<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A-1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) November 7, 1997
ALTERNATIVE RESOURCES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware Commission file number 0-23940 38-2791069
- -------------- ------------------------------ ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
100 Tri-State International, Suite 300, Lincolnshire, IL 60069
(Address of principal executive offices) (Zip code)
(847) 317-1000
(Registrant's telephone number, including area code)
<PAGE>
Item 7. Financial Statements and Exhibits
(a) Financial Statements of business acquired.
CGI SYSTEMS, INC.
INDEX TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Page
----
Independent Auditor's Report 2
Balance Sheets 3
Statements of Operations 6
Statements of Changes in Stockholders' Equity 7
Statements of Cash Flows 8 - 9
Notes to Financial Statements 10 - 17
- 1 -
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
and Stockholders of
CGI Systems, Inc.
Malvern, PA
We have audited the accompanying balance sheets of CGI Systems, Inc. (a
majority-owned subsidiary of CGI Corporation) as of December 31, 1996 and
1995 and the related statements of operations, changes in stockholders'
equity and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above, present fairly,
in all material respects, the financial position of CGI Systems, Inc., as of
December 31, 1996 and 1995 and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
Leon Constantin & Co.
New York, New York
January 9, 1997
- 2 -
<PAGE>
CGI SYSTEMS, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
- 3 -
<PAGE>
CGI SYSTEMS, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
1996 1995
---- ----
Current assets
Cash and cash equivalents (Note 2) $ 372,756 $ 4,636,834
Marketable securities (Note 3) 1,171,189 1,455,952
Accounts receivable
- Trade, less allowance for doubtful
accounts of $400,000 in 1996 and
$400,886 in 1995, respectively 14,264,431 10,223,662
- Affiliated companies (Note 4) 13,942,955 1,987,484
Advances to employees 96,501 58,674
Prepaid expenses 104,204 190,891
Educational material inventory (Note 1) 217,012 341,282
------------ ------------
Total current assets 30,169,048 18,894,779
------------ ------------
Property and equipment, net (Notes 1 and 5) 2,323,061 1,863,344
------------ ------------
Other assets
Deposits 359,649 575,453
Other intangible assets, net (Note 6) - 53,275
------------ ------------
Total other assets 359,649 628,728
------------ ------------
Total assets $ 32,851,758 $ 21,386,851
============ ============
See accompanying notes to financial statements.
4
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
1996 1995
---- ----
Current liabilities
Bank overdrafts $ 1,395,898 $ 1,755,666
Accounts payable - trade 2,054,536 15,228
Accounts payable - affiliates (Note 7) 7,858,967 3,538,558
Accrued expenses 5,986,938 2,054,899
Accrued income taxes 59,400 565,024
Accrued payroll and payroll withholdings 15,307 67,266
Accrued vacation 343,011 287,491
Other taxes payable 21,972 55,381
Unearned revenue (Note 1) 935,173 661,750
------------ -----------
Total current liabilities 18,671,202 9,001,263
------------ -----------
Commitments (Notes 11 and 12)
Stockholders' equity
Common stock:
Class A, $.01 par value, voting, 2,000,000
shares authorized, 772,840 issued and
outstanding 7,729 7,729
Class B, $.01 par value, nonvoting, 200,000
shares authorized, 6,536 issued and
outstanding 65 65
Additional paid in capital 19,524,335 19,524,335
Accumulated deficit (5,351,573) (7,146,541)
------------ -----------
Total stockholders' equity 14,180,556 12,385,588
------------ -----------
Total liabilities and
stockholders' equity $ 32,851,758 $ 21,386,851
============ ============
5
<PAGE>
<TABLE>
<CAPTION>
CGI SYSTEMS, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Revenues (Notes 1 and 4) $ 33,328,986 $ 39,028,435 $ 56,553,933
Cost of services 25,399,526 28,408,279 42,856,438
------------ ------------ ------------
Gross profit 7,929,460 10,620,156 13,697,495
Selling, general and administrative expense
(Note 1) 6,731,545 8,627,230 12,210,562
------------ ------------ ------------
Income from operations 1,197,915 1,992,926 1,486,933
Other income, net 122,300 124,702 267,224
------------ ------------ ------------
Net income before taxes and
discontinued operations 1,320,215 2,117,628 1,754,157
Provision for current income taxes
(Notes 1 and 10) 554,186 1,001,556 670,949
------------ ------------ ------------
Net income before discontinued operations 766,029 1,116,072 1,083,208
Discontinued operations, net of taxes (Note 14) 691,480 (184,970) 711,760
------------ ------------ ------------
Net income $ 1,457,509 $ 931,102 $ 1,794,968
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
CGI SYSTEMS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
CLASS A COMMON STOCK
Balance, January 1, beginning $ 7,729 $ 7,729 $ 7,729
Activity - - -
------------ ------------- -------------
Balance, December 31, ending $ 7,729 $ 7,729 $ 7,729
============ ============= =============
CLASS B COMMON STOCK
Balance, January 1, beginning $ 65 $ 65 $ 65
Activity - - -
------------ ------------- -------------
Balance, December 31, ending $ 65 $ 65 $ 65
============ ============= =============
ADDITIONAL PAID IN CAPITAL
Balance, January 1, beginning $ 19,524,335 $ 19,524,335 $ 19,524,335
Activity - - -
------------ ------------- -------------
Balance, December 31, ending $ 19,524,335 $ 19,524,335 $ 19,524,335
============ ============= =============
ACCUMULATED DEFICIT (Note 14)
Balance, January 1, beginning $ (9,535,152) $ (8,077,643) $ (7,146,541)
Net income for the year ended 1,457,509 931,102 1,794,968
------------ ------------- ------------
Balance, December 31, ending $ (8,077,643) $ (7,146,541) $ (5,351,573)
============ ============= ============
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
CGI SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 1,457,509 $ 931,102 $ 1,794,968
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 590,485 527,277 867,225
Provision for bad debt 112,923 - -
Gain (loss) on sale of fixed assets - (340) 4,360
(Increase) decrease in:
Accounts receivable
- Trade (831,433) (440,482) (4,060,769)
- Affiliated companies (613,056) (969,746) (11,935,471)
Prepaid expenses 1,241 21,693 86,687
Advances to employees 8,434 36,941 (37,827)
Educational material inventory (179,270) (7,877) 124,270
Deposits 114,446 21,031 215,804
Increase (decrease) in:
Bank overdraft - 1,755,666 (359,768)
Accounts payable (222,524) (485,470) 2,039,308
Accounts payable - affiliates 995,446 910,189 4,320,409
Accrued expenses 744,848 227,414 3,932,039
Accrued payroll and payroll withholdings (8,718) 65,516 (51,959)
Accrued vacation 69,875 (61,237) 55,520
Accrued income taxes (19,513) 565,024 (505,624)
Other taxes payable (10,385) 20,623 (33,409)
Unearned revenue 277,657 (304,076) 273,423
---------- ----------- ------------
Net cash provided by (used in)
operating activities 2,487,885 2,813,248 (3,270,814)
---------- ----------- -------------
Cash flows from investing activities
Sale (purchases) of marketable securities (1,814,671) 358,719 284,763
Proceeds from sale of fixed assets - 3,847 -
Purchases of fixed assets (518,260) (959,621) (1,278,027)
---------- ----------- -------------
Net cash used in
investing activities $ (2,332,931) $ (597,055) $ (993,264)
---------- ----------- -------------
</TABLE>
- Continued -
8
<PAGE>
CGI SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(Continued)
1994 1995 1996
---- ---- ----
Net increase (decrease) in cash
and cash equivalents $ 154,954 $ 2,216,193 $ (4,264,078)
Cash and cash equivalents at
beginning of year 2,265,687 2,420,641 4,636,834
----------- ----------- ------------
Cash and cash equivalents
at end of year $ 2,420,641 $ 4,636,834 $ 372,756
=========== =========== ============
Supplemental disclosure of cash flows information:
Cash paid for income taxes $ 681,359 $ 1,062,502 $ 1,612,813
----------- ----------- ------------
Interest paid $ 7,680 $ - $ -
----------- ----------- ------------
See accompanying notes to financial statements.
9
<PAGE>
CGI SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND OPERATIONS
CGI Systems, Inc. was incorporated in the State of Delaware on
December 1, 1991 as a merger of the former CGI Systems, Inc., CGI
Consulting, Inc., Yourdon, Inc. and Prodstar America, Inc. CGI
Systems, Inc.(the Company) is a majority owned subsidiary of CGI
Corporation, a US subsidiary of Compagnie Generale d'Informatique of
France. Minority stockholders include officers and directors of the
affiliated corporations as well as employees of the Company.
On June 30, 1993, IBM acquired a controlling interest of Compagnie
Generale d'Informatique.
REVENUE RECOGNITION
The Company recognizes revenue on software sales after a contract
has been signed. Maintenance revenue is recognized upon renewal each
year. Royalties are accrued in an amount equal to 45% of the PACBASE
software sales and maintenance revenue. An additional 2% of
royalties are paid on sales not directly related to IBM.
The Company utilizes a hybrid percentage of completion method of
accounting for fixed price contracts. This method limits the amount
of revenue recognized and withholds five percent (5%) of the
contract amount until the agreement has been completed. If any, the
aggregate of labor expended and income recognized on uncompleted
contracts in excess of related billings is shown as a current asset,
and the aggregate of billings on uncompleted contracts in excess of
expended labor and income recognized, is shown as a current
liability.
All other revenue, which consists of time and material contracts,
are recognized as incurred.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost and are depreciated over
the useful life of the related asset using the straight-line method.
Leasehold improvements are amortized over a period of five years.
10
<PAGE>
CGI SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(Continued)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
INCOME TAXES
The Company is included in a consolidated federal income tax return
with CGI Corporation, but files individual state income tax returns.
EDUCATIONAL MATERIAL INVENTORY
Educational material inventory consists of Novell, Lotus Notes and
Microsoft education kits, which are stated at the lower of cost or
market. These kits are exchangeable for new kits when changes occur
in technology.
NOTE 2 CASH AND CASH EQUIVALENTS
For the purposes of the statements of cash flows, the Company
considers all highly liquid accounts with an original maturity of
three months or less as cash equivalents.
NOTE 3 MARKETABLE SECURITIES
Marketable securities include amounts invested in short-term
municipal bonds, the cost and market values at December 31, 1996 and
1995 are as follows:
1996 Cost Market
---- ----------- -----------
Wisconsin ST Muni-bond
due 5-1-97 $ 303,189 $ 301,251
RP Sanwa - bond due 1-02-97 868,000 868,000
----------- -----------
$ 1,171,189 $ 1,169,251
=========== ===========
11
<PAGE>
CGI SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(Continued)
NOTE 3 MARKETABLE SECURITIES (Continued)
1995 Cost Market
---- ----------- -----------
Fort Worth, TX Muni-bond due 2-15-96 $ 302,757 $ 300,741
Wash. State Muni-bond due 9-1-96 418,820 411,608
Wisconsin ST Muni-bond due 5-1-97 303,819 303,360
Houston, TX Muni-bond 12-1-16 430,556 424,204
----------- -----------
$ 1,455,952 $ 1,439,913
=========== ===========
NOTE 4 ACCOUNTS RECEIVABLE - AFFILIATED COMPANIES
As of December 31, 1996 and 1995, the receivables from affiliates in
US dollars, consisted of amounts due from:
1996 1995
------------ -----------
Logiciel SIRC (Canada) $ 150,877 $ 137,990
CGI de Mexico (Mexico) 250,320 47,153
Prodstar, SA (France) 5,297 11,831
CGI Systems-LS3 (England) 80,797 19,128
CGI Informatique (France) 3,703,445 342,770
IBM (USA) 9,417,563 1,149,555
CGI Corporation 297,085 269,757
CGI Informatica (Spain) 17,571 5,500
CGI Mexico (Mexico) 20,000 -
CGI Softcycle (Belgium) - 3,800
------------ -----------
$ 13,942,955 $ 1,987,484
============ ===========
Revenues from affiliates totaled $4,045,596, $5,444,160 and
$21,516,672, respectively, for the years ended December 31, 1994,
1995 and 1996.
12
<PAGE>
CGI SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(Continued)
NOTE 5 PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1996 and 1995 is
summarized as follows:
Useful
1996 1995 life
----------- ----------- -----------
Office equipment $ 519,293 $ 966,108 5 years
Office furniture 562,626 693,386 5 - 7 years
Computer equipment 3,151,354 3,384,832 5 years
Computer software 108,422 189,774 5 years
Leasehold improvements 265,178 593,854 5 years
----------- -----------
4,606,873 5,827,954
=========== ===========
Less accumulated
depreciation and
amortization 2,283,812 3,964,610
----------- -----------
$ 2,323,061 $ 1,863,344
=========== ===========
For the years ended December 31, 1996 and 1995 depreciation and
amortization expense on the property and equipment was $512,593,
$453,613 and $813,950, respectively.
NOTE 6 OTHER INTANGIBLE ASSETS
As of December 31, 1996 and 1995, other intangible assets consisted
of:
1996 1995
--------- ---------
Transform Logic
Software rights $ 390,200 $ 390,200
Acquisition costs 45,484 45,484
--------- ---------
435,684 435,684
Accumulated
amortization 435,684 382,409
--------- ---------
Net book value $ - $ 53,275
========= =========
13
<PAGE>
CGI SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(Continued)
NOTE 6 OTHER INTANGIBLE ASSETS (Continued)
Transform Logic Software rights cover the trademark and servicemark
rights to "DesignAid", "DesignAid II", "Source/RE", "The Best Case
Scenario", and "Life Cycle".
Acquisition costs represent the legal and finders fees associated
with the purchase of Encore Consulting and the First Micro Group.
These costs are being amortized over a five year period.
Intangible assets are being amortized over a five year life. The
amortization expense recognized during the years ended December 31,
1994, 1995 and 1996 totaled $77,892, $73,664 and $53,275, respectively.
NOTE 7 ACCOUNTS PAYABLE - AFFILIATES
As of December 31, 1996 and 1995 the payables to affiliates
consisted of the following:
1996 1995
----------- -----------
CGI Systems-LS3 (England) $ 110,699 $ 85,909
CGI (Netherlands) 21,000 -
CGI System (Spain) 86,944 -
CGI Corporation (USA) 3,123,083 -
CGI Interprogram (Germany) - 23,000
Logiciels SIRC (Canada) - 231,707
Prodstar Mexico (Mexico) 16,547 35,658
Prodstar, SA (France) 82,804 82,804
IBM (USA) 1,582,274 319,520
CGI Informatique 2,583,329 2,719,892
AD Consultant - 33,508
SIRC 231,707 -
Others 20,580 6,560
----------- -----------
$ 7,858,967 $ 3,538,558
=========== ===========
Total expenses from transactions with affiliates recognized in the
results of operations for the years ending December 31, 1994, 1995
and 1996, total $6,878,535, $6,648,526 and $6,304,042, respectively.
14
<PAGE>
CGI SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(Continued)
NOTE 8 EMPLOYEE BENEFIT AND RETIREMENT PLAN
The Company has a 401K plan for the benefit of eligible employees.
Employees may contribute a specified percentage of their
compensation into a basic contribution account and the Company will
match a portion of that contribution. The maximum contribution
percentage and the amount of employer matching contributions may be
changed at the discretion of the Board of Directors. The Employer
contributions charged to operations for the years ended December 31,
1994, 1995 and 1996 was approximately $133,650, $144,088 and $98,606,
respectively.
NOTE 9 PROFIT SHARING PLAN
The Company maintains a profit sharing pool, which is based upon a
percentage of certain salary compensation. At December 31, 1994,
1995 and 1996, the profit sharing pool was $351,500, $392,410 and
$350,000, respectively.
NOTE 10 INCOME TAXES
The provision for income taxes for the years ended December 31,
1994, 1995 and 1996 are as follows:
1994 1995 1996
----------- --------- -----------
Federal $ 746,000 $ 611,071 $ 808,179
State 288,706 226,455 299,010
----------- --------- -----------
Total $ 1,034,706 $ 837,526 $ 1,107,189
=========== ========= ===========
The income tax expense differs from the expected based on the
statutory tax rates due to the deduction limits of meal and
entertainment expenses incurred by employees and receipt of
non-taxable interest income.
15
<PAGE>
CGI SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(Continued)
NOTE 11 LEASE COMMITMENTS
The Company leases office equipment and office facilities, which are
accounted for as operating leases. These leases expire at various
dates through 2004.
The future minimum payments are as follows:
Minimum rental
For the years ending payments
December 31,
--------------------- ---------------
1997 $ 1,165,620
1998 1,208,519
1999 1,162,911
2000 and beyond 2,618,589
---------------
$ 6,155,639
Rental expenses charged to operations for the years ended December
31, 1994, 1995 and 1996 was $1,486,784, $1,515,340 and $1,840,905,
respectively.
NOTE 12 COMMITMENTS AND CONTINGENCY
The Company had an employment agreement with an officer. The
contract provides for an annual bonus to be paid at the discretion
of the Board of Directors in an amount not to exceed 25% of the
annual base salary from the preceding year. The agreement can be
terminated at the discretion of the Board of Directors, provided
that the officer's salary is continued six months after the contract
termination date.
The Company is presently involved in several legal suits. All cases
are in their early stages and it is impossible to evaluate the
likelihood of an unfavorable outcome.
The Company is currently under audit by the IRS for the fiscal year
ended August 31, 1993. This audit is in its early stage as of
December 31, 1996.
16
<PAGE>
CGI SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(Continued)
NOTE 13 SUBSEQUENT EVENTS
DISCONTINUED OPERATIONS
During September 1997, the Company entered into an agreement with
its ultimate parent company, IBM Corporation, to transfer certain
business segments within CGI to the control of IBM. These segments
are the PACBASE software sales and maintenance; human resource
software development (HR Access); education and training centers and
the New York City Police Department project. The effective date of
this transfer was September 30,1997.
The presentation of these financial statements has been changed to
reflect the effect of this transfer. The financial statements have
been reissued to reflect this change.
17
<PAGE>
CGI SYSTEMS, INC.
BALANCE SHEETS
(In thousands)
ASSETS
December 31, September 30,
1996 1997
---- ----
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 373 $ 592
Marketable securities 1,171 -
Accounts receivable, net of
allowance for doubtful 28,207 40,883
Advances to employees 97 74
Prepaid expenses 321 707
--------- --------
Total current assets 30,169 42,256
--------- --------
PROPERTY AND EQUIPMENT
Property and equipment 4,607 4,244
Accumulated depreciation (2,284) (2,329)
--------- --------
Total property and equipment 2,323 1,915
--------- --------
OTHER ASSETS
Deposits (Note 8) 360 356
--------- --------
Total assets $ 32,852 $ 44,527
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 11,309 $ 18,159
Payroll and related expenses 358 571
Accrued expenses 5,988 11,189
Income and other taxes payable 81 -
Unearned revenue 935 508
--------- --------
Total current liabilities 18,671 30,427
--------- --------
STOCKHOLDERS' EQUITY
Common stock 8 8
Additional paid in capital 19,524 19,524
Accumulated deficit (5,351) (5,432)
--------- --------
Total stockholders' equity 14,181 14,100
--------- --------
Total liabilities and stockholders' equity $ 32,852 $ 44,527
========= ========
See accompanying notes to financial statements.
18
<PAGE>
CGI SYSTEMS, INC.
UNAUDITED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
(In thousands)
1996 1997
---- ----
Revenues $ 37,689 $ 89,435
Cost of services 24,565 78,274
-------- --------
Gross profit 13,124 11,161
Selling, general and administrative expenses 12,128 10,169
-------- --------
Income from operations 996 992
Other income and (expenses) 201 (83)
-------- --------
Net income before taxes and
discontinued operations 1,197 909
Provision for income taxes 175 346
-------- --------
Net income before discontinued operations 1,022 563
Discontinued operations, net of taxes 416 (644)
-------- --------
Net income (loss) $ 1,438 $ (81)
======== ========
See accompanying notes to financial statements.
19
<PAGE>
CGI SYSTEMS, INC.
UNAUDITED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
(In thousands)
1996 1997
---- ----
Cash flows from operating activities
Net income $ 1,438 $ (81)
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 650 843
(Increase) decrease in:
Accounts receivable (6,764) (12,676)
Prepaid expenses (91) (386)
Other receivables (395) 23
Deposits 247 (1)
Increase (decrease) in:
Accounts payable 599 6,850
Accrued expenses 591 5,201
Payroll and related expenses 31 213
Income and other taxes payable (620) (81)
Unearned revenue 867 (427)
-------- --------
Net cash used in operating
activities (3,447) (522)
-------- --------
Cash flows from investing activities
Sale of marketable securities 1,456 1,171
Purchases of fixed assets (1,225) (430)
-------- --------
Net cash provided by investing
activities 231 741
-------- --------
Net increase (decrease) in cash
and cash equivalents (3,216) 219
Cash and cash equivalents at
beginning of year 4,636 373
-------- --------
Cash and cash equivalents
at end of period $ 1,420 $ 592
======== ========
See accompanying notes to financial statements.
20
<PAGE>
CGI SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
NOTE 1 BASIS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The interim 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 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 financial statements for the year
ended December 31, 1996.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND OPERATIONS
CGI Systems, Inc. was incorporated in the State of Delaware on
December 1, 1991 as a merger of the former CGI Systems, Inc., CGI
Consulting, Inc., Yourdon, Inc. and Prodstar America, Inc. CGI
System, Inc.(the Company) is a majority owned subsidiary of CGI
Corporation, a US subsidiary of Compagnie Generale d'Informatique
of France. Minority stockholders include officers and directors of
the affiliated corporations as well as employees of the Company.
On June 30, 1993 IBM acquired a controlling interest of Compagnie
Generale d'Informatique.
During January 1996, CGI Corp, the Company's parent, purchased 27
shares of Class A stock from a minority shareholder. Additionally,
on August 15, 1996, CGI Corp., purchased all 6,536 outstanding
shares of the Class B stock from the minority shareholders.
CASH AND CASH EQUIVALENTS
For the purposes of the statements of cash flows, the Company
considers all highly liquid accounts with an original maturity of
three months or less as cash equivalents.
21
<PAGE>
CGI SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
The Company recognizes revenue on software sales after a contract
has been signed. Maintenance revenue is recognized upon renewal
each year. Royalties are accrued in an amount equal to 45% of the
software sales and maintenance revenue. An additional 2% of
royalties are paid on sales not directly related to IBM.
The Company utilizes a hybrid percentage of completion method of
accounting for fixed price contracts. This method limits the
amount of revenue recognized and withholds five percent (5%) of
the contract amount until the agreement has been completed. If
any, the aggregate of labor expended and income recognized on
uncompleted contracts in excess of related billings is shown as a
current asset, and the aggregate of billings on uncompleted
contracts in excess of expended labor and income recognized, is
shown as a current liability.
All other revenue, which consists of time and material contracts,
are recognized as incurred.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost and are depreciated
over the useful life of the related asset using the straight line
method. Leasehold improvements are amortized over a period of five
years.
INCOME TAXES
The Company is included in a consolidated federal income tax
return with CGI Corporation, but files individual state income tax
returns.
22
<PAGE>
CGI SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
NOTE 3 SUBSEQUENT EVENT
DISCONTINUED OPERATIONS
During September 1997, the Company entered into an agreement with
its ultimate parent company, IBM Corporation, to transfer certain
business segments within CGI to the control of IBM. These
segments are the PACBASE software sales and maintenance; human
resource software development (HR Access); education and training
centers and the New York City Police Department project. The
effective date of this transfer was September 30,1997.
The presentation of these financial statements has been changed to
reflect the effect of this transfer. The financial statements
have been reissued to reflect this change.
23
<PAGE>
(b) Pro forma financial information
The following pro forma data is filed herewith: Unaudited condensed pro
forma balance sheet as of September 30, 1997 and unaudited condensed pro
forma statements of operations for the year ended December 31, 1996 and nine
months ended September 30, 1997.
The unaudited condensed pro forma balance sheets reflect the acquisition of
CGI Systems Inc. (CGI) on September 30, 1997. The unaudited condensed pro
forma statements of operations reflect the acquisition of CGI as if such
acquisition occurred on January 1, 1996. Since the financial statements set
forth below are based upon the financial condition and operating results of
CGI during periods when they were not under the control or management of
Alternative Resources Corporation (ARC), the information presented may not be
indicative of the results which would have actually been obtained had the
acquisition been completed as of January 1, 1996 nor are they indicative of
future financial or operating results.
The acquisition has been accounted for by the purchase method.
24
<PAGE>
ALTERNATIVE RESOURCES CORPORATION
UNAUDITED CONDENSED PRO FORMA BALANCE SHEET
AS OF SEPTEMBER 30, 1997 (1)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Alternative
Resources Pro Forma
Corporation CGI Adjustments (2) Pro Forma
------------ -------- -------------------- ---------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents 1,906 592 - 2,498
Short-Term Investments 16,718 - (10,000) A 6,718
Accounts Receivable 47,570 40,883 (5,553) B 82,900
Other Current Assets 2,405 781 - 3,186
------ ------ -------- -------
Total Current Assets 68,599 42,256 (15,553) 95,302
PROPERTY AND EQUIPMENT
Property and Equipment 9,171 4,244 - 13,415
Accumulated Depreciation (3,562) (2,329) - (5,891)
------ ------ -------- -------
Total Property and Equipment 5,609 1,915 - 7,524
INTANGIBLE ASSETS - - 48,000 A 48,000
OTHER ASSETS
Restricted cash - escrow account - - 20,000 A 20,000
Long-term investments 3,493 - - 3,493
Deposits and other assets 300 356 700 A 1,356
------ ------ -------- -------
Total Other Assets 3,793 356 2,700 24,849
------ ------ -------- -------
TOTAL ASSETS 78,001 44,527 53,147 175,675
====== ====== ======== =======
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Payroll and Related Expenses 9,615 571 - 10,186
Deferred Revenue - 508 - 508
Accounts Payable and Accrued Expenses 1,791 29,348 (5,553) B 25,586
------ ------ -------- -------
TOTAL CURRENT LIABILITIES 11,406 30,427 (5,553) 36,280
OTHER LIABILITIES
Deferred Rent Payable 280 - - 280
Bank Borrowings - - 72,800 A 72,800
------ ------ -------- -------
TOTAL OTHER LIABILITIES 280 - 72,800 73,080
------ ------ -------- -------
TOTAL LIABILITIES 11,686 30,427 67,247 109,360
TOTAL STOCKHOLDERS' EQUITY 66,315 14,100 (14,100) A 66,315
------ ------ -------- -------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY 78,001 44,527 53,147 175,675
====== ====== ======== =======
</TABLE>
25
<PAGE>
ALTERNATIVE RESOURCES CORPORATION
UNAUDITED CONDENSED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 (3)
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Alternative
Resources Pro Forma
Corporation CGI Adjustments (3) Pro Forma
------------ -------- -------------------- ---------
<S> <C> <C> <C> <C>
Revenue $196,728 $56,554 ($16,443) A $236,839
Cost of services 124,268 42,856 (15,951) A 151,173
-------- ------- -------- --------
Gross profit 72,460 13,698 (492) 85,666
Selling, general and administrative expenses 51,538 12,211 (828) B 62,921
-------- ------- -------- --------
Income from operations 20,922 1,487 336 22,745
Other (income) expense (1,107) (267) 4,873 C 3,499
-------- ------- -------- --------
Income before income taxes and
discontinued operations 22,029 1,754 (4,537) 19,246
Income Taxes 8,811 671 (1,337) E 8,145
-------- ------- -------- --------
Income before discontinued operations 13,218 1,083 (3,200) 11,101
Discontinued operations, net of taxes 712 (712) D -
-------- ------- -------- --------
Net Income 13,218 1,795 (3,912) 11,101
======== ======= ======== ========
Net income per share 0.83 0.69
======== ========
Weighted average common and common
equivalent shares outstanding 15,990 15,990
======== ========
</TABLE>
26
<PAGE>
ALTERNATIVE RESOURCES CORPORATION
UNAUDITED CONDENSED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Alternative
Resources Pro Forma
Corporation CGI Adjustments (3) Pro Forma
------------ -------- -------------------- ---------
<S> <C> <C> <C> <C>
Revenue $187,147 $89,435 ($48,037) A $228,545
Cost of services 122,520 78,274 (46,780) A 154,014
-------- ------- -------- --------
Gross profit 64,627 11,161 (1,257) 74,531
Selling, general and administrative expenses 48,267 10,169 (1,971) B 56,465
-------- ------- -------- --------
Income from operations 16,360 992 714 18,066
Other (income) expense (930) 83 3,328 C 2,481
-------- ------- -------- --------
Income before income taxes and
discontinued operations 17,290 909 (2,614) 15,585
Income Taxes 6,722 346 (653) E 6,415
-------- ------- -------- --------
Income before discontinued operations 10,568 563 (1,961) 9,170
-------- ------- -------- --------
-------- ------- -------- --------
Discontinued operations, net of taxes (644) 644 D -
-------- ------- -------- --------
Net Income 10,568 (81) (1,317) 9,170
======== ======= ======== ========
Net income per share 0.67 0.58
======== ========
Weighted average common and common
equivalent shares outstanding 15,869 15,869
======== ========
</TABLE>
27
<PAGE>
ALTERNATIVE RESOURCES CORPORATION
Notes to Unaudited Condensed Pro Forma Financial Statements
(1) The balance sheet as of the November 7, 1997 acquisition date is
currently under audit. In accordance with the purchase agreement, any
adjustments to the balance sheet amounts will be represented by a
corresponding purchase price adjustment.
(2) The pro forma balance sheet adjustments consist of:
(A) Record the acquisition of CGI and related entries. The proceeds
from the debt financing of $72,800,000 in addition to $10,000,000
of proceeds from the sale of short term investments were used as
follows:
(i) Initial payment of $60,000,000 to sellers.
(ii) $20,000,000 held in an escrow account
(iii) $2,800,000 for estimated acquisition related expenses.
The amount in escrow can be earned by seller depending upon the
achievement of certain volume targets contained in the purchase
agreement.
The debt financing represents a three year revolving credit agreement
which bears interest at a rate based upon LIBOR.
(B) Eliminate intercompany accounts receivable/payables between ARC
and CGI.
(3) Pro forma adjustments to the statements of operations include the
following:
(A) Pro forma revenue and cost of services adjustments consist of:
(i) conversion of revenue and cost of services associated with
pass thru business to fee-based recognition and
(ii) the elimination of intercompany revenue and cost of services
between ARC and CGI.
28
<PAGE>
Pass thru business consists of processing invoices for services provided
to IBM by various companies that are not IBM preferred vendors. CGI collects a
small fee for this service. It is ARC's intention to record only the fees for
these services as revenue, with the related costs of processing these invoices
as cost of services. This adjustment represents the estimated amount of
revenue and cost of services, for each period presented, that would not have
been recorded had this business been recognized on a basis consistent with
ARC's intention. The net impact of the adjustment can be summarized as follows:
Nine
Months Year
Ended Ended
9/30/97 12/31/96
------- --------
Revenue
- -------
Netting of estimated pass thru costs
against revenue ($35,805) ($14,006)
Elimination of intercompany revenue (12,232) (2,437)
-------- -------
Total revenue adjustment ($48,037) ($16,443)
Cost of Services
- ----------------
Netting of estimated pass thru costs
against revenue ($35,805) ($14,006)
Reclassification of estimated pass thru
invoice processing costs from selling,
general and administrative expenses
to cost of services 1,257 492
Elimination of intercompany cost of services (12,232) (2,437)
-------- -------
Total cost of services adjustment ($46,780) ($15,951)
(B) Pro forma adjustments to selling, general and administrative expenses
include the following:
Nine
Months Year
Ended Ended
9/30/97 12/31/96
------- --------
Reclassification of estimated pass thru
invoice processing costs from selling,
general and administrative expenses
to cost of services ($1,257) ($ 492)
Amortization of goodwill 896 1,194
Intercompany fees charged by IBM (1,614) (1,536)
------- --------
Total selling, general and
administrative expense adjustment ($ 1,975) ($ 834)
Goodwill is amortized over 40 years.
The intercompany fees charged by IBM represent management and royalty
fees paid to IBM which would not have been paid had CGI been under the
ownership of ARC.
29
<PAGE>
(C) Pro forma interest expense adjustments represent the estimated
interest expense that ARC would have incurred on the bank loan
during the assumed period of ownership. The assumed interest
rate is 6.6%.
(D) Discontinued operations relate to portions of CGI's business that
were retained by the seller.
(E) Income tax effect of pro forma adjustments. Goodwill amortization is
not tax deductible.
30
<PAGE>
(c) Exhibits
*(2) Stock Purchase and Sale Agreement Dated as of October 6, 1997
Among Alternative Resources Corporation, Compagnie Generale d'
Informatique, Joseph R. Ferrandino, Thomas K. Sheridan and
International Business Machines Corporation.
*(2a) Amendment Number One Dated as of November 7, 1997 to Stock
Purchase and Sale Agreement Dated as of October 6, 1997 Among
Alternative Resources Corporation, Compagnie Generale
d'Informatique, Joseph R. Ferrandino, Thomas K. Sheridan and
and International Business Machines Corporation.
*(2b) I/T Staffing Revenues Escrow Agreement By and Among Compagnie
Generale d'Informatique, Joseph R. Ferrandino, Thomas K. Sheridan,
Alternative Resources Corporation and Harris Trust and Savings
Bank Dated November 7, 1997.
*(4) Credit agreement Dated November 7, 1997.
(23) Consent of Independent Certified Pubic Accountants.
*Previously filed
31
<PAGE>
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
/s/ Bradley K. Lamers
Date: January 21, 1998 ----------------------------------
Bradley K. Lamers
Vice President, Chief Financial
Officer, Secretary and Treasurer
32
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- --------- ------------
23 Consent of Independent Public Accountants
<PAGE>
The Board of Directors
CGI Systems, Inc.:
We consent to the inclusion of our report dated January 9, 1997, with respect
to the balance sheets of CGI Systems, Inc. as of December 31, 1996 and 1995,
and the related statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1996,
which report appears in the Form 8-K of Alternative Resources Corporation
dated January 21, 1998.
Leon Constantine & Co.
New York, New York
January 21, 1998
