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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, 2000
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 31, 2000, 22,606,826 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, 2000 (Unaudited) and June 30, 2000 1
Condensed Consolidated Statements of Income
Three months ended September 30, 2000 and 1999 (Unaudited) 2
Condensed Consolidated Statements of Cash Flows
Three months ended September 30, 2000 and 1999 (Unaudited) 3
Notes to Condensed Consolidated Financial
Statements (Unaudited) 4-5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-7
</TABLE>
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ANALYSTS INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, June 30,
(DOLLARS IN THOUSANDS) 2000 2000
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(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 681 $ 2,030
Accounts receivable, less allowance for
doubtful accounts 112,787 98,413
Prepaid expenses and other current assets 5,251 4,926
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Total current assets 118,719 105,369
Property and equipment, net 29,531 29,558
Intangible assets, net of accumulated amortization 43,279 43,997
Other assets 13,249 13,220
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$204,778 $192,144
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $34,761 $ 30,817
Dividend payable 2,261 2,261
Salaries and vacations 13,321 10,646
Self-insured health care reserves and other accounts 6,067 5,883
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Total current liabilities 56,410 49,607
Long-term debt 39,787 33,913
Other long-term liabilities 8,005 7,826
Minority interest in Sequoia NET.com 1,981 1,745
Shareholders' equity 98,595 99,053
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$204,778 $192,144
======== ========
</TABLE>
Note: The balance sheet at June 30, 2000 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>
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS) Three Months Ended
September 30
------------------------
2000 1999
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<S> <C> <C>
Professional services revenues:
Provided directly $ 116,412 $ 112,985
Provided through sub-suppliers 32,159 36,060
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Total revenues 148,571 149,045
Expenses:
Salaries, contracted services and direct charges 119,228 118,688
Selling, administrative and other operating costs 24,867 24,392
Amortization of goodwill and other intangible assets 718 169
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Operating income 3,758 5,796
Non-operating income 9 744
Interest expense 703 350
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Income before income taxes and minority interest 3,064 6,190
Income taxes 1,123 2,414
Minority interest 236 --
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Net income $ 1,705 $ 3,776
========= =========
Per common share:
Net income (basic) $ .08 $ .17
========= =========
Net income (diluted) $ .08 $ .17
========= =========
Average common shares outstanding 22,607 22,555
========= =========
Average common and common equivelent shares outstanding 22,607 22,645
========= =========
</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
(IN THOUSANDS) September 30
-----------------------------
2000 1999
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<S> <C> <C>
Net cash (used in) provided by operating activities $ (3,596) $ 3,040
Cash flows from investing activities:
Property and equipment additions (1,367) (1,276)
Proceeds from property and equipment sales 1 1,561
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Net cash (used in) provided by investing activities (1,366) 285
Cash flows from financing activities:
Cash dividends (2,261) (2,255)
Proceeds from borrowings 58,089 --
Repayment of borrowings (52,215) --
Proceeds from exercise of stock options -- 40
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Net cash provided by (used in) financing activities 3,613 (2,215)
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Net (decrease) increase in cash and equivalents (1,349) 1,110
Cash and equivalents at beginning of period 2,030 33,870
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Cash and equivalents at end of period $ 681 $ 34,980
======== ========
Supplemental cash flow information:
Cash paid during the year for:
Income taxes 584 586
Interest 60 708
</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, 2000, the condensed consolidated
statements of income and cash flows for the three month periods ended
September 30, 2000 and 1999 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, 2000 and the results of operations and the
cash flows for the periods ended September 30, 2000 and 1999 have been
made. The results of operations for the period ended September 30, 2000
are not necessarily indicative of the results to be expected for the
full fiscal year.
Comprehensive income (i.e. net income plus available-for-sale securities
valuation adjustments) for the three months ended September 30, 2000 and
1999 was $1,803,000 and $3,776,000 respectively.
The allocation of the purchase price associated with the Sequoia NET.com
acquisition is expected to be completed in the second quarter upon
receipt of final valuation and audit reports, and is not expected to
significantly impact the financial statements as 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, 2000 annual report to shareholders.
2. LONG-TERM DEBT
In January 2000 the Company secured a $25 million bank line of credit.
Under the terms of the line of credit, which expires in January 2003,
the Company may choose to take advances or pay down the outstanding
balance daily, or request a fixed term advance for one, two, three or
six months. The daily advances on the line bear interest at the bank's
prime rate (9.5% at September 30, 2000), while the fixed term advances
bear interest at the applicable EuroDollar rate plus .875%. A commitment
fee of .25% is charged on the unused portion of the line.
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: 2001, $0; 2002,
$5,250,000; 2003, $4,000,000; 2004, $3,000,000; 2005, $3,000,000;
thereafter, $4,750,000.
Both debt agreements contain, 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 $15,500,000 maximum allowed under
the agreement.
At September 30, 2000 the Company had outstanding three $4,000,000
EuroDollar advances maturing October 23, 2000, November 21, 2000 and
December 11, 2000 and accruing interest at 7.399%. 7.739% and 7.410%,
respectively, and one prime rate advance of $7,787,000.
4
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3. SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Three Months Ended
September 30, 2000
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(In thousands)
<S> <C>
Balance at beginning of period $ 99,053
Cash dividends declared (2,261)
Unrealized gain on investments 98
Net income 1,705
--------
Balance at end of period $ 98,595
========
</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 for the period ended September 30,
1999 is the result of outstanding stock options. During the period ended
September 30, 2000 there was no dilutive impact of stock options
outstanding.
5
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Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three Months Ended September 30, 2000 and 1999
CHANGES IN FINANCIAL CONDITION
Working capital at September 30, 2000 was $62.3 million, up 11.6% from the $55.8
million at June 30, 2000. This includes cash and cash equivalents of $681
thousand compared to $2.0 million at June 30, 2000 and accounts receivable of
$112.8 million compared to $98.4 million at June 30, 2000. The ratio of current
assets to current liabilities remained the same and ratio of total assets to
total liabilities has decreased since June 30, 2000.
During the third quarter of fiscal 2000, the Company secured a $25 million bank
line of credit. At September 30, 2000 there was $5.2 million available to be
drawn on this line of credit.
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. The Company continues to be able to support the growth in its
business with internally generated funds and the use of the line of credit. The
Company's sub-supplier contracts are not expected to burden working capital.
On August 22, 2000 the Board of Directors declared the regular quarterly
dividend of $.10 per share payable November 15, 2000 to shareholders of record
on October 31, 2000. The Board of Directors considers whether to declare
dividends each quarter based on the Company's performance, cash position, and
anticipated earnings, cash flows, and cash requirements.
The Company believes funds generated from its business, current cash balances
and existing credit lines are adequate to meet demands placed upon its resources
by its operations, capital investments and the payment of quarterly dividends.
6
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RESULTS OF OPERATIONS
Revenues provided directly for the three months ended September 30, 2000 were
$116.4 million, an increase of 3.0% from the same period a year ago. This
increase is a result of $17.4 million of revenue provided by Sequoia and a 1.1%
increase in average hourly rates, offset by a 13.3% reduction in core billable
hours resulting from the industry-wide slowdown. 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 month period
were $32.2 million, a decrease of 10.8% over the same period a year ago. These
revenues have also been affected by the industry-wide slowdown.
Personnel totalled 4,900 at September 30, 2000, including 590 Sequoia employees,
compared to 4,650 at September 30, 1999, reflecting a 7.3% decrease in
non-Sequoia employees. Substantially all of the decrease in non-Sequoia
employees consists of billable technical staff.
Salaries, contracted services and direct charges, which represent primarily the
Company's direct labor cost, were 80.2% of revenues for the three months ended
September 30, 2000 compared to 79.6% for the same period a year ago. By
comparison, these costs were 81.2% of revenues for the fourth quarter of fiscal
2000. The year-over-year increase in this expense category as a percentage of
revenues is mostly a consequence of increased direct labor costs offset slightly
by increased utilization of billable consultants. The quarter to quarter
decrease in this ratio is primarily a result of increased billing rates and
increased utilization. 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. Although the Company continuously attempts to control
the factors which affect 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 three months ended September 30, 2000 compared to 16.4% for the same period
a year ago. By comparison, these costs were 16.3% of revenues for the fourth
quarter of fiscal 2000. 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.
Amortization of goodwill and other intangible assets has increased from $169,000
for the three months ended September 30, 1999 to $718,000 for the three months
ended September 30, 2000, primarily as a result of increased intangible balances
following the April 25, 2000 acquisition of Sequoia NET.com.
Non-operating income, consisting primarily of interest income, has declined from
$744,000 for the three months ended September 30, 1999 to $9,000 for the three
months ended September 30, 2000. Interest expense has increased from $350,000 to
$703,000 during the same periods. These changes are primarily the result of a
decrease in cash and cash equivalents and an increase in outstanding debt as a
result of the April 25, 2000 acquisition of Sequoia NET.com
Net income for the three months ended September 30, 2000 decreased 54.8% over
the same period a year ago. As a percentage of revenue, net income has decreased
to 1.1% for the three months ended September 30, 2000 from 2.5% for the three
months ended September 30, 1999. This decrease is primarily a result of the
increases, as a percent of revenue, in the expenses discussed above. The
Company's net income as a percentage of revenues provided directly for the three
months ended September 30, 2000 and 1999 was 1.5% and 3.3%, respectively.
During the three months ended September 30, 2000, the Company has been
assessing new ways to improve its effectiveness in gaining market share,
serving its customers and leveraging its technical strengths nationally. The
Company believes that fundamental changes in its company structure are
required to achieve its growth and profitability targets. The Company expects
to undertake several change initiatives during the second fiscal quarter.
These changes will focus on the realignment of the Company's organization to
be more customer focused and to reduce costs. The Company expects there to
be charges in the second quarter related to this reorganization and such
charges may be significant.
7
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PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule.
(b) On July 5, 2000 the Company filed a form 8-K/A amending
the form 8-K filed on May 5, 2000, to include historical
and pro-forma financial information related to the
acquisition of Sequioa NET.com.
8
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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 that 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 Securites 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 upon 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 prosepective
customers for the Company's services, (ii) the renewal 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.
9
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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 00, 2000 By /s/ Marti R. Charpentier
----------------- -------------------------------------
Marti R. Charpentier
Vice President and Treasurer
Date November 00, 2000 By /s/ David J. Steichen
----------------- -------------------------------------
David J. Steichen
Controller and Assistant
Treasurer (Chief Accounting Officer)
10
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EXHIBIT INDEX
Exhibit Number Exhibit
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27 Financial Data Schedule