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TABLE OF CONTENTS
PART IV
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 29, 2012
Commission File number 1-33981
ANALYSTS INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
| Minnesota (State of incorporation) |
41-0905408 (I.R.S. Employer Identification No.) |
|
7700 France Ave South, Minneapolis, Minnesota (Address of principal executive offices) |
55435 (Zip Code) |
Registrant's telephone number, including area code: (952) 835-5900
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $.10 per share
(Title of class)
Common Share Purchase Rights
(Title of class)
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if the registrant is a well-known seasonal issuer, as defined in Rule 405 of the Securities Act. Yes o No ý
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý
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 ý No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o
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. ý
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 (Do not check if a smaller reporting company) |
Smaller reporting company ý |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
The aggregate market value of the voting stock (Common Stock) held by non-affiliates of the registrant as of the last business day of the registrant's most recently completed second fiscal quarter (June 30, 2012) was $21,773,282 based upon the closing price as reported by Nasdaq.
As of February 20, 2013, there were 5,085,355 shares of the registrant's common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III of the Form 10-K is incorporated by reference from the registrant's definitive proxy statement which will be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report.
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Company Overview
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.
From IT Staffing to Project Based Solutions, we provide a broad range of services designed to help businesses and government agencies drive value, control costs and deliver on the promise of a more efficient and productive enterprise. Our value proposition is based on:
We deliver our IT services across a broad spectrum of industries. We utilize a branch-based model, staffed with account executives and recruiters serving both local and national accounts. Our IT consultants are primarily located at various client sites throughout North America.
Our goal is to be an employer of choice within the IT services industry. We believe we offer competitive compensation and benefits packages to our consultants, account executives, recruiters and management personnel. The average tenure of our IT consultants is between 3 and 4 years, which reflects our commitment to our consultants and our ability to best match their talents to assignments.
IT Services
We provide quality IT professionals across a number of technology disciplines to companies in diversified industries. We maintain a strong consultant network, which is comprised of full-time and temporary employees and contract professionals. When recruiting candidates, we tailor our searches to match our clients' requirements and search through our consultant network, job boards and referrals. This client-centric approach leads to more successful placements and faster ramp-up times that add value for our clients.
The majority of our contracts are billed on a time and materials basis, and revenue is recognized as hours are worked and costs are expended. We invoice our clients in accordance with the terms of our client agreements, which is primarily on a monthly basis. Our standard credit terms require our invoices to be paid within 30 days from receipt by the client.
We generally do not have exclusivity with respect to our clients' IT staffing needs. Our clients typically use multiple IT staffing firms to ensure a competitive environment and award contracts based on price, candidate quality, fit and prior relationships.
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We use three primary delivery methods for our IT Services: Staff Augmentation, Managed Teams and Project-Based Solutions. The type of delivery method is determined by the needs and objectives of our clients.
Staff Augmentation
In Staff Augmentation, we source IT talent in line with our clients' requirements to work with their internal staff and provide them with a flexible staffing model to meet their varying needs. In Staff Augmentation engagements, our client provides overall direction for the duration of the engagement.
Managed Teams
Another form of staff augmentation services, our Managed Teams source IT talent and construct project teams in line with client requirements. While clients maintain responsibility for overall project management and direction, our project managers direct the project team throughout the engagement and provide a single point of contact for client communications, requirements definition, and administrative and process compliance. The result is a specifically constructed team with the appropriate support that provides our clients with a flexible solution.
Project-Based Solutions
Our Project-Based Solutions practices deliver custom application and systems integration solutions. We determine contract pricing based on bill rates and mark-ups on our employees' hourly pay rates, the hourly cost of our contract professionals and the negotiated cost of our subsuppliers. The majority of our Project-Based Solutions contracts are fixed-price contracts, and we invoice our clients in accordance with the terms of those contracts.
Segment Reporting
The Company has two operating segments—"staffing" (which consists of staff augmentation services, including managed teams) and "solutions." Based on the guidance and criteria described in FASB ASC Topic 280, Segment Reporting ("ASC 280"), we aggregate our staffing operating segment and solutions operating segment into one reportable segment. The goal of our staffing operating segment is to provide high-quality supplemental staffing services to a broad range of clients. The goal of our solutions operating segment is to provide a solution to the client in the form of developed software and services, technology products and staffing support services.
Seasonality
We experience seasonality in our business. Quarterly results may fluctuate depending on, among other things, the number of billing days in a quarter and the seasonality of our clients' businesses. As a result of the timing of holidays, seasonal vacation time taken by our IT consultants and the volume of contract renewals, we generally experience lower billable hours per consultant and lower revenues in the first and fourth quarters during a fiscal year.
Client Information
Approximately 95% of our fiscal year 2012 revenue is from services provided to our existing client base, which consists primarily of mid-market to Fortune 500 companies. This high percentage of repeat business demonstrates our commitment to client satisfaction and the development of long-term relationships with our clients. Many of our client relationships date back more than a decade, some as far back as 25 years.
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We provided services to more than 225 clients during fiscal 2012. Our revenue for fiscal 2012 was derived from services rendered to clients in the following industry groups:
| |
Approximate Percent of FY 2012 Revenue |
|||
|---|---|---|---|---|
Business & Technology Services |
25.6 | % | ||
Manufacturing |
24.3 | % | ||
Energy |
16.8 | % | ||
Government |
10.3 | % | ||
Retail |
7.1 | % | ||
Other |
5.2 | % | ||
Healthcare |
4.2 | % | ||
Finance & Insurance |
3.0 | % | ||
Utilities |
2.8 | % | ||
Communications |
0.7 | % | ||
International Business Machines Corporation ("IBM") and Chevron have been significant clients of ours for several years. The services we provide to IBM and Chevron are predominantly in the area of staff augmentation. The IBM and the Chevron business accounted for approximately 7%, 7% and 11% and 14%, 11% and 9%, respectively, of our total revenue for fiscal years 2012, 2011 and 2010, respectively.
Personnel
Our business is dependent on our ability to attract and retain talented personnel to serve our clients. Our staff consists of 871 personnel. Of these, 763 are IT professionals and 108 are individuals who work in sales, recruiting, management, delivery, administrative and support positions. No employees are covered by a collective bargaining agreement or are represented by a labor union. AIC is an equal opportunity employer.
Competition
The IT services industry is extremely competitive and fragmented, with limited barriers to entry. Our branch offices compete primarily with local IT services firms and with regional and national companies.
We compete with numerous independent contractors and smaller IT staffing firms that primarily concentrate their resources in one geographic market. On a regional and national basis, we compete with national IT services companies and with the computer consulting and/or IT staffing divisions of larger companies. These companies are substantially larger than us in terms of sales volumes and personnel and have substantially greater financial resources.
Fiscal 2012 Business Developments
Leadership
On June 12, 2012, William R. 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 would 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.
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Enterprise Resource Planning ("ERP") Solution
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 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 fiscal 2012, we capitalized additional costs related to the ERP system of approximately $0.7 million. The ERP system has allowed us to streamline our business processes and attain cost efficient scalability as well as improve management reporting and analysis.
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.
On February 20, 2013, we entered into the Fourth Amendment to the Amended Credit Facility ("Fourth Amendment") with Wells Fargo. The Fourth Amendment adjusted certain collateral borrowing base calculations associated with our eligible unbilled accounts receivable and is expected to increase our borrowing availability in periods in which our fiscal period ends prior to the calendar month end, which affects our unbilled accounts receivable levels for clients on a calendar month billing cycle. In addition, the Fourth Amendment extended the term of the Amended Credit Facility from September 30, 2014 to September 30, 2016. Finally, the Fourth Amendment adjusted our minimum trailing twelve months earnings before taxes financial covenant to a loss of $0.1 million for the period ending March 30, 2013, a loss of $0.3 million for the period ending June 29, 2013 and earnings of $0.25 million for periods thereafter through the expiration of the credit agreement ending on September 30, 2016.
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.
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Available Information
We maintain our website at www.analysts.com and make available, free of charge, in the Investor Relations section of the website, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the Securities and Exchange Commission ("SEC").
Other Matters
Our principal executive office is located in Minneapolis, Minnesota. Raw materials, compliance with environmental protection laws, patents, trademarks, licenses, franchises, research and development, and other concessions are not material to an understanding of our business. No portion of our business is subject to re-negotiation of profits at the election of the government. No material governmental approval is required for any of our services and no existing or probable governmental regulations are material to an understanding of our business. Backlog is not material because nearly all of our contracts for services, including contracts with the government (which in the aggregate are not material), are terminable by either the client or us with notice of 30 days or less.
We operate in a dynamic, rapidly changing and challenging environment that involves numerous risks and uncertainties. The risks and uncertainties described below could individually or collectively have a material adverse effect on our business, assets, profitability or prospects. While these are not the only risks and uncertainties we face, management believes that the more significant risks and uncertainties are as follows:
The loss of the services of one or more of our key personnel or the inability to attract key personnel could weaken our ability to deliver quality services and could adversely affect our business.
We are substantially dependent on certain key employees, including the services of our executive management team, to direct efforts related to execution of our strategic plan. We are also dependent on certain sales and recruiting personnel to maintain critical existing customer and consultant relationships and attract new business. The loss of one or more of these key personnel could have an adverse effect on our operations, including our ability to execute our strategic plan, maintain existing customer relationships, recruit qualified consultants or attract new clients in the context of changing economic or competitive conditions. If we are unable to attract and retain key personnel to perform these services, our business, the results of our operations and our financial condition could be adversely affected.
Our success also depends upon our ability to attract qualified IT professionals who possess the skills, competencies and experience necessary to meet the requirements of our clients. We must continually recruit and retain qualified IT professionals who meet the needs of changing customer requirements, and our growth could be limited by our ability to do so. Competition for qualified personnel is strong and IT professional turnover rates remain high. If we are unable to hire or retain the talent required by our clients in a timely, cost-effective manner, negotiate mutually beneficial pay rates and benefit packages or have our new professionals achieve acceptable levels of productivity on a timely basis, it will affect our ability to successfully operate our business.
Intense competition within the IT staffing industry may result in a loss of market share or lower bill rates, either of which could adversely affect our business.
The market for our services is extremely competitive and fragmented, with limited barriers to entry. Intense price competition in the area of IT staffing, continued pressure on bill rates, and clients'
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continued requests for discounts, rebates and price concessions involving lower cost models for IT staffing services, are likely to continue to exert downward pressure on our operating results and could adversely affect our operating results. Management expects that our clients will continue, for the foreseeable future, to request lower cost offerings for IT staffing services through e-procurement systems, extremely competitive bidding processes, the granting of various types of discounts, engagement of vendor management organizations and the use of offshore resources, all of which tend to lower our gross margins. There has been a significant increase in the number of clients consolidating their staffing services purchases with a single provider or with a small number of providers. The trend to consolidate staffing vendor relationships has in some cases made it more difficult for us to obtain or retain clients. We also face the risk that certain of our current and prospective clients may decide to procure similar services internally.
Our ability to respond to client requests for lower pricing or to provide other low-cost services will have a direct effect on our performance. If we are unable to maintain or increase (a) the number of hours billed by our IT professionals, (b) their current billing and/or utilization rates or (c) the gross margins we realize from their work, our financial results will be negatively affected. Our gross margins, and therefore our profitability, are largely a function of the rates we charge for our services and the utilization rate, or chargeability, of our IT professionals. Accordingly, if we are not able to maintain the rates we charge for our services or an appropriate utilization rate for our IT professionals, we will not be able to sustain our profit margin and our profitability will suffer. Additionally, intense competition, especially in IT staffing, may also require us to accept less favorable contractual terms, especially in the area of limitations of liability (with respect to both direct and consequential damages) and indemnification. We are also experiencing pressure from some clients who desire to utilize companies with larger market capitalization than ours and/or global delivery capability for their IT staffing needs. We do not have an "offshore" outsourcing or development center and do not have any strategic alliances with a partner to provide offshore services.
Additionally, many of our current and potential competitors have significantly greater financial, technical, marketing and other resources than we have and as a result, may be able to adjust to changing market conditions and respond to client demands more effectively. They may also have greater resources to devote to the development of new technologies, products and services. It is possible that new competitors, alliances among competitors or alliances between competitors and third parties may emerge and acquire significant market share. If this were to occur, it could have an adverse effect on our business, results of operations and financial condition. We expect highly competitive conditions in the market for IT staffing services to continue for the foreseeable future.
Our client contracts are typically short term and subject to cancellation without penalty.
We provide services to our clients under contracts that can generally be cancelled without penalty and upon short notice. These cancellations could result from factors that are beyond our control and are unrelated to our work product or the progress of the project, but could be related to business or financial conditions of the client, changes in client strategies or economic conditions in general. When contracts are cancelled, we lose the anticipated future revenue and gross margin and we may be unable to eliminate our associated cost or reassign our IT professionals in a timely manner. The cancellation or reduction in scope of an engagement could, therefore, reduce the utilization rate of our IT professionals, which would have a negative effect on our business, financial condition and results of operations.
We may be subject to liability to our clients under certain circumstances.
If we do not meet our contractual obligations to a client, we may be subject to legal liability to our client. Our contracts typically include provisions to limit our exposure to legal claims arising from the services we provide; however, these provisions may not protect us, or may not be enforceable under
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some circumstances or under the laws of some jurisdictions. If we cannot or do not fulfill our obligations or have adequate contract protection, we could face legal liability. Although we maintain professional liability insurance, the policy limits may not be adequate to provide protection against all potential liabilities. In addition, if we were to fail to deliver services properly, we may not be able to collect any related accounts receivable or could be required to refund amounts paid by the client.
The protection of client, employee and company data is critical to our business. Our clients have an expectation that we will adequately protect their confidential information, and we are subject to various laws and regulations that require us to maintain the confidentiality of client and employee information. If any of our employees negligently disregards or intentionally breaches our established controls with respect to such data or otherwise mismanages or misappropriates that data, we could be subject to monetary damages, fines and/or criminal prosecution. Unauthorized disclosure of sensitive or confidential client or employee data, whether through systems failure, employee negligence, fraud or misappropriation, could damage our reputation and cause us to lose clients.
We have adopted a shareholder rights plan and other charter provisions that could make it difficult for another company to acquire control of the Company or limit the price investors might be willing to pay for our stock.
We have adopted a Rights Agreement, commonly known as a "poison pill," under which each stockholder of the Company holds one share purchase right, which we refer to as a Right, for each share of Company common stock held. The Rights become exercisable upon the occurrence of certain events and may make the acquisition of our Company more difficult and expensive. In addition, our bylaws contain provisions that may make the acquisition of our Company more difficult without the approval of our board of directors, including a provision requiring shareowners intending to make a director nomination or bring other business at a shareowner meeting to have provided the Company advance written notice of such nominations or business, generally not less than 120 days before the shareowner meeting.
Forward-Looking Statements
This Form 10-K contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. Forward-looking statements include, for example, statements expressing the intent, belief or current expectations of AIC and members of our management team and involve certain risks and uncertainties, including (i) the risk that management may not fully or successfully implement its strategic and business plans or maintain profitability in the future; (ii) the risk that AIC will not be able to realize the benefits of its investments or exploit other opportunities of the business in a timely manner or on favorable terms; (iii) prevailing market conditions in the IT services industry, including intense competition for billable technical personnel at competitive rates, strong pricing pressures from many of our largest clients and difficulty in identifying, attracting and retaining qualified billable technical personnel; (iv) potentially incorrect assumptions by management with respect to the financial effect of prior cost reduction initiatives and current strategic decisions; and (v) other economic, business, market, financial, competitive and/or regulatory factors affecting AIC's business generally. This Form 10-K also included forward-looking statements 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. Any statements made in this Form 10-K that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as "may," "will," "expect," "believe," "anticipate," "estimate," "should," project," "forecast," "plan" or "continue," or comparable
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terminology including other words and terms of similar meaning or import, or variations thereof, or in connection with any discussion of future operating or financial performance, are intended to identify forward-looking statements.
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 Annual Report on Form 10-K for fiscal year 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-K 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-K to reflect events or circumstances after the date of this Form 10-K 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 1B. Unresolved Staff Comments.
None.
Our principal executive offices are located at 7700 France Avenue South, Minneapolis, Minnesota 55435, in a 300,000 square foot office building in which we currently lease approximately 20,500 square feet. This lease is set to expire in March 2022. All other locations are held under leases with varying expiration dates ranging from five months to approximately four and a half years.
There are no material pending legal proceedings to which the Company is a party or to which any of its property is subject.
Item 4. Mine Safety Disclosures.
None.
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Item 5. Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities.
a) Market Information
Our common shares are traded on The Nasdaq Global Market under the symbol ANLY. The table below sets forth for the periods indicated the high and low intraday sales prices for our common stock as reported by Nasdaq.
| |
Market Range | ||||||
|---|---|---|---|---|---|---|---|
| |
High | Low | |||||
Fiscal Year Ended December 29, 2012 |
|||||||
Fourth Quarter |
$ | 4.08 | $ | 2.74 | |||
Third Quarter |
4.40 | 3.50 | |||||
Second Quarter |
5.53 | 3.66 | |||||
First Quarter |
7.30 | 5.15 | |||||
Fiscal Year Ended December 31, 2011 |
|||||||
Fourth Quarter |
$ | 5.94 | $ | 2.93 | |||
Third Quarter |
3.71 | 2.54 | |||||
Second Quarter |
4.50 | 3.09 | |||||
First Quarter |
5.00 | 2.40 | |||||
b) Holders of our Common Equity
As of February 20, 2013, there were approximately 900 shareholders of record of our common stock.
c) Dividends
We have not declared or paid dividends on our common stock during the last five fiscal years and currently have no intention of initiating a dividend paying policy. Additionally, our Credit and Security Agreement with Wells Fargo Bank, National Association, restricts any declaration or payment of dividends on any class of our stock.
d) Stock Performance
Not applicable.
e) Issuer Purchases of Equity Securities
We did not engage in any repurchases of our common stock during the fiscal year ended December 29, 2012.
Item 6. Selected Financial Data.
Not applicable.
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Item 7. 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 Annual Report on Form 10-K, including the "Risk Factors" described in Item 1A.
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. Review of Fiscal 2012 Strategic Plan
In fiscal 2012, our plan was to continue our focus on investing for growth in our business while delivering profitability. Our plan included:
AIC has a long history of serving mid-market to Fortune 500 companies throughout the country. 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 made additional investments in our national sales organization. With a renewed focus on providing IT services to our national clients with multiple buying locations around the country, we expanded our presence within these clients in 2012. However, our loss of revenues in certain markets we exited and from declines in certain large clients year-over-year more than offset these gains, resulting in a decline in revenues in fiscal year 2012 compared to fiscal year 2011. We expect the investments that were made in fiscal 2011 and 2012 to drive growth in fiscal 2013, and we anticipate continued profitability for fiscal 2013.
C. Business Developments
Change in Leadership
On December 18, 2009, our Board of Directors appointed Andrew K. Borgstrom as President and Chief Executive Officer. On September 28, 2010, Mr. Borgstrom resigned as President, Chief Executive Officer and a Director of our Company. Under a transitional services agreement, Mr. Borgstrom was available to assist AIC with ongoing business initiatives through January 31, 2011. On September 29, 2010, our Board of Directors appointed Brittany B. McKinney as our Interim President and Chief Executive Officer.
On February 22, 2011, our Board of Directors appointed Ms. McKinney as our President and Chief Executive Officer and on May 24, 2011, she was elected as a Director of our Company. 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 effective on August 31, 2011. On August 3, 2011, Mr. Strobel
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resigned from his position as the Company's Senior Vice President, Chief Financial Officer effective as of 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 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 would 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.
Enterprise Resource Planning ("ERP") Solution
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 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 fiscal 2012, we capitalized additional costs related to the ERP system of approximately $0.7 million. The ERP system has allowed us to streamline our business processes and attain cost efficient scalability as well as improve management reporting and analysis.
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.
On February 20, 2013, we entered into the Fourth Amendment to the Amended Credit Facility ("Fourth Amendment") with Wells Fargo. The Fourth Amendment adjusted certain collateral borrowing base calculations associated with our eligible unbilled accounts receivable and is expected to increase our borrowing availability in periods in which our fiscal period ends prior to the calendar month end, which affects our unbilled accounts receivable levels for clients on a calendar month billing cycle. In addition, the Fourth Amendment extended the term of the Amended Credit Facility from September 30, 2014 to September 30, 2016. Finally, the Fourth Amendment adjusted our minimum trailing twelve months earnings before taxes financial covenant to a loss of $0.1 million for the period ending March 30, 2013, a loss of $0.3 million for the period ending June 29, 2013 and earnings of
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$0.25 million for periods thereafter through the expiration of the credit agreement ending on September 30, 2016.
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.
Restructuring Costs and Other Severance Related Costs
For fiscal 2012, we recorded severance charges of $0.1 million related to changes in our senior executive officers.
For fiscal 2011, we recorded severance and office closure charges totaling $0.8 million. Of these charges, $0.4 million related to severance and $0.4 million related to relocation of our corporate headquarters.
For fiscal 2010, we recorded a net reversal of restructuring costs and other severance-related costs of $0.3 million. The net reversal is comprised of a $0.4 million charge relating to severance and other severance-related expenses and a reversal of $0.7 million primarily relating to the modification of lease agreements for office space previously vacated.
D. Overview of Fiscal 2012 Results
During fiscal 2012, we continued to invest in our core regional markets that have a high potential for growth, began to leverage strategic client relationships to expand a national sales strategy and focused attention on placing consultants with clients that demand higher-end IT services.
For fiscal 2012, our revenues decreased $3.3 million, or 3.0%, from fiscal 2011. When compared to the prior year, the number of billable hours decreased 2.0% and our average billing rates were down by 1.2%. The number of billing days in fiscal 2012 and fiscal 2011 was 253 and 254, respectively.
The gross margin rate decreased 180 basis points from 24.2% in fiscal 2011 to 22.4% for fiscal 2012 primarily due to increased benefit costs (primarily the cost of our self-insured medical plan benefits) and lower consultant utilization in the latter half of fiscal 2012.
Selling General and Administrative ("SG&A") expenses increased $1.0 million, or 4.3%, in fiscal 2012 over fiscal 2011 as a result of an increase in sales and recruiter personnel expenses and bad debt expense, offset by decreases in our management incentives and stock based compensation. The prior year included the final earn-out benefit of $0.3 million associated with a sale of business in fiscal 2008 and $0.4 million in reversals of post-retirement medical plan liabilities.
We generated $1.6 million of cash from operations during fiscal 2012. As of December 29, 2012, we had a cash balance of $5.8 million and no outstanding borrowings under our revolving line of credit.
14
RESULTS OF OPERATIONS FOR FISCAL 2012 AS COMPARED TO YEAR 2011
The following table illustrates the relationship between revenue and expense categories for fiscal 2012 versus fiscal 2011.
| |
Year Ended Fiscal 2012 |
Year Ended Fiscal 2011 |
|
|
|||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
Increase (Decrease) |
||||||||||||||||||
| |
|
% of Revenue |
|
% of Revenue |
|||||||||||||||
(Dollars in thousands)
|
Amount | Amount | Amount | % | |||||||||||||||
Revenues |
$ | 105,790 | 100.0 | % | $ | 109,118 | 100.0 | % | $ | (3,328 | ) | (3.0 | )% | ||||||
Cost of revenues |
82,047 | 77.6 | 82,734 | 75.8 | (687 | ) | (0.8 | ) | |||||||||||
Gross profit |
23,743 | 22.4 | 26,384 | 24.2 | (2,641 | ) | (10.0 | ) | |||||||||||
Selling, administrative and other operating costs |
23,229 |
22.0 |
22,279 |
20.4 |
950 |
4.3 |
|||||||||||||
Restructuring costs and other severance related costs |
113 | 0.1 | 769 | 0.7 | (656 | ) | (85.3 | ) | |||||||||||
Total operating expenses |
23,342 | 22.1 | 23,048 | 21.1 | 294 | 1.3 | |||||||||||||
Operating income |
401 |
0.4 |
3,336 |
3.1 |
(2,935 |
) |
(88.0 |
) |
|||||||||||
Non-operating income |
— |
0.0 |
— |
0.0 |
— |
NM |
|||||||||||||
Interest expense |
(3 | ) | (0.0 | ) | — | 0.0 | 3 | NM | |||||||||||
Income before income taxes |
398 | 0.4 | 3,336 | 3.1 | (2,938 | ) | (88.1 | ) | |||||||||||
Income tax expense |
68 |
0.1 |
42 |
0.1 |
26 |
61.9 |
|||||||||||||
Net income (comprehensive income) |
$ | 330 | 0.3 | % | $ | 3,294 | 3.0 | % | $ | (2,964 | ) | (90.0 | )% | ||||||
NM = not meaningful
Revenues
Our revenues for fiscal 2012 decreased $3.3 million, or 3.0%, from fiscal 2011. The decrease in our fiscal 2012 revenue over the prior year is primarily due to a 2.0% ($2.2 million) decrease in the number of hours billed, a 1.2% ($1.2 million) decrease in our average billing rate and an increase of $0.1 million in other revenues. There were 253 and 254 billing days in fiscal 2012 and fiscal 2011, respectively.
Cost of Revenues
Cost of revenues represents our payroll and benefit costs associated with our billable consultants and our cost of using subcontractors. This category of expense as a percentage of revenues increased 180 basis points from 75.8% to 77.6%, in fiscal 2012 compared to fiscal 2011. The increase in cost as a percentage of revenue from the prior year is primarily due to an increase in our benefit cost of $1.1 million (primarily the cost of our self-insured medical plan benefits).
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 $1.0 million in fiscal 2012 from fiscal 2011 and represented 22.0% of revenue in fiscal 2012 as compared to 20.4% in fiscal 2011. In fiscal 2012, SG&A expenses increased as a result of an increase in sales and recruiter personnel expenses ($0.6 million) and increased bad debt expense ($0.2 million), offset by decreases in management incentives and stock based compensation of
15
$0.5 million. Additionally, the increase in SG&A expense in fiscal 2012 compared to fiscal 2011 was also the result of certain reductions in expense in fiscal 2011 that did not repeat in fiscal 2012. These items included a final earn-out benefit of $0.3 million associated with a sale of business in fiscal 2008 and a reduction in our post-retirement medical benefits by requiring participants in our plan to move to a standardized plan or accept a buyout, which resulted in a decline in our future benefit obligation of $0.4 million in fiscal 2011.
Restructuring Costs and Other Severance Related Costs
During fiscal 2012, we recorded severance charges of $0.1 million related to changes in our senior executive officers.
During fiscal 2011, we recorded severance and office closure charges of $0.8 million. Of these charges, $0.4 million related to severance and severance-related charges for changes in our senior executive officers and $0.4 million related to the relocation of our corporate headquarters.
Interest Expense
The implementation of the ERP system at the beginning of fiscal 2012 caused a delay in our normal billing cycles during the first few months of fiscal 2012 which caused an increase in our operating working capital. As a result, we borrowed and repaid $5.0 million on our Amended Credit Facility during the first half of fiscal 2012. We had no borrowings during the second half of fiscal 2012 and had no amounts outstanding at December 29, 2012. Our average borrowings for fiscal 2012 were approximately $49,000. We had no borrowings during fiscal 2011.
Income Taxes
For fiscal 2012 and 2011, we recorded a provision for income taxes for amounts due for certain state income taxes and changes in our reserves for tax obligations. Our income tax expense reflects the utilization of net operating loss carry-forwards to offset taxable income. We currently have approximately $24.9 million of tax benefits associated with operating loss carry-forwards available to offset federal and state taxes. 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 maintain sustained future profitability and return to a point where future realization of deferred tax assets, which have a full valuation allowance, become "more likely than not," we may be required to reverse the existing valuation allowance associated with these assets.
Certain Information Concerning Off-Balance Sheet Arrangements
As of December 29, 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 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.
16
RESULTS OF OPERATIONS FOR FISCAL 2011 AS COMPARED TO FISCAL 2010
The following table illustrates the relationship between revenue and expense categories for fiscal 2011 versus fiscal 2010.
| |
Year Ended Fiscal 2011 |
Year Ended Fiscal 2010 |
|
|
|||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
Increase (Decrease) |
||||||||||||||||||
| |
|
% of Revenue |
|
% of Revenue |
|||||||||||||||
(Dollars in thousands)
|
Amount | Amount | Amount | % | |||||||||||||||
Revenues |
$ | 109,118 | 100.0 | % | $ | 106,688 | 100.0 | % | $ | 2,430 | 2.3 | % | |||||||
Cost of revenues |
82,734 | 75.8 | 82,911 | 77.7 | (177 | ) | (0.2 | ) | |||||||||||
Gross profit |
26,384 | 24.2 | 23,777 | 22.3 | 2,607 | 11.0 | |||||||||||||
Selling, administrative and other operating costs |
22,279 |
20.4 |
24,554 |
23.0 |
(2,275 |
) |
(9.3 |
) |
|||||||||||
Restructuring costs and other severance related costs |
769 | 0.7 | (300 | ) | (0.3 | ) | 1,069 | 356.3 | |||||||||||
Total operating expenses |
23,048 | 21.1 | 24,254 | 22.7 | (1,206 | ) | (5.0 | ) | |||||||||||
Operating income |
3,336 |
3.1 |
(477 |
) |
(0.4 |
) |
3,813 |
799.4 |
|||||||||||
Non-operating income |
— |
0.0 |
14 |
0.0 |
(14 |
) |
NM |
||||||||||||
Interest expense |
— | 0.0 | (13 | ) | (0.0 | ) | (13 | ) | NM | ||||||||||
Income before income taxes |
3,336 | 3.1 | (476 | ) | (0.4 | ) | 3,812 | 800.8 | |||||||||||
Income tax expense |
42 |
0.1 |
4 |
0.0 |
38 |
950.0 |
|||||||||||||
Net income (loss) (comprehensive income (loss)) |
$ | 3,294 | 3.0 | % | $ | (480 | ) | (0.4 | )% | $ | 3,774 | 786.3 | % | ||||||
NM = not meaningful
Revenues
Our revenues for fiscal 2011 increased $2.4 million, or 2.3%, from fiscal 2010. The increase in our fiscal 2011 revenues over fiscal 2010 is primarily due an increase in our average billing rates of 2.5%, which resulted in approximately $2.2 million of additional revenues, and a slight increase in the number of hours billed, which resulted in approximately $0.2 million in additional revenues.
Cost of Revenues
Cost of revenues represents our payroll and benefit costs associated with our billable consultants and our cost of using subcontractors. This category of expense as a percentage of revenues decreased 190 basis points from 77.7% to 75.8%, in fiscal 2011 compared to fiscal 2010 primarily due to our strategy of evolving our mix of business.
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 decreased approximately $2.3 million in fiscal 2011 from fiscal 2010 and represented 20.4% of revenue in fiscal 2011 as compared to 23.0% in fiscal 2010. In fiscal 2011, SG&A expenses declined as a result of previously implemented general expense reductions ($1.4 million), lower employee benefit costs ($0.9 million) and personnel and related cost reductions ($0.1 million), which was partially offset by higher sales and recruiting costs ($0.5 million). In addition, during fiscal 2011, we required the
17
participants in our post-retirement medical benefit plan to move to a standardized plan or accept a buyout, which resulted in a decline in our future benefit obligation of $0.4 million.
Restructuring Costs and Other Severance Related Costs
During fiscal 2011, we recorded severance and office closure charges of $0.8 million. Of these charges, $0.4 million related to severance and severance-related charges for changes in our senior executive officers and $0.4 million related to the relocation of our corporate headquarters.
During fiscal 2010, we recorded a net reversal of restructuring costs and other severance-related costs of $0.3 million. The net reversal is comprised of a $0.4 million charge relating to severance and severance-related expenses and a reversal of $0.7 million, primarily relating to the modification of lease agreements for office space previously vacated.
Non-operating Income
We had no Non-operating income during fiscal 2011.
Interest Expense
We had no borrowings outstanding at any time during fiscal 2011 or 2010 under our revolving credit facility.
Income Taxes
For fiscal 2011 and 2010, we recorded a provision for income taxes for amounts due for certain state income taxes and changes in our reserves for tax obligations. Our income tax expense reflects the utilization of net operating loss carry-forwards to offset taxable income. We had approximately $25.4 million of tax benefits associated with operating loss carry-forwards available to offset federal and state taxes. 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 assets.
Certain Information Concerning Off-Balance Sheet Arrangements
As of December 31, 2011, 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 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.
Liquidity and Capital Resources
At December 29, 2012, we had $5.8 million of cash and cash equivalents on hand. In addition to our cash balances, we have access to our Amended Credit Facility with $15.0 million of maximum availability, under which our borrowing availability was $10.9 million as of December 29, 2012. Working capital was $16.9 million at December 29, 2012, up approximately $0.7 million from December 31, 2011. The ratio of current assets to current liabilities increased to 4.19 at December 29, 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. We expect to be able to comply with the requirements of our credit agreement; however,
18
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:
| |
Fiscal Year Ended | ||||||
|---|---|---|---|---|---|---|---|
(In thousands)
|
December 29, 2012 |
December 31, 2011 |
|||||
Cash provided by (used in): |
|||||||
Net cash provided by operating activities |
$ |
1,552 |
$ |
2,435 |
|||
Net cash used in investing activities |
(936 | ) | (1,121 | ) | |||
Net cash provided by (used in) financing activities |
41 | (507 | ) | ||||
Net increase in cash and cash equivalents |
$ | 657 | $ | 807 | |||
Operating Activities
Cash provided by operating activities was $1.6 million and $2.4 million for fiscal years 2012 and 2011, respectively.
The elements of cash provided by operations for the fiscal year ending December 29, 2012 were as follows: a decrease in operating working capital of approximately $0.2 million, net income of $0.3 million and non-cash charges to our net income of $1.1 million.
The major components of the $0.2 million decrease in operating working capital during fiscal 2012 were due to lower Accounts receivable ($1.9 million) and Prepaid Expenses and Other Assets ($0.3 million) offset by reductions of several liability accounts totaling $2.0 million. We generated $1.9 million of cash by reducing our accounts receivable balance 10.7% from the prior year. The decrease in accounts receivable from the end of fiscal 2011 is primarily due to a 6.0% decrease in our fiscal 2012 fourth quarter revenues over the fourth quarter of fiscal 2011. Our days sales outstanding at the end of fiscal 2012 was 62 compared to 61 at the end of fiscal 2011. The reductions of various liabilities on our balance sheets totaling $2.0 million during fiscal 2012 were primarily due to lower business volumes ($1.1 million), a reduction in payment terms for certain subsupplier vendors ($0.4 million) and making final payments on our restructuring liabilities ($0.5 million).
In fiscal 2011, the elements of cash provided by operating activities were as follows: net income of $3.3 million and non-cash charges to our net income of $1.1 million partially offset by a $2.0 million increase in operating working capital.
Investing Activities
Cash used in investing activities was $0.9 million and $1.1 million for the fiscal years 2012 and 2011, respectively.
In fiscal 2012, we made capital expenditures of $1.1 million, the majority of which ($1.0 million) related to enhancements to the ERP system that we first implemented in early fiscal 2012, offset by the liquidation of a trust investment of $0.2 million during the third quarter of fiscal 2012. In fiscal 2011, we made capital expenditures of $1.6 million which were offset by proceeds of a cash surrender of a life insurance policy of $0.5 million.
Financing Activities
Cash provided by financing activities for the fiscal year 2012 was $41,000 compared to cash used in financing activities of $0.5 million for fiscal year 2011.
19
In fiscal 2012, we borrowed and repaid $5.0 million on our Amended Credit Facility. Our average borrowings for fiscal 2012 were approximately $49,000.
During 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 was previously reported in Other Assets in our Consolidated Balance Sheets.
On February 20, 2013, we entered into the Fourth Amendment to the Amended Credit Facility ("Fourth Amendment") with Wells Fargo. The Fourth Amendment adjusted certain collateral borrowing base calculations associated with our eligible unbilled accounts receivable and is expected to increase our borrowing availability in periods in which our fiscal period ends prior to the calendar month end, which affects our unbilled accounts receivable levels for clients on a calendar month billing cycle. In addition, the Fourth Amendment extended the term of the Amended Credit Facility from September 30, 2014 to September 30, 2016. Finally, the Fourth Amendment adjusted our minimum trailing twelve months earnings before taxes financial covenant to a loss of $0.1 million for the period ending March 30, 2013, a loss of $0.3 million for the period ending June 29, 2013 and earnings of $0.25 million for periods thereafter through the expiration of the credit agreement ending on September 30, 2016.
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 total amount available for borrowing under the Amended Credit Facility will fluctuate based on our level of eligible accounts receivable.
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 interest rate effective at the end of fiscal year 2012 was 2.375% and the unused line fee rate was 0.25%. The maturity date of the Amended Credit Facility is September 30, 2016 and may be terminated or reduced by us on 90 days notice in exchange for a termination fee of 0.25% of the maximum line amount or reduction of the maximum line amount through September 30, 2015 and no fee in the final year of the agreement ending on September 30, 2016. Borrowings under the Amended Credit Facility are secured by all of our assets.
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 December 29, 2012, we were in compliance with all the requirements and had no outstanding borrowings under the Amended Credit Facility. Total availability under the Amended Credit Facility, which fluctuates based on our level of eligible accounts receivable, was $10.9 million as of December 29, 2012.
20
Contractual Obligations
We have entered into arrangements that represent certain commitments and have arrangements with certain contingencies. We lease office facilities under non-cancelable operating leases and have deferred compensation that is payable to participants in accordance with the terms of our Restated Special Executive Retirement Plan and other agreements. We incur interest expense on our deferred compensation obligation. Minimum future obligations on operating leases (net of sublease contracts) and deferred compensation as of December 29, 2012, are as follows:
(In thousands)
|
1 Year | 2 - 3 Years | 4 - 5 Years | Over 5 Years |
Total | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Operating leases |
$ | 1,140 | $ | 1,989 | $ | 1,610 | $ | 3,093 | $ | 7,832 | ||||||
Deferred compensation |
62 | 96 | 71 | 103 | 332 | |||||||||||
Total |
$ | 1,202 | $ | 2,085 | $ | 1,681 | $ | 3,196 | $ | 8,164 | ||||||
Critical Accounting Estimates & Policies
The discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions. We believe the estimates described below are the most sensitive estimates made by management in the preparation of the financial statements.
Critical accounting policies are defined as those that involve significant judgments and uncertainties or affect significant line items within our financial statements and potentially result in materially different outcomes under different assumptions and conditions. Application of these policies is particularly important to the portrayal of our financial condition and results of operations. We believe the accounting policies described below meet these characteristics.
Allowance for Doubtful Accounts
In each reporting period, we determine the reserve for uncollectible accounts. An evaluation of the risk associated with a client's ability to make contractually required payments is used to determine this reserve. These determinations require considerable judgment in assessing the ultimate potential for collection of these receivables and include reviewing the financial stability of the client, the client's ability to pay and current market conditions. If our evaluation of a client's ability to pay is incorrect, we may incur future charges.
Revenue Recognition Policy
We generally recognize revenue as hours are worked and costs are expended. This includes Staff Augmentation, Managed Teams and Project-Based Solutions services that are billed on an hourly basis, which is the majority of our revenue.
We periodically enter into fixed price engagements. When we enter into such an engagement, revenue is recognized over the life of the contract based on time and materials input to date and the estimate of time and materials to complete the project. This method of revenue recognition relies on accurate estimates of the cost, scope, and duration of the engagement. If we do not accurately estimate the resources required or the scope of the work to be performed, both prior and future revenues may
21
be negatively affected or losses on contracts may need to be recognized. All future anticipated losses are recognized in the period they are identified.
In some cases, we provide permanent placement services for clients for a fee. When we provide such services, revenue is recognized when the candidate commences in the position.
Income Taxes
We file a consolidated income tax return in the US federal jurisdiction. We also file consolidated or separate company income tax returns in most states, Canada federal and Ontario province. As of December 29, 2012, there was one state tax audit in progress. The financial assessment is not yet final; however, we estimate the financial impact to be approximately $10,000 and it is provided for in our uncertain tax positions as of December 29, 2012. Aside from the aforementioned, there are no other federal, state or foreign income tax audits in progress. We are no longer subject to US federal audits for tax years before 2009, and with few exceptions, the same for state and local audits.
In accordance with FASB ASC Topic 740, Income Taxes ("ASC 740"), we account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the years in which the differences are expected to reverse.
We record a valuation allowance to reduce our deferred tax assets to an amount we believe will more likely than not be realized. The Financial Accounting Standards Board guidance requires that companies assess whether valuation allowances should be established against their deferred tax assets based on the consideration of all available evidence that can be objectively verified. In making such determination, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, historical and projected future taxable income, tax planning strategies and recent financial operations. Our three-year historical cumulative loss has been a significant negative factor in recent fiscal years in determining that a valuation allowance on these assets continued to be appropriate.
As of December 29, 2012, the Company was no longer in a three-year cumulative loss position. However, the realization of tax benefits of deductible temporary differences and operating loss or tax credit carry-forwards will depend on whether we have sufficient taxable income of an appropriate character within the carry-back and carry-forward periods permitted by the tax law to allow for utilization of the deductible amounts and carry-forwards. Significant management judgment is required in determining if a valuation allowance should continue to be recorded against deferred tax assets. We evaluated our ability to recover the deferred tax assets and weighed all available positive and negative evidence based on its objectivity and subjectivity. Such evidence included the lack of long-term, sustained positive operating results and trends, our ability to carry back losses against prior taxable income and uncertainty around projections of future taxable income. In estimating future taxable income, we developed assumptions including the amount of future federal and state pre-tax operating income and the reversal of temporary differences. These plans and projections require us to make estimates about a number of factors, including future revenues, prices, inflation, and expenses. Giving consideration to all relevant facts and circumstances, we concluded that the weight of the positive evidence was not sufficient to overcome the negative evidence and have concluded it is appropriate to maintain a full valuation allowance of $26.0 million against our deferred tax assets.
In the event we were to determine that we would be able to realize a portion, or all, of our deferred income tax assets in the future in excess of their net recorded amount, we would make an adjustment to the valuation allowance, which could materially impact our financial position and results of operations.
22
ASC 740 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements. ASC 740 also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Additionally, ASC 740 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
We account for our sales tax and any other taxes that are collected from our clients and remitted to governmental authorities on a net basis. The assessment, collection and payment of these taxes are not reflected on our Consolidated Statement of Operations.
We recognize interest and penalties related to uncertain tax positions within interest expense.
New Accounting Pronouncements and Interpretations
There have been no new accounting pronouncements issued or changes to existing pronouncements during the fiscal year ended December 29, 2012 that would have a material impact on our financial results.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 8. Financial Statements and Supplementary Data.
23
ANALYSTS INTERNATIONAL CORPORATION
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
|
December 29, 2012 |
December 31, 2011 |
|||||
|---|---|---|---|---|---|---|---|
ASSETS |
|||||||
Current assets: |
|||||||
Cash and cash equivalents |
$ | 5,792 | $ | 5,135 | |||
Accounts receivable, less allowance for doubtful accounts of $671 and $644, respectively |
16,095 | 18,016 | |||||
Prepaid expenses and other current assets |
281 | 489 | |||||
Total current assets |
22,168 | 23,640 | |||||
Property and equipment, net of accumulated depreciation of $7,492 and $7,535, respectively |
2,366 |
2,095 |
|||||
Other assets |
185 | 457 | |||||
Total assets |
$ | 24,719 | $ | 26,192 | |||
LIABILITIES AND SHAREHOLDERS' EQUITY |
|||||||
Current liabilities: |
|||||||
Accounts payable |
$ | 2,651 | $ | 3,847 | |||
Salaries and benefits |
1,724 | 2,078 | |||||
Deferred revenue |
331 | 285 | |||||
Deferred compensation |
62 | 136 | |||||
Restructuring accrual |
— | 442 | |||||
Other current liabilities |
529 | 664 | |||||
Total current liabilities |
5,297 | 7,452 | |||||
Non-current liabilities: |
|||||||
Deferred compensation |
270 | 379 | |||||
Restructuring accrual |
— | 28 | |||||
Other long-term liabilities |
4 | — | |||||
Total non-current liabilities |
274 | 407 | |||||
Shareholders' equity: |
|||||||
Common stock, par value $0.10 a share; authorized 24,000,000 shares; issued and outstanding 5,084,155 and 5,032,759, respectively |
508 | 503 | |||||
Additional capital |
26,644 | 26,164 | |||||
Accumulated deficit |
(8,004 | ) | (8,334 | ) | |||
Total shareholders' equity |
19,148 | 18,333 | |||||
Total liabilities and shareholders' equity |
$ | 24,719 | $ | 26,192 | |||
See notes to consolidated financial statements.
24
ANALYSTS INTERNATIONAL CORPORATION
Consolidated Statements of Operations
| |
Fiscal Year Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
(In thousands except per share amounts)
|
2012 | 2011 | 2010 | |||||||
Revenues |
$ | 105,790 | $ | 109,118 | $ | 106,688 | ||||
Cost of revenues |
82,047 | 82,734 | 82,911 | |||||||
Gross profit |
23,743 | 26,384 | 23,777 | |||||||
Selling, administrative and other operating costs |
23,229 |
22,279 |
24,554 |
|||||||
Restructuring costs and other severance related costs |
113 | 769 | (300 | ) | ||||||
Total operating expenses |
23,342 | 23,048 | 24,254 | |||||||
Operating income (loss) |
401 |
3,336 |
(477 |
) |
||||||
Non-operating income |
— |
— |
14 |
|||||||
Interest expense |
(3 | ) | — | (13 | ) | |||||
Income (loss) before income taxes |
398 | 3,336 | (476 | ) | ||||||
Income tax expense |
68 |
42 |
4 |
|||||||
Net income (loss) (comprehensive income (loss)) |
$ | 330 | $ | 3,294 | $ | (480 | ) | |||
Per common share (basic): |
||||||||||
Net income (loss) |
$ | 0.07 | $ | 0.66 | $ | (0.10 | ) | |||
Per common share (diluted): |
||||||||||
Net income (loss) |
$ | 0.06 | $ | 0.66 | $ | (0.10 | ) | |||
Weighted-average shares outstanding: |
||||||||||
Basic |
5,071 | 5,012 | 4,986 | |||||||
Diluted |
5,102 | 5,027 | 4,986 | |||||||
See notes to consolidated financial statements.
25
ANALYSTS INTERNATIONAL CORPORATION
Consolidated Statements of Cash Flows
| |
Fiscal Year Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
(In thousands)
|
2012 | 2011 | 2010 | |||||||
Cash flows from operating activities: |
||||||||||
Net income (loss) |
$ | 330 | $ | 3,294 | $ | (480 | ) | |||
Adjustments to net income (loss): |
||||||||||
Depreciation |
646 | 632 | 860 | |||||||
Loss on sale or disposal of assets |
— | — | 167 | |||||||
Share based compensation |
469 | 531 | 1 | |||||||
Changes in: |
||||||||||
Accounts receivable |
1,921 | (591 | ) | 5,603 | ||||||
Accounts payable |
(957 | ) | (705 | ) | (2,726 | ) | ||||
Salaries and benefits |
(379 | ) | (111 | ) | (309 | ) | ||||
Restructuring accrual |
(470 | ) | (36 | ) | (2,577 | ) | ||||
Deferred compensation |
(183 | ) | (567 | ) | (477 | ) | ||||
Prepaid expenses and other assets |
260 | 84 | 910 | |||||||
Deferred revenue |
46 | (74 | ) | 49 | ||||||
Other accrued liabilities |
(131 | ) | (22 | ) | (395 | ) | ||||
Net cash provided by operating activities |
1,552 | 2,435 | 626 | |||||||
Cash flows from investing activities: |
||||||||||
Expended for property and equipment additions |
(1,156 | ) | (1,652 | ) | (122 | ) | ||||
Proceeds from trust investment |
220 | — | — | |||||||
Proceeds from asset sales, net |
— | — | 186 | |||||||
Proceeds from cash surrender of insurance policy |
— | 531 | — | |||||||
Net cash (used in) provided by investing activities |
(936 | ) | (1,121 | ) | 64 | |||||
Cash flows from financing activities: |
||||||||||
Borrowings from line of credit |
5,000 | — | — | |||||||
Repayments on line of credit |
(5,000 | ) | — | — | ||||||
Proceeds from stock option exercises |
41 | 39 | — | |||||||
Payment of insurance policy loan |
— | (486 | ) | — | ||||||
Payment of capital lease obligation |
— | (60 | ) | (180 | ) | |||||
Net cash provided by (used in) financing activities |
41 | (507 | ) | (180 | ) | |||||
Net increase in cash and cash equivalents |
657 |
807 |
510 |
|||||||
Cash and cash equivalents at beginning of period |
5,135 |
4,328 |
3,818 |
|||||||
Cash and cash equivalents at end of period |
$ | 5,792 | $ | 5,135 | $ | 4,328 | ||||
Cash paid (received) during the year for: |
||||||||||
Income taxes |
$ | 89 | $ | 34 | $ | (9 | ) | |||
Interest |
$ | 3 | $ | — | $ | 13 | ||||
Non-cash investing and financing activities: |
||||||||||
Capital expenditures included in accounts payable |
$ | 53 | $ | 291 | $ | — | ||||
See notes to consolidated financial statements.
26
ANALYSTS INTERNATIONAL CORPORATION
Consolidated Statements of Shareholders' Equity
(In thousands)
|
Outstanding Shares |
Common Stock |
Additional Capital |
Accumulated Earnings (Deficit) |
Total Shareholders Equity |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance as of January 2, 2010 |
4,984,674 | 498 | 25,598 | (11,148 | ) | 14,948 | ||||||||||
Common stock issued—1,200 shares issued |
1,200 | — | 3 | — | 3 | |||||||||||
Share based compensation expense |
— | — | (2 | ) | — | (2 | ) | |||||||||
Net loss |
— | — | — | (480 | ) | (480 | ) | |||||||||
Balance as of January 1, 2011 |
4,985,874 | 498 | 25,599 | (11,628 | ) | 14,469 | ||||||||||
Common stock issued—34,011 shares issued |
34,011 | 4 | 139 | — | 143 | |||||||||||
Share based compensation expense |
— | — | 388 | — | 388 | |||||||||||
Stock option exercises—12,874 shares issued |
12,874 | 1 | 38 | — | 39 | |||||||||||
Net income |
— | — | — | 3,294 | 3,294 | |||||||||||
Balance as of December 31, 2011 |
5,032,759 | $ | 503 | $ | 26,164 | $ | (8,334 | ) | $ | 18,333 | ||||||
Common stock issued—38,146 shares issued |
38,146 | 4 | 176 | — | 180 | |||||||||||
Share based compensation expense |
— | — | 257 | — | 257 | |||||||||||
Stock option exercises—13,250 shares issued |
13,250 | 1 | 47 | — | 48 | |||||||||||
Net income |
— | — | — | 330 | 330 | |||||||||||
Balance as of December 29, 2012 |
5,084,155 | $ | 508 | $ | 26,644 | $ | (8,004 | ) | $ | 19,148 | ||||||
See notes to consolidated financial statements.
27
ANALYSTS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Description of business
Analysts International Corporation ("AIC," "Company," "we," "us," or "our") is a national information technology ("IT") services company with 11 U.S. office locations. We employ approximately 900 IT professionals, management and administrative staff and are focused on serving the IT needs of middle 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.
Basis of presentation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation.
Fiscal year
Our fiscal year ends on the Saturday closest to December 31. References to fiscal years 2012, 2011 and 2010 refer to the fiscal years ended December 29, 2012, December 31, 2011 and January 1, 2011, respectively. Fiscal years 2012, 2011 and 2010 all contain 52 weeks.
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.
Segment Reporting
The Company has two operating segments—"staffing" (which consists of staff augmentation services, including managed teams) and "solutions." Based on the guidance and criteria described in FASB ASC Topic 280, Segment Reporting ("ASC 280"), we aggregate our staffing operating segment and solutions operating segment into one reportable segment. The goal of our staffing operating segment is to provide high-quality supplemental staffing services to a broad range of clients. The goal of our solutions operating segment is to provide a solution to the client in the form of developed software and services, technology products and staffing support services.
Fair value measurements
We follow the guidance of FASB ASC Topic 820, Fair Value Measurements and Disclosures herein referred to as ("ASC Topic 820") which:
28
ANALYSTS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Summary of Significant Accounting Policies (Continued)
The fair value hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). A financial instrument's level within the hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The levels of the fair value hierarchy are defined as follows:
Level 1—Quoted prices in active markets for identical assets or liabilities. The types of assets and liabilities included in Level 1 are highly liquid and actively traded instruments with quoted market prices.
Level 2—Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. The type of assets and liabilities included in Level 2 are typically either comparable to actively traded securities or contracts or priced with models using observable inputs.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The type of assets and liabilities included in Level 3 are those with inputs requiring significant management judgment or estimation.
We also follow the guidance of FASB ASC Topic 825, Financial Instruments. This ASC permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. We did not elect the fair value measurement option for any items that are not already required to be measured at fair value.
Cash equivalents
Short-term cash investments in money market accounts are considered to be cash equivalents. The Company will, on occasion, enter into over-night sweep investments into money market accounts that are available within one business day. The estimated fair values for cash equivalents approximate their carrying values due to the short-term maturities of these instruments. Accordingly, cash equivalents are classified as Level 1.
Equity compensation
FASB ASC Topic 718, Compensation—Stock Compensation herein referred to as ("ASC 718") requires us to recognize expense related to the fair value of our stock-based compensation awards. In accordance with ASC 718, the presentation of our consolidated statement of cash flows will report the excess tax benefits from the exercise of stock options as financing cash flows. The Company had no such benefits to report in fiscal 2012.
29
ANALYSTS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Summary of Significant Accounting Policies (Continued)
Revenue recognition
We generally recognize revenue as services are performed.
We periodically enter into fixed price engagements. When we enter into such an engagement, revenue is recognized over the life of the contract based on time and materials input to date and estimated time and materials to complete the project. This method of revenue recognition relies on accurate estimates of the cost, scope, and duration of the engagement. If we do not accurately estimate the resources required or the scope of the work to be performed, both prior and future revenues may be negatively affected or losses on contracts may need to be recognized. All future anticipated losses are recognized in the period they are identified. There were no such material losses recorded in fiscal 2012, 2011 or 2010.
In some cases, we provide permanent placement services for clients for a fee. When we provide such services, revenue is recognized when the candidate commences in the position.
Depreciation
Property and equipment is being 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. See table below for estimated useful lives used in the financial statements.
| |
Useful lives in years | |
|---|---|---|
Leasehold improvements |
Shorter of useful life or lease term | |
Office furniture & equipment |
5 - 10 | |
Computer hardware |
2 - 5 | |
Software |
2 - 5 |
Income Taxes
In accordance with FASB ASC Topic 740, Income Taxes ("ASC 740"), we account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the years in which the differences are expected to reverse.
We record a valuation allowance to reduce our deferred tax assets to an amount we believe will more likely than not be realized. The Financial Accounting Standards Board guidance requires that companies assess whether valuation allowances should be established against their deferred tax assets based on the consideration of all available evidence that can be objectively verified. In making such determination, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, historical and projected future taxable income, tax planning strategies and recent financial operations. Our three-year historical cumulative loss has been a significant negative factor in recent fiscal years in determining that a valuation allowance on these assets continued to be appropriate.
30
ANALYSTS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Summary of Significant Accounting Policies (Continued)
As of December 29, 2012, the Company was no longer in a three-year cumulative loss position. However, the realization of tax benefits of deductible temporary differences and operating loss or tax credit carry-forwards will depend on whether we have sufficient taxable income of an appropriate character within the carry-back and carry-forward periods permitted by the tax law to allow for utilization of the deductible amounts and carry-forwards. Significant management judgment is required in determining if a valuation allowance should continue to be recorded against deferred tax assets. We evaluated our ability to recover the deferred tax assets and weighed all available positive and negative evidence based on its objectivity and subjectivity. Such evidence included the lack of long-term, sustained positive operating results and trends, our ability to carry back losses against prior taxable income and uncertainty around projections of future taxable income. In estimating future taxable income, we developed assumptions including the amount of future federal and state pre-tax operating income and the reversal of temporary differences. These plans and projections require us to make estimates about a number of factors, including future revenues, prices, inflation, and expenses. Giving consideration to all relevant facts and circumstances, we concluded that the weight of the positive evidence was not sufficient to overcome the negative evidence and have concluded it is appropriate to maintain a full valuation allowance of $26.0 million against our deferred tax assets.
In the event we were to determine that we would be able to realize a portion, or all, of our deferred income tax assets in the future in excess of their net recorded amount, we would make an adjustment to the valuation allowance, which could materially impact our financial position and results of operations.
ASC 740 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements. ASC 740 also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Additionally, ASC 740 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
We file a consolidated income tax return in the US federal jurisdiction. We also file consolidated or separate company income tax returns in most states, Canada federal and Ontario province. As of December 29, 2012, there was one state tax audit in progress. The financial assessment is not yet final; however, we estimate the financial impact to be approximately $10,000 and it is provided for in our uncertain tax positions as of December 29, 2012. Aside from the aforementioned, there are no other federal, state or foreign income tax audits in progress. We are no longer subject to US federal audits for tax years before 2009, and with few exceptions, the same for state and local audits.
We account for our sales tax and any other taxes that are collected from our clients and remitted to governmental authorities on a net basis. The assessment, collection and payment of these taxes are not reflected on our Consolidated Statement of Operations.
We recognize interest and penalties related to uncertain tax positions within interest expense.
Net income (loss) per share
Basic and diluted net income (loss) per share is presented in accordance with FASB ASC Topic 260, Earnings per Share ("ASC 260"). Basic income (loss) per share excludes dilution and is computed by dividing the income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted income per share includes dilutive
31
ANALYSTS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Summary of Significant Accounting Policies (Continued)
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.
There were approximately 271,000 and 320,000 anti-dilutive shares excluded from the calculation of weighted average number of common and common equivalent shares outstanding for fiscal 2012 and fiscal 2011, respectively. For fiscal 2010, all potential common shares outstanding were considered anti-dilutive and excluded from the calculation of weighted average number of common and common equivalent shares outstanding because we reported a net loss for that year. The computation of basic and diluted income (loss) per share for fiscal 2012, 2011 and 2010 is as follows:
| |
Fiscal Year Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
(In thousands except per share amounts)
|
2012 | 2011 | 2010 | |||||||
Net income (loss) |
$ | 330 | $ | 3,294 | $ | (480 | ) | |||
Weighted-average number of common shares outstanding |
5,071 | 5,012 | 4,986 | |||||||
Dilutive effect of equity compensation awards |
31 | 15 | — | |||||||
Weighted-average number of common and common equivalent shares outstanding |
5,102 | 5,027 | 4,986 | |||||||
Net income (loss) per share: |
||||||||||
Basic |
$ | 0.07 | $ | 0.66 | $ | (0.10 | ) | |||
Diluted |
$ | 0.06 | $ | 0.66 | $ | (0.10 | ) | |||
Significant clients
International Business Machines ("IBM") and Chevron are our most significant clients. Our IBM and Chevron business accounted for approximately 7%, 7% and 11% and 14%, 11% and 9%, respectively, of our total revenue for fiscal years 2012, 2011 and 2010.
Accounting Pronouncements
There have been no new accounting pronouncements issued or changes to existing pronouncements during the fiscal year ended December 29, 2012 that did or are expected to have a material impact on our financial results.
2. 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
32
ANALYSTS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Property and Equipment (Continued)
income tax purposes. The balances of our property and equipment as of December 29, 2012 and December 31, 2011 and the estimated useful lives used in the financial statements are as follows:
(In thousands)
|
December 29, 2012 | December 31, 2011 | Useful lives in years | |||||
|---|---|---|---|---|---|---|---|---|
Leasehold improvements |
$ | 204 | $ | 247 | Shorter of useful life or lease term | |||
Office furniture & equipment |
1,672 | 1,808 | 5 - 10 | |||||
Computer hardware |
1,247 | 1,569 | 2 - 5 | |||||
Software |
6,499 | 4,574 | 2 - 5 | |||||
Work in process |
236 | 1,432 | ||||||
|
9,858 | 9,630 | ||||||
Accumulated depreciation |
(7,492 | ) | (7,535 | ) | ||||
|
$ | 2,366 | $ | 2,095 | ||||
In the third quarter of fiscal 2011, the Company commenced a project to replace its current financial and human resource information 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 fiscal 2012, the Company capitalized an additional $0.7 million of costs related to the ERP system which are included in software and work in process at December 29, 2012.
In the second and third quarters of fiscal 2011, the Company disposed of approximately $1.4 million of fully amortized and depreciated property and equipment. The disposed property and equipment primarily related to decommissioned software, computer hardware and the relocation of our corporate headquarters. These disposals did not result in any gain or loss.
3. Financing Agreements
Revolving Credit Facility
On February 23, 2011, we entered into the First Amendment to Credit and Security Agreement ("Amended Credit Facility") with Wells Fargo Bank, National Association ("Wells Fargo"), pursuant to which the interest rate on future borrowings and the unused line fee were reduced, the maturity date was extended until September 30, 2014 and certain covenants were made less restrictive. 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. On February 20, 2013, we entered into the Fourth Amendment to the Amended Credit Facility ("Fourth Amendment") with Wells Fargo. The Fourth Amendment adjusted certain collateral borrowing base calculations associated with our eligible unbilled accounts receivable and is expected to increase our borrowing availability in periods in which our fiscal period ends prior to
33
ANALYSTS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Financing Agreements (Continued)
the calendar month end, which affects our unbilled accounts receivable levels for clients on a calendar month billing cycle. In addition, the Fourth Amendment extended the term of Amended Credit Facility from September 30, 2014 to September 30, 2016. Finally, the Fourth Amendment adjusted our minimum trailing twelve months earnings before taxes financial covenant to a loss of $0.1 million for the period ending March 30, 2013, a loss of $0.3 million for the period ending June 29, 2013 and earnings of $0.25 million for periods thereafter through the expiration of the credit agreement ending on September 30, 2016.
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 total amount available for borrowing under the Amended Credit Facility will fluctuate based on our level of eligible accounts receivable.
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, and is based on the daily average unused amount. The interest rate effective at the end of fiscal year 2012 was 2.375% and the unused line fee rate was 0.25%. The maturity date of the Amended Credit Facility is September 30, 2016 and may be terminated or reduced by us on 90 days notice in exchange for a termination fee of 0.25% of the maximum line amount or reduction of the maximum line amount through September 30, 2015 and no fee in the final year of the agreement ending on September 30, 2016. Borrowings under the Amended Credit Facility are secured by all of our assets.
The Amended Credit Facility requires us to meet certain levels of trailing twelve months earnings before taxes. For fiscal 2012, we were required to exceed minimum trailing twelve months earnings before taxes of $0.25 million. For fiscal 2011, we were required to exceed a minimum trailing twelve months loss before taxes of $0.8 million. Additionally, the Amended Credit Facility limit on our annual capital expenditures was $2.5 million in fiscal 2011 and $2.0 million for each fiscal year thereafter. In fiscal 2012, we were 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 of the Company and bankruptcy events.
As of December 29, 2012, we were in compliance with all the requirements and had no borrowings under the Amended Credit Facility. Total availability of the Amended Credit Facility, which fluctuates based on our level of eligible accounts receivable, was $10.9 million as of December 29, 2012.
34
ANALYSTS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Restructuring Costs and Other Severance Related Costs
A summary of the restructuring charges and subsequent activity in the restructuring accrual accounts is as follows:
(In thousands)
|
Workforce Reduction |
Office Closure/ Consolidation |
Total | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
Balance as of January 2, 2010 |
1,215 | 1,868 | 3,083 | |||||||
Restructuring charges (reversals) |
413 | (713 | ) | (300 | ) | |||||
Cash expenditures |
(1,606 | ) | (671 | ) | (2,277 | ) | ||||
Balance as of January 1, 2011 |
22 | 484 | 506 | |||||||
Restructuring charges |
370 | 399 | 769 | |||||||
Cash expenditures |
(213 | ) | (592 | ) | (805 | ) | ||||
Balance as of December 31, 2011 |
$ | 179 | $ | 291 | $ | 470 | ||||
Restructuring charges |
113 | — | 113 | |||||||
Cash expenditures |
(292 | ) | (291 | ) | (583 | ) | ||||
Balance as of December 29, 2012 |
$ | — | $ | — | $ | — | ||||
During fiscal 2012, we recorded severance charges of $0.1 million related to changes in our senior executive officers. As of December 29, 2012, we have made all remaining restructure related payments and no future costs or payments are expected at this time.
During fiscal 2011, we recorded severance and office closure charges of $0.8 million. Of these charges, $0.4 million related to severance and severance-related charges for changes in our senior executive officers and $0.4 million related to the relocation of our corporate headquarters.
During fiscal 2010, we recorded a net reversal of restructuring costs and other severance-related costs of $0.3 million. The net reversal is comprised of a $0.4 million charge relating to severance and severance-related expenses and a reversal of $0.7 million primarily relating to the modification of lease agreements for office space previously vacated.
5. Deferred Compensation
The Restated Special Executive Retirement Plan (the "Deferred Plan") is an unfunded deferred compensation plan for past and present AIC executives. The Deferred Plan calls for us to credit periodically all existing account balances at a rate equivalent to the 10-year treasury rate plus one to three percent as determined each year by our Board of Directors. Previously, the Deferred Plan credited active executives' accounts at an agreed upon percentage of base pay; however, these contributions were discontinued effective January 3, 2010. Active executives, however, can continue to contribute up to fifty percent of their annual base pay and one hundred percent of their incentive bonus, if any. Previous employer accruals and employee contributions are one hundred percent vested at all times. Additionally, the Deferred Plan allows for discretionary employer contributions with separate vesting schedules if approved by our Board of Directors. Participants are allowed to choose between a lump sum distribution or one hundred twenty months of payments and a date of distribution for employee and employer contributions, subject to the "one-year, five-year" rule and other deferred compensation rules issued by the Internal Revenue Service. Key employees are not allowed to take distribution for six months after separation from service. Hardship distributions from the Deferred Plan are not allowed, and deferral elections will be canceled following any participant's hardship distribution
35
ANALYSTS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Deferred Compensation (Continued)
from his or her 401(k) account. The Deferred Plan provides that upon a change in control, a rabbi trust will be funded, and payments will be made if the Deferred Plan is subsequently terminated within twelve months of a change in control or due to a participant's right to take distribution upon a separation from service.
During fiscal 2011, we required the participants in our post-retirement medical benefit plan to move to a standardized plan or accept a buyout, which resulted in a decline in our future benefit obligation of approximately $0.4 million. The liability balance for our expected future post-retirement medical benefits is recorded in our non-current Deferred compensation balance as reported in our Consolidated Balance Sheets.
As of December 29, 2012 and December 31, 2011, our liability to active and former employees under the Deferred Plan, post-retirement medical benefits and other deferred compensation arrangements was $0.3 million and $0.5 million, respectively. Deferred compensation expense for fiscal 2012, 2011 and 2010 was $2,000, $19,000, and $42,000, respectively.
6. Income Taxes
The provision for income tax expense was as follows:
| |
Fiscal Year Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
(In thousands)
|
2012 | 2011 | 2010 | |||||||
Currently payable: |
||||||||||
Federal |
$ | — | $ | — | $ | — | ||||
State |
68 | 42 | 4 | |||||||
|
68 | 42 | 4 | |||||||
Deferred: |
||||||||||
Federal |
651 | 1,369 | (44 | ) | ||||||
State |
96 | 201 | (7 | ) | ||||||
|
747 | 1,570 | (51 | ) | ||||||
Valuation allowance for deferred tax assets |
(747 | ) | (1,570 | ) | 51 | |||||
Deferred provision |
— | — | — | |||||||
Total |
$ | 68 | $ | 42 | $ | 4 | ||||
36
ANALYSTS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Income Taxes (Continued)
Net deferred tax assets (liabilities) are comprised of the following:
(In thousands)
|
December 29, 2012 | December 31, 2011 | |||||
|---|---|---|---|---|---|---|---|
Federal net operating loss carry forward |
$ | 22,671 | $ | 22,675 | |||
State net operating loss carry forwards |
2,206 | 2,696 | |||||
Depreciation |
1,230 | 1,243 | |||||
Goodwill and other intangible assets |
165 | 265 | |||||
Deferred compensation |
106 | 174 | |||||
Other |
(334 | ) | (262 | ) | |||
Valuation allowance |
(26,044 | ) | (26,791 | ) | |||
Net deferred tax assets |
$ | — | $ | — | |||
Current |
$ | — | $ | — | |||
Non-current |
— | — | |||||
|
$ | — | $ | — | |||
We record a valuation allowance to reduce our deferred tax assets to an amount we believe will more likely than not be realized. The Financial Accounting Standards Board guidance requires that companies assess whether valuation allowances should be established against their deferred tax assets based on the consideration of all available evidence that can be objectively verified. In making such determination, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, historical and projected future taxable income, tax planning strategies and recent financial operations. Our three-year historical cumulative loss has been a significant negative factor in recent fiscal years in determining that a valuation allowance on these assets continued to be appropriate.
As of December 29, 2012, the Company was no longer in a three-year cumulative loss position. However, the realization of tax benefits of deductible temporary differences and operating loss or tax credit carry-forwards will depend on whether we have sufficient taxable income of an appropriate character within the carry-back and carry-forward periods permitted by the tax law to allow for utilization of the deductible amounts and carry-forwards. Significant management judgment is required in determining if a valuation allowance should continue to be recorded against deferred tax assets. We evaluated our ability to recover the deferred tax assets and weighed all available positive and negative evidence based on its objectivity and subjectivity. Such evidence included the lack of long-term, sustained positive operating results and trends, our ability to carry back losses against prior taxable income and uncertainty around projections of future taxable income. In estimating future taxable income, we developed assumptions including the amount of future federal and state pre-tax operating income and the reversal of temporary differences. These plans and projections require us to make estimates about a number of factors, including future revenues, prices, inflation, and expenses. Giving consideration to all relevant facts and circumstances, we concluded that the weight of the positive evidence was not sufficient to overcome the negative evidence and have concluded it is appropriate to maintain a full valuation allowance of $26.0 million against our deferred tax assets.
As of December 29, 2012, we had a tax benefit from the federal and state net operating loss carry-forwards of approximately $22.7 million and $2.2 million, respectively. The federal net operating loss carry forward benefits of $3.3 million, $1.1 million, $1.7 million, $3.6 million, $11.1 million, $1.6 million,
37
ANALYSTS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Income Taxes (Continued)
$0.1 million and $0.2 million expire in 2025, 2026, 2027, 2028, 2029, 2030, 2031, and 2032, respectively. The state net operating loss carry-forward benefits expire as follows: $0.7 million in 2013 through 2020 and $1.5 million in 2021 and beyond.
The provision for income taxes differs from the amount of income tax determined by applying the federal statutory income tax rates to pretax (loss) income as a result of the following differences:
| |
Fiscal Year Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
(In thousands)
|
2012 | 2011 | 2010 | |||||||
Income tax (benefit) at statutory federal rate |
$ | 135 | $ | 1,120 | $ | (157 | ) | |||
State and local taxes, net of federal (benefit) |
36 | 189 | (20 | ) | ||||||
Valuation allowance for deferred tax assets |
(747 | ) | (1,570 | ) | 51 | |||||
Meals and entertainment |
80 | 50 | 53 | |||||||
Goodwill |
(22 | ) | (22 | ) | (22 | ) | ||||
Expired state net operating loss deductions |
434 | 217 | 187 | |||||||
State income tax expense |
68 | 42 | 4 | |||||||
Other |
84 | 16 | (92 | ) | ||||||
Total tax provision |
$ | 68 | $ | 42 | $ | 4 | ||||
The provisions of ASC 740 clarify the accounting for uncertainty in income taxes recognized in an enterprise's financial statements and prescribe a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Additionally, ASC 740 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. As of December 29, 2012, we determined our positions will more likely than not be sustained if challenged.
We recognize interest and penalties related to uncertain tax positions within interest expense. During fiscal years 2012, 2011 and 2010, we have not recognized expense for interest and penalties and do not have any amounts accrued as of December 29, 2012 and December 31, 2011, respectively, for the payment of interest and penalties.
We file a consolidated income tax return in the US federal jurisdiction. We also file consolidated or separate company income tax returns in most states, Canada federal and Ontario province. As of December 29, 2012, there was one state tax audit in progress. The financial assessment is not yet final; however, we estimate the financial impact to be approximately $10,000, and it is provided for in our uncertain tax positions as of December 29, 2012. Aside from the aforementioned, there are no other federal, state or foreign income tax audits in progress. We are no longer subject to US federal audits for tax years before 2009, and with few exceptions, the same for state and local audits.
7. Equity
Equity Compensation Plans
Currently, we have equity based options outstanding from five plans and have the ability to issue equity-based options from three of these plans. Under the 2000 Stock Option Plan, we may grant non-qualified options to our employees for up to 34,000 shares of common stock. Under the 2004 Equity Incentive Plan, we may grant incentive options, non-qualified options or restricted stock awards
38
ANALYSTS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Equity (Continued)
to our employees and non-qualified options or restricted stock awards to our Board of Directors for up to 56,000 shares of common stock. Under the 2009 Equity Incentive Plan, we may grant incentive options to our employees and may award non-qualified options, restricted stock and other stock awards, restricted stock units, stock appreciation rights, performance share awards and other stock awards to our Board of Directors and non-employee consultants for up to 283,000 shares of common stock. We also have options outstanding under the 1996 Stock Option Plan for Non-Employee Directors and the 1999 Stock Option Plan.
The maximum term for options is 10 years; the exercise price of each option is equal to the closing market price of our stock on the date of grant; and the options and awards become exercisable or vest in one of two vesting schedules that comprise nearly all of the current outstanding options. The first vesting schedule is in annual increments of 25% beginning one year after the grant date and the second schedule is to vest 25% of the option awards immediately and 25% each year thereafter, beginning one year after the date of grant. Upon the exercise of stock options or the vesting of awards, new shares are issued from the authorized, unissued common stock.
The following table summarizes the stock option activity for the fiscal year ended December 29, 2012:
| |
Options | Weighted Average Exercise Price Per Share |
Weighted Average Remaining Contractual Term (in years) |
Aggregate Intrinsic Value |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Outstanding on December 31, 2011 |
314,700 | $ | 5.11 | 7.75 | $ | 436,774 | |||||||
Granted |
88,800 | 5.16 | |||||||||||
Exercised |
(13,250 | ) | 3.60 | ||||||||||
Forfeited/Cancelled |
(54,600 | ) | 4.31 | ||||||||||
Outstanding on December 29, 2012 |
335,650 | $ | 5.31 | 7.26 | $ | 34,124 | |||||||
Vested or expected to vest at December 29, 2012 |
311,220 | $ | 5.36 | 7.13 | $ | 32,958 | |||||||
Exercisable on December 29, 2012 |
207,599 | $ | 5.80 | 6.42 | $ | 24,169 | |||||||
The total fair value of the options that vested during 2012 was $0.2 million. 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 for fiscal 2012, $23,000 for fiscal 2011, and $0 for fiscal 2010.
39
ANALYSTS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Equity (Continued)
The fair value of each stock option was estimated on the date of the grant using the Black-Scholes option pricing model. The weighted average grant date fair value of stock options granted during fiscal years 2012, 2011 and 2010 was $3.17, $2.66, and $1.73, respectively.
| |
Fiscal Year Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
Black-Scholes Option Valuation Assumptions(1)
|
December 29, 2012 | December 31, 2011 | January 1, 2011 | |||||||
Risk-free interest rate(2) |
0.2 - 2.0 | % | 0.1 - 2.0 | % | 0.3 - 3.4 | % | ||||
Expected dividend yield |
— | — | — | |||||||
Expected stock price volatility(3) |
50.7 - 89.4 | 65.4 - 96.6 | 76.4 - 104.9 | |||||||
Expected life of stock options (in years)(4) |
4.1 | 4.1 | 4.1 | |||||||
Approximately 13,000 options were exercised during fiscal years 2012 and 2011. No options were exercised during fiscal 2010. The actual income tax benefit realized from stock option exercises was $0 in fiscal years 2012, 2011 and 2010.
Total stock option expense included in our Consolidated Statements of Operations for the fiscal year 2012, 2011 and 2010 was $0.2 million, $0.2 million, and $0, respectively. The tax benefit recorded for the same periods was $11,000, $12,000, and $0, respectively. This tax benefit is offset against our valuation allowance for our deferred tax assets.
As of December 29, 2012, there was $0.1 million of unrecognized compensation expense related to unvested option grants that were expected to vest over a weighted average period of one year.
Stock Awards
In fiscal 2012, we granted 80,000 stock awards to our employees, of which 25% vested immediately and 25% each year thereafter, beginning one year after the date of grant. The fair value of each stock award is equal to the closing price of our stock as measured on the grant date.
In addition, annually on or about the first business day of the fiscal year, each of the non-chair independent members of the Board of Directors is awarded 200 shares of fully vested common stock, and our independent board chair is awarded 400 shares of fully vested common stock.
40
ANALYSTS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Equity (Continued)
The following table summarizes the stock award activity for fiscal 2012:
| |
Shares | Weighted Average Grant Date Fair Value |
|||||
|---|---|---|---|---|---|---|---|
Non-vested at December 31, 2011 |
88,126 | $ | 4.24 | ||||
Granted |
81,200 | 5.10 | |||||
Vested |
(44,322 | ) | (4.79 | ) | |||
Forfeited |
(26,251 | ) | (3.96 | ) | |||
Non-vested at December 29, 2012 |
98,753 | $ | 4.78 | ||||
Total stock award expense included in our Consolidated Statements of Operations for the fiscal years 2012, 2011 and 2010 was $0.3 million, $0.3 million, and $0, respectively. The tax benefit recorded for the same periods was $30,000, $54,000, and $0, respectively. This tax benefit is offset against our valuation allowance for our deferred tax assets.
The total fair value of stock awards that vested during fiscal years 2012, 2011, and 2010 was approximately $197,000, $143,000, and $4,000, respectively.
As of December 29, 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 one year.
Reverse Stock Split
On February 26, 2010, we amended our Articles of Incorporation to effect a one-for-five reverse stock split (the "Reverse Stock Split") of our common stock, par value $0.10 per share (the "Common Stock"). As a result of the Reverse Stock Split, every five shares of our Common Stock were automatically converted into one share of our Common Stock immediately prior to the opening of trading on March 1, 2010. All fractional shares were rounded down and any shareholder that would be entitled to receive a fractional share would be paid the fair market value of the fractional share in cash.
To reflect the effect of the Reverse Stock Split, we have retroactively adjusted all share and per share data included in Common Stock and Additional Capital amounts in our Consolidated Balance Sheets as of January 2, 2010 and the weighted-average shares outstanding in our Consolidated Statements of Operations and related disclosures for the periods presented.
The Reverse Stock Split also resulted in proportionate adjustments under our then-existing Amended and Restated Rights Agreement having an effective date of February 27, 2008 (the "Amended Rights Plan") in (a) the number of shares issuable under the Amended Rights Plan and (b) the Purchase Price.
Amended Rights Plan
Under our common stock shareholder rights plan, the Board of Directors declared a dividend of one common share purchase right for each outstanding share of common stock and stock options granted and available for grant. The rights, which were extended by the Board of Directors on February 26, 2008 to expire on February 27, 2018, are exercisable only under certain conditions, and when exercisable the holder will be entitled to purchase from us one share of common stock at a price
41
ANALYSTS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Equity (Continued)
of $30.00, subject to certain adjustments. The rights will become exercisable after a person or group acquires beneficial ownership of 15% or more of our common stock or after a person or group announces an offer, the consummation of which would result in such person or group owning 15% or more of the common stock.
If we are acquired at any time after the rights become exercisable, the rights will be adjusted so as to entitle a holder to purchase a number of shares of common stock of the acquiring company equal to $30.00 divided by one-half the then-current market price of the acquirer's stock for each right owned by a holder. If any person or group acquires beneficial ownership of 15% or more of our shares, the rights will be adjusted so as to entitle a holder (other than such person or group whose rights become void) to purchase a number of shares of common stock of Analysts International Corporation equal to $30.00 divided by one-half the then-current market price of Analysts International Corporation's common stock or the Board of Directors may exchange the rights, in whole or in part, at an exchange ratio of one common share per right (subject to adjustment).
At any time prior to an acquisition by a person or group of beneficial ownership of 15% or more of our shares, the Board of Directors may redeem the rights at $.001 per right.
8. Commitments
As of December 29, 2012, aggregate net minimum lease commitments under non-cancelable operating leases having an initial or remaining term of more than one year are payable as follows:
(In thousands)
|
Lease Commitments | |||
|---|---|---|---|---|
Fiscal year ending |
||||
2013 |
$ | 1,388 | ||
2014 |
1,078 | |||
2015 |
969 | |||
2016 |
831 | |||
Later |
3,873 | |||
Less: sublease contracts |
307 | |||
Total minimum obligation |
$ | 7,832 | ||
Rent expense, primarily for office facilities, for fiscal 2012, 2011 and 2010 was $1.0 million, $1.2 million, and $1.4 million, respectively.
We have compensation arrangements with our corporate officers and certain other key employees which provide for certain payments in the event of a change of control of the Company.
We also sponsor a 401(k) plan. Substantially all employees are eligible to participate and may contribute up to 50% of their pre-tax earnings, subject to Internal Revenue Service maximum annual contribution amounts. Beginning in September 2009, we ceased making matching contributions to employees' pre-tax contributions. Prior to this change, after one year of employment, we made matching contributions for non-highly compensated participants in the form of Company stock of 18% of a participant's first 15% of pre-tax contributions. Matching contributions vest at the rate of 20% per year and are fully vested after five years of service.
42
ANALYSTS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Subsequent Event
On February 20, 2013, we entered into the Fourth Amendment to the Amended Credit Facility ("Fourth Amendment") with Wells Fargo. The Fourth Amendment adjusted certain collateral borrowing base calculations associated with our eligible unbilled accounts receivable and is expected to increase our borrowing availability in periods in which our fiscal period ends prior to the calendar month end, which affects our unbilled accounts receivable levels for clients on a calendar month billing cycle. In addition, the Fourth Amendment extended the term of the Amended Credit Facility from September 30, 2014 to September 30, 2016. Finally, the Fourth Amendment adjusted our minimum trailing twelve months earnings before taxes financial covenant to a loss of $0.1 million for the period ending March 30, 2013, a loss of $0.3 million for the period ending June 29, 2013 and earnings of $0.25 million for periods thereafter through the expiration of the credit agreement ending on September 30, 2016.
43
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Shareholders of
Analysts International Corporation
Minneapolis, Minnesota
We have audited the accompanying consolidated balance sheets of Analysts International Corporation and subsidiaries (the "Company") as of December 29, 2012 and December 31, 2011, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years ended December 29, 2012, December 31, 2011, and January 1, 2011. Our audits also included the financial statement schedule listed in the Index at Item 15. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Analysts International Corporation and subsidiaries as of December 29, 2012 and December 31, 2011, and the results of their operations and their cash flows for each of the three years ended December 29, 2012, December 31, 2011, and January 1, 2011, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such 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
February 21, 2013
44
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
There have been no disagreements with or changes in the Company's independent auditors within the past two fiscal years.
Item 9A(T). 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) Management's Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of our principal executive and principal financial officer and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States. Such internal control includes those policies and procedures that:
Our management assessed the effectiveness of our internal control over financial reporting as of December 29, 2012. In making this assessment, it used the criteria set forth in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has determined that, as of December 29, 2012, our internal control over financial reporting is effective based on those criteria.
This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not
45
subject to attestation by the Company's registered public accounting firm Securities and Exchange Commission rules that permit the Company to provide only management's report in this annual report.
(c) Changes in Internal Controls
Except as noted below, there were no changes in our internal controls over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
In the first quarter of fiscal 2012, we completed the initial implementation of a fully integrated Enterprise Resource Planning ("ERP") solution. The ERP solution replaced our previous financial and human resource information systems. The implementation of the ERP solution is not the result of any identified deficiencies in our internal control over financial reporting. The ERP solution has allowed us to streamline our business processes and attain cost efficient scalability as well as improve management reporting and analysis.
The foregoing description of the Fourth Amendment to our credit facility is intended to be a summary of the amendment and is qualified its entirety by reference to the full text of the Fourth Amendment, which is included with this Form 10-K as Exhibit 10.75.
46
Item 10. Directors, Executive Officers and Corporate Governance.
The information regarding executive officers and significant employees as required by Item 10 is set forth below.
Executive Officers and Significant Employees |
Age | Title | |||
|---|---|---|---|---|---|
Brittany B. McKinney |
41 | President and Chief Executive Officer | |||
Lynn L. Blake |
46 | Senior Vice President, Chief Financial Officer and Treasurer | |||
On February 22, 2011, our Board of Directors appointed Brittany B. McKinney as our President and Chief Executive Officer and on May 24, 2011, she was elected as a Director of our Company. Ms. McKinney served as our Interim President and Chief Executive Officer since September 2010 and was also responsible for managing our Central Region. Previously, Ms. McKinney was our Vice President of Strategy and Operations since November 2007. Prior to joining AIC in November 2007, Ms. McKinney served as Director of Operations and Integration Program Manager at Fujitsu Consulting. Prior to its acquisition by Fujitsu in 2005, Ms. McKinney served as a director-level employee at BORN Information Services, Inc. where she contributed to corporate strategy and planning initiatives.
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.
Corporate Governance
Our principal executive officer, principal financial officer, principal accounting officer and controller, or persons performing similar functions (the "Principal Officers"), are subject to our Code of Ethics for Senior Financial Executives. Our Code of Ethics for Senior Financial Executives is posted on our website at www.analysts.com in the Investor Relations section, and is available in print free of charge to any stockholder who requests them.
We will disclose any amendments to, or waivers of, our Code of Ethics for Senior Financial Executives on our website. We will satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding any amendment to, or waiver from, a provision of this code of ethics by posting such information on our website at the address and location specified above.
Other information called for in Part III, including information regarding directors, executive officers and corporate governance of the registrant (Item 10), executive compensation (Item 11), security ownership of certain beneficial owners and management and related stockholder matters (Item 12), certain relationships and related transactions, and director independence (Item 13) and principal accountant fees and services (Item 14), is hereby incorporated by reference from our
47
definitive proxy statement or amendments thereto to be filed pursuant to Regulation 14A, not later than 120 days after the end of the fiscal year covered by this report.
48
Item 15. Exhibits and Financial Statement Schedules.
(a).(1) Consolidated Financial Statements
The consolidated financial statements of Analysts International Corporation and its subsidiaries and the related independent registered public accounting firm's reports are included in the following pages of its annual report to shareholders for the fiscal year ended December 29, 2012.
(a).(2) Consolidated Financial Statement Schedule
Description
|
Page Herein |
|||
|---|---|---|---|---|
Schedule II. Valuation and Qualifying Accounts |
57 | |||
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.
(b) Exhibits
| Exhibit No. | Description | ||
|---|---|---|---|
| ^2.1 | Asset Purchase Agreement, dated August 4, 2009, by and between Netarx LLC and the Company (with Ex. K, Form of Promissory Note) (Exhibit 2.1 to Current Report on Form 8-K, filed August 5, 2009, Commission File No. 1-33981, incorporated by reference). | ||
^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). |
||
49
| Exhibit No. | Description | ||
|---|---|---|---|
| ^3.6 | Amendment to Articles of Incorporation to reduce authorized shares to 24 million (Exhibit 3.6 to Quarterly Report on Form 10-Q dated May 5, 2010, Commission File No. 0-4090, incorporated by reference). | ||
^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 4.2 to Quarterly Report on Form 10-Q for period ended October 3, 2009, Commission File No. 1-33981, 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. 1-33981, 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). |
||
*^10.1 |
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). |
||
*^10.2 |
1996 Stock Option Plan for Non-employee Directors (Exhibit B to Definitive Proxy Statement dated September 5, 1996, Commission File No. 0-4090, incorporated by reference). |
||
*^10.3 |
1999 Stock Option Plan (Exhibit A to Definitive Proxy Statement dated September 13, 1999, Commission File No. 0-4090, incorporated by reference). |
||
*^10.4 |
2000 Non-Qualified Stock Option Plan (Exhibit 6(d) to Quarterly Report on Form 10-Q for period ended March 31, 2001, Commission File No. 0-4090, incorporated by reference). |
||
^10.5 |
Credit Agreement dated April 11, 2002 between the Company and General Electric Capital Corporation (Exhibit 2.1 to Current Report on Form 8-K dated April 26, 2002, Commission File No. 0-4090, incorporated by reference). |
||
^10.6 |
Lease Agreement by and between the Company and Centennial Lakes III, LLC dated May 15, 2002 (Exhibit 2.4 to Current Report on Form 8-K, filed May 28, 2002, Commission File No. 0-4090, incorporated by reference). |
||
^10.7 |
First Amendment to Credit Agreement dated as of July 24, 2002 (Exhibit 10-l to Annual Report on Form 10-K for fiscal year 2002, Commission File No. 0-4090, incorporated by reference). |
||
^10.8 |
Waiver and Second Amendment to Credit Agreement dated as of April 7, 2003 (Exhibit 10-m to Annual Report on Form 10-K for fiscal year 2003, Commission File No. 0-4090, incorporated by reference). |
||
50
| Exhibit No. | Description | ||
|---|---|---|---|
| ^10.9 | Third Amendment to Credit Agreement dated as of April 28, 2003 (Exhibit 10-n to Annual Report on Form 10-K for fiscal year 2003, Commission File No. 0-4090, incorporated by reference). | ||
^10.10 |
Consent and Fourth Amendment to Credit Agreement dated as of December 31, 2003 (Exhibit 10-o to Annual Report on Form 10-K for fiscal year 2003, Commission File No. 0-4090, incorporated by reference). |
||
*^10.11 |
Fifth Amendment to Credit Agreement dated as of August 5, 2004 (Exhibit 10-r to Quarterly Report on Form 10-Q for period ended October 2, 2004, Commission File No. 0-4090, incorporated by reference). |
||
^10.12 |
Consent and Sixth Amendment to Credit Agreement dated as of January 6, 2005 (Exhibit 10-t to Annual Report on Form 10-K for fiscal year 2004, Commission File No. 0-4090, incorporated by reference). |
||
*^10.13 |
Standard Nonqualified Stock Option Agreement for Board Members under 2004 Equity Incentive Plan (Exhibit 10-u to Annual Report on Form 10-K for fiscal year 2004, Commission File No. 0-4090, incorporated by reference). |
||
*^10.14 |
Standard Restricted Stock Agreement for Board Members under 2004 Equity Incentive Plan (Exhibit 10-v to Annual Report on Form 10-K for fiscal year 2004, Commission File No. 0-4090, incorporated by reference). |
||
*^10.15 |
Standard Nonqualified Stock Option Agreement for Certain Employees under 2004 Equity Incentive Plan (Exhibit 10-w to Annual Report on Form 10-K for fiscal year 2004, Commission File No. 0-4090, incorporated by reference). |
||
*^10.16 |
Standard Restricted Stock Agreement for Certain Employees under 2004 Equity Incentive Plan (Exhibit 10-x to Annual Report on Form 10-K for fiscal year 2004, Commission File No. 0-4090, incorporated by reference). |
||
*^10.17 |
Standard Incentive Stock Option Agreement for Certain Employees under 2004 Equity Incentive Plan (Exhibit 10-y to Annual Report on Form 10-K for fiscal year 2004, Commission File No. 0-4090, incorporated by reference). |
||
^10.18 |
Eighth Amendment to Credit Agreement dated January 20, 2006 (Exhibit 99.2 to Current Report on Form 8-K, filed January 26, 2006, Commission File No. 0-4090, incorporated by reference). |
||
^10.19 |
Amendment to Lease Agreement by and between the Company and Centennial Lakes III, LLC dated March 24, 2006 (Exhibit 10.1 to Current Report on Form 8-K, filed March 28, 2006, Commission File No. 0-4090, incorporated by reference). |
||
*^10.20 |
Restated Special Executive Retirement Plan, dated December 27, 2006 (Exhibit 10-jj to Annual Report on Form 10-K for fiscal year 2006, Commission File No. 0-4090, incorporated by reference). |
||
^10.21 |
Waiver, Consent and Ninth Amendment to Credit Agreement, dated February 1, 2007 (Exhibit 10.2 to Current Report on Form 8-K, filed February 7, 2007, Commission File No. 0-4090, incorporated by reference). |
||
^10.22 |
Trust Agreement between the Company and Wachovia Bank, dated February 15, 2007, under the Restated Special Executive Retirement Plan (Exhibit 10.1 to Current Report on Form 8-K, filed February 15, 2007, Commission File No. 0-4090, incorporated by reference). |
||
51
| Exhibit No. | Description | ||
|---|---|---|---|
| *^10.23 | 2004 Equity Incentive Plan, as amended through May 25, 2006 (Exhibit 10.1 to Quarterly Report on Form 10-Q for period ended July 1, 2006, Commission File No. 0-4090, incorporated by reference). | ||
*^10.24 |
Form of incentive stock option agreement for long term incentive option grants for fiscal year 2007 (Exhibit 10-kk to Annual Report on Form 10-K for fiscal year 2006, Commission File No. 0-4090, incorporated by reference). |
||
*^10.25 |
Form of restricted stock award agreement for long-term incentive restricted stock awards in January 2007 for fiscal year 2007 (Exhibit 10-ll to Annual Report on Form 10-K for fiscal year 2006, Commission File No. 0-4090, incorporated by reference). |
||
^10.26 |
Waiver and Tenth Amendment to Credit Agreement, dated May 1, 2007 (Exhibit 10.1 to Current Report on Form 8-K, filed May 7, 2007, Commission File No. 0-4090, incorporated by reference). |
||
^10.27 |
Waiver and Eleventh Amendment to Credit Agreement, dated July 26, 2007 (Exhibit 10.1 to Current Report on Form 8-K, filed August 1, 2007, Commission File No. 0-4090, incorporated by reference). |
||
*^10.28 |
Elmer Baldwin Incentive Stock Option Agreement (2004 Equity Incentive Plan), effective November 1, 2007 (Exhibit 10.2 to Current Report on Form 8-K, filed November 5, 2007, Commission File No. 0-4090, incorporated by reference). |
||
*^10.29 |
Elmer Baldwin Nonqualified Stock Option Agreement (2004 Equity Incentive Plan), effective November 1, 2007 (Exhibit 10.3 to Current Report on Form 8-K, filed November 5, 2007, Commission File No. 0-4090, incorporated by reference). |
||
*^10.30 |
Elmer Baldwin Nonqualified Stock Option Agreement (2000 Nonqualified Stock Option Plan), effective November 1, 2007 (Exhibit 10.3 to Current Report on Form 8-K, filed November 5, 2007, Commission File No. 0-4090, incorporated by reference). |
||
*^10.31 |
Summary of Terms and Conditions of Severance Policy for executive officers and other senior management personnel (contained in Current Report on Form 8-K, filed October 25, 2007, Commission File No. 0-4090, incorporated by reference). |
||
*^10.32 |
Severance Agreement and Release of Claims between the Company and Colleen M. Davenport dated January 4, 2008 (Exhibit 10.4 to Current Report on Form 8-K, filed January 8, 2008, Commission File No. 0-4090, incorporated by reference). |
||
*^10.33 |
Severance Agreement and Release of Claims between the Company and David J. Steichen dated January 22, 2008 (Exhibit 10.1 to Current Report on Form 8-K, filed January 8, 2008, Commission File No. 0-4090, incorporated by reference). |
||
*^10.34 |
Amendment No. 1 to Restated Special Executive Retirement Plan as of September 1, 2007 (Exhibit 10-mm to Annual Report on Form 10-K, filed March 5, 2008, incorporated by reference). |
||
*^10.35 |
Non-Compete and Confidentiality Agreement between the Company and Robert E. Woods dated January 3, 2008 (Exhibit 10.2 to Current Report on Form 8-K, filed January 8, 2008, Commission File No. 0-4090, incorporated by reference). |
||
*^10.36 |
Form of Change of Control Agreement between the Company and management personnel M. Gange, L. Gilmore and A. Wise (Exhibit 10.5 to Current Report on Form 8-K, filed January 8, 2008, Commission File No. 0-4090, incorporated by reference). |
||
52
| Exhibit No. | Description | ||
|---|---|---|---|
| *^10.37 | Incentive Stock Option Agreement (2004 Equity Incentive Plan) dated January 16, 2008 between the Company and Robert E. Woods (Exhibit 10.1 to Current Report on Form 8-K, filed January 17, 2008, Commission File No. 0-4090, incorporated by reference). | ||
*^10.38 |
Letter Agreement between the Company and Walter Michels dated February 12, 2008 (Exhibit 99.2 to Current Report on Form 8-K, filed April 22, 2008, Commission File No. 1-33981, incorporated by reference). |
||
*^10.39 |
Employment Agreement between the Company and Michael W. Souders, executed on June 27, 2008, effective July 1, 2008 (Exhibit 10.1 to Current Report on Form 8-K, filed July 3, 2008, Commission File No. 1-33981, incorporated by reference). |
||
*^10.40 |
Change in Control Agreement between the Company and Michael W. Souders, executed on June 27, 2008, effective July 1, 2008 (Exhibit A to the Souders Employment Agreement) (Exhibit 10.2 to Current Report on Form 8-K, filed July 3, 2008, Commission File No. 1-33981, incorporated by reference). |
||
*^10.41 |
Annual Management Incentive Plan (AMIP) between the Company and Michael W. Souders, executed on June 27, 2008 (Exhibit B to the Souders Employment Agreement) (Exhibit 10.3 to Current Report on Form 8-K, filed July 3, 2008, Commission File No. 1-33981, incorporated by reference). |
||
*^10.42 |
Incentive Stock Option Agreement (2004 Equity Incentive Plan) between the Company and Michael W. Souders, executed on June 27, 2008 (Exhibit C-1 to the Souders Employment Agreement) (Exhibit 10.4 to Current Report on Form 8-K, filed July 3, 2008, Commission File No. 1-33981, incorporated by reference). |
||
*^10.43 |
Incentive Stock Option Agreement (1999 Stock Option Plan) between the Company and Michael W. Souders, executed on June 27, 2008 (Exhibit C-2 to the Souders Employment Agreement) (Exhibit 10.5 to Current Report on Form 8-K, filed July 3, 2008, Commission File No. 1-33981, incorporated by reference). |
||
*^10.44 |
Employee Agreement between the Company and Brittany McKinney, executed on June 27, 2008, effective June 23, 2008 (without Exhibits) (Exhibit 10.6 to Current Report on Form 8-K, filed July 3, 2008, Commission File No. 1-33981, incorporated by reference). |
||
*^10.45 |
Amendment No. 2 to Restated Special Executive Compensation Plan (Exhibit 10.7 to Current Report on Form 8-K, filed July 3, 2008, Commission File No. 1-33981, incorporated by reference). |
||
*^10.46 |
Exhibit A to Amendment No. 2 to Restated Special Executive Compensation Plan (Exhibit 10.8 to Current Report on Form 8-K, filed July 3, 2008, Commission File No. 1-33981, incorporated by reference). |
||
*^10.47 |
Employment Agreement between the Company and Randy W. Strobel, executed on August 8, 2008, effective August 25, 2008 (Exhibit 10.1 to Current Report on Form 8-K, filed August 12, 2008, Commission File No. 1-33981, incorporated by reference). |
||
*^10.48 |
Change in Control Agreement between the Company and Randy W. Strobel, executed on August 8, 2008, effective August 25, 2008 (Exhibit 10.2 to Current Report on Form 8-K, filed August 12, 2008, Commission File No. 1-33981, incorporated by reference). |
||
*^10.49 |
Annual Management Incentive Plan (AMIP) between the Company and Randy W. Strobel, executed on August 8, 2008, effective August 25, 2008 (Exhibit 10.3 to Current Report on Form 8-K, filed August 12, 2008, Commission File No. 1-33981, incorporated by reference). |
||
53
| Exhibit No. | Description | ||
|---|---|---|---|
| *^10.50 | Amended and Restated Employment Agreement between the Company and Elmer Baldwin, executed on August 19, 2008, effective November 1, 2007 (Exhibit 10.1 to Current Report on Form 8-K, filed August 22, 2008, Commission File No. 1-33981, incorporated by reference). | ||
*^10.51 |
Change in Control Agreement between the Company and Elmer Baldwin, executed on August 19, 2008, effective November 1, 2007 (Exhibit 10.2 to Current Report on Form 8-K, filed August 22, 2008, Commission File No. 1-33981, incorporated by reference). |
||
*^10.52 |
Amended and Restated Employment Agreement between the Company and Robert E. Woods, executed on August 19, 2008, effective January 1, 2008 (Exhibit 10.1 to Current Report on Form 8-K, filed August 22, 2008, Commission File No. 1-33981, incorporated by reference). |
||
*^10.53 |
Change in Control Agreement between the Company and Robert E. Woods, executed on August 19, 2008, effective January 1, 2008 (Exhibit 10.2 to Current Report on Form 8-K, filed August 22, 2008, Commission File No. 1-33981, incorporated by reference). |
||
^10.54 |
Consent and Twelfth Amendment to Credit Agreement, date August 4, 2009 (Exhibit 10.1 to Current Report on Form 8-K, filed August 5, 2009, Commission File No. 1-33981, incorporated by reference). |
||
*^10.55 |
Employment Agreement between the Company and James D. Anderson, executed and effective on September 1, 2009 (Exhibit 10.1 to Current Report on Form 8-K, filed September 3, 2009, Commission File No. 1-33981, incorporated by reference). |
||
*^10.56 |
Change in Control Agreement between the Company and James D. Anderson, executed and effective on September 1, 2009 (Exhibit 10.2 to Current Report on Form 8-K, filed September 3, 2009, Commission File No. 1-33981, incorporated by reference). |
||
**^10.57 |
Credit and Security Agreement with Wells Fargo Bank, National Association acting through its Wells Fargo Business Credit operating division, dated September 30, 2009 (Exhibit 10.1 to Current Report on Form 8-K, filed October 5, 2009, Commission File No. 1-33981, incorporated by reference). |
||
*^10.58 |
Employment Agreement together with Exhibit A, dated December 17, 2009, between the Company and Andrew K. Borgstrom (Exhibit 10.1 to Current Report on Form 8-K, filed December 18, 2009, Commission File No. 1-33981, incorporated by reference). |
||
*^10.59 |
Separation Agreement and Release of Claims, dated December 23, 2009, between the Company and Elmer Baldwin (Exhibit 10.1 to Current Report on Form 8-K, filed December 23, 2009, Commission File No. 1-33981, incorporated by reference). |
||
*^10.60 |
Agreement for Legal Services between the Company and Robert E. Woods Professional Association dated March 5, 2010. (Exhibit 10.60 to Quarterly Report on Form 10-Q, filed May 5, 2010, Commission File No. 1-33981, incorporated by reference). |
||
*^10.61 |
Separation Agreement and Release of Claims dated July 28, 2010, between the Company and James D. Anderson. (Exhibit 10.61 to Quarterly Report on Form 10-Q, filed November 4, 2010, Commission File No. 1-33981, incorporated by reference. |
||
*^10.62 |
Separation Agreement and Release of Claims dated September 29, 2010, between the Company and Andrew K. Borgstrom (Exhibit 10.1 to the Registrant's Form 8-K filed September 30, 2010, Commission File No. 0-4090, incorporated by reference). |
||
54
| Exhibit No. | Description | ||
|---|---|---|---|
| *^10.63 | Transitional Services Agreement dated September 29, 2010, between the Company and Andrew K. Borgstrom (Exhibit 10.2 to the Registrant's Form 8-K filed September 30, 2010, Commission File No. 0-4090, incorporated by reference). | ||
*^10.64 |
Letter Agreement dated September 29, 2010, between the Company and Brittany B. McKinney (Exhibit 10.3 to the Registrant's Form 8-K filed September 30, 2010, Commission File No. 0-4090, incorporated by reference). |
||
^10.65 |
First Amendment to Credit & Security Agreement with Wells Fargo Bank, National Association, dated February 23, 2011 (Exhibit 10.1 to Current Report on Form 8-K, filed February 24, 2010, Commission File No. 1-33981, incorporated by reference). |
||
*^10.66 |
Employment Agreement together with Exhibits A and B, between the Company and Brittany B. McKinney, dated as of March 1, 2011 (Exhibit 10.1 to the Registrant's Form 8-K filed February 24, 2010, Commission File No. 1-33981, incorporated by reference). |
||
^10.65 |
First Amendment to Credit & Security Agreement with Wells Fargo Bank, National Association, dated February 23, 2011 (Exhibit 10.1 to Current Report on Form 8-K, filed February 24, 2010, Commission File No. 1-33981, incorporated by reference). |
||
*^10.66 |
Employment Agreement together with Exhibits A and B, between the Company and Brittany B. McKinney, dated as of March 1, 2011 (Exhibit 10.1 to the Registrant's Form 8-K filed February 24, 2010, Commission File No. 1-33981, incorporated by reference). |
||
*^10.67 |
Change in Control Severance Pay Plan, adopted February 22, 2011, dated March 1, 2011 (Exhibit 10.1 to Current Report on Form 8-K, filed February 28, 2011, Commission File No. 1-33981, incorporated by reference). |
||
*^10.68 |
Separation Agreement and Release of Claims dated May 4, 2011, between the Company and Randy W. Strobel (Exhibit 10.1 to the Registrant's Form 8-K filed May 5, 2011, Commission File No. 1-33987, incorporated by reference) |
||
*^10.69 |
Separation Agreement and Release of Claims dated as of May 24, 2011, between Analysts International Corporation and Christopher T. Cain (Exhibit 10.1 to the Registrant's Form 8-K filed May 27, 2011, Commission File No. 1-33987, incorporated by reference) |
||
*^10.70 |
Employment Agreement between Analysts International Corporation and William R. Wolff, fully executed on August 3, 2011, with an effective date of August 8, 2011(Exhibit 10.1 to the Registrant's Form 8-K filed August 3, 2011, Commission File No. 1-33981, incorporated by reference) |
||
^10.71 |
Second Amendment to Credit & Security Agreement dated as of September 21, 2011 by and between Analysts International Corporation and Wells Fargo Bank, N.A. (previously filed as Exhibit 4.4 to Quarterly Report on Form 10-Q for period ended October 1, 2011, Commission File No. 1-33981, 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 10.72 to Annual Report on Form 10-K for the period ended December 31, 2011, Commission File No. 1-33981). |
||
55
| Exhibit No. | Description | ||
|---|---|---|---|
| *^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). |
||
+10.75 |
Fourth Amendment to Credit and Security Agreement dated as of February 20, 2013 by and between Analysts International Corporation and Wells Fargo Bank, N.A. (Exhibit 10.75 to Annual Report on Form 10-K for the period ended December 29, 2012, Commission File No. 1-33981). |
||
+21 |
Subsidiaries of Registrant |
||
+23 |
Consent of Independent Registered Public Accounting Firm. |
||
+24.1 |
Power of Attorney. |
||
+31.1 |
Certification of CEO under section 302 of the Sarbanes-Oxley Act of 2002. |
||
+31.2 |
Certification of CFO under 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 |
Interactive data files pursuant to Rule 405 of Regulation S-T, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets at December 29, 2012 and December 31, 2011, (ii) the Consolidated Statements of Operations for the years ended December 29, 2012, December 31, 2011, and January 1, 2011, (iii) Consolidated Statements of Equity for the years ended December 29, 2012, December 31, 2011, and January 1, 2011, (iv) the Consolidated Statements of Cash Flows for the years ended December 29, 2012, December 31, 2011, and January 1, 2011 and (v) the notes to the Consolidated Financial Statements. |
||
56
Schedule II
Analysts International Corporation
Valuation and Qualifying Accounts
| |
Allowance for doubtful accounts | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In thousands)
|
Beginning balance |
Charged to costs and expenses |
Write-offs, net of (recoveries) |
Ending balance |
|||||||||
Twelve months ended December 29, 2012 |
$ | 644 | $ | 254 | $ | 227 | $ | 671 | |||||
Twelve months ended December 31, 2011 |
$ | 713 | $ | 49 | $ | 118 | $ | 644 | |||||
Twelve months ended January 1, 2011 |
$ | 958 | $ | (251 | ) | $ | (6 | ) | $ | 713 | |||
57
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/ BRITTANY B. MCKINNEY Brittany B. McKinney, President and Chief Executive Officer |
|||
Date: February 21, 2013
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/ BRITTANY B. MCKINNEY Brittany B. McKinney |
President and Chief Executive Officer (Principal Executive Officer) | February 21, 2013 | ||
/s/ LYNN L. BLAKE Lynn L. Blake |
Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) |
February 21, 2013 |
||
/s/ BRIGID A. BONNER Brigid A. Bonner |
Director |
February 21, 2013 |
||
/s/ KRZYSZTOF K. BURHARDT Krzysztof K. Burhardt |
Director |
February 21, 2013 |
||
/s/ JOSEPH T. DUNSMORE Joseph T. Dunsmore |
Director |
February 21, 2013 |
||
/s/ GALEN G. JOHNSON Galen G. Johnson |
Director |
February 21, 2013 |
||
/s/ DOUGLAS C. NEVE Douglas C. Neve |
Director |
February 21, 2013 |
||
/s/ ROBERT E. WOODS Robert E. Woods |
Director |
February 21, 2013 |
58
| Exhibit 10.75 | Fourth Amendment to the Credit and Security Agreement | |
Exhibit 21 |
Subsidiaries of Registrant |
|
Exhibit 23 |
Consent of Independent Registered Public Accounting Firm |
|
Exhibit 24.1 |
Power of Attorney |
|
Exhibit 31.1 |
Certification of CEO pursuant to Section302 of the Sarbanes-Oxley Act of 2002 |
|
Exhibit 31.2 |
Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
Exhibit 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 |
59
Exhibit 10.75
FOURTH AMENDMENT TO CREDIT AND SECURITY AGREEMENT
THIS FOURTH AMENDMENT TO CREDIT AND SECURITY AGREEMENT (this “Amendment”), dated as of February 20, 2013, is entered into by and between ANALYSTS INTERNATIONAL CORPORATION, a Minnesota corporation (“Company”), and WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association (“Wells Fargo”).
RECITALS
Company and Wells Fargo are parties to that certain Credit and Security Agreement dated as of September 30, 2009, as amended by a First Amendment to Credit and Security Agreement dated as of February 23, 2011, as amended by a Second Amendment to Credit and Security Agreement dated as of September 21, 2011, and as amended by a Third Amendment to Credit and Security Agreement dated as of February 22, 2012 (as so amended, and as the same may be further amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”). Capitalized terms used in these recitals and in this Amendment shall have the meanings ascribed to them in the Credit Agreement unless otherwise specified herein.
Company has requested that certain amendments be made to the Credit Agreement, which Wells Fargo is willing to make pursuant to the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements herein contained and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Amendments to Credit Agreement.
(a) Section 1.2(a)(ii) of the Credit Agreement is hereby amended in its entirety to read as follows:
(ii) the smaller of (A) 75%, or such lesser percentage as Wells Fargo in its sole discretion may deem appropriate, of Eligible Unbilled Accounts minus Subcontractor Payables related to Unbilled Accounts, or (B) $6,000,000; less
(b) Section 1.8(d) of the Credit Agreement is hereby amended in its entirety to read as follows:
(d) Line of Credit Termination and/or Reduction Fees. If (i) Wells Fargo terminates the Line of Credit or reduces the Maximum Line Amount during a Default Period, or if (ii) Company terminates the Line of Credit on a date prior to the Maturity Date, or if (iii) Company reduces the Maximum Line Amount, then Company shall pay Wells Fargo as liquidated damages a termination or reduction fee, as applicable, in an amount equal to a percentage of the Maximum Line Amount or the reduction of the Maximum Line Amount, as the case may be, calculated as follows: (A) one-quarter of one percent (0.25%) if the termination or reduction occurs after September 30, 2012, but on or before September 30, 2015; and (B) zero percent (0%) if the termination occurs after September 30, 2015.
(c) Section 5.2(b) of the Credit Agreement is hereby amended in its entirety to read as follows:
(b) Minimum Trailing Twelve Months Earnings Before Taxes. Company shall achieve, during each twelve month period described below, Earnings Before Taxes for the Consolidated Group of not less than the amount set forth for each twelve month period:
|
Twelve Month |
|
Minimum Earnings |
| |
|
December 29, 2012 |
|
$ |
250,000 |
|
|
March 30, 2013 |
|
$ |
(100,000 |
) |
|
June 29, 2013 |
|
$ |
(300,000 |
) |
|
September 28, 2013 |
|
$ |
250,000 |
|
|
December 28, 2013 |
|
$ |
250,000 |
|
|
March 29, 2014 |
|
$ |
250,000 |
|
|
June 28, 2014 |
|
$ |
250,000 |
|
|
September 27, 2014 |
|
$ |
250,000 |
|
|
January 3, 2015 |
|
$ |
250,000 |
|
|
April 4, 2015 |
|
$ |
250,000 |
|
|
July 4, 2015 |
|
$ |
250,000 |
|
|
October 3, 2015 |
|
$ |
250,000 |
|
|
January 2, 2016 |
|
$ |
250,000 |
|
|
April 2, 2016 |
|
$ |
250,000 |
|
|
July 2, 2016 |
|
$ |
250,000 |
|
(d) The definition of “Maturity Date” contained in Exhibit A of the Credit Agreement is hereby amended in its entirety to read as follows:
“Maturity Date” means September 30, 2016.
2. Exhibits. Exhibit E of the Credit Agreement is hereby replaced with Exhibit E to this Agreement.
3. No Other Changes. Except as explicitly amended by this Amendment, all of the terms and conditions of the Credit Agreement shall remain in full force and effect and shall apply to any advance or letter of credit thereunder.
4. Conditions Precedent. This Amendment shall be effective when Wells Fargo shall have received an executed original hereof, together with each of the following, each in substance and form acceptable to Wells Fargo in its sole discretion:
(a) a Certificate of the Secretary of Company certifying (i) as to the resolutions of the board of directors of Company approving the execution and delivery of this Amendment, (ii) that attached thereto are true, complete and correct copies of the Constituent Documents of Company as in effect as of the date of this Amendment or that copies of the Constituent Documents of the Company that have been previously delivered by Company to Wells Fargo remain true and correct, and (iii) that the officers and agents of Company who have been certified to Wells Fargo, pursuant to the Certificate of Secretary of Borrower of Company’s secretary or assistant secretary dated September 26, 2011 as being authorized to sign and to act on behalf of Company continue to be so authorized or setting forth the sample signatures of each of the officers and agents of Company authorized to execute and deliver this Amendment and all other documents, agreements and certificates on behalf of Company; and
(b) such other matters as Wells Fargo may require.
5. Representations and Warranties. Company hereby represents and warrants to Wells Fargo as follows:
(a) Company has all requisite power and authority to execute this Amendment and any other agreements or instruments required hereunder and to perform all of its obligations hereunder and under the Credit Agreement as amended by this Amendment, and this Amendment, the Credit Agreement as amended by this Amendment and all other agreements and instruments have been duly executed and delivered by Company and constitute the legal, valid and binding obligation of Company, enforceable in accordance with their respective terms;
(b) the execution, delivery and performance by Company of this Amendment and any other agreements or instruments required hereunder have been duly authorized by all necessary corporate action and do not: (i) require any authorization, consent or approval by any governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign; (ii) violate any provision of any law, rule or regulation or of any order, writ, injunction or decree presently in effect, having applicability to Company, or the articles of incorporation or by-laws of Company; or (iii) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which Company is a party or by which it or its properties may be bound or affected; and
(c) all of the representations and warranties contained in Article IV and Exhibit D of the Credit Agreement are correct on and as of the date hereof as though made on and as of such date, except to the extent that such representations and warranties relate solely to an earlier date.
6. References. All references in the Credit Agreement to “this Agreement” shall be deemed to refer to the Credit Agreement as amended hereby; and any and all references in the Security Documents to the Credit Agreement shall be deemed to refer to the Credit Agreement as amended hereby.
7. No Waiver. The execution of this Amendment and the acceptance of all other agreements and instruments related hereto shall not be deemed to be a waiver of any Default or Event of Default under the Credit Agreement or a waiver of any breach, default or event of default under any Security Document or other document held by Wells Fargo, whether or not known to Wells Fargo and whether or not existing on the date of this Amendment.
8. Release. Company hereby absolutely and unconditionally releases and forever discharges Wells Fargo, and any and all participants, parent corporations, subsidiary corporations, affiliated corporations, insurers, indemnitors, successors and assigns thereof, together with all of the present and former directors, officers, agents and employees of any of the foregoing, from any and all claims, demands or causes of action of any kind, nature or description, whether arising in law or equity or upon contract or tort or under any state or federal law or otherwise, which Company has had, now has or has made claim to have against any such person for or by reason of any act, omission, matter, cause or thing whatsoever arising from the beginning of time to and including the date of this Amendment, whether such claims, demands and causes of action are matured or unmatured or known or unknown.
9. Costs and Expenses. Company hereby reaffirms its agreement under the Credit Agreement to pay or reimburse Wells Fargo on demand for all costs and expenses incurred by Wells Fargo in connection with the Loan Documents, including without limitation all reasonable fees and disbursements of legal counsel. Without limiting the generality of the foregoing, Company specifically agrees to pay all fees and disbursements of counsel to Wells Fargo for the services performed by such counsel in connection with the preparation of this Amendment and the documents and instruments incidental hereto. Company hereby agrees that Wells Fargo may, at any time or from time to time in its sole discretion and without further authorization by Company, make a loan to Company under the Credit Agreement, or apply the proceeds of any loan, for the purpose of paying any such fees, disbursements, costs and expense.
10. Miscellaneous. This Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original and all of which counterparts, taken together, shall constitute one and the same instrument.
Signature page follows
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written.
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ANALYSTS INTERNATIONAL CORPORATION | ||
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By: |
/s/ Lynn L. Blake | |
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Name: |
Lynn L. Blake |
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Title: |
Chief Financial Officer |
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WELLS FARGO BANK, NATIONAL ASSOCIATION | ||
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By: |
/s/ Karen J. Chew | |
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Name: |
Karen J. Chew |
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Title: |
Authorized Signatory |
Exhibit E to Fourth Amendment
Exhibit E to Credit and Security Agreement
COMPLIANCE CERTIFICATE
To: Wells Fargo Bank, National Association
Date: [ , 20 ]
Subject: Financial Statements
In accordance with our Credit and Security Agreement dated September 30, 2009 (as amended from time to time, the “Credit Agreement”), attached are the financial statements of Analysts International Corporation (“Company”) dated [ , 20 ] (the “Reporting Date”) and the year-to-date period then ended or the trailing twelve month period, as applicable (the “Current Financials”). All terms used in this certificate and not otherwise defined herein have the meanings given in the Credit Agreement.
A. Preparation and Accuracy of Financial Statements. I certify that the Current Financials have been prepared in accordance with GAAP and fairly present Company’s financial condition as of the Reporting Date.
B. Name of Company; Merger and Consolidation. I certify that:
(Check one)
o Company has not, since the date of the Credit Agreement, changed its name or jurisdiction of organization, nor has it consolidated or merged with another Person.
o Company has, since the date of the Credit Agreement, either changed its name or jurisdiction of organization, or both, or has consolidated or merged with another Person, which change, consolidation or merger: o was consented to in advance by Wells Fargo in an Authenticated Record, and/or o is more fully described in the statement of facts attached to this Certificate.
C. Events of Default. I certify that:
(Check one)
o I have no knowledge of the occurrence of an Event of Default under the Credit Agreement, except as previously reported to Wells Fargo in a Record.
o I have knowledge of an Event of Default under the Credit Agreement not previously reported to Wells Fargo in a Record, as more fully described in the statement of facts attached to this Certificate, and further, I acknowledge that Wells Fargo may under the terms of the Credit Agreement impose the Default Rate at any time during the resulting Default Period.
D. Litigation Matters. I certify that:
(Check one)
o I have no knowledge of any material adverse change to the litigation exposure of Company or any of its Affiliates or of any Guarantor.
o I have knowledge of material adverse changes to the litigation exposure of Company or any of its Affiliates or of any Guarantor not previously disclosed in Exhibit D, as more fully described in the statement of facts attached to this Certificate.
E. Financial Covenants. I further certify that:
(Check and complete each of the following)
1. Minimum Trailing Twelve Months Earnings Before Taxes. Pursuant to Section 5.2(b) of the Credit Agreement, Company’s Earnings Before Taxes for the twelve month period ending on the Reporting Date, was [$ ], which o satisfies o does not satisfy the requirement that such amount be not less than the applicable trailing twelve month amount set forth in the table below (numbers appearing between parentheticals are negative) on the Reporting Date:
|
Twelve Month |
|
Minimum Earnings |
| |
|
December 29, 2012 |
|
$ |
250,000 |
|
|
March 30, 2013 |
|
$ |
(100,000 |
) |
|
June 29, 2013 |
|
$ |
(300,000 |
) |
|
September 28, 2013 |
|
$ |
250,000 |
|
|
December 28, 2013 |
|
$ |
250,000 |
|
|
March 29, 2014 |
|
$ |
250,000 |
|
|
June 28, 2014 |
|
$ |
250,000 |
|
|
September 27, 2014 |
|
$ |
250,000 |
|
|
January 3, 2015 |
|
$ |
250,000 |
|
|
April 4, 2015 |
|
$ |
250,000 |
|
|
July 4, 2015 |
|
$ |
250,000 |
|
|
October 3, 2015 |
|
$ |
250,000 |
|
|
January 2, 2016 |
|
$ |
250,000 |
|
|
April 2, 2016 |
|
$ |
250,000 |
|
|
July 2, 2016 |
|
$ |
250,000 |
|
2. Capital Expenditures. Pursuant to Section 5.2(c) of the Credit Agreement, for the year-to-date period ending on the Reporting Date, Company has expended or contracted to expend during the fiscal year ended [ , 20 ], for Capital Expenditures, [$ ] in the aggregate which o satisfies o does not satisfy the requirement that such expenditures not exceed, during any fiscal year, (i) $2,000,000 in the aggregate for the Consolidated Group or (ii) more than $2,000,000 in any one transaction.
3. Minimum Excess Borrowing Base Availability. Pursuant to Section 5.2(d) of the Credit Agreement, Company has maintained an average minimum Excess Borrowing Base Availability of [$ ] during the calendar month, and has o satisfied o not satisfied the requirement that Company maintain a minimum Excess Borrowing Base Availability of not less than $3,000,000 at all times.
4. Salaries. Company o is o is not in compliance with Section 5.9 of the Credit Agreement, which requires that Company not pay excessive or unreasonable salaries, bonuses, commissions, consultant fees or other compensation.
Attached are statements of all relevant facts and computations in reasonable detail sufficient to evidence Company’s compliance with the financial covenants referred to above, which computations were made in accordance with GAAP.
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ANALYSTS INTERNATIONAL CORPORATION | ||
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By: |
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Name: |
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Title: |
Chief Financial Officer |
EXHIBIT 21
Subsidiaries of Registrant
As of December 29, 2012
|
|
|
State or Jurisdiction |
|
Percentage of Voting |
|
|
Subsidiaries |
|
of Incorporation |
|
Securities Owned |
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|
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|
|
|
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|
|
Medical Concepts Staffing, Inc. (Inactive: in process of voluntary dissolution) |
|
Minnesota |
|
100.0 |
% |
EXHIBIT 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-137446, 333-160967, 333-36188, and 333-118663 on Form S-8 of our report dated February 21, 2013, relating to the consolidated financial statements and financial statement schedule of Analysts International Corporation and subsidiaries appearing in this Annual Report on Form 10-K of Analysts International Corporation and subsidiaries for the year ended December 29, 2012.
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/s/ Deloitte & Touche LLP |
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|
Minneapolis, Minnesota |
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February 21, 2013 |
|
EXHIBIT 24.1
ANALYSTS INTERNATIONAL CORPORATION
POWER OF ATTORNEY
TO SIGN
ANNUAL REPORT ON FORM 10-K
KNOW ALL PEOPLE BY THESE PRESENTS, that the undersigned hereby appoints Brittany B. McKinney and Robert E. Woods, and each of them, my true and lawful attorneys in fact, for me and in my name, place and stead, to sign and affix my name as a Director of Analysts International Corporation to the Annual Report on Form 10-K for the year ended December 29, 2012 and all amendments thereto to be filed by said Company with the Securities and Exchange Commission, Washington, D.C. as required by Section 13 of the Securities Exchange Act of 1934, as amended granting and giving unto said attorneys in fact, or any one of them, full authority and power to do and perform any and all acts necessary or incidental to the performance and execution of powers herein expressly granted, with full power to do and perform all acts authorized hereby as fully to all intents and purposes as I might or could do if personally present, with full power of substitution.
IN TESTIMONY WHEREOF, I have hereunto set my hand this 21st day of February, 2013.
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/s/ Brigid A. Bonner |
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Brigid A. Bonner |
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STATE OF MINNESOTA |
) |
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|
) ss |
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COUNTY OF HENNEPIN |
) |
|
On the 21st day of February, 2013, before me, personally came Brigid A. Bonner to me known to be the person described in and who executed the foregoing instrument and acknowledged that she executed the same as her free act and deed.
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/s/ Jill E. Dose |
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Notary Public |
ANALYSTS INTERNATIONAL CORPORATION
POWER OF ATTORNEY
TO SIGN
ANNUAL REPORT ON FORM 10-K
KNOW ALL PEOPLE BY THESE PRESENTS, that the undersigned hereby appoints Brittany B. McKinney and Robert E. Woods, and each of them, my true and lawful attorneys in fact, for me and in my name, place and stead, to sign and affix my name as a Director of Analysts International Corporation to the Annual Report on Form 10-K for the year ended December 29, 2012 and all amendments thereto to be filed by said Company with the Securities and Exchange Commission, Washington, D.C. as required by Section 13 of the Securities Exchange Act of 1934, as amended granting and giving unto said attorney in fact, or any one of them, full authority and power to do and perform any and all acts necessary or incidental to the performance and execution of powers herein expressly granted, with full power to do and perform all acts authorized hereby as fully to all intents and purposes as I might or could do if personally present, with full power of substitution.
IN TESTIMONY WHEREOF, I have hereunto set my hand this 21st day of February, 2013.
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/s/ Krzysztof K. Burhardt |
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Krzysztof K. Burhardt |
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STATE OF MINNESOTA |
) |
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) ss |
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COUNTY OF HENNEPIN |
) |
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On the 21st day of February, 2013, before me, personally came Krzysztof K. Burhardt to me known to be the person described in and who executed the foregoing instrument and acknowledged that he executed the same as his free act and deed.
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/s/ Jill E. Dose |
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Notary Public |
ANALYSTS INTERNATIONAL CORPORATION
POWER OF ATTORNEY
TO SIGN
ANNUAL REPORT ON FORM 10-K
KNOW ALL PEOPLE BY THESE PRESENTS, that the undersigned hereby appoints Brittany B. McKinney and Robert E. Woods, and each of them, my true and lawful attorneys in fact, for me and in my name, place and stead, to sign and affix my name as a Director of Analysts International Corporation to the Annual Report on Form 10-K for the year ended December 29, 2012 and all amendments thereto to be filed by said Company with the Securities and Exchange Commission, Washington, D.C. as required by Section 13 of the Securities Exchange Act of 1934, as amended granting and giving unto said attorney in fact, or any one of them, full authority and power to do and perform any and all acts necessary or incidental to the performance and execution of powers herein expressly granted, with full power to do and perform all acts authorized hereby as fully to all intents and purposes as I might or could do if personally present, with full power of substitution.
IN TESTIMONY WHEREOF, I have hereunto set my hand this 21st day of February, 2013.
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/s/ Joseph T. Dunsmore |
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Joseph T. Dunsmore |
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STATE OF MINNESOTA |
) |
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) ss |
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COUNTY OF HENNEPIN |
) |
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On the 21st day of February, 2013, before me, personally came Joseph T. Dunsmore to me known to be the person described in and who executed the foregoing instrument and acknowledged that he executed the same as his free act and deed.
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/s/ Jill E. Dose |
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Notary Public |
ANALYSTS INTERNATIONAL CORPORATION
POWER OF ATTORNEY
TO SIGN
ANNUAL REPORT ON FORM 10-K
KNOW ALL PEOPLE BY THESE PRESENTS, that the undersigned hereby appoints Brittany B. McKinney and Robert E. Woods, and each of them, my true and lawful attorneys in fact, for me and in my name, place and stead, to sign and affix my name as a Director of Analysts International Corporation to the Annual Report on Form 10-K for the year ended December 29, 2012 and all amendments thereto to be filed by said Company with the Securities and Exchange Commission, Washington, D.C. as required by Section 13 of the Securities Exchange Act of 1934, as amended granting and giving unto said attorney in fact, or any one of them, full authority and power to do and perform any and all acts necessary or incidental to the performance and execution of powers herein expressly granted, with full power to do and perform all acts authorized hereby as fully to all intents and purposes as I might or could do if personally present, with full power of substitution.
IN TESTIMONY WHEREOF, I have hereunto set my hand this 21st day of February, 2013.
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/s/ Galen G. Johnson |
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Galen G. Johnson |
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STATE OF MINNESOTA |
) |
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) ss |
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COUNTY OF HENNEPIN |
) |
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On the 21st day of February, 2013, before me, personally came Galen G. Johnson to me known to be the person described in and who executed the foregoing instrument and acknowledged that he executed the same as his free act and deed.
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/s/ Jill E. Dose |
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|
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Notary Public |
ANALYSTS INTERNATIONAL CORPORATION
POWER OF ATTORNEY
TO SIGN
ANNUAL REPORT ON FORM 10-K
KNOW ALL PEOPLE BY THESE PRESENTS, that the undersigned hereby appoints Brittany B. McKinney and Robert E. Woods, and each of them, my true and lawful attorneys in fact, for me and in my name, place and stead, to sign and affix my name as a Director of Analysts International Corporation to the Annual Report on Form 10-K for the year ended December 29, 2012 and all amendments thereto to be filed by said Company with the Securities and Exchange Commission, Washington, D.C. as required by Section 13 of the Securities Exchange Act of 1934, as amended granting and giving unto said attorney in fact, or any one of them, full authority and power to do and perform any and all acts necessary or incidental to the performance and execution of powers herein expressly granted, with full power to do and perform all acts authorized hereby as fully to all intents and purposes as I might or could do if personally present, with full power of substitution.
IN TESTIMONY WHEREOF, I have hereunto set my hand this 21st day of February, 2013.
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|
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/s/ Douglas C. Neve |
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|
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Douglas C. Neve |
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STATE OF MINNESOTA |
) |
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|
) ss |
|
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COUNTY OF HENNEPIN |
) |
|
On the 21st day of February, 2013, before me, personally came Douglas C. Neve to me known to be the person described in and who executed the foregoing instrument and acknowledged that he executed the same as his free act and deed.
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/s/ Jill E. Dose |
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|
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Notary Public |
ANALYSTS INTERNATIONAL CORPORATION
POWER OF ATTORNEY
TO SIGN
ANNUAL REPORT ON FORM 10-K
KNOW ALL PEOPLE BY THESE PRESENTS, that the undersigned hereby appoints Brittany B. McKinney and Robert E. Woods, and each of them, my true and lawful attorneys in fact, for me and in my name, place and stead, to sign and affix my name as a Director of Analysts International Corporation to the Annual Report on Form 10-K for the year ended December 29, 2012 and all amendments thereto to be filed by said Company with the Securities and Exchange Commission, Washington, D.C. as required by Section 13 of the Securities Exchange Act of 1934, as amended granting and giving unto said attorney in fact, or any one of them, full authority and power to do and perform any and all acts necessary or incidental to the performance and execution of powers herein expressly granted, with full power to do and perform all acts authorized hereby as fully to all intents and purposes as I might or could do if personally present, with full power of substitution.
IN TESTIMONY WHEREOF, I have hereunto set my hand this 21st day of February, 2013.
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/s/ Robert E. Woods |
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Robert E. Woods |
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STATE OF MINNESOTA |
) |
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) ss |
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COUNTY OF HENNEPIN |
) |
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On the 21st day of February, 2013, before me, personally came Robert E. Woods to me known to be the person described in and who executed the foregoing instrument and acknowledged that he executed the same as his free act and deed.
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/s/ Jill E. Dose |
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Notary Public |
EXHIBIT 31.1
CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Brittany B. McKinney, certify that:
1. I have reviewed this annual report on Form 10-K of Analysts International Corporation (the Registrant);
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based on such evaluation; and
d) disclosed in this annual report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing equivalent function):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Dated: February 21, 2013 |
By: |
/s/ Brittany B. McKinney |
|
|
|
Brittany B. McKinney |
|
|
|
President and Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Lynn L. Blake, certify that:
1. I have reviewed this annual report on Form 10-K of Analysts International Corporation (the Registrant);
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d - 15(f)) for the registrant and we have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based on such evaluation; and
d) disclosed in this annual report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing equivalent function):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Dated: February 21, 2013 |
By: |
/s/ Lynn L. Blake |
|
|
|
Lynn L. Blake |
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|
|
Senior Vice President, Chief Financial Officer and Treasurer |
EXHIBIT 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Analysts International Corporation (the “Company”) on Form 10-K for the year ended December 29, 2012 as filed with the Securities and Exchange Commission (the “Report”), the undersigned, Brittany B. McKinney, President and Chief Executive Officer of the Company, and Lynn L. Blake, Senior Vice President, Chief Financial Officer and Treasurer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
|
(1) |
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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|
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|
(2) |
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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Dated: February 21, 2013 |
By: |
/s/ Brittany B. McKinney |
|
|
|
Brittany B. McKinney |
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|
|
President and Chief Executive Officer |
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|
|
|
|
Dated: February 21, 2013 |
By: |
/s/ Lynn L. Blake |
|
|
|
Lynn L. Blake |
|
|
|
Senior Vice President, Chief Financial Officer and Treasurer |
|
Subsequent Event (Details) (Subsequent event, Fourth Amendment, USD $)
In Millions, unless otherwise specified |
12 Months Ended |
|---|---|
|
Dec. 29, 2012
|
|
|
Period ending March 30, 2013
|
|
| Subsequent Event | |
| Trailing twelve months earnings before taxes financial covenant, subsequent to amendment | $ (0.10) |
|
Period ending June 29, 2013
|
|
| Subsequent Event | |
| Trailing twelve months earnings before taxes financial covenant, subsequent to amendment | (0.30) |
|
Period beginning September 28, 2013 through ending on September 30, 2016
|
|
| Subsequent Event | |
| Trailing twelve months earnings before taxes financial covenant, subsequent to amendment | $ 0.25 |
|
Income Taxes (Details 3) (USD $)
|
12 Months Ended | ||
|---|---|---|---|
|
Dec. 29, 2012
item
|
Dec. 31, 2011
|
Jan. 01, 2011
|
|
| Provision for income taxes that differs from the amount of income tax determined by applying the federal statutory income tax rates to pretax (loss) income | |||
| Income tax (benefit) at statutory federal rate | $ 135,000 | $ 1,120,000 | $ (157,000) |
| State and local taxes, net of federal (benefit) | 36,000 | 189,000 | (20,000) |
| Valuation allowance for deferred tax assets | (747,000) | (1,570,000) | 51,000 |
| Meals and entertainment | 80,000 | 50,000 | 53,000 |
| Goodwill | (22,000) | (22,000) | (22,000) |
| Expired state net operating loss deductions | 434,000 | 217,000 | 187,000 |
| State income tax expense | 68,000 | 42,000 | 4,000 |
| Other | 84,000 | 16,000 | (92,000) |
| Total | 68,000 | 42,000 | 4,000 |
| Additional disclosures | |||
| Number of state tax audits in progress | 1 | ||
| Estimated financial impact on completion of financial assessment | $ 10,000 | ||
|
Commitments (Details) (USD $)
|
12 Months Ended | ||
|---|---|---|---|
|
Dec. 29, 2012
|
Dec. 31, 2011
|
Jan. 01, 2011
|
|
| Aggregate net minimum lease commitments under non-cancelable operating leases | |||
| 2013 | $ 1,388,000 | ||
| 2014 | 1,078,000 | ||
| 2015 | 969,000 | ||
| 2016 | 831,000 | ||
| Later | 3,873,000 | ||
| Less: sublease contracts | 307,000 | ||
| Total minimum obligation | 7,832,000 | ||
| Rent expense primarily for office facilities | $ 1,000,000 | $ 1,200,000 | $ 1,400,000 |
|
Financing Agreements
|
12 Months Ended |
|---|---|
|
Dec. 29, 2012
|
|
| Financing Agreements | |
| Financing Agreements | 3. Financing Agreements Revolving Credit Facility On February 23, 2011, we entered into the First Amendment to Credit and Security Agreement ("Amended Credit Facility") with Wells Fargo Bank, National Association ("Wells Fargo"), pursuant to which the interest rate on future borrowings and the unused line fee were reduced, the maturity date was extended until September 30, 2014 and certain covenants were made less restrictive. 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. On February 20, 2013, we entered into the Fourth Amendment to the Amended Credit Facility ("Fourth Amendment") with Wells Fargo. The Fourth Amendment adjusted certain collateral borrowing base calculations associated with our eligible unbilled accounts receivable and is expected to increase our borrowing availability in periods in which our fiscal period ends prior to the calendar month end, which affects our unbilled accounts receivable levels for clients on a calendar month billing cycle. In addition, the Fourth Amendment extended the term of Amended Credit Facility from September 30, 2014 to September 30, 2016. Finally, the Fourth Amendment adjusted our minimum trailing twelve months earnings before taxes financial covenant to a loss of $0.1 million for the period ending March 30, 2013, a loss of $0.3 million for the period ending June 29, 2013 and earnings of $0.25 million for periods thereafter through the expiration of the credit agreement ending on September 30, 2016. 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 total amount available for borrowing under the Amended Credit Facility will fluctuate based on our level of eligible accounts receivable. 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, and is based on the daily average unused amount. The interest rate effective at the end of fiscal year 2012 was 2.375% and the unused line fee rate was 0.25%. The maturity date of the Amended Credit Facility is September 30, 2016 and may be terminated or reduced by us on 90 days notice in exchange for a termination fee of 0.25% of the maximum line amount or reduction of the maximum line amount through September 30, 2015 and no fee in the final year of the agreement ending on September 30, 2016. Borrowings under the Amended Credit Facility are secured by all of our assets. The Amended Credit Facility requires us to meet certain levels of trailing twelve months earnings before taxes. For fiscal 2012, we were required to exceed minimum trailing twelve months earnings before taxes of $0.25 million. For fiscal 2011, we were required to exceed a minimum trailing twelve months loss before taxes of $0.8 million. Additionally, the Amended Credit Facility limit on our annual capital expenditures was $2.5 million in fiscal 2011 and $2.0 million for each fiscal year thereafter. In fiscal 2012, we were 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 of the Company and bankruptcy events. As of December 29, 2012, we were in compliance with all the requirements and had no borrowings under the Amended Credit Facility. Total availability of the Amended Credit Facility, which fluctuates based on our level of eligible accounts receivable, was $10.9 million as of December 29, 2012. |