**FORM 10-Q**

 

 

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C.  20549**

 

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

 

**For thequarterly period ended September 30, 2002**

 

**or**

 

**o****  Transition Report Pursuant toSection 13 or 15(d) of****the Securities Exchange Actof 1934**

 

 

**Commissionfile number 0-4090**

 

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

 

Indicate by check mark whether the Registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months and (2) has been subject to such filingrequirements for the past 90 days.

 

Yes   ý      No  o

 

 

As of October 31, 2002, 24,199,307 shares of the Registrant's CommonStock were outstanding.

 

 

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ANALYSTS INTERNATIONALCORPORATION

 

INDEX

 
| Part I.        | FINANCIAL INFORMATION                                                                                                         | 3      |
|----------------|-------------------------------------------------------------------------------------------------------------------------------|--------|
|           |                                                                                                                          |   |
| Item  1.       | Condensed  Consolidated Balance Sheets  September 30, 2002 (Unaudited) and December 31, 2001                                  | 3      |
|           |                                                                                                                          |   |
|           | Condensed  Consolidated Statements of Operations  Three- and nine-month periods ended September 30, 2002 and 2001 (Unaudited) | 4      |
|           |                                                                                                                          |   |
|           | Condensed  Consolidated Statements of Cash Flows  Nine months ended September 30, 2002 and 2001 (Unaudited)                   | 5      |
|           |                                                                                                                          |   |
|           | Notes  to Condensed Consolidated Financial Statements (Unaudited)                                                             | 6      |
|           |                                                                                                                          |   |
| Item  2.       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                   | 9      |
|           |                                                                                                                          |   |
| Item  3.       | Quantitative  and Qualitative Disclosures About Market Risk                                                                   | 15     |
|           |                                                                                                                          |   |
| Item  4.       | Controls and Procedures                                                                                                       | 16     |
|           |                                                                                                                          |   |
| Part II.       | OTHER INFORMATION                                                                                                             | 16     |
|           |                                                                                                                          |   |
| Item  6.       | Exhibits and Reports  on Form 8-K                                                                                             | 16     |
|           |                                                                                                                          |   |
| Signatures     | 17                                                                                                                            |
|           |                                                                                                                          |   |
| Certifications | 18                                                                                                                            |
|                |                                                                                                                               |        |  |

 

2

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PART I. FINANCIAL INFORMATION

 

Item 1.

 

**Analysts International CorporationCondensed Consolidated BalanceSheets**

 
| ***(In thousands)***                                       |   | **September  30,  2002** |    | **December  31,  2001** |   |
|------------------------------------------------------------|--------|--------------------------|---------|-------------------------|--------|
|                                                       |   | ***(Unaudited)***        |    |                    |   |
|                                                       |   |                     |    |                    |   |
| **ASSETS**                                                 |   |                     |    |                    |   |
| Current assets:                                            |   |                     |    |                    |   |
| Cash and cash  equivalents                                 |   | $                        | 1,744   |                    | $      | 18,204 |   |
| Accounts  receivable, less allowance for doubtful accounts |   | 67,672                   |    | 83,322                  |   |
| Prepaid expenses  and other current assets                 |   | 8,202                    |    | 9,309                   |   |
| Total current  assets                                      |   | 77,618                   |    | 110,835                 |   |
|                                                       |   |                     |    |                    |   |
| Property and  equipment, net                               |   | 8,266                    |    | 28,406                  |   |
| Intangible  assets other than goodwill                     |   | 12,215                   |    | 12,807                  |   |
| Goodwill                                                   |   | 16,460                   |    | 32,849                  |   |
| Other assets                                               |   | 4,363                    |    | 7,987                   |   |
|                                                       |   | $                        | 118,922 |                    | $      | 192,884 |   |
|                                                       |   |                     |    |                    |   |
| **LIABILITIES AND SHAREHOLDERS'  EQUITY**                  |   |                     |    |                    |   |
|                                                       |   |                     |    |                    |   |
| Current  liabilities:                                      |   |                     |    |                    |   |
| Accounts payable                                           |   | $                        | 19,178  |                    | $      | 37,778 |   |
| Current debt                                               |   | 5,608                    |    | 41,000                  |   |
| Salaries and  vacations                                    |   | 11,499                   |    | 6,399                   |   |
| Self-insured  health care reserves and other amounts       |   | 7,150                    |    | 7,882                   |   |
| Restructuring  accruals, current portion                   |   | 636                      |    | 1,154                   |   |
| Total current  liabilities                                 |   | 44,071                   |    | 94,213                  |   |
|                                                       |   |                     |    |                    |   |
| Restructuring  accruals, non-current portion               |   | 800                      |    | 1,500                   |   |
| Deferred  compensation accrual                             |   | 3,919                    |    | 6,088                   |   |
| Shareholders'  equity                                      |   | 70,132                   |    | 91,083                  |   |
|                                                       |   | $                        | 118,922 |                    | $      | 192,884 |   |

 

Note:  The balance sheet atDecember 31, 2001 has been taken from the audited financial statements at thatdate, and condensed.

 

See notes to condensedconsolidated financial statements.

 

3

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**Analysts International CorporationCondensed Consolidated Statementsof Operations**(Unaudited)

 
| ***(In thousands except  per share amounts)***                                                                                         |     | **Three  Months Ended  September 30** |     | **Nine  Months Ended  September 30** |     |
|----------------------------------------------------------------------------------------------------------------------------------------|----------|---------------------------------------|----------|--------------------------------------|----------|
|                                                                                                                                   | **2002** |                                  | **2001** |                                 | **2002** |   | **2001** |   |
| Professional  services revenues:                                                                                                       |     |                                  |     |                                 |     |   |   |   |   |
| Provided  directly                                                                                                                     |     | $                                     | 85,245   |                                 | $        | 100,479 |   | $ | 252,788 |   | $ | 319,200 |   |
| Provided through  sub-suppliers                                                                                                        |     | 22,169                                |     | 36,517                               |     | 80,054 |   | 108,029 |   |
| Total revenues                                                                                                                         |     | 107,414                               |     | 136,996                              |     | 332,842 |   | 427,229 |   |
| Expenses:                                                                                                                              |     |                                  |     |                                 |     |   |   |   |   |
| Salaries,  contracted services and direct charges                                                                                      |     | 88,715                                |     | 113,732                              |     | 276,401 |   | 353,000 |   |
| Selling,  administrative and other operating costs                                                                                     |     | 19,380                                |     | 21,700                               |     | 57,988 |   | 67,841 |   |
| Amortization of  goodwill and other intangible assets                                                                                  |     | 193                                   |     | 803                                  |     | 591 |   | 2,427 |   |
| Loss on sale of  corporate headquarters building                                                                                       |     | —                                |     | —                               |     | 1,860 |   | — |   |
|                                                                                                                                   |     |                                  |     |                                 |     |   |   |   |   |
| Operating (loss)  income                                                                                                               |     | (874                                  | )        | 761                                  |     | (3,998 | ) | 3,961 |   |
| Non-operating  income                                                                                                                  |     | 53                                    |     | 40                                   |     | 119 |   | 197 |   |
| Interest expense                                                                                                                       |     | (86                                   | )        | (749                                 | )        | (997 | ) | (2,257 | ) |
| (Loss) income  before income taxes, extraordinary loss on debt extinguishment and cumulative  effect of change in accounting principle |     | (907                                  | )        | 52                                   |     | (4,876 | ) | 1,901 |   |
| Income tax  (benefit) expense                                                                                                          |     | (224                                  | )        | 20                                   |     | (776 | ) | 725 |   |
| Net (loss)  income before extraordinary loss on debt extinguishment and cumulative effect  of change in accounting principle           |     | (683                                  | )        | 32                                   |     | (4,100 | ) | 1,176 |   |
| Extraordinary  loss on extinguishment of debt (net of $283 tax benefit)                                                                |     | —                                |     | —                               |     | (461 | ) | — |   |
| Net (loss)  income before cumulative change in accounting principle                                                                    |     | (683                                  | )        | 32                                   |     | (4,561 | ) | 1,176 |   |
| Cumulative  effect of change in accounting for goodwill                                                                                |     | —                                |     | —                               |     | (16,389 | ) | — |   |
| Net (loss)  income                                                                                                                     |     | $                                     | (683     | )                                    | $        | 32 |   | $ | (20,950 | ) | $ | 1,176 |   |
|                                                                                                                                   |     |                                  |     |                                 |     |   |   |   |   |
| Per common  share:                                                                                                                     |     |                                  |     |                                 |     |   |   |   |   |
| Basic (loss)  income:                                                                                                                  |     |                                  |     |                                 |     |   |   |   |   |
| (Loss) income  before extraordinary loss on extinguishment of debt and cumulative effect of  change in accounting principle            |     | $                                     | (.03     | )                                    | $        | .00 |   | $ | (.17 | ) | $ | .05 |   |
| Extraordinary  loss on extinguishment of debt                                                                                          |     | —                                |     | —                               |     | (.02 | ) | — |   |
| (Loss) income  before cumulative effect of change in accounting principle                                                              |     | (.03                                  | )        | .00                                  |     | (.19 | ) | .05 |   |
| Cumulative  effect of change in accounting for goodwill                                                                                |     | —                                |     | —                               |     | (.68 | ) | — |   |
| Basic (loss) income:                                                                                                                   |     | $                                     | (.03     | )                                    | $        | .00 |   | $ | (.87 | ) | $ | .05 |   |
|                                                                                                                                   |     |                                  |     |                                 |     |   |   |   |   |
| Diluted (loss)  income:                                                                                                                |     |                                  |     |                                 |     |   |   |   |   |
| (Loss) income  before extraordinary loss on extinguishment of debt and cumulative effect of  change in accounting principle            |     | $                                     | (.03     | )                                    | $        | .00 |   | $ | (.17 | ) | $ | .05 |   |
| Extraordinary  loss on extinguishment of debt                                                                                          |     | —                                |     | —                               |     | (.02 | ) | — |   |
| (Loss) income  before cumulative effect of change in accounting principle                                                              |     | (.03                                  | )        | .00                                  |     | (.19 | ) | .05 |   |
| Cumulative  effect of change in accounting for goodwill                                                                                |     | —                                |     | —                               |     | (.68 | ) | — |   |
| Diluted (loss) income:                                                                                                                 |     | $                                     | (.03     | )                                    | $        | .00 |   | $ | (.87 | ) | $ | .05 |   |
|                                                                                                                                   |     |                                  |     |                                 |     |   |   |   |   |
| Average common  shares outstanding                                                                                                     |     | 24,198                                |     | 24,196                               |     | 24,197 |   | 24,195 |   |
| Average common  and common equivalent shares outstanding                                                                               |     | 24,198                                |     | 24,280                               |     | 24,197 |   | 24,296 |   |

 

See notes to condensedconsolidated financial statements.

 

4

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**Analysts International CorporationCondensed Consolidated Statementsof Cash Flows**(Unaudited)

 
|                                                 |   | **Nine  Months Ended  September 30** |   |
|------------------------------------------------------|--------|--------------------------------------|--------|
| ***(In thousands)***                                 |   | **2002**                             |   | **2001** |   |
|                                                 |   |                                 |   |   |   |
| Net cash  provided by operating activities           |   | $                                    | 3,948  |   | $ | 12,865 |   |
|                                                 |   |                                 |   |   |   |
| Cash flows from  investing activities:               |   |                                 |   |   |   |
| Property and  equipment additions                    |   | (1,469                               | )      | (3,911 | ) |
| Proceeds from  property and equipment sales          |   | 16,445                               |   | 16 |   |
| Net cash  provided by (used in) investing activities |   | 14,976                               |   | (3,895 | ) |
|                                                 |   |                                 |   |   |   |
| Cash flows from  financing activities:               |   |                                 |   |   |   |
| Cash dividends  paid                                 |   | —                               |   | (2,420 | ) |
| Net change in  Working Capital Line of Credit        |   | 5,608                                |   | — |   |
| Proceeds from  borrowings                            |   | 29,525                               |   | 31,885 |   |
| Repayment of  borrowings                             |   | (70,525                              | )      | (31,885 | ) |
| Proceeds from  exercise of stock options             |   | 8                                    |   | 6 |   |
| Net cash used in  financing activities               |   | (35,384                              | )      | (2,414 | ) |
|                                                 |   |                                 |   |   |   |
| Net (decrease)  increase in cash and equivalents     |   | (16,460                              | )      | 6,556 |   |
|                                                 |   |                                 |   |   |   |
| Cash and  equivalents at beginning of period         |   | 18,204                               |   | 2,192 |   |
|                                                 |   |                                 |   |   |   |
| Cash and  equivalents at end of period               |   | $                                    | 1,744  |   | $ | 8,748 |   |

 

See notes to condensedconsolidated financial statements.

 

5

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**Analysts International CorporationNotes to Condensed ConsolidatedFinancial Statements**(Unaudited)

 

1.                                       Summaryof Significant Accounting Policies

 

Condensed Consolidated Financial Statements - Thecondensed consolidated balance sheet as of September 30, 2002, and thecondensed consolidated statements of operations for the three- and nine-monthperiods ended September 30, 2002 and 2001 and the condensed consolidatedstatements of cash flows for the nine month periods ended September 30, 2002and 2001 have been prepared by the Company, without audit.  In the opinion of management, alladjustments necessary to present fairly the financial position at September 30,2002 and the results of operations and the cash flows for the periods endedSeptember 30, 2002 and 2001 have been made. The results of operations for the periods ended September 30, 2002 arenot necessarily indicative of the results to be expected for the full fiscalyear.

 

Certain information and footnote disclosures normallyincluded in financial statements prepared in accordance with accounting principlesgenerally accepted in the United States of America have been condensed oromitted.  It is suggested thesecondensed consolidated financial statements be read in conjunction with thefinancial statements and notes thereto included in the Company's December 31,2001 annual report to shareholders.

 

Comprehensive (loss) income (i.e. net (loss) incomeplus available-for-sale securities valuation adjustments) for the three- andnine-months ended September 30, 2002 was ($685,000) and ($20,959,000), respectively,and for the three- and nine-months ended September 30, 2001 was $8,000 and$1,077,000, respectively.

 

Effective January 1, 2002, the Company fully adoptedthe provisions of SFAS No. 141 and SFAS No. 142.  SFAS No. 141 requires business combinations initiated after June30, 2001 to be accounted for using the purchase method of accounting, andbroadens the criteria for recording intangible assets other than goodwill.  The Company evaluated its goodwill andintangible assets aquired prior to June 30, 2001, the effective date of SFASNo. 141, using the criteria of SFAS No. 141, which resulted in $1,080,000 ofother intangibles (comprised entirely of assembled workforce intangibles) beingsubsumed into goodwill at January 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 assets asof 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.The second phase (if necessary), required to be completed by December 31, 2002,measures the impairment.  The Companycompleted its first phase impairment analysis during the first quarter andfound an indication of impairment of its recorded goodwill; accordingly, theCompany 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.

 

The impairment was required because economicconditions at the time of testing (including declining operating margins andlower demand for the Company's 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.

 

6

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Under SFAS No. 142, the Company has prospectivelyceased amortization of goodwill effective January 1, 2002.  Supplemental comparative disclosure as ifthe change had been retroactively applied to the prior year period is asfollows:

* *
|                                            |   | **Three  Months Ended  September 30,** |   | **Nine  Months Ended  September 30,** |   |
|-------------------------------------------------|--------|----------------------------------------|--------|---------------------------------------|--------|
| ***(In thousands, except per share  amounts)*** |   | **2002**                               |   | **2001**                              |   | **2002** |   | **2001** |   |
|                                            |   |                                   |   |                                  |   |   |   |   |   |
| Net (loss)  income:                             |   |                                   |   |                                  |   |   |   |   |   |
| As reported                                     |   | $                                      | (683   | )                                     | $      | 32 |   | $ | (20,950 | ) | $ | 1,176 |   |
| Goodwill  amortization                          |   | —                                 |   | 605                                   |   | — |   | 1,824 |   |
| As adjusted                                     |   | $                                      | (683   | )                                     | $      | 637 |   | $ | (20,950 | ) | $ | 3,000 |   |
|                                            |   |                                   |   |                                  |   |   |   |   |   |
| Basic and  diluted (loss) income per share:     |   |                                   |   |                                  |   |   |   |   |   |
| As reported                                     |   | $                                      | (.03   | )                                     | $      | .00 |   | $ | (.87 | ) | $ | .05 |   |
| Goodwill  amortization                          |   | —                                 |   | .02                                   |   | — |   | .07 |   |
| As adjusted                                     |   | $                                      | (.03   | )                                     | $      | .02 |   | $ | (.87 | ) | $ | .12 |   |

 

For the nine months ended September 30, 2002, nogoodwill or other intangibles were acquired, impaired or disposed.  Other intangibles consisted of thefollowing:

 
|                 |   | **September  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 |                           | $      | (1,642 | ) | $ | 10,693 |   | $ | 12,270 |   | $ | (1,052 | ) | $ | 11,218 |   |
| Tradename            |   | 1,720                       |   | (133                           | )      | 1,522 |   | 1,720 |   | (133 | ) | 1,587 |   |
| Workforce            |   | 0                           |   | 0                              |   | 0 |   | 1,340 |   | (260 | ) | 1,080 |   |
|                 |   | $                           | 13,990 |                           | $      | (1,775 | ) | $ | 12,215 |   | $ | 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-termDebt

 

Effective April 11, 2002, the Company consummated an asset-basedrevolving credit facility with up to $55,000,000 of availability.  The Company reduced the level ofavailability to $45,000,000 following the sale of its corporate headquartersbuilding on May 15, 2002 as discussed in Note 6.  Borrowings under this credit agreement are secured by all of theCompany’s assets.  The Company used aninitial advance under the line of credit of $29,800,000 to pay the outstandingbalance of its senior notes ($19,100,000, including make-whole obligations),the outstanding balance on an existing line of credit ($10,300,000), andcertain transaction expenses.  Under thenew revolving credit agreement, which matures on April 10, 2005, the Companymust take advances or pay down the outstanding balance daily.  The Company can, however, choose to requestfixed-term advances of one, two, or three months for a portion of theoutstanding balance on the line of credit. Daily advances on the line of creditbear interest at the Wall Street Journal’s “Prime Rate” plus .75% (5.5% on September30, 2002) while the fixed-term advances bear interest at the LIBOR rate plus3.0%.  The credit agreement requires thepayment of a commitment fee of .50% of the unused portion of the line plus anannual administration fee of $50,000. The agreement restricts, among other things, the payment of dividends,establishes limits on capital expenditures and requires the Company to maintaina minimum accounts payable turnover ratio. The Company believes it will be able to continue to meet therequirements of the new agreement for the foreseeable future. Repayment of thesenior notes 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.

 

7

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3.                                       Shareholders'Equity

 
|                                                       |   | **Nine  Months Ended  September 30, 2002** |   |
|------------------------------------------------------------|--------|--------------------------------------------|--------|
|                                                       |   | ***(In thousands)***                       |   |
|                                                       |   |                                       |   |
| Balance  at beginning of period                            |   | $                                          | 91,083 |   |
| Proceeds  upon exercise of stock options                   |   | 8                                          |   |
| Unrealized  loss on investments                            |   | (9                                         | )      |
| Net  loss before cumulative change in accounting principle |   | (4,561                                     | )      |
| Cumulative  effect of change in accounting for goodwill    |   | (16,389                                    | )      |
| Balance  at end of period                                  |   | $                                          | 70,132 |   |

 

4.                                       NetIncome Per Common Share

 

Basic and diluted earnings per share are presented inaccordance with Statement of Financial Accounting Standards (SFAS) No. 128,“Earnings per Share.”  The differencebetween average common shares and average common and common equivalent sharesfor the period ended September 30, 2001 is the result of outstanding stockoptions.

 

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 nine-month period ended September 30, 2002 is asfollows:

 
| ***(In thousands)***           |   | **Workforce  Reduction** |   | **Office  Closure/  Consolidation** |   | **Total** |   |
|--------------------------------|--------|--------------------------|--------|-------------------------------------|--------|-----------|--------|
|                           |   |                     |   |                                |   |      |   |
| Balance  at December 31, 2001  |   | $                        | 24     |                                | $      | 2,630     |   | $ | 2,654 |   |
|                           |   |                     |   |                                |   |      |   |
| Cash  expenditures             |   | 10                       |   | 1,208                               |   | 1,218     |   |
|                           |   |                     |   |                                |   |      |   |
| Balance  at September 30, 2002 |   | $                        | 14     |                                | $      | 1,422     |   | $ | 1,436 |   |

 

 

6.                                       Losson Sale of Fixed Assets

 

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

 

8

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Item2.

 

**Management'sDiscussion and Analysisof Financial Condition and Results of Operations******Nine Months Ended September 30, 2002 and 2001

 

The following discussion of the results of our operations and financialcondition should be read in conjunction with our consolidated financialstatements and the related notes to consolidated financial statements in this10-Q, our other filings with the Securities and Exchange Commission and ourother investor communications.

 

Critical Accounting Policies

 

The discussion and analysis of our financial condition and results ofoperations are based on our consolidated financial statements, which have beenprepared in accordance with accounting principles generally accepted in theUnited States of America.  Thepreparation of these financial statements requires us to make estimates andjudgments that affect the reported amount of assets and liabilities, revenuesand expenses, and related disclosure of contingent assets and liabilities atthe date of our financial statements. Actual results may differ from these estimates under differentassumptions or conditions.

 

Critical accounting policies are defined as those that involve significantjudgments and uncertainties and potentially result in materially differentresults under different assumptions and conditions.  Application of these policies is particularly important to theportrayal of our financial condition and results of operations.  We believe the accounting policies describedbelow meet these characteristics.  Oursignificant accounting policies are more fully described in the notes to theconsolidated financial statements included in our annual report on Form 10-K.

 

*RevenueRecognition*

 

We recognize revenue for our staffing business and the majority of ourbusiness solutions and infrastructure business as services are performed orproducts are delivered.  Certain of ouroutsourcing and help desk engagements provide for a specific level of serviceeach month for which we bill a standard monthly fee.  Revenue for these engagements is recognized in monthlyinstallments over the billable portion of the contract.

 

We generally do not enter into fixed price engagements.

 

In all of our services, risk associated with satisfactory servicedelivery exists.  Although managementfeels these risks are adequately addressed by our adherence to proven projectmanagement methodologies and other procedures, the potential exists for futurerevenue charges relating to unresolved issues.

 

*BadDebt*

 

Each accounting period, we determine an amount to be set aside to coverpotentially uncollectable accounts.  Ourdetermination is based upon an evaluation of accounts receivable for riskassociated with a client’s ability to make contractual payments.  These determinations require considerablejudgment in assessing the ultimate potential for collection of thesereceivables and include reviewing the financial stability of the client, theclients’ willingness to pay, and current market conditions.  If our evaluation of a client’s ability topay is incorrect, we may incur future charges.

 

*Goodwilland Intangible Impairment*

 

We evaluate goodwill and other intangible assets on a periodicbasis.  This evaluation relies onassumptions 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.

 

9

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In June 2001, the Financial Accounting Standards Board issued Statementof Financial Accounting Standards (“SFAS”) No. 142 “Goodwill and OtherIntangible Assets”.  In accordance withthe provisions of SFAS No. 142, effective January 1, 2002 we ceasedamortization of certain intangible assets including goodwill.  Also in conjunction with the adoption of theprovisions of SFAS No. 142, we recorded a goodwill impairment charge during thesecond quarter of $16.389 million.  Thisimpairment was recorded as a cumulative effect of a change in accountingprinciple and therefore did not impact operating income.  Intangible assets with definite useful liveswill continue to be amortized over their useful lives and reviewed for impairmentin accordance with SFAS No. 144 “Accounting for the Impairment or Disposal ofLong-Lived Assets”.

 

*DeferredTaxes*

 

We account for income taxes in accordance with SFAS No. 109,“Accounting for Income Taxes,” which requires that deferred tax assets and liabilitiesbe recognized using enacted tax rates for the effect of temporary differencesbetween the book and tax basis of recorded assets and liabilities.  SFAS No. 109 also requires that deferred taxassets be reduced by a valuation allowance if it is more likely than not thatsome portion or all of the deferred tax asset will not be realized.  Based upon prior taxable income andestimates of future taxable income, we have determined that it is more likelythan not that our net deferred tax assets, with the exception of the assetassociated with a capital loss carry-forward and the asset created by theimplementation of SFAS No. 142, which has been fully reserved, will be fullyrealized in the future.  If actual taxableincome varies from these estimates, we may be required to record a valuationallowance against our deferred tax assets resulting in additional income taxexpense which will be recorded in our consolidated statement of operations.

* *

*BenefitAccruals*

 

Each accounting period we estimate the amount to be accrued for medicalcosts incurred but not yet reported (IBNR) under our self-funded employeemedical insurance plans.  Ourdetermination is based on an evaluation of past rates of claim payouts andtrends in the amount of payouts.  Thisdetermination requires significant judgement and is dependent upon thelikelihood that past trends are representative of future payment patterns.  A significant shift in usage and paymentpatterns within our medical plans could necessitate significant adjustments tothese accruals in future accounting periods.

 

*Restructuring*

 

We recorded a restructuring charge and reserves associated withrestructuring plans approved by management in December 2000.  The remaining reserve primarily includes anestimate pertaining to real estate lease obligations which could be materiallyaffected by factors such as the ability to obtain subleases, thecreditworthiness of sublessees, and the ability to negotiate early terminationagreements with lessors.  While webelieve our current estimates regarding lease obligations are adequate, ourinability to sublet space, negotiate early terminations or obtain payments fromsublessees could necessitate significant adjustments to these estimates.

 

Liquidity and Capital Resources

 

Working capital at September 30, 2002 was $33.5 million, up from $16.6million at December 31, 2001.  Theincrease in working capital is primarily a result of the sale of our corporateheadquarters building, the proceeds of which were used to reduce currentindebtedness.  Working capital atSeptember 30, 2002 includes cash and cash equivalents of $1.7 million comparedto $18.2 million at December 31, 2001 and accounts receivable of $67.7 millioncompared to $83.3 million at December 31, 2001.  The decrease in cash and cash equivalents results from theapplication of all excess cash to pay down our short-term debt, while thereduction in accounts receivable is a reflection of our lower sales.  Accounts payable have declined from $37.8million at December 31, 2001 to $19.2 million at September 30, 2002 primarilyas a result of a lower level of activity with sub-suppliers.  Short-term debt was $5.6 million atSeptember 30, 2002, down from $41.0 million at December 31, 2001.  Subsequent to December 31, 2001, all of ouravailable cash, including $16.4 million from the sale of our building, was usedto reduce the balance on our line of credit. The ratios of current assets to current liabilities and total assets tototal liabilities have increased since December 31, 2001.

 

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Effective April 11, 2002, we consummated an asset-based revolvingcredit agreement with up to $55.0 million of availability.  We reduced the level of availability to$45.0 million following the sale of our corporate headquarters building on May15, 2002 as discussed below.  Borrowingsunder the credit agreement are secured by all of our assets.  We used an initial advance under the line ofcredit of $29.8 million to pay the outstanding balance of the senior notes($19.1 million, including make whole obligations), the outstanding balance onthe line of credit ($10.3 million) and certain transaction expenses.  Repayment of our 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. 

 

Under the new revolving credit agreement, which matures on April 10,2005, we must take advances or pay down the outstanding balance daily.  We can, however, choose to 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% (5.5% on September 30, 2002) while thefixed-term advances bear interest at the LIBOR rate plus 3.0%.  The credit agreement requires the payment ofa commitment fee of .50% of the unused portion of the line plus an annualadministration fee of $50,000.  Theagreement restricts, among other things, the payment of dividends, establisheslimits on capital expenditures and requires us to maintain a minimum accountspayable turnover ratio. We believe we will be able to continue to meet therequirements of the new agreement.

 

Effective May 15, 2002 we completed the sale of our corporateheadquarters building.  The sale of thisbuilding netted $16.4 million of additional working capital, and helps positionthe company for future growth.  Weremain a major tenant in the building following the sale.

 

Our primary need for working capital is to support accounts receivableand to fund the time lag between payroll disbursement and receipt of feesbilled to clients.  We believe the newcredit agreement, along with internally generated funds, will be sufficient tofund our business’ working capital needs.

 

Results of Operations

 

*Revenue*

 

Revenue for services provided directly by our employees (“directrevenue”) for the nine months ended September 30, 2002 was $252.8 million, adecrease of 20.8% from the same period a year ago.  For the three months ended September 30, 2002, direct revenue was$85.2 million, a decrease of 15.2% over the same period a year ago.  These decreases are the result of a reductionin billable technical consultants due to the industry-wide decrease in demandfor IT services.  While our headcountdeclines of the past two years seem to have stabilized, we have seen a decreasein 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 subsuppliers for the three- and nine-monthperiods ended September 30, 2002 were $22.2 million and $80.1 million,respectively.  This represents decreasesof 39.3% and 25.9%, respectively, from the same periods a year ago.  These decreases are the result of reducedbillable hours primarily with a single existing managed services client.

 

*PersonnelHeadcount*

 

Personnel totaled approximately 3,450 as of September 30, 2002.  Of this total, approximately 2,925 weretechnical consultants.  These totalnumbers decreased from June 30, 2002 numbers of 3,540 for total staff and 3,000technical consultants.  The decrease inconsultants primarily came in our staffing business.  The decrease in overhead staff was planned as part of our ongoingefforts to keep our cost structure in line with our revenue. While there can beno assurances, we now believe consultant headcount will remain steady as thebusiness environment for IT services slowly improves.

 

The 3,450 total personnel at September 30, 2002 reflects a decrease of750 or 17.9% from the 4,200 total at September 30, 2001.  This decrease includes approximately 170administrative and management positions eliminated in connection with therestructuring and a decrease in billable technical staff.  Subsequent to September 30, 2002, managementis eliminating up to 80 additional administrative and management positions.

 

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*LaborCosts*

 

Salaries, contracted services and direct charges, which representprimarily the Company's direct labor cost including benefits, were $276.4million or 83.0% of revenues for the nine months ended September 30, 2002compared to $353.0 million or 82.6% for the same period a year ago.  These costs were 82.6% of revenue for thethree months ended September 30, 2002, and 83.0% of revenues for the threemonths ended September 30, 2001.  Bycomparison, these costs were 83.3% of revenue for the second quarter ofcalendar 2002 and 83.2% of revenue for the first quarter of the year.  The improvement in the level of these costsin the current quarter is primarily the result of improved productivity.

 

Our efforts to control these costs involve controlling labor costs,passing on labor cost increases through increased billing rates and passingback billing rate decreases through labor rate decreases where possible, andmaintaining productivity levels of our billable technical staff.  Labor costs, however, are difficult tocontrol because of the highly skilled technical personnel we seek to hire andretain.  It is also difficult to pass onlabor cost increases to customers due to intense competition in the industry,the industry-wide decrease in demand for our services and the general state ofthe economy.  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 the nine months endedSeptember 30, 2002 have increased from the same period a year ago.  We believe the following factors account forthis increase and are directly tied to the industry-wide slowdown inbusiness.  First, in some cases we are agreeingto lower 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.  We expectcontinuing pressure on hourly rates as long as the industry-wide slowdowncontinues. We are working to improve our utilization rate by managing headcountin the areas of our business experiencing lower utilization.

 

*Selling,General and Administrative Expenses*

 

Selling, administrative and other operating (SG&A) costs, whichinclude commissions, employee fringe benefits and location costs, represented$58.0 million or 17.4% of revenue for the nine months ended September 30, 2002compared to $67.8 million or 15.9% for the same period a year ago.  These costs were 18.0% of revenues for thethree months ended September 30, 2002 and 15.8% of revenues for the threemonths ended September 30, 2001. Although SG&A increased as a percentage of revenue, we reducedactual SG&A costs by approximately $9.9 million and $2.3 million for thenine- and three-month periods, respectively, over the same periods in the prioryear.  Excluding subsupplier revenueassociated with our subsupplier contracts, this percentage would have been22.7% and 22.9% for the three- and nine-months ended September 30, 2002,respectively, and 21.6% and 21.3% for the same periods a year ago.  Subsequent to September 30, 2002, managementis further reducing the number of administrative and management personnel.  These reductions are expected to result in areduction of SG&A costs as a percentage of revenue during the fourthquarter and additional improvement into our next fiscal year.  While we are committed to careful managementof these costs, there can be no assurance we will be able to maintain thesecosts at their current relationship to revenue.

 

*Amortizationof Goodwill*

 

Amortization of goodwill and other intangible assets has decreased from$803,000 and $2,427,000, respectively, for the three- and nine-months endedSeptember 30, 2001 to $193,000 and $591,000 for the three- and nine-monthsended September 30, 2002, respectively, primarily as a result of thediscontinuation of the amortization of goodwill and certain other intangibleassets as required by SFAS No. 142.

 

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*Loss onSale of Fixed Assets*

 

Loss on sale of fixed assets includes a $1.86 million loss on thedisposal of our corporate headquarters building in May 2002 as previouslydiscussed in the notes to the financial statements.  No such significant sale of assets occurred in the 2001 periods.

* *

*Non-OperatingIncome / Interest Expense*

 

Non-operating income has increased slightly from $40,000 for the threemonths ended September 30, 2001 to $53,000 for the three months ended September30, 2002.  Non-operating income,consisting primarily of interest income, has declined from $197,000 for thenine months ended September 30, 2001 to $119,000 for the nine months endedSeptember 30, 2002.  Interest expensehas decreased from $749,000 and $2,257,000 to $86,000 and $997,000 during thesame periods.  The change in the amountof non-operating income (primarily interest income) for the nine months endedSeptember 30, 2002 is primarily the result of the decrease in cash and cashequivalents. The decrease in interest expense is due primarily to a decrease inoutstanding debt and lower interest rates associated with our current line ofcredit.

 

*ExtraordinaryLoss on Extinguishment of Debt*

* *

During the quarter ended June 30, 2002 werefinanced our previous debt arrangements as discussed under *Liquidityand 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 2001.

 

*CumulativeEffect of Change in Accounting for Goodwill*

 

During the quarter ended June 30, 2002 weadopted the provisions of SFAS No. 142 retroactive to January 1, 2002.  The adoption of SFAS No. 142 resulted in acumulative effect adjustment of $16.4 million. No similar transaction was entered into in the three and six monthperiods of 2001.

 

*IncomeTaxes*

 

We recorded income tax benefits of $224,000and $776,000 during the three- and nine-month periods ended September 30,2002.  This represents a tax benefitrate of 24.7% and 15.9%, respectively, compared to tax expense rates of 38.5%and 38.1% for the same periods ended September 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 headquartersbuilding.  We have therefore notrecognized a tax benefit for this loss. Additionally the tax rates are affected by the non-deductibility of travelmeals and entertainment.  Basedupon prior taxable income and estimates of future taxable income, we havedetermined that it is more likely than not that our net deferred tax assets,with the exception of the asset associated with a capital loss carry-forwardand the asset created by the implementation of SFAS 142, which has been fullyreserved, will be fully realized in the future.  If actual taxable income varies from these estimates, we may berequired to record an additional valuation allowance against our deferred taxassets resulting in additional income tax expense which will be recorded in ourconsolidated statement of operations.

 

*NetIncome (Loss)*

 

The net loss for the three- and nine-months ended September 30, 2002 of$683,000 and $20,950,000, respectively, compares to net income of $32,000 and$1,176,000 from the same period last year. As a percentage of revenue, the net loss was (0.6%) and (6.3%) for thethree- and nine-months ended September 30, 2002, respectively, compared withthe net income of .0 % and .3% 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- andnine-months ended September 30, 2002 was (0.8%) and (8.3%) respectively, and..0% and .4% for the same periods in 2001.

 

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*RestructuringActivities*

 

In December 2000, werecorded a restructuring charge of $7,000,000 million.  Of this charge, $2,600,000 million relatedto workforce reductions (primarily non-billable staff), and $4,400,000 millionrelated to lease termination and abandonment costs (net of sublease income),including an amount for assets to be disposed of in conjunction with thisconsolidation.

 

A summary of third quarter activity with respect to the restructuringcharge is as follows:

 
| ***(In thousands)***           |   | **Workforce  Reduction** |   | **Office  Closure/  Consolidation** |   | **Total** |   |
|--------------------------------|--------|--------------------------|--------|-------------------------------------|--------|-----------|--------|
|                           |   |                     |   |                                |   |      |   |
| Balance at  December 31, 2001  |   | $                        | 24     |                                | $      | 2,630     |   | $ | 2,654 |   |
|                           |   |                     |   |                                |   |      |   |
| Cash expenditures              |   | 10                       |   | 1,208                               |   | 1,218     |   |
|                           |   |                     |   |                                |   |      |   |
| Balance at  September 30, 2002 |   | $                        | 14     |                                | $      | 1,422     |   | $ | 1,436 |   |

 

Market Conditions, Business Outlook and Risks to OurBusiness

 

*ForwardLooking Statements*

 

The statements contained in “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations,” including without limitation,our statements relating to prospects for our business, recovery of the ITservices industry, our working capital needs and sufficiency of our workingcapital, the continued need of current and prospective customers for ourservices and our ability to win that business, the effects of competition andour ability to respond to competitive conditions, the availability andutilization of qualified professional staff, our ability to increase billingrates as labor and benefit costs increase, our ability to maintain gross marginlevels and control operating cost increases, and our ability to achieve andmaintain profitability are forward looking statements made under the safe harborprovision of the Private Securities Litigation Reform Act.  Words such as “believes,” “intends,”“possible,” “expects,” “estimates,” “anticipates,” or “plans” and similarexpressions 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.

 

Several competitive conditions are affecting our industry.  The number of large competitors, theindustry-wide decrease in demand for IT services and the general state of theeconomy have created pricing and gross margin pressures throughout the computerconsulting industry.  Staff augmentationcontinues to represent over half of total revenue (revenue from servicesprovided directly to client (direct revenue) plus revenue from servicesprovided to our clients by subsuppliers (subsupplier revenue)) and direct revenue.  While we expect the industry slowdown tobegin to reverse in 2003, there can be no assurance as to when, or if, revenuewill return to previous levels.  Ourability to respond to these competitive conditions will bear directly on ourperformance until recovery in the general economy and the IT services begins.

 

Increased competition, especially in the area of technical staffaugmentation has created pressure on billable hourly rates, and clients havebegun 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

 

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our recruiting function.  Ourability to respond to customer requests for lower pricing or to provide otherlow cost solutions 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.

 

Increased competition also could affect our ability to obtain andretain client contracts.  In general,our clients can cancel or reduce their contracts on short notice. Loss of asignificant client relationship or a significant portion thereof, a significantnumber of relationships or a major contract could have a material adverseeffect on our business.

 

As a result of the pricing and other competitive pressures affectingthe technical staff augmentation area of our business, management has soughtand plans to continue to seek new customers for our other service offerings,especially with small and medium size companies.  Management plans to continue adding new customers or obtainingcontracts with existing customers in the areas of software and web sitedevelopment and maintenance (business solutions), network infrastructureservices, computer security and criminal justice.  While we believe these areas of our business presentopportunities, growth in these areas will depend on improvement in spending inthe overall IT services market, our ability to compete with other vendors andhow successful we are at obtaining new clients.

 

Our ability to attract and retain qualified technical personnel,especially when recovery begins, will affect our results of operations andability to grow in the future. Competition for qualified personnel is intense, and if we are unable tohire required talent, it will affect our ability to grow our business.

 

Our ability to control labor costs, employee benefit costs and othercosts also will affect our future performance. In an effort to contain our benefits costs, we implemented substantialchanges to our benefits plans for fiscal year 2002 and will implementadditional changes in 2003.  While webelieve these changes will be effective, the actual results from these changesmay vary due to factors we cannot control such as rising medical costs, theamount of medical services used by our employees and similar factors.  In addition, we have streamlined ouroperations by consolidating offices, reducing administrative and managementpersonnel, and we continue to review our company structure for more efficientmethods of operating our business and delivering our services.  We may not be able to continue to reducecosts without affecting our ability to deliver service to our clients andtherefore may choose to forego particular cost reductions if we believe itwould be prudent to do so for the future business of the Company.

 

While we believe our working capital will be sufficient for theforeseeable needs of our business, significant rapid growth in our businesscould create a need for additional working capital.  An inability to obtain additional working capital could have anadverse material effect on our business. We expect to be able to comply with the requirements of our creditagreement; however, failure to do so could have a material adverse effect onour business.

 

Item 3.

 

**Quantitativeand Qualitative Disclosures About Market Risk**

 

The Company is exposed to certain market risks on the new creditagreement because of the variable interest rate charged.  Market risk is the potential loss arisingfrom the adverse changes in market rates and prices, such as interestrates.  Market risk is estimated as thepotential increase in fair value resulting from a hypothetical one percentincrease in interest rates which assuming an average outstanding debt balanceof $10.0 million would result in an annual interest expense increase ofapproximately $100,000.

 

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Item 4.

 

**Controlsand Procedures**

 

(a)          Evaluation of DisclosureControls and Procedures.

 

The Company’s Chief Executive Officer, Michael J. LaVelle, and ChiefFinancial Officer, John T. Paprocki, have reviewed the Company’s disclosurecontrols and procedures within 90 days prior to the filing of this report.  Based upon this review, these officersbelieve that the Company’s disclosure controls and procedures are effective inensuring that material information related to the Company is made known to themby others within the Company.

 

(b)         Changes in InternalControls

 

There were no significant changes in the Company’s internal controls orin other factors that could significantly affect these controls during thequarter covered by this report or from the end of the reporting period to thedate of this report on Form 10-Q.

 

PART II.  OTHER INFORMATION

 

Item 6.

 

**Exhibitsand Reports on Form 8-K**

 

None.

 

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SIGNATURES

 

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

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

 

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CERTIFICATION

 

I, Michael J. LaVelle, 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 officers 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)              designed suchdisclosure controls and procedures to ensure that material information relatingto the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which thisquarterly report is being prepared;

 

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

 

c)              presented in thisquarterly report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

 

5.                                       Theregistrant’s other certifying officers 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)              all significantdeficiencies in the design or operation of internal controls which couldadversely affect the registrant’s ability to record, process, summarize andreport financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b)             any fraud, whether ornot material, that involves management or other employees who have asignificant role in the registrant’s internal controls; and

 

6.                                       Theregistrant’s other certifying officers 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:   November 14, 2002 | By     | /s/ Michael J. LaVelle                |   |
|---------------------------------|--------|---------------------------------------|--------|
|                            |   | Michael J. LaVelle                    |
|                            |   | President and Chief Executive Officer |

 

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CERTIFICATION

 

I, John T. Paprocki, 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 officers 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)              designed suchdisclosure controls and procedures to ensure that material information relatingto the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which thisquarterly report is being prepared;

 

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

 

c)              presented in thisquarterly report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

 

5.                                       Theregistrant’s other certifying officers 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)              all significantdeficiencies in the design or operation of internal controls which couldadversely affect the registrant’s ability to record, process, summarize andreport financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b)             any fraud, whether ornot material, that involves management or other employees who have asignificant role in the registrant’s internal controls; and

 

6.                                       Theregistrant’s other certifying officers 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:   November 14, 2002 | By     | /s/ John T. Paprocki                                  |   |
|---------------------------------|--------|-------------------------------------------------------|--------|
|                            |   | John T. Paprocki                                      |
|                            |   | Executive Vice President and  Chief Financial Officer |

 

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CERTIFICATION

 

Each of the undersigned hereby certifies in his capacity as an officerof Analysts International Corporation (“The Company”) that the Quarterly Reportof the Company on Form 10-Q for the period ended September 30, 2002 fullycomplies with the requirements of Section 13(a) of the Securities Exchange Actof 1934 and that the information contained in such report fairly represents, inall material respects, the financial condition of the Company at the end ofsuch period and the results of operations of the Company for such period.

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

 

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