<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 31,1997
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, 1998, 22,408,055 shares of the Registrant's Common Stock were
outstanding.
<PAGE>
ANALYSTS INTERNATIONAL CORPORATION
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION:
Item 1. Condensed Consolidated Balance Sheets
December 31, 1997 (Unaudited) and June 30, 1997 1
Condensed Consolidated Statements of Income
Three and six months ended December 31, 1997 and 1996
(Unaudited) 2
Condensed Consolidated Statements of Cash Flows
Six months ended December 31, 1997 and 1996 (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
<PAGE>
ANALYSTS INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31, June 30,
(In thousands) 1997 1997
------------ --------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 17,735 $ 17,888
Accounts receivable, less allowance
for doubtful accounts 74,583 66,954
Other current assets 3,734 2,989
-------- --------
Total current assets 96,052 87,831
Property and equipment, net 6,764 6,121
Other assets 11,646 11,418
-------- --------
$114,462 $105,370
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 19,037 $ 18,131
Dividend payable 1,790 1,336
Salaries and vacations 10,593 11,513
Other, primarily self-insured health care reserves 2,370 1,647
Income taxes payable 79 195
-------- --------
Total current liabilities 33,869 32,822
Long-term liabilities 6,731 6,444
Shareholders' equity 73,862 66,104
-------- --------
$114,462 $105,370
-------- --------
-------- --------
</TABLE>
Note: The balance sheet at June 30, 1997 has been taken from the audited
financial statements at that date, and condensed.
See notes to condensed consolidated financial statements.
1
<PAGE>
ANALYSTS INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
(In thousands Three Months Ended Six Months Ended
except per share amounts) December 31 December 31
------------------- --------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Professional services revenues:
Provided directly $108,344 $81,603 $213,015 $159,404
Provided through sub-suppliers 32,921 20,244 63,408 40,465
-------- ------- -------- --------
Total revenues 141,265 101,847 276,423 199,869
Expenses:
Salaries, contracted
services and direct charges 110,191 78,354 214,762 154,007
Selling, administrative and other
operating costs 23,043 17,229 44,994 33,349
-------- ------- -------- --------
Total expenses 133,234 95,583 259,756 187,356
-------- ------- -------- --------
Operating income 8,031 6,264 16,667 12,513
Non-operating income 353 262 684 516
-------- ------- -------- --------
Income before income taxes 8,384 6,526 17,351 13,029
Income taxes 3,353 2,621 6,940 5,256
-------- ------- -------- --------
Net income $ 5,031 $ 3,905 $ 10,411 $ 7,773
-------- ------- -------- --------
-------- ------- -------- --------
PER COMMON SHARE:*
Net income (basic) $ .23 $ .17 $ .47 $ .35
-------- ------- -------- --------
-------- ------- -------- --------
Net income (diluted) $ .22 $ .17 $ .46 $ .34
-------- ------- -------- --------
-------- ------- -------- --------
Dividends paid $ .073 $ .06 $ .133 $ .11
-------- ------- -------- --------
-------- ------- -------- --------
Average common shares
outstanding* 22,353 22,014 22,332 21,996
------ ------ ------ ------
------ ------ ------ ------
Average common and common
equivalent shares outstanding* 22,897 22,560 22,828 22,452
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
*Adjusted to reflect the 3 for 2 common stock split in the form of a stock
dividend distributed December 3, 1997.
See notes to condensed consolidated financial statements.
2
<PAGE>
ANALYSTS INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
December 31
--------------------
(In thousands) 1997 1996
---- ----
<S> <C> <C>
Net cash provided by operating activities $ 4,398 $ 6,384
Cash flows from investing activities:
Property and equipment additions (2,142) (1,359)
Increase in annuities and cash surrender values (210) (180)
Payments for acquisitions -- (5,153)
------- -------
Net cash used in investing activities (2,352) (6,692)
Cash flows from financing activities:
Cash dividends (2,977) (2,421)
Proceeds from exercise of stock options 778 222
------- -------
Net cash used in financing activities (2,199) (2,199)
------- -------
Net change in cash and equivalents (153) (2,507)
Cash and equivalents at beginning of period 17,888 17,018
------- -------
Cash and equivalents at end of period $17,735 $14,511
------- -------
------- -------
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
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, 1997, the condensed consolidated
statements of income for the three month and six month periods ended
December 31, 1997 and 1996 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, 1997 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, 1997 annual
report to shareholders.
2. SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Six Months Ended
December 31, 1997
-----------------
(In thousands)
<S> <C>
Balance at beginning of period $ 66,104
Cash dividends declared:
August 21, 1997 at $.073 per share (1,640)
December 18, 1997 $.08 per share (1,791)
Proceeds upon exercise of stock options 742
Stock-based compensation 36
Net income 10,411
--------
Balance at end of period $ 73,862
--------
--------
</TABLE>
3. NET INCOME PER COMMON SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share".
This statement specifies the computation, presentation, and disclosure
requirements for earnings per share (EPS). This Statement is effective for
financial statements issued for periods ending after December 15, 1997,
including interim periods and replaces the presentation of primary EPS with
a presentation of basic EPS. Basic EPS excludes dilution and is computed
by dividing income available to common stockholders by the weighted-average
number of common shares outstanding for the period. The difference
between average common shares and average common and common equivalent
shares is the result of outstanding stock options.
4
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Six Months Ended December 31, 1997 and 1996
CHANGES IN FINANCIAL CONDITION
Working capital at December 31, 1997 was $62.2 million, up 13% from the $55.0
million at June 30, 1997. This includes cash and cash equivalents of $17.7
million compared to $17.9 million at June 30, 1997 and accounts receivable of
$74.6 million compared to $67.0 million at June 30, 1997. Ratios of current
assets to current liabilities and total assets to total liabilities have
increased slightly since June 30, 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 are not
expected to burden working capital.
On August 21, 1997 the Board of Directors increased the regular quarterly
dividend to $.073 per share payable November 14, 1997 to shareholders of record
as of October 31, 1997. The previous dividend rate was $.06 per share.
On October 16, 1997 the Board of Directors declared a three-for-two stock split
effected in the form of a 50 percent stock dividend distributed December 3, 1997
to shareholders of record as of November 19, 1997. The Board of Directors also
increased the regular quarterly dividend to $.08 per share.
On December 18, 1997 the Board of Directors declared the regular quarterly
dividend of $.08 per share payable February 13, 1998 to shareholders of record
as of January 30, 1998.
In January 1998 the Company entered into an agreement to build a facility for
use as its corporate headquarters and its Minneapolis branch operations. The
Company expects construction and related costs will be approximately
$17,000,000 and these costs will be financed through a combination of
unsecured debt and use of cash reserves.
The Company believes funds generated from its business and current cash balances
are adequate to meet demands placed upon its resources by its operations, the
payment of quarterly dividends and the construction of its new facility.
5
<PAGE>
RESULTS OF OPERATIONS
Revenues provided directly for the six months ended December 31, 1997 were
$213.0 million, an increase of 33.6% over the same period a year ago.
Approximately 63% of this increase is the result of an increase in billed hours
and 37% from increases in hourly rates. For the three months ended December 31,
1997 revenues provided directly were $108.3 million, an increase of 32.8% over
the same period a year ago. Approximately 66% of this increase is the result of
an increase in billed hours and 34% from increases in hourly rates. Revenues
provided through sub-suppliers for the six month period and quarter ended
December 31, 1997 were $63.4 million and $32.9 million, respectively. This
represents increases of 56.7% and 62.6% over the same periods a year ago. These
increases resulted almost exclusively from increases in billable hours of
service rendered to clients. Prevailing competitive conditions in the industry
have made it difficult for the Company to increase the hourly rates it charges
for services, and there can be no assurance the Company will be able to increase
its hourly rates.
Personnel totalled 5,050 at December 31, 1997, compared to 4,175 at December 31,
1996, an increase of 21.0%. 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 77.7% of revenues for the six months
ended December 31, 1997 compared to 77.1% for the same period a year ago.
These costs were 78.0% of revenues for the three months ended December 31,
1997 and 76.9% of revenues for the three months ended December 31, 1996. By
comparison, these costs were 77.4% of revenues for the first quarter of
fiscal 1998 and 77.2% of revenues for the first quarter of fiscal 1997. The
increase in this expense category as a percentage of revenues is mostly a
consequence of the increase in business done through sub-suppliers, the fees
of whom typically are higher per hour than the labor costs for the Company's
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 16.3% of revenues for
the six months ended December 31, 1997 compared to 16.7% for the same period a
year ago. These costs were 16.3% of revenues for the three months ended
December 31, 1997 and 16.9% of revenues for the three months ended December 31,
1996. 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.
Net income for the six months ended December 31, 1997 increased 33.9% over the
same period a year ago. As a percentage of revenue, net income has decreased
from 3.9% for the six months ended December 31, 1996 to 3.8% for the six
months ended December 31, 1997. Net income for the quarter, as a percentage of
revenue, also decreased from 3.8% for the three months ended December 31, 1996
to 3.6% for the three months ended December 31, 1997. The Company's net income
as a percentage of revenues provided directly was 4.9% for the six months ended
December 31, 1997 and 1996. The Company's net income as a percentage of
revenues provided directly for the three months ended December 31, 1997 and 1996
was 4.6% and 4.8%, respectively.
6
<PAGE>
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of shareholders held October 16, 1997, 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:
<TABLE>
<CAPTION>
Nominee Votes for Authority withheld
------- --------- ------------------
<S> <C> <C>
V. C. Benda 12,272,336 67,003
W. K. Drake 12,272,771 66,568
F. W. Lang 12,265,880 73,458
M. A. Loftus 12,274,496 64,843
E. M. Mahoney 12,275,081 61,257
R. L. Prince 12,278,563 60,776
</TABLE>
(b) Ratification of auditors.
The shareholders voted their shares to ratify the appointment of
Deloitte & Touche LLP by the following vote:
<TABLE>
<CAPTION>
<S> <C>
In favor 12,062,834
Against 204,798
Abstain 71,706
</TABLE>
There were no broker non-notes.
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, 1997.
7
<PAGE>
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 11, 1998 By /s/ Gerald M. McGrath
------------------- ---------------------
Gerald M. McGrath
Treasurer and Chief Financial Officer
Date February 11, 1998 By /s/ Marti R. Charpentier
------------------- ------------------------
Marti R. Charpentier
Controller and Assistant
Treasurer (Chief Accounting Officer)
8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Exhibit Page No.*
- -------------- ------- ---------
<S> <C> <C>
11 Computation of Net Income Per Share 13
27 Financial Data Schedule 15
</TABLE>
* Page numbers in the sequential numbering system of the manually signed
original report.
<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) ------------------ ----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic:
Weighted average number of common
shares outstanding 22,353 22,014 22,332 21,996
------- ------- ------- -------
------- ------- ------- -------
Net income $ 5,031 $ 3,905 $10,411 $ 7,773
------- ------- ------- -------
------- ------- ------- -------
Per share amount $ .23 $ .17 $ .47 $ .35
------- ------- ------- -------
------- ------- ------- -------
DILUTED:
Weighted average number of common
shares outstanding 22,353 22,014 22,332 21,996
Dilutive stock options after application of
treasury stock method. 544 546 496 456
------- ------- ------- -------
Weighted average number of common and
common equivalent shares outstanding 22,897 22,560 22,828 22,452
------- ------- ------- -------
------- ------- ------- -------
Net income $ 5,031 $ 3,905 $10,411 $ 7,773
------- ------- ------- -------
------- ------- ------- -------
Per share amount $ .22 $ .17 $ .46 $ .34
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 17,735
<SECURITIES> 0
<RECEIVABLES> 75,223
<ALLOWANCES> 640
<INVENTORY> 0
<CURRENT-ASSETS> 96,052
<PP&E> 19,625
<DEPRECIATION> 12,861
<TOTAL-ASSETS> 114,462
<CURRENT-LIABILITIES> 33,869
<BONDS> 6,731
0
0
<COMMON> 2,238
<OTHER-SE> 71,624
<TOTAL-LIABILITY-AND-EQUITY> 114,462
<SALES> 276,423
<TOTAL-REVENUES> 276,423
<CGS> 214,762
<TOTAL-COSTS> 214,762
<OTHER-EXPENSES> 44,849
<LOSS-PROVISION> 145
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 17,351
<INCOME-TAX> 6,940
<INCOME-CONTINUING> 10,411
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,411
<EPS-PRIMARY> .47
<EPS-DILUTED> .46
</TABLE>
