<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-4090
ANALYSTS INTERNATIONAL CORPORATION
Minnesota 41-0905408
7615 Metro Boulevard
Minneapolis, MN 55439
(612) 835-5900
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 and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
----- -----
As of January 31, 1997, 14,765,301 shares of the Registrant's Common Stock were
outstanding.
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ANALYSTS INTERNATIONAL CORPORATION
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION:
Item 1. Condensed Consolidated Balance Sheets
December 31, 1996 (Unaudited) and June 30, 1996 1
Condensed Consolidated Statements of Income
Three and six months ended December 31, 1996 and 1995
(Unaudited) 2
Condensed Consolidated Statements of Cash Flows
Six months ended December 31, 1996 and 1995 (Unaudited) 3
Notes to Condensed Consolidated Financial
Statements (Unaudited) 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5-6
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ANALYSTS INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, June 30,
(In thousands) 1996 1996
------------ --------
(Unaudited)
Current assets:
Cash and cash equivalents $ 14,511 $ 17,018
Accounts receivable, less allowance
for doubtful accounts 53,240 49,494
Other current assets 2,607 2,567
-------- --------
Total current assets 70,358 69,079
Property and equipment, net 5,937 5,715
Other assets 11,060 6,651
-------- --------
$ 87,355 $ 81,445
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,806 $ 11,049
Dividend payable 1,321 1,099
Salaries and vacations 6,027 7,524
Other, primarily self-insured health
care reserves 2,334 1,677
Income taxes payable 500 382
-------- --------
Total current liabilities 21,988 21,731
Long-term liabilities 6,297 5,996
Shareholders' equity (Note 2) 59,070 53,718
-------- --------
$ 89,355 $ 81,445
-------- --------
-------- --------
Note: The balance sheet at June 30, 1996 has been taken from the
audited financial statements at that date, and condensed.
See notes to condensed consolidated financial statements.
1
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ANALYSTS INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands Three Months Ended Six Months Ended
except per share amounts) December 31 December 31
- ------------------------- ----------------------- ----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $101,847 $78,786 $199,869 $151,857
Expenses:
Salaries, contracted
services and direct charges 78,354 60,198 154,007 115,510
Selling, administrative and other
operating costs 17,229 14,086 33,349 27,459
---------- ---------- ---------- ----------
Total expenses 95,583 74,284 187,356 142,969
---------- ---------- ---------- ----------
Operating income 6,264 4,502 12,513 8,888
Other income 262 262 516 520
---------- ---------- ---------- ----------
Income before income taxes 6,526 4,764 13,029 9,408
Income taxes 2,621 1,882 5,256 3,717
---------- ---------- ---------- ----------
Net income $ 3,905 $ 2,882 $ 7,773 $ 5,691
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Per common share:*
- ------------------
Net income $ .26 $ .19 $ .52 $ .38
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Dividends paid $ .09 $ .075 $ .165 $ .14
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Average common and common
equivalent shares outstanding* 15,040,000 14,784,000 14,968,000 14,772,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
*Adjusted to reflect the 2 for 1 common stock split in the form of a stock
dividend distributed September 30, 1996.
See notes to condensed consolidated financial statements.
2
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ANALYSTS INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
December 31
-----------------
(In thousands) 1996 1995
- -------------- ------- -------
Net cash provided by operating activities $ 6,384 $ 4,383
Cash flows from investing activities:
Property and equipment additions (1,359) (1,715)
Increase in annuities and cash surrender values (180) (144)
Payments for acquisitions (5,153)
------- -------
Net cash used in investing activities (6,692) (1,859)
Cash flows from financing activities:
Cash dividends (2,421) (2,035)
Proceeds from exercise of stock options 222 84
------- -------
Net cash used in financing activities (2,199) (1,951)
------- -------
Net change in cash and equivalents (2,507) 573
Cash and equivalents at beginning of period 17,018 12,615
------- -------
Cash and equivalents at end of period $ 14,511 $13,188
------- -------
------- -------
See notes to condensed consolidated financial statements.
3
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ANALYSTS INTERNATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Condensed Consolidated Financial Statements - The condensed consolidated
balance sheet as of December 31, 1996, the condensed consolidated statements
of income for the three month and six month periods ended December 31, 1996
and 1995 and the condensed consolidated statements of cash flows for the six
month periods then ended have been prepared by the Company, without audit.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position,
results of operations and the cash flows at December 31, 1996 and for the
periods then ended have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested these condensed
consolidated financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's June 30, 1996 annual
report to shareholders.
2. SHAREHOLDERS' EQUITY
Six Months Ended
December 31, 1996
-----------------
(In thousands)
Balance at beginning of period $53,718
Cash dividends declared:
August 15, 1996 at $.09 per share (1,319)
December 19, 1996 at $.09 per share (1,324)
Proceeds upon exercise of stock options 222
Net income 7,773
-------
Balance at end of period $59,070
-------
-------
4
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Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Six Months Ended December 31, 1996 and 1995
CHANGES IN FINANCIAL CONDITION
On July 1, 1996, the Company acquired specific assets and assumed certain
liabilities of DPI, Inc. and DPI Services, Inc., its wholly owned subsidiary,
both of which were primarily engaged in the business of providing software
services in the San Jose (California) market. At the closing, the company
paid $5.2 million of the $5.7 million adjusted purchase price in cash, with
the remaining $.5 million, subject to certain deductions, being payable in
cash in one year. Assets acquired included approximately $1.5 million of
current assets (accounts receivable) net of current liabilities assumed in
the transaction. Other assets acquired in the transaction (including
goodwill, reflecting the excess of the adjusted purchase price over the fair
value of the assets acquired) are shown on the balance sheet as long term
assets. The reduction in the Company's cash from $17.0 million to $14.5
million is the consequence of this acquisition.
On December 19, 1996 the Board of Directors declared the regular quarterly
dividend of $.09 per share payable February 15, 1997 to shareholders of
record on January 31, 1997.
The Company's primary need for working capital is to support accounts
receivable resulting from the growth in its business and to fund the time lag
between payroll disbursement and receipt of fees billed to clients. Over the
past years, the Company has been able to support the growth in its business
with internally generated funds. The Company's outsourcing contracts with
two major customers are not expected to burden working capital. The Company
believes funds generated from its business and current cash balances are
adequate to meet demands placed upon its resources by its operations and the
payment of quarterly dividends.
5
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RESULTS OF OPERATIONS
Revenues for the six months ended December 31, 1996 and for the quarter then
ended were $200 million and $102 million, respectively. This represents
increases of 31.6% and 29.3% over the same periods a year ago. These
revenue increases resulted primarily from increases in billable hours of
service rendered to clients and increases in the pass-through billings on the
Company's two major outsourcing contracts. For the six month period and
quarter ended December 31, 1996, these pass-through billings approximated
$40.5 million and $20.5 million, respectively, compared with $26.7 million
and $14.3 million for the same periods a year ago. Rate increases have not
contributed significantly to the revenue increase because prevailing
competitive conditions in the industry have made it difficult for the Company
to increase the hourly rates it charges for services.
Personnel totalled 4,175 at December 31, 1996, compared to 3,550 at December
31, 1995, an increase of 17.6%. Substantially all of the increase consists
of billable technical staff.
Salaries, contracted services and direct charges, which represent primarily
the Company's direct labor cost, were 77.1% of revenues for the six
months ended December 31, 1996 compared to 76.1% for the same period a year
ago. These costs as a percentage of revenues for the quarters ended December
31, 1996 and 1995 were 76.9% and 76.4%, respectively. By comparison, these
costs were 77.2% of revenues for the first quarter of fiscal 1997 and 77.4%
of revenues for the fourth quarter of fiscal 1996. This category of expense
also includes the fees for the contracted services of subcontractors who are
necessary to support the Company with the major outsourcing contracts
referred to above and these fees typically are higher per hour than the labor
costs for its own employees. The Company's efforts to control these costs
involve controlling labor costs, passing on labor cost increases through
increased billing rates where possible, and maintaining productivity levels
of its billable technical staff. Labor costs, however, are difficult to
control because the highly skilled technical personnel the Company seeks to
hire and retain are in great demand and intense competition in the industry
makes it difficult to pass cost increases on to customers, while unfavorable
economic conditions could adversely affect productivity. Although the
Company has taken steps to control this category of expense, there can be no
assurance the Company will be able to maintain or improve this level.
Selling, administrative and other operating costs, which include commissions,
employee fringe benefits and location costs, represented 16.7% of revenues
for the six months ended December 31, 1996 compared to 18.1% for the same
period a year ago. For the quarter ended December 31, 1996 these costs were
16.9% of revenue compared to 17.9% for the same quarter last year. While the
Company has been successful in controlling selling, administrative and other
operating costs and is committed to careful cost management, there can be no
assurance the Company will be able to maintain these costs at their current
relationship to revenues.
6
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PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of shareholders held October 17, 1996, the following
action was taken:
(a) Election of directors.
The following nominees, all of whom were listed in the company's proxy
statement prepared in accordance with Regulation 14(a), were elected:
Nominee Votes for Authority withheld
----------- --------- ------------------
V. C. Benda 6,719,246 32,613
W. K. Drake 6,727,448 34,411
F. W. Lang 6,718,512 33,347
M. A. Loftus 6,721,263 30,596
E. M. Mahoney 6,719,287 32,572
R. Prince 6,724,875 26,984
(b) Ratification of auditors.
The shareholders voted their shares to ratify the appointment of
Deloitte & Touche LLP by the following vote:
In favor 6,706,814
Against 14,190
Abstain 30,404
(c) Increase in authorized common shares.
The shareholders voted their shares to increase the number of
authorized common shares to 40,000,000 by the following vote:
In favor 6,472,081
Against 211,996
Abstain 32,294
(d) 1996 Stock Option Plan for Non-Employee Directors.
The shareholders voted their shares to ratify the creation of the 1996
Stock Option Plan for Non-Employee Directors by the following vote:
In favor 6,414,302
Against 185,409
Abstain 110,929
There were no broker non-votes.
7
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Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 11 - Computation of Net Income Per Share.
Exhibit 27 - Financial Data Schedule
(b) There were no reports on Form 8-K filed for the six months ended
December 31, 1996.
8
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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 there unto duly authorized.
ANALYSTS INTERNATIONAL CORPORATION
----------------------------------
(Registrant)
Date February 10, 1997 By /s/ Gerald M. McGrath
----------------- --------------------------------
Gerald M. McGrath
Treasurer and Chief Financial Officer
Date February 10, 1997 By /s/ Marti R. Charpentier
----------------- --------------------------------
Marti R. Charpentier
Controller and Assistant
Treasurer (Chief Accounting Officer)
9
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EXHIBIT INDEX
Exhibit Number Exhibit Page No.*
- -------------- ------- ---------
11 Computation of Net Income Per Share 14
27 Financial Data Schedule 16
* Page numbers in the sequential numbering system of the manually signed
original report.
<PAGE>
Exhibit No. 11
<PAGE>
Exhibit No. 11
Analysts International Corporation
Computation of Net Income per Share
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
(IN THOUSANDS EXCEPT DECEMBER 31 DECEMBER 31
PER SHARE AMOUNTS) ------------------ ----------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Primary:
Weighted average number of common
shares outstanding 14,676 14,548 14,664 14,538
Dilutive stock options after application
of treasury stock method 364 236 304 234
------- ------- ------- -------
Weighted average number of common and
common equivalent shares outstanding 15,040 14,784 14,968 14,772
------- ------- ------- -------
------- ------- ------- -------
Net income $ 3,905 $ 2,882 $ 7,773 $ 5,691
------- ------- ------- -------
------- ------- ------- -------
Per share amount $ .26 $ .19 $ .52 $ .38
------- ------- ------- -------
------- ------- ------- -------
Fully diluted:
Weighted average number of common
shares outstanding 14,676 14,548 14,664 14,538
Dilutive stock options based on the treasury
stock method using the end of the period market
price, if higher than average market price 393 236 358 252
------- ------- ------- -------
Weighted average number of common and
common equivalent shares outstanding 15,069 14,548 15,022 14,790
------- ------- ------- -------
------- ------- ------- -------
Net income $ 3.905 $ 2,882 $ 7,773 $ 5,691
------- ------- ------- -------
------- ------- ------- -------
Per share amount $ .26 $ .19 $ .52 $ .38
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 14,511
<SECURITIES> 0
<RECEIVABLES> 53,640
<ALLOWANCES> 400
<INVENTORY> 0
<CURRENT-ASSETS> 70,358
<PP&E> 16,741
<DEPRECIATION> 10,804
<TOTAL-ASSETS> 87,355
<CURRENT-LIABILITIES> 21,988
<BONDS> 6,297
0
0
<COMMON> 1,468
<OTHER-SE> 57,602
<TOTAL-LIABILITY-AND-EQUITY> 89,355
<SALES> 199,869
<TOTAL-REVENUES> 199,869
<CGS> 154,007
<TOTAL-COSTS> 154,007
<OTHER-EXPENSES> 33,229
<LOSS-PROVISION> 120
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 13,029
<INCOME-TAX> 5,256
<INCOME-CONTINUING> 7,773
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,773
<EPS-PRIMARY> .52
<EPS-DILUTED> .52
</TABLE>
