-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OksJ4Iq3FU6ekn0PjlrqYVNgBAa4jMfvjItAWIY+DV7m4Dd5fQ/+bQ5m6jEwm2hI BfavrRmpx+ZErSzDqNCEdw== 0000927016-97-002788.txt : 19971031 0000927016-97-002788.hdr.sgml : 19971031 ACCESSION NUMBER: 0000927016-97-002788 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971030 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: KEANE INC CENTRAL INDEX KEY: 0000054883 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING SERVICES [7371] IRS NUMBER: 042437166 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07516 FILM NUMBER: 97703779 BUSINESS ADDRESS: STREET 1: TEN CITY SQ CITY: BOSTON STATE: MA ZIP: 02129 BUSINESS PHONE: 6172419200 MAIL ADDRESS: STREET 1: TEN CITY SQ CITY: BOSTON STATE: MA ZIP: 02109 FORMER COMPANY: FORMER CONFORMED NAME: KEANE ASSOCIATES INC DATE OF NAME CHANGE: 19800826 10-Q 1 QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR QUARTER ENDED SEPTEMBER 30, 1997 COMMISSION FILE NUMBER 1-7516 KEANE, INC. (Exact name of registrant as specified in its charter) MASSACHUSETTS 04-2437166 (State or other jurisdictions of (I.R.S. Employer Identification incorporation or organization) Number) Ten City Square, Boston, Massachusetts 02129 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (617) 241-9200 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 ----- ----- As of September 30, 1997, the number of issued and outstanding shares of Common Stock (excluding 305,615 shares held in treasury) and Class B Common Stock were 65,857,978 and 286,882 shares, respectively. The Company declared a 2 for 1 stock split on July 24, 1997, payable in the form of a stock dividend to holders of record as of August 14, 1997, which was distributed on August 29, 1997, and has been reflected in the number of Common Shares outstanding. 1 of 14 Keane, Inc. and Subsidiaries TABLE OF CONTENTS
Part I - Financial Information Consolidated Statements of Income for the three months and nine months ended September 30, 1997 and 1996 (unaudited).......................................... 3 Consolidated Balance Sheets as of September 30, 1997 and December 31, 1996 (unaudited).......................................................... 4 Consolidated Statements of Cash Flows for the nine months ended September 30, 1997 and 1996 (unaudited)................................................ 5 Notes to Unaudited Financial Statements................................................ 6 Management's Discussion and Analysis of Financial Condition and Results of Operations.. 8 Part II - Other Information............................................................ 13 Signature Page......................................................................... 14
2 of 14 KEANE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS) THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1997 1996 1997 1996 Total revenues $169,930 $120,900 $463,006 $339,736 Salaries, wages and other direct costs 114,379 81,935 307,473 227,446 Selling, general and administrative expenses 32,042 24,570 89,457 71,848 Amortization of goodwill and other intangible assets 3,509 3,120 10,527 9,378 Operating income 20,000 11,275 55.549 31,064 Investment and dividend income 1,181 411 2,997 1,509 Interest expense 51 127 151 340 Other expenses, net 34 155 549 444 Income before income taxes 21,096 11,404 57,846 31,789 Provision for income taxes 9,073 4,904 24,875 13,466 Net income $ 12,023 $ 6,500 $ 32,971 $ 18,323 *Net income per share $.18 $.10 $.49 $.28 *Weighted average shares outstanding 67,693 66,676 67,449 66,299 *Adjusted to reflect the Company's 2 for 1 stock split in the form of a dividend that was distributed on August 29, 1997 to shareholders of record as of August 14, 1997.
The accompanying notes are an integral part of the consolidated financial statements. 3 of 14
KEANE, INC. AND SUBSIDIARIES (IN THOUSANDS) CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, DECEMBER 31, 1997 1996 Assets (UNAUDITED) Current: Cash and cash equivalents $ 14,639 $ 38,837 Investments 48,188 30,242 Accounts receivable, net Trade 144,924 94,773 Other 1,018 2,447 Prepaid expenses and other current assets 7,700 5,536 -------- -------- Total current assets 216,469 171,835 Property and equipment, net 17,223 10,658 Intangible assets, net 36,288 46,815 Other assets 8,590 5,906 -------- -------- $278,570 $235,214 ======== ======== Liabilities Current: Accounts payable 11,959 9,825 Accrued compensation 12,925 11,036 Accrued expenses and other liabilities 11,407 5,454 Notes payable 3,046 3,191 Income taxes payable 6,514 5,677 Current capital lease obligations 203 236 -------- -------- Total current liabilities 46,054 35,419 Notes payable ----- 2,807 Long-term portion of capital lease obligations ----- 358 Stockholders' Equity Common Stock 6,616 6,572 Class B Common Stock 29 29 Additional paid-in capital 95,558 92,647 Cumulative translation adjustment (86) (46) Retained earnings 132,812 99,841 Less treasury stock (2,413) (2,413) -------- -------- Total stockholders' equity 232,516 196,630 -------- -------- $278,570 $235,214 ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 4 of 14
KEANE, INC. AND SUBSIDIARIES NINE MONTHS ENDED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) SEPTEMBER 30, (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: 1997 1996 Net income $ 32,971 $ 18,323 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 15,568 14,386 Accrued interest on long term debt 148 318 Deferred income taxes (192) 150 Provision for doubtful accounts 1,544 1,600 Loss on disposal of fixed assets 67 24 Changes in assets and liabilities, net of acquisitions: Increase in accounts receivable (49,438) (22,573) Increase in prepaid expenses and other assets (4,657) (1,104) Increase in income taxes payable 837 1,782 Increase (decrease) in accounts payable, accrued expenses, and other current liabilities 8,760 (484) ----- ----- NET CASH PROVIDED BY OPERATING ACTIVITIES 5,608 12,422 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of investments (40,773) (13,023) Sale of investments 22,828 8,141 Purchase of property and equipment (11,734) (3,189) Proceeds from sale of assets 8 45 Payment for acquisitions ---- (289) Proceeds from sale of business unit 400 ---- -------- -------- Net cash used for investing activities (29,271) (8,315) CASH FLOWS FROM FINANCING ACTIVITIES: Payments under long-term debt (3,491) (2,695) Proceeds from issuance of common stock 2,956 2,974 -------- -------- Net cash (used for) provided by financing activities (535) 279 -------- -------- Net increase (decrease) in cash and cash equivalents (24,198) 4,386 Cash and cash equivalents, beginning of period 38,837 21,913 -------- -------- Cash and cash equivalents, end of period $ 14,639 $ 26,299 ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 5 of 14 Keane, Inc. and Subsidiaries Notes to Unaudited Financial Statements Note 1. The accompanying unaudited consolidated financial statements have been prepared in accordance with the accounting policies described in the Company's 1996 Annual Report on Form 10-K and should be read in conjunction with the disclosures therein. All financial figures are in thousands of dollars, except per share amounts. Prior period amounts have been restated to conform to current year presentations. In the opinion of management, these interim financial statements reflect all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial position, results of operations and cash flows for the periods presented. Interim results are not necessarily indicative of results for the full year. On July 24, 1997, the Company declared a 2 for 1 stock spilt in the form of a dividend that was distributed on August 29, 1997 to shareholders of record as of August 14, 1997. All Common shares and per share amounts included in these financial statements are given retroactive effect to the extent required for this stock split. Note 2. Computation of Earnings Per Share for Quarters Ending September 30, 1997 and 1996.
1997 1996 Primary Average shares outstanding Common 65,837 65,336 Class B Common 288 288 Net effect of dilutive options-based on the treasury stock method using average market price Common Stock 1,568 1,052 ------- ------- Total 67,693 66,676 Net income $12,023 $ 6,500 Per share amount $.18 $.10
6 of 14 KEANE, INC. AND SUBSIDIARIES NOTES TO UNAUDITED FINANCIAL STATEMENTS
1997 1996 Fully Diluted Average Shares outstanding Common 65,837 65,336 Class B Common 288 288 Net effect of dilutive stock options-based on the treasury stock method using higher of average market price or period ending price Common Stock 1,582 1,202 -------- --------- Total 67,707 66,826 Net income $ 12,023 $ 6,500 Per share amount $.18 $.10 Note 3. Intangible assets consist of the following: 9/30/97 12/31/96 Goodwill $ 20,360 $ 20,360 Noncompetition agreements 22,203 22,203 Customer-based intangibles 37,915 37,915 Software 8,089 8,089 Other 1,208 1,208 -------- --------- 89,775 89,775 Less accumulated amortization 53,487 42,960 -------- --------- $ 36,288 $ 46,815 ======== =========
7 of 14 KEANE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Quarterly Report on Form 10-Q contains forward-looking statements. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects," and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause the Company's actual results to differ materially from those indicated by such forward-looking statements. These factors include, without limitation, those set forth below under the caption "Certain Factors That May Affect Future Results." Results of Operations - --------------------- The Company's revenues for the Third Quarter of 1997 were $169.9 million, a 40.6% increase over the same period last year. Revenues for the first nine months of 1997 were $463.0 million, a 36.3% increase over the same period last year. The increase in revenues is primarily attributable to increased sales of the Company's Application Outsourcing, Development and Resolve 2000/TM/ Compliance projects. Salaries, wages and other direct costs for the Third Quarter of 1997 were $114.4 million, or 67.3% of revenues, compared to $81.9 million, or 67.8% of revenues, during the same period last year. Salaries, wages and other direct costs for the first nine months of 1997 were $307.5 million, or 66.4% of revenues, compared to $227.4 million, or 66.9% of revenues, during the same period last year. With the increase in the Company's strategic services in the areas of Application Outsourcing, Development and Resolve 2000/TM/ Compliance, the Company has increased its average billing rate by more than the increases in related technical salary cost. For the first nine months of 1997, the Company's average billing rate increased 8% over the comparable period last year compared to an increase of 4% in technical salaries over the same period. Selling, general and administrative expenses (SG&A) for the Third Quarter of 1997 were $32.0 million, or 18.9% of revenues, compared to $24.6 million, or 20.3% of revenues, for the same period last year. Year-to-date SG&A expenses were $89.5 million, or 19.3% of revenues, compared to $71.9 million, or 21.1% of revenues, for the same period last year. The decrease in SG&A as a percentage of revenues for the quarter and year to date is primarily attributable to an increase in revenues that did not require a proportionate increase in costs. 8 of 14 KEANE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Amortization of goodwill and capitalized acquisition costs for the Third Quarter of 1997 were $3.5 million, or 2.1% of revenues, compared to $3.1 million, or 2.6% of revenues, for the same period last year. Amortization of goodwill and capitalized acquisition costs for the first nine months of 1997 were $10.5 million, or 2.3% of revenues, compared to $9.4 million, or 2.8% of revenues, for the same period last year. Interest and other related expenses for the Third Quarter of 1997 were $85,000 compared to $282,000 for the same period last year. Interest and other related expenses for the first nine months were $700,000 compared to $784,000 for the same period last year. The Company recognized investment income of $1,181,000 in the Third Quarter and $2,997,000 year to date compared to $411,000 and $1,509,000, respectively, for the same period last year. The increase in investment income is attributed to a larger investment balance compared to last year. The Company's pre-tax income for the Third Quarter of 1997 was $21.1 million, or 12.4% of revenues, compared to $11.4 million, or 9.4% of revenues, for the same period last year. Pre-tax income for the first nine months of 1997 was $57.8 million, or 12.5% of revenues, compared to $31.8 million, or 9.4% of revenues, for the same period last year. The Company's effective tax rate for the Third Quarter of 1997 and the first nine months of 1997 was 43.0% as compared to 43% and 42.4% for the corresponding periods of 1996. Net income and earnings per share for the Third Quarter of 1997 were $12.0 million and $.18 per share, respectively, compared to $6.5 million and $.10 per share, respectively, for the same period last year. Net income and earnings per share for the nine months ended September 30, 1997 were 33.0 million and $.49 per share, respectively, compared to $18.3 million and $.28 per share, respectively, for the same period last year. Liquidity and Capital Resources - ------------------------------- The Company ended the Third Quarter of 1997 with cash, cash equivalents and marketable securities totaling approximately $62.8 million, down from the balance at December 31, 1996 of $69.1 million. The decrease is primarily attributable to the increase in accounts receivable and expenditures associated with adding and expanding facilities to support the Company's growth. The Company's debt, including accrued interest, at the end of the Third Quarter of 1997 was $3.2 million, which consisted primarily of a non-interest bearing note discounted at 7%, payable to NYNEX in January 1998. The Company maintains and has available a $20 million unsecured demand line of credit split equally between two major Boston banks. 9 of 14 KEANE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In February, 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings per Share," which will require adoption in fiscal year 1997. This statement specifies the computation, presentation, and disclosure requirements of earnings per share. The Company is in the process of determining the effect of the adoption of this statement on its consolidated financial statements and related disclosures. CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS: The following important factors, among others, could cause actual results to differ materially from those indicated by forward-looking statements made in this Quarterly Report on Form 10-Q and presented elsewhere by management from time to time. The Company has experienced and expects to continue to experience fluctuations in its quarterly results. Gross margins vary based on a variety of factors including employee utilization rates and the number and type of services performed by the Company during a particular period. A variety of factors influence the level of the Company's revenues in a particular quarter, including general economic conditions which may influence its clients and potential clients to invest in their information systems or to downsize their businesses, the number, requirements, and nature of client engagements, employee utilization rates, changes in the rate the Company is able to charge clients for its services, acquisitions by the Company and other factors, many of which are beyond the Company's control. Since a significant portion of the expenses of the Company do not vary relative to the Company's level of revenues, if revenues in a particular quarter do not meet expectations, operating results will be adversely affected, which may have an adverse impact on the market price of the Company's common stock. In addition, many of the Company's engagements are terminable without client penalty. An unanticipated termination of a major project could result in an increase in underutilized employees and a decrease in revenues and profits. Finally, gross margins vary based on a variety of factors including employee utilization rates and the number and type of services performed by the Company during a particular period. The Company believes that its future success will depend in large part on its ability to continue to attract and retain highly-skilled technical and management personnel. The competition for such personnel is intense. There can be no assurance that the Company will be able to continue to attract and retain qualified personnel necessary for the development of its business. 10 of 14 KEANE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In the past five years, the Company has grown significantly through acquisitions, and the Company's future growth may be based in part on selected acquisitions. The Company's ability to expand successfully by acquisitions depend on many factors, including the successful identification and acquisitions of businesses and management's ability to integrate and operate the new businesses effectively. The Company competes for acquisition candidates with other entities, some of whom have greater financial resources than the Company. Increased competition for acquisition candidates may result in fewer acquisition opportunities being made available to the Company as well as less advantageous acquisition terms, including increased purchase prices. The anticipated benefits from any acquisition may not be achieved unless the operations of the acquired business are successfully combined with those of the Company in a timely manner. The integration of the Company's acquisitions requires substantial attention from management. The diversion of the attention of management, and any difficulties encountered in the transition process, could have an adverse impact on Keane's revenues and operating results. In addition, the process of integrating such acquisitions could cause the interruption of, or a loss of momentum in, the activities of some or all of these businesses, which could have an adverse effect on the Company's operations and financial results. The custom software services market is highly competitive and characterized by continual change and improvement in technology. The market is fragmented, and no company holds a dominant position. Consequently, Keane's competition for client assignments and experienced personnel varies significantly from city to city and by the type of service provided. Some of Keane's competitors are large and have greater technical, financial and marketing resources and greater name recognition in the markets they serve than does the Company. In addition, clients may elect to increase their internal information systems resources to satisfy their custom software development needs. The Company believes that the basis for competition in the software services industry include the ability to compete cost-effectively, develop strong client relationships, generate recurring revenues, utilize comprehensive delivery methodologies, and achieve organizational learning by implementing standard operational processes. In the healthcare software systems market, Keane competes with some companies that are large in the healthcare market and have greater financial resources than Keane. The Company believes that significant competitive factors in the healthcare software systems market include size and demonstrated ability to provide service to targeted healthcare markets. There can be no assurance that the Company will continue to compete successfully with its existing competitors or will be able to compete successfully with any new competitors. 11 of 14 KEANE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS As a result of these and other factors, the Company's past financial performance should not be relied on as an indication of future performance. Keane believes that period-to-period comparisons of its financial results are not necessarily meaningful and it expects that results of operations may fluctuate from period to period in the future. 12 of 14 KEANE, INC. AND SUBSIDIARIES Part II - Other Information - -------------------------------------------------------------------------------- Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - None. (b) Reports on Form 8-K - The Company filed no reports on Form 8-K during the quarter ended September 30, 1997. 13 of 14 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. KEANE, INC. (Registrant) November 5, 1997 /s/ John F. Keane Date __________________________ ___________________________________ John F. Keane President November 5, 1997 /s/ Wallace A. Cataldo Date __________________________ ___________________________________ Wallace A. Cataldo Vice President, Finance 14 of 14 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS 9-MOS DEC-31-1997 DEC-31-1997 JUL-01-1997 JAN-01-1997 SEP-30-1997 SEP-30-1997 0 14,639 0 48,188 0 145,942 0 0 0 0 0 216,469 0 41,892 0 24,669 0 278,570 0 46,054 0 0 0 0 0 0 0 6,645 0 0 0 278,570 169,930 463,006 0 0 0 0 149,930 407,457 34 549 0 0 51 151 21,096 57,846 9,073 24,875 0 0 0 0 0 0 0 0 12,023 32,971 .18 .49 .18 .49
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