SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
Commission File Number 0-26561
THE KEITH COMPANIES, INC.
| California
|
33-0203193
|
|
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
2955 REDHILL AVENUE, COSTA MESA, CALIFORNIA 92626
Registrant’s telephone number, including area code: (714) 540-0800
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 [ ]
The number of outstanding shares of the registrant’s common stock as of July 31, 2002 was 7,336,292.
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
INDEX
| PAGE NO. | ||||||
| PART I. | FINANCIAL INFORMATION | |||||
| Item 1. | Financial Statements | |||||
| Consolidated Balance Sheets | 2 | |||||
| Consolidated Statements of Income | 3 | |||||
| Consolidated Statements of Cash Flows | 4 | |||||
| Notes to the Consolidated Financial Statements | 5 | |||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 10 | ||||
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 20 | ||||
| PART II. | OTHER INFORMATION | |||||
| Item 1. | Legal Proceedings | 21 | ||||
| Item 2. | Changes in Securities and Use of Proceeds | 21 | ||||
| Item 3. | Defaults Upon Senior Securities | 21 | ||||
| Item 4. | Submission of Matters to a Vote of Security Holders | 21 | ||||
| Item 5. | Other Information | 21 | ||||
| Item 6. | Exhibits and Reports on Form 8-K | 22 | ||||
| Signatures | 23 | |||||
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
| June 30, | December 31, | |||||||||||
| 2002 | 2001 | |||||||||||
| (Unaudited) | ||||||||||||
| Assets | ||||||||||||
Current assets: |
||||||||||||
Cash and cash equivalents |
$ | 10,149,000 | $ | 12,212,000 | ||||||||
Current portion of securities held-to-maturity |
6,983,000 | 11,521,000 | ||||||||||
Contracts and trade receivables, net of allowance for doubtful
accounts of $939,000 and $951,000 at June 30, 2002 and
December 31, 2001, respectively |
19,889,000 | 18,618,000 | ||||||||||
Costs and estimated earnings in excess of billings |
12,069,000 | 8,270,000 | ||||||||||
Prepaid expenses and other current assets |
1,423,000 | 1,458,000 | ||||||||||
Total current assets |
50,513,000 | 52,079,000 | ||||||||||
Securities held-to-maturity, less current portion |
2,053,000 | — | ||||||||||
Equipment and leasehold improvements, net |
5,083,000 | 4,921,000 | ||||||||||
Goodwill, net of accumulated amortization of $761,000 at June 30,
2002 and December 31, 2001 |
22,555,000 | 14,252,000 | ||||||||||
Other assets |
298,000 | 240,000 | ||||||||||
Total assets |
$ | 80,502,000 | $ | 71,492,000 | ||||||||
| Liabilities and Shareholders’ Equity | ||||||||||||
Current liabilities: |
||||||||||||
Current portion of long-term debt and capital lease obligations |
$ | 1,721,000 | $ | 459,000 | ||||||||
Trade accounts payable |
2,888,000 | 2,376,000 | ||||||||||
Accrued employee compensation |
4,349,000 | 3,091,000 | ||||||||||
Current portion of deferred tax liabilities |
3,676,000 | 2,028,000 | ||||||||||
Other accrued liabilities |
2,727,000 | 2,961,000 | ||||||||||
Billings in excess of costs and estimated earnings |
1,770,000 | 2,383,000 | ||||||||||
Total current liabilities |
17,131,000 | 13,298,000 | ||||||||||
Long-term debt and capital lease obligations, less current portion |
38,000 | 1,453,000 | ||||||||||
Issuable common stock |
4,812,000 | 1,512,000 | ||||||||||
Deferred tax liabilities |
1,092,000 | 1,271,000 | ||||||||||
Accrued rent |
248,000 | 225,000 | ||||||||||
Total liabilities |
23,321,000 | 17,759,000 | ||||||||||
Shareholders’ equity: |
||||||||||||
Preferred stock, $0.001 par value. Authorized 5,000,000
shares; no shares issued or outstanding |
— | — | ||||||||||
Common stock, $0.001 par value. Authorized 100,000,000 shares
at June 30, 2002 and December 31, 2001; issued and outstanding
7,335,137 and 7,309,684 shares at June 30, 2002 and December
31, 2001, respectively |
7,000 | 7,000 | ||||||||||
Additional paid-in capital |
42,227,000 | 42,096,000 | ||||||||||
Retained earnings |
14,947,000 | 11,630,000 | ||||||||||
Total shareholders’ equity |
57,181,000 | 53,733,000 | ||||||||||
Total liabilities and shareholders’ equity |
$ | 80,502,000 | $ | 71,492,000 | ||||||||
See accompanying notes to the consolidated financial statements.
2
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
| For the Three Months Ended | For the Six Months Ended | ||||||||||||||||
| June 30, | June 30, | ||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | ||||||||||||||
Gross revenue |
$ | 28,927,000 | $ | 19,239,000 | $ | 54,831,000 | $ | 37,941,000 | |||||||||
Subcontractor costs |
4,869,000 | 1,522,000 | 9,378,000 | 3,602,000 | |||||||||||||
Net revenue |
24,058,000 | 17,717,000 | 45,453,000 | 34,339,000 | |||||||||||||
Costs of revenue |
16,055,000 | 11,356,000 | 30,350,000 | 22,253,000 | |||||||||||||
Gross profit |
8,003,000 | 6,361,000 | 15,103,000 | 12,086,000 | |||||||||||||
Selling, general and administrative expenses |
4,969,000 | 3,777,000 | 9,774,000 | 7,061,000 | |||||||||||||
Income from operations |
3,034,000 | 2,584,000 | 5,329,000 | 5,025,000 | |||||||||||||
Interest income |
93,000 | 151,000 | 217,000 | 151,000 | |||||||||||||
Interest expense |
30,000 | 68,000 | 66,000 | 210,000 | |||||||||||||
Other expenses |
19,000 | 22,000 | 43,000 | 31,000 | |||||||||||||
Income before provision for income taxes |
3,078,000 | 2,645,000 | 5,437,000 | 4,935,000 | |||||||||||||
Provision for income taxes |
1,200,000 | 1,058,000 | 2,120,000 | 1,974,000 | |||||||||||||
Net income |
$ | 1,878,000 | $ | 1,587,000 | $ | 3,317,000 | $ | 2,961,000 | |||||||||
Earnings per share data: |
|||||||||||||||||
Basic |
$ | 0.26 | $ | 0.24 | $ | 0.45 | $ | 0.50 | |||||||||
Diluted |
$ | 0.24 | $ | 0.23 | $ | 0.42 | $ | 0.46 | |||||||||
Weighted average number of shares outstanding: |
|||||||||||||||||
Basic |
7,323,154 | 6,520,611 | 7,317,007 | 5,885,776 | |||||||||||||
Diluted |
7,922,811 | 7,037,829 | 7,839,360 | 6,442,380 | |||||||||||||
See accompanying notes to the consolidated financial statements.
3
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
| For the Six Months Ended | ||||||||||||
| June 30, | ||||||||||||
| 2002 | 2001 | |||||||||||
Cash flows from operating activities: |
||||||||||||
Net income |
$ | 3,317,000 | $ | 2,961,000 | ||||||||
Adjustments to reconcile net income to net cash provided by
operating activities: |
||||||||||||
Depreciation and amortization |
1,116,000 | 1,111,000 | ||||||||||
Loss on sale of equipment |
25,000 | 17,000 | ||||||||||
Tax benefit from exercise of stock options |
— | 548,000 | ||||||||||
Changes in operating assets and liabilities, net of
effects from acquisitions: |
||||||||||||
Contracts and trade receivables, net |
1,892,000 | 123,000 | ||||||||||
Costs and estimated earnings in excess of billings |
(3,205,000 | ) | (1,749,000 | ) | ||||||||
Prepaid expenses and other assets |
136,000 | 132,000 | ||||||||||
Trade accounts payable and accrued liabilities |
814,000 | 826,000 | ||||||||||
Billings in excess of costs and estimated earnings |
(403,000 | ) | 354,000 | |||||||||
Net cash provided by operating activities |
3,692,000 | 4,323,000 | ||||||||||
Cash flows from investing activities: |
||||||||||||
Net cash expended for acquisition |
(7,297,000 | ) | (1,530,000 | ) | ||||||||
Additions to equipment and leasehold improvements |
(871,000 | ) | (873,000 | ) | ||||||||
Proceeds from (purchase of) securities held-to-maturity |
2,485,000 | (11,086,000 | ) | |||||||||
Proceeds from sales of equipment |
113,000 | 19,000 | ||||||||||
Net cash used in investing activities |
(5,570,000 | ) | (13,470,000 | ) | ||||||||
Cash flows from financing activities: |
||||||||||||
Payments on line of credit, net |
— | (2,294,000 | ) | |||||||||
Principal payments on long-term debt and capital lease
obligations, including current portion |
(316,000 | ) | (3,061,000 | ) | ||||||||
Proceeds from exercise of stock options |
131,000 | 548,000 | ||||||||||
Net proceeds from stock offering |
— | 27,979,000 | ||||||||||
Net cash (used in) provided by financing activities |
(185,000 | ) | 23,172,000 | |||||||||
Net (decrease) increase in cash and cash equivalents |
(2,063,000 | ) | 14,025,000 | |||||||||
Cash and cash equivalents, beginning of period |
12,212,000 | 1,043,000 | ||||||||||
Cash and cash equivalents, end of period |
$ | 10,149,000 | $ | 15,068,000 | ||||||||
See supplemental cash flow information at Note 7.
See accompanying notes to the consolidated financial statements.
4
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
| 1. | Basis of Presentation | |
| The accompanying consolidated balance sheet as of June 30, 2002, and the consolidated statements of income for the three and six months ended June 30, 2002 and 2001, and the consolidated statements of cash flows for the six months ended June 30, 2002 and 2001, are unaudited and in the opinion of management include all material adjustments necessary to present fairly the information set forth therein, which consist solely of normal recurring adjustments. All significant intercompany transactions have been eliminated and certain reclassifications have been made to prior periods’ consolidated financial statements to conform to the current period presentation. The results of operations for these interim periods are not necessarily indicative of results for the full year. The consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K of The Keith Companies, Inc. (together with its subsidiaries, the “Company” or “TKCI”) for the year ended December 31, 2001 as certain disclosures which would substantially duplicate those contained in such audited financial statements have been omitted from this report. | ||
| 2. | Per Share Data | |
| Basic earnings per share (“EPS”) is computed by dividing net income during the period by the weighted average number of common shares outstanding during each period. Diluted EPS is computed by dividing net income during the period by the weighted average number of shares that would have been outstanding assuming the issuance of dilutive potential common shares as if outstanding during the reporting period, net of shares assumed to be repurchased using the treasury stock method. In conjunction with certain acquisitions, the Company agreed to pay consideration consisting of shares of its common stock. As a result, the Company estimated and included 306,041 and 258,609 weighted average contingently issuable shares in its diluted EPS computation for the three and six months ended June 30, 2002, respectively, and 164,458 and 157,170 weighted average contingently issuable shares for the three and six months ended June 30, 2001, respectively. | ||
| The following is a reconciliation of the denominator for the basic EPS computation to the denominator of the diluted EPS computation: |
| For the Three Months | For the Six Months | |||||||||||||||
| Ended June 30, | Ended June 30, | |||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||
Weighted average shares
used for the basic EPS
computation |
7,323,154 | 6,520,611 | 7,317,007 | 5,885,776 | ||||||||||||
Incremental shares from the
assumed exercise of
dilutive stock options and
stock warrants and
contingently issuable
shares |
599,657 | 517,218 | 522,353 | 556,604 | ||||||||||||
Weighted average shares
used for the diluted EPS
computation |
7,922,811 | 7,037,829 | 7,839,360 | 6,442,380 | ||||||||||||
| There were 103,825 and 110,166 anti-dilutive weighted potential common shares excluded from the above calculations for the three and six months ended June 30, 2002, respectively, and 10,033 and 5,459 for the three and six months ended June 30, 2001, respectively. |
5
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
| 3. | Adoption of New Accounting Pronouncement | |
| Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 142. Under the new standard, goodwill is no longer amortized. Therefore, no goodwill amortization expense was incurred during the first half of 2002. Beginning January 1, 2002, goodwill is required to be tested for impairment on an annual basis, and is required to be tested for impairment between annual tests if an event occurs or circumstances change that would indicate the carrying amount may be impaired. The table below shows the as adjusted effect on net income, basic earnings per share and diluted earnings per share had SFAS No. 142, which eliminated goodwill amortization, been applied in 2001: |
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||
Net income: |
||||||||||||||||
Reported net income |
$ | 1,878,000 | $ | 1,587,000 | $ | 3,317,000 | $ | 2,961,000 | ||||||||
Add back: Goodwill amortization
(net of income taxes) |
— | 64,000 | — | 129,000 | ||||||||||||
Adjusted net income |
$ | 1,878,000 | $ | 1,651,000 | $ | 3,317,000 | $ | 3,090,000 | ||||||||
Basic earnings per share: |
||||||||||||||||
Reported basic earnings per share |
$ | 0.26 | $ | 0.24 | $ | 0.45 | $ | 0.50 | ||||||||
Add back: Goodwill amortization
(net of income taxes) |
— | 0.01 | — | 0.02 | ||||||||||||
Adjusted basic earnings per share |
$ | 0.26 | $ | 0.25 | $ | 0.45 | $ | 0.52 | ||||||||