at 8.5% per year, mature in 2006. Principal and interest are paid biweekly.
12. SEGMENT INFORMATION
The Company's organizational structure is based on the needs of its customers, with each unit serving a particular group of customers that have common characteristics. The Company's reportable segments are Transportation, Aviation, Aerospace/Defense, Public Infrastructure, Commercial, and Institutional.
REYNOLDS, SMITH AND HILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------
The Transportation segment is responsible for providing a full array of services to state and local authorities for all modes of transportation including highway, transit, rail, and ports. The Aviation segment serves airports, airlines, governmental agencies and private clients providing services for terminals, support buildings, and airfields. Aerospace/Defense services NASA, Department of Defense, and commercial aerospace contractors in the development of launch and other facilities. Public Infrastructure serves the needs of local governmental and quasi-governmental agencies supporting water, storm water, wastewater, parks and public buildings. The Commercial segment provides comprehensive services to corporate, commercial and industrial clients. Institutional provides services to educational, governmental and research-oriented clients.
Management evaluates the performance of its operating segments separately to individually monitor the different factors affecting financial performance. Segment performance is evaluated based on income before income taxes. The accounting policies of the reportable segments are the same as those described in the Summary of Significant Accounting Policies (see Note 1). Reconciling amounts include incentive compensation expense not allocated to the segments. Assets of the segment groups are not relevant for management of the businesses nor for disclosure.
Revenues from the Florida Department of Transportation account for approximately 25%, 30%, and 35% of consolidated revenues in the years ended March 31, 2001, 2000, and 1999, respectively, all in the Transportation segment. The loss of this customer could materially and adversely affect the Company's operating results.
REYNOLDS, SMITH AND HILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------
13. QUARTERLY RESULTS (UNAUDITED)
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders Reynolds, Smith and Hills, Inc. Jacksonville, FL
We have audited the accompanying consolidated financial statements of Reynolds, Smith and Hills, Inc. and its subsidiaries as of March 31, 2001 and 2000 and for each of the three years in the period ended March 31, 2001, and have issued our report thereon dated June 18, 2001; such report is included elsewhere in this Form 10-K. Our audits also included the consolidated financial statement schedule of Reynolds, Smith and Hills, Inc., listed in Item 14. This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
/s/ Deloitte and Touche LLP - ---------------------------- Certified Public Accountants Jacksonville, FL June 18, 2001
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
REYNOLDS, SMITH AND HILLS, INC.
Exhibit 21
List of Material Subsidiaries -----------------------------
1. Reynolds, Smith and Hills CS, Incorporated (a Florida corporation)
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements number 33-33536, 33-40551, 33-40552, 33-40553, 33-40554, 33-51100, 33-51102, 33-51320, and 333-40237 of Reynolds, Smith and Hills, Inc. on Form S-8 of our report dated June 18, 2001 appearing in this Annual Report on form 10-K of Reynolds, Smith and Hills, Inc. for the years ended March 31, 2001, 2000 and 1999.
/s/ Deloitte and Touche LLP - ---------------------------- Certified Public Accountants Jacksonville, FL June 22, 2001