Filed by The Keith Companies, Inc.
Pursuant to Rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 14a-12
under the Securities Exchange Act of 1934
Subject Company: The Keith Companies, Inc.
Commission File No.: 000-26561
This filing relates to the Agreement and Plan of Merger and Reorganization,
dated April 14, 2005, by and among Stantec Inc., Stantec Consulting California
Inc., and The Keith Companies, Inc. The following is a transcript of The Keith
Companies' first quarter 2005 earnings conference call held on May 5, 2005.
ADDITIONAL INFORMATION AND WHERE TO FIND IT
In connection with the proposed transaction, Stantec and TKC will file a
Registration Statement on Form F-4, a joint proxy statement/prospectus and other
related documents with the Securities and Exchange Commission (the "SEC").
Stockholders of Stantec and TKC are advised to read these documents when they
become available because they will contain important information. Stockholders
of the companies may obtain copies of these documents for free, when available,
at the SEC's website at 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 will be 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 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 Stockholders, 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
www.sec.gov or by contacting TKC at the address or telephone number set forth
above.
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
This 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. 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, if Stantec is
unable to list its stock on a major US exchange or 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: global capital market activities,
fluctuations in interest rates and currency values, the effects of war or
terrorist activities, the effects of disease or illness on local, national, or
international economies, the effects of disruptions to public infrastructure,
such as transportation or communications, disruptions in power or water supply,
industry and worldwide economic and political conditions, regulatory and
statutory developments, a downturn in the real estate market, the effects of
competition in the geographic and business areas in which the companies operate,
the actions of management, and technological changes. Actual results may differ
materially from those contained in the forward- looking statements in this
release.
THE KEITH COMPANIES, # 11029519
THE KEITH COMPANIES FIRST QUARTER 2005 EARNINGS CONFERENCE CALL
MAY 5, 2005, 8:30 A.M. PT
CHAIRPERSON: TRICIA ROSS
Operator: Good morning, ladies and gentlemen, and thank you for
standing by. Welcome to The Keith Companies First Quarter 2005
Earnings Conference Call. At this time, all participants are in a
listen-only mode. Following today's presentation, instructions
will be given for the question and answer session. If anyone
needs assistance at any time during the conference, please press
the star, followed by the zero. As a reminder, this conference is
being recorded Thursday, May 5th, of 2005. At this time, I'd like
to turn the presentation over to Tricia Ross with the Financial
Relations Board. Please go ahead.
Tricia Ross: Good morning, and thank you for joining The Keith Companies
to discuss its results for fiscal 2005 first quarter.
By now, you should have all received a copy of the press release,
which was issued this morning. If not, please call my office at
617-520-7064 and we will get a copy to you right away.
On today's call from management are Mr. Aram Keith, Chairman and
Chief Executive Officer, Eric Nielsen, President and Chief
Operating Officer, and Gary Campanaro, Chief Financial Officer of
The Keith Companies. Aram and Gary will provide an overview of
the quarter and then open the call to your questions.
Please bear with me for one moment while I read you the Safe
Harbor statement. This conference call will contain
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 conference call include: (1) the
Keith Companies' expectation of continued growth in the real
estate development sector; (2) the Keith Companies' expectation
that operating margins in the real estate development sector will
continue to be strong; (3) the Keith Companies' expectation of
continued improvement in the energy/industrial sector; and (4)
the Keith Companies' 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, if Stantec is unable to list its stock on a major U.S.
exchange, 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; The Keith Companies' ability to sustain its growth and
profitability; a downturn in the real estate market; the ongoing
financing of public works and infrastructure enhancement and
refurbishments; the demand for electricity and the impact on
power providers' plans for expanding generation facilities; The
Keith Companies' failure to accurately estimate costs on fixed
price contracts, or contracts with "not to exceed" provisions;
changes in the carrying value of The Keith Companies' goodwill
and other long-term assets; The Keith Companies' ability to
implement its 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; the
Company's ability to attract and retain employees; the uncertain
timing of awards and contracts; The Keith Companies' ability to
successfully implement its enterprise service automation software
system; outcomes of pending and future litigation; increasing
competition by domestic and foreign companies; risks inherent in
doing business outside of the United States, including the
difficulties 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 conference
call is as of today, May 5th, 2005, and The Keith Companies
undertakes no duty to update this information. Actual results may
differ materially from those contained in the forward-looking
statements in this conference call.
I would now like to turn the call over to Mr. Aram Keith. Aram?
Aram Keith: Trica, thanks. That was a mouthful. Good morning, everybody,
and thanks for joining us today.
As you should be aware by now, we are party to the proposed
merger with Stantec. The purpose of today's call is to discuss
our first quarter results and operational highlights. We will not
be discussing the proposed merger. Please refer to our joint
website with Stantec at www.stantec.com/keithco for details.
Thank you in advance for your understanding.
With that said, we are extremely pleased to report record net
revenue of $25.9 million and a nearly 30% increase in net income
for the first quarter.
All three of our business segments achieved year-over-year net
revenue growth in the first quarter, led by continued strong
gains in the real estate development segment.
I'll now turn the call over to Gary Campanaro, our CFO, to go
over the specific details of our financial results and then I'll
return to give you an overview of what we're expecting going
forward. Gary?
Gary Campanaro: Thank you, Aram. Good morning, everyone. As Aram mentioned, once
again, we are very pleased with the overall performance of the
Company. For the quarter, we had an increase of 26.3% in diluted
earnings per share. I will now spend the next few minutes
discussing the Company's income statement and balance sheet. I
will start by addressing the major dollar and percentage changes
for the three months ended March 31st, 2005 and 2004.
Net revenue increased 15.3%, to $25.9 million. The increase for
the three months was mainly due to our continued strong revenue
from our California offices, related primarily to the residential
real estate. Our energy/industrial segment also increased as
well, as well as our public works/infrastructure segment. The
increase in our public works infrastructure segment was mainly
due to increased net revenue from one of our public works
infrastructure divisions, which primarily benefited from its
ability to temporarily deploy some of its under-utilized billable
employees to assist in providing services to our real estate
development segment. Net revenue from our real estate services
increased 18.4% over the corresponding prior year period. Net
revenue from our energy/industrial segment increased 9.1% over
the corresponding prior year period. And net revenue from our
public works/infrastructure segment increased 3.5% over the
corresponding prior year period. We were pleased by the increases
in our real estate development and energy/industrial segments.
Gross profits increased 22.7%, to $9.8 million. Income from
operations increased 23.3%, to $2.9 million. The increase in our
income from operations for the three months was due to improved
operating results from all three of our segments. Please keep in
mind that our public works/infrastructure segment was aided by
providing services to our real estate development segment.
Furthermore, all three of our segments were profitable for the
first quarter of 2005. The increase in income from operations was
partially offset by an increase in our overall administrative
costs.
Net income increased 29.8%, to $1.9 million, which resulted in
diluted earnings per share of $0.24, which is an increase of
26.3% from prior year.
I will now go over the margins for the three months ended March
31st. I will first state the 2005 percentages and then the 2004
percentages.
Gross profit, 37.8% versus 35.5. The increase was mainly due to
improved margins from our real estate development and
energy/industrial segments. For the first quarter, all three
segments had a year-over-year increase in their gross profit
margin. SG&A as a percentage of net revenue, 26.4% versus 24.9%.
The increase as a percentage of net revenue was mainly due to an
increase in overall compensation costs and an increase in our
discretionary bonus accrual. These increases were partially
offset by a reduction in our allowance for doubtful accounts.
Income from operations, 11.4% versus 10.6%.
I'd now like to cover some key items from our March 31st, 2005,
balance sheet. We had cash and securities of $40.2 million,
working capital of $57.3 million, our current ratio remains very
strong, at 5.3 to 1, our debt-to-equity ratio remains at zero to
1, and our shareholder equity continues to grow and is now at
$84.2 million, which equates to $10.55 per share outstanding.
Before turning the call back to Aram, I will address our
financial guidance. As stated in our earnings release this
morning, due to the pending merger with Stantec, the Company has
decided to discontinue its practice of providing financial
guidance on future operating results. Investors are cautioned not
to place any reliance on the financial guidance that the Company
last provided on February 10th, 2005. Aram, the call is back to
you.
Aram Keith: Thanks, Gary.
The U.S. Census Bureau and Department of Housing and Urban
Development released March `05 data last week, which indicated
that new home sales reached record highs, up sequentially by
12.2% and year-over-year by 12.7%. In California, the unsold
inventory of existing, single-family detached homes in March
dropped 29% to 2.7 months from 3.8 months in February, according
to the California Association of Realtors. Supply continues to be
an issue, fueling continued real estate development.
To take advantage of the housing supply/demand imbalance and the
resulting amount of real estate development work that is
available, we will be continuing to look for opportunities to
open new offices, much like we did with our new San Diego and
Bakersfield offices late last year. We anticipate a net gain in
staffing in our real estate development group this year.
While we continue to experience reduced overall demand in the
public works/infrastructure segment, this segment experienced an
increase in net revenue over prior year mainly because we were
able to partially mitigate the impact of this reduced demand
during the quarter by temporarily deploying some of the
under-utilized engineers to assist in our real estate development
segment, which has always been part of our strategic plan. The
nation's infrastructure is in severe
need of repair, but many of these projects continue to await
financing. When that happens, we anticipate a robust pipeline of
work for this segment.
Our energy/industrial segment delivered net revenue growth and
swung from an operating loss in the first quarter of `04 to a
profit in the same period in `05. Renewable energy projects are
picking up as a result of the Production Tax Credit extension. We
are also seeing increased activity in the industrial market as
well.
In summary, we expect continued strength in our overall business
for the remainder of `05.
At this point we'd be happy to answer any questions you may have
regarding the results of our operations in the first quarter, and
I'll turn the call back over to the operator to poll for
questions. Thank you, everybody.
Operator: Thank you, sir. Ladies and gentlemen, at this time, we will
begin the question and answer session. If you would like to ask a
question on today's presentation, please press the star, followed
by the one, on your push button phone. If you would like to
decline from the polling process, please press the star, followed
by the two. You will hear a three tone prompt acknowledging your
selection. Your questions will be polled in the order they are
received. If you are using speaker equipment, we do ask that you
please lift your handset before pressing the numbers. One moment,
please, for our first question.
As a reminder, ladies and gentlemen, if you would like to ask a
question, please press the star, followed by the one. And if you
are using speaker equipment, we do ask that you please lift the
handset before pressing the numbers. One moment, please, for our
first question.
Our first question comes from Al Kaschalk with Wedbush Morgan.
Please go ahead.
Al Kaschalk: Good morning, Aram, good morning, Keith.
Aram Keith: Hi, Al.
Al Kaschalk: Quick question here on the SG&A line. Are you able to elaborate
how much of the allowance was reduced, Gary?
Gary Campanaro: Yeah, let me see if I have that information here handy, Al. Hold
on.
Al Kaschalk: Or, as you're looking for that, it-- it seems like the
SG&A went up quite a bit, even relative to some of the overall
development and Company expansion, as well as the bonuses. Is
there anything else in there, besides those two items?
Gary Campanaro: In terms of the allowance for doubtful accounts, that
was a decrease of about $125,000, when you look year-over-year.
Our DSOs went from roughly 60 days down to 55 days, so the
accounts receivable side is, you know, definitely strong.
In terms of your question, the major increases on SG&A, that is
really a result of the very strong marketplace on the real estate
side, where there's such strong demand, there's huge competition
for good quality engineers, so we keep having pressures in terms
of compensating those individuals. And then also related to that
is an increase in our discretionary bonus. So that is--those
items are the main drivers of the SG&A. And there's also been an
increase in headcount as well on the positive side to that.
Al Kaschalk: How much did the personnel increase, if you can add color to
that?
Gary Campanaro: Yeah, in terms of total employees, I have that here as
well. Hold on. Total employees, we went from--at the year-end, we
had 825 employees and project workers. As of March 31, '05, we
had 841.
Al Kaschalk: In terms of the shift of personnel over from public
works to real estate, do you suspect that that continues for
another quarter or two, or do you have any visibility on what the
outlook is here, given that the financing of those public works
projects seem to be--they have some risk to them.
Aram Keith: I'll let Eric answer that.
Eric Nielsen: Hey, Al, it's Eric.
Al Kaschalk: Hi, Eric.
Eric Nielsen: We do feel like that there's enough work in the real
estate sector, and the real estate work that comes through to
some of the public works offices is a combination of mostly real
estate and a little bit of public works, even, that that can
continue for quite a while. In the mean time, our water-related
work remains pretty strong and stable. It's transportation and
items like that, that are slow to fund. So the diversification is
providing a measure of pretty good stability right now.
Aram Keith: And Al, this has always been our plan, because as I mentioned
before, the public works/ infrastructure disciplines and the real
estate disciplines are the same, whether designing a road for a
private sector client or a public agency is the same thing, and
so it's really our plan has just worked perfectly, so we have a
real surge in real estate-related design work, and we're able to
use the public works engineers to help us out, so it's worked out
very well.
Al Kaschalk: In terms of the energy and industrial side, I was wondering if
the demand you're seeing, if there's a way to separate, perhaps,
what you're seeing from, because of the tax credit as well as
just overall increased activities, generally?
Eric Nielsen: I don't know if I have a precise number on that. It has
been most--the effect of the work related to the production tax
credits has been most noticeable in our Oregon PEC office. Our
ESI office has been the beneficiary of some other types of
industrial work that have grown recently--bio-pharmaceuticals,
other industrial corporate development, and other things. Most of
the positive impact in the EI segment has been related to
front-end design and engineering, mostly pre-construction
services. We haven't seen the benefit of the construction phase
services yet.
Al Kaschalk: Great.
Aram Keith: There's been pretty good, robust demand, even in the
industrial side, as Gary said, to elaborate. I don't have the
percentage in front of me, but it's gone up pretty good.
Al Kaschalk: Thank you very much.
Aram Keith: OK, Al.
Operator: Thank you. Our next question comes from Richard Rossi with
Morgan Joseph. Please go ahead.
Richard Rossi: Good morning, everybody.
Aram Keith: Good morning, Richard.
Richard Rossi: A follow-up question on these projects that you're working
on in the industrial side. Are these--are some, at least--of
these projects projects that had been floating around but never
had gotten initiated or are they all, are they things that really
have developed only over the last, let's say, six months? I'm
sure there's a mix, but if you can give us some sense of balance
here?
Eric Nielsen: You know, just estimating, Rich - this is Eric again - just
estimating, I'd say it's probably pretty close to a split.
There's some new things that have come up that are either the
result of recently decided upon projects, or because of new
pursuits of ours from a marketing standpoint. Or there's others
here and there that we've been watching for 12 or 18 months, that
have finally hit the surface.
Richard Rossi: Right, OK.
Aram Keith: Congratulations, Rich, by the way.
Richard Rossi: Oh, thank you. Remember that when my earnings estimates are way
off the mark and my recommendations don't work.
Aram Keith: That was real nice.
Richard Rossi: One final thing--any update on the LNG side of the business?
Eric Nielsen: Actually very little activity on the LNG side for us right now.
Richard Rossi: OK, all right.
Aram Keith: Thanks for asking.
Richard Rossi: And just one final thing--I want to congratulate you. It looks
like you found a good home for the Company and I wish you lot of
luck.
Aram Keith: Well, thank you. We're real excited about it. Thanks.
Operator: Thank you. Our next question comes from James Ragan with
Crowell, Weedon & Company.
James Ragan: Yes, good morning.
Aram Keith: Hi, Jim.
James Ragan: Hi. Wondered, could you just give a rough estimate of the
revenue associated with the public works business that was
actually real estate-related?
Gary Campanaro: On that, we don't have an exact dollar amount on that,
just due to the nature of some of the contracts that have a split
between real estate and public works, so the safest thing is just
to say that of the increase in the public works year-over-year,
the significant or majority of that was related to the real
estate development side.
James Ragan: OK, great. And then switching over to the cash flow, cash
from operations was negative in the first quarter $1.5 million,
roughly. The first time in a few quarters that's happened, and
I'm wondering if you could just address that a bit, talk about,
you know, how that came about, and then going forward, you know,
I would imagine you expect to be cash flow positive from
operations in future quarters?
Gary Campanaro: That's a good question. Let me kind of address the main reason
why we did have, you know, used cash from operations versus
generating it, which we've done in the past. A lot of it
was due to timing, kind of focusing on some of the main items.
One would be accounts receivable. On that, we actually had about
$1 million less in collections, and then we also had about $3 to
$4 million increase in billings, so as a result of that, you
know, you saw we only generated about $100,000 in cash from the
change in A/R, versus, you know, last quarter was $4 million. On
the positive note, as I mentioned earlier, our DSOs at year-end
were roughly 59 to 60 days. At March 31, it was 55
days, so everything is definitely fine and healthy with our
accounts receivable, it's just that we had a timing issue there.
One of the other main drivers was our pre-paid expenses and other
assets. There was a use there of almost $1.5 million. That was
mainly due to taxes and pre-paid insurance. And the accounts
payable is really timing, so we think that cash flow for the
balance of the year will be strong, and that was really just a
result of some timing of payments, coming in and going out.
James Ragan: All right, OK. Great. Thank you.
Gary Campanaro: You bet.
Aram Keith: Thanks.
Operator: Thank you. Ladies and gentlemen, if there are additional
questions at this time, please press the star, followed by the
one. As a reminder, if you are using speaker equipment, we do ask
that you please lift your handset before pressing the numbers.
One moment, please, for our next question.
Management, at this time, we appear to have no additional
participants who have queued to ask a question. If you would like
to conclude with any remarks, please do so that time.
Aram Keith: Well, I just want to thank everybody for participating on today's
call, and we look forward to speaking with you again in the next
quarter. Thanks, everybody.
Operator: Thank you. Ladies and gentlemen, at this time, we will conclude
today's teleconference. If you would like to listen a replay of
the presentation, please dial 1-800-405-2236, or 303-590-3000.
You will need to enter an access code of 11029519. Once again,
ladies and gentlemen, if you would like to listen to a replay of
today's conference, please dial 1-800-405-2236 or 303-590-3000,
with the access code of 11029519. We thank you for your
participation. At this time, we will conclude the conference and
you may now disconnect and please have a pleasant day.
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