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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 March 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE 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 May 13, 1999 the registrant had 13,369,127 outstanding shares of
common stock, par value $0.01 per share.
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SPR Inc.
FORM 10-Q
For the quarterly period ended March 31, 1999
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Condensed Balance Sheets - March 31, 1999
and December 31, 1998
Unaudited Condensed Statements of Operations - Three
Months Ended March 31, 1999 and 1998
Unaudited Condensed Statement of Stockholders' Equity - Three
Months Ended March 31, 1999
Unaudited Condensed Statements of Cash Flows - Three Months
Ended March 31, 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 6. Exhibits and Reports on Form 8-K.
SIGNATURES
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SPR Inc.
Unaudited Condensed Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
-------- -----------
<S> <C> <C>
Assets
Cash and cash equivalents $ 8,273 $ 7,207
Accounts receivable, net 11,852 13,673
Short-term investments 44,919 43,906
Deferred taxes and other 2,628 2,665
Property and equipment, net 3,744 3,987
------- ----------
Total assets $71,416 $ 71,438
======= ==========
Liabilities and stockholders' equity
Accounts payable and other $ 1,354 $ 1,467
Payroll and other accrued costs 5,391 4,189
Deferred Income 2,975 2,975
Stockholders' equity
Common stock 138 138
Additional paid in capital 51,351 51,269
Retained earnings 10,915 11,400
Treasury stock - at cost (708) -
------- ----------
Total stockholders' equity 61,696 62,807
------- ----------
Total liabilities and stockholders' equity $71,416 $ 71,438
======= ==========
</TABLE>
See notes to unaudited condensed financial statements.
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SPR Inc.
Unaudited Condensed Statements of Operations
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months
Ended March 31,
----------------------
1999 1998
---- ----
<S> <C> <C>
Revenues $ 16,491 $ 19,019
Cost of services 13,148 11,321
--------- ---------
Gross profit 3,343 7,698
--------- ---------
Costs and expenses
Selling 1,330 1,168
Recruiting 444 449
General and administrative expenses 2,975 3,027
--------- ---------
Total costs and expenses 4,749 4,644
--------- ---------
Operating income (loss) (1,406) 3,054
--------- ---------
Interest income 598 316
--------- ---------
Income (loss) before income taxes (808) 3,370
Provision (benefit) for income taxes (323) 1,348
--------- ---------
Net income (loss) $ (485) $ 2,022
========= =========
Historical basic net income (loss) per share $ (0.04) $ 0.17
========= =========
Historical diluted net income (loss) per share $ (0.04) $ 0.16
========= =========
</TABLE>
See notes to unaudited condensed financial statements.
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SPR Inc.
Statement of Stockholders' Equity
(in thousands)
<TABLE>
<CAPTION>
Common Stock
Common Stock Additional In Treasury Total
--------------- Paid-in Retained --------------- Stockholders'
Shares Amount Capital Earnings Shares Amount Equity
------ ------ ---------- --------- ------ ------ ------------
<S> <C> <C> <C> <S> <C> <C> <C>
Balance at December 31, 1998 13,843 $ 138 $ 51,269 $ 11,400 - $ - $ 62,807
Net loss - - - (485) - - (485)
Exercise of stock options and
related tax benefits 4 - 82 - - - 82
Treasury stock acquired - - - - 150 (708) (708)
------ ------ ---------- --------- ------ ------ ------------
Balance at March 31, 1999 13,847 $ 138 $ 51,351 $ 10,915 150 $ (708) $ 61,696
====== ====== ========== ========= ====== ====== ============
</TABLE>
See notes to unaudited condensed financial statements.
<PAGE> 6
SPR Inc.
Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Three months
Ended March 31,
------------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) for the period $ (485) $ 2,022
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 403 273
Deferred taxes - (104)
Expense related to grant of stock options 38 37
Impairment loss on equipment - 217
(Increase) decrease in accounts receivable, net 1,821 (1,766)
(Increase) decrease in prepaid expenses and other 37 (81)
Decrease in accounts payable and other (113) (379)
Increase in accrued expenses 1,202 2,576
------- -------
Net cash provided by operating activities 2,903 2,795
------- -------
Cash flows from investing activities:
Purchases of property and equipment (160) (572)
Purchases of short-term investments (13,983) (16,248)
Sales/maturity of short-term investments 12,970 16,095
------- -------
Net cash used in investing activities (1,173) (725)
------- -------
Cash flows from financing activities:
Treasury stock acquired (708) -
Proceeds from employee stock option plan 24 -
Tax benefit from employee stock option plan 20 -
------- -------
Net cash used in financing activities (664) -
------- -------
Net increase in cash 1,066 2,070
Cash and cash equivalents, beginning of period 7,207 2,133
------- -------
Cash and cash equivalents, end of period $ 8,273 $ 4,203
======= =======
Supplemental disclosure of cash payments made for:
Interest $ - $ -
Income taxes 550 1,368
</TABLE>
See notes to unaudited condensed financial statements.
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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 months ended March
31, 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 quarters ended March 31, 1999 and
1998, are shown in the table below:
<TABLE>
<CAPTION>
March 31,
-----------------------------------------------
1999 1998
---------------------- ----------------------
Revenues Revenues
(in thousands) % (in thousands) %
------------- ----- ------------- -----
<S> <C> <C> <C> <C>
Cenury date compliance $ 4,745 28.8% $ 8,940 47.0%
General consulting 5,959 36.1% 7,564 39.8%
Software quality services 2,145 13.0% - 0.0%
Application management 1,926 11.7% 586 3.1%
All other service offerings 1,716 10.4% 1,929 10.1
-------- --------
Total revenues $ 16,491 $ 19,019
======== ========
</TABLE>
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[CAPTION]Note 3. Capital Stock and Earnings Per Share
The Company's basic and diluted per share amounts for the three months
ended March 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------------------------
March 31, 1999 March 31, 1998
------------------------------------- -------------------------------------
Loss 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 $ (485) 13,846,387 $(0.04) $2,022 12,137,057 $0.17
Effect of Dilutive Securities:
Employee Compensation Plans - - - - 493,478 (0.01)
--------- ---------- ------ ------ ---------- -----
Historical Dilutive EPS:
Income available to
Common Stockholders
plus assumed exercises $ (485) 13,846,387 $(0.04) $2,022 12,630,535 $0.16
========= ========== ====== ====== ========== =====
</TABLE>
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
Ended March 31,
--------------
1999 1998
---- ----
<S> <C> <C>
Revenues 100% 100%
Cost of services 80 60
------ -----
Gross profit 20 40
------ -----
Costs and expenses
Selling 8 6
Recruiting 3 2
General and administrative expenses 18 16
------ -----
Total costs and expenses 29 24
------ -----
Operating income (loss) (9) 16
Interest income 4 2
------ -----
Income (loss) before income taxes (5) 18
Provision (benefit) for income taxes (2) 7
------ -----
Net income (loss) (3)% 11%
====== =====
</TABLE>
<PAGE> 9
Revenues. Revenues decreased 13% to $16.5 million in the first quarter
of 1999 from $19.0 million for the comparable 1998 quarter. The decrease in the
first quarter of 1999 was 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 14% in the first
quarter of 1999 from the comparable 1998 quarter and has remained constant from
the fourth quarter of 1998.
Gross Profit. Gross profit decreased 57% to $3.3 million in the first
quarter of 1999 from $7.7 million in the first quarter of 1998. Gross profit as
a percentage of revenues decreased to 20% in the first quarter of 1999 from 40%
for the comparable 1998 quarter. The decrease in gross profit was primarily
attributable to a decrease in consultant utilization rates. The results for the
first quarter 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.
Selling Expenses. Selling expenses increased 14% to $1.3 million in the
first quarter of 1999 from $1.2 million for the comparable 1998 quarter. The
Company's selling expenses as a percentage of revenues increased to 8% in the
first quarter of 1999 from 6% for the comparable 1998 quarter. The increase was
primarily the result of increased sales executive compensation due to the
increase in the sales force to 26 in the first quarter of 1999 from 17 in the
first quarter of 1998.
Recruiting Expenses. Recruiting expenses were approximately $0.4
million in the first quarter of 1999 and 1998. Hiring during the first quarter
of 1999 consisted only of project-specific skill sets required on client
engagements.
General and Administrative Expenses. General and administrative
expenses were approximately $3.0 million in the first quarter of 1999 and 1998.
Increased expenses in the first quarter of 1999 for internal technology, office
space, telephones, depreciation, 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 $0.6 million in the first
quarter of 1999 from $0.3 million for the comparable 1998 quarter. The increase
in other income in the first quarter of 1999 was primarily attributable to
interest earned on the investment of funds received in the May 5, 1998 follow-on
offering and funds generated from operations.
Provision (benefit) for Income Taxes. The Company's effective tax rate
was 40% for the first quarter of 1999 and 1998.
Liquidity and Capital Resources
The remaining net proceeds of approximately $9.4 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
<PAGE> 10
use the remaining net proceeds for general corporate purposes, including the
expansion of the curriculum of its ITC Training Program, the development of a
new service offering related to E-Business strategies, additional virtual
insourcing centers, working capital, branch expansion and possible acquisitions
of related businesses.
At March 31, 1999 the Company had approximately $53.2 million of cash and
short-term investments. Prior to its initial public offering in October 1997,
the Company financed its growth through cash flows from operations, periodically
supplemented by borrowings under its line of credit or revolving credit and term
loan facilities. Receivables have decreased to 51 days of revenues at March 31,
1999 from 52 days of revenues at December 31, 1998.
The Company has no outstanding debt. The Company believes the net
proceeds from the initial and follow-on 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 May 3, 1999 at two of its four locations.
The reductions amounted to a 14% cut in SPR's consulting professionals. The
Company believes that these reductions should reduce costs by approximately
$410,000 per month beginning May 15, 1999.
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 May 13, 1999, the Company has purchased
478,192 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 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K.
(i) Report on Form 8-K filed January 14, 1999 containing a news release dated
January 11, 1999 related to a Metamor Worldwide, Inc and SPR Inc. agreement
to merge.
(ii) Report on Form 8-K filed March 19, 1999 containing news releases dated
March 15, 1999 related to Metamor Worldwide, Inc and SPR Inc. terminating
their agreement to merge and separate releases concerning SPR Inc.'s first
quarter 1999 financial performance and stock repurchase program.
<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: May 14, 1999 By: /s/ Robert M. Figliulo
------------------------ ----------------------------------------
Robert M. Figliulo
Chief Executive Officer and
Chairman of the Board of
Directors
Date: May 14, 1999 By: /s/ Stephen J. Tober
------------------------ ----------------------------------------
Stephen J. Tober
Executive Vice President -
Chief Operating Officer
Date: May 14, 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> MAR-31-1999
<CASH> 8,273
<SECURITIES> 44,919
<RECEIVABLES> 11,852
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 3,744
<DEPRECIATION> 0
<TOTAL-ASSETS> 71,416
<CURRENT-LIABILITIES> 9,720
<BONDS> 0
0
0
<COMMON> 138
<OTHER-SE> 61,558
<TOTAL-LIABILITY-AND-EQUITY> 71,416
<SALES> 0
<TOTAL-REVENUES> 16,491
<CGS> 0
<TOTAL-COSTS> 13,148
<OTHER-EXPENSES> 4,749
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 598
<INCOME-PRETAX> (808)
<INCOME-TAX> (323)
<INCOME-CONTINUING> (485)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (485)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
