XNAS:ANLY Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended June 30, 2012

 

or

 

o

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from             to           

 

Commission File Number: 1-33981

 

ANALYSTS INTERNATIONAL CORPORATION

(Exact name of registrant as specified in its charter)

 

Minnesota

 

41-0905408

(State of Incorporation)

 

(IRS Employer Identification No.)

 

 

 

7700 France Avenue S

 

 

Minneapolis, MN

 

55435

(Address of Principal Executive Offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (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 (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 o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer o

 

Accelerated Filer o

 

 

 

Non-accelerated Filer o

 

Smaller Reporting Company x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No x

 

As of July 31, 2012, 5,081,607 shares of the registrant’s common stock were outstanding.

 

 

 



 

ANALYSTS INTERNATIONAL CORPORATION

 

INDEX

 

Part I.

FINANCIAL INFORMATION.

3

 

 

 

Item 1.

Financial Statements (Unaudited)

3

 

 

 

 

Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011

3

 

 

 

 

Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2012 and July 2, 2011

4

 

 

 

 

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2012 and July 2, 2011

5

 

 

 

 

Notes to Consolidated Financial Statements

6

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

10

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

18

 

 

 

Item 4T.

Controls and Procedures

18

 

 

 

Part II.

OTHER INFORMATION

18

 

 

 

Item 1.

Legal Proceedings

18

 

 

 

Item 1A.

Risk Factors

18

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

18

 

 

 

Item 3.

Defaults Upon Senior Securities

18

 

 

 

Item 4.

Mine Safety Disclosures

18

 

 

 

Item 5.

Other Information

18

 

 

 

Item 6.

Exhibits

19

 

 

 

Signatures

 

20

 

 

 

Exhibit Index

 

21

 

2



 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Analysts International Corporation

Consolidated Balance Sheets

(Unaudited)

 

 

 

June 30,

 

December 31,

 

(In thousands, except share and per share amounts)

 

2012

 

2011

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

3,107

 

$

5,135

 

Accounts receivable, less allowance for doubtful accounts of $596 and $644, respectively

 

19,375

 

18,016

 

Prepaid expenses and other current assets

 

461

 

489

 

Total current assets

 

22,943

 

23,640

 

 

 

 

 

 

 

Property and equipment, net of accumulated depreciation of $7,849 and $7,535, respectively

 

2,263

 

2,095

 

Other assets

 

417

 

457

 

Total assets

 

$

25,623

 

$

26,192

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

3,108

 

$

3,847

 

Salaries and benefits

 

1,665

 

2,078

 

Deferred revenue

 

300

 

285

 

Deferred compensation

 

82

 

136

 

Restructuring accrual

 

186

 

442

 

Other current liabilities

 

615

 

664

 

Total current liabilities

 

5,956

 

7,452

 

 

 

 

 

 

 

Non-current liabilities:

 

 

 

 

 

Deferred compensation

 

327

 

379

 

Restructuring accrual

 

16

 

28

 

Total non-current liabilities

 

343

 

407

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

Common stock, par value $0.10 a share; authorized 24,000,000 shares; issued and outstanding 5,075,357 and 5,032,759, respectively

 

508

 

503

 

Additional capital

 

26,419

 

26,164

 

Accumulated deficit

 

(7,603

)

(8,334

)

Total shareholders’ equity

 

19,324

 

18,333

 

Total liabilities and shareholders’ equity

 

$

25,623

 

$

26,192

 

 

See notes to consolidated financial statements.

 

3



 

Analysts International Corporation

Consolidated Statements of Operations

(Unaudited)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

July 2,

 

June 30,

 

July 2,

 

(In thousands, except per share amounts)

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

27,079

 

$

26,835

 

$

53,802

 

$

53,147

 

Cost of revenues

 

20,827

 

20,637

 

41,174

 

40,690

 

Gross profit

 

6,252

 

6,198

 

12,628

 

12,457

 

 

 

 

 

 

 

 

 

 

 

Selling, administrative and other operating costs

 

5,590

 

5,406

 

11,776

 

11,456

 

Restructuring costs and other severance related costs

 

113

 

746

 

113

 

746

 

Total operating expenses

 

5,703

 

6,152

 

11,889

 

12,202

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

549

 

46

 

739

 

255

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(1

)

 

(2

)

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

548

 

46

 

737

 

255

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

15

 

9

 

6

 

16

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

533

 

$

37

 

$

731

 

$

239

 

 

 

 

 

 

 

 

 

 

 

Per common share (basic):

 

 

 

 

 

 

 

 

 

Net income

 

$

0.10

 

$

0.01

 

$

0.14

 

$

0.05

 

 

 

 

 

 

 

 

 

 

 

Per common share (diluted):

 

 

 

 

 

 

 

 

 

Net income

 

$

0.10

 

$

0.01

 

$

0.14

 

$

0.05

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

5,075

 

5,012

 

5,059

 

5,004

 

Diluted

 

5,103

 

5,027

 

5,106

 

5,016

 

 

See notes to consolidated financial statements.

 

4



 

Analysts International Corporation

Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Six Months Ended

 

 

 

June 30,

 

July 2,

 

(In thousands)

 

2012

 

2011

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

731

 

$

239

 

 

 

 

 

 

 

Adjustments to net income:

 

 

 

 

 

Depreciation

 

314

 

346

 

Share based compensation

 

240

 

324

 

 

 

 

 

 

 

Changes in:

 

 

 

 

 

Accounts receivable

 

(1,359

)

(677

)

Prepaid expenses and other assets

 

68

 

34

 

Accounts payable

 

(461

)

 

Salaries and benefits

 

(434

)

(49

)

Deferred revenue

 

15

 

72

 

Deferred compensation

 

(106

)

(498

)

Restructuring accrual

 

(268

)

364

 

Other accrued liabilities

 

(49

)

(35

)

Net cash (used in) provided by operating activities

 

(1,309

)

120

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Expended for property and equipment additions

 

(760

)

(306

)

Proceeds from cash surrender of insurance policy

 

 

531

 

Net cash (used in) provided by investing activities

 

(760

)

225

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Proceeds from line of credit

 

5,000

 

 

Payments on line of credit

 

(5,000

)

 

Proceeds from stock option exercises

 

41

 

 

Payment of insurance policy loan

 

 

(486

)

Payment of capital lease obligation

 

 

(60

)

Net cash provided by (used in) financing activities

 

41

 

(546

)

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

(2,028

)

(201

)

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

5,135

 

4,328

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

3,107

 

$

4,127

 

 

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

Income taxes

 

$

36

 

$

22

 

Interest

 

$

2

 

$

 

 

 

 

 

 

 

Non-cash investing and financing activities:

 

 

 

 

 

Capital expenditures included in accounts payable

 

$

14

 

$

11

 

 

See notes to consolidated financial statements.

 

5



 

Analysts International Corporation

Notes to Consolidated Financial Statements

(Unaudited)

 

1.  Organization and Nature of Business

 

Analysts International Corporation (“AIC,” “Company,” “we,” “us,” or “our”) is an information technology (“IT”) services company. We employ approximately 900 IT professionals, management and administrative staff and are focused on serving the IT needs of mid-market to Fortune 500 companies and government agencies across North America. AIC was incorporated in Minnesota in 1966 and our corporate headquarters is located in Minneapolis, Minnesota. For a more complete description of our Company, please refer to our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

 

2.  Summary of Significant Accounting Policies

 

Basis of Consolidation

 

The accompanying unaudited Consolidated Financial Statements of AIC have been prepared on the accrual basis of accounting and in accordance with the requirements of the Securities and Exchange Commission (“SEC”) for interim financial reporting. As permitted under these rules, certain footnotes and other financial information that are normally required by accounting principles generally accepted in the United States (“U.S. GAAP”) can be condensed or omitted. The Consolidated Financial Statements included in this document reflect, in the opinion of our management, all adjustments (consisting of only normal recurring adjustments, except as noted elsewhere in the Notes to Consolidated Financial Statements) necessary for fair presentation of the results of operations for the interim periods presented. The following notes should be read in conjunction with the accounting policies and other disclosures in the Notes to the Consolidated Financial Statements incorporated by reference in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011. Revenues, expenses, cash flows, assets and liabilities can and do vary during the year. Therefore, interim results are not necessarily indicative of the results to be expected for the full fiscal year.

 

Estimates

 

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

 

Change in Fiscal Year

 

In our Form 10-Q for the period ended March 31, 2012, we stated that we would change from a 52-53 week fiscal year ending on the Saturday closest to December 31 (“52-53 Week Method”) to a calendar year ending as of the last day of the month (“Calendar Year Method”). During the second quarter of fiscal 2012, we reassessed our decision to change to the Calendar Year Method and, as a result, we will retain the 52-53 Week Method.  This change has no impact on the comparability of our quarterly financial information previously presented.

 

For fiscal year 2012, our first and second quarters would have ended on March 31 and June 30 under either method and our third and fourth quarters will now end on September 29 and December 29, respectively.

 

3.   Property and Equipment

 

Property and equipment are stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets for financial statement purposes and accelerated methods for income tax purposes. The balances of our Property and equipment as of June 30, 2012 and December 31, 2011 and the estimated useful lives used in the financial statements are as follows:

 

(In thousands)

 

June 30, 2012

 

December 31, 2011

 

Useful lives (in years)

 

 

 

 

 

 

 

 

 

Leasehold improvements

 

$

304

 

$

247

 

Shorter of useful life or lease term

 

Office furniture & equipment

 

1,808

 

1,808

 

5 - 10

 

Computer hardware

 

1,616

 

1,569

 

2 - 5

 

Software

 

6,346

 

4,574

 

2 - 5

 

Work in process

 

38

 

1,432

 

 

 

 

 

10,112

 

9,630

 

 

 

Accumulated depreciation

 

(7,849

)

(7,535

)

 

 

Property and equipment, net

 

$

2,263

 

$

2,095

 

 

 

 

In the third quarter of fiscal 2011, the Company commenced a project to replace its current financial and human resource information

 

6



 

systems with a fully integrated enterprise resource planning (“ERP”) system. The project to implement the ERP system resulted in approximately $1.5 million of costs being capitalized in fiscal 2011. During the first six months of fiscal 2012, the Company capitalized an additional $0.4 million of costs related to the ERP system.

 

4.  Financing Agreement

 

Revolving Credit Facility

 

On February 22, 2012, we entered into the Third Amendment to the Amended Credit Facility (“Third Amendment”) with Wells Fargo. The Third Amendment increased the total availability of the Amended Credit Facility, which fluctuates based on our level of eligible accounts receivable, by approximately $4.0 million. In addition, the Third Amendment increased our minimum trailing twelve months earnings before taxes financial covenant from a loss of $0.8 million to earnings of $0.25 million. Finally, the Third Amendment added an additional financial covenant which will require us to maintain a minimum excess borrowing base availability of not less than $3.0 million for each reporting period in 2012 and thereafter. Under the Amended Credit Facility, Wells Fargo will continue to advance up to $15.0 million to us for working capital purposes and to facilitate the issuance of letters of credit.

 

The Amended Credit Facility carries an interest rate equal to the three-month LIBOR rate plus 1.50% - 2.50%, depending on our operating results. The Credit Facility had a one-time origination fee of $150,000, the balance of which is being amortized over the new term of the Amended Credit Facility. The annual unused line fee varies between 0.25% - 0.375%, depending on our operating results, on the daily average unused amount. The maturity date of the Amended Credit Facility is September 30, 2014 and may be terminated or reduced by us on 90 days notice in exchange for a termination fee of 1.0% of the maximum line amount or reduction of the maximum line amount through September 30, 2011, 0.50% thereafter until September 30, 2012, 0.25% thereafter until September 30, 2013 and no fee in the final year. Borrowings under the Amended Credit Facility are secured by all of our assets.

 

The Amended Credit Facility requires us to meet certain levels of year-to-date earnings before taxes. For 2012 and thereafter, we are required to exceed a minimum trailing twelve months earnings before taxes of $0.25 million. The Amended Credit Facility limits our annual capital expenditures to $2.0 million. For 2012 and thereafter, we will also be required to maintain a minimum excess borrowing base availability of not less than $3.0 million. The Amended Credit Facility contains customary affirmative covenants, including covenants regarding annual, quarterly and projected financial reporting requirements, collateral and insurance maintenance, and compliance with applicable laws and regulations. Further, the facility contains customary negative covenants limiting our ability to grant liens, incur indebtedness, make investments, repurchase our stock, create new subsidiaries, sell assets or engage in any change of control transaction without the consent of Wells Fargo.

 

Upon an event of default, Wells Fargo may terminate the facility or declare the entire amount outstanding under the facility to be immediately due and payable and exercise other rights under the agreement. The events of default under the facility include, among other things, payment defaults, breaches of covenants, a change in control and bankruptcy events.

 

As of June 30, 2012, we were in compliance with all the requirements and had no borrowings outstanding under the Amended Credit Facility. Total availability of the Amended Credit Facility, which fluctuates based on our level of eligible accounts receivable, was $12.7 million as of June 30, 2012.

 

5.   Restructuring Costs and Other Severance Related Costs

 

For the six month period ended June 30, 2012, we recorded severance charges of $0.1 million related to changes in our senior executive officers.

 

For the six month period ended July 2, 2011, we recorded severance and office closure charges of $0.7 million. Of these charges, $0.3 million related to severance and severance-related charges related to changes in our senior executive officers and $0.4 million related to the relocation of our corporate headquarters.

 

A summary of the restructuring charges and subsequent activity in the restructuring accrual for the six months ended June 30, 2012 is as follows:

 

(In thousands)

 

Workforce
Reduction

 

Office Closure/
Consolidation

 

Total

 

Balance as of December 31, 2011

 

$

179

 

$

291

 

$

470

 

Additional restructuring charges

 

113

 

 

113

 

Cash expenditures

 

(131

)

(250

)

(382

)

Balance as of June 30, 2012

 

$

161

 

$

41

 

$

202

 

 

7



 

6.  Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Outstanding

 

Common

 

Additional

 

Accumulated

 

Shareholders’

 

(In thousands, except share amounts)

 

Shares

 

Stock

 

Capital

 

Deficit

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances as of December 31, 2011

 

5,032,759

 

$

503

 

$

26,164

 

$

(8,334

)

$

18,333

 

Common stock issued

 

29,348

 

4

 

136

 

 

140

 

Share based compensation expense

 

 

 

72

 

 

72

 

Stock option exercises

 

13,250

 

1

 

47

 

 

48

 

Net income

 

 

 

 

731

 

731

 

Balance as of June 30, 2012

 

5,075,357

 

$

508

 

$

26,419

 

$

(7,603

)

$

19,324

 

 

7. Share Based Compensation

 

Total share based compensation expense for the first six months of fiscal years 2012 and 2011 was approximately $0.2 million and $0.3 million, respectively, and includes compensation expense related to both stock options and stock awards.

 

In the first six months of 2012, we recorded a reduction of the tax benefit of approximately $1,000 related to the share based compensation and for the first six months of fiscal 2011, we recorded a tax benefit of $32,000. The tax benefit is offset against our valuation allowance for our deferred tax asset.

 

Stock Options

 

The following table summarizes the stock option activity for the six months ended June 30, 2012:

 

 

 

Options

 

Weighted
Average Exercise
Price Per Share

 

Weighted Average
Remaining
Contractual Term
(in years)

 

Aggregate
Intrinsic
Value

 

 

 

 

 

 

 

 

 

 

 

Outstanding on January 1, 2012

 

314,700

 

$

5.11

 

7.75

 

$

436,774

 

Granted

 

58,800

 

5.61

 

 

 

 

 

Exercised

 

(13,250

)

3.60

 

 

 

 

 

Forfeited/Cancelled

 

(31,575

)

4.48

 

 

 

 

 

Outstanding on June 30, 2012

 

328,675

 

$

5.32

 

7.56

 

$

126,796

 

 

 

 

 

 

 

 

 

 

 

Vested or expected to vest at June 30, 2012

 

307,665

 

$

5.36

 

7.46

 

$

122,493

 

Exercisable on June 30, 2012

 

210,250

 

$

5.77

 

6.86

 

$

88,568

 

 

The total fair value of the stock options that vested during the six months ended June 30, 2012 was approximately $120,000.

 

For the six month period ended June 30, 2012, 13,250 options were exercised and the total intrinsic value of options exercised (which is the amount by which the stock price exceeded the exercise price of the options on the date of exercise) was approximately $30,000. The income tax benefit realized from stock option exercises was negligible. There were no stock options exercised in the six months ended July 2, 2011.

 

Total stock option expense for the six months ended June 30, 2012 was approximately $0.1 million.

 

As of June 30, 2012, there was approximately $0.2 million of unrecognized share based compensation expense related to unvested stock options that are expected to vest over a weighted-average period of approximately 1.3 years. Options to purchase 328,675 shares were outstanding at June 30, 2012.

 

Stock Awards

 

The following table summarizes the stock award activity for the six months ended June 30, 2012:

 

8



 

 

 

Shares

 

Weighted
Average Grant
Date Fair Value

 

Non-vested at January 1, 2012

 

88,126

 

$

4.24

 

Granted

 

51,200

 

5.58

 

Vested

 

(34,322

)

4.89

 

Forfeited

 

(24,375

)

3.92

 

Non-vested at June 30, 2012

 

80,629

 

$

4.92

 

 

The total fair value of stock awards that vested during the six months ended June 30, 2012 was approximately $160,000.

 

Total stock award expense for the six months ended June 30, 2012 was $0.1 million.

 

As of June 30, 2012, there was $0.2 million of unrecognized compensation expense related to unvested stock awards that were expected to vest over a weighted average period of 1.4 years.

 

8.  Net Income Per Share

 

Basic and diluted income per share is presented in accordance with ASC Topic 260, Earnings Per Share. Basic income per share excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period.  Diluted income per share includes dilutive potential common shares outstanding and is computed by dividing income available to common stockholders by the weighted-average number of common and common equivalent shares outstanding for the period.

 

For the six-month period ended June 30, 2012, anti-dilutive weighted average shares of 233,410 were excluded from the calculation of weighted average number of common equivalent shares outstanding. For the six-month period ended July 2, 2011, anti-dilutive weighted average shares of 315,739 were excluded from the calculation of weighted average number of common equivalent shares outstanding. The computation of basic and diluted income per share for the three and six months ended June 30, 2012 and July 2, 2011 is as follows:

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

July 2,

 

June 30,

 

July 2,

 

(In thousands except per share amounts)

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

533

 

$

37

 

$

731

 

$

239

 

Weighted-average number of common shares outstanding

 

5,075

 

5,012

 

5,059

 

5,004

 

Dilutive effect of potential common shares outstanding

 

28

 

15

 

47

 

12

 

Weighted-average number of common and common equivalent shares outstanding

 

5,103

 

5,027

 

5,106

 

5,016

 

 

 

 

 

 

 

 

 

 

 

Net income per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.10

 

$

0.01

 

$

0.14

 

$

0.05

 

Diluted

 

$

0.10

 

$

0.01

 

$

0.14

 

$

0.05

 

 

9



 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

The following discussion should be read in conjunction with our consolidated financial statements and related notes. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated due to various factors discussed under “Forward-Looking Statements” and elsewhere in this Quarterly Report on Form 10-Q, including the “Risk Factors” described in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

 

A.         Our Business

 

Analysts International Corporation (“AIC,” “Company,” “we,” “us,” or “our”) is a national information technology (“IT”) services company. We employ approximately 900 IT professionals, management and administrative staff and are focused on serving the IT needs of mid-market to Fortune 500 companies and government agencies across North America. AIC was incorporated in Minnesota in 1966 and our corporate headquarters is located in Minneapolis, Minnesota.

 

B.         2012 Strategic Plan

 

In 2012, our plan is to continue our focus on investing for growth in our business while delivering profitability. Our plan includes:

 

·                  Leveraging our fiscal 2011 investments in sales and recruiting personnel and continuing to invest in our core markets with the highest potential for growth;

 

·                  Leveraging strategic client relationships and expanding our national sales capabilities; and

 

·                  Continuing to grow our consultant community with a focus on higher-end IT skill sets.

 

AIC has a long history of serving mid-market to Fortune 500 companies throughout the country. With our renewed focus on providing IT services to our national clients with multiple buying locations around the country, we intend to expand our presence within these clients.

 

In fiscal 2011, we expanded our sales and recruiting team in our core markets and began to realize the return on these investments. In 2012, we expect these investments to continue to drive revenue growth. We will also make additional investments in those markets where we believe we have the highest potential for growth.

 

In 2012, we expect to maintain a gross margin rate in the range of 23% to 25%. While we continue to invest in our business in areas such as IT and making strategic investments in our core markets, we anticipate continued profitability for 2012.

 

For the second quarter of 2012, we generated net income of $0.5 million and maintained a gross margin rate of 23.1%. For the six months ended June 30, 2012, we have generated net income of $0.7 million and a gross margin rate of 23.5%.

 

C.         Business Developments

 

Leadership

 

On February 22, 2011, our Board of Directors appointed Brittany B. McKinney as our President and Chief Executive of our Company. Ms. McKinney served as our Interim President and Chief Executive Officer since September 2010. Previously, Ms. McKinney was our Vice President of Corporate Development and the Senior Vice President of the Central Region.

 

On May 4, 2011, Randy W. Strobel resigned from his employment as the Company’s Senior Vice President, Chief Financial Officer. His resignation was effective on August 5, 2011; however, Mr. Strobel remained an employee through August 31, 2011.

 

On August 3, 2011, the Company and William R. Wolff entered into an Employment Agreement with an effective date of August 8, 2011, which provided that Mr. Wolff would be employed as Senior Vice President, Chief Financial Officer of the Company. On June 12, 2012, Mr. Wolff resigned from his employment as Senior Vice President, Chief Financial Officer of the Company, effective as of the close of business on June 29, 2012.

 

On June 8, 2012, the Company and Lynn L. Blake entered into an Employment Agreement with an effective date of July 2, 2012, which provided that Ms. Blake will be employed as Senior Vice President, Chief Financial Officer and Treasurer of the Company. For the past five years, Ms. Blake had served as the Vice President of Finance and Chief Accounting Officer at Entegris, Inc., a publicly traded global provider of products and materials used in advanced high-technology manufacturing.

 

10



 

Enterprise Resource Planning (“ERP”) System

 

On August 18, 2011, our Board of Directors approved a project to replace our financial and human resource information systems with a fully integrated ERP system. The ERP system will allow us to streamline our business processes and allow for cost efficient scalability as well as improve management reporting and analysis. The initial implementation of the ERP system was completed in early fiscal 2012 and resulted in approximately $1.5 million of costs being capitalized in fiscal 2011. Through the end of second quarter of fiscal 2012, we have incurred additional capitalized expenditures related to the ERP system of approximately $0.4 million.

 

Change in Fiscal Year

 

In our Form 10-Q for the period ended March 31, 2012, we stated that we would change from a 52-53 week fiscal year ending on the Saturday closest to December 31 (“52-53 Week Method”) to a calendar year ending as of the last day of the month (“Calendar Year Method”). During the second quarter of fiscal 2012, we reassessed our decision to change to a Calendar Year Method and, as a result, we will retain the 52-53 Week Method.  This change has no impact on the comparability of our quarterly financial information previously presented.

 

For fiscal year 2012, our first and second quarters would have ended on March 31 and June 30 under either method and our third and fourth quarters will now end on September 29 and December 29, respectively.

 

Revolving Credit Facility

 

On February 23, 2011, we entered into the First Amendment to the Credit and Security Agreement (“Amended Credit Facility”) with Wells Fargo Bank, National Association (“Wells Fargo”), which amended the terms of the Credit Facility and extended the maturity date to September 30, 2014. Under the Amended Credit Facility, Wells Fargo will continue to advance up to $15.0 million to us for working capital purposes and to facilitate the issuance of letters of credit.

 

On September 21, 2011, we entered into the Second Amendment to the Amended Credit Facility with Wells Fargo, which increased our annual capital expenditures covenant for fiscal 2011 from $2.0 million to $2.5 million.

 

On February 22, 2012, we entered into the Third Amendment to the Amended Credit Facility (“Third Amendment”) with Wells Fargo. The Third Amendment increased the total availability of the Amended Credit Facility, which fluctuates based on our level of eligible accounts receivable, by approximately $4.0 million. In addition, the Third Amendment increased our minimum trailing twelve months earnings before taxes financial covenant from a loss of $0.8 million to earnings of $0.25 million. Finally, the Third Amendment added an additional financial covenant which will require us to maintain a minimum excess borrowing base availability of not less than $3.0 million for each reporting period in fiscal 2012 and thereafter.

 

Under the Amended Credit Facility, Wells Fargo will continue to advance up to $15.0 million to us for working capital purposes and to facilitate the issuance of letters of credit.

 

D.         Overview of Second Quarter Fiscal 2012 Operations

 

Our revenues increased $0.2 million, or 0.9%, compared to the second quarter of fiscal 2011. When compared to the prior year quarter, the number of billable hours decreased 0.1% and was offset by a 1.7% increase in our average billing rates.

 

The gross margin rate remained flat at 23.1%.

 

SG&A expenses increased $0.2 million, or 3.4%, in the second quarter of fiscal 2012 over the prior year quarter as a result of an increase in sales and recruiter costs, which was partially offset by lower non-personnel expenses.

 

We generated cash from operations of $1.3 million during the second quarter of fiscal 2012.  As of June 30, 2012, we had a cash balance of $3.1 million and no borrowings under our revolving line of credit.

 

11



 

RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 2012 VS. JULY 2, 2011

 

The following table illustrates the relationship between revenue and expense categories for the three months ended June 30, 2012 and July 2, 2011.

 

 

 

Three Months Ended

 

Three Months Ended

 

 

 

 

 

 

 

June 30, 2012

 

July 2, 2011

 

Increase (Decrease)

 

 

 

 

 

% of

 

 

 

% of

 

 

 

 

 

(Dollars in thousands)

 

Amount

 

Revenue

 

Amount

 

Revenue

 

Amount

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

27,079

 

100.0

%

$

26,835

 

100.0

%

$

244

 

0.9

%

Cost of revenues

 

20,827

 

76.9

 

20,637

 

76.9

 

190

 

0.9

 

Gross profit

 

6,252

 

23.1

 

6,198

 

23.1

 

54

 

0.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, administrative and other operating costs

 

5,590

 

20.6

 

5,406

 

20.1

 

184

 

3.4

 

Restructuring costs and other severance related costs

 

113

 

0.4

 

746

 

2.8

 

(633

)

(84.9

)

Total operating expenses

 

5,703

 

21.1

 

6,152

 

22.9

 

(449

)

(7.3

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

549

 

2.0

 

46

 

0.2

 

503

 

1093.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(1

)

(0.0

)

 

0.0

 

1

 

NM

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

548

 

2.0

 

46

 

0.2

 

502

 

1091.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

15

 

0.1

 

9

 

0.0

 

6

 

66.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

533

 

2.0

%

$

37

 

0.1

%

$

496

 

1340.5

%

 

NM = not meaningful

 

Revenues

 

Revenues increased $0.2 million, or 0.9%, from the comparable period a year ago. The increase in our second quarter of fiscal 2012 revenues over the prior year is primarily due to a 1.7% ($0.5 million) increase in average billing rates which was partially offset by a 0.1% ($0.1 million) decrease in the number of hours billed.

 

There were 64 billing days in the second quarters of both fiscal years 2012 and 2011.

 

Cost of Revenues

 

Cost of revenues represents our payroll and benefit costs associated with our billable consultants and our cost of using sub-contractors. This category of expense as a percentage of revenues remained flat at 76.9%, in the second quarter of fiscal 2012 compared to the prior year period.

 

Selling, Administrative and Other Operating Costs

 

SG&A costs include management and administrative salaries, salaries and commissions paid to account executives and recruiters, benefits, location costs, and other administrative costs.  This category of costs increased approximately $0.2 million from the comparable period in 2011 and represented 20.6% of revenue for the second quarter of fiscal 2012 compared to 20.1% in fiscal 2011. In the second quarter of fiscal 2012, SG&A expenses increased as a result of an increase in sales and recruiter costs ($0.3 million) which was partially offset by general expense reductions ($0.1 million).

 

Restructuring Costs and Other Severance Related Costs

 

For the three-month period ended June 30, 2012, we recorded severance charges of $0.1 million related to changes in our senior executive officers.

 

For the three-month period ended July 2, 2011, we recorded severance and office closure charges of $0.7 million. Of these charges, $0.3 million related to severance and severance-related charges related to changes in our senior executive officers and $0.4 million related to the relocation of our corporate headquarters.

 

12



 

Interest Expense

 

The implementation of the ERP solution continued to delay our normal billing cycles in the first part of the second quarter of fiscal 2012. As a result, we borrowed and repaid $3.5 million on our Amended Credit Facility. Our average borrowings for the second quarter of fiscal 2012 were approximately $146,000. We had no borrowings during the second quarter of fiscal 2011.

 

Income Taxes

 

In the second quarters of both fiscal 2012 and 2011, we had nominal income tax expense, which reflects the utilization of net operating loss carryforwards to offset taxable income.

 

We currently have approximately $24.6 million of tax benefits associated with net operating loss carryforwards available to offset federal and state taxes. For the second quarter of both fiscals 2012 and 2011, we recorded accruals for amounts due for certain state income taxes and changes in our reserves for tax obligations. We recorded no additional income tax expense or benefit associated with our net operating income or loss because any tax expense or benefit that would otherwise have been recorded has been negated by adjusting the valuation allowance against our deferred tax asset.  If, however, we successfully return to profitability to a point where future realization of deferred tax assets, which are currently reserved, becomes “more likely than not,” we may be required to reverse the existing valuation allowance to realize the benefit of these assets.

 

Certain Information Concerning Off-Balance Sheet Arrangements

 

As of June 30, 2012, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We are, therefore, not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.

 

E.                             Overview of Year to Date Fiscal 2012 Operations

 

Our revenues increased $0.7 million, or 1.2%, from the first half of fiscal 2011. When compared to the first half of fiscal 2011, the number of billable hours increased 0.7% and our average bill rate increased 0.8%.

 

The gross margin rate increased 10 basis points from the first half of the prior year to 23.5%.

 

SG&A expenses increased $0.3 million, or 2.8%, in first half of 2012 over the first half of the prior year as a result of an increase in sales and recruiter personnel expenses, which was partially offset by non-personnel expenses.

 

We used cash from operations of $1.3 million during the first half of 2012 due to our days sales outstanding (“DSO”) increasing from 61 at the end of fiscal 2011 to 67 at June 30, 2012 as a result of the implementation of the ERP solution, which caused a delay in our normal billing cycles. As of June 30, 2012, we had a cash balance of $3.1 million and no borrowings under our revolving line of credit.

 

13



 

RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 2012 VS. JULY 2, 2011

 

The following table illustrates the relationship between revenue and expense categories as of June 30, 2012 and July 2, 2011.

 

 

 

Six Months Ended

 

Six Months Ended

 

 

 

 

 

 

 

June 30, 2012

 

July 2, 2011

 

Increase (Decrease)

 

 

 

 

 

% of

 

 

 

% of

 

 

 

 

 

(Dollars in thousands)

 

Amount

 

Revenue

 

Amount

 

Revenue

 

Amount

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

53,802

 

100.0

%

$

53,147

 

100.0

%

$

655

 

1.2

%

Cost of revenues

 

41,174

 

76.5

 

40,690

 

76.6

 

484

 

1.2

 

Gross profit

 

12,628

 

23.5

 

12,457

 

23.4

 

171

 

1.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, administrative and other operating costs

 

11,776

 

21.9

 

11,456

 

21.6

 

320

 

2.8

 

Restructuring costs and other severance related costs

 

113

 

0.2

 

746

 

1.4

 

(633

)

(84.9

)

Total operating expenses

 

11,889

 

22.1

 

12,202

 

23.0

 

(313

)

(2.6

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

739

 

1.4

 

255

 

0.5

 

484

 

189.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(2

)

(0.0

)

 

0.0

 

2

 

NM

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

737

 

1.4

 

255

 

0.5

 

482

 

189.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

6

 

0.0

 

16

 

0.0

 

(10

)

(62.5

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

731

 

1.4

%

$

239

 

0.4

%

$

492

 

205.9

%

 

NM = not meaningful

 

Revenues

 

Revenues increased $0.7 million, or 1.2%, from the comparable period a year ago. The increase in our first half of fiscal 2012 revenues over the prior year is primarily due to a 0.7% ($0.4 million) increase in the number of hours billed and a 0.8% ($0.4 million) increase in our average billing rates.

 

In the first six months of fiscal 2012, there were 128 billing days compared to 129 billing days in fiscal 2011.

 

Cost of Revenues

 

Cost of revenues represents our payroll and benefit costs associated with our billable consultants and our cost of using sub-contractors. This category of expense as a percentage of revenues decreased 10 basis points to 76.5%, in the first half of 2012 compared to the prior year period.

 

Selling, Administrative and Other Operating Costs

 

Selling, Administrative and Other Operating Costs (“SG&A”) costs include management and administrative salaries, salaries and commissions paid to account executives and recruiters, benefits, location costs, and other administrative costs.  This category of costs increased approximately $0.3 million from the comparable period in 2011 and represented 21.9% of revenue for the first half of 2012 compared to 21.6% in fiscal 2011. In the first half of 2012, SG&A expenses increased as a result of an increase in sales and recruiting expenses of $0.5 million, which was partially offset by general expense reductions of $0.2 million.

 

Restructuring Costs and Other Severance Related Costs

 

For the six-month period ended June 30, 2012, we recorded severance charges of $0.1 million related to changes in our senior executive officers.

 

For the six-month period ended July 2, 2011, we recorded severance and office closure charges of $0.7 million. Of these charges, $0.3 million related to severance and severance-related charges related to changes in our senior executive officers and $0.4 million related to the relocation of our corporate headquarters.

 

14



 

Interest Expense

 

In the first half of 2012, the implementation of the ERP system caused a delay in our normal billing cycles which caused an increase in our operating working capital. As a result, we borrowed and repaid $5.0 million on our Amended Credit Facility. Our average borrowings for the first half of 2012 were approximately $98,000. We had no borrowings during the first half of fiscal 2011.

 

Income Taxes

 

In the first half of both fiscals 2012 and 2011, our income tax expense reflects the utilization of net operating loss carryforwards to offset taxable income.

 

We currently have approximately $24.6 million of tax benefits associated with net operating loss carryforwards available to offset federal and state taxes. For the first half of both fiscals 2012 and 2011, we recorded accruals for amounts due for certain state income taxes and changes in our reserves for tax obligations. We recorded no additional income tax expense or benefit associated with our net operating income or loss because any tax expense or benefit that would otherwise have been recorded has been negated by adjusting the valuation allowance against our deferred tax asset.  If, however, we successfully return to profitability to a point where future realization of deferred tax assets, which are currently reserved, becomes “more likely than not,” we may be required to reverse the existing valuation allowance to realize the benefit of these assets.

 

Certain Information Concerning Off-Balance Sheet Arrangements

 

As of June 30, 2012, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We are, therefore, not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.

 

15



 

Liquidity and Capital Resources

 

At June 30, 2012, we had $3.1 million of cash and cash equivalents on hand. In addition to our cash balances, we have access to our Amended Credit Facility with $15 million of maximum availability, under which our borrowing availability was $12.7 million as of June 30, 2012. Working capital was $17.0 million at June 30, 2012, up approximately $0.8 million from December 31, 2011. The ratio of current assets to current liabilities increased to 3.85 at June 30, 2012 compared to 3.17 at December 31, 2011.

 

Historically, we have been able to support internal growth in our business with internally generated funds and through the use of our credit facility. We believe our existing working capital and availability under our Amended Credit Facility with Wells Fargo will be sufficient to support the cash flow needs of our business in 2012. We expect to be able to comply with the requirements of our credit agreement; however, failure to do so could affect our ability to obtain necessary working capital and could have a material adverse effect on our business.

 

The following table summarizes the major captions from our Consolidated Statements of Cash Flows:

 

 

 

Six Months Ended

 

 

 

June 30,

 

July 2,

 

(In thousands)

 

2012

 

2011

 

Cash provided by (used in):

 

 

 

 

 

Net cash (used in) provided by operating activities

 

$

(1,309

)

$

120

 

Net cash (used in) provided by investing activities

 

(760

)

225

 

Net cash provided by (used in) financing activities

 

41

 

(546

)

Net decrease in cash and cash equivalents

 

$

(2,028

)

$

(201

)

 

Operating Activities

 

Cash used in operating activities for the six months ended June 30, 2012 was $1.3 million compared to cash provided by operating activities of $0.1 million for the six months ended July 2, 2011.

 

The elements of cash used in operations for the six months ended June 30, 2012 are as follows: an increase in operating working capital of approximately $2.6 million which was partially offset by net income of $0.7 million and non-cash charges of $0.6 million.

 

The major component of the increase in operating working capital during the first half of 2012 was a $1.4 million increase in our accounts receivable. The 7.5% increase in accounts receivable from December 31, 2011 is due to our DSO increasing 6 days, or 9.8%, from 61 at the end of fiscal 2011 to 67 at June 30, 2012 as a result of the implementation of the new ERP system which caused a delay in our normal billing cycles.

 

In the first half of 2011, the elements of cash provided by operating activities were as follows: net income of $0.2 million and non-cash charges of $0.7 million which was partially offset by a $0.8 million increase in operating working capital. Our DSO at the end of the first half of fiscal 2011 was 60 days.

 

Investing Activities

 

Cash used in investing activities for the six months ended June 30, 2012 was $0.8 million compared to cash provided by investing activities of $0.2 million for the six months ended July 2, 2011.

 

In the first half of fiscal 2012, we made capital expenditures of $0.8 million, the majority of which related to the ERP system which we implemented in early fiscal 2012. In the first half of fiscal 2011, we made capital expenditures of $0.3 million which were offset by proceeds of a cash surrender of a life insurance policy of $0.5 million. These capital expenditures have been recorded in our Property and equipment, net of accumulated depreciation balance as reported in our Consolidated Balance Sheets.

 

Financing Activities

 

Cash provided by financing activities for the six months ended June 30, 2012 was $41,000 compared to cash used in financing activities of $0.5 million for the six months ended July 2, 2011.

 

In the first half of fiscal 2012, we borrowed and repaid $5.0 million on our Amended Credit Facility. Our average borrowings for the first

 

16



 

six months of 2012 were approximately $98,000.

 

During the first six months of fiscal 2011, we paid off a loan on a Company owned life insurance policy of approximately $0.5 million. The Company owned life insurance policy is reported in Other assets in our Consolidated Balance Sheets.

 

On February 22, 2012, we entered into the Third Amendment to the Amended Credit Facility (“Third Amendment”) with Wells Fargo. The Third Amendment increased the total availability of the Amended Credit Facility, which fluctuates based on our level of eligible accounts receivable, by approximately $4.0 million. In addition, the Third Amendment increased our minimum trailing twelve months earnings before taxes financial covenant from a loss of $0.8 million to earnings of $0.25 million. Finally, the Third Amendment added an additional financial covenant which will require us to maintain a minimum excess borrowing base availability of not less than $3.0 million for each reporting period in 2012 and thereafter. Under the Amended Credit Facility, Wells Fargo will continue to advance up to $15.0 million to us for working capital purposes and to facilitate the issuance of letters of credit.

 

The Amended Credit Facility carries an interest rate equal to the three-month LIBOR rate plus 1.50% - 2.50%, depending on our operating results. The Credit Facility had a one-time origination fee of $150,000, the balance of which is being amortized over the new term of the Amended Credit Facility. The annual unused line fee varies between 0.25% - 0.375%, depending on our operating results, on the daily average unused amount. The maturity date of the Amended Credit Facility is September 30, 2014 and may be terminated or reduced by us on 90 days notice in exchange for a termination fee of 1.0% of the maximum line amount or reduction of the maximum line amount through September 30, 2011, 0.50% thereafter until September 30, 2012, 0.25% thereafter until September 30, 2013 and no fee in the final year. Borrowings under the Amended Credit Facility are secured by all of our assets.

 

The Amended Credit Facility requires us to meet certain levels of year-to-date earnings before taxes. For 2012 and thereafter, we are required to exceed a minimum trailing twelve months earnings before taxes of $0.25 million. The Amended Credit Facility limits our annual capital expenditures to $2.0 million. For 2012 and thereafter, we will also be required to maintain a minimum excess borrowing base availability of not less than $3.0 million. The Amended Credit Facility contains customary affirmative covenants, including covenants regarding annual, quarterly and projected financial reporting requirements, collateral and insurance maintenance, and compliance with applicable laws and regulations. Further, the facility contains customary negative covenants limiting our ability to grant liens, incur indebtedness, make investments, repurchase our stock, create new subsidiaries, sell assets or engage in any change of control transaction without the consent of Wells Fargo.

 

Upon an event of default, Wells Fargo may terminate the facility or declare the entire amount outstanding under the facility to be immediately due and payable and exercise other rights under the agreement. The events of default under the facility include, among other things, payment defaults, breaches of covenants, a change in control and bankruptcy events.

 

As of June 30, 2012, we were in compliance with all the requirements and had no borrowing outstanding under the Amended Credit Facility. Total availability under the Amended Credit Facility, which fluctuates based on our level of eligible accounts receivable, was $12.7 million as of June 30, 2012.

 

Forward-Looking Statements

 

This Form 10-Q contains forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995) about: (i) our strategic plans, the objectives of those strategic plans and our ability to successfully implement our strategic plans, (ii) our expectations with respect to the demand for our services and continuing pressure from clients to request lower cost offerings for IT staffing services, (iii) our expectations with respect to competition in our industry and our ability to compete, and (iv) our expectations with respect to our financial results and operating performance. You can identify these statements by the use of words such as anticipate, estimate, expect, should, project, forecast, intend, plan, believe, will and other words and terms of similar meaning or import, or variations thereof, and in connection with any discussion of future operating or financial performance.

 

Among the factors that could cause our estimates and assumptions as to future performance, and our actual results to differ materially, are: (i) our inability, in whole or in part, to implement or execute our strategic plans, (ii) our inability to successfully recruit and hire qualified technical personnel, (iii) our inability to successfully compete on a local and national basis with other companies in our industry or with new competitors who face limited barriers to entry in the markets we serve, (iv) our inability to maintain key client relationships or to attract new clients, (v) our inability to attract, retain or motivate key personnel, (vi) our inability to continue to reduce or leverage our operating costs, (vii) the possibility that we may incur liability for the errors or omissions of our consultants providing IT services for clients or the risk that we may be subject to claims for indemnification under contracts with our clients, (viii) our inability to comply with the requirements in our line of credit or to obtain a replacement line of credit on commercially reasonable terms, and (ix) as well as other economic, business, competitive and/or regulatory factors affecting our business generally, including those set forth in this Quarterly Report on Form 10-Q for 2012 (especially in the Management’s Discussion and Analysis and Risk Factors section thereof) and our Current Reports on Form 8-K. All forward-looking statements included in this Form 10-Q are based on information available to us as of the date hereof and largely reflect estimates and assumptions made by our management, which may be difficult to predict and beyond our control. We undertake no obligation (and expressly disclaim any such obligation) to update forward-looking statements made in this Form 10-Q to reflect events or circumstances after the date of

 

17



 

this Form 10-Q or to update reasons why actual results would differ from those anticipated in any such forward-looking statements, other than as required by law.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

Not applicable.

 

Item 4T. Controls and Procedures.

 

(a)                                 Evaluation of Disclosure Controls and Procedures

 

We maintain a system of disclosure controls and procedures that are designed to provide reasonable assurance that information, which is required to be disclosed timely, is accumulated and communicated to management in a timely fashion. An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (“Disclosure Controls”) was performed as of the end of the period covered by this report. This evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer, Brittany B. McKinney and Chief Financial Officer, Lynn L. Blake. Based upon that evaluation, our Chief Executive Officer and the Chief Financial Officer concluded that these Disclosure Controls are effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act are accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure and are effective to provide reasonable assurance that such information is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms.

 

(b)                                 Changes in Internal Controls

 

In the first quarter of 2012, we completed the initial implementation of a fully integrated ERP system, which replaced our previous financial and human resource information systems. The implementation of the ERP system was not the result of any identified deficiencies in our internal control over financial reporting. Our internal controls over financial reporting operated effectively during the period covered by this report.

 

PART II. OTHER INFORMATION

 

Item 1.                                                         Legal Proceedings

 

There are no pending legal proceedings to which we are a party or to which any of our property is subject, other than routine litigation incidental to the business.

 

Item 1A.  Risk Factors

 

There were no material changes in the Company’s risk factors from those previously disclosed in the Company’s Form 10-K for the period ended December 31, 2011.

 

Item 2.                                                         Unregistered Sales of Equity Securities and Use of Proceeds.

 

None.

 

Item 3.                                                         Defaults Upon Senior Securities.

 

None.

 

Item 4.                                                         Mine Safety Disclosures

 

None.

 

Item 5.                                                         Other Information.

 

None.

 

18



 

Item 6.                                                         Exhibits.

 

Exhibit No.

 

Description

 

 

 

^ 3.1

 

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).

^ 3.2

 

Restated Bylaws (Exhibit 3-b to Annual Report on Form 10-K for fiscal year 2000, Commission File No. 0-4090, incorporated by reference).

^ 3.3

 

Amendment to Articles of Incorporation to increase authorized shares to 40 million (Exhibit A to Definitive Proxy Statement dated September 5, 1996, Commission File No. 0-4090, incorporated by reference).

^ 3.4

 

Amendment to Articles of Incorporation to increase authorized shares to 60 million (Exhibit 3-d to Annual Report on Form 10-K for fiscal year 1998, Commission File No. 0-4090, incorporated by reference).

^ 3.5

 

Amendment to Articles of Incorporation to increase authorized shares to 120 million (Exhibit A to Definitive Proxy Statement dated September 8, 1998, Commission File No. 0-4090, incorporated by reference).

^3.6

 

Amendment to Articles of Incorporation to reduce authorized shares to 24 million.

^3.7

 

Amendment No. 1 to Restated Bylaws of Analysts International Corporation (Exhibit 3.1 to the Registrant’s Form 8-K filed May 25, 2010, Commission File No. 0-4090, incorporated by reference).

^3.8

 

Articles of Incorporation, as amended (Exhibit 3.1 to the Registrant’s Form 8-K filed December 17, 2010, Commission File No. 1-33981, incorporated by reference).

^3.9

 

Amendment to Bylaws of Analysts International Corporation (Exhibit 3.2 to the Registrant’s Form 8-K filed December 17, 2010, Commission File No. 1-33981, incorporated by reference).

^ 4.1

 

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).

^ 4.2

 

Amended and Restated Rights Agreement dated as of February 27, 2008 between the Company and Wells Fargo Bank N.A. and Form of Right Certificate (Exhibit 4.1 to the Registrant’s Form 8-A12B dated February 27, 2008, Commission File No. 0-4090, incorporated by reference).

^ 4.3

 

Amendment No. 1 to Amended and Restated Rights Agreement dated as of May 25, 2010 by and between Analysts International Corporation and Wells Fargo Bank, N.A. (Exhibit 4.1 to the Registrant’s Form 8-K filed May 25, 2010, Commission File No. 0-4090, incorporated by reference).

^10.72

 

Third Amendment to Credit and Security Agreement dated as of February 22, 2012 by and between Analysts International Corporation and Wells Fargo Bank, N.A. (Exhibit 10.71 to Annual Report on Form 10-K for the period ended December 31, 2011, Commission File No. 1-33981).

^10.73

 

Employment Agreement between Analysts International Corporation and Lynn L. Blake, fully executed on June 8, 2012, with an effective date of July 2, 2012 (Exhibit 10.1 to the Registrant’s Form 8-K filed June 12, 2012, Commission File No. 1-33981, incorporated by reference).

+10.74

 

Separation Agreement and Release of Claims dated as of June 12, 2012, between Analysts International Corporation and William R. Wolff (Exhibit 10.74 to Quarterly Report on Form 10-Q for the period ended June 30, 2012, Commission File No. 1-33981).

+ 31.1

 

Certification of CEO Pursuant to Section 302 of the Sarbanes Oxley Act of 2002.

+ 31.2

 

Certification of CFO Pursuant to Section 302 of the Sarbanes Oxley Act of 2002.

++ 32

 

Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.

++101.1

 

The following materials from Analysts International Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 are furnished herewith, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statement of Cash Flows, and (iv) Notes to Consolidated Financial Statements.

 


^

 

Denotes an exhibit previously filed with the Securities and Exchange Commission and incorporated herein by reference.

+

 

Filed herewith.

++

 

Furnished herewith.

 

19



 

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: August 2, 2012

By:

/s/ Brittany B. McKinney

 

 

Brittany B. McKinney

 

 

President and Chief Executive Officer

 

 

(Principal Executive Officer)

 

 

 

 

 

 

Date: August 2, 2012

By:

/s/ Lynn L. Blake

 

 

Lynn L. Blake

 

 

Senior Vice President, Chief Financial Officer and Treasurer

 

 

(Principal Financial and Accounting Officer)

 

20



 

EXHIBIT INDEX

 

Exhibit No.

 

Description

 

 

 

^ 3.1

 

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).

^ 3.2

 

Restated Bylaws (Exhibit 3-b to Annual Report on Form 10-K for fiscal year 2000, Commission File No. 0-4090, incorporated by reference).

^ 3.3

 

Amendment to Articles of Incorporation to increase authorized shares to 40 million (Exhibit A to Definitive Proxy Statement dated September 5, 1996, Commission File No. 0-4090, incorporated by reference).

^ 3.4

 

Amendment to Articles of Incorporation to increase authorized shares to 60 million (Exhibit 3-d to Annual Report on Form 10-K for fiscal year 1998, Commission File No. 0-4090, incorporated by reference).

^ 3.5

 

Amendment to Articles of Incorporation to increase authorized shares to 120 million (Exhibit A to Definitive Proxy Statement dated September 8, 1998, Commission File No. 0-4090, incorporated by reference).

^3.6

 

Amendment to Articles of Incorporation to reduce authorized shares to 24 million.

^3.7

 

Amendment No. 1 to Restated Bylaws of Analysts International Corporation (Exhibit 3.1 to the Registrant’s Form 8-K filed May 25, 2010, Commission File No. 0-4090, incorporated by reference).

^3.8

 

Articles of Incorporation, as amended (Exhibit 3.1 to the Registrant’s Form 8-K filed December 17, 2010, Commission File No. 1-33981, incorporated by reference).

^3.9

 

Amendment to Bylaws of Analysts International Corporation (Exhibit 3.2 to the Registrant’s Form 8-K filed December 17, 2010, Commission File No. 1-33981, incorporated by reference).

^ 4.1

 

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).

^ 4.2

 

Amended and Restated Rights Agreement dated as of February 27, 2008 between the Company and Wells Fargo Bank N.A. and Form of Right Certificate (Exhibit 4.1 to the Registrant’s Form 8-A12B dated February 27, 2008, Commission File No. 0-4090, incorporated by reference).

^ 4.3

 

Amendment No. 1 to Amended and Restated Rights Agreement dated as of May 25, 2010 by and between Analysts International Corporation and Wells Fargo Bank, N.A. (Exhibit 4.1 to the Registrant’s Form 8-K filed May 25, 2010, Commission File No. 0-4090, incorporated by reference).

^10.72

 

Third Amendment to Credit and Security Agreement dated as of February 22, 2012 by and between Analysts International Corporation and Wells Fargo Bank, N.A. (Exhibit 10.71 to Annual Report on Form 10-K for the period ended December 31, 2011, Commission File No. 1-33981).

^10.73

 

Employment Agreement between Analysts International Corporation and Lynn L. Blake, fully executed on June 8, 2012, with an effective date of July 2, 2012 (Exhibit 10.1 to the Registrant’s Form 8-K filed June 12, 2012, Commission File No. 1-33981, incorporated by reference).

+10.74

 

Separation Agreement and Release of Claims dated as of June 12, 2012, between Analysts International Corporation and William R. Wolff (Exhibit 10.74 to Quarterly Report on Form 10-Q for the period ended June 30, 2012, Commission File No. 1-33981).

+ 31.1

 

Certification of CEO Pursuant to Section 302 of the Sarbanes Oxley Act of 2002.

+ 31.2

 

Certification of CFO Pursuant to Section 302 of the Sarbanes Oxley Act of 2002.

++ 32

 

Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.

++ 101.1

 

The following materials from Analysts International Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 are furnished herewith, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statement of Cash Flows, and (iv) Notes to Consolidated Financial Statements.

 


^

 

Denotes an exhibit previously filed with the Securities and Exchange Commission and incorporated herein by reference.

+

 

Filed herewith.

++

 

Furnished herewith.

 

21


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