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.
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%
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
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.
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.
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.
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.
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.
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.
ITEM 3.
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.
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.
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.
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.
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.
PART III
The information regarding executive officers required by Item 10
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;
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.
PART IV
ITEM 14
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 -----------
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.
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).
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.
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
ANALYSTS INTERNATIONAL CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
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.
*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
EXHIBIT INDEX
Exhibit Number Page No.* - -------------- --------- 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.