<PAGE>
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------------
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED
MARCH 31, 1997
COMMISSION FILE NO.: 000-22035
------------------------------
METRO INFORMATION SERVICES, INC.
(Exact name of registrant as specified in its charter)
VIRGINIA 54-1112301
(State of incorporation) (I.R.S. Employer Identification Number)
POST OFFICE BOX 8888 VIRGINIA BEACH, VIRGINIA 23450
(Address of principal executive office) (Zip Code)
(757)486-1900
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant 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 has been subject to the
filing requirements for the past 90 days. Yes/x/ No/ /
As of May 1, 1997, the registrant had issued and outstanding 14,800,000
shares of Common Stock, $.01 par value.
- -------------------------------------------------------------------------------
<PAGE>
METRO INFORMATION SERVICES, INC.
FORM 10-Q
Table of Contents
Page
Number
--------
PART I. FINANCIAL INFORMATION:
ITEM 1. Balance Sheets as of December 31, 1996 and March 31,
1997 (unaudited) 3
Statements of Income for the Three Months Ended March
31, 1996 and 1997 (unaudited) 4
Statements of Cash Flows for the Three Months Ended
March 31, 1996 and 1997 (unaudited) 5
Statements of Changes in Redeemable Common Stock And
Shareholders' Equity for the Three Months Ended March
31, 1997 (unaudited) 6
Notes to Financial Statements (unaudited) 7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION 13
SIGNATURES 14
2
<PAGE>
PART I. FINANCIAL INFORMATION:
ITEM 1. Financial Statements
METRO INFORMATION SERVICES, INC.
Balance Sheets (unaudited)
December 31, March 31,
In thousands 1996 1997
Assets ------------- ----------
Current assets:
Cash and cash equivalents.......... $ 157 $22,358
Accounts receivable, net........... 16,666 19,923
Prepaid expenses................... 112 258
Deferred income taxes (Note 2)..... -- 515
------- -------
Total current assets............. 16,935 43,054
Property and equipment, net.......... 4,070 4,351
Other assets......................... 567 102
------- -------
Total assets..................... $21,572 $47,507
------- -------
Liabilities and Shareholders' Equity
Current liabilities:
Line of credit facilities.......... $2,547 $ --
Accounts payable................... 1,146 2,706
Accrued compensation and benefits.. 6,874 7,489
------- -------
Total current liabilities........ 10,567 10,195
------- -------
Deferred income taxes (Note 2)....... -- 312
------- -------
Total liabilities................ 10,567 10,507
------- -------
Redeemable common stock.............. 2,651 --
Shareholders' equity
Preferred stock, $0.01 par value;
authorized 1,000,000 shares; none
issued and outstanding........... -- --
Common stock, $0.01 par value,
authorized 50,000,000 shares;
issued and outstanding 8,768,239
shares at December 31, 1996,
14,800,000 shares at
March 31, 1997................... 88 148
Paid in capital.................... -- 35,754
Retained earnings.................. 8,266 1,098
------- -------
Total shareholders'equity........ 8,354 37,000
------- -------
Total liabilities and
shareholders' equity......... $21,572 $47,507
------- -------
------- -------
See accompanying notes to financial statements
3
<PAGE>
METRO INFORMATION SERVICES, INC.
Statements of Income (unaudited)
Three months
ended March 31,
--------------------
In thousands, except per share data 1996 1997
--------- ---------
Revenue........................................ $ 26,328 $ 33,045
Cost of revenue................................ 18,602 23,318
--------- ---------
Gross profit................................. 7,726 9,727
Selling, general and administrative expenses... 5,619 6,986
--------- ---------
Operating income............................. 2,107 2,741
Interest income (expense)...................... (86) 104
--------- ---------
Income before income taxes................... 2,021 2,845
Income taxes (Note 2).......................... -- 1,013
--------- ---------
Net income (Note 2).......................... $ 2,021 $ l,832
--------- ---------
--------- ---------
Pro forma income data:
Income before income taxes................... 2,021 2,845
Provision for income taxes................... 808 1,013
--------- ---------
Net income................................... 1,213 1,832
--------- ---------
--------- ---------
Net income per share (Note 2).................. $ 0.09 $ 0.13
--------- ---------
--------- ---------
Weighted average number of shares of common
stock and common stock equivalents
outstanding................................. 12,832 14,033
--------- ---------
See accompanying notes to financial statements
4
<PAGE>
METRO INFORMATION SERVICES, INC.
Statements of Cash Flows (unaudited)
<TABLE>
<CAPTION>
Three months
ended March 31,
---------------------------------
<S> <C> <C>
1996 1997
------------------ -------------
Cash flows from operating activities:
Net Income........................................................ $ 2,020,997 $ 1,831,872
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation.................................................... 162,564 238,744
Net loss on sale of property and equipment...................... 305 37,114
Changes in assets and liabilities
increasing (decreasing) cash:
Accounts receivable.......................................... (1,409,081) (3,257,575)
Notes receivable............................................. 413,697 --
Prepaid expenses............................................. (221,996) (145,620)
Accounts payable............................................. 253,260 343,416
Current taxes payable........................................ -- 1,216,354
Deferred taxes............................................... -- (203,313)
Accrued compensation and benefits............................ 1,436,200 615,732
----------- -----------
Net cash provided by operating activities.................... 2,655,946 676,724
----------- -----------
Cash flows from investing activities:
Acquisition of property and equipment............................. (488,886) (565,115)
Proceeds from sale of property and equipment...................... -- 8,420
Increase in other assets.......................................... (102,727) (7,136)
----------- -----------
Net cash used in investing activities........................ (591,613) (563,831)
----------- -----------
Cash flows from financing activities:
Net borrowings (repayments) under line of credit.................. (1,761,132) (2,547,388)
Decrease in other assets related to issuance of 2,300,000 shares.. -- 471,849
Proceeds from issuance of 2,300,000 shares........................ -- 33,162,735
Distributions to shareholders..................................... -- (9,000,000)
----------- -----------
Net cash received (used) by financing activities............. (1,761,132) 22,087,196
----------- -----------
Net increase in cash................................................ 303,201 22,200,089
Cash at beginning of period......................................... 116,835 157,372
----------- -----------
Cash at end of period............................................... $ 420,036 $22,357,461
----------- -----------
----------- -----------
Supplemental disclosure of cash flow information -
Cash paid for interest............................................ $ 104,692 $ 31,757
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
METRO INFORMATION SERVICES, INC.
Statements of Changes in Redeemable Common Stock and Shareholders' Equity
(unaudited)
<TABLE>
<CAPTION>
Redeemable Shareholders' Equity
------------------------- ---------------------------------------------------------------------
Common Stock Common Stock
------------------------- ------------------------- Paid in Retained
Shares Amount Shares Amount Capital Earning Total
----------- ------------ ------------ ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of December
31, 1996............... 3,731,761 $ 2,650,893 8,768,239 $ 87,682 $ -- $ 8,266,480 $ 8,354,162
Release of redemption
feature on redeemable
common stock........... (3,731,761) (2,650,893) 3,731,761 37,318 2,613,575 -- 2,650,893
Distributions paid....... -- -- -- -- -- (9,000,000) (9,000,000)
Net proceeds from
issuance of 2,300,000
shares of common
stock.................. -- -- 2,300,000 23,000 33,139,735 -- 33,162,735
Net income............... -- -- -- -- -- 1,831,872 1,831,872
----------- ------------ ------------ ---------- ------------- ------------ -------------
Balance as of March 31,
1997................... -- $ -- 14,800,000 $ 148,000 $ 35,753,310 $ 1,098,352 $ 36,999,662
----------- ------------ ------------ ---------- ------------- ------------ -------------
----------- ------------ ------------ ---------- ------------- ------------ -------------
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
METRO INFORMATION SERVICES, INC.
Notes to Financial Statements
(unaudited)
1. Basis of Presentation
The information presented for March 31, 1996 and 1997, and for the
three-month periods then ended, is unaudited, but, in the opinion of the
Company's management, the accompanying unaudited financial statements contain
all adjustments (consisting only of normal recurring adjustments) which the
Company considers necessary for the fair presentation of the Company's
financial position as of March 31, 1997 and the results of its operations and
its cash flows for the three-month periods ended March 31, 1996 and 1997. The
financial statements included herein have been prepared in accordance with
generally accepted accounting principles and the instructions to Form 10-Q
and Rule 10-01 of Regulation S-X. Accordingly, certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted. These financial statements should be read in conjunction with the
Company's audited financial statements for the year ended December 31, 1996,
which were included as part of the Company's Annual Report on Form 10-K (File
No. 000-22035) and in conjunction with the Company's Registration Statement
on Form S-1 (Registration No. 33-16585) declared effective by the Commission
on January 29, 1997.
Results for the interim period presented are not necessarily indicative
of results that may be expected for the entire year.
2. Income Taxes and Pro Forma Income Taxes
Before January 1, 1997, the Company, with the consent of its
shareholders, was taxed under the provisions of Subchapter S of the Internal
Revenue Code of 1986, which provides that in lieu of corporate income taxes,
the shareholders of the S Corporation are taxed on their proportionate share
of the Company's taxable income. Therefore, pro forma income taxes shown for
periods ending in 1996 represent the estimated amount of income taxes the
Company would have reported had the Company been a C Corporation for that
period taxable at an assumed effective tax rate of 40%.
Effective January 1, 1997, the Company terminated its S Corporation
election and became a C Corporation subject to corporate income taxes. The
cumulative effect of this change, through March 31, 1997, is to reduce income
taxes appearing on the Statement of Income for the three months ended March
31, 1997 by $125,000 and create a current deferred tax asset of $515,000 and
a long-term deferred tax liability of $312,000. The balances of the deferred
tax accounts relate primarily to differences in the timing of deductions of
health care claims reserves, vacation liabilities and depreciation for
financial statement and tax purposes.
3. Initial Public Offering
On January 29, 1997, the Company consummated an initial public offering
of 3,100,000 shares of its Common Stock at a price of $16.00 per share, of
which 2,300,000 shares were issued and sold by the Company and 800,000 shares
were sold by a shareholder of the Company. Shortly thereafter the
representatives of the several underwriters exercised their over-allotment
option resulting in the sale of 465,000 shares by other shareholders of the
Company. The net proceeds to the Company from the offering were approximately
$33,163,000. The Company did not receive any proceeds from the sale of shares
by the selling shareholders.
4. Subsequent Event
On April 30, 1997 the Company's lenders extended the expiration date for
the Company's three credit facilities, with availability of $17,000,000, to
May 31, 1997. The Company has received commitments to expand these lines of
credit to $39,900,000.
7
<PAGE>
PART I
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary statement under the "Safe-Harbor" provisions of the [Initial]
Private Securities Litigation Reform Act of 1995: Included in this report and
other information presented by management from time to time, including, but
not limited to, the Annual Report to Shareholders, quarterly shareholder
letters, filings with the Securities and Exchange Commission, news releases
and investor presentations, are forward-looking statements about business
strategies, market potential, future financial performance and other matters
which reflect management's expectations as of the date of this report.
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: the
Company's ability to attract, develop and retain qualified consultants, the
Company's ability to open new offices, the Company's ability to effectively
identify, manage and integrate acquisitions, changes in staff utilization and
productivity rates, the Company's ability to acquire or develop additional
service offerings, client decisions to reduce or increase IT services
outsourcing, early termination of client contracts without penalty, changes
in the Company's dependence on significant clients, changes in gross margins
due to a variety of factors, the types of services performed by the Company
during a particular period and competition. Please refer to a discussion of
these and other factors in the Company's Prospectus dated January 29, 1997,
the Company's Annual Report on Form 10-K and other Securities and Exchange
Commission filings. The Company disclaims any intent or obligation to update
publicly these forward-looking statements, whether as a result of new
information, future events or otherwise.
Overview
Metro Information Services, Inc. ("Metro" or the "Company") provides a
wide range of information technology ("IT") consulting and custom software
development services through 25 offices in the United States and Puerto Rico.
The Company's more than 1,350 consultants, 66% of whom are salaried, work
with clients' internal IT departments on all aspects of computer systems and
applications development. Services performed by Metro include application
systems development and maintenance, IT architecture and engineering, systems
consulting, project outsourcing and general support services. The Company
supports all major computer technology platforms (mainframe, mid-range,
client/server and network environments) and supports client projects using a
broad range of software applications. For example, the Company implements
SAP's client/server software, custom develops Oracle, Informix, DB2,
VisualBasic and C++ applications, implements and supports Windows NT, Novell
and UNIX based network environments and supports numerous other application
environments.
Metro's clients operate in a wide variety of industries including
communications, distribution, financial services, health care, information
technology, manufacturing and utilities. The Company emphasizes long-term
relationships with its clients rather than one-time projects or assignments.
During the 12 months ended March 31, 1997, the Company performed IT services
for 341 clients (excluding clients that generated less than $25,000 in
revenue during such period).
Revenue growth is derived primarily from increases in the number of
consultants placed with existing and new clients. Between March 31, 1996 and
March 31, 1997, the number of full time consultants grew from 1,103 to 1,358.
In addition, over the same period the Company has increased the average
billing rates charged to clients for consultants in an attempt to keep pace
with the increased costs of consultants.
The Company's past financial performance should not be relied on as an
indication of future performance. Period-to-period comparisons of the
Company's financial results are not necessarily meaningful indicators of
future performance.
8
<PAGE>
Results of Operations
For purposes of the following discussion, a mature office is an office
that was open for at least 12 months at the beginning of the earlier period
being compared and a new office is an office opened thereafter.
First Quarter 1997 Compared to First Quarter 1996
Revenue. Revenue increased $6.7 million, or 25.5%, to $33.0 million for
the three months ended March 31, 1997 from $26.3 million for the three months
ended March 31, 1996. This increase is primarily a result of increased
billings to existing clients, the addition of new clients and increased
billing rates charged for the Company's consultants. Revenue from the 15
mature offices increased $4.2 million, or 16.7 %, from the earlier period and
the nine new offices accounted for the remaining $2.5 million increase in
revenue. As of March 31, 1997 compared to March 31, 1996, the total number of
full-time consultants increased to 1,358 from 1,103, respectively, and
clients (excluding clients that generated less than $25,000 in revenue during
each preceding 12-month period) increased to 341 from 285, respectively.
Cost of revenue. Cost of revenue increased $4.7 million, or 25.4%, to
$23.3 million for the three months ended March 31, 1997 from $18.6 million
for the three months ended March 31, 1996. Cost of revenue increased
primarily due to compensation and benefits associated with growth in the
number of consultants. As a percentage of revenue, cost of revenue decreased
to 70.6% for the three months ended March 31, 1997 from 70.7% for the three
months ended March 31, 1996 primarily because billing rates to clients
increased faster than consultant compensation and benefits increased.
Gross profit. Gross profit increased $2.0 million, or 25.9%, to $9.7
million for the three months ended March 31, 1997 from $7.7 million for the
three months ended March 31, 1996. As a percentage of revenue, gross profit
increased to 29.4% for the three months ended March 31, 1997 from 29.3% for
the three months ended March 31, 1996.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $1.4 million, or 24.3%, to $7.0 million for
the three months ended March 31, 1997 from $5.6 million for the three months
ended March 31, 1996. This increase is due primarily to costs associated with
new offices, growth of administrative staff in mature offices, hiring
additional corporate staff to support the increased number of offices and
development of the Company's proprietary business systems. As a percentage of
revenue, selling, general and administrative expenses decreased to 21.1% for
the three months ended March 31, 1997 from 21.3% for the three months ended
March 31, 1996.
Operating income. Operating income increased $600,000, or 30.1%, to $2.7
million for the three months ended March 31, 1997 from $2.1 million for the
three months ended March 31, 1996. As a percentage of revenue, operating
income increased to 8.3% for the three months ended March 31, 1997 from 8.0%
for the three months ended March 31, 1996.
Net interest income (expense). Net interest income (expense) increased by
$190,000 to $104,000 of interest income for the three months ended March 31,
1997 from $86,000 of interest expense for the three months ended March 31,
1996. This change reflects a decrease in the average level of borrowings
during the period and investment of a portion of the proceeds of the
Company's January 1997 initial public offering of common stock in interest
bearing instruments.
Income before income taxes. Income before income taxes increased
$800,000, or 40.8%, to $2.8 million for the three months ended March 31, 1997
from $2.0 million for the three months ended March 31, 1996. As a percentage
of revenue, income before income taxes increased to 8.6% for the three months
ended March 31, 1997 from 7.7% for the three months ended March 31, 1996.
9
<PAGE>
Income taxes. In 1996, the Company was an S Corporation for federal and
certain state income tax purposes. The income statement for the three months
ended March 31, 1996 includes a pro forma provision for income taxes as if
the Company was subject to federal and state income taxes at an assumed
effective rate of 40%. Income taxes increased $200,000, or 25.4%, to $1.0
million for the three months ended March 31, 1997 from pro forma income taxes
of $800,000 for the three months ended March 31, 1996. As a percentage of
revenue, income taxes remained constant at 3.1%. The Company's effective tax
rate for the three months ended March 31, 1997 was 35.6%. Income taxes for
the three months ended March 31, 1997 include a one-time reduction in income
tax expense of $125,000 which represents the cumulative effect of the Company
converting from an S Corporation to a C Corporation effective January 1,
1997. Excluding the $125,000 one time reduction in income taxes, income taxes
for the three months ended March 31, 1997 would have increased $300,000, or
40.8%, to $1.1 million. As a percentage of revenue, income taxes would have
increased to 3.4% for the three months ended March 31, 1997 from the pro
forma amount of 3.1% for the three months ended March 31, 1996.
Net Income. Net income increased $600,000, or 51.0%, to $1.8 million for
the three months ended March 31, 1997 from pro forma net income of $1.2
million for the three months ended March 31, 1996. As a percentage of
revenue, net income increased to 5.5% for the three months ended March 31,
1997 from the pro forma amount of 4.6% for the three months ended March 31,
1996.
Earnings per share. Earnings per share increased $.04, or 44.4%, to $0.13
for the three months ended March 31, 1997 from pro forma earnings per share
of $0.09 for the three months ended March 31, 1996. Excluding the $125,000
one time credit described under 'Income taxes' above, earnings per share for
the three months ended March 31, 1997 would have increased $0.03, or 33.3%,
to $0.12.
The following table sets forth the percentage of revenue and the
percentage change from the prior period of certain items reflected in the
statements of income for the:
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------------------
Percentage of Percentage Change
Revenue
-------------------- ---------------------
1996 1997 1997 Over 1996
--------- --------- ---------------------
<S> <C> <C> <C>
Revenue....................................................................... 100.0% 100.0% 25.5%
Cost of revenue............................................................... 70.7 70.6 25.4%
--------- ---------
Gross profit.................................................................. 29.3 29.4 25.9%
Selling, general and administrative expenses.................................. 21.3 21.1 24.3%
--------- ---------
Operating income.............................................................. 8.0 8.3 30.1%
Net interest income (expense)................................................. (0.3) 0.3 --
--------- ---------
Income before income taxes.................................................... 7.7 8.6 40.8%
Pro forma provision for income taxes(1)....................................... 3.1 3.1 25.4%
--------- ---------
Pro forma net income(1)....................................................... 4.6% 5.5% 51.0%
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(1) For 1996, the Company was an S corporation for federal and certain state
income tax purposes. The pro forma provision for income taxes for 1996
reflects a provision for income taxes as if the Company were a C corporation
for all income tax purposes during such period, at an assumed effective tax
rate of 40%.
10
<PAGE>
Selected Quarterly Results and Seasonality
The following table sets forth certain quarterly operating information
for each of the 13 quarters ending with the quarter ended March 31, 1997,
both in dollars and as a percentage of revenue. This information was derived
from the unaudited financial statements of the Company which, in the opinion
of management, were prepared on the same basis as the financial statements
contained elsewhere in this report and include all adjustments, consisting of
normal recurring adjustments, which management considers necessary for the
fair presentation of the information for the periods presented. The financial
data shown below should be read in conjunction with the financial statements
and notes thereto included in this report. Results for any fiscal quarter are
not necessarily indicative of results for the full year or for any future
quarter.
<TABLE>
<CAPTION>
Gross Profit Operating Income
------------------------ ------------------------
% of % of
Statements of Income Data Revenue Amount Revenue Amount Revenue
- ---------------------------------------------------------------- ----------- ----------- ----------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
1994:
March........................................................ $15,978 $4,651 29.1% $1,255 7.9%
June......................................................... 16,803 4,928 29.3 1,367 8.1
September.................................................... 17,787 5,487 30.8 1,672 9.4
December..................................................... 18,101 5,382 29.7 1,559 8.6
1995:
March........................................................ 19,760 5,732 29.0 1,422 7.2
June......................................................... 20,695 6,195 29.9 1,683 8.1
September.................................................... 21,881 6,117 28.0 1,428 6.5
December..................................................... 23,568 6,786 28.8 790(1) 3.4(1)
1996:
March........................................................ 26,328 7,726 29.3 2,107 8.0
June......................................................... 27,812 8,452 30.4 2,248 8.1
September.................................................... 29,142 8,817 30.3 2,431 8.3
December..................................................... 30,681 9,216 30.0 2,314 7.5
1997:
March........................................................ 33,045 9,727 29.4 2,741 8.3
</TABLE>
- ------------------------
Includes the $770,000 of non-recurring, non-cash compensation expense charged to
selling, general and administrative expenses accrued in the fourth quarter of
1995 for stock issued for services performed by employees in 1995. Excluding the
effect of such expense, income from operations and income from operations as a
percentage of revenue for the fourth quarter of 1995 would have been $1.6
million and 6.6%, respectively.
Metro's operating results are adversely affected when client facilities
close due to holidays or inclement weather. The Company generally experiences a
certain amount of seasonality in the fourth quarter due to the number of
holidays and closings of client facilities during that quarter. Further, the
Company generally experiences lower operating results in the first quarter due
in part to the timing of unemployment and FICA tax accruals and delays in
clients' contract renewal related to clients' budget approval processes.
Liquidity and Capital Resources
In January 1997, the Company completed an initial public offering of
3,100,000 shares of its Common Stock at a price of $16.00 per share. Of the
3,100,000 shares, 2,300,000 shares were issued and sold by the Company and
800,000 shares were sold by a shareholder of the Company. Shortly thereafter
the representatives of the several underwriters exercised their
over-allotment option resulting in the sale of
11
<PAGE>
465,000 shares by other shareholders of the Company. The net proceeds to the
Company were approximately $33,163,000. The Company did not receive any of the
proceeds from the sale of shares by the selling shareholders.
Since its inception, the Company has funded its operations primarily from
cash generated by operations and, to a lesser extent, borrowings under the
Company's revolving credit facilities. Net cash provided by operations was
$677,000 for the first quarter of 1997 and consisted primarily of net income
for the quarter of $1,832,000 and an increase in accounts receivable of
$3,258,000 and an increase in income taxes payable of $1,216,000. The
increase in accounts receivable is primarily due to the revenue growth
experienced in the first quarter of 1997. The increase in income taxes
payable is the result of the Company converting from an S Corporation to a C
Corporation for federal and certain state tax purposes effective January 1,
1997. As a result of this change, the Company, rather than its shareholders,
became responsible for paying income taxes on the Company's taxable income.
The Company's working capital was $32,859,000 at March 31, 1997 compared to
$6,369,000 at December 31, 1996.
Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings Per
Share, which revised the calculation of earnings per share for publicly held
companies in certain situations. SFAS No. 128 is effective for fiscal years
ending after December 15, 1997. In the opinion of management, SFAS No. 128 is
not expected to have a material impact on the Company's calculation of
earnings per share.
12
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
Effective April 29, 1997, the Board of Directors elected Ray E.
Becker and A. Eugene Loving, Jr. to the Board as independent directors. Mr.
Becker and Mr. Loving will be members of the Company's Audit Committee and
Compensation Committee.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K:
(i) 11 Computation of pro forma earnings per share
(ii) 27 Financial Data Schedule
(b) Reports on Form 8-K:
None.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this Form 10-Q to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Virginia Beach,
Commonwealth of Virginia on the 9th day of May, 1997.
Metro Information Services, Inc.
By /s/ John H. Fain
-----------------------------------------
John H. Fain
President and Principal Executive Officer
By /s/ Robert J. Eveleigh
-----------------------------------------
Robert J. Eveleigh
Principal Financial Officer
By /s/ Steven A. Lurus
-----------------------------------------
Steven A. Lurus
Principal Accounting Officer
14
<PAGE>
EXHIBIT 11
METRO INFORMATION SERVICES, INC.
COMPUTATION OF PRO FORMA EARNINGS PER SHARE (1)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
<S> <C> <C>
1996 1997
------------ ------------
SHARES (2)
Average outstanding during the period (3)......................... 12,187,851 14,033,000
Add: Incremental shares related to stock issued within the year
preceding the filing under the treasury stock method using an
offering price of $16 per share (4)............................. 282,362 --
Add: The number of shares obtained by dividing the amount by which
the distributions during the period exceeded earnings for the
period, by an offering price of $16 per share (5)............... 362,152 --
------------ ------------
Number of shares on which published earnings per share is based... 12,832,365 14,033,000
------------ ------------
------------ ------------
EARNINGS
Pro forma net income applicable to common shareholders............ $ 1,213,000 $ 1,832,000
------------ ------------
------------ ------------
Pro Forma Earnings Per Share...................................... $ 0.09 $ 0.13
------------ ------------
------------ ------------
</TABLE>
- ------------------------
(1) There is no difference between primary and fully-diluted earnings per share.
Therefore, only primary earnings, per share data is presented.
(2) All share amounts give effect to the 3,507.2952 for 1 stock split effected
in the form of a stock dividend before the Company's initial public
offering.
(3) Average shares outstanding for the three month period ended March 31, 1997
are calculated based on 12,500,000 shares outstanding for one month of the
quarter and 14,800,000 thereafter.
(4) Gives effect to the 312,149 shares issued May 1, 1996, as if they were
outstanding for all periods, using the treasury stock method.
(5) Includes $9,000,000 of S corporation earnings distributed before the
completion of the initial public offering.
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF METRO INFORMATION SERVICES, INC. AS PRESENTED IN THE
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS' LEGEND.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 22,358
<SECURITIES> 0
<RECEIVABLES> 19,923
<ALLOWANCES> 120
<INVENTORY> 0
<CURRENT-ASSETS> 43,054
<PP&E> 6,927
<DEPRECIATION> 2,576
<TOTAL-ASSETS> 47,507
<CURRENT-LIABILITIES> 10,195
<BONDS> 0
0
0
<COMMON> 148
<OTHER-SE> 36,852
<TOTAL-LIABILITY-AND-EQUITY> 47,507
<SALES> 0
<TOTAL-REVENUES> 33,045
<CGS> 0
<TOTAL-COSTS> 23,318
<OTHER-EXPENSES> 6,986
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33
<INCOME-PRETAX> 2,845
<INCOME-TAX> 1,013
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,832
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.13
</TABLE>
