SECURITIES AND EXCHANGE COMMISSION
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, 2003
Commission File Number 0-26561
THE KEITH COMPANIES, INC.
| California | 33-0203193 | |
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| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| 19 TECHNOLOGY DRIVE, IRVINE, CALIFORNIA 92618 (Address of principal executive offices and zip code) |
Registrant’s telephone number, including area code: (949) 923-6001
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 o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes x No o
The number of outstanding shares of the registrant’s common stock as of July 31, 2003 was 7,621,666.
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
INDEX
| PAGE NO. | ||||||
PART I. FINANCIAL INFORMATION |
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Item 1. Financial Statements |
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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 |
9 | |||||
Item 3. Quantitative and Qualitative Disclosures about Market Risk |
21 | |||||
Item 4. Controls and Procedures |
22 | |||||
PART II. OTHER INFORMATION |
||||||
Item 1. Legal Proceedings |
23 | |||||
Item 2. Changes in Securities and Use of Proceeds |
23 | |||||
Item 3. Defaults Upon Senior Securities |
23 | |||||
Item 4. Submission of Matters to a Vote of Security Holders |
23 | |||||
Item 5. Other Information |
23 | |||||
Item 6. Exhibits and Reports on Form 8-K |
23 | |||||
Signatures |
25 | |||||
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
| June 30, | December 31, | |||||||||||
| 2003 | 2002 | |||||||||||
| (Unaudited) | ||||||||||||
Assets |
||||||||||||
Current assets: |
||||||||||||
Cash and cash equivalents |
$ | 20,669,000 | $ | 20,333,000 | ||||||||
Securities held-to-maturity |
6,348,000 | 3,164,000 | ||||||||||
Contracts and trade receivables, net of allowance
for doubtful accounts of $1,227,000 and $1,123,000
at June 30, 2003 and December 31, 2002,
respectively |
15,971,000 | 18,771,000 | ||||||||||
Costs and estimated earnings in excess of billings |
11,274,000 | 10,392,000 | ||||||||||
Prepaid expenses and other current assets |
1,568,000 | 1,367,000 | ||||||||||
Total current assets |
55,830,000 | 54,027,000 | ||||||||||
Equipment and leasehold improvements, net |
4,383,000 | 4,831,000 | ||||||||||
Goodwill, net of accumulated amortization of $761,000 at
June 30, 2003 and December 31, 2002 |
23,210,000 | 23,056,000 | ||||||||||
Other assets |
217,000 | 312,000 | ||||||||||
Total assets |
$ | 83,640,000 | $ | 82,226,000 | ||||||||
Liabilities and Shareholders’ Equity |
||||||||||||
Current liabilities: |
||||||||||||
Current portion of capital lease obligations |
$ | — | $ | 52,000 | ||||||||
Trade accounts payable |
1,322,000 | 1,818,000 | ||||||||||
Accrued employee compensation |
4,631,000 | 3,722,000 | ||||||||||
Current portion of deferred tax liabilities |
3,058,000 | 3,065,000 | ||||||||||
Other accrued liabilities |
2,193,000 | 4,484,000 | ||||||||||
Billings in excess of costs and estimated earnings |
1,210,000 | 1,273,000 | ||||||||||
Total current liabilities |
12,414,000 | 14,414,000 | ||||||||||
Capital lease obligations, less current portion |
— | 18,000 | ||||||||||
Issuable common stock |
1,500,000 | 2,215,000 | ||||||||||
Deferred tax liabilities |
1,675,000 | 1,675,000 | ||||||||||
Accrued rent |
431,000 | 292,000 | ||||||||||
Total liabilities |
16,020,000 | 18,614,000 | ||||||||||
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; issued and outstanding
7,620,544 and 7,514,140 shares at June 30, 2003
and December 31, 2002, respectively |
8,000 | 8,000 | ||||||||||
Additional paid-in capital |
45,046,000 | 44,166,000 | ||||||||||
Retained earnings |
22,566,000 | 19,438,000 | ||||||||||
Total shareholders’ equity |
67,620,000 | 63,612,000 | ||||||||||
Total liabilities and shareholders’ equity |
$ | 83,640,000 | $ | 82,226,000 | ||||||||
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, | ||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
Gross revenue |
$ | 25,093,000 | $ | 28,477,000 | $ | 49,745,000 | $ | 53,744,000 | |||||||||
Subcontractor costs |
2,316,000 | 4,826,000 | 4,622,000 | 9,290,000 | |||||||||||||
Net revenue |
22,777,000 | 23,651,000 | 45,123,000 | 44,454,000 | |||||||||||||
Costs of revenue |
14,989,000 | 15,636,000 | 29,930,000 | 29,328,000 | |||||||||||||
Gross profit |
7,788,000 | 8,015,000 | 15,193,000 | 15,126,000 | |||||||||||||
Selling, general and administrative expenses |
5,028,000 | 4,663,000 | 10,415,000 | 9,309,000 | |||||||||||||
Income from operations |
2,760,000 | 3,352,000 | 4,778,000 | 5,817,000 | |||||||||||||
Interest income |
70,000 | 93,000 | 139,000 | 217,000 | |||||||||||||
Interest expense |
3,000 | 30,000 | 9,000 | 66,000 | |||||||||||||
Other (income) expenses, net |
(8,000 | ) | 20,000 | (220,000 | ) | 40,000 | |||||||||||
Income before provision for income taxes
and discontinued operations |
2,835,000 | 3,395,000 | 5,128,000 | 5,928,000 | |||||||||||||
Provision for income taxes |
1,106,000 | 1,324,000 | 2,000,000 | 2,313,000 | |||||||||||||
Income from continuing operations |
1,729,000 | 2,071,000 | 3,128,000 | 3,615,000 | |||||||||||||
Loss from discontinued operations, net of income taxes |
— | 193,000 | — | 298,000 | |||||||||||||
Net income |
$ | 1,729,000 | $ | 1,878,000 | $ | 3,128,000 | $ | 3,317,000 | |||||||||
Earnings per share from continuing operations: |
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Basic |
$ | 0.23 | $ | 0.28 | $ | 0.41 | $ | 0.49 | |||||||||
Diluted |
$ | 0.22 | $ | 0.26 | $ | 0.39 | $ | 0.46 | |||||||||
Loss per share from discontinued operations, net of
income taxes: |
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Basic |
$ | — | $ | (0.02 | ) | $ | — | $ | (0.04 | ) | |||||||
Diluted |
$ | — | $ | (0.02 | ) | $ | — | $ | (0.04 | ) | |||||||
Earnings per share: |
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Basic |
$ | 0.23 | $ | 0.26 | $ | 0.41 | $ | 0.45 | |||||||||
Diluted |
$ | 0.22 | $ | 0.24 | $ | 0.39 | $ | 0.42 | |||||||||
Weighted average number of shares outstanding: |
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Basic |
7,607,374 | 7,323,154 | 7,598,040 | 7,317,007 | |||||||||||||
Diluted |
7,940,262 | 7,922,811 | 7,944,650 | 7,839,360 | |||||||||||||
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, | ||||||||||||
| 2003 | 2002 | |||||||||||
Cash flows from operating activities: |
||||||||||||
Net income |
$ | 3,128,000 | $ | 3,317,000 | ||||||||
Adjustments to reconcile net income to net cash provided by
operating activities: |
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Depreciation and amortization |
1,159,000 | 1,116,000 | ||||||||||
Loss on sale of equipment |
21,000 | 25,000 | ||||||||||
Tax benefit from exercise of stock options |
19,000 | — | ||||||||||
Changes in operating assets and liabilities, net of
effects from acquisition in 2002: |
||||||||||||
Contracts and trade receivables, net |
2,800,000 | 1,892,000 | ||||||||||
Costs and estimated earnings in excess of billings |
(973,000 | ) | (3,205,000 | ) | ||||||||
Prepaid expenses and other assets |
(180,000 | ) | 136,000 | |||||||||
Trade accounts payable and accrued liabilities |
(1,043,000 | ) | 814,000 | |||||||||
Billings in excess of costs and estimated earnings |
(63,000 | ) | (403,000 | ) | ||||||||
Net cash provided by operating activities |
$ | 4,868,000 | 3,692,000 | |||||||||
Cash flows from investing activities: |
||||||||||||
Net cash expended related to or for acquisitions |
(714,000 | ) | (7,297,000 | ) | ||||||||
Additions to equipment and leasehold improvements |
(764,000 | ) | (871,000 | ) | ||||||||
Proceeds from (purchases of) securities held-to-maturity |
(3,184,000 | ) | 2,485,000 | |||||||||
Proceeds from sales of equipment |
36,000 | 113,000 | ||||||||||
Net cash used in investing activities |
$ | (4,626,000 | ) | (5,570,000 | ) | |||||||
Cash flows from financing activities: |
||||||||||||
Principal payments on long-term debt and capital lease
obligations, including current portion |
(52,000 | ) | (316,000 | ) | ||||||||
Proceeds from exercise of stock options |
146,000 | 131,000 | ||||||||||
Net cash provided by (used in) financing activities |
$ | 94,000 | (185,000 | ) | ||||||||
Net increase (decrease) in cash and cash equivalents |
336,000 | (2,063,000 | ) | |||||||||
Cash and cash equivalents, beginning of period |
$ | 20,333,000 | 12,212,000 | |||||||||
Cash and cash equivalents, end of period |
$ | 20,669,000 | $ | 10,149,000 | ||||||||
See supplemental cash flow information at Note 8.
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, 2003, and the consolidated statements of income and cash flows for the three and six months ended June 30, 2003 and 2002, are unaudited and in the opinion of management include all 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, 2002 as certain disclosures which would substantially duplicate those contained in such audited financial statements have been omitted from this report. | ||
| 2. | Accounting for Stock Options | |
| The Company accounts for its stock options in accordance with the provisions of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. The Company has not recorded any compensation expense related to the granting of options during the three and six months ended June 30, 2003 and 2002. Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock Based Compensation,” permits entities to recognize the fair value of all stock-based awards on the date of grant as an expense over the vesting period. Alternatively, SFAS No. 123 allows entities to continue to apply the provisions of APB Opinion No. 25; however, SFAS No. 148, “Accounting for Stock Based Compensation – Transition and Disclosure,” requires pro forma net income disclosures as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and to provide the pro forma disclosure specified by SFAS No. 148. | ||
| Had the Company determined compensation cost based on the fair value (using the Black-Scholes method) at the grant date for its stock options under SFAS No. 123, the Company’s net income would have been adjusted to the pro forma amounts indicated below: |
| For the Three Months | For the Six Months | ||||||||||||||||
| Ended June 30, | Ended June 30, | ||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
Net income: |
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As reported |
$ | 1,729,000 | $ | 1,878,000 | $ | 3,128,000 | $ | 3,317,000 | |||||||||
Pro forma |
$ | 1,619,000 | $ | 1,787,000 | $ | 2,909,000 | $ | 3,124,000 | |||||||||
Basic earnings per share: |
|||||||||||||||||
As reported |
$ | 0.23 | $ | 0.26 | $ | 0.41 | $ | 0.45 | |||||||||
Pro forma |
$ | 0.21 | $ | 0.24 | $ | 0.38 | $ | 0.43 | |||||||||
Diluted earnings per share: |
|||||||||||||||||
As reported |
$ | 0.22 | $ | 0.24 | $ | 0.39 | $ | 0.42 | |||||||||
Pro forma |
$ | 0.20 | $ | 0.23 | $ | 0.37 | $ | 0.40 | |||||||||
| 3. | 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. |
5
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
| 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, | |||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||
Weighted average
shares used for the
basic EPS
computation |
7,607,374 | 7,323,154 | 7,598,040 | 7,317,007 | ||||||||||||
Incremental shares
from the assumed
exercise of
dilutive stock
options,
contingently
issuable shares and
restricted shares |
332,888 | 599,657 | 346,610 | 522,353 | ||||||||||||
Weighted average
shares used for the
diluted EPS
computation |
7,940,262 | 7,922,811 | 7,944,650 | 7,839,360 | ||||||||||||