<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
Commission file number 0-23940
ALTERNATIVE RESOURCES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 38-2791069
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
75 Tri-State International, Suite 100, Lincolnshire, IL 60069
(Address of principal executive offices) (Zip code)
(847) 317-1000
(Registrant's telephone number, including area code)
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 .
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
15,459,467 shares of Common Stock outstanding as of April 27, 1996.
Page 1 of 11
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PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
ALTERNATIVE RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
ASSETS
December 31, March 31,
1995 1996
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(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,639 $ 8,152
Short-term investments 12,341 13,190
Trade accounts receivable, net of allowance for doubtful accounts 24,621 25,915
Prepaid expenses 518 903
Other receivables 973 1,214
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Total current assets 43,092 49,374
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Property and equipment:
Office equipment 2,140 2,517
Furniture and fixtures 889 928
Software 363 380
Leasehold improvements 95 103
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3,487 3,928
Less accumulated depreciation and amortization (1,433) (1,680)
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Net property and equipment 2,054 2,248
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Other assets:
Long-term investments 2,460 2,923
Other assets 205 189
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Total other assets 2,665 3,112
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Total assets $ 47,811 $ 54,734
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----------- -----------
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable $ 437 $ 489
Payroll and related expenses 6,082 8,346
Accrued expenses 2,161 2,280
Income taxes payable 418 1,286
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Total current liabilities 9,098 12,401
Deferred rent payable 252 265
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Total liabilities 9,350 12,666
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Stockholders' equity:
Preferred Stock, $.01 par value, 1,000,000 shares authorized, none issued and outstanding -- --
Common Stock, $.01 par value, 20,000,000 shares authorized; 15,347,027 and 15,459,467
shares issued and outstanding at December 31, 1995 and March 31, 1996, respectively 153 155
Additional paid-in capital 19,052 19,953
Unrealized Loss on Investments -- (13)
Cumulative translation adjustment (18) --
Retained earnings 19,274 21,973
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Total stockholders' equity 38,461 42,068
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Total liabilities and stockholders' equity $ 47,811 $ 54,734
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</TABLE>
See accompanying Notes to Consolidated Financial Statements
Page 2 of 11
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ALTERNATIVE RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1995 1996
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(Unaudited)
<S> <C> <C>
Revenue $32,966 $45,834
Cost of services 20,920 29,069
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Gross profit 12,046 16,765
Selling, general and administrative expenses 8,893 12,389
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Income from operations 3,153 4,376
Other income, net 123 259
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Income before income taxes 3,276 4,635
Income taxes 1,340 1,937
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Net income $1,936 $2,698
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Net earnings per share amounts:
Primary $0.12 $0.17
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Fully diluted $0.12 $0.17
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Weighted average common and common
equivalent shares outstanding:
Primary 15,524 16,035
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-------- -------
Fully diluted 15,605 16,125
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</TABLE>
See accompanying Notes to Consolidated Financial Statements
Page 3 of 11
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ALTERNATIVE RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
1995 1996
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(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,936 $ 2,698
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation and amortization 132 247
Deferred income tax benefit (70) --
Allowance for doubtful accounts, net 180 8
Change in assets and liabilities:
Trade accounts receivable (1,564) (1,302)
Prepaid expenses (613) (385)
Other receivables 4 (240)
Lease deposits and other assets (56) 34
Accounts payable (115) 52
Payroll and related expenses 1,625 2,264
Accrued expenses 305 119
Income taxes payable 707 868
Deferred rent payable 15 13
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Net cash provided by operating activities 2,488 4,376
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Cash flows used in investing activities:
Purchases of property and equipment (401) (441)
Purchases of short-term and long-term investments (6,745) (3,327)
Maturities of short-term investments 5,305 2,002
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Net cash used in investing activities (1,841) (1,766)
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Cash flows from financing activities:
Payments received on stock options exercised 109 962
Repurchase of common stock -- (392)
Issuance of common stock under Employee Stock Purchase Plan -- 333
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Net cash provided by financing activities 109 903
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Net increase in cash and cash equivalents 756 3,513
Cash and cash equivalents at beginning of period 2,733 4,639
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Cash and cash equivalents at end of period $ 3,489 $ 8,152
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Supplemental disclosures:
Cash paid for interest -- --
Cash paid for income taxes $ 703 $ 1,070
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</TABLE>
See accompanying Notes to Consolidated Financial Statements
Page 4 of 11
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ALTERNATIVE RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
1. BASIS OF PRESENTATION
The interim consolidated financial statements presented are unaudited, but in
the opinion of management, have been prepared in conformity with generally
accepted accounting principles applied on a basis consistent with those of the
annual financial statements. Such interim consolidated financial statements
reflect all adjustments (consisting of normal recurring accruals) necessary for
a fair presentation of the financial position and the results of operations for
the interim periods presented. The results of operations for the interim
periods presented are not necessarily indicative of the results to be expected
for the year ending December 31, 1996. The interim consolidated financial
statements should be read in connection with the audited financial statements
for the year ended December 31, 1995.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION. The operations of the Company are now conducted through a
parent holding company and two operating subsidiaries, which reflects a natural
division of the Company's service lines. The accompanying financial statements
include the consolidated financial position and results of operations of the
Company and its subsidiaries with all intercompany transactions eliminated in
their entirety.
COMPUTATION OF EARNINGS PER SHARE. Earnings per common and common
equivalent share is based on the average number of common shares and dilutive
common share equivalents outstanding for the three month periods ended March 31,
1995 and 1996. The amount of dilution is computed using the treasury stock
method.
INVESTMENT SECURITIES. The Company classified all its investment securities
as "held-to-maturity" securities at December 31, 1995 under the provision of
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". Commencing in the first quarter of
1996, as held-to-maturity securities mature, the proceeds of such securities
will be reinvested in "available for sale" securities. The Company reports
available-for-sale securities at fair value, with unrealized gains and losses
excluded from earnings and reported as a separate component of shareholders'
equity.
RECLASSIFICATION. Certain 1995 amounts have been reclassified to conform
with the 1996 presentation.
Page 5 of 11
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ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Alternative Resources Corporation ("ARC") has experienced substantial
growth in revenue and earnings driven by industry trends toward outsourcing of
Information Services operations, increased penetration of existing clients and
markets, increased productivity of existing branch offices, the opening of new
branch offices and the introduction of new services. Essentially all of ARC's
revenue is generated from technical resource services (either Tactical or
Strategic) that offer the benefits of outsourcing while allowing Information
Services operations managers to retain strategic control of their operations.
Tactical Resources-SM- provides clients with maximum flexibility as clients may
start and stop projects at any time. Under Strategic ResourcesSM, ARC provides
a comprehensive benefits package to the technical employee without increasing
the client's hourly bill rate. Clients typically select Strategic Resources on
projects expected to extend one year or longer where technical employee
continuity is required. While the gross margin on Strategic Resources is lower
than Tactical Resources, because of the costs of providing additional benefits,
Strategic Resources projects carry lower administrative costs because of the
longer term commitments made by the client. Historically, revenue from Tactical
Resources services provided most of ARC's revenue. ARC expects that Tactical
Resources services will continue to represent the majority of its revenue.
Since 1992, Strategic Resources services have increased as a percentage of total
revenue; however management expects the rate of this increase to slow and
eventually level off.
The Company opened four new offices in the three month period ended March
31, 1996. As of March 31, 1996, the Company had 46 offices in the United States
and Canada as compared to 38 offices at March 31, 1995.
FIRST QUARTER FISCAL 1996 COMPARED TO FIRST QUARTER FISCAL 1995
REVENUE. Revenue increased by 39.0% from $33.0 million in the first
quarter of 1995 to $45.8 million in the first quarter of 1996, primarily as a
result of an increase in the hours of service provided and, to a lesser extent,
an increase in the average revenue per project hour. The increase in hours of
service was primarily due to increased productivity of existing branch offices.
The increase in average revenue per project hour reflects demand for Technical
Employees with higher skill levels.
Page 6 of 11
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GROSS PROFIT. Gross profit increased by 39.2% from $12.0 million in the
first quarter of 1995 to $16.8 million in the first quarter of 1996, primarily
as a result of an increase in hours of service provided to clients. Gross
margin increased marginally from 36.5% in the first quarter of 1995 to 36.6% in
the first quarter of 1996.
During the first fiscal quarter of 1996, ARC reclassified certain expenses,
primarily payroll and other related costs, related to its Professional Services
Group. The Company determined that it was more appropriate to classify these
costs as selling, general and administrative expenses rather than as cost of
services, due to the nature of the functions performed by certain members of the
Professional Services Group. The 1995 gross profit and gross margin information
presented herein has been restated to reflect this reclassification of certain
costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased from $8.9 million in the first quarter of 1995
to $12.4 million in the first quarter of 1996, primarily due to increased
commissions, bonuses and staffing expenses associated with revenue and
profitability growth, an increased number of branch offices and related
operating costs and expenses associasted with the Smartsourcing Solutions and
Middle Market initiatives. Selling, general and administrative expenses
remained constant as a percentage of revenues at 27.0% in the first quarter of
both 1995 and 1996.
INCOME FROM OPERATIONS. Income from operations increased from $3.2 million
in the first quarter of 1995, or 9.6% of total revenues, to $4.4 million in the
first quarter of 1996, or 9.5% of total revenues.
PROVISION FOR INCOME TAXES. The Company's provision for income taxes
increased from $1.3 million, or an effective tax rate of 40.9%, in the first
quarter of 1995 to $1.9 million, or an effective tax rate of 41.8%, in the first
quarter of 1996.
NET INCOME. The Company's net income increased from $1.9 million in the
first quarter of 1995 to $2.7 million in the first quarter of 1996. Net income
remained constant as a percentage of revenues at 5.9% of total revenues in the
first quarter of both 1995 and 1996.
Page 7 of 11
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LIQUIDITY AND CAPITAL RESOURCES
During the first three months of 1996, cash flow generated from operations
was $4.4 million resulting primarily from the Company's earnings for the quarter
and increases in payroll and related liabilities, offset by an increase in
accounts receivable. The increases in payroll and related liabilities and
accounts receivable reflects the increased volume of business during the
quarter. Working capital increased from $34.0 million at December 31, 1995, to
$37.0 million at March 31, 1996.
The Company's $4.0 million bank line of credit with a commercial bank
expired on May 1, 1996. Due to the Company's significant cash and cash
equivalents and investments balance, the Company has chosen not to renew this
line of credit. As of March 31, 1996, no borrowings were outstanding under this
line of credit.
The Company believes its cash balances and funds from operations will be
sufficient to fund continued expansion of its branch office network and to meet
all of its anticipated cash requirements for at least the next twelve months.
Page 8 of 11
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PART II - OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are furnished as an exhibit and numbered
pursuant to Item 601 of Regulation S-K:
27 Financial Data Schedule.
(b) The registrant was not required to file any reports on
Form 8-K for the quarter.
Page 9 of 11
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly authorized this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALTERNATIVE RESOURCES CORPORATION
/s/ Bradley K. Lamers
--------------------------
Bradley K. Lamers
Vice President; Chief Financial Officer;
Secretary; and Treasurer
Date: May 10, 1996
Page 10 of 11
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EXHIBIT INDEX
Exhibit Page
Number Description Number
- - ------ ----------- ------
27 Financial Data Schedule N/A
Page 11 of 11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON
PAGES 2 AND 3 OF THE COMPANY'S FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH
31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 8,152
<SECURITIES> 13,190
<RECEIVABLES> 25,915
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 49,374
<PP&E> 3,928
<DEPRECIATION> 1,680
<TOTAL-ASSETS> 54,734
<CURRENT-LIABILITIES> 12,401
<BONDS> 0
0
0
<COMMON> 155
<OTHER-SE> 41,193
<TOTAL-LIABILITY-AND-EQUITY> 54,734
<SALES> 45,834
<TOTAL-REVENUES> 45,834
<CGS> 29,069
<TOTAL-COSTS> 12,389
<OTHER-EXPENSES> (259)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,635
<INCOME-TAX> 1,937
<INCOME-CONTINUING> 2,698
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,698
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
