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 September 29, 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 x 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 October 29, 2012, 5,082,857 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 September 29, 2012 and December 31, 2011	3
	Consolidated Statements of Operations for the Three and Nine Months Ended September 29, 2012 and October 1, 2011	4
	Consolidated Statements of Cash Flows for the Nine Months Ended September 29, 2012 and October 1, 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	18
Item 4T.	Controls and Procedures	18
Part II.	OTHER INFORMATION	18
Item 1.	Legal Proceedings	18
Item 1A.	Risk Factors	18
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	18
Item 3.	Defaults Upon Senior Securities	18
Item 4.	Mine Safety Disclosures	18
Item 5.	Other Information	18
Item 6.	Exhibits	19
Signatures		20
Exhibit Index		21

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Analysts International Corporation

Consolidated Balance Sheets

(Unaudited)

	September 29,			December 31,
(In thousands, except share and per share amounts)	2012			2011
ASSETS
Current assets:
Cash and cash equivalents	$	4,451		$	5,135
Accounts receivable, less allowance for doubtful accounts of $883 and $644, respectively	19,128			18,016
Prepaid expenses and other current assets	374			489
Total current assets	23,953			23,640
Property and equipment, net of accumulated depreciation of $8,011 and $7,535, respectively	2,291			2,095
Other assets	178			457
Total assets	$	26,422		$	26,192
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	3,014		$	3,847
Salaries and benefits	3,206			2,078
Deferred revenue	237			285
Deferred compensation	77			136
Restructuring accrual	79			442
Other current liabilities	662			664
Total current liabilities	7,275			7,452
Non-current liabilities:
Deferred compensation	323			379
Restructuring accrual	10			28
Total non-current liabilities	333			407
Shareholders’ equity:
Common stock, par value $0.10 a share; authorized 24,000,000 shares; issued and outstanding 5,082,857 and 5,032,759, respectively	508			503
Additional capital	26,554			26,164
Accumulated deficit	(8,248		)	(8,334		)
Total shareholders’ equity	18,814			18,333
Total liabilities and shareholders’ equity	$	26,422		$	26,192

See notes to consolidated financial statements.

3

Analysts International Corporation

Consolidated Statements of Operations

(Unaudited)

	Three Months Ended					Nine Months Ended
	September 29,			October 1,		September 29,			October 1,
(In thousands, except per share amounts)	2012			2011		2012			2011
Revenues	$	26,519		$	28,876	$	80,321		$	82,023
Cost of revenues	20,938			21,659		62,112			62,349
Gross profit	5,581			7,217		18,209			19,674
Selling, administrative and other operating costs	6,168			5,389		17,944			16,845
Restructuring costs and other severance related costs	—			23		113			769
Total operating expenses	6,168			5,412		18,057			17,614
Operating (loss) income	(587		)	1,805		152			2,060
Interest expense	(1		)	—		(3		)	—
(Loss) income before income taxes	(588		)	1,805		149			2,060
Income tax expense	57			11		63			27
Net (loss) income	$	(645	)	$	1,794	$	86		$	2,033
Per common share (basic):
Net (loss) income	$	(0.13	)	$	0.36	$	0.02		$	0.41
Per common share (diluted):
Net (loss) income	$	(0.13	)	$	0.36	$	0.02		$	0.41
Weighted-average shares outstanding:
Basic	5,082			5,015		5,067			5,008
Diluted	5,082			5,024		5,105			5,018

See notes to consolidated financial statements.

4

Analysts International Corporation

Consolidated Statements of Cash Flows

(Unaudited)

	Nine Months Ended
	September 29,			October 1,
(In thousands)	2012			2011
Cash flows from operating activities:
Net income	$	86		$	2033
Adjustments to net income:
Depreciation	479			464
Share based compensation	375			419
Changes in:
Accounts receivable	(1,112		)	(2,001		)
Prepaid expenses and other assets	174			163
Accounts payable	(601		)	265
Salaries and benefits	1,107			1,508
Deferred revenue	(48		)	20
Deferred compensation	(115		)	(553		)
Restructuring accrual	(381		)	182
Other accrued liabilities	(2		)	58
Net cash (used in) provided by operating activities	(38		)	2,558
Cash flows from investing activities:
Expended for property and equipment additions	(907		)	(1,084		)
Proceeds from trust investment	220			—
Proceeds from cash surrender of insurance policy	—			531
Net cash used in investing activities	(687		)	(553		)
Cash flows from financing activities:
Proceeds from line of credit	5,000			—
Payments on line of credit	(5,000		)	—
Proceeds from stock option exercises	41			—
Payment of insurance policy loan	—			(486		)
Payment of capital lease obligation	—			(60		)
Net cash provided by (used in) financing activities	41			(546		)
Net (decrease) increase in cash and cash equivalents	(684		)	1,459
Cash and cash equivalents at beginning of period	5,135			4,328
Cash and cash equivalents at end of period	$	4,451		$	5,787
Cash paid during the year for:
Income taxes	$	63		$	18
Interest	$	3		$	—
Non-cash investing and financing activities:
Capital expenditures included in accounts payable	$	60		$	90

See notes to consolidated financial statements.

5

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.

We operate on a fiscal year ending on the Saturday closest to December 31. Accordingly, fiscal 2012 will end on Saturday, December 29, 2012. The third quarter of fiscal 2012 ended on September 29, 2012 and the third quarter of fiscal 2011 ended on October 1, 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.

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 September 29, 2012 and December 31, 2011 and the estimated useful lives used in the financial statements are as follows:

(In thousands)	September 29, 2012			December 31, 2011			Useful lives (in years)
Leasehold improvements	$	304		$	247		Shorter of useful life or lease term
Office furniture & equipment	1,813			1,808			5 - 10
Computer hardware	1,654			1,569			2 - 5
Software	6,432			4,574			2 - 5
Work in process	99			1,432
	10,302			9,630
Accumulated depreciation	(8,011		)	(7,535		)
Property and equipment, net	$	2,291		$	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”) system. The project to implement the ERP system resulted in approximately $1.5 million of costs being capitalized in fiscal 2011. During the first nine months of fiscal 2012, the Company capitalized an additional $0.5 million of costs related to the ERP system.

6

4.   Financing Agreement

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 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 September 29, 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 $12.1 million as of September 29, 2012.

5.   Restructuring Costs and Other Severance Related Costs

For the nine month period ended September 29, 2012, we recorded severance charges of $0.1 million related to changes in our senior executive officers.

For the nine month period ended October 1, 2011, we recorded severance and office closure charges of $0.8 million. Of these charges, $0.4 million related to severance and severance-related charges for changes in our senior executive officers and $0.4 million related to the relocation of our corporate headquarters.

A summary of the restructuring charges and subsequent activity in the restructuring accrual for the nine months ended September 29, 2012 is as follows:

7

	Workforce			Office Closure/
(In thousands)	Reduction			Consolidation			Total
Balance as of December 31, 2011	$	179		$	291		$	470
Additional restructuring charges	113			—			113
Cash expenditures	(238		)	(256		)	(494		)
Balance as of September 29, 2012	$	54		$	35		$	89

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	36,848	4		168		—			172
Share based compensation expense	—	—		175		—			175
Stock option exercises	13,250	1		47		—			48
Net income	—	—		—		86			86
Balance as of September 29, 2012	5,082,857	$	508	$	26,554	$	(8,248	)	$	18,814

7.   Share Based Compensation

Total share based compensation expense for the first nine months of fiscal years 2012 and 2011 was approximately $0.4 million in both years and includes compensation expense related to both stock options and stock awards.

In the first nine months of 2012, we recorded a tax benefit of approximately $21,000 related to the share based compensation and for the first nine months of fiscal 2011, we recorded a tax benefit of $48,000. The tax benefit is offset against our valuation allowance for our deferred tax asset.

Stock Options

The following table summarizes the stock option activity for the nine months ended September 29, 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	88,800		5.16
Exercised	(13,250	)	3.60
Forfeited/Cancelled	(54,600	)	4.31
Outstanding on September 29, 2012	335,650		$	5.31	7.51	$	79,968
Vested or expected to vest at September 29, 2012	310,220		$	5.36	7.38	$	77,229
Exercisable on September 29, 2012	205,099		$	5.81	6.64	$	55,787

The total fair value of the stock options that vested during the nine months ended September 29, 2012 was approximately $145,000.

For the nine month period ended September 29, 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 negligible. There were no stock options exercised in the nine months ended October 1, 2011.

Total stock option expense for the nine months ended September 29, 2012 was approximately $0.2 million.

8

As of September 29, 2012, there was approximately $0.2 million of unrecognized share based compensation expense related to unvested stock options that are expected to vest over a weighted-average period of approximately 1.3 years. Options to purchase 335,650 shares were outstanding at September 29, 2012.

Stock Awards

The following table summarizes the stock award activity for the nine months ended September 29, 2012:

	Shares		Weighted Average Grant Date Fair Value
Non-vested at January 1, 2012	88,126		$	4.24
Granted	81,200		5.10
Vested	(41,822	)	4.78
Forfeited	(26,251	)	3.96
Non-vested at September 29, 2012	101,253		$	4.78

The total fair value of stock awards that vested during the nine months ended September 29, 2012 was approximately $185,000.

Total stock award expense for the nine months ended September 29, 2012 was $0.2 million.

As of September 29, 2012, there was $0.2 million of unrecognized compensation expense related to unvested stock awards that were expected to vest over a weighted average period of 1.3 years.

8.   Net Income (Loss) Per Share

Basic and diluted income (loss) per share is presented in accordance with ASC Topic 260, Earnings Per Share. Basic income (loss) per share excludes dilution and is computed by dividing income (loss) 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 nine-month period ended September 29, 2012, anti-dilutive weighted average shares of 258,730 were excluded from the calculation of weighted average number of common equivalent shares outstanding. For the nine-month period ended October 1, 2011, anti-dilutive weighted average shares of 334,928 were excluded from the calculation of weighted average number of common equivalent shares outstanding. The computation of basic and diluted income (loss) per share for the three and nine months ended September 29, 2012 and October 1, 2011 is as follows:

	Three Months Ended					Nine Months Ended
	September 29,			October 1,		September 29,		October 1,
(In thousands except per share amounts)	2012			2011		2012		2011
Net (loss) income	$	(645	)	$	1,794	$	86	$	2,033
Weighted-average number of common shares outstanding	5,082			5,015		5,067		5,008
Dilutive effect of potential common shares outstanding	—			9		38		10
Weighted-average number of common and common equivalent shares outstanding	5,082			5,024		5,105		5,018
Net (loss) income per share:
Basic	$	(0.13	)	$	0.36	$	0.02	$	0.41
Diluted	$	(0.13	)	$	0.36	$	0.02	$	0.41

9

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.

We operate on a fiscal year ending on the Saturday closest to December 31. Accordingly, fiscal 2012 will end on Saturday, December 29, 2012. The third quarter of fiscal 2012 ended on September 29, 2012 and the third quarter of fiscal 2011 ended on October 1, 2011.

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 continuing to focus sales efforts on our core markets with the highest potential for growth;

·Leveraging strategic client relationships and expanding 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.

C.Business Developments

Leadership

On February 22, 2011, our Board of Directors appointed Brittany B. McKinney as our President and Chief Executive 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. His resignation 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 would be employed as Senior Vice President, Chief Financial Officer of the Company. On June 12, 2012, Mr. Wolff resigned from his employment as Senior Vice President, Chief Financial Officer of the Company, effective as of the close of business on June 29, 2012.

On June 8, 2012, the Company and Lynn L. Blake entered into an Employment Agreement with an effective date of July 2, 2012, which provided that Ms. Blake will be employed as Senior Vice President, Chief Financial Officer and Treasurer of the Company. For the past five years, Ms. Blake had served as the Vice President of Finance and Chief Accounting Officer at Entegris, Inc., a publicly traded global provider of products and materials used in advanced high-technology manufacturing.

Enterprise Resource Planning (“ERP”) System

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 system. The ERP system 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 system was completed in early fiscal 2012 and resulted

10

in approximately $1.5 million of costs being capitalized in fiscal 2011. Through the end of third quarter of fiscal 2012, we have incurred additional capitalized expenditures related to the ERP system of approximately $0.5 million.

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.

D.Overview of Third Quarter Fiscal 2012 Results of Operations

Our revenues decreased $2.4 million, or 8.2%, compared to the third quarter of fiscal 2011. When compared to the prior year quarter, the number of billable hours and average billing rates decreased by 4.1% and 2.2%, respectively.  Additionally, revenues for the third quarter of fiscal 2012 were negatively impacted by approximately $0.5 million related to unanticipated project-related adjustments on two specific client engagements.

The gross margin rate decreased to 21.0% from the prior year quarter rate of 25.0% primarily due to unanticipated project-related adjustments, decreased permanent placement revenues and increased fringe benefit costs.

Selling, Administrative and Other Operating Costs (“SG&A”) expenses increased $0.8 million, or 14.5%, in the third quarter of fiscal 2012 over the prior year quarter as a result of increased sales costs and increased bad debt expense.  The prior year quarter included the final earn-out benefit associated with a sale of business in fiscal 2008.

We generated cash from operations of $1.3 million during the third quarter of fiscal 2012.  As of September 29, 2012, we had a cash balance of $4.5 million and no outstanding borrowings under our revolving line of credit.

11

RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 29, 2012 VS. OCTOBER 1, 2011

The following table illustrates the relationship between revenue and expense categories for the three months ended September 29, 2012 and October 1, 2011.

	Three Months Ended					Three Months Ended
	September 29, 2012					October 1, 2011				Increase (Decrease)
				% of				% of
(Dollars in thousands)	Amount			Revenue		Amount		Revenue		Amount			%
Revenues	$	26,519		100.0	%	$	28,876	100.0	%	$	(2,357	)	(8.2	)%
Cost of revenues	20,938			79.0		21,659		75.0		(721		)	(3.3	)
Gross profit	5,581			21.0		7,217		25.0		(1,636		)	(22.7	)
Selling, administrative and other operating costs	6,168			23.3		5,389		18.7		779			14.5
Restructuring costs and other severance related costs	—			0.0		23		0.0		(23		)	NM
Total operating expenses	6,168			23.3		5,412		18.7		756			14.0
Operating (loss) income	(587		)	(2.2	)	1,805		6.3		(2,392		)	(132.5	)
Interest expense	(1		)	(0.0	)	—		0.0		1			NM
(Loss) income before income taxes	(588		)	(2.2	)	1,805		6.3		(2,393		)	(132.6	)
Income tax expense	57			0.2		11		0.1		46			418.2
Net (loss) income	$	(645	)	(2.4	)%	$	1,794	6.2	%	$	(2,439	)	(136.0	)%

NM = not meaningful

Revenues

Revenues decreased $2.4 million, or 8.2%, from the comparable period a year ago. The decrease in our third quarter of fiscal 2012 revenues over the prior year is primarily due to a 4.1% ($1.2 million) decrease in the number of hours billed, a 2.2% ($0.6 million) decrease in average billing rates and a decrease of $0.6 million in our permanent placement and other revenues.

Reflected in the figures above, our revenues for the third quarter of fiscal 2012 were negatively impacted by approximately $0.5 million related to unanticipated project-related adjustments on two specific client engagements.

There were 63 billing days in the third quarters of both fiscal years 2012 and 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 decreased $0.7 million from the prior comparable period and was 79.0% of revenue for third quarter of fiscal 2012 compared to 75.0% the prior comparable period.  The increase in cost as a percentage of revenue from the prior year quarter is primarily due to a change in our revenue mix, unanticipated project-related adjustments and increased fringe benefit 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 $0.8 million from the comparable period in 2011 and represented 23.3% of revenue for the third quarter of fiscal 2012 compared to 18.7% in fiscal 2011. In the third quarter of fiscal 2012, SG&A expenses increased as a result an increase in sales costs ($0.2 million), increased bad debt expense ($0.3 million), and the final earn-out benefit ($0.3 million) in the prior year quarter associated with a sale of business in fiscal 2008.

12

Restructuring Costs and Other Severance Related Costs

For the three-month period ended September 29, 2012, we recorded no restructuring or severance related charges.

For the three-month period ended October 1, 2011, we recorded severance and office closure charges of $23,000.

Interest Expense

We had no borrowings during the third quarter of fiscal 2012 and 2011 under our Amended Credit Facility.

Income Taxes

In the third quarter fiscal 2012, we recorded $57,000 of income tax expense compared to $11,000 in third quarter of fiscal 2011.  The increase in tax expense is the result of a suspension of net operating loss deductions in two states for fiscal year 2011. In the third quarters of both fiscal years 2012 and 2011, our income tax expense reflects the utilization of net operating loss carryforwards to offset taxable income.

We currently have approximately $25.2 million of tax benefits associated with net operating loss carryforwards available to offset federal and state taxes. For the third quarter of both fiscal years 2012 and 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.

Certain Information Concerning Off-Balance Sheet Arrangements

As of September 29, 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.

E.Overview of Year to Date Fiscal 2012 Result of Operations

Our revenues decreased $1.7 million, or 2.1%, from the first nine months of fiscal 2011. When compared to the first nine months of fiscal 2011, the number of billable hours decreased 0.9% and our average billing rates decreased 0.3%.

The number of billing days in the first nine months of fiscal 2012 and fiscal 2011 was 191 and 192, respectively.

The gross margin rate decreased from 24.0% for the first nine months of 2011 to 22.7% for the first nine months of fiscal 2012 primarily due to a change in our revenue mix, unanticipated project-related adjustments and increased fringe benefit costs.

SG&A expenses increased $1.1 million, or 6.5%, in the first nine months of 2012 over the first nine months of the prior year as a result of an increase in sales and recruiter personnel expenses, bad debt expense and the prior year included the final earn-out benefit associated with a sale of business in fiscal 2008.

We used $38,000 of cash from operations during the first nine months of 2012. As of September 29, 2012, we had a cash balance of $4.5 million and no outstanding borrowings under our revolving line of credit.

13

RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 29, 2012 VS. OCTOBER 1, 2011

The following table illustrates the relationship between revenue and expense categories as of September 29, 2012 and October 1, 2011.

	Nine Months Ended					Nine Months Ended
	September 29, 2012					October 1, 2011				Increase (Decrease)
				% of				% of
(Dollars in thousands)	Amount			Revenue		Amount		Revenue		Amount			%
Revenues	$	80,321		100.0	%	$	82,023	100.0	%	$	(1,702	)	(2.1	)%
Cost of revenues	62,112			77.3		62,349		76.0		(237		)	(0.4	)
Gross profit	18,209			22.7		19,674		24.0		(1,465		)	(7.4	)
Selling, administrative and other operating costs	17,944			22.3		16,845		20.5		1,099			6.5
Restructuring costs and other severance related costs	113			0.1		769		0.9		(656		)	(85.3	)
Total operating expenses	18,057			22.5		17,614		21.5		443			2.5
Operating income	152			0.2		2,060		2.5		(1,908		)	(92.6	)
Interest expense	(3		)	(0.0	)	—		0.0		3			NM
Income before income taxes	149			0.2		2,060		2.5		(1,911		)	(92.8	)
Income tax expense	63			0.1		27		0.0		36			133.3
Net income	$	86		0.1	%	$	2,033	2.5	%	$	(1,947	)	(95.8	)%

NM = not meaningful

Revenues

Revenues decreased $1.7 million, or 2.1%, from the comparable period a year ago.  The decrease in revenue for the first nine months of the year over the prior year is primarily due a 0.9% ($0.7 million) decrease in the number of hours billed, a 0.3% decrease ($0.3 million) in average billing rates and a $0.7 million decrease to our permanent placement and other revenues.

In the first nine months of fiscal 2012, there were 191 billing days compared to 192 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 increased $0.2 million compared the prior year and was 77.3% of revenues in the first nine months of fiscal 2012 compared to 76.0% in the prior comparable period.  The increase in cost as a percentage of revenue from the prior year is primarily due to a change in our revenue mix, unanticipated project-related adjustments and increased fringe benefit 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 $1.1 million from the comparable period in 2011 and represented 22.3% of revenue for the first nine months of 2012 compared to 20.5% in fiscal 2011. In the first nine months of 2012, SG&A expenses increased as a result of an increase in sales and recruiter personnel expenses ($0.6 million), increased bad debt expense ($0.2 million), and the prior year final earn-out benefit of $0.3 million associated with a sale of business in fiscal 2008.

Restructuring Costs and Other Severance Related Costs

For the nine-month period ended September 29, 2012, we recorded severance charges of $0.1 million related to changes in our senior executive officers.

14

For the nine month period ended October 1, 2011, we recorded severance and office closure charges of $0.8 million. Of these charges, $0.4 million related to severance and severance-related charges for changes in our senior executive officers and $0.4 million related to the relocation of our corporate headquarters.

Interest Expense

The implementation of the ERP system caused a delay in our normal billing cycles during the first few month of fiscal 2012 which caused an increase in our operating working capital. As a result, we borrowed and repaid $5.0 million on our Amended Credit Facility during the first half of fiscal 2012.  We had no borrowings during the third quarter of fiscal 2012. Our average borrowings for the first nine months of 2012 were approximately $65,000. We had no borrowings during the first nine months of fiscal 2011.

Income Taxes

In the first nine months of fiscal 2012, we recorded $63,000 of income tax expense compared to $27,000 in first nine months of fiscal 2011.  The increase in tax expense is the result of a suspension of net operating loss deductions in two states for fiscal year 2011. In the first nine months of both fiscal years 2012 and 2011, our income tax expense reflects the utilization of net operating loss carryforwards to offset taxable income.

We currently have approximately $25.2 million of tax benefits associated with net operating loss carryforwards available to offset federal and state taxes. For the first nine months of both fiscal years 2012 and 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.

Certain Information Concerning Off-Balance Sheet Arrangements

As of September 29, 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.

15

Liquidity and Capital Resources

At September 29, 2012, we had $4.5 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 $12.1 million as of September 29, 2012. Working capital was $16.7 million at September 29, 2012, up approximately $0.5 million from December 31, 2011. The ratio of current assets to current liabilities increased to 3.29 at September 29, 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:

	Nine Months Ended
	September 29,			October 1,
(In thousands)	2012			2011
Cash provided by (used in):
Net cash (used in) provided by operating activities	$	(38	)	$	2,558
Net cash used in investing activities	(687		)	(553		)
Net cash provided by (used in) financing activities	41			(546		)
Net (decrease) increase in cash and cash equivalents	$	(684	)	$	1,459

Operating Activities

Cash used in operating activities for the nine months ended September 29, 2012 was $38,000 compared to cash provided by operating activities of $2.6 million for the nine months ended October 1, 2011.

The elements of cash used in operations for the nine months ended September 29, 2012 are as follows: an increase in operating working capital of approximately $1.0 million which was offset by net income of $0.1 million and non-cash charges of $0.9 million.

The major component of the increase in operating working capital during the first nine of 2012 was a $1.1 million increase in our accounts receivable. The 6.2% increase in accounts receivable from December 31, 2011 is due to our days sales outstanding (“DSO”) increasing by 5 days, or 8.2%, from 61 days at the end of fiscal 2011 to 66 days at September 29, 2012 as a result of several large accounts taking extended payment terms.

In the first nine months of 2011, the elements of cash provided by operating activities were as follows: net income of $2.0 million and non-cash charges of $0.9 million which was partially offset by a $0.3 million increase in operating working capital. Our DSO at the end of the first nine months of fiscal 2011 was 59 days.

Investing Activities

Cash used in investing activities for the nine months ended September 29, 2012 was $0.7 million compared to $0.6 million for the nine months ended October 1, 2011.

In the first nine months of fiscal 2012, we made capital expenditures of $0.9 million, the majority of which related to the ERP system which we implemented in early fiscal 2012, offset by a trust investment liquidation of $0.2 million during the third quarter of fiscal 2012. In the first nine months of fiscal 2011, we made capital expenditures of $1.1 million which were offset by proceeds of a cash surrender of a life insurance policy of $0.5 million.

Financing Activities

Cash provided by financing activities for the nine months ended September 29, 2012 was $41,000 compared to cash used in financing activities of $0.5 million for the nine months ended July 2, 2011.

In the first nine months of fiscal 2012, we borrowed and repaid $5.0 million on our Amended Credit Facility. Our average borrowings for the

16

first nine months of 2012 were approximately $65,000.

During the first nine months 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 September 29, 2012, we were in compliance with all the requirements and had no outstanding borrowings under the Amended Credit Facility. Total availability under the Amended Credit Facility, which fluctuates based on our level of eligible accounts receivable, was $12.1 million as of September 29, 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

17

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, Lynn L. Blake. 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 system, which replaced our previous financial and human resource information systems. The implementation of the ERP system was 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.Mine Safety Disclosures

None.

Item 5.Other Information.

None.

18

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).
^10.73	Employment Agreement between Analysts International Corporation and Lynn L. Blake, fully executed on June 8, 2012, with an effective date of July 2, 2012 (Exhibit 10.1 to the Registrant’s Form 8-K filed June 12, 2012, Commission File No. 1-33981, incorporated by reference).
^10.74	Separation Agreement and Release of Claims dated as of June 12, 2012, between Analysts International Corporation and William R. Wolff (Exhibit 10.74 to Quarterly Report on Form 10-Q for the period ended June 30, 2012, 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 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.

19

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 thereunto duly authorized.

	ANALYSTS INTERNATIONAL CORPORATION
	(Registrant)
Date:  November 1, 2012	By:	/s/ Brittany B. McKinney
		Brittany B. McKinney
		President and Chief Executive Officer
		(Principal Executive Officer)
Date:  November 1, 2012	By:	/s/ Lynn L. Blake
		Lynn L. Blake
		Senior Vice President, Chief Financial Officer and Treasurer
		(Principal Financial and Accounting Officer)

20

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).
^10.73	Employment Agreement between Analysts International Corporation and Lynn L. Blake, fully executed on June 8, 2012, with an effective date of July 2, 2012 (Exhibit 10.1 to the Registrant’s Form 8-K filed June 12, 2012, Commission File No. 1-33981, incorporated by reference).
^10.74	Separation Agreement and Release of Claims dated as of June 12, 2012, between Analysts International Corporation and William R. Wolff (Exhibit 10.74 to Quarterly Report on Form 10-Q for the period ended June 30, 2012, 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 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.

21

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: November 1, 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, Lynn L. Blake, 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: November 1, 2012	By:	/s/ Lynn L. Blake
		Lynn L. Blake
		Senior Vice President, Chief Financial Officer and Treasurer

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 September 29, 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 Lynn L. Blake, Senior Vice President, Chief Financial Officer and Treasurer 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: November 1, 2012	By:	/s/ Brittany B. McKinney
		Brittany B. McKinney
		President and Chief Executive Officer
Dated: November 1, 2012	By:	/s/ Lynn L. Blake
		Lynn L. Blake
		Senior Vice President, Chief Financial Officer and Treasurer

XML

Share Based Compensation (Details) (USD $)	9 Months Ended			12 Months Ended	9 Months Ended
	Sep. 29, 2012	Oct. 01, 2011	Sep. 29, 2012 Stock Options	Dec. 31, 2011 Stock Options	Sep. 29, 2012 Stock Awards
Share Based Compensation
Share based compensation expense	$ 400,000	$ 400,000	$ 200,000		$ 200,000
Tax benefit (reduced) recorded	21,000	48,000
Options
Outstanding at the beginning of the period (in shares)			314,700
Granted (in shares)			88,800
Exercised (in shares)			(13,250)
Forfeited/Cancelled (in shares)			(54,600)
Outstanding at the end of the period (in shares)			335,650	314,700
Vested and expected to vest (in shares)			310,220
Exercisable (in shares)			205,099
Weighted Average Exercise Price Per Share
Outstanding at the beginning of the period (in dollars per share)			$ 5.11
Granted (in dollars per share)			$ 5.16
Exercised (in dollars per share)			$ 3.60
Forfeited/Cancelled (in dollars per share)			$ 4.31
Outstanding at the end of the period (in dollars per share)			$ 5.31	$ 5.11
Vested and expected to vest (in dollars per share)			$ 5.36
Exercisable (in dollars per share)			$ 5.81
Weighted Average Remaining Contractual Term (in years)
Outstanding			7 years 6 months 4 days	7 years 9 months
Vested and expected to vest			7 years 4 months 17 days
Exercisable			6 years 7 months 20 days
Aggregate Intrinsic Value
Outstanding			79,968	436,774
Vested and expected to vest			77,229
Exercisable			55,787
Additional disclosure
Total fair value of the awards vested			145,000
Exercised (in shares)			13,250
Total intrinsic value of awards exercised			30,000
Unrecognized share based compensation expense related to unvested stock			200,000
Shares
Non-vested at the beginning of the period (in shares)					88,126
Granted (in shares)					81,200
Vested (in shares)					(41,822)
Forfeited (in shares)					(26,251)
Non-vested at the end of the period (in shares)					101,253
Weighted Average Grant Date Fair Value
Non-vested at the beginning of the period (in dollars per share)					$ 4.24
Granted (in dollars per share)					$ 5.10
Vested (in dollars per share)					$ 4.78
Forfeited (in dollars per share)					$ 3.96
Non-vested at the beginning of the period (in dollars per share)					$ 4.78
Additional disclosure
Total fair value of the awards vested					185,000
Unrecognized share based compensation expense related to unvested stock					$ 200,000
Weighted-average period for recognizing unrecognized share based compensation expense related to unvested stock			1 year 3 months 18 days		1 year 3 months 18 days

XML

Financing Agreement

9 Months Ended

Sep. 29, 2012

Financing Agreement

Financing Agreement

4.   Financing Agreement

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 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 September 29, 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 $12.1 million as of September 29, 2012.

XML

Property and Equipment

9 Months Ended

Sep. 29, 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 September 29, 2012 and December 31, 2011 and the estimated useful lives used in the financial statements are as follows:

(In thousands)	September 29, 2012			December 31, 2011			Useful lives (in years)
Leasehold improvements	$	304		$	247		Shorter of useful life or lease term
Office furniture & equipment	1,813			1,808			5 - 10
Computer hardware	1,654			1,569			2 - 5
Software	6,432			4,574			2 - 5
Work in process	99			1,432
	10,302			9,630
Accumulated depreciation	(8,011		)	(7,535		)
Property and equipment, net	$	2,291		$	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”) system. The project to implement the ERP system resulted in approximately $1.5 million of costs being capitalized in fiscal 2011. During the first nine months of fiscal 2012, the Company capitalized an additional $0.5 million of costs related to the ERP system.

XML

Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Sep. 29, 2012	Dec. 31, 2011
Current assets:
Cash and cash equivalents	$ 4,451	$ 5,135
Accounts receivable, less allowance for doubtful accounts of $883 and $644, respectively	19,128	18,016
Prepaid expenses and other current assets	374	489
Total current assets	23,953	23,640
Property and equipment, net of accumulated depreciation of $8011 and $7,535, respectively	2,291	2,095
Other assets	178	457
Total assets	26,422	26,192
Current liabilities:
Accounts payable	3,014	3,847
Salaries and benefits	3,206	2,078
Deferred revenue	237	285
Deferred compensation	77	136
Restructuring accrual	79	442
Other current liabilities	662	664
Total current liabilities	7,275	7,452
Non-current liabilities:
Deferred compensation	323	379
Restructuring accrual	10	28
Total non-current liabilities	333	407
Shareholders' equity:
Common stock, par value $0.10 a share; authorized 24,000,000 shares; issued and outstanding 5,082,857 and 5,032,759, respectively	508	503
Additional capital	26,554	26,164
Accumulated deficit	(8,248)	(8,334)
Total shareholders' equity	18,814	18,333
Total liabilities and shareholders' equity	$ 26,422	$ 26,192

XML

Organization and Nature of Business

9 Months Ended

Sep. 29, 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.

We operate on a fiscal year ending on the Saturday closest to December 31. Accordingly, fiscal 2012 will end on Saturday, December 29, 2012. The third quarter of fiscal 2012 ended on September 29, 2012 and the third quarter of fiscal 2011 ended on October 1, 2011.

XML

Financing Agreement (Details) (USD $)	1 Months Ended		1 Months Ended					1 Months Ended		0 Months Ended	1 Months Ended
	Feb. 29, 2012 Amended Credit Facility	Sep. 29, 2012 Amended Credit Facility	Feb. 29, 2012 Amended Credit Facility Period through September 30, 2011	Feb. 29, 2012 Amended Credit Facility Period between September 30, 2011 to September 30, 2012	Feb. 29, 2012 Amended Credit Facility Period between September 30, 2012 to September 30, 2013	Feb. 29, 2012 Amended Credit Facility Minimum	Feb. 22, 2012 Amended Credit Facility Minimum	Feb. 29, 2012 Amended Credit Facility Maximum	Feb. 22, 2012 Amended Credit Facility Maximum	Sep. 21, 2012 Second Amendment to the Amended Credit Facility	Feb. 29, 2012 Third Amendment to the Amended Credit Facility	Feb. 29, 2012 Third Amendment to the Amended Credit Facility Minimum	Sep. 29, 2012 Third Amendment to the Amended Credit Facility Minimum
Financing agreement
Annual capital expenditures covenant before the Second Amendment										$ 2,000,000
Increase in the total availability of the credit facility											4,000,000
Trailing period under financial covenants											12 months
Trailing twelve months earnings before taxes financial covenant, prior to amendment												800,000
Trailing twelve months earnings before taxes financial covenant, subsequent to amendment												250,000
Excess borrowing base availability each year as per financial covenant													3,000,000
Maximum borrowing capacity		15,000,000
Base rate	three-month LIBOR
Spread over base rate (as a percent)							1.50%		2.50%
One-time origination fee	150,000
Annual unused line fee (as a percent)						0.25%		0.375%
Period of notice for termination or reduction of credit facility (in days)	90 days
Termination fee as percentage of maximum line amount			1.00%	0.50%	0.25%
Annual capital expenditure allowed under credit facility	2,000,000									2,500,000
Total availability under credit facility		$ 12,100,000

XML

Shareholders' Equity (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 29, 2012	Oct. 01, 2011	Sep. 29, 2012	Oct. 01, 2011
Changes in shareholders' equity
Balance at the beginning of the period			$ 18,333
Common stock issued			172
Share based compensation expense			175
Stock option exercises, value			48
Net income	(645)	1,794	86	2,033
Balance at the end of the period	18,814		18,814
Common Stock
Changes in shareholders' equity
Balance at the beginning of the period, shares			5,032,759
Balance at the beginning of the period			503
Common stock issued, shares			36,848
Common stock issued			4
Stock option exercises, shares			13,250
Stock option exercises, value			1
Balance at the end of the period, shares	5,082,857		5,082,857
Balance at the end of the period	508		508
Additional Capital
Changes in shareholders' equity
Balance at the beginning of the period			26,164
Common stock issued			168
Share based compensation expense			175
Stock option exercises, value			47
Balance at the end of the period	26,554		26,554
Accumulated Deficit
Changes in shareholders' equity
Balance at the beginning of the period			(8,334)
Net income			86
Balance at the end of the period	$ (8,248)		$ (8,248)

XML

Summary of Significant Accounting Policies

9 Months Ended

Sep. 29, 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.

XML

Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Sep. 29, 2012	Dec. 31, 2011
Consolidated Balance Sheets
Accounts receivable, allowance for doubtful accounts (in dollars)	$ 883	$ 644
Property and equipment, accumulated depreciation (in dollars)	$ 8,011	$ 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	5,082,857	5,032,759
Common stock, outstanding shares	5,082,857	5,032,759

XML

Shareholders' Equity (Tables)

9 Months Ended

Sep. 29, 2012

Shareholders' Equity

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	36,848	4		168		—			172
Share based compensation expense	—	—		175		—			175
Stock option exercises	13,250	1		47		—			48
Net income	—	—		—		86			86
Balance as of September 29, 2012	5,082,857	$	508	$	26,554	$	(8,248	)	$	18,814

XML

Document and Entity Information	9 Months Ended
	Sep. 29, 2012	Oct. 29, 2012
Document and Entity Information
Entity Registrant Name	ANALYSTS INTERNATIONAL CORP
Entity Central Index Key	0000006292
Document Type	10-Q
Document Period End Date	Sep. 29, 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		5,082,857
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q3

XML

Share Based Compensation (Tables)

9 Months Ended

Sep. 29, 2012

Share Based Compensation

Summary of stock option activity

	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	88,800		5.16
Exercised	(13,250	)	3.60
Forfeited/Cancelled	(54,600	)	4.31
Outstanding on September 29, 2012	335,650		$	5.31	7.51	$	79,968
Vested or expected to vest at September 29, 2012	310,220		5.36		7.38	$	77,229
Exercisable on September 29, 2012	205,099		5.81		6.64	$	55,787

Summary of stock award activity

	Shares		Weighted Average Grant Date Fair Value
Non-vested at January 1, 2012	88,126		$	4.24
Granted	81,200		5.10
Vested	(41,822	)	4.78
Forfeited	(26,251	)	3.96
Non-vested at September 29, 2012	101,253		$	4.78

XML

Consolidated Statements of Operations (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 29, 2012	Oct. 01, 2011	Sep. 29, 2012	Oct. 01, 2011
Revenues	$ 26,519	$ 28,876	$ 80,321	$ 82,023
Cost of revenues	20,938	21,659	62,112	62,349
Gross profit	5,581	7,217	18,209	19,674
Selling, administrative and other operating costs	6,168	5,389	17,944	16,845
Restructuring costs and other severance related costs		23	113	769
Total operating expenses	6,168	5,412	18,057	17,614
Operating (loss) income	(587)	1,805	152	2,060
Interest expense	(1)		(3)
(Loss) income before income taxes	(588)	1,805	149	2,060
Income tax expense	57	11	63	27
Net (loss) income	$ (645)	$ 1,794	$ 86	$ 2,033
Per common share (basic):
Net (loss) income (in dollars per share)	$ (0.13)	$ 0.36	$ 0.02	$ 0.41
Per common share (diluted):
Net (loss) income (in dollars per share)	$ (0.13)	$ 0.36	$ 0.02	$ 0.41
Weighted-average shares outstanding:
Basic (in shares)	5,082	5,015	5,067	5,008
Diluted (in shares)	5,082	5,024	5,105	5,018

XML

Share Based Compensation

9 Months Ended

Sep. 29, 2012

Share Based Compensation

Share Based Compensation

7.   Share Based Compensation

Total share based compensation expense for the first nine months of fiscal years 2012 and 2011 was approximately $0.4 million in both years and includes compensation expense related to both stock options and stock awards.

In the first nine months of 2012, we recorded a tax benefit of approximately $21,000 related to the share based compensation and for the first nine months of fiscal 2011, we recorded a tax benefit of $48,000. The tax benefit is offset against our valuation allowance for our deferred tax asset.

Stock Options

The following table summarizes the stock option activity for the nine months ended September 29, 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	88,800		5.16
Exercised	(13,250	)	3.60
Forfeited/Cancelled	(54,600	)	4.31
Outstanding on September 29, 2012	335,650		$	5.31	7.51	$	79,968
Vested or expected to vest at September 29, 2012	310,220		5.36		7.38	$	77,229
Exercisable on September 29, 2012	205,099		5.81		6.64	$	55,787

The total fair value of the stock options that vested during the nine months ended September 29, 2012 was approximately $145,000.

For the nine month period ended September 29, 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 negligible. There were no stock options exercised in the nine months ended October 1, 2011.

Total stock option expense for the nine months ended September 29, 2012 was approximately $0.2 million.

As of September 29, 2012, there was approximately $0.2 million of unrecognized share based compensation expense related to unvested stock options that are expected to vest over a weighted-average period of approximately 1.3 years. Options to purchase 335,650 shares were outstanding at September 29, 2012.

Stock Awards

The following table summarizes the stock award activity for the nine months ended September 29, 2012:

	Shares		Weighted Average Grant Date Fair Value
Non-vested at January 1, 2012	88,126		$	4.24
Granted	81,200		5.10
Vested	(41,822	)	4.78
Forfeited	(26,251	)	3.96
Non-vested at September 29, 2012	101,253		$	4.78

The total fair value of stock awards that vested during the nine months ended September 29, 2012 was approximately $185,000.

Total stock award expense for the nine months ended September 29, 2012 was $0.2 million.

As of September 29, 2012, there was $0.2 million of unrecognized compensation expense related to unvested stock awards that were expected to vest over a weighted average period of 1.3 years.

XML

Shareholders' Equity

9 Months Ended

Sep. 29, 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	36,848	4		168		—			172
Share based compensation expense	—	—		175		—			175
Stock option exercises	13,250	1		47		—			48
Net income	—	—		—		86			86
Balance as of September 29, 2012	5,082,857	$	508	$	26,554	$	(8,248	)	$	18,814

XML

Restructuring Costs and Other Severance Related Costs (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended	9 Months Ended			12 Months Ended	9 Months Ended	12 Months Ended
	Oct. 01, 2011	Sep. 29, 2012	Oct. 01, 2011	Sep. 29, 2012 Workforce Reduction	Dec. 31, 2011 Workforce Reduction	Sep. 29, 2012 Office Closure/Consolidation	Dec. 31, 2011 Office Closure/Consolidation
Restructuring Costs and Other Severance Related Costs
Severance and office closure charges	$ 23	$ 113	$ 769	$ 113	$ 400	$ 100	$ 400
Restructuring charges and subsequent activity in restructuring accrual
Balance at the beginning of the period		470		179		291
Additional restructuring charges	23	113	769	113	400	100	400
Cash expenditures		(494)		(238)		(256)
Balance at the end of the period		$ 89		$ 54	$ 179	$ 35	$ 291

XML

Net Income (Loss) Per Share (Tables)

9 Months Ended

Sep. 29, 2012

Net Income (Loss) Per Share

Computation of basic and diluted income per share

	Three Months Ended					Nine Months Ended
	September 29,			October 1,		September 29,		October 1,
(In thousands except per share amounts)	2012			2011		2012		2011
Net (loss) income	$	(645	)	$	1,794	$	86	$	2,033
Weighted-average number of common shares outstanding	5,082			5,015		5,067		5,008
Dilutive effect of potential common shares outstanding	—			9		38		10
Weighted-average number of common and common equivalent shares outstanding	5,082			5,024		5,105		5,018
Net (loss) income per share:
Basic	$	(0.13	)	$	0.36	$	0.02	$	0.41
Diluted	$	(0.13	)	$	0.36	$	0.02	$	0.41

XML

Property and Equipment (Tables)

9 Months Ended

Sep. 29, 2012

Property and Equipment

Schedule of property and equipment and their estimated useful lives

(In thousands)	September 29, 2012			December 31, 2011			Useful lives (in years)
Leasehold improvements	$	304		$	247		Shorter of useful life or lease term
Office furniture & equipment	1,813			1,808			5 - 10
Computer hardware	1,654			1,569			2 - 5
Software	6,432			4,574			2 - 5
Work in process	99			1,432
	10,302			9,630
Accumulated depreciation	(8,011		)	(7,535		)
Property and equipment, net	$	2,291		$	2,095

XML

Net Income (Loss) Per Share

9 Months Ended

Sep. 29, 2012

Net Income (Loss) Per Share

Net Income (Loss) Per Share

8.   Net Income (Loss) Per Share

Basic and diluted income (loss) per share is presented in accordance with ASC Topic 260, Earnings Per Share. Basic income (loss) per share excludes dilution and is computed by dividing income (loss) 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 nine-month period ended September 29, 2012, anti-dilutive weighted average shares of 258,730 were excluded from the calculation of weighted average number of common equivalent shares outstanding. For the nine-month period ended October 1, 2011, anti-dilutive weighted average shares of 334,928 were excluded from the calculation of weighted average number of common equivalent shares outstanding. The computation of basic and diluted income (loss) per share for the three and nine months ended September 29, 2012 and October 1, 2011 is as follows:

	Three Months Ended					Nine Months Ended
	September 29,			October 1,		September 29,		October 1,
(In thousands except per share amounts)	2012			2011		2012		2011
Net (loss) income	$	(645	)	$	1,794	$	86	$	2,033
Weighted-average number of common shares outstanding	5,082			5,015		5,067		5,008
Dilutive effect of potential common shares outstanding	—			9		38		10
Weighted-average number of common and common equivalent shares outstanding	5,082			5,024		5,105		5,018
Net (loss) income per share:
Basic	$	(0.13	)	$	0.36	$	0.02	$	0.41
Diluted	$	(0.13	)	$	0.36	$	0.02	$	0.41

XML

Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 29, 2012

Summary of Significant Accounting Policies

Basis of Consolidation

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

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.

XML

Restructuring Costs and Other Severance Related Costs (Tables)

9 Months Ended

Sep. 29, 2012

Restructuring Costs and Other Severance Related Costs

Summary of the restructuring charges and subsequent activity in restructuring accrual

	Workforce			Office Closure/
(In thousands)	Reduction			Consolidation			Total
Balance as of December 31, 2011	$	179		$	291		$	470
Additional restructuring charges	113			—			113
Cash expenditures	(238		)	(256		)	(494		)
Balance as of September 29, 2012	$	54		$	35		$	89

XML

Property and Equipment (Details) (USD $)							3 Months Ended				9 Months Ended			12 Months Ended	9 Months Ended
	Sep. 29, 2012	Dec. 31, 2011	Sep. 29, 2012 Leasehold improvements	Dec. 31, 2011 Leasehold improvements	Sep. 29, 2012 Office furniture & equipment	Dec. 31, 2011 Office furniture & equipment	Sep. 29, 2012 Office furniture & equipment Minimum	Sep. 29, 2012 Office furniture & equipment Maximum	Sep. 29, 2012 Computer hardware	Dec. 31, 2011 Computer hardware	Sep. 29, 2012 Computer hardware Minimum	Sep. 29, 2012 Computer hardware Maximum	Sep. 29, 2012 Software	Dec. 31, 2011 Software	Sep. 29, 2012 Software Minimum	Sep. 29, 2012 Software Maximum	Sep. 29, 2012 Work in process	Dec. 31, 2011 Work in process
Property and Equipment
Property and equipment, Gross	$ 10,302,000	$ 9,630,000	$ 304,000	$ 247,000	$ 1,813,000	$ 1,808,000			$ 1,654,000	$ 1,569,000			$ 6,432,000	$ 4,574,000			$ 99,000	$ 1,432,000
Accumulated depreciation	(8,011,000)	(7,535,000)
Property and equipment, Net	2,291,000	2,095,000
Useful lives							5 years	10 years			2 years	5 years			2 years	5 years
Cost capitalized for project to implement ERP													$ 500,000	$ 1,500,000

XML

Net Income (Loss) Per Share (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 29, 2012	Oct. 01, 2011	Sep. 29, 2012	Oct. 01, 2011
Net Income (Loss) Per Share
Anti-dilutive weighted average shares excluded from calculation of weighted average number of common equivalent shares outstanding			258,730	334,928
Net (loss) income	$ (645)	$ 1,794	$ 86	$ 2,033
Weighted-average number of common shares outstanding	5,082,000	5,015,000	5,067,000	5,008,000
Dilutive effect of potential common share outstanding		9,000	38,000	10,000
Weighted-average number of common and common equivalent shares	5,082,000	5,024,000	5,105,000	5,018,000
Net (loss) income per share:
Basic (in dollars per share)	$ (0.13)	$ 0.36	$ 0.02	$ 0.41
Diluted (in dollars per share)	$ (0.13)	$ 0.36	$ 0.02	$ 0.41

XML

Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 29, 2012	Oct. 01, 2011
Cash flows from operating activities:
Net income	$ 86	$ 2,033
Adjustments to net income:
Depreciation	479	464
Share based compensation	375	419
Changes in:
Accounts receivable	(1,112)	(2,001)
Prepaid expenses and other assets	174	163
Accounts payable	(601)	265
Salaries and benefits	1,107	1,508
Deferred revenue	(48)	20
Deferred compensation	(115)	(553)
Restructuring accrual	(381)	182
Other accrued liabilities	(2)	58
Net cash (used in) provided by operating activities	(38)	2,558
Cash flows from investing activities:
Expended for property and equipment additions	(907)	(1,084)
Proceeds from trust investment	220
Proceeds from cash surrender of insurance policy		531
Net cash used in investing activities	(687)	(553)
Cash flows from financing activities:
Proceeds from line of credit	5,000
Payments on line of credit	(5,000)
Proceeds from stock option exercises	41
Payment of insurance policy loan		(486)
Payment of capital lease obligation		(60)
Net cash provided by (used in) financing activities	41	(546)
Net (decrease) increase in cash and cash equivalents	(684)	1,459
Cash and cash equivalents at beginning of period	5,135	4,328
Cash and cash equivalents at end of period	4,451	5,787
Cash paid during the year for:
Income taxes	63	18
Interest	3
Non-cash investing and financing activities:
Capital expenditures included in accounts payable	$ 60	$ 90

XML

Restructuring Costs and Other Severance Related Costs

9 Months Ended

Sep. 29, 2012

Restructuring Costs and Other Severance Related Costs

Restructuring Costs and Other Severance Related Costs

5.   Restructuring Costs and Other Severance Related Costs

For the nine month period ended September 29, 2012, we recorded severance charges of $0.1 million related to changes in our senior executive officers.

For the nine month period ended October 1, 2011, we recorded severance and office closure charges of $0.8 million. Of these charges, $0.4 million related to severance and severance-related charges for changes in our senior executive officers and $0.4 million related to the relocation of our corporate headquarters.

A summary of the restructuring charges and subsequent activity in the restructuring accrual for the nine months ended September 29, 2012 is as follows:

	Workforce			Office Closure/
(In thousands)	Reduction			Consolidation			Total
Balance as of December 31, 2011	$	179		$	291		$	470
Additional restructuring charges	113			—			113
Cash expenditures	(238		)	(256		)	(494		)
Balance as of September 29, 2012	$	54		$	35		$	89

XML

Organization and Nature of Business (Details)	Sep. 29, 2012 staff
Organization and Nature of Business
Number of IT professionals, management and administrative staff employed	900