The Keith Companies Inc.

2955 Red Hill Avenue
Costa Mesa, California 92626
U.S.A.
Telephone: (714) 540-0800
Fax: (714) 668-7026
Website: http://www.keithco.com

Public Company
Incorporated: 1983
Employees: 850
Sales: $69.5 million (2001)
Stock Exchanges: NASDAQ
Ticker Symbol: TKCI
NAIC: 541330 Engineering Services

The Keith Companies Inc. provides a full range of engineering services for commercial and residential real estate development, public works projects and infrastructure improvements, industrial and energy development, and communications networks. The company provides civil, environmental, and water resource engineering as well as electrical, mechanical, chemical process, and fire protection engineering. Other services include mapping, surveying, land planning, landscape architecture, construction management, site acquisition, permit processing, and archeological excavation. Within each of these categories, the company provides numerous other services for public and private projects, on a consulting or practicing basis. The Keith Companies serves its clients through 16 divisions in seven states in the western and midwestern United States and operates an international division from Houston.

Housing Boom Bolstering Success of TKC: 1980s

Aram H. Keith and Floyd Reid formed The Keith Companies Inc. (TKC) in 1983 to provide engineering services for residential and commercial land development and real estate projects. TKC’s primary business activities at this time involved land planning, surveying, landscape architecture, civil engineering, and construction management. Originally called Keith Engineering, the company incorporated as The Keith Companies in 1986. The name encompassed the many offices that opened as TKC prospered with the economy of southern California in the 1980s. TKC opened offices in Irvine, Woodland Hills, Elsinore, Riverside, and Palmdale, as well as Sacramento in northern California.

Most of the projects involved residential developments. The Keith Companies-Inland Empire office opened in 1986 on the strength of such projects as Moreno Valley Ranch and Lusk Highlander in Riverside County and Laband Ranch and Chapman Ranch in San Bernardino County. The Keith Companies-San Diego, which opened in 1987, provided land planning design and engineering support for a 327-acre residential resort community with an ocean view in San Juan Capistrano, near San Diego. Involvement with the Marbella Golf and Country Club project earned the company a merit award from the Pacific Coast Builders Conference in 1988. In 1989 the San Diego office prepared a document explaining American methods of construction for the Misato Life Village, a prototype for a senior retirement and education center in Japan.

TKC extended its engineering capabilities to provide preliminary services, such as environmental analysis and archaeological excavation, to accommodate public works projects, such as road work and water treatment, and to provide services for industrial development, including mechanical and electrical engineering. The broad spectrum of services allowed the company to cross-market services for the same project. Familiarity with a project in its early phases supported contract opportunities for later phases. In addition, TKC found success by involving the client in a project contract as a team member.

The company expanded outside of California, opening permanent offices in Las Vegas, Nevada, and in Kapaa, Kauai, Hawaii, as well as a temporary project office in Japan. In December The Keith Companies-Las Vegas won a contract for the Howard Johnson Plaza Suite Hotel, to provide engineering, surveying, and drainage analysis. In Hawaii TKC provided surveying and civil engineering for an industrial office park. The company opened a permanent office after winning a contract for a 44-lot residential subdivision in Kilauea. The nine-acre project included surveying, civil engineering, and construction management. At this time TCKI managed 14 permanent and temporary (project) offices.

Business grew to the point of requiring TKC to seek larger offices in 1989. The company opened a new office in Costa Mesa to accommodate growth in its public works division. Additional staff and workspace were required for several new projects, such as road projects and assessments for the City of Huntington Beach and Orange County. The Sacramento and Inland Empire operations moved to larger offices as well. New contracts at this time involved engineering and construction management for drainage facilities at Big Bear Airport in northern California, civil engineering services at John Wayne Airport in Orange County, and civil and sanitary engineering at military installations in the Los Angeles area for the Army Corp of Engineers.

TKC achieved distinction in landscape architecture. For its reputation in design and plant selection, TKC was chosen as landscape architect for luxury residential housing at Amarante in Laguna Niguel. A $10 million contract as master landscape architect for Laband Village, in Chino Hills, involved design of a lake and a community park with play area and exercise course. At this time the company’s contracts required 550 employees for completion.

In June 1990 TKC formed a joint venture with the Koll Company, a developer, and the City of Moreno Valley, California’s fastest growing community with a population of 100,000 or more. The venture redeveloped the Center Pointe Business Park into a comprehensive, mixed-use project, including The Koll Corporate Center, located on a 328-acre lot. Construction on the $40 million project began in September 1990, with a target completion date of September 1994. TKC leased a 50,000-square-foot office in the Koll Corporate Center, completed in summer 1991.

TKC’s largest project to date involved surveying and mapping for more than one million acres of land at the site of the Mt. Pinatubo volcano in the Philippines, which erupted in June 1991. The company used global positioning systems to survey the land and to map a lava flow management plan for the long-term safety of the residents.

Enduring a Decline in Business During California’s Recession of the Early 1990s

About a decade after starting business TKC found itself struggling through a recession. The California boom of the 1980s peaked for TKC in 1990 when the company recorded net revenues, after subcontractor costs, of $39 million. By 1993 revenues declined to $12.5 million. In 1990 TKC employed 650 employees; by the end of 1995 the company employed 200. The company operated at a loss, but forgiveness of liability on an office lease resulted in a net income of $735,000 on net revenues of $12.9 million in 1996. TKC renegotiated with the new landlord at Koll Corporate Center, forfeiting its 25 percent ownership in the building and obtaining an extraordinary gain of $2.7 million. Contracts during this slump in the economy included planning for a ten-building office and warehouse complex in Las Vegas, a wetlands improvement project for the Orange County Water District, and an Environmental Impact Report for the City of Beverly Hills. Between 1995 and 1998 TKC provided research and obtained land use/zoning permits for digital telecommunications sites for Pacific Bell Mobile Services in Los Angeles, Orange, and Kern Counties.

As the economy improved in the late 1990s, TKC’s business improved, too. At the beginning of 1998 the company employed 226 and net revenues rebounded to $29.2 million, yielding a net income of $1.65 million. TKC continued to provide services for residential and commercial planning, with new activity in the housing markets in California and Nevada cultivating the company’s return to active operations. The growth of cellular telephone service providers created a new demand for engineering services, in surveying sites for cellular transmission towers. Commercial and residential real estate development remained an important source of revenue, accounting for 80 percent of net revenues in 1998. About 50 percent of real estate development revenues originated from the California market.

The company sought to diversify into other fields in order to offer a full range of engineering services and to address current demands for engineering services. TKC chose to diversify its services through acquisition. In December 1997 TKC purchased Engineering Systems, Inc. (ESI) and its subsidiary, Engineering Systems Integration, which was merged into ESI. The Walnut Creek company, located near San Francisco, provided industrial and energy development services, such as process engineering design, chemical and electrical engineering, environmental waste processing system design, and petrochemical systems design. The August 1998 acquisition of John M. Tettemer & Associates (JMTA) added expertise in water resources engineering, including flood control and drainage engineering, environmental permitting, and biological surveys and studies. JMTA’s specialty, environmental engineering, combined civil engineering with concerns for wetlands preservation, habitat management, and water quality.

In July 1999 TKC became a public company, selling 1.5 million shares at $9.00 per share and raising $13.5 million. In addition to obtaining funds for company development, TKC gained the ability to offer stock options as an employee benefit in a competitive labor market. Funds and stock from the offering were used to fulfill an asset purchase agreement with Thompson-Hysell, for a total acquisition cost of $6 million in cash and stock. Thompson-Hysell prowded water resources engineering and engineering services similar to TKC. The acquisition expanded the company’s reach to northern and central California, with an office in Modesto, and to Salt Lake City, with an office in Taylorsville, Utah.

Company Perspectives:

The Mission of The Keith Companies is to provide comprehensive engineering services with a high regard for excellence in quality and efficiency.

TKC provided services on several upscale residential developments in 1999. Projects in southern California included the Mountain Springs resort community in Riverside County. The $2.5 million contract covered land planning, landscape architecture, engineering, surveying, and mapping. The 823-acre community included more than 1,500 homes, a golf course, and a recreation center. A mapping contract for “The Habitat,” east of Palm Springs, involved 300 lots for luxury homes and two 18-hole golf courses. In Laguna Beach, TKC provided civil engineering, surveying, and mapping for the Treasure Island Resort Hotel and residential project, on 30 acres along the Pacific Coast Highway. The Turtle Ridge Project in Irvine involved engineering and mapping for luxury homes and recreational amenities. For The Irvine Spectrum, JMTA signed a contract to provide engineering construction documents, accounting for flood control; wildlife migration; street, sewer, and water improvements; and traffic plans.

One way that the company attracted clients was through an Executive Land Search program. Basically a map room, the program provided city and county maps, aerial maps, and geographic information systems maps. The materials assisted with site referral from which contracts for projects could be forthcoming if the client acquired the land. The maps covered areas where TKC tended to find work.

The TKC office in Las Vegas obtained commercial contracts with World Premier Investments for site design and improvement on several neighborhood shopping centers and preliminary design services for two commercial developments. Another commercial development contract involved land planning and civil engineering of streets and highways for The Vineyards, an 80-acre entertainment and retail complex.

In 1999 TKC reported $39.6 million and net income of $557,000, returning to the level of business prior to the recession. Although the company employed a staff of 500 working from eight offices in California, Nevada, and Utah, TKC had difficulty finding enough employees to meet the requirements of new contracts. Much business originated from sources that did not even request a bid. The company sought new recruits via its Internet site, which also attracted new business. TKC sought employees through WorkSeek.com, an online recruitment site, implementing the first-ever matching system based on resume profiles.

Addressing the Demands of the 21st Century with Expansion of Services

TKC expanded in all divisions in 2000. The cultural resources division grew from a staff of 11 to 20 employees to provide construction site archeology services for large-scale residential communities in Orange, Riverside, and San Bernardino Counties. The company obtained the position of Master Engineer for long-term development in California’s Central Valley. The 20-year project involved a 30,000-acre site with five villages. The area would accommodate 10,000 residential units, a hotel and convention center, six golf courses, a swim and tennis club, 85 acres of retail and commercial development, and two wineries. Contracts included civil engineering for basic infrastructure, surveying and mapping, coordination of environmental consultants, construction management, and administration of subcontractor bidding and finance.

Through its ESI subsidiary, TKC obtained contracts for several energy development projects. As part of the California Energy Commission’s Energy Technology Export Program, ESI consulted on energy projects in China, Southeast Asia, Mexico, and Central America. The program evaluated local need for cogeneration; energy-efficient lighting; district heating and cooling; energy management systems; and heating, ventilation, and air conditioning systems. Contracts with Pacific Gas & Electric National Energy Group involved engineering, design, and field support services, such as site selection, licensing, permitting, and coordinating activities, for peak demand power facilities. Contracts covered 12 projects nationwide, in addition to five previous contracts, three in Ohio and two in California. In December 2000 ESI expanded its Walnut Creek staff by 20 percent, hiring electrical and mechanical engineers and project managers to cover power generation projects in western states, particularly California, during the electricity crisis there.

In October 2000 TKC acquired Crosby Mead Benton & Associates, a firm specializing in land development design, landscape architecture, and infrastructure design for residential, commercial, and industrial development. With offices in the Los Angeles and San Diego areas, the company carried a staff of 65.

TKC was recognized for excellence in 2000, being ranked among the top engineering firms in several markets in southern California. The National Association of Environmental Professionals gave TCKI an award for Outstanding Environmental Analysis Document for an Environmental Impact Report prepared for the City of Beverly Hills after the January 1994 earthquake damaged the Coldwater Canyon Reservoir.

Key Dates:

1986:

Keith Engineering reincorporates as The Keith Companies.

1988:

The Keith Companies expands outside of California, with offices in Nevada and Hawaii.

1990:

Revenues peak at $39 million before the recession of the early 1990s.

1993:

A business slump causes The Keith Companies to hit its lowest point in terms of sales, at $12.5 million.

1997:

New acquisition strategy provides basis for expansion and diversification.

1999:

The Keith Companies becomes publicly owned; revenues recover.

2001:

Demand for power generation engineering services leads to the acquisition of two companies specializing in energy projects.

2002:

The Keith Companies ranks 72nd on the Forbes list of 200 Best Small Companies.

TKC found itself having to refuse work contracts simply because the company could not find enough employees to handle all the projects offered. As such, acquisitions continued to support the company’s growth. In January TKC purchased Hook & Associates Engineering, of Phoenix, adding approximately $7 million in gross revenues to TKC revenues. With offices in Arizona, Colorado, and Wyoming, Hook’s staff of 100 added strengths in telecommunications and transportation. Other engineering services were provided for public works projects and real estate development. With the Hook acquisition TKC employed 650 professionals in 13 offices in early 2001.

A secondary offering of stock in May provided funds for continued expansion and diversification at TKC. On the strength of its energy facilities contracts, TKC saw its share prices increase from approximately $5 per share in October 2000 to about $20 in April 2001. The offering of 1.9 million shares of stock grossed $40 million.

TKC continued to provide engineering services across all sectors. An indefinite delivery, indefinite quantity (IDIQ) contract with the National Park Service, for one year with four one-year options, involved ground surveys, boundary surveys, aerial photography, topographic surveys, and other services for parks in seven western states. ESI obtained $2.5 million in engineering and design contracts for private-sector power plants. TKC obtained a contract to perform an environmental evaluation for Bachman Springs, a destination resort and residential community proposed for the high desert near Tombstone, Arizona. In September TKC obtained several contracts for storm water quality projects and began training water quality specialists to fulfill the demands of these projects.

Acquisitions in late 2001 involved companies that specialized in energy projects. Pacific Engineering Corporation (PEC) of Portland, Oregon, had a strong reputation for its work on power transmission and distribution and hydroelectric energy facilities, as well as communications and other utility infrastructure services in the Pacific Northwest. Universal Energy, Inc. (UEI) of Houston, acquired in November, served the power industry in the United States and abroad. UEFs specialty involved the commissioning and startup of power plants, plant operations, and maintenance support. Amerex International, a subsidiary of UEI, directed project operations in Rio de Janeiro and Buenos Aires and served clients in South America, Europe, and Asia.

Residential development contracts in 2002 included grading and preservation of natural drainage for the Three Sister Estates, a master planned community in Riverside County. In Temecula, California, TKC obtained a contract for construction and surveying for a 400-acre master planned community called Crowne Hill. In March the Ronald Reagan Presidential Foundation awarded TKC the contract to provide civil engineering for the Reagan Library Air Force One Pavilion, an 80,000-square-foot addition to the Library in Simi Valley.

Through acquisition, TKC pursued business in the economically stable area of engineering in public works and infrastructure projects. In March 2002 TKC acquired Ayres, Lewis, Norris & May (ALNM) of Ann Arbor, Michigan, a diversified engineering firm specializing in public works infrastructure and other government projects. With more than 70 years in operation, ALNM provided services in civil, electrical, mechanical, and environmental engineering, as well as planning and surveying. The company maintained offices in Detroit, Fenton, Muskegon, and Canton, Michigan, and added 116 employees to TKC’s roster. In December 2002 the City of Fenton Michigan awarded ALNM an $8.8 million contract for the construction of a water softening plant, which the company designed, and for water system improvements.

TKC continued to gain recognition for excellent work. The American Society of Civil Engineers—Orange County chapter named JMTA for an Engineering Project Achievement Award. The award commended the company for its work on the San Joaquin Wetland Mitigation Project. The project established 45 acres of riparian habitat, seasonal streams, and ponds to offset wetlands lost through developments by several Irvine companies. In addition, in Forbes magazine, TKC ranked 72nd on the list of 200 Best Small Companies for 2002.

Principal Subsidiaries

Amerex International; Crosby Mead Benton & Associates, Inc.; Engineering Services, Inc.; Engineering Systems Integrations, Inc.; Hook & Associates Engineering, Inc.; Pacific Engineering Corporation; Thompson-Hysell Engineers, Inc.; John M. Tettemer & Associates, Inc.; TKC Communications; Universal Energy, Inc.

Principal Competitors

Black & Veatch LLP; Jacobs Engineering Group, Inc.; Tetra Tech, Inc.

Further Reading

“CEO Interview: Aram Keith—The Keith Companies Inc.,” Wall Street Transcript Digest, February 19, 2001.

Heiger, Jennifer, “Costa Mesa, Calif.-Based Engineering Firm Builds Momentum Around Growth,” Orange County Register, January 21, 2001.

——, “Costa Mesa, Calif.-Based Engineering Firm Capitalizes on Electricity Crisis,” Orange County Register, April 3, 2001.

“Keith: IPO Was Only Way to Grow,” Engineering News Record, August 30, 1999, p. 14.

—Mary Tradii