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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, 1997
Commission file number 0-23940
ALTERNATIVE RESOURCES CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 38-2791069
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Tri-State International, Suite 300, Lincolnshire, IL 60069
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(Address of principal executive offices) (Zip code)
(847) 317-1000
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(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 .
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
15,685,485 shares of Common Stock outstanding as of May 2, 1997.
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)
ASSETS
<TABLE>
<CAPTION>
December 31, March 31,
1996 1997
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<S> <C> <C>
Current assets: (Unaudited)
Cash and cash equivalents $ 2,310 $ 5,064
Short-term investments 20,868 19,320
Trade accounts receivable, net of allowance for doubtful accounts 33,207 39,188
Prepaid expenses 455 780
Other receivables 3,363 1,926
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Total current assets 60,203 66,278
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Property and equipment:
Office equipment 3,103 3,588
Furniture and fixtures 1,427 1,513
Software 420 583
Leasehold improvements 307 316
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5,257 6,000
Less accumulated depreciation and amortization (2,377) (2,738)
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Net property and equipment 2,880 3,262
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Other assets:
Long-term investments 1,026 808
Other assets 294 303
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Total other assets 1,320 1,111
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Total assets $ 64,403 $ 70,651
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 324 $ 322
Payroll and related expenses 5,969 9,471
Accrued expenses 1,632 1,618
Income taxes payable 466 560
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Total current liabilities 8,391 11,971
Deferred rent payable 345 258
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Total liabilities 8,736 12,229
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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, 50,000,000 shares authorized, 15,651,391 and 15,685,441
shares issued and outstanding at December 31, 1996 and March 31, 1997, respectively 157 157
Additional paid-in capital 23,003 23,021
Unrealized loss on available-for-sale securities (28) (58)
Cumulative translation adjustment 43 36
Retained earnings 32,492 35,266
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Total stockholders' equity 55,667 58,422
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Total liabilities and stockholders' equity $ 64,403 $ 70,651
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</TABLE>
See accompanying Notes to Consolidated Financial Statements
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ALTERNATIVE RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three Months
Ended March 31,
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1996 1997
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(Unaudited)
Revenue $ 45,834 $ 57,758
Cost of services 29,069 38,348
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Gross profit 16,765 19,410
Selling, general and administrative expenses 12,389 15,204
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Income from operations 4,376 4,206
Other income, net 259 417
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Income before income taxes 4,635 4,623
Income taxes 1,937 1,849
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Net income $ 2,698 $ 2,774
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Net earnings per share amounts:
Primary $0.17 $0.18
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Fully diluted $0.17 $0.18
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Weighted average common and common
equivalent shares outstanding:
Primary 16,035 15,827
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Fully diluted 16,125 15,827
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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,
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1996 1997
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(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,698 $ 2,774
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 247 362
Allowance for doubtful accounts, net 8 30
Change in assets and liabilities:
Trade accounts receivable (1,302) (6,011)
Prepaid expenses (385) (325)
Other receivables (240) 1,437
Other assets 34 (17)
Accounts payable 52 (2)
Payroll and related expenses 2,264 3,502
Accrued expenses 119 (14)
Income taxes payable 868 94
Deferred rent payable 13 (87)
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Net cash provided by operating activities 4,376 1,743
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Cash flows from investing activities:
Purchases of property and equipment (441) (743)
Purchases of available-for-sale securities (3,327) (3,072)
Redemption of available-for-sale securities - 3,945
Redemption of held-to-maturity securities 4,738 863
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Net cash provided by investing activities 970 993
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Cash flows from financing activities:
Payments received on stock options exercised 962 71
Repurchase of common stock (392) (350)
Issuance of common stock under employee stock purchase plan 333 297
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Net cash provided by financing activities 903 18
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Net increase in cash and cash equivalents 6,249 2,754
Cash and cash equivalents at beginning of period 1,903 2,310
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Cash and cash equivalents at end of period $ 8,152 $ 5,064
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Supplemental disclosures:
Cash paid for income taxes $ 1,070 $ 246
</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, 1997
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, 1997. The
interim consolidated financial statements should be read in connection with
the audited consolidated financial statements for the year ended December 31,
1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The operations of Alternative Resources
Corporation (the "Company") are conducted through a parent holding company
and two operating subsidiaries. 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, 1996 and 1997. The amount of dilution is computed using the treasury
stock method.
INVESTMENT SECURITIES. The Company classifies all investment securities
held as of December 31, 1995 as "held-to-maturity" securities under the
provisions of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities". As
held-to-maturity securities mature, the proceeds of such securities are
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 stockholders'
equity.
RECLASSIFICATION. Certain 1996 amounts have been reclassified to
conform with the 1997 presentation.
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Item 2. - Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
The Company has experienced substantial growth in revenue driven by
industry trends toward component-based outsourcing of Information Services
operations, increased penetration of existing clients, expansion into new
markets, increased productivity of existing branch offices, the opening of
new branch offices and the introduction of new services. Essentially all of
the Company's revenue is generated from technical resource services that
offer the benefits of outsourcing, while allowing Information Services
operations managers to retain strategic control of their operations.
The Company continues to adapt its business to a more solution-based
model. This is being accomplished through the Company's
Smartsourcing-Registered Trademark- Solutions service offering and to a
lesser extent, through recently formed alliances with leading technology
providers.
Smartsourcing-Registered Trademark- Solutions are becoming a more
significant part of the Company's revenue base. Under a
Smartsourcing-Registered Trademark- arrangement, wherein the Company may take
over an entire portion of a client's Information Technology (IT) operations,
the Company may provide for flexibility in invoicing arrangements other than
more traditional hourly billing. Such arrangements may include fixed price
or per unit billing, as well as commitments made by the Company to meet
specific service levels. Management believes that Smartsourcing-Registered
Trademark- revenue is an important measure of clients' confidence and
willingness to engage the Company to provide more comprehensive IT staffing
solutions.
During 1996, the Company embarked upon two significant initiatives, the
aforementioned Smartsourcing-Registered Trademark- Solutions service offering
and its General Business program. The General Business program, formerly
known as the Company's Middle Market program, is a sales initiative which
targets midsize customers in the $50 to $500 million revenue range. During
the first quarter of 1997, the Company continued to invest in these key
initiatives to drive future growth.
The Company opened five new offices in the three month period ended
March 31, 1997. As of March 31, 1997, the Company had 56 offices in the
United States and Canada, as compared to 46 offices at March 31, 1996.
FIRST QUARTER FISCAL 1997 COMPARED TO FIRST QUARTER FISCAL 1996
REVENUE. Revenue increased by 26.0% from $45.8 million in the first
quarter of 1996 to $57.8 million in the first quarter of 1997, primarily as a
result of an increase in the
Page 6 of 11
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hours of service provided and, to a lesser extent, from 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 and hours
of service provided by new branch offices. The increase in average revenue
per project hour reflects demand for technical employees with higher skill
levels as well as the impact of a price increase in 1997.
GROSS PROFIT. Gross profit increased by 15.8% from $16.8 million in the
first quarter of 1996 to $19.4 million in the first quarter of 1997, again
primarily as a result of an increase in hours of service provided to clients.
Gross margin decreased from 36.6% of revenue in the first quarter of 1996 to
33.6% in the first quarter of 1997. During the first quarter of 1997, the
Company's gross margin was impacted primarily by more favorable pricing to
some of its larger accounts. The Company offers its largest clients volume
discounts from list prices in order to encourage increased and continued
usage of Company services. The Company believes these discounts have
contributed significantly to its revenue growth. In addition, the Company
believes its larger account relationships remain integral to its effort to
sell value-added services and develop new customer relationships.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased from $12.4 million in the first quarter of
1996 to $15.2 million in the first quarter of 1997, primarily due to
increased commissions, bonuses and staffing expenses associated with revenue
and profitability growth, expenses associated with the General Business
initiative, investment in the infrastructure to support sales and delivery
components of the Smartsourcing-Registered Trademark- Solutions program and
an increased number of offices and their related operating costs. Selling,
general and administrative expenses decreased as a percentage of revenue from
27.0% in the first quarter of 1996 to 26.3% in the first quarter of 1997, as
these expenses are leveraged over an expanding revenue base. A portion of
the revenue growth is attributed to the Smartsourcing-Registered Trademark-
and General Business initiatives.
INCOME FROM OPERATIONS. Income from operations decreased from $4.4
million in the first quarter of 1996, or 9.5% of total revenue, to $4.2
million in the first quarter of 1997, or 7.3% of total revenue.
PROVISION FOR INCOME TAXES. The Company's provision for income taxes
decreased from $1.9 million, or an effective tax rate of 41.8%, in the first
quarter of 1996 to $1.8 million, an effective tax rate of 40.0%, in the first
quarter of 1997. The decrease in the effective tax rate is the result of a
tax planning initiative implemented in 1996.
NET INCOME. The Company's net income increased from $2.7 million in the
first quarter of 1996, or 5.9% of total revenue, to $2.8 million in the first
quarter of 1997, or 4.8% of total revenue.
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LIQUIDITY AND CAPITAL RESOURCES
During the first three months of 1997, cash flow generated from
operations was $1.7 million resulting primarily from earnings and increased
accrued payroll expenses, partially offset by a significant increase in
accounts receivable. The increase in accounts receivable reflects the
increased volume of business and the increased number of clients requesting
monthly instead of weekly billing during 1997. Working capital increased
from $51.8 million at December 31, 1996, to $54.3 million at March 31, 1997.
The Company believes its cash balances and funds provided by operations
will be sufficient to finance continued expansion of its office network and
to meet all of its anticipated cash requirements for at least the next twelve
months.
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 128, "Earnings per
Share," was issued in February 1997. The Company is required to adopt the
new standard for periods ending after December 15, 1997. All prior period
earnings per share data presented must be restated after adoption. The
standard establishes new methods for computing and presenting earnings per
share and replaces the presentation of primary and fully-diluted earnings per
share with basic and diluted earnings per share.
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:
Exhibit Number Description
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27 Financial Data Schedule
(b) The registrant was not required to file any reports on Form 8-K for
the quarter.
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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.
ALTERNATIVE RESOURCES CORPORATION
Date: May 7, 1997 /s/ Bradley K. Lamers
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Bradley K. Lamers
Vice President, Chief Financial Officer,
Secretary, and Treasurer
Page 10 of 11
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EXHIBIT INDEX
Exhibit
Number Description
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27 Financial Data Schedule
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<TABLE> <S> <C>
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF OPERATIONS FOUND IN THE COMPANY'S FORM 10-Q FOR THE
THREE MONTH PERIOD ENDED MARCH 31, 1997, 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 5,064
<SECURITIES> 19,320
<RECEIVABLES> 39,188
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 66,278
<PP&E> 6,000
<DEPRECIATION> 2,738
<TOTAL-ASSETS> 70,651
<CURRENT-LIABILITIES> 11,971
<BONDS> 0
0
0
<COMMON> 157
<OTHER-SE> 58,265
<TOTAL-LIABILITY-AND-EQUITY> 70,651
<SALES> 0
<TOTAL-REVENUES> 57,758
<CGS> 0
<TOTAL-COSTS> 38,348
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,623
<INCOME-TAX> 1,849
<INCOME-CONTINUING> 2,774
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,774
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.18
</TABLE>
