<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 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 January 28, 2000, 22,596,210 shares of the Registrant's Common Stock were
outstanding.
<PAGE>
ANALYSTS INTERNATIONAL CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Condensed Consolidated Balance Sheets
December 31, 1999 (Unaudited) and June 30, 1999 1
Condensed Consolidated Statements of Income
Three and six month periods ended December 31, 1999 and 1998
(Unaudited) 2
Condensed Consolidated Statements of Cash Flows
Six months ended December 31, 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>
<PAGE>
ANALYSTS INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(In thousands) December 31, June 30,
1999 1999
----------- --------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 35,081 $ 33,870
Accounts receivable, less allowance for
doubtful accounts 87,295 101,523
Prepaid expenses and other current assets 3,815 4,499
-------- --------
Total current assets 126,191 139,892
Property and equipment, net 28,422 29,644
Intangible assets, net of accumulated amortization 6,699 7,029
Other assets 10,253 9,651
-------- --------
$171,565 $186,216
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 30,520 $ 30,791
Dividend payable 2,258 2,255
Salaries and vacations 7,864 23,227
Other, primarily self-insured health care reserves 3,325 3,311
Income taxes payable -- 1,084
-------- --------
Total current liabilities 43,967 60,668
Long-term debt 20,000 20,000
Other long-term liabilities 7,848 7,534
Shareholders' equity 99,750 98,014
-------- --------
$171,565 $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
<PAGE>
ANALYSTS INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
(In thousands except per share amounts) December 31 December 31
------------------------------ -----------------------------
1999 1998 1999 1998
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Professional services revenues:
Provided directly $ 103,648 $ 118,391 $ 216,633 $ 241,764
Provided through sub-suppliers 35,221 34,595 71,281 69,686
--------- --------- --------- ----------
Total revenues 138,869 152,986 287,914 311,450
Expenses:
Salaries, contracted
services and direct charges 112,634 120,434 231,322 244,055
Selling, administrative and other
operating costs 22,440 24,681 47,001 49,640
--------- --------- --------- ----------
Total expenses 135,074 145,115 278,323 293,695
--------- --------- --------- ----------
Operating income 3,795 7,871 9,591 17,755
Non-operating income 385 265 1,129 574
Interest expense (352) -- (702) --
--------- --------- --------- ----------
Income before income taxes 3,828 8,136 10,018 18,329
Income taxes 1,494 3,175 3,908 7,242
--------- --------- --------- ----------
Net income $ 2,334 $ 4,961 $ 6,110 $ 11,087
========= ========= ========= =========
PER COMMON SHARE:
Net income (basic) $ .10 $ .22 $ .27 $ .49
========= ========= ========= =========
Net income (diluted) $ .10 $ .22 $ .27 $ .49
========= ========= ========= =========
Dividends paid $ .10 $ .10 $ .20 $ .18
========= ========= ========= =========
Average common shares
outstanding 22,571 22,524 22,563 22,503
========= ========= ========= =========
Average common and common
equivalent shares outstanding 22,606 22,664 22,625 22,769
========= ========= ========= =========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
ANALYSTS INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
December 31
(In thousands) ---------------------------
1999 1998
-------- --------
<S> <C> <C>
Net cash provided by operating activities $ 6,150 $ 17,080
Cash flows from investing activities:
Property and equipment additions (2,129) (11,751)
Proceeds from property and equipment sales 1,561 --
Payments for acquisitions -- (183)
-------- --------
Net cash used in investing activities (568) (11,934)
Cash flows from financing activities:
Cash dividends (4,510) (4,050)
Proceeds from borrowings -- 20,000
Proceeds from exercise of stock options 139 977
-------- --------
Net cash (used in) provided by financing activities (4,371) 16,927
-------- --------
Net change in cash and equivalents 1,211 22,073
Cash and equivalents at beginning of period 33,870 11,868
-------- --------
Cash and equivalents at end of period $ 35,081 $ 33,941
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
ANALYSTS INTERNATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Condensed Consolidated Financial Statements - The condensed consolidated
balance sheet as of December 31, 1999, the condensed consolidated
statements of income for the three month and six month periods ended
December 31, 1999 and 1998 and the condensed consolidated statements of
cash flows for the six month periods then ended have been prepared by
the Company, without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary
to present fairly the financial position, at December 31, 1999 and the
results of operations and the cash flows for the periods ended December
31, 1999 and 1998 have been made. The results of operations for the
periods ended December 31, 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
$18,000,000 maximum allowed under the agreement.
3. SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Six Months Ended
December 31, 1999
----------------
(In thousands)
<S> <C>
Balance at beginning of period $98,014
Cash dividends declared:
August 19, 1999 at $.10 per share (2,255)
December 15, 1999 at $.l0 per share (2,258)
Proceeds upon exercise of stock options 139
Net income 6,110
-------
Balance at end of period $99,750
=======
</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
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Six Months Ended December 31, 1999 and 1998
CHANGES IN FINANCIAL CONDITION
Working capital at December 31, 1999 was $82.2 million, up 3.8% from the $79.2
million at June 30, 1999. This includes cash and cash equivalents of $35.1
million compared to $33.9 million at June 30, 1999 and accounts receivable of
$87.3 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 since June 30, 1999. Accounts receivable has decreased due to the
decrease in revenues.
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.
On December 15, 1999 the Board of Directors declared the regular quarterly
dividend of $.10 per share payable February 15, 2000 to shareholders of record
on January 31, 2000.
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 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 has not
experienced any Y2K-related interuptions to its computer processing, and
believes its new computer system has successfully handled the millennium date
change. The Company's business does not depend on raw materials, parts or
other goods supplied by third parties and the Company is not aware of any Y2K
related failures on the part of any of its vendors, including utility
services (electricity, telecommunication, natural gas and the like) for its
offices. The inability of the Company's clients to achieve Y2K compliance
could have an impact on the clients ability to pay the Company, with
consequent adverse impact on the Company's cash flow. The Company is not
aware of any cases where its clients have encountered Y2K compliance issues
and considers it unlikely that its cash flow will be materially affected by
Y2K related problems.
The Company's services addressing the Year 2000 problem involved key aspects of
its clients' computer systems. While the Company is not aware of any failures in
a client's system, such a failure, were one to occur, 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
<PAGE>
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 six months ended December 31, 1999 were
$216.6 million, a decrease of 10.4% from the same period a year ago. For the
three months ended December 31,1999 revenues provided directly were $103.6
million, a decrease of 12.5% over the same period a year ago. These decreases
are a result of a decrease in billable hours, which is a result of the
industry-wide slowdown. This slowdown is expected to continue through the third
fiscal quarter. During the quarter ended December 31, 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 six month period and quarter ended December 31, 1999 were $71.3 and
$35.2 million, respectively. This represents increases of 2.3% and 1.8% over the
same periods 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 4,350 at December 31, 1999, compared to 5,000 at December 31,
1998, a decrease of 13.0%. 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 80.3% of revenues for the six months ended
December 31, 1999 compared to 78.4% for the same period a year ago. These costs
were 81.1% of revenues for the three months ended December 31, 1999 and 78.7% of
revenues for the three months ended December 31, 1998. By comparison, these
costs were 79.6% of revenues for the first quarter of fiscal 2000 and 78.0% of
revenues for the first quarter of fiscal 1999. The increase in this expense
category as a percentage of revenues is mostly a consequence of (i) normal
increases in labor rates and (ii) unusually high idle time as the Company
elected to retain higher than needed staff levels in anticipation of recovery
from the industry-wide slowdown. 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, it is expected to be difficult to return
to normal levels of productivity at least through our third 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 16.3% of revenues for
the six months ended December 31, 1999 compared to 15.9% for the same period a
year ago. These costs were 16.2% of revenues for the three months ended December
31, 1999 and 16.1% of revenues for the three months ended December 31, 1998.
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 six months ended December 31, 1999 decreased 44.9% over the
same period a year ago. As a percentage of revenue, net income has decreased to
2.1% for the six months ended December 31, 1999 from 3.6% for the six months
ended December 31, 1998. Net income for the quarter, as a percentage of
revenues, also decreased to 1.7% for the three months ended December 31, 1999
from 3.2% for the three months ended December 31, 1998. The Company's net income
as a percentage of revenues provided directly for the three months ended
December 31, 1999 and 1998 was 2.3% and 4.2%, respectively.
6
<PAGE>
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of shareholders held October 17, 1999, the
following action was taken:
(a) Election of directors.
The following nominees, all of whom were listed in the
company's proxy statement prepared in accordance with
Regulation 14(a), were elected:
<TABLE>
<CAPTION>
Nominee Votes for Authority withheld
------- --------- ------------------
<S> <C> <C>
V. C. Benda 20,607,945 346,496
M. A. Loftus 20,619,077 335,364
W. K. Drake 20,630,033 324,408
E. M. Mahoney 20,624,951 329,490
F. W. Lang 20,635,564 318,877
R. L. Prince 20,621,239 333,202
</TABLE>
(b) Ratification of auditors.
The shareholders voted their shares to ratify the appointment of
Deloitte & Touche LLP by the following vote:
<TABLE>
<S> <C>
In favor 20,684,117
Against 180,050
Abstain 90,274
</TABLE>
(c) Approve the 1999 Stock Option Plan
The shareholders voted their shares to approve the 1999 Stock Option
Plan by the following vote:
<TABLE>
<S> <C>
In favor 18,986,637
Against 1,686,963
Abstain 196,285
Del N-Vote 84,556
</TABLE>
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 six months
ended December 31, 1999.
7
<PAGE>
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.
8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned there unto duly authorized.
ANALYSTS INTERNATIONAL CORPORATION
(Registrant)
Date February 14, 2000 By /s/ Marti R. Charpentier
----------------- ------------------------------
Marti R. Charpentier
Vice President and
Treasurer
Date February 14, 2000 By /s/ David J. Steichen
----------------- ------------------------------
David J. Steichen
Controller and Assistant
Treasurer (Chief
Accounting Officer)
9
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Exhibit
- -------------- -------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 35,081
<SECURITIES> 0
<RECEIVABLES> 89,165
<ALLOWANCES> 1,870
<INVENTORY> 0
<CURRENT-ASSETS> 126,191
<PP&E> 44,853
<DEPRECIATION> 16,431
<TOTAL-ASSETS> 171,565
<CURRENT-LIABILITIES> 43,967
<BONDS> 20,000
0
0
<COMMON> 2,257
<OTHER-SE> 97,493
<TOTAL-LIABILITY-AND-EQUITY> 171,565
<SALES> 287,914
<TOTAL-REVENUES> 287,914
<CGS> 231,322
<TOTAL-COSTS> 231,322
<OTHER-EXPENSES> 47,001
<LOSS-PROVISION> 1,050
<INTEREST-EXPENSE> 702
<INCOME-PRETAX> 10,018
<INCOME-TAX> 3,908
<INCOME-CONTINUING> 6,110
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,110
<EPS-BASIC> .27
<EPS-DILUTED> .27
</TABLE>