SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
Form 10-K10-K/A
Amendment No. 1 to Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 19951999 Commission File Numberfile number 1-7516
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Keane, Inc.
-----------KEANE, INC
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(Exact nameName of registrantRegistrant as specifiedSpecified in its charter)Its Charter)
Massachusetts 04-24371604-2437166
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(State or other jurisdictionOther Jurisdiction (I.R.S. Employer
of incorporationIncorporation or organization)Organization) Identification Number)
Ten City Square, Boston, Massachusetts 02129
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(Address of principal executive offices)Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (617) 241-9200
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Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
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Common Stock, $.10 par value Registered on the American Stock Exchange
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(Title of Class) (Name of Exchange)
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by checkmarkcheck mark whether the registrantregistrant: (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 ---- ----___
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Indicate by checkmarkcheck mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (X)(_)
The aggregate market value determined by the closing prices reported by AMEX of the voting stockCommon Stock held by nonaffiliates of the
registrant, asbased on the last sale price of the Common Stock on the AMEX on
March 10, 2000, was $1,508,163,647. As of March 15, 1996:10, 2000, 69,862,446 shares of
Common Stock, $.10 par value - $379,213,889
------------------------------------------per share, and 284,987 shares of Class B Common
Stock, $.10 par value - No Public Trading Market
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Number of shares outstanding of each of the registrant's classes of common
stock, as of March 15, 1996:
Common Stock $.10 Par Value - 15,957,760 shares
Class B Common Stock $.10 Par Value - 288,258 shares
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Index to Exhibits is on Page 37
Page 1 of 46 Pages
DOCUMENTS INCORPORATED BY REFERENCEper share, were issued and outstanding.
Documents Incorporated by Reference. The Company intends to fileRegistrant has filed a definitive proxy
statement pursuant to Regulation 14A, promulgated under the Securities Exchange
Act of 1934, as amended, to be
used in connection with the Company'sRegistrant's Annual Meeting
of Stockholders to be held on May 29, 1996.31, 2000. The information required in response to
Items 10-13 of Part III of this Form 10-K is hereby incorporated by reference to
such proxy statement.
PART I
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ITEM 1. BUSINESS
This Amendment No. 1 on Form 10-K/A amends and restates Item 10 of the Annual
Report on Form 10-K filed with the Securities and Exchange Commission on March
31, 2000 by Keane, Inc., a Massachusetts corporation (together with its subsidiaries, unless
the context otherwise requires "Keane" or the(the "Company"), provides software
design, development, integration and management services for corporations and
healthcare facilities. Keane's services and methodologies enable companies to
leverage their existing information systems ("IS") capability and more rapidly
and cost-effectively develop and manage mission-critical software applications.
The Company serves its clients through two operating divisions: the Information
Services Division ("ISD") and the Healthcare Services Division ("HSD"). ISD,
which accounted for approximately 93% of the Company's revenues in 1995,
provides software design, development and management services to corporations
and government agencies with large and recurring software development needs. HSD
develops, markets and supports financial, patient care and clinical application
software for hospitals and long-term care facilities. The Company provides
services primarily to Fortune 1,000 companies, including AT&T Corporation,
Eastman Kodak Company, General Electric Company, International Business Machines
Corporation, McDonald's Corporation and Procter & Gamble Company.
INFORMATION SERVICES DIVISION: ISD provides custom application software design,
development and management services for corporations with large and recurring
software development needs. Keane delivers (i) Information Systems Planning
services, including business process redesign and IS planning and assessment
services, (ii) Application Development Projects, which include client-server
planning and development and systems migration services, (iii) Outsourcing
services, which include application outsourcing, year 2000 compliance services
and help desk outsourcing, and (iv) Project Management Training, through which
Keane delivers professional training on the Company's project management,
estimating and risk management processes. In all of its assignments, Keane
strives to use its proprietary best practices and methodologies to reduce
development time, improve system reliability and quality, and reduce costs.
Keane believes these methodologies, which include Application Maintenance
Management, Productivity Management and Frameworks for Software Development,
enable it to provide clients with consistent, high quality results and give it a
competitive advantage in winning large projects.
The Company believes that the following factors drive market growth in the
software services business served by ISD:
. Competitive Environment. Globalization, deregulation and the rapid pace
of change in today's business environment have increased the importance
of timely access to information. These conditions have led to a
strategic focus on information systems.
. The Growing Challenges of Managing Corporate IS Organizations. The IS
environment has grown increasingly complex, costly and burdensome as a
result of the challenges of deploying new technology, maintaining older
systems and meeting staffing requirements in a market with a shrinking
pool of qualified IS professionals.
. Organizational Focus on Core Competencies Resulting in Increased
Outsourcing of Software Services. The intense competition and rapid
change characteristic of many industries have led senior management to
concentrate on their core competencies in order to compete more
effectively.
PAGE 2
As a result of these and other factors, the Company believes that there are
significant opportunities for growth in the software services industry. As IS
organizations seek to address these and other challenges, they are increasingly
finding that outsourcing to software services providers can assist them in
effectively meeting their strategic information technology objectives. Dataquest
Incorporated, a market research firm, estimated that in 1995, companies in the
U.S. would spend approximately $47 billion on software services with independent
software services firms. Moreover, according to Dataquest Incorporated, the rate
of IS professional services spending is projected to grow at approximately 15%
per year to reach nearly $62 billion in 1997.
HEALTHCARE SERVICES DIVISION: HSD develops, markets and supports patient care
and clinical software for large teaching hospitals, hospital chains, community
hospitals and long-term care facilities. In addition, HSD provides facilities
management services for many of its hospital clients. Currently, HSD's products
are used by more than 380 hospitals and 600 long-term care facilities.
Hospitals and long-term care facilities are increasingly challenged to enhance
productivity and cut costs by reducing hospital stay length and insurance
reimbursement cycle times without sacrificing patient care. Keane believes that
effective information systems are essential for achieving these goals and that
the need for implementing improved information technology is intensifying.
Keane believes that its vertical expertise in the healthcare industry represents
significant opportunity in the years ahead as healthcare reform issues are
resolved, creating new markets and opportunities. HSD's strategic objectives are
to continue to grow rapidly in order to obtain critical mass and to provide a
full range of integrated, open information systems to hospitals and long-term
care facilities. The acquisition by HSD of Community Health Computing in April
1995 and Source Data Systems in November 1995 increased Keane's hospital client
base by 100% and expanded HSD's product line to include Infinet, a clinical and
financial data repository, to suit its UNIX applications. Its UNIX-based
software packages also include Threshold, Leadership Plus and Patcom Plus. HSD
targets hospitals, long-term care facilities and other sectors of the
healthcare field, and seeks to increase the breadth of its healthcare
applications through ongoing product development efforts and strategic
alliances.
BUSINESS STRATEGY: Keane believes that the pressure companies are experiencing
to reduce costs, decrease cycle times and adapt quickly to changing market
dynamics is changing the basis of competition in the software services industry.
In order to achieve profitable growth in this environment, Keane is increasing
market share with both new and existing clients while deriving an increasing
portion of its business from large-scale, multiyear projects with large
organizations. Keane believes that its (i) long-term client relationships, which
create greater opportunities for recurring revenues; (ii) full range of value-
added services, which differentiates the Company from many of its competitors;
(iii) strong branch office network, which enables it to deliver services cost-
effectively; and (iv) disciplined methodologies and best practices, which are
designed to ensure replication of organizational experience, allow the Company
to compete effectively against both national and local competitors. The key
elements of the Company's strategy are to:
Build Long-Term Strategic Partnerships with Clients-The Company seeks to build
long-term strategic partnerships with its clients. Sales representatives are
assigned to a limited number of target accounts in order to develop an in-depth
understanding of each client's particular needs. This approach enables the
Company to build long-term relationships with its clients based on
knowledgeable, highly responsive and cost-effective service. During 1995, the
Company derived more than 85% of its revenues from clients to which it had
provided services in the prior year (excluding revenues generated from
businesses acquired during the year).
Another critical element to building long-term client relationships is Keane's
use of its local branch office network to fulfill customer needs. Recognizing
that providing software services is predominantly a local business, ISD provides
its services through a network of 40 branch and satellite offices across the
United States and in Canada. Branch offices operate as strategic business units
responsible for developing long-term
PAGE 3
partnerships with targeted clients and delivering cost-effective software
solutions. Keane's extensive network of branch offices allows the Company to
stay close to its clients and be responsive to their needs. A strong corporate
infrastructure supports the branches, gathers and replicates best practices and
assures uniform quality and a consistent business approach.
Provide Full Range of Value-Added Services-The Company actively markets its
ability to solve its clients' business problems through the application of
information systems technology. The Company seeks engagements such as large
software development, application maintenance outsourcing, year 2000 compliance
and help desk outsourcing projects. The Company also provides consulting
professionals to supplement its clients' internal IS on a short-term basis. The
Company believes its comprehensive, high level capabilities, supported by its
delivery methodologies, differentiate it from many of its competitors and
provide the Company with a more stable source of revenues.
Achieve Critical Mass through a Strong Branch Office Network-Growing market
share and achieving critical mass in each market it serves are fundamental to
the Company's strategy. Keane defines critical mass in a particular location as
being one of the two largest software services firms in that market and having
the depth and breadth of managerial, sales and technical capability to deliver
complex solutions locally. Critical mass and increased market share enable the
Company to spread indirect costs over a larger revenue base and achieve
important economies of scale, thereby enabling it to be more cost-effective.
Keane believes that it is increasingly important to be cost-effective in order
to compete effectively for large scale projects as its clients seek to drive
down their costs. In addition, as clients continue to outsource their IS
operations and buy larger and more complex solutions, it is critical that Keane
invest in the development of standardized delivery methodologies, best practices
and tool sets. Keane believes that critical mass in its branches will enable it
to make necessary investments in capabilities and methodologies while remaining
cost competitive.
The Company believes that, given its present size and organizational structure,
the most effective plan for achieving and maintaining critical mass is to use
its resources to service large accounts and sell strategic business. In 1995, 76
of the 2,200 accounts Keane serviced during the year each represented over $1
million in revenues. Keane plans to continue to focus on targeting accounts with
large and recurring software development and management needs. As part of this
strategy, Keane seeks to position itself as a provider of large application
development projects and IS application outsourcing. Examples of such contracts
in 1995 include a $12 million outsourcing engagement with AT&T Corporation and a
$4.3 million outsourcing engagement with Elf Atochem North America. The Company
seeks to improve its ability to manage large projects and increase the value of
its outsourcing solutions by continuously improving its methodologies and best
practices.
Keane has also found that acquisitions are a valuable and important means of
achieving critical mass, enhancing market share, increasing capabilities to
deliver large, complex solutions and supplementing internal growth and will
continue to evaluate acquisition opportunities where appropriate. The Company
has demonstrated a capacity to complete acquisitions and to successfully
integrate the acquired companies into its operations. Keane believes this
ability is a competitive advantage in a consolidating market. Since July 1986,
Keane has completed 17 acquisitions of companies with annual revenues at the
time of acquisition ranging from approximately $1 million to approximately $170
million. In identifying potential acquisition candidates, the Company seeks
firms with client profiles, geographic markets and technical capabilities
similar or complementary to its own. Because the software services industry is
highly fragmented, the Company expects that there will continue to be attractive
acquisition opportunities.
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
PAGE 4
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.
Replicate Organizational Experience through Disciplined Methodologies-Keane has
internally developed and continuously refines numerous best practices as part of
its efforts to consistently provide high quality software solutions, excellent
service to its customers and orderly management of internal activities. To guide
the development and management of systems projects, Keane relies on its project
management approach, Productivity Management, as well as its Frameworks
Application Development methodologies and Project Estimating and Risk Management
processes. The Company's outsourcing solutions are also methodology driven. For
example, application outsourcing engagements are typically managed following the
Company's Application Maintenance Management methodology, which incorporates
Productivity Management and continuous improvement processes; year 2000 projects
are based on Keane's Resolve 2000 methodology; and help desk services are
delivered according to the Company's Help Desk methodology.
Keane also uses numerous management processes to govern and guide its sales,
recruiting, training, financial and operational activities. Keane believes that
the investment made in all of these processes, combined with its emphasis on
accumulating and disseminating organizational experience, enhances the ability
of the Company to accommodate aggressive growth, attract and retain superior
technical and managerial talent, and consistently deliver high quality solutions
to its clients.
MARKETING, SALES AND CLIENTS: Keane markets its software development services
and software products through its direct sales force based in each branch
office. Keane's sales representatives are assigned to a limited number of
accounts, generally no more than six to eight, in order to develop an in-depth
understanding of each client's individual needs and form strong client
relationships. These representatives are responsible for providing highly
responsive service and ensuring that Keane's software solutions achieve client
objectives.
Keane focuses its marketing efforts on large corporations and healthcare
entities with significant IS budgets and recurring software development needs.
While Keane performs work for companies, most major industries as well as state
and federal governments, most of the Company's revenue is derived from
organizations within three industry groups serviced by ISD: manufacturing,
financial services and insurance. All of HSD's clients are in the healthcare
industry. ISD projects and services for manufacturing may involve factory floor
operations, materials management, order processing, accounting and computer
operating systems development and support. Typical development projects for
financial services firms include applications for mutual fund analysis, fund
tracking, stock transfer, customer information, commercial and consumer loans,
cash distribution, accounting and human resource systems. Insurance company
projects include such applications as claims processing, agency management,
coordination of benefits and subrogation, pension, premium and loss reporting,
accounting, compensation and benefits systems. Projects for HSD's healthcare
clients include applications for accounting, patient registration and
scheduling, and other patient care and clinical functions. Organizations in each
of these industries are highly information dependent and use mission-critical
information systems as a competitive advantage.
PAGE 5
The following table sets forth a list of selected clients for which the Company
provided services in 1995:
3M Company GTE Data Service Incorporated
Aldus Corp. Guardian Life Insurance
American Express Co., Inc. Hoffmann-La Roche, Inc
Ameritech International Business Machines Corporation
AT&T Corporation Jewel Food Stores, Inc.
Bose Corporation Liberty Mutual Insurance Co.
Bank of Boston Corporation McDonald's Corporation
Baxter Healthcare Corporation McKesson Corporation
Bell Atlantic Microsoft Corporation
Cargill Miller Brewing
Carrier National Assn. of Security Dealers
CIGNA Corporation Northern Mutual Life Insurance
Cincinnati Bell Telephone Northern Telecom, Inc.
Department of Justice The Pillsbury Company
Discover Card Procter & Gamble Company
Eastman Kodak Company The Putnam Companies, Inc.
Elf Atochem North America Reader's Digest Association, Inc.
Exxon Corporation SD Warren
Fidelity Transquest
Farmers Insurance Group U.S. Customs
First Bank Whirlpool Corporation
General Electric Company
The Company has historically derived, and may in the future derive, a
significant percentage of its total revenue from a relatively small number of
clients. Keane's five largest clients accounted for approximately 36% and 33% of
the Company's total revenues during the years ended December 31, 1994 and 1995,
respectively. The Company's two largest clients during these periods have been
IBM and General Electric. During the 12 months ended December 31, 1995, IBM and
General Electric accounted for approximately 13.2% and 8.8%, respectively, of
the Company's total revenues. The Company provides services to multiple General
Electric (GE) and International Business Machines (IBM) locations. The Company
believes that each GE and IBM location served by the Company is essentially
autonomous. Each location contracts separately for its services and each
contract involves different projects. A significant decline in revenues from IBM
or General Electric could have a material adverse effect upon the Company's
total revenues. With the exception of IBM and General Electric, no single client
accounted for more than 5% of the Company's revenues during the three years
ended December 31, 1995.
In accordance with industry practice, nearly all of the Company's orders are
terminable by either the client or the Company on short notice. The Company does
not believe that backlog is material to the business. The Company had orders at
December 31, 1995 of approximately $131.0 million, in comparison to orders of
approximately $106.0 million at December 31, 1994.
BRANCH OFFICES: Keane provides custom software development services through its
headquarters in Boston, Massachusetts, and a network of ISD branch offices
located in major metropolitan areas throughout the United States and in the
provinces of Ontario and Quebec. Branch offices are responsible for providing
marketing, software planning, analysis, design, implementation and maintenance
services for clients within assigned geographic territories. Each of these
offices has the necessary technical resources and management depth to service
its targeted area. Each office is led by a resident branch manager and has one
or more client sales representatives, consulting managers and personnel
recruiters. Nearly 50% of the Company's branch offices, excluding satellite
offices, generated more than $10.0 million in annual revenues and are staffed by
approximately 140 employees. Keane believes this local presence and capability
PAGE 6
enable it to provide its clients with highly responsive and cost-effective
service, as well as dependable results. Keane also maintains five HSD offices
located in California, Iowa, Maryland, New York and Texas.
The size and diversity of client projects at Keane's branch offices and hospital
sites enable it to learn from its experience and refine and leverage that
experience at other locations. Keane's infrastructure is designed to capture and
then continuously improve the software development and maintenance process.
Keane's branch offices are afforded the benefits of being part of a large
organization with many resources. Frequently branches transfer personnel from
other branches with expertise within a specific technology, application or
industry. Each branch office is linked electronically so that experiences can be
shared and continuous process improvements can be realized.
EMPLOYEES: On December 31, 1995, Keane had 5,338 employees, including 4,774
technical staff whose services are billable to clients. At such date, 4,915
individuals were employed by ISD and 318 individuals were employed by HSD, with
the remaining 105 individuals providing Company-wide services at the Company's
corporate headquarters.
The Company believes that its future success will depend in part upon its
continued ability to attract and retain highly skilled managerial, technical,
sales and support personnel. Accordingly, Keane devotes significant resources to
its Human Resources Department, including a staff of 74 recruiters. The
Company's current employees are also a valuable recruiting tool. During 1995,
approximately 27% of the Company's new employees were referred to the Company by
existing personnel.
The Company does not have employment contracts with its key employees. None of
the Company's employees is subject to a collective bargaining agreement. The
Company believes that its relations with its employees are good.
COMPETITION: 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, the
Company's competition varies significantly from city to city. The Company
believes it is among the ten largest custom software development firms serving
the commercial market in the United States.
The Company's competition also varies by the type of service provided. For large
application development and outsourcing projects, the Company competes with
consulting divisions of large public accounting firms, such as Andersen
Consulting, as well as companies such as Electronic Data Systems Corporation and
ISSC, the consulting division of IBM. For systems implementation and
maintenance, the Company often competes with small, local firms, as well as
large national firms, including Analysts International Corp., Cap Gemini
America, Computer Horizons Corporation, Computer Sciences Corporation, and
Computer Task Group, Inc. Some of these competitors are larger and have greater
financial resources than the Company. In addition, clients may elect to increase
their internal IS 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 standardized
operational processes. The Company believes that it competes favorably with
respect to these factors.
In the healthcare software systems market, Keane competes with such companies as
SMS Corp., HBO and Company, and MEDITECH, Inc. Some of these competitors 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 a demonstrated ability to provide
service to targeted healthcare markets.
ITEM 2. PROPERTIES
The principal executive office of the Company is located at Ten City Square,
Boston, Massachusetts 02129, in an approximate 34,000 square foot office
building which is owned by City Square Limited Partnership. Several of the
Company's officers, directors and shareholders are limited partners of this
partnership. See Item 13 -- "Certain
PAGE 7
Relationships and Related Transactions." At December 31, 1995 the Company leased
and maintained sales and support offices in 52 locations in the United States.
The aggregate annual rental expense for the Company's sales and service offices
was approximately $6,778,000 in 1995. The aggregate annual rental expense for
all of the Company's facilities was approximately $8,880,000 in 1995. For
additional information regarding the Company's lease obligations, see Note K of
Notes to Consolidated Financial Statements.
The Company believes that its facilities are adequate for its current needs and
that suitable additional space will be available as needed.
ITEM 3. LEGAL PROCEEDINGS
On December 31, 1992, Four Star Capital Corporation ("Four Star") commenced a
civil action against AGS Computers, Inc. ("AGS"), NYNEX Corporation ("NYNEX")
and Derek Proctor, a former employee of AGS, in Superior Court of California,
County of Marin, alleging among other things breach of contract with respect to
the solicitation of business for NYNEX and AGS in China. The case was
subsequently removed to the United States District Court for the Northern
District of California and transferred to the United States District Court for
the Southern District of New York. Four Star originally sought damages in the
amount of $5,600,000. However, on May 3, 1994, Four Star amended its complaint
to provide for a claim seeking relief in the amount of $25,000,000. Keane
acquired all of the outstanding capital stock of AGS in January 1994.
On August 29, 1994, Marketing and Management Information, Inc. ("MAMI")
commenced a civil action against the Company, General Electric Consulting
Services Corporation ("GECON") and General Electric Company (General Electric
Information Service) ("GEIS") in the Circuit Court for Montgomery County,
Maryland, Case Number 123797. The Complaint alleges claims for breach of
contract, fraud and negligent misrepresentation in connection with a consulting
contract for computer development work between MAMI and GECON. The Company
assumed this contract as part of its acquisition of certain assets of GECON in
January 1993. The contract price for the consulting work alleged in the
Complaint totaled approximately $425,000. Despite the limitation on recoverable
damages contained in the contract, MAMI has alleged damages in excess of
$50,000,000 and has claimed punitive damages in an amount more than double the
compensatory claim.
The Company has denied the allegations of the Complaint and asserted a number of
affirmative defenses, including the defense that the claims of damages asserted
in the Complaint are barred by the terms of the underlying contract. Management
of the Company intends to continue to defend the matter vigorously. The Company
was granted summary judgment on certain of MAMI'S claims. The remaining claims
as they apply to the Company concern only allegations pertaining to the failure
to refund $25,000 under contract and misrepresentation pertaining to stated
delivery dates. Trial on this matter commenced before a judge sitting without a
jury in late February 1996. The Company expects the court to render its decision
within 60 to 90 days of the end of the trial.
The Company is also involved in other litigation and various legal matters which
have arisen in the ordinary course of business. The Company does not believe
that the ultimate resolution of any existing matter will have a material adverse
effect on its financial condition, results of operations, or cash flows.
The Company believes these litigation matters are without merit and intends to
defend these matters vigorously. However, an unfavorable outcome in any of these
matters, which are expected to be resolved within one year, could result in a
material loss.
During 1995, the Company and IBM agreed in principle to a transfer of certain
customer relationships and certain proprietary products to IBM. Subsequently,
the Company has provided resources, primarily personnel, to IBM which assumed
the management of certain customer projects pending execution of formal
documents among all the parties. Subsequent to year end, the Company has
determined that it will be unable to obtain the necessary agreements to effect
the transfer and customer assignments. The accompanying financial statements
reflect receivables for project revenues and certain other costs aggregating
approximately $2,000,000 which management anticipates will be recovered from its
PAGE 8
customers and/or IBM. It is reasonably possible that the Company will have to
litigate in order to recover this amount. In addition, it is reasonably possible
that a customer may assert claims against the Company in connection with
performance on one of the projects.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during the
fourth quarter of the year ended December 31, 1995.
EXECUTIVE OFFICERS OF THE COMPANY: The executive officers and directors of the
Company are as follows:
NAME AGE POSITION
---- --- --------
John F. Keane(1) 65 Chief Executive Officer, President and
Director
Edward H. Longo 52 Senior Vice President - Information
Services Division
Raymond W. Paris 58 Vice President and General Manager -
Healthcare Services Division
John F. Keane, Jr. 36 Vice President - Area Manager
Wallace A. Cataldo 46 Vice President - Finance and
Administration
Brian T. Keane 35 Vice President - Area Manager
Winston R. Hindle, Jr.(1)(2) 65 Director
John F. Rockart (1)(2) 64 Director
Robert A. Shafto(1)(2) 60 Director
____________________________
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
All Directors hold office until the next annual meeting of the stockholders and
until their successors have been elected and qualified. The Company has no
standing nominating committee. Officers of the Company serve at the discretion
of the Board of Directors.
Mr. John Keane, the founder of the Company, has been Chief Executive Officer,
President and a director of the Company since the Company's incorporation in
March 1967. Prior to joining the Company, Mr. Keane worked for IBM's Data
Processing Division and was employed as a consultant by Arthur D. Little, Inc.,
a Cambridge, Massachusetts, management consulting firm.
Mr. Longo joined the Company in March 1980 and has been Senior Vice President --
Information Services Division since December 1994. From January 1993 to December
1994, he was Vice President -- Information Services Division, Eastern Region.
From May 1987 to January 1993, he was Vice President of the New England area of
the Information Services Division. From June 1986 to May 1987, he was an Area
Manager of the Information Services Division.
PAGE 9
Mr. Paris joined the Company in November 1976. Mr. Paris became Area Manager of
the Healthcare Systems Division in 1981 and has served as Vice President and
General Manager of HSD since August 1986.
Mr. Cataldo joined the Company in June 1975 and has been Vice President --
Finance since October 1985. Mr. Cataldo served as Chief Financial Officer from
November 1983 to October 1985 and as Controller from November 1978 to November
1983.
Mr. John Keane, Jr. joined the Company in 1987 and was promoted to Area Vice
President in the Information Services Division in December 1994. From January
1994 to December 1994, Mr. Keane served as an ISD Business Area Manager. From
July 1992 to January 1994, he acted as manager of Software Reengineering, and
from January 1991 to July 1992, he served as Director of Corporate Development.
John Keane, Jr. is a son of John Keane, the founder, Chief Executive Officer and
a director of the Company, and a brother of Brian Keane, Area Vice President of
the Company.
Mr. Brian Keane joined the Company in 1986 and was promoted to Area Vice
President in the Information Services Division in December 1994. From July 1992
to December 1994, Mr. Keane served as an ISD Business Area Manager and from
January 1990 to July 1992, he served as an ISD Branch Manager. Brian Keane is a
son of John Keane, the founder, Chief Executive Officer and a director of the
Company and a brother of John Keane, Jr., Area Vice President of the Company.
Mr. Hindle has been a director since February 1995. Mr. Hindle is currently
retired. From September 1962 to July 1994, Mr. Hindle served as a Vice President
and, subsequently, Senior Vice President of Digital Equipment Corporation. Mr.
Hindle is also a director of CP Clare Corporation and Mestech, Inc.
Dr. Rockart has been a director since the Company's incorporation in March 1967.
From September 1972 to July 1994, Dr. Rockart has been a Senior Lecturer at the
Alfred J. Sloan School of Management of the Massachusetts Institute of
Technology since 1974, and has been the Director of The Center for Information
Systems Research since 1976. Dr. Rockart is also a director of ComShare Inc. and
Renaissance Solutions, Inc.
Mr. Shafto has been a director since July 1994. Mr. Shafto is Chairman, Chief
Executive Officer and President of The New England, an insurance and investment
firm which he joined in 1972 as Second Vice President for Computer Systems
Development and Information Systems. Mr. Shafto was named President and Chief
Operating Officer of The New England in 1989 and assumed the position of Chief
Executive Officer in January 1992. He was elected to the office of Chairman of
The New England effective July 1, 1993. Mr. Shafto is also a director of Fleet
Bank of Massachusetts, N.A.
Compensation of the nonemployee directors currently consists of an annual
director's fee of $4,000 plus $1,000 and expenses for each meeting of the Board
of Directors attended. Directors who are officers or employees of the Company do
not receive any additional compensation for their services as directors.
PART II
- -------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's authorized capital stock consists of 50,000,000 shares of Common
Stock, $.10 par value per share; 503,797 shares of Class B Common Stock, $.10
par value per share; and 2,000,000 shares of Preferred Stock, $.01 par value per
share. As of March 15, 1996, there were no shares of Preferred Stock
outstanding; 15,957,760 shares of Common Stock outstanding and held by
approximately 1,672 stockholders; and 288,258 shares of Class B Common Stock
outstanding and held by approximately 174 stockholders.
PAGE 10
COMMON STOCK AND CLASS B COMMON STOCK:
Voting. Each share of Common Stock is entitled to one vote on all matters
submitted to stockholders and each share of Class B Common Stock is entitled to
ten votes on all such matters. The holders of Common Stock and Class B Common
Stock vote as a single class on all actions submitted to a vote of the Company's
stockholders, except that separate class votes of the holders of Common Stock
and Class B Common Stock are required to authorize further issuances of Class B
Common Stock and certain charter amendments. Voting for directors is
noncumulative.
As of March 15, 1996, the Class B Common Stock represented 1.8% of the Company's
outstanding equity, but had 15.3% of the combined voting power of the Company's
outstanding Common Stock and Class B Common Stock. The substantial voting rights
of the Class B Common Stock may make the Company less attractive as the
potential target of a hostile tender offer or other proposal to acquire the
stock or business of the Company and render merger proposals more difficult,
even if such actions would be in the best interests of the holders of the Common
Stock.
Dividend and Other Distributions. The holders of Common Stock and Class B Common
Stock are entitled to receive ratably such dividends, if any, as may be declared
by the Board of Directors, out of funds legally available, except that the Board
of Directors may not declare and pay a regular quarterly cash dividend on the
shares of Class B Common Stock unless a noncumulative per share dividend which
is $.05 per share greater is paid at the same time on the shares of Common
Stock. In the event of a liquidation, dissolution or winding up of the Company,
holders of Common Stock and Class B Common Stock have the right to ratable
portions of the net assets of the Company available after the payment of all
debts and other liabilities.
Trading Markets. The Company's Common Stock is traded on the American Stock
Exchange. The Common Stock is also registered pursuant to the Securities
Exchange Act of 1934, as amended. The Company furnishes to the holders of its
Common Stock and Class B Common Stock the same information and reports
concerning the Company. Shares of Class B Common Stock are not transferable by a
stockholder except for transfers (i) by gift, (ii) in the event of the death of
a stockholder, or (iii) by a trust to a person who is the grantor or a principal
beneficiary of such trust (individuals or entities receiving Class B Common
Stock pursuant to such transfers being referred to as "Permitted Transferees").
The Class B Common Stock is not listed or traded on any exchange or in any
market and no trading market exists for shares of the Class B Common Stock. The
Class B Common Stock is, however, convertible at all times, and without cost to
the stockholder, into shares of Common Stock on a share-for-share basis. Shares
of Class B Common Stock are automatically converted into an equal number of such
shares of Common Stock in connection with any transfer of such shares other than
to a Permitted Transferee. In addition, all of the outstanding shares of Class B
Common Stock are convertible into shares of Common Stock upon a majority vote of
the Board of Directors.
Future Issuances of Class B Common Stock; Retirement of Class B Common Stock
Upon Conversion into Common Stock. The Company may not issue any additional
shares of Class B Common Stock without the approval of a majority of the votes
of the outstanding shares of Common Stock and Class B Common Stock voting as
separate classes. The Board of Directors may issue shares of authorized but
unissued Common Stock and Preferred Stock without further stockholder action.
All shares of Class B Common Stock converted into Common Stock are retired and
may not be reissued.
Other Matters. The holders of Common Stock and Class B Common Stock have no
preemptive rights or (except as described above) rights to convert their stock
into any other securities and are not subject to future calls or assessments by
the Company. The rights, preferences and privileges of holders of Common Stock
are subject to, and may be adversely affected by, the rights of the holders of
shares of any series of Preferred Stock which the Company may designate and
issue in the future. See "Preferred Stock" below.
PAGE 11
PREFERRED STOCK: The Company's Articles of Organization authorize the issuance
of up to 2,000,000 shares of Preferred Stock, $.01 par value per share.
Preferred Stock may be issued from time to time in one or more series, and the
Board of Directors is authorized to determine the rights, preferences,
privileges and restrictions, including the dividend rights, conversion rights,
voting rights, terms of redemption, redemption price or prices and liquidation
preferences, of any such series of Preferred Stock, and to fix the number of
shares of any such series without any further vote or action by the
stockholders. The voting and other rights of the holders of Common Stock and
Class B Common Stock will be subject to, and may be adversely affected by, the
rights of holders of any Preferred Stock that may be issued in the future.
Issuance of Preferred Stock, while providing desirable flexibility in connection
with acquisitions and other corporate purposes, could have the effect of making
it more difficult for a third party to acquire, or of discouraging a third party
from acquiring, a majority of the outstanding voting stock of the Company. The
Company has no present plans to issue any shares of Preferred Stock.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY: The Company's Common Stock is
traded on the American Stock Exchange under the symbol "KEA." The following
table sets forth, for the periods indicated, the high and low closing prices per
share as reported by the American Stock Exchange.
Stock Price
High Low
-------------------
1995
First Quarter $25.50 $20.75
Second Quarter 25.75 22.63
Third Quarter 30.63 22.75
Fourth Quarter 29.50 22.13
1994
First Quarter $23.83 $18.42
Second Quarter 27.17 22.17
Third Quarter 24.00 21.08
Fourth Quarter 23.75 18.75
The closing price of the Common Stock on the American Stock Exchange on March
15, 1996 was $29.00.
The Company has not paid any cash dividend since June 1986. The Company
currently intends to retain all of its earnings to finance future growth and
therefore does not anticipate paying any cash dividends in the foreseeable
future. The Company's Articles of Organization restrict the ability of the Board
of Directors to declare regular quarterly dividends on the Class B Common Stock.
PAGE 12
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(ALL DOLLAR FIGURES IN THOUSANDS EXCEPT PER SHARE DATA)
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- --------
Year Ended December 31, 1995
Total revenues $90,452 $94,647 $96,516 $101,124
Pretax income 9,037 9,429 8,171 5,948
Net income 5,151 5,375 4,943 3,788
Net income per share .32 .33 .30 .23
Year Ended December 31, 1994
Total revenues $86,165 $85,560 $86,641 $ 86,217
Pretax income 7,213 6,834 7,406 7,027
Net income 3,967 4,039 4,051 4,178
Net income per share .29 .29 .29 .28
PAGE 13
ITEM 6. SELECTED FINANCIAL DATA
FINANCIAL HIGHLIGHTS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Year Ended December 31, 1991 1992 1993 1994 1995
- -------------------------------------------------------------------------------
Income Statement Data:
Total Revenues $95,562 $99,279 $175,808 $344,583 $382,739
Operating Income 8,789 9,649 16,430 31,180 31,611
Net income 5,891 6,278 9,058 16,235 19,257
Net income per share .54 .57 .76 1.15 1.18
Shares used in per
share calculation 10,875 11,034 11,898 14,161 16,348
- ------------------------------------------------------------------------------
Balance Sheet Data:
Total assets $41,079 $49,316 $ 99,615 $179,002 $194,398
Total debt 154 206 4,323 12,317 9,146
Stockholders' equity 36,234 43,408 83,114 144,387 167,221
Book value per share 3.39 3.97 6.21 9.04 10.33
Number of shares
outstanding 10,683 10,921 13,387 15,977 16,194
- ------------------------------------------------------------------------------
Financial Performance:
Total revenue growth 2.7% 3.9% 77.1% 96.0% 11.1%
Net margin 6.2% 6.3% 5.2% 4.7% 5.0%
Return on average equity 17.9% 15.8% 16.7% 16.1% 12.3%
PAGE 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS:
This Annual Report on Form 10-K 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, 1995 VS. 1994: The Company's revenues for 1995 were
$382.7 million, up 11.1% from $344.6 million in 1994. Revenues from the
Company's Information Services Division ("ISD") amounted to $356.8 million for
1995, up 11.2% from 1994. This increase in ISD revenues is primarily
attributable to a strong economy in which companies invested in their
information systems. In addition, the Company generated new revenues as a result
of its Microsoft Help Desk contract for Windows 95 and the opening of a new
office in Grand Rapids, Michigan. Revenues for the Company's Healthcare Services
Division ("HSD") were $25.9 million, up 9.3% from 1994. The increase in HSD
revenues is primarily attributable to the acquisition of Community Health
Computing Corporation in April 1995 and of Source Data Systems, Inc. in November
1995.
Salaries, wages and other direct costs for 1995 were $256.5 million, or 67.0% of
revenues, compared to $225.6 million, or 65.5% of revenues, in 1994, a 1.5%
increase as a percentage of revenues. The increase in direct cost(s), as a
percentage of revenues, is primarily attributable to the fact that large clients
are negotiating and obtaining competitive bids for high quality services at
lower costs. This results in the Company agreeing to lower rates to win new
business, large clients negotiating for volume discounts and limitations on the
Company's ability to pass on salary increases for technical personnel to
existing accounts. IBM, Keane's largest account, accounted for approximately
one-third of the Company's direct cost increase, as a percentage of revenues, as
a result of its new National Vendor Agreement that the Company signed in July
1995. This Agreement, in effect, is intended to eventually reduce the over 200
IBM professional services vendors to eight, of which the Company is one. In
exchange for expected increases in IBM business, the Company agreed to IBM's new
national rates which at the time were approximately 15% lower than the rates the
Company had been charging. The Company's strategy to partially reduce the impact
of higher payroll costs on margins is to target project and strategic business,
which, because of limited competition, typically commands higher rates. In
addition, the Company has focused on the marketing of application outsourcing
and help desk support business which may result in larger and longer duration
engagements with higher productivity and lower selling expenses.
Selling, General & Administrative ("SG&A") expenses for 1995 were $82.5 million,
or 21.5% of revenues, compared to $76.4 million, or 22.2% of revenues, in 1994,
a 0.7% decrease as a percentage of revenues. The Company's objective is to
continue to attempt to reduce SG&A at the same or greater rate than increases in
direct costs. The Company seeks to achieve this objective by realizing the
economies of scale associated with increasing revenue through a combination of
aggressive internal growth and strategic acquisitions without proportionately
increasing SG&A.
Amortization of goodwill and other intangible assets for 1995 was $12.2 million,
or 3.2% of revenues, compared to $11.5 million, or 3.3% of revenues, in 1994.
Interest and other related expenses for 1995 totaled $0.7 million compared to
$3.1 million in 1994. This decrease is primarily attributable to the Company's
secondary stock offering of 2.3 million shares of Common Stock in November of
1994, a portion of the proceeds of which were used by the Company to repay all
of its outstanding bank indebtedness. Interest and other related income for 1995
totalled $1.6 million, compared to $0.5 million in
PAGE 15
1994. This increase is due to the Company investing the net proceeds of the
stock offering after paying down the bank indebtedness.
Pretax income for 1995 was $32.6 million, or 8.5% of revenues, up 14.4% from
pretax income of $28.5 million, or 8.3% of revenues, in 1994.
The Company's effective tax rate for 1995 was 40.9% compared to 43.0% in 1994.
This decline is primarily attributable to a reduction in state income taxes and
the recognition of a research and development tax credit.
Net income and earnings per share for 1995 were $19.3 million and $1.18 per
share, respectively, up 18.6% from $16.2 million and $1.15 per share,
respectively, in 1994.
RESULTS OF OPERATIONS, 1994 VS. 1993: The Company's revenues for 1994 were
$344.6 million, a 96.0% increase over the same period last year. Revenues from
ISD amounted to $320.9 million for 1994, up 99.4% from 1993. The increase is
primarily attributable to the acquisition of AGS on January 5, 1994. Revenues in
1994 for HSD were $23.7 million, up 59.1% from 1993. The increase is primarily
attributable to the acquisition of Professional Healthcare Systems in August
1993.
Salaries, wages and other direct costs for 1994 were $225.6 million, or 65.5% of
revenues, compared to $113.0 million, or 64.2% of revenues, in 1993. This
increase in direct costs for 1994, as a percentage of revenues, is primarily due
to the inability to pass on cost increases to existing accounts, pressure by
large clients to provide volume discounts, and the need to charge lower rates to
win new business and gain market share. The Company attempts to reduce the
impact of this trend by seeking out project and strategic support business which
typically results in larger and longer duration business and higher billing
rates.
SG&A expenses for 1994 were $76.4 million, or 22.2% of revenues, compared to
$39.7 million, or 22.6% of revenues, in 1993. Part of the Company's strategy to
increase contribution, despite the increase of direct costs, is to aggressively
grow both internally and through acquisitions so that SG&A expenses are spread
over a broader base of revenues.
Amortization of goodwill and other intangible assets for 1994 was $11.5 million,
or 3.3% of revenues, compared to $6.8 million, or 3.8% of revenues, in 1993.
The increase was primarily due to the acquisition of AGS on January 5, 1994.
Interest and other related expenses for 1994 were $3.1 million, compared to $1.0
million in 1993. This increase is primarily attributable to the debt incurred
to finance the acquisition of AGS. In November 1994, the Company completed a
public offering of 2.3 million shares of Common Stock resulting in net proceeds
to the Company of approximately $42.3 million. The Company used approximately
$23.0 million of the proceeds to repay the outstanding balance of its bank
indebtedness.
Pretax income for 1994 was $28.5 million, or 8.3% of revenue, compared to $15.6
million, or 8.9% of revenues, in 1993.
The Company's effective tax rate for 1994 was 43.0% compared to 41.9% in 1993.
The increase in the Company's effective tax rate is principally due to
nondeductible goodwill associated with the acquisition of AGS.
Net income and earnings per share for 1994 were $16.2 million and $1.15 per
share, respectively, compared to $9.1 million and $.76 per share, respectively,
for 1993.
LIQUIDITY AND CAPITAL RESOURCES: The Company's cash and short-term investments
at December 31, 1995 increased to $33.2 million from $26.3 million at December
31, 1994. In addition, the Company maintains and has available a $20 million
unsecured demand line of credit split equally between two major Boston banks for
PAGE 16
operations and acquisition opportunities. The Company's debt, including
accrued interest, as of December 31, 1995 was $9.1 million, which consisted
primarily of a $7.4 million non-interest bearing note discounted at 7% payable
to NYNEX in three installments in January 1996, January 1997 and January 1998.
Based on its current operating plan, the Company believes that its cash and cash
equivalents on hand, cash flows from operations and current available lines of
credit will be sufficient to meet its working capital requirements during [at
least] the next twelve months.
IMPACT OF INFLATION AND CHANGING PRICES: Inflationary increases in costs have
not been material in recent years and, to the extent permitted by competitive
pressures, are passed on to clients through increased billing rates. Rates
charged by the Company are based on the cost of labor and market conditions
within the industry. The Company has continued to experience client pressures to
deliver high quality services at lower costs. This is resulting, in some cases,
in lower rates for new business and, at times, limits the Company's ability to
increase rates at existing accounts.
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 Annual Report on Form
10-K 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 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.
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
larger 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
PAGE 17
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.
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 18
ITEM 8. FINANCIAL HIGHLIGHTS:
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Accountants......................................... 20
Consolidated Balance Sheets as of December 31, 1994 and 1995.............. 21
Consolidated Statements of Income
for the Years Ended December 31, 1993, 1994 and 1995...................... 22
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1993, 1994 and 1995.............................. 23
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1993, 1994 and 1995.................................... 24
Notes to Consolidated Financial Statements................................25-36
PAGE 19
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF KEANE, INC.:
We have audited the consolidated financial statements and the financial
statement schedule of Keane, Inc. and subsidiaries listed in Items 14a(1) and
(2) of this Form 10-K. These financial statements and the financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and the financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Keane, Inc. as of
December 31, 1994 and 1995, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31, 1995
in conformity with generally accepted accounting principles. In addition, in
our opinion, the financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole, presents fairly,
in all material respects, the information required to be included therein.
Boston, Massachusetts Coopers & Lybrand L.L.P.
March 21, 1996
PAGE 20
KEANE, INC. CONSOLIDATED BALANCE SHEETS
December 31, 1994 1995
- ------------------------------------------------------------------------------------------------
Assets
Current:
Cash and cash equivalents $ 26,287,726 $ 21,913,322
Investments (Note B) -- 11,331,228
Accounts receivable, net (Note C):
Trade 69,045,912 81,022,024
Other 993,898 1,090,688
Prepaid expenses and other current assets (Note L) 3,975,377 4,847,649
-------------- --------------
Total current assets 100,302,913 120,204,911
Property and equipment,net (Note D) 11,600,214 12,425,542
Intangible assets, net (Note E) 65,599,870 58,767,000
Other assets, net (Note L) 1,499,216 3,000,659
-------------- --------------
$ 179,002,213 $ 194,398,112
============== ==============
Liabilities
Current:
Accounts payable $ 3,490,416 $ 4,696,300
Accrued expenses and other liabilities (Note F) 9,250,153 5,360,013
Accrued compensation 6,852,305 7,925,786
Notes payable (Note H) 4,400,011 3,177,922
Capital lease obligations (Note G) 434,523 433,963
-------------- --------------
Total current liabilities 24,427,408 21,593,984
Notes payable (Note H) 6,941,000 5,427,000
Long-term portion of capital lease obligations (Note G) 541,686 107,448
Deferred income taxes (Note L) 2,705,000 49,000
Commitments and contingencies (Note K)
Stockholders' Equity (Notes I and J)
Preferred stock, par value $.01, authorized
2,000,000 shares, none issued -- --
Common stock, par value $.10, authorized
50,000,000 shares, issued and outstanding
15,991,412 in 1994 and 16,210,389 in 1995 1,599,141 1,621,039
Class B common stock, par value $.10, authorized
503,797 shares, issued and outstanding
288,965 in 1994 and 288,258 in 1995 28,896 28,825
Additional paid-in capital 90,019,442 93,542,841
Cumulative translation adjustment (74,114) (42,542)
Retained earnings 55,226,080 74,482,933
Less treasury stock at cost, 303,414 shares
in 1994 and 304,314 shares in 1995 (2,412,326) (2,412,416)
-------------- --------------
Total stockholders' equity 144,387,119 167,220,680
-------------- --------------
$ 179,002,213 $ 194,398,112
============== ==============
- ------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
PAGE 21
KEANE, INC. CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 1993 1994 1995
- --------------------------------------------------------------------------------------------------------------
Total revenues $ 175,808,454 $ 344,582,663 $ 382,739,492
Salaries, wages and other direct costs 112,953,112 225,550,990 256,474,275
Selling, general and administrative expenses 39,661,278 76,361,573 82,470,444
Amortization of goodwill and other intangible assets 6,764,199 11,490,247 12,184,014
-------------- -------------- --------------
Operating income 16,429,865 31,179,853 31,610,759
Investment income 153,741 451,110 1,635,953
Interest expense 828,589 2,757,628 486,027
Other expenses, net 176,766 392,843 175,832
-------------- -------------- --------------
Income before income taxes 15,578,251 28,480,492 32,584,853
Provision for income taxes (Note L) 6,520,000 12,245,000 13,328,000
-------------- -------------- --------------
Net income $ 9,058,251 $ 16,235,492 $ 19,256,853
============== ============== ==============
Net income per share $0.76 $1.15 $1.18
============== ============== ==============
Weighted average common and common share
equivalents outstanding 11,897,817 14,161,500 16,347,753
============== ============== ==============
The accompanying notes are an integral part of the consolidated financial
statements.
PAGE 22
KEANE, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended
December 31, 1993, 1994 and 1995
Class B
Common Stock Common Stock Additional
---------------------- ---------------------- Paid-in
Shares Amount Shares Amount Capital
- -------------------------------------------------------------------------------------------------------
Balance January 1, 1993 10,929,541 $1,092,954 294,548 $29,455 $ 14,765,677
Common Stock issued under:
1982 Stock Option Plan 141,938 14,193 578,763
1982 Nonstatutory Stock
Option Plan 26,625 2,662 62,288
1992 Employee Stock
Purchase Plan 47,617 4,763 501,356
Conversions of Class B Common
Stock into Common Stock 3,945 395 (3,945) (395)
Proceeds from issuance of
Common Stock 2,250,000 225,000 28,947,026
Income tax benefit from stock
option plans 312,000
Net income
------------------------------------------------------------------------
Balance December 31, 1993 13,399,666 1,339,967 290,603 29,060 45,167,110
Common Stock issued under:
1982 Stock Option Plan 217,913 21,791 1,154,335
1992 Employee Stock Purchase
Plan 72,195 7,219 1,305,832
Conversions of Class B Common
Stock into Common Stock 1,638 164 (1,638) (164)
Proceeds from issuance of
Common Stock 2,300,000 230,000 42,049,165
Income tax benefit from stock
option plans 343,000
Foreign currency translation
adjustment
Net income
------------------------------------------------------------------------
Balance December 31, 1994 15,991,412 1,599,141 288,965 28,896 90,019,442
Common Stock issued under:
1982 Stock Option Plan 85,750 8,575 687,115
1992 Stock Option Plan 44,225 4,423 495,360
1992 Employee Stock Purchase
Plan 79,045 7,904 1,664,911
1983 Restricted Stock Purchase
Plan 9,250 925 191,013
Conversions of Class B Common
Stock into Common Stock 707 71 (707) (71)
Income tax benefit from stock
option plans 485,000
Foreign currency translation
adjustment
Treasury Stock purchase
Net income
------------------------------------------------------------------------
Balance December 31, 1995 16,210,389 $1,621,039 288,258 $28,825 $ 93,542,841
Cumulative Treasury Stock at Cost
Translation Retained --------------------------
Adjustment Earnings Shares Amount Total
- -------------------------------------------------------------------------------------------------------
Balance January 1, 1993 $29,932,337 (303,414) $(2,412,326) $ 43,408,097
Common Stock issued under:
1982 Stock Option Plan 592,956
1982 Nonstatutory Stock
Option Plan 64,950
1992 Employee Stock
Purchase Plan 506,119
Conversions of Class B Common
Stock into Common Stock --
Proceeds from issuance of
Common Stock 29,172,026
Income tax benefit from stock
option plans 312,000
Net income 9,058,251 9,058,251
------------------------------------------------------------------------
Balance December 31, 1993 38,990,588 (303,414) (2,412,326) 83,114,399
Common Stock issued under:
1982 Stock Option Plan 1,176,126
1992 Employee Stock Purchase
Plan 1,313,051
Conversions of Class B Common
Stock into Common Stock --
Proceeds from issuance of
Common Stock 42,279,165
Income tax benefit from stock
option plans 343,000
Foreign currency translation
adjustment $ (74,114) (74,114)
Net income 16,235,492 16,235,492
------------------------------------------------------------------------
Balance December 31, 1994 (74,114) 55,226,080 (303,414) (2,412,326) 144,387,119
Common Stock issued under:
1982 Stock Option Plan 695,690
1992 Stock Option Plan 499,783
1992 Employee Stock Purchase
Plan 1,672,815
1983 Restricted Stock Purchase
Plan 191,938
Conversions of Class B Common
Stock into Common Stock --
Income tax benefit from stock
option plans 485,000
Foreign currency translation
adjustment 31,572
Treasury Stock purchase (900) (90) (90)
Net income 19,256,853 19,256,853
------------------------------------------------------------------------
Balance December 31, 1995 $ (42,542) $74,482,933 (304,314) $(2,412,416) $167,220,680
The accompanying notes are an integral part of the consolidated financial
statements.
PAGE 23
KEANE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1993 1994 1995
- -------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities:
Net income $ 9,058,251 $ 16,235,492 $ 19,256,853
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 9,024,500 16,321,231 17,767,553
Deferred income taxes (2,160,000) 1,660,000 (1,023,000)
Provision for doubtful accounts 1,164,000 619,491 850,771
Loss on sale of property and equipment 5,045 74,565 72,657
Accrued interest on long-term debt, net 200,007 656,005 134,740
Tax Benefit from stock options 312,000 343,000 485,000
Changes in assets and liabilities, net of acquisitions:
(Increase) in accounts receivable (7,486,728) (14,073,680) (11,285,320)
(Increase) in prepaid expenses and other assets (540,102) (870,013) (3,255,602)
(Decrease) in accounts payable and accrued
expenses and other liabilities (3,503,708) (9,720,942) (4,011,861)
Increase (decrease) in income taxes payable 1,927,253 (2,779,966) --
------------- ------------- -------------
Net cash provided by operating activities 8,000,518 8,465,183 18,991,791
------------- ------------- -------------
Cash Flows From Investing Activities:
Purchase of investments (4,869,389) -- (13,343,294)
Sale of investments 538,103 4,869,389 2,012,066
Purchase of property and equipment (1,751,120) (3,581,214) (5,675,206)
Proceeds from sale of property and equipment 23,245 156,400 111,056
Payments for acquisitions (38,094,000) (47,122,012) (8,909,564)
------------- ------------- -------------
Net cash used for investing activities (44,153,161) (45,677,437) (25,804,942)
Cash Flows From Financing Activities:
Borrowings under long-term debt 58,000,000 122,000,000 --
Payments under long-term debt (58,000,000) (122,000,000) --
Principal payments under capital lease obligations (82,712) (511,994) (430,377)
Proceeds from issuance of common stock 30,336,051 44,768,342 2,869,123
------------- ------------- -------------
Net cash provided by financing activities 30,253,339 44,256,348 2,438,746
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents (5,899,304) 7,044,094 (4,374,405)
Cash and cash equivalents at beginning of year 25,142,936 19,243,632 26,287,726
------------- ------------- -------------
Cash and cash equivalents at end of year $ 19,243,632 $ 26,287,726 $ 21,913,321
============= ============= =============
Supplemental information:
Interest paid $ 629,000 $ 2,102,000 $ --
Income taxes paid 6,595,000 14,042,000 14,463,000
- -------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
PAGE 24
KEANE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: The consolidated financial statements include the
accounts of Keane, Inc. (the Company) and its wholly owned subsidiaries. All
significant intercompany transactions have been eliminated.
Certain prior year amounts have been reclassified to conform with the current
year presentation.
NATURE OF OPERATIONS: The Company provides software design, development,
integration and management services for corporations and healthcare facilities.
The Company serves its clients through two operating divisions and a network of
40 branch offices and satellite offices located across the United States and in
Canada. The Information Services Division ("ISD"), which accounted for
approximately 93% of the Company's revenues in 1995, provides software design,
development and management services to corporations and government agencies with
large and recurring software development needs. The Healthcare Services
Division ("HSD") develops, markets and supports financial, patient care and
clinical application software for hospitals and long-term care facilities. The
Company primarily provides services to Fortune 1000 companies.
REVENUE RECOGNITION: The Company provides system design, implementation and
support services under contracts. Revenues are recognized at contractually
determined rates based on hours incurred or, in the case of software application
sales, on the basis of customer acceptance over the period of software
implementation. Software application sales, including related implementation
fees, amounted to approximately $1,489,000, $3,203,000 and $2,444,000 in 1993,
1994 and 1995, respectively.
The Company provides services to multiple General Electric (GE) and
International Business Machines (IBM) locations. The Company believes that each
GE and IBM location served by the Company is essentially autonomous. Each
location contracts separately for its services and each contract involves
different projects. Aggregate revenues for GE totaled approximately $47,000,000,
$37,000,000 and $33,000,000 in 1993, 1994 and 1995, respectively. Aggregate
revenues for IBM totaled approximately $21,000,000, $57,000,000 and $51,000,000
in 1993, 1994 and 1995, respectively.
FOREIGN CURRENCY TRANSLATION: All assets and liabilities of the Company's
Canadian subsidiary are translated at exchange rates in effect at the end of the
period. Income and expenses are translated at rates that approximate those in
effect on transaction dates. The translation differences are charged or
credited directly to the translation adjustment account included as part of
stockholders' equity. Foreign exchange gains and losses are included in other
income (expense).
CASH AND CASH EQUIVALENTS: Cash and cash equivalents consist of highly liquid
investments with a maturity of three months or less at the time of purchase.
Cash equivalents at December 31, 1995 include investments in commercial paper
($15.0 million) and money market funds ($3.5 million).
FINANCIAL INSTRUMENTS: The carrying amounts of cash equivalents and investments
approximate their fair values. Based on the borrowing rates currently available
to the Company for bank loans with similar terms and maturities, the fair value
of the Company's debt obligations approximates their carrying value.
INVESTMENTS: Investments are stated at fair value as reported by the investment
custodian. The amortized cost of debt securities is adjusted for the
amortization of premiums and the accretion of discounts to maturity. The
Company determines the appropriate classification of debt and equity securities
at the time of purchase and re-evaluates such designations as of each balance
sheet date. Investments are currently designated as available-for-sale in
accordance with the provisions of Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities," and
as such, unrealized gains and losses are reported in a separate component of
stockholders' equity. At December 31, 1995, the market value of these
investments approximated cost.
PAGE 25
PROPERTY AND EQUIPMENT: Property and equipment are stated at cost. Repair and
maintenance costs are charged to expense. Depreciation is computed on a
straight-line basis over estimated useful lives of 25 to 40 years for buildings
and improvements, and 3 to 5 years for office equipment, computer equipment and
software. Leasehold improvements are amortized over the shorter of the estimated
useful life of the improvement or the term of the lease. Upon disposition, the
cost and related accumulated depreciation are removed from the accounts, and any
gain or loss is included in income.
INTANGIBLE ASSETS: Intangible assets consist principally of goodwill, the excess
of the purchase price over the appraised fair value of assets acquired in
acquisitions, and acquired customer-based intangibles, noncompetition
agreements, and software initially recorded at appraised fair value.
Intangibles are amortized on a straight-line basis over 14 or 15 years for
goodwill and 3 to 15 years for other intangibles. At each balance sheet date,
management assesses whether there has been a permanent impairment in the value
of goodwill and the amount of such impairment by comparing anticipated
undiscounted future operating income from acquired business units with the
carrying value of the related goodwill. The factors considered by management in
performing this assessment include current operating results, trends and
prospects, as well as the effects of demand, competition and other economic
factors.
The Company capitalized approximately $500,000 and $1,300,000 of computer
software development costs during 1994 and 1995, respectively. These costs will
be amortized over the expected life of the product beginning in 1996 when the
product is released.
INCOME TAXES: The Company accounts for income taxes under the liability method
which requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax bases
of assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse.
NET INCOME PER SHARE: Net income per share is based upon the weighted number of
shares of Common Stock, Class B Common Stock, and common share equivalents
outstanding during the year. The number of shares used in the per share
calculation, as adjusted for the 3 for 2 stock splits described in Note I, was
11,897,817 in 1993, 14,161,500 in 1994 and 16,347,753 in 1995.
RECENT PRONOUNCEMENTS: In April 1995, Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" ("SFAS 121") was issued. The Company
intends to adopt SFAS 121 in 1996 and does not expect it to have a material
impact on the Company's financial condition, results of operations or net cash
flows.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
B. INVESTMENTS
The Company determines the appropriate classification of debt and equity
securities at the time of purchase and re-evaluates such designations as of each
balance sheet date. The Company's investments include obligations of the U.S.
Government ($6,295,185) and commercial paper ($5,036,043). Contractual
maturities at December 31, 1995 were $2,605,798 due within one year and
$8,725,430 due after one through three years. Actual maturities may differ from
contractual maturities because the issuers of these securities may have the
right to prepay obligations without penalty. There was no gain or loss, based
on a specific identification basis, realized on the sale of available for sale
securities during the year ended December 31, 1995.
PAGE 26
C. ACCOUNTS RECEIVABLE
Accounts receivable are presented net of an allowance for doubtful accounts of
approximately $2,483,000 and $1,916,000 at December 31, 1994 and 1995,
respectively.
D. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
December 31,
1994 1995
----------- -----------
Buildings and improvements $ 707,063 $ 893,065
Office equipment 17,384,308 21,268,330
Computer equipment and software 2,721,917 4,121,648
Leasehold improvements 1,848,723 2,352,386
----------- -----------
22,662,011 28,635,429
Less accumulated depreciation and amortization 11,061,797 16,209,887
----------- -----------
$11,600,214 $12,425,542
=========== ===========
Depreciation expense totaled $2,228,152, $4,801,424 and $5,583,539 in 1993, 1994
and 1995, respectively. Computer equipment and software includes assets arising
from capital lease obligations at a cost of $1,636,448 and $1,773,276 with
accumulated amortization totaling $693,525 and $1,116,436 at December 31, 1994
and 1995, respectively.
PAGE 27
E. INTANGIBLE ASSETS
Intangible assets consist of the following:
December 31,
1994 1995
-----------------------------
Goodwill $ 19,302,21 $20,213,814
Noncompetition agreements 21,985,000 22,135,000
Customer-based intangibles 37,463,963 37,855,336
Software 5,169,450 8,088,789
Other 294,000 --
----------- -----------
84,214,631 88,292,939
Less accumulated amortization 18,614,761 29,525,939
----------- -----------
$65,599,870 $58,767,000
=========== ===========
F. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following:
December 31,
1994 1995
----------- -----------
Deferred savings and profit sharing plan $ 1,681,245 $ 1,664,738
Health insurance costs 1,895,062 301,510
Accrued payroll taxes 817,335 443,893
Accrued rent obligations 1,350,015 622,951
Other 3,506,496 2,326,921
----------- -----------
$ 9,250,153 $ 5,360,013
=========== ===========
G. CAPITAL LEASE OBLIGATIONS
The Company finances certain equipment through capital leases. At December 31,
1995, future minimum lease payments under noncancelable capital leases, together
with the present value of minimum lease payments, are summarized below:
Year ending December 31, 1996 $464,633
Year ending December 31, 1997 109,494
--------
Total minimum payments 574,127
Less amount representing future interest 32,716
--------
Present value of net minimum payments 541,411
Less current portion 433,963
--------
Long-term portion of capital lease payments $107,448
========
Equipment acquired under capital lease obligations in 1995 totaled approximately
$162,000.
PAGE 28
H. NOTES PAYABLE
In conjunction with the Company's acquisition of General Electric Consulting
(see Note N), a $4 million note with interest of 5% was payable to General
Electric on December 29, 1995. The note was subject to reduction to the extent
that the Company's average annual revenue from business with General Electric
and its affiliates during the three year period ending December 31, 1995 was
less than a specified amount. The Company's revenue from business with General
Electric was less than the specified amount and, accordingly, the principal
amount was reduced to $324,750 which was paid in January 1996. In addition, the
$400,010 of interest accrued in prior years was reduced to approximately
$52,000. The reduction in the principal amount of the note resulted in a
commensurate reduction in goodwill. The reduction in previously accrued
interest of approximately $348,000 was recorded as a reduction in interest
expense in 1995.
In conjunction with the AGS acquisition (see Note N), the Company and NYNEX also
executed a separate noncompetition agreement covering a four-year period in
exchange for a noninterest-bearing $12.0 million subordinated note due in four
equal annual installments of $3.0 million beginning in January 1995.
Subsequently, the Company made certain disbursements, totaling approximately
$2.9 million, on behalf of NYNEX. In 1994, NYNEX reimbursed these amounts and
made certain other adjustments to the purchase price by offsetting $4.0 million
against the first two installments due under the subordinated note. The Company
has recorded the note at its present value discounted at 7% which equaled
$6,941,000 at December 31, 1994 and $7,427,000 (of which $5,427,000 was
classified as long term) at December 31, 1995.
In conjunction with the Company's acquisition of Source Data Systems, Inc. on
November 1, 1995, an $800,000 note, bearing interest at 5%, is payable one year
from the purchase date.
I. CAPITAL STOCK
In August 1993, the Company distributed a stock split effected in the form of a
stock dividend of one share of Common Stock for every two shares of Common Stock
and one share of Common Stock for every two shares of Class B Common Stock then
outstanding. All share and per share data has been adjusted to reflect this
stock split. In October 1993, the Company had a secondary public offering
resulting in the issuance of 2,250,000 shares of Common Stock at $13.83 per
share, the proceeds of which totaled $29,172,026, net of related commissions and
other expenses.
In May 1994, the stockholders approved an amendment to the Company's Articles of
Organization increasing the number of shares of Common Stock authorized for
issuance to 50,000,000 shares. In September 1994, the Company distributed a
stock split effected in the form of a stock dividend of one share of Common
Stock for every two shares of Common Stock and one share of Common Stock for
every two shares of Class B Common Stock then outstanding. All share and per
share data has been adjusted to reflect this stock split. In November 1994, the
Company completed a secondary public offering resulting in the issuance of
2,300,000 shares of Common Stock at $19.50 per share, the proceeds of which
totaled $42,279,165, net of related commissions and other expenses.
The Company has three classes of share capital: Preferred Stock, Common Stock
and Class B Common Stock. Holders of Common Stock are entitled to one vote for
each share held. Holders of Class B Common Stock generally vote as a single
class with holders of Common Stock but are entitled to 10 votes for each share
held. The Board of Directors is authorized to determine the rights, preferences,
privileges and restrictions, including the dividend rights, conversion rights,
voting rights, terms of redemption price or prices and liquidation preferences,
of any series of Preferred Stock, and to fix the number of shares of any such
series. The Common Stock and Class B Common Stock have equal liquidation and
dividend rights except that any regular quarterly dividend declared shall be
$.05 per share less for holders of Class B Common Stock. Class B Common Stock
is nontransferable, except under certain conditions, but may be converted into
Common Stock on a share-for-share basis at any time. Conversions to common
stock totaled 3,945, 1,638 and 707 shares in 1993, 1994 and 1995, respectively.
Shares of common stock reserved for conversions totaled 288,258 at December 31,
1995.
PAGE 29
J. STOCK OPTION, STOCK PURCHASE, COMPENSATION AND RETIREMENT PLANS
STOCK OPTION PLANS: The 1982 Incentive Stock Option Plan provides for grants of
stock options of up to 900,000 shares of the Company's Common Stock to be made
to officers and key employees. Generally, options expire five years from the
date of grant, require a purchase price of not less than 100% of the fair market
value of the stock as of the date of grant, and are exercisable at such time or
times as the Board of Directors in each case determines. Transactions under the
plan for the three years ended December 31, 1995 are as follows:
Common Option
Stock Price Range
------------------------------
Outstanding at December 31, 1992 555,248
Exercised (141,937) $1.26 -- $8.11
Canceled/Expired (27,397)
---------
Outstanding at December 31, 1993 385,914 2.96 -- 8.11
Exercised (217,914) 2.96 -- 8.11
---------
Outstanding at December 31, 1994 168,000 8.11
Exercised (85,750) 8.11
---------
Outstanding at December 31, 1995 82,250 $8.11
=========
Exercisable stock options at December 31, 1994 and 1995 totaled 69,750 and
82,250, respectively. Shares of common stock reserved for future options totaled
244,469 at December 31, 1995.
The 1992 Stock Option Plan provides for grants of stock options of up to 900,000
shares of the Company's Common Stock to employees, officers and directors of,
and consultants and advisors to, the Company. The Company may grant options that
are intended to qualify as incentive stock options under Section 442 of the
Internal Revenue Code ("incentive stock options") or nonstatutory options not
intended to qualify as incentive stock options. At December 31, 1995, there were
37,775 shares currently exercisable and 420,250 shares remained available for
future grant.
Transactions under the plan since the inception are as follows:
Common Option
Stock Price Range
---------------------------------
Outstanding at December 31, 1992 --
Granted 332,625 $11.11 -- $15.33
Canceled/Expired (18,000)
---------
Outstanding at December 31, 1993 314,625
Granted 106,000 18.42 -- 24.67
Canceled/Expired (47,625)
---------
Outstanding at December 31, 1994 373,000 11.11 -- 24.67
Granted 186,500 20.75 -- 29.00
Exercised (44,225)
Canceled/Expired (79,750)
---------
Outstanding at December 31, 1995 435,525 $11.11 -- $29.00
=========
STOCK PURCHASE PLANS: The 1983 Restricted Stock Purchase Plan provides for
grants of 506,250 shares of Common Stock to be made to key employees at the
discretion of the compensation committee of the Board of
Page 30
Directors. No grants were issued during 1993 and 1994 with 9,250 shares issued
during 1995. At December 31, 1995, 344,440 shares remained available for future
grants. Restrictions on the sale or transfer of shares lapse three years after
the date of grant. As grants are issued, deferred compensation equivalent to the
market value at the date of grant, less $.10 per share of the purchase price, is
amortized to compensation expense over the three-year vesting period. The amount
of amortization for 1995 was $53,000.
The 1992 Employee Stock Purchase Plan provides for the purchase of 337,500
shares of Common Stock by qualifying employees at a purchase price of 85% of the
market value of the stock on the purchase date. During 1993, 1994 and 1995,
participants in this plan purchased 47,618, 72,195 and 79,045 shares,
respectively. Shares available for future purchases totaled 125,335 at December
31, 1995.
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123) was issued. The Company
intends to adopt the disclosure provisions of SFAS 123 in 1996 using the
intrinsic value based method of accounting, and has yet to determine the impact
of the required pro forma disclosures.
COMPENSATION PLANS: During 1983, the Company established a deferred compensation
plan to provide retirement income for key employees. No amounts have been
allocated to this plan since 1984. During 1988, the Company established
incentive compensation plans for certain officers and selected employees.
Payments under the plans are based on actual performance compared to stated plan
objectives. Compensation expense under the plans in 1993, 1994 and 1995
approximated $1,824,000, $4,887,000 and $5,075,000, respectively.
DEFERRED SAVINGS AND PROFIT SHARING PLAN: During 1984, the Company established a
deferred Savings and profit sharing plan under Section 401(k) of the Internal
Revenue Code. The plan enables eligible employees to reduce their taxable income
by contributing up to 15% of their salary to the plan. The Company makes
discretionary contributions to the plan based on a percentage of contributions
made by the eligible employees and profits of the Company. The Company's
contributions vest after the employee has completed 42 months of service and for
1993, 1994 and 1995 amounted to approximately $1,004,000, $1,682,000 and
$1,664,000, respectively.
K. COMMITMENTS AND CONTINGENCIES
The Company's corporate offices are located in Boston, Massachusetts. The
building is leased from a partnership in which certain officers, directors and
shareholders of the Company are limited partners. The lease is for a term of
twenty years at annual rentals of $682,000 through February 1996 and at
prevailing market rates in subsequent years through 2006. The Company is also
required to pay specified percentages of annual increases in real estate taxes
and operating expenses.
The Company leases additional office space and apartments under operating
leases, some of which may be renewed for periods up to five years, subject to
increased rentals. Rental expense for all of the Company's facilities amounted
to approximately $3,763,000 in 1993, $8,100,000 in 1994 and $8,880,000 in 1995.
The Company is committed to minimum annual rental payments under all leases of
approximately $9,389,000 in 1996, $6,640,000 in 1997, $4,899,000 in 1998,
$3,147,000 in 1999, $1,726,000 in 2000 and an aggregate of $3,989,000 from 2001
to 2006.
On December 31, 1992, Four Star Capital Corporation ("Four Star") commenced a
civil action against AGS Computers, Inc. ("AGS"), NYNEX Corporation ("NYNEX")
and Derek Proctor, a former employee of AGS, in Superior Court of California,
County of Marin, alleging, among other matters, breach of contract with respect
to the solicitation of business for NYNEX and AGS in China. The case was
subsequently removed to the United States District Court for the Northern
District of California and transferred to the United States District Court for
the Southern District of New York. Four Star originally sought damages in the
amount of $5,600,000. However, on May 3, 1994, Four Star amended its complaint
to provide for a claim seeking relief in the amount of $25,000,000. Keane
acquired all of the outstanding capital stock of AGS in January 1994.
PAGE 31
On August 29, 1994, Marketing and Management Information, Inc. ("MAMI")
commenced a civil action against the Company, General Electric Consulting
Services Corporation ("GECON") and General Electric Company (General Electric
Information Services) ("GEIS") in the Circuit Court for Montgomery County,
Maryland, Case Number 123797. The Complaint alleges claims for breach of
contract, fraud and negligent misrepresentation in connection with a consulting
contract for computer development work between MAMI and GECON. The Company
assumed this contract as part of its acquisition of certain assets of GECON in
January 1993. The contract price for the consulting work alleged in the
Complaint totaled approximately $425,000. Despite the limitation on recoverable
damages contained in the contract, MAMI has alleged damages in excess of
$50,000,000 and has claimed punitive damages in an amount more than double the
compensatory claim.
The Company has denied the allegations of the Complaint and asserted a number of
affirmative defenses, including the defense that the claims of damages asserted
in the Complaint are barred by the terms of the underlying contract. The Company
was granted summary judgment on certain of MAMI'S claims. The remaining claims
as they apply to the Company concern only allegations pertaining to the failure
to refund $25,000 under contract and misrepresentation pertaining to stated
delivery dates. Trial on this matter commenced before a judge sitting without a
jury in late February 1996. The Company expects the court to render its decision
within 60 to 90 days of the end of the trial.
The Company is also involved in other litigation and various legal matters which
have arisen in the ordinary course of business. The Company does not believe
that the ultimate resolution of any existing matter will have a material adverse
effect on its financial condition, results of operations, or cash flows.
The Company believes these litigation matters are without merit and intends to
defend these matters vigorously. However, an unfavorable outcome in any of these
matters, which are expected to be resolved within one year, could result in a
material loss.
During 1995, the Company and IBM agreed in principle to a transfer of certain
customer relationships and certain proprietary products to IBM. Subsequently,
the Company has provided resources, primarily personnel, to IBM which assumed
the management of certain customer projects pending execution of formal
documents among all the parties. Subsequent to year end, the Company has
determined that it will be unable to obtain the necessary agreements to effect
the transfer and customer assignments. The accompanying financial statements
reflect receivables for project revenues and certain other costs aggregating
approximately $2,000,000 which management anticipates will be recovered from its
customers and/or IBM. It is reasonably possible that the Company will have to
litigate in order to recover this amount. In addition, it is reasonably possible
that a customer may assert claims against the Company in connection with
performance on one of the projects.
L. INCOME TAXES
The provision for income taxes includes federal, state and foreign income taxes
currently payable and those deferred because of temporary differences between
the financial statement and tax bases of assets and liabilities. The foreign tax
benefit recognized in 1994 represents the carryback of 1994 foreign losses to
recover foreign income taxes paid in previous years.
PAGE 32
The provision for income taxes consists of the following:
Years Ended December 31,
1993 1994 1995
-----------------------------------------------
Current:
Federal $ 6,545,000 $ 8,315,000 $11,097,000
State 2,135,000 2,617,000 3,185,000
Foreign (347,000) 69,000
----------- ----------- -----------
Total 8,680,000 10,585,000 14,351,000
----------- ----------- -----------
Deferred:
Federal (1,634,000) 1,260,000 (847,000)
State (526,000) 400,000 (176,000)
----------- ----------- -----------
Total (2,160,000) 1,660,000 (1,023,000)
----------- ----------- -----------
$ 6,520,000 $12,245,000 $13,328,000
=========== =========== ===========
PAGE 33
A reconciliation of the statutory income tax provision with the effective income
tax provision is as follows:
Years Ended December 31,
1993 1994 1995
---------------------------------------------
Federal income taxes at 35% $5,452,000 $ 9,968,000 $11,405,000
State income taxes, 1,046,000 1,961,000 2,127,000
net of federal tax benefit
Tax credits -- -- (241,000)
Other, net 22,000 316,000 37,000
---------- ----------- -----------
$6,520,000 $12,245,000 $13,328,000
========== =========== ===========
The components of the net deferred tax assets and liabilities are as follows:
1/1/94 12/31/94 12/31/95
---------------------------------------------
Current:
Allowance for doubtful accounts $ 609,000 $ 1,030,000 $ 754,000
Employee medical benefits 465,000 785,000 (352,000)
Accrued expenses -- 437,000 217,000
---------- ----------- -----------
Total current assets $1,074,000 $ 2,252,000 $ 619,000
========== =========== ===========
Long-term:
Customer based intangibles $ -- $(7,152,000) $(6,654,000)
Amortization of intangible
assets 1,416,000 3,759,000 6,495,000
Accrued rents -- 750,000 177,000
Depreciation and other (275,000) (62,000) (67,000)
---------- ----------- -----------
Long-term assets
(liabilities) $1,141,000 $(2,705,000) $ (49,000)
========== =========== ===========
The current component is included in prepaid expenses and other current assets
on the balance sheet.
M. RESEARCH AND DEVELOPMENT
Research and development expenses were approximately $1,566,000, $2,842,000 and
$3,997,000 in 1993, 1994 and 1995, respectively.
N. BUSINESS ACQUISITIONS
Effective January 1, 1993, the Company acquired the business and selected assets
and liabilities of General Electric Consulting Services Corporation ("GE
Consulting"), a wholly owned subsidiary of General Electric Company ("General
Electric"), primarily engaged in the business of providing software services.
The Company and General Electric also, as provided in the agreement, executed a
separately funded noncompetition agreement. The total cash and notes (Note H)
paid in connection with the acquisition and the noncompetition agreement was
PAGE 34
$37,700,000, after adjustments, as provided in the agreement. During 1993, the
Company also acquired the software and selected assets of Professional
Healthcare Systems, Inc. (PHS) for cash of $4,400,000 and assumed liabilities
totaling $2,404,000.
These acquisitions were accounted for by the purchase method of accounting.
Accordingly, the assets acquired, including primarily customer-based
intangibles, noncompetition agreements, software, and property and equipment,
have been recorded at their estimated fair values at the date of acquisition.
The excess of the purchase price over the estimated fair value of the assets
acquired has been recorded as goodwill.
On January 5, 1994, the Company purchased the stock of AGS from NYNEX Worldwide
Services Group, Inc. ("NYNEX"), a wholly owned subsidiary of NYNEX Corporation.
AGS provides information technology consulting services, including systems
integration and staff supplementation, to businesses and government agencies in
the United States and Canada. The initial amount paid in connection with the
stock purchase was approximately $46.1 million which was financed by internal
cash and investments of $25.1 million and new bank borrowings of $21.0 million.
The Company and NYNEX also executed a separate noncompetition agreement covering
a four-year period in exchange for the Company's $12.0 million noninterest-
bearing subordinated note. (Note H)
The acquisition of AGS has been accounted for by the purchase method of
accounting. Accordingly, the assets acquired, including primarily customer-based
intangibles, the noncompetition agreement and accounts receivable, have been
recorded at their fair values at the date of acquisition. The customer-based
intangibles and noncompetition agreement are being amortized on a straight-line
basis over fifteen years and four years, respectively. The excess of the
purchase price over the fair value of the net assets acquired has been recorded
as goodwill and is being amortized on a straight-line basis over a 15-year
period.
The unaudited proforma results of operations of the Company and AGS, as if the
acquisition had occurred on January 1, 1993, based on the final allocation of
purchase price is as follows: 1993 total revenues, $342,699,000, net income,
$12,840,000, and net income per share, $1.08. The unaudited proforma results
have been prepared for comparative purposes only and do not purport to be
indicative of what would have occurred had the acquisition been made as of
January 1, 1993.
Effective April 1, 1994, the Company acquired specific assets and assumed
certain liabilities of The Geary Corporation at an estimated purchase price of
$3.2 million. The Geary Corporation was based in Pittsfield, Massachusetts and
had been engaged in the business of providing software consulting services to
customers located primarily in western Massachusetts and the upper New York
state market. The acquisition was financed through the Company's line of credit.
During 1995, the Company paid the final balance due under the purchase agreement
of approximately $1.0 million.
During 1995, the Company completed three acquisitions. The aggregate purchase
price of these acquisitions totaled $7.9 million. These acquisitions were
accounted for by the purchase method of accounting. Accordingly, the assets
acquired, including primarily customer-based intangibles, noncompetition
agreements and software, have been recorded at their fair values at the date of
acquisitions. The customer-based intangibles, noncompetition agreements and
software are being amortized on a straight-line basis over periods ranging from
three to five years. The excess of purchase price over the fair value of the net
assets acquired has been recorded as goodwill and is being amortized on a
straight-line basis over a 15-year period.
O. BANK DEBT
In January 1994, the Company entered into a new $45,000,000 revolving credit
agreement replacing its existing line of credit. The outstanding balance was
repaid with the proceeds of the 1994 offering described in Note I. Borrowings
under the line were at the bank's corporate rate. In July 1995, the Company
canceled the revolving credit agreement and replaced it with a new $20,000,000
demand line credit from two banks. Borrowings will bear interest at the bank's
base rate (the prime rate). There were no borrowings under either line during
1995.
PAGE 35
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
- --------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The response to this Item is contained in part under the caption "Executive"Directors and
Executive Officers of the Company" in Part I hereof, and the remainder is
incorporated herein by reference to the Company's Proxy Statement for the Annual
Meeting of Stockholders to be held May 29, 199631, 2000 (the "1996"2000 Proxy Statement")
under the caption "Election of Directors." ITEM 11. EXECUTIVE COMPENSATION
The responseExcept as described below, the
Company is not aware of any executive officer, director or principal stockholder
who failed to this Item is incorporated herein by reference to the Company's
1996 Proxy Statementcomply with filing requirements under the caption "Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The response to this Item is incorporated herein by reference to the Company's
1996 Proxy Statement under the caption "Stock Ownership of Certain Beneficial
Owners and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The response to this Item is incorporated herein by reference to the Company's
1996 Proxy Statement under the caption "Certain Related Party Transactions."
PAGE 36
PART IV
- -------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
--------------------
The following consolidated financial statements are included in Part II, Item 8:
Page
Report of Independent Accountants................................... 20
Consolidated Balance Sheets as of December 31, 1994 and 1995........ 21
Consolidated Statements of Income
For the Years Ended December 31, 1993, 1994 and 1995................ 22
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 1993, 1994 and 1995................ 23
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1993, 1994 and 1995................ 24
Notes to Consolidated Financial Statements.......................... 25-36
(2) Financial Statement Schedules
-----------------------------
The following consolidated financial statement schedule of Keane, Inc.
and subsidiaries is filed as part of this Annual Report on Form 10-K:
Schedule II - Valuation and Qualifying Accounts............ 46
All other schedules are omitted as they are either not required, not
applicable, or are otherwise included in this Form 10-K.
(b) Exhibits
--------
The Exhibits listed below are filed as part of this Annual Report.
3.1 -- Articles of OrganizationSection 16 of the Registrant,Securities
Exchange Act of 1934, as amended, are
incorporated herein by reference to Exhibit 4.1 to the Registrant's
Registration Statement on Form S-3 (File No. 33-85206).
3.2 -- By-Laws of the Registrant, as amended, are incorporated
herein by reference to Exhibit 3.2 to the Registrant's Quarterly Report
on Form 10-Q for the fiscal quarter ended June 30, 1994.
*10.1 -- Key Employees Deferred Compensation Plan is incorporated
herein by reference to Exhibit 10.1 to the Company's Registration
Statement on Form S-1 (File No. 33-33557), as filed with the Securities
and Exchange Commission (the "Commission") on February 21, 1990 and
declared effective by the Commission on March 8, 1990 (as amended, the
"Registration Statement").
PAGE 37
*10.2 -- Keane, Inc. 401(k) Deferred Savings and Profit Sharing Plan
is incorporated herein by reference to Exhibit 10.2 to the Registration
Statement.
*10.3 -- 1982 Incentive Stock Option Plan (the "Option Plan") is
incorporated herein by reference to Exhibit 10(c) to the Registrant's
Annual Report on Form 10-K forduring the year ended December 31, 1988 (the
"19881999. On a
Form 10-K"). On January 9, 1990, the Board of Directors4 filed June 6, 2000, John F. Keane, Jr., as officer of the Registrant adopted an Amendment to Section 4Company,
reported a gift of the Option Plan
increasing the number5,942 shares of Common Stock which occurred in April 1999 and
a correction of 12,500 shares eligible for issuance thereunder to
900,000.
*10.4 -- Amendments to the Option Plan effective as of February 15,
1990 and March 7, 1990 are incorporated herein by reference to
Exhibit 10.4 to the Registrant's Annual ReportCommon Stock which was filed previously on Form
10-K for the
year ended December 31, 1990 (the "1990 Form 10-K").
*10.5 -- 1978 Employee Stock Purchase Plan (the "Stock Purchase
Plan") is incorporated herein by reference to Exhibit 10(b) to the 1988
Form 10-K.
*10.6 -- Amendments to the Stock Purchase Plan effective as of
February 15, 1990 are incorporated herein by reference to Exhibit 10.6
to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1992 (the "1992 Form 10-K").
*10.7 -- 1983 Restricted Stock Plan (the "Restricted Stock Plan") is
incorporated herein by reference to Exhibit 10.5 to the Registration
Statement.
*10.8 -- Amendment to the Restricted Stock Plan effective as of
February 15, 1990 is incorporated herein by reference to Exhibit 10-4
of the 1990 Form 10-K.
10.9 -- 1992 Stock Option Plan is incorporated herein by reference
to Exhibit 10.9 to the 1992 Form 10-K.
10.10 -- 1992 Employee Stock Purchase Plan is incorporated herein by
reference to Exhibit 10.10 to the 1992 Form 10-K.
10.11 -- Lease dated February 20, 1985, between the Registrant and
Jonathan G. Davis, as Trustee of City Square Development Trust (the
"Trust"), is incorporated herein by reference to Exhibit 10.6 to the
Registration Statement.
* Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this form pursuant to Item 14(A) and (C) of this report.
PAGE 384.
10.12 -- First Amendment of Lease dated March 19, 1985, between the
Registrant and the Trust, is incorporated herein by reference to
Exhibit 10.7 to the Registration Statement.
10.13 -- Second Amendment of Lease dated November 1985, between the
Registrant and the Trust, is incorporated herein by reference to
Exhibit 10.8 to the Registration Statement.
10.14 -- Documents relating to the Lease for the property at 420
Bedford Street, Lexington, Massachusetts, are incorporated herein by
reference to Exhibit 10.9 to the Registration Statement.
(a) Lease dated December 15, 1982, between the Registrant
and Elandzee Trust.
(b) First Amendment of Lease dated May 6, 1983, between the
Registrant and Elandzee Trust.
(c) Second Amendment of Lease dated March 20, 1974, between
the Registrant and Elandzee Trust.
(d) Letter dated August 14, 1985 amending Lease, between
Registrant and Elandzee Trust.
(e) Letter dated September 2, 1987 amending Lease, between
the Registrant and Elandzee Trust.
(f) Third Amendment of Lease dated January 27, 1988,
between the Registrant and Elandzee Trust.
(g) Fourth Amendment of Lease dated April 18, 1989, between
the Registrant and Elandzee Trust.
10.15 -- Documents relating to the acquisition of General Electric
Consulting Services Corporation ("GECON") are incorporated herein by
reference to Exhibit 10.26 to the 1992 Form 10-K:
(a) Asset Purchase Agreement dated as of December 18, 1992,
among the Registrant, GECON and General Electric Company
("General Electric").
(b) Bill of Sale dated January 4, 1993, delivered by GECON
to the Registrant.
(c) Instrument of Assumption of Liabilities dated January
4, 1993, executed by the Registrant in favor of GECON.
(d) Agreement Not to Compete dated January 4, 1993, between
the Registrant and General Electric.
(e) Purchase Money Promissory Note of the Registrant dated
January 4, 1993, in the original principal amount of $5,000,000
in favor of GECON.
(f) Purchase Money Promissory Note of the Registrant dated
January 4, 1993, in the original principal amount of $4,000,000
(subject to adjustment) in favor of GECON.
PAGE 39
(g) Subordination Agreement dated as of January 4, 1993, among
the Registrant, the Banks and GECON.
10.16 -- Documents relating to the acquisition of certain assets of
Professional Healthcare Systems, Inc. ("PHS") are incorporated herein
by reference to Exhibit 10.28 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1993:
(a) Foreclosure Sale Agreement dated as of August 20, 1993,
between the Registrant and Chemical Bank ("Chemical").
(b) Agreement to Assume Liabilities dated as of August 20,
1993, between the Registrant and PHS.
(c) Foreclosure Bill of Sale dated August 27, 1993, delivered
by Chemical to the Registrant.
(d) Instrument of Assumption of Liabilities dated August 27,
1993, between the Registrant and PHS.
10.17 -- Documents relating to the acquisition of AGS Computers,
Inc. ("AGS") and Lamarian Systems, Inc. ("Lamarian"):
(a) Stock Purchase Agreement dated as of December 16, 1993 (the
"Agreement"), with Exhibits, among the Registrant, NYNEX
Worldwide Services Group, Inc. ("NWSG"), NYNEX Network Systems
Company, AGS and Lamarian is incorporated herein by reference
to Exhibit 2(A) to the Registrant's Current Report on Form 8-K
dated January 19, 1994.
(b) Noncompetition Agreement dated as of January 5, 1994,
between the Registrant and NWSG is incorporated herein by
reference to Exhibit 27(A) to the Registrant's Current Report
on Form 8-K dated January 19, 1994.
(c) Tax Matters Agreement, dated December 16, 1993, between
NWSG, AGS and the Registrant is incorporated herein by
reference to Exhibit 27(B) to the Registrant's Current Report
on Form 8-K dated January 19, 1994.
(d) Promissory Note of the Registrant dated January 5, 1994, in
the original principal amount of up to $12,000,000 in favor of
NWSG is incorporated herein by reference to Exhibit 27(C) to
the Registrant's Current Report on Form 8-K dated January 19,
1994.
(e) Settlement Agreement with NYNEX for the purchase of AGS is
incorporated herein by reference to Exhibit 10.19 to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1994.
10.18 -- Documents relating to the Demand Lines of Credit with
Shawmut Bank, N.A. and the First National Bank of Boston (the "Banks")
are incorporated herein by reference to Exhibit 10.19 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June
30, 1995:
(a) Demand Money Market Promissory Note dated as of May 1,
1995, in the amount of $10,000,000, between the Registrant and
Shawmut Bank.
(b) Loan Agreement dated July 20, 1995, in the amount of
$10,000,000, between the Registrant and Bank of Boston.
PAGE 40
11. Statement of Computation of Earnings Per Share............ 42
21. Schedule of Subsidiaries of the Registrant................ 43
23. Consent of Coopers & Lybrand L.L.P........................ 44
(c) Report on Form 8-K
No reports on Form 8-K have been filed during the last quarter of the
period covered by this Annual Report on Form 10-K.
PAGE 41
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this reportAmendment No. 1 to the
registrant's Annual Report on Form 10-K to be signed on its behalf by the
undersigned, thereunto duly authorized.
KEANE, INC.
(Registrant)
/s/ John F. Keane
-----------------------------------------------------
By: John F. Keane
Chairman, President, (Principaland
Chief Executive Officer)Officer
Date: March 27, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/s/ John F. Keane 3/27/96 /s/ Wallace A. Cataldo 3/27/96
- ----------------------------- ------- ----------------------------- -------
John F. Keane Date Wallace A. Cataldo Date
President, Vice President, Finance and
Principal Executive Officer Principal Accounting Officer
and Director
/s/ John F. Rockart 3/27/96 /s/ Robert A. Shafto 3/27/96
- ----------------------------- ------- ----------------------------- -------
John F. Rockart Date Robert A. Shafto Date
Director Director
/s/ Winston R. Hindle, Jr. 3/27/96
----------------------------- -------
Winston R. Hindle, Jr. Date
Director
PAGE 45
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
KEANE, INC.
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
Additions
Balance at charged to
beginning of costs and Additions charged Deductions- Balance at
Description period expenses to other accounts write-offs end of period
- --------------------------------------------------------------------------------------------
Allowance For Doubtful Accounts
1995 $2,483,000 -- $1,051,000(1) $1,618,000 $1,916,000
1994 1,468,000 -- 2,258,000(2) 1,243,000 2,483,000
1993 163,000 -- 1,499,000(3) 194,000 1,468,000
(1) Includes $851,000 of additions charged against revenue and $200,000 of
additions to the allowance related to 1995 acquisitions.
(2) Includes $620,000 of additions charged against revenue and $1,638,000 of
additions to the allowance related to 1994 acquisitions.
(3) Includes $1,164,000 of additions charged against revenue and $335,000 of
additions to the allowance related to 1993 acquisitions.
PAGE 46June 7, 2000