-----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, I/FHziMHiK9BYN2j2VuNbJN4O3qffSVF5T2yCV3qKDuBilje0F8zOnp0E9gXldam aeHdtsQn9+AuFxh+1j2rKg== 0001047469-99-020457.txt : 19990517 0001047469-99-020457.hdr.sgml : 19990517 ACCESSION NUMBER: 0001047469-99-020457 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 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: 99622315 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 March 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 April 30, 1999, 22,550,461 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 March 31, 1999 (Unaudited) and June 30, 1998 1 Condensed Consolidated Statements of Income Three months and nine months ended March 31, 1999 and 1998 (Unaudited) 2 Condensed Consolidated Statements of Cash Flows Nine months ended March 31, 1999 and 1998 (Unaudited) 3 Notes to Condensed Consolidated Financial Statements (Unaudited) 4-5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6-8 ANALYSTS INTERNATIONAL CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS
March 31, June 30, (In thousands) 1999 1998 ----------- ----------- (Unaudited) Current assets: Cash and cash equivalents $ 29,542 $ 11,868 Accounts receivable, less allowance for doubtful accounts 99,920 94,294 Other current assets 4,343 3,808 -------- -------- Total current assets 133,805 109,970 Property and equipment, net 25,223 10,360 Other assets 16,705 12,331 -------- -------- $175,733 $132,661 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 30,178 $ 21,236 Dividend payable 2,255 1,795 Salaries and vacations 17,499 15,669 Other, primarily self-insured health care reserves 2,525 2,161 Income taxes payable 1,257 1,635 -------- -------- Total current liabilities 53,714 42,496 Long-term debt 20,000 -- Other long-term liabilities 7,555 7,171 Shareholders' equity 94,464 82,994 --------- -------- $175,733 $132,661 ========= =========
Note: The balance sheet at June 30, 1998 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 Nine Months Ended (In thousands except per share amounts) March 31 March 31 ---------------------- ------------------------- 1999 1998 1999 1998 ---- ---- ---- ---- Professional services revenues: Provided directly $119,847 $116,261 $361,611 $329,276 Provided through sub-suppliers 34,281 33,750 103,967 97,158 -------- -------- -------- -------- Total revenues 154,128 150,011 465,578 426,434 Expenses: Salaries, contracted services and direct charges 121,138 117,261 365,193 332,023 Selling, administrative and other operating costs 24,025 23,848 73,665 68,842 -------- -------- -------- -------- Total expenses 145,163 141,109 438,858 400,865 -------- -------- -------- -------- Operating income 8,965 8,902 26,720 25,569 Non-operating income 392 313 966 997 -------- -------- -------- -------- Income before income taxes 9,357 9,215 27,686 26,566 -------- Income taxes 3,652 3,687 10,894 10,627 -------- -------- -------- -------- Net income $ 5,705 $ 5,528 $ 16,792 $ 15,939 ======== ======== ========= ======== PER COMMON SHARE: Net income (basic) $ .26 $ .24 $ .75 $ .71 ======== ======== ========= ======== Net income (diluted) $ .25 $ .24 $ .74 $ .70 ======== ======== ======== ======== Dividends paid $ .10 $ .08 $ .28 $ .21 ======== ======== ======== ======== Average common shares outstanding 22,543 22,409 22,516 22,357 ======== ======== ======== ======== Average common and common equivalent shares outstanding 22,651 22,868 22,730 22,841 ======== ======== ======== ========
See notes to condensed consolidated financial statements. 2 ANALYSTS INTERNATIONAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended March 31 ----------------- (In thousands) 1999 1998 ---- ---- Net cash provided by operating activities $ 24,130 $ 4,560 Cash flows from investing activities: Property and equipment additions (17,584) (3,884) Payments for acquisitions (3,847) -- -------- -------- Net cash used in investing activities (21,431) (3,884) Cash flows from financing activities: Cash dividends (6,473) (4,769) Proceeds from borrowings 20,000 -- Proceeds from exercise of stock options 1,448 1,163 -------- -------- Net cash used in financing activities 14,975 (3,606) Net change in cash and equivalents 17,674 (2,930) Cash and equivalents at beginning of period 11,868 17,888 -------- -------- Cash and equivalents at end of period $ 29,542 $14,958 ========= ========
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 March 31, 1999, the condensed consolidated statements of income for the three month and nine month periods ended March 31, 1999 and 1998 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, results of operations and the cash flows at March 31, 1999 and for the periods then ended have been made. 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, 1998 annual report to shareholders. 2. LONG-TERM DEBT On December 30, 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: 1999, $0; 2000, $0; 2001, $5,250,000; 2002, $4,000,000; 2003, $3,000,000; thereafter, $7,750,000. 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 substantially in excess of the minimum net requirements and current dividend payments would not be restricted. 3. SHAREHOLDERS' EQUITY
Nine Months Ended March 31, 1999 -------------- (In thousands) Balance at beginning of period $ 82,994 Cash dividends declared: August 20, 1998 at $.10 per share (2,252) December 17, 1998 at $.10 per share (2,256) February 18, 1999 at $.10 per share (2,256) Proceeds upon exercise of stock options 1,279 Stock-based compensation 163 Net income 16,792 ------ Balance at end of period $ 94,464 ======
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 5. BUSINESS ACQUISITION On February 26, 1999, the Company acquired all of the assets of Real World Training Systems LLC, a Phoenix, Arizona based provider of software services. The acquisition was accounted for by the purchase method of accounting. Accordingly, the assets acquired, primarily accounts receivable and property and equipment, were recorded at their estimated fair values as of the date of the acquisition. The excess of the purchase price over the estimated fair value of the assets acquired was recorded as goodwill and is being amortized on a straight-line basis over a 12-year period. 5 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Nine Months Ended March 31, 1999 and 1998 CHANGES IN FINANCIAL CONDITION Working capital at March 31, 1999 was $80.1 million, up 18.7% from the $67.5 million at June 30, 1998. This includes cash and cash equivalents of $29.5 million compared to $11.9 million at June 30, 1998 and accounts receivable of $99.9 million compared to $94.3 million at June 30, 1998. Ratios of current assets to current liabilities and total assets to total liabilities have decreased since June 30, 1998. On December 30, 1998, the Company entered into a Notes Purchase Agreement whereby it sold $20,000,000 of 7% Senior Notes due December 30, 2006. The increase in working capital and long-term debt and the changes in the ratios are due to cash provided by operating activities and the proceeds from the $20 million Notes Purchase Agreement which is being used to finance construction costs of the new corporate headquarters building. The Company's primary need for working capital is to support accounts receivable resulting from the growth in its business 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. In January 1998 the Company entered into an agreement to build a facility for use as its corporate headquarters and its Minneapolis branch operations. The Company expects construction and related costs will be approximately $21,300,000. These costs will be financed through the use of cash reserves and the proceeds of the Notes Purchase Agreement described above. On December 17, 1998 the Board of Directors declared the regular quarterly dividend of $.10 per share payable February 12, 1999 to shareholders of record as of January 29, 1999. On February 18, 1999 the Board of Directors declared the regular quarterly dividend of $.10 per share payable May 14, 1999 to shareholders of record as of April 30, 1999. On February 26, 1999, the Company acquired all of the assets of Real World Training Systems LLC, a Phoenix, Arizona based provider of software services. The amount paid in connection with the purchase was paid entirely with internal funds. The Company believes funds generated from its business, current cash balances and the above mentioned financing 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 Year 2000 compliance 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, however, its new computer systems 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 it has a staff of over 4,500 computer programmers as well as a national Y2K practice which can assist in achieving Y2K compliance. The Company's business does not depend on raw materials, parts or other goods supplied by third parties and therefore, the 6 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 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. RESULTS OF OPERATIONS The Company operates in one business segment. Revenues provided directly for the nine months ended March 31, 1999 were $361.6 million, an increase of 9.8% over the same period a year ago. For the three months ended March 31, 1999 revenues provided directly were $119.8 million, an increase of 3.1% over the same period a year ago. Nearly all of these increases are the result of increases 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 nine month period and quarter ended March 31, 1999 were $104.0 and $34.3 million, respectively. This represents increases of 7.0% and 1.6% over the same periods a year ago. These increases in sub-supplier revenues resulted almost exclusively from an increase in billable hours of service rendered to clients. Personnel totaled 4,950 at March 31, 1999, compared to 5,250 at March 31, 1998, a decrease of 5.7%. Salaries, contracted services and direct charges, which represent primarily the Company's direct labor cost, were 78.4% of revenues for the nine months ended March 31, 1999 compared to 77.9% for the same period a year ago. These costs were 78.6% of revenues for the three months ended March 31, 1999 and 78.2% of revenues for the three months ended March 31, 1998. By comparison, these costs were 78.7% of revenues for the second quarter of fiscal 1999 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 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 and intense competition in the industry makes it difficult to pass cost increases on to customers, while unfavorable economic conditions could adversely affect productivity. Productivity is being affected by the Y2K issue, as many clients are concentrating on compliance and testing for Y2K and postponing new applications to avoid testing complications as well as budget considerations. The Company believes demand for the services it provides should increase as clients address a backlog of projects, but there can be no assurance as to when or if this will occur. Although the Company has taken steps to control this category of expense, there can be no assurance the Company will be able to maintain or improve its gross margin. Selling, administrative and other operating costs, which include commissions, employee fringe benefits and location costs, represented 15.8% of revenues for the nine months ended March 31, 1999 compared to 16.1% for the same period a year ago. These costs were 15.6% of revenues for the three months ended March 31, 1999 and 15.9% of revenues for the three months ended March 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. 7 Net income for the nine months ended March 31, 1999 increased 5.4% over the same period a year ago. As a percentage of revenue, net income has decreased from 3.7% for the nine months ended March 31, 1998 to 3.6% for the nine months ended March 31, 1999. Net income for the quarter, as a percentage of revenues, was 3.7% for both the three months ended March 31, 1999 and 1998. The Company's net income as a percentage of revenues provided directly was 4.6% for the nine months ended March 31, 1999 compared to 4.8% for the same period a year ago. The Company's net income as a percentage of revenues provided directly for the three months ended March 31, 1999 and 1998 was the same at 4.8%. 8 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 nine months ended March 31, 1999. 9 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, although forward-looking statements may exist without such expressions. 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 renewal of contracts with customers, especially major customers, (iii) the cancellation of contracts by customers, especially major customers, (iv), competition, (v) the availability of qualified professional staff, (vi) the Company's ability to increase hourly billing rates as labor and operating costs increase, (vii) the Company's ability to continue to operate its business and support growth with internally generated funds and (viii) the impact of Y2K. There may be other factors, such as general economic conditions which affect businesses generally, which may cause results to vary from expectations. 10 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 thereunto duly authorized. ANALYSTS INTERNATIONAL CORPORATION (Registrant) Date May 14, 1999 By /s/ Gerald M. McGrath --------------------------------------- Gerald M. McGrath Treasurer and Chief Financial Officer Date May 14, 1999 By /s/ Marti R. Charpentier --------------------------------------- Marti R. Charpentier Controller and Assistant Treasurer (Chief Accounting Officer) 11 EX-27 2 EXHIBIT 27
5 1,000 9-MOS JUN-30-1999 JUL-01-1998 MAR-31-1999 29,542 0 100,495 575 0 133,805 39,972 14,749 175,733 53,714 27,555 0 0 2,479 91,985 175,733 465,578 465,578 365,193 365,193 73,130 535 0 27,686 10,894 16,792 0 0 0 16,792 .75 .74
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