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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OF 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended June 30, 1998 or
[ ] 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
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SPR INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-3932665
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2015 Spring Road, Suite 750
Oak Brook, Illinois 60523
(Address, including zip code, of principal executive offices)
(630) 575-6200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
As of August 12, 1998, the registrant had 9,136,642 outstanding shares of
common stock, par value $.01 per share.
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SPR Inc.
FORM 10-Q
For the quarterly period ended June 30,1998
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page
Unaudited Condensed Balance Sheets - December 31, 1997
and June 30,1998
Unaudited Condensed Statements of Operations - Three
Months and Six Months Ended June 30,1997 and 1998
Unaudited Condensed Statement of Stockholders' Equity - Six
Months Ended June 30,1998
Unaudited Condensed Statements of Cash Flows - Six Months
Ended June 30,1997 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 2. Changes in Securities and Use of Proceeds
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
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SPR Inc.
Unaudited Condensed Balance Sheets
(in thousands)
December 31, June 30,
1997 1998
------------ ---------
Assets
Current assets:
Cash and cash equivalents $ 2,133 $ 3,230
Accounts receivable, net 7,833 11,761
Short-term investments 19,043 42,804
Prepaid expenses and other 476 1,292
-------- ---------
Total current assets 29,485 59,087
-------- ---------
Property and equipment, net 2,274 3,367
Deferred income taxes 184 1,224
-------- ---------
Total assets $ 31,943 $ 63,678
======== =========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and other $ 2,917 $ 2,484
Accrued expenses:
Payroll and payroll related costs 2,777 3,411
Other 364 668
Deferred income - 2,525
Deferred income taxes 356 178
-------- ---------
Total current liabilities 6,414 9,266
-------- ---------
Stockholders' equity
Common stock 81 91
Additional paid in capital 24,544 48,885
Retained earnings 904 5,436
-------- ---------
Total stockholders' equity 25,529 54,412
-------- ---------
Total liabilities and stockholders' equity $ 31,943 $ 63,678
======== =========
See notes to unaudited condensed financial statements.
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SPR Inc.
Unaudited Condensed Statements of Operations
(in thousands, except per share amounts)
Three months Six months
Ended June 30, Ended June 30,
---------------------- -------------------
1997 1998 1997 1998
---- ---- ---- ----
Revenues $ 12,194 $ 21,420 $ 22,722 $ 40,439
Cost of services 7,264 12,603 13,990 23,924
--------- -------- -------- --------
Gross profit 4,930 8,817 8,732 16,515
--------- -------- -------- --------
Costs and expenses
Selling 1,095 1,286 2,093 2,454
Recruiting 408 487 698 936
General and administrative expenses 2,560 3,314 4,102 6,340
--------- -------- -------- --------
Total costs and expenses 4,063 5,087 6,893 9,730
--------- -------- -------- --------
Operating income 867 3,730 1,839 6,785
--------- -------- -------- --------
Other income (expense)
Interest expense (70) (1) (109) (3)
Interest income 5 458 9 775
--------- -------- -------- --------
Total other income (expense) (65) 457 (100) 772
--------- -------- -------- --------
Income before income taxes 802 4,187 1,739 7,557
Provision for income taxes 2 1,675 2 3,023
--------- -------- -------- --------
Net income $ 800 $ 2,512 $ 1,737 $ 4,534
========= ======== ======== ========
Historical basic net income per share $ 0.12 $ 0.29 $ 0.27 $ 0.54
========= ======== ======== ========
Historical diluted net income per share $ 0.12 $ 0.28 $ 0.26 $ 0.52
========= ======== ======== ========
Proforma income data:
Net income as reported $ 800 $ 1,737
Proforma adjustment to recognize
"C" corporation provision for income taxes 319 694
--------- --------
Proforma net income $ 481 $ 1,043
========= ========
Proforma basic net income per share $ 0.07 $ 0.16
========= ========
Proforma diluted net income per share $ 0.07 $ 0.16
========= ========
See notes to unaudited condensed financial statements.
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SPR Inc.
Unaudited Condensed Statement of Stockholders' Equity
For the Six Months Ended June 30, 1998
(in thousands)
Common Stock Additional Total
--------------- Paid-in Retained Stockholders'
Shares Amount Capital Earnings Equity
------ ------ ------- -------- ------
Balance at December 31, 1996 6,467 $ 65 $ 46,735 $(44,292) $ 2,508
Employee stock purchase plan 24 - 324 - 324
Capitalization of S-Corp earnings - - (45,444) 45,444 -
Net Income - - - 4,638 4,638
Distributions - - - (4,886) (4,886)
Employee stock option plan - - 459 - 459
Initial public offering 1,600 16 22,470 - 22,486
----- ------ -------- -------- ----------
Balance at December 31, 1997 8,091 $ 81 $ 24,544 $ 904 $ 25,529
----- ------ -------- -------- ----------
Net Income - - - 4,534 4,534
Employee stock purchase plan 31 - 441 - 441
Secondary offering 900 9 23,092 - 23,101
Employee stock option plan 61 1 828 - 829
Treasury stock retired (1) (21) (2) (23)
Other 21 1 - 1
----- ------ -------- -------- ----------
Balance at June 30, 1998 9,103 $ 91 $ 48,885 $ 5,436 $ 54,412
===== ====== ======== ======== ==========
See notes to unaudited condensed financial statements.
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SPR Inc.
Unaudited Condensed Statements of Cash Flows
(in thousands)
Six months
Ended June 30,
----------------------
1997 1998
---- ----
Cash flows from operating activities:
Net income for the period $ 1,737 $ 4,534
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 187 564
Deferred taxes - (1,218)
Expense related to grant of stock options 383 75
Impairment loss on equipment - 217
Increase in accounts receivable, net (992) (3,928)
Increase in prepaid expenses and other (318) (816)
Increase/(decrease) in accounts payable and other 233 (404)
Increase in accrued expenses and deferred income 268 3,463
-------- --------
Net cash provided by operating activities 1,498 2,487
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (281) (1,874)
Purchases of short-term investments - (63,741)
Sales/Maturity of short-term investments - 39,980
-------- --------
Net cash used in investing activities (281) (25,635)
-------- --------
Cash flows from financing activities:
Payments on note payable - related party (480) -
Distributions (1,804) -
Proceeds from employee stock purchase and option plans 904
Proceeds from the issuance of common stock,
net of issuance costs 23,101
Tax benefit from employee stock option plan 291
Net borrowings on line of credit and term loan 1,310 -
Other cash flows from financing activities (53) (51)
-------- --------
Net cash used in financing activities (1,027) 24,245
-------- --------
Net increase in cash and cash equivalents 190 1,097
Cash and cash equivalents, beginning of period 356 2,133
-------- --------
Cash and cash equivalents, end of period $ 546 $ 3,230
======== ========
Supplemental disclosure of cash payments made for :
Interest $ 108 $ 2
Income taxes 1 5,678
======== ========
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,
1997 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
1998 presentation. The results of operations for the three months and six
months ended June 30, 1998 are not necessarily indicative of the results that
may be expected for the full year.
Note 2. Deferred Income
The determination of deferred income is based on management's estimate of
the services to be performed related to completing the Company's Century Date
Compliance projects, software quality assurance, and testing and is adjusted as
additional or new information becomes available.
Note 3. Change in Estimate
During the first quarter of 1998, the Company changed its estimate of
depreciable lives for computer equipment and software from five years to three
years as a result of continued improvements in technology. This change in
estimate reduced second quarter net income by $62,415, or approximately $0.01
per diluted common share, and net income for the first six months by $134,796,
or $0.02 per diluted common share.
Note 4. Capital Stock and Earnings Per Share
The company's basic and diluted per share amounts for the three months and
six months ended June 30,1997 and 1998 are as follows:
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Three Months Ended
---------------------------------------------------------------------------------
June 30, 1997 June 30, 1998
--------------------------------------- --------------------------------------
Income Per Share Income Per Share
(in thousands) Shares Amount (in thousands) Shares Amount
-------------- ------ --------- -------------- ------ ---------
Historical
- ----------
Historical Basic EPS: $ 800 6,467,400 $ 0.12 $ 2,512 8,646,475 $ 0.29
Income available to
Common Stockholders
Effect of Dilutive Securities:
Employee Compensation Plans - 239,007 - - 367,634 -
------- --------- ------- -------- --------- -------
Historical Dilutive EPS:
Income available to
Common Stockholders
plus assumed exercises $ 800 6,706,407 $ 0.12 $ 2,512 9,014,109 $ 0.28
======= ========= ======= ======== ========= =======
Six Months Ended
---------------------------------------------------------------------------------
June 30.1997 June 30.1998
--------------------------------------- --------------------------------------
Income Per Share Income Per Share
(in thousands) Shares Amount (in thousands) Shares Amount
-------------- ------ --------- -------------- ------ ---------
Historical
- ----------
Historical Basic EPS: $ 1,737 6,467,400 $ 0.27 $ 4,534 8,370,456 $ 0.54
Income available to
Common Stockholders
Effect of Dilutive Securities:
Employee Compensation Plans - 239,007 - - 348,417 -
------- --------- ------- -------- --------- -------
Historical Dilutive EPS:
Income available to
Common Stockholders
plus assumed exercises $ 1,737 6,706,407 $ 0.26 $ 4,534 8,718,873 $ 0.52
======= ========= ======= ======== ========= =======
On May 5, 1998 the Company completed a follow-on offering of 2,210,000
shares of the Company's Common Stock. Of the amount of shares offered, 900,000
shares were sold by the Company and 1,310,000 shares were sold by certain
shareholders of the Company. The Company received net proceeds (net of the
underwriters' discounts and estimated offering expenses) of $23.1 million from
the follow-on offering.
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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 operations as a percentage of revenues:
Three months Six months
Ended June 30, Ended June 30,
---------------- ----------------
1997 1998 1997 1998
---- ---- ---- ----
Revenues 100% 100% 100% 100%
Cost of services 60 59 62 59
----- ----- ----- -----
Gross profit 40 41 38 41
----- ----- ----- -----
Costs and expenses
Selling 9 6 9 6
Recruiting 3 2 3 2
General and administrative expenses 21 16 18 16
----- ----- ----- -----
Total costs and expenses 33 24 30 24
----- ----- ----- -----
Operating income 7 17 8 17
Other income - 2 - 2
----- ----- ----- -----
Income before income taxes 7 19 8 19
Provision for income taxes - 7 - 8
----- ----- ----- -----
Net income 7% 12% 8% 11%
===== ===== ===== =====
Revenues. Revenues increased 76% to $21.4 million and 78% to $40.4
million in the second quarter and first six months of 1998, respectively, from
$12.2 million and $22.7 million for the comparable 1997 periods. The increases
in the 1998 periods, versus 1997, were primarily the result of a significant
increase in the number of consultants employed by the Company, many of whom
completed the entry-level phase of the Information Technology Consultant (ITC)
Training Program in 1996, 1997, and 1998 and an increased number of engagements
for both new and existing clients. In 1998, a higher proportion of these
engagements encompassed project-focused, strategic planning projects yielding
higher rates, as compared with 1997.
Gross Profit. Gross profit increased 79% to $8.8 million in the second
quarter of 1998 from $4.9 million in the second quarter of 1997. Gross profit
in the first six months of 1998 increased 89% to $16.5 million from $8.7
million in the first six months of 1997. Gross profit as a percentage of
revenues increased to 41% in the both the second quarter and first six months
of 1998 from 40% and 38% for the comparable 1997 periods. The increases in
gross profit were primarily attributable to higher billing rates and higher
billing-to-consultant cost ratios, partially offset by management's estimates of
the services to be performed related to completing the Company's projects,
software quality assurance and testing. The higher billing rates were realized
as a result of the increase in
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project-focused, strategic planning projects. The higher billing-to-consultant
cost ratio was attributable to the placement of additional consultants who
completed the entry-level phase of the ITC Training Program and additional
project managers.
Selling Expenses. Selling expenses increased 17% to $1.3 million in the
second quarter of 1998 from $1.1 million for the comparable 1997 quarter. For
the first six months of 1998, selling expenses increased 17% to $2.5 million
from $2.1 million for the comparable 1997 period. This increase was primarily
the result of increased sales compensation due to the 76% and 78% increases in
sales in the second quarter and first six months of 1998, respectively. The
Company's selling expenses as a percentage of revenues decreased to 6% in both
the second quarter and the first six months of 1998 from 9% in both of the
comparable 1997 periods, as a result of a change in the sales commission plan
on January 1, 1998.
Recruiting Expenses. Recruiting expenses increased 19% to $0.5 million in
the second quarter of 1998 from $0.4 million for the second quarter of 1997.
For the first six months of 1998, recruiting expenses increased 34% to $0.9
million from $0.7 million for the first six months of 1997. Such increases were
primarily attributable to the hiring of an increased number of consultants as
compared with the comparable 1997 periods.
General and Administrative Expenses. General and administrative expenses
increased 29% to $3.3 million and 55% to $6.3 million in the second quarter and
first six months of 1998, respectively, from $2.6 million and $4.1 million for
the comparable 1997 periods. The increases were primarily attributable to 21
additional employees at June 30, 1998 general salary and management bonus
increases, expenses related to upgrading the Company's network and
telecommunications systems, increased professional fees for legal, accounting
and investor relations, training costs associated primarily with outside
instructors for the entry-level phase of the ITC Training Program, and
depreciation. The increases were partially offset by charges in the second
quarter of 1997, that did not recur in 1998, for non-cash compensation related
to the June 2, 1997 grant of employee stock options, and bad-debt expense
relating to a client that filed for Chapter 11 bankruptcy.
Other Income (Expense). The increase in other income in each of the second
quarter and first six months of 1998, as compared to the equivalent periods in
1997, is primarily attributable to interest earned on investments of available
net proceeds from the Company's initial and follow-on public offerings together
with cash flows from operations.
Provision for Income Taxes. The Company's effective tax rate was 40% for
both the second quarter and first six months of 1998. Prior to the initial
public offering, the Company elected to be taxed as an S Corporation. As a
result, income of the Company was taxable to the shareholders. On October 1,
1997, the Company's S Corporation status was terminated and the Company became a
C Corporation.
Liquidity and Capital Resources
On October 2, 1997 the Company completed an initial public offering of
2,990,000 shares of the Company's Common Stock. The Company sold 1,600,000
shares in the initial public offering.
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Net proceeds to the Company from the sale of the 1,600,000 shares were
approximately $22.5 million, after deducting underwriting discounts and
commissions of $1.8 million and offering expenses of $1.3 million paid by the
Company. The Company did not receive any of the proceeds from the sale of
shares by the selling stockholders.
On May 5, 1998, the Company completed a follow-on public offering of
2,210,000 shares of the Company's Common Stock. The Company sold 900,000 shares
in the follow-on public offering and received $23.1 million in net proceeds from
the sale of such shares.
The remaining net proceeds of approximately $12.9 million from the initial
public offering, together with the $23.1 million from the follow-on public
offering, and cash from operations, are being temporarily invested in short-term
investment grade securities, certificates of deposit or direct or guaranteed
obligations of the United States Government. The Company believes such funds
will provide adequate cash to fund its anticipated cash needs for the
foreseeable future.
At June 30,1998, the Company had approximately $46.0 million of cash and
short-term investments and no debt. Receivables were 48 days of revenues at
June 30, 1998, versus 42 days of revenues at December 31, 1997.
On August 3, 1998 the Company declared a three-for-two share common stock
split. Shareholders will receive one additional share for every two shares
held on the record date of August 14, 1998. Distribution of the additional
shares will begin on August 28, 1998. Cash will be paid in lieu of fractional
shares. Upon completion of the split, the Company will have approximately 13.7
million common shares outstanding.
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.
PART II - OTHER INFORMATION
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Item 2. Changes in Securities and Use of Proceeds.
On October 2, 1997 the Company completed an initial public offering of
2,990,000 shares of the Company's Common Stock. The Company sold 1,600,000
shares in the initial public offering. Net proceeds to the Company from the
sale of the 1,600,000 shares were approximately $22.5 million, after deducting
underwriting discounts and commissions of $1.8 million and offering expenses of
$1.3 million paid by the Company. The Company did not receive any of the
proceeds from the sale of shares by the selling stockholders.
The Company distributed a total of approximately $2.8 million of the
net proceeds to the Company's stockholders who owned shares prior to the initial
public offering, which amount represents the Company's undistributed S
corporation earnings from November 1, 1996 through the closing date of the
Offering plus other income tax related distributions. The Company used
approximately $2.7 million of its net proceeds from the initial public offering
to pay outstanding indebtedness to its lenders under a revolving credit facility
and two term notes. In addition, approximately $4.1 million of such proceeds
were used to expand Virtual Insourcing Centers, develop additional Centers and
expand the ITC Training Program.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The annual meeting of the stockholders of the Company was held at
Hyatt Regency, Oak Brook, Illinois, on June 4, 1998, at 10:00 a.m.
(b) At that meeting, five individuals, all of whom are current directors,
were nominated and elected to serve until the 1999 Annual Meeting of
Stockholders, or until their respective successors shall have been
elected and shall have qualified, by the following votes:
Director Shares For Shares Withheld
-------- ---------- ---------------
Robert Figliulo 7,199,356 142
David Figliulo 7,198,976 522
Ron Taylor 7,199,498
Sydnor Thrift 7,199,498
Dave Yeager 7,199,498
There were no broker non-votes.
(c) In addition to the above election, the appointment of Arthur Andersen
LLP as the Company's independent auditors for the fiscal year ending
December 31, 1998 was ratified and approved by the following vote:
Shares For Shares Against Abstentions
---------- -------------- -----------
7,182,720 16,963 284
(d) No other matters were submitted for vote.
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Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 27 Financial Data Schedule
No reports on Form 8-K were filed by the Company during the quarter
ended June 30, 1998.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPR Inc.
Date: August 14, 1998 By: /s/ Robert M. Figliulo
------------------------ -----------------------------
Robert M. Figliulo
Chief Executive Officer and
Chairman of the Board of
Directors
Date: August 14, 1998 By: /s/ Stephen J. Tober
------------------------ -----------------------------
Stephen J. Tober
Executive Vice President -
Finance and Business
Development
Date: August 14, 1998 By: /s/ Stephen T. Gambill
------------------------ -----------------------------
Stephen T. Gambill
Chief Financial Officer