TKCI Turnkey Capital Inc (PK)

* Net Revenue for the Quarter Increased 15.7% to a Record $28.3 Million IRVINE, Calif., Aug. 4 /PRNewswire-FirstCall/ -- The Keith Companies, Inc. (NASDAQ:TKCI), an engineering and consulting services firm, today announced financial results for the second quarter and six months ended June 30, 2005, which included record quarterly net revenue and gross profit. Second Quarter and Year To Date 2005 Results Net revenue for the three months ended June 30, 2005 increased 15.7% to $28.3 million, while income from continuing operations for the same period decreased by 25.7% to $1.6 million resulting in diluted earnings per share from continuing operations of $0.19. This compares to net revenue for the second quarter of 2004 of $24.5 million, income from continuing operations of $2.1 million and diluted earnings per share from continuing operations of $0.27. The decrease in both income from continuing operations and earnings per share from continuing operations resulted primarily from merger-related costs, which are discussed below. Net revenue for the six months ended June 30, 2005 increased 15.5% to $54.2 million, while income from continuing operations for the same period decreased by 2.8% to $3.5 million resulting in diluted earnings per share from continuing operations of $0.43. This compares to net revenue for the same period in 2004 of $46.9 million, income from continuing operations of $3.6 million and diluted earnings per share from continuing operations of $0.45. The decrease in both income from continuing operations and earnings per share from continuing operations resulted primarily from merger-related costs, which are discussed below. "All three of our business segments once again achieved year-over-year net revenue growth helping to drive record net revenue for the Company in the second quarter," said Aram Keith, Chairman and CEO of The Keith Companies. "Our business continued to be positively impacted by the same factors that propelled record net revenue last quarter. Residential real estate remains strong with no signs of disruption in demand. In terms of our public works/infrastructure segment, most of the year-over-year growth was due to our continued ability to temporarily deploy the talent of some of our under-utilized engineers to provide services in support of our real estate development segment. Our ability to cross-utilize our employees in this way is an advantage for us given the tight market for talented engineers. Our energy/industrial segment delivered net revenue growth of over 32% this quarter as compared to the prior year. We see particular strength in areas unrelated to conventional energy projects including wind power projects and general industrial projects. In addition to the net revenue growth in the quarter, I'm particularly pleased that we were able to deliver over a 17% increase to our gross profit during the quarter." As noted above, the financial results for the three and six months ended June 30, 2005 were negatively impacted by merger-related costs incurred in connection with the proposed merger with Stantec Inc., as previously announced on April 14, 2005. The Company incurred approximately $1.2 million of merger-related costs in the second quarter of 2005, which are not deductible for income tax purposes. Excluding such merger-related costs, adjusted income from continuing operations would have been $2.6 million and $4.6 million for the three and six months ended June 30, 2005, respectively, which represents 23.7% and 26.2% increases for the quarter and six months, respectively, when compared to the respective prior year periods. Excluding such merger-related costs would have resulted in adjusted diluted earnings per share from continuing operations of $0.32 and $0.56 for the three and six months ended June 30, 2005, respectively. Adjusted diluted earnings per share from continuing operations increased over 18% and 24% for the quarter and six months ending June 30, 2005, respectively, over the corresponding prior year periods. Non-Generally Accepted Accounting Principal ("GAAP") Financial Measures The Keith Companies believes investors' understanding of the Company's total performance is enhanced by disclosing adjusted income from continuing operations and adjusted diluted earnings per share from continuing operations for certain non-recurring items, such as its merger-related costs that were incurred during the second quarter of 2005. The Company defines adjusted income from continuing operations as the reported items, adjusted to exclude merger-related costs and the related income tax effects. Adjusted diluted earnings per common share from continuing operations represents adjusted income from continuing operations divided by diluted common shares outstanding. In reviewing the Company's financial performance for the second quarter and six months ended June 30, 2005, management focused on adjusted income from continuing operations and adjusted diluted earnings per share from continuing operations, among other items, as they exclude the effect of non-recurring merger-related costs that management believes are not representative of the Company's core operations for the periods presented. As a result, these non-GAAP financial measures should help to provide meaningful comparisons of The Keith Companies' overall performance from one reporting period to another. There is a material limitation associated with the use of these non-GAAP financial measures. Adjusted income from continuing operations excludes the impact of significant items (in this case, merger-related costs) on current performance and adjusted diluted earnings per share from continuing operations does not depict the actual amount earned per diluted share. To compensate for the limitations in the non-GAAP financial measures discussed above, the Company has reconciled the GAAP financial measures to the non-GAAP financial measures in the table below. Reconciliation of Income from Continuing Operations & Diluted Earnings per Share from Continuing Operations to Adjusted Income from Continuing Operations & Adjusted Diluted Earnings Per Share from Continuing Operations Three Months Six Months Ended Ended June 30, 2005 June 30, 2005 Income from Continuing Operations, GAAP $1,586,000 $3,531,000 Merger-related costs, net of income tax effect 1,055,000 1,055,000 Adjusted Income from Continuing Operations $2,641,000 $4,586,000 Diluted earnings per share from Continuing Operations, GAAP $0.19 $0.43 Diluted earnings per share for merger costs, net of income tax effect $0.13 $0.13 Adjusted diluted earnings per share from Continuing Operations $0.32 $0.56 Weighted average number of diluted shares outstanding 8,195,164 8,157,316 Financial Position The Company's balance sheet at June 30, 2005 remained strong with cash and cash equivalents of $43.9 million, no debt, a current ratio of 4.8:1, and shareholders' equity of $86.0 million, or $10.75 per common share outstanding at June 30, 2005. Financial Guidance Consistent with its practice when it reported financial results for the first quarter 2005, the Company has discontinued providing financial guidance on future operating results due to the pending merger with Stantec Inc. Investors are cautioned not to place any reliance on the financial guidance that the Company last provided on February 10, 2005. Merger with Stantec Inc. On April 14, 2005, we announced that we entered into an agreement with Stantec Inc. (TSX: STN) by which the two firms would combine, subject to approval of the transaction by our shareholders and certain other conditions. "We remain very excited about this transaction," said Aram Keith. "As I have stated before, joining Stantec will substantially accelerate our growth plans and make The Keith Companies a part of a North American firm with widely diversified service offerings. Our employees will have access to more service specialists, experts, and greater technological resources while our clients will gain access to a wider range of services," concluded Keith. Conference Call Webcast The Company will be hosting an earnings conference call, which will be broadcast live, at 11:30 a.m. Eastern (8:30 a.m. Pacific) on August 4, 2005 and can be accessed by all interested parties at http://www.keithco.com/ or http://www.viavid.net/. To listen to the live call, please go to the website at least 15 minutes prior to the start of the call to register, download, and install any necessary audio software. For those unable to participate during the live broadcast, an online archive will be available shortly after the call. A telephone replay will be available through August 11, 2005 by dialing (800) 405-2236 and entering passcode 11035107. A copy of this press release and a link to the Company's quarterly conference call will be available at the Company's website under the headings "TKC News" and "Investor Relations," respectively, at http://www.keithco.com/. About The Keith Companies The Keith Companies, Inc. is a fully integrated, multi-disciplined engineering and consulting services company, with offices located throughout the Western and Midwestern United States. The Keith Companies' professionals provide a wide spectrum of skilled resources including land planning, engineering, surveying, mapping, environmental studies, and water and cultural resources that are needed to effectively plan, engineer, and design state-of-the-art private and public facilities. Additionally, the Company provides mechanical, electrical, chemical, power/energy engineering, and other industrial engineering services to design and improve the efficiency and reliability of automated and manufacturing processes, production lines, and fire protection systems. The Keith Companies benefits from a diverse public and private client base varying from residential and commercial real estate projects to institutional, manufacturing, and processing facilities. For more information visit the Company's website at http://www.keithco.com/. Additional Information and Where to Find It In connection with the proposed merger, Stantec, Inc. ("Stantec") and The Keith Companies, Inc. ("TKC") have filed a Registration Statement on Form F-4, a joint proxy statement/prospectus and other related documents with the Securities and Exchange Commission (the "SEC"). Shareholders of Stantec and TKC are advised to read these documents because they contain important information. Shareholders of the companies may obtain copies of these documents for free at the SEC's website at http://www.sec.gov/. These and such other documents may also be obtained for free from: Stantec 10160-112 Street Edmonton, Alberta, Canada, T5K 2L6 Phone: (780) 917-7000 Fax: (780) 917-7330 And from: The Keith Companies 19 Technology Drive Irvine, California, USA 92618-2334 Phone: (949) 923-6001 Fax: (949) 923-6026 Stantec and TKC and their respective directors, executive officers and other members of their management and employees may be deemed to be participants in the solicitation of proxies in connection with Stantec's proposed acquisition of TKC. Information regarding the special interests of these directors and executive officers in the transaction described herein are included in the joint proxy statement/prospectus described above. Additional information regarding Stantec's directors and executive officers is also included in its management information circular for its 2005 Annual Meeting of Shareholders, which was filed with the applicable securities commissions in Canada on or about March 31, 2005 and is available free of charge at the Canadian Securities Administrators' web site at http://www.sedar.com/ or by contacting Stantec at the address or telephone number set forth above. Additional information regarding TKC's directors and executive officers is also included in its proxy statement for its 2005 Annual Meeting of Shareholders, which was filed with the SEC on or about April 12, 2005 and is available free of charge at the SEC's web site at http://www.sec.gov/ or by contacting TKC at the address or telephone number set forth above. This press release contains forward-looking statements. In some cases, forward-looking statements can be identified by words such as "believe," "expect," "anticipate," "plan," "potential," "continue" or similar expressions. Such forward-looking statements are based upon current expectations and beliefs and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Some of the forward-looking statements contained in this press release include: (i) our expectation of continued growth in the real estate development sector, (ii) our expectation that operating margins in the real estate development sector will continue to be strong, (iii) our expectation of continued improvement in the energy/industrial sector and (iv) our statements regarding the proposed merger with Stantec. These statements are not guarantees of future performance, involve certain risks, uncertainties and assumptions that are difficult to predict, and are based upon assumptions as to future events that may not prove accurate. Therefore, actual outcomes and results may differ materially from what is expressed herein. For example, if TKC does not receive required shareholder approvals, or if either party fails to satisfy other conditions to closing, the merger will not be consummated. In addition, the combined companies may not realize all or any of the expected benefits of the merger. The following factors, among others, could cause actual results to differ materially from those described in the forward-looking statements: changes in the economic growth in the United States (especially in California) and other major international economies, our ability to sustain our growth and profitability, a downturn in the real estate market, the ongoing financing of public works and infrastructure enhancements and refurbishments, the demand for electricity and the impact on power providers' plans for expanding generation facilities, our failure to accurately estimate costs on fixed-price contracts or contracts with not-to-exceed provisions, changes in the carrying value of our goodwill and other long-term assets, our ability to implement our acquisition strategy and to successfully close and integrate acquired companies on a timely and cost-effective basis while maintaining their profit margins and/or client base, our ability to attract and retain employees, the uncertain timing of awards and contracts, our ability to successfully implement our enterprise service automation software system, outcomes of pending and future litigation, increasing competition by domestic and foreign companies, risks inherent in doing business outside the United States, including the difficulty of enforcing contracts, political instability and foreign currency fluctuations and potential exchange restrictions, the short and long-term impact of terrorist activities and resulting political and military policies, and other factors as are described in the Company's filings with the SEC. The forward-looking information set forth in this press release is as of the date indicated above and we undertake no duty to update this information. Actual results may differ materially from those contained in the forward-looking statements in this press release. Contact information: The Keith Companies, Inc. 19 Technology Drive Irvine, CA 92618 (949) 923-6001 (949) 923-6026 Fax http://www.keithco.com/ Contact: Aram Keith, Chairman of the Board & CEO Financial Relations Board Tricia Ross Investor Relations (617) 520-7064 TABLES FOLLOW The Keith Companies, Inc. and Subsidiaries Condensed Consolidated Statements of Income Three Months Ended Six Months Ended June 30, June 30, 2005 2004 2005 2004 Gross revenue $30,275,000 $26,808,000 $58,113,000 $51,304,000 Subcontractor costs 1,941,000 2,328,000 3,871,000 4,361,000 Net revenue 28,334,000 24,480,000 54,242,000 46,943,000 Costs of revenue 17,533,000 15,255,000 33,650,000 29,737,000 Gross profit 10,801,000 9,225,000 20,592,000 17,206,000 Selling, general and administrative expenses 8,022,000 5,833,000 14,865,000 11,424,000 Income from operations 2,779,000 3,392,000 5,727,000 5,782,000 Interest income, net 270,000 81,000 455,000 150,000 Other income, net 15,000 26,000 29,000 25,000 Income before provision for income taxes and discontinued operations 3,064,000 3,499,000 6,211,000 5,957,000 Provision for income taxes 1,478,000 1,364,000 2,680,000 2,323,000 Income from continuing operations 1,586,000 2,135,000 3,531,000 3,634,000 Loss from discontinued operations, net of income taxes -- 47,000 -- 47,000 Net income $1,586,000 $2,088,000 $3,531,000 $3,587,000 Earnings per share from continuing operations: Basic $0.20 $0.27 $0.45 $0.47 Diluted $0.19 $0.27 $0.43 $0.45 Earnings (loss) per share from discontinued operations, net of income taxes: Basic $-- $(0.01) $-- $(0.01) Diluted $-- $(0.01) $-- $(0.01) Earnings per share: Basic $0.20 $0.27 $0.45 $0.46 Diluted $0.19 $0.26 $0.43 $0.45 Weighted average number of shares outstanding: Basic 7,878,250 7,782,149 7,863,898 7,742,858 Diluted 8,195,164 8,020,844 8,157,316 8,012,873 The Keith Companies, Inc. and Subsidiaries Condensed Consolidated Balance Sheets June 30, December 31, 2005 2004 Assets Current assets: Cash and cash equivalents $43,923,000 $7,819,000 Securities available-for-sale, at fair value -- 34,325,000 Contracts and trade receivables, net 16,743,000 16,452,000 Costs and estimated earnings in excess of billings 12,993,000 10,470,000 Prepaid expenses and other current assets 1,275,000 928,000 Total current assets 74,934,000 69,994,000 Equipment and leasehold improvements, net 4,640,000 4,643,000 Goodwill 23,059,000 23,059,000 Other assets 727,000 273,000 Total assets $103,360,000 $97,969,000 Liabilities and Shareholders' Equity Current liabilities: Trade accounts payable $1,575,000 $1,685,000 Accrued employee compensation 7,059,000 5,445,000 Current portion of deferred tax liabilities 1,661,000 1,661,000 Other accrued liabilities 3,724,000 3,809,000 Billings in excess of costs and estimated earnings 1,732,000 1,922,000 Total current liabilities 15,751,000 14,522,000 Deferred tax liabilities 1,125,000 1,125,000 Accrued rent 514,000 401,000 Total liabilities 17,390,000 16,048,000 Shareholders' equity: Preferred stock -- -- Common stock 8,000 8,000 Additional paid-in-capital 49,080,000 48,114,000 Deferred stock compensation (1,315,000) (867,000) Retained earnings 38,197,000 34,666,000 Total shareholders' equity 85,970,000 81,921,000 Total liabilities and shareholders' equity $103,360,000 $97,969,000 The Keith Companies, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows For the Six Months Ended June 30, 2005 2004 Cash flows from operating activities: Net income $3,531,000 $3,587,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,011,000 991,000 Gain on sale of equipment (11,000) (11,000) Tax benefit from exercise of stock options 102,000 197,000 Deferred stock compensation expense 303,000 92,000 Changes in operating assets and liabilities: Contracts and trade receivables, net (255,000) 3,829,000 Costs and estimated earnings in excess of billings (2,523,000) (2,357,000) Prepaid expenses and other assets (801,000) (260,000) Trade accounts payable and accrued liabilities 1,496,000 161,000 Billings in excess of costs and estimated earnings (190,000) 35,000 Net cash provided by operating activities 2,663,000 6,264,000 Cash flows from investing activities: Additions to equipment and leasehold improvements (1,159,000) (1,652,000) Proceeds from sales of securities 59,925,000 6,100,000 Purchases of securities (25,600,000) (9,850,000) Proceeds from sales of equipment 162,000 16,000 Net cash provided by (used) in investing activities 33,328,000 (5,386,000) Cash flow from financing activities: Net proceeds from stock options and restricted shares 113,000 377,000 Net cash provided by financing activities 113,000 377,000 Net increase in cash and cash equivalents 36,104,000 1,255,000 Cash and cash equivalents, beginning of period 7,819,000 4,277,000 Cash and cash equivalents, end of period $43,923,000 $5,532,000 DATASOURCE: The Keith Companies, Inc. CONTACT: Aram Keith, Chairman of the Board & CEO of The Keith Companies, Inc., +1-949-923-6001, or Fax, +1-949-923-6026; or Tricia Ross, Investor Relations, of Financial Relations Board, +1-617-520-7064, for The Keith Companies, Inc. Web site: http://www.keithco.com/

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