<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended June 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ECHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 000-22097
SPR INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-3932665
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
2015 Spring Road, Suite 750
Oak Brook, Illinois 60523
(Address, including zip code, of principal executive offices)
(630) 575-6200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
As of August 11, 1999, the registrant had 13,300,333 outstanding shares
of common stock, par value $0.01 per share.
================================================================================
<PAGE> 2
SPR Inc.
FORM 10-Q
For the quarterly period ended June 30, 1999
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Interim Financial Statements:
Unaudited Condensed Balance Sheets - June 30, 1999 and December 31,
1998
Unaudited Condensed Statements of Operations - Three Months and Six
Months Ended June 30, 1999 and 1998
Unaudited Condensed Statements of Cash Flows - Six Months Ended June
30, 1999 and 1998
Notes to Unaudited Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE> 3
SPR Inc.
Unaudited Condensed Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------- ------------
<S> <C> <C>
Assets:
Cash and cash equivalents $ 5,250 $ 7,207
Accounts receivable, net 11,678 13,673
Short-term investments 45,236 43,906
Deferred taxes and other 2,446 2,665
Property and equipment, net 3,480 3,987
-------- --------
Total Assets $ 68,090 $ 71,438
======== ========
Liabilities and stockholders' equity:
Accounts payable and other $ 989 $ 1,467
Payroll and other accrued expenses 3,915 4,189
Deferred income 2,975 2,975
Stockholders' equity:
Common stock 139 138
Additional paid-in capital 51,788 51,269
Retained earnings 11,053 11,400
Treasury stock - at cost (2,769) --
-------- --------
Total stockholders' equity 60,211 62,807
-------- --------
Total liabilities and stockholders' equity $ 68,090 $ 71,438
======== ========
</TABLE>
See notes to unaudited condensed financial statements.
<PAGE> 4
SPR Inc.
Unaudited Condensed Statements of Operations
(in thousands, except per share and share amounts)
<TABLE>
<CAPTION>
Three months Six months
Ended June 30, Ended June 30,
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 16,694 $ 21,420 $ 33,185 $ 40,439
Cost of services 12,721 12,603 25,869 23,924
------------ ------------ ------------ ------------
Gross profit 3,973 8,817 7,316 16,515
------------ ------------ ------------ ------------
Costs and expenses:
Selling 1,310 1,286 2,640 2,454
Recruiting 344 487 788 936
General and administrative 2,740 3,314 5,715 6,340
------------ ------------ ------------ ------------
Total costs and expenses 4,394 5,087 9,143 9,730
------------ ------------ ------------ ------------
Operating income (loss) (421) 3,730 (1,827) 6,785
Interest income 650 457 1,248 772
------------ ------------ ------------ ------------
Income (loss) before income taxes 229 4,187 (579) 7,557
Provision (benefit) for income taxes 91 1,675 (232) 3,023
------------ ------------ ------------ ------------
Net income (loss) $ 138 $ 2,512 $ (347) $ 4,534
============ ============ ============ ============
Net income (loss) per share:
Basic $ 0.01 $ 0.19 $ (0.03) $ 0.36
Diluted $ 0.01 $ 0.19 $ (0.03) $ 0.35
Weighted average number of shares outstanding:
Basic 13,426,697 12,969,712 13,635,383 12,555,685
Diluted 13,505,067 13,521,163 13,635,383 13,078,309
</TABLE>
See notes to unaudited condensed financial statements.
<PAGE> 5
SPR Inc.
Unaudited Condensed Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
---------------------
1999 1998
---------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) for the period $ (347) $ 4,534
Adjustments to reconcile to net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 795 564
Expenses related to grant of stock options 75 75
Impairment loss on equipment -- 217
(Increase) decrease in accounts receivable, net 1,995 (3,928)
(Increase) decrease in deferred taxes and other 219 (816)
Decrease in accounts payable (478) (404)
Increase (decrease) in payroll and other accrued expenses (274) 2,245
-------- --------
Net cash provided by operating activities 1,985 2,487
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (288) (1,874)
Purchases of short-term investments (23,997) (63,741)
Sales/maturity of short-term investments 22,667 39,980
-------- --------
Net cash used in investing activities (1,618) (25,635)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock, net
of issuance costs -- 23,101
Treasury stock acquired (2,769) --
Proceeds from employee stock purchase and option plans 425 904
Tax benefit from employee stock option plan 20 291
Other cash flows from financing activities -- (51)
-------- --------
Net cash provided by (used in) financing activities (2,324) 24,245
-------- --------
NET INCREASE (DECREASE) IN CASH (1,957) 1,097
Cash and cash equivalents, beginning of period 7,207 2,133
-------- --------
Cash and cash equivalents, end of period $ 5,250 $ 3,230
======== ========
Supplemental disclosure of cash payments made for:
Interest $ -- $ 2
Income taxes 550 5,678
======== ========
</TABLE>
See notes to unaudited condensed financial statements.
<PAGE> 6
SPR Inc.
Notes to Unaudited Condensed
Financial Statements
Note 1. Interim Financial Statements
The accompanying unaudited interim condensed financial statements of
SPR Inc. (the "Company") have been prepared by the Company in accordance with
generally accepted accounting principles for interim financial information and
in conjunction with the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
annual financial statements have been condensed or omitted pursuant to those
rules and regulations. However, the Company believes that the disclosures
contained herein are adequate to make the information presented not misleading.
These financial statements should be read in conjunction with the Company's
audited financial statements and notes thereto for the year ended December 31,
1998 in the Company's annual report on Form 10-K.
The financial statements reflect, in the opinion of management, all
material adjustments (which include only normal recurring adjustments) necessary
to present fairly the Company's financial position and results of operations.
Certain items previously reported have been reclassified to conform with the
1999 presentation. The results of operations for the three and six months ended
June 30, 1999 are not necessarily indicative of the results that may be expected
for the full year.
Note 2. Business Segments
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, "Disclosure about Segments of an
Enterprise and Related Information" ("SFAS No. 131"). The Company has no
separately reportable segments in accordance with this standard. Under the
enterprise-wide disclosure requirements of SFAS No. 131, the Company reports net
revenues by service offering. Amounts for the three and six months ended June
30, 1999 and 1998, are shown in the table below:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------------------------- ---------------------------------------------
1999 1998 1999 1998
---------------------- -------------------- -------------------- ----------------------
Revenues Revenues Revenues Revenues
(in thousands) % (in thousands) % (in thousands) % (in thousands) %
------------ ----- ------------ ------ ------------ ----- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Century date compliance $ 4,452 26.7% $ 9,818 45.8% $ 9,198 27.7% $ 18,758 46.4%
General consulting 5,815 34.8% 7,335 34.2% 11,774 35.5% 14,899 36.8%
Software quality services 2,652 15.9% -- 0.0% 4,797 14.5% -- 0.0%
Application management 3,130 18.7% 1,383 6.5% 5,056 15.2% 1,969 4.9%
All other service offerings 645 3.9% 2,884 13.5% 2,360 7.1% 4,813 11.9%
--------- --------- --------- ---------
Total revenues $ 16,694 $ 21,420 $ 33,185 $ 40,439
========= ========= ========= =========
</TABLE>
<PAGE> 7
Note 3. Capital Stock and Earnings Per Share
The Company's basic and diluted per share amounts for the three and six
months ended June 30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------------------------------
June 30,1999 June 30,1998
---------------------------------------------------------------------------------
Income Per Share Income Per Share
(in thousands) Shares Amount (in thousands) Shares Amount
-------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Historical
Historical Basic EPS:
Income available to
Common Stockholders $ 138 13,426,697 $ 0.01 $ 2,512 12,969,712 $ 0.19
Effect of Dilutive Securities:
Employee Compensation Plans -- 78,370 -- -- 551,451 --
---------- ---------- ---------- ---------- ---------- ----------
Historical Dilutive EPS:
Income available to
Common Stockholders
plus assumed exercises $ 138 13,505,067 $ 0.01 $ 2,512 13,521,163 $ 0.19
========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
---------------------------------------------------------------------------------
June 30,1999 June 30,1998
---------------------------------------------------------------------------------
Income Per Share Income Per Share
(in thousands) Shares Amount (in thousands) Shares Amount
-------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Historical
Historical Basic EPS:
Income available to
Common Stockholders $ (347) 13,635,383 $ (0.03) $ 4,534 12,555,685 $ 0.36
Effect of Dilutive Securities:
Employee Compensation Plans -- -- -- -- 522,624 (0.01)
---------- ---------- ---------- ---------- ---------- ----------
Historical Dilutive EPS:
Income available to
Common Stockholders
plus assumed exercises $ (347) 13,635,383 $ (0.03) $ 4,534 13,078,309 $ 0.35
========== ========== ========== ========== ========== ==========
</TABLE>
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
The following table sets forth, for the periods indicated, selected
statements of earnings as a percentage of revenues:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues 100% 100% 100% 100%
Cost of services 76 59 78 59
--- --- --- ---
Gross profit 24 41 22 41
--- --- --- ---
Costs and expenses:
Selling 8 6 8 6
Recruiting 2 2 3 2
General and administrative 16 16 17 16
--- --- --- ---
Total costs and expenses 26 24 28 24
--- --- --- ---
Operating income (loss) (2) 17 (6) 17
Interest income 4 2 4 2
--- --- --- ---
Income (loss) before income taxes 2 19 (2) 19
Provision (benefit) for income taxes 1 7 (1) 8
--- --- --- ---
Net income (loss) 1% 12% (1)% 11%
=== === === ===
</TABLE>
Revenues. Revenues decreased 22% to $16.7 million and 17.9% to $33.2
million in the second quarter and first six months of 1999, respectively, from
$21.4 million and $40.4 million for the comparable 1998 periods. The decreases
in the 1999 periods versus the comparable 1998 periods were primarily the result
of earlier than expected project completions, delays in beginning new client
projects, and general industry conditions. The Company's billing rate per hour
increased 10% in the second quarter of 1999 from the comparable 1998 quarter and
has remained constant from the fourth quarter of 1998.
Gross Profit. Gross profit decreased 55% to $4.0 million in the second
quarter of 1999 from $8.8 million in the second quarter of 1998. Gross profit in
the first six months of 1999 decreased 56% to $7.3 million from $16.5 million in
the first six months of 1998. Gross profit as a percentage of revenues decreased
to 24% in the second quarter and to 22% in the first six months of 1999 from 41%
for the comparable 1998 periods. The decreases in gross profit were primarily
attributable to decreases in consultant utilization rates. The results for the
first and second quarters of 1998 were negatively impacted by management's
estimate of the services to be performed related to completing the Company's
century date compliance projects.
<PAGE> 9
Selling Expenses. Selling expenses were $1.3 million in the second
quarter of 1999 and 1998. For the first six months ended June 30, 1999, selling
expenses increased 8% to $2.6 million from $2.5 million for the comparable 1998
period. The Company's selling expenses as a percentage of revenues increased to
8% in the second quarter and the first six months of 1999 from 6% for the
comparable 1998 periods. The increase was primarily the result of increased
sales executive compensation due to the increase in the sales force from an
average of 24 in the first six months of 1999 to an average of 17 in the
comparable 1998 period.
Recruiting Expenses. Recruiting expenses decreased 29% to $0.3 million
in the second quarter of 1999 from $0.5 million for the second quarter of 1998.
For the first six months of 1999, recruiting expenses decreased 16% to $0.8
million from $0.9 million for the first six months of 1998. Hiring during the
first and second quarters of 1999 consisted only of project-specific skill sets
required on client engagements.
General and Administrative Expenses. General and administrative
expenses decreased 17% to $2.7 million and 10% to $5.7 million in the second
quarter and first six months of 1999, respectively, from $3.3 million and $6.3
million for the comparable 1998 periods. Increased expenses incurred in the
second quarter and the first six months of 1999 for internal technology, office
space, telecommunications, depreciation, employee functions, and merger-related
costs for travel, legal and accounting fees were offset by decreases in expenses
for management bonuses and training costs associated with the entry-level
portion of the Information Technology Consultant (ITC) Training Program.
Interest Income. Interest Income increased to $0.7 million and $1.2
million in the second quarter and the first six months of 1999 from $0.5 million
and $0.8 million for the comparable 1998 periods. This increase was attributable
to interest earned on the investment of funds received in the May 5, 1998
follow-on offering.
Provision for Income Taxes. The Company's effective tax rate was 40%
for the second quarter and the first six months of 1999 and 1998.
Liquidity and Capital Resources
The remaining net proceeds of approximately $8.9 million from the
Company's initial public offering, together with the $23.1 million from the
follow-on public offering, and cash from operations are being temporarily
invested in investment grade securities. The Company intends to use the
remaining net proceeds for general corporate purposes, including the expansion
of the curriculum of its ITC Training Program, the development of new service
offerings related to E-Business and enterprise application integration
strategies, additional virtual insourcing centers, working capital, branch
expansion and possible acquisitions of related businesses.
At June 30, 1999, the Company had approximately $50.5 million of cash
and short-term investments.
<PAGE> 10
Receivables have increased to 55 days of revenues at June 30, 1999, from 52 days
of revenues at December 31, 1998.
The Company, subsequent to the initial public offering, has no
outstanding debt. The Company believes the net proceeds from such offerings,
together with existing sources of liquidity and funds generated from operations,
will provide adequate cash to fund its anticipated cash needs, including funding
the Company's growth strategy.
Recent Events
In response to declining consultant utilization rates, the Company
implemented a reduction in force on August 2, 1999, at one of its four
locations. The reductions amounted to an approximately 10% cut in SPR's
consulting professionals. The Company believes that these reductions should
reduce costs by approximately $0.3 million per month.
On March 17, 1999 the Company announced a plan to purchase up to 1.5
million of its shares of common stock under a stock repurchase program. The
quantity to be purchased and the targeted price will be determined daily, based
upon management's discretion. As of August 11, 1999, the Company has purchased
635,692 shares.
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995
The statements contained in the section captioned Management's
Discussion and Analysis of Financial Condition and Results of Operations which
are not historical are "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These forward-looking statements
represent the Company's present expectations or beliefs concerning future
events. The Company cautions that such statements are qualified by important
factors that could cause actual results to differ materially from those in the
forward looking statements including statements pertaining to: (i) the expected
continued success of the Company's ITC Training Program, (ii) the Company's
future ability to effectively manage its consultant utilization rates and its
hourly consultant billing rates, (iii) the Company's ability to leverage its
Century Date Compliance expertise into providing other mass change and project
management services to its clients, (iv) successful management of engagement and
contract risks, and (v) the Company's ability to expand and develop additional
branch offices and Virtual Insourcing Centers. Results actually achieved thus
may differ materially from expected results included in these statements.
<PAGE> 11
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Annual Meeting of Stockholders was held on June 24, 1999.
(b) The Stockholders voted to elect six directors to the Company's Board of
Directors.
<TABLE>
<CAPTION>
DIRECTORS FOR AGAINST WITHHELD
<S> <C> <C> <C>
Robert M. Figliulo 12,258,652 -- 56,935
Stephen J. Tober 12,257,147 -- 58,440
David A. Figliulo 12,259,569 -- 56,018
Ronald L. Taylor 12,260,589 -- 54,998
Sydnor W. Thrift, Jr 12,259,134 -- 56,453
David P. Yeager 12,260,008 -- 55,579
</TABLE>
(c) The Stockholders voted on a proposal to approve the Company's 1999 Stock
Option Plan.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C>
8,781,204 1,144,123 8,075
</TABLE>
(d) The Stockholders voted on a proposal to approve the appointment of Arthur
Andersen LLP as independent auditors of the Company for the year ending December
31, 1999.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C>
12,273,502 39,129 2,956
</TABLE>
Item 6. Exhibits and Reports on Form 8-K.
Exhibits.
Exhibit 27 Financial Data Schedule.
(b) Reports on Form 8-K .
No reports on Form 8-K were filed by the Company during the quarter ended June
30, 1999.
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPR Inc.
Date: August 11, 1999 By: /s/ Robert M. Figliulo
----------------- -----------------------------------
Robert M. Figliulo
Chief Executive Officer and
Chairman of the Board of Directors
Date: August 11, 1999 By: /s/ Stephen J. Tober
----------------- ------------------------------------
Stephen J. Tober
Executive Vice President -
Chief Operating Officer
Date: August 11, 1999 By: /s/ Stephen T. Gambill
--------- ------------------------------------
Stephen T. Gambill
Vice President &
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 5,250
<SECURITIES> 45,236
<RECEIVABLES> 11,678
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 3,480
<DEPRECIATION> 0
<TOTAL-ASSETS> 68,090
<CURRENT-LIABILITIES> 7,879
<BONDS> 0
0
0
<COMMON> 139
<OTHER-SE> 60,072
<TOTAL-LIABILITY-AND-EQUITY> 68,090
<SALES> 0
<TOTAL-REVENUES> 16,694
<CGS> 0
<TOTAL-COSTS> 12,721
<OTHER-EXPENSES> 4,394
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (650)
<INCOME-PRETAX> 229
<INCOME-TAX> 91
<INCOME-CONTINUING> 138
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 138
<EPS-BASIC> .01
<EPS-DILUTED> .01
</TABLE>
