-----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, N2J2493zH+9wMNAo5zM4f0R5mzU4U4sHsufkIIidTXBMF3NzUWyjgA5jmgXSlqvo HVjMd41l4m0XzAp7fPY6tw== 0000912057-99-005104.txt : 19991115 0000912057-99-005104.hdr.sgml : 19991115 ACCESSION NUMBER: 0000912057-99-005104 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 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: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-04090 FILM NUMBER: 99748191 BUSINESS ADDRESS: STREET 1: 7615 METRO BLVD CITY: MINNEAPOLIS STATE: MN ZIP: 55439 BUSINESS PHONE: 6128974506 MAIL ADDRESS: STREET 1: 7615 METRO BLVD CITY: MINNEAPOLIS STATE: MN ZIP: 55439 10-Q 1 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, 1999 or ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-4090 ANALYSTS INTERNATIONAL CORPORATION Minnesota 41-0905408 3601 West 76th Street Minneapolis, MN 55435 (612) 835-5900 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- As of October 29, 1999, 22,557,691 shares of the Registrant's Common Stock were outstanding. ANALYSTS INTERNATIONAL CORPORATION INDEX
Page Number ------ PART I. FINANCIAL INFORMATION: Item 1. Condensed Consolidated Balance Sheets September 30, 1999 (Unaudited) and June 30, 1999 1 Condensed Consolidated Statements of Income Three months ended September 30, 1999 and 1998 (Unaudited) 2 Condensed Consolidated Statements of Cash Flows Three months ended September 30, 1999 and 1998 (Unaudited) 3 Notes to Condensed Consolidated Financial Statements (Unaudited) 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 5-6
ANALYSTS INTERNATIONAL CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS
September 30, June 30, (In thousands) 1999 1999 -------------- ------------- (Unaudited) Current assets: Cash and cash equivalents $ 34,980 $ 33,870 Accounts receivable, less allowance for doubtful accounts 97,048 101,523 Prepaid expenses and other current assets 4,063 4,499 -------- -------- Total current assets 136,091 139,892 Property and equipment, net 28,745 29,644 Intangible assets, net of accumulated amortization 6,861 7,029 Other assets 10,076 9,651 -------- -------- $181,773 $186,216 -------- -------- -------- -------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 30,077 $ 30,791 Dividend payable 2,256 2,255 Salaries and vacations 16,044 23,227 Other, primarily self-insured health care reserves 3,148 3,311 Income taxes payable 3,024 1,084 -------- -------- Total current liabilities 54,549 60,668 Long-term debt 20,000 20,000 Other long-term liabilities 7,650 7,534 Shareholders' equity 99,574 98,014 -------- -------- $181,773 $186,216 -------- -------- -------- --------
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 ANALYSTS INTERNATIONAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended (In thousands except per share amounts) September 30 ---------------------------------- 1999 1998 ---- ---- Professional services revenues: Provided directly $112,985 $123,373 Provided through sub-suppliers 36,060 35,091 -------- -------- Total revenues 149,045 158,464 Expenses: Salaries, contracted services and direct charges 118,688 123,621 Selling, administrative and other operating costs 24,561 24,959 -------- -------- Total expenses 143,249 148,580 -------- -------- Operating income 5,796 9,884 Non-operating income 744 309 Interest expense 350 -- -------- -------- Income before income taxes 6,190 10,193 Income taxes 2,414 4,067 -------- -------- Net income $ 3,776 $ 6,126 -------- -------- -------- -------- PER COMMON SHARE: Net income (basic) $ .17 $ .27 -------- -------- -------- -------- Net income (diluted) $ .17 $ .27 -------- -------- -------- -------- Dividends paid $ .10 $ .08 -------- -------- -------- -------- Average common shares outstanding 22,555 22,481 -------- -------- -------- -------- Average common and common equivalent shares outstanding 22,645 22,875 -------- -------- -------- --------
See notes to condensed consolidated financial statements. 2 ANALYSTS INTERNATIONAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended September 30 ------------------------ (In thousands) 1999 1998 ---- ---- Net cash provided by operating activities $ 3,040 $ 8,419 Cash flows from investing activities: Property and equipment additions (1,276) (5,404) Proceeds from property and equipment sales 1,561 -- -------- -------- Net cash provided by (used in) investing activities 285 (5,404) Cash flows from financing activities: Cash dividends (2,255) (1,798) Proceeds from exercise of stock options 40 498 -------- -------- Net cash used in financing activities (2,215) (1,300) -------- -------- Net change in cash and equivalents 1,110 1,715 Cash and equivalents at beginning of period 33,870 11,868 -------- -------- Cash and equivalents at end of period $ 34,980 $ 13,583 -------- -------- -------- --------
See notes to condensed consolidated financial statements. 3 ANALYSTS INTERNATIONAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Condensed Consolidated Financial Statements - The condensed consolidated balance sheet as of September 30, 1999, the condensed consolidated statements of income and cash flows for the three month periods ended September 30, 1999 and 1998 have been prepared by the Company, without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, at September 30, 1999 and the results of operations and the cash flows for the periods then ended September 30, 1999 and 1998 have been made. The results of operations for the period ended September 30, 1999 are not necessarily indicative of the results to be expected for the full fiscal year. The Company did not have any items of other comprehensive income in any of the periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company's June 30, 1999 annual report to shareholders. 2. LONG-TERM DEBT In December 1998 the Company entered into a Notes Purchase Agreement whereby it sold $20,000,000 of 7% Senior Notes due December 30, 2006. Minimum future maturities on these Notes is as follows: 2000, $0; 2001, $5,250,000; 2002, $4,000,000; 2003, $3,000,000; 2004, $3,000,000 thereafter, $4,750,000. The agreement contains, among other things, provisions regarding maintenance of working capital and net worth and restrictions on payments of dividends on common stock. The Company's working capital and net worth are in excess of the minimum net requirements and current dividend payments will not exceed the $18,500,000 maximum allowed under the agreement. 3. SHAREHOLDERS' EQUITY
Three Months Ended September 30, 1999 ------------------ (In thousands) Balance at beginning of period $98,014 Cash dividends declared: August 19, 1999 at $.10 per share (2,256) Proceeds upon exercise of stock options 40 Net income 3,776 -------- Balance at end of period $ 99,574 -------- --------
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 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Three Months Ended September 30, 1999 and 1998 CHANGES IN FINANCIAL CONDITION Working capital at September 30, 1999 was $81.5 milllion, up 2.9% from the $79.2 million at June 30, 1999. This includes cash and cash equivalents of $35.0 million compared to $33.9 million at June 30, 1999 and accounts receivable of $97.0 million compared to $101.5 million at June 30, 1999. Ratios of current assets to current liabilities and total assets to total liabilities have increased slightly since June 30, 1999. The Company's primary need for working capital is to support accounts receivable and to fund the time lag between payroll disbursement and receipt of fees billed to clients. Over the past years, the Company has been able to support the growth in its business with internally generated funds. The Company's sub-supplier contracts are not expected to burden working capital. On August 19, 1999 the Board of Directors declared the regular quarterly dividend of $.10 per share payable November 12, 1999 to shareholders of record on October 29, 1999. The Company believes funds generated from its business and current cash balances are adequate to meet demands placed upon its resources by its operations, capital investments and the payment of quarterly dividends. The Company believes it has achieved Y2K readiness by replacing its computer systems with new, Y2K compliant hardware and software. The new hardware/software system was put into production February 1, 1999. The cost of the new system was approximately $3,000,000. The Company depends on its computer system for critical business functions, including time record keeping, billing, payroll, and accounts payable and receivable. The loss of these capabilities would have a material adverse impact on the Company. The Company believes its new computer system has remedied the millennium date change, however, if weaknesses (Y2K or otherwise) in the new system are discovered, the Company intends to develop a contingency plan, which will likely take into account the fact that it has a staff of over 4,000 computer programmers as well as a national Y2K practice which can assist in achieving Y2K readiness. The Company's business does not depend on raw materials, parts or other goods supplied by third parties and therefore, the Company believes the inability of its vendors to achieve Y2K compliance would not have a material adverse impact on the Company. The Company does use utility services (electricity, telecommunication, natural gas and the like) for its offices, and interruption of these services could have a material adverse impact on the Company's operations. The inability of the Company's clients to achieve Y2K compliance could have an impact on their ability to pay the Company for the services it renders to them, with consequent adverse impact on the Company's cash flow. Nearly all of the Company's revenue is derived from services rendered to Fortune 1000 companies, and the Company considers it unlikely that a material number of its customers would encounter Y2K compliance issues which would prevent them from paying the Company's invoices in a timely manner. The Company's services addressing the Year 2000 problem involve key aspects of its clients' computer systems. A failure in a client's system could result in a claim for substantial damages against the Company, regardless of the Company's responsibility for such failure. Litigation, regardless of its outcome, could result in substantial cost to the Company. Accordingly, any contract liability claim or litigation against the Company could have an adverse effect on the Company's business, operations and financial results. 5 The Company does not believe any reasonably likely worst-case Y2K scenario would have a material effect on its results of operations, liquidity or financial condition. RESULTS OF OPERATIONS Revenues provided directly for the three months ended September 30, 1999 were $113.0 million, a decrease of 8.4% from the same period a year ago. This decrease is a result of a 12.9% decrease in billable hours, which is a result of the industry-wide slowdown in information technology spending. This slowdown is expected to continue, and likely intensify, at least through the second fiscal quarter. During the quarter ended September 30, 1999, the decrease in billable hours was partially offset by an increase in hourly rates. While the Company has been able to increase rates over the prior year, there can be no assurance the Company will be able to continue this as competitive conditions in the industry make it difficult for the Company to continually increase the hourly rates it charges for services. Revenues provided through sub-suppliers for the three months ended September 30, 1999 were $36.1 million, an increase of 2.8% over the same period a year ago. This increase in sub-supplier revenues resulted almost exclusively from an increase in billable hours of service rendered to clients. Personnel totalled 4,650 at September 30, 1999, compared to 5,200 at September 30, 1998, a decrease of 10.6%. Substantially all of the decrease consists of billable technical staff. Salaries, contracted services and direct charges, which represent primarily the Company's direct labor cost, were 79.6% of revenues for the three months ended September 30, 1999 compared to 78.0% for the same period a year ago. By comparison, these costs were 78.7% of revenues for the fourth quarter of fiscal 1999 and 78.6% of revenues for the third quarter of fiscal 1999. The increase in this expense category as a percentage of revenues is mostly a consequence of increased idle time and increases in labor costs. The Company's efforts to control these costs involve controlling labor costs, passing on labor cost increases through increased billing rates where possible, and maintaining productivity levels of its billable technical staff. Labor costs, however, are difficult to control because the highly skilled technical personnel the Company seeks to hire and retain are in great demand. It is also difficult to pass on labor costs increases to customers due to intense competition in the industry, and as a result of the industry-wide slowdown in information technology spending, it is expected to be increasingly difficult to maintain high levels of productivity at least through our second fiscal quarter. Although the Company continuously attempts to control the factors which effect this category of expense, there can be no assurance the Company will be able to maintain or improve this level. Selling, administrative and other operating costs, which include commissions, employee fringe benefits and location costs, represented 16.5% of revenues for the three months ended September 30, 1999 compared to 15.8% for the same period a year ago. While the Company is committed to careful management of these costs, there can be no assurance the Company will be able to maintain these costs at their current relationship to revenues. Net income for the three months ended September 30, 1999 decreased 38.4% over the same period a year ago. As a percentage of revenue, net income has decreased to 2.5% for the three months ended September 30, 1999 from 3.9% for the three months ended September 30, 1998. The Company's net income as a percentage of revenues provided directly for the three months ended September 30, 1999 and 1998 was 3.3% and 5.0%, respectively. 6 PART II. OTHER INFORMATION Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit 27 - Financial Data Schedule. (b) There were no reports on Form 8-K filed for the three months ended September 30, 1999. CAUTIONARY STATEMENT UNDER THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Statements included in this document may be "forward-looking statements" within the meaning of the term in Section 27A of the Securities Act of 1933 as amended, and of Section 21F of the Securities Exchange Act of 1934, as amended. Additional oral or written forward-looking statements may be made by the Company from time to time, and such statements may be included in documents that are filed with the Securities and Exchange Commission. Words such as "believes," "intends," "possible," "expects," "estimates" "anticipates," or "plans" and similar expressions are intended to identify forward-looking statements. Forward-looking statements are based on expectations and assumptions, and they involve risks and uncertainties which could cause results or outcomes to differ materially from expectations. Among the risks and uncertainties important to the Company's business are (i) the continued need of current and prospective customers for the Company's services, (ii) the revewal of contracts with customers, especially major customers, (iii) the cancellation of contracts by customers, especially major customers, (iv), competition, (v) the availability of qualified professional staff, (vi) the Company's ability to increase hourly billing rates as labor and operating costs increase and (vii) the Company's ability to continue to operate its business and support growth with internally generated funds. There may be other factors, such as general economic conditions which affect businesses generally, which may cause results to vary from expectations. A specific risk is the Y2K-related slowdown in the software services industry. The software services industry has experienced a slowdown in activity as clients have deferred new development projects to concentrate their resources and budgets on making their computer systems Y2K compliant. The Company's revenues have been adversely affected by this slowdown. Ordinarily the Company would reduce its labor costs by reducing its idle technical staff. However, the Company believes that revenue growth will resume after Y2K. To be prepared for the anticipated resumption in growth, the Company may elect to retain some or all of its idle technical staff because there is a long term shortage of skilled technical personnel and such personnel are difficult to find. The Company may also elect to retain its administrative/support staff during the slowdown for similar reasons. The cost of carrying such staff during the slowdown will have an adverse impact on the Company's net income. The extent and duration of the slowdown, the timing and strength of the recovery and the impact of the slowdown on the Company's revenues and net earnings cannot be predicted or estimated. 7 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned there unto duly authorized. ANALYSTS INTERNATIONAL CORPORATION ---------------------------------- (Registrant) Date November 12, 1999 By /s/ Marti R. Charpentier ------------------ -------------------------------- Marti R. Charpentier Vice President and Treasurer Date November 12, 1999 By /s/ David J. Steichen ----------------- -------------------------------- David J. Steichen Controller and Assistant Treasurer (Chief Accounting Officer) 8 EXHIBIT INDEX Exhibit Number Exhibit - -------------- ------- 27 Financial Data Schedule EX-27 2 EXHIBIT 27
5 1,000 3-MOS JUN-30-2000 JUL-01-1999 SEP-30-1999 34,980 0 97,973 925 0 136,091 44,204 15,459 181,773 54,549 27,650 0 0 2,256 97,318 181,773 149,045 149,045 118,688 118,688 24,561 96 350 6,190 2,414 3,776 0 0 0 3,776 .17 .17
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