Analysts International Corporation ("AIC," "Company," "we," "us," or "our") is a national information technology ("IT") services company with 10 U.S. office locations. We employ approximately 965 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.

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation.

Our fiscal year ends on the Saturday closest to December 31. References to fiscal years 2011, 2010 and 2009 refer to the fiscal years ended December 31, 2011, January 1, 2011, and January 2, 2010 respectively. Fiscal years 2011, 2010 and 2009 all contain 52 weeks.

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.

As presented in our fiscal 2011 Form 10-K, we have changed the format of our Consolidated Statement of Operations for reporting revenues and cost of revenues. The change in format combines Professional services provided directly and Professional services provided through subsuppliers for both revenues and cost of revenues. Professional services provided through subsuppliers is immaterial to our current and historical operations for the periods presented.

We follow the guidance of FASB ASC Topic 820, Fair Value Measurements and Disclosures herein referred to as ("ASC Topic 820") which:

The fair value hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). A financial instrument's level within the hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The levels of the fair value hierarchy are defined as follows:

We also follow the guidance of FASB ASC Topic 825, Financial Instruments. This ASC permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. We did not elect the fair value measurement option for any items that are not already required to be measured at fair value.

Short-term cash investments in money market accounts are considered to be cash equivalents. The estimated fair values for cash equivalents approximate their carrying values due to the short-term maturities of these instruments. Accordingly, cash equivalents are classified as Level 1.

Intangible assets consisted of client lists. FASB ASC Topic 360, Property, Plant, and Equipment herein referred to as ("ASC Topic 360") requires that if the sum of the undiscounted cash flows is less than the carrying value of the asset, impairment must be evaluated. If an asset is deemed to be impaired, then the amount of the impairment loss recognized represents the excess of the asset's carrying value as compared to its estimated fair value, based on management's assumptions and projections. In the second quarter of fiscal 2009, we evaluated our client lists for impairment in accordance with ASC Topic 360 and recorded a $2.3 million impairment loss.

FASB ASC Topic 718, Compensation—Stock Compensation herein referred to as ("ASC Topic 718") requires us to recognize expense related to the fair value of our stock-based compensation awards.

In accordance with ASC Topic 718, the presentation of our consolidated statement of cash flows will report the excess tax benefits from the exercise of stock options as financing cash flows.

We periodically enter into fixed price engagements. When we enter into such an engagement, revenue is recognized over the life of the contract based on time and materials input to date and estimate time and materials to complete the project. This method of revenue recognition relies on accurate estimates of the cost, scope, and duration of the engagement. If we do not accurately estimate the resources required or the scope of the work to be performed, then future revenues may be negatively affected or losses on contracts may need to be recognized. All future anticipated losses are recognized in the period they are identified. There were no such material losses recorded in fiscal 2011, 2010 or 2009.

In some cases, we provide permanent placement services for clients for a fee. When we provide such services, revenue is recognized when the candidate commences in the position.

In certain client situations, where the nature of the engagement requires it, we utilize the services of other companies in our industry. If these services are provided under an arrangement whereby we agree to retain only a fixed portion of the amount billed to the client to cover our management and administrative costs, these revenues typically are recorded on a gross versus net basis because we retain credit risk and are the primary obligor to our client. All revenue derived from services provided by our employees or other contractors working directly for us are recorded as direct revenue.

Property and equipment is being 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. See table below for estimated useful lives used in the financial statements.

		Useful lives in years

Leasehold improvements		Shorter of useful life or lease term
Office furniture & equipment		5 - 10
Computer hardware		2 - 5
Software		2 - 5

In accordance with FASB ASC Topic 740, Income Taxes ("ASC Topic 740"), we account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. The Financial Accounting Standards Board guidance requires that companies assess whether valuation allowances should be established against their deferred tax assets based on the consideration of all available evidence that can be objectively verified. A company's current or previous losses are given more weight than its future outlook. In making such determination, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, historical and projected future taxable income, tax planning strategies and recent financial operations. Our three-year historical cumulative loss was a significant negative factor in determining that a valuation allowance on these assets continues to be appropriate. In the event we were to determine that we would be able to realize a portion, or all, of our deferred income tax assets in the future in excess of their net recorded amount, we would make an adjustment to the valuation allowance, which could materially impact our financial position and results of operations

ASC 740 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements. ASC 740 also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Additionally, ASC 740 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

We recognize interest and penalties related to uncertain tax positions within interest and penalties expense.

We file a consolidated income tax return in the US federal jurisdiction. We also file consolidated or separate company income tax returns in most states, Canada federal and Ontario province. As of December 31, 2011, there are no federal, state, and foreign income tax audits in progress. We are no longer subject to US federal audits for tax years before 2008, and with few exceptions, the same for state and local audits.

We account for our sales tax and any other taxes that are collected from our clients and remitted to governmental authorities on a net basis. The assessment, collection and payment of these taxes are not reflected on our Consolidated Statement of Operations.

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

Options to purchase 315,000, 296,000, and 618,000 shares of common stock were outstanding at the end of fiscal 2011, 2010, and 2009, respectively. There were approximately 255,000 anti-dilutive weighted average shares excluded from the calculation of weighted average number of common and common equivalent shares outstanding for fiscal 2011. For fiscal 2010 and 2009, all potential common shares outstanding were considered anti-dilutive and excluded from the calculation of weighted average number of common and common equivalent share outstanding because we reported a loss. The computation of basic and diluted income (loss) per share for fiscal 2011, 2010 and 2009 is as follows:

	Fiscal Year Ended

(In thousands except per share amounts)	2011		2010			2009
Net income (loss)	$	3,294	$	(480	)	$	(15,907	)

Weighted-average number of common shares outstanding		5,012		4,986			4,985
Dilutive effect of equity compensation awards		15		—			—

Weighted-average number of common and common equivalent shares outstanding		5,027		4,986			4,985

Net income (loss) per share:
Basic	$	0.66	$	(0.10	)	$	(3.19	)
Diluted	$	0.66	$	(0.10	)	$	(3.19	)

International Business Machines ("IBM") and Chevron are our most significant clients. Our IBM and Chevron business accounted for approximately 7%, 11% and 11% and 11%, 9% and 7%, respectively, of our total revenue for fiscal years 2011, 2010 and 2009.

There have been no new accounting pronouncements issued or changes to existing pronouncements during the fiscal year ended December 31, 2011 that did or will have a material impact on our financial results.