-----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, QyMhcUausvn3KTQmdyb2yNYwL4c7mYbdWH818rRfa2p56QiGMPC5SnT8skTCkFzH ZQcqef5hEhnBhH1u6fF40w== 0000927016-96-000693.txt : 19960802 0000927016-96-000693.hdr.sgml : 19960802 ACCESSION NUMBER: 0000927016-96-000693 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960801 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: 1934 Act SEC FILE NUMBER: 001-07516 FILM NUMBER: 96602369 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 June 30, 1996 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 reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- As of June 30, 1996, the number of issued and outstanding shares of Common Stock (excluding 304,881 shares held in treasury) and Class B Common Stock are 16,099,365 and 288,258 shares, respectively. 1 of 13 Keane, Inc. and Subsidiaries TABLE OF CONTENTS Part I - Financial Information Consolidated Statements of Income for the three months and six months ended June 30, 1996 and 1995 (unaudited)...................................... 3 Consolidated Balance Sheets as of June 30, 1996 and December 31, 1995 (unaudited)............................................................. 4 Consolidated Statements of Cash Flows for the six months ended June 30, 1996 and 1995 (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.............................................. 12 Signature Page........................................................... 13
2 Keane, Inc. and Subsidiaries Consolidated Statements of Income (unaudited)
(In thousands except per share amounts) Three months ended Six months ended June 30 June 30 1996 1995 1996 1995 Total revenues $113,075 $94,647 $218,836 $185,099 Salaries, wages and other direct costs 75,032 61,790 145,511 120,753 Selling, general and administrative expenses 24,120 20,573 47,278 40,241 Amortization of goodwill and other intangible assets 3,120 3,002 6,258 5,951 Operating income 10,803 9,282 19,789 18,154 Investment income 567 355 1,098 721 Interest expense 117 164 213 328 Other expenses, net 144 44 289 81 Income before income taxes 11,109 9,429 20,385 18,466 Provision for income taxes 4,666 4,054 8,562 7,940 Net income $ 6,443 $ 5,375 $ 11,823 10,526 Net income per share $.39 $.33 $.72 $.65 Weighted average shares outstanding 16,634 16,316 16,528 16,299
The accompanying notes are an integral part of the consolidated financial statements. 3 Keane, Inc. and Subsidiaries Consolidated Balance Sheets (unaudited)
(In thousands) June 30, 1996 December 31, 1995 Assets Current: Cash and cash equivalents $ 14,277 $ 21,913 Investments 17,231 11,331 Accounts receivable, net Trade 96,707 81,022 Other 2,603 1,091 Prepaid expenses and other current 5,222 4,848 assets -------- -------- Total current assets 136,040 120,205 Property and equipment, net 11,401 12,425 Intangible assets, net 53,055 59,038 Other assets 3,961 2,730 -------- -------- $204,457 $194,398 ======== ======== Liabilities Current: Accounts payable 4,202 4,696 Accrued compensation 8,643 7,926 Accrued expenses and other liabilities 3,062 5,360 Notes payable 3,822 3,178 Income taxes payable 363 ----- Capital lease obligations 294 434 -------- -------- Total current liabilities 20,386 21,594 Notes payable 2,617 5,427 Deferred income taxes ----- 49 Long-term portion of capital lease obligations 6 107 Stockholders' Equity Preferred Stock ----- ----- Common Stock 1,640 1,621 Class B Common Stock 29 29 Additional paid-in capital 95,928 93,543 Cumulative translation adjustment (43) (43) Retained earning 86,306 74,483 Less treasury stock (2,412) (2,412) -------- -------- Total stockholders' equity 181,448 167,221 -------- -------- $204,457 $194,398 ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 4
Keane, Inc. and Subsidiaries Consolidated Statements of Cash Flows (In thousands) (unaudited) Six Months ended June 30, Cash flows from operating activities: 1996 1995 Net income $ 11,823 $10,526 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 9,550 8,521 Accrued interest on long term debt 212 328 Deferred income taxes (852) (1,335) Provision for doubtful accounts 1,276 (256) Loss on disposal of fixed assets 25 58 Changes in assets and liabilities, net of acquisitions: (Increase) in accounts receivable (18,473) (3,391) (Increase) in prepaid expenses and other assets (804) (2,900) Increase in income taxes payable 363 -- (Decrease) in accounts payable, accrued expenses, and other current liabilities (2,074) (6,622) Net cash provided by operating 1,046 4,929 activities Cash flows from investing activities: Purchase of investments (10,133) --- Sale of investments 4,233 --- Purchase of property and equipment (2,306) (1,686) Proceeds from sale of assets 13 58 Payment for acquisitions (274) (3,375) -------- ------- Net cash used for investing activities (8,467) (5,003) Cash flows from financing activities: Payments under long term-debt (2,619) (206) Proceeds from issuance of common stock 2,404 1,649 Net cash (used for) provided by financing activities (215) 1,443 Net increase (decrease) in cash and cash equivalents (7,636) 1,369 Cash and cash equivalents, beginning of period 21,913 26,288 -------- ------- Cash and cash equivalents at end of period 14,277 $27,657 ======== =======
The accompanying notes are an integral part of the consolidated financial statements. 5 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 1995 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 reclassified to conform to current year presentation. 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. Note 2. Computation of Earnings Per Share for quarters ending June 30, 1996 and 1995.
1996 1995 Primary Average shares outstanding Common 16,100 15,773 Class B Common 288 289 Net effect of dilutive options-based on the treasury stock method using average market price Common Stock 246 254 Total 16,634 16,316 Net income $ 6,443 $ 5,375 Per share amount $.39 $.33
6 Keane, Inc. and Subsidiaries Notes to Unaudited Financial Statements
1996 1995 Fully Diluted Average Shares outstanding Common 16,100 15,773 Class B Common 288 289 Net effect of dilutive stock options-based on the treasury stock method using higher of average market price or period ending price Common stock 246 259 Total 16,634 16,321 Net income $ 6,443 $ 5,375 Per share amount $.39 $.33 Note 3. Intangible assets consist of 6/30/96 12/31/95 the following: Goodwill $ 20,360 $ 20,214 Noncompetition agreements 22,203 22,135 Customer-based intangibles 37,916 37,855 Software 8,089 8,089 Other 1,213 1,213 -------- --------- 89,781 89,506 Less accumulated amortization 36,726 30,468 -------- --------- $ 53,055 $ 59,038 ======== =========
Note 4. Commitments and Contingencies On April 3, 1996, the Company finalized an agreement with IBM for the transfer of certain customer relationships and proprietary products. In conjunction with this agreement, IBM will reimburse the Company for resources provided, primarily personnel, to IBM which had assumed management of certain customer projects pending the execution of a formal agreement. These reimbursements total approximately $2.5 million and are included in other receivables in the accompanying June 30, 1996 balance sheet. The finalization of this agreement did not have a material impact on the Company's results of operations. There have been no material changes in the other contingencies described in the Company's 1995 Annual Report. 7 Keane, Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations The 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 Second Quarter were $113.1 million, a 19.5% increase over the same period last year. Revenues for the first six months of 1996 were $218.9 million, an 18.2% increase over the same period last year. The increase in revenue was primarily due to a continued strong economy as it relates to software services compared to last year. During the second quarter, the Company increased sales primarily in its core supplemental staffing business and to a larger extent in its Application Development and Help Desk business. Salaries, wages and other direct costs for the Second Quarter were $75.0 million, or 66.4% of revenues, compared to $61.8 million, or 65.3% of revenues, during the same period last year. Salaries, wages and other direct costs for the first six months of 1996 were $145.5 million, or 66.5% of revenues, compared to $120.8 million, or 65.2% of revenues, during the same period last year. The Company has continued to experience increases in its direct costs as a result of customer demands to increase services and reduce costs. Demands to provide services at reduced costs by Keane's largest customer (IBM) had the largest impact for the Second Quarter and the first six months of 1996. Selling, General and Administrative expenses (SG&A) for the Second Quarter were $24.1 million, or 21.3% of revenues, compared to $20.6 million, or 21.7% of revenues, for the same period last year. Year-to-date SG&A expenses were $47.3 million, or 21.6% of revenues, compared to $40.2 million, or 21.7% of revenues was for the same period last year. The decrease in SG&A for the quarter and year to date is primarily attributable to the increase in revenues that did not require a proportionate increase in cost. Amortization of goodwill and capitalized acquisitions costs for the Second Quarter of 1996 totaled $3.1 million, or 2.8% of revenues, compared to $3.0 million, or 3.2% of revenues, for the same period last year. Amortization of goodwill and capitalized acquisition costs for the 8 first six months of 1996 were $6.3 million, or 2.9% of revenues, compared to $6.0 million, or 3.2% of revenues, for the same period last year. Interest and other related expenses for the Second Quarter were $261,000, compared to $208,000 for the same period last year. Interest and other related expenses for the first six months were $502,000, compared to $409,000 for the same period last year. The Company recognized investment income of $567,000 in the Second Quarter and $1,098,000 year to date, compared to $355,000 and $721,000, respectively, for the same period last year. The increase in investment income can be attributed to a larger investment balance compared to last year. The Company's pre-tax income for the Second Quarter was $11.1 million, or 9.8% of revenues, compared to $9.4 million, or 10.0% of revenues, for the same period last year. Pre-tax income year-to-date was $20.4 million, or 9.3% of revenues, compared to $18.5 million, or 10.0% of revenues, for the same period last year. The Company's effective tax rate for the Second Quarter and year-to-date for 1996 was 42%, as compared to 43% for the same period last year. The decrease in the tax rate was due to an expected reduction in state income taxes. Net Income - ---------- Net income and earnings per share for the Second Quarter were $6.4 million and $.39 per share, respectively, compared to $5.4 million and $.33 per share, respectively, for the same period last year. Net income and earnings per share for the six months ended June 30, 1996 were $11.8 million and $.72 per share, respectively, compared to $10.5 million and $.65 per share, respectively, for the same period last year. Liquidity and Capital Resources - ------------------------------- The Company ended the Second Quarter with cash, cash equivalents and marketable securities totaling approximately $31.5 million. The Company's debt, including accrued interest, at the end of the Second Quarter was $6.4 million, which consists primarily of a non-interest bearing note discounted at 7%, payable to NYNEX in two equal installments in January 1997 and January 1998. The Company maintains and has available a $20 million unsecured demand line of credit split equally between two major Boston banks. Based on the Company's current operating plan, it believes that its cash, cash equivalents, marketable securities, cash flows from operations, and its current available line of credit will be sufficient to meet its current working capital requirements. CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS: The following important factors, among others, could cause actual results to differ materially from those indicated by 9 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. 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 and requirements 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. 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 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 bases for competition in the software services industry include the ability to compete cost-effectively, develop strong client 10 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. 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 period to period in the future. 11 Keane, Inc. and Subsidiaries Part II - Other Information - -------------------------------------------------------------------------------- Item 4. Submission of Matters to a Vote of Security Holders The Annual Meeting of Stockholders of the Company was held on May 29, 1996. The Stockholders approved the election of the four nominees named below, and ratified the selection of Coopers & Lybrand, L.L.P. as the Company's independent accountants for 1996. Set forth below is the number of votes cast for, against or withheld, as well as the number of abstentions and Broker non-votes as to each such matter, including a separate tabulation with respect to each nominee for director: Proposal #1 - To fix the number of directors at four and to elect the following persons to serve as directors:
BROKERS FOR AGAINST ABSTAIN NON-VOTES John F. Keane 11,802,079 130,033 John F. Rockhart 11,801,050 131,062 Robert Shafto 11,782,919 149,193 Winston Hindle 11,801,208 130,904
Proposal #2 - To approve amendments to the Company's 1992 Employee Stock Purchase Plan increasing the number of shares available for purchase under such plan to 637,500:
BROKERS FOR AGAINST ABSTAIN NON-VOTES 11,507,090 93,074 150,050 181,898
Proposal #3 - To ratify the selection of Coopers & Lybrand, L.L.P. as the Company's independent accountants for 1996:
BROKERS FOR AGAINST ABSTAIN NON-VOTES 11,777,752 16,589 137,771
Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - None. (b) Reports on Form 8-K - The Registrant filed no reports on Form 8-K during the quarter ended June 30, 1996. 12 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) Date July 31, 1996 /s/ John F. Keane -------------------------- ------------------------------------ John F. Keane President Date July 31, 1996 /s/ Wallace A. Cataldo -------------------------- ------------------------------------ Wallace A. Cataldo Vice President, Finance 13 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE SHEET/INCOME STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS 6-MOS DEC-31-1996 DEC-31-1996 APR-01-1996 JAN-01-1996 JUN-30-1996 JUN-30-1996 0 14,277 0 17,231 0 99,310 0 0 0 0 0 136,040 0 30,079 0 18,678 0 204,457 0 20,386 0 0 0 0 0 0 0 1,669 0 0 0 204,457 113,075 218,836 0 0 0 0 102,272 199,047 144 289 0 0 117 213 11,109 20,385 4,666 8,562 0 0 0 0 0 0 0 0 6,443 11,823 .39 .72 .39 .72
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