10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2012

or

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

For the transition period from             to            

Commission File Number: 1-33981

ANALYSTS INTERNATIONAL CORPORATION

(Exact name of registrant as specified in its charter)

Minnesota	41-0905408
(State of Incorporation)	(IRS Employer Identification No.)
7700 France Avenue S
Minneapolis, MN	55435
(Address of Principal Executive Offices)	(Zip Code)

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

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 x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated Filer o
Non-accelerated Filer o	Smaller Reporting Company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No x

As of May 3, 2012, 5,074,107 shares of the registrant’s common stock were outstanding.

ANALYSTS INTERNATIONAL CORPORATION

INDEX

Part I.	FINANCIAL INFORMATION.	3
Item 1.	Financial Statements (Unaudited)	3
	Consolidated Balance Sheets as of March 31, 2012 and December 31, 2011	3
	Consolidated Statements of Operations for the Three Months Ended March 31, 2012 and April 2, 2011	4
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2012 and April 2, 2011	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	17
Item 4T.	Controls and Procedures	17
Part II.	OTHER INFORMATION	17
Item 1.	Legal Proceedings	17
Item 1A.	Risk Factors	17
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	17
Item 3.	Defaults Upon Senior Securities	17
Item 4.	Remove and Reserved	17
Item 5.	Other Information	17
Item 6.	Exhibits	18
Signatures		19
Exhibit Index		20

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Analysts International Corporation

Consolidated Balance Sheets

(Unaudited)

	March 31,			December 31,
(In thousands, except share and per share amounts)	2012			2011
ASSETS
Current assets:
Cash and cash equivalents	$	2,014		$	5,135
Accounts receivable, less allowance for doubtful accounts of $573 and $644, respectively	21,166			18,016
Prepaid expenses and other current assets	492			489
Total current assets	23,672			23,640
Property and equipment, net of accumulated depreciation of $7,686 and $7,535, respectively	2,376			2,095
Other assets	438			457
Total assets	$	26,486		$	26,192
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	3,263		$	3,847
Salaries and benefits	2,756			2,078
Deferred revenue	397			285
Deferred compensation	68			136
Restructuring accrual	241			442
Other current liabilities	658			664
Total current liabilities	7,383			7,452
Non-current liabilities:
Deferred compensation	339			379
Restructuring accrual	22			28
Total non-current liabilities	361			407
Shareholders’ equity:
Common stock, par value $0.10 a share; authorized 24,000,000 shares; issued and outstanding 5,074,107 and 5,032,759, respectively	507			503
Additional capital	26,371			26,164
Accumulated deficit	(8,136		)	(8,334		)
Total shareholders’ equity	18,742			18,333
Total liabilities and shareholders’ equity	$	26,486		$	26,192

See notes to consolidated financial statements.

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Analysts International Corporation

Consolidated Statements of Operations

(Unaudited)

	Three Months Ended
	March 31,			April 2,
(In thousands, except per share amounts)	2012			2011
Revenues	$	26,723		$	26,312
Cost of revenues	20,347			20,053
Gross profit	6,376			6,259
Selling, administrative and other operating costs	6,186			6,050
Total operating expenses	6,186			6,050
Operating income	190			209
Interest expense	(1		)	—
Income before income taxes	189			209
Income tax (benefit) expense	(9		)	7
Net income	$	198		$	202
Per common share (basic):
Net income	$	0.04		$	0.04
Per common share (diluted):
Net income	$	0.04		$	0.04
Weighted-average shares outstanding:
Basic	5,044			4,995
Diluted	5,114			5,007

See notes to consolidated financial statements.

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Analysts International Corporation

Consolidated Statements of Cash Flows

(Unaudited)

	Three Months Ended
	March 31,			April 2,
(In thousands)	2012			2011
Cash flows from operating activities:
Net income	$	198		$	202
Adjustments to net income:
Depreciation	151			190
Share based compensation	191			236
Changes in:
Accounts receivable	(3,150		)	(539		)
Prepaid expenses and other assets	16			(305		)
Accounts payable	(473		)	(16		)
Salaries and benefits	657			1,172
Deferred revenue	112			(77		)
Deferred compensation	(108		)	(117		)
Restructuring accrual	(207		)	(111		)
Other accrued liabilities	(6		)	(56		)
Net cash (used in) provided by operating activities	(2,619		)	579
Cash flows from investing activities:
Expended for property and equipment additions	(543		)	(37		)
Net cash used in investing activities	(543		)	(37		)
Cash flows from financing activities:
Proceeds from line of credit	1,500			—
Payments on line of credit	(1,500		)	—
Proceeds from stock option exercises	41			—
Payment of insurance policy loan	—			(486		)
Payment of capital lease obligation	—			(45		)
Net cash provided by (used in) financing activities	41			(531		)
Net (decrease) increase in cash and cash equivalents	(3,121		)	11
Cash and cash equivalents at beginning of period	5,135			4,328
Cash and cash equivalents at end of period	$	2,014		$	4,339
Cash paid during the year for:
Income taxes	$	—		$	4
Interest	$	1		$	—
Non-cash investing and financing activities:
Capital expenditures included in accounts payable	$	181		$	19

See notes to consolidated financial statements.

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Analysts International Corporation

Notes to Consolidated Financial Statements

(Unaudited)

1.  Organization and Nature of Business

Analysts International Corporation (“AIC,” “Company,” “we,” “us,” or “our”) is an information technology (“IT”) services company. We employ approximately 900 IT professionals, management and administrative staff and are focused on serving the IT needs of mid-market to Fortune 500 companies and government agencies across North America. AIC was incorporated in Minnesota in 1966 and our corporate headquarters is located in Minneapolis, Minnesota. For a more complete description of our Company, please refer to our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

2.  Summary of Significant Accounting Policies

Basis of Consolidation

The accompanying unaudited Consolidated Financial Statements of AIC have been prepared on the accrual basis of accounting and in accordance with the requirements of the Securities and Exchange Commission (“SEC”) for interim financial reporting. As permitted under these rules, certain footnotes and other financial information that are normally required by accounting principles generally accepted in the United States (“U.S. GAAP”) can be condensed or omitted. The Consolidated Financial Statements included in this document reflect, in the opinion of our management, all adjustments (consisting of only normal recurring adjustments, except as noted elsewhere in the Notes to Consolidated Financial Statements) necessary for fair presentation of the results of operations for the interim periods presented. The following notes should be read in conjunction with the accounting policies and other disclosures in the Notes to the Consolidated Financial Statements incorporated by reference in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011. Revenues, expenses, cash flows, assets and liabilities can and do vary during the year. Therefore, interim results are not necessarily indicative of the results to be expected for the full fiscal year.

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.

Change in Fiscal Year

Beginning on January 1, 2012, we changed from a 52—53 week fiscal year ending on the Saturday closest to December 31 to a calendar year ending as of the last day of the month. As a result of the change, our first, second, third and fourth quarters will now end on March 31, June 30, September 30 and December 31, respectively.

3.   Property and Equipment

Property and equipment are stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets for financial statement purposes and accelerated methods for income tax purposes. The balances of our Property and equipment as of March 31, 2012 and December 31, 2011 and the estimated useful lives used in the financial statements are as follows:

(In thousands)	March 31, 2012			December 31, 2011			Useful lives (in years)
Leasehold improvements	$	304		$	247		Shorter of useful life or lease term
Office furniture & equipment	1,808			1,808			5 - 10
Computer hardware	1,605			1,569			2 - 5
Software	6,005			4,574			2 - 5
Work in process	340			1,432
	10,062			9,630
Accumulated depreciation	(7,686		)	(7,535		)
Property and equipment, net	$	2,376		$	2,095

In the third quarter of fiscal 2011, the Company commenced a project to replace its current financial and human resource information systems with a fully integrated enterprise resource planning (“ERP”) solution. The project to implement the ERP solution resulted in approximately $1.5 million of costs being capitalized in fiscal 2011. During the first quarter of fiscal 2012, the Company capitalized an

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additional $0.3 million of costs related to the ERP solution.

4.  Financing Agreement

Revolving Credit Facility

On February 22, 2012, we entered into the Third Amendment to the Amended Credit Facility (“Third Amendment”) with Wells Fargo. The Third Amendment increased the total availability of the Amended Credit Facility, which fluctuates based on our level of eligible accounts receivable, by approximately $4.0 million. In addition, the Third Amendment increased our minimum trailing twelve months earnings before taxes financial covenant from a loss of $0.8 million to earnings of $0.25 million. Finally, the Third Amendment added an additional financial covenant which will require us to maintain a minimum excess borrowing base availability of not less than $3.0 million for each reporting period in 2012 and thereafter. Under the Amended Credit Facility, Wells Fargo will continue to advance up to $15.0 million to us for working capital purposes and to facilitate the issuance of letters of credit.

The Amended Credit Facility carries an interest rate equal to the three-month LIBOR rate plus 1.50% - 2.50%, depending on our operating results. The Credit Facility had a one-time origination fee of $150,000, the balance of which is being amortized over the new term of the Amended Credit Facility. The annual unused line fee varies between 0.25% - 0.375%, depending on our operating results, on the daily average unused amount. The maturity date of the Amended Credit Facility is September 30, 2014 and may be terminated or reduced by us on 90 days notice in exchange for a termination fee of 1.0% of the maximum line amount or reduction of the maximum line amount through September 30, 2011, 0.50% thereafter until September 30, 2012, 0.25% thereafter until September 30, 2013 and no fee in the final year. Borrowings under the Amended Credit Facility are secured by all of our assets.

The Amended Credit Facility requires us to meet certain levels of year-to-date earnings before taxes. For 2012 and thereafter, we are required to exceed a minimum trailing twelve months earnings before taxes of $0.25 million. The Amended Credit Facility limits our annual capital expenditures to $2.0 million. For 2012 and thereafter, we will also be required to maintain a minimum excess borrowing base availability of not less than $3.0 million. The Amended Credit Facility contains customary affirmative covenants, including covenants regarding annual, quarterly and projected financial reporting requirements, collateral and insurance maintenance, and compliance with applicable laws and regulations. Further, the facility contains customary negative covenants limiting our ability to grant liens, incur indebtedness, make investments, repurchase our stock, create new subsidiaries, sell assets or engage in any change of control transaction without the consent of Wells Fargo.

Upon an event of default, Wells Fargo may terminate the facility or declare the entire amount outstanding under the facility to be immediately due and payable and exercise other rights under the agreement. The events of default under the facility include, among other things, payment defaults, breaches of covenants, a change in control and bankruptcy events.

As of March 31, 2012, we were in compliance with all the requirements and had no borrowings outstanding under the Amended Credit Facility. Total availability of the Amended Credit Facility, which fluctuates based on our level of eligible accounts receivable, was $9.8 million as of March 31, 2012.

5.   Restructuring Costs and Other Severance Related Costs

A summary of the restructuring charges and subsequent activity in the restructuring accrual for the three months ended March 31, 2012 is as follows:

	Workforce			Office Closure/
(In thousands)	Reduction			Consolidation			Total
Balance as of December 31, 2011	$	179		$	291		$	470
Additional restructuring charges	—			—			—
Cash expenditures	(59		)	(148		)	(207		)
Balance as of March 31, 2012	$	120		$	143		$	263

We had no restructuring or other severance related costs during the first quarters of either fiscal 2011 or 2012.

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6.  Shareholders’ Equity

									Total
	Outstanding	Common		Additional		Accumulated			Shareholders’
(In thousands, except share amounts)	Shares	Stock		Capital		Deficit			Equity
Balances as of December 31, 2011	5,032,759	$	503	$	26,164	$	(8,334	)	$	18,333
Common stock issued	28,098	3		132		—			135
Share based compensation expense	—	—		28		—			28
Stock option exercises	13,250	1		47		—			48
Net income	—	—		—		198			198
Balance as of March 31, 2012	5,074,107	$	507	$	26,371	$	(8,136	)	$	18,742

7. Share Based Compensation

Total share based compensation expense for the first quarters of 2012 and fiscal 2011 was approximately $0.2 million and includes compensation expense related to both stock options and stock awards.

In the first quarter of 2012, we recorded a reduction of the tax benefit of $13,000 and for the first quarter of fiscal 2011, we recorded a tax benefit of $13,000. The tax benefit is offset against our valuation allowance for our deferred tax asset.

Stock Options

The following table summarized the stock option activity for the three months ended March 31, 2012:

	Options		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding on January 1, 2012	314,700		$	5.11	7.75	$	436,774
Granted	53,800		5.78
Exercised	(13,250	)	3.60
Forfeited/Cancelled	(10,950	)	3.73
Outstanding on March 31, 2012	344,300		$	5.25	7.88	$	367,630
Vested or expected to vest at March 31, 2012	319,240		5.30		7.77	$	344,238
Exercisable on March 31, 2012	209,000		5.78		7.09	$	215,461

The total fair value of the stock options that vested during the three months ended March 31, 2012 was approximately $123,000.

For the three month period ended March 31, 2012, 13,250 options were exercised and the total intrinsic value of options exercised (which is the amount by which the stock price exceeded the exercise price of the options on the date of exercise) was approximately $30,000. The income tax benefit realized from stock option exercises was nil. There were no stock options exercised for the three months ended April 2, 2011.

Total stock option expense for the three months ended March 31, 2012 was approximately $0.1 million. As of March 31, 2012, there was approximately $0.2 million of unrecognized share based compensation expense related to unvested stock that are expected to vest over a weighted-average period of approximately 1.5 years. Options to purchase 344,300 were outstanding at March 31, 2012.

Stock Awards

The following table summarizes the stock award activity for the three months ended March 31, 2012:

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	Shares		Weighted Average Grant Date Fair Value
Non-vested at January 1, 2012	88,126		$	4.24
Granted	46,200		5.78
Vested	(33,072	)	(4.90		)
Forfeited	(3,750	)	(4.44		)
Non-vested at March 31, 2012	97,504		$	4.73

The total fair value of stock awards that vested during the three months ended March 31, 2012 was approximately $163,000, respectively.

Total stock award expense for the three months ended March 31, 2012 was $0.1 million.

As of March 31, 2012, there was $0.3 million of unrecognized compensation expense related to unvested stock awards that were expected to vest over a weighted average period of 1.6 years.

8.  Net Income Per Share

Basic and diluted income per share is presented in accordance with ASC Topic 260, Earnings Per Share. Basic income per share excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period.  Diluted income per share includes dilutive potential common shares outstanding and is computed by dividing income available to common stockholders by the weighted-average number of common and common equivalent shares outstanding for the period.

For the three-month period ended March 31, 2012, anti-dilutive weighted average shares of 123,768 were excluded from the calculation of weighted average number of common equivalent shares outstanding. For the three-month period ended April 2, 2011, anti-dilutive weighted average shares of 260,352 were excluded from the calculation of weighted average number of common equivalent shares outstanding. The computation of basic and diluted income per share for the three months ended March 31, 2012 and April 2, 2011 is as follows:

	Three Months Ended
	March 31		April 2,
(In thousands except per share amounts)	2012		2011
Net income	$	198	$	202
Weighted-average number of common shares outstanding	5,044		4,995
Dilutive effect of potential common shares outstanding	69		12
Weighted-average number of common and common equivalent shares outstanding	5,114		5,007
Net income per share:
Basic	$	0.04	$	0.04
Diluted	$	0.04	$	0.04

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with our consolidated financial statements and related notes. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated due to various factors discussed under “Forward-Looking Statements” and elsewhere in this Quarterly Report on Form 10-Q, including the “Risk Factors” described in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

A.Our Business

Analysts International Corporation (“AIC,” “Company,” “we,” “us,” or “our”) is a national information technology (“IT”) services company. We employ approximately 900 IT professionals, management and administrative staff and are focused on serving the IT needs of mid-market to Fortune 500 companies and government agencies across North America. AIC was incorporated in Minnesota in 1966 and our corporate headquarters is located in Minneapolis, Minnesota.

B.2012 Strategic Plan

In 2012, our plan is to continue our focus on investing for growth in our business while delivering profitability. Our plan includes:

·Leveraging our fiscal 2011 investments in sales and recruiting personnel and continue to invest in our core markets with the highest potential for growth;

·Leveraging strategic client relationships and expand our national sales capabilities; and

·Continuing to grow our consultant community with a focus on higher-end IT skill sets.

AIC has a long history of serving mid-market to Fortune 500 companies throughout the country. With our renewed focus on providing IT services to our national clients with multiple buying locations around the country, we intend to expand our presence within these clients.

In fiscal 2011, we expanded our sales and recruiting team in our core markets and began to realize the return on these investments. In 2012, these investments will continue to drive revenue growth. We will also make additional investments in those markets where we believe we have the highest potential for growth. We expect to exceed the $109.1 million in revenue we achieved in 2011.

In 2012, we expect to maintain a gross margin rate in a range of 23% to 25%. While we continue to invest in our business in areas such as IT and making strategic investments in our core markets, we anticipate continued profitability for 2012.

For the first quarter of 2012, we generated net income of $0.2 million and maintained a gross margin rate of 23.9%.

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C.Business Developments

Leadership

On February 22, 2011, our Board of Directors appointed Brittany B. McKinney as our President and Chief Executive Officer and a nominee for Director of our Company. Ms. McKinney served as our Interim President and Chief Executive Officer since September 2010. Previously, Ms. McKinney was our Vice President of Corporate Development and the Senior Vice President of the Central Region.

On May 4, 2011, Randy W. Strobel resigned from his employment as the Company’s Senior Vice President, Chief Financial Officer which was effective on August 5, 2011; however, Mr. Strobel remained an employee through August 31, 2011.

On August 3, 2011, the Company and William R. Wolff entered into an Employment Agreement with an effective date of August 8, 2011, which provided that Mr. Wolff will be employed as Senior Vice President, Chief Financial Officer of the Company. Prior to this appointment, since December 2009, Mr. Wolff served as Chief Executive for a startup video hosting website for youth sports, TeamKLPZ, LLC of Burnsville, Minnesota.

Enterprise Resource Planning (“ERP”) Solution

On August 18, 2011, our Board of Directors approved a project to replace our financial and human resource information systems with a fully integrated ERP solution. The ERP solution will allow us to streamline our business processes and allow for cost efficient scalability as well as improve management reporting and analysis. The initial implementation of the ERP solution was completed in early fiscal 2012 and resulted in approximately $1.5 million of costs being capitalized in fiscal 2011. Through the end of first quarter of 2012, we have incurred additional capitalized expenditures related to the ERP solution of approximately $0.3 million.

Change in Fiscal Year

Beginning on January 1, 2012, we changed from a 52 — 53 week fiscal year ending on the Saturday closest to December 31 (“52-53 Week Method”) to a calendar year ending as of the last day of the month (“Calendar Year Method”). As a result of the change, our first, second, third and fourth quarters will now end on March 31, June 30, September 30 and December 31, respectively.

In 2012, the 52—53 Week Method would have resulted in 253 billing days and the Calendar Year Method will result in 254 billing days. In fiscal 2011, there were 254 billing days. The additional billing day provided by the change to the Calendar Year Method will take place in the fourth quarter of fiscal 2012. There are no variances between the 52-53 Week Method and the Calendar Year Method in the number of billing days for the first, second or third quarters of 2012.

In the first quarter of fiscal 2012, there were 64 billing days compared to 65 billing days in fiscal 2011.

Revolving Credit Facility

On February 23, 2011, we entered into the First Amendment to the Credit and Security Agreement (“Amended Credit Facility”) with Wells Fargo Bank, National Association (“Wells Fargo”), which amended the terms of the Credit Facility and extended the maturity date to September 30, 2014. Under the Amended Credit Facility, Wells Fargo will continue to advance up to $15.0 million to us for working capital purposes and to facilitate the issuance of letters of credit.

On September 21, 2011, we entered into the Second Amendment to the Amended Credit Facility with Wells Fargo, which increased our annual capital expenditures covenant for fiscal 2011 from $2.0 million to $2.5 million.

On February 22, 2012, we entered into the Third Amendment to the Amended Credit Facility (“Third Amendment”) with Wells Fargo. The Third Amendment increased the total availability of the Amended Credit Facility, which fluctuates based on our level of eligible accounts receivable, by approximately $4.0 million. In addition, the Third Amendment increased our minimum trailing twelve months earnings before taxes financial covenant from a loss of $0.8 million to earnings of $0.25 million. Finally, the Third Amendment added an additional financial covenant which will require us to maintain a minimum excess borrowing base availability of not less than $3.0 million for each reporting period in fiscal 2012 and thereafter.

Under the Amended Credit Facility, Wells Fargo will continue to advance up to $15.0 million to us for working capital purposes and to facilitate the issuance of letters of credit.

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D.Overview of First Quarter Fiscal 2012 Operations

Our revenues increased $0.4 million, or 1.6%, from the first quarter of fiscal 2011. When compared to the prior year quarter, the number of billable hours increased 1.5% and was partially offset by a 0.2% decrease in our average bill rate.

The gross margin rate increased 10 basis points from the prior year quarter to 23.9%.

SG&A expenses increased $0.1 million, or 2.2%, in first quarter of 2012 over the prior year quarter as a result of an increase in personnel expenses partially offset by non-personnel cost reductions.

We used cash from operations of $2.6 million during the first quarter of 2012 due to our days sales outstanding (DSO) increasing from 61 at the end of fiscal 2011 to 68 at March 31, 2012 as a result of the implementation of the ERP solution, which caused a delay in our normal billing cycles. As of March 31, 2012, we had a cash balance of $2.0 million and no borrowings under our revolving line of credit.

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RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2012 VS. APRIL 2, 2011

The following table illustrates the relationship between revenue and expense categories along with a count of employees and technical consultants as of March 31, 2012 and April 2, 2011.

	Three Months Ended					Three Months Ended
	March 31, 2012					April 2, 2011
				% of				% of		Increase (Decrease)
(Dollars in thousands)	Amount			Revenue		Amount		Revenue		Amount			%
Revenues	$	26,723		100.0	%	$	26,312	100.0	%	$	411		1.6	%
Cost of revenues	20,347			76.1		20,053		76.2		294			1.5
Gross profit	6,376			23.9		6,259		23.8		117			1.9
Selling, administrative and other operating costs	6,186			23.1		6,050		23.0		136			2.2
Total operating expenses	6,186			23.1		6,050		23.0		136			2.2
Operating income	190			0.7		209		0.8		(19		)	(9.1	)
Interest expense	(1		)	(0.0	)	—		0.0		1			NM
Income before income taxes	189			0.7		209		0.8		(20		)	(9.6	)
Income tax (benefit) expense	(9		)	(0.0	)	7		0.0		(16		)	(228.6	)
Net income	$	198		0.7	%	$	202	0.8	%	$	(4	)	(2.0	)%
Personnel:
Management and Administrative	116					116				0			0.0	%
Consultants	794					803				(9		)	(1.1	)%

Revenues

Revenues increased $0.4 million, or 1.6%, from the comparable period a year ago. The increase in our first quarter of 2012 revenues over the prior year is due to a 1.5% ($0.4 million) increase in the number of hours billed which was partially offset by a 0.2% ($0.1 million) decrease in our average billing rates.

In the first quarter of 2012, there were 64 billing days compared to 65 billing days in fiscal 2011.

Cost of Revenues

Cost of revenues represents our payroll and benefit costs associated with our billable consultants and our cost of using sub-contractors. This category of expense as a percentage of revenues decreased 10 basis points to 76.1%, in the first quarter of 2012 compared to the prior year period.

Selling, Administrative and Other Operating Costs

Selling, Administrative and Other Operating Costs (“SG&A”) costs include management and administrative salaries, salaries and commissions paid to account executives and recruiters, benefits, location costs, and other administrative costs.  This category of costs increased approximately $0.1 million from the comparable period in 2011 and represented 23.1% of revenue for the first quarter of 2012 compared to 23.0% in fiscal 2011. In the first quarter of 2012, SG&A expenses increased as a result of an increase in sales and recruiting expenses of $0.2 million which was partially offset by general expense reductions of $0.1 million.

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Interest Expense

In the first quarter of 2012, the implementation of the ERP solution caused a delay in our normal billing cycles which caused an increase in our operating working capital. As a result, we borrowed and repaid $1.5 million on our Amended Credit Facility. Our average borrowings for the first quarter of 2012 were approximately $49,000. We had no borrowings during the first quarter of fiscal 2011.

Income Taxes

In the first quarter of 2012, our income tax benefit was the result of a foreign tax refund and more than offset our income tax expense, which reflects the utilization of net operating loss carryforwards to offset taxable income. In the first quarter of fiscal 2011, our income tax expense reflects the utilization of net operating loss carryforwards to offset taxable income.

We currently have approximately $24.1 million of operating loss carryforwards available to offset federal and state taxes. For both the first quarters of 2012 and fiscal 2011, we recorded accruals for amounts due for certain state income taxes and changes in our reserves for tax obligations. We recorded no additional income tax expense or benefit associated with our net operating income or loss because any tax expense or benefit that would otherwise have been recorded has been negated by adjusting the valuation allowance against our deferred tax asset.  If, however, we successfully return to profitability to a point where future realization of deferred tax assets, which are currently reserved, becomes “more likely than not,” we may be required to reverse the existing valuation allowance to realize the benefit of these assets.

Personnel

Our IT professional staff levels, which includes sub-contractors, finished the first quarter of fiscal 2012 at 794, a 1.1% decrease against the comparable period last year.

Certain Information Concerning Off-Balance Sheet Arrangements

As of March 31, 2012, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We are, therefore, not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.

14

Liquidity and Capital Resources

At March 31, 2012, we had $2.0 million of cash and cash equivalents on hand. In addition to our cash balances, we have access to our Amended Credit Facility with $15 million of maximum availability, under which our borrowing availability was $9.8 million as of March 31, 2012. Working capital was $16.3 million at March 31, 2012, up approximately $0.1 million from December 31, 2011. The ratio of current assets to current liabilities increased slightly to 3.21 at March 31, 2012 compared to 3.17 at December 31, 2011.

Historically, we have been able to support internal growth in our business with internally generated funds and through the use of our credit facility. We believe our existing working capital and availability under our Amended Credit Facility with Wells Fargo will be sufficient to support the cash flow needs of our business in 2012. We expect to be able to comply with the requirements of our credit agreement; however, failure to do so could affect our ability to obtain necessary working capital and could have a material adverse effect on our business.

The following table summarizes the major captions from our Consolidated Statements of Cash Flows:

	Three Months Ended
	March 31,			April 2,
(In thousands)	2012			2011
Cash provided by (used in):
Net cash (used in) provided by operating activities	$	(2,619	)	$	579
Net cash (used in) provided by investing activities	(543		)	(37		)
Net cash (used in) provided by financing activities	41			(531		)
Net (decrease) increase in cash and cash equivalents	$	(3,121	)	$	11

Operating Activities

Cash used in operating activities for the three months ended March 31, 2012 was $2.6 million compared to cash provided by operating activities of $0.6 million for the three months ended April 2, 2011.

The elements of cash used in operations for the three months ended March 31, 2012 are as follows: net income of $0.2 million and non-cash charges of $0.3 million which was more than offset by an increase in operating working capital of approximately $3.1 million.

The major component of the increase in operating working capital during the first quarter of 2012 was a $3.2 million increase in our accounts receivable. The 17.5% increase in accounts receivable from December 31, 2011 is due to our DSO increasing 7 days, or 11.5%, from 61 at the end of fiscal 2011 to 68 at March 31, 2012 as a result of the implementation of the ERP solution which caused a delay in our normal billing cycles.

In the prior year quarter, the elements of cash provided by operating activities were as follows: net income of $0.2 million and non-cash charges of $0.4 million which was slightly offset by an increase in operating working capital. Our DSO at the end of the prior year quarter was 60 days.

Investing Activities

Cash used in investing activities for the three months ended March 31, 2012 was $0.5 million compared to $37,000 for the three months ended April 2, 2011.

In the first quarter of 2012, we made capital expenditures of $0.5 million, the majority of which related to the ERP solution which we implemented in early 2012. In the first quarter of fiscal 2011, we made capital expenditures of $37,000. These capital expenditures have been recorded in our Property and equipment, net of accumulated depreciation balance as reported in our Consolidated Balance Sheets.

Financing Activities

Cash provided by financing activities for the three months ended March 31, 2012 was $41,000 compared to cash used in financing activities of $0.5 million for the three months ended April 2, 2011.

In the first quarter of 2012, we borrowed and repaid $1.5 million on our Amended Credit Facility. Our average borrowings for the first

15

quarter of 2012 were approximately $49,000.

During the first quarter of fiscal 2011, we paid off a loan on a Company owned life insurance policy of approximately $0.5 million. The Company owned life insurance policy is reported in Other assets in our Consolidated Balance Sheets.

On February 22, 2012, we entered into the Third Amendment to the Amended Credit Facility (“Third Amendment”) with Wells Fargo. The Third Amendment increased the total availability of the Amended Credit Facility, which fluctuates based on our level of eligible accounts receivable, by approximately $4.0 million. In addition, the Third Amendment increased our minimum trailing twelve months earnings before taxes financial covenant from a loss of $0.8 million to earnings of $0.25 million. Finally, the Third Amendment added an additional financial covenant which will require us to maintain a minimum excess borrowing base availability of not less than $3.0 million for each reporting period in 2012 and thereafter. Under the Amended Credit Facility, Wells Fargo will continue to advance up to $15.0 million to us for working capital purposes and to facilitate the issuance of letters of credit.

The Amended Credit Facility carries an interest rate equal to the three-month LIBOR rate plus 1.50% - 2.50%, depending on our operating results. The Credit Facility had a one-time origination fee of $150,000, the balance of which is being amortized over the new term of the Amended Credit Facility. The annual unused line fee varies between 0.25% - 0.375%, depending on our operating results, on the daily average unused amount. The maturity date of the Amended Credit Facility is September 30, 2014 and may be terminated or reduced by us on 90 days notice in exchange for a termination fee of 1.0% of the maximum line amount or reduction of the maximum line amount through September 30, 2011, 0.50% thereafter until September 30, 2012, 0.25% thereafter until September 30, 2013 and no fee in the final year. Borrowings under the Amended Credit Facility are secured by all of our assets.

The Amended Credit Facility requires us to meet certain levels of year-to-date earnings before taxes. For 2012 and thereafter, we are required to exceed a minimum trailing twelve months earnings before taxes of $0.25 million. The Amended Credit Facility limits our annual capital expenditures to $2.0 million. For 2012 and thereafter, we will also be required to maintain a minimum excess borrowing base availability of not less than $3.0 million. The Amended Credit Facility contains customary affirmative covenants, including covenants regarding annual, quarterly and projected financial reporting requirements, collateral and insurance maintenance, and compliance with applicable laws and regulations. Further, the facility contains customary negative covenants limiting our ability to grant liens, incur indebtedness, make investments, repurchase our stock, create new subsidiaries, sell assets or engage in any change of control transaction without the consent of Wells Fargo.

Upon an event of default, Wells Fargo may terminate the facility or declare the entire amount outstanding under the facility to be immediately due and payable and exercise other rights under the agreement. The events of default under the facility include, among other things, payment defaults, breaches of covenants, a change in control and bankruptcy events.

As of March 31, 2012, we were in compliance with all the requirements and had no borrowing outstanding under the Amended Credit Facility. Total availability under the Amended Credit Facility, which fluctuates based on our level of eligible accounts receivable, was $9.8 million as of March 31, 2012.

Forward-Looking Statements

This Form 10-Q contains forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995) about: (i) our strategic plans, the objectives of those strategic plans and our ability to successfully implement our strategic plans, (ii) our expectations with respect to the demand for our services and continuing pressure from clients to request lower cost offerings for IT staffing services, (iii) our expectations with respect to competition in our industry and our ability to compete, and (iv) our expectations with respect to our financial results and operating performance. You can identify these statements by the use of words such as anticipate, estimate, expect, should, project, forecast, intend, plan, believe, will and other words and terms of similar meaning or import, or variations thereof, and in connection with any discussion of future operating or financial performance.

Among the factors that could cause our estimates and assumptions as to future performance, and our actual results to differ materially, are: (i) our inability, in whole or in part, to implement or execute our strategic plans, (ii) our inability to successfully recruit and hire qualified technical personnel, (iii) our inability to successfully compete on a local and national basis with other companies in our industry or with new competitors who face limited barriers to entry in the markets we serve, (iv) our inability to maintain key client relationships or to attract new clients, (v) our inability to attract, retain or motivate key personnel, (vi) our inability to continue to reduce or leverage our operating costs, (vii) the possibility that we may incur liability for the errors or omissions of our consultants providing IT services for clients or the risk that we may be subject to claims for indemnification under contracts with our clients, (viii) our inability to comply with the requirements in our line of credit or to obtain a replacement line of credit on commercially reasonable terms, and (ix) as well as other economic, business, competitive and/or regulatory factors affecting our business generally, including those set forth in this Quarterly Report on Form 10-Q for 2012 (especially in the Management’s Discussion and Analysis and Risk Factors section thereof) and our Current Reports on Form 8-K. All forward-looking statements included in this Form 10-Q are based on information available to us as of the date hereof and largely reflect estimates and assumptions made by our management, which may be difficult to predict and beyond our control. We undertake no obligation (and expressly disclaim any such obligation) to update forward-looking statements made in this Form 10-Q to reflect events or circumstances after the date of

16

this Form 10-Q or to update reasons why actual results would differ from those anticipated in any such forward-looking statements, other than as required by law.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 4T. Controls and Procedures.

(a)Evaluation of Disclosure Controls and Procedures

We maintain a system of disclosure controls and procedures that are designed to provide reasonable assurance that information, which is required to be disclosed timely, is accumulated and communicated to management in a timely fashion. An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (“Disclosure Controls”) was performed as of the end of the period covered by this report. This evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer, Brittany B. McKinney and Chief Financial Officer, William R. Wolff. Based upon that evaluation, our Chief Executive Officer and the Chief Financial Officer concluded that these Disclosure Controls are effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act are accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure and are effective to provide reasonable assurance that such information is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms.

(b)Changes in Internal Controls

In the first quarter of 2012, we completed the initial implementation of a fully integrated ERP solution, which replaced our previous financial and human resource information systems. The implementation of the ERP solution is not the result of any identified deficiencies in our internal control over financial reporting. Our internal controls over financial reporting operated effectively during the period covered by this report.

PART II. OTHER INFORMATION

Item 1.Legal Proceedings

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

Item 1A.Risk Factors

There were no material changes in the Company’s risk factors from those previously disclosed in the Company’s Form 10-K for the period ended December 31, 2011.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3.Defaults Upon Senior Securities.

None.

Item 4.Removed and Reserved

None.

Item 5.Other Information.

None.

17

Item 6.Exhibits.

Exhibit No.	Description
^ 3.1	Articles of Incorporation, as amended (Exhibit 3-a to Annual Report on Form 10-K for fiscal year 1988, Commission File No. 0-4090, incorporated by reference).
^ 3.2	Restated Bylaws (Exhibit 3-b to Annual Report on Form 10-K for fiscal year 2000, Commission File No. 0-4090, incorporated by reference).
^ 3.3	Amendment to Articles of Incorporation to increase authorized shares to 40 million (Exhibit A to Definitive Proxy Statement dated September 5, 1996, Commission File No. 0-4090, incorporated by reference).
^ 3.4	Amendment to Articles of Incorporation to increase authorized shares to 60 million (Exhibit 3-d to Annual Report on Form 10-K for fiscal year 1998, Commission File No. 0-4090, incorporated by reference).
^ 3.5	Amendment to Articles of Incorporation to increase authorized shares to 120 million (Exhibit A to Definitive Proxy Statement dated September 8, 1998, Commission File No. 0-4090, incorporated by reference).
^3.6	Amendment to Articles of Incorporation to reduce authorized shares to 24 million.
^3.7	Amendment No. 1 to Restated Bylaws of Analysts International Corporation (Exhibit 3.1 to the Registrant’s Form 8-K filed May 25, 2010, Commission File No. 0-4090, incorporated by reference).
^3.8	Articles of Incorporation, as amended (Exhibit 3.1 to the Registrant’s Form 8-K filed December 17, 2010, Commission File No. 1-33981, incorporated by reference).
^3.9	Amendment to Bylaws of Analysts International Corporation (Exhibit 3.2 to the Registrant’s Form 8-K filed December 17, 2010, Commission File No. 1-33981, incorporated by reference).
^ 4.1	Specimen Common Stock Certificate (Exhibit 4(a) to Annual Report on Form 10-K for fiscal year 1989, Commission File No. 0-4090, incorporated by reference).
^ 4.2	Amended and Restated Rights Agreement dated as of February 27, 2008 between the Company and Wells Fargo Bank N.A. and Form of Right Certificate (Exhibit 4.1 to the Registrant’s Form 8-A12B dated February 27, 2008, Commission File No. 0-4090, incorporated by reference).
^ 4.3	Amendment No. 1 to Amended and Restated Rights Agreement dated as of May 25, 2010 by and between Analysts International Corporation and Wells Fargo Bank, N.A. (Exhibit 4.1 to the Registrant’s Form 8-K filed May 25, 2010, Commission File No. 0-4090, incorporated by reference).
^10.72	Third Amendment to Credit and Security Agreement dated as of February 22, 2012 by and between Analysts International Corporation and Wells Fargo Bank, N.A. (Exhibit 10.71 to Annual Report on Form 10-K for the period ended December 31, 2011, Commission File No. 1-33981).
+ 31.1	Certification of CEO Pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
+ 31.2	Certification of CFO Pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
++ 32	Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
++101.1	The following materials from Analysts International Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 are furnished herewith, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statement of Cash Flows, and (iv) Notes to Consolidated Financial Statements.

^	Denotes an exhibit previously filed with the Securities and Exchange Commission and incorporated herein by reference.
+	Filed herewith.
++	Furnished herewith.

18

SIGNATURES

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

	ANALYSTS INTERNATIONAL CORPORATION
	(Registrant)
Date: May 3, 2012	By:	/s/ Brittany B. McKinney
		Brittany B. McKinney
		President and Chief Executive Officer
		(Principal Executive Officer)
Date: May 3, 2012	By:	/s/ William R. Wolff
		William R. Wolff
		Senior Vice President, Chief Financial Officer
		(Principal Financial and Accounting Officer)

19

EXHIBIT INDEX

Exhibit No.	Description
^ 3.1	Articles of Incorporation, as amended (Exhibit 3-a to Annual Report on Form 10-K for fiscal year 1988, Commission File No. 0-4090, incorporated by reference).
^ 3.2	Restated Bylaws (Exhibit 3-b to Annual Report on Form 10-K for fiscal year 2000, Commission File No. 0-4090, incorporated by reference).
^ 3.3	Amendment to Articles of Incorporation to increase authorized shares to 40 million (Exhibit A to Definitive Proxy Statement dated September 5, 1996, Commission File No. 0-4090, incorporated by reference).
^ 3.4	Amendment to Articles of Incorporation to increase authorized shares to 60 million (Exhibit 3-d to Annual Report on Form 10-K for fiscal year 1998, Commission File No. 0-4090, incorporated by reference).
^ 3.5	Amendment to Articles of Incorporation to increase authorized shares to 120 million (Exhibit A to Definitive Proxy Statement dated September 8, 1998, Commission File No. 0-4090, incorporated by reference).
^3.6	Amendment to Articles of Incorporation to reduce authorized shares to 24 million.
^3.7	Amendment No. 1 to Restated Bylaws of Analysts International Corporation (Exhibit 3.1 to the Registrant’s Form 8-K filed May 25, 2010, Commission File No. 0-4090, incorporated by reference).
^3.8	Articles of Incorporation, as amended (Exhibit 3.1 to the Registrant’s Form 8-K filed December 17, 2010, Commission File No. 1-33981, incorporated by reference).
^3.9	Amendment to Bylaws of Analysts International Corporation (Exhibit 3.2 to the Registrant’s Form 8-K filed December 17, 2010, Commission File No. 1-33981, incorporated by reference).
^ 4.1	Specimen Common Stock Certificate (Exhibit 4(a) to Annual Report on Form 10-K for fiscal year 1989, Commission File No. 0-4090, incorporated by reference).
^ 4.2	Amended and Restated Rights Agreement dated as of February 27, 2008 between the Company and Wells Fargo Bank N.A. and Form of Right Certificate (Exhibit 4.1 to the Registrant’s Form 8-A12B dated February 27, 2008, Commission File No. 0-4090, incorporated by reference).
^ 4.3	Amendment No. 1 to Amended and Restated Rights Agreement dated as of May 25, 2010 by and between Analysts International Corporation and Wells Fargo Bank, N.A. (Exhibit 4.1 to the Registrant’s Form 8-K filed May 25, 2010, Commission File No. 0-4090, incorporated by reference).
^10.72	Third Amendment to Credit and Security Agreement dated as of February 22, 2012 by and between Analysts International Corporation and Wells Fargo Bank, N.A. (Exhibit 10.71 to Annual Report on Form 10-K for the period ended December 31, 2011, Commission File No. 1-33981).
+ 31.1	Certification of CEO Pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
+ 31.2	Certification of CFO Pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
++ 32	Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
++ 101.1	The following materials from Analysts International Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 are furnished herewith, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statement of Cash Flows, and (iv) Notes to Consolidated Financial Statements.

^	Denotes an exhibit previously filed with the Securities and Exchange Commission and incorporated herein by reference.
+	Filed herewith.
++	Furnished herewith.

20

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Brittany B. McKinney, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Analysts International Corporation;

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

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: May 3, 2012	By:	/s/ Brittany B. McKinney
		Brittany B. McKinney
		President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, William R. Wolff, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Analysts International Corporation;

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

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d - 15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: May 3, 2012	By:	/s/ William R. Wolff
		William R. Wolff
		Senior Vice President, Chief Financial Officer

EX-32

EXHIBIT 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Analysts International Corporation (the “Company”) on Form 10-Q for the period ended March 31, 2012 as filed with the Securities and Exchange Commission (the “Report”), the undersigned, Brittany B. McKinney, President and Chief Executive Officer of the Company, and William R. Wolff, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: May 3, 2012	By:	/s/ Brittany B. McKinney
		Brittany B. McKinney
		President and Chief Executive Officer
Dated: May 3, 2012	By:	/s/ William R. Wolff
		William R. Wolff
		Senior Vice President, Chief Financial Officer

XML

Financing Agreement

3 Months Ended

Mar. 31, 2012

Financing Agreement

Financing Agreement

4.  Financing Agreement

Revolving Credit Facility

On February 22, 2012, we entered into the Third Amendment to the Amended Credit Facility (“Third Amendment”) with Wells Fargo. The Third Amendment increased the total availability of the Amended Credit Facility, which fluctuates based on our level of eligible accounts receivable, by approximately $4.0 million. In addition, the Third Amendment increased our minimum trailing twelve months earnings before taxes financial covenant from a loss of $0.8 million to earnings of $0.25 million. Finally, the Third Amendment added an additional financial covenant which will require us to maintain a minimum excess borrowing base availability of not less than $3.0 million for each reporting period in 2012 and thereafter. Under the Amended Credit Facility, Wells Fargo will continue to advance up to $15.0 million to us for working capital purposes and to facilitate the issuance of letters of credit.

The Amended Credit Facility carries an interest rate equal to the three-month LIBOR rate plus 1.50% - 2.50%, depending on our operating results. The Credit Facility had a one-time origination fee of $150,000, the balance of which is being amortized over the new term of the Amended Credit Facility. The annual unused line fee varies between 0.25% - 0.375%, depending on our operating results, on the daily average unused amount. The maturity date of the Amended Credit Facility is September 30, 2014 and may be terminated or reduced by us on 90 days notice in exchange for a termination fee of 1.0% of the maximum line amount or reduction of the maximum line amount through September 30, 2011, 0.50% thereafter until September 30, 2012, 0.25% thereafter until September 30, 2013 and no fee in the final year. Borrowings under the Amended Credit Facility are secured by all of our assets.

The Amended Credit Facility requires us to meet certain levels of year-to-date earnings before taxes. For 2012 and thereafter, we are required to exceed a minimum trailing twelve months earnings before taxes of $0.25 million. The Amended Credit Facility limits our annual capital expenditures to $2.0 million. For 2012 and thereafter, we will also be required to maintain a minimum excess borrowing base availability of not less than $3.0 million. The Amended Credit Facility contains customary affirmative covenants, including covenants regarding annual, quarterly and projected financial reporting requirements, collateral and insurance maintenance, and compliance with applicable laws and regulations. Further, the facility contains customary negative covenants limiting our ability to grant liens, incur indebtedness, make investments, repurchase our stock, create new subsidiaries, sell assets or engage in any change of control transaction without the consent of Wells Fargo.

Upon an event of default, Wells Fargo may terminate the facility or declare the entire amount outstanding under the facility to be immediately due and payable and exercise other rights under the agreement. The events of default under the facility include, among other things, payment defaults, breaches of covenants, a change in control and bankruptcy events.

As of March 31, 2012, we were in compliance with all the requirements and had no borrowings outstanding under the Amended Credit Facility. Total availability of the Amended Credit Facility, which fluctuates based on our level of eligible accounts receivable, was $9.8 million as of March 31, 2012.

XML

Property and Equipment

3 Months Ended

Mar. 31, 2012

Property and Equipment

Property and Equipment

3.   Property and Equipment

Property and equipment are stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets for financial statement purposes and accelerated methods for income tax purposes. The balances of our Property and equipment as of March 31, 2012 and December 31, 2011 and the estimated useful lives used in the financial statements are as follows:

(In thousands)	March 31, 2012			December 31, 2011			Useful lives (in years)
Leasehold improvements	$	304		$	247		Shorter of useful life or lease term
Office furniture & equipment	1,808			1,808			5 - 10
Computer hardware	1,605			1,569			2 - 5
Software	6,005			4,574			2 - 5
Work in process	340			1,432
	10,062			9,630
Accumulated depreciation	(7,686		)	(7,535		)
Property and equipment, net	$	2,376		$	2,095

In the third quarter of fiscal 2011, the Company commenced a project to replace its current financial and human resource information systems with a fully integrated enterprise resource planning (“ERP”) solution. The project to implement the ERP solution resulted in approximately $1.5 million of costs being capitalized in fiscal 2011. During the first quarter of fiscal 2012, the Company capitalized an additional $0.3 million of costs related to the ERP solution.

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011
Current assets:
Cash and cash equivalents	$ 2,014	$ 5,135
Accounts receivable, less allowance for doubtful accounts of $573 and $644, respectively	21,166	18,016
Prepaid expenses and other current assets	492	489
Total current assets	23,672	23,640
Property and equipment, net of accumulated depreciation of $7,686 and $7,535, respectively	2,376	2,095
Other assets	438	457
Total assets	26,486	26,192
Current liabilities:
Accounts payable	3,263	3,847
Salaries and benefits	2,756	2,078
Deferred revenue	397	285
Deferred compensation	68	136
Restructuring accrual	241	442
Other current liabilities	658	664
Total current liabilities	7,383	7,452
Non-current liabilities:
Deferred compensation	339	379
Restructuring accrual	22	28
Total non-current liabilities	361	407
Shareholders' equity:
Common stock, par value $0.10 a share; authorized 24,000,000 shares; issued and outstanding 5,074,107 and 5,032,759, respectively	507	503
Additional capital	26,371	26,164
Accumulated deficit	(8,136)	(8,334)
Total shareholders' equity	18,742	18,333
Total liabilities and shareholders' equity	$ 26,486	$ 26,192

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Organization and Nature of Business

3 Months Ended

Mar. 31, 2012

Organization and Nature of Business

Organization and Nature of Business

1.  Organization and Nature of Business

Analysts International Corporation (“AIC,” “Company,” “we,” “us,” or “our”) is an information technology (“IT”) services company. We employ approximately 900 IT professionals, management and administrative staff and are focused on serving the IT needs of mid-market to Fortune 500 companies and government agencies across North America. AIC was incorporated in Minnesota in 1966 and our corporate headquarters is located in Minneapolis, Minnesota. For a more complete description of our Company, please refer to our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

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Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2012

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

2.  Summary of Significant Accounting Policies

Basis of Consolidation

The accompanying unaudited Consolidated Financial Statements of AIC have been prepared on the accrual basis of accounting and in accordance with the requirements of the Securities and Exchange Commission (“SEC”) for interim financial reporting. As permitted under these rules, certain footnotes and other financial information that are normally required by accounting principles generally accepted in the United States (“U.S. GAAP”) can be condensed or omitted. The Consolidated Financial Statements included in this document reflect, in the opinion of our management, all adjustments (consisting of only normal recurring adjustments, except as noted elsewhere in the Notes to Consolidated Financial Statements) necessary for fair presentation of the results of operations for the interim periods presented. The following notes should be read in conjunction with the accounting policies and other disclosures in the Notes to the Consolidated Financial Statements incorporated by reference in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011. Revenues, expenses, cash flows, assets and liabilities can and do vary during the year. Therefore, interim results are not necessarily indicative of the results to be expected for the full fiscal year.

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.

Change in Fiscal Year

Beginning on January 1, 2012, we changed from a 52—53 week fiscal year ending on the Saturday closest to December 31 to a calendar year ending as of the last day of the month. As a result of the change, our first, second, third and fourth quarters will now end on March 31, June 30, September 30 and December 31, respectively.

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Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011
Consolidated Balance Sheets
Accounts receivable, allowance for doubtful accounts (in dollars)	$ 573	$ 644
Property and equipment, accumulated depreciation (in dollars)	$ 7,686	$ 7,535
Common stock, par value (in dollars per share)	$ 0.10	$ 0.10
Common stock, authorized shares	24,000,000	24,000,000
Common stock, issued shares	5,074,107	5,032,759
Common stock, outstanding shares	5,074,107	5,032,759

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Document and Entity Information	3 Months Ended
	Mar. 31, 2012	May 03, 2012
Document and Entity Information
Entity Registrant Name	ANALYSTS INTERNATIONAL CORP
Entity Central Index Key	0000006292
Document Type	10-Q
Document Period End Date	Mar. 31, 2012
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		5,074,107
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q1

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Consolidated Statements of Operations (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Apr. 02, 2011
Revenues	$ 26,723	$ 26,312
Cost of revenues	20,347	20,053
Gross profit	6,376	6,259
Selling, administrative and other operating costs	6,186	6,050
Total operating expenses	6,186	6,050
Operating income	190	209
Interest expense	(1)
Income before income taxes	189	209
Income tax (benefit) expense	(9)	7
Net income	$ 198	$ 202
Per common share (basic):
Net income (in dollars per share)	$ 0.04	$ 0.04
Per common share (diluted):
Net income (in dollars per share)	$ 0.04	$ 0.04
Weighted-average shares outstanding:
Basic (in shares)	5,044	4,995
Diluted (in shares)	5,114	5,007

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Share Based Compensation

3 Months Ended

Mar. 31, 2012

Share Based Compensation

Share Based Compensation

7. Share Based Compensation

Total share based compensation expense for the first quarters of 2012 and fiscal 2011 was approximately $0.2 million and includes compensation expense related to both stock options and stock awards.

In the first quarter of 2012, we recorded a reduction of the tax benefit of $13,000 and for the first quarter of fiscal 2011, we recorded a tax benefit of $13,000. The tax benefit is offset against our valuation allowance for our deferred tax asset.

Stock Options

The following table summarized the stock option activity for the three months ended March 31, 2012:

	Options		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding on January 1, 2012	314,700		$	5.11	7.75	$	436,774
Granted	53,800		5.78
Exercised	(13,250	)	3.60
Forfeited/Cancelled	(10,950	)	3.73
Outstanding on March 31, 2012	344,300		$	5.25	7.88	$	367,630
Vested or expected to vest at March 31, 2012	319,240		5.30		7.77	$	344,238
Exercisable on March 31, 2012	209,000		5.78		7.09	$	215,461

The total fair value of the stock options that vested during the three months ended March 31, 2012 was approximately $123,000.

For the three month period ended March 31, 2012, 13,250 options were exercised and the total intrinsic value of options exercised (which is the amount by which the stock price exceeded the exercise price of the options on the date of exercise) was approximately $30,000. The income tax benefit realized from stock option exercises was nil. There were no stock options exercised for the three months ended April 2, 2011.

Total stock option expense for the three months ended March 31, 2012 was approximately $0.1 million. As of March 31, 2012, there was approximately $0.2 million of unrecognized share based compensation expense related to unvested stock that are expected to vest over a weighted-average period of approximately 1.5 years. Options to purchase 344,300 were outstanding at March 31, 2012.

Stock Awards

The following table summarizes the stock award activity for the three months ended March 31, 2012:

	Shares		Weighted Average Grant Date Fair Value
Non-vested at January 1, 2012	88,126		$	4.24
Granted	46,200		5.78
Vested	(33,072	)	(4.90		)
Forfeited	(3,750	)	(4.44		)
Non-vested at March 31, 2012	97,504		$	4.73

The total fair value of stock awards that vested during the three months ended March 31, 2012 was approximately $163,000, respectively.

Total stock award expense for the three months ended March 31, 2012 was $0.1 million.

As of March 31, 2012, there was $0.3 million of unrecognized compensation expense related to unvested stock awards that were expected to vest over a weighted average period of 1.6 years.

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Shareholders' Equity

3 Months Ended

Mar. 31, 2012

Shareholders' Equity

Shareholders' Equity

6.  Shareholders’ Equity

									Total
	Outstanding	Common		Additional		Accumulated			Shareholders’
(In thousands, except share amounts)	Shares	Stock		Capital		Deficit			Equity
Balances as of December 31, 2011	5,032,759	$	503	$	26,164	$	(8,334	)	$	18,333
Common stock issued	28,098	3		132		—			135
Share based compensation expense	—	—		28		—			28
Stock option exercises	13,250	1		47		—			48
Net income	—	—		—		198			198
Balance as of March 31, 2012	5,074,107	$	507	$	26,371	$	(8,136	)	$	18,742

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Net Income Per Share

3 Months Ended

Mar. 31, 2012

Net Income Per Share

Net Income Per Share

8.  Net Income Per Share

Basic and diluted income per share is presented in accordance with ASC Topic 260, Earnings Per Share. Basic income per share excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period.  Diluted income per share includes dilutive potential common shares outstanding and is computed by dividing income available to common stockholders by the weighted-average number of common and common equivalent shares outstanding for the period.

For the three-month period ended March 31, 2012, anti-dilutive weighted average shares of 123,768 were excluded from the calculation of weighted average number of common equivalent shares outstanding. For the three-month period ended April 2, 2011, anti-dilutive weighted average shares of 260,352 were excluded from the calculation of weighted average number of common equivalent shares outstanding. The computation of basic and diluted income per share for the three months ended March 31, 2012 and April 2, 2011 is as follows:

	Three Months Ended
	March 31		April 2,
(In thousands except per share amounts)	2012		2011
Net income	$	198	$	202
Weighted-average number of common shares outstanding	5,044		4,995
Dilutive effect of potential common shares outstanding	69		12
Weighted-average number of common and common equivalent shares outstanding	5,114		5,007
Net income per share:
Basic	$	0.04	$	0.04
Diluted	$	0.04	$	0.04

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Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Apr. 02, 2011
Cash flows from operating activities:
Net income	$ 198	$ 202
Adjustments to net income:
Depreciation	151	190
Share based compensation	191	236
Changes in:
Accounts receivable	(3,150)	(539)
Prepaid expenses and other assets	16	(305)
Accounts payable	(473)	(16)
Salaries and benefits	657	1,172
Deferred revenue	112	(77)
Deferred compensation	(108)	(117)
Restructuring accrual	(207)	(111)
Other accrued liabilities	(6)	(56)
Net cash (used in) provided by operating activities	(2,619)	579
Cash flows from investing activities:
Expended for property and equipment additions	(543)	(37)
Net cash used in investing activities	(543)	(37)
Cash flows from financing activities:
Proceeds from line of credit	1,500
Payments on line of credit	(1,500)
Proceeds from stock option exercises	41
Payment of insurance policy loan		(486)
Payment of capital lease obligation		(45)
Net cash provided by (used in) financing activities	41	(531)
Net (decrease) increase in cash and cash equivalents	(3,121)	11
Cash and cash equivalents at beginning of period	5,135	4,328
Cash and cash equivalents at end of period	2,014	4,339
Cash paid during the year for:
Income taxes		4
Interest	1
Non-cash investing and financing activities:
Capital expenditures included in accounts payable	$ 181	$ 19

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Restructuring Costs and Other Severance Related Costs

3 Months Ended

Mar. 31, 2012

Restructuring Costs and Other Severance Related Costs

Restructuring Costs and Other Severance Related Costs

5.   Restructuring Costs and Other Severance Related Costs

A summary of the restructuring charges and subsequent activity in the restructuring accrual for the three months ended March 31, 2012 is as follows:

	Workforce			Office Closure/
(In thousands)	Reduction			Consolidation			Total
Balance as of December 31, 2011	$	179		$	291		$	470
Additional restructuring charges	—			—			—
Cash expenditures	(59		)	(148		)	(207		)
Balance as of March 31, 2012	$	120		$	143		$	263

We had no restructuring or other severance related costs during the first quarters of either fiscal 2011 or 2012.