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Executives

Elmer N. Baldwin - President and Chief Executive Officer

David J. Steichen - Chief Financial Officer

Analysts

Steven Rudnitsky - USIP

Rick D’Auteuil - Columbia Management

Benj Gallander

Analysts International Corporation (ANLY) F4Q07 (Qtr End 12/29/07) Earnings Call March 4, 2008 10:00 AM ET

Operator

Good morning. My name is Vince, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Analysts International Corporation’s Fourth Quarter and Year-End Conference Call. (Operator Instructions)

This conference will contain forward-looking statements within the meaning of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. In some cases, forward-looking statements can be identified by words such as "believe," "expect," "anticipate," "plan," "potential," "continue" or similar expressions. Forward-looking statements also include the assumptions underlying any of these statements. Such forward-looking statements include or relate to our expectations concerning quarterly and annual operating results, working capital, expected need for and uses of cash, implementation of our business plan, achieving or exceeding our business objectives ahead of plan, improvement in our gross margin and our overall performance.

These forward-looking statements are based upon current expectations and beliefs and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the statements. For more information concerning the risks associated with our business and the economic, business competitive, and/or regulatory factors affecting our business generally, refer to the company’s filings with the SEC including its Annual Report on Form 10-K for this most recent fiscal year, especially in the management’s discussion and analysis section, its most recent Quarterly Report on Form 10-Q and its Current Reports on Form 8-K.

All forward-looking statements included in this conference call are based on information available to the company on the date of the earnings conference call. The company undertakes no obligation and expressly disclaims any such obligation to update forward-looking statements made in this transcript to reflect events or circumstances after the date of this conference call or to update reasons why actual results would differ from those anticipated in such forward-looking statements.

In addition, in this call, management will review financial measures such as EBITDA that do not conform to generally accepted accounting principles. For reconciliation of these measures and the generally accepted accounting principles, participants are directed to the company’s press release which is posted on the website at www.analysts.com.

Thank you. I will now turn the conference over to Elmer Baldwin. Please go ahead, sir.

Elmer N. Baldwin

Good morning everyone. Thank you for joining us. With me on the call today is David J. Steichen, our CFO, who will review AIC’s Fourth Quarter and Full-Year Results. This morning, we issued our Fourth Quarter and Year-End financial results for 2007. I will let David Steichen review the quarter and Full-Year results for 2007. Once Dave has gone through the financials, I will then provide you with my perspective and open up the call for questions. Dave?

David J. Steichen

Thank you, Elmer. As we stated in our press release earlier this morning, during the fourth quarter of 2007 our total revenue was $87.8 million, up from $86.8 million in the fourth quarter of 2006. From a profitability standpoint, our fourth quarter resulted in net loss of $13 million or 52 cents per share. This loss includes special charges totaling $13.5 million of which $11.5 million represented non-cash impairment charges against our goodwill, intangible assets, and deferred tax assets. Without these special charges, we generated a fourth quarter profit of $453,000 in 2007 compared to a net loss of $531,000 during the fourth quarter of 2006.

For the fourth quarter, our direct revenue which excludes product and sub-supplier revenue was $60.1 million. Our average bill rates during the quarter increased compared to the fourth quarter of 2006. In addition, although they were negatively affected by a charge of $375,000 relating to the write-off of previously deferred contract costs, our average gross margin on direct services revenue increased during the fourth quarter of 2007 absent this write-off. Our direct services margin would have averaged 20.9% for the fourth quarter, which would have been up from 20% in the third quarter of 2007 and 20.3% for the full year of 2007. Due to headcount losses earlier in the year, our fourth quarter direct services revenue of $60.1 million lagged behind our 2006 fourth quarter total of $64.5 million. Although we continued to make positive strides in both average bill rates and average gross margins during 2007, our success in improving gross margins in many areas of our business were offset by the final acceleration in the amount of discounts we had agreed to pay under a 2005 poor-staffing contract with our largest account. With no additional discounting scheduled for this account, we believe our ongoing efforts to improve gross margins throughout our business will show progress in 2008.

Revenue for product sales during the fourth quarter was $14 million compared to $7 million in the comparable quarter of 2006. As was the case during the second and third quarters of 2007, our product sales continued to be strong during the fourth quarter, during which time we realized an average gross margin on all product sales in excess of 17%.

Fourth quarter sub-supplier revenue was $13.7 million compared to $14.7 million in the comparable quarter of 2006. As we have been able to reduce our reliance on third parties to fulfill our obligations to our largest clients, we have begun to see a corresponding decline in our sub-supplier revenue. A reduced reliance on these third parties, however, has enabled us to achieve margins on this revenue.

At the end of the fourth quarter of 2007, excluding consultants’ billing through us as sub-suppliers and nurses billing through our medical staffing subsidiary, total company headcount was 2471, compared to 2680 at the end of 2006. Majority of this decline resulted from a loss of billable headcount during the first 4 months of this year. Billable headcount continues to represent approximately 86% of our staff.

Our fourth quarter SG&A expense, which excludes special charges, amounted to $14.9 million, or 16.9% of total revenue. As a percentage of revenue, this represents a slight improvement over fourth quarter 2006 SG&A expense of 17%. As we discussed in our January 23, 2008, conference call, our new business plan calls for us to eliminate over $6 million of SG&A on an annualized basis beginning in January 2008. We expect these reductions to become fully effective by the start of the third quarter of 2008.

As we also announced on the January 23, 2008, conference call, during the fourth quarter of 2007, we recorded a number of special charges. These charges totaled $13.5 million and consisted primarily of $1.8 million in severance and other costs associated with the initiation of our new business plan, a noncash charge of $3 million to write off customer and trademark-related intangible assets which became impaired during the fourth quarter, a noncash charge of $5.5 million to eliminate a portion of our recorded goodwill which was deemed to be impaired as a result of a shift in strategic focus of our company under the new business plan, and a noncash charge of $2.6 million to establish evaluation allowance to fully reserve our deferred tax assets. Adjusting for the $13.5 million of special charges in the fourth quarter of 2007, we recorded adjusted EBITDA of $1.2 million. This compares to adjusted EBITDA of $493,000 reported during the last quarter of 2006.

For the full year of 2007, we recorded total revenue of $359.7 million and a net loss of $16.2 million. Before special charges of $15.4 million, our net loss for the year was $775,000. This compares to total revenue of $347 million and a net loss of $1.1 million for fiscal year 2006.

From a balance sheet perspective, our accounts receivable balance of $66.1 million at the end of the fourth quarter of 2007 was down compared to $69.7 million at the end of the third quarter, but up from $64.2 million reported in December 2006.

At the end of the fourth quarter, our day sales outstanding of 72.6 days compared to 69 days in December 2006. We continue to focus significant efforts on managing our DSO to as low a number as practical. Working capital of $24.8 million for the fourth quarter of 2007 was down from $26.7 million at the end of the third quarter.

We finished the quarter with only $1.6 million of outstanding debt, down from $8.9 million at the end of the third quarter. This significant decline in outstanding debt was due primarily to the timing of our biweekly payroll.

Our credit facility had total availability of $37 million at the end of the quarter, leaving us with unused capacity of approximately $35.4 million. The level of available borrowings under this facility will continue to fluctuate as our receivables collateral base fluctuates. This line of credit is available for our use as growth and other opportunities call for working capital and other investments. We believe our unused credit facility can support the operating needs of our company.

As we discussed on the January 23, 2008, conference call, our new business plan calls for significant cost reductions to begin to take effect in the first half of 2008. To implement these cost reductions, we expect to incur additional severance and lease-related costs during the first half of the year totaling between $2.5 and $3 million. We also expect additional unplanned expenses of up to $500,000 during the first half of 2008. In addition, our plan calls for us to invest in hiring new people to help us execute on our strategy to expand our solutions-oriented services into new geographic markets. With these additional costs, we expect our return to sustained profitability will not be achieved until the second half of 2008.

With that, I’ll turn the call back over to Elmer.

Elmer N. Baldwin

Thanks, Dave. As I stated at the press release, the trend towards improved performance began in the second half of 2007. Our fourth quarter is an indication that the company is capable of delivering and demonstrates that we are on the right track. Excluding special charges, for the first time in nearly two years, we were profitable on operations.

We secured several new client wins in the fourth quarter that are worth discussing in more detail. A large North American automotive manufacturer wanted to refresh its consumer website and associated back-end application requirement to enhance the car shoppers’ ability to research and compare its product lines as well as search for dealers and its inventories. The client turned to Analysts International because of our knowledge expertise and proven track record in service-oriented applications architecture. We partnered with two other software providers to move the client from its old architecture to the new service-oriented architecture that will provide greater flexibility in all of its consumer websites. The new architecture will also allow them to integrate other sites from its other divisions across the globe. Throughout 2008, we will continue to develop, enhance, and support the new environment.

When a multi-state insurance provider client needed to replace its existing Legacy production network and build out a parallel network to win a 3-year federal contract so they can market insurance products and services to federal employees, they turned to Analysts International to help them design and implement a flexible, scalable, and secure network infrastructure meeting strict federal security guidelines. The client chose us because we have developed an intimate and trusting relationship with them over the years. Combined with the significant local technical support we can provide them as well as our depth and breadth of technology knowledge and experience in designing and implementing these core network infrastructures using Cisco’s industry-leading router and switch technology, we have a reliable and proven implementation delivery model with Analysts International solutions framework that delivers projects on time and on budget. In addition, AIC has helped this client upgrade its existing network and security infrastructure to give them the scalability and flexibility to meet future growth requirements. This was a big win for both of us.

Another client is a leading healthcare provider in Central Michigan who turned to Analysts International to help them upgrade their old router and switch network infrastructure. The company’s current network infrastructure did not have the processing power nor some of the newer technology features needed to support the healthcare provider’s explosive growth and requirement for visibility, reliability, portability, and compliance. The client needed help in designing and implementing a core router and switch infrastructure that will be flexible and scalable to support its growth and expansion plans. Once the full core of route-switch environment network is in place with failover redundancy spread across three data centers, the client will be poised for growth and the realization of benefits from centralized management of its integrated systems.

As we previously released in December, the Colorado Department of Public Safety turned to Analysts International to help them design and implement a cost-effective criminal information system that would incorporate the latest technology as well as being reliable and available to law enforcement and other public safety officials. The system complies with the National Information Exchange Model so they can share critical state-wide criminal justice information with other Colorado public safety organizations as well as federal law enforcement and homeland security organizations. We will be working on this project with Colorado for the next couple of years.

In addition to these multimillion dollar projects, our staff supplementation business continues to display strong demand, and we will continue to seek new ways of finding, hiring, and retaining talent to serve our clients. While we are encouraged by the results discussed this morning, we still face many challenges as a business. We are using these wins to further motivate us to do better. In order for us to meet the long-term goals outlined in our strategic plan and return to Analysts International Corporation to sustained profitability, we have a lot more work to do. Given the strength of our people, the commitment to change, and the positive momentum around our plan, I am confident that the company has a positive future. Thank you. I’ll now open it up for your questions.

Question-and-Answer Session

Operator

Thank you, sir. We will now begin the question and answer session. (Operator Instructions)

Steven Rudnitsky - USIP

Hi. Tell me, the $2.5 to $3 million in additional – and I don’t know if you said cost or charges that seemed to be incurred in the first quarter – I didn’t quite understand – have we not taken those charges into account? Is it on top of the $17 million or so that we’ve taken for the year?

David J. Steichen

Yeah. Those charges are related to employee terminations that occurred during the first and will occur during the second quarters, and because of the rules around the timing of notifications and so forth, those accruals were not allowed to be taken in December. Those were in addition to the $1.8 million of termination costs we saw in December.

Steven Rudnitsky - USIP

Okay. And the lease charges? Were they not – it sounded like some of those were also lease terminations.

David J. Steichen

Yeah. A small component of that which will be lease related and there again, we were not able to stop using those certain facilities during December, it just took us a little longer to get people moved out and get those facilities shut down, and we had planned for that, I mean, we knew that that was going to be the case. So, we’ve got a small amount of that first and second quarter money that will go to accrual for future lease payments.

Steven Rudnitsky - USIP

Okay. And obviously these are cash charges – let me try – because the termination has got to be cash payouts, the lease – I guess – over time, but the lease payments would also have to do it all… No – I guess – you don’t have to do it all in one shot, right?

David J. Steichen

No. The lease payments will be over time – the terms on those leases can be anywhere from a few more months to a couple more years – but the employee termination costs will be current cash.

Steven Rudnitsky - USIP

The $6 million that we are going to see in savings on SG&A – is that going to be inclusive of these employee charges, I mean, inclusive of this reduced headcount? Or will we see additional savings here?

David J. Steichen

The $6 million of annualized savings includes the terminations, the employee actions taken in December, as well as the first quarter and even a little bit into the second quarter of 2008. We won’t hit that annualized run rate until the beginning of the third quarter.

Steven Rudnitsky - USIP

Okay, I understand. And last question, I haven’t reviewed – and I have no particular ax to grind either way, but I saw this letter that some other party had put in about potentially buying the company and I saw you replied to it. Just tell us where that thing stands and what the thoughts are.

Elmer N. Baldwin

Steve, this is Elmer. The Board of Directors evaluated the Koosharem proposal and concluded that it was not in the best interests of shareholders. The proposal did not reflect the long-term value of our transformation strategy in the plan that we produced and shared with them in December, and I think that the company’s response as noted on our website and as we released kind of reflects the attitude of the Board.

Steven Rudnitsky - USIP

I tend to agree with that. I’m just wondering if this, you know, certainly I think it is undervalued by far and they probably could do better, but I’m just wondering if it makes any sense to see what is out there and maybe have a more serious discussion with either them or other parties.

Elmer N. Baldwin

Well, I think that, certainly the Board will, consistent with its fiduciary duty, respond in good faith to any proposal it receives, but at this time, I’ve been directed to proceed with implementation of the plan, and I would tell you that the Board has taken this matter very very seriously, and we have done our analysis, and we’ve had – we hired good counsel – and I guess I would give one editorial comment that this matter has been expensive and distracting.

Steven Rudnitsky - USIP

Okay. Well, that’s never good. Last question is, on the $6 million of the SG&A, are we going to really see as shareholders, do I get to see that go right to my bottom line on an annualized basis or are we going to have something that diminishes that?

Elmer N. Baldwin

So, Steve, the question is will you see this reduction in SG&A come back to shareholders?

Steven Rudnitsky - USIP

Yes.

Elmer N. Baldwin

The answer is yes.

Steven Rudnitsky - USIP

Wait, I’m sorry….

Elmer N. Baldwin

That’s the driving factor for this activity.

David J. Steichen

We would qualify that only to say that, you know, the plan also includes some investments in building new businesses throughout 2008.

Steven Rudnitsky - USIP

Well, that’s what I wanted to…. really what I’m getting to is – is the $6 million… Give me the net of building new business.

David J. Steichen

The $6 million is a net reduction in our SG&A run rate, but we have included this year some additional investment for the development and launch of the new offerings in major metro markets, and I think we outlined that in our January press release.

Steven Rudnitsky - USIP

Yeah, I was on that and I read the press release, and here is all I’m trying to get – I don’t want to nail you down – but I do want to get is the $6 million – once we try to develop these new businesses and we have the expenses associated – and I understand we are expecting revenue to come from these new businesses and I think that is all smart. I just want to know if net what that $6 million becomes. Let’s assume that we have minimal success or no success in the new business. In other words are we spending – I think you know what I am asking. If I’m not clear, just tell me.

David J. Steichen

Yeah. It’s a permanent reduction of $6 million in SG&A expense, primarily focused on some facilities and headcount.

Steven Rudnitsky - USIP

Right.

David J. Steichen

We will be making some additional investment of some of that savings back into the business as appropriate and so, not all of that $6 million will hit the bottom line, but it will be invested in growth, and it will come out of a non-value added expense of the corporation.

Steven Rudnitsky - USIP

Okay.

David J. Steichen

But there will be a net contribution to the shareholders.

Steven Rudnitsky - USIP

Okay. And if you’ll just tell me what that net will be, then I’ll be able to pass it on to the next person.

David J. Steichen

At this point, we’re not giving guidance for this year. What I can tell you is that there will be positive net income in the third and fourth quarters of this year and going forward.

Steven Rudnitsky - USIP

Okay. Well, you guys have got a big job to do and I wish you the best of luck and thank you very much.

David J. Steichen

Thank you, Steve.

Operator

Thank you. Our next question is from the line of Rick D’Auteuil with Columbia Management. Please go ahead.

Rick D’Auteuil - Columbia Management

Good morning. Just on the one contract or customer I guess that you talked about that had poor margins or you had some discounting in the contract with them that is now rolled off, can you elaborate on that a little bit and what does that mean for impact if the discounting is now rolled off – what can it contribute to on a rolled up basis or an aggregate basis to gross margins?

David J. Steichen

Rick, this is Dave. I want to be clear on what I’ve stated there because it sounds like it was a little confusing. That contract that we entered into in 2005 had escalation of discounts on an annual basis over a 3-year period. In middle of 2007, we reached the peak and we will stay there, so it’s not that those discounts – that discounting – goes away. Those discounts have been increasing on an annual basis, and they will stay at the current levels going forward. So what I was trying to say is that the improvements that we see in the rest of our business through 2007 have been offset by that ever escalating discount on that client, and so it’s been masked, they’ve been masked, and we’ve been seeing improvements elsewhere. Going forward, we expect to continue to see those improvements elsewhere, and with this account no longer getting worse, we should see those improvements reflecting in the overall results.

Rick D’Auteuil - Columbia Management

What were the year-over-year comparisons with that client on revenues in the quarter?

David J. Steichen

That client for the quarter was 12% of our revenue – for the fourth quarter of 2007. For the year, was 14% of our revenue, and last year, was 19% in 2006.

Rick D’Auteuil - Columbia Management

So, it’s declining now?

David J. Steichen

It’s declining. Our margins also have been declining.

Rick D’Auteuil - Columbia Management

Okay. There was some discussion, I think on the prior call in January, on evaluating some business that may not make sense going forward – is this part of that evaluation?

Elmer N. Baldwin

Rick, this is Elmer. The answer to that is yes. That particular client is not just one contract; however, this contract that Dave is talking about includes rebate discounting, and we hit the maximum on that rebate discounting which we believe is an unacceptable pricing scheme going forward and it doesn’t work for them and it doesn’t work for us, and it’s a leftover and antiquated model based on an industry that has attempted to fully commoditize the good work of the IT professional, and we’re working to make that point clear to this client and other clients that have such an idea, but I’ll tell you, that client really does represent both an opportunity in the value and the volume business for Analysts, and I’ve said that before when we talked about this in January, we’ve got to take that client’s business and break it into pieces and there are some of that that we can’t rationalize at 6% gross margins.

Rick D’Auteuil - Columbia Management

Okay.

Elmer N. Baldwin

….which is what we’re driving on. The good news story is that volume was about 10 million in the fourth quarter, and that is down from the first quarter, and I will tell you that we have gone to work on reducing our sub-supplier dependencies on that client which eroded further from our gross margin. So while we’re picking up a few gross margin points by reducing our dependencies on sub-supplier, quite frankly I don’t want to be in the business of selling work for others. You know, we’ve got to look for ways to strike value for Analysts International. And this business is on the radar.

Rick D’Auteuil - Columbia Management

Okay. Thank you.

Operator

Thank you. Our next question is from the line of Benj Gallander with [inaudible]. Please go ahead.

Benj Gallander

Hi Elmer. I was very happy to see you when you came aboard. Thanks for doing it.

Elmer N. Baldwin

Thank you.

Benj Gallander

My question also goes back to the takeover offer, and I also subscribe to the fact that I believe that the company is way undervalued, but I just want to make certain that you are very willing to listen further to offers that are coming in; I mean, this offer is at 34% or so above the current price, and with some backing and forthing, maybe, you could get it up to the $2 or $225 level where they offered before. It just seems that I paid much more for the stock before and recently bought in more at $1.31, but it just seems that that kind of a premium for investors given where the stock price is now certainly seems reasonable given most of the takeovers that I’ve been involved in which is pretty extensive.

Elmer N. Baldwin

So Benj, yes I would say, the board thoughtfully considers all proposals made to the company, but the company is not actively for sale.

Benj Gallander

But if the right offer came in, you guys would be willing to accept it basically.

Elmer N. Baldwin

I guess I can’t comment on the hypotheticals, but we understand fully the fiduciary duty of the board, and we’ll continue to serve that duty to our shareholders.

Benj Gallander

Okay. Well, again, thanks for coming aboard, and I do appreciate it.

Elmer N. Baldwin

You are welcome. I enjoy it. I think it’s a good company and I’ve enjoyed my job – I keep saying that – I talk about clients and client wins because we can spend a lot of time focusing on what we haven’t done to run our businesses productively and effectively as possible, but the real good story about Analysts International is out in the marketplace, and we tend to not talk about that enough. So, thanks for the encouragement.

Operator

Thank you. Ladies and gentlemen, if there are any additional questions, please press the star followed by the 1 at this time. As a reminder, if you are using speaker equipment, you will need to lift the handset before pressing the numbers. We do have a followup question from the line of Steven Rudnitsky with USIP. Please go ahead.

Steven Rudnitsky - USIP

Hi. On this business that’s not so terrific with the minimal margins on it, can you give us an idea of – it sounds to me, if I heard this right, with 12% of annual revenue – so roughly about $40 or $50 million for 2007. Is that right?

Elmer N. Baldwin

That’s correct.

Steven Rudnitsky - USIP

And of that we have some business that’s lousy and some business that’s good. If we were to break it up, and forgive my imprecise way of speaking, but if we were to break it up into the lousy business and the good business, does it whack up 50% as lousy and 50% as good?

Elmer N. Baldwin

I would say, this is Elmer – Steve – I would say, no. I would say – and I wouldn’t classify it as lousy and good….

Steven Rudnitsky - USIP

Let’s call it better margin and poor margin.

Elmer N. Baldwin

Okay. I would say there’s probably an 80:20 rule here. And in the 80% of this client we’re seeing is pure volume. And we’ve got areas, maybe, about 20% – and I would say to you that the upside opportunity within this client is tremendous. It’s measured in tens of millions – that would be what I call the value-driven business where we can clearly differentiate what we do. We have some great skills in certain areas, and so, we’re really looking hard at the total volume business that’s – any volume business that we have that’s under 10% gross margins is – just frankly doesn’t work for this company long-term. And we have to seek ways to reposition ourselves with these clients and find solutions to continue to help them meet their business objectives and deliver on their promise every day, but at the same time minimize the financial impact on this company from that very low gross margin business. So, all that high-volume low-gross margin business is not translating into shareholder value.

Steven Rudnitsky - USIP

So 80% is the poor margin business and 20% is the decent margin business. What is our ability contractually to get out from under the 80%. Are we able to simply say, “We’re not doing it anymore,” and I know this is a negotiating – by the way, I mean, your approach sounds extremely intelligent, you know, you don’t want to throw the baby out with the bath water, and you have a very measured way of speaking, so I’m sure your touch is very good with the client, but I’m just wondering are we able to take that 80% and over the year we can phase it out, I mean, what’s our contractual ability to extract ourselves?

Elmer N. Baldwin

We have obligations under our service agreement with this client, and every day that the agreement is in force, we’re going to do our best to serve them. So, I’d rather deal with the business on top of the table with this client and go to work on the fact that this vehicle is not working for us. So, I don’t want to negotiate with this client here on a conference call announcing our earnings, but I think every shareholder should know that we see a significant portion of our business – and it’s higher than $50 million – that we need to attack – that we need to change it. The contracts do not serve the shareholders of Analysts International. Period. And they’re not serving the company. So we’ve got to do something about it. Now, I don’t think that means we just stop doing the work because I can’t continue to incur the SG&A and all the carrying costs of the staff, and you can’t just say, “Well, let’s just refocus those folks on something else.” So, I would rather deal with the problem that unless we come up with a better arrangement, they are going to continue to not serve their clients. Listen, any of these clients that we have out there that feel that finding the most talented people just in time to serve their contingent staffing, supplemental staffing, and IT service needs, and they think that that’s just pure commodity at less than 10% gross margins for the supplier, they are wrong. What’s going to happen is they’ll end up with sub-quality services; they’ll end up with high turnover. The problems with those people will end up in their products, and quite frankly, we have to go in and talk to our clients on a one-by-one basis about the value proposition of what we do. We are not irrelevant to these people. The volume is too high and the relationship is too long, and buried inside this relationship are many good tenured employees of Analysts International who intimately understand this client’s business and this client’s products and services. So, quite frankly we’ve got to do a better job of making our case with our clients. And I’m not going to accept from our sales people anymore or from our clients’ agreements that don’t work for our shareholders. I know I’m ranting a little bit about this one, but this is a problem. And quite frankly, it’s one that we are going to solve – we’re going to solve it this year, but it does not solve overnight, and it would be irresponsible for us to just shoot the contract and go out and tell the client we’re out, which by the way would blunt-up our gross margins. We could take all the rest of that cost out of this company – I get it – that doesn’t daunt us as a task. The question is – is that really the right thing we want to do and is that the legacy we want to leave in the marketplace, and my answer to that is no.

Steven Rudnitsky - USIP

Alright. Elmer, I think you got the right passion for it and your approach is correct. I guess what I’m wondering is let’s say you take the next 6 months in an extremely intelligent discussion with this client and others who also have this low margin business, and they just don’t get it. What I’m wondering is – do we have the ability in a 6- or 12-month timeframe to – and when I say the ability, I am talking the contractual right – and it’s my fault perhaps, but I don’t know where I get it. Having seen one of your contracts, do we have a – that we must provide these people or we can pull out and say, “we’re not doing it anymore,” and then actually reduce ourselves to maybe a company that’s significantly smaller, but significantly more profitable. So, the two-part question is – do we have the ability in 6 to 12 months to contractually get out of these contracts? That’s part one and then….

Elmer N. Baldwin

So, Steve, let me tell you – #1, this agreement has a termination date, quite frankly, that date is far beyond my date of patience, and it’s in the fall of 2009. So, I would also tell you that in all of our agreements, the company has reserved the right to terminate these agreements upon notice with the client and certain transition provision. So, the fact is, if we can’t fix them, we need to fire them.

Steven Rudnitsky - USIP

Okay. I think that’s great, and I appreciate that your patience is limited as it is for all of us, and it may be that you find yourself 6 months from now after being as forward thinking as possible that others don’t joint you in that forward thinking, you say, “alright listen, it’s time to cut the sales by a third or whatever and create a different company that is super-profitable,” and that would be certainly fine with me and I suspect with others who hold the shares.

Elmer N. Baldwin

Thanks for your comments.

Steven Rudnitsky - USIP

Yeah. Thank you.

Operator

Thank you. Mr. Baldwin, there are no further questions at this time. I’ll turn it back to you for any closing remarks.

Elmer N. Baldwin

I appreciate all of you joining us today and listening to our story. We’re passionate about the company. We feel that the company has a lot of work to do. We do face a lot of headwind, but we’re not faced and daunted by the challenge. We continue to make progress in search of finalizing our management team and in search of our replacement Chief Financial Officer. I want to say to David Steichen who is here in the room with me and has worked hard for this company for many many years, I can tell all of you on the phone, you’ve done an excellent job in getting our 10-K prepared, getting our financials reviewed with the auditors. Our auditors came through with the cleanest report in this last board meeting, and it has been a pleasure working with him and his team to get our numbers done in a complicated restructuring efforts. I thank you very much for that, Dave. So, anyway, I look forward to updating all of you as we make progress along the way, and we have something to tell you in between the conference calls, we’ll go ahead and like we did in January, we’ll make the release and we’ll put out a call notice. Thank you all for your support of Analysts International. Take care. Bye bye.

Operator

Ladies and gentleman, this concludes the Analysts International Corporation’s Fourth Quarter and Year End Conference Call. If you’d like to listen to the replay of today’s conference call, please dial 1-800-406-7325 or 303-590-3030 using the access code of 3844769 followed by the pound key. Once again, if you’d like to listen to the replay of today’s conference, please dial 1-800-406-7325 or 303-590-3030 using the access code 3844769 followed by the pound key. We’d like to thank you for your participation. You may now disconnect.

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Source: Analysts International F4Q07 (Qtr End 12/29/07) Earnings Call Transcript
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