<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form SP-15D2
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
COMMISSION FILE NO.
----------
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)
Registrant's telephone number, including area code: (757) 486-1900
Securities registered pursuant
to Section 12(b) of the Act: NONE
Securities registered pursuant
to Section 12(g) of the Act: COMMON STOCK, PAR VALUE $.01
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
YES X NO
----- -----
(2) has been subject to the filing requirements for the past 90 days.
YES NO X
----- -----
The aggregate market value of the registrant's Common Stock held by
non-affiliates as of March 20, 1997 was approximately $87 million, based on the
average of the high and low prices of the registrant's Common Stock on the
Nasdaq National Market on such date.
As of March 20, 1997, the registrant had issued and outstanding
--
14,800,000 shares of Common Stock, $.01 par value.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K [X].
- ------------------------------------------------------------------------------
This Annual Report on Form 10-K is being filed pursuant to Rule 15d-2
under the Securities Exchange Act of 1934 and contains only certified
financial statements as required by Rule 15d-2.
<PAGE>
On January 29, 1997 Metro Information Services, Inc. (the "Company")
consummated its initial public offering (the "Offering") of 3,100,000 shares
of common stock, par value $.01 per share (the "Common Stock"), at $16.00 per
share. Subsequently, on January 31, 1997 the underwriters exercised their
over-allotment option to purchase an additional 465,000 shares at $16.00 per
share. The proceeds, net of the underwriters' commissions and estimated
Offering expenses, were $33,324,000. A detailed description of the Offering is
included within the Registration Statement (Registration Statement No.
333-16585) filed with the Securities and Exchange Commission (the
"Commission").
Rule 15d-2 ("Rule 15d-2") under the Securities Exchange Act of
1934, as amended, provides generally that, if a registrant files a
registration statement under the Securities Act of 1933, as amended, which
does not contain certified financial statements for the registrant's last
full fiscal year (or for the life of the registrant if less than a full
fiscal year), then the registrant shall, within 90 days after the effective
date of the registration statement, file a special report furnishing
certified financial statements for such last full fiscal year or other period
as the case may be. Rule 15d-2 further provides that such special financial
report is to be filed under cover of the facing sheet appropriate for annual
reports of the registrant.
The Company's Form S-1 Registration Statement referenced above did
not contain the certified financial statements contemplated by Rule 15d-2,
therefore, as required by Rule 15d-2, these are being filed with the
Commission under cover of the facing page of an Annual Report on Form 10-K.
-2-
<PAGE>
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 10-K
(a)(1) List of Financial Statements filed as part of the Form 10-K
The following Financial Statements of Metro Information Services,
Inc. are filed as part of the Form 10-K. Page numbers refer to this Form 10-K:
METRO INFORMATION SERVICES, INC.:
Independent Auditors' Report............................4
Balance Sheets..........................................5
Statements of Income....................................6
Statements of Changes in Redeemable Common Stock
and Shareholders' Equity..............................7
Statements of Cash Flows................................8
Notes to Financial Statements...........................9
(a)(2) List of Financial Statement Schedules required to be filed as part of
this Form 10-K
None.
(a)(3) List of Exhibits
23.1 Consent of KPMG Peat Marwick.
Exhibit 27 Financial Data Schedule.
(b) Reports on Form 8-K
Not applicable to this filing.
(c) Exhibits
23.1 Consent of KPMG Peat Marwick.
27 Financial Data Schedule.
(d) Schedules Required by Regulation S-X Excluded under Rules 14a-3(b).
None.
-3-
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Metro Information Services, Inc.:
We have audited the accompanying balance sheets of Metro Information
Services, Inc. as of December 31, 1995 and 1996, and the related statements
of income, changes in redeemable common stock and shareholders' equity and
cash flows for each of the years in the three-year period ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based upon our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Metro Information Services,
Inc. as of December 31, 1995 and 1996 and the results of its operations and
cash flows for each of the years in the three-year period ended December 31,
1996, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Norfolk, Virginia
February 24, 1997
4
<PAGE>
METRO INFORMATION SERVICES, INC.
BALANCE SHEETS
DECEMBER 31,
-------------------------
1995 1996
---------- -----------
ASSETS:
Current assets:
Cash....................................... $ 116,835 $ 157,372
Accounts receivable, less allowance for
doubtful accounts of $86,007 and $113,886
at December 31, 1995 and 1996
(note 4)................................. 15,781,539 16,665,989
Notes receivable--related parties
(note 2)................................. 18,060 --
Prepaid expenses........................... 220,243 112,281
----------- -----------
Total current assets..................... 16,136,677 16,935,642
Property and equipment, net (note 3)......... 2,615,226 4,069,816
Notes receivable--related parties, less
current maturities (note 2)................ 963,622 --
Other assets................................. 70,644 566,689
----------- -----------
Total assets................................. $19,786,169 $21,572,147
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Line of credit facilities (note 4)......... $ 7,255,622 $ 2,547,388
Accounts payable........................... 956,629 1,146,010
Accrued compensation and benefits.......... 5,556,640 6,873,694
----------- -----------
Total liabilities........................ 13,768,891 10,567,092
----------- -----------
Redeemable common stock (notes 8 and 10)..... 1,404,298 2,650,893
----------- -----------
Shareholders' equity:
Preferred stock, $0.01 par
value; authorized 1,000,000 shares; none
issued and outstanding (note 8).......... -- --
Common stock, $0.01 par value, authorized
50,000,000 shares; issued and outstanding
8,768,239 shares (notes 8 and 10)........ 87,682 87,682
Retained earnings ......................... 4,525,298 8,266,480
----------- -----------
Total shareholders' equity............... 4,612,980 8,354,162
----------- -----------
Commitments, contingencies and subsequent
events (notes 7 and 10) ...................
Total liabilities and shareholders' equity... $19,786,169 $21,572,147
----------- -----------
----------- -----------
See accompanying notes to financial statements.
5
<PAGE>
METRO INFORMATION SERVICES, INC.
STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
------------------------------------
1994 1995 1996
---------- ---------- ------------
Revenue............................. $68,668,769 $85,904,026 $113,962,932
Cost of revenue..................... 48,220,645 61,074,051 79,751,603
----------- ----------- -------------
Gross profit........................ 20,448,124 24,829,975 34,211,329
Selling, general and administrative
expenses (notes 2 and 8).......... 14,595,147 19,506,718 25,110,693
----------- ----------- -------------
Operating income.................... 5,852,977 5,323,257 9,100,636
----------- ----------- -------------
Interest expense.................... (232,745) (380,420) (309,076)
Interest income..................... 18,190 57,440 49,622
----------- ----------- -------------
Net interest expense............ (214,555) (322,980) (259,454)
----------- ----------- -------------
Net income.......................... $ 5,638,422 $ 5,000,277 $ 8,841,182
----------- ----------- -------------
----------- ----------- -------------
Pro forma income data:
Net income........................ $ 5,638,422 $ 5,000,277 $ 8,841,182
Pro forma provision for income
taxes (unaudited) (note 5)...... 2,255,369 2,000,111 3,536,473
----------- ----------- -------------
Pro forma net income
(unaudited)................... $ 3,383,053 $ 3,000,166 $ 5,304,709
----------- ----------- -------------
----------- ----------- -------------
Pro forma net income per share
(unaudited)..................... $ 0.24 $ 0.42
---------- ------------
---------- ------------
Weighted average number of shares
of common stock and common stock
equivalents outstanding......... 12,755,789 12,761,685
See accompanying notes to financial statements.
6
<PAGE>
METRO INFORMATION SERVICES, INC.
STATEMENTS OF CHANGES IN REDEEMABLE COMMON STOCK
AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
REDEEMABLE
COMMON STOCK COMMON STOCK
------------------- ------------------- RETAINED
SHARES AMOUNT SHARES AMOUNT EARNINGS TOTAL
------ ---------- ------ ------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AS OF DECEMBER 31, 1993......... 2,907,548 $ 732,469 8,768,239 $87,682 $ 3,092,853 $ 3,180,535
Issuance of redeemable common stock..... 319,164 363,454 -- -- -- --
Stock redemption........................ (24,551) (25,523) -- -- (9,645) (9,645)
Distributions paid...................... -- -- -- -- (4,383,833) (4,383,833)
Net income for 1994..................... -- -- -- -- 5,638,422 5,638,422
--------- ---------- --------- ------- ----------- -----------
BALANCE AS OF DECEMBER 31, 1994......... 3,202,161 1,070,400 8,768,239 87,682 4,337,797 4,425,479
Issuance of redeemable common stock..... 242,003 359,421 -- -- -- --
Stock redemption........................ (24,551) (25,523) -- -- (10,940) (10,940)
Distributions paid...................... -- -- -- -- (4,801,836) (4,801,836)
Net income for 1995..................... -- -- -- -- 5,000,277 5,000,277
--------- ---------- --------- ------- ----------- -----------
BALANCE AS OF DECEMBER 31, 1995......... 3,419,613 1,404,298 8,768,239 87,682 4,525,298 4,612,980
Issuance of redeemable common stock..... 312,148 1,246,595 -- -- -- --
Distributions paid...................... -- -- -- -- (5,100,000) (5,100,000)
Net income for 1996..................... -- -- -- -- 8,841,182 8,841,182
--------- ---------- --------- ------- ----------- -----------
BALANCE AS OF DECEMBER 31, 1996........ 3,731,761 $2,650,893 8,768,239 $87,682 $ 8,266,480 $ 8,354,162
--------- ---------- --------- ------- ----------- -----------
--------- ---------- --------- ------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
METRO INFORMATION SERVICES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................. $5,638,422 $5,000,277 $8,841,182
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation......................... 357,243 536,986 763,760
Net loss on sale of property and
equipment.......................... 442 4,839 39,509
Changes in assets and liabilities
increasing (decreasing) cash:
Accounts receivable................ (3,030,606) (4,367,288) (884,450)
Prepaid expenses................... (51,424) (71,685) 107,962
Accounts payable................... 36,847 402,999 189,381
Accrued compensation and
benefits......................... 592,362 1,736,083 2,087,054
---------- ---------- ----------
Net cash provided by operating
activities..................... 3,543,286 3,242,211 11,144,398
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and
equipment............................ (913,343) (1,617,562) (2,267,638)
Proceeds from sale of property and
equipment............................ 275 16,707 9,779
Increase in other assets............... (8,388) (24,399) (496,045)
---------- ---------- ----------
Net cash used in investing
activities..................... (921,456) (1,625,254) (2,753,904)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under line
of credit............................ 477,050 3,659,191 (4,708,234)
Proceeds from issuance of redeemable
common stock......................... 363,454 359,421 476,595
Redemption of redeemable common
stock................................ (613,418) (36,463) --
Distributions to shareholders.......... (4,383,833) (4,801,836) (5,100,000)
Advances on notes receivable--related
parties.............................. -- (800,000) (175,000)
Repayment of notes receivable--related
parties.............................. 1,554,395 19,680 1,156,682
---------- ---------- ----------
Net cash used in financing
activities..................... (2,602,352) (1,600,007) (8,349,957)
---------- ---------- ----------
Net increase in cash............. 19,478 16,950 40,537
Cash at beginning of period.............. 80,407 99,885 116,835
---------- ---------- ----------
Cash at end of period.................... $ 99,885 $ 116,835 $ 157,372
---------- ---------- -----------
---------- ---------- -----------
Supplemental disclosure of cash flow
information--
Cash paid for interest................. $ 232,745 $ 380,420 $ 309,076
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
METRO INFORMATION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Metro Information Services, Inc. ("Metro" or the "Company") is an
information technology ("IT") consulting services firm providing IT
consultants on a contract basis to organizations with complex IT
operations. As of December 31, 1996, the Company had 23 offices in the
United States and Puerto Rico.
REVENUE RECOGNITION AND CONCENTRATION OF CREDIT RISK
The Company derives substantially all of its revenue from consulting
services. Revenue is recognized as services are performed. Concentration
of credit risk with respect to accounts receivable is limited due to the
number and diversity of the Company's client base.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation on property and
equipment is calculated on the straight-line method over their estimated
useful lives. Depreciation on leasehold improvements is calculated on the
straight-line method over the lesser of the length of the lease term or
their estimated useful lives.
OTHER ASSETS
Other assets primarily consist of costs incurred through December 31, 1996
in connection wtih the Company's January 29, 1997 initial public offering
of stock (see note 10) and security deposits relating to the Company's
leased facilities.
INCOME TAXES
For the periods shown, the Company, with the consent of its shareholders,
was taxed as an S corporation under federal and certain state income tax
laws, which provide that, in lieu of corporate income taxes, the
shareholders separately account for their pro rata share of the Company's
items of income, gains, deductions, losses and credits (see note 10 for
subsequent event).
<PAGE>
METRO INFORMATION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
UNAUDITED PRO FORMA NET INCOME AND PRO FORMA NET INCOME PER SHARE
The pro forma net income presented in the statements of income reflects
the pro forma effects for income taxes at an effective rate of 40%, as if
the Company had been a taxable entity for all periods presented.
The pro forma net income per common share is computed based on the
weighted average number of common shares and common equivalent shares
(using the treasury stock method) outstanding after giving effect to the
stock split discussed in note 10. In accordance with Securities and
Exchange Commission Staff Accounting Bulletin No. 83, all common and
common equivalent shares issued during the 12-month period before filing
the initial public offering, even if anti-dilutive, have been included in
the calculation as if they were outstanding for all periods, at the
initial public offering price of $16.00 per share. In addition, weighted
average shares for each period are increased in accordance with
Securities and Exchange Commission Staff Accounting Bulletin Topic 1B3 to
reflect certain distributions in excess of earnings.
EFFECT OF RECENT ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 123, ACCOUNTING
FOR STOCK BASED COMPENSATION. With respect to stock options granted to
employees, SFAS No. 123 permits companies to continue using the
accounting method promulgated by the Accounting Principles Board ("APB")
Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, to measure
compensation or to adopt the fair value based method prescribed by SFAS
No. 123. If APB No. 25's method is continued, pro forma disclosures are
required as if SFAS No. 123 accounting provisions were followed.
Management has adopted APB No. 25's accounting recognition provisions. In
the opinion of management, adopting SFAS No. 123 would not have a
material impact on the Company's financial statements.
SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND
LONG-LIVED ASSETS TO BE DISPOSED OF, is effective for years beginning
after December 15, 1995. This pronouncement was adopted for periods
beginning January 1, 1996 and did not have a material impact on the
Company's financial statements.
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements
in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
<PAGE>
METRO INFORMATION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(2) RELATED PARTY TRANSACTIONS
NOTES RECEIVABLE
As of December 31, 1995, notes receivable-related parties consisted of
$800,000 due on a $1,000,000 line of credit note from the majority
shareholder requiring annual interest payments at 8%, which was secured by
Deed of Trust on real property; $168,322 due on an unsecured note from a
partnership in which the majority shareholder and two other shareholders
are general partners, requiring monthly payments of principal and
interest at 8%; and $13,360 of other notes receivable from employees.
As of December 31, 1996, all notes receivable, except the line of credit
note, had been repaid in full and the notes canceled. The line of
credit note was canceled shortly before the initial public offering
discussed in note 10.
OTHER
Until December 31, 1996, the Company leased facilities for its corporate
headquarters from a partnership in which the majority shareholder of the
Company and his spouse are the general partners. The lease agreement
provided for an annual rental of $144,000 payable in monthly installments
of $12,000. The Company leased a new corporate headquarters facility from
an unrelated third party beginning December 15, 1996. The lease for the
old facilities was terminated on December 31, 1996.
In September 1996, the Company purchased two condominiums from
partnerships in which the majority shareholder and certain other
shareholders of the Company are general partners. The total purchase
price of $380,000 was determined by independent appraisals. Before the
purchase, these condominiums were leased by the Company from the
partnerships for annual rentals of $69,000 and were generally made
available to the Company's employees as a benefit.
<PAGE>
METRO INFORMATION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(3) PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
USEFUL -------------------------
LIFE 1995 1996
--------- --------- -------------
<S> <C> <C> <C>
Land....................................... n.a. $ 60,296 $ 94,376
Buildings.................................. 31.5 years 278,483 607,297
Computer equipment......................... 3-7 years 2,917,598 4,166,220
Furniture and equipment.................... 5-7 years 1,048,851 1,370,312
Leasehold improvements..................... Various 54,142 203,953
--------- -------------
4,359,370 6,442,158
Less accumulated depreciation........ 1,744,144 2,372,342
--------- -------------
$2,615,226 $ 4,069,816
----------- -------------
----------- -------------
</TABLE>
(4) LINE OF CREDIT FACILITIES
The Company maintains three line of credit facilities with three
different banks. As of December 31, 1996, availability under the three
facilities totaled $17,000,000. Borrowings under these facilities may not
exceed the lesser of $17,000,000 and 85% of the Company's eligible
accounts receivable. The facilities bear interest at the London Interbank
Offered Rate (LIBOR) plus 150 basis points (7.0% at December 31, 1996),
payable monthly. Borrowings are collateralized by a security interest in
the Company's accounts receivable, general intangibles, inventory and
furniture and fixtures. The facilities also include several covenants
which restrict transfers or changes in control of the Company, limit
additional indebtedness, require the lenders' consent for mergers and
require the Company to maintain a specified debt to net worth ratio and
to meet a minimum shareholders' equity requirement. Two of the three
facilities, with availability of $12,000,000, expire on April 30, 1997.
The third facility expires on May 31, 1997.
As of December 31, 1995 and 1996, borrowings outstanding under these
facilities totaled $7,255,622 and $2,547,388, respectively.
<PAGE>
METRO INFORMATION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(5) INCOME TAXES
The unaudited pro forma provision for income taxes presented on the
statements of income represents the estimated taxes that would have been
recorded had the Company been a C corporation for income tax purposes for
each of the periods presented. The pro forma provision for income taxes is
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- --------
<S> <C> <C> <C>
Pro forma (unaudited).................
Federal............................. $1,917,063 $1,700,094 $3,006,002
State............................... 338,306 300,017 530,471
--------- --------- ---------
Total pro forma................. $2,255,369 $2,000,111 $3,536,473
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
The pro forma tax expense differs from the amount which would be provided by
applying the statutory federal rate to income before income taxes primarily
as a result of state income taxes.
A reconciliation of the statutory federal income tax rate and the effective
rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Statutory tax rate...................... 34% 34% 34%
Effect of:
State and local income taxes, net of
federal tax benefit................. 5 5 5
Other................................. 1 1 1
--------- --------- ---------
Effective tax rate................ 40% 40% 40%
--------- --------- ---------
--------- --------- ---------
</TABLE>
(6) PROFIT SHARING PLAN
The Company sponsors a 401(k) employee benefit plan covering all eligible
employees with a minimum of three months of service. Eligible employees are
permitted to make voluntary deductible contributions to the plan and the
Company makes matching contributions of one-half of the eligible employee's
contribution, up to a maximum of 6% of the employee's compensation.
The Company made matching contributions of $749,324, $939,223,
and $1,181,665 to the plan for the years ended December 31, 1994,
1995 and 1996, respectively.
(7) COMMITMENTS AND CONTINGENCIES
The Company is obligated under various noncancelable operating leases for
office space. Rent expense for the years ended December 31, 1994, 1995 and
1996 was $625,054, $854,539 and $1,094,436, respectively, and is included
in selling, general and administrative
<PAGE>
METRO INFORMATION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(7) COMMITMENTS AND CONTINGENCIES (CONTINUED)
expenses in the accompanying statements of income. Renewal options are
available at most locations. Future minimum lease payments as of December
31, 1996 (including those for the Company's new headquarters facility) are
as follows:
<TABLE>
<S> <C>
1997......................................................... $1,249,317
1998......................................................... 1,073,389
1999......................................................... 960,093
2000......................................................... 778,885
2001......................................................... 553,222
Thereafter................................................... 5,406
----------
$4,620,312
----------
----------
</TABLE>
The Company self-insures against employees' health insurance claims up to a
stop loss limit of $125,000 per employee per year and a variable, aggregate
stop loss limit. Amounts charged to income related to insurance claims were
$1,613,111, $2,206,861 and $3,143,431 for the years ended December 31,
1994, 1995 and 1996, respectively. Included in accrued compensation and
benefits on the accompanying balance sheet is a reserve for claims
incurred but not yet reported of $328,099 and $485,434 at
December 31, 1995 and 1996, respectively.
(8) SHAREHOLDERS' EQUITY
On October 22, 1996, the Company's shareholders amended and restated the
articles of incorporation. Under the amended and restated articles of
incorporation, the Company authorized 1,000,000 shares of Preferred Stock,
par value $0.01 and 50,000,000 shares of Common with a par value of $0.01
per share, of which 49,000,000 shares are designated as Common Stock and
1,000,000 shares are designated as Nonvoting Common Stock. The
recapitalization and the 3,507.2952 for one stock split referenced in note
10 are reflected in these financial statements and the accompanying notes.
PREFERRED STOCK
The Company's Board of Directors have the authority to issue shares of
Preferred Stock and determine the stock terms without obtaining shareholders
approval. There are currently no issued or outstanding shares of Preferred
Stock and the Company has no present plans to issue any shares of Preferred
Stock.
COMMON STOCK
The Common Stock shareholders have the sole right to vote. Those shares of
Common that are subject to certain contractual redemption obligations have
been classified as redeemable common stock (the "Redeemable Common Stock").
In all other respects, the Common Stock and Redeemable Common Stock have
identical rights.
Redeemable Common Stock was offered to key members of management under
individual stock purchase agreements annually on April 1 and the
individuals had 30 days to purchase the stock. The number of shares offered
was determined by the Company's president based on the prior fiscal year's
operating income and each individual's performance in that year. The
purchase price was determined by a formula based on operating income.
<PAGE>
METRO INFORMATION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(8) SHAREHOLDERS' EQUITY (CONTINUED)
Certain shares of Redeemable Common Stock were issued within 12 months of
the Company's initial public offering date. As a result, the Company's
December 31, 1995 balance sheet reflects a $770,000 liability for accrued
compensation and benefits which was charged as an expense to selling,
general and administrative expenses in 1995. This amount represents the
excess of the fair value of the stock, as determined by an independent
appraisal obtained by the Company, over its purchase price.
(9) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following summarizes disclosures regarding the fair value of the
Company's financial instruments as of December 31, 1996:
ACCOUNTS RECEIVABLE, LINE OF CREDIT FACILITIES, ACCOUNTS PAYABLE AND ACCRUED
COMPENSATION AND BENEFITS
The carrying amounts approximate fair value due to the short maturity of
these instruments.
NOTES RECEIVABLE--RELATED PARTIES
The carrying amount approximates fair value, because the rates of interest
on these notes approximate rates currently offered by lending institutions
for loans of similar terms to individuals or companies with comparable
credit risk.
(10) SUBSEQUENT EVENTS
On January 29, 1997, the Company's initial public offering of Common Stock
became effective. The Company sold 2,300,000 shares of Common Stock at
$16.00 per share generating net proceeds of approximately $33,324,000 after
underwriting discount and offering expenses.
The following corporate actions have been taken in connection with the
initial public offering:
DISTRIBUTIONS
On January 20, 1997, the Company distributed $9,000,000 to its shareholders,
approximating the estimated aggregate undistributed amount of income on
which the Company's shareholders either have paid or will be required to
pay income taxes for tax years 1987 through 1996.
STOCK SPLIT
On January 24, 1997, the Company effected a 3,507.2952 for 1 stock split
by means of a stock dividend. All share and per share data in these
financial statements reflect this stock split.
CONVERSION OF NONVOTING COMMON STOCK
The nonvoting Redeemable Common Stock was released from any agreement
requiring its redemption and was converted into voting Common Stock.
As a result, the 3,731,761 shares of Redeemable Common Stock will be
reclassified as Common Stock in future financial statements.
<PAGE>
METRO INFORMATION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(10) SUBSEQUENT EVENTS (CONTINUED)
TERMINATION OF S CORPORATION ELECTION
Effective January 1, 1997, the Company terminated its S corporation
election resulting in the Company becoming a C corporation for all
income tax purposes.
CANCELLATION OF RELATED PARTY NOTE
Shortly before the initial public offering, the Company's majority
shareholder repaid his outstanding line of credit note in full. The
Company then cancelled the line of credit note and released the Deed
of Trust on real property securing the note.
STOCK OPTION PLANS
Incentive Stock Option Plan
The Company has adopted the 1997 Employee Incentive Stock Option Plan which
provides for the grant of incentive stock options to purchase up to an
aggregate of 770,000 shares of Common Stock. Contemporaneous with the
initial public offering, certain employees of the Company were
granted options to purchase 375,000 shares of common stock at the initial
public offering price of $16.00 per share. The options vest ratably over
five years.
Employee Stock Purchase Plan
The Company has adopted the Metro Information Services, Inc. Employee Stock
Purchase Plan (the "Employee Stock Purchase Plan"). Under the Employee
Stock Purchase Plan, an aggregate of 250,000 shares of Common Stock may be
purchased from the Company by the employees through payroll withholding
pursuant to a series of offerings. All full-time employees who have met
certain service requirements (as defined in the Employee Stock Purchase
Plan), except for employees who own Common Stock of the Company or options
on such stock which represent more than 5% of Common Stock of the Company,
are eligible to participate. The purchase price of Common Stock may not be
less than 85% of the fair market value of Common Stock on the date of the
offering commencement or termination whichever is lower.
Director Option Plan
The Company has adopted a nonqualified stock option plan for the outside
directors of the Company. These directors will be granted a non-statutory
option for 3,000 shares of Common Stock on such Director's initial election
as a Director and, at each annual meeting of shareholders thereafter, such
Director shall be granted an additional option for 1,000 shares of Common
Stock. The options granted to outside directors will be immediately
exercisable in full at a price equal to the fair market value of Common
Stock on the date of grant. The options will expire ten years after the
date of grant or one year after the outside director is no longer a
director of the Company, whichever is earlier. The Company has reserved
50,000 shares for issuance under this plan.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with the Company's six
executive officers. The agreements are effective January 1997, and provide
for an initial term of one year with total annual base salaries of
$1,200,000 and automatically renew for successive one-year terms unless
terminated by either party. The six executive officers are also entitled to
a performance bonus up to approximately 50% of their base salary. The
agreements also contain a two-year non-competition provision following
termination of employment.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 15(d) 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.
METRO INFORMATION SERVICES, INC.
Date: March 27, 1997 By: /s/ JOHN H. FAIN
-----------------------------------------
John H. Fain
PRESIDENT AND PRINCIPAL EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
SIGNATURE DATE
- ------------------------------ -------------------
/s/ JOHN H. FAIN
- ------------------------------ March 27, 1997
John H. Fain
President and Director
(Principal Executive
Officer)
/s/ ANDREW J. DOWNING
- ------------------------------ March 27, 1997
Andrew J. Downing
Director and Executive
Vice President
/s/ ROBERT J. EVELEIGH
- ------------------------------ March 27, 1997
Robert J. Eveleigh
Treasurer, Chief
Financial Officer and
Director (Principal
Financial Officer)
/s/ STEVEN A. LURUS
- ------------------------------ March 27, 1997
Steven A. Lurus
Director of Finance
(Principal Accounting
Officer)
II-4
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Metro Information Services, Inc.:
We consent to incorporation by reference in registration
statements (Nos. 333-22751, 333-22753 and 333-22777) on Form S-8 of Metro
Information Services, Inc. of our report dated February 24, 1997, relating to
the balance sheets of Metro Information Services, Inc. as of
December 31, 1996 and 1995, and the related statements of income, cash
flows and changes in redeemable common stock and shareholders' equity for
each of the years in the three-year period ended December 31, 1996, which report
appears in the December 31, 1996 Annual Report on Form 10-K of Metro
Information Services, Inc.
/s/ KPMG Peat Marwick LLP
Norfolk, Virginia
March 26, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENT OF INCOME AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 157
<SECURITIES> 0
<RECEIVABLES> 16,780
<ALLOWANCES> 114
<INVENTORY> 0
<CURRENT-ASSETS> 16,936
<PP&E> 6,442
<DEPRECIATION> 2,372
<TOTAL-ASSETS> 21,572
<CURRENT-LIABILITIES> 10,567
<BONDS> 0
0
0
<COMMON> 88
<OTHER-SE> 8,266<F1>
<TOTAL-LIABILITY-AND-EQUITY> 21,572
<SALES> 0
<TOTAL-REVENUES> 113,963
<CGS> 0
<TOTAL-COSTS> 79,752
<OTHER-EXPENSES> 25,111
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 309
<INCOME-PRETAX> 8,841
<INCOME-TAX> 0
<INCOME-CONTINUING> 8,841
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,841
<EPS-PRIMARY> .42
<EPS-DILUTED> .42
<FN>
<F1>Excludes redeemable common stock of $2,651.
</FN>
</TABLE>
