** **

** **

**FORM 10-Q**

 

** **

** **

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C.  20549**

 

** **

**ý QuarterlyReport Pursuant to Section 13 or 15(d) of**

**theSecurities Exchange Act of 1934**

**Forthe quarterly period ended June 30, 2002**

 

**or**

 

**o TransitionReport Pursuant to Section 13 or 15(d) of**

**theSecurities Exchange Act of 1934**

 

** **

**Commissionfile number 0-4090**

** **

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

 

 

** **

 

 

Indicate by checkmark whether the Registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months and (2) has been subject to such filing requirements for the past 90days.

Yes ý     No

 

** **

** **

** **

As of July 31, 2002,24,198,857 shares of the Registrant's Common Stock were outstanding.

 

 

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ANALYSTSINTERNATIONAL CORPORATION

 

INDEX

 

 

 

 
|          |                                                                                        |   |
|---------------|---------------------------------------------------------------------------------------------|--------|
| Part I.       | FINANCIAL INFORMATION                                                                       |   |
|          |                                                                                        |   |
| Item 1.       | Condensed Consolidated  Balance Sheets                                                      |   |
|          | June 30, 2002 (Unaudited)  and December 31, 2001                                            | 3      |
|          |                                                                                        |   |
|          | Condensed  Consolidated Statements of Operations                                            |   |
|          | Three  and six month periods ended June 30, 2002 and 2001 (Unaudited)                       | 4      |
|          |                                                                                        |   |
|          | Condensed  Consolidated Statements of Cash Flows                                            |   |
|          | Six months  ended June 30, 2002 and 2001 (Unaudited)                                        | 5      |
|          |                                                                                        |   |
|          | Notes  to Condensed Consolidated Financial Statements (Unaudited)                           | 6-9    |
|          |                                                                                        |   |
| Item 2.       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 10-16  |
|          |                                                                                        |   |
| Item 3.       | Quantitative  and Qualitative Disclosures About Market Risk                                 | 16     |
|          |                                                                                        |   |
|          |                                                                                        |   |
| Part II.      | OTHER INFORMATION                                                                           | 16     |
|          |                                                                                        |   |
| Item  4.      | Submission of Matters to a Vote of Security  Holders                                        | 17     |
|          |                                                                                        |   |
| Item 6.       | Exhibits and Reports  on Form 8-K                                                           | 17     |
|          |                                                                                        |   |
| Signatures    | 18                                                                                          |
|          |                                                                                        |   |
| Certification | 19                                                                                          |
|               |                                                                                             |        |  |

 

2

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PART I. FINANCIAL INFORMATION

 

Item 1.

** **

**AnalystsInternational Corporation**

**CondensedConsolidated Balance Sheets**

 
|                                                       |   |            |    |              |   |
|------------------------------------------------------------|--------|-----------------|---------|-------------------|--------|
|                                                       |   | **June 30,**    |    | **December  31,** |   |
| **(In thousands)**                                         |   | **2002**        |    | **2001**          |   |
|                                                       |   | **(Unaudited)** |    |              |   |
|                                                       |   |            |    |              |   |
| **ASSETS**                                                 |   |            |    |              |   |
| Current assets:                                            |   |            |    |              |   |
| Cash and cash  equivalents                                 |   | $               | 268     |              | $      | 18,204 |   |
| Accounts  receivable, less allowance for doubtful accounts |   | 71,950          |    | 83,322            |   |
| Prepaid expenses  and other current assets                 |   | 7,676           |    | 9,309             |   |
| Total current  assets                                      |   | 79,894          |    | 110,835           |   |
|                                                       |   |            |    |              |   |
| Property and  equipment, net                               |   | 8,951           |    | 28,406            |   |
| Intangible  assets other than goodwill                     |   | 12,408          |    | 12,807            |   |
| Goodwill                                                   |   | 16,460          |    | 32,849            |   |
| Other assets                                               |   | 5,333           |    | 7,987             |   |
|                                                       |   | $               | 123,046 |              | $      | 192,884 |   |
|                                                       |   |            |    |              |   |
| **LIABILITIES AND SHAREHOLDERS'  EQUITY**                  |   |            |    |              |   |
|                                                       |   |            |    |              |   |
| Current  liabilities:                                      |   |            |    |              |   |
| Accounts payable                                           |   | $               | 25,984  |              | $      | 37,778 |   |
| Current debt                                               |   | 9,488           |    | 41,000            |   |
| Salaries and  vacations                                    |   | 7,319           |    | 6,399             |   |
| Self-insured  health care reserves and other amounts       |   | 3,981           |    | 7,882             |   |
| Restructuring  accruals, current portion                   |   | 673             |    | 1,154             |   |
| Total current  liabilities                                 |   | 47,445          |    | 94,213            |   |
|                                                       |   |            |    |              |   |
| Restructuring  accruals, non-current portion               |   | 1,100           |    | 1,500             |   |
| Deferred compensation  accrual                             |   | 3,685           |    | 6,088             |   |
| Shareholders'  equity                                      |   | 70,816          |    | 91,083            |   |
|                                                       |   | $               | 123,046 |              | $      | 192,884 |   |

 

Note:  Thebalance sheet at December 31, 2001 has been taken from the audited financialstatements at that date, and condensed.

 

 

See notes tocondensed consolidated financial statements.

 

 

3

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**Analysts International Corporation**

**CondensedConsolidated Statements of Operations**

(Unaudited)

 
| **(In  thousands except per share amounts)**                                                                                           |   | **Three  Months Ended  June 30** |   | **Six Months  Ended  June 30** |   |
|----------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------|--------|--------------------------------|--------|
|                                                                                                                                   |   | **2002**                         |   | **2001**                       |   | **2002** |   | **2001** |   |
| Professional services revenues:                                                                                                        |   |                             |   |                           |   |   |   |   |   |
| Provided  directly                                                                                                                     |   | $                                | 84,062 |                           | $      | 108,343 |   | $ | 167,543 |   | $ | 218,721 |   |
| Provided through  sub-suppliers                                                                                                        |   | 26,682                           |   | 37,450                         |   | 57,885 |   | 71,512 |   |
| Total revenues                                                                                                                         |   | 110,744                          |   | 145,793                        |   | 225,428 |   | 290,233 |   |
|                                                                                                                                   |   |                             |   |                           |   |   |   |   |   |
| Expenses:                                                                                                                              |   |                             |   |                           |   |   |   |   |   |
| Salaries,  contracted services and direct charges                                                                                      |   | 92,252                           |   | 120,942                        |   | 187,686 |   | 239,268 |   |
| Selling,  administrative and other operating costs                                                                                     |   | 19,258                           |   | 22,726                         |   | 38,608 |   | 46,141 |   |
| Amortization of  goodwill and other intangible assets                                                                                  |   | 199                              |   | 849                            |   | 398 |   | 1,624 |   |
| Loss on sale of  corporate headquarters building                                                                                       |   | 1,860                            |   | —                         |   | 1,860 |   | — |   |
|                                                                                                                                   |   |                             |   |                           |   |   |   |   |   |
| Operating (loss)  income                                                                                                               |   | (2,825                           | )      | 1,276                          |   | (3,124 | ) | 3,200 |   |
| Non-operating  income                                                                                                                  |   | 22                               |   | 67                             |   | 66 |   | 157 |   |
| Interest expense                                                                                                                       |   | (253                             | )      | (737                           | )      | (911 | ) | (1,508 | ) |
|                                                                                                                                   |   |                             |   |                           |   |   |   |   |   |
| (Loss) income  before income taxes, extraordinary loss on debt extinguishment and cumulative  effect of change in accounting principle |   | (3,056                           | )      | 606                            |   | (3,969 | ) | 1,849 |   |
| Income tax  (benefit) expense                                                                                                          |   | (340                             | )      | 233                            |   | (552 | ) | 705 |   |
|                                                                                                                                   |   |                             |   |                           |   |   |   |   |   |
| Net (loss)  income before extraordinary loss on debt extinguishment and cumulative effect  of change in accounting principle           |   | (2,716                           | )      | 373                            |   | (3,417 | ) | 1,144 |   |
| Extraordinary  loss on debt extinguishment (net of $283 tax benefit)                                                                   |   | (461                             | )      | —                         |   | (461 | ) | — |   |
|                                                                                                                                   |   |                             |   |                           |   |   |   |   |   |
| Net (loss)  income before cumulative effect of change in accounting principle                                                          |   | (3,177                           | )      | 373                            |   | (3,878 | ) | 1,144 |   |
| Cumulative  effect of change in accounting for goodwill                                                                                |   | —                           |   | —                         |   | (16,389 | ) | — |   |
|                                                                                                                                   |   |                             |   |                           |   |   |   |   |   |
| Net (loss)  income                                                                                                                     |   | $                                | (3,177 | )                              | $      | 373 |   | $ | (20,267 | ) | $ | 1,144 |   |
|                                                                                                                                   |   |                             |   |                           |   |   |   |   |   |
| Per common  share:                                                                                                                     |   |                             |   |                           |   |   |   |   |   |
| Basic (loss)  income:                                                                                                                  |   |                             |   |                           |   |   |   |   |   |
| (Loss) income  before extraordinary loss on extinguishment of debt and cumulative effect of  change in accounting principles           |   | $                                | (.11   | )                              | $      | .02 |   | $ | (.14 | ) | $ | .05 |   |
| Extraordinary  loss on extinguishment of debt                                                                                          |   | (.02                             | )      | —                         |   | (.02 | ) | — |   |
| (Loss) income  before cumulative effect of change in accounting principle                                                              |   | (.13                             | )      | .02                            |   | (.16 | ) | .05 |   |
| Cumulative  effect of change in accounting for goodwill                                                                                |   | —                           |   | —                         |   | (.68 | ) | -- |   |
| Basic (loss)  income:                                                                                                                  |   | $                                | (.13   | )                              | $      | .02 |   | $ | (.84 | ) | $ | .05 |   |
|                                                                                                                                   |   |                             |   |                           |   |   |   |   |   |
| Diluted (loss)  income:                                                                                                                |   |                             |   |                           |   |   |   |   |   |
| (Loss) income  before extraordinary loss on extinguishment of debt and cumulative effect of  change in accounting principles           |   | $                                | (.11   | )                              | $      | .02 |   | $ | (.14 | ) | $ | .05 |   |
| Extraordinary  loss on extinguishment of debt                                                                                          |   | (.02                             | )      | —                         |   | (.02 | ) | — |   |
| (Loss) income  before cumulative effect of change in accounting principle                                                              |   | (.13                             | )      | .02                            |   | (.16 | ) | .05 |   |
| Cumulative  effect of change in accounting for goodwill                                                                                |   | —                           |   | —                         |   | (.68 | ) | — |   |
| Diluted (loss)  income:                                                                                                                |   | $                                | (.13   | )                              | $      | .02 |   | $ | (.84 | ) | $ | .05 |   |
|                                                                                                                                   |   |                             |   |                           |   |   |   |   |   |
|                                                                                                                                   |   |                             |   |                           |   |   |   |   |   |
| Average common  shares outstanding                                                                                                     |   | 24,197                           |   | 24,195                         |   | 24,197 |   | 24,195 |   |
| Average common  and common equivalent shares outstanding                                                                               |   | 24,197                           |   | 24,274                         |   | 24,197 |   | 24,282 |   |

 

See notes tocondensed consolidated financial statements.

 

4

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**Analysts International Corporation**

**CondensedConsolidated Statements of Cash Flows**

(Unaudited)

 
|                                                 |   | **Six Months  Ended** |   |
|------------------------------------------------------|--------|-----------------------|--------|
|                                                 |   | **June 30**           |   |
| **(In  thousands)**                                  |   | **2002**              |   | **2001** |   |
|                                                 |   |                  |   |   |   |
| Net cash (used  in) provided by operating activities |   | $                     | (1,879 | ) | $ | 6,274 |   |
|                                                 |   |                  |   |   |   |
| Cash flows from  investing activities:               |   |                  |   |   |   |
| Property and  equipment additions                    |   | (997                  | )      | (2,082 | ) |
| Proceeds from  property and equipment sales          |   | 16,445                |   | 13 |   |
| Net cash  provided by (used in) investing activities |   | 15,448                |   | (2,069 | ) |
|                                                 |   |                  |   |   |   |
| Cash flows from  financing activities:               |   |                  |   |   |   |
| Cash dividends  paid                                 |   | —                |   | (2,178 | ) |
| Net change in  Working Capital Line of Credit        |   | 9,488                 |   | — |   |
| Proceeds from  borrowings                            |   | 29,525                |   | 11,470 |   |
| Repayment of  borrowings                             |   | (70,525               | )      | (11,470 | ) |
| Proceeds from  exercise of stock options             |   | 7                     |   | — |   |
| Net cash used in  financing activities               |   | (31,505               | )      | (2,178 | ) |
|                                                 |   |                  |   |   |   |
| Net (decrease)  increase in cash and equivalents     |   | (17,936               | )      | 2,027 |   |
|                                                 |   |                  |   |   |   |
| Cash and  equivalents at beginning of period         |   | 18,204                |   | 2,192 |   |
|                                                 |   |                  |   |   |   |
| Cash and  equivalents at end of period               |   | $                     | 268    |   | $ | 4,219 |   |

 

 

See notes tocondensed consolidated financial statements.

 

5

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**Analysts International Corporation**

**Notesto Condensed Consolidated Financial Statements**

(Unaudited)

 

1.                                       Summary of Significant AccountingPolicies

 

 CondensedConsolidated Financial Statements - The condensed consolidated balance sheet asof June 30, 2002, and the condensed consolidated statements of operations forthe three and six month periods ended June 30, 2002 and 2001 and the condensedconsolidated statements of cash flows for the six month periods ended June 30,2002 and 2001 have been prepared by the Company, without audit.  In the opinion of management, alladjustments necessary to present fairly the financial position at June 30, 2002and the results of operations and the cash flows for the periods ended June 30,2002 and 2001 have been made.  Theresults of operations for the periods ended June 30, 2002 are not necessarilyindicative of the results to be expected for the full fiscal year.

 

Certain information and footnote disclosures normallyincluded in financial statements prepared in accordance with accountingprinciples generally accepted in the United States of America have beencondensed or omitted.  It is suggestedthese condensed consolidated financial statements be read in conjunction withthe financial statements and notes thereto included in the Company's December31, 2001 annual report to shareholders.

 

Comprehensive (loss) income (i.e. net (loss) incomeplus available-for-sale securities valuation adjustments) for the three and sixmonths ended June 30, 2002 was ($3,184,000) and ($20,274,000), respectively,and for the three and six months ended June 30, 2001 was $342,000 and$1,069,000, respectively.

 

 EffectiveJanuary 1, 2002, the Company adopted the full provisions of SFAS No. 141 andSFAS No. 142.  SFAS No. 141 requiresbusiness combinations initiated after June 30, 2001 to be accounted for usingthe purchase method of accounting, and broadens the criteria for recordingintangible assets other than goodwill. The Company evaluated its goodwill and intangible assets aquired priorto June 30, 2001, the effective date of SFAS No. 141, using the criteria ofSFAS No. 141, which resulted in $1.080 million of other intangibles (comprisedentirely of assembled workforce intangibles) being subsumed into goodwill atJanuary 1, 2002.

 

SFAS No. 142 requires companies to no longer amortizepurchased goodwill and certain indefinite-lived intangible assets. Insteadcompanies must test such assets for impairment at least annually.  The Company evaluated its intangible assetsas of January 1, 2002 and determined that the customer list had a determinablelife while the tradename did not. Effective January 1, 2002 the Company ceased amortization of thetradename asset.

 

SFAS No. 142 prescribes a two-phase process forimpairment testing of goodwill.  Thefirst phase, required to be completed by June 30, 2002, screens for impairment;while the second phase (if necessary), required to be completed by December 31,2002, measures the impairment.  TheCompany completed its first phase impairment analysis during the first quarterand found an indication of impairment of its recorded goodwill; accordingly,the Company completed the second testing phase in June, 2002.

 

Based on the impairment tests, the Company recognizeda transitional impairment of $16,389,000 in the first quarter of 2002 to reducethe carrying value of goodwill at one of its reporting units to its impliedfair value.  The Company has notrecorded a tax benefit for this adjustment, as the current operatingperformance of the Company requires the establishment of a reserve against thedeferred tax asset created by this impairment.

 

6

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The impairment was required because economicconditions at the time of testing (including declining operating margins andlower demand for our services) reduced the estimated future expectedperformance for this operating unit. Under SFAS 142, the impairment adjustment recognized at adoption of thenew rules was reflected as a cumulative effect of accounting change in ourfirst quarter 2002 statement of operations. Impairment adjustments recognized after adoption, if any, generally arerequired to be recognized as operating expenses.

 

 The followingtable represents the impact of the transitional impairment loss on the firstquarter 2002 results as previously reported:

 
|                                                             |   | **Three  Months Ended March 31, 2002** |   |
|------------------------------------------------------------------|--------|----------------------------------------|--------|
| **(In thousands, except per share amounts)**                     |   | **As  Reported**                       |   | **As  Adjusted** |   |
|                                                             |   |                                   |   |   |   |
| Loss before  cumulative effect of change in accounting principle |   | (701                                   | )      | (701 | ) |
| Cumulative  effect of change in accounting principle             |   | —                                 |   | (16,389 | ) |
| Net Loss                                                         |   | $                                      | (701   | ) | $ | (17,090 | ) |
|                                                             |   |                                   |   |   |   |
| Basic loss per  common share:                                    |   |                                   |   |   |   |
| Loss before  cumulative effect                                   |   | (.03                                   | )      | (.03 | ) |
| Cumulative  effect of change in accounting principle             |   | —                                 |   | (.68 | ) |
| Net loss                                                         |   | (.03                                   | )      | (.71 | ) |
|                                                             |   |                                   |   |   |   |
| Diluted loss per  common share:                                  |   |                                   |   |   |   |
| Loss before  cumulative effect                                   |   | (.03                                   | )      | (.03 | ) |
| Cumulative  effect of change in accounting principle             |   | —                                 |   | (.68 | ) |
| Net loss                                                         |   | (.03                                   | )      | (.71 | ) |
|                                                                  |        |                                        |        |  |  |  |  |

 

 

 

Under SFAS No. 142, theCompany has prospectively ceased amortization of goodwill effective January 1,2002.  Supplemental comparativedisclosure as if the change had been retroactively applied to the prior yearperiod is as follows:

* *
|                                         |   | **Three  Months Ended June 30,** |   | **Six Months  Ended June 30,** |   |
|----------------------------------------------|--------|----------------------------------|--------|--------------------------------|--------|
| **(In thousands, except per share amounts)** |   | **2002**                         |   | **2001**                       |   | **2002** |   | **2001** |   |
|                                         |   |                             |   |                           |   |   |   |   |   |
| Net (loss)  income:                          |   |                             |   |                           |   |   |   |   |   |
| As reported                                  |   | $                                | (3,177 | )                              | $      | 373 |   | $ | (20,267 | ) | $ | 1,144 |   |
| Goodwill  amortization                       |   | —                           |   | 610                            |   | — |   | 1,219 |   |
| As adjusted                                  |   | $                                | (3,177 | )                              | $      | 983 |   | $ | (20,267 | ) | $ | 2,363 |   |
|                                         |   |                             |   |                           |   |   |   |   |   |
| Basic and  diluted (loss) income per share:  |   |                             |   |                           |   |   |   |   |   |
| As reported                                  |   | $                                | (.13   | )                              | $      | 0.02 |   | $ | (.84 | ) | $ | 0.05 |   |
| Goodwill  amortization                       |   | —                           |   | 0.02                           |   | — |   | 0.05 |   |
| As adjusted                                  |   | $                                | (.13   | )                              | $      | 0.04 |   | $ | (.84 | ) | $ | 0.10 |   |

 

7

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For the six months ended June 30, 2002, no goodwill orother intangibles were acquired, impaired or disposed.  Other intangibles consisted of thefollowing:

 
|               |   | **June 30,  2002**          |   | **December  31, 2001**         |   |
|--------------------|--------|-----------------------------|--------|--------------------------------|--------|
| **(In thousands)** |   | **Gross  Carrying  Amount** |   | **Accumulated  Amoritization** |   | **Other  Intangibles,  Net** |   | **Gross  Carrying Amount** |   | **Accumulated  Amortization** |   | **Other  Intangibles,  Net** |   |
|               |   |                        |   |                           |   |   |   |   |   |   |   |   |   |
| Customer list      |   | $                           | 12,270 |                           | $      | (1,449 | ) | $ | 10,821 |   | $ | 12,270 |   | $ | (1,052 | ) | $ | 11,218 |   |
| Tradename          |   | 1,720                       |   | (133                           | )      | 1,587 |   | 1,720 |   | (133 | ) | 1,587 |   |
| Workforce          |   | 0                           |   | 0                              |   | 0 |   | 1,340 |   | (260 | ) | 1,080 |   |
|               |   | $                           | 13,990 |                           | $      | (1,582 | ) | $ | 12,408 |   | $ | 15,330 |   | $ | (1,444 | ) | $ | 13,885 |   |

 

The customer list is scheduled to be fully amortizedby 2018 with corresponding amortization estimated to be approximately $700,000per year.

 

2.                                       Long-term Debt

 

 Effective April11, 2002, the Company consummated an asset-based revolving credit facility withup to $55,000,000 of availability.  TheCompany reduced the level of availability to $45,000,000 following the sale ofits corporate headquarters building on May 15, 2002 as discussed in Note6.  Borrowings under this creditagreement are secured by all of the Company’s assets.  The Company used an initial advance under the line of credit of$29,800,000 to pay the outstanding balance of the senior notes ($19,100,000,including make-whole obligations), the outstanding balance on an existing lineof credit ($10,300,000), and certain transaction expenses.  Under the new revolving credit agreement,which matures on April 10, 2005, the Company must take advances or pay down theoutstanding balance daily.  The Companycan, however, choose to request fixed-term advances of one, two, or threemonths for a portion of the outstanding balance on the line of credit. Dailyadvances on the line of credit bear interest at the Wall Street Journal’s“Prime Rate” plus .75% (5.5% on April 11, 2002) while the fixed-term advancesbear interest 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 capital expendituresand requires the Company to maintain a minimum accounts payable turnoverratio.  The Company believes it will beable to meet the requirements of the new agreement. Repayment of the seniornotes resulted in a loss on the early extinguishment of debt of $744,000($461,000 net of tax benefit) in the quarter ending June 30, 2002.

 

3.                                       Shareholders' Equity

 
|                                     |   | **Six Months  Ended** |     |
|------------------------------------------|--------|-----------------------|----------|
|                                     |   | **June 30,  2002**    |     |
|                                     |   | **(In thousands)**    | * * |
|                                     |   |                  |     |
| Balance at  beginning of period          |   | $                     | 91,083   |   |
| Proceeds upon  exercise of stock options |   | 7                     |     |
| Unrealized loss  on investments          |   | (7                    | )        |
| Net loss                                 |   | (20,267               | )        |
| Balance at end  of period                |   | $                     | 70,816   |   |

 

8

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4.                                       Net Income Per Common Share

 

 Basic anddiluted earnings per share are presented in accordance with Statement ofFinancial Accounting Standards (SFAS) No. 128, “Earnings per Share.”  The difference between average common sharesand average common and common equivalent shares for the period ended June 30,2001 is the result of outstanding stock options.

 

5.                                       Restructuring

 

In December 2000, the Company recorded a restructuringcharge of $7,000,000.  Of this charge,$2,600,000 related to workforce reductions (primarily non-billable staff), and$4,400,000 related to lease termination and abandonment costs (net of sub-leaseincome) including an amount for assets to be disposed of in conjunction withthis consolidation.

 

A summary of activity with respect to therestructuring charge for the six month period ended June 30, 2002 is asfollows:

 
|                          |   | **Workforce** |   | **Office  Closure/** |   |      |   |
|-------------------------------|--------|---------------|--------|----------------------|--------|-----------|--------|
| **(In thousands)**            |   | **Reduction** |   | **Consolidation**    |   | **Total** |   |
|                          |   |          |   |                 |   |      |   |
| Balance at  December 31, 2001 |   | $             | 24     |                 | $      | 2,630     |   | $ | 2,654 |   |
|                          |   |          |   |                 |   |      |   |
| Cash  expenditures            |   | 10            |   | 871                  |   | 881       |   |
|                          |   |          |   |                 |   |      |   |
| Balance at June  30, 2002     |   | $             | 14     |                 | $      | 1,759     |   | $ | 1,773 |   |

 

 

6.                                       Loss on Sale of Fixed Assets

 

 On May 15, 2002,the Company completed the sale of its corporate headquarters building.  The net proceeds of the sale were$16,400,000.  The Company recorded a$1,860,000 loss on the sale.  TheCompany remains a major tenant in the building following the sale.

 

9

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Item 2.

 

**Management'sDiscussion and Analysis**

**of Financial Condition and Results ofOperations**

Six Months Ended June 30, 2002 and 2001

 

The following discussion of the results of ouroperations and financial condition should be read in conjunction with ourconsolidated financial statements and the related notes to consolidatedfinancial statements in this 10-Q, our other filings with the Securities andExchange Commission and our other investor communications.

 

Critical Accounting Policies

 

The discussion and analysis of our financial conditionand results of operations are based on our consolidated financial statements,which have been prepared in accordance with accounting principles generallyaccepted in the United States of America. The preparation of these financial statements requires us to makeestimates and judgments that affect the reported amount of assets andliabilities, revenues and expenses, and related disclosure of contingent assetsand liabilities at the date of our financial statements.  Actual results may differ from theseestimates under different assumptions or conditions.

 

Critical accounting policies are defined as those thatinvolve significant judgments and uncertainties and potentially result inmaterially different results under different assumptions and conditions.  Application of these policies isparticularly important to the portrayal of our financial condition and resultsof operations.  We believe theaccounting policies described below meet these characteristics.  Our significant accounting policies are morefully described in the notes to the consolidated financial statements includedin our annual report on Form 10-K.

 

*                RevenueRecognition*

 

We recognize revenue for our staffing business and themajority of our business solutions and infrastructure business as services areperformed or products are delivered. Certain of our outsourcing and help desk engagements provide for aspecific level of service each month for which we bill a standard monthlyfee.  Revenue for these engagements isrecognized in monthly installments over the billable portion of the contract.

 

We generally do not enter into fixed priceengagements.

 

In all of our services, risk associated withsatisfactory service delivery 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, we determine an amount to beset aside to cover potentially uncollectable accounts.  Our determination is based upon anevaluation of accounts receivable for risk associated with a client’s abilityto make contractual payments.  Thesedeterminations require considerable judgment in assessing the ultimatepotential for realization of these receivables, including reviewing thefinancial stability of the client and gauging current market conditions.  If our evaluation of a client’s ability topay is incorrect, we may incur future charges.

 

*                Goodwill and IntangibleImpairment*

 

We evaluate goodwill and other intangible assets on aperiodic basis.  This evaluation relieson assumptions regarding estimated future cash flows and other factors todetermine the fair value of the respective assets.  If these estimates or related assumptions change, we may berequired to recognize impairment charges.

 

10

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In June 2001, the Financial Accounting Standards Boardissued Statement of Financial Accounting Standards (“SFAS”) No. 142 “Goodwilland Other Intangible Assets”.  Inaccordance with the provisions of SFAS No. 142, effective January 1, 2002 weceased amortization of certain intangible assets including goodwill.  Intangible assets with definite useful liveswill continue to be amortized over their useful lives and reviewed forimpairment in accordance with SFAS No. 121 “Accounting for the Impairment of Long-LivedAssets and for Long-Lived Assets to be Disposed of”.  Also in conjunction with the adoption of the provisions of SFASNo. 142, we recorded a goodwill impairment charge during the second quarter of$16.389 million.  This impairment wasrecorded as a cumulative effect of a change in accounting principle andtherefore did not impact operating income.

 

*                Deferred Taxes*

 

We account for income taxes in accordance with SFASNO. 109, “Accounting for Income Taxes,” which requires that deferred tax assetsand liabilities be recognized using enacted tax rates for the effect oftemporary differences between the book and tax basis of recorded assets andliabilities.  SFAS 109 also requiresthat deferred tax assets be reduced by a valuation allowance if it is morelikely than not that some portion or all of the deferred tax asset will not berealized.  Based upon prior taxableincome and estimates of future taxable income, we have determined that it ismore likely than not that our net deferred tax assets, with the exception ofthe asset associated with a capital loss carry-forward and the asset created bythe implementation of SFAS 142, which has been fully reserved, will be fullyrealized in the future.  If actualtaxable income varies from these estimates, we may be required to record avaluation allowance against our deferred tax assets resulting in additionalincome tax expense which will be recorded in our consolidated statement ofoperations.

* *

*                Benefit Accruals*

 

Each accounting period we estimate the amount to beaccrued for medical costs incurred but not yet reported (IBNR) under ourself-funded employee medical insurance plans. Our determination is based on an evaluation of past rates of claimpayouts and trends in the amount of payouts. This determination requires significant judgement and is dependent uponthe likelihood that past trends 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 restructuring charge and reservesassociated with restructuring plans approved by management in December2000.  The remaining reserve primarilyincludes an estimate pertaining to real estate lease obligations which could bematerially affected by factors such as the ability to obtain subleases, thecreditworthiness of sub-lessees, and the ability to negotiate early terminationagreements with lessors.  While webelieve our current estimates regarding lease obligations are adequate, futureevents could necessitate significant adjustments to these estimates.

 

Liquidity and Capital Resources

 

Working capital at June 30, 2002 was $32.4 million, upfrom $16.6 million at December 31, 2001. The increase in working capital is primarily a result of the sale of ourcorporate headquarters building. Working capital includes cash and cash equivalents of $268,000 comparedto $18.2 million at December 31, 2001 and accounts receivable of $72.0 millioncompared to $83.3 million at December 31, 2001.  The decrease in cash and cash equivalents results from ourdecision to apply all excess cash to pay down our short-term debt.  Short-term debt was $9.5 million at June 30,2002, down from $41.0 million at December 31, 2001.  Subsequent to December 31, 2001, all of our available cash,including $16.4 million from the sale of our building, was used to reduce thebalance on our line of credit.  Theratios of current assets to current liabilities and total assets to totalliabilities have increased since December 31, 2001.

 

Effective April 11, 2002, we consummated anasset-based revolving credit agreement with up to $55.0 million ofavailability.  We reduced the level ofavailability to $45.0 million following the sale of our corporate headquarters 

 

11

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building on May 15, 2002 as discussed below.  Borrowings under the credit agreement aresecured by all of our assets.  We usedan initial advance under the line of credit of $29.8 million to pay the outstandingbalance of the senior notes ($19.1 million, including make whole obligations),the outstanding balance on the line of credit ($10.3 million) and certaintransaction expenses.  Under the newrevolving credit agreement, which matures on April 10, 2005, we must takeadvances or pay down the outstanding balance daily.  We can, however, choose to request fixed-term advances of one,two, or three months for a portion of the outstanding balance on the line ofcredit.  The daily advances on the lineof credit bear interest at the Wall Street Journal’s “Prime Rate” plus .75%(5.5% on April 11, 2002) while the fixed-term advances bear interest at theLIBOR rate plus 3.0%.  The creditagreement requires the payment of a commitment fee of .50% of the unused portionof 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 us to maintain a minimum accounts payable turnover ratio. We believewe will be able to meet the requirements of the new agreement.  Repayment of the senior notes resulted in aloss on the early extinguishment of debt of $744,000 ($461,000 net of taxbenefit), in the quarter ending June 30, 2002.

 

Effective May 15, 2002 we completed the sale of ourcorporate headquarters building.  Thesale of this building netted $16.4 million of additional working capital, andhelps position the company for future growth. We remain a major tenant in the building following the sale.

 

Our primary need for working capital is to supportaccounts receivable and to fund the time lag between payroll disbursement andreceipt of fees billed to clients.  Webelieve the new credit agreement, along with internally generated funds, willbe sufficient to fund our business’ working capital needs.

 

Results ofOperations

 

*                Revenue*

 

Revenue provideddirectly for the six months ended June 30, 2002 was $167.5 million, a decreaseof 23.4% from the same period a year ago. For the three months ended June 30, 2002, revenue provided directly was$84.1 million, a decrease of 22.4% over the same period a year ago.  These decreases are the result of areduction in billable technical consultants due to the industry-wide decreasein demand for IT services.  While our headcountdeclines of the past two years seem to have stabilized, we have seen a slightdecrease in average billing rates from the same period a year ago.  There can be no assurance our headcount willremain stable as the demand for our services remains soft.  There can also be no assurance we will beable to reverse the negative trend in average billing rates as competitiveconditions in the industry make it difficult for us to maintain the hourlyrates we charge for our services.

 

Revenue provided through sub-suppliers for the threeand six month periods ended June 30, 2002 were $26.7 million and $57.9 million,respectively.  This represents decreasesof 28.8% and 19.1% from the same periods a year ago.  These decreases are the result of reduced billable hoursprimarily with a single existing managed services client.

 

*               PersonnelHeadcount*

 

Personnel totaled approximately 3,540 as of June 30,2002.  Of this total, approximately3,000 were technical consultants.  Thistotal number increased from March 31, 2002 numbers of 3,500 for total staff and2,950 technical consultants.  Theincrease in consultants primarily came in our staffing business.  The decrease in overhead staff was plannedas part of our ongoing efforts to keep our cost structure in line with ourrevenue. We now believe consultant headcount will remain steady or slightlyincrease as the business environment for IT services slowly improves.  The 3,540 total personnel at June 30, 2002reflects a decrease of 885 or 20.0% from the 4,425 total at June 30, 2001.  This decrease includes approximately 210administrative and management positions eliminated in connection with therestructuring and a decrease in billable technical staff.

 

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*               LaborCosts*

 

Salaries, contracted services and direct charges,which represent primarily the Company's direct labor cost, including benefits,were $187.7 million or 83.3% of revenues for the six months ended June 30, 2002compared to $239.3 million or 82.4% for the same period a year ago.  These costs were 83.3% of revenues for thethree months ended June 30, 2002, and 83.0% of revenues for the three monthsended June 30, 2001.  By comparison, thesecosts were 83.2% of revenue for the first quarter of calendar 2002 and 84.1% ofrevenue for the fourth quarter of calendar 2001, which included unusually highemployee benefits costs.

 

Our efforts tocontrol these costs involve controlling labor costs, passing on labor costincreases through increased billing rates and passing back billing ratedecreases through labor rate decreases where possible, and maintainingproductivity levels of our billable technical staff.  Labor costs, however, are difficult to control because of thehighly skilled technical personnel we seek to hire and retain.  It is also difficult to pass on labor costincreases to customers due to intense competition in the industry, theindustry-wide decrease in demand for our services and the general state of theeconomy.  Although we continuouslyattempt to control the factors which affect this category of expense, there canbe no assurance we will be able to maintain or improve this level.

 

Our labor costs as a percentage of revenue for thequarter and six months ended June 30, 2002 have increased from the same perioda year ago and from the first quarter of this year.  We believe the following factors account for this increase andare directly tied to the industry-wide slowdown in business.  First, in some cases we are agreeing tolower hourly rates to attempt to keep our share of available business.  Second, our reduction in technical staffheadcount to rightsize our organization carries with it certain costs such asseverance payments.  Third, in certainareas of our business we are experiencing a lower utilization rate, which meansa higher level of unbilled idle time than in prior periods.  We expect continuing pressure on hourlyrates as long as the industry-wide slowdown continues. We are working toimprove our utilization rate by managing headcount in the areas of our businessexperiencing lower utilization.

 

*                Selling, General andAdministrative Expenses*

 

Selling, administrative and other operating (SG&A)costs, which include commissions, employee fringe benefits and location costs,represented $38.6 million or 17.1% of revenue for the six months ended June 30,2002 compared to $46.1 million or 15.9% for the same period a year ago.  These costs were 17.4% of revenues for thethree months ended June 30, 2002 and 15.6% of revenues for the three monthsended June 30, 2001.  Although SG&Aincreased slightly as a percentage of revenue, we reduced SG&A byapproximately $7.5 million and $3.5 million, for the six and three monthperiods, respectively, over the same periods in the prior year.  Excluding subsupplier revenue associatedwith our subsupplier contracts, this percentage would have been 22.9% and 23.0%for the three and six months ended June 30, 2002, respectively, and 21.0% and21.1% for the same periods a year ago. While we are committed to careful management of these costs, there canbe no assurance we will be able to maintain these costs at their currentrelationship to revenue.

 

 

*                Amortization of Goodwill*

 

Amortization of goodwill and other intangible assetshas decreased from $849,000 and $1,624,000, respectively, for the three and sixmonths ended June 30, 2001 to $199,000 and $398,000 for the three and sixmonths ended June 30, 2002, respectively, primarily as a result of thediscontinuation of the amortization of goodwill and certain other intangible assetsas required by SFAS No. 142.

 

*                Loss on Sale of Fixed Assets*

 

Loss on sale of fixed assets includes a $1.86 millionloss on the disposal of our corporate headquarters building in May 2002 aspreviously discussed.  No suchsignificant sale of assets occurred in the 2001 periods.

 

13

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*                Non-Operating Income / InterestExpense*

 

Non-operating income, consisting primarily of interestincome, has declined from $67,000 and $157,000 for the three and six months endedJune 30, 2001 to $22,000 and $66,000 for the three and six months ended June30, 2002.  Interest expense hasdecreased from $737,000 and $1,508,000 to $253,000 and $911,000 during the sameperiods.  The change in the amount ofnon-operating income (primarily interest income) is primarily the result of thedecrease in cash and cash equivalents, and the decrease in interest expense isdue primarily to a decrease in outstanding debt and lower interest ratesassociated with our current line of credit.

 

*                Extraordinary Loss onExtinguishment of Debt*

* *

During the quarter endedJune 30, 2002 we refinanced our previous debt arrangements as discussed under *Liquidity and Capital Resources*.  The early extinguishment of the senior notesresulted in a loss on the extinguishment of debt of $744,000 ($461,000 net oftax benefit).  No similar transactionwas entered into in the three and six month periods of 2001.

 

                *Cumulative Effect ofChange in Accounting for Goodwill*

 

During the quarter endedJune 30, 2002 we adopted the provisions of SFAS No. 142 retroactive to January1, 2002.  The adoption of SFAS No. 142resulted in a cumulative effect adjustment of $16.4 million.  No similar transaction was entered into inthe three and six month periods of 2001.

* *

*                Income Taxes*

 

We recorded income taxbenefit of $340,000 and $552,000 during the three and six month periods endedJune 30, 2002.  This represents a taxbenefit rate of 11.1% and 13.9%, respectively, compared to tax expense rates of38.4% and 38.1% for the same periods ended June 30, 2001.  The tax rates in the current periods aresignificantly lower as we do not anticipate generating future capital gains toenable us to benefit from the loss on the sale of our corporate headquarters buildingand have therefore not recognized a tax benefit for this loss.  Additionally the tax rates are affected bythe non-deductibility of travel meals and entertainment.

* *

*                Net Income (Loss)*

 

The net loss for the three and six months ended June30, 2002 of $3,177,000 and $20,267,000 represents decreases of $3.6 million and$21.4 million from the same periods a year ago.  As a percentage of revenue, the net loss was (2.9%) and (9.0%)for the three and six months ended June 30, 2002, respectively, compared withthe net income of .3 % and .4% for the same periods in 2001.  This decrease is primarily a result ofdecreasing revenue and gross margins as well as the increases, as a percentageof revenue, in the expenses discussed above. The net loss as a percentage of direct revenue for the three and sixmonths ended June 30, 2002 was (3.8%) and (12.1%) respectively, and .3% and .5%for the same periods in 2001.

* *

*                Restructuring Activities*

 

In December 2000, werecorded a restructuring charge of $7.0 million.  Of this charge, $2.6 million related to workforce reductions(primarily non-billable staff), and $4.4 million related to lease terminationand abandonment costs (net of sublease income), including an amount for assetsto be disposed of in conjunction with this consolidation.

 

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Asummary of second quarter activity with respect to the restructuring charge isas follows:

 
|                          |   | **Workforce** |   | **Office  Closure/** |   |      |   |
|-------------------------------|--------|---------------|--------|----------------------|--------|-----------|--------|
| **(In  thousands)**           |   | **Reduction** |   | **Consolidation**    |   | **Total** |   |
|                          |   |          |   |                 |   |      |   |
| Balance at  December 31, 2001 |   | $             | 24     |                 | $      | 2,630     |   | $ | 2,654 |   |
|                          |   |          |   |                 |   |      |   |
| Cash  expenditures            |   | 10            |   | 871                  |   | 881       |   |
|                          |   |          |   |                 |   |      |   |
| Balance at June  30, 2002     |   | $             | 14     |                 | $      | 1,759     |   | $ | 1,773 |   |

 

 

Market Conditions, Business Outlook and Risks to OurBusiness

 

*ForwardLooking Statements*

 

The statements contained in “Management’s Discussionand Analysis of Financial Condition and Results of Operations,” includingwithout limitation, our statements relating to prospects for our business,recovery of the IT services industry, our working capital needs and sufficiencyof our working capital, the continued need of current and prospective customersfor our services and our ability to win that business, the effects ofcompetition and our ability to respond to competitive conditions, theavailability and utilization of qualified professional staff, our ability toincrease billing rates as labor and benefit costs increase, our ability tomaintain gross margin levels and control operating cost increases, and ourability to achieve and maintain profitability are forward looking statementsmade under the safe harbor provision of the Private Securities LitigationReform Act.  Words such as “believes,”“intends,” “possible,” “expects,” “estimates,” “anticipates,” or “plans” andsimilar 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 statements including,but not limited to, the risk factors discussed below.

 

Several competitive conditions are affecting ourindustry.  The number of largecompetitors, the industry-wide decrease in demand for IT services and thegeneral state of the economy have created pricing and gross margin pressures throughoutthe computer consulting industry.  Staffaugmentation continues to represent over half of total revenue (revenue fromservices provided directly to client (direct revenue) plus revenue fromservices provided to our clients by subsuppliers (subsupplier revenue)) anddirect revenue.  While we expect theindustry slowdown to begin to reverse in 2002, there can be no assurance as towhen, or if, revenue will return to previous levels.  Our ability to respond to these competitive conditions will bear directlyon our performance until recovery in the general economy and the IT servicesbegins.

 

Increased competition, especially in the area oftechnical staff augmentation has created pressure on billable hourly rates, andclients have begun to request increasingly lower cost models for services.  As a result, while decreases in averagebilling rates have been slight over the prior periods, there can be noassurance rates will not continue to decline. Management expects that clients will continue for the foreseeable futureto request lower cost offerings for staff augmentation services throughe-procurement systems, extremely competitive bidding processes, the granting ofvarious types of discounts and the use of off-shore resources.  We are considering various low-costalternatives, including relationships with e-procurement software vendors andoff-shore service providers, in response to these developments in the industry,and we have implemented new software and internet capabilities in ourrecruiting function.  Our ability torespond to customer requests for lower pricing or to provide other low costsolutions will have a direct effect on our performance.  Management expects competitive conditions tocontinue for the foreseeable future, although it expects that demand for theseservices will increase as the general economy begins to recover.

 

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Increased competition also could affect our ability toobtain and retain client contracts.  Ingeneral, our clients can cancel or reduce their contracts on short notice. Lossof a significant client relationship or a significant portion thereof, asignificant number of relationships or a major contract could have a materialadverse effect on our business.

 

As a result of the pricing and other competitivepressures affecting the technical staff augmentation area of our business,management has sought and plans to continue to seek new customers for our otherservice offerings, especially with small and medium size companies.  Management plans to continue adding newcustomers or obtaining contracts with existing customers in the areas ofsoftware and web site development and maintenance (business solutions), networkinfrastructure services, computer security and criminal justice.  While we believe these areas of our businesspresent opportunities, growth in these areas will depend on improvement inspending in the overall IT services market, our ability to compete with ourvendors and how successful we are at obtaining new clients.

 

Our ability to attract and retain qualified technicalpersonnel, especially when recovery begins, will affect our results ofoperations and ability to grow in the future. Competition for qualified personnel is intense, and if we are unable to hirerequired talent, it will affect our ability to grow our business.

 

Our ability to control labor costs, employee benefitcosts and other costs also will affect our future performance.  In an effort to contain our benefits costs,we implemented substantial changes to our benefits plans for fiscal year2002.  While we believe the changes weimplemented will be effective, the actual results from these changes may varydue to factors we cannot control such as rising medical costs, the amount ofmedical services used by our employees and similar factors.  We have streamlined our operations byconsolidating offices, reducing administrative and management personnel andcontinue to review our company structure for more efficient methods ofoperating our business and delivering our services.  We may not be able to continue to reduce costs without affectingour ability to deliver service to our clients and therefore may choose toforego particular cost reductions if we believe it would be prudent to do sofor the future business of the Company.

 

While we believe our working capital will besufficient for the foreseeable needs of our business, significant rapid growthin our business could create a need for additional working capital.  An inability to obtain additional workingcapital could have an adverse material effect on our business.  We expect to be able to comply with therequirements of our credit agreement; however, failure to do so could have amaterial adverse effect on our business.

 

Item 3.

** **

**Quantitativeand Qualitative Disclosures****AboutMarket Risk**

 

The Company isexposed to certain market risks on the new credit agreement because of thevariable interest rate charged.  Marketrisk is the potential loss arising from the adverse changes in market rates andprices, such as interest rates.  Marketrisk is estimated as the potential increase in fair value resulting from ahypothetical one percent increase in interest rates which assuming an averageoutstanding debt balance of $10.0 million would result in an annual interestexpense increase of approximately $100,000.

 

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PART II.  OTHERINFORMATION

 

Item4.

 

**Submissionof Matters to a Vote of Security Holders**

** **

At the annualmeeting of shareholders held May 1, 2002, the following action was taken:

 

(a)     Election of directors.

 

The followingnominees, all of whom were listed in the Company’s proxy statement prepared inaccordance with Regulation 14(a), were elected:

 
| **Nominee**    |   | **Votes For** |   | **Authority Withheld** |
|----------------|--------|---------------|--------|------------------------|
|           |   |          |   |                   |   |
| M.A. Loftus    |   | 19,093,539    |   | 702,251                |   |
| W.K. Drake     |   | 19,019,569    |   | 776,221                |   |
| E.M. Mahoney   |   | 19,067,193    |   | 728,597                |   |
| F.W. Lang      |   | 17,933,193    |   | 1,862,597              |   |
| R.L. Prince    |   | 19,030,226    |   | 765,564                |   |
| J.D. Bamberger |   | 17,968,382    |   | 1,827,408              |   |
| M.J. LaVelle   |   | 17,949,593    |   | 1,846,197              |   |

 

 

(b)     Ratification of auditors.

 

The shareholdersvoted their shares to ratify the appointment of Deloitte & Touche LLP bythe following vote:

 
| In favor |   | 19,270,116 |
|----------|--------|------------|
| Against  |   | 408,045    |
| Abstain  |   | 117,628    |

 

Item 6.

 

**Exhibitsand Reports on Form 8-K**

 

 a)  Form8-K filed April 26, 2002 announcing the signing of a credit agreement with GECapital.

 

b)  Form 8-K filed May 28, 2002 announcing thesale of our corporate headquarters building.

 

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SIGNATURES

 

 

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned there untoduly authorized.

 
|                 | ANALYSTS INTERNATIONAL CORPORATION                                                                                                                                                                                 |
|----------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                 |                                  (Registrant) |
|                 |                                                                                                                                                                                                               |   |
|                 |                                                                                                                                                                                                               |   |
|                 |                                                                                                                                                                                                               |   |
|                 |                                                                                                                                                                                                               |   |
| Date August 14, 2002 | By                                                                                                                                                                                                                 | /s/ John T. Paprocki |
|                 |                                                                                                                                                                                                               | John T. Paprocki |
|                 |                                                                                                                                                                                                               | Chief Financial Officer |
|                 |                                                                                                                                                                                                               |   |
| Date August 14, 2002 | By                                                                                                                                                                                                                 | /s/ David J. Steichen |
|                 |                                                                                                                                                                                                               | David J. Steichen |
|                 |                                                                                                                                                                                                               | Controller and Assistant Treasurer |
|                 |                                                                                                                                                                                                               | (Chief Accounting Officer) |

 

18

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**CERTIFICATION**

 

 

 

Each of the undersigned hereby certifies in hiscapacity as an officer of Analysts International Corporation (“The Company”)that the Quarterly Report of the Company on Form 10-Q for the period ended June30, 2002 fully complies with the requirements of Section 13(a) of theSecurities Exchange Act of 1934 and that the information contained in suchreport fairly presents, in all material respects, the financial condition of theCompany at the end of such period and the results of operations of the Companyfor such period.

 

 
| Dated:   August 14, 2002 | By     | /s/ Michael LaVelle     |
|-------------------------------|--------|-------------------------|
|                          |   | Michael LaVelle         |
|                          |   | President and           |
|                          |   | Chief Executive Officer |
|                          |   |                    |
|                          | By     | /s/ John T. Paprocki    |
|                          |   | John T. Paprocki        |
|                          |   | Chief Financial Officer |

 

 

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