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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) Annual Report Pursuant to Section 13 or 15 (d) of
the Securities and Exchange Act of 1934
For the Fiscal Year Ended June 30, 1996
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OR
( ) Transition Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Commission file number 0-4090
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ANALYSTS INTERNATIONAL CORPORATION
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(Exact name of registrant as specified in its charter)
Minnesota 41-0905408
- ------------------------------- --------------------
(State or other jurisdiction of ( I.R.S. Employer
incorporation or organization) Identification No.)
7615 Metro Boulevard, Minneapolis, Minnesota 55439
- -------------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 612/835-5900
Securities registered pursuant to Section 12 (b) of the Act: NONE
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, par value $.10 per share
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(Title of class)
Common Share Purchase Rights
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(Title of class)
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 (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Yes X No
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The aggregate market value of the voting stock (Common Stock) held by
non-affiliates of the registrant as of August 30, 1996 was $244,684,329 based
upon the closing price as reported by Nasdaq.
As of August 30, 1996 there were 7,326,281 shares of the registrant's common
stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Incorporated by reference are (i) portions of the annual report to shareholders
for the year ended June 30, 1996 (Parts I and II) and (ii) proxy statement dated
September 5, 1996 (Part III).
PART I
ITEM 1. BUSINESS
Analysts International Corporation (the registrant) is engaged in the
software segment of the computer industry. Within this segment, the registrant
is engaged in the business of providing contract programming and related
software services through its branch and field offices to users and
manufacturers of computers. See "Software Services" and "Organization and
Marketing".
The registrant was incorporated under Minnesota law on March 29, 1966. Its
principal office is located at 7615 Metro Boulevard, Minneapolis, Minnesota
55439 and its telephone number is (612) 835-5900.
SOFTWARE SERVICES
Software services offered by the registrant include consulting, project
management, systems analysis and design, programming, software maintenance and
training.
2
Computers and computer equipment utilize software of two types: systems
software and applications software. Systems software, which includes operating
systems software and utility software, manages the input, flow, storage and
output of data and performs related housekeeping functions within the computer.
Applications software performs the specific tasks required by the computer user;
for example, programs which create invoices or which create records of accounts
receivables are applications programs.
The registrant's business primarily consists of providing services to
assist users of computer equipment in the development and maintenance of custom
applications software programs. It also provides services to maintain systems
software.
The registrant provides its services to a wide range of industries. Its
fiscal 1996 revenues were derived from services rendered to customers in the
following industry groups:
Approximate Percent
Industry GroupFY 1996 Revenues
------------------------------
Telecommunications 29.5%
Electronics 23.6%
Services 9.6%
Manufacturing 8.7%
Oil and Chemical 5.5%
Financial 5.0%
Insurance/Health Care 4.6%
Merchandising 3.6%
Food 3.2%
Government 1.6%
Power and Utility 1.6%
Transportation 1.3%
Other 2.2%
3
The registrant provides a broad range of services to its customer base, and
during the year it was involved in a wide variety of projects. Examples of the
types of projects in which the registrant was involved in during the fiscal year
include: the development of design specifications for updating a Project
Management Information System for BASF Corporation; design, development and
implementation of a new sales and marketing system for M.A. Hanna Company; and
design and development of a new international pricing system for United Van
Lines. The registrant's projects continue to involve nearly every type and
manufacture of computers and all of the major operating systems.
The registrant provided services to approximately 840 clients, of which
approximately 320 were new clients, and was engaged in approximately 5,800
different customer projects throughout the fiscal year. Consistent with its
practices in prior years, the registrant rendered these services on a time and
materials hourly rate basis. Invoices for services rendered are submitted no
less frequently than monthly, and payment is due net 30 days.
During the fiscal year, the registrant rendered services through
substantially all of its branch offices to various divisions of International
Business Machines Corporation (IBM), the aggregate revenues from which exceeded
10% of the registrant's revenues for the fiscal year. The loss of IBM would
have a material adverse impact on the registrant. In July of 1995 the
registrant was named as one of four primary vendors to IBM in three IBM regions
and as one of four secondary vendors in IBM's two other regions under IBM's
National Procurement initiative which IBM instituted with the intention of using
primary and secondary vendors to provide substantially all of IBM's needs for
temporary computer software personnel. IBM's National Procurement initiative
requires participating vendors such as the registrant to accept lower hourly
rates in return for the opportunity to do a greater volume of business with IBM.
During fiscal 1996 the increased
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volume of business done with IBM more than offset the reduced rate structure,
and the registrant believes it is performing satisfactorily under its national
contract with IBM. There can be no assurance, however, that volume will
continue to offset lower rates, nor can there be assurance the registrant will
retain its status as a primary or secondary vendor to IBM under the national
contract.
During the fiscal year, the registrant also rendered services through five
(5) of its branch offices to various divisions of U S West Inc., the aggregate
revenues from which exceeded 10% of the registrant's revenues for the fiscal
year. The loss of U S West Inc. would have a material adverse impact on the
registrant's revenues. In June of 1995 the registrant entered into a
multi-year agreement with U S West Inc. under which it will be the principal
vendor to provide technical personnel to U S West Inc.'s data processing
operations. In addition to the approximately 220 programmers and other
technical personnel it had on assignment at US West Inc. as of the end of the
fiscal year, the registrant is also responsible for managing subcontractors
who provide approximately 700 technicians.
No other customer accounted for more than 10% of the registrant's fiscal
1996 revenues.
5
ORGANIZATION AND MARKETING
The registrant provides its software services on a nationwide basis through
its branch and field offices, assigned on a geographical basis to one of five
regions. Each branch office is staffed with technical personnel and is managed
by a branch manager, who has primary responsibility for the administration,
personnel and recruiting, customer relations and profitability of the branch.
The branch manager has broad authority to conduct the operation of the branch,
subject to adherence to corporate policies. In general, field offices are
established to support specific projects for one or more specific customers at
locations not served by a local branch office and are managed by a branch within
the same geographical region. A field office may become a branch office when
the volume of business and the prospects for additional business justify the
additional location expenses associated with branch office status.
During the fiscal year, the registrant maintained branch offices in the
following cities: Atlanta, Austin, Boca Raton, Chicago, Cincinnati,
Cleveland, Columbus (Ohio), Dallas, Denver, Detroit, Houston, Indianapolis,
Kansas City, Lexington (Kentucky), Iselin (New Jersey), Minneapolis, New York
City, Omaha, Phoenix, Raleigh/Durham, Rochester (Minnesota), Rochester (New
York), St. Louis, San Francisco, Seattle, Tampa and Tulsa.
6
The registrant utilizes its own direct sales force to sell its services.
At the end of the fiscal year, the registrant's sales staff totalled 95 in
number. The ability to recruit and hire experienced technical personnel with
backgrounds and experience suitable for customer requirements is an important
factor in the registrant's business, and, therefore, the registrant utilizes a
recruiting staff to assist with this function, and each branch office employs at
least one full time recruiter. At the end of the fiscal year, the registrant's
recruiting staff totalled 100 in number.
COMPETITION
The registrant competes with software consulting divisions of several large
companies (including DEC, Andersen Consulting and IBM) on a national basis.
These organizations and their software consulting divisions are substantially
larger than the registrant in terms of sales volume and personnel and have
substantially greater financial resources.
The registrant also competes with other national software services
companies such as Computer Task Group, CGA and Keane Inc., which are larger than
the registrant, and several other national software services companies
(including Computer Horizons and Computer Data Systems, Inc.) which are smaller
than the registrant.
The registrant's branches compete in their local market areas with numerous
locally based software services firms. Most of the locally based competitors
are approximately the same size as or smaller than the registrant's local
branch, although in certain market areas they are larger than the registrant's
local branch.
7
The registrant believes its total staff and sales volume are larger than
most of the national and local software services companies, but in some market
areas certain of these competitors may be larger. Although there are no
comprehensive industry statistics available, the registrant believes it is among
the ten largest national software services companies in the United States.
Principal competitive factors in the software services business include
technical expertise, responsiveness to customers' needs, reputation and
credibility, and hourly rates. The registrant believes it is competitive in
these respects, although some of its competitors may charge lower hourly rates.
PERSONNEL
The registrant has approximately 3,770 personnel. Of these, approximately
3,200 are systems analysts, computer programmers and other technical personnel
whose services are billable to clients. Several years of programming experience
is generally a prerequisite to employment with the registrant.
Maintaining the present volume of the registrant's business and its
continued growth depend to a significant extent on the registrant's ability to
attract and retain qualified technical personnel. Such personnel are in great
demand. Although the registrant has been able to attract and retain qualified
technical personnel and believes its personnel relations are satisfactory, there
can be no assurance the registrant will be able to continue to attract and
retain such personnel. Its inability to do so would have a material adverse
effect on the registrant's business.
8
OTHER MATTERS
Raw materials, seasonality, compliance with environmental protection laws,
and patents, trademarks, licenses, franchises or other concessions are not
material to an understanding of the registrant's business. No portion of the
registrant's business is subject to renegotiation of profits at the election of
the government. Backlog is not material because nearly all of the registrant's
contracts for services, including contracts with the government (which are not
material), are terminable by either the customer or the registrant on notice of
30 days or less.
ITEM 2. PROPERTIES
The principal executive office of the registrant is located at 7615 Metro
Boulevard, Minneapolis, Minnesota 55439, in a 15,000 square foot office building
which is owned by the registrant. All branch offices and field offices are held
under leases with varying expiration dates ranging from 30 days to 8 years. See
Note G of Notes to Consolidated Financial Statements at page 21 of the
registrant's 1996 Annual Report to Shareholders.
9
ITEM 3. LEGAL PROCEEDINGS
There are no pending legal proceedings to which the registrant is a party
to or which any of its property is subject, other than ordinary routine
litigation incidental to the business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the registrant's shareholders during
the fourth quarter of the registrant's 1996 fiscal year.
10
EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Title
- ----- --- ------
Frederick W. Lang 72 Chairman and Chief Executive Officer
since 1989; President and Chief
Executive Officer from 1966-1989;
Treasurer from 1987-1989.
Victor C. Benda 65 President and Chief Operating Officer
since 1989, Executive Vice President
from 1983 to 1989, Senior Vice President
from 1980 to 1983, Vice President from
1967 to 1980.
Thomas R. Mahler 50 Secretary since 1979; General Counsel
since 1982.
Gerald M. McGrath 57 Treasurer since 1989; Vice President,
Finance since 1988; Assistant Treasurer
from 1976 to 1989; Controller from 1966
to 1989.
Terms of office expire October 17, 1996.
11
PART II
The following portions of the registrant's annual report to shareholders for the
fiscal year ended June 30, 1996 are incorporated by reference in response to
Items 5, 6, 7 and 8 as follows:
Items in Form 10-K Caption or Section and Page in Annual Report
- ------------------ ---------------------------------------------------------
5 Market Price Ranges on Common Stock 23
6 Five Year Summary 22
7 Management's Discussion and Analysis 14-15
8 Financial Highlights and Statements Inside Front Cover,
16-23
(See Index to Consolidated Financial Statements and Schedules set forth in Item
14 of this Form 10-K.)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT AUDITORS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There have been no disagreements with or changes in the registrant's
independent auditors within the past 24 months.
12
PART III
The information regarding executive officers required by Item 10 is set
forth under the caption "Executive Officers of the Registrant" in Part I of this
Form 10-K. Other information called for in Part III, including information
regarding directors (Item 10), executive compensation (Item 11) and security
ownership of certain beneficial owners and management (Item 12), is set forth
in the registrant's definitive proxy statement for the annual meeting of
shareholders to be held October 17, 1996, filed pursuant to Regulation 14A, as
follows:
Items in Form 10-K Caption and Page in Definitive Proxy Statement
- ------------------ ----------------------------------------------
10 Election of Directors 2-3
11 Board Committees and Compensation and
Executive Compensation 3, 7-11
12 Election of Directors and Principal
Shareholders 2-3, 13
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During fiscal 1996:
a. No director, executive officer, nominee for election as a director, holder
of more than five percent of the registrant's common stock or members of
the immediate family of any of the foregoing persons had any direct or
indirect material interest in any transaction or series of transactions to
which the registrant was a party and in which the amount exceeded $60,000,
nor is any such transaction proposed;
13
b. The registrant was not a party with any entity in which any of the
registrant's directors or nominees for election as directors was an
executive officer, held more than a 10% equity interest, was a member of or
of counsel to (in the case of a law firm) or was a partner or executive
officer (in the case of an investment banking firm), in any transaction
involving payments of more than five percent of the gross revenues of
either the registrant or such entity, nor is any such transaction proposed;
and
c. No director, executive officer or nominee for election as a director or (i)
any member of the immediate family of any of the foregoing, (ii) any
corporation or beneficial holder of ten percent or more of any class of
equity securities, or (iii) any trust or other estate in which such person
served as a trustee or in a similar capacity was indebted to the registrant
in excess of $60,000.
Subparagraph d. of this Item is not applicable.
14
PART IV
ITEM 14 EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
A.1 CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements of Analysts International Corporation
and its subsidiary and the related independent auditors' report are included on
the following pages of its annual report to shareholders for the fiscal year
ended June 30, 1996:
Pages in Annual Report
----------------------
Consolidated Balance Sheets at June 30, 1996 and 1995 16
Consolidated Statements of Income for each of the
three years in the period ended June 30, 1996 17
Consolidated Statements of Cash Flows for each of the
three years in the period ended June 30, 1996 18
Consolidated Statements of Shareholders' Equity for
each of the three years in the period ended June 30, 1996 19
Notes to Consolidated Financial Statements 20-21
Independent Auditors' Report 22
A.2 CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
Page Herein
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Independent Auditors' Report 18
Schedule II. Valuation and Qualifying Accounts 19
Other consolidated financial statement schedules are omitted because they are
not required or the information is presented in the consolidated financial
statements or notes thereto.
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A.3 EXHIBITS
Exhibit Number Exhibit Page
- -------------- ------------
3-a Articles of Incorporation, as amended (Exhibit 3-a
to Annual Report on Form 10-K for fiscal year
1988, Commission File No. 0-4090, incorporated by
reference).
3-b Restated Bylaws (Exhibit 3-b to Annual Report on
Form 10-K for fiscal year 1988, Commission File
No. 0-4090, incorporated by reference).
4-a Specimen Common Stock Certificate (Exhibit 4(a) to
Annual Report on Form 10-K for fiscal year 1989,
Commission File No. 0-4090, incorporated by
reference).
4-b Rights Agreement dated as of June 16, 1989 between
Analysts International Corporation and Norwest
Bank Minnesota, N.A., as Rights Agent which
includes the form of Rights Certificate and
Summary of Rights (Exhibit A to the Registrant's
Form 8-A dated June 16, 1989, Commission File No.
0-4090, incorporated by reference).
4-c First Amendment to Rights Agreement dated as of
May 8,1990 between Analysts International
Corporation and Norwest Bank Minnesota, N.A. as
Rights Agent (Exhibit 4(c) to Annual Report on
Form 10-K for fiscal year 1991, Commission File
No. 0-4090, incorporated by reference).
4-d Second Amendment to Rights Agreement dated as of
April 30, 1996 between Analysts International
Corporation and Norwest Bank Minnesota as Rights
Agent.
10-a 1981 Stock Option Plan (Exhibit A to Definitive
Proxy Statement dated September 22, 1989 for
registrant's 1989 Annual Meeting of Shareholders,
Commission File No. 0-4090, incorporated by
reference).
10-b Senior Executive Retirement Plan (Exhibit 10-e to
Annual Report on Form 10-K for fiscal year 1984,
Commission File No. 0-4090, incorporated by
reference).
10-c Deferred Compensation Plan (Exhibit 10-g to Annual
Report on Form 10-K for fiscal year 1984,
Commission File No. 0-4090, incorporated by
reference).
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A.3 EXHIBITS (con't)
Exhibit Number Exhibit Page
- -------------- ------------
10-d 1985 Incentive Stock Option Plan (Exhibit 10(d) to
Annual Report on Form 10-K for fiscal year 1991,
Commission File No. 0-4090, incorporated by
reference).
10-e 1994 Stock Option Plan (Exhibit A to Definitive
Proxy Statement dated September 6, 1994 for
registrant's 1994 Annual Meeting of Shareholders,
Commission File No. 0-4090, incorporated by
reference).
11 Calculations of Earnings Per Share.
13 1996 Annual Report to Shareholders.
21 Subsidiaries of Registrant.
23 Independent Auditors' Consent.
24 Powers of Attorney.
27 Financial Data Schedule
B. REPORTS ON FORM 8-K
There were no reports on Form 8-K for the three months ended June 30, 1996.
17
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
Shareholders and Board of Directors
Analysts International Corporation
Minneapolis, Minnesota
We have audited the consolidated financial statements of Analysts International
Corporation and its subsidiary as of June 30, 1996 and 1995, and for each of the
three years in the period ended June 30, 1996, and have issued our report
thereon dated August 15, 1996; such financial statements and report are included
in your 1996 Annual Report to Shareholders and are incorporated herein by
reference. Our audits also included the consolidated financial statement
schedule of Analysts International Corporation and subsidiary, listed in Item
14 a.2. This financial statement schedule is the responsibility of the
Corporation's management. Our responsibility is to express an opinion based on
our audits. In our opinion, this financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
August 15, 1996
18
ANALYSTS INTERNATIONAL CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Balance at Charged to Deductions Balance
beginning costs and net of at end
of period expenses recoveries of period
Description ----------- ------------ ----------- ----------
- -----------
Allowance for doubtful accounts:
Year ended June 30, 1996 $550,000 $108,000 $158,000 $500,000
Year ended June 30, 1995 600,000 171,000 221,000 550,000
Year ended June 30, 1994 450,000 262,000 112,000 600,000
19
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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
BY /s/ F.W. Lang
-------------------------------
DATE September 27, 1996 F. W. Lang, Chairman
------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
- ---------
/s/ F. W. Lang Chairman & Chief Executive Officer
- ------------------------ (Principal Executive Officer)
F.W. Lang
/s/ G. M. McGrath Vice President, Finance and Treasurer
- ------------------------ (Principal Finance and Accounting
G. M. McGrath Officer)
/s/ V. C. Benda President and Chief
- ------------------------ Operating Officer
V. C. Benda*
September 27, 1996
/s/ W. K. Drake Director
- ------------------------
W. K. Drake*
/s/ M. A. Loftus Director
- ------------------------
M. A. Loftus*
/s/ E. M. Mahoney Director
- ------------------------
E. M. Mahoney*
/s/ R. L. Prince Director
- ------------------------
R. L. Prince*
*F.W. Lang, by signing his name hereto, hereby signs this form 10-K on behalf of
the persons indicated pursuant to powers of attorney filed herewith.
/s/ F. W. Lang
------------------------
F. W. Lang, Chairman
20
EXHIBIT INDEX
Exhibit Number Page No.*
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4-d Second Amendment to Rights Agreement
11 Calculations of Earnings Per Share.
13 1996 Annual Report to Shareholders.
21 Subsidiaries of Registrant.
23 Independent Auditors' Consent.
24 Powers of Attorney.
27 Financial Data Schedule
- ----------------------------
*Reference is to the page number in the sequential numbering system.
For a list of exhibits incorporated by reference and not filed with this Form
10-K, see Item 14 a.3 at pages 16-17 of this Form 10-K.
21