-----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, NUEyl/w0D0imvrBEDA/2Yon7tB3Y73rGDnlcXrHIp+t9T2OOMvfmd0Vg4Fx0FrJf VZkVdgWm5L2kD3KNehlqDw== 0000950109-96-003146.txt : 19960517 0000950109-96-003146.hdr.sgml : 19960517 ACCESSION NUMBER: 0000950109-96-003146 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 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: 96566397 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 FORM 10-Q 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 March 31, 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 March 31, 1996, the number of issued and outstanding shares of Common Stock (excluding 304,881 shares held in treasury) and Class B Common Stock are 15,957,093 and 288,258 shares, respectively. Page 1 of 12 Keane, Inc. and Subsidiaries TABLE OF CONTENTS Part I - Financial Information Consolidated Statements of Income for the three months ended March 31, 1996 and 1995 (unaudited)........................................................ 3 Consolidated Balance Sheets as of March 31, 1996 and December 31, 1995 (unaudited)................................................................. 4 Consolidated Statements of Cash Flows for the three months ended March 31, 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................................................. 11 Signature Page.............................................................. 12 Page 2 of 12 Keane, Inc. and Subsidiaries Consolidated Statements of Income (unaudited)
(In thousands except per share amounts) Three months ended March 31, 1996 1995 Total revenues $105,761 $90,452 Salaries, wages and other direct costs 70,479 58,963 Selling, general and administrative expenses 23,158 19,668 Amortization of goodwill and other intangible 3,138 2,949 assets ----- ----- Operating income 8,986 8,872 Investment income 531 366 Interest expense 96 164 Other expenses, net 145 37 --- -- Income before income taxes 9,276 9,037 Provision for income taxes 3,896 3,886 ----- ----- Net income $5,380 $5,151 ====== ====== Net income per share $.33 $.32 ==== ==== Weighted average shares outstanding 16,421 16,283 ====== ====== The accompanying notes are an integral part of the consolidated financial statements.
Page 3 of 12 Keane, Inc. and Subsidiaries Consolidated Balance Sheets (unaudited) [CAPTION] (In thousands) March 31, 1996 December 31, 1995 Assets Current: Cash and cash equivalents $12,201 $ 21,913 Investments 13,552 11,331 Accounts receivable, net Trade 89,305 81,022 Other 3,809 1,091 Prepaid expenses and other current assets 4,789 4,848 -------- -------- Total current assets 123,656 120,205 Property and equipment, net 11,942 12,425 Intangible assets, net 56,175 59,038 Other assets, net 3,108 2,730 -------- -------- $194,881 $194,398 ======== ======== Liabilities Current: Accounts payable $ 4,291 $ 4,696 Accrued compensation 3,310 7,926 Accrued expenses and other liabilities 3,894 5,360 Notes payable 3,800 3,178 Income taxes payable 3,151 ----- Capital lease obligations 429 434 -------- -------- Total current liabilities 18,875 21,594 Notes payable 2,522 5,427 Deferred income taxes 163 49 Long-term portion of capital lease obligations 11 107 Stockholders' Equity Common Stock 1,626 1,621 Class B Common Stock 29 29 Additional paid-in capital 94,242 93,543 Cumulative translation adjustment (38) (43) Retained earnings 79,863 74,483 Less treasury stock (2,412) (2,412) -------- -------- Total stockholders' equity 173,310 167,221 -------- -------- $194,881 $194,398 ======== ======== The accompanying notes are an integral part of the consolidated financial statements.
Page 4 of 12 [CAPTION] Keane, Inc. and Subsidiaries Consolidated Statements of Cash Flows (unaudited) (In thousands) Three Months ended March 31, Cash flows from operating activities: 1996 1995 Net Income $5,380 $5,151 Adjustment to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,736 4,234 Deferred income taxes 140 (652) Provision for doubtful accounts 789 (200) Loss on the sale of property and equipment 5 42 Accrued interest on long-term debt 95 164 Changes in assets and liabilities, net of acquisitions: (Increase) in accounts receivable (11,787) (2,034) (Increase) decrease in prepaid expenses (346) (916) and other assets Increase (decrease) in accounts payable and (6,484) (2,571) accrued expenses and other liabilities Increase in income taxes payable 3,151 --- ----- --- Net cash (used for) provided by operating activities (4,321) 3,218 ------- ----- Cash flows from Investing Activities: Purchase of investments (4,275) --- Sale of investments 2,054 --- Purchase of property and equipment (1,147) (729) Proceeds from the sale of property and equipment 27 48 Payments for acquisitions (274) (320) ----- ----- Net cash used for investing activities (3,615) (1,001) ------- ------- Cash flows from Financing Activities: Payments under long-term debt (2,374) --- Principal payments under capital lease (106) (92) obligations Proceeds from issuance of common stock 704 666 --- --- Net cash (used for) provided by financing activities (1,776) 574 ------ --- Net increase (decrease) in cash (9,712) 2,791 Cash and cash equivalents at beginning of period 1,913 26,288 ------ ------ Cash and cash equivalents at end of period $12,201 $29,079 ======= ======= The accompanying notes are an integral part of the consolidated financial statements.
Page 5 of 12 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 restated 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 March 31, 1996 and 1995.
1996 1995 Primary Average shares outstanding Common 15,937 15,710 Class B Common 288 289 Net effect of dilutive options-based on the treasury stock method using average market price Common Stock 196 284 Total 16,421 16,283 Net income $5,380 $5,151 Per share amount $.33 $.32
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Keane, Inc. and Subsidiaries Notes to Unaudited Financial Statements 1996 1995 Fully Diluted Average Shares outstanding Common 15,937 15,710 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 240 299 Total 16,465 16,289 Net income $5,380 $5,151 Per share amount $.33 $.32 Note 3. Intangible assets consist of the following: 3/31/96 12/31/95 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 33,606 30,468 ------ ------ 56,175 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 March 31, 1996 balance sheet. The finalization of this agreement did not have a material impact on the Company's results of operations for the quarter ended March 31, 1996. There have been no material changes in the other contingencies described in the 1995 Annual Report. Page 7 of 12 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 revenue for the First Quarter of 1996 was $105.8 million, a 16.9% increase over the First Quarter last year. The increase in revenue was primarily attributable to an improved economy in which the demand for professional services is strong. In addition, the Company has had significant increases from its specialized services offerings, particularly in the areas of Application Development, Application Outsourcing and Help Desk. Salaries, wages and other direct costs for the First Quarter were $70.5 million, or 66.6% of revenue, compared to the First Quarter last year of $58.9 million, or 65.2% of revenue, for a 1.4% increase as a percentage of revenue. This increase as a percentage of revenue is primarily due to lower rates provided to IBM pursuant to the IBM National Agreement Keane executed on July 29, 1995, which the Company anticipates will provide for the opportunity to increase business with IBM. In addition, the Company's direct cost increase was due to the fact that large clients are negotiating for volume discounts and increased levels of service from vendors, and the Company has been agreeing to lower rates to win new business in a competitive market. Selling, General & Administrative ("SG&A") expenses for the First Quarter were $23.2 million, or 21.9% of revenue, compared to $19.7 millions, or 21.7% of revenue, for the First Quarter last year. The increase in SG&A as a percentage of revenue was primarily attributable to the Company's investment in its Management Information Systems. In the First Quarter, the Company installed at each of its local offices a PC-based Client Information System and an Applicant Tracking System. The Client Information System is intended to allow each branch to access immediately a variety of information on each of its client accounts, while the Applicant Tracking System is designed to increase productivity in our recruiting and selection efforts. It is anticipated that both of these systems will be implemented and operational before the end of the Second Quarter, and the associated costs of these systems will be completed. Amortization of goodwill and other intangible assets for the First Quarter was $3.1 million, or 3.0% of revenue, compared to $2.9 million, or 3.3% of revenue in the first quarter of 1995. Interest and other related investment income totaled $0.5 million for the First Quarter of 1996, compared to $0.4 million the same period last year. Interest and other related expenses for the first Quarters each of 1995 and 1996 totaled $0.2 million. Pre-tax income for the First Quarter was $9.3 million, or 8.8% of revenue, up 2.6% from pre-tax income last year of $9.0 million, or 10% of revenue. The Company's effective tax rate for the First Quarter was 42%, compared to an effective tax rate of 43% for the same period last year. The lower effective tax rate is a result of reductions in the Company's state income tax rate. Page 8 of 12 Net income and earnings per share for the First Quarter of 1996 were $5.4 million and $ .33, respectively, compared to $5.2 million and $ .32 for the First Quarter last year. Liquidity & Capital Resources - ----------------------------- The Company ended the First Quarter with cash equivalents and short-term investments totaling approximately $25.8 million. The Company's debt, including accrued interest at the end of the First Quarter was $6.3 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. The increase in accounts receivable is primarily due to the revenue growth experienced in the first quarter and the implementation of a new time reporting system which caused delays in the processing of invoices. The Company has identified the problems and has taken the appropriate action steps. Based on the Company's current operating plan, it believes that its cash and cash equivalents on hand, 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 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 rates the Company is able to charge its 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 depends on many factors, including the successful identification and acquisition 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 the various businesses 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. Page 9 of 12 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 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 from period to period in the future. Page 10 of 12 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 registrant filed no reports on Form 8-K during the quarter ended March 31, 1996. - -------------------------------------------------------------------------------- Page 11 of 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 __________________________ __________________________________ John F. Keane President Date __________________________ ___________________________________ Wallace A. Cataldo Vice President, Finance Page 12 of 12 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 12,201 13,552 93,114 0 0 123,656 29,486 17,544 194,881 18,875 0 0 0 1,655 0 194,881 0 105,761 0 96,775 145 0 96 9,276 3,896 0 0 0 0 5,380 0.33 0.33
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