<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 September 30, 1999
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
3601 West 76th Street
Minneapolis, MN 55435
(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 October 29, 1999, 22,557,691 shares of the Registrant's Common Stock were
outstanding.
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ANALYSTS INTERNATIONAL CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
Number
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<S> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Condensed Consolidated Balance Sheets
September 30, 1999 (Unaudited) and June 30, 1999 1
Condensed Consolidated Statements of Income
Three months ended September 30, 1999 and 1998 (Unaudited) 2
Condensed Consolidated Statements of Cash Flows
Three months ended September 30, 1999 and 1998 (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
</TABLE>
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ANALYSTS INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, June 30,
(In thousands) 1999 1999
-------------- -------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 34,980 $ 33,870
Accounts receivable, less allowance for
doubtful accounts 97,048 101,523
Prepaid expenses and other current assets 4,063 4,499
-------- --------
Total current assets 136,091 139,892
Property and equipment, net 28,745 29,644
Intangible assets, net of accumulated amortization 6,861 7,029
Other assets 10,076 9,651
-------- --------
$181,773 $186,216
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 30,077 $ 30,791
Dividend payable 2,256 2,255
Salaries and vacations 16,044 23,227
Other, primarily self-insured health care reserves 3,148 3,311
Income taxes payable 3,024 1,084
-------- --------
Total current liabilities 54,549 60,668
Long-term debt 20,000 20,000
Other long-term liabilities 7,650 7,534
Shareholders' equity 99,574 98,014
-------- --------
$181,773 $186,216
-------- --------
-------- --------
</TABLE>
Note: The balance sheet at June 30, 1999 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>
Three Months Ended
(In thousands except per share amounts) September 30
----------------------------------
1999 1998
---- ----
<S> <C> <C>
Professional services revenues:
Provided directly $112,985 $123,373
Provided through sub-suppliers 36,060 35,091
-------- --------
Total revenues 149,045 158,464
Expenses:
Salaries, contracted
services and direct charges 118,688 123,621
Selling, administrative and other
operating costs 24,561 24,959
-------- --------
Total expenses 143,249 148,580
-------- --------
Operating income 5,796 9,884
Non-operating income 744 309
Interest expense 350 --
-------- --------
Income before income taxes 6,190 10,193
Income taxes 2,414 4,067
-------- --------
Net income $ 3,776 $ 6,126
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-------- --------
PER COMMON SHARE:
Net income (basic) $ .17 $ .27
-------- --------
-------- --------
Net income (diluted) $ .17 $ .27
-------- --------
-------- --------
Dividends paid $ .10 $ .08
-------- --------
-------- --------
Average common shares
outstanding 22,555 22,481
-------- --------
-------- --------
Average common and common
equivalent shares outstanding 22,645 22,875
-------- --------
-------- --------
</TABLE>
See notes to condensed consolidated financial statements.
2
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ANALYSTS INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30
------------------------
(In thousands) 1999 1998
---- ----
<S> <C> <C>
Net cash provided by operating activities $ 3,040 $ 8,419
Cash flows from investing activities:
Property and equipment additions (1,276) (5,404)
Proceeds from property and equipment sales 1,561 --
-------- --------
Net cash provided by (used in) investing activities 285 (5,404)
Cash flows from financing activities:
Cash dividends (2,255) (1,798)
Proceeds from exercise of stock options 40 498
-------- --------
Net cash used in financing activities (2,215) (1,300)
-------- --------
Net change in cash and equivalents 1,110 1,715
Cash and equivalents at beginning of period 33,870 11,868
-------- --------
Cash and equivalents at end of period $ 34,980 $ 13,583
-------- --------
-------- --------
</TABLE>
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 September 30, 1999, the condensed consolidated
statements of income and cash flows for the three month periods ended
September 30, 1999 and 1998 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, at September 30, 1999 and the results of operations and the
cash flows for the periods then ended September 30, 1999 and 1998 have
been made. The results of operations for the period ended September 30,
1999 are not necessarily indicative of the results to be expected for
the full fiscal year.
The Company did not have any items of other comprehensive income in any
of the periods presented.
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, 1999 annual report to shareholders.
2. LONG-TERM DEBT
In December 1998 the Company entered into a Notes Purchase Agreement
whereby it sold $20,000,000 of 7% Senior Notes due December 30, 2006.
Minimum future maturities on these Notes is as follows: 2000, $0; 2001,
$5,250,000; 2002, $4,000,000; 2003, $3,000,000; 2004, $3,000,000
thereafter, $4,750,000. The agreement contains, among other things,
provisions regarding maintenance of working capital and net worth and
restrictions on payments of dividends on common stock. The Company's
working capital and net worth are in excess of the minimum net
requirements and current dividend payments will not exceed the
$18,500,000 maximum allowed under the agreement.
3. SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Three Months Ended
September 30, 1999
------------------
(In thousands)
<S> <C>
Balance at beginning of period $98,014
Cash dividends declared:
August 19, 1999 at $.10 per share (2,256)
Proceeds upon exercise of stock options 40
Net income 3,776
--------
Balance at end of period $ 99,574
--------
--------
</TABLE>
4. NET INCOME PER COMMON SHARE
Basic and diluted earnings per share are presented in accordance with
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings
per Share." The difference between average common shares and average
common and common equivalent shares is the result of outstanding stock
options.
4
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Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three Months Ended September 30, 1999 and 1998
CHANGES IN FINANCIAL CONDITION
Working capital at September 30, 1999 was $81.5 milllion, up 2.9% from the $79.2
million at June 30, 1999. This includes cash and cash equivalents of $35.0
million compared to $33.9 million at June 30, 1999 and accounts receivable of
$97.0 million compared to $101.5 million at June 30, 1999. Ratios of current
assets to current liabilities and total assets to total liabilities have
increased slightly since June 30, 1999.
The Company's primary need for working capital is to support accounts receivable
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 sub-supplier
contracts are not expected to burden working capital.
On August 19, 1999 the Board of Directors declared the regular quarterly
dividend of $.10 per share payable November 12, 1999 to shareholders of record
on October 29, 1999.
The Company believes funds generated from its business and current cash balances
are adequate to meet demands placed upon its resources by its operations,
capital investments and the payment of quarterly dividends.
The Company believes it has achieved Y2K readiness by replacing its computer
systems with new, Y2K compliant hardware and software. The new hardware/software
system was put into production February 1, 1999. The cost of the new system was
approximately $3,000,000. The Company depends on its computer system for
critical business functions, including time record keeping, billing, payroll,
and accounts payable and receivable. The loss of these capabilities would have a
material adverse impact on the Company. The Company believes its new computer
system has remedied the millennium date change, however, if weaknesses (Y2K or
otherwise) in the new system are discovered, the Company intends to develop a
contingency plan, which will likely take into account the fact that it has a
staff of over 4,000 computer programmers as well as a national Y2K practice
which can assist in achieving Y2K readiness. The Company's business does not
depend on raw materials, parts or other goods supplied by third parties and
therefore, the Company believes the inability of its vendors to achieve Y2K
compliance would not have a material adverse impact on the Company. The Company
does use utility services (electricity, telecommunication, natural gas and the
like) for its offices, and interruption of these services could have a material
adverse impact on the Company's operations. The inability of the Company's
clients to achieve Y2K compliance could have an impact on their ability to pay
the Company for the services it renders to them, with consequent adverse impact
on the Company's cash flow. Nearly all of the Company's revenue is derived from
services rendered to Fortune 1000 companies, and the Company considers it
unlikely that a material number of its customers would encounter Y2K compliance
issues which would prevent them from paying the Company's invoices in a timely
manner.
The Company's services addressing the Year 2000 problem involve key aspects of
its clients' computer systems. A failure in a client's system could result in a
claim for substantial damages against the Company, regardless of the Company's
responsibility for such failure. Litigation, regardless of its outcome, could
result in substantial cost to the Company. Accordingly, any contract liability
claim or litigation against the Company could have an adverse effect on the
Company's business, operations and financial results.
5
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The Company does not believe any reasonably likely worst-case Y2K scenario would
have a material effect on its results of operations, liquidity or financial
condition.
RESULTS OF OPERATIONS
Revenues provided directly for the three months ended September 30, 1999 were
$113.0 million, a decrease of 8.4% from the same period a year ago. This
decrease is a result of a 12.9% decrease in billable hours, which is a result of
the industry-wide slowdown in information technology spending. This slowdown is
expected to continue, and likely intensify, at least through the second fiscal
quarter. During the quarter ended September 30, 1999, the decrease in billable
hours was partially offset by an increase in hourly rates. While the Company has
been able to increase rates over the prior year, there can be no assurance the
Company will be able to continue this as competitive conditions in the industry
make it difficult for the Company to continually increase the hourly rates it
charges for services. Revenues provided through sub-suppliers for the three
months ended September 30, 1999 were $36.1 million, an increase of 2.8% over the
same period a year ago. This increase in sub-supplier revenues resulted almost
exclusively from an increase in billable hours of service rendered to clients.
Personnel totalled 4,650 at September 30, 1999, compared to 5,200 at September
30, 1998, a decrease of 10.6%. Substantially all of the decrease consists of
billable technical staff.
Salaries, contracted services and direct charges, which represent primarily the
Company's direct labor cost, were 79.6% of revenues for the three months ended
September 30, 1999 compared to 78.0% for the same period a year ago. By
comparison, these costs were 78.7% of revenues for the fourth quarter of fiscal
1999 and 78.6% of revenues for the third quarter of fiscal 1999. The increase in
this expense category as a percentage of revenues is mostly a consequence of
increased idle time and increases in labor costs. 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. It is also difficult to pass on
labor costs increases to customers due to intense competition in the industry,
and as a result of the industry-wide slowdown in information technology
spending, it is expected to be increasingly difficult to maintain high levels of
productivity at least through our second fiscal quarter. Although the Company
continuously attempts to control the factors which effect 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 16.5% of revenues for
the three months ended September 30, 1999 compared to 15.8% for the same period
a year ago. While the Company is committed to careful management of these costs,
there can be no assurance the Company will be able to maintain these costs at
their current relationship to revenues.
Net income for the three months ended September 30, 1999 decreased 38.4% over
the same period a year ago. As a percentage of revenue, net income has decreased
to 2.5% for the three months ended September 30, 1999 from 3.9% for the three
months ended September 30, 1998. The Company's net income as a percentage of
revenues provided directly for the three months ended September 30, 1999 and
1998 was 3.3% and 5.0%, respectively.
6
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PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule.
(b) There were no reports on Form 8-K filed for the three months ended
September 30, 1999.
CAUTIONARY STATEMENT UNDER THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
Statements included in this document may be "forward-looking statements" within
the meaning of the term in Section 27A of the Securities Act of 1933 as amended,
and of Section 21F of the Securities Exchange Act of 1934, as amended.
Additional oral or written forward-looking statements may be made by the Company
from time to time, and such statements may be included in documents that are
filed with the Securities and Exchange Commission. Words such as "believes,"
"intends," "possible," "expects," "estimates" "anticipates," or "plans" and
similar expressions are intended to identify forward-looking statements.
Forward-looking statements are based on expectations and assumptions, and they
involve risks and uncertainties which could cause results or outcomes to differ
materially from expectations. Among the risks and uncertainties important to the
Company's business are (i) the continued need of current and prospective
customers for the Company's services, (ii) the revewal of contracts with
customers, especially major customers, (iii) the cancellation of contracts by
customers, especially major customers, (iv), competition, (v) the availability
of qualified professional staff, (vi) the Company's ability to increase hourly
billing rates as labor and operating costs increase and (vii) the Company's
ability to continue to operate its business and support growth with internally
generated funds. There may be other factors, such as general economic conditions
which affect businesses generally, which may cause results to vary from
expectations.
A specific risk is the Y2K-related slowdown in the software services industry.
The software services industry has experienced a slowdown in activity as clients
have deferred new development projects to concentrate their resources and
budgets on making their computer systems Y2K compliant. The Company's revenues
have been adversely affected by this slowdown. Ordinarily the Company would
reduce its labor costs by reducing its idle technical staff. However, the
Company believes that revenue growth will resume after Y2K. To be prepared for
the anticipated resumption in growth, the Company may elect to retain some or
all of its idle technical staff because there is a long term shortage of skilled
technical personnel and such personnel are difficult to find. The Company may
also elect to retain its administrative/support staff during the slowdown for
similar reasons. The cost of carrying such staff during the slowdown will have
an adverse impact on the Company's net income. The extent and duration of the
slowdown, the timing and strength of the recovery and the impact of the slowdown
on the Company's revenues and net earnings cannot be predicted or estimated.
7
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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 November 12, 1999 By /s/ Marti R. Charpentier
------------------ --------------------------------
Marti R. Charpentier
Vice President and Treasurer
Date November 12, 1999 By /s/ David J. Steichen
----------------- --------------------------------
David J. Steichen
Controller and Assistant
Treasurer (Chief Accounting Officer)
8
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EXHIBIT INDEX
Exhibit Number Exhibit
- -------------- -------
27 Financial Data Schedule
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 34,980
<SECURITIES> 0
<RECEIVABLES> 97,973
<ALLOWANCES> 925
<INVENTORY> 0
<CURRENT-ASSETS> 136,091
<PP&E> 44,204
<DEPRECIATION> 15,459
<TOTAL-ASSETS> 181,773
<CURRENT-LIABILITIES> 54,549
<BONDS> 27,650
0
0
<COMMON> 2,256
<OTHER-SE> 97,318
<TOTAL-LIABILITY-AND-EQUITY> 181,773
<SALES> 149,045
<TOTAL-REVENUES> 149,045
<CGS> 118,688
<TOTAL-COSTS> 118,688
<OTHER-EXPENSES> 24,561
<LOSS-PROVISION> 96
<INTEREST-EXPENSE> 350
<INCOME-PRETAX> 6,190
<INCOME-TAX> 2,414
<INCOME-CONTINUING> 3,776
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,776
<EPS-BASIC> .17
<EPS-DILUTED> .17
</TABLE>