0001104659-02-001257.txt : 20020415 0001104659-02-001257.hdr.sgml : 20020415 ACCESSION NUMBER: 0001104659-02-001257 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020401 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANALYSTS INTERNATIONAL CORP CENTRAL INDEX KEY: 0000006292 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING SERVICES [7371] IRS NUMBER: 410905498 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-04090 FILM NUMBER: 02595931 BUSINESS ADDRESS: STREET 1: 3601 WEST 76TH ST CITY: MINNEAPOLIS STATE: MN ZIP: 55435 BUSINESS PHONE: 6128974506 MAIL ADDRESS: STREET 1: 3601 WEST 76TH ST CITY: MINNEAPOLIS STATE: MN ZIP: 55435 10-K 1 j3255_10k.htm 10-K SECURITIES AND EXCHANGE COMMISSION

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

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

for the fiscal year ended December 31, 2001

Commission file number 0-4090

ANALYSTS INTERNATIONAL CORPORATION

(Exact name of Registrant as specified in its charter)

Minnesota		41-0905408
(State of Incorporation)		(IRS Identification No.)

3601 West 76^th Street, Minneapolis, Minnesota		55435
(Address of Principal Executive Office)		(Zip Code)

Registrant’s telephone number, including area code:		952/835-5900

Securities registered pursuant to Section 12 (b) of the Act:		NONE

Securities registered pursuant to Section 12 (g) of the Act:	Common Stock, par value $.10 per share
	Common Share Purchase Rights

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ý No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements in Part III of this Form 10-K or any amendment to this Form 10-K. o

The aggregate market value of the voting stock (Common Stock) held by non-affiliates of the registrant as of March 5, 2002 was $97,525,000 based upon the closing price as reported by Nasdaq.

As of March 5, 2002 there were 24,196,705 shares of the registrant’s common stock outstanding.

PART I

Item 1. Business.

Analysts International Corporation and its subsidiaries (“Analysts International,” “Analysts” or the “Company”) is a highly diversified eBusiness and Information Technology consulting and services firm. The Company’s mission is to provide clients with IT vision and value in addressing their IT needs. Analysts International serves over 1,000 client companies through a network of sales offices. The Company also has a minor presence in Canada and the United Kingdom.

Approximately 90 percent of Analysts’ revenue are from services provided to its existing customer base, which consists primarily of Fortune 500^® companies. This high percentage of repeat business demonstrates the Company’s emphasis on customer satisfaction and development of long-term relationships with customers who have an ongoing need for the services Analysts International provides. Analysts offers its clients a full range of information technology consulting and software services offerings sometimes referred to in the industry as “solutions.” These services and solutions include custom software application development under Company project management, traditional supplemental IT and software engineering staffing under client project management, and single source staffing of programmers and other software professionals through the Company’s Managed Services Group. The Company also assists clients with their service needs in areas such as eBusiness consulting, mobile and wireless computing, network infrastructure, applications development and legacy system maintenance. The Company’s engagements have involved nearly every type and manufacture of computer and all of the major operating systems.

In April 2000, the Company acquired 80.1% of the outstanding common stock of SequoiaNET.com, Inc. (“Sequoia”). The Company acquired the remaining 19.9% of Sequoia effective December 29, 2000. The Company believes that Sequoia has strengthened the Company’s eBusiness capabilities, particularly in network infrastructure and web-based applications, and has given the Company market share dominance in the Detroit—Greater Michigan market. The acquisition also brought the Company key relationships with Microsoft, Cisco, Dell, HP and other key vendors in the network infrastructure arena. The Company has combined SequoiaNET.com’s offerings with select offerings of the Company into Analysts International’s Sequoia Services Group. These practices include Internet Development, Applications Integration, Enterprise Networking, Product Procurement, Sequoia Connect, Field Engineering, Hosting and Call Center. The Sequoia Services Group offers its services in other geographical markets through Analysts International’s 34 district sales offices and customer service sites.

One of Analysts International’s largest customers is Qwest Communications. The Qwest unit served by the Company is headquartered in Denver and provides telecommunication services, as well as domestic and international cable and telephone, wireless communications, directory and information services. To meet these needs, and to facilitate its management of the computer programmers and other technical personnel on assignment at Qwest, the Managed Services Group of the Company fills requirements, manages assigned personnel and provides time record keeping/billing services through proprietary software developed specifically for this service offering. The Company’s contract expires January 31, 2003, subject to Qwest’s right to cancel on 45 days’ notice, with an automatic one-year extension. Revenue from services provided to Qwest was approximately 15% for the year ended December 31, 2001, and approximately 13%, 22%, and 23% during the six month period ended December 31, 2000, and the two fiscal years ended June 30, 2000 and 1999, respectively. Loss of this business could have a material adverse effect on the Company.

The Company has expanded the Managed Services Group offering to other clients, including Chevron Information Technology Company (Chevron Corporation’s technology subsidiaries), Salt River Project (the nation’s third largest public power utility), International Trucking, PacifiCare, and Motorola, including Motorola’s Semi-Conductor Products subsidiary. These Managed Services Group customers use the Company as their sole source for supplemental IT/software engineering staffing.

Analysts International provides services through all of its districts to various divisions of International Business Machines Corporation (IBM). The Company is a national service provider under IBM’s National Procurement initiative. During the six-months ended December 31, 2000, the Company successfully underwent a re-bidding process with IBM, and was awarded a three-year contract as one of only five national service providers. The Company’s contract with IBM expires October 31, 2003, subject to IBM’s right to cancel for convenience on 30 days’ written notice. IBM’s National Procurement initiative requires the Company and other participating vendors to accept lower hourly rates in return for the opportunity to do a greater volume of business with IBM. There can be no assurance, however, that volume will offset lower rates. IBM business under the national contract accounted for approximately 15% of revenue in the year ended December 31, 2001, and 14%, 17% and 16% of revenue in the six month period ended December 31, 2000 and in each of the last two fiscal years ended June 30, 2000 and 1999, respectively. Loss of this business could have a material adverse effect on the Company.

Analysts International provides its services to a wide range of industries. Its revenue for the fiscal year ended December 31, 2001, was derived from services rendered to customers in the following industry groups:

	Approximate Percent of FY 2001 Revenue
Telecommunications/Transportation	23.4	%
Electronics/Manufacturing	19.3	%
Services	14.6	%
Oil and Chemical	13.7	%
Health Care	9.6	%
Financial	7.6	%
Government	4.4	%
Merchandising	2.1	%
Other	5.3	%

Analysts International provided services to more than 1,000 clients during the year ended December 31, 2001. Consistent with its practices in prior years, the Company rendered these services almost exclusively on a time and materials hourly rate basis under which invoices for services rendered were submitted no less frequently than monthly with payment generally due in 30 days.

Organization and Marketing

Analysts International provides its software services through its district sales and customer service offices, assigned on a geographical basis to one of two regions. Each district sales office is staffed with technical personnel and is managed by a district sales manager (DSM), who has primary responsibility for the profitability of the district. The DSM has broad authority to conduct the operation of the office, subject to adherence to corporate policies. In general, customer service offices are established to support specific projects for one or more specific customers at locations not served by a district sales office and are managed by a district sales office within the same geographical region. A customer service office may become a district sales office when the volume of business and the prospects for additional business justify the additional expenses associated with district office status.

During the year ended December 31, 2001, the Company maintained offices in the following locations: Atlanta, Austin, Boca Raton, Chicago, Cincinnati/Dayton, Cleveland, Columbus (Ohio), Dallas, Danbury, Denver, Des Moines, Detroit, Houston, Indianapolis, Kansas City, Iselin (New Jersey), Lexington (Kentucky), Los Angeles, Minneapolis, New York City, Omaha, Phoenix, Portland, Raleigh/Durham, Rochester (Minnesota), Rochester (New York), St. Louis, San Francisco, Seattle, Silicon Valley, Tampa, Toronto, Canada and Tulsa.

Analysts International utilizes its own direct sales force to sell its services. At December 31, 2001, the Company’s sales staff totaled more than 120 in number. The ability to recruit and hire experienced technical personnel with backgrounds and experience suitable for customer requirements is an important factor in the Company’s business. At December 31, 2001, the Company’s recruiting staff totaled more than 50 in number.

Competition

Analysts International competes with the software consulting divisions of several large companies (including Accenture, IBM, Olsten, Volt and Manpower) on a national basis. These organizations and their software consulting divisions are substantially larger than the Company in terms of sales volume and personnel and have substantially greater financial resources.

The Company also competes with other national software services companies such as Computer Task Group, Ciber,
Keane Inc. and Computer Horizons.

The Company’s district and customer services offices compete in local market areas with numerous regional and locally based software services firms. Most of these competitors are approximately the same size as or smaller than the Company’s local office, although in certain market areas they are larger than the Company’s local office.

Analysts believes its total staff and sales volume are larger than most of the national, regional and local software services companies, but in some market areas certain of these competitors may be larger. Although there are no comprehensive industry statistics available, the Company believes it is among the ten largest national software services companies in the United States.

Principal competitive factors in the software services business include technical expertise, responsiveness to customers’ needs, reputation and credibility, and hourly rates. Analysts International believes it is competitive in these respects.

Personnel

Analysts International has approximately 3,800 personnel. Of these, approximately 3,200 are systems analysts, computer programmers and other business/technology personnel whose services are billable to clients. Several years of programming experience is generally a prerequisite to employment with the Company.

Maintaining the present volume of the Company’s business and growing that business depends to a significant extent on the Company’s ability to attract and retain qualified technical personnel. Although the Company has been able to attract and retain qualified technical personnel and believes its personnel relations are satisfactory, there can be no assurance that Analysts International will be able to continue to attract and retain such personnel. Its inability to do so could have a material adverse effect on the Company’s business.

Other Matters

Analysts International was incorporated under Minnesota law on March 29, 1966. Its principal office is identified in response to Item 2 below. Raw materials, seasonality, compliance with environmental protection laws, and patents, trademarks, licenses, franchises or other concessions are not material to an understanding of the Company’s business. No portion of the Company’s business is subject to re-negotiation of profits at the election of the government. Backlog is not material because nearly all of the Company’s contracts for services, including contracts with the government (which are not material), are terminable by either the customer or the Company on notice of 30 days or less.

Cautionary Statement under the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995.

The statements included in this document that are not strictly historical fact, including without limitation, the Company’s statements relating to the continued need of current and prospective customers for the Company’s services and the Company’s ability to win that business, the effects of competition and the Company’s ability to respond to competitive conditions, the availability of qualified professional staff, the Company’s ability to increase billing rates as labor costs increase, the Company’s ability to maintain gross margin levels and control operating cost increases, the Company’s belief they will have the ability to secure favorable terms for the refinancing of the Company’s debt and the Company’s ability to achieve and maintain profitability are forward looking statements made under the safe harbor provision of the Private Securities Litigation Reform Act. Words such as “believes,” “intends,” “possible,” “expects,” “estimates,” “anticipates,” or “plans” and similar expressions are intended to identify forward-looking statements. Such statements are based on the Company’s current expectations as of the date of this document but involve risks, uncertainties and other factors which could cause actual results to differ materially from those contemplated by such forward looking statements. Investors are cautioned to consider these forward looking statements in light of important factors which may result in variations from results contemplated by such forward looking statements.

Item 2. Properties.

Analysts International’s principal executive offices and the Minneapolis district office are located at 3601 West 76^th Street, Minneapolis, Minnesota 55435, in a 134,000 square foot office building which it owns. All other locations are held under leases with varying expiration dates ranging from 30 days to 12 years. See Note I of Notes to Consolidated Financial Statements included in this Form 10-K.

Item 3. Legal Proceedings.

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

Item 4. Submission of Matters to a Vote of Security Holders.

No matters were submitted to a vote of the Company’s shareholders during the fourth quarter of fiscal 2001.

Executive Officers

Name	Age	Title

Frederick W. Lang	77	Chairman and Chief Executive Officer since 1989; President and Chief Executive Officer from 1966-1989; Treasurer from 1987-1989.

Michael J. LaVelle	62	President and Chief Operating Officer since 1999; Sr.Vice President of Operations from 1998 to 1999; Southern Region Vice President in 1996; Dallas Branch Manager from 1989 to 1996.

John D. Bamberger	46	Senior Vice President of Sales and Operations since 2000; Chief Executive Officer of SequoiaNET.com from 1989 to 2000.

Sarah P. Spiess	60	Executive Vice President since 1996; Senior Vice President during 1996; Vice President and General Manager of Southern Region from 1992 to 1996; Minneapolis Branch Manager from 1979 to 1992.

Colleen M. Davenport	39	Secretary and General Counsel since 2000; assistant secretary and associate general counsel from 1989 to 2000.

Marti R. Charpentier	46	Vice President, Finance and Treasurer since 1999; Corporate Controller and Assistant Treasurer from 1989 to 1999.

Terms of office expire as of the Annual Meeting in 2002.

PART II

The following portions of the Company’s annual report to shareholders for the fiscal year ended December 31, 2001 are incorporated by reference in response to Items 5, 6, 7 and 8 as follows:

Items in Form 10-K	Caption/Section in Annual Report	Page
5	Stock Data	30

6	Five Year Financial Summary	31

7	Management’s Discussion and Analysis	12

7A	Market Conditions, Business Outlook and Risks to Our Business	16

8	Consolidated Financial Statements	18

Item 9. Changes in and Disagreements with Independent Auditors on Accounting

and Financial Disclosure.

There have been no disagreements with or changes in the Company’s independent auditors within the past two fiscal years.

PART III

The information regarding executive officers required by Item 10 is set forth under the caption “Executive Officers” in Part I of this Form 10-K. Other information called for in Part III, including information regarding directors (Item 10), executive compensation (Item 11), and security ownership of certain beneficial owners and management (Item 12), is set forth in the Company’s definitive proxy statement for the annual meeting of shareholders to be held May 1, 2002, filed pursuant to Regulation 14A, as follows:

Items in Form 10-K	Caption in Definitive Proxy Statement	Page
10	Election of Directors	2-5

11	Executive Compensation	8-12

12	Election of Directors and Principal Shareholders	2-5, 15

Item 13. Certain Relationships and Related Transactions.

During fiscal 2001:

a. No director, executive officer, holder of more than five percent of the Company’s common stock or members of the immediate family of any of the foregoing persons had any direct or indirect material interest in any transaction or series of transactions to which the Company was a party and in which the amount exceeded $60,000, nor is any such transaction proposed;

b. The Company was not a party with any entity in which any of the Company’s directors was an executive officer, held more than a 10% equity interest, was a member of or of counsel to (in the case of a law firm) or was a partner or executive officer (in the case of an investment banking firm), in any transaction involving payments of more than five percent of the gross revenues of either the Company or such entity, nor is any such transaction proposed; and

c. No director, executive officer or (i) any member of the immediate family of any of the foregoing, (ii) any corporation or beneficial holder of ten percent or more of any class of equity securities, or (iii) any trust or other estate in which such person served as a trustee or in a similar capacity was indebted to the Company in excess of $60,000.

d. Subparagraph d. of this Item is not applicable.

PART IV

Item 14. Exhibits, Consolidated Financial Statement Schedules and Reports on Form 8-K.

a.1 Consolidated Financial Statements

The consolidated financial statements of Analysts International Corporation and its subsidiaries and the related independent auditors’ report are included in the following pages of its annual report to shareholders for the fiscal year ended December 31, 2001.

Description		Page in Annual Report
Consolidated balance sheets at December 31, 2001 and 2000.		18

Consolidated statements of operations for the years ended December 31, 2001 and 2000 (unaudited), the six months ended December 31, 2000, and the years ended June 30, 2000, and 1999.		19

Consolidated statements of cash flows for the years ended December 31, 2001 and 2000 (unaudited), the six months ended December 31, 2000, and the years ended June 30, 2000 and 1999.		20

Consolidated statements of shareholders’ equity for the year ended December 31, 2001, the six months ended December 31, 2000, and the years ended June 30, 2000 and 1999.		21

Notes to Consolidated Financial Statements		22-28

Independent Auditors’ Report		29

Report of Management		30

a.2 Consolidated Financial Statement Schedules.

Description		Page Herein
Independent Auditors’ Report on Schedule		12

Schedule II. Valuation and Qualifying Accounts		13

Other consolidated financial statement schedules are omitted because they are not required or the information is presented in the consolidated financial statements or notes thereto.

a.3 Exhibits.

Exhibit No.
3-a		Articles of Incorporation, as amended (Exhibit 3-a to Annual Report on Form 10-K for fiscal year 1988, Commission File No. 0-4090, incorporated by reference).


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

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

3-d		Amendment to Articles of Incorporation to increase authorized shares to 60 million (Exhibit 3-d to Annual Report on Form 10-K for fiscal year 1998, Commission File No. 0-0409, incorporated by reference).

3-e		Amendment to Articles of Incorporation to increase authorized shares to 120 million (Exhibit A to Definitive Proxy Statement dated September 8, 1998, Commission File No. 0-0409, incorporated by reference).

4-a		Specimen Common Stock Certificate (Exhibit 4(a) to Annual Report on Form 10-K for fiscal year 1989, Commission File No. 0-4090, incorporated by reference).

4-b		Rights Agreement dated as of June 16, 1989 between Analysts International Corporation and Norwest Bank Minnesota, N.A., as Rights Agent which includes the form of Rights Certificate and Summary of Rights (Exhibit A to the Registrant’s Form 8-A dated June 16, 1989, Commission File No. 0-4090, incorporated by reference).

4-c		First Amendment to Rights Agreement dated as of May 8,1990 between Analysts International Corporation and Norwest Bank Minnesota, N.A. as Rights Agent (Exhibit 4(c) to Annual Report on Form 10-K for fiscal year 1991, Commission File No. 0-4090, incorporated by reference).

4-d		Second Amendment to Rights Agreement dated as of April 30, 1996 between Analysts International Corporation and Norwest Bank Minnesota as Rights Agent (Exhibit 4(d) to Annual Report on Form 10-K for fiscal year 1996, Commission File No. 0-4090, incorporated by reference).

4-e		Restated Rights Agreement dated as of June 16, 1989 and restated as of April 16, 1998 between Analysts International Corporation and Norwest Bank Minnesota, N.A. as Rights Agent (Exhibit 4-e to Annual Report on Form 10-K for fiscal year 1998, Commission File No. 0-4090, incorporated by reference).

10-a		Senior Executive Retirement Plan (Exhibit 10-e to Annual Report on Form 10-K for fiscal year 1984, Commission File No. 0-4090, incorporated by reference).

10-b		Deferred Compensation Plan (Exhibit 10-g to Annual Report on Form 10-K for fiscal year 1984, Commission File No. 0-4090, incorporated by reference).

10-c		1985 Incentive Stock Option Plan (Exhibit 10(d) to Annual Report on Form 10-K for fiscal year 1991, Commission File No. 0-4090, incorporated by reference).

10-d		1994 Stock Option Plan (Exhibit A to Definitive Proxy Statement dated September 6, 1994 for registrant’s 1994 Annual Meeting of Shareholders, Commission File No. 0-4090, incorporated by reference).

10-e		1996 Stock Option Plan for Non-employee Directors (Exhibit B to Definitive Proxy Statement dated September 5, 1996, Commission File No. 0-4090, incorporated by reference).

10-f		1999 Stock Option Plan (Exhibit A to Definitive Proxy Statement dated September 13, 1999, Commission File No. 0409, incorporated by reference).

10-g		Credit Agreement dated January 31, 2000, between Analysts International Corporation and Norwest Bank Minnesota, National Association (Exhibit 4 to Quarterly Report on Form 10-Q for quarter ended March 31, 2000, Commission File No. 0-4090, incorporated by reference).

10-h		First Amendment to the Credit Agreement dated as of January 31, 2000.

10-i		Second Amendment to the Credit Agreement dated as of January 31, 2000 (Exhibit B to Quarterly Report on Form 10-Q for the quarter ended March 31, 2001, Commission File No. 0-4090, incorporated by reference).

10-j		Third Amendment to the Credit Agreement dated as of January 31, 2000 (Exhibit B to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2001, Commission File No. 0-4090, incorporated by reference).

10-k		Fourth Amendment to Credit Agreement dated as of January 31, 2000.

10-l		Fifth Amendment to Credit Agreement dated as of January 31, 2000.

10-m		Stock Purchase Agreement dated April 12, 2000 (Exhibit 2.1 to Form 8-K, filed May 5, 2000, Commission File No. 0-4090, incorporated by reference).

10-n		Trust Agreement dated October 20, 1992, with Norwest Bank Minneapolis, N.A. (Exhibit 3-b to Annual Report on Form 10-K for fiscal year 2000, Commission File no. 0-4090, incorporated by reference).

10-o		Form of letter agreement providing employment continuation following a change of control. (Exhibit 3-b to Annual Report on Form 10-K for fiscal year 2000, Commission File no. 0-4090, incorporated by reference).

10-p		Form of letter agreement providing incentive bonus protection following a change of control. (Exhibit 3-b to Annual Report on Form 10-K for fiscal year 2000, Commission File no. 0-4090, incorporated by reference).

10-q		Note Purchase Agreement dated December 30, 1998 (Exhibit 4(v) Quarterly Report on Form 10-Q for second quarter of fiscal year 1999, Commission File No. 0-4090, incorporated by reference).

10-r		First Amendment to the Note Purchase Agreement dated as of December 30, 1998. (Exhibit A to Quarterly Report on Form 10-Q for quarter ended March 31, 2001, Commission File No. 0-4090, incorporated by reference).

10-s		Second Amendment to the Note Purchase Agreement dated as of December 30, 1998 (Exhibit A to Quarterly Report on Form 10-Q for the quarter ended September 30, 2001, Commission File No. 0-4090, incorporated by reference).

10-t		Third Amendment to the Note Purchase Agreement dated as of December 30, 1998.

11		Calculations of Earnings Per Share.

13		2001 Annual Report to Shareholders

21		Subsidiaries of Registrant.

23		Independent Auditors’ Consent.

24		Powers of Attorney.

b.	Reports on Form 8-K.

	None.

Independent Auditors’ Report on Schedule

Shareholders and Board of Directors

Analysts International Corporation

Minneapolis, Minnesota

We have audited the consolidated financial statements of Analysts International Corporation and its subsidiaries as of December 31, 2001, the six months ended December 31, 2000 and each of the two years in the period ended June 30, 2000, and have issued our report thereon dated February 27, 2002 (March 18, 2002 as to the last paragraph of note E); such consolidated financial statements and report are incorporated by reference in this report on Form 10-K. Our audits also included the consolidated financial statement schedule of Analysts International Corporation and subsidiaries, listed in Item 14 a.2. This consolidated financial statement schedule is the responsibility of Analysts International Corporation’s management. Our responsibility is to express an opinion based on our audits. In our opinion, this consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.


/s/ Deloitte & Touche LLP

Minneapolis, Minnesota

February 27, 2002 (March 18, 2002 as to the last paragraph of note E)

Schedule II

Analysts International Corporation

Valuation and Qualifying Accounts

	Additions
Description	Balance at beginning of period		Charged to costs and expenses		Charged to other accounts			Write-offs, net of recoveries		Balance at end of period
Allowance for doubtful accounts:

Twelve months ended December 31, 2001	$	2,110,000	$	1,430,000				$	2,370,000	$	1,170,000

Six months ended December 31, 2000		1,100,000		1,555,000					545,000		2,110,000

Year ended June 30, 2000	850,000		350,000		$	180,000 (1	)	280,000		1,100,000

Year ended June 30, 1999	750,000		989,000					889,000		850,000

(1) Represents reserve established for Sequoia receivables on April 25, 2000, the date of the acquisition.

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: April 1, 2002	ANALYSTS INTERNATIONAL CORPORATION

	By:	/s/ F.W. Lang
		F.W. Lang, Chairman

Pursuant to the requirements of the Securities Exchange Act of 1924, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date

/s/ F.W. Lang	Chairman & Chief Executive Officer
F. W. Lang	(Principal Executive Officer)	April 1, 2002

/s/ M.R. Charpentier	Vice President, Finance and Treasurer
M. R. Charpentier	(Principal Finance and Accounting Officer)

	President and Chief Operating Officer
M.J. LaVelle*

	Director
J.D. Bamberger *

	Director
W.K. Drake*

	Director
M.A. Loftus*

	Director
E.M. Mahoney*

	Director
R.L. Prince*

*F. W. Lang, by signing his name hereto, hereby signs this Form 10-K on behalf of the persons indicated pursuant to powers of attorney filed herewith.

/s/ F.W. Lang

F.W. Lang, Chairman

EXHIBIT INDEX

Exhibit Number		Description
10-h		First Amendment to the Credit Agreement dated as of January 31, 2000.

10-k		Fourth Amendment to the Credit Agreement dated as of January 31, 2000.

10-l		Fifth Amendment to the Credit Agreement dated as of January 31, 2000.

10-t		Third Amendment to the Note Purchase Agreement dated as of December 28, 2001.

11		Calculations of Earnings Per Share.

13		2001 Annual Report to Shareholders

21		Subsidiaries of Registrant.

23		Independent Auditors’ Consent.

24		Powers of Attorney.

For a list of exhibits incorporated by reference and not filed with this Form 10-K, see Item 14 a.3 at pages 10 and 11 of this Form 10-K.

EX-10.H 3 j3255_ex10dh.htm EX-10.H Document

Exhibit 10-h

EXECUTION COPY

FIRST AMENDMENT TO
CREDIT AGREEMENT

This Amendment is agreed to as of the 21st day of November, 2000, by and between Analysts International Corporation, a Minnesota corporation (the “Borrower”), and Wells Fargo Bank Minnesota, National Association, f/k/a Norwest Bank Minnesota, National Association, a national banking association (the “Bank”).

The Borrower and the Bank have entered into a Credit Agreement dated as of January 31, 2000 (as amended, the “Credit Agreement”).

The Borrower and the Bank wish to increase the amount of the revolving credit facility provided under the Credit Agreement.

ACCORDINGLY, in consideration of the mutual covenants contained in the Credit Agreement and herein, the parties hereby agree as follows:

1. Definitions. All terms defined in the Credit Agreement that are not otherwise defined herein shall have the meanings given them in the Credit Agreement.

2. Amendment. The Credit Agreement is hereby amended as follows:

(a) The amount, “$25,000,000,” in the definition of “Facility Amount” in Section 1.1 of the Credit Agreement is hereby deleted, and the amount, “$30,000,000”, is substituted therefor.

(b) Exhibit B to the Credit Agreement is hereby deleted, and Exhibit A to this Amendment is hereby substituted therefor.

3. Renewal Note. Simultaneously with the execution of this Amendment, the Borrower shall execute and deliver to the Bank its promissory note in the form of Exhibit A hereto (the “Renewal Note”). The Bank shall accept the Renewal Note in substitution for, but not in payment of, the Note (as defined in the Credit Agreement, prior to the date of this Amendment). Each reference in the Credit Agreement to the “Note” shall hereafter be deemed to be a reference to the Renewal Note.

4. Amendment Fee. In consideration of the Bank’s entering into this Amendment, the Borrower shall pay the Bank, on or before November 21, 2000, an amendment fee in the amount of $5,000. Such fee shall be deemed fully earned by the Bank’s execution and delivery of this Amendment.

5. Representations and Warranties. The Borrower hereby represents and warrants to the Bank as follows:

(a) The Borrower has all requisite power and authority, corporate or otherwise, to execute and deliver this Amendment and the Renewal Note, and to perform this Amendment, the Renewal Note, and the Credit Agreement as amended hereby. This Amendment and the Renewal Note have been duly and validly executed and delivered to the Bank by the Borrower, and this Amendment, the Renewal Note and the Credit Agreement as amended hereby constitute the Borrower’s legal, valid and binding obligations enforceable in accordance with their terms.

(b) The execution, delivery and performance by the Borrower of this Amendment and the Renewal Note, and the performance of the Credit Agreement as amended hereby, have been duly authorized by all necessary action and do not and will not (i) require any authorization, consent or approval by any governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, (ii) violate the articles of incorporation or bylaws of the Borrower or any provision of any law, rule, regulation or order presently in effect having applicability to the Borrower, or (iii) result in a breach of or constitute a default under any indenture or agreement to which the Borrower is a party or by which the Borrower or its properties may be bound or affected.

(c) All of the representations and warranties contained in Article IV of the Credit Agreement are correct on and as of the date hereof as though made on and as of such date, except to the extent that such representations and warranties relate solely to an earlier date.

6. Conditions. The amendments set forth in paragraph 2 shall be effective only if the Bank has received (or waived the receipt of) each of the following, in form and substance satisfactory to the Bank, on or before November 21, 2000 (or such later date as the Bank may agree to in writing):

(a) The Renewal Note, duly executed on behalf of the Borrower.

(b) This Amendment, duly executed by the Borrower.

(c) The amendment fee required under paragraph 4.

(d) A copy of the resolutions of the board of directors of the Borrower evidencing approval of this Amendment, the Renewal Note, the Credit Agreement as amended hereby, and the other matters contemplated hereby, certified as accurate by the secretary of the Borrower.

(e) A certificate of the secretary of the Borrower (i) stating that there have been no amendments to or restatements of the articles of incorporation or bylaws of the Borrower as furnished to the Bank in connection with the execution and delivery of the Credit Agreement other than those that may be attached to the certificate, and (ii) certifying the names of the officers of the Borrower that are authorized to sign the

documents to be delivered pursuant to this Agreement, together with the true signatures of such officers.

7. Miscellaneous. The Borrower shall pay all costs and expenses of the Bank, including attorneys’ fees, incurred in connection with the drafting and preparation of this Amendment and any related documents. Except as amended by this Amendment, all of the terms and conditions of the Credit Agreement shall remain in full force and effect. This Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which counterparts of this Amendment, taken together, shall constitute but one and the same instrument. This Amendment shall be governed by the substantive law of the State of Minnesota.

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first above written.

	ANALYSTS INTERNATIONAL CORPORATION


	By
	Marti R. Charpentier
	Its Chief Financial Officer

	WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION


	By
	Richard G. Trembley
	Its Vice President

Exhibit A

(Exhibit B to Credit Agreement)

PROMISSORY NOTE

$30,000,000

Minneapolis, Minnesota

November 21, 2000

For value received, Analysts International Corporation, a Minnesota corporation (the “Borrower”), promises to pay to the order of Wells Fargo Bank Minnesota, National Association, f/k/a Norwest Bank Minnesota, National Association, a national banking association (the “Bank”), at its main office in Minneapolis, Minnesota, or at such other place as the holder hereof may hereafter from time to time designate in writing, in lawful money of the United States of America and in immediately available funds, the principal sum of Thirty Million Dollars ($30,000,000), or so much thereof as is advanced by the Bank to the Borrower pursuant to the Credit Agreement dated as of January 31, 2000 between the Borrower and the Bank, as amended by a First Amendment to Credit Agreement of even date herewith (together with all amendments, modifications and restatements thereof, the “Credit Agreement”), and to pay interest on the principal balance of this Note outstanding from time to time at the rate or rates determined pursuant to the Credit Agreement.

This Note is issued pursuant to, and is subject to, the Credit Agreement, which provides (among other things) for the amount and date of payments of principal and interest required hereunder, for the acceleration of the maturity hereof upon the occurrence of an Event of Default (as defined therein) and for the voluntary and mandatory prepayment hereof. This Note is the “Note,” as defined in the Credit Agreement.

This Note is issued in substitution for, but not in payment of, the Borrower’s Promissory Note dated January 31, 2000, payable to the order of the Bank in the face principal amount of $25,000,000.

The Borrower shall pay all costs of collection, including reasonable attorneys’ fees and legal expenses, if this Note is not paid when due, whether or not legal proceedings are commenced.

Presentment or other demand for payment, notice of dishonor and protest are expressly waived.

	ANALYSTS INTERNATIONAL CORPORATION


	By
		Marti R. Charpentier
		Its Chief Financial Officer

EX-10.K 4 j3255_ex10dk.htm EX-10.K Document

Exhibit 10-k

EXECUTION COPY

FOURTH AMENDMENT TO CREDIT AGREEMENT

This Amendment, dated as of November 30, 2001, is made by and between Analysts International Corporation, a Minnesota corporation (the “Borrower”), and Wells Fargo Bank, National Association, assignee of Wells Fargo Bank Minnesota, National Association, f/k/a Norwest Bank Minnesota, National Association (the “Bank”).

Recitals

The Borrower and the Bank have entered into a Credit Agreement dated as of January 31, 2000 as amended by a First Amendment to Credit Agreement dated as of December 12, 2000, a Second Amendment to Credit Agreement dated as of April 2, 2001, but effective as of March 30, 2001, and a Third Amendment dated as of August 6, 2001 (as so amended, the “Credit Agreement”). Capitalized terms used in these recitals have the meanings given to them in the Credit Agreement unless otherwise specified.

The Borrower has requested that certain amendments be made to the Credit Agreement, which the Bank is willing to make pursuant to the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements herein contained, it is agreed as follows:

1. Defined Terms. Capitalized terms used in this Amendment which are defined in the Credit Agreement shall have the same meanings as defined therein, unless otherwise defined herein. In addition, Section 1.1 of the Credit Agreement is amended by adding the following definition:

“Facility Termination Date’ means December 28, 2001, or the earlier date of termination of the Facility pursuant to Section 2.8 or 7.2(a).”

2. Commitment to Obtain New Financing. Section 5.13 is hereby deleted in its entirety.

3. No Prepayment under Note Purchase Agreement. Section 6.17 is hereby added to the Credit Agreement as follows:

“Section 6.17 No Prepayment under Note Purchase Agreement. The Borrower will not prepay any amount (whether principal, interest or otherwise) owing under the Note Purchase Agreement or otherwise evidenced by any note issued pursuant thereto without the prior written consent of the Bank (without regard to any modification or

amendment of such notes or the Note Purchase Agreement or any payment schedule related thereto not previously approved by the Bank in writing pursuant to Section 6.11 hereof).”

4. No Other Changes. Except as explicitly amended by this Amendment, all of the terms and conditions of the Credit Agreement shall remain in full force and effect and shall apply to any advance or letter of credit thereunder.

5. Amendment Fee. In consideration of the Bank’s entering into this Amendment, the Borrower shall pay to the Bank, on or before November 30, 2001, an amendment fee in the amount of fifty thousand dollars ($50,000). Such fee shall be deemed fully earned by the Bank’s execution and delivery of this Amendment.

6. Conditions Precedent. This Amendment shall be effective when the Bank shall have received an executed original hereof, together with each of the following, each in substance and form acceptable to the Bank in its sole discretion:

(a) Payment of the fee described in Paragraph 5.

(b) Such other matters as the Bank may require.

7. Representations and Warranties. The Borrower hereby represents and warrants to the Bank as follows:

(a) The Borrower has all requisite power and authority to execute this Amendment and to perform all of its obligations hereunder, and this Amendment has been duly executed and delivered by the Borrower and constitutes the legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms.

(b) The execution, delivery and performance by the Borrower of this Amendment have been duly authorized by all necessary corporate action and do not (i) require any authorization, consent or approval by any governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, (ii) violate any provision of any law, rule or regulation or of any order, writ, injunction or decree presently in effect, having applicability to the Borrower, or the articles of incorporation or by-laws of the Borrower, or (iii) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which the Borrower is a party or by which it or its properties may be bound or affected.

(c) All of the representations and warranties contained in Article IV of the Credit Agreement are correct on and as of the date hereof as though made on and as of

such date, except to the extent that such representations and warranties relate solely to an earlier date.

8. References. All references in the Credit Agreement to “this Agreement” shall be deemed to refer to the Credit Agreement as amended hereby; and any and all references in the Loan Documents to the Credit Agreement shall be deemed to refer to the Credit Agreement as amended hereby.

9. Release. The Borrower hereby absolutely and unconditionally releases and forever discharges the Bank, and any and all participants, parent corporations, subsidiary corporations, affiliated corporations, insurers, indemnitors, successors and assigns thereof, together with all of the present and former directors, officers, agents and employees of any of the foregoing, from any and all claims, demands or causes of action of any kind, nature or description, whether arising in law or equity or upon contract or tort or under any state or federal law or otherwise, which the Borrower has had, now has or has made claim to have against any such person for or by reason of any act, omission, matter, cause or thing whatsoever arising from the beginning of time to and including the date of this Amendment, whether such claims, demands and causes of action are matured or unmatured or known or unknown.

10. Costs and Expenses. The Borrower hereby reaffirms its agreement under the Credit Agreement to pay or reimburse the Bank on demand for all costs and expenses incurred by the Bank in connection with the Loan Documents and all other documents contemplated thereby, including without limitation all reasonable fees and disbursements of legal counsel. Without limiting the generality of the foregoing, the Borrower specifically agrees to pay all fees and disbursements of counsel to the Bank for the services performed by such counsel in connection with the preparation of this Amendment and the documents and instruments incidental hereto. The Borrower hereby agrees that the Bank may, at any time or from time to time in its sole discretion and without further authorization by the Borrower, make a loan to the Borrower under the Credit Agreement, or apply the proceeds of any loan, for the purpose of paying any such fees, disbursements, costs and expenses and the fee required under paragraph 5 hereof.

11. Miscellaneous. This Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original and all of which counterparts, taken together, shall constitute one and the same instrument.

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first written above.

WELLS FARGO BANK, NATIONAL ASSOCIATION		ANALYSTS INTERNATIONAL CORPORATION
By _________________________________		By _________________________________
Richard G. Trembley		Marti R. Charpentier
Its Vice President		Its Vice President — Finance

EX-10.L 5 j3255_ex10dl.htm EX-10.L Document

Exhibit 10-l

FIFTH AMENDMENT TO CREDIT AGREEMENT

This Amendment, dated as of December 28, 2001, is made by and between Analysts International Corporation, a Minnesota corporation (the “Borrower”), and Wells Fargo Bank, National Association, assignee of Wells Fargo Bank Minnesota, National Association, f/k/a Norwest Bank Minnesota, National Association (the “Bank”).

Recitals

The Borrower and the Bank have entered into a Credit Agreement dated as of January 31, 2000 as amended by a First Amendment to Credit Agreement dated as of December 12, 2000, a Second Amendment to Credit Agreement dated as of April 2, 2001, but effective as of March 30, 2001, a Third Amendment dated as of August 6, 2001, and a Fourth Amendment dated as of November 30, 2001 (as so amended, the “Credit Agreement”). Capitalized terms used in these recitals have the meanings given to them in the Credit Agreement unless otherwise specified.

The Borrower has requested that certain amendments be made to the Credit Agreement, which the Bank is willing to make pursuant to the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements herein contained, it is agreed as follows:

1. Defined Terms. Capitalized terms used in this Amendment which are defined in the Credit Agreement shall have the same meanings as defined therein, unless otherwise defined herein. In addition, Section 1.1 of the Credit Agreement is amended by adding or amending, as the case may be, the following definitions:

“‘Advance Request Worksheet’ means the form attached to the Fifth Amendment as Exhibit B, certifying the Borrower’s compliance with the Leverage Ratio Covenant under Section 5.10.”

“‘Covenant Computation Date’ means the last day of the most recently completed month.”

“‘Covenant Computation Period’ means the EBITDA Covenant Computation Period when determining compliance with Section 5.8, the Net Cash Flow Computation Period when determining compliance with Section 5.9 and the Leverage Covenant Computation Period when determining compliance with Section 5.10”

“‘EBITDA’ means, Pre-Tax Earnings (excluding non-cash income) plus noncash expenses associated with the write-off of the Borrower’s investment in CDXC Corporation, Interest Expense, depreciation and amortization, determined with respect to the Borrower in accordance with GAAP during the Covenant Computation Period.”

“‘EBITDA Covenant Computation Period’ means the calendar month ending on the Covenant Computation Date.”

“‘Facility Amount’ means $25,000,000, unless said amount is reduced pursuant to Section 2.8, in which event it means the amount to which said amount is reduced.”

“‘Facility Termination Date’ means the earlier of (i) June 30, 2002, (ii) termination of the Facility pursuant to Section 2.8 or 7.2(a), or (iii) the date of payment of any principal amount to the Note Purchasers other than a payment of $1,500,000.00 on March 29, 2002.”

“‘Fifth Amendment’ means the Fifth Amendment to Credit Agreement dated as of December 28, 2001 by and between the Borrower and the Bank.”

“‘Leverage Covenant Computation Period’ means the twelve consecutive months ending on the Covenant Computation Date.”

“‘Net Cash Flow’ means, with respect to a Net Cash Flow Computation Period, EBITDA plus cash received from tax refunds, less cash paid for taxes, Capital Expenditures, cash paid for restructuring charges, Interest Expense and cash paid as principal under the Note Purchase Agreement determined in accordance with GAAP during such Net Cash Flow Covenant Computation period.”

“‘Net Cash Flow Computation Period’ means the three consecutive calendar months ending on the Covenant Computation Date.”

“‘Note Purchase Amendment’ means the Third Amendment to Note Purchase Agreement dated as of December 28, 2001 by and among the Borrower and the Note Purchasers.”

2. Interest. Effective upon the execution and delivery of this Amendment, Section 2.3(a) of the Credit Agreement is deleted in its entirety and replaced with the following:

“(a) Interest Rate. The principal balance of the Note shall bear interest at the rate of nine percent (9.00%) per annum.”

Between December 28, 2001 and the date this Amendment is executed and delivered, interest shall continue to accrue at the Floating Rate.

3. Eurodollar Funding; Margins. Sections 2.3(b), (c), (d) and (e) of the Credit Agreement are deleted in their entirety. The Borrower shall not be entitled to a elect Eurodollar Rate.

4. Letters of Credit. Section 2.4 of the Credit Agreement is deleted in its entirety. The Borrower shall not be entitled to request the issuance of Letters of Credit.

5. Non-Usage Fees. Section 2.6(b) of the Credit Agreement is deleted in its entirety. The Borrower shall not be required to pay any non-usage fees.

6. Prepayments. Section 2.7(a)(iii) of the Credit Agreement is deleted; the Borrower may make prepayments in any amount. In addition, Section 2.7 is amended to add the following new paragraph:

“(c) Mandatory Prepayments. Each Business Day the Borrower shall prepay the Note in an amount equal to the difference between (y) the Borrower’s cash balances in its depository and investment accounts that day and (z) the amount necessary to cover disbursements in the ordinary course on the next Business Day, plus the amount necessary to pre-fund ACH payroll disbursements as of the date such ACH payroll file authorization is initiated; provided, however, that in no event shall the Borrower’s overnight aggregate cash balance exceed $6,000,000.00 and any amount in excess shall be delivered to the Bank as a prepayment of the Note. These mandatory prepayments shall be made by wire transfer each Business Day that they become due.”

7. Condition Precedent to All Advances. Section 3.2 of the Credit Agreement is amended by adding the following new paragraph:

“(c) delivery to the Bank of a completed Advance Request Worksheet certifying the Borrower’s compliance with the Leverage Ratio Covenant of Section 5.10 as of the date of the requested Advance.”

8. Financial Reporting. Section 5.1 of the Credit Agreement is amended by deleting the reference in paragraph (c) to “paragraph (a) or (b),” replacing it with the reference “paragraph (m),” and adding the following new paragraphs:

“(m) As soon as available and in any event within 10 Business Days after the end of each month, (i) consolidated statement of financial condition, earnings and cash flow of the Borrower and its Subsidiaries, prepared in accordance with GAAP, and (ii) a worksheet or schedule of the Borrower’s computations of the financial

covenants in Sections 5.8 and 5.9, all in form and substance sufficient for the Bank to review compliance with the financial covenants of Sections 5.8 and 5.9.

(n) On the last Business Day of each month, a written report of the Borrower’s efforts to obtain new financing in compliance with the requirements of Section 5.13, including copies of all material correspondence between the Borrower and any financial institutions considering the extension of new financing to the Borrower.

(o) On the next Business Day following a request by the Bank, a detailed cash receipts and disbursements projection (including the forecasted beginning and ending daily cash balances and any necessary Advances) covering the next five consecutive Business Days, commencing with the date the information request is made by the Bank.”

9. EBITDA. Section 5.8 of the Credit Agreement is deleted in its entirety and replaced with the following:

“Section 5.8 Monthly EBITDA. The Borrower will achieve at a minimum the EBITDA as of each Covenant Computation Date set forth below:

Covenant Computation Date	Monthly EBITDA

December 31, 2001	(1,500,000	)

January 31, 2002	150,000

February 28, 2002	(450,000	)

March 31, 2002	200,000

April 30, 2002	430,000

May 31, 2002	580,000”

10. Net Cash Flow. Section 5.9 of the Credit Agreement is deleted in its entirety and replaced with the following:

“Section 5.9 Net Cash Flow. The Borrower will achieve at a minimum the trailing three month net cashflow as of each Covenant Computation Date set forth below:

Covenant Computation Date		Trailing 3 Month Net Cashflow
December 31, 2001		(1,750,000)
January 31, 2002		(2,750,000)
February 28, 2002		(3,250,000)
March 31, 2002		(2,750,000)
April 30, 2002		(2,350,000)
May 31, 2002		(1,350,000)”

11. Leverage. Section 5.10 of the Credit Agreement is deleted in its entirety and replaced with the following:

“Section 5.10 Leverage Ratio. At all times the sum of outstanding (i) Advances under the Credit Agreement and (ii) principal under the Note Purchase Agreement (“Total Principal Indebtedness”) shall never exceed four and one-half times (4.5x) EBITDA; provided, however, that Total Principal Indebtedness shall not exceed four times (4.0x) EBITDA during the time period between the first day of each month and the actual date the financial reports required by Section 5.1(m) are delivered to the Bank by the Borrower.”

12. Other Financial Covenants. Sections 5.11, 5.12 and 6.12 of the Credit Agreement are deleted in their entirety.

13. New Financing. Section 5.13 is added to the Credit Agreement as follows:

“Section 5.13 New Financing. On or prior to June 30, 2002, the Borrower will cause a financial institution other than the Bank to fund financing to the Borrower in an amount not less than the sum of all amounts then outstanding under the Credit Agreement and the Note Purchase Agreement, and such financing shall be immediately applied to payment in full of the amounts outstanding under the Credit Agreement and the Note Purchase Agreement .”

14. Investments. Sections 6.4 (b) and (g) of the Credit Agreement are deleted in their entirety.

15. Restricted Payments. Section 6.5 of the Credit Agreement is deleted in its entirety and replaced with the following:

“Section 6.5 Restricted Payments. The Borrower shall not make any Restricted Payments. The Bank acknowledges that purchases of the Borrower’s

common stock in the ordinary course of business for the sole purpose of funding matching contributions by the Borrower to its employees’ 401(k) plan is not a Restricted Payment.”

16. Consolidation or Merger. Section 6.8(b) of the Credit Agreement is deleted in its entirety.

17. Ordinary Course of Business. Until the Facility Termination Date, the Borrower shall continue to operate in the ordinary course of business as established prior to the date of this Amendment. The Borrower shall not incur or pay any extraordinary obligations or expenses (including but not limited to employee salaries and benefits), nor undertake any new or unusual business activity.

Notwithstanding the foregoing, the Bank consents to (i) a payment in the amount of $1,500,000.00 to the Note Purchasers on March 29, 2002, pursuant to the terms of the Note Purchase Amendment, and (ii) a lump sum payment not to exceed $2.7 million under paragraph 4e of the Borrower’s retirement plan to a person who was an active executive employee of the Borrower on the date of this Amendment and elects to retire prior to the Termination Date (the “Special Retirement Payment”). However, the Special Retirement Payment shall be funded solely from the Variable Universal Life Insurance Policies (the “Insurance Policies”) held by Wells Fargo Bank Minnesota, National Association, as Trustee (the “Trustee”) for the Borrower’s retirement trust account, and then, only to the extent the value of the Insurance Policies is insufficient, from the Multi-funded Annuity Contracts (“Annuities”) also held by the Trustee in the retirement trust account. In no event shall the Special Retirement Payment be funded from operating cash or other assets of the Borrower.

18. New Compliance Certificate. Exhibit C to the Credit Agreement is hereby amended in its entirety and replaced with Exhibit A to this Amendment.

19. No Other Changes. Except as explicitly amended by this Amendment, all of the terms and conditions of the Credit Agreement shall remain in full force and effect and shall apply to any Advance thereunder.

20. Amendment Fee. In consideration of the Bank’s entering into this Amendment, the Borrower shall pay to the Bank an amendment fee in the amount of $62,500 upon execution and delivery of this Amendment. Such fee shall be deemed fully earned by the Bank’s execution and delivery of this Amendment.

21. Conditions Precedent. This Amendment shall be effective when the Bank shall have received an executed original hereof, together with each of the following, each in substance and form acceptable to the Bank in its sole discretion:

(a) Payment of the fee described in Paragraph 20.

(b) Payment of all fees and expenses incurred by the Bank in connection with the preparation of this Amendment and all related documents and instruments, including but not limited to the Amendment to Intercreditor Collateral Agreement dated as of December 28, 2001 (the “Intercreditor Amendment”) and all related documents and instruments.

(c) A first priority mortgage covering the Borrower’s real property located in Edina, Minnesota in the amount of $15,000,000.00 to secure the Borrower’s obligations under the Credit Agreement and the Note Purchase Agreement.

(d) A Collateral Pledge Agreement and any ancillary documents necessary to grant and perfect a lien on, and interest in, certain Variable Universal Life Insurance Policies and Multi-funded Annuity Contracts owned by the Borrower to secure the Borrower’s obligations under the Credit Agreement and the Note Purchase Agreement.

(e) A fully executed copy of the Note Purchase Amendment.

(f) A fully executed copy of the Intercreditor Amendment.

(g) An opinion of counsel to the Borrower with respect to, among other things, the due authorization and enforceability of this Amendment, the Intercreditor Agreement, the Mortgage, the Collateral Pledge Agreement and related documents.

(h) Such other documents or instruments as the Bank may require.

22. Representations and Warranties. The Borrower hereby represents and warrants to the Bank as follows:

(a) The Borrower has all requisite power and authority to execute this Amendment and to perform all of its obligations hereunder, and this Amendment has been duly executed and delivered by the Borrower and constitutes the legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms.

(b) The execution, delivery and performance by the Borrower of this Amendment have been duly authorized by all necessary corporate action and do not (i) require any authorization, consent or approval by any governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, (ii) violate any provision of any law, rule or regulation or of any order, writ, injunction or decree presently in effect, having applicability to the Borrower, or the articles of incorporation or by-laws of the Borrower, or (iii) result in a breach of or constitute a

default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which the Borrower is a party or by which it or its properties may be bound or affected.

(c) All of the representations and warranties contained in Article IV of the Credit Agreement are correct on and as of the date hereof as though made on and as of such date, except to the extent that such representations and warranties relate solely to an earlier date.

23. References. All references in the Credit Agreement to “this Agreement” shall be deemed to refer to the Credit Agreement as amended hereby; and any and all references in the Loan Documents to the Credit Agreement shall be deemed to refer to the Credit Agreement as amended by this Amendment.

24. Release. The Borrower absolutely and unconditionally releases and forever discharges the Bank, and any and all participants, parent corporations, subsidiary corporations, affiliated corporations, insurers, indemnitors, successors and assigns thereof, together with all of the present and former directors, officers, agents and employees of any of the foregoing, from any and all claims, demands or causes of action of any kind, nature or description, whether arising in law or equity or upon contract or tort or under any state or federal law or otherwise, which the Borrower has had, now has or has made claim to have against any such person for or by reason of any act, omission, matter, cause or thing whatsoever arising from the beginning of time to and including the date of this Amendment, whether such claims, demands and causes of action are matured or unmatured or known or unknown.

25. Costs and Expenses. The Borrower reaffirms its agreement under the Credit Agreement to pay or reimburse the Bank on demand for all costs and expenses incurred by the Bank in connection with the Loan Documents and all other documents contemplated thereby, including without limitation all reasonable fees and disbursements of legal counsel. Without limiting the generality of the foregoing, the Borrower specifically agrees to pay all fees and disbursements of counsel to the Bank for the services performed by such counsel in connection with the preparation of this Amendment and all related documents and instruments. The Borrower agrees that the Bank may, at any time or from time to time in its sole discretion and without further authorization by the Borrower, make a loan to the Borrower under the Credit Agreement, or apply the proceeds of any loan, for the purpose of paying any such fees, disbursements, costs and expenses and the fee required under paragraph 20 of this Amendment.

26. Miscellaneous. This Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original and all of which counterparts, taken together, shall constitute one and the same instrument.

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first written above.

WELLS FARGO BANK, NATIONAL ASSOCIATION		ANALYSTS INTERNATIONAL CORPORATION


By		By
	Ellen J. Trach		Marti R. Charpentier
	Its Vice President		Its Vice President — Finance

M1:832170.05

Exhibit A to Fifth Amendment
to Credit Agreement

COMPLIANCE CERTIFICATE

, 2002

Wells Fargo Bank National Association
Sixth and Marquette Avenues
Minneapolis, Minnesota 55479
Attention: Ellen J. Trach

Compliance Certificate

Ladies and Gentlemen:

Reference is made to the Credit Agreement dated as of January 31, 2000, as amended by a First Amendment to Credit Agreement dated as of December 12, 2000, a Second Amendment to Credit Agreement dated as of March 30, 2001, but effective as of April 2, 2001, a Third Amendment to Credit Agreement dated as of August 6, 2001, a Fourth Amendment to Credit Agreement dated as of November 30, 2001, and a Fifth Amendment to Credit Agreement dated as of December 28, 2001 (as so amended, the “Credit Agreement”), entered into between Wells Fargo Bank, National Association, a national banking association and Analysts International Corporation, a Minnesota corporation (the “Borrower”).

All terms defined in the Credit Agreement and not otherwise defined herein shall have the meanings given them in the Credit Agreement.

This is a Compliance Certificate submitted in connection with the Borrower’s reporting obligations under Section 5.1(c) of the Credit Agreement as of and for the month ending , 2002 (the “Reporting Date”) and includes the Borrower’s financial statements (the “Statements”) prepared as of and for the Reporting Date.

I hereby certify to you as follows:

1. I am the chief financial officer of the Borrower, and I am familiar with the financial statements and financial affairs of the Borrower.

2. The Statements, and the computations below, have been prepared in accordance with GAAP.

3. The following computations set forth the Borrower’s compliance or non-compliance with the requirements set forth in the Financial Covenants as of the Reporting Date:

Section 5.8 Monthly EBITDA

EBITDA $___________

A. Pursuant to Section 5.8 of the Credit Agreement, as of the Reporting Date, the Borrower’s Monthly EBITDA o satisfies o does not satisfy the requirement set forth in the table below:

Covenant Computation Date		Monthly EBITDA
December 31, 2001		(1,500,000
January 31, 2002		150,000
February 28, 2002		(450,000)
March 31, 2002		200,000
April 30, 2002		430,000
May 31, 2002		580,000

Section 5.9 Trailing 3 Month Net Cashflow

Trailing 3 Month Net Cashflow $_____________________

B. Pursuant to Section 5.9 of the Credit Agreement, as of the Reporting Date, the Borrower’s trailing 3 month net cash flow o satisfies o does not satisfy the requirement set forth in the table below:

Covenant Computation Date		Trailing 3 Month Net Cashflow
December 31, 2001		(1,750,000)
January 31, 2002		(2,750,000)
February 28, 2002		(3,250,000)
March 31, 2002		(2,750,000)
April 30, 2002		(2,350,000)
May 31, 2002		(1,350,000)

Attached hereto are all relevant facts in reasonable detail to evidence, and the computations of, the financial covenants referred to above.

4. I have no knowledge of the occurrence of any Default or Event of Default under the Credit Agreement, except as set forth in the attachments, if any, hereto.

Very truly yours,

ANALYSTS INTERNATIONAL CORPORATION

By

Its

Exhibit B to Fifth Amendment
to Credit Agreement

ADVANCE REQUEST WORKSHEET

, 2002

Wells Fargo Bank National Association

Sixth and Marquette Avenues

Minneapolis, Minnesota 55479

Attention: Ellen J. Trach

Worksheet and Compliance Certificate

Ladies and Gentlemen:

All terms defined in the Credit Agreement and not otherwise defined herein shall have the meanings given them in the Credit Agreement.

This is a worksheet and compliance certificate submitted in connection with the Borrower’s obligations under Section 5.10 of the Credit Agreement as of and for the date set forth above on which the Borrower has requested an Advance (the “Advance Request Date”) and in satisfaction of the condition precedent under Section 3.2(c) of the Credit Agreement. I hereby certify:

1. I am the chief financial officer of the Borrower, and I am familiar with the financial statements and financial affairs of the Borrower.

2. The Borrower’s financial statements, and the computations below, have been prepared in accordance with GAAP.

3. The following computations set forth the Borrower’s compliance or non-compliance with the Leverage Ratio requirements set forth in Section 5.10 as of the Advance Request Date:

A. EBITDA: $
(for the 12 months ending on the last day of the most recently completed month)

B. Calculation of Total Principal Indebtedness

Total Advances outstanding:		$
Advance requested:		$
Note Purchase Agmt principal outstanding:		$

Total Principal Indebtedness:		$

C. Ratio (choose one)

(i) Advance Request Date is before prior month’s financial reports have been delivered to Bank: Ratio = 4.0

(ii) Advance Request Date is on or after prior month’s financial reports have been delivered to Bank: Ratio = 4.5

D. Ratio x EBITDA = (“Leverage”)

E. Compliance (check one)

___ Leverage is less than or equal to Total Principal Indebtedness

(Borrower is in compliance with Section 5.10)

___ Leverage is greater than Total Principal Indebtedness

(Borrower is not in compliance with Section 5.10)

4. I have no knowledge of the occurrence of any Default or Event of Default under the Credit Agreement, except as set forth in the attachments, if any, hereto.

Very truly yours,

ANALYSTS INTERNATIONAL CORPORATION

By
Its

EX-10.T 6 j3255_ex10dt.htm EX-10.T CTLeft.dot

EXHIBIT 10-t

THIRD AMENDMENT TO NOTE PURCHASE AGREEMENT

THIS THIRD AMENDMENT dated as of December 28, 2001 (the “Third Amendment”), by and among ANALYSTS INTERNATIONAL CORPORATION, a Minnesota corporation (the “Company”) and the holders of the Company’s Notes (as defined below) appearing on the signature pages hereof (such holders are referred to herein individually as a “Noteholder,” and collectively as the “Noteholders”).

RECITALS:

A. The Company and each of the Noteholders have heretofore entered into a Note Purchase Agreement dated as of December 30, 1998, as amended by the First Amendment to Note Purchase Agreement and the Second Amendment to Note Purchase Agreement (as so amended, the “Note Purchase Agreement”) pursuant to which the Company originally issued and sold to the Noteholders an aggregate principal amount of Twenty Million Dollars ($20,000,000) of the Company’s Senior Notes due December 30, 2006 (the “Notes”).

B. The Noteholders are the registered holders or the beneficial owners of one hundred percent (100%) of the Notes outstanding as of the date hereof.

C. Capitalized terms used herein shall have the respective meanings ascribed thereto in the Note Purchase Agreement unless herein defined or the context shall otherwise require.

AGREEMENT:

NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1. AMENDMENTS TO NOTE PURCHASE AGREEMENT.

The Company and, subject to the satisfaction of the conditions set forth in Section 3 hereof, the Noteholders, hereby consent and agree to the amendments to the Note Purchase Agreement set forth in this Section 1.

1.1 Amendment of Section 7.1

Section 7.1 is hereby amended by inserting a new subsection 7.1(i) as follows:

“(i) Monthly Statements—within ten (10) Business Days after the end of each month, duplicate copies of

(i) consolidated and consolidating balance sheets of the Company and its subsidiaries as at the end of such month,

(ii) consolidated and consolidating statements of income, changes in shareholders’ equity and cash flows of the Company and its Subsidiaries, for such month, and

(iii) a written report describing all material refinancing efforts and activities of the Company to date and anticipated future efforts and activities, along with all material written information in support of same.”

1.2 Amendment to Section 7.2. The introductory language to Section 7.2 is hereby modified to read in its entirety as follows:

“Each set of financial statements delivered to a holder of Notes pursuant to Section 7.1 hereof shall be accompanied by a certificate of a Senior Financial Officer setting forth:”

1.3 Amendment of Section 8.1.

Section 8.1 is hereby amended and restated to read in its entirety as follows:

“8.1 Required Payments.

On the dates set forth below, the Company will pay the principal amounts set forth below (or such lesser principal amount as shall then be outstanding):

(a) On March 29, 2002, the Company shall pay to the Noteholders the principal amount of One Million Five Hundred Thousand Dollars ($1,500,000); and

(b) On June 30, 2002, the Company shall pay to the Noteholders all outstanding principal amounts, interest and Make-Whole Amounts. For purposes of calculating the Make-Whole Amounts, the Called Principal, the interest rate, the scheduled dates of payment and the maturity date of the Notes in effect immediately preceding the effectiveness of the Third Amendment to Note Purchase Agreement shall be used;

provided, that (i) any partial prepayment of the Notes pursuant to Section 8.2 shall be deemed applied first to the amount due at maturity and then to the amount of the scheduled principal prepayments required by this Section 8.1 in inverse order of their maturity, and (ii) upon any purchase of the Notes permitted by Section 8.5 the principal amount of each required prepayment of the Notes becoming due under this Section 8.1 on and after the date of such prepayment or purchase shall be reduced in the same proportion as the aggregate unpaid principal amount of the Notes is reduced as a result of such purchase.”

1.4 Amendment of Section 8.6

The defined term “Remaining Scheduled Payments” is hereby amended and restated to read in its entirety as follows:

“Remaining Scheduled Payments” — means, with respect to the Called Principal of any Note, all payments of such Called Principal and interest thereon that would be due after the Settlement Date with respect to such Called Principal if no payment of such Called Principal were made prior to its scheduled due date, provided that if such Settlement Date is not a date on which interest payments are due to be made under the terms of the Notes, then the amount of the next succeeding scheduled interest payment will be reduced by the amount of interest accrued to such Settlement Date and required to be paid on such Settlement Date pursuant to Section 8.2 or 12.1. For purposes of this definition, the Called Principal, the interest rate, the scheduled dates of payment and the maturity date of the Notes immediately preceding the effectiveness of the Third Amendment to Note Purchase Agreement shall be employed.

1.5 Amendment of Section 9.6

Section 9.6 is hereby amended and restated to read in its entirety as follows:

“9.6 Minimum EBITDA.

For each EBITDA Covenant Computation Period, the Company shall achieve, at a minimum, the amount of EBITDA set forth below opposite such period.

Covenant Computation Period Ending	Monthly EBITDA

December 31, 2001	$	(1,500,000	)

January 31, 2002	150,000

February 28, 2002	(450,000		)

March 31, 2002	200,000

April 30, 2002	430,000

May 31, 2002	580,000”

1.6 Amendment of Section 9.7

Section 9.7 is hereby amended and restated to read in its entirety as follows:

“9.7 NetCash Flow.

For each Net Cash Flow Computation Period, the Company shall achieve, at a minimum, the Net Cash Flow set forth below opposite such period.

Net Cash Flow Computation Period Ending	Net Cash Flow

December 31, 2001	$	(1,750,000	)

January 31, 2002	(2,750,000		)

February 28, 2002	(3,250,000		)

March 31, 2002	(2,750,000		)

April 30, 2002	(2,350,000		)

May 31, 2002	(1,350,000”		)

1.7 Amendment of Section 10.3

Section 10.3 is hereby amend and restated to read in its entirety as follows:

“10.3 Merger, Consolidation and Sales of Assets.

Neither the Company nor any of its Subsidiaries will consolidate with or be a party to a merger with any Person, or sell, lease, transfer or otherwise dispose of all or any Substantial Part of its assets.”

1.8 Amendment of Section 10.4

Section 10.4 is hereby amended and restated in its entirety as follows:

“10.4 Limitation on Investments.

The Company will not and will not permit any Subsidiary to, make any Investment other than:

(a) Investments in property to be used in the ordinary course of business of the Company and its Subsidiaries;

(b) current assets arising from the sale of goods and services in the ordinary course of business of the Company and its Subsidiaries;

(d) Investments in direct obligations of the United States of America or any agency or instrumentality thereof whose obligations constitute full faith and credit obligations of the United States of America having a maturity of one year or less, commercial paper issued by U.S. corporations rated “A-1” or “A-2” by Standard & Poors Corporation or “P-1” or “P-2” by Moody’s Investors Service or certificates of deposit or bankers’ acceptances having a maturity of one year or less issued by members of the Federal Reserve System having deposits in excess of $100,000,000; and

(e) Investments aggregating not more than $5,000,000 in one or more mutual funds which invest solely in corporate or municipal bonds of investment grade quality.”

1.9 Amendment of Section 10.5

Section 10.5 is hereby amended and restated in its entirety as follows:

“10.5 Limitation on Indebtedness

The Company will not and will not permit any Subsidiary to create, assume, incur, or suffer to exist or in any manner be or become liable in respect of any Indebtedness, except:

(a) Indebtedness evidenced by the Notes;

(b) Indebtedness incurred in accordance with the terms of the Revolving Credit Agreement as in effect on the Amendment Closing Date; and

(c) other Indebtedness of the Company or any Subsidiary existing at the Amendment Closing Date and set forth on Schedule 1.9 to the Third Amendment to Note Purchase Agreement.”

1.10 Amendment of Section 10.6

Section 10.6 is hereby amended and restated in its entirety as follows:

“10.6 Limitation on Subsidiary Indebtedness.

The Company will not at any time permit any Subsidiary to, directly or indirectly, create, incur, assume, guarantee, have outstanding, or otherwise become or remain directly or indirectly liable with respect to any Indebtedness other than:

(a) Indebtedness of Subsidiaries existing at the Amendment Closing Date and set forth on Schedule 1.9 to the Third Amendment to Note Purchase Agreement; and

(b) Indebtedness of a Subsidiary owed to the Company or a Wholly-Owned Subsidiary.”

1.11 Amendment of Section 10.7

Section 10.7 is hereby amended and restated in its entirety as follows:

“10.7 Limitation on Liens.

The Company will not and will not permit any Subsidiary to create or incur, or suffer to be incurred or to exist, any Lien on its or their property or assets, including any capital stock of any Subsidiary, whether now owned or hereafter acquired, or upon any income or profits therefrom, or transfer any property for the purpose of subjecting the same to the payments of obligations in priority to the payment of its or their general creditors, or acquire or agree to acquire, or permit any Subsidiary to acquire, any property or assets upon conditional sales agreements or other title retention devices, unless the Notes are equally and ratably secured except:

(a) Liens for taxes and assessments or other governmental charges or levies not yet due or which are being contested in good faith by appropriate proceedings promptly initiated and diligently conducted in accordance with Section 9.4 hereof, provided that payment thereof is not at the time required by Section 9.4 hereof;

(b) Liens of or resulting from any judgment or award, the time for the appeal or petition for rehearing of which shall not have expired, or in respect of which the Company or a Subsidiary shall at any time in good faith be prosecuting an appeal or a proceeding for a review shall have been secured, provided that payment thereof is not at the time required by Section 9.4 hereof;

(c) Liens incidental to the normal conduct of the business or the ownership of properties and assets of the Company or any Subsidiary (including Liens in connection with worker’s compensation, unemployment insurance, old age pensions, other social security benefits or obligations and other like laws, warehousemen’s, mechanics’, materialmen’s and attorney’s liens and statutory landlord’s liens) and Liens to secure statutory obligations, surety, penalty or appeal bonds or other Liens of like general nature incurred in the ordinary course of business and not in connection with the incurrence of Indebtedness and which do not in the aggregate materially impair the use of such property or assets in the operation of the business of the Company, and the Company and its Subsidiaries taken as a whole, or the value of such property or assets for the purposes of such business; provided in each case, the obligation secured is not overdue (or, with respect to warehousemen’s, mechanics’ and materialmens’ lien, not overdue for a period longer than 30 days), or if so overdue, is being contested in good faith by appropriate actions or proceedings;

(d) Liens existing existing at the Amendment Closing Date and set forth on Schedule 1.11 to the Third Amendment to Note Purchase Agreement.”;

(e) any Lien renewing, extending or refunding any Lien permitted by paragraph (d) of this Section 10.7, provided that (i) the principal amount of Indebtedness secured by such Lien immediately prior to such extension, renewal or refunding is not increased or the maturity thereof reduced, (ii) such Lien is not extended to any other property, and (iii) immediately after such extension, renewal or refunding no Default or Event of Default would exist;

(f) Liens on property or assets of any Subsidiary securing Indebtedness owing to the Company or to any of its Wholly-Owned Subsidiaries; and

(g) (i) any Lien on property (other than the land and improvements comprising the Company’s office building located at 3601 West 76^th Street, Edina, Minnesota 55435) to secure all or a part of the purchase price or cost of the construction of such property created contemporaneously with, or within 180 days after, such acquisition or the completion of such construction, or (ii) any Lien in property existing in such property at the time of acquisition thereof, whether or not the Indebtedness secured thereby is assumed by the Company or such Subsidiary, or (iii) any Lien existing in the property of a corporation at the time such corporation is merged into or consolidated with the Company or a Subsidiary or at the time of a sale, lease or other disposition of the properties of a corporation or firm as an entirety or substantially as an entirety to the Company or a Subsidiary; provided, however, that the Indebtedness secured by any Lien permitted by this paragraph (g) shall not in the aggregate exceed 100% of the fair market value of the related property.”

1.12 Amendment of Section 10.9

Section 10.9 is hereby amended and restated in its entirety as follows:

“10.9 Restricted Payments.

The Company will not (i) pay any amount on account of any equity interest in the Company, including, without limitation, dividends in cash or property (other than dividends consisting of capital stock of the Company or options, warrants and rights to acquire such capital stock); (ii) directly or indirectly purchase, redeem or otherwise retire, any shares of any class of its capital stock other than purchases of stock necessary to fund the Company’s matching contribution obligations to a Plan; or (iii) make any payment of principal with respect to the Revolving Credit Agreement other than payments required by section 2.7(c) thereof (collectively, “Restricted Payments”).”

1.13 Amendment of Section 10.10

Section 10.10 is hereby amended and restated in its entirety as follows:

“10.10 Restrictions on Issuance and Sale of Subsidiary Stock.

The Company will not (i) permit any Subsidiary to issue or sell any shares of its capital stock of any class to any Person other than the Company, or (ii) sell, transfer or otherwise dispose of any shares of capital stock of any class of any Subsidiary, or permit any Subsidiary to sell, transfer or otherwise dispose of any shares of the capital stock of any other Subsidiary.”

1.14 Amendment of Section 10.11

Section 10.11 is hereby amended and restated in its entirety as follows:

“10.11 Sale and Lease Back.

The Company will not, and will not permit any Subsidiary to enter into any arrangement with any bank, insurance company or other lender or investor or to which such lender or investor is a party providing for the leasing by the Company or any Subsidiary of real or personal property which has been or is to be sold or transferred by the Company or any Subsidiary to such lender or investor or to any person to whom funds have been or are to be advanced by such lender or investor on the security of such property or rental obligations of the Company or any Subsidiary.”

1.15 Leverage Ratios.

A new Section 10.14 is hereby added to the Note Purchase Agreement to read as follows:

“10.14 Leverage Ratio.

At all times the sum of outstanding (i) principal under the Revolving Credit Credit Agreement, and (ii) principal under the Note Purchase Agreement (“Total Principal Indebtedness”) shall not exceed

four and one-half times (4.5x) EBITDA for the period of twelve consecutive months then most recently ended; provided, however, that Total Principal Indebtedness shall not exceed four times (4.0x) such EBITDA during the time period between the first day of each month and the date the financial reports required by Section 7.1(i) are delivered to the Noteholders by the Company.”

1.16 Other Financial Covenants.

Section 9.7 (Current Ratio) and Section 10.8 (Consolidated Net Worth) are hereby deleted in their entirety.

1.17 Additional Event of Default.

Section 11 is hereby amended by adding thereto a new subsections (k) and (l) to read as follows:

“(k) the Company shall have failed to deliver to the Collateral Agent by March 1, 2002 such documents as the Collateral Agent and the holders of the Notes deem necessary to create and perfect a first priority lien upon the annuity contracts and policies of life insurance listed on Schedule 5.8 to the Third Amendment to Note Purchase Agreement; or

(l) the Company shall make a payment (or series of related payments) to any Person in an aggregate amount exceeding $1,500,000, except payments of trade payables in the ordinary course of business, budgeted capital expenditures, and one or more lump sum payments (not to exceed $2,700,000 in the aggregate) pursuant to paragraph 4e of the Company’s retirement plan, provided that any such lump sum payment is funded entirely with the proceeds of one or more life insurance policies or annuity contracts listed on Schedule 5.8 to the Third Amendment to Note Purchase Agreement.”

1.18 Amendment of Definitions.

The present definition of EBITDA is deleted and the following definitions are hereby added to Schedule B to the Note Purchase Agreement, in their respective alphabetical order, as follows:

“Amendment Closing Date” means 2002 [insert date this Amendment No.3 is executed by all parties]

“Collateral Agent” means Wells Fargo Bank, National Association, or its successor under the Intercreditor Agreement.

“Covenant Computation Date” means, at any time, the last day of the most recently completed month.

“Covenant Computation Period” means the EBITDA Covenant Computation Period when determining compliance with Section 9.6, the Net Cash Flow Computation Period when determining compliance with Section 9.7, and the Leverage Coverage Computation Period when determining compliance with Section 10.14.

“EBITDA” means, with respect to any Covenant Computation Period, Pre-Tax Earnings (excluding non-cash income) plus noncash expenses associated with the write-off of the Company’s investment in CDXC Corporation, Interest Expense, depreciation and amortization, all as determined with respect to the Company in accordance with GAAP for such Covenant Computation Period.

“EBITDA Covenant Computation Period” means the calendar month ending on the Covenant Computation Date.

“First Amendment to Note Purchase Agreement” means that certain First Amendment to this Note Purchase Agreement, dated as of March 30, 2001, among the Company and the Noteholders.

“Intercreditor Agreement” means that certain Intercreditor Collateral Agreement dated as of June 20, 2001 among the Company, the Noteholders and Wells Fargo Bank, National Association, as lender and as Collateral Agent, as amended from time to time.

“Leverage Computation Period” means the twelve consecutive months ending on a Covenant Computation Date.

“Net Cash Flow” means, with respect to a Net Cash Flow Computation Period, EBITDA plus cash received from tax refunds, less cash paid for taxes, Capital Expenditures, cash paid for restructuring charges, Interest Expense and cash paid as principal under the Note Purchase Agreement, all as determined with respect to the Company in accordance with GAAP for such Net Cash Flow Covenant Computation Period.

“Net Cash Flow Computation Period” means the three consecutive calendar months ending on a Covenant Computation Date.

“Restated Notes” Section 3.2 hereof.

“Revolving Credit Agreement” means the Credit Agreement between the Company and Wells Fargo Bank, National Association, dated as of January 31, 2000 as amended through the date hereof

“Second Amendment to Note Purchase Agreement means that certain Second Amendment to this Note Purchase Agreement, dated as of June 30, 2001, among the Company and the Noteholders.”

“Third Amendment to Note Purchase Agreement” means that certain Third Amendment to this Note Purchase Agreement, dated as of December 28, 2001, among the Company and the Noteholders.

1.19 Amendment of Exhibit 1

The form of Note attached to the Note Purchase Agreement as Exhibit 1 is amended and restated in its entirety to read as set forth on Exhibit 1 hereto.

2. WARRANTIES AND REPRESENTATIONS.

To induce the Noteholders to execute and deliver this Amendment (which representation shall survive the execution and delivery of this Amendment), the Company represents and warrants to the Noteholders that:

(a) each of this Amendment, the Restated Notes and the Collateral Documents has been duly authorized, executed and delivered by the Company and constitutes its legal, valid and binding obligation, contract and agreement, enforceable in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors’ rights generally;

(b) each of the Note Purchase Agreement, as amended by this Amendment, the Restated Notes and the Collateral Documents, constitutes the legal, valid and binding obligation, contract and agreement of the Company enforceable against it in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or

equitable principles relating to or limiting creditors’ rights generally;

(c) the execution, delivery and performance by the Company of this Amendment, the Restated Notes and the Collateral Documents (i) has been duly authorized by all requisite corporate actions and, if required, shareholder action, (ii) does not require the consent or approval of any governmental or regulatory body or agency, and (iii) will not (A) violate (1) any provision of law, statute, rule or regulation or its articles of incorporation or bylaws, (2) any order of any court or any rule, regulation or order of any agency or government binding upon it, or (3) any provision of any material indenture, agreement or other instrument to which it is a party or by which its properties or assets are or may be bound, or (B) result in a breach or constitute (alone or with due notice or lapse of time or both) a default under any indenture, agreement or other instrument referred to in clause (iii)(A)(3) of this Section 2.1(c);

(d) each of the Collateral Documents creates the Lien it purports to create upon the property purportedly encumbered thereby, and all such Liens have been duly perfected; and

(e) as of the Amendment Closing Date and after giving effect to this Amendment, no Default or Event of Default will exist.

3. CONDITIONS PRECEDENT.

Each of the amendments provided for herein shall become effective as of December 28, 2001 (the “Effective Date”) if all of the following conditions precedent shall have been satisfied

3.1 Execution and Delivery of this Amendment

The Company and each of the Noteholders shall have executed and delivered a counterpart of this Amendment.

3.2 Execution and Delivery of Amended and Restated Notes

The Company shall have executed and delivered to the Noteholders amended and restated Notes in the form of Exhibit 1 hereto (the “Restated Notes”).

3.3 Execution of Collateral Documents

The Company shall have executed and delivered to the Collateral Agent a mortgage upon its headquarters located at 3601 West 76th Street, Minneapolis, Minnesota, such mortgage and all matters relating to title shall be acceptable to the

Collateral Agent and the Noteholders in all respects, and such mortgage shall be in form acceptable for recording in the appropriate office to perfect the lien thereof.

3.4 Opinion of Counsel

The Company shall have delivered to the Noteholders a favorable opinion of counsel (which counsel shall be satisfactory to the Noteholders) as to the subject matter covered by Sections 2(a), 2(b), 2(c) and 2(d) hereof.

3.5 Execution and Delivery of Revolver Amendment

The Company and Wells Fargo Bank, as agent shall have entered into an amendment to the Revolving Credit Agreement which (i) reduces the total amount of the commitment to $25,000,000, (ii) amends financial covenants so as to be substantially identical to the financial covenants in the Note Purchase Agreement, as amended hereby, and (iii) is otherwise acceptable to the Noteholders.

3.6 Intercreditor Amendment

The parties to the Intercreditor Agreement shall have executed and delivered an amendment thereto substantially in the form of Exhibit 2 hereto.

3.7 Amendment Fee

The Company shall have paid to each Noteholder a fee in the amount equal to 0.25% of the outstanding aggregate principal amount of the Notes held by each such Noteholder on the Effective Date.

3.8 Payment of Accrued Interest; Fees and Expenses

The Company shall have paid (a) all unpaid interest on the Notes accrued to (but not including) February 1, 2002, and (b) all costs and expenses of the Noteholders relating to this Amendment in accordance with Section 15.1 of the Note Purchase Agreement (including, without limitation, attorney’s fees and disbursements).

3.9 Representations and Warranties; No Default

The representations and warranties set forth in Section 2 hereof shall be true and correct, and no Default or Event of Default shall exist.

3.10 Proceedings Satisfactory

All proceedings taken in connection with this Amendment and all documents and papers relating hereto shall be reasonably satisfactory to the Noteholders and their special counsel. The Noteholders and their special counsel shall have received copies of such documents and papers (whether or not specifically referred to above in this Section 3) as they may reasonably request in connection therewith, in form and substance satisfactory to them.

4. INTERPRETATION OF THIS AMENDMENT.

4.1 Terms Defined

The terms used in this Agreement and not otherwise defined herein shall have the meanings assigned to such terms in the Note Purchase Agreement. As used in this Amendment, the following terms have the respective meanings specified below or set forth in the Section or other part hereof following such term (such definitions, unless otherwise provided, to be equally applicable to both the singular and the plural forms of the terms defined):

Amendment, this — the introductory paragraph hereof.

Collateral Agent — Wells Fargo Bank, National Association, or its successor under the Intercreditor Agreement

Collateral Documents — means and includes all security agreements, mortgages, collateral assignments and similar documents pursuant to which the Company, at any time, grants to the Collateral Agent a Lien for the equal and ratable benefit of the Noteholders and the lenders under the Revolving Credit Agreement.

Company — the introductory paragraph hereof.

Effective Date — Section 3 hereof.

Intercreditor Agreement — means that certain Intercreditor Collateral Agreement dated as of June 20, 2001 among the Company, the Noteholders and Wells Fargo Bank, National Association, as lender and as Collateral Agent, as amended to and including the Effective Date.

Note Purchase Agreement — Recital A hereof.

Noteholders—the introductory paragraph hereof.

Notes — Recital A hereof.

Restated Notes ¾ Section 3.2 hereof.

Revolving Credit Agreement — means that certain Revolving Credit Agreement, dated as of January 31, 2000, by and among the Company and Wells Fargo Bank, National Association, as amended to and including the date hereof.

4.2 Section Headings, etc.

The titles of the Sections appear as a matter of convenience only, do not constitute a part hereof and shall not affect the construction hereof. The words “herein,” “hereof,” “hereunder,” and “hereto” refer to this Amendment as a whole and not to any particular Section or other subdivision.

5. MISCELLANEOUS.

5.1 Effect of Amendments

Except as expressly provided herein, (a) no terms or provisions of the Note Purchase Agreement or any Note are modified or changed by this Amendment, (b) the terms of this Amendment shall not operate as a waiver by the Noteholders of, or otherwise prejudice, the Noteholders’ rights, remedies or powers under, the Note Purchase Agreement or the Notes or under any applicable law and (c) the terms and provisions of the Note Purchase Agreement and the Notes are hereby ratified and shall continue in full force and effect and are not subject to any defenses or offsets, except to the extent specifically amended or waived hereby.

5.2 Successors and Assigns

This Amendment shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto. The provisions hereof are intended to be for the benefit of the Noteholders and shall be enforceable by any successor or assign of any Noteholder, whether or not an express assignment of rights hereunder shall have been made by any Noteholder or its successors or assigns.

5.3 Governing Law

THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF MINNESOTA EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE.

5.4 Waivers and Amendments

Neither this Amendment nor any term hereof may be changed, waived, discharged or terminated orally, or by any action or inaction, but only by an instrument in writing signed by each of the parties signatory hereto.

5.5 Costs and Expenses

The Company confirms its obligations under Section 15.1 of the Note Purchase Agreement and agree that, on the Effective Date, they will pay all costs and expenses of the Noteholders relating to this Amendment, including, but not limited to, the statement for reasonable fees and disbursements of the Noteholders’ special counsel.

5.6 Duplicate Originals, Execution in Counterpart

Two or more originals of this Amendment may be signed by the parties, each of which shall be an original but all of which together shall constitute one and the same instrument. This Amendment may be executed in one or more counterparts and shall be effective when at least one counterpart shall have been executed by each party hereto, and each set of counterparts which, collectively, show execution by each party hereto shall constitute one duplicate original.

5.7 No Claims or Defenses.

The Company hereby represents, warrants, acknowledges and agrees that (i) there are no set-offs, counter-claims or defenses against the Note Purchase Agreement, the Notes or any of the Collateral Documents, and (ii) there are no

claims (absolute or contingent, matured or unmatured) or causes of action by the Company against any Noteholder. Notwithstanding the immediately preceding sentence and as further consideration for the agreements and understandings contained herein, the Company hereby releases the Noteholders, their respective predecessors, officers, directors, employees, agents, attorneys, affiliates, subsidiaries, successors and assigns, from any liability, claim, right or cause of action which now exists or hereafter arises as a result of acts, omissions or events occurring on or prior to the date hereof, whether known or unknown, in any way related to the Note Purchase Agreement or any of the Notes.

5.8 Additional Collateral.

On or before March 1, 2002, the Company shall deliver to the Collateral Agent such documents as the Collateral Agent and the holders of the Notes deem necessary to create and perfect a first priority lien upon the proceeds of the annuity contracts and policies of life insurance listed on Schedule 5.8 to this Third Amendment to Note Purchase Agreement.

5.9 Entire Agreement

This Amendment constitutes the final written expression of all of the terms hereof and is a complete and exclusive statement of those terms.

[Remainder of page left intentionally blank; Next page is the signature page.]

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed on their behalf by a duly authorized officer or agent thereof, as the case may be, as of the date first above written.

ANALYSTS INTERNATIONAL CORPORATION



By:
Name:
Title:

Noteholders:

Accepted and Agreed to:

GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY

By:

Its:

and

By:

Its:

NORTHERN LIFE INSURANCE COMPANY

By: ING Investment Management LLC
Its Agent

By:

Its:

RELIASTAR LIFE INSURANCE COMPANY

By: ING Investment Management LLC
Its Agent

By:

Its:

SECURITY CONNECTICUT LIFE INSURANCE COMPANY

By: ING Investment Management LLC
Its Agent

By:

Its:

EXHIBIT 1

FORM OF NOTE

THIS NOTE HAS BEEN PURCHASED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION. NO SALE, OFFER TO SELL, PLEDGE, TRANSFER OR OTHER DISPOSITION OF THIS NOTE SHALL BE MADE UNLESS A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, WITH RESPECT TO THIS NOTE IS THEN IN EFFECT OR UNLESS SUCH DISPOSITION MAY BE EFFECTED WITHOUT VIOLATION OF THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS.

ANALYSTS INTERNATIONAL CORPORTATION

9.00% SENIOR NOTE DUE JUNE 30, 2002

No. [ ]	[Date]
$[ ]	PPN

FOR VALUE RECEIVED, the undersigned, ANALYSTS INTERNATIONAL CORPORATION (herein called the “Company”), a corporation organized and existing under the laws of the State of Minnesota, hereby promises to pay to [ ], or registered assigns, the principal sum of [ ] DOLLARS on June 30, 2002, with interest (computed on the basis of a 360-day year of twelve 30-day months) (a) on the unpaid balance thereof at the rate of 9.00% per annum from the date hereof, payable monthly, on the first day of each month commencing with month next succeeding the date hereof, until the principal hereof shall have become due and payable, and (b) to the extent permitted by law on any overdue payment (including any overdue prepayment) of principal, any overdue payment of interest and any overdue payment of a Make-Whole Amount (as defined in the Note Purchase Agreement referred to below), payable monthly as aforesaid (or, at the option of the registered holder hereof, on demand), at a rate per annum from time to time equal to the greater of (i) 11.00% or (ii) 4% over the rate of interest publicly announced by Wells Fargo Bank, National Association from time to time as its “base” or “prime” rate.

Payments of principal of interest on and any Make-Whole Amount with respect to this Note are to be made in lawful money of the United States of America at the principal office of the Company or at such other place as the Company shall have designated by written notice to the holder of this Note as provided in the Note Purchase Agreement referred to below.

This Note is one of a series of Senior Notes (herein called the “Notes”) in the aggregate principal amount of $20,000,000 issued pursuant to the Note Purchase Agreement, dated as of December 30, 1998 (as from time to time amended, the “Note Purchase Agreement”), between the Company and the respective Purchasers named therein and is entitled to the benefits thereof. Each holder of this Note will be deemed, by its acceptance hereof, (i) to have agreed to the confidentiality provisions set forth in Section 20 of the Note Purchase Agreement and (ii) to have made the representation set forth in Section 6.2 of the Note Purchase Agreement.

This Note is a registered Note. As provided in the Note Purchase Agreement, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed by the registered holder hereof or such holder’s attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Company may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Company will not be affected by any notice to the contrary.

The Company will make required prepayments of principal on the dates and in the amounts specified in the Note Purchase Agreement. This Note is also subject to optional prepayment, in whole or from time to time in part, at the times and on the terms specified in the Note Purchase Agreement, but not otherwise.

If an Event of Default, as defined in the Note Purchase Agreement, occurs and is continuing, the principal of this Note may be declared (or otherwise become) due and payable in the manner, at the price (including any applicable Make-Whole Amount) and with the effect provided in the Note Purchase Agreement.

This Note shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of Minnesota, excluding choice-of-law principles of the law of such State that would require the application of the laws of a jurisdiction other than such State.

ANALYSTS INTERNATIONAL CORPORATION

By:

Its:

Exhibit 1-2

EXHIBIT 2

Form of Amendment to Intercreditor Agreement

Exhibit 1-2

SCHEDULE 1.9

Indebtedness

Exhibit 1-2

SCHEDULE 1.11

Liens

Exhibit 1-2

SCHEDULE 5.8

Life Insurance Policies

Exhibit 1-2

EX-11 7 j3255_ex11.htm EX-11 Exhibit 11

Exhibit 11

Calculation of Basic Earnings Per Share

	Year Ended December 31						Six Months Ended December 31			Year Ended June 30
	2001			2000			2000			2000		1999
				(unaudited)
Net (loss) earnings	$	(2,980,000	)	$	(2,624,000	)	$	(6,302,000	)	$	9,788,000	$	22,733,000

Weighted average number of common shares outstanding	24,196,000			22,612,000			22,624,000			22,583,000		22,524,000

Basic (loss) earnings per share	$	(.12	)	$	(.12	)	$	(.28	)	$	.43	$	1.01

Calculation of Diluted Earnings Per Share

	Year Ended December 31						Six Months Ended December 31			Year Ended June 30
	2001			2000			2000			2000		1999
				(unaudited)
Net (loss) earnings	$	(2,980,000	)	$	(2,624,000	)	$	(6,302,000	)	$	9,788,000	$	22,733,000

Weighted average number of common shares outstanding	24,196,000			22,612,000			22,624,000			22,583,000		22,524,000

Dilutive effect of stock options outstanding after application of treasury stock method	0			0			0			41,000		208,000

Adjusted weighted average shares	24,196,000			22,612,000			22,624,000			22,624,000		22,732,000

Diluted (loss) earnings per share	$	(.12	)	$	(.12	)	$	(.28	)	$	.43	$	1.00

EX-13 8 j3255_ex13.htm EX-13 Excellence

Excellence. Integrity. Innovation.

Annual Report 2001

About the Company

Headquartered in Minneapolis, we are a diversified IT services company. In business for more than 35 years, we have sales and customer support offices throughout the United States and Canada.

Our lines of business include the Sequoia Services Group, which provides business solutions and network infrastructure services; our Managed Services Group, which provides a comprehensive range of outsourced business functions; and our IT Supplemental Resources, which provides high demand resources for supporting a client’s IT staffing needs.

In 2001 ComputerWorld listed us as one of the best 100 places for IT professionals to work and Microsoft Corporation named us its worldwide winner of the top IT Infrastructure Solution.

For more information, visit our Web site at http://www.analysts.com.

Financial Highlights

	Year Ended December 31,
*(Dollars in thousands,except for per share amounts)*	2001			2000
				(unaudited)
Professional services revenues:
Provided directly	$	411,387		$	430,213
Provided through subsuppliers	140,340			128,944
Total revenues	551,727			559,157

Loss before income taxes and minority interest	(2,764		)	(4,394		)
Net loss	(2,980		)	(2,624		)

Per share of common stock:
Net loss (diluted)	(.12		)	(.12		)
Shareholders equity	3.76			3.93
Dividends declared	.10			.40
Average common and common equivalent shares outstanding	24,196			22,612
Number of personnel	3,800			4,750
Current ratio	1.18			1.78
Working capital	$	16,622		$	47,848

Recent Announcements

On February 26, 2002 it was announced that Frederick W. Lang, Founder, Chief Executive Officer and Chairman of the Board of Directors of Analysts International, would retire as the April 30, 2002. That same day, the Company announced that Michael J. LaVelle, President and Chief Operating Officer, would succeed Lang as Chief Executive Officer and that John D. Bamberger, Senior Vice President, Sales and Operations, had been elected Executive Vice President and Chief Operating Officer, effective May 1, 2002. Lang will continue as Chairman of the Board.

Fred Lang founded the Company in March of 1966, operating initially from a carriage house behind his home in Minnetonka Beach, Minnesota. From the beginning, Fred Lang has focused Analysts International on the fundamental values of excellence, integrity and innovation. These values have fueled the growth and will be maintained. These values are also the theme of this, our 2001 Annual Report to Shareholders.

To Our Shareholders

Analysts International faced a challenging and difficult business environment in 2001, as did all of the major players in our industry. It was a year that saw a significant reduction in the IT budgets of many of our clients and a year that saw the national tragedy of September 11th. These and other factors contributed to as uncertain a market as we have ever experienced. Yet, despite the challenges and the difficulties, we were able to meet a number of our objectives for the year.

We managed the business to operational profitability in an environment when many in the industry did not. Revenue for the year totaled $552 million, down slightly from the $559 million reported for the twelve months ended December 31, 2000. Cash earnings for the year were $0.10 per diluted share, compared with $0.38 per diluted share for 2000. Cash earnings per share excludes the amortization of goodwill and other intangible assets, along with restructuring and other unusual charges. For the year ended December 31, 2001, the net loss was $3.0 million, or $(0.12) per diluted share, compared with a loss of $2.6 million, or $(0.12) per diluted share, in the prior year. The year’s results include a fourth on investment is a write-off of an equity investment in a private, Minneapolis-based software company specializing in the storage and transmission of high volume data.

Although we believe the technology remains viable and the company has active customers, the loss of a significant contract makes future prospects uncertain; we have no other such investments. For a more in-depth discussion of the to the “Management’s Discussion and Analysis” section of this annual report.

With a strong focus on the future of IT, we became a stronger, leaner and more versatile company over the past year. We have built on the strengths of our 35 years of experience, our solid customer relationships and our superior technical resources, especially our knowledgeable staff of IT professionals and engineers. In the report that follows we are pleased to be able to provide you a summary of the scope of our service offerings and four recent case studies that highlight our expertise and our commitment to customer satisfaction.

During the year, we shifted our business mix to provide a more diversified yet balanced set of services in high-growth markets, developed a centralized, customer-focused sales organization and created a lean operating model to weather the economic downturn.

Although there was an across-the-board drop in demand for IT services, we maintained our client base, providing services to almost half of the Fortune 100, and won several new accounts over the past year. We forged new customer relationships in the areas of Solutions and Infrastructure services, hosting services, Web development, telecommunications and network engineering.

[Photo]		[Photo]
Frederick W.Lang		Michael J.LaVelle
Chairman of the Board and Chief Executive Officer		President and Chief Operating Officer

We believe the future of Analysts International is bright. According to industry analyst firm I.D.C., U.S. spending for Internet-related services is forecast to grow from $11.2 billion in 2000 to $30.9 billion in 2005, and spending in the area of network security services is expected to grow from $5.1 billion in 2000 to $14.2 billion in 2005. The Gartner Group, another key analyst firm, forecasts that the overall IT services market will reach $603 billion in 2002, growing at a rate of 8.9 percent. In listening to our customers, we learned that we are well positioned to provide the kinds of IT services that businesses need going forward, helping them leverage their current IT investments as well as implementing additional technologies that will take them, and us, forward toward a profitable future.

Looking ahead in 2002, most analysts expect to see the market stabilize in the first half of the year and improve in the second half. While revenues for 2002 will be less than 2001, as the economy recovers, we expect to see an improvement in operating profitability for the year and a return to net profitability in the second half of the year.

In closing, we would like to note that Analysts International was again recognized in a number of significant ways in 2001. IT Services Business Report ranked us 13th among the top revenue producing IT services firms in the United States, ComputerWorld listed us among the 100 best information technology companies to work for, and Microsoft Corporation named us as the recipient of its Worldwide Infrastructure Solution of the Year Award. This recognition is due in large part to the dedication of our employees and management to the fundamental values of excellence, integrity and innovation. On their behalf and on behalf of our directors, we would like to thank you, our customers and shareholders, for your ongoing interest and support.

Sincerely,


/s/ Frederick W. Lang		/s/ Michael J. LaVelle
Frederick W. Lang		Michael J. LaVelle
Chairman of the Board and Chief Executive Officer		President and Chief Operating Officer

Company Overview

In business for more than 35 years, Analysts International is a diversified information technology services firm that has established a loyal following of more than 1,000 corporate and government clients ranging from Fortune 50 global companies to mid-tier industry leaders in a variety of industries. We are a leader in the network infrastructure marketplace, a strong player in e-solutions, and a pioneer in full-service technology staffing. Our roots in the IT community are deep and far reaching, and our expertise is sought after by the best companies.

As an organization, we are being challenged every day to deliver on the promise of Information Technology. IT will continue to play a critical role in promoting efficiency, communication and organization in companies now and well into the future. Through the services and expertise we offer, Analysts International provides the skills and the innovation that organizations need to meet their business challenges.

We create dynamic and solid solutions for our clients by determining and using the most efficient technologies, development tools and software available. We do it with expertise that comes with a deep competence in the technology and tools, and a wide strategic perspective that comes with a proven record of performance. Over the years, we have received numerous industry awards and recognition for our accomplishments.

Our nationwide network of 35 offices and customer service sites allows us to combine resources and services for any size project or supplemental requirement. This means that clients have a single point of contact across our full range of services. Our service offerings include the Sequioa Services Group, focused primarily on Business Solutions Services such as Enterprise Solutions and Network Infrastructure Services; Managed Services, which provides a comprehensive range of outsourced business and IT functions; and IT Supplemental Resources, which provides high-demand technical and consulting resources for ongoing support of a client’s IT essential legacy systems on which many companies continue to rely.

IT Supplemental Resources

Analysts fosters an environment where talented and experienced programmers, analysts and engineers, who have earned the respect of clients and industry-leading organizations, can excel at developing and maintaining custom programs for our clients’ essential business systems. We have built a nationwide network of 3,200 quality-driven business and technology consultants, skilled in the high-demand technologies that

International Truck and Engine Corporation

The trend for many Fortune 1000 companies is to migrate IT staffing and contract professional needs to managed services programs.International Truck and Engine Corporation,Chicago,IL,quickly understood how a single point of contact could enhance the flexibility,efficiency and effectiveness of their IT staffing and contract professional resource relationships.So, when International Truck decided to move to a managed services relationship,they first consulted with and then chose Analysts International,with whom they had enjoyed a 15-year relationship as a valued and trusted provider of staffing resources.

“The ‘one-stop-shop’ capability for the procurement of IT resources across our broad range of skill needs is of great benefit to International Truck and Engine Corporation. With their proven experience and expertise,Analysts International has delivered,allowing us to drive significant efficiencies into our processes,” stated Jim Guziak, Director of International’s I.T.Project Office.

enable businesses to leverage their IT investments. Our range from information architects and systems analysts to Java programmers and Web developers.

Infrastructure Services

Enterprise Networking

When businesses look to acquire and make investments in technology, they want the most efficient equipment, skilled personnel to install and maintain it, and the best possible pricing—all done as fast as possible. At Analysts, we provide strategic, leading-edge Enterprise Networking solutions that range from developing and installing network infrastructures and product procurement to hosting and field engineering. We are consistently up to speed on the latest technology, and we maintain close relationships with major vendors and distributors.

Security Services

Our Security Services specialists provide companies with security consulting services intended to keep an organization running smoothly in the midst of quick-moving viruses and hackers. We examine an organization’s security needs and offer a wide range of services to help address those needs.

Field Engineering

Field Engineering is a company’s “right arm,” there to assist with reliable operation and availability of

its computing and network infrastructure. Our experienced, highly trained engineers have the know-how

to support virtually any mix of hardware and software technologies. We provide comprehensive, on-site

support, maintenance and repair for multivendor, distributed computing platforms for high-traffic ASPs or

global corporate networks. Our service plans range from total outsourcing of maintenance functions at

widespread sites to blended coverage based on device type within an existing network, to complete

maintenance coverage for multivendor networks with thousands of clients.

Product Procurement

Our Product Procurement specialists offer strong product knowledge and close vendor and distributor relationships to help clients maximize hardware investments. Our relationships with companies like Dell, Compaq, HP, Microsoft, Novell, Citrix and Cisco Systems provide leverage for acquiring the most suitable technology to support a business' requirements, at competitive prices and within short cycle times. As a single point of control over the process, our Product Procurement

Microsoft Corporation

Analysts International partner relationships offer clients important benefits they could not find with less experienced or less knowledgeable firms. In 2001, Analysts International was presented with the Worldwide Infrastructure Solution of the Year Award from Microsoft Corporation.Selected from nearly 800 entries, the award-winning project resulted from Microsoft’s review of how effectively Analysts International responded to the specific needs of the client and then met those needs.

The project involved migrating a large international client from an inefficient and impractical e-mail system to a Microsoft platform. Client needs demanded that the implementation be completed in less than eight weeks. Analysts International’s Sequoia Services Group team completed the solution and met the deadline.

“The award is a testament to the value that Analysts International brings to customers in the infrastructure solutions space,” stated Ian Rogoff, Vice President of Microsoft Corporation’s Worldwide Partner Group.

specialists provide the value-added control and flexibility needed for rapidly deploying IT hardware, software, infrastructure and custom solutions.

Voice and Data Cabling

Cabling is essential to the reliability and long-term viability of IT networks and avoiding costly down time. Our Voice and Data Cabling practice designs, installs and supports voice, data and video cabling solutions. Our capabilities include cable certification, category 6/5e, fiber optics, cable removal and directional boring.

Call Center

Our Call Center service is staffed with trained hardware and software engineers experienced in supporting desktop and network systems. They are available around the clock to solve technical problems quickly and effectively.

Hosting

We provide the infrastructure, including systems, services and skilled people, to deliver the 24-hour, 7-days-a-week availability required by Application Service Providers (ASPs) for high-speed data transfer, quick download times and smooth operation.

Business Solutions Services

Enterprise Solutions

We provide a full range of enterprise solutions and consulting services in IT architecture, and Web design and development that enables clients to increase efficiency and maximize their return on investment. We have proven capabilities in eBusiness, Internet development, business intelligence and custom applications using a disciplined process that includes definition, analysis, design, programming, testing, implementation and project management.

Application Integration

We are a leading integrator of enterprise-level software solutions that cover all areas of business from financial reporting, human resources, marketing, manufacturing and supply chain management. Working in close partnership with leading software companies, we provide the talent and resources for fine tuning application packages through customization, modifications and client-specific interfaces. Taking customization one step further, our consultants are able to link these previously isolated applications in complementary ways that provide organizations with a true, seamless enterprise solution.

Children’s Cancer Research Fund Web Site

For over 20 years, Children’s Cancer Research Fund has been fighting one of the most important battles there is … saving children from cancer. In 2000,the organization sought to expand the horizons of its Internet presence. The experienced Enterprise Solutions practice of Analysts International undertook the project.

The group recommended that the charity see the Internet as broadly and as strategically as possible, as a means to disseminate information, recruit volunteers and generate funds. Today the charity has a state-of-the-art Web site that meets its near, intermediate and long-term strategic objectives.

“We are most impressed with the expertise and commitment of Analysts International,” said Kay Christianson, executive director for the Children’s Cancer Research Fund.” They helped us develop an effective Web strategy, implemented in a timely manner, that helped us raise more than $100,000 in online donations during our most recent fundraising event.Working with Analysts has put us ahead of the game in utilizing the Internet as an outreach tool.”

The Children’s Cancer Research Fund Web site is located at www.childrenscancer.org.

Mobile & Wireless Solutions

Our Mobile & Wireless practice helps clients streamline processes, increase productivity and deliver mission-critical information. In conjunction with leading technology and enterprise partners, Analysts is driving the mobility revolution.

The practice merges our in-depth knowledge of numerous vertical markets and our 35 years of IT consulting experience with cutting-edge mobile and wireless technology. While maintaining a technology, platform, and vendor neutral approach, client satisfaction is the practice’s top priority.

Criminal Justice Information Systems

The need to know is at the heart of effective law enforcement, legal and criminal justice disciplines. These government agencies need access to accurate, time-sensitive information to be able to do their jobs effectively and promote public safety.

Analysts’ Criminal Justice Systems (CJIS) group has the expertise and resources to implement IT and eGovernment initiatives that take these organizations to the next level. Combining our experience in leveraging existing systems with new technologies and security measures, we can help large and complex organizations design system architectures that facilitate information sharing and improve the flow of communication.

Managed Services

Whether interfacing with the IT department, human resources or procurement, the Managed Services Group at Analysts International is a highly flexible service that can be tailored to fit an organization’s needs. Businesses face many challenges regarding the acquisition and management of contract professionals. We offer a centralized, national recruiting network and integrated approach for managing the key processes associated with selecting and retaining valuable contract professionals. Through our Managed Services Group, we provide a means for companies to quickly establish a single point of contact for staff augmentation, performance tracking, cost control and improved reporting.

State of Nebraska

Three years ago when the State of Nebraska decided to move to information architectures to support local and state law enforcement efforts, it turned to Analysts International for the solution. What the State received was a Web-based, highly secure computer network that linked a multitude of criminal justice agencies across the state.

The State chose Analysts International to develop the system because its experience in data consolidation and data reporting provided a solid foundation for transitioning legacy systems and implementing an effective solution for the client.

“This project required the integration of the latest Internet and software development technologies with our disparate systems and data. Analysts International delivered a great solution for our varied criminal justice constituencies and the citizens of the State of Nebraska,” commented Michael Overton, Nebraska Crime Commission.

Management’s Discussion and Analysis

Results of Operations and Financial Condition

As a means of better explaining our operations and results, the following table illustrates the relationship between revenue and expense categories for the twelve months ended December 31, 2001 and 2000, the six months ended December 31, 2000, and the years ended June 30, 2000, and 1999.

	Percent of Total Revenues
	Year Ended December 31,				Six Months Ended December 31,		Year Ended June 30,
	Year Ended December 31,				Six Months Ended December 31,		Year Ended June 30,
	2001		2000		2000		2000		1999
			(unaudited)
Professional services revenues:
Provided directly	74.6	%	76.9	%	78.6	%	75.2	%	77.5	%
Provided through subsuppliers	25.4		23.1		21.4		24.8		22.5
Total revenues	100.0		100.0		100.0		100.0		100.0
Salaries, contracted services and direct charges	83.0		81.6		81.6		81.0		78.5
Selling, administrative and other operating costs	15.9		17.2		18.5		16.0		15.6
Amortization of goodwill and other intangible assets	.6		.4		.5		.2		.1
Restructuring charges	—		1.2		2.4		—		—
Non-operating income and interest expense, net	.5		.4		.5		—		(.2	)
Loss on Investment	.5		—		—		—		—

(Loss) income before income taxes and minority interest	(.5	)	(.8	)	(3.5	)	2.8		6.0
Income taxes (benefit) and minority interest	.0		(.3	)	(1.3	)	1.0		2.3

Net (loss) income	(.5	%)	(.5	%)	(2.2	)	1.8	%	3.7	%

We changed our fiscal year end to December 31 from June 30, effective December 31, 2000. References to fiscal 2000 and 1999 relate to the years ended June 30, 2000 and 1999.

Results of Operations, Year Ended December 31, 2001 vs. Year Ended December 31, 2000

Total revenues for the year ended December 31, 2001 were $551.7 million, a decrease of $7.5 million, or 1.3%, from the year ended December 31, 2000. Revenues provided directly for the twelve months ended December 31, 2001 were $411.4 million, a decrease of $18.8 million, or 4.4%, from the same period of 2000. Had the Sequoia acquisition taken place on January 1, 2000, revenue provided directly for the year ended December 31, 2000 would have been $17.6 million higher, resulting in an 8.1% decrease in 2001. Nearly all of this decrease in revenue is the result of a 15.0% decrease in billable hours, which is the result of increased competition in the area of supplemental staffing, an industry-wide slowdown and the general state of the economy. The decrease in billable hours was partially offset by an increase in hourly rates charged in our supplemental staffing business. While we have been able to increase rates somewhat over the prior year, there can be no assurance we will be able to continue this as competitive conditions in the industry make it difficult to continually increase the hourly rates we charge for services. Revenues provided through subsupplier billings, primarily with Qwest and IBM, increased $11.4 million, or 8.8%, in the twelve months ended December 31, 2001 as compared to the twelve months ended December 31, 2000. This increase in subsupplier revenues resulted from increases in billable hours of service rendered to these clients, and the addition of new clients under our Managed Services offering. Our subsupplier revenue is mainly pass-through revenue with associated fees providing minimal profit.

Personnel totaled 3,800 at December 31, 2001, compared to 4,750 at December 31, 2000. Of the December 31, 2001 total, 3,200 were technical consultants. Much of the overall decrease from 2000 to 2001 consisted of billable technical consultants; however, our administrative and management personnel decreased by 200 as a result of our reorganization and restructuring efforts. Salaries, contracted services and direct charges, which represent primarily our direct labor costs, were 83.0% of revenue in the twelve months ended December 31, 2001 compared to 81.6% of revenues in the same period of 2000. The increase in this expense category as a percentage of revenue is mainly a consequence of normal increases in direct labor rates and reduced hourly rates on some client contracts. Excluding both revenue and labor costs associated with subsupplier contracts, this category of expense was 77.1% of revenue in the twelve month period of 2001, and 76.1% in the comparable period of 2000. Salaries, contracted services and direct charges for the period ended

December 31, 2001 included approximately $1.8 million of increased benefit costs. Salaries, contracted services and direct charges for the period ended December 31, 2000 included approximately $3.0 million of unusual costs. These unusual costs consisted of compensation for terminations deemed not to be a part of the restructuring plan and costs of the change in our fiscal year. Without these unusual costs, salaries, contractual services and other direct charges would have been 75.4% of revenue in 2000 and 76.7% in 2001. Our efforts to control these costs involve controlling labor costs, passing on labor cost increases through increased billing rates where possible, and maintaining productivity levels of billable technical consultants. Even though we have taken steps to control this category of expense, there can be no assurance we will be able to return to historical gross margin levels due to intense competition in the industry, which makes it difficult to sustain such gross margin levels.

Selling, administrative and other operating (SG&A) costs include commissions paid to sales representatives and recruiters, location and administrative costs. As a percentage of revenue, SG&A was 15.9% in the twelve months ended December 31, 2001 and 17.2% in the same period of 2000. Excluding the subsupplier revenue associated with our subsupplier contracts, this percentage would have been 21.4% for 2001, and 22.4% for 2000. The overall decrease in this category of costs resulted directly from our efforts to reduce costs through reorganization and through reduced labor costs for non-technical personnel, primarily by reducing personnel through our restructuring efforts. The decrease in SG&A is offset by the fact that SG&A costs during the year ended December 31, 2000 included $4.9 million of unusual bad debt costs and consulting and travel costs associated with our restructuring initiatives.

Amortization of goodwill and intangible assets increased to $3.2 million in the twelve months ended December 31, 2001 compared to $2.1 million for the same period in 2000. This increase is a result of the purchase of Sequoia and the amortization of the associated intangible assets for a full year in 2001 versus eight months in 2000.

We recorded a restructuring expense of $7.0 million in 2000, but had no such expense during the current period. During 2001, we paid $2.2 million of severance costs and $1.5 million associated with office closures and consolidations resulting from the restructuring. At December 31, 2001, the remaining accrual for office closures and consolidations was $2.6 million.

Non-operating income, consisting primarily of interest income, declined to $247,000 during the twelve months ended December 31, 2001 down from $391,000 during the same period of 2000. Interest expense increased to $2.9 million from $2.4 million during the December 31, 2001 period. These changes are the result of lower cash reserves and higher debt levels during the current period, primarily as a result of the use of cash to purchase Sequoia on April 25, 2000.

We recorded a $3.0 million loss during 2001 related to a 1999 equity investment in a privately held Minneapolis-based software company specializing in the storage and transmission of high volume data. Although we believe the technology deployed by this company remains viable and the company has active customers, future prospects of the company are uncertain. We have no other such investments.

We recorded an income tax expense of $216,000 during the twelve months ended December 31, 2001 in spite of the $2.8 million pre-tax loss, primarily due to the effect of items deducted to arrive at book income that are not deductible for tax purposes. This figure includes the loss of the investment of $3.0 million which represents a capital loss for tax purposes. We do not expect to generate capital gains to enable us to utilize this capital loss during the carry-forward period. The effective tax benefit rate in the comparable period of 2000 was 38%.

As a result of the factors discussed above, we reported a net loss in the current twelve month period of $3.0 million compared with net loss of $2.6 million for the same period of 2000.

Inflation has not had a major impact on our operations because revenues are derived primarily from services billed at hourly rates, which are generally subject to renegotiation on a periodic basis.

Results of Operations, Six Months Ended December 31, 2000 vs. Six Months Ended December 31, 1999

Revenue provided directly for the six months ended December 31, 2000 were $227 million, an increase of 4.6% from levels for the same period of 1999. Excluding approximately $32.0 million of revenue generated by the acquisition of Sequoia during the period ended December 31, 2000, revenue provided directly declined by 10.1% period to period. Nearly all of this decrease is the result of a 10.2% decrease in billable hours due to an industry-wide slowdown. The decrease in billable hours was partially offset by an increase in hourly rates charged in the Company’s supplemental staffing business. Revenue provided through subsupplier billings, primarily with Qwest and IBM, decreased 13.5% in the six months ended December 31, 2000 as compared to the six months ended December 31, 1999. This decrease in subsupplier revenue resulted from an overall decrease in billable hours of service rendered to these clients.

Personnel totaled 4,750 at December 31, 2000, including 580 employees associated with the Sequoia acquisition, compared to 4,700 at December 31, 1999. Excluding the Sequoia employees, the number of personnel had fallen 530, or 11.3%, to 4,170 at December 31, 2000. Much of

the decrease from 1999 to 2000 consisted of billable technical consultants; however, our administrative and management personnel decreased by 100 as part of our reorganization and restructuring efforts.

Salaries, contracted services and direct charges, which represent primarily our direct labor costs, were 81.6% of revenues in the six months ended December 31, 2000 compared to 80.3% of revenues in the same period of 1999. The increase in this expense category as a percentage of revenue was mainly a consequence of: (i) normal increases in direct labor rates; (ii) unusually high idle time for technical personnel during the month of December 2000 caused by inclement weather conditions in certain key markets; and (iii) approximately $3.0 million of compensation-related payments for terminations deemed not to be a part of the restructuring plan and costs of the change in our fiscal year. Excluding both revenue and labor costs associated with subsupplier contracts, this category of expense was 76.6% of revenues in the six month period of 2000 and 73.9% in the comparable period of 1999.

Selling, administrative and other operating costs include commissions paid to sales representatives and recruiters, employee fringe benefits and location costs. These costs, as a percentage of revenue, were 18.5% in the six months ended December 31, 2000, and 16.2% in the same period of 1999. Excluding the sub-supplier revenues associated with the contracts referred to above, this percentage would have been 23.5% for 2000, and 21.5% for 1999. The increase in this expense category as a percentage of revenue is primarily a result of a provision for bad debts, which exceeded historical levels by approximately $3.1 million, and consulting and travel costs associated with the restructuring, which totaled approximately $1.8 million. The increase in bad debt is largely due to the write-off of several large balances due from dot-com companies.

Amortization of goodwill and intangible assets increased to $1.4 million in the six months ended December 31, 2000 compared to $331,000 for the same period in 1999. This increase is a result of the purchase of Sequoia on April 25, 2000, and the amortization of the associated intangible assets.

In December 2000, we recorded a restructuring charge of $7.0 million. Of this charge, $2.6 million related to workforce reductions of approximately 120 employees (primarily non-billable staff). In addition, we consolidated our six regions to four and our 45 branch and field locations to 15 district sales offices. While we maintain a presence in most of the 30 locations which were not converted to district sales offices, the need for office space in these locations has declined. As a result, we established a reserve of $4.4 million to cover lease termination and abandonment costs (net of sublease income), including an amount for assets to be disposed of in this consolidation.

Non-operating income, consisting primarily of interest income, declined to $68,000 during the six months ended December 31, 2000 from $1.1 million during the same period of 1999. Interest expense increased to $1.5 million from $702,000 during the same periods. These changes are the result of lower cash reserves and higher debt levels during the six-month period ending December 31, 2000, primarily as a result of the use of cash to purchase Sequoia on April 25, 2000.

An income tax benefit of $3.9 million during the six months ended December 31, 2000 is reflective of a 39% effective tax benefit rate which is the same effective tax rate as in the comparable period of 1999. These net operating losses were carried back to obtain refunds.

As a result of the factors discussed above, the Company incurred a net loss in the six month period ended December 31, 2000 of $6.3 million compared with net income of $6.1 million for the same period of 1999.

Results of Operations, Year Ended June 30, 2000 vs. Year Ended June 30, 1999

Revenue provided directly for the year ended June 30, 2000 were $420 million, a decrease of 12.6% from 1999 levels. Nearly all of these decreases were the result of a 17.2% decrease in core billable hours, which was a result of an industry-wide slowdown. The decrease in billable hours was partially offset by $9.4 million of revenue associated with the acquisition of Sequoia NET.com on April 25, 2000 and a 3.2% increase in hourly rates charged in our core business. Revenue provided through subsupplier billings, primarily with Qwest and IBM, decreased .6 % in fiscal 2000 from 1999. These decreases in subsupplier revenue resulted from an overall decrease in billable hours of service rendered to these clients.

Personnel totaled 4,800 at June 30, 2000, including 575 employees associated with the Sequoia acquisition, compared to 4,900 at June 30, 1999. Excluding the Sequoia employees, personnel levels had fallen 675 or 13.8% to 4,225 at June 30, 2000. Substantially all of the decrease from 1999 to 2000 consisted of billable technical consultants.

Salaries, contracted services and direct charges, which represent primarily the 81.0% of revenue in fiscal 2000 compared to 78.5% of revenue in fiscal 1999. The increase in this expense category as a percentage of revenue was mainly a consequence of: (i) normal increases in direct labor rates; and (ii) unusually high idle time as the Company elected to retain higher than needed consultant levels during the second half of the year, in anticipation of an earlier recovery from the industry-wide slowdown. Excluding both revenue and labor costs associated with subsupplier contracts, this category of expense was 74.7% of revenue in fiscal 2000, and 72.3% in fiscal 1999.

Selling, administrative and other operating costs include commissions paid to sales representatives and recruiters, employee fringe benefits and location costs. These costs, as a

percentage of revenue, were 16.0% in fiscal 2000, and 15.6% in 1999. Excluding the revenue associated with the subsupplier contracts referenced above, this percentage would have been 21.3% for fiscal 2000, and 20.2% for fiscal 1999. The increase in these expense categories as a percentage of revenue was a consequence of revenue declining more rapidly during fiscal 2000 than these expense categories.

Income taxes decreased from $14.5 million in fiscal 1999 to $5.7 million in fiscal 2000. The effective rate of income taxes decreased from 39% of pre-tax income in 1999 to 36.4% in 2000 primarily due to the reversal of taxes provided for in previous years.

Net income in fiscal 2000 decreased 56.9% from fiscal 1999. As a percentage of total revenue, net income was 1.8% in fiscal 2000 as compared to 3.7% in fiscal 1999. The Company’s net income as a percentage of revenue for services provided directly was 2.3% and 4.7% for fiscal years 2000 and 1999, respectively.

Liquidity and Capital Resources

Working capital at December 31, 2001 was $16.6 million, down 65.3% from $47.8 million at December 31, 2000, which was down 14.3% from $55.8 million at June 30, 2000. The current year decrease in working capital is primarily the result of the reclassification of all of our debt from a long-term liability to a current liability. During the fourth quarter of 2001, we began pursuing options for refinancing of our debt since on a number of occasions during 2001 we failed to meet operating covenant requirements and sought and received amendments to the agreements. We did not complete this refinancing by the end of the year. As a result, we did not meet operating and other requirements of our credit line and Note Purchase Agreement. Therefore, effective December 28, 2001, reflective of our continuing desire to restructure our debt, we amended our bank line of credit and our Note Purchase Agreement to move the maturities on these instruments to June 30, 2002, and to eliminate all but two operating covenants. Subsequent to December 31, 2001, we have obtained a commitment to refinance this debt and we expect to close this transaction during the first half of 2002. See further discussion below regarding this $55.0 million commitment. Current assets include cash and cash equivalents of $18.2 million at December 31, 2001 compared to $2.2 million at December 31, 2000 and $2.0 million at June 30, 2000 and accounts receivable of $83.3 million at December 31, 2001, compared to $98.5 million at December 31, 2000 and $98.4 million at June 30, 2000. Absent the effect of debt classifications, the ratios of current assets to current liabilities and total assets to total liabilities have increased since December 31, 2000.

Our primary need for working capital is to support accounts receivable resulting from our business and to fund the time lag between payroll disbursement and receipt of fees billed to clients. Over the past three years, we have been able to support changes in our business, except for the acquisition of Sequoia and the purchase of the headquarters building, with internally generated funds. More recently, as revenues and payroll have declined, our need for working capital to support accounts receivable has also declined, resulting in larger cash reserves. When our revenues and payroll begin to grow again, we would expect our need for working capital to once again increase.

In January of 2000, we obtained a $25.0 million bank line of credit. This line of credit was increased to $30.0 million in December 2000. On April 25, 2000, the Company drew down $13.0 million on the line of credit and utilized $30.5 million of its cash balances to complete the acquisition of SequoiaNET.com, Inc. Following the December 2001 amendment, which reduced the line of credit back down to $25.0 million, there was $4.0 million available to be drawn on the line of credit at December 31, 2001. The line of credit bears interest at 9%.

On December 30, 1998, we entered into a Note Purchase Agreement whereby we sold $20.0 million of 7% Senior Notes. These notes bear interest at 9%, require a $1.5 million principal payment on March 29, 2002 and mature on June 30, 2002.

Following the December 28, 2001 amendments, the credit line and Note Purchase Agreement contain provisions requiring us to maintain minimum monthly earnings before interest, income taxes, depreciation and amortization (EBITDA), and trailing three-month “Net Cash Flow,” defined as EBITDA less cash paid for taxes, capital expenditures, restructuring charges, interest expense, and principal paid on Senior Notes. The credit line and Note Purchase Agreement restrict payment of dividends on common stock. We believe the provisions imposed by these amendments are achievable based on our expected operating results during the first half of 2002.

Subsequent to our December 2001 amendments, we have obtained a commitment from a major financial institution to extend us a $55.0 million line of credit secured by the assets of the Company. The commitment carries a three-year term with interest to be charged at either the London InterBank Offered Rate (LIBOR) plus 3.0% or the Prime Rate plus 0.75%.

Upon refinancing of our existing debt, we expect to record a pre-tax loss on the early extinguishment of debt of approximately $1.0 million. This is primarily related to make-whole payments associated with the 1998 Note Purchase Agreement and the write-off of costs associated with the previous financings which were being amortized over the original terms of those agreements.

In addition to this $55.0 million line of credit, to increase availability of working capital for future growth, we are currently evaluating options with respect to our corporate headquarters building. Possible options include a sale and partial lease-back of the facility or obtaining a long-term

mortgage on the facility. The sale of the building, should we decide to sell it in the current real estate market, would likely result in a loss of $1.5 to $2.5 million.

During the twelve months ended December 31, 2001, we made capital expenditures totaling $4.9 million compared to $2.1 million in the six month period ended December 31, 2000, and $3.4 million in fiscal year 2000. These capital expenditures were funded through a combination of unsecured debt and cash reserves. Fiscal 2002 capital spending is expected to approximate $3.0 million.

In October 2001, the Board of Directors voted to suspend the quarterly dividend to retain capital. The amount of future quarterly dividends, if any, will be based on results of operations, available cash, obligations in our financing agreements and anticipated cash requirements of the business.

In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) Nos. 141, “Business Combinations” and 142, “Goodwill and Other Intangible Assets.” SFAS No. 141 was effective for all business combinations initiated after June 30, 2001, and has had no impact on our financial statements. SFAS No. 142 addresses how intangible assets should be accounted for, and is effective for our fiscal year beginning January 1, 2002. We expect to adopt SFAS No. 142 during the first quarter of fiscal year 2002. Amortization recorded during the years ended December 31, 2001 and 2000 was $3.2 million and $2.1 million, respectively. Upon adoption of SFAS No. 142, this amortization is expected to decline significantly. As of December 31, 2001 and 2000, we had net goodwill and other intangible assets of approximately $45.7 million and $49.3 million, respectively. Based on a review of the standard and preliminary impairment assessment, management believes we will record a goodwill impairment charge upon adoption, and the amount of such charge is likely to be significant in relation to our unamortized goodwill balance. Such impairment charge will be recorded as a cumulative effect of a change in accounting principle and therefore will not impact operating income.

During the period ended December 31, 2000, we adopted Staff Accounting Bulletin No. 101 “Revenue Recognition in Financial Statements.” The impact of the adoption of this bulletin was not material.

On July 1, 2000, we adopted Statement of Financial Accounting Standard (SFAS) No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended by SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities.” Management has reviewed the requirements of SFAS No. 133 and has determined that they have no free-standing or embedded derivatives. All agreements that contain provisions meeting the definition of a derivative also meet the requirements of, and have been designated as, normal purchases or sales. Our policy is not to use free-standing derivatives and not to enter into contracts with terms that cannot be designated as normal purchases or sales.

On April 25, 2000, we purchased an 80.1% interest in SequoiaNET.com, Inc. for $43.5 million. Effective December 29, 2000, we acquired the remaining 19.9% of SequoiaNET.com in exchange for common shares valued at $6.1 million and notes payable totaling $3.3 million. SequoiaNET.com, which provided network installation and support services and other eBusiness services, has been effectively merged and now makes up a significant portion of our Infrastructure and Business Solutions practices of our Sequoia Services Group. SequoiaNET.com reported $57.7 million in revenues with pre-tax profits of $3.8 million for the year ended December 31, 1999.

During the third quarter of the fiscal year ending June 30, 2000, we invested $3.0 million in an alliance partner, a software company specializing in the storage and transmission of high volume data. Due to the uncertain future prospects of this company, this investment was written off in 2001. See discussion under Results of Operations and Financial Condition.

We believe funds generated from our business, current cash balances and credit available under the new credit facility will be adequate to meet demands placed upon our resources by our operations and capital investments.

Market Conditions,Business Outlook and Risks to Our Business

Forward Looking Statements

The statements contained in the letter from the CEO and the President and in “Managements Discussion and Analysis of Financial Condition and Results of Operations” that are not strictly historical fact, including without limitation, our statements relating to the continued need of current and prospective customers for our services and our ability to win that business, the effects of competition and our ability to respond to competitive conditions, the availability of qualified professional staff, our ability to increase billing rates as labor costs increase, our ability to maintain gross margin levels and control operating cost increases, our belief that we will have the ability to secure favorable terms for the refinancing of our debt and our ability to achieve and maintain profitability are forward looking statements made under the safe harbor provision of the Private Securities Litigation Reform Act. Words such as “believes,” “intends,” “possible,” “expects,” “estimates,” “anticipates,” or “plans” and similar expressions are intended to identify forward looking statements. Such statements are based on management’s current expectations as of the date of this document but involve risks, uncertainties and other factors which could cause actual results to differ materially from those contemplated by such forward looking statements. Investors are cautioned to consider these forward looking statements in light of important factors which may result in variations from results

contemplated by such forward looking statements including, but not limited to, the risk factors discussed below.

For the past two years, several competitive conditions have affected our industry. The number of large competitors, the industry-wide slowdown and the general state of the economy have created pricing pressures in the technical staff augmentation sector of the computer consulting industry. Staff augmentation continues to represent almost half of total revenue (revenue from services provided directly to client (direct revenue) plus revenue from services provided to our clients by subsuppliers (subsupplier revenue)) and well over half of our direct revenue. While we expect the industry slowdown to begin to reverse in 2002, there can be no assurance as to when, or if, revenue will return to previous levels. Our ability to respond to these conditions will bear directly on our performance.

Increased competition in the area of technical staff augmentation has created pressure on billable hourly rates, and clients have begun to request increasingly lower cost models for staff augmentation services. As a result, while we were able to increase billing rates slightly over the prior year, there can be no assurance we will be able to continue to do so or to return to historical gross margin levels. Management expects that clients will continue for the foreseeable future to request lower cost offerings for staff augmentation services through e-procurement systems, extremely competitive bidding processes, the granting of various types of discounts and the use of off-shore resources. We are considering various low-cost alternatives, including relationships with e-procurement software vendors and off-shore service providers, in response to these developments in the industry, and we have implemented new software and internet capabilities in our recruiting function. Our ability to respond to customer requests for lower pricing or to provide other low cost solutions in this area of our business will have a direct effect on our performance. Management expects competitive conditions in the area of technical staff augmentation to continue for the foreseeable future, although it expects that demand for these services will increase as the general economy begins to recover.

Increased competition could affect our ability to obtain and retain client contracts. Our two top clients are IBM and Qwest. In 2001, these clients each represented 15% of our revenues. During the six-month transition period, these clients represented 14% and 13% of our revenue, respectively. During fiscal years ending June 30, 2000 and 1999, IBM represented 17% and 16% of revenue, respectively; and Qwest represented 22% and 23% of revenue, respectively. While we have reduced our dependence on each of these clients, loss of either of these client relationships or a significant portion thereof could have a material adverse effect on the Company.

Our ability to control labor costs, employee benefit costs 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 year 2002. While we believe the changes we implemented will be effective, the actual results from these changes may vary due to factors we cannot control such as rising medical costs, the amount of medical services used by our employees and similar factors. We have streamlined our operations by consolidating offices, reducing administrative and management personnel and continue to review our company structure for more efficient methods of operating our business and delivering our services. We may not be able to continue to reduce costs without affecting our ability to deliver service to our clients and therefore may choose to forego particular cost reductions if we believe it would be prudent to do so for the future business of the Company.

As a result of the pricing and other competitive pressures affecting the technical staff augmentation area of our business, management has sought and 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 obtaining contracts with existing customers in the areas of software and web site development and maintenance (business solutions), network infrastructure services, computer security and criminal justice. While we believe these areas of our business present opportunities to grow our business, growth in these areas will depend on improvement in spending in the overall IT services market, our ability to compete with other vendors and how successful we are at obtaining new clients.

We believe the provisions imposed by the December 2001 amendments to our credit line and Note Purchase Agreement are achievable based on our expected operating results during the first half of 2002. We expect to complete our refinancing before the June 30, 2002 maturity date of our existing debt. However, if we were unable to complete this financing, it could have a material adverse impact on our ability to operate on a daily basis or to support growth in our business. If this were to occur, we may choose to enter into a sale and lease-back transaction or arrange for a long-term mortgage on our corporate headquarters building.

Our existing credit facilities bear interest at a fixed rate, minimizing our exposure to market risk. The new financing transaction, which is expected to close during the first half of 2002, will carry a variable interest rate, which will expose us to certain market risk. Market risk is the potential loss arising from the adverse changes in market rates and prices, such as interest rates. Market risk is estimated as the potential increase in fair value resulting from a hypothetical one percent increase in interest rates which, assuming an average outstanding debt balance of $30.0 million, would result in an annual interest expense increase of approximately $300,000.

Consolidated Balance Sheets

	December 31,
	2001			2000
	(Dollars in thousands,except for per share amounts)
Assets

Current assets:
Cash and cash equivalents	$	18,204		$	2,192
Accounts receivable, less allowance for doubtful accounts of $1,170 and $2,110, respectively	83,322			98,495
Prepaid expenses and other current assets	6,904			6,035
Income tax refund receivable	2,405			2,157
Total current assets	110,835			108,879
Property and equipment	28,406			28,752
Intangible assets, net of accumulated amortization of $6,606 and $3,364, respectively	45,656			49,335
Other assets	7,987			14,763
	$	192,884		$	201,729

Liabilities and Shareholders’ Equity

Current liabilities:
Accounts payable	$	37,778		$	30,927
Dividend payable	—			1,452
Salaries and vacations	6,399			8,515
Self-insured health care reserves and other accounts	7,882			5,766
Payable to former Sequoia NET.com shareholders	—			3,323
Long-term debt, current portion	41,000			5,250
Restructuring accruals, current portion	1,154			5,798
Total current liabilities	94,213			61,031

Long-term debt	—			35,750
Restructuring accruals, non-current portion	1,500			750
Deferred compensation accrual, non-current portion	6,088			9,115
Commitments (Note I)

Shareholders’ equity:
Common stock, par value $.10 a share; authorized 120,000,000 shares; issued and outstanding 24,196,622 and 24,195,077 shares, respectively	2,420			2,419
Additional capital	20,121			20,116
Accumulated other comprehensive loss	(106		)	(48		)
Retained earnings	68,648			72,596
Total shareholders’ equity	91,083			95,083
	$	192,884		$	201,729

The accompanying notes are an integral part of the financial statements.

Consolidated Statements of Operations

	Year Ended December 31,							Six Months Ended December 31,			Year Ended June 30,

	2001			2000				2000			2000		1999
				(unaudited)
	(Dollars in thousands,except for per share amounts)
Professional services revenues:
Provided directly	$	411,387		$	430,213			$	226,706		$	420,140	$	480,790
Provided through subsuppliers	140,340			128,944				61,634			138,591		139,366
Total revenues	551,727			559,157				288,340			558,731		620,156

Expenses:
Salaries, contracted services and direct charges	457,706			456,250				235,238			452,334		486,816
Selling, administrative and other operating costs	87,909			96,252				53,239			89,683		96,887
Amortization of goodwill and other intangible assets	3,212			2,064				1,370			1,025		415
Restructuring charges	—			7,000				7,000			—		—

Operating income (loss)	2,900			(2,409			)	(8,507		)	15,689		36,038
Non-operating income	247			391				68			1,452		1,408
Loss on investment	3,012			—				—			—		—
Interest expense	2,899			2,376				1,494			1,584		178
(Loss) income before income taxes and minority interest	(2,764		)	(4,394			)	(9,933		)	15,557		37,268
Income tax expense (benefit)	216			(2,149			)	(3,897		)	5,656		14,535
Minority interest	—			379				266			113		—
Net (loss) income	$	(2,980	)	$	(2,624		)	$	(6,302	)	$	9,788	$	22,733

Per common share:
Net (loss) income (basic)	$	(.12	)	$		(.12	)	$	(.28	)	$	.43	$	1.01
Net (loss) income (diluted)	$	(.12	)	$		(.12	)	$	(.28	)	$	.43	$	1.00

Average common shares outstanding	24,196,000			22,612,000				22,624,000			22,583,000		22,524,000

Average common and common equivalent shares outstanding	24,196,000			22,612,000				22,624,000			22,624,000		22,732,000

The accompanying notes are an integral part of the financial statements

Consolidated Statements of Cash Flows

	Year Ended December 31,						Six Months Ended December 31,			Year Ended June 30,

	2001			2000			2000			2000			1999
				(unaudited)
	(Dollars in thousands,except for per share amounts)
Cash flows from operating activities:
Net (loss) income	$	(2,980	)	$	(2,624	)	$	(6,302	)	$	9,788		$	22,733
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation	5,124			5,227			2,753			4,892			3,844
Amortization of goodwill and other intangible assets	3,212			2,064			1,370			1,025			415
Loss (gain) on disposal of assets	96			121			(8		)	(499		)	19
Loss on investments	3,012			—			—			—			—
Decrease (increase) in deferred income tax benefit	2,405			(2,312		)	(2,883		)	510			(436		)
Tax effect of stock transactions	—			45			—			45			543
Change in:
Accounts receivable	15,173			(363		)	357			13,508			(7,229		)
Prepaid expenses	(2,251		)	(1,054		)	(647		)	(111		)	(590		)
Other assets	2,775			420			118			149			(582		)
Accounts payable	3,528			(1,327		)	(419		)	(1,079		)	9,555
Salaries and vacations	(2,116		)	285			(2,497		)	(12,581		)	7,558
Other accrued expenses	5,484			845			1,134			(276		)	1,150
Income taxes	(248		)	(4,675		)	(1,278		)	(4,581		)	(551		)
Restructuring accrual	(3,894		)	6,604			6,604			—			—
Long-term liabilities	(3,027		)	1,267			1,289			292			363
Net cash provided by (used in) operating activities	26,293			4,523			(409		)	11,082			36,792
Cash flows from investing activities:
Property and equipment additions	(4,910		)	(3,381		)	(2,090		)	(3,413		)	(23,182		)
Investment purchases	—			(190		)	—			(190		)	—
Payments for acquisitions, net of cash acquired	(2,993		)	(42,687		)	—			(42,687		)	(3,847		)
Investment in alliance partners	—			(3,012		)	—			(3,012		)	—
Proceeds from property and equipment sales	36			116			95			1,575			35
Net cash used in investing activities	(7,867		)	(49,154		)	(1,995		)	(47,727		)	(26,994		)
Cash flows from financing activities:
Cash dividends	(2,420		)	(9,048		)	(4,521		)	(9,037		)	(8,560		)
Proceeds from borrowings	52,895			138,013			87,919			50,094			20,000
Repayment of borrowings	(52,895		)	(117,350		)	(80,832		)	(36,518		)	—
Proceeds from exercise of stock options	6			127			—			266			764
Net cash (used in) provided by financing activities	(2,414		)	11,742			2,566			4,805			12,204
Net increase (decrease) in cash and equivalents	16,012			(32,889		)	162			(31,840		)	22,002
Cash and equivalents at beginning of year	2,192			35,081			2,030			33,870			11,868
Cash and equivalents at end of year	$	18,204		$	2,192		$	2,192		$	2,030		$	33,870
Supplemental cash flow information:
Cash paid (refunded) during the year for:
Income taxes	$	(1,846	)	$	2,945		$	264		$	7,109		$	15,421
Interest	3,811			2,298			794			2,206			—
Non-cash investing and financing activities:
Common stock issued to acquire 19.9% of SequoiaNET.com	—			6,069			6,069			—			—
Payable issued to acquire 19.9% of SequoiaNET.com	—			3,323			3,323			—			—

The accompanying notes are an integral part of the financial statements

Consolidated Statements of Shareholders’ Equity

	Common Stock		Additional Capital		Accumulated Other Comprehensive Loss			Retained Earnings			Total Shareholders Equity



	(Dollars in thousands,except for per share amounts)
Balances at June 30, 1998	$	2,244	$	12,604				$	68,146		$	82,994

Common stock issued — 112,698 shares upon exercise of stock options	11		753								764
Income tax benefit from stock option plans			102								102
Other			441								441
Cash dividends ($.40 per share)								(9,020		)	(9,020		)
Net income								22,733			22,733
Balances at June 30, 1999	2,255		13,900					81,859			98,014

Common stock issued — 54,385 shares upon exercise of stock options	6		260								266
Income tax benefit from stock option plans			45								45
Cash dividends ($.40 per share)								(9,037		)	(9,037		)
Unrealized loss on available for sale securities					$	(23	)				(23		)
Net income								9,788			9,788
Comprehensive income											9,765
Balances at June 30, 2000	2,261		14,205		(23		)	82,610			99,053

Shares issued for purchase of SequoiaNET.com	158		5,911								6,069
Cash dividends ($.16 per share)								(3,712		)	(3,712		)
Unrealized loss on available for sale securities					(25		)				(25		)
Net loss								(6,302		)	(6,302		)
Comprehensive loss											(6,327		)
Balances at December 31, 2000	2,419		20,116		(48		)	72,596			95,083

Common stock issued — 1,545 shares upon exercise of stock options	1		5								6
Cash dividends ($.04 per share)								(968		)	(968		)
Unrealized loss on available for sale securities					(58		)				(58		)
Net loss								(2,980		)	(2,980		)
Comprehensive loss											(3,038		)
Balances at December 31, 2001	$	2,420	$	20,121	$	(106	)	$	68,648		$	91,093

The accompanying notes are an integral part of the financial statements.

Notes to Consolidated Financial Statements

A. Summary of Significant Accounting Policies

Description of business. Analysts International Corporation is a diversified IT services company. Services are provided through the Sequoia Services Group, which provides business solutions and network infrastructure services; the Managed Services Group, which provides a comprehensive range of outsourced business functions; and IT Supplemental Resources (also referred to as Technical Staff Augmentation), which provides high demand resources for supporting clients’ IT staffing needs.

Basis of presentation. The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated.

As described in Note J, on April 25, 2000, the Company completed the acquisition of 80.1% of SequoiaNET.com. The acquisition was accounted for as a purchase. The accompanying financial statements include 100% of SequoiaNET.com’s operating results for the period from April 25, 2000 to December 31, 2000, offset by the minority shareholders’ interest in Sequoia's net earnings. Effective December 29, 2000, the Company acquired the remaining 19.9% of Sequoia.

Change in fiscal year. Analysts International changed its fiscal year end to December 31 from June 30, effective December 31, 2000. References to fiscal 2000 and 1999 relate to the years ended June 30, 2000 and 1999.

Unaudited consolidated statements of operations and cash flows for the twelve months ended December 31, 2000 have been included in the accompanying consolidated financial statements for comparative purposes.

Depreciation. Property and equipment is being depreciated using the straight-line method over the estimated useful lives (15 to 50 years for building and improvements and 2 to 7 years for office furniture and equipment) of the assets for financial statement purposes and accelerated methods for income tax purposes.

Financial instruments. In accordance with the requirements of Statement of Financial Accounting Standards (SFAS) No. 107, “Disclosures about Fair Value of Financial Instruments,” management estimates the carrying value of long-term debt exceeds fair value by approximately $400,000 at December 31, 2000. The carrying value approximated the fair value at December 31, 2001 as a result of the amendments to move the maturity of the long term debt to June 30, 2002. The estimated fair value amount for December 31, 2000 was determined through the use of discounted cash flow analysis using interest rates currently available to the Company for issuance of debt with similar terms and remaining maturities. All other financial instruments approximate fair value because of the short-term nature of these instruments.

Revenue recognition. The Company provides custom software design and implementation services primarily under time and material contracts. The Company records professional services revenue at contractually agreed upon rates as the services are provided. The Company grants credit without collateral to customers, a significant portion of whom are engaged in the electronics and telecommunications industries. One customer and its various divisions and operating units accounted for approximately 15%, 13%, 22% and 23% of revenue in fiscal 2001, the six month period ending December 31, 2000 and fiscal 2000 and 1999, respectively. Another customer accounted for 15%, 14%, 17% and 16% of revenue in fiscal 2001, the six month period ending December 31, 2000 and fiscal 2000 and 1999, respectively.

Comprehensive income/loss. Other comprehensive income/loss consists of unrealized losses on available-for-sale securities.

Net income per share. Basic and diluted earnings per share (EPS) are presented in accordance with Statement of Financial Accounting Standards No. 128, “Earnings per Share.” Basic EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. The difference between weighted-average common shares and average common and common equivalent shares used in computing diluted EPS is the result of outstanding stock options. Options to purchase 1,819,000, 1,792,000, 908,000 and 358,000 shares of common stock were outstanding during fiscal 2001, the six months ended December 31, 2000 and the fiscal years ended June 30, 2000 and 1999, respectively, but were excluded from the computation of common stock equivalents because they were anti-dilutive.

Cash equivalents. Temporary cash investments in money market accounts are considered to be cash equivalents.

Shares reserved. At December 31, 2001, there were approximately 29,244,000 shares reserved for issuance under the stock option plans and the rights plan.

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

Intangible assets. Intangible assets consist of tradenames, in-place work force, customer lists and goodwill, the excess of the purchase price over the appraised fair value of assets acquired in acquisitions. Intangibles are amortized on a

straight-line basis over periods of 2 to 18 years. At December 31, 2001, management assessed whether there has been a permanent impairment in the value of intangible assets and the amount of such impairment by comparing anticipated undiscounted future operating income from the applicable business unit with the carrying value of the related intangible assets. The factors considered by management in performing this assessment include current operating results, trends and prospects, as well as the effects of demand, competition and other economic factors. No impairment was indicated at December 31, 2001.

In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) Nos. 141, “Business Combinations” and 142, “Goodwill and Other Intangible Assets.” SFAS No. 141 was effective for all business combinations initiated after June 30, 2001, and has had no impact on the Company’s financial statements. SFAS No. 142 addresses how intangible assets should be accounted for, and is effective for the Company’s fiscal year beginning January 1, 2002. Company expects to adopt SFAS No. 142 during the first quarter of fiscal year 2002. Amortization recorded during the years ended December 31, 2001 and 2000 was $3,212,000 and $2,064,000, respectively. Upon adoption of SFAS No. 142, this amortization is expected to decline significantly. As of December 31, 2001 and 2000, the Company had net goodwill and other intangible assets of approximately $45,656,000 and $49,335,000, respectively. Based on a review of the standard and preliminary impairment assessment, management believes the Company will record a goodwill impairment charge upon adoption, and the amount of such charge is likely to be significant in relation to the Company’s unamortized goodwill balance. Such impairment charge will be recorded as a cumulative effect of a change in accounting principle and therefore will not impact operating income.

Accounting Pronouncements. On July 1, 2000, the Company adopted Statement of Financial Accounting Standard (SFAS) No. 133, “Accounting for Derivative Instruments and Hedging Activities”, as amended by SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities”. Management has reviewed the requirements of SFAS No. 133 and has determined that the Company has no free-standing or embedded derivatives. All agreements that contain provisions meeting the definition of a derivative also meet the requirements of, and have been designated as, normal purchases or sales. The derivatives and not to enter into contracts with terms that cannot be designated as normal purchases or sales.

During the period ended December 31, 2000, the Company adopted Staff Accounting Bulletin No. 101 “Revenue Recognition in Financial Statements”. The impact of the adoption of this bulletin was not material.

B. Property and Equipment

	December 31,
*(In thousands)*	2001		2000
Land	$	1,917	$	1,917
Building and improvements	20,522		18,659
Office furniture & equipment	30,716		29,989
	53,155		50,565
Accumulated depreciation	24,749		21,813
	$	28,406	$	28,752

C. Intangible Assets

Intangible assets consist of the following:

	December 31,
*(In thousands)*	2001		2000
Goodwill	$	36,932	$	37,369
Tradename	1,720		1,720
Workforce	1,340		1,340
Customer list	12,270		12,270
	52,262		52,699
Accumulated amortization	6,606		3,364
	$	45,656	$	49,335

D. Deferred Compensation

The Company has a Deferred Compensation Plan for key management employees as determined by the Board. Included in liabilities at December 31, 2001 and December 31, 2000 is $8,580,000 and $9,115,000, respectively, representing the Company’s liability under the plan. This liability is being partially funded by the purchase of life insurance and annuity contracts. Included in assets at December 31, 2001 and December 31, 2000 is $5,679,000 and $5,962,000, respectively, representing the carrying value, which approximates market value, of the annuities and insurance cash value. Deferred compensation expense for the year ended December 31, 2001, the six months ended December 31, 2000 and for fiscal years 2000 and 1999 was approximately $299,000, $1,218,000, $292,000 and $363,000, respectively.

E. Long-term Debt

In January 2000, the Company obtained a $25,000,000 bank line of credit. This line of credit was increased to $30,000,000 in December 2000. Effective December 28, 2001, this agreement was amended to reduce the line of credit to $25,000,000, amend the maturity date to June 30, 2002, and increase the interest rate to a fixed 9%. A commitment fee of .30% is charged on the unused portion of the line.

In December 1998, the Company entered into a Note Purchase Agreement whereby it sold $20,000,000 of 7% Senior Notes due December 30, 2006. During fiscal year 2001, this agreement was amended to increase the interest rate to 9%, reduce the make-whole penalty for early

extinguishment, defer the $5.3 million principal payment due at December 31, 2001, require a $1.5 million principal payment on March 29, 2002 and move the maturity of the remaining note balance to June 30, 2002.

During fiscal year 2001, the credit line and Note Purchase Agreement both contained provisions requiring the maintenance of certain operating and other ratios. On a number of occasions during 2001, the Company failed to meet these requirements and sought and received amendments to the agreements. In anticipation of restructuring all of its debt, effective December 28, 2001, the Company amended both agreements to move all present and future maturities, with the exception of a $1.5 million principal payment of the Notes on March 29, 2002, to June 30, 2002 to give the Company time to effectively restructure its debt. The December 2001 amendments eliminate all previous operating covenants and replace them with required minimum earnings before income taxes, interest, depreciation and amortization (EBITDA), and net cash flow, which is defined as EBITDA less cash paid for taxes, capital expenditures, restructuring accruals, interest expenses, and principal paid on the Notes.

Subsequent to December 31, 2001, the Company has obtained a commitment from a major financial institution to extend the Company a $55.0 million line of credit secured by the assets of the Company. The commitment is for a three-year term, carries interest at either the LIBOR rate plus 3.00% or the Prime rate plus .75%. The Company expects to close this refinancing before the June 30, 2002 maturity date of its existing debt. Upon refinancing of its existing debt, the Company expects to record a pre-tax loss on early extinguishment of debt of approximately $1,000,000.

F. Stock Option Plans

The Company has five stock-based compensation plans, which are described below. The Company has adopted the disclosure provisions of SFAS No. 123, “Accounting for Stock-Based Compensation”, and has continued to apply APB Opinion No. 25 and related interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for its stock option plans. Had compensation cost for the Company’s stock-based compensation plans been determined based on the fair value at the grant dates as calculated in accordance with SFAS No. 123, the Company’s pro forma net (loss) income and (loss) earnings per share for the year ended December 31, 2001, the six months ended December 31, 2000 and the years ended June 30, 2000 and 1999 would have been the amounts indicated below:

	Year Ended December 31,			Six Months Ended December 31,			Year Ended June 30,
	Year Ended December 31,			Six Months Ended December 31,			Year Ended June 30,
	2001			2000			2000		1999

Net (loss) income (in thousands):
As reported	$	(2,980	)	$	(6,302	)	$	9,788	$	22,733
Pro forma	(3,949		)	(7,375		)	8,411		22,038
Net (loss) income per share (basic):
As reported	$	(.12	)	$	(.28	)	$	.43	$	1.01
Pro forma	(.16		)	(.33		)	.37		.98
Net (loss) income per share (diluted):
As reported	$	(.12	)	$	(.28	)	$	.43	$	1.00
Pro forma	(.16		)	(.33		)	.37		.97

The fair market value of each stock option is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

	Year Ended December 31,	Six Months Ended December 31,	Year Ended June 30,
	Year Ended December 31,	Six Months Ended December 31,	Year Ended June 30,
	2001	2000	2000	1999

Expected life	5 years	5 years	5 years	5 years
Expected volatility	74%	59%	59%	53%
Expected dividend yield	0.0%	3.0%	2.0%	1.0%
Risk-free interest rate	6.0%	8.0%	8.0%	7.0%

The weighted average fair value of options granted during the year ended December 31, 2001, the six-month period ended December 31, 2000 and the years ended June 30, 2000 and 1999 was $2.23, $1.91, $4.42 and $6.15, respectively.

The Company has options outstanding under five option plans, four of which remain active. Under the 1994 Stock Option Plan, the Company may grant options to its employees for up to 1,200,000 shares of common stock. Under the 1996 Stock Option Plan for Non-Employee Directors, the Company may grant options to its non-employee directors for up to 240,000 shares of common stock. Under the 1996 Non-Employee Directors Plan, options to purchase 6,000 shares are automatically granted on January 3 of each year to each eligible non-employee director. Under the 1999 Stock Option Plan, the Company may grant options to its employees for up to 1,000,000 shares of common stock. Under the 2000 Stock Option Plan, the Company may grant non-qualified options to its employees for up to 225,000 shares of common stock. Under all plans, the exercise price of each option equals the market price of the Company’s stock on the date of grant and an option’s maximum term is generally 10 years. Options are generally exercisable at 25% annually beginning one year after date of grant.

A summary of the status of the plans as of December 31, 2001, December 31, 2000, June 30, 2000 and June 30, 1999 and changes during the periods ending on those dates is presented below:

	Shares		Weighted- Average Exercise Price


Outstanding at June 30, 1998	889,760		$	14.58
Granted	228,223		$	16.45
Exercised	(101,189	)	8.62
Expired	(11,135	)	16.10
Outstanding at June 30, 1999	1,005,659		$	15.58
Granted	721,532		$	10.71
Exercised	(87,932	)	7.48
Expired	(80,110	)	11.69
Outstanding at June 30, 2000	1,559,149		$	14.09
Granted	304,330		3.53
Exercised	—		—
Expired	(71,382	)	13.15
Outstanding at December31,2000	1,792,097		12.34
Granted	520,250		4.37
Exercised	(1,719	)	3.19
Expired	(491,574	)	12.55
Outstanding at December31,2001	1,819,054		10.01

Shares available for future grant at December 31, 2001 and 2000 were 704,692 and 733,368, respectively.

The following table summarizes information about stock options outstanding at December 31, 2001:

		Options Outstanding					Options Exercisable
		Number Outstanding at 12/31/01	Weighted-Average Remaining Contractual Life	Weighted-Average Exercise Price			Number Exercisable at 12/31/01	Weighted-Average Exercise Price
Range of Exercise Prices
Range of Exercise Prices
$	3.19 — $3.94	259,891	8.98	$		3.33	159,616	$		3.21
$	4.40 —$8.44	517,150	9.42	$		4.53	9,500	$		6.12
$	9.44 —$11.06	553,050	8.18	$	10.18		162,777	$	10.30
$	11.38 —$34.94	488,963	6.57	$	19.17		324,736	$	20.59
$	3.19 — $34.94	1,819,054	8.21	$	10.01		656,629	$	13.61

G. Shareholders’ Rights Plan

On June 15, 1989, the Board of Directors adopted a common stock the Board of Directors declared a dividend of one common share purchase right for each outstanding share of common stock and stock options granted and available for grant. The Board of Directors amended the plan on April 29, 1996 and April 16, 1998. The rights, which expire on April 16, 2008, are exercisable only under certain conditions, and when exercisable the holder will be entitled to purchase from the Company one share of common stock at a price of $160.00, subject to certain adjustments. The rights will become exercisable after a person or group acquires beneficial ownership of 15% or more (or as low as 10% as the Board of Directors may determine) of the common stock or after a person or group announces an offer, the consummation of which would result in such person or group owning 15% or more of the common stock. If the Company is acquired at any time after the rights become exercisable, the rights will be adjusted so as to entitle a holder to purchase a number of shares of common stock of the acquiring company at one-half of their market value. If any person or group acquires beneficial ownership of 15% or more of the Company’s shares, the rights will be adjusted so as to entitle a holder (other than such person or group whose rights become void) to purchase a number of

shares of common stock of Analysts International Corporation at one-half of their market value or the Board of Directors may exchange the rights, in whole or in part, at an exchange ratio of one common share per right (subject to adjustment).

At any time prior to an acquisition by a person or group of beneficial ownership of 15% or more of the shares, the Board of Directors may redeem the rights at $.01 per right.

H. Income Taxes

The provision for income tax expense (benefit) was as follows:

	Year Ended December 31,			Six Months Ended December 31,			Year Ended June 30,

(In thousands)	2001			2000			2000		1999

Currently (receivable) payable:
Federal	$	(2,075	)	$	(808	)	$	4,363	$	12,648
State	(393		)	(206		)	783		2,323
	$	(2,468	)	(1,014		)	5,146		14,971
Deferred:
Federal	3,403			(2,426		)	394		(348		)
State	424			(457		)	116		(88		)
	3,827			(2,883		)	510		(436		)
Valuation allowance on deferred tax asset	(1,143		)	0			0		0
	2,684			(2,883		)	510		(436		)
Total:	$	216		$	(3,897	)	$	5,656	$	14,535

Net deferred tax assets are comprised of the following:

	December 31,
(In thousands)	2001			2000
Deferred compensation	$	3,346		$	3,555
Accrued vacation and compensatory time	888			1,272
Accrued reorganization costs	1,042			2,427
Self-insured health care reserves	702			858
Investment market valuation allowance	64			—
Allowance for doubtful accounts	456			820
Depreciation	(86		)	(55		)
Capital Loss Carryforward	1,143			—
Other	155			152
Deferred tax assets	7,710			9,029
Other	(469		)	(457		)
Valuation allowance	(1,143		)	—
Deferred tax liabilities	(1,612		)	(457		)
Net deferred tax assets	$	6,098		$	8,572
Whereof:
Current	$	2,392		$	3,599
Noncurrent	3,706			4,973
	$	6,098		$	8,572

The provision for income taxes differs from the amount of income tax determined by applying the federal statutory income tax rates to pretax (loss) income as a result of the following differences:

	Year Ended December 31,			Six Months Ended December 31,			Year Ended June 30,
	Year Ended December 31,			Six Months Ended December 31,			Year Ended June 30,
(In thousands)	2001			2000			2000			1999
Income tax (benefit) at statutory federal rate	$	(965	)	$	(3,477	)	$	5,445		$	13,044
State and local taxes, net of federal benefit	(107		)	(431		)	585			1,453
Valuation allowance for deferred tax asset	1,143
Other	145			11			(374		)	38
Total tax provision	$	216		$	(3,897	)	$	5,656		$	14,535

I. Commitments

At December 31, 2001 aggregate net minimum rental commitments under noncancelable operating leases having an initial or remaining term of more than one year are payable as follows:

(In thousands)
Year ending December 31,	2002	$	6,117
	2003	5,475
	2004	3,958
	2005	3,533
	2006	2,293
	Later	2,485
Total minimum obligation		$	23,861

Rent expense, primarily for office facilities, for the year ended December 31, 2001, the six months ended December 31, 2000 and the years ended June 30, 2000 and 1999 was $5,570,000, $2,928,000, $5,761,000 and $5,879,000, respectively.

The Company has compensation arrangements with its corporate officers and certain other employees which provide for certain payments in the event of a change of control of the Company.

The Company also sponsors a 401(k) plan. Substantially all employees are eligible to participate and may contribute up to 15% of their pretax earnings, subject to IRS maximum contribution amounts. The Company makes matching contributions to the plan up to a specified percentage. The Company’s completed five years of service and for the year ended December 31, 2001, the six months ended December 31, 2000 and the years ended June 30, 2000 and 1999 amounted to approximately $1,208,000, $492,000, $1,389,000 and $1,439,000, respectively.

J. Business Acquisitions

On April 25, 2000, the Company purchased an 80.1% interest in SequoiaNET.com for $43.5 million. To complete the transaction the Company utilized $30.5 million of its cash balances and drew down $13.0 million on its line of credit. Effective December 29, 2000, the Company purchased the remaining 19.9% of SequoiaNET.com in exchange for common stock valued at $6,069,000 and $3,323,000 of notes payable. SequoiaNET.com provides network installation and support services and other eBusiness services. SequoiaNET.com reported $57.7 million in revenues with pretax profits of $3.8 million for the year ended December 31, 1999. The purchase of SequoiaNET.com has been accounted for under the purchase method of accounting. Accordingly, the assets acquired, including customer and employee-based intangibles, are recorded at their fair values at the date of acquisition and amortized on a straight-line basis over periods ranging from 3 to 18 years.

The following represents the pro forma operating results for the Company assuming the acquisition of 100% of Sequoia NET.com had occurred on July 1, 1998:

	Six Months Ended December 31,								Year Ended June 30,
	2000						2000					1999
(In thousands except for per share amounts)	As Reported			Pro Forma			As Reported			Pro Forma		As Reported		Pro Forma
(In thousands except for per share amounts)	As Reported			Pro Forma			As Reported			Pro Forma		As Reported		Pro Forma
Total revenues	$	226,706		$	226,706		$	558,731		$	608,029	$	620,156	$	672,217
Net (loss) income	(6,302		)	(6,273		)	9,788			9,975		22,733		20,154
(Loss) income per share (diluted)	(.28		)	(.26		)	.43			.41		1.00		.83

On November 6, 1998, the Company acquired specific assets and assumed certain liabilities of Enterprise Solutions, Inc., a Minneapolis, Minnesota-based provider of software services. On February 26, 1999, the Company acquired all of the assets of Real World Training Systems LLC, a Phoenix, Arizona-based provider of software services. The amount paid in connection with these purchases was approximately $4.2 million which was paid with internal funds. These acquisitions were accounted for under the purchase method of accounting. Accordingly, the assets acquired, primarily accounts receivable and property and equipment, were recorded at their estimated fair values as of the date of acquisition. The excess of the purchase price over the estimated fair value of the assets acquired was recorded as goodwill and is being amortized on a straight-line basis over periods of 3 to 12 years.

K.Restructuring Charge

In December 2000, the Company recorded a restructuring charge of $7.0 million. Of this charge, $2.6 million related to workforce reductions of approximately 120 employees (primarily non-billable staff). In addition, the Company has consolidated its six regions to four and its 45 branch and field locations to 15 district sales offices. While the Company maintains a presence in most of the 30 locations which were not converted to district sales offices, the need for office space in these locations has declined. As a result, the Company has established a reserve of $4.4 million to cover lease termination and abandonment costs (net of sublease income) including an amount for assets to be disposed of in conjunction with this consolidation.

A summary of the restructuring charge is as follows:

	Workforce		Office Closure/
*(In thousands)*	Reduction		Consolidation		Total
Restructuring charge	$	2,600	$	4,400	$	7,000
Cash expenditures	396		—		396
Non-cash charges	—		56		56
Balance at December 31, 2000	$	2,204	$	4,344	$	6,548

Cash expenditures	2,180		1,517		3,697
Non-cash charges	—		197		197
Balance at December 31, 2001	$	24	$	2,630	$	2,654

During the second quarter of fiscal 2001, in response to a weakening real estate market, and to better manage its resources, the Company chose not to pay substantial lump sum fees to terminate many of its leases. Instead, the Company has abandoned and is attempting to sublease these spaces. As a result of this change, the Company has reclassified $1.4 million of the Office Closure/Consolidation reserve to a long-term liability.

Independent Auditors’ Report

Shareholders and Board of Directors

Analysts International Corporation

Minneapolis, Minnesota

We have audited the accompanying consolidated balance sheets of Analysts International Corporation and its subsidiaries (the Company) as of December 31, 2001 and 2000 and the related consolidated statements of operations, equity and cash flows for the year ended December 31, 2001, the six-month period ended December 31, 2000 and each of the two years in the period ended June 30, 2000. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2001 and 2000, and the results of their operations and their cash flows for the year ended December 31, 2001, the six-month period ended December 31, 2000 and each of the two years in the period ended June 30, 2000, in conformity with accounting principles generally accepted in the United States of America.

/s/ Deloitte & Tousche LLP

Minneapolis, Minnesota

February 27, 2002 (March 18, 2002 as to the last paragraph of Note E)

Report of Management

The consolidated financial statements of Analysts International Corporation published in this report were prepared by company management, which is responsible for their integrity and objectivity. The statements have been prepared in accordance with accounting principles generally accepted in the United States of America applying certain estimates and judgments as required. The financial information elsewhere in this report is consistent with the statements.

Analysts International maintains internal controls adequate to provide reasonable assurance its transactions are appropriately recorded and reported, its assets are protected and its established policies are followed. The structure is enforced by written policies and procedures, internal audit activities and a qualified financial staff.

Our independent auditors, Deloitte & Touche LLP, provide an objective independent review by audit of Analysts International’s consolidated financial statements and with auditing standards generally accepted in the United States of America.

The Audit Committee of the Board of Directors, comprised solely of outside directors, meets with the independent auditors and representatives from management to appraise the adequacy and effectiveness of the audit functions, internal controls and quality of our financial accounting and reporting.

/s/ Frederick W. Lang		/s/ Marti R. Charpentier
Frederick W. Lang		Marti R. Charpentier
Chairman and Chief Executive Officer		Vice President, Finance and Treasurer

Stock Data

	Market Range						Dividend
Fiscal Year Ended December 31, 2001	High		Low		Close		Declared
Fourth Quarter	$	4.35	$	2.43	$	4.13	$	.00
Third Quarter	5.50		2.67		5.08		.00
Second Quarter	7.00		3.81		5.46		.01
First Quarter	7.88		3.63		7.13		.03

Transition Period Ended December 31, 2000
Second Quarter	$	6.94	$	3.19	$	3.81	$	.06
First Quarter	9.88		6.88		7.22		.10

Fiscal Year Ended June 30, 2000
Fourth Quarter	$	12.94	$	7.75	$	11.13	$	.10
Third Quarter	15.50		9.38		12.88		.10
Second Quarter	12.94		8.63		12.50		.10
First Quarter	15.94		9.88		14.13		.10

The Company’s common shares are traded on The Nasdaq Stock Market® under the symbol ANLY. As of March 8, 2002, there were approximately 1,300 shareholders of record and approximately 7,500 shareholders for whom securities firms act as nominees. The above table sets forth for the periods indicated the market prices for the as reported by Nasdaq and dividends declared for each quarterly period.

The Board of Directors had adopted a policy of declaring regular quarterly dividends subject to favorable earnings, cash flow and the Company’s debt agreement obligations. During the quarter ended September 30, 2001, the Board elected to suspend the quarterly dividend to retain capital. There can be no assurance the Company will be able to reinstate a dividend paying policy.

Sales of Unregistered Securities

On December 29, 2000, the Company acquired the 19.9% of SequoiaNET.com it previously did not own in a business combination accounted for as a purchase. The Company issued 1,588,000 shares of its common stock, having an aggregate value of $6.1 million, to the former shareholders of SequoiaNET.com. In addition, the Company exchanged 386,216 options to purchase common stock of SequoiaNET.com for 193,108 non-qualified options to purchase common stock of the Company. These shares were not registered under the Securities Act of 1933. The unregistered shares were issued in reliance upon Section 4(2) of the Securities Act of 1933, as amended, as a sale by the Company not involving a public offering. No underwriters were involved with such issuance of common stock.

Five Year Financial Summary

				Six Months Ended December 31
	Fiscal Year						Fiscal Year
	2001			2000			2000		1999		1998		1997*
	(Dollars in thousands except for per share amounts)
Professional services revenues:
Provided directly	$	411,387		$	226,706		$	420,140	$	480,790	$	454,339	$	344,790
Provided through subsuppliers	140,340			61,634			138,591		139,366		133,072		94,756
Total revenues	551,727			288,340			558,731		620,156		587,411		439,546
Salaries, contracted services and direct charges	457,706			235,238			452,334		486,816		457,318		340,483
Amortization of goodwill and other intangible assets	3,212			1,370			1,025		415		277		277
Restructuring charges	—			7,000			—		—		—		—
Non-operating income	247			68			1,452		1,408		1,299		1,045
Loss on investment	3,012			—			—		—		—		—
Interest expense	2,899			1,494			1,584		178		—		—
(Loss) income before income taxes and minority interest	(2,764		)	(9,933		)	15,557		37,268		37,687		27,210
Income taxes (benefit) and minority interest	216			(3,631		)	5,769		14,535		15,077		10,829
Net (loss) income	(2,980		)	(6,302		)	9,788		22,733		22,610		16,381

Total assets	192,884			201,729			192,144		186,216		132,661		105,370
Long-term liabilities	7,588			45,615			41,739		27,534		7,171		6,444
Shareholders’ equity	91,083			95,083			99,053		98,014		82,994		66,104
Per share data:
Net (loss) income (basic)	(.12		)	(.28		)	.43		1.01		1.01		.74
Net (loss) income (diluted)	(.12		)	(.28		)	.43		1.00		.99		.73
Cash dividends	.10			.20			.40		.40		.31		.24
Shareholders’ equity	3.76			3.93			4.38		4.35		3.70		2.97
Average common shares outstanding	24,196,000			22,624,000			22,583,000		22,524,000		22,376,000		22,095,000
Average common and common equivalent shares outstanding	24,196,000			22,624,000			22,624,000		22,732,000		22,829,000		22,544,000
Number of personnel	3,800			4,750			4,800		4,900		5,300		4,650

*Per share data and average shares outstanding were restated for the effect of the 3-for-2 common stock split in the form of a 50% stock dividend paid December 3, 1997.

We changed our fiscal year end to December 31 from June 30, effective December 31, 2000. Accordingly, we have presented financial information for the six months ended December 31, 2000 (the transition period).

Quarterly Revenues and Income

The following table sets forth certain statements of operations data for each of the quarters indicated below, and in the opinion of management, contains all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation thereof.

	Quarter Ended		Quarter Ended		Quarter Ended		Quarter Ended
	March 31		June 30		September 30		December 31			Total
	(Dollars in thousands except for per share amounts)
Fiscal 2001
Total revenues	$	144,440	$	145,793	$	136,996	$	124,498		$	551,727
Income (loss) before income taxes	1,243		606		52		(4,665		)	(2,764		)
Income taxes (benefit)	472		233		20		(509		)	216
Net income (loss)	771		373		32		(4,156		)	(2,980		)
Net income (loss) per share (basic)	.03		.02		.00		(.17		)	(.12		)
Net income (loss) per share (diluted)	.03		.02		.00		(.17		)	(.12		)

	Quarter Ended		Quarter Ended			Quarter Ended		Quarter Ended
	September 30		December 31			March 31		June 30		Total
Six Months Ended December 31, 2000
Total revenues	$	148,571	$	139,769		N/A		N/A		$	288,340
Income (loss) before income taxes and minority interest	3,064		(12,997		)	N/A		N/A		(9,933		)
Income taxes (benefit) and minority interest	1,359		(4,990		)	N/A		N/A		(3,631		)
Net income (loss)	1,705		(8,007		)	N/A		N/A		(6,302		)
Net income (loss) per share (basic)	.08		(.35		)	N/A		N/A		(.28		)
Net income (loss) per share (diluted)	.08		(.35		)	N/A		N/A		(.28		)

Fiscal 2000
Total revenues	$	149,045	$	138,869		$	132,455	$	138,362	$	558,731
Income before income taxes and minority interest	6,190		3,828			2,803		2,736		15,557
Income taxes and minority interest	2,414		1,494			1,073		788		5,769
Net income	3,776		2,334			1,730		1,948		9,788
Net income per share (basic)	.17		.10			.08		.09		.43
Net income per share (diluted)	.17		.10			.08		.09		.43

Fiscal 1999
Total revenues	$	158,464	$	152,986		$	154,128	$	154,578	$	620,156
Income before income taxes	10,193		8,136			9,357		9,582		37,268
Income taxes	4,067		3,175			3,652		3,641		14,535
Net income	6,126		4,961			5,705		5,941		22,733
Net income per share (basic)	.27		.22			.26		.26		1.01
Net income per share (diluted)	.27		.22			.25		.26		1.00

Corporate Information

Board of Directors	Officers	10-K Available

Frederick W. Lang	Frederick W. Lang	A copy of the
Chairman and	Chairman and	Report on Form 10-K, filed with the
Chief Executive Officer	Chief Executive Officer	Securities and Exchange Commission, is
		available to security holders without
		charge upon request to the Treasurer at:
Michael J. LaVelle	Michael J. LaVelle	Analysts International Corporation,
President and	President and	3601 West 76th Street, Minneapolis,
Chief Operating Officer	Chief Operating Officer	Minnesota 55435-3000.

John D. Bamberger	Sarah P. Spiess	Stock Transfer Agent
Senior Vice President, Sales	Executive Vice President
and Operations		EquiServe Trust Company, N.A.
		P.O. Box 43011
	Paulette M. Quist	Providence, Rhode Island 02940-3011
Willis K. Drake	Senior Vice President,	Shareholder Inquiries:
Retired Chairman of the Board	National Business Practices	800-426-5523
Data Card Corporation		http://www.equiserve.com
	John D. Bamberger
Margaret A. Loftus	Senior Vice President,	Independant Auditors
Principal	Sales and Operations
Loftus Brown-Wescott, Inc.		Deloitte & Touche LLP
		Minneapolis, Minnesota
	Colleen M. Davenport
Edward M. Mahoney	Secretary and General Counsel
Retired Chairman and		Quarterly Reports
Chief Executive Officer
Fortis Investors, Inc. and	Charles E. Jones	Analysts International Corporation
Fortis Advisers, Inc.	Assistant Secretary and	mails quarterly earnings releases to
	Associate General Counsel	registered shareholders.

Robb L. Prince
Retired Vice President	Marti R. Charpentier	World Wide Web Address
and Treasurer	Vice President,
Jostens, Inc.	Finance and Treasurer	www.analysts.com

	David J. Steichen
	Controller and Assistant Treasurer

Analysts International Corporation

3601 West 76th Street

Minneapolis, Minnesota 55435-3000

Telephone: 952 835-5900

www.analysts.com

EX-21 9 j3255_ex21.htm EX-21 Exhibit 21

Exhibit 21

Subsidiaries of Registrant

Year Ended December 31, 2001

Subsidiaries		State or Jurisdiction of Incorporation		Percentage of Voting Securities Owned
AiC Analysts Limited		United Kingdom		100.0%

EX-23 10 j3255_ex23.htm EX-23 Exhibit 23

Exhibit 23

INDEPENDENT AUDITORS’ CONSENT

We consent to the incorporation by reference in Registration Statement Nos. 33-19180, 33-89896, 33-25244 and 33-87626 of Analysts International Corporation on Form S-8 of our report dated February 27, 2002 (March 18, 2002 as to the last paragraph of note E), incorporated by reference in this Annual Report on Form 10-K of Analysts International Corporation for the year ended December 31, 2001.


/s/ Deloitte & Touche LLP

Minneapolis, Minnesota

March 29, 2002

EX-24 11 j3255_ex24.htm EX-24 Exhibit 24

Exhibit 24

ANALYSTS INTERNATIONAL

POWER OF ATTORNEY

TO SIGN

ANNUAL REPORT ON FORM 10-K

KNOW ALL PEOPLE BY THESE PRESENTS, that the undersigned hereby appoints F.W. Lang or Colleen M. Davenport, or either of them, my true and lawful attorneys in fact, for me and in my name, place and stead, to sign and affix my name as a Director of Analysts International to the Annual Report on Form 10-K for the year ended December 31, 2001 and all amendments thereto to be filed by said Company with the Securities and Exchange Commission, Washington, D.C. as required by Section 13 of the Securities Exchange Act of 1934, as amended granting and giving unto said attorneys in fact, or any one of them, full authority and power to do and perform any and all acts necessary or incidental to the performance and execution of powers herein expressly granted, with full power to do and perform all acts authorized hereby as fully to all intents and purposes as I might or could do if personally present, with full power of substitution.

IN TESTIMONY WHEREOF, I have hereunto set my hand this 19^th day of March, 2002.

		/s/ Willis K. Drake
		Willis K. Drake

STATE OF MINNESOTA	)
	) ss
COUNTY OF HENNEPIN	)

On the 19^th day of March, 2002, before me, personally came Willis K. Drake to me known to be the person described in and who executed the foregoing instrument and acknowledged that he executed the same as his free act and deed.

		/s/ Carrie B. Schoewe
		Notary Public

ANALYSTS INTERNATIONAL

POWER OF ATTORNEY

TO SIGN

ANNUAL REPORT ON FORM 10-K

IN TESTIMONY WHEREOF, I have hereunto set my hand this 19^th day of March, 2002.

		/s/ Margaret Loftus
		Margaret Loftus

STATE OF MINNESOTA	)
	) ss
COUNTY OF HENNEPIN	)

On the 19^th day of March, 2002, before me, personally came Margaret Loftus to me known to be the person described in and who executed the foregoing instrument and acknowledged that he executed the same as his free act and deed.

		/s/ Carrie B. Schoewe
		Notary Public

ANALYSTS INTERNATIONAL

POWER OF ATTORNEY

TO SIGN

ANNUAL REPORT ON FORM 10-K

IN TESTIMONY WHEREOF, I have hereunto set my hand this 18^th day of March, 2002.

		/s/ Edward M. Mahoney
		Edward M. Mahoney

STATE OF MINNESOTA	)
	) ss
COUNTY OF HENNEPIN	)

On the 18^th day of March, 2002, before me, personally came Edward M. Mahoney to me known to be the person described in and who executed the foregoing instrument and acknowledged that he executed the same as his free act and deed.

		/s/ Carrie B. Schoewe
		Notary Public

ANALYSTS INTERNATIONAL

POWER OF ATTORNEY

TO SIGN

ANNUAL REPORT ON FORM 10-K

IN TESTIMONY WHEREOF, I have hereunto set my hand this 19^th day of March, 2002.

		/s/ Robb L. Prince
		Robb L. Prince

STATE OF MINNESOTA	)
	) ss
COUNTY OF HENNEPIN	)

On the 19^th day of March, 2002, before me, personally came Robb L. Prince to me known to be the person described in and who executed the foregoing instrument and acknowledged that he executed the same as his free act and deed.

		/s/ Carrie B. Schoewe
		Notary Public

ANALYSTS INTERNATIONAL

POWER OF ATTORNEY

TO SIGN

ANNUAL REPORT ON FORM 10-K

IN TESTIMONY WHEREOF, I have hereunto set my hand this 25^th day of March, 2002.

		/s/ John D. Bamberger
		John D. Bamberger

STATE OF MINNESOTA	)
	) ss
COUNTY OF HENNEPIN	)

On the 25^th day of March, 2002, before me, personally came John D. Bamberger to me known to be the person described in and who executed the foregoing instrument and acknowledged that he executed the same as his free act and deed.

		/s/ Carrie B. Schoewe
		Notary Public

ANALYSTS INTERNATIONAL

POWER OF ATTORNEY

TO SIGN

ANNUAL REPORT ON FORM 10-K

IN TESTIMONY WHEREOF, I have hereunto set my hand this 15^th day of March, 2002.

		/s/ Michael J. LaVelle
		Michael J. LaVelle

STATE OF MINNESOTA	)
	) ss
COUNTY OF HENNEPIN	)

On the 15^th day of March, 2002, before me, personally came Michael J. LaVelle to me known to be the person described in and who executed the foregoing instrument and acknowledged that he executed the same as his free act and deed.

		/s/ Carrie B. Schoewe
		Notary Public