**FORM 10-Q**

 

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

** **

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

** **

**For the quarterlyperiod ended March 29, 2003**

** **

**or**

** **

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

 

**Commission filenumber 0-4090**

** **

**ANALYSTS INTERNATIONAL CORPORATION**

 

| **Minnesota**                                                          |   | **41-0905408** |
|------------------------------------------------------------------------|--------|----------------|
|                                                                   |   |           |
| **3601 West 76th Street  Minneapolis, MN  55435  (952) 835-5900** |

 

Indicate by check mark whetherthe Registrant (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and(2) has been subject to such filing requirements for the past 90 days.

Yes    ý     No   o

 

Indicate by check mark whetherthe registrant is an accelerated filer (as defined in Rule 12b-2 of theExchange Act).

Yes    ý     No   o

 

As of April 28, 2003,24,199,307 shares of the Registrant’s Common Stock were outstanding.

 

 

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ANALYSTS INTERNATIONAL CORPORATION

 

INDEX

 
| Part I.  FINANCIAL INFORMATION                                       | **Page**                                                                                                           |
|---------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------|
|                                                                      |                                                                                                               |
| Item 1.                                                                   | Condensed Consolidated Balance Sheets  March 29, 2003 (Unaudited) and December 28, 2002                            | 3 |
|                                                                      |                                                                                                               |   |
|                                                                      | Condensed Consolidated Statements of  Operations  Three months ended March 29, 2003 and March 31, 2002 (Unaudited) | 4 |
|                                                                      |                                                                                                               |   |
|                                                                      | Condensed Consolidated Statements of Cash  Flows  Three months ended March 29, 2003 and March 31, 2002 (Unaudited) | 5 |
|                                                                      |                                                                                                               |   |
|                                                                      | Notes to Condensed Consolidated Financial  Statements (Unaudited)                                                  | 6-8 |
|                                                                      |                                                                                                               |   |
| Item 2.                                                                   | Management’s Discussion and Analysis of  Financial Condition and Results of Operations                        | 9-15 |
|                                                                      |                                                                                                               |   |
| Item 3.                                                                   | Quantitative and Qualitative Disclosures  About Market Risk                                                        | 15 |
|                                                                      |                                                                                                               |   |
| Item 4.                                                                   | Controls and Procedures                                                                                            | 16 |
|                                                                      |                                                                                                               |   |
| Part II.                                                                  | OTHER INFORMATION                                                                                                  |   |
|                                                                      |                                                                                                               |   |
| Item 6.                                                                   | Exhibits and Reports on Form 8-K                                                                                   | 16 |
|                                                                      |                                                                                                               |
| Signatures                                                                | 17                                                                                                                 |
|                                                                      |                                                                                                               |
| Certifications  Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | 18-19                                                                                                              |
|                                                                      |                                                                                                               |
| Exhibit  Index                                                            | 20                                                                                                                 |

 

2

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PART I.  FINANCIAL INFORMATION

 

Item 1.

 

**Analysts International Corporation**

**Condensed Consolidated Balance Sheets**

 
| **(In thousands)**                                         |   | **March 29,  2003** |    | **December  28,  2002** |   |
|------------------------------------------------------------|--------|---------------------|---------|-------------------------|--------|
|                                                       |   | **(Unaudited)**     |    |                    |   |
|                                                       |   |                |    |                    |   |
| **ASSETS**                                                 |   |                |    |                    |   |
| Current assets:                                            |   |                |    |                    |   |
| Cash and cash equivalents                                  |   | $                   | 5,457   |                    | $      | 54 |   |
| Accounts receivable, less allowance for  doubtful accounts |   | 54,405              |    | 59,776                  |   |
| Prepaid expenses and other current assets                  |   | 9,936               |    | 8,848                   |   |
| Total current assets                                       |   | 69,798              |    | 68,678                  |   |
|                                                       |   |                |    |                    |   |
| Property and equipment, net                                |   | 6,620               |    | 7,071                   |   |
| Intangible assets other than goodwill                      |   | 11,829              |    | 12,022                  |   |
| Goodwill                                                   |   | 16,460              |    | 16,460                  |   |
| Other assets                                               |   | 2,483               |    | 2,513                   |   |
|                                                       |   | $                   | 107,190 |                    | $      | 106,744 |   |
|                                                       |   |                |    |                    |   |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**              |   |                |    |                    |   |
|                                                       |   |                |    |                    |   |
| Current liabilities:                                       |   |                |    |                    |   |
| Accounts payable                                           |   | $                   | 16,506  |                    | $      | 18,966 |   |
| Line of credit                                             |   | —              |    | 324                     |   |
| Salaries and vacations                                     |   | 10,653              |    | 6,036                   |   |
| Deferred revenue                                           |   | 3,205               |    | 4,340                   |   |
| Self-insured health care reserves and other  amounts       |   | 2,714               |    | 2,659                   |   |
| Restructuring accruals, current portion                    |   | 529                 |    | 648                     |   |
| Total current liabilities                                  |   | 33,607              |    | 32,973                  |   |
|                                                       |   |                |    |                    |   |
| Restructuring accruals, non-current portion                |   | 473                 |    | 550                     |   |
| Deferred compensation accrual                              |   | 3,260               |    | 3,055                   |   |
| Shareholders’ equity                                  |   | 69,850              |    | 70,166                  |   |
|                                                       |   | $                   | 107,190 |                    | $      | 106,744 |   |

 

Note:  The balance sheet at December 28, 2002 has been taken from theaudited financial statements at that date, and condensed.

 

See notes to condensed consolidated financial statements.

 

3

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**Analysts International Corporation**

**Condensed Consolidated Statements ofOperations**

*(Unaudited)*

 
| **(In thousands except per share  amounts)**                                      |                | **Three  Months Ended** |                |
|-----------------------------------------------------------------------------------|---------------------|-------------------------|---------------------|
|                                                                              | **March 29,  2003** |                    | **March 31,  2002** |   |
|                                                                              |                |                    | * *            |   | * * |
| Professional services revenue:                                                    |                |                    |                |   |   |
| Provided directly                                                                 |                | $                       | 69,635              |   | $ | 83,481 |   |
| Provided through subsuppliers                                                     |                | 16,406                  |                | 31,203 |   |
| Total revenue                                                                     |                | 86,041                  |                | 114,684 |   |
|                                                                              |                |                    |                |   |   |
| Expenses:                                                                         |                |                    |                |   |   |
| Salaries, contracted services and direct  charges                                 |                | 70,656                  |                | 95,434 |   |
| Selling, administrative and other operating  costs                                |                | 15,565                  |                | 19,350 |   |
| Amortization of intangible assets                                                 |                | 193                     |                | 199 |   |
|                                                                              |                |                    |                |   |   |
| Operating loss                                                                    |                | (373                    | )                   | (299 | ) |
| Non-operating income                                                              |                | 8                       |                | 44 |   |
| Interest expense                                                                  |                | (8                      | )                   | (658 | ) |
| Loss before income taxes and cumulative  effect of change in accounting principle |                | (373                    | )                   | (913 | ) |
| Income tax benefit                                                                |                | (57                     | )                   | (212 | ) |
| Net loss before cumulative effect of change  in accounting principle              |                | (316                    | )                   | (701 | ) |
| Cumulative effect of change in accounting  for goodwill                           |                | —                  |                | (16,389 | ) |
| Net loss                                                                          |                | $                       | (316                | ) | $ | (17,090 | ) |
|                                                                              |                |                    |                |   |   |
| Per common share:                                                                 |                |                    |                |   |   |
| Basic and diluted loss:                                                           |                |                    |                |   |   |
| Loss before cumulative effect of change in  accounting principle                  |                | $                       | (.01                | ) | $ | (.03 | ) |
| Cumulative effect of change in accounting  for goodwill                           |                | —                  |                | (.68 | ) |
| Net loss:                                                                         |                | $                       | (.01                | ) | $ | (.71 | ) |
|                                                                              |                |                    |                |   |   |
| Average common shares outstanding                                                 |                | 24,199                  |                | 24,196 |   |
| Average common and common equivalent shares  outstanding                          |                | 24,199                  |                | 24,196 |   |

 

See notes to condensed consolidated financial statements.

 

4

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**Analysts International Corporation**

**Condensed Consolidated Statements of CashFlows**

*(Unaudited)*

* *
| **(In thousands)**                                   |                | **Three  Months Ended** |                |
|------------------------------------------------------|---------------------|-------------------------|---------------------|
|                                                 | **March 29,  2003** |                    | **March 31,  2002** |   |
|                                                 |                |                    |                |   |   |
| Net cash provided by (used in) operating  activities |                | $                       | 5,952               |   | $ | (837 | ) |
|                                                 |                |                    |                |   |   |
| Cash flows from investing activities:                |                |                    |                |   |   |
| Property and equipment additions                     |                | (238                    | )                   | (594 | ) |
| Proceeds from property and equipment sales           |                | 13                      |                | 11 |   |
| Net cash used in investing activities                |                | (225                    | )                   | (583 | ) |
|                                                 |                |                    |                |   |   |
| Cash flows from financing activities:                |                |                    |                |   |   |
| Net change in Working Capital Line of  Credit        |                | (324                    | )                   | — |   |
| Proceeds from borrowings                             |                | —                  |                | 22,065 |   |
| Repayment of borrowings                              |                | —                  |                | (37,715 | ) |
| Proceeds from exercise of stock options              |                | —                  |                | 1 |   |
| Net cash used in financing activities                |                | (324                    | )                   | (15,649 | ) |
|                                                 |                |                    |                |   |   |
| Net increase (decrease) in cash and  equivalents     |                | 5,403                   |                | (17,069 | ) |
|                                                 |                |                    |                |   |   |
| Cash and cash equivalents at beginning of  period    |                | 54                      |                | 18,204 |   |
|                                                 |                |                    |                |   |   |
| Cash and cash equivalents at end of period           |                | $                       | 5,457               |   | $ | 1,135 |   |

 

See notes to condensed consolidated financial statements.

 

5

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**Analysts International Corporation**

**Notes to Condensed Consolidated FinancialStatements**

(Unaudited)

 

1.                                       Summaryof Significant Accounting Policies

 

Condensed ConsolidatedFinancial Statements - The condensed consolidated balance sheet as of March 29,2003, and the condensed consolidated statements of operations and cash flowsfor the three-month periods ended March 29, 2003 and March 31, 2002 have beenprepared by the Company, without audit. In the opinion of management, all adjustments necessary to presentfairly the financial position at March 29, 2003 and the results of operationsand the cash flows for the periods ended March 29, 2003 and March 31, 2002 havebeen made.  The results of operationsfor the period ended March 29, 2003 are not necessarily indicative of theresults to be expected for the full fiscal year.

 

EffectiveDecember 28, 2002, we changed our fiscal year to end on the Saturday closest toDecember 31.  Subsequent to this change,our fiscal quarters will end on the Saturday closest to the end of the calendarquarter.  This change in year andquarter end did not have a material impact on our operations.

 

Certaininformation and footnote disclosures normally included in financial statementsprepared in accordance with accounting principles generally accepted in theUnited States of America have been condensed or omitted.  It is suggested these condensed consolidatedfinancial statements be read in conjunction with the financial statements andnotes thereto included in the Company’s December 28, 2002 annual report toshareholders.

 

Comprehensiveloss (i.e. net loss plus available-for-sale securities valuation adjustments)for the three-months ended March 29, 2003 and March 31, 2002 was ($316,000) and($17,090,000), respectively.

 

EffectiveJanuary 1, 2002, the Company fully adopted the provisions of Statement ofFinancial Accounting Standards (SFAS) No. 141 and SFAS No. 142.  SFAS No. 141 requires business combinationsinitiated after June 30, 2001 to be accounted for using the purchase method ofaccounting, and broadens the criteria for recording intangible assets otherthan goodwill.

 

SFAS No. 142requires companies to no longer amortize purchased goodwill and certainindefinite-lived intangible assets. Instead companies must test such assets forimpairment at least annually.  TheCompany evaluated its intangible assets as of January 1, 2002 and determinedthat the customer list had a determinable life while the tradename didnot.  Effective January 1, 2002 theCompany ceased amortization of the tradename asset.

 

SFAS No. 142prescribes a two-phase process for impairment testing of goodwill.  The first phase screens for impairment,while the second phase (if necessary) measures the impairment.  The Company completed its first phaseimpairment analysis for 2003 during the first quarter and found no indicationof impairment of its recorded goodwill although the valuation determined thefair value of the Infrastructure and Solutions reporting units to approximatetheir carrying value.

 

Upon theinitial adoption of SFAS No. 142 during the first quarter of 2002, there was anindication of impairment of our goodwill found in the first phase testing.  Accordingly, we completed the second phasetesting in June 2002.  Based on theimpairment tests, we recognized a transitional impairment of $16,389,000 in thefirst quarter of 2002 to reduce the carrying value of goodwill for ourInfrastructure reporting unit to its implied fair value.  We did not record a tax benefit for thisadjustment, as our current operating performance requires the establishment ofa reserve against the deferred tax asset created by this impairment.  The transition impairment was required becauseeconomic conditions at the time of testing (including declining operatingmargins and lower demand for our services) reduced the estimated futureexpected performance for this operating unit. Under SFAS 142, the impairment adjustment recognized at adoption of thenew rules was reflected as a cumulative effect of

 

6

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accountingchange in our first quarter 2002 statement of operations.  Impairment adjustments recognized afteradoption, if any, generally are required to be recognized as operatingexpenses.

 

For the threemonths ended March 29, 2003, no goodwill or other intangibles were acquired,impaired or disposed.  Other intangiblesconsisted of the following:

 
|               |   | **March 29,  2003**         |   | **December  28, 2002**         |   |
|--------------------|--------|-----------------------------|--------|--------------------------------|--------|
| **(In thousands)** |   | **Gross  Carrying  Amount** |   | **Accumulated  Amoritization** |   | **Other  Intangibles,  Net** |   | **Gross  Carrying  Amount** |   | **Accumulated  Amortization** |   | **Other  Intangibles,  Net** |   |
|               |   |                        |   |                           |   |   |   |   |   |   |   |   |   |
| Customer list      |   | $                           | 12,270 |                           | $      | (2,028 | ) | $ | 10,242 |   | $ | 12,270 |   | $ | (1,835 | ) | $ | 10,435 |   |
| Tradename          |   | 1,720                       |   | (133                           | )      | 1,587 |   | 1,720 |   | (133 | ) | 1,587 |   |
|               |   | $                           | 13,990 |                           | $      | (2,161 | ) | $ | 11,829 |   | $ | 13,990 |   | $ | (1,968 | ) | $ | 12,022 |   |

 

The customerlist is scheduled to be fully amortized by 2015 with corresponding amortizationestimated to be approximately $800,000 per year.

 

EffectiveDecember 29, 2002, the Company adopted the disclosure provisions of SFAS No.148, “Accounting for Stock-Based Compensation – Transition and Disclosure”(“FAS 148”), which amends Statement of Financial Standards No. 123, “Accountingfor Stock-Based Compensation” (“FAS 123”). We have continued to apply APB Opinion No. 25 and relatedinterpretations in accounting for our five stock-based compensation plans.  FAS 148 provides alternative methods oftransition for a voluntary change to the fair value based method of accountingfor stock-based employee compensation. In addition, FAS 148 amends the disclosure requirements of FAS 123 torequire more prominent and more frequent disclosures in financial statements ofthe effects of stock-based compensation.

 

Hadcompensation cost for our stock-based compensation plans been determined basedon the fair value at the grant dates as calculated in accordance with SFAS No.148, our pro forma net loss and loss per share for the three months ended March29, 2003 and March 31, 2002 would have been the amounts indicated below:

 

|                          |   | **Three  Months Ended** |   |
|-------------------------------|--------|-------------------------|--------|
|                          |   | **March 29,  2003**     |   | **March 31,  2002** |   |
| Net loss *(in thousands):*    |   |                    |   |   |   |
| As reported                   |   | $                       | (316   | ) | $ | (17,090 | ) |
| Pro forma                     |   | (570                    | )      | (17,456 | ) |
| Net loss per share (basic):   |   |                    |   |   |   |
| As reported                   |   | $                       | (.01   | ) | $ | (.71 | ) |
| Pro forma                     |   | (.02                    | )      | (.72 | ) |
| Net loss per share (diluted): |   |                    |   |   |   |
| As reported                   |   | $                       | (.01   | ) | $ | (.71 | ) |
| Pro forma                     |   | (.02                    | )      | (.72 | ) |

 

2.                                       Long-termDebt

 

EffectiveApril 11, 2002, the Company consummated an asset-based revolving creditfacility with up to $55,000,000 of availability.  The Company reduced the level of availability to $45,000,000following the sale of its corporate headquarters building on May 15, 2002.  Borrowings under this credit agreement aresecured by all of the Company’s assets. Under the revolving credit agreement, which matures on April 10, 2005,the Company must take advances or pay down the outstanding balance daily.  The Company can,

 

7

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however,choose to request fixed-term advances of one, two, or three months for aportion of the outstanding balance on the line of credit. Daily advances on theline of credit bear interest at the Wall Street Journal’s “Prime Rate” plus..75% (5.0% on March 29, 2003) while the fixed-term advances bear interest atthe LIBOR rate plus 3.0%.  The creditagreement requires the payment of a commitment fee of .50% of the unusedportion of the line plus an annual administration fee of $50,000.  The agreement restricts, among other things,the payment of dividends, establishes limits on capital expenditures andrequires the Company to maintain a minimum accounts payable turnoverratio.  The Company believes it will beable to continue to meet the requirements of the new agreement for theforeseeable future and as of March 29, 2003 did not have any borrowings againstthis agreement.

 

3.                                       Shareholders’Equity

 

|                           |   | **Three  Months Ended  March 29, 2003** |   |
|--------------------------------|--------|-----------------------------------------|--------|
|                           |   | **(In thousands)**                      |   |
|                           |   |                                    |   |
| Balance at beginning of period |   | $                                       | 70,166 |   |
| Comprehensive loss             |   | (316                                    | )      |
| Balance at end of period       |   | $                                       | 69,850 |   |

 

4.                                       NetIncome Per Common Share

 

Basic anddiluted earnings (loss) per share (EPS) are presented in accordance with SFASNo. 128, “Earnings per Share.”  BasicEPS excludes dilution and is computed by dividing income available to commonstockholders by the weighted-average number of common shares outstanding forthe period.  The difference betweenweighted-average common shares and average common and common equivalent sharesused in computing diluted EPS is the result of outstanding stock options.  Options to purchase 2,031,000 and 1,830,000shares of common stock were outstanding at the end of the periods ended March29, 2003 and March 31, 2002, respectively, but were excluded from thecomputation of common stock equivalents because they were anti-dilutive.

 

5.                                       Restructuring

 

In December2000, the Company recorded a restructuring charge of $7,000,000.  Of this charge, $2,600,000 related toworkforce reductions (primarily non-billable staff), and $4,400,000 related tolease termination and abandonment costs (net of sub-lease income), including anamount for assets to be disposed of in conjunction with thisconsolidation.  The restructuringaccrual for workforce reductions has been fully used as of December 28, 2002.

 

A summary ofactivity with respect to the restructuring charge for the three-month periodended March 29, 2003 is as follows:

 

| **(In thousands)**           |   | **Office  Closure/  Consolidation** |   |
|------------------------------|--------|-------------------------------------|--------|
|                         |   |                                |   |
| Balance at December 28, 2002 |   | $                                   | 1,198  |   |
|                         |   |                                |   |
| Cash expenditures            |   | 196                                 |   |
|                         |   |                                |   |
| Balance at March 29, 2003    |   | $                                   | 1,002  |   |

 

8

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Item 2.

 

**Management’s Discussion and Analysis**

**ofFinancial Condition and Results of Operations**

Three Months Ended March 29,2003 and March 31, 2002

 

The following discussion of theresults of our operations and our financial condition should be read inconjunction with our consolidated financial statements and the related notes toconsolidated financial statements in this 10-Q, our other filings with theSecurities and Exchange Commission and our other investor communications.

 

CriticalAccounting Policies

 

The discussion and analysis ofour financial condition and results of operations are based on our consolidatedfinancial statements, which have been prepared in accordance with accountingprinciples generally accepted in the United States of America.  The preparation of these financialstatements requires us to make estimates and judgments that affect the reportedamount of assets and liabilities, revenues and expenses, and related disclosureof contingent assets and liabilities at the date of our financialstatements.  Actual results may differfrom these estimates under different assumptions or conditions.

 

Critical accounting policiesare defined as those that involve significant judgments and uncertainties andpotentially result in materially different outcomes under different assumptionsand conditions.  Application of thesepolicies is particularly important to the portrayal of our financial conditionand results of operations.  We believethe accounting policies described below meet these characteristics.

 

*Revenue Recognition*

 

We recognize revenue for ourstaffing business and the majority of our business solutions and infrastructurebusiness as services are performed or products are delivered.  Certain of our outsourcing and help deskengagements provide for a specific level of service each month for which webill a standard monthly fee.  Revenuefor these engagements is recognized in monthly installments over the period ofthe contract.  In some such contracts weinvoice in advance for two or more months of service.  When we do this, the revenue is deferred and recognized over theterm of the invoicing agreement.

 

In certain client situations,where the nature of the engagement requires it, we utilize the services ofother companies in our industry.  Ifthese services are provided under an arrangement where-by we agree to retainonly a fixed portion of the amount billed to the client, to cover our managementand administrative costs, the amount billed to the client is classified assubsupplier revenue.  All revenuederived from services provided by our employees or other independentcontractors working directly for us is recorded as direct revenue.

 

We generally do not enter intofixed price engagements.

 

In all of our services, riskassociated with client satisfaction exists. Although management feels these risks are adequately addressed by ouradherence to proven project management methodologies and other procedures, thepotential exists for future revenue charges relating to unresolved issues.

 

*Bad Debt*

 

Each accounting period wedetermine an amount to be set aside to cover potentially uncollectableaccounts.  Our determination is basedupon an evaluation of accounts receivable for risk associated with a client’sability to make contractually required payments.  These determinations require considerable judgment in assessingthe ultimate potential for collection of these receivables and include reviewingthe financial stability of the client, the clients’ willingness to pay, andcurrent market conditions.  If ourevaluation of a client’s ability to pay is incorrect, we may incur futurecharges.

 

9

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*Goodwill and Intangible Impairment*

 

We evaluate goodwill and otherintangible assets on a periodic basis. This evaluation relies on assumptions regarding estimated future cashflows and other factors to determine the fair value of the respective assets.  If these estimates or related assumptionschange, we may be required to recognize impairment charges.

 

In June 2001, the FinancialAccounting Standards Board (FASB) issued Statement of Financial AccountingStandards (“SFAS”) No. 142 “Goodwill and Other Intangible Assets.”  In accordance with the provisions of SFASNo. 142, effective January 1, 2002 we ceased amortization of certain intangibleassets including goodwill.  Intangibleassets with definite useful lives will continue to be amortized over their usefullives and reviewed for impairment in accordance with SFAS No. 144 “Accountingfor the Impairment or Disposal of Long-Lived Assets.”  Also in conjunction with the adoption of the provisions of SFASNo. 142, we recorded a goodwill impairment charge during the first quarter of2002 of $16.389 million.  Thisimpairment was recorded as a cumulative effect of a change in accountingprinciple as of January 1, 2002, and therefore did not impact operating income.  The Company completed its impairmentanalysis for 2003 during the first quarter and found no indication ofimpairment of its recorded goodwill although the valuation determined the fairvalue of the Infrastructure and Solutions reporting units to approximate theircarrying value.

 

*Deferred Taxes*

 

We account for income taxes inaccordance with SFAS No. 109, “Accounting for Income Taxes,” which requiresthat deferred tax assets and liabilities be recognized for the effect oftemporary differences between reported income and income considered taxable bythe taxing authorities.  SFAS No. 109also requires the resulting deferred tax assets to be reduced by a valuationallowance if some portion or all of the deferred tax asset is not expected tobe realized.  Based upon prior taxableincome and estimates of future taxable income, we expect our deferred taxassets, net of the established valuation allowance, will be fully realized inthe future.  If actual future taxableincome is less than we anticipate from our estimates, we may be required torecord a valuation allowance against our deferred tax assets resulting inadditional income tax expense which will be recorded in our consolidatedstatement of operations.

 

*Benefit Accruals*

 

Each accounting period weestimate an amount to accrue for medical costs incurred but not yet reported(IBNR) under our self-funded employee medical insurance plans.  We base our determination on an evaluationof past rates of claim payouts and trends in the amount of payouts.  This determination requires significantjudgment and assumes past patterns are representative of future paymentpatterns.  A significant shift in usageand payment patterns within our medical plans could necessitate significantadjustments to these accruals in future accounting periods.

 

*Restructuring*

 

We recorded a restructuringcharge and reserves associated with restructuring plans approved by managementin December 2000.  The remaining reserveconsists of an estimate pertaining to real estate lease obligations.  Factors such as the ability to obtainsubleases, the creditworthiness of sublessees, and the ability to negotiateearly termination agreements with lessors could materially affect this realestate reserve.  While we believe ourcurrent estimates regarding lease obligations are adequate, our inability to subletthe remaining space, or obtain payments from sublessees could necessitatesignificant adjustments to these estimates in the future.

 

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**RESULTS OF OPERATIONS, THREE MONTHS ENDED MARCH 29, 2003 VS.THREE MONTHS ENDED MARCH 31, 2002**

 

The following table illustrates the relationship between revenue andexpense categories along with a count of employees and technical consultantsfor the three months ended March 29, 2003 and March 31, 2002.  The table provides guidance in ourexplanation of our operations and results.

 
|                                                   |   | **Three  Months Ended  March 29, 2003** |   | **Three  Months Ended  March 31, 2002** |   | **Increase  (Decrease)** |   |
|--------------------------------------------------------|--------|-----------------------------------------|--------|-----------------------------------------|--------|--------------------------|--------|
| **(dollars in thousands)**                             |   | **Amount**                              |   | **% of  Revenue**                       |   | **Amount**               |   | **% of  Revenue** |   | **Amount** |   | **%  Inc (Dec)** |   | **As%  of Revenue** |   |
| Professional services revenue:                         |   |                                    |   |                                    |   |                     |   |   |   |   |   |   |   |   |   |
| Provided directly                                      |   | $                                       | 69,635 |                                    | 80.9   | %                        | $      | 83,481 |   | 72.8 | % | $ | (13,846 | ) | (16.6 | )% | 8.1 | % |
| Provided through subsuppliers                          |   | 16,406                                  |   | 19.1                                    |   | 31,203                   |   | 27.2 |   | (14,797 | ) | (47.4 | ) | (8.1 | ) |
| Total revenue                                          |   | 86,041                                  |   | 100.0                                   |   | 114,684                  |   | 100.0 |   | (28,643 | ) | (25.0 | ) | .0 |   |
| Salaries, contracted services and direct charges       |   | 70,656                                  |   | 82.1                                    |   | 95,434                   |   | 83.2 |   | (24,778 | ) | (26.0 | ) | (1.1 | ) |
| Selling, administrative and other operating costs      |   | 15,565                                  |   | 18.1                                    |   | 19,350                   |   | 16.9 |   | (3,785 | ) | (19.6 | ) | 1.2 |   |
| Amortization of goodwill and other intangible assets   |   | 193                                     |   | .2                                      |   | 199                      |   | .2 |   | (6 | ) | (3.0 | ) | .0 |   |
| Non-operating income                                   |   | (8                                      | )      | (.0                                     | )      | (44                      | )      | (.0 | ) | 36 |   | (81.8 | ) | .0 |   |
| Interest Expense                                       |   | 8                                       |   | .0                                      |   | 658                      |   | .5 |   | (650 | ) | (98.8 | ) | (.5 | ) |
| Cumulative effect of change in accounting for goodwill |   | —                                  |   | —                                  |   | 16,389                   |   | 14.3 |   | (16,389 | ) | (100.0 | ) | (14.3 | ) |
|                                                   |   |                                    |   |                                    |   |                     |   |   |   |   |   |   |   |   |   |
| Loss before income taxes                               |   | (373                                    | )      | (.4                                     | )      | (17,302                  | )      | (15.1 | ) | 16,929 |   | 97.8 |   | 14.7 |   |
| Income tax benefit                                     |   | (57                                     | )      | (.0                                     | )      | (212                     | )      | (.2 | ) | 155 |   | 73.1 |   | .2 |   |
|                                                   |   |                                    |   |                                    |   |                     |   |   |   |   |   |   |   |   |   |
| Net loss                                               |   | $                                       | (316   | )                                       | (.4    | )%                       | $      | (17,090 | ) | (14.9 | )% | $ | 16,774 |   | 98.2 | % | 14.5 | % |
|                                                   |   |                                    |   |                                    |   |                     |   |   |   |   |   |   |   |   |   |
| Personnel:                                             |   |                                    |   |                                    |   |                     |   |   |   |   |   |   |   |   |   |
| Management and Administrative                          |   | 440                                     |   |                                    |   | 550                      |   |   |   | (110 | ) | (20.0 | )% |   |   |
| Technical Consultants                                  |   | 2,550                                   |   |                                    |   | 2,900                    |   |   |   | (350 | ) | (12.1 | )% |   |   |

 

Revenue provided directly for the three months ended March 29, 2003decreased 16.6% over the comparable quarter a year ago.  However, a substantially greater percentageof our revenue was derived from direct billings during the first quarter of2003 as compared to the same period last year. This was due principally to the decrease in revenue from certain ManagedServices clients, most of which had been provided through subsuppliers.  Our subsupplier revenue is mainlypass-through revenue with associated fees providing minimal profit.

 

The decrease in revenue is reflective of the overall slowness in theeconomy which has resulted in an overall reduction in spending for the ITservices we provide.  Our entire staffhas decreased by approximately 460 employees over the comparable quarter lastyear.  Additionally, we experienced acontinued decrease in our average bill rate due to pricing pressures imposed byour clients.  As demand for the servicesour industry provides has declined, certain clients have taken the opportunityto demand pricing concessions and we have had to conceed lower prices to retainour relationship with these clients.

 

Salaries, contracted services and direct charges primarily representour payroll and benefit costs associated with billable consultants.  Comparing the first quarter of 2003 to thefirst quarter of 2002, these expenses decreased slightly as a percentage ofrevenue.  We have been successful atmanaging our direct labor rates downward in response to decreasing billrates.  We have been able to do this bypassing billing rate decreases through to our consultants in the form of laborrate decreases where possible and increasing productivity levels of ourbillable technical staff.  The shiftingof our revenue mix to include more direct revenue, with better margins, andless low margin subsupplier revenue also played a role in decreasing thiscategory of expense, as a percentage of revenue.  Although we continuously attempt to control the factors whichaffect this category of expense, there can be no assurance we will be able tomaintain or improve this level.

 

Selling, administrative and other operating (SG&A) costs includecommissions paid to sales representatives and recruiters, location costs, andother administrative costs.  Thiscategory of costs represented 22.4% of direct revenue for the three monthsended March 29, 2003, down from 23.2% for the comparable period in 2002.  This decrease is the result of our ongoingefforts to manage costs downward as demand for our services decline.  We have managed these costs downwardprimarily by reducing discretionary spending for non-billable travel, imposingwage controls on administrative and management personnel, eliminating officespace where possible, and by

 

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reducing the number ofnon-technical personnel we employ.  Weare committed to continuing to manage this category of expense to the rightlevel for our company, however, there can be no assurance this category of costwill not increase as a percentage of income if our headcount continues todecline.

 

Amortization of intangible assets decreased slightly in the threemonths ended March 29, 2003 over the three months ended March 31, 2002.

 

Non-operating income, consisting primarily of interest income, declinedduring the three months ended  March 29,2003 compared to the same quarter a year ago. The higher level of interest income during the 2002 period resulted fromsignificant cash investments during that period.  The cash invested during the 2002 period was subsequently used toreduce outstanding debt.

 

The decrease in interest expense resulted primarily from lower debtlevels during the first quarter of 2003. Debt levels have declined to zero at March 29, 2003 primarily as aresult of using cash invested during the first quarter of 2002 and proceedsfrom the sale of our corporate headquarters building in May 2002 to reduce debtand a decreased need to borrow to support accounts receivable.  As our revenue, and accordingly, ourreceivable balance declined throughout 2002 and the first quarter of 2003, thecash collected from accounts receivable was used to reduce debt.

 

We adopted the full provisions of SFAS No. 142 in 2002 and recorded animpairment charge of approximately $16.4 million.  SFAS No. 142 requires companies to no longer amortize purchasedgoodwill but instead to test such assets for impairment at least annually.  Based on the impairment tests, we reducedthe carrying value of goodwill for our Infrastructure reporting unit to itsimplied fair value.  The impairment wasrequired because economic conditions at the time of testing reduced theestimated future expected performance for this reporting unit.  Following the initial adoption of SFAS No.142, at least annually, we are required to test our remaining goodwill forimpairment.  We performed these tests asof January 1, 2003 and found no indication of impairment although the carryingvalue of the Infrastructure and the Solutions reporting units approximatedtheir fair values.  Any significantdeterioration in the outlook for these reporting units could result in futureimpairment of the associated goodwill.

 

We recorded an income tax benefit of $57,000 during the three monthsended March 29, 2003.  This isreflective of an overall tax benefit rate of 15.3% compared to a statutory taxbenefit rate of 35%.  This reduced rateresults primarily from non-deductible meals and entertainment expenses.

 

As a result of the factors discussed above, we reported a net loss inthe three months ended March 29, 2003 of $316,000 compared with a net loss of$17.1 million for the comparable period of 2002.

 

The decrease in technicalconsultants is reflective of the overall slowness in the economy which hasresulted in an overall reduction in spending for the IT services weprovide.  Administrative and managementpersonnel decreased as a result of our continuing efforts to contain ouroperating costs.

 

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Liquidity andCapital Resources

 

The following table providesinformation relative to the liquidity of our business.

 
| **(dollars in thousands)** |   | **March 29,  2003** |   | **December  28,  2002** |   | **Increase  (Decrease)** |   | **Percentage  Increase  (Decrease)** |   |
|----------------------------|--------|---------------------|--------|-------------------------|--------|--------------------------|--------|--------------------------------------|--------|
|                       |   |                |   |                    |   |                     |   |                                 |   |
| Cash and Cash Equivalents  |   | $                   | 5,457  |                    | $      | 54                       |   | $                                    | 5,403  |   | 10,005.6 | % |
| Accounts Receivable        |   | 54,405              |   | 59,776                  |   | (5,371                   | )      | (9.0                                 | )      |
| Other Current Assets       |   | 9,936               |   | 8,848                   |   | 1,088                    |   | 12.3                                 |   |
| Total Current Assets       |   | $                   | 69,798 |                    | $      | 68,678                   |   | $                                    | 1,120  |   | 1.6 |   |
|                       |   |                |   |                    |   |                     |   |                                 |   |
| Accounts Payable           |   | $                   | 16,506 |                    | $      | 18,966                   |   | $                                    | (2,460 | ) | (13.0 | ) |
| Current Debt               |   | —              |   | 324                     |   | (324                     | )      | (100.0                               | )      |
| Other Current Liabilities  |   | 17,101              |   | 13,683                  |   | 3,418                    |   | 25.0                                 |   |
| Total Current Liabilities  |   | $                   | 33,607 |                    | $      | 32,973                   |   | $                                    | 634    |   | 1.9 |   |
|                       |   |                |   |                    |   |                     |   |                                 |   |
| Working Capital            |   | $                   | 36,191 |                    | $      | 35,705                   |   | $                                    | 486    |   | 1.4 |   |
| Current Ratio              |   | 2.08                |   | 2.08                    |   | —                   |   | —                               |   |
|                       |   |                |   |                    |   |                     |   |                                 |   |
| Total Shareholders' Equity |   | $                   | 69,850 |                    | $      | 70,166                   |   | $                                    | (316   | ) | (0.5 | )% |

 

Working capital at March 29,2003 was up slightly from December 28, 2002. During the first quarter of 2003, we were able to pay down our line ofcredit to zero and accumulate cash and cash equivalents of $5.5 million.  Accounts receivable decreased from December28, 2002 to March 29, 2003.  We continueto devote additional resources to ensure the timely collection of our receivables.  The reduction in our accounts receivablebalance was partially offset by the decline in accounts payable, which isreflective of the lower usage of subsuppliers. The ratio of current assets to current liabilities remained the same atMarch 29, 2003, as compared to at December 28, 2002.

 

Historically, we have been ableto support internal growth in our business with internally generated funds. Ourprimary need for working capital is to support accounts receivable resultingfrom our business and to fund the time lag between payroll disbursement andreceipt of fees billed to clients.  Mostrecently, as revenues and payroll have declined, our need for working capitalto support accounts receivable has also declined, resulting in a reduction inour need to borrow.  When our revenueand payroll begin to grow again, we would expect our need for working capitalto once again increase.

 

During 2002, reduction of debtand associated borrowing costs was one of our top priorities.  In pursuit of this priority, effective April11, 2002, we consummated an asset-based revolving credit agreement with up to$55.0 million of availability.  Thisborrowing facility reduced our cost of borrowing from 9% to prime plus .75%, or5.00% currently.  To reduce our cost offinancing even further, we reduced the level of availability under this creditagreement to $45.0 million following the sale of our corporate headquartersbuilding on May 15, 2002.  Over the pastyear we have been successful at reducing our borrowings on our line of creditto zero at March 29, 2003.  We presentlycould borrow up to $25.2 million under our credit facility if business andworking capital needs warrant it. Borrowings under the credit agreement are secured by all of our assets.

 

The revolving credit agreementrequires us to take advances or pay down the outstanding balance on the line ofcredit daily.  However, we can requestfixed-term advances of one, two, or three months for a portion of theoutstanding balance on the line of credit. The daily advances on the line of credit bear interest at the WallStreet Journal’s “Prime Rate” plus .75% while the fixed-term advances bearinterest at the LIBOR rate plus 3.0%. The credit agreement requires the payment of a commitment fee of .50% ofthe unused portion of the line plus an annual administration fee of$50,000.  The agreement restricts, amongother things, the payment of dividends, establishes limits on capitalexpenditures and requires us to maintain a minimum accounts payable turnoverratio.

 

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We believe we will be able tocontinue to meet the requirements of the agreement.  The credit agreement matures on April 10, 2005.

 

During the three-month periodended March 29, 2003, we made capital expenditures totaling only $238,000compared to $594,000 in the three-month period ended March 31, 2002.  These capital expenditures were funded withinternally generated funds.  We continueto tightly control capital expenditures to preserve working capital.

 

Commitmentsand Contingencies

 

Office facilities are leased under non-cancelable operatingleases.  Minimum future obligations onthese operating leases at March 29, 2003, are as follows (in thousands):

 

|             |   | **1 Year** |   | **2-3 Years** |   | **4-5 Years** |   | **Over 5  Years** |   | **Total** |   |
|------------------|--------|------------|--------|---------------|--------|---------------|--------|-------------------|--------|-----------|--------|
|             |   |       |   |          |   |          |   |              |   |      |   |
| Operating Leases |   | $          | 6,424  |          | $      | 10,962        |   | $                 | 6,546  |      | $      | 667 |   | $ | 24,599 |   |
|                  |        |            |        |               |        |               |        |                   |        |           |        |  |  |  |  |  |

 

MarketConditions, Business Outlook and Risks to Our Business

 

*Forward Looking Statements*

 

The statements contained in“Management’s Discussion and Analysis of Financial Condition and Results ofOperations,” including without limitation, our statements relating to prospectsfor our business, recovery of the IT services industry, our working capitalneeds and sufficiency of our working capital, the continued need of current andprospective customers for our services and our ability to win that business,the effects of competition and our ability to respond to competitiveconditions, the availability and utilization of qualified professional staff,our ability to increase billing rates as labor and benefit costs increase, ourability to maintain gross margin levels and control operating cost increases,and our ability to achieve and maintain profitability are forward lookingstatements made under the safe harbor provision of the Private SecuritiesLitigation Reform Act.  Words such as“believes,” “intends,” “possible,” “expects,” “estimates,” “anticipates,” or“plans” and similar expressions are intended to identify forward looking statements.  Such statements are based on management’scurrent expectations as of the date of this document but involve risks,uncertainties and other factors which could cause actual results to differmaterially from those contemplated by such forward looking statements.  Investors are cautioned to consider theseforward looking statements in light of important factors which may result invariations from results contemplated by such forward looking statementsincluding, but not limited to, the risk factors discussed below.

 

For the past three years, severalmarket conditions have affected our industry. Increased price competition in the area of technical staff augmentationhas created pressure on billable hourly rates, and clients have begun torequest increasingly lower cost models for staff augmentation services.  As a result, we encountered lower billingrates over the prior year.  Managementexpects that clients will continue, for the foreseeable future, to request lowercost offerings for staff augmentation services through e-procurement systems, extremelycompetitive bidding processes, the granting of various types of discounts andthe use of off-shore resources.  We areconsidering various low-cost staffing model alternatives, includingrelationships with e-procurement software vendors and offshore serviceproviders, at least in partial response to these developments in theindustry.  We have also implemented newsoftware and internet capabilities in our recruiting function.

 

Our ability to respond tocustomer requests for lower pricing or to provide other low cost solutions inthis area of our business will have a direct effect on our performance.  Management expects competitive conditions inthe area of technical staff augmentation to continue for the foreseeablefuture, although it expects that demand for these services will increase as thegeneral economy begins to recover.

 

Staff augmentation continues torepresent more than half of total revenues (revenue from services provideddirectly to client (direct revenue) plus revenue from services provided to ourclients by subsuppliers (subsupplier revenue))

 

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and over half of our directrevenue.  While we expect the industryslowdown to begin to reverse in the latter part of 2003, there can be no assuranceas to when, or if, revenue will return to previous levels.  Our ability to respond to the conditionsoutlined above will bear directly on our performance.

 

As a result of the pricing and othercompetitive pressures affecting the technical staff augmentation area of ourbusiness, management has sought and plans to continue to seek new customers forour other service offerings.  Managementplans to continue adding new customers or obtaining contracts with existingcustomers in the areas of software and web site development and maintenance(solutions), network infrastructure services, computer security and criminaljustice.  Management plans toconcentrate on small and medium size companies with these other serviceofferings.  While webelieve these areas of our business present opportunities to grow our business,growth in these areas will depend on improvement in the economy and spending inthe overall IT services market, our ability to compete with other vendors andhow successful we are at obtaining new clients.

 

Our ability to quickly identify, attract andretain qualified technical personnel, especially when recovery begins, willaffect our results of operations and ability to grow in the future.  Competition for qualified personnel isintense, and if we are unable to hire the talent required by our client in acost-effective manner, it will affect our ability to grow our business.

 

In addition to our ability tocontrol labor costs, our ability to control employee benefit costs and otheremployee-related costs will affect our future performance.  In an effort to contain our benefits costs,we implemented substantial changes to our benefits plans for fiscal year 2002and have implemented additional changes in 2003.  While we believe the changes we implemented will be effective,the effectiveness of these changes may vary due to factors we cannot controlsuch as rising medical costs, the amount of medical services used by ouremployees and similar factors.

 

Controlling operating costswhile attempting not to impact our ability to respond to our clients also is afactor in our future success.  We havestreamlined our operations by consolidating offices, reducing administrativeand management personnel and continuing to review our company structure formore efficient methods of operating our business and delivering ourservices.  We may not be able tocontinue to reduce costs without affecting our ability to deliver service toour clients and therefore may choose to forego particular cost reductions if webelieve it would be prudent to do so for the future business of the Company.

 

Terms and conditions standardto computer consulting services contracts also present a risk to ourbusiness.  In general, our clients cancancel or reduce their contracts on short notice.  Loss of a significant client relationship or a significantportion thereof, a significant number of relationships or a major contractcould have a material adverse effect on our business.

 

While we believe our workingcapital will be sufficient for the foreseeable needs of our business,significant rapid growth in our business could create a need for additionalworking capital.  An inability to obtainadditional working capital, should it be required, could have an adversematerial effect on our business.  Weexpect to be able to comply with the requirements of our credit agreement;however, failure to do so could have a material adverse effect on our business.

 

Item 3.

 

**Quantitative and Qualitative DisclosuresAbout Market Risk**

 

We are exposed to certainmarket risks on our line of credit agreement because of the variable interestrate charged.  Market risk is thepotential loss arising from the adverse changes in market rates and prices,such as interest rates.  Market risk isestimated as the potential increase in fair value resulting from a hypotheticalone percent increase in interest rates which assuming an average outstandingdebt balance of $5.0 million would result in an annual interest expenseincrease of approximately $50,000.

 

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Item 4.

 

**Controlsand Procedures**

 

(a)          Evaluationof Disclosure Controls and Procedures.

 

The Company’s Chief ExecutiveOfficer, Michael J. LaVelle, and Chief Financial Officer, John T. Paprocki,have reviewed the Company’s disclosure controls and procedures within 90 daysprior to the filing of this report. Based upon this review, these officers believe that the Company’sdisclosure controls and procedures are effective in ensuring that materialinformation related to the Company is made known to them by others within theCompany.

 

(b)         Changesin Internal Controls

 

There were no significantchanges in the Company’s internal controls or in other factors that couldsignificantly affect these controls during the quarter covered by this reportor from the end of the reporting period to the date of this report on Form10-Q.

 

PART II. OTHER INFORMATION

 

Item 6.

 

**Exhibitsand Reports on Form 8-K**

 

(a)          Exhibits

 

99.1 Certification of President and CEO Pursuant to Section 906 of theSarbanes-Oxley Act of 2002

99.2 Certification of CFO Pursuant to Section 906 of the Sarbanes-OxleyAct of 2002

 

(b)         Reports on Form 8-K

 

None.

 

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SIGNATURES

 

 

Pursuant to the requirements ofthe Securities Exchange Act of 1934, the registrant has duly caused this reportto be signed on its behalf by the undersigned there unto duly authorized.

 
|                | ANALYSTS INTERNATIONAL CORPORATION |   |
|---------------------|------------------------------------|--------|
|                | (Registrant)                       |   |
|                |                               |   |
| Date: May  12, 2003 |                               | By:    | /s/ John T. Paprocki |   |
|                |                               |   | John T. Paprocki  Chief Financial Officer and  Executive Vice President |
|                |                               |   |   |
| Date: May  12, 2003 |                               | By:    | /s/ David J. Steichen |   |
|                |                               |   | David J. Steichen  Controller and Assistant Treasurer  (Chief Accounting Officer) |
|                     |                                    |        |  |  |  |  |

 

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CERTIFICATIONPURSUANT TO SECTION 302 

OF THE SARBANES-OXLEY ACT OF 2002

 

I, Michael J. LaVelle, ChiefExecutive Officer, certify that:

 

1.               Ihave reviewed this quarterly report on Form 10-Q of Analysts InternationalCorporation (the Registrant);

 

2.               Basedon my knowledge, this quarterly report does not contain any untrue statement ofa material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this quarterlyreport;

 

3.               Basedon my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this quarterly report;

 

4.               Theregistrant’s other certifying officer and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:

 

a)                    designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period inwhich this quarterly report is being prepared;

 

b)                   evaluatedthe effectiveness of the registrant’s disclosure controls and procedures as ofa date within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

c)                    presentedin this quarterly report our conclusions about the effectiveness of thedisclosure controls and procedures based on our evaluation as of the EvaluationDate;

 

5.               Theregistrant’s other certifying officer and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing equivalent function):

 

a)                    allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b)                   anyfraud, whether or not material, that involves management or other employees whohave a significant role in the registrant’s internal controls; and

 

6.               Theregistrant’s other certifying officer and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 
|   | Dated:  May 12, 2003 | By:                                                        | /s/ Michael  J. LaVelle |
|--------|---------------------------|------------------------------------------------------------|-------------------------|
|   |                      | Michael J.  LaVelle  President and Chief Executive Officer |

 

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CERTIFICATION PURSUANT TO SECTION 302 

OF THE SARBANES-OXLEY ACT OF 2002

 

I, John T. Paprocki, ChiefFinancial Officer, certify that:

 

1.               Ihave reviewed this quarterly report on Form 10-Q of Analysts InternationalCorporation (the Registrant);

 

2.               Basedon my knowledge, this quarterly report does not contain any untrue statement ofa material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this quarterlyreport;

 

3.               Basedon my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this quarterly report;

 

4.               Theregistrant’s other certifying officer and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:

 

a)                    designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period inwhich this quarterly report is being prepared;

 

b)                   evaluatedthe effectiveness of the registrant’s disclosure controls and procedures as ofa date within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

c)                    presentedin this quarterly report our conclusions about the effectiveness of thedisclosure controls and procedures based on our evaluation as of the EvaluationDate;

 

5.               Theregistrant’s other certifying officer and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing equivalent function):

 

a)                    allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b)                   anyfraud, whether or not material, that involves management or other employees whohave a significant role in the registrant’s internal controls; and

 

6.               Theregistrant’s other certifying officer and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 
|   | Dated:  May 12, 2003 | By:                                                                      | /s/ John T.  Paprocki |   |
|--------|---------------------------|--------------------------------------------------------------------------|-----------------------|--------|
|   |                      | John T.  Paprocki  Executive Vice President and  Chief Financial Officer |

 

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**ANALYSTS INTERNATIONAL CORPORATION**

**EXHIBITINDEX**

**FORM 10-Q**

**QUARTER ENDED MARCH 29, 2003**

 
| **Exhibit No.** |   | **Description**                                                                 |
|-----------------|--------|---------------------------------------------------------------------------------|
|            |   |                                                                            |
| 99.1            |   | Certification  of CEO Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 99.2            |   | Certification  of CFO Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |

 

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