<PAGE>
LOOK AHEAD
[PHOTO]
2000 annual report
ANALYSTS
INTERNATIONAL-Registered Trademark-
<PAGE>
TABLE OF CONTENTS Financial Highlights/2 Letter to Shareholders/3
Looking Ahead to Our Clients' Tomorrows/5 Management's Discussion and
Analysis/12 Consolidated Financial Statements/16 Notes to Consolidated
Financial Statements/20 Independent Auditors' Report/25 Report of
Management/26 Stock Data/26 Five Year Financial Summary/27 Quarterly
Revenues and Income/27 Regional, Branch and Field Offices/28 Board of
Directors and Officers/29 Corporate Information/29
WHO WE ARE
Analysts International, based in Minneapolis, Minnesota, is a leading
provider of services and expertise in eBusiness/eCommerce, business solutions,
managed services, technical staffing and professional consulting. Our staff
of nearly 4,000 information technology consultants serve clients from more
than 45 locations in the United States, Canada and the United Kingdom.
More than 1,000 corporate and governmental clients rely on Analysts
International and our subsidiaries for everything from integrating
mission-critical legacy systems and B-2-B eCommerce hubs with Web
front-ends...to providing world-class managed services that support massive
IT initiatives.
By providing clients with IT stability, vision and value, we help them chart
a course that can deliver long-term, tangible dividends. From business
intelligence and rapid application development, to complete technical staff
outsourcing, we help create the well-defined support our clients need, where
and how they need it.
Founded in March 1966, Analysts International trades under the Nasdaq
symbol ANLY.
<PAGE>
"LOOK AHEAD" -- IT'S OUR PHILOSOPHY. WE LIVE IT. IT PROPELS OUR STRATEGY AND OUR
PEOPLE AND HOW WE SERVE OUR CLIENTS.
WHAT DRIVES US
"Look Ahead" is the intangible quality that adds tangible value. For our
clients, it's the promise of information technology, the opportunities it's
creating and how businesses can capitalize on them.
This philosophy has also inspired our leadership in IT for more then three
decades. In this era of the "instant" company, our history of quality,
excellence and stability injects sensibility into the New Economy. Our
foundation can help our clients "look ahead" by freeing them to focus on
their strategy, their business development, their IPOs -- their success.
"Look Ahead" is what drives us. It resonates through each of our major lines of
business:
SOLUTIONS
Analysts International provides technology solutions for a wide range of
industry sectors. From eBusiness to Hand-held Computing, to Digital Asset
Management - these services propel clients into the Information Age.
PROFESSIONAL CONSULTING
Nearly 4,000 technology consultants with a broad scope of industry experience
are positioned to provide clients with a wide range of expertise - from
eCommerce to Legacy System Support.
TECHNICAL STAFFING
IT professionals in more than 45 markets with cutting-edge skills means
expertise - from Applications Development to Enterprise Application Integration
- with superior national reach.
MANAGED SERVICES
Large-scale staff augmentation services to support IT and other business units -
we provide a single point of contact from Web procurement and resource
acquisition to day-to-day management.
<PAGE>
ANALYSTS INTERNATIONAL 2
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 2000 1999
<S> <C> <C>
PROFESSIONAL SERVICES REVENUES:
PROVIDED DIRECTLY $ 420,140 $ 480,790
PROVIDED THROUGH SUB-SUPPLIERS 138,591 139,366
TOTAL REVENUES 558,731 620,156
INCOME BEFORE INCOME TAXES AND
MINORITY INTEREST 15,557 37,268
NET INCOME 9,788 22,733
PER SHARE OF COMMON STOCK:
NET INCOME (DILUTED) .43 1.00
CASH EARNINGS(1) (DILUTED) .46 1.01
SHAREHOLDERS' EQUITY 4.38 4.35
DIVIDENDS DECLARED .40 .40
AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 22,624,000 22,732,000
NUMBER OF PERSONNEL 4,800 4,900
RETURN ON EQUITY 9.9% 25.1%
CURRENT RATIO 2.12 2.31
WORKING CAPITAL $ 55,762 $ 79,224
</TABLE>
(1)Cash earnings per share excludes amortization of goodwill and other
intangible assets. Cash EPS is not a measurement in accordance with
accounting principles generally accepted in the United States of America.
MANAGEMENT TEAM
[PHOTO]
IN FRONT: FRED LANG AND MIKE LAVELLE IN BACK: JOHN BAMBERGER, CHARLES JONES,
COLLEEN DAVENPORT, PAULETTE QUIST, MARTI CHARPENTIER AND SARAH SPIESS.
<PAGE>
ANALYSTS INTERNATIONAL 3
At Analysts International, we can claim what very few others can - almost 35
years of IT industry leadership. That's almost three-and-a-half decades of
envisioning new ways for our clients to achieve success through information
technology. That's a lot of practice -- and practice makes perfect.
TO OUR SHAREHOLDERS
We make no bones about it, fiscal 2000 was a difficult year. Our industry
experienced a work freeze prior to Y2K and an anticipated business backlog
did not materialize immediately following the date change. Analysts' earnings
declined more than revenues, reflecting our election to retain consultants in
anticipation of a recovery from the industry-wide slowdown. Our strategy
during the tough fiscal 2000 business climate was to manage our business
prudently -- keeping our costs under control so we stayed profitable. As we
enter fiscal 2001, we are pleased to report that Analysts is seeing an
increase in core and e-market business, which bodes well for the future.
On the eBusiness front, we significantly expanded eBusiness Internet
capabilities. We formed the Enterprise Solutions eBusiness practice group,
which helps customers define eBusiness strategies at the highest level, then
implement those strategies using our broad technology, architecture and rapid
solutions development expertise. Analysts International also acquired a
leading network infrastructure and Web-based solutions company, Sequoia
NET.com. We believe these actions, plus related initiatives such as the
dynamic changes in our industry-leading Mobile Computing and Wireless
(mBusiness) practice group, have put us in an excellent position to grow and
be successful as we move forward.
THIS IS AN ENVIRONMENT WHERE
DEMAND FOR OUR SERVICES WILL
GROW DRAMATICALLY.
The acquisition of Sequoia provides us additional opportunity to dominate an
entirely new marketplace -- the network infrastructure market. Sequoia has
more than 400 technical consultants and strong capabilities and brand
recognition. Our goal is to extend this capability nationally, building upon
what Sequoia has done in its core Michigan market. Once again, we want to
welcome John Bamberger and all his associates to the Analysts International
team.
LOOKING AHEAD
Clearly, the Internet is changing how business is done, and the IT services
market is poised to grow dramatically. Technology-driven change will only
accelerate, causing markets as we know them to be much different. This is an
environment where demand
<PAGE>
ANALYSTS INTERNATIONAL 4
for our services will grow dramatically. Analysts is fortunate to be one of
only a few companies which can offer our clients a complete set of both
front-end and back-end integration skills. We have the experience to create
the network, the applications and Web sites, manage the data, and integrate
it all into internal systems.
Our management team is working together closely to leverage company-wide skills
and to meet the needs of our customers. We constantly look at our business from
top to bottom to change our business model as the technology revolution
continues.
We are excited about Analysts International's growth and profit potential. Our
business is rebounding as we continue to expand our IT solutions business, and
as the recovery gains momentum. With eBusiness initiatives in place, we are
moving aggressively to expand our presence in the e-marketplace. And our various
business initiatives are having the desired impact, helping to add customers and
expand the way they look at Analysts.
In the year ahead, we look for significant progress both financially and in
positioning Analysts International as a dominant player in its marketplace.
Through the dedication and hard work of our employees, we are listening to our
customers and providing them with the services and solutions that can make them
successful.
OUR MANAGEMENT TEAM IS
WORKING TO MEET THE NEEDS
OF OUR CUSTOMERS.
Sincerely,
/s/ Frederick W. Lang
Frederick W. Lang
Chairman and Chief Executive Officer
/s/ Michael J. Lavelle
Michael J. LaVelle
President and Chief Operating Officer
August 21, 2000
<PAGE>
ANALYSTS INTERNATIONAL 5
LOOKING AHEAD...
...to our clients' tomorrows.
Not long ago, technology was changing the way we looked at business. Now,
it's turning business inside out and compelling strategists to deconstruct
traditional models, retool and rebuild for the New Economy. Today, complete
business initiatives go from concept to reality in keystrokes and mouse
clicks. Technology is eliminating barriers, pulling us into new markets and
revealing possibilities.
At Analysts International, "Look Ahead" is more than a mantra. It's how we
add value for clients. It drives us to develop the best-in-class services,
resources, tools and expertise that our clients will need tomorrow to pave
their roads to success. And as a leading provider of information technology
services for nearly 35 years, we've helped clients pen more than our fair
share of success stories.
Today, Analysts International applies its unique vision, innovation and
methodology to fuel the next wave of happy endings...and beginnings.
Where will you find Analysts International? Everywhere from Silicon Valley
start-ups to Fortune 50 companies. You'll find us nurturing eBusiness
visions, powering global Web initiatives and empowering organizations with
the latest mobile computing technology. You'll find us with our eyes on our
clients' tomorrows.
[PHOTOS]
<PAGE>
ANALYSTS INTERNATIONAL 6
The Internet is fueling a business explosion. Every imaginable sector of
business is gravitating to the Web to exploit its efficiency, reach and
opportunity. With its 35-year track record of transforming business by
applying technology, Analysts International is uniquely positioned to help
drive the great Web migration.
eBusiness visions must become reality almost as quickly as they are
conceived. Technology companies that can anticipate quickly become tomorrow's
success stories.
Encite Commerce in Lexington, Ky., is one such example. Founded in 1997
as a music publisher, the company boldly expanded into eBusiness by providing
clients with a customizable Web platform that allows everyone from individual
artists to compact disc makers to rapidly open their own eBusiness
"storefronts."
To realize its goals, Encite's vision was to create a dynamic and
quickly deployable Web platform that easily connected to external databases
and distribution sources. The project required a technology service provider
that could stay ahead of the vision.
Encite looked to Analysts International for software application and Web
design, site development and testing, technical staffing and Web-site hosting.
According to Encite Chairman and President Stepfan Jefferies, Analysts
International's results-driven focus and clear methodology set it apart.
"Many Web development companies only focus on showing you all the `neat'
things they can do. Analysts International focused on our business needs and
what we wanted the technology to accomplish."
ENCITE
Jefferies adds that Analysts International provides another key
advantage...stability. "Most companies in Web development tend to pop up and
disappear pretty quickly. I knew that when development hit critical stages,
Analysts International had the resources."
<PAGE>
ANALYSTS INTERNATIONAL 7
BRINGING REALITY TO EBUSINESS VISION
[PHOTO]
Cindy Jones
Lexington, Ky.
Analysts International
Encite Commerce Team
TREMENDOUS GROWTH POTENTIAL FOR THE IT SERVICES INDUSTRY LIES WITHIN THE
PROMISE OF EMERGING INTERNET COMPANIES. IT SERVICE PROVIDERS BEST POSITIONED
TO CAPITALIZE ON THIS GROWTH MUST POSSESS THE COMPLETE RANGE OF EXPERTISE,
FROM NETWORK DEVELOPMENT TO WEB DEVELOPMENT. ANALYSTS INTERNATIONAL SPEAKS
ALL THE LANGUAGES DEMANDED IN THE NEW ECONOMY TO HELP THESE COMPANIES
ARTICULATE THEIR VISION THROUGH TECHNOLOGY.
<PAGE>
ANALYSTS INTERNATIONAL 8
The world's largest corporations are validating Internet initiatives by
shifting business models and aggressively building around the Web. To extend
our eBusiness capability, Analysts International acquired leading network
infrastructure and Web development company Sequoia NET.com in 2000. With this
bold move, Analysts International further validates its commitment to
providing the services that can help catapult Silicon Valley start-ups and
blue-chip companies alike into eBusiness.
As one of the world's largest auto manufacturers, Ford Motor Company is no
stranger to the frontier. In 1999, Ford President and CEO Jac Nasser
announced a plan to blaze the most innovative eBusiness trail in the auto
industry.
For Ford, eBusiness brims with opportunities -- to improve customer
understanding of Ford's products, ambitions and goals, strengthen
relationships and increase revenues.
Ford's Web initiative is massive -- encompassing all Ford brands worldwide
and reaching vehicle shoppers, owners and dealers at multiple contact points.
The initiative will allow customers to do everything from buying vehicles online
to accessing real-time, in-vehicle updates via wireless communications.
Sequoia NET.com, acquired by Analysts International in 2000 and Microsoft's
1998 Worldwide Partner of the Year, has played a vital role in helping Ford
achieve its goals. Ford retained Sequoia to provide around-the-clock Web
operations support for all Ford brands worldwide -- managing every Web
application utilized by Ford, its consumers and dealers.
According to Chuck Mirabatur, operations manager for Ford's Consumer Connect
division, Sequoia's ability to rapidly provide Web development, network
management and technical staffing has been critical.
[FORD]
"We adhere to the `extreme programming' cycle -- often going from concept
to delivery in a week or less. The expertise that Sequoia brings makes a
tremendous difference in meeting these tight development deadlines."
[PHOTOS]
<PAGE>
ANALYSTS INTERNATIONAL 9
HELPING PIONEERS BLAZE NEW TRAILS.
[PHOTO]
Sheree Haladik
Auburn Hills, Mich.
Sequoia NET.com
Ford Team
AS A RESULT OF THE SEQUOIA NET.COM ACQUISITION, ANALYSTS INTERNATIONAL HAS AN
OPPORTUNITY TO DOMINATE A NEW MARKETPLACE -- THE NETWORK INFRASTRUCTURE
MARKET. IN ADDITION, SEQUOIA NET.COM BRINGS OVER 400 TECHNICAL CONSULTANTS TO
THE ANALYSTS TEAM, MANY OF THEM ENGAGED IN WEB DEVELOPMENT WORK FOR CLIENTS
SUCH AS FORD.
<PAGE>
ANALYSTS INTERNATIONAL 10
To us, innovation means finding creative ways to have a significant impact on
a client's business. Analysts International's mBusiness, or mobile computing,
team is a perfect example. Hand-held computing is making it possible to pull
information out of personal computers and servers to empower organizations on
the go. Analysts International has carved out a unique expertise in this
emerging technology sector.
Health care is propelled by major advances...breakthrough discoveries. Few
industries place higher value on technological innovation. Now, cutting-edge
information technology is becoming a critical factor in improving patient
care.
In New York, the Rochester Individual Practice Association (RIPA) and
BlueCross BlueShield of the Rochester Area (BCBSRA) looked to technology to
boost local health care effectiveness. Their solution -- equip physicians
with Palm-TM- hand-held computers.
RIPA and BCBSRA needed a leader to develop the custom software
applications for the Palm-based solution. They turned to the Analysts
International mBusiness team and its mobile computing software expertise.
Now, the individual Palm devices give Rochester-area internists and
family practitioners instant, mobile access to large volumes of critical
information -- such as drug formularies, drug interaction information and
medical policy information.
David McDowell, vice president and CIO for BCBSRA, says Analysts
International's vision and goal orientation was integral to the project's
success. "Analysts International understood how to make this technology
fulfill our business goals. That depth of knowledge helped develop this
project much faster than we could have done alone."
Executive Director of RIPA John Oberlies echoes that sentiment. "It
seems to me that their favorite phrase is `Yes, we can do that.'"
PALM PILOT
[PHOTOS]
<PAGE>
ANALYSTS INTERNATIONAL 11
ARMING INDUSTRIES
WITH MOBILE INFORMATION.
[PHOTO]
Mike Zirkle
New York, N.Y.
Analysts International
RIPA/BCBSRA Team
THE NEW ECONOMY IS JUST BEGINNING TO FEEL THE IMPACT OF MOBILE COMPUTING
TECHNOLOGY. ANALYSTS INTERNATIONAL RECOGNIZES THE IMPORTANT ROLE MOBILE
COMPUTING WILL PLAY FOR OUR CLIENTS AND IS COMMITTED TO FURTHER STRENGTHENING
OUR LEADERSHIP POSITION IN THE DEVELOPMENT OF MOBILE AND WIRELESS SOLUTIONS
THAT WILL ALLOW THEM TO TRULY REACH ANY CUSTOMER, ANYWHERE, ANYTIME.
<PAGE>
ANALYSTS INTERNATIONAL 12
As a means of better explaining the Company's operations and results, the
following table illustrates the relationship between revenues and expense
categories for the years ended June 30, 2000, 1999, and 1998.
<TABLE>
<CAPTION>
PERCENT OF REVENUES
<S> <C> <C> <C>
YEAR ENDED JUNE 30, 2000 1999 1998
Professional services revenues:
Provided directly 75.2% 77.5% 77.3%
Provided through sub-suppliers 24.8 22.5 22.7
--------------------------
Total revenues 100.0 100.0 100.0
Salaries, contracted services and direct charges 81.0 78.5 77.9
Selling, administrative and other operating costs 16.0 15.6 15.9
Amortization of goodwill and other intangible assets 0.2 0.1 --
Non-operating income and interest expense, net -- 0.2 0.2
--------------------------
Income before income taxes and minority interest 2.8 6.0 6.4
Income taxes and minority interest 1.0 2.3 2.6
--------------------------
Net income 1.8% 3.7% 3.8%
--------------------------
</TABLE>
RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The Company operates in one business segment.
RESULTS OF OPERATIONS, 2000 vs. 1999
Revenues provided directly for the year ended June 30, 2000 were $420
million, a decrease of 12.6% from 1999 levels. Nearly all of these decreases are
the result of a 17.2% decrease in core billable hours, which is a result of an
industry-wide slowdown. While the Company expects the industry slowdown to
reverse in fiscal 2001, there can be no assurance when, or if, revenue will
return to previous levels. The decrease in billable hours was partially offset
by $9.4 million of revenue associated with the acquisition of Sequoia NET.com on
April 25, 2000 and a 3.2% increase in hourly rates charged in our core business.
While the Company has been able to increase rates somewhat over the prior fiscal
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-supplier billings, primarily with U S WEST and IBM, decreased .6% in
fiscal 2000 from 1999. These decreases in sub-supplier revenues resulted from
decreases in billable hours of service rendered to clients.
Personnel totalled 4,800 at June 30, 2000, including 575 employees who are
associated with the Sequoia acquisition, compared to 4,900 at June 30, 1999.
Excluding the Sequoia employees, personnel levels have fallen 675 or 13.8% to
4,225 at June 30. Substantially all of the decrease from 1999 to 2000 consisted
of billable technical consultants.
<PAGE>
ANALYSTS INTERNATIONAL 13
As of June 30, 2000, 440 of the employees associated with Sequoia are
billable technical consultants.
Salaries, contracted services and direct charges, which represent primarily
the Company's direct labor costs, were 81.0% of revenues in fiscal 2000 compared
to 78.5% of revenues in fiscal 1999. The increase in this expense category as a
percentage of revenues is mainly a consequence of (i) normal increases in direct
labor rates and (ii) unusually high idle time as the Company elected to retain
higher than needed consultant levels during the second half of the year, in
anticipation of an earlier recovery from the industry-wide slowdown. Excluding
both sub-supplier revenues and labor costs associated with these contracts, this
category of expense was 74.7% of revenues in fiscal 2000, and 72.3% in fiscal
1999. 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 billable technical consultants.
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 there can be no assurance, the Company expects
to return to near-normal productivity levels during 2001, as the industry-wide
slowdown begins to reverse. Even though the Company has taken steps to control
this category of expense, there can be no assurance the Company will be able to
return to historical gross margin levels.
Selling, administrative and other operating costs include commissions paid
to sales representatives and recruiters, employee fringe benefits and location
costs. These costs, as a percentage of revenues, were 16.0% in fiscal 2000, and
15.6% in 1999. Excluding the sub-supplier revenues associated with the contracts
referred to above, this percentage would have been 21.3% for fiscal 2000, and
20.2% for fiscal 1999. The increase in these expense categories as a percentage
of revenue is a consequence of revenue declining more rapidly during fiscal 2000
than these expense categories. While the Company is committed to careful
management of these costs, there can be no assurance the Company will be able to
return these costs to their historical levels relative to revenue.
Income taxes decreased from $14,535 in fiscal 1999 to $5,656 in fiscal
2000. The effective rate of income taxes decreased from 39% of pre-tax income in
1999 to 36.4% in 2000 primarily due to the reversal of taxes provided in
previous years.
Net income in fiscal 2000 decreased 56.9% from fiscal 1999. As a percentage
of total revenues, net income was 1.8% in fiscal 2000 as compared to 3.7% in
fiscal 1999. The Company's net income as a percentage of revenues provided
directly was 2.3% and 4.7% for fiscal years 2000 and 1999, respectively.
Inflation has not had a major impact on the Company's operations because
revenues are derived primarily from services billed at hourly rates, which are
generally subject to renegotiation on a periodic basis.
RESULTS OF OPERATIONS, 1999 VS. 1998
Revenues provided directly increased approximately $26 million, or 5.8% in
fiscal 1999 over 1998. Nearly all of these increases were the result of
increases in hourly rates. Approximately 65% of this increase was the result of
an increase in billed hours and 35% from increases in hourly rates. Revenues
provided through sub-supplier billings, primarily with U S WEST and IBM,
increased 4.7% in fiscal 1999 over fiscal 1998. These increases in sub-supplier
revenues resulted almost exclusively from increases in billable hours of service
rendered to clients.
Personnel totalled 4,900 at June 30, 1999 compared to 5,300 at June 30,
1998. Substantially all of the decrease from 1998 to 1999 consisted of billable
technical consultants.
Salaries, contracted services and direct charges, which represent primarily
the Company's direct labor costs, were 78.5% of revenues in fiscal 1999 compared
to 77.9% of revenues in fiscal 1998. The increase in this expense category as a
percentage of revenues is mainly a consequence of increases in direct labor
charges. Excluding both sub-supplier
<PAGE>
ANALYSTS INTERNATIONAL 14
revenues and labor costs associated with these contracts, this category of
expense was 72.3% of revenues in fiscal 1999, and 71.4% in fiscal 1998. The
Company's efforts to control these costs involved controlling labor costs,
passing on labor cost increases through increased billing rates where
possible, and maintaining productivity levels of billable technical
consultants. Labor costs, however, are difficult to control because the
highly skilled technical personnel the Company seeks to hire and retain are
in great demand. Intense competition in the industry makes it difficult to
pass cost increases on to customers, and unfavorable economic conditions
could adversely affect productivity.
Selling, administrative and other operating costs include commissions paid
to sales representatives and recruiters, employee fringe benefits and location
costs. These costs, as a percentage of revenues, were 15.6% in fiscal 1999 and
15.9% in 1998. Excluding the sub-supplier revenues associated with the contracts
referred to above, this percentage would have been 20.2% for fiscal 1999 and
20.6% for fiscal 1998.
Net income in fiscal 1999 increased 0.5% over fiscal 1998. As a percentage
of total revenues, net income was 3.7% in fiscal 1999 as compared to 3.8% in
fiscal 1998. The Company's net income as a percentage of revenues provided
directly was 4.7% and 5.0% for fiscal years 1999 and 1998, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at June 30, 2000 was $55.8 million, down 29.6% from $79.2
million at June 30, 1999 which was up 17.4% from $67.5 million at June 30, 1998.
This includes cash and cash equivalents of $2.0 million at June 30, 2000
compared to $33.9 million at June 30, 1999 and $11.9 million a year earlier and
accounts receivable of $98.4 million at June 30, 2000 compared to $101.5 million
at June 30, 1999 and $94.3 million a year earlier. Ratios of current assets to
current liabilities and total assets to total liabilities have decreased since
June 30, 1999.
During the third quarter of fiscal 2000, the Company secured a $25 million
bank line of credit. On April 25, 2000, the Company drew down $13 million on the
line of credit and utilized $30.5 million of its cash balances to complete the
acquisition of Sequoia NET.com. The decrease in working capital and the changes
in the ratios from June 30, 1999 to June 30, 2000 are primarily due to this
transaction. At June 30, 2000 there was $11.3 million available to be drawn on
this line of credit.
On December 30, 1998, the Company entered into a Notes Purchase Agreement
whereby it sold $20.0 million of 7% Senior Notes due December 30, 2006. The
increase in working capital and long-term debt from June 30, 1998 to June 30,
1999 are primarily due to cash provided by operating activities and the proceeds
from the $20.0 million Notes Purchase Agreement used to finance the acquisition
of office facilities for headquarters and Minneapolis branch operations.
The Company's primary need for working capital is to support accounts
receivable resulting from its business and to fund the time lag between payroll
disbursement and receipt of fees billed to clients. Over the past three years,
the Company has been able to support changes in its business, except for the
acquisition of Sequoia and the purchase of office facilities, with internally
generated funds. The Company's sub-supplier contracts have not and are not
expected to burden working capital.
In fiscal 2000, the Company made capital expenditures totaling $3.4
Million compared to capital expenditures of $23.2 Million and $7.7 Million in
fiscal years 1999 and 1998, respectively. These capital expenditures were
funded through a combination of unsecured debt and cash reserves. Fiscal 2001
capital spending is expected to approximate $4.0 Million.
During fiscal years 2000 and 1999, the Company has paid a regular quarterly
cash dividend of $.10 per share, up from the $.08 declared during fiscal 1998.
The amount of the quarterly dividend is based on results of operations,
available cash and anticipated cash requirements of the business.
The Company adopted Statements of Financial Accounting Standards No. 130,
"Reporting
<PAGE>
ANALYSTS INTERNATIONAL 15
Comprehensive Income," and No. 131, "Disclosures About Segments of An
Enterprise and Related Information," in the first quarter of fiscal 1999. The
adoption of these standards did not have a significant effect on the
Company's financial position and operating results.
In the second quarter of fiscal 1998, the Company also adopted Statements
of Financial Accounting Standards No. 128, "Earnings Per Share." This statement
replaces the presentation of primary EPS with a presentation of basic EPS.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 summarizes certain of the SEC staff's views in applying
generally accepted accounting principles to selected revenue recognition issues.
SAB No. 101 is to be implemented by the Company in fiscal 2001. The Company is
currently reviewing SAB No. 101 and its effects on the financial statements, and
does not expect the SAB to have a significant effect on its financial position
or the results of its operations.
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Company will be required to adopt SFAS
No. 133 in fiscal 2001. Management does not believe SFAS No. 133 will have a
material effect on its financial position or the results of its operations.
On April 25, 2000, the Company purchased an 80.1% interest in Sequoia
NET.com for $43.5 million. Sequoia NET.com provides network installation and
support services and other eBusiness services. Sequoia NET.com had net assets of
$7.3 million on December 31, 1999 and reported $57.7 million in revenues with
pre-tax profits of $3.8 million for the year ended December 31, 1999. Also
during the third quarter, the Company invested $3.2 million in other alliance
partners.
On November 6, 1998, the Company acquired specific assets and assumed
certain liabilities of Enterprise Solutions, Inc., a Minneapolis,
Minnesota-based provider of software services. On February 26, 1999, the Company
acquired all of the assets of Real World Training Systems LLC, a Phoenix,
Arizona-based provider of software services. The amount paid in connection with
these purchases was approximately $4.2 million which was paid with internal
funds.
The Company believes funds generated from its business, current cash
balances and credit available under its line of credit are adequate to meet
demands placed upon its resources by its operations, capital investments and the
payment of quarterly dividends.
<PAGE>
ANALYSTS INTERNATIONAL 16
ANALYSTS INTERNATIONAL
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNT) 2000 1999
<S> <C> <C>
ASSETS
Current assets;
Cash and cash equivalents $ 2,030 $ 33,870
Accounts receivable, less allowance for
doubtful accounts of $1,100 and
$850, respectively 98,413 101,523
Prepaid expenses and other current assets 4,047 4,499
Income tax refund receivable 879 -
------------------------
Total current assets 105,369 139,892
Property and equipment 29,558 29,644
Intangible assets, net of accumulated
amortization of $1,994 and $969, respectively 43,997 7,029
Other assets 13,220 9,651
------------------------
$ 192,144 $ 186,216
========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 30,817 $ 30,791
Dividend payable 2,261 2,255
Salaries and vacations 10,646 23,227
Self-insured health care reserves and other accounts 5,883 3,311
Income taxes payable - 1,084
------------------------
Total current liabilities 49,607 60,668
Long-term debt 33,913 20,000
Other long-term liabilities 7,826 7,534
Commitments (Note I) - -
Minority interest in Sequoia NET.com 1,745 -
Shareholders' equity:
Common stock, par value $.10 a share;
authorized 120,000,000 shares; issued and outstanding
22,606,826 and 22,552,441 shares, respectively 2,261 2,255
Additional capital 14,205 13,900
Accumulated other comprehensive income (23) -
Retained earnings 82,610 81,859
------------------------
Total shareholders' equity 99,053 98,014
------------------------
$ 192,144 $ 186,216
========================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
<PAGE>
ANALYSTS INTERNATIONAL 17
ANALYSTS INTERNATIONAL
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 2000 1999 1998
<S> <C> <C> <C>
Professional services revenues:
Provided directly $420,140 $480,790 $454,339
Provided through sub-suppliers 138,591 139,366 133,072
----------------------------------------
Total revenues 558,731 620,156 587,411
Expenses:
Salaries, contracted services and direct charges 452,334 486,816 457,318
Selling, administrative and other operating costs 89,683 96,887 93,428
Amortization of goodwill and other intangible assets 1,025 415 277
----------------------------------------
Operating income 15,689 36,038 36,388
Non-operating income 1,452 1,408 1,299
Interest expense 1,584 178 -
----------------------------------------
Income before income taxes and minority interest 15,557 37,268 37,687
Income taxes 5,656 14,535 15,077
Minority interest 113 - -
----------------------------------------
Net income $ 9,788 $ 22,733 $ 22,610
========================================
Per common share:
Net income (basic) $ .43 $ 1.01 $ 1.01
Net income (diluted) $ .43 $ 1.00 $ .99
Average common shares outstanding 22,583,000 22,524,000 22,376,000
Average common and common equivalent
shares outstanding 22,624,000 22,732,000 22,829,000
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
ANALYSTS INTERNATIONAL 18
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
(IN THOUSANDS) 2000 1999 1998
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 9,788 $ 22,733 $ 22,610
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 4,892 3,844 3,454
Amortization of goodwill and other intangible assets 1,025 415 277
Loss (gain) oil disposal of assets (499) 19 4
Decrease (increase) in deferred income tax benefit 510 (436) (1,192)
Tax effect of stock transactions 45 543 336
Change in:
Accounts receivable 13,508 (7,229) (27,340)
Prepaid expenses (111) (590) (268)
Other assets 149 (582) (549)
Accounts payable (1,079) 9,555 3,105
Salaries and vacations (12,581) 7,558 4,156
Other accrued expenses (276) 1,150 514
Income taxes payable (4,581) (551) 1,440
Long-term liabilities 292 363 727
--------------------------------------------------------
Net cash provided by operating activities 11,082 36,792 7,274
Cash flows from investing activities:
Properly and equipment additions (3,413) (23,182) (7,722)
Investment purchases (190) - -
Payments for acquisitions, net of cash acquired (42,687) (3,847) -
Investment in alliance partners (3,012) - -
Proceeds from property and equipment sales 1,575 35 25
--------------------------------------------------------
Net cash used in investing activities (47,727) (26,994) (7,697)
Cash flows from financing activities:
Cash dividends (9,037) (8,560) (6,563)
Proceeds from borrowings 50,094 20,000 -
Repayment of borrowings (36,518) - -
Proceeds from exercise of stock options 266 704 960
--------------------------------------------------------
Net cash provided by (used in) financing activities 4,805 12,204 (5,597)
--------------------------------------------------------
Net (decrease) increase in cash and equivalents (31,840) 22,002 (6,020)
Cash and equivalents at beginning of year 33,870 11,868 17,888
--------------------------------------------------------
Cash and equivalents at end of year $ 2,030 $ 33,870 $ 11,868
========================================================
Supplemental cash flow information:
Cash paid during the year for:
Income taxes $ 7,109 $ 15,421 $ 14,565
Interest 2,206 - -
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
ANALYSTS INTERNATIONAL 19
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMLATED
OTHER
COMMON ADDITIONAL COMPREHENSIVE RETAINED
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) STOCK CAPITAL INCOME EARNINGS
<S> <C> <C> <C> <C>
Balances at June 30, 1997 $ 2,228 $ 11,318 $ 52,558
Common stock issued - 153,601 shares
upon exercise of stock options 16 950
Income tax benefit from stock option plans 264
Other 72
Cash dividends ($.31 per share) (7,022)
Net income 22,610
-----------------------------------------------------------------------
Balances at June 30, 1998 2,244 12,604 68,146
Common stock issued - 112,698 shares
upon exercise of stock options 11 753
Income tax benefit from stock option plans 102
Other 441
Cash dividends ($.40 per share) (9,020)
Net income 22,733
-----------------------------------------------------------------------
Balances at June 30, 1999 2,255 13,900 81,859
Common stock issued - 54,385 shares
upon exercise of stock options 6 260
Income tax benefits from stock option plans 45
Unrealized loss on available for sale securities $ (23)
Cash dividends ($.40 per share) (9,037)
Net income 9,788
-----------------------------------------------------------------------
Balance at June 30, 2000 $ 2,261 $ 14,205 $ (23) $ 82,610
=======================================================================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
ANALYSTS INTERNATIONAL 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS -- Analysts International Corporation furnishes
analytical and programming services. These services include consulting, systems
analysis, design, programming and instruction in the use of computer programs.
BASIS OF PRESENTATION -- The consolidated financial statements include the
accounts of the Company and its subsidiaries. All intercompany accounts and
transactions have been eliminated.
As described in note J, on April 25, 2000, the Company completed the
acquisition of 80.1% of Sequoia NET.com. The acquisition was accounted for as a
purchase. The accompanying financial statements include 100% of Sequoia
NET.com's operating results for the period from April 25, 2000 to June 30, 2000,
offset by the minority shareholders' interest in Sequoia's net earnings.
DEPRECIATION -- Property and equipment is being depreciated using the
straight-line method over the estimated useful lives (15 to 50 years for
building and improvements and 2 to 7 years for office furniture and equipment)
of the assets for financial statement purposes and accelerated methods for
income tax purposes.
FINANCIAL INSTRUMENTS - In accordance with the requirements of Statement of
Financial Accounting Standards (SFAS) No. 107, "Disclosures about Fair Value of
Financial Instruments," management estimates the carrying value of long-term
debt exceeds fair value by approximately $1,100,000 at June 30, 2000. The
carrying value approximated the fair value at June 30, 1999. The estimated fair
value amounts have been determined through the use of discounted cash flow
analysis using interest rates currently available to the Company for issuance of
debt with similar terms and remaining maturities. All other financial
instruments approximate fair value because of the short-term nature of these
instruments.
REVENUE RECOGNITION -- The Company provides custom software design and
implementation services primarily under time and material contracts. The Company
records professional services revenue at contractually agreed upon rates as the
services are provided. The Company grants credit without collateral to
customers, a significant portion of whom are engaged in the electronics and
telecommunications industries. One customer and their various divisions and
operating units accounted for approximately 22%, 23% and 22% of revenues in
fiscal 2000, 1999 and 1998, respectively. Another customer accounted for 17%,
16%, and 16% of revenues in each of fiscal 2000, 1999 and 1998, respectively.
INTANGIBLE ASSETS -- Intangible assets consist of tradenames, in-place work
force, customer lists and goodwill, the excess of the purchase price over the
appraised fair value of assets acquired in acquisitions. Intangibles are
amortized on a straight-line basis over periods of 2 to 18 years. At the balance
sheet date, management assessed whether there has been a permanent impairment in
the value of intangible assets and the amount of such impairment by comparing
anticipated undiscounted future operating income from the applicable business
unit with the carrying value of the related intangible assets. The factors
considered by management in performing this assessment include current operating
results, trends and prospects, as well as the effects of demand, competition and
other economic factors.
COMPREHENSIVE INCOME -- Other comprehensive income consists of unrealized losses
on available-for-sale securities. Total comprehensive income was $9,765,000,
$22,733,000 and $22,610,000 in fiscal 2000, 1999 and 1998, respectively.
NET INCOME PER SHARE -- Basic and diluted earnings per share (EPS) are presented
in accordance with Statement of Financial Accounting Standards No. 128,
"Earnings Per Share." 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 weighted-average
<PAGE>
ANALYSTS INTERNATIONAL 21
common shares and average common and common equivalent shares used in computing
diluted EPS is the result of outstanding stock options. Options to purchase
908,000, 358,000, and 38,000 shares of common stock were outstanding during
fiscal years ended June 30, 2000, 1999, and 1998, respectively, but were
excluded from the computation of common stock equivalents because they were
anti-dilutive.
CASH EQUIVALENTS -- Temporary cash investments in money market accounts and
Treasury Bills are considered to be cash equivalents.
SHARES RESERVED -- At June 30, 2000, there were approximately 27,208,000 shares
reserved for issuance under the stock option plans and the shareholders' rights
plan.
ESTIMATES -- The preparation of consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions affecting the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 summarizes certain of the SEC staff's views in applying
generally accepted accounting principles to selected revenue recognition issues.
SAB No. 101 is to be implemented by the Company in fiscal 2001. The Company is
currently reviewing SAB No. 101 and its effects on the financial statements and
does not expect the SAB to have a significant effect on its financial position
or results of its operations.
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." The
Company will be required to adopt SFAS No. 133 in fiscal 2001. Management
does not believe SFAS No. 133 will have a material effect on its financial
position or the results of its operations.
B. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
JUNE 30
(IN THOUSANDS) 2000 1999
<S> <C> <C>
Cost:
Land $ 1,917 $ 1,940
Building and improvements 19,501 19,912
Office furniture & equipment 28,383 22,900
Total 49,801 44,752
Accumulated depreciation (20,243) (15,108)
$ 29,558 $ 29,644
</TABLE>
In January 1998, the Company entered into an agreement to build a facility
for use as its headquarters and Minneapolis branch operations. In May 1999, the
Company moved into this facility. Construction and related costs were
approximately $22,000,000 and are included in the above amounts. These costs
were financed through the use of cash reserves and the proceeds of the Notes
Purchase Agreement described in note D. Included in these costs are
approximately $529,000 of interest costs capitalized in fiscal 1999.
C. DEFERRED COMPENSATION
The Company has a Deferred Compensation Plan for key management employees as
determined by the Board. Included in long-term liabilities at June 30, 2000 and
1999 is $7,826,000 and $7,534,000, respectively, representing the Company's
liability under the Plan. This liability is being funded by the purchase of life
insurance and annuity contracts. Included in other assets at June 30, 2000 and
1999 is $6,080,000 and $6,229,000, respectively, representing the carrying value
of annuities, which approximates market value, and insurance cash value.
Deferred compensation expense for the fiscal years 2000, 1999 and 1998 was
approximately $292,000, $363,000 and $727,000, respectively.
D. LONG-TERM DEBT
In January 2000, the Company secured a $25,000,000 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
<PAGE>
ANALYSTS INTERNATIONAL 22
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 June 30, 2000) while the fixed term advances bear interest at the
applicable EuroDollar rate plus .75%. A commitment fee of .175% is charged on
the unused portion of the line. At June 30, 2000, the Company had outstanding
two $4,000,000 EuroDollar advances maturing October 23, 2000 and November 21,
2000 and accruing interest at 7.399% and 7.739%, respectively, and one prime
rate advance of $5,875,000.
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 are as follows: fiscal 2001, $0; fiscal 2002,
$5,250,000; fiscal 2003, $4,000,000; fiscal 2004, $3,000,000; fiscal 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 requirements and current dividend payments will not exceed
the $16,500,000 maximum allowed under the agreement.
E. COMMON STOCK
In October 1998, the shareholders approved an amendment to the Company's
Articles of Incorporation increasing the number of shares of common stock
authorized for issuance to 120,000,000 shares.
F. STOCK OPTION PLANS
The Company has four stock-based compensation plans, which are described below.
The Company has adopted the disclosure provisions of SFAS No. 123, "Accounting
for Stock-Based Compensation," and has continued to apply APB Opinion No. 25 and
related interpretations in accounting for its plans. Accordingly, no
compensation cost has been recognized for its stock option plans. Had
compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates as calculated in
accordance with SFAS No. 123, the Company's net income and earnings per share
for the years ended June 30, 2000, 1999 and 1998 would have been reduced to the
pro forma amounts indicated below:
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
Net income
(in thousands):
As reported $ 9,788 $ 22,733 $ 22,610
Pro forma 8,411 22,038 21,539
Net income per share
(basic):
As reported $ .43 $ 1.01 $ 1.01
Pro forma .37 .98 .96
Net income per share
(diluted):
As reported $ .43 $ 1.00 $ .99
Pro forma .37 .97 .94
</TABLE>
The fair market value of each stock option is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
Expected life 5 years 5 years 5 years
Expected volatility 59% 53% 44%
Expected dividend yield 2.0% 1.0% 1.0%
Risk-free interest rate 8.0% 7.0% 7.5%
</TABLE>
The weighted average fair value of options granted during the years ended
June 30, 2000, 1999 and 1998 was $4.42, $6.15 and $9.15, respectively.
The Company has options outstanding under four option plans, three of which
remain active. Under the 1994 Stock Option Plan, the Company may grant options
to its employees for up to 1,200,000 shares of common stock. Under the 1996
Stock Option Plan for Non-Employee Directors, the Company may grant options to
its non-employee directors for up to 240,000 shares of common stock. Under the
1996 Non-Employee Directors Plan, options to purchase 6,000 shares are
automatically granted on January 3 of each year to each eligible non-employee
director. Under the 1999 Stock Option Plan, the Company may grant options to its
employees for up to 1,000,000 shares of common stock. Under all plans, the
exercise price of each option equals the market price of the Company's stock on
the date of grant and an option's maximum term is generally 10
<PAGE>
ANALYSTS INTERNATIONAL 23
years. Options are exercisable 25% annually beginning one year after date of
grant.
A summary of the status of the Company's stock option plans as of June 30,
2000, 1999 and 1998, and changes during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>
2000 1999 1998
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 1,005,659 $15.58 889,760 $14.58 981,060 $12.03
Granted 721,532 10.71 228,223 16.45 107,407 27.91
Exercised (87,932) 7.48 (101,189) 8.62 (188,207) 9.07
Expired (80,110) 11.69 (11,135) 16.10 (10,500) 12.20
-------------------------------------------------------------------------------------
Outstanding at end of year 1,559,149 $14.09 1,005,659 $15.58 889,760 $14.58
=====================================================================================
</TABLE>
The following table summarizes information about stock options outstanding at
June 30, 2000:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
NUMBER WEIGHTED-AVERAGE NUMBER
RANGE OF OUTSTANDING REMAINING WEIGHTED-AVERAGE EXERCISABLE WEIGHTED-AVERAGE
EXERCISE PRICES AT 6/30/00 CONTRACTUAL LIFE EXERCISE PRICE AT 6/30/00 EXERCISE PRICE
<S> <C> <C> <C> <C> <C>
$ 8.44 - $ 12.09 706,444 9.26 years $ 10.32 56,769 $ 10.50
12.59 - 13.59 369,500 2.39 12.68 314,963 12.62
14.00 - 19.33 256,906 6.00 16.55 110,334 17.53
22.83 - 34.94 226,299 7.54 25.35 105,903 25.50
--------------------------------------------------------------------------------------------
$ 8.44 - $ 34.94 1,559,149 6.85 $ 14.09 587,969 $ 15.65
============================================================================================
</TABLE>
G. SHAREHOLDERS' RIGHTS PLAN
On June 15, 1989, the Board of Directors adopted a common stock shareholders'
rights plan. Under this plan, the Board of Directors declared a dividend of one
common share purchase right for each outstanding share of common stock and stock
options granted and available for grant. The Board of Directors amended the plan
on April 29, 1996 and April 16, 1998. The rights, which expire on April 16,
2008, are exercisable only under certain conditions, and when exercisable the
holder will be entitled to purchase from the Company one share of common stock
at a price of $160.00, subject to certain adjustments. The rights will become
exercisable after a person or group acquires beneficial ownership of 15% or more
(or as low as 10% as the Board of Directors may determine) of the Company's
common stock or after a person or group announces an offer, the consummation of
which would result in such person or group owning 15% or more of the common
stock.
If the Company is acquired at any time after the rights become exercisable,
the rights will be adjusted so as to entitle a holder to purchase a number of
shares of common stock of the acquiring company at one-half of their market
value. If any person or group acquires beneficial ownership of 15% or more of
the Company's shares, the rights will be adjusted so as to entitle a holder
(other than such person or group whose rights become void) to purchase a number
of shares of common stock of Analysts International Corporation at one-half of
their market value or the Board of Directors may exchange the rights, in whole
or in part, at an exchange ratio of one common share per right (subject to
adjustment).
At any time prior to an acquisition by a person or group of beneficial
ownership of 15% or more of the Company's shares, the Board of Directors may
redeem the rights at $.01 per right.
<PAGE>
ANALYSTS INTERNATIONAL 24
H. INCOME TAXES
The provision for income taxes charged was as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
(IN THOUSANDS) 2000 1999 1998
<S> <C> <C> <C>
Currently payable:
Federal $ 4,363 $ 12,648 $ 13,627
State 783 2,323 2,642
--------------------------------
5,146 14,971 16,269
Deferred:
Federal 394 (348) (1,002)
State 116 (88) (190)
--------------------------------
510 (436) (1,192)
--------------------------------
Total $ 5,656 $ 14,535 $ 15,077
================================
</TABLE>
Net deferred tax assets are comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
(IN THOUSANDS) 2000 1999
<S> <C> <C>
Deferred compensation $ 3,052 $ 2,938
Accrued vacation and
compensatory time 1,418 1,723
Self-insured health care reserves 741 819
Allowance for doubtful accounts 356 332
Depreciation 52 197
Other 180 395
------- -------
Deferred tax assets 5,799 6,404
Other (110) (205)
------- -------
Deferred tax liabilities (110) (205)
------- -------
Net deferred tax assets $ 5,689 $ 6,199
==================
Whereof:
Current $ 2,541 $ 2,929
Noncurrent 3,148 3,270
------- -------
$ 5,689 $ 6,199
==================
</TABLE>
The provision for income taxes differs from the amount of income tax
determined by applying the federal statutory income tax rates to pretax income
as a result of the following differences:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
(IN THOUSANDS) 2000 1999 1998
<S> <C> <C> <C>
Income tax at statutory
federal rate $5,445 $13,044 $13,190
State and local taxes,
net of federal benefit 585 1,453 1,583
Other (374) 38 304
----------------------------
Total tax provision $5,656 $14,535 $15,077
============================
</TABLE>
I. COMMITMENTS
At June 30, 2000, aggregate net minimum rental commitments under noncancelable
operating leases having an initial or remaining term of more than one year are
payable as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Year ending June 30, 2001 $ 5,351
2002 4,184
2003 3,696
2004 2,270
2005 1,680
Later 2,150
--------
Total minimum obligation $ 19,331
========
</TABLE>
Rent expense, primarily for office facilities, for the years ended June 30,
2000, 1999 and 1998 was $5,761,000, $5,879,000 and $4,900,000, respectively.
The Company has compensation arrangements with its four senior executives and
certain other employees which provide for certain payments in the event of a
change of control of the Company.
The Company also sponsors a 401(k) plan. Substantially all employees are
eligible to participate and may contribute up to 15% of their pretax earnings,
subject to IRS maximum contribution amounts. The Company makes matching
contributions to the plan up to a specified percentage. The Company's
contributions vest after the employee has completed seven years of service and
for 2000, 1999 and 1998 amounted to approximately $1,389,000, $1,439,000 and
$1,347,000, respectively.
J. BUSINESS ACQUISITIONS
On April 25, 2000, the Company purchased an 80.1% interest in Sequoia NET.com
for $43.5 million. To complete the transaction the Company utilized $30.5
million of its cash balances and drew down $13.0 million on its line of credit.
Sequoia NET.com provides network installation and support services and other
eBusiness services. Sequoia NET.com had net assets of $7.3 million on December
31, 1999 and reported $57.7 million in revenues with pretax profits of $3.8
million for the year then ended. The purchase of Sequoia NET.com has been
accounted for under the purchase method of accounting. Accordingly, the assets
<PAGE>
ANALYSTS INTERNATIONAL 25
acquired, including customer and employee-based intangibles are, subject to
receipt of final valuation and audit reports, recorded at their fair values
at the date of acquisition and amortized on a straight-line basis over
periods expected to range from 3 to 18 years. The operations of Sequoia from
April 25, 2000 through June 30, 2000, including revenue of $9.4 million, are
included in the consolidated statement of income. After amortization of
intangibles, Sequoia's operations had no effect on consolidated results of
operations. The excess of the purchase price over the fair value of the
assets is being amortized on a straight-line basis over 18 years.
The following represents the pro forma operating results for the Company
assuming the acquisition of SequoiaNET.com had occurred on July 1, 1998:
<TABLE>
<CAPTION>
(IN THOUSANDS EXCEPT
PER SHARE AMOUNTS) 2000 1999
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
<S> <C> <C> <C> <C>
Total Revenues $558,731 $608,029 $620,156 $672,217
Net Income 9,788 9,938 22,733 20,117
Earnings per
share (diluted) .43 .44 1.00 .88
</TABLE>
On November 6, 1998, the Company acquired specific assets and assumed certain
liabilities of Enterprise Solutions, Inc., a Minneapolis, Minnesota-based
provider of software services. On February 26, 1999, the Company acquired all of
the assets of Real World Training Systems LLC, a Phoenix, Arizona-based provider
of software services. The amount paid in connection with these purchases was
approximately $4.2 million which was paid with internal funds. These
acquisitions were accounted for by the purchase method of accounting.
Accordingly, the assets acquired, including primarily accounts receivable and
property and equipment, were recorded at their estimated fair values as of the
date of acquisition. The excess of the purchase price over the estimated fair
value of the assets acquired was recorded as goodwill and is being amortized on
a straight-line basis over periods of 3 to 12 years.
INDEPENDENT AUDITORS' REPORT
SHAREHOLDERS AND BOARD OF DIRECTORS
ANALYSTS INTERNATIONAL CORPORATION
MINNEAPOLIS, MINNESOTA
We have audited the accompanying consolidated balance sheets of Analysts
International Corporation and its subsidiaries (the Company) as of June 30, 2000
and 1999 and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended June 30, 2000.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of the Company as of
June 30, 2000 and 1999, and the results of their operations and their cash flows
for each of the three years in the period ended June 30, 2000, in conformity
with accounting principles generally accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
August 21, 2000
<PAGE>
ANALYSTS INTERNATIONAL 26
REPORT OF MANAGEMENT
The consolidated financial statements of Analysts International Corporation
published in this report were prepared by company management, which is
responsible for their integrity and objectivity. The statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America applying certain estimates and judgments as required.
The financial information elsewhere in this report is consistent with the
statements.
Analysts International maintains internal controls adequate to provide
reasonable assurance its transactions are appropriately recorded and reported,
its assets are protected and its established policies are followed. The
structure is enforced by written policies and procedures, internal audit
activities and a qualified financial staff.
Our independent auditors, Deloitte & Touche LLP, provide an objective
independent review by audit of Analysts International's consolidated financial
statements and issuance of a report thereon. Their audit is conducted in
accordance with auditing standards generally accepted in the United States of
America.
The Audit Committee of the Board of Directors, comprised solely of outside
directors, meets with the independent auditors and representatives from
management to appraise the adequacy and effectiveness of the audit functions,
internal controls and quality of our financial accounting and reporting.
/s/ Frederick W. Lang /s/ Marti R. Charpentier
Frederick W. Lang Marti R. Charpentier
Chairman and Chief Vice President,
Executive Officer Finance and Treasurer
STOCK DATA
<TABLE>
<CAPTION>
TRAILING
MARKET RANGE DIVIDEND 12-MONTH
HIGH LOW CLOSE DECLARED P/E RATIO
<S> <C> <C> <C> <C> <C>
FISCAL 2000
Fourth Quarter $12.94 $ 7.75 $11.13 $.10 26
Third Quarter 15.50 9.38 12.88 .10 21
Second Quarter 12.94 8.63 12.50 .10 16
First Quarter 15.94 9.88 14.13 .10 16
FISCAL 1999
Fourth Quarter $17.19 $ 9.38 $14.38 $.10 14
Third Quarter 19.75 10.63 11.50 .10 11
Second Quarter 29.00 13.25 19.25 .10 19
First Quarter 31.50 20.00 30.00 .10 29
</TABLE>
The Company's common shares are traded on The Nasdaq Stock Market-Registered
Trademark- under the symbol ANLY. As of August 21, 2000, there were
approximately 1,300 shareholders of record and approximately 7,500
shareholders for whom securities firms act as nominees. The above table sets
forth for the periods indicated the market prices for the Company's common
stock as reported by Nasdaq, dividends declared and the trailing 12-months
closing price/earnings ratio for each quarterly period.
The Board of Directors has adopted a policy of declaring regular quarterly
dividends subject to favorable earnings and cash flow. Accordingly, the
Company declared quarterly dividends of $.10 a share in fiscal 2000 and $.10
a share in fiscal 1999. On August 22, 2000, the Board of Directors declared a
quarterly cash dividend of $.10 a share.
<PAGE>
ANALYSTS INTERNATIONAL 27
FIVE YEAR FINANCIAL SUMMARY
<TABLE>
<CAPTION>
FISCAL YEAR
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 2000 1999 1998 1997* 1996*
<S> <C> <C> <C> <C> <C>
Professional services revenues:
Provided directly $ 420,140 $ 480,790 $ 454,339 $ 344,790 $ 267,317
Provided through sub-suppliers 138,591 139,366 133,072 94,756 62,227
------------------------------------------------------------------------------
Total revenues 558,731 620,156 587,411 439,546 329,544
Salaries, contracted services
and direct charges 452,334 486,816 457,318 340,483 252,518
Non-operating income, net 132 1,230 1,299 1,045 1,027
Income before income taxes and
minority interest 15,557 37,268 37,687 27,210 20,739
Income taxes and minority interest 5,769 14,535 15,077 10,829 8,321
------------------------------------------------------------------------------
Net income 9,788 22,733 22,610 16,381 12,418
Total assets 192,144 186,216 132,661 105,370 81,445
Long-term liabilities 41,739 27,534 7,171 6,444 5,996
Shareholders' equity 99,053 98,014 82,994 66,104 53,718
Per share data:
Net income (basic) .43 1.01 1.01 .74 .57
Net income (diluted) .43 1.00 .99 .73 .56
Cash dividends .40 .40 .31 .24 .20
Shareholders' equity 4.38 4.35 3.70 2.97 2.44
Average common shares outstanding 22,583,000 22,524,000 22,376,000 22,095,000 21,852,000
Average common and common
equivalent shares outstanding 22,624,000 22,732,000 22,829,000 22,544,000 22,221,000
Number of personnel 4,800 4,900 5,300 4,650 3,770
</TABLE>
*PER SHARE DATA AND AVERAGE SHARES OUTSTANDING WERE RESTATED FOR THE EFFECT
OF THE 3-FOR-2 COMMON STOCK SPLIT IN THE FORM OF A 50% STOCK DIVIDEND PAID
DECEMBER 3, 1997.
QUARTERLY REVENUES AND INCOME
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER ANNUAL
<S> <C> <C> <C> <C> <C>
FISCAL 2000
Total revenues $ 149,045 $ 138,869 $ 132,455 $ 138,362 $ 558,731
Income before income taxes and
minority interest 6,190 3,828 2,803 2,736 15,557
Income taxes and minority interest 2,414 1,494 1,073 788 5,769
Net income 3,776 2,334 1,730 1,948 9,788
Net income per share (basic) .17 .10 .08 .09 .43
Net income per share (diluted) .17 .10 .08 .09 .43
FISCAL 1999
Total revenues $ 158,464 $ 152,986 $ 154,128 $ 154,578 $ 620,156
Income before income taxes 10,193 8,136 9,357 9,582 37,268
Income taxes 4,067 3,175 3,652 3,641 14,535
Net income 6,126 4,961 5,705 5,941 22,733
Net income per share (basic) .27 .22 .26 .26 1.01
Net income per share (diluted) .27 .22 .25 .26 1.00
</TABLE>
<PAGE>
ANALYSTS INTERNATIONAL 28
REGIONAL, BRANCH AND FIELD OFFICES
[MAP]
<PAGE>
ANALYSTS INTERNATIONAL 29
BOARD OF DIRECTORS
Frederick W. Lang
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Michael J. LaVelle
PRESIDENT AND CHIEF OPERATING OFFICER
Victor C. Benda
RETIRED PRESIDENT AND CHIEF OPERATING OFFICER OF THE COMPANY
Willis K. Drake
RETIRED CHAIRMAN OF THE BOARD
DATA CARD CORPORATION
Margaret A. Loftus
PRINCIPAL, LOFTUS BROWN-WESCOTT, INC.
Edward M. Mahoney
RETIRED CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
FORTIS INVESTORS, INC. AND FORTIS ADVISERS, INC.
Robb L. Prince
RETIRED VICE PRESIDENT AND TREASURER
JOSTENS, INC.
OFFICERS
Frederick W. Lang
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Michael J. LaVelle
PRESIDENT AND CHIEF OPERATING OFFICER
Sarah P. Spiess
EXECUTIVE VICE PRESIDENT
Paulette M. Quist
SENIOR VICE PRESIDENT,
NATIONAL BUSINESS PRACTICES
Marti R. Charpentier
VICE PRESIDENT, FINANCE AND TREASURER
John D. Bamberger
CHIEF EXECUTIVE OFFICER,
SEQUOIA NET.COM AND
VICE PRESIDENT
Thomas R. Mahler
SECRETARY AND GENERAL COUNSEL
Colleen M. Davenport
ASSISTANT SECRETARY AND
ASSOCIATE GENERAL COUNSEL
Charles E. Jones
ASSOCIATE GENERAL COUNSEL
David J. Steichen
CONTROLLER AND ASSISTANT TREASURER
Richard J. Chiappetta
VICE PRESIDENT, CENTRAL REGION
Philip P. Colligan
VICE PRESIDENT, EASTERN REGION
Susan B. Furlow
VICE PRESIDENT, NORTH CENTRAL REGION
Richard W. Gilman
VICE PRESIDENT, SOUTHERN REGION
Alan C. King
VICE PRESIDENT, WESTERN REGION
Gary D. Mosley
VICE PRESIDENT, SOUTHWEST REGION
CORPORATE INFORMATION
10-K AVAILABLE
A copy of the Company's 2000 Annual Report on Form 10-K, filed with the
Securities and Exchange Commission, is available to security holders without
charge upon request to the Treasurer at:
Analysts International Corporation
3601 West 76th Street
Minneapolis, Minnesota 55435-3000
STOCK TRANSFER AGENT
State Street Bank & Trust Company
c/o EquiServe Limited Partnership
P.O. Box 8200
Boston, Massachusetts 02266-8200
Shareholder Inquires:
1-800-426-5523
www.equiserve.com
EXPECTED DIVIDEND PAYMENT DATES
November 15, 2000
February 15, 2001
May 15, 2001
August 15, 2001
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Minneapolis, Minnesota
ANNUAL MEETING
The 2000 Annual Meeting of Shareholders will be held on November 1, 2000 at
3 p.m. at the Edina Country Club, 5100 Wooddale Avenue, Edina, Minnesota.
QUARTERLY REPORTS
Analysts International Corporation mails quarterly earnings releases to
registered shareholders.
WORLD WIDE WEB ADDRESS
www.analysts.com
Statements contained herein that are not historical facts are forward-looking
statements. Any forward-looking statements in this release are made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act
of 1995. Actual results may vary materially from those projected as a result
of certain risks and uncertainties. Refer to discussions of certain of these
risks and uncertainties in the company's Annual Reports, 10-Ks, 10-Qs and
other Securities and Exchange Commission filings.
