<PAGE>
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, 1998 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 Number)
incorporation or organization)
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 June 30, 1998, the number of issued and outstanding shares of Common Stock
(excluding 305,615 shares held in treasury) and Class B Common Stock were
69,114,409 and 286,296 shares, respectively.
1 of 18
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Keane, Inc. and Subidiaries
TABLE OF CONTENTS
<TABLE>
<S> <C>
Part I - Financial Information
Consolidated Statements of Income for the three months and six months ended June 30, 1998
and 1997................................................................................... 3
Consolidated Balance Sheets as of June 30, 1998 and December 31, 1997...................... 4
Consolidated Statements of Cash Flows for the six months ended June 30, 1998 and 1997...... 5
Notes to Unaudited Financial Statements.................................................... 6
Management's Discussion and Analysis of Financial Condition and Results of Operations...... 9
Part II - Other Information................................................................ 15
Signature Page............................................................................. 18
</TABLE>
2
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KEANE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
---------------------- ----------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Total revenues $250,693 $155,494 $465,655 $299,795
Salaries, wages and other direct costs 162,344 101,668 302,211 197,141
Selling, general and administrative expenses 44,074 30,820 82,587 59,357
Amortization of goodwill and other intangible
assets 1,921 3,509 3,565 7,018
Merger costs 4,132 0 4,132 0
Operating income 38,222 19,497 73,160 36,279
Investment income 1,439 936 2,651 1,885
Interest expense (47) 50 2 100
Other expenses, net (1) 373 128 501
Income before income taxes 39,709 20,010 75,681 37,563
Provision for income taxes 19,041 8,576 34,087 16,113
Net income $ 20,668 $ 11,434 $ 41,594 $ 21,450
Net income per share (basic) $.30 $.17 $.60 $.31
Net income per share (diluted) $.29 $.16 $.59 $.31
Weighted average common shares outstanding (basic) 69,260 68,222 69,062 68,129
Weighted average common shares and common share 70,506 69,576 70,465 69,577
equivalents outstanding (diluted)
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
3
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KEANE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(IN THOUSANDS)
JUNE 30, 1998 DECEMBER 31, 1997
<S> <C> <C>
Assets
Current:
Cash and cash equivalents $ 25,507 $ 36,929
Short term investments 5,781 6,607
Accounts receivable, net
Trade 220,904 149,917
Other 1,480 1,795
Prepaid expenses and other current assets 9,415 9,818
-------- --------
Total current assets 263,087 205,066
Long term investments 39,217 44,139
Property and equipment, net 24,339 21,062
Intangible assets, net 36,870 32,778
Other assets, net 9,280 8,916
-------- --------
$372,793 $311,961
======== ========
Liabilities
Current:
Accounts payable 19,149 17,952
Accrued compensation 22,507 22,786
Accrued expenses and other liabilities 24,308 13,091
Notes payable 1,154 3,004
Accrued income taxes 5,900 2,055
Capital lease obligations 305 211
-------- --------
Total current liabilities 73,323 59,099
Long-term portion of capital lease obligations 167 188
Stockholders' Equity
Common Stock 6,943 6,852
Class B Common Stock 29 29
Additional paid-in capital 101,959 97,680
Foreign currency translation (329) (372)
Retained earnings 193,114 150,898
Less treasury stock (2,413) (2,413)
-------- --------
Total stockholders' equity 299,303 252,674
-------- --------
$372,793 $311,961
======== ========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
4
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KEANE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(IN THOUSAANDS)
SIX MONTHS ENDED JUNE 30,
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 41,594 $ 21,450
Adjustments to reconcile net income to net cash provided by
(used for) operating activities
Depreciation and amortization 9,269 10,290
Accrued interest on long term debt --- 99
Deferred income taxes (2,000) (192)
Provision for doubtful accounts 3,400 959
(Gain) Loss on disposal of fixed assets (1) (1)
Changes in assets and liabilities, net of acquisitions:
(Increase) in Accounts receivable (71,424) (36,393)
Decrease in prepaid expenses and other assets 2,548 428
Increase (decrease) in income taxes payable 3,845 (2,842)
Increase in accounts payable,
accrued expenses, and other current liabilities 10,759 4,603
-------- --------
NET CASH (USED FOR) OPERATING ACTIVITIES (2,010) (1,599)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investments (33,233) (25,994)
Sale of investments 38,980 10,559
Purchase of property and equipment (7,384) (5,676)
Proceeds from sale of assets 6 9
Payment for acquisitions (9,150) ---
Proceeds from sale of business unit --- 400
-------- --------
NET CASH (USED FOR) INVESTING ACTIVITIES (10,781) (20,702)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under notes payable and long term-debt 150 ---
Payments under long term-debt (3,150) (3,226)
Proceeds from issuance of common stock 4,369 2,015
-------- --------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 1,369 (1,211)
-------- --------
Net decrease in cash and cash equivalents (11,422) (23,512)
Cash and cash equivalents, beginning of period 36,929 42,118
-------- --------
Cash and cash equivalents at end of period $ 25,507 18,606
======== ========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
5
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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 Annual Report on Form 10-K for the year ended December
31, 1997 (the "Annual Report") 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 the three months and six months
ending June 30, 1998 and 1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net income $20,668 $11,434 $41,594 $21,450
Weighted average number of common 69,260 68,222 69,062 68,129
shares outstanding used in calculation
of basic earnings per share
Incremental shares from the assumed 1,246 1,354 1,403 1,448
exercise of dilutive stock options
Weighted average number of common 70,506 69,576 70,465 69,577
shares outstanding used in
calculation of diluted earnings per
share
Earnings per share
Basic $.30 $.17 $.60 $.31
==== ==== ==== ====
Diluted $.29 $.16 $.59 $.31
==== ==== ==== ====
</TABLE>
6
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KEANE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C>
Note 3. Intangible assets consist of the following: 6/30/98 12/31/97
Goodwill $20,360 $20,360
Noncompetition agreements 2,268 22,203
Customer-based intangibles 44,401 37,915
Software 5,618 8,089
Other 273 1,208
------- -------
72,920 89,775
Less accumulated amortization 36,050 56,997
------- -------
$36,870 $32,778
======= =======
</TABLE>
Note 4. On June 1, 1998, the Company completed its acquisition of Bricker &
Associates, Inc. ("Bricker") under an Agreement and Plan of Merger by
and among the Company, Beta Acquisition Corp. and Bricker, an
operations improvement consulting firm, whereby the Company agreed to
acquire all of the outstanding capital stock of Bricker in exchange for
approximately 2.3 million shares of Keane, Inc. common stock (the
"merger"). The merger has been accounted for as a pooling-of-interests.
Accordingly, all financial data contained herein include the accounts
of Bricker for all periods presented.
During the quarter ended June 30, 1998, the Company incurred a $4.1
million charge to operations to reflect investment banking, legal,
accounting and other professional fees associated with the transaction.
Revenue and net income of the combined entities for the three-month
period prior to the merger and the corresponding period in the prior
year are presented in the following table. Prior to the merger, there
were no intercompany transactions between the two companies.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1998 MARCH 31, 1997
<S> <C> <C>
Revenue
Keane, Inc. $209,162 $141,110
Bricker & Associates, Inc. 5,800 3,191
-------- --------
Combined revenue $214,962 $144,301
======== ========
Net income
Keane, Inc. $ 19,080 $ 9,848
Bricker & Associates, Inc. 1,846 168
-------- --------
Combined net income $ 20,926 $ 10,016
======== ========
</TABLE>
7
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On April 30, 1998, the Company purchased substantially all of the
assets of Salt Lake City-based GSE Erudite Software, Inc., a
subsidiary of GSE Systems, Inc. for approximately $9.8 million. The
pro forma results of the combined company through March 31, 1998 are
not included because the dollar amounts are immaterial.
Note 5. On August 04, 1998 the Company acquired Icom Systems Limited, parent
company of Icom Solutions Limited, a privately-held, $50 million
provider of information technology (IT) business solutions, based in
Birmingham, England. The acquisition will be accounted for as a
pooling of interests and is valued at approximately $50 million.
8
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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 second quarter of 1998 was $250.7 million, a 61.2%
increase from $155.5 million in the second quarter of 1997. Revenues for the
first six months of 1998 were $465.7 million, a 55.3% increase from $299.8
million in the first six months of 1997. The increase in revenue resulted
primarily from strong growth in year 2000 compliance and application outsourcing
services, in addition to increases in helpdesk and IT consulting services. Year
2000 revenue for the second quarter of 1998 was $92.5 million, a 238% increase
from $27.4 million in the second quarter of 1997. Year 2000 revenue for the
first six months of 1998 was $163.6 million, a 258% increase from $45.7 million
for the first six months of 1997. Application outsourcing revenue increased
77.5% to $35.0 million in the second quarter of 1998, as compared to $19.7
million in the second quarter of 1997. Application outsourcing revenue increased
83.3% to $68.2 million for the first six months of 1998, as compared to $37.2
million for the first six months of 1997. Helpdesk revenue increased 25.8% to
$12.1 million in the second quarter of 1998, compared to $9.6 million in the
same period last year. Helpdesk revenue increased 41.6% to $24.0 million in the
first six months of 1998, as compared to $16.9 million for the first six months
of 1997. IT consulting services revenue for the second quarter of 1998 was $13.0
million, a 69.1% increase from $7.7 million for the same period last year. IT
consulting services revenue for the first six months of 1998 was $24.5 million,
a 70.4% increase from $14.4 million for the same period last year. Revenue from
supplemental staffing increased 11.2% to $65.9 million for the second quarter of
1998, as compared to $59.3 million for the second quarter of 1997. Revenue from
supplemental staffing decreased 2.0% to $125.0 million for the first six months
of 1998, as compared to $127.6 million for the first six months of 1997. The
decrease in supplemental staffing revenue is a result of the Company's decision
to de-emphasize supplemental staffing in favor of strategic services which
produce higher margins. Revenue from the Company's Healthcare Services Division
increased by 35.9% to $10.2 million in the second quarter of 1998, as compared
to $7.5 million for the second quarter of 1997. Revenue from the Company's
Healthcare Services Division increased by 33.2% to $19.2 million in the first
six months of 1998, as compared to $14.4 million in the first six months of
1997. All other
9
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services revenue for the second quarter of 1998 totaled $22.0 million,
comparable with the same period last year. All other services revenue for the
first six months of 1998 totaled $41.2 million, comparable with the same period
last year.
Salaries, wages and other direct costs for the second quarter of 1998 were
$162.3 million, or 64.8% of revenue, compared to $101.7 million, or 65.4% of
revenue, during the same period last year. Salaries, wages and other direct
costs for the first six months of 1998 were $302.2 million, or 64.9% of revenue,
compared to $197.1 million, or 65.8% of revenue, during the same period last
year. This decrease as a percentage of revenue was primarily attributable to an
increase in higher margin strategic services business. This business comprised
approximately $171.3 million, or 68.5% of the Company's revenue in the second
quarter of 1998 compared to approximately $86.0 million, or 55.3% for the same
period last year and approximately $315.9 million, or 67.9% of the Company's
revenue for the first six months of 1998 compared to $152.7 million, or 50.9%
for the same period last year.
Selling, general and administrative expenses (SG&A) for the second quarter of
1998 were $44.1 million, or 17.6% of revenue, compared to $30.8 million, or
19.8% of revenue, for the same period last year. SG&A expenses for the first 6
months of 1998 were $82.6 million, or 17.7% of revenue, compared to $59.4
million, or 19.8% of revenue, for the same period last year. The decrease in
SG&A as a percentage of revenue was primarily attributable to the economies of
scale associated with increased revenue that did not require a proportionate
increase in SG&A and to a large extent to an increase in the number of large
contracts in which the Company is engaged, which allows associated overhead
services to be delivered more cost effectively.
Amortization of goodwill and other intangible assets for the second quarter of
1998 totaled $1.9 million, or .8% of revenue, compared to $3.5 million, or 2.3%
of revenue, for the same period last year. Amortization of goodwill and
capitalized acquisition costs for the first six months of 1998 were $3.6
million, or .8% of revenue, compared to $7.0 million, or 2.3% of revenue, for
the same period last year. The decrease in amortization is primarily
attributable to certain intangible assets being fully amortized at year end
1997.
The Company incurred a one time charge of $4.1 million for professional fees as
a result of the acquisition of Bricker & Associates, Inc. on June 01, 1998,
which was accounted for as a pooling-of-interests.
The Company recognized investment income of $1.4 million in the second quarter
of 1998 and $2.7 million in the first six months of 1998, compared to $936,000
and $1.9 million, respectively, for the comparable periods 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 second quarter of 1998 was $39.7 million,
or 15.8% of revenue, compared to $20.0 million, or 12.9% of revenue, for the
same period last year. Pre-
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tax income for the first six months of 1998 was $75.7 million, or 16.3% of
revenue, compared to $37.6 million, or 12.5% of revenue, for the same period
last year.
The Company's effective tax rate for the second quarter of 1998 was 48%,
compared to 43% for the same period last year. The Company's effective tax rate
for the first six months of 1998 was 45%, compared to 43% for the same period
last year. The increase in the tax rate was primarily due to the one time merger
costs incurred for the acquisition of Bricker, which are not tax deductible.
Net income and earnings per share basic and diluted for the second quarter of
1998 were $20.7 million, $.30 per share and $.29 per share, respectively,
compared to $11.4 million, $.17 per share and $.16 per share, respectively, for
the same period last year. Net income and earnings per share basic and diluted
for the six months ended June 30, 1998 were $41.6 million, $.60 per share and
$.59 per share, respectively, compared to $21.5 million, $.31 per share and $.31
per share, respectively, for the same period last year.
Liquidity and Capital Resources
- -------------------------------
The Company ended the second quarter of 1998 with cash, cash equivalents and
marketable securities totaling approximately $70.5 million, compared to $69.9
million at the end of the first quarter and the year end balance of $87.7
million. The decrease is attributable to the increase in accounts receivable
due to the Company's revenue growth, purchases of property and equipment and the
acquisition of GSE Erudite Software, Inc., offset by increases in accounts
payable, accrued expenses and other current liabilities. The Company's debt,
including accrued interest, at the end of the second quarter was $1.6 million,
which consists primarily of a $1.0 million, 6% interest bearing note related to
the acquisition of GSE Erudite Software on April 30, 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 during at least the next twelve months.
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
11
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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 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.
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 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, including the Company's recent acquisition of Omega
Systems in Pittsburgh, Pennsylvania, GSE Erudite Systems in Salt Lake City,
Utah, Bricker & Associates, Inc. in Chicago, Illinois and ICOM Systems Limited,
in Birmingham, England, 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.
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 continue to attract and retain personnel
necessary for the development of its business.
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,
12
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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
larger 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.
In recent years, the stock market in general and the market for technology
stocks, in particular, including the Company's Common Stock, have experienced
extreme price fluctuations. There is a risk that stock price fluctuation could
impact the Company's operations. Changes in the price of the Company's Common
Stock could affect the Company's ability to successfully attract and retain
qualified personnel or complete necessary business combinations or other
transactions in the future.
The Company has assessed its internal computer systems and has identified
certain internal systems that are not year 2000 compatible (i.e., such systems
use only two digits to represent the year in date data fields and, consequently,
may not accurately distinguish between the 20/th/ century and 21/st/ centuries
or may not function properly at the turn of the century). The Company is in the
process of correcting such systems or replacing them with year 2000 compliant
systems. The Company expects to implement successfully the systems and
programming changes necessary to address year 2000 issues and does not believe
that the cost of such actions will have a material effect on the Company's
results of operations or financial condition. There can be no assurance,
however, that there will not be a delay in, or increased costs associated with,
the implementation of such changes, and the Company's inability to implement
such changes could have an adverse effect on the Company's business, operations
and financial results.
Among the services that the Company provides are assessment, planning,
migration/remediation and testing services for year 2000 compliance. The Company
has devoted significant resources to services that address the year 2000 problem
and believes the market for these services will grow as the year 2000
approaches. However, there can be no assurance that the market for year 2000
services will continue to develop and if such market fails to grow, or grows
more slowly than anticipated, it could have an adverse effect on the Company's
business, operations and financial results. Although the Company believes that
the demand for its services relating to the year 2000 problem will continue to
exist after the year 2000, this demand will diminish significantly over time and
will eventually disappear. The Company's services addressing the year 2000
problem involve key aspects of its clients' computer systems. A failure in a
client's system could result in a claim for substantial damages
13
<PAGE>
against the Company, regardless of the Company's responsibility for such
failure. Litigation, regardless of its outcome, could result in substantial cost
to the Company. Accordingly, any contract liability claim or litigation against
the Company could have an adverse effect on the Company's business, operations
and financial results.
In August 1998, the Company commenced operations in the United Kingdom with its
acquisition of Icom Systems Limited. The Company's planned international
operations will be subject to political and economic uncertainties, currency
exchange rate fluctuations, foreign exchange restrictions, changes in taxation
and other difficulties in managing operations overseas. There can be no
assurance that the Company will be successful in its international 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.
14
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KEANE, INC. AND SUBSIDIARIES
Part II - Other Information
- --------------------------------------------------------------------------------
Item 2. Changes in Securities and Use of Proceeds
On June 1, 1998, the Company acquired Bricker & Associates, Inc.
("Bricker") pursuant to an Agreement and Plan of Merger among the
Company, Beta Acquisition Corp. and Bricker (the "Merger Agreement").
Under the Merger Agreement, the Company issued the former shareholders
and optionholders of Bricker approximately 2,336,196 shares of Common
Stock fo the Company having an aggregate value of $101.9 million. These
shares were issued in reliance upon Section 4(2) of the Securites Act of
1933, as amended, as a sale by the Company not involving a public
offering. No underwriters were involved with such issuance of Common
Stock.
Item 4. Submission of Matters to a Vote of Security Holders
The 1998 Annual Meeting of Stockholders of the Company was held on May
27, 1998. The Stockholders approved the election of the seven nominees
named below, approved an amendment to the Company's Articles of
Organization, approved the adoption of the Company's 1998 Stock
Incentive Plan and ratified the selection of PricewaterhouseCoopers LLP
as the Company's independent accountants for 1998. 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 seven and to elect the
following persons to serve as directors:
<TABLE>
<CAPTION>
BROKER
FOR WITHHELD ABSTAIN NON-VOTES
<S> <C> <C> <C> <C>
John F. Keane 63,803,497 385,268 0 0
Brian T. Keane 63,796,298 392,467 0 0
John F. Keane, Jr. 63,790,743 398,022 0 0
John F. Rockhart 63,803,757 385,008 0 0
Robert Shafto 63,799,428 389,337 0 0
Winston Hindle 63,802,330 386,435 0 0
Philip Harkins 63,803,660 385,105 0 0
</TABLE>
15
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Proposal #2 - To approve an amendment to the Company's Articles of
Organization increasing the number of shares of Common Stock which the
Company is authorized to issue from 100,000,000 to 200,000,000;
<TABLE>
<CAPTION>
BROKER
FOR WITHHELD ABSTAIN NON-VOTES
<S> <C> <C> <C> <C>
61,544,266 2,592,707 51,792 0
</TABLE>
Proposal #3 - To approve the Company's 1998 Stock Incentive Plan;
<TABLE>
<CAPTION>
BROKER
FOR WITHHELD ABSTAIN NON-VOTES
<S> <C> <C> <C> <C>
35,247,205 28,798,707 142,932 0
</TABLE>
Proposal #4 - To ratify and approve the selection of PricewaterhouseCoopers
LLP as the Company's independent accountants for 1998:
<TABLE>
<CAPTION>
BROKER
FOR WITHHELD ABSTAIN NON-VOTES
<S> <C> <C> <C> <C>
63,970,642 72,531 145,592 0
</TABLE>
Item 5. Other Information
Stockholder Proposals for 1999 Annual Meeting
As set forth in the Company's Proxy Statement for its 1998 Annual
Meeting of Stockholders, stockholder proposals submitted pursuant to
Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), for inclusion in the Company's proxy materials for
its 1999 Annual Meeting of Stockholders must be received by the Clerk
of the Company at the principal offices of the Company no later than
December 22, 1998.
In addition, in accordance with recent amendments to Rules 14a-4, 14a-
5 and 14a-8 under the Exchange Act, written notice of stockholder
proposals submitted outside the processes of Rule 14a-8 for
consideration at the 1999 Annual Meeting of Stockholders must be
received by the Company on or before March 1, 1999 in order to be
considered timely for purposes of Rule 14a-4. The persons designated
in the Company's proxy statement and management proxy card will be
granted discretionary authority with respect to any shareholder
proposal with respect to which the Company does not receive timely
notice.
16
<PAGE>
On April 30, 1998, the Company purchased substantially all of the
assets of Salt Lake City-based GSE Erudite Software, Inc., a subsidiary
of GSE Systems, Inc. GSE Erudite Software is an information technology
consulting company with 1997 revenues of approximately $18 million.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See exhibit index on Page 19 for a list of the exhibits filed as part
of this Quarterly Report on Form 10-Q, which exhibit index is
incorporated herein by reference.
(b) Reports on Form 8-K
Current Report on Form 8-K, dated April 14, 1998, filing press
releases regarding the signing of the GSE Erudite Letter of Intent and
Bricker definitive agreement.
Current Report on Form 8-K, dated April 21, 1998, announcing intention
of Keane family members to sell an aggregate of up to 1,000,000
shares.
Current Report on Form 8-K, dated April 29, 1998, announcing intention
of Keane family members to sell an aggregate of only up to 600,000
shares in the sale first announced on April 21, 1998.
Current Report on Form 8-K, dated May 4, 1998, filing press release
announcing the acquisition of GSE Erudite.
Current Report on Form 8-K, dated May 12, 1998, filing press release
responding to investor inquiries regarding Keane's business outlook.
Current Report on Form 8-K, dated May 29, 1998, announcing increase in
number of authorized shares and filing press release announcing the
acquisition of Bricker.
17
<PAGE>
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)
August 11 , 1998 /s/ John F. Keane
Date __________________________ ___________________________________
John F. Keane
President
August 11, 1998 /s/ Wallace A. Cataldo
Date __________________________ ___________________________________
Wallace A. Cataldo
Vice President, Finance
18
<PAGE>
Exhibit Index
Exhibit Number Description
- -------------- -----------
27 Restated Financial Data Schedules
27.1 For the year ended December 31, 1995 EX-27_1
27.2 For the three months ended March 31, 1996 EX-27_2
27.3 For the three months ended June 30, 1996 EX-27_3
27.4 For the three months ended September 30, 1996 EX-27_4
27.5 For the year ended December 31, 1996 EX-27_5
27.6 For the three months ended March 31, 1997 EX-27_6
27.7 For the three months ended June 30, 1997 EX-27_7
27.8 For the three months ended September 30, 1997 EX-27_8
27.9 For the year ended December 31, 1997 EX-27_9
27.10 For the three months ended March 31, 1998 EX-27_10
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET/INCOME STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> APR-01-1998 JAN-01-1998
<PERIOD-END> JUN-30-1998 JUN-30-1998
<CASH> 0 25,507
<SECURITIES> 0 5,781
<RECEIVABLES> 0 222,384
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 263,087
<PP&E> 0 55,940
<DEPRECIATION> 0 31,601
<TOTAL-ASSETS> 0 372,793
<CURRENT-LIABILITIES> 0 73,320
<BONDS> 0 0
0 0
0 0
<COMMON> 0 6,972
<OTHER-SE> 0 292,331
<TOTAL-LIABILITY-AND-EQUITY> 0 372,793
<SALES> 0 0
<TOTAL-REVENUES> 250,693 465,655
<CGS> 0 0
<TOTAL-COSTS> 212,471 392,495
<OTHER-EXPENSES> (1) 128
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (47) 2
<INCOME-PRETAX> 39,709 75,681
<INCOME-TAX> 19,041 34,087
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 20,668 41,594
<EPS-PRIMARY> .30 .60
<EPS-DILUTED> .29 .59
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 23,432
<SECURITIES> 11,331
<RECEIVABLES> 84,096
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 123,486
<PP&E> 29,245
<DEPRECIATION> 16,363
<TOTAL-ASSETS> 198,191
<CURRENT-LIABILITIES> 22,882
<BONDS> 0
0
0
<COMMON> 6,746
<OTHER-SE> 162,780
<TOTAL-LIABILITY-AND-EQUITY> 198,191
<SALES> 0
<TOTAL-REVENUES> 394,961
<CGS> 0
<TOTAL-COSTS> 361,196
<OTHER-EXPENSES> 175
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 486
<INCOME-PRETAX> 34,814
<INCOME-TAX> 14,561
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,253
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 14,865
<SECURITIES> 14,162
<RECEIVABLES> 94,341
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 128,238
<PP&E> 30,180
<DEPRECIATION> 17,720
<TOTAL-ASSETS> 199,981
<CURRENT-LIABILITIES> 20,405
<BONDS> 0
0
0
<COMMON> 6,766
<OTHER-SE> 169,894
<TOTAL-LIABILITY-AND-EQUITY> 199,981
<SALES> 0
<TOTAL-REVENUES> 109,436
<CGS> 0
<TOTAL-COSTS> 99,709
<OTHER-EXPENSES> 145
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 96
<INCOME-PRETAX> 10,060
<INCOME-TAX> 3,636
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,424
<EPS-PRIMARY> .10
<EPS-DILUTED> .09
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> APR-01-1996 JAN-01-1996
<PERIOD-END> JUN-30-1996 JUN-30-1996
<CASH> 0 17,290
<SECURITIES> 0 17,231
<RECEIVABLES> 0 101,151
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 141,052
<PP&E> 0 30,799
<DEPRECIATION> 0 18,876
<TOTAL-ASSETS> 0 209,991
<CURRENT-LIABILITIES> 0 21,855
<BONDS> 0 0
0 0
0 0
<COMMON> 0 6,822
<OTHER-SE> 0 178,491
<TOTAL-LIABILITY-AND-EQUITY> 0 209,991
<SALES> 0 0
<TOTAL-REVENUES> 116,915 226,351
<CGS> 0 0
<TOTAL-COSTS> 105,300 205,009
<OTHER-EXPENSES> 144 289
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 117 213
<INCOME-PRETAX> 11,950 22,010
<INCOME-TAX> 4,992 8,628
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 6,958 13,382
<EPS-PRIMARY> .10 .20
<EPS-DILUTED> .10 .20
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> JUL-01-1996 JAN-01-1996
<PERIOD-END> SEP-30-1996 SEP-30-1996
<CASH> 0 30,130
<SECURITIES> 0 16,214
<RECEIVABLES> 0 104,623
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 154,817
<PP&E> 0 31,078
<DEPRECIATION> 0 20,001
<TOTAL-ASSETS> 0 220,586
<CURRENT-LIABILITIES> 0 25,353
<BONDS> 0 0
0 0
0 0
<COMMON> 0 6,890
<OTHER-SE> 0 185,412
<TOTAL-LIABILITY-AND-EQUITY> 0 220,586
<SALES> 0 0
<TOTAL-REVENUES> 124,608 350,959
<CGS> 0 0
<TOTAL-COSTS> 112,718 317,727
<OTHER-EXPENSES> 152 441
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 126 339
<INCOME-PRETAX> 12,126 34,136
<INCOME-TAX> 5,709 14,337
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 6,417 19,799
<EPS-PRIMARY> .09 .29
<EPS-DILUTED> .09 .29
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> OCT-01-1996 JAN-01-1996
<PERIOD-END> DEC-31-1996 DEC-31-1996
<CASH> 0 42,118
<SECURITIES> 0 30,242
<RECEIVABLES> 0 98,203
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 149,193
<PP&E> 0 32,480
<DEPRECIATION> 0 21,360
<TOTAL-ASSETS> 0 240,097
<CURRENT-LIABILITIES> 0 36,112
<BONDS> 0 0
0 0
0 0
<COMMON> 0 6834
<OTHER-SE> 0 193,733
<TOTAL-LIABILITY-AND-EQUITY> 0 240,097
<SALES> 0 0
<TOTAL-REVENUES> 130,998 481,957
<CGS> 0 0
<TOTAL-COSTS> 118,631 436,358
<OTHER-EXPENSES> 300 741
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 110 449
<INCOME-PRETAX> 12,876 47,012
<INCOME-TAX> 5,686 20,023
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 7,190 26,989
<EPS-PRIMARY> .10 .40
<EPS-DILUTED> .10 .39
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 20,952
<SECURITIES> 40,162
<RECEIVABLES> 121,304
<ALLOWANCES> 0
<INVENTORY> 0
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<PP&E> 33,503
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<CURRENT-LIABILITIES> 34,940
<BONDS> 0
0
0
<COMMON> 6,846
<OTHER-SE> 204,428
<TOTAL-LIABILITY-AND-EQUITY> 246,897
<SALES> 0
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<CGS> 0
<TOTAL-COSTS> 127,519
<OTHER-EXPENSES> (128)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (50)
<INCOME-PRETAX> 17,554
<INCOME-TAX> 7,537
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
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<NET-INCOME> 10,016
<EPS-PRIMARY> .15
<EPS-DILUTED> .14
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> APR-01-1997 JAN-01-1997
<PERIOD-END> JUN-30-1997 JUN-30-1997
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<SECURITIES> 0 45,678
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<PP&E> 0 37,432
<DEPRECIATION> 0 23,973
<TOTAL-ASSETS> 0 263,357
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<BONDS> 0 0
0 0
0 0
<COMMON> 0 6,866
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<TOTAL-LIABILITY-AND-EQUITY> 0 263,357
<SALES> 0 0
<TOTAL-REVENUES> 155,494 299,795
<CGS> 0 0
<TOTAL-COSTS> 135,997 263,516
<OTHER-EXPENSES> (373) (501)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (50) (100)
<INCOME-PRETAX> 20,010 37,563
<INCOME-TAX> 8,576 16,113
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 11,434 21,450
<EPS-PRIMARY> .17 .31
<EPS-DILUTED> .16 .31
</TABLE>
<TABLE> <S> <C>
<PAGE>
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<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
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<PERIOD-START> JUL-01-1997 JAN-01-1997
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<BONDS> 0 0
0 0
0 0
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<OTHER-EXPENSES> (34) (535)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (51) (151)
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<CHANGES> 0 0
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
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<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> OCT-01-1997 JAN-01-1997
<PERIOD-END> DEC-31-1997 DEC-31-1997
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<PP&E> 0 47,332
<DEPRECIATION> 0 26,270
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<CURRENT-LIABILITIES> 0 59,099
<BONDS> 0 0
0 0
0 0
<COMMON> 0 6,889
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<SALES> 0 0
<TOTAL-REVENUES> 196,115 669,432
<CGS> 0 0
<TOTAL-COSTS> 173,235 589,628
<OTHER-EXPENSES> (265) (800)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (21) (172)
<INCOME-PRETAX> 23,715 83,044
<INCOME-TAX> 10,263 35,707
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 13,452 47,336
<EPS-PRIMARY> .20 .69
<EPS-DILUTED> .19 .68
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 20,417
<SECURITIES> 5,965
<RECEIVABLES> 194,996
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 232,642
<PP&E> 50,293
<DEPRECIATION> 28,876
<TOTAL-ASSETS> 344,222
<CURRENT-LIABILITIES> 66,928
<BONDS> 0
6,952
0
<COMMON> 0
<OTHER-SE> 270,010
<TOTAL-LIABILITY-AND-EQUITY> 344,222
<SALES> 0
<TOTAL-REVENUES> 214,962
<CGS> 0
<TOTAL-COSTS> 180,024
<OTHER-EXPENSES> 129
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 49
<INCOME-PRETAX> 35,972
<INCOME-TAX> 15,046
<INCOME-CONTINUING> 0
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<CHANGES> 0
<NET-INCOME> 20,926
<EPS-PRIMARY> .30
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</TABLE>
