-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S+mpu73rLoOapDWgxmC12UiSOvNrztI4GkGPue7nebb2Xa74l0p1UxXn92wqwdyz B2UmJb474bSrc+NhTj9VOQ== 0000912057-01-539640.txt : 20020410 0000912057-01-539640.hdr.sgml : 20020410 ACCESSION NUMBER: 0000912057-01-539640 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANALYSTS INTERNATIONAL CORP CENTRAL INDEX KEY: 0000006292 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING SERVICES [7371] IRS NUMBER: 410905498 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-04090 FILM NUMBER: 1788540 BUSINESS ADDRESS: STREET 1: 3601 WEST 76TH ST CITY: MINNEAPOLIS STATE: MN ZIP: 55435 BUSINESS PHONE: 6128974506 MAIL ADDRESS: STREET 1: 3601 WEST 76TH ST CITY: MINNEAPOLIS STATE: MN ZIP: 55435 10-Q 1 a2063053z10-q.txt 10-Q 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, 2001 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 (952) 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, 2001, 24,196,535 shares of the Registrant's Common Stock were outstanding. ANALYSTS INTERNATIONAL CORPORATION INDEX
PAGE Part I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Balance Sheets September 30, 2001 (Unaudited) and December 31, 2000 3 Condensed Consolidated Statements of Income Three and nine month periods ended September 30, 2001 and 2000 (Unaudited) 4 Condensed Consolidated Statements of Cash Flows Nine months ended September 30, 2001 and 2000 (Unaudited) 5 Notes to Condensed Consolidated Financial Statements (Unaudited) 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-11 Item 3. Quantitative and Qualitative Disclosures About Market Risk 11 Part II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 11
2 PART I. FINANCIAL INFORMATION Item 1. ANALYSTS INTERNATIONAL CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
September 30, December 31, 2001 2000 ---------------- -------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 8,748 $ 2,192 Accounts receivable, less allowance for doubtful accounts 99,377 98,495 Prepaid expenses and other current assets 5,475 8,192 -------- -------- Total current assets 113,600 108,879 Property and equipment, net 28,725 28,752 Intangible assets, net of accumulated amortization 46,771 49,335 Other assets 14,469 14,763 -------- -------- $203,565 $201,729 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 37,881 $ 34,250 Dividend payable -- 1,452 Salaries and vacations 10,781 8,515 Self-insured health care reserves and other accounts 6,361 5,766 Long-term debt current portion 5,250 5,250 Restructuring accruals, current portion 1,388 5,798 -------- -------- Total current liabilities 61,661 61,031 Long-term debt, non-current portion 35,750 35,750 Restructuring accruals, non-current portion 2,100 750 Deferred compensation accrual 8,856 9,115 Shareholders' equity 95,198 95,083 -------- -------- $203,565 $201,729 ======== ========
Note: The balance sheet at December 31, 2000 has been taken from the audited financial statements at that date, and condensed. See notes to condensed consolidated financial statements. 3 ANALYSTS INTERNATIONAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Three Months Ended Nine Months Ended September 30 September 30 ------------------------- --------------------- 2001 2000 2001 2000 ---- ---- ---- ---- Professional services revenues: Provided directly $100,479 $116,412 $319,200 $319,919 Provided through sub-suppliers 36,517 32,159 108,029 99,469 -------- -------- -------- -------- Total revenues 136,996 148,571 427,229 419,388 Expenses: Salaries, contracted services and direct charges 113,732 119,228 353,000 340,240 Selling, administrative and other operating costs 21,700 24,867 67,841 68,378 Amortization of goodwill and other intangible assets 803 718 2,427 1,413 -------- -------- -------- -------- Operating income 761 3,758 3,961 9,357 Non-operating income 40 9 197 831 Interest expense (749) (703) (2,257) (1,585) -------- -------- -------- --------- Income before income taxes and minority interest 52 3,064 1,901 8,603 Income taxes 20 1,123 725 2,871 Minority interest -- 236 -- 349 -------- -------- -------- -------- Net income $ 32 $ 1,705 $ 1,176 $ 5,383 ======== ======== ======== ======== Per common share: Net income (basic) $ .00 $ .08 $ .05 $ .24 Net income (diluted) $ .00 $ .08 $ .05 $ .24 Average common shares outstanding 24,196 22,607 24,195 22,585 Average common and common equivalent shares outstanding 24,280 22,607 24,296 22,629
See notes to condensed consolidated financial statements. 4 ANALYSTS INTERNATIONAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (IN THOUSANDS)
Nine Months Ended September 30 ------------------------ 2001 2000 ---- ---- Net cash provided by operating activities $ 12,865 $ 1,336 Cash flows from investing activities: Property and equipment additions (3,911) (2,658) Proceeds from property and equipment sales 16 22 Payments for aquisitions -- (42,687) Investment in alliance partners -- (3,012) Investment in marketable securities -- (190) --------- -------- Net cash used in investing activities (3,895) (48,525) Cash flows from financing activities: Cash dividends paid (2,420) (6,788) Proceeds from borrowings 31,885 108,183 Repayment of borrowings (31,885) (88,733) Proceeds from exercise of stock options 6 127 --------- -------- Net cash (used in) provided by financing activities (2,414) 12,789 --------- -------- Net increase (decrease) in cash and equivalents 6,556 (34,400) Cash and equivalents at beginning of period 2,192 35,081 --------- -------- Cash and equivalents at end of period $ 8,748 $ 681 ========= ========
See notes to condensed consolidated financial statements. 5 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, 2001, the condensed consolidated statements of income for the three month and nine month periods ended September 30, 2001 and 2000 and the condensed consolidated statements of cash flows for the nine 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 September 30, 2001 and the results of operations and the cash flows for the periods ended September 30, 2001 and 2000 have been made. The results of operations for the periods ended September 30, 2001 are not necessarily indicative of the results to be expected for the full fiscal year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America 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 December 31, 2000 transitional report filed with the Securities and Exchange Commission. Comprehensive income (i.e. net income plus available-for-sale securities valuation adjustments) for the three and nine months ended September 30, 2001 was $8,000, and $1,077,000, respectively, and for the three and nine months ended September 30, 2000 was $1,803,000 and $5,458,000, respectively. In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and No. 142 "Goodwill and Other Intangible Assets". SFAS No. 141 will require that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 and that the use of the pooling-of-interest method is no longer allowed. SFAS No. 142 requires that upon adoption, amortization of goodwill will cease and instead, the carrying value of goodwill will be evaluated for impairment on an annual basis. Identifiable intangible assets will continue to be amortized over their useful lives and reviewed for impairment in accordance with SFAS No.121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". SFAS No. 142 is effective for the Company's fiscal year beginning January 1, 2002. The Company is evaluating the impact of the adoption of these standards and has not yet determined the effect of adoption on its financial position and results of operations. 2. LONG-TERM DEBT In January 2000 the Company secured a $25 million bank line of credit. This line of credit was increased to $30 million in December 2000 and was amended in March and August, 2001 to modify the interest rates paid and the cash flow leverage, debt service coverage and debt to capitalization ratio covenants. 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 plus .25% (6.25% at September 30, 2001), while the fixed term advances bear interest at the applicable EuroDollar rate plus 3.00%. A commitment fee of .50% is charged on the unused portion of the line. At September 30, 2001 the Company had outstanding two EuroDollar advances. One at $8,000,000 matured on October 1, 2001 and was rolled into another $8,000,000 note maturing on December 3, 2001 and accruing interest at 5.3125%. The other advance of $6,000,000 matures on November 20, 2001 and is accruing interest at 6.5625%. In addition, at September 30, 2001, the Company had $7,000,000 outstanding under the daily advance portion of the note accruing interest at 6.25%. 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. The Note Purchase Agreement was amended in March and August, 2001 to modify certain covenants contained in the agreement. Also, the August amendments increased the interest rate 6 from 7% to 9%. Minimum future maturities on these Notes is as follows: 2001, $5,250,000; 2002, $4,000,000; 2003, $3,000,000; 2004, $3,000,000; 2005, $2,500,000; and 2006, $2,250,000. Both debt agreements contain, among other things, provisions regarding maintenance of certain operating and working capital ratios and minimum net worth requirements, and restriction on the payment of dividends on common stock. The Company's operating and working capital ratios and net worth are in excess of the minimum net requirements. 3. SHAREHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2001 ------------------ (IN THOUSANDS) Balance at beginning of period $95,083 Cash dividends declared (968) Proceeds upon exercise of stock options 6 Unrealized loss on investments (99) Net income 1,176 ------- Balance at end of period $95,198 =======
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 periods ended September 30, 2001 and 2000 is the result of outstanding stock options. 5. RESTRUCTURING In December 2000, the Company recorded a restructuring charge of $7.0 million. Of this charge, $2.6 million related to workforce reductions (primarily non-billable staff), and $4.4 million related to lease termination and abandonment costs (net of sub-lease income) including an amount for assets to be disposed of in conjunction with this office consolidation. A summary of activity for the nine months ended September 30, 2001 with respect to the restructuring charge is as follows: (IN THOUSANDS)
WORKFORCE OFFICE CLOSURE/ REDUCTION CONSOLIDATION TOTAL --------- ------------- ----- Balance at December 31, 2000 $2,204 $4,344 $6,548 Non-cash charges -- 36 36 Cash expenditures 2,017 1,007 3,024 ------- ------ ------ Balance at September 30, 2001 $ 187 $3,301 $3,488 ====== ====== ======
During the second quarter of fiscal 2001, in response to a weakening real estate market, and to better manage its resources, the Company chose not to pay substantial lump sum fees to terminate many of its leases. Instead, the Company has abandoned and is attempting to sublease these spaces. As a result of this change, the Company reclassified $1,350,000 of the office closure/consolidation reserve to a long-term liability. 7 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Nine Months Ended September 30, 2001 and 2000 The following discussion of the results of our operations and our financial condition should be read in conjunction with our consolidated financial statements and the related notes to consolidated financial statements in this 10Q, our other filings with the Securities and Exchange Commission and our other investor communications. CAUTIONARY STATEMENT UNDER THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 We make forward looking statements in this discussion. These forward looking statements are statements which are not historical fact or current status. You can usually identify our forward looking statements by our use of words such as "believe", "intends", "possible", "estimates", "anticipates", "expects", "plans" and other similar expressions. Our forward looking statements all involve a high level of risk and uncertainty. Actual results, therefore, could differ dramatically from our targets, projections and expectations. Some of the risk factors which could cause our actual results to differ are general business conditions, the availability of qualified technical staff, our ability to control and improve our profit margins, whether we can maintain our business relations with key customers, and our ability to grow revenues through internal growth and acquisitions. We cannot control or predict any of the risk factors and uncertainties in our business. You can gather more information about these and other risk factors and uncertainties in our business by reading our SEC reports and our investor relations materials. You can also get information about risk and uncertainty by listening to our quarterly conference calls. We notify the public of these conference calls in our quarterly earnings releases and on our website at www.analysts.com. You should bear in mind that we are not necessarily going to publicly update any of these forward looking statements. Also, you should remember that our past performance is not necessarily an indication of what our performance will be in the future. CHANGES IN FINANCIAL CONDITION Working capital at September 30, 2001 was $51.9 million, up 8.6% from the $47.8 million at December 31, 2000. This includes cash and cash equivalents of $8.7 million compared to $2.2 million at December 31, 2000 and accounts receivable of $99.4 million compared to $98.5 million at December 31, 2000. The ratio of current assets to current liabilities has increased slightly since December 31, 2000 while the ratio of total assets to total liabilities has decreased slightly. In December 1998 we borrowed $20 million and signed a Note Purchase Agreement. In January 2000, we obtained a $25 million bank line of credit. This line of credit was increased to $30 million in December 2000. At September 30, 2001 we had $9.0 million available to us under this line of credit. Both the Note Purchase Agreement and the line of credit were amended in March and August, 2001 and restrict us in a number of ways, including payment of dividends and repurchase of our stock. Also, these loan agreements require us to maintain certain levels of cash, working capital, earnings and the like. We are in full compliance with the restrictions and requirements of both loans; however, we are in negotiations with our current lenders and potential new lenders to reposition our borrowings with the expectation of making these restrictions and requirements less burdensome. We have agreed with our existing lenders to complete these negotiations during the fourth quarter. Our 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. We continue to be able to support our business with internally generated funds and our present line of credit. On July 19, 2001, the Board declared a dividend of $.01 per share payable August 15, 2001 to shareholders of record on July 30, 2001. Each quarter the Board of Directors considers our performance, cash position, anticipated earnings, cash flows, and cash requirements in determining whether to declare dividends. At the October 18, 2001 meeting of the Board, the Board voted to suspend the payment of dividends so as to preserve working capital. We believe funds generated from our business, current cash balances and existing credit lines are adequate to meet demands placed upon our resources by our operations and capital investments. 8 RESULTS OF OPERATIONS REVENUES Revenues provided directly for the nine months ended September 30, 2001 were $319.2 million, essentially flat with the same period a year ago. For the three months ended September 30, 2001 revenues provided directly were $100.5 million, a decrease of 13.7% from the same period a year ago. These decreases are the result of reductions in billable technical consultants resulting from the industry-wide slowdown. While we have been able to hold average rates consistent with the prior year, there can be no assurance we will be able to continue this as competitive conditions in the industry make it difficult for us to increase or maintain the hourly rates we charge for our services. Revenues provided through sub-suppliers for the nine and three month periods ended September 30, 2001 were $108.0 million and $36.5 million, respectively. This represents increases of 8.6% and 13.6% over the same periods a year ago. These increases are the result of new Managed Services clients and growth with existing Managed Services clients. PERSONNEL HEADCOUNT Personnel totaled 4,200 as of September 30, 2001. Of this total, 3,500 were technical consultants. This is down compared to June 30, 2001 numbers of 4,425 for total staff and 3,675 technical consultants. The decrease of 175 consultants came in our staffing business as assignments were completed and new assignments were not available. The decrease of 50 overhead staff was planned as part of our reorganization and restructuring. We now believe consultant headcount will remain steady or slightly decline until the business environment for IT services improves. The 4,200 total personnel at September 30, 2001 reflects a decrease of 14.3% from 4,900 at September 30, 2000. This decrease consists of approximately 190 administrative and management positions eliminated in connection with the restructuring along with a decrease in billable technical staff. LABOR COSTS Salaries, contracted services and direct charges, which represent primarily our direct labor cost, were 82.6% of revenues for the nine months ended September 30, 2001 compared to 81.1% for the same period a year ago. These costs were 83.0% of revenues for the three months ended September 30, 2001 and 80.2% of revenues for the three months ended September 30, 2000. By comparison, these costs were 83.0% of revenues for the second quarter of fiscal 2001 and 81.9% of revenues for the first quarter of fiscal 2001. Our 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 our billable technical staff. Labor costs, however, are difficult to control because of the highly skilled technical personnel we seek to hire and retain. It is also difficult to pass on labor cost increases to customers due to intense competition in the industry, and as a result of the industry-wide slowdown. Although we continuously attempt to control the factors which affect this category of expense, there can be no assurance we will be able to maintain or improve this level. Our labor costs as a percentage of revenue for the quarter and nine months ended September 30, 2001 have increased from the same periods a year ago and from the first half of this year. We believe the following factors are directly tied to the industry-wide slowdown in business and account for this increase. First, in some cases we are agreeing to lower hourly rates to attempt to keep our share of available business. Second, our reduction in technical staff headcount to rightsize our organization carries with it certain costs. Third, in certain areas we are experiencing a lower utilization rate, which means a higher level of unbilled idle time than in prior periods. We expect continuing pressure on hourly rates as long as the industry-wide slowdown continues. We believe we will not be required to reduce significantly our total technical billable headcount. We are, however, working to improve our utilization rate by managing headcount in the areas of our business experiencing lower utilization. 9 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, administrative and other operating costs, which include commissions, employee fringe benefits and location costs, represented 15.9% of revenues for the nine months ended September 30, 2001 compared to 16.3% for the same period a year ago. These costs were 15.8% of revenues for the three months ended September 30, 2001 and 16.7% of revenues for the three months ended September 30, 2000. By comparison, these costs were 15.6% of revenues for the second quarter of fiscal 2001 and 16.2% of revenues for the first quarter of fiscal 2001. While these costs as a percentage of revenues increased slightly from the second to the third quarter of fiscal 2001, the actual dollars spent in this area declined. This is the result of our continuing efforts to reduce costs. While we are committed to careful management of these costs, there can be no assurance we will be able to maintain these costs at their current relationship to revenues. AMORTIZATION OF GOODWILL Amortization of goodwill and other intangible assets has increased from $718,000 and $1,413,000, respectively, for the three and nine months ended September 30, 2000 to $803,000 and $2,427,000, respectively, for the three and nine months ended September 30, 2001, primarily as a result of increased intangible balances following the acquisition of Sequoia. NON-OPERATING INCOME Non-operating income, consisting primarily of interest income, has increased from $9,000 to $40,000, respectively, for the three month periods ended September 30, 2000 and 2001, and decreased from $831,000 to $197,000, respectively, for the nine month periods ended September 30, 2000 and 2001. Interest expense has increased from $703,000 and $1,585,000 respectively to $749,000 and $2,257,000, respectively, 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 acquisition of Sequoia. NET INCOME Net income for the three and nine month periods ended September 30, 2001 decreased 98.1% and 78.2%, respectively, over the same periods a year ago. As a percentage of revenue, net income has decreased to .0% and .3%, respectively, for the three and nine month periods ended September 30, 2001 from 1.1% and 1.3%, respectively, for the three and nine month periods ended September 30, 2000. This decrease is primarily a result of the increases, as a percentage of revenue, in the expenses discussed above. Our net income as a percentage of revenues provided directly for the three and nine months ended September 30, 2001 was .0% and .4%, respectively, and for the three and nine months ended September 30, 2000 was 1.5% and 1.7%, respectively. RESTRUCTURING ACTIVITIES A summary of activity for the nine months ended September 30, 2001 with respect to the restructuring charge is as follows: (IN THOUSANDS)
WORKFORCE OFFICE CLOSURE/ REDUCTION CONSOLIDATION TOTAL --------- ------------- ----- Balance at December 31, 2000 $2,204 $4,344 $6,548 Non-cash charges -- 36 36 Cash expenditures 2,017 1,007 3,024 ------- ------- ------- Balance at September 30, 2001 $ 187 $3,301 $3,488 ======= ======= =======
During the second quarter of fiscal 2001, in response to a weakening real estate market, and to better manage our resources, we chose not to pay substantial lump sum fees to terminate many of our leases. Instead, we have abandoned and are attempting to sublease these spaces. As a result of this change, we have reclassified $1,350,000 of the office closure/consolidation reserve to a long-term liability. 10 ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and No. 142 "Goodwill and Other Intangible Assets". SFAS No. 141 will require that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 and that the use of the pooling-of-interest method is no longer allowed. SFAS No. 142 requires that upon adoption, amortization of goodwill will cease and instead, the carrying value of goodwill will be evaluated for impairment on an annual basis. Identifiable intangible assets will continue to be amortized over their useful lives and reviewed for impairment in accordance with SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". SFAS No. 142 is effective for the Company's fiscal year beginning January 1, 2002. The Company is evaluating the impact of the adoption of these standards and has not yet determined the effect of adoption on its financial position and results of operations. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to certain market risks on outstanding variable interest rate obligations totaling $21.0 million at September 30, 2001. Market risk is the potential loss arising from the adverse changes in market rates and prices, such as interest rates. Market risk is estimated as the potential increase in fair value resulting from a hypothetical one percent increase in interest rates which would result in an annual interest expense increase of approximately $210,000. PART II. OTHER INFORMATION Item 6. EXHIBITS AND REPORTS ON FORM 8-K a) Second Amendment to the Note Purchase Agreement Dated as of December 30, 1998. b) Third Amendment to Credit Agreement Dated as of January 31, 2000. 11 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 14, 2001 By /s/ Marti R. Charpentier ----------------- ---------------------------------- Marti R. Charpentier Vice President Finance and Treasurer Date NOVEMBER 14, 2001 By /s/ David J. Steichen ----------------- ------------------------------------ David J. Steichen Controller and Assistant Treasurer (Chief Accounting Officer) 12 EXHIBIT INDEX EXHIBIT NUMBER 6(a) Second Amendment to the Note Purchase Agreement Dated as of December 30, 1998 6(b) Third Amendment to Credit Agreement Dated as of January 31, 2000 EX-6.A 3 a2063053zex-6_a.txt EX-6.A EXHIBIT 6(a) SECOND AMENDMENT TO THE NOTE PURCHASE AGREEMENT DATED AS OF DECEMBER 30, 1998 ANALYSTS INTERNATIONAL CORPORATION ------------------------------ SECOND AMENDMENT DATED AS OF JUNE 30, 2001 REGARDING NOTE PURCHASE AGREEMENT DATED AS OF DECEMBER 30, 1998 ------------------------------ RE: $20,000,000 7.00% SENIOR NOTES DUE DECEMBER 30, 2006 - -------------------------------------------------------------------------------- SECOND AMENDMENT TO NOTE PURCHASE AGREEMENT THIS SECOND AMENDMENT dated as of June 30, 2001 (the "Second AMENDMENT") to the Note Purchase Agreement dated as of December 30, 1998 is by and among ANALYSTS INTERNATIONAL CORPORATION, a Minnesota corporation (the "COMPANY"), and each of the institutions which is a signatory to this Second Amendment (collectively, the "NOTEHOLDERS"). RECITALS: A. The Company and each of the Noteholders have heretofore entered into a Note Purchase Agreement dated as of December 30, 1998 (as amended by the First Amendment dated March 30, 2001, the "NOTE PURCHASE AGREEMENT"). The Company has heretofore issued the $20,000,000 7.00% Senior Notes Due December 30, 2006 (the "NOTES") dated December 30, 1998 pursuant to the Note Purchase Agreement. B. The Company and the Noteholders now desire to amend the Note Purchase Agreement in the respects, but only in the respects, hereinafter set forth. C. Capitalized terms used herein shall have the respective meanings ascribed thereto in the Note Purchase Agreement unless herein defined or the context shall otherwise require. D. All requirements of law have been fully complied with and all other acts and things necessary to make this Second Amendment a valid, legal and binding instrument according to its terms for the purposes herein expressed have been done or performed. NOW, THEREFORE, upon the full and complete satisfaction of the conditions precedent to the effectiveness of this Second Amendment set forth in Section 3.1 hereof, and in consideration of good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the Company and the Noteholders do hereby agree as follows: SECTION 1. AMENDMENTS AND AGREEMENTS. 1.1. Section 9.6 of the Note Purchase Agreement shall be and is hereby amended in its entirety to read as follows: 9.6 FIXED CHARGES RATIO. The Company will maintain, as of the end of each fiscal quarter of the Company, Consolidated Net Income Available for Fixed Charges for the immediately preceding twelve months at least equal to (a) 160% of Consolidated Fixed Charges for the twelve month period ending on June 30, 2001, (b) 120% of Consolidated Fixed Charges for the twelve month period ending on September 30, 2001, (c) 105% of Consolidated Fixed Charges for the twelve month period ending on December 31, 2001, and (d) 125% of Consolidated Fixed Charges for any such twelve month period ending after December 31, 2001. 1.2. Section 9.8 of the Note Purchase Agreement shall be and hereby is amended in its entirety to read as follows: 9.8 CASH FLOW LEVERAGE RATIO. The Company will maintain, as of the end of each fiscal quarter of the Company, its Cash Flow Leverage Ratio at not more than (a) 2.75 to 1.00 as of the fiscal quarter ending on June 30, 2001, (b) 3.05 to 1.00 as of the fiscal quarter ending on September 30, 2001, (c) 3.10 to 1.00 as of the fiscal quarter ending on December 31, 2001, (d) 2.50 to 1.00 as of the last day of each fiscal quarter ending after December 31, 2001 and on or prior to December 31, 2002, and (e) 1.75 to 1.00 as of the end of last day of each fiscal quarter ending after December 31, 2002. 1.3. The definition of "Reinvestment Yield" in Section 8.6 of the Note Purchase Agreement shall be amended by deleting "0.50%" in the first line thereof and replacing it with "3.75%." 1.4. Effective as of August 1, 2001, the interest rate on the Notes shall increase from 7% per annum to 9% per annum. The form of Note shall be and hereby is amended and restated in its entirety to read as set forth in Exhibit 1 hereto. SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. 2.1. To induce the Noteholders to execute and deliver this Second Amendment (which representations shall survive the execution and delivery of this Second Amendment), the Company represents and warrants to the Noteholders that: (a) this Second Amendment has been duly authorized, executed and delivered by it and this Second Amendment constitutes the legal, valid and binding obligation, contract and agreement of the Company enforceable against it in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors' rights generally; (b) the Note Purchase Agreement, as amended by this Second Amendment, constitutes the legal, valid and binding obligations, contracts and agreements of the Company enforceable against it in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors' rights generally; (c) the execution, delivery and performance by the Company of this Second Amendment (i) has been duly authorized by all requisite corporate action and, if required, shareholder action, (ii) does not require the consent or approval of any governmental or regulatory body or agency, and (iii) will not (A) violate (1) any provision of law, statute, rule or regulation or its articles of incorporation or bylaws, (2) any order of any court or any rule, regulation or order of any other agency or government binding upon it, or (3) any provision of any material indenture, agreement or other instrument to which it is a party or by which its properties or assets are or may be bound, or (B) result in a breach or constitute (alone or with due notice or lapse of time or both) a default under any indenture, agreement or other instrument referred to in clause (iii)(A)(3) of this Section 2.1(c); (d) as of the date hereof and after giving effect to this Second Amendment, no Default or Event of Default has occurred which is continuing; and (e) all the representations and warranties contained in Section 5 of the Note Purchase Agreement are true and correct in all material respects with the same force and effect as if made by the Company on and as of the date hereof. SECTION 3. CONDITIONS TO EFFECTIVENESS OF THIS SECOND AMENDMENT. 3.1. This Second Amendment shall not become effective until each and every one of the following conditions shall have been satisfied: (a) executed counterparts of this Second Amendment, duly executed by the Company and the holders of at least 50% of the outstanding principal of the Notes, shall have been delivered to the Noteholders; (b) replacement Notes in the form of Exhibit 1 hereto or an allonge to the existing Notes reflecting the increase in interest rate, duly executed by the Company, shall have been delivered to the Noteholders; and (c) the representations and warranties of the Company set forth in Section 2 hereof are true and correct on and with respect to the date hereof. Subject to satisfaction of the foregoing conditions, this Second Amendment shall become effective as of June 30, 2001. SECTION 4. PAYMENT OF NOTEHOLDERS' COUNSEL FEES AND EXPENSES. 4.1. The Company agrees to pay upon demand, the reasonable fees and expenses of Faegre & Benson LLP, counsel to the Noteholders, in connection with the negotiation, preparation, approval, execution and delivery of this Second Amendment. SECTION 5. MISCELLANEOUS. 5.1. This Second Amendment shall be construed in connection with and as part of the Note Purchase Agreement, and except as modified and expressly amended by this Second Amendment, all terms, conditions and covenants contained in the Note Purchase Agreement and the Notes are hereby ratified and shall be and remain in full force and effect. 5.2. Any and all notices, requests, certificates and other instruments executed and delivered after the execution and delivery of this Second Amendment may refer to the Note Purchase Agreement without making specific reference to this Second Amendment but nevertheless all such references shall include this Second Amendment unless the context otherwise requires. 5.3. The descriptive headings of the various Sections or parts of this Second Amendment are for convenience only and shall not affect the meaning or construction of any of the provisions hereof. 5.4. This Second Amendment shall be governed by and construed in accordance with Minnesota law. 5.5. The execution hereof by you shall constitute a contract between us for the uses and purposes hereinabove set forth, and this Second Amendment may be executed in any number of counterparts, each executed counterpart constituting an original, but all together only one agreement. ANALYSTS INTERNATIONAL CORPORATION By ---------------------------------------------- Its ------------------------------------------- Accepted and Agreed to: GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY By ---------------------------------------------- Its ------------------------------------------- and By ---------------------------------------------- Its ------------------------------------------- NORTHERN LIFE INSURANCE COMPANY By ING Investment Management LLC Its Agent By -------------------------------------------- Its ----------------------------------------- RELIASTAR LIFE INSURANCE COMPANY By ING Investment Management LLC Its Agent By -------------------------------------------- Its ----------------------------------------- SECURITY CONNECTICUT LIFE INSURANCE COMPANY By ING Investment Management LLC Its Agent By -------------------------------------------- Its ----------------------------------------- EXHIBIT 1 FORM OF NOTE THIS NOTE HAS BEEN PURCHASED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION. NO SALE, OFFER TO SELL, PLEDGE, TRANSFER OR OTHER DISPOSITION OF THIS NOTE SHALL BE MADE UNLESS A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, WITH RESPECT TO THIS NOTE IS THEN IN EFFECT OR UNLESS SUCH DISPOSITION MAY BE EFFECTED WITHOUT VIOLATION OF THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS. ANALYSTS INTERNATIONAL CORPORATION SENIOR NOTE DUE DECEMBER 30, 2006 No.[___] [Date] $[_____] PPN 032681 A*9 FOR VALUE RECEIVED, the undersigned, ANALYSTS INTERNATIONAL CORPORATION (herein called the "Company"), a corporation organized and existing under the laws of the State of Minnesota, hereby promises to pay to [______________], or registered assigns, the principal sum of [_________________] DOLLARS on December 30, 2006, with interest (computed on the basis of a 360-day year of twelve 30-day months) (a) on the unpaid balance thereof at the rate of (i) 7.00% per annum from the date hereof until July 31, 2001, and (ii) 9.00% per annum at all times thereafter, payable semiannually, on the 30th day of June and December in each year, commencing with the June or December next succeeding the date hereof, until the principal hereof shall have become due and payable, and (b) to the extent permitted by law on any overdue payment (including any overdue prepayment) of principal, any overdue payment of interest and any overdue payment of any Make-Whole Amount (as defined in the Note Purchase Agreement referred to below), payable semiannually as aforesaid (or, at the option of the registered holder hereof, on demand), at a rate per annum from time to time equal to the greater of (i) 2.00% over the rate then applicable to this Note or (ii) 2.00% over the rate of interest publicly announced by Wells Fargo Bank Minnesota, National Association from time to time in Minneapolis, Minnesota as its "base" or "prime" rate. Payments of principal of, interest on and any Make-Whole Amount with respect to this Note are to be made in lawful money of the United States of America at the principal office of the Company or at such other place as the Company shall have designated by written notice to the holder of this Note as provided in the Note Purchase Agreement referred to below. This Note is one of a series of Senior Notes (herein called the "Notes") in the aggregate principal amount of $20,000,000 issued pursuant to the Note Purchase Agreement, dated as of December 30, 1998 (as from time to time amended, the "Note Purchase Agreement"), between the Company and the respective Purchasers named therein and is entitled to the benefits thereof. Each holder of this Note will be deemed, by its acceptance hereof, (i) to have agreed to the confidentiality provisions set forth in Section 20 of the Note Purchase Agreement and (ii) to have made the representation set forth in Section 6.2 of the Note Purchase Agreement. This Note is a registered Note and, as provided in the Note Purchase Agreement, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder's attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Company may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Company will not be affected by any notice to the contrary. The Company will make required prepayments of principal on the dates and in the amounts specified in the Note Purchase Agreement. This Note is also subject to optional prepayment, in whole or from time to time in part, at the times and on the terms specified in the Note Purchase Agreement, but not otherwise. If an Event of Default, as defined in the Note Purchase Agreement, occurs and is continuing, the principal of this Note may be declared or otherwise become due and payable in the manner, at the price (including any applicable Make-Whole Amount) and with the effect provided in the Note Purchase Agreement. This Note shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of Minnesota excluding choice-of-law principles of the law of such State that would require the application of the laws of a jurisdiction other than such State. ANALYSTS INTERNATIONAL CORPORATION By: --------------------------------------------- Its: ------------------------------------------- EX-6.B 4 a2063053zex-6_b.txt EX-6.B EXHIBIT 6(b) THIRD AMENDMENT TO CREDIT AGREEMENT DATED AS OF JANUARY 31, 2000 THIRD AMENDMENT TO CREDIT AGREEMENT This Amendment, dated as of August __, 2001, is made by and between Analysts International Corporation, a Minnesota corporation (the "Borrower"), and Wells Fargo Bank, National Association, assignee of Wells Fargo Bank Minnesota, National Association, f/k/a Norwest Bank Minnesota, National Association (the "Bank"). RECITALS The Borrower and the Bank have entered into a Credit Agreement dated as of January 31, 2000 as amended by a First Amendment to Credit Agreement dated as of December 12, 2000 and a Second Amendment to Credit Agreement dated as of April 2, 2001, but effective as of March 30, 2001 (as so amended, the "Credit Agreement"). Capitalized terms used in these recitals have the meanings given to them in the Credit Agreement unless otherwise specified. The Borrower has requested that certain amendments be made to the Credit Agreement, which the Bank is willing to make pursuant to the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements herein contained, it is agreed as follows: 1. DEFINED TERMS. Capitalized terms used in this amendment which are defined in the credit agreement shall have the same meanings as defined therein, unless otherwise defined herein. In addition, section 1.1 of the credit agreement is amended by adding or amending, as the case may be, the following definitions: "'Covenant Computation Date' means the last day of each fiscal quarter of the Borrower." "'Facility Amount' means $30,000,000, unless said amount is reduced pursuant to Section 2.8, in which event it means the amount to which said amount is reduced." "'Level Status' means Level I Status as defined in Exhibit A to the Third Amendment and determined pursuant to Section 2.3(e) of the Credit Agreement and Exhibit A to the Third Amendment." "'Third Amendment' means the Third Amendment to Credit Agreement dated as of August __, 2001 by and between the Borrower and the Bank. 2. MARGINS. Section 2.3(e) of the credit agreement is hereby deleted in its entirety and replaced with the following: "(e) MARGINS. The Borrower's Level Status shall be deemed to be Level I Status at all times." 3. FINANCIAL STATEMENTS. Section 5.1(c) of the credit agreement is hereby deleted in its entirety and replaced with the following: "(c) As soon as available after the end of each of the Borrower's fiscal quarters and in any event within 45 days after the end of each of the Borrower's fiscal quarters, a Compliance Certificate, duly executed by the chief financial officer of the Borrower." 4. CASH FLOW LEVERAGE RATIO. Section 5.8 of the credit agreement is hereby deleted in its entirety and replaced with the following: "Section 5.8 CASH FLOW LEVERAGE RATIO. The Borrower will maintain at all times its Cash Flow Leverage Ratio, determined as of each Covenant Computation Date set forth below, at a ratio less than the ratio set forth opposite such Covenant Computation Date:
COVENANT COMPUTATION DATE CASH FLOW LEVERAGE RATIO ------------------------- ------------------------ June 30, 2001 2.75 to 1.00 September 30, 2001 3.05 to 1.00 December 31, 2001 3.05 to 1.00 Each Covenant Computation 2.50 to 1.00 Date Thereafter
5. DEBT SERVICE COVERAGE RATIO. Section 5.9 of the credit agreement is hereby deleted in its entirety and replaced with the following: "Section 5.9 DEBT SERVICE COVERAGE RATIO. The Borrower will at all times maintain its Debt Service Coverage Ratio, determined as of each Covenant Computation Date set forth below, at a ratio greater than the ratio set forth opposite such Covenant Computation Date:
COVENANT COMPUTATION DATE DEBT SERVICE COVERAGE RATIO June 30, 2001 1.15 to 1.00 September 30, 2001 1.15 to 1.00 December 31, 2001 1.10 to 1.00 Each Covenant Computation 1.20 to 1.00 Date Thereafter
6. CAPITALIZATION RATIO. Section 5.10 of the Credit Agreement is hereby deleted in its entirety and replaced with the following: "Section 5.10 CAPITALIZATION. The Borrower will at all times maintain its Capitalization Ratio, determined as of each Covenant Computation Date set forth below, at a ratio less than the ratio set forth opposite such Covenant Computation Date:
COVENANT COMPUTATION DATE CAPITALIZATION RATIO June 30, 2001 0.305 to 1.00 September 30, 2001 0.305 to 1.00 December 31, 2001 0.305 to 1.00 Each Covenant Computation 0.300 to 1.00 Date Thereafter
7. CURRENT RATIO. Section 5.11 of the credit agreement is hereby deleted in its entirety and replaced with the following: "Section 5.11 CURRENT RATIO. The Borrower will at all times maintain its Current Ratio, determined as of each Covenant Computation Date set forth below, at a ratio greater than the ratio set forth opposite such Covenant Computation Date:
COVENANT COMPUTATION DATE CURRENT RATIO June 30, 2001 1.50 to 1.00 September 30, 2001 1.50 to 1.00 December 31, 2001 1.50 to 1.00 Each Covenant Computation 1.75 to 1.00 Date Thereafter
8. COMMITMENT TO OBTAIN NEW FINANCING. Section 5.13 is hereby added to the credit agreement as follows: "SECTION 5.13 COMMITMENT TO OBTAIN NEW FINANCING. The borrower will (a) obtain a written commitment from a financial institution other than the bank to provide not less than $30,000,000 of new financing, which commitment shall include a proposed funding date no later than December 1, 2001, and (b) will cause a financial institution other than the bank to fund financing to the borrower in an amount not less than $30,000,000 on or prior to December 1, 2001." 9. RESTRICTED PAYMENTS. Section 6.5 of the credit agreement is hereby deleted in its entirety and replaced with the following: "Section 6.5 RESTRICTED PAYMENTS. The Borrower shall not make any Restricted Payments, except that the foregoing shall not prohibit (a) the payment of dividends on the Borrower's common stock in an amount not to exceed an aggregate of $250,000 in any single fiscal quarter of the Borrower, or (b) the Borrower from repurchasing, on a dollar-for-dollar basis, its common stock for the purpose of offsetting any 401(k) and/or stock option issuances of its common stock." 10. NEW COMPLIANCE CERTIFICATE. Exhibit C to the credit agreement is hereby amended in its entirety and replaced with exhibit b to this amendment. 11. NO OTHER CHANGES. Except as explicitly amended by this amendment, all of the terms and conditions of the credit agreement shall remain in full force and effect and shall apply to any advance or letter of credit thereunder. 12. AMENDMENT FEE. In consideration of the bank's entering into this amendment, the borrower shall pay to the bank, on or before August __, 2001, an amendment fee in the amount of $45,000. Such fee shall be deemed fully earned by the bank's execution and delivery of this amendment. 13. CONDITIONS PRECEDENT. This amendment shall be effective when the bank shall have received an executed original hereof, together with each of the following, each in substance and form acceptable to the bank in its sole discretion: (a) Payment of the fee described in paragraph 12. (b) Such other matters as the bank may require. 14. REPRESENTATIONS AND WARRANTIES. The borrower hereby represents and warrants to the bank as follows: (a) The borrower has all requisite power and authority to execute this amendment and to perform all of its obligations hereunder, and this amendment has been duly executed and delivered by the borrower and constitutes the legal, valid and binding obligation of the borrower, enforceable in accordance with its terms. (b) The execution, delivery and performance by the borrower of this amendment have been duly authorized by all necessary corporate action and do not (i) require any authorization, consent or approval by any governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, (ii) violate any provision of any law, rule or regulation or of any order, writ, injunction or decree presently in effect, having applicability to the borrower, or the articles of incorporation or by-laws of the borrower, or (iii) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which the borrower is a party or by which it or its properties may be bound or affected. (c) All of the representations and warranties contained in article iv of the credit agreement are correct on and as of the date hereof as though made on and as of such date, except to the extent that such representations and warranties relate solely to an earlier date. 15. REFERENCES. All references in the credit agreement to "this agreement" shall be deemed to refer to the credit agreement as amended hereby; and any and all references in the loan documents to the credit agreement shall be deemed to refer to the credit agreement as amended hereby. 16. RELEASE. The borrower hereby absolutely and unconditionally releases and forever discharges the bank, and any and all participants, parent corporations, subsidiary corporations, affiliated corporations, insurers, indemnitors, successors and assigns thereof, together with all of the present and former directors, officers, agents and employees of any of the foregoing, from any and all claims, demands or causes of action of any kind, nature or description, whether arising in law or equity or upon contract or tort or under any state or federal law or otherwise, which the borrower has had, now has or has made claim to have against any such person for or by reason of any act, omission, matter, cause or thing whatsoever arising from the beginning of time to and including the date of this amendment, whether such claims, demands and causes of action are matured or unmatured or known or unknown. 17. COSTS AND EXPENSES. The borrower hereby reaffirms its agreement under the credit agreement to pay or reimburse the bank on demand for all costs and expenses incurred by the bank in connection with the loan documents and all other documents contemplated thereby, including without limitation all reasonable fees and disbursements of legal counsel. Without limiting the generality of the foregoing, the borrower specifically agrees to pay all fees and disbursements of counsel to the bank for the services performed by such counsel in connection with the preparation of this amendment and the documents and instruments incidental hereto. The borrower hereby agrees that the bank may, at any time or from time to time in its sole discretion and without further authorization by the borrower, make a loan to the borrower under the credit agreement, or apply the proceeds of any loan, for the purpose of paying any such fees, disbursements, costs and expenses and the fee required under paragraph 12 hereof. 18. MISCELLANEOUS. This amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original and all of which counterparts, taken together, shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first written above. WELLS FARGO BANK, NATIONAL ASSOCIATION ANALYSTS INTERNATIONAL CORPORATION By By ------------------------------ ------------------------------ Richard G. Trembley Marti R. Charpentier Its Vice President Its Vice President - Finance EXHIBIT A TO THIRD AMENDMENT TO CREDIT AGREEMENT PRICING GRID
---------------------------------------------------------------------------------------------------------------- EURODOLLAR RATE LEVEL APPLICATION PERIOD BASE RATE MARGIN MARGIN UNUSED FEE ---------------------------------------------------------------------------------------------------------------- I at all times 0.25% 3.00% 0.500% ----------------------------------------------------------------------------------------------------------------
"Level I Status" exists at all times. EXHIBIT B TO THIRD AMENDMENT TO CREDIT AGREEMENT COMPLIANCE CERTIFICATE __________________, 2001 Wells Fargo Bank National Association 7900 Xerxes Avenue South, Suite 160 Bloomington, Minnesota 55431-2206 Attention: Richard G. Trembley COMPLIANCE CERTIFICATE Ladies and Gentlemen: Reference is made to the Credit Agreement dated as of January 31, 2000, as amended by a First Amendment to Credit Agreement dated as of December 12, 2000, a Second Amendment to Credit Agreement dated as of March 30, 2001, but effective as of April 2, 2001 and a Third Amendment to Credit Agreement dated as of August __, 2001 (as so amended, the "Credit Agreement"), entered into between Wells Fargo Bank, National Association, a national banking association and Analysts International Corporation, a Minnesota corporation (the "Borrower"). All terms defined in the Credit Agreement and not otherwise defined herein shall have the meanings given them in the Credit Agreement. This is a Compliance Certificate submitted in connection with the Borrower's reporting obligations under Section 5.1(c) of the Credit Agreement as of and for its fiscal quarter ending _____________________, 200_ (the "Reporting Date") and includes the Borrower's financial statements (the "Statements") prepared as of and for the Reporting Date. I hereby certify to you as follows: 1. I am the chief financial officer of the Borrower, and I am familiar with the financial statements and financial affairs of the Borrower. 2. The Statements, and the computations below, have been prepared in accordance with GAAP. 3. The following computations set forth the Borrower's compliance or non-compliance with the requirements set forth in the Financial Covenants as of the Reporting Date: SECTION 5.8 CASH FLOW LEVERAGE RATIO Total Funded Debt (a) $___________ EBITDA (b) $___________ Restructuring Charges (c) $___________ Investment Banking Charges (d) $___________
Cash Flow Leverage Ratio = a/(b+c+d) for March 31, 2001 through November 30, 2001 Cash Flow Leverage Ratio = a/b thereafter A. Pursuant to Section 5.8 of the Credit Agreement, as of the Reporting Date, the Borrower's Cash Flow Leverage Ratio was _____ to 1.00 which / / satisfies / / does not satisfy the requirement that such ratio be less than ______ to 1.00 on the Reporting Date as set forth in the table below:
COVENANT COMPUTATION DATE CASH FLOW LEVERAGE RATIO June 30, 2001 2.75 to 1.00 September 30, 2001 3.05 to 1.00 December 31, 2001 3.05 to 1.00 Each Covenant Computation Date Thereafter 2.50 to 1.00
SECTION 5.9 DEBT SERVICE COVERAGE RATIO EBITDA $___________ + Rental Expense $___________ + Investment Banking Charges $___________ - Capital Expenditures $___________ - Taxes $___________ - Restricted Payments $___________ = Debt Service Cash Flow (a) $___________ Debt Service Requirement Principal Payments $___________ + Interest Payments $___________ + Rental Expense $___________ =Total Debt Service Requirements (b) $___________ Debt Service Coverage Ratio = a/b
B. Pursuant to Section 5.9 of the Credit Agreement, as of the Reporting Date, the Borrower's Debt Service Coverage Ratio was _____ to 1.00 which / / satisfies / / does not satisfy the requirement that such ratio be greater than ______ to 1.00 on the Reporting Date as set forth in the table below:
COVENANT COMPUTATION DATE DEBT SERVICE COVERAGE RATIO June 30, 2001 1.15 to 1.00 September 30, 2001 1.15 to 1.00 December 31, 2001 1.10 to 1.00 Each Covenant Computation Date Thereafter 1.20 to 1.00
SECTION 5.10 CAPITALIZATION RATIO Total Funded Debt (a) $___________ Total Funded Debt (b) $___________ Net Worth (c) $___________ Capitalization Ratio = a/(b+c)
C. Pursuant to Section 5.10 of the Credit Agreement, as of the Reporting Date, the Borrower's Capitalization Ratio was _____ to 1.00 which / / satisfies / / does not satisfy the requirement that such ratio be less than ______ to 1.00 on the Reporting Date as set forth in the table below:
COVENANT COMPUTATION DATE CAPITALIZATION RATIO June 30, 2001 0.305 to 1.00 September 30, 2001 0.305 to 1.00 December 31, 2001 0.305 to 1.00 Each Covenant Computation Date Thereafter 0.300 to 1.00
SECTION 5.11 CURRENT RATIO Current Assets (a) $___________ Current Liabilities (b) $___________ Current Ratio = a/b
D. Pursuant to Section 5.11 of the Credit Agreement, as of the Reporting Date, the Borrower's Current Ratio was _____ to 1.00 which / / satisfies / / does not satisfy the requirement that such ratio be greater than ______ to 1.00 on the Reporting Date as set forth in the table below:
COVENANT COMPUTATION DATE CURRENT RATIO June 30, 2001 1.50 to 1.00 September 30, 2001 1.50 to 1.00 December 31, 2001 1.50 to 1.00 Each Covenant Computation Date Thereafter 1.75 to 1.00
SECTION 5.12 CONSOLIDATED NET WORTH Total Assets (a) $___________ Total Liabilities (b) $___________ Consolidated Net Worth: a-b
E. Pursuant to Section 5.12 of the Credit Agreement, as of the Reporting Date, the Borrower's Consolidated Net Worth was $__________________, which / / satisfies / / does not satisfy the requirement that such net worth be at least $74,261,000 PLUS 50% of its cumulative Net Income. SECTION 6.12 CAPITAL EXPENDITURES F. Pursuant to Section 6.12 of the Credit Agreement, for the twelve month period ending on the Reporting Date, the Borrower and any Subsidiary has expended or contracted to expend for Capital Expenditures, $___________________ in the aggregate which / / satisfies / / does not satisfy the requirement that such expenditures be less than $5,000,000 for any consecutive twelve month period. Attached hereto are all relevant facts in reasonable detail to evidence, and the computations of, the financial covenants referred to above. 4. I have no knowledge of the occurrence of any Default or Event of Default under the Credit Agreement, except as set forth in the attachments, if any, hereto. Very truly yours, ANALYSTS INTERNATIONAL CORPORATION By -------------------------------------- Its -----END PRIVACY-ENHANCED MESSAGE-----