<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 June 30, 1999
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.)
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)
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:
16,015,942 shares of Common Stock outstanding as of August 6, 1999.
Page 1
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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>
December 31, June 30,
1998 1999
------------ -----------
<S> <C> <C>
ASSETS
Current assets: ............................................................. (Unaudited)
Cash and cash equivalents ................................................ $ 2 $ 928
Trade accounts receivable, net of allowance for doubtful accounts ........ 69,347 69,815
Prepaid expenses ......................................................... 512 1,220
Income taxes receivable .................................................. 6,373 3,608
Other receivables ........................................................ 128 109
Deferred income taxes .................................................... 2,327 2,327
--------- ---------
Total current assets ................................................. 78,689 78,007
--------- ---------
Property and equipment:
Office equipment ......................................................... 13,009 14,571
Furniture and fixtures ................................................... 2,814 2,858
Software ................................................................. 11,011 15,168
Leasehold improvements ................................................... 831 884
--------- ---------
27,665 33,481
Less accumulated depreciation and amortization ........................... 9,595 12,110
--------- ---------
Net property and equipment ........................................... 18,070 21,371
--------- ---------
Other assets:
Goodwill, net of amortization ........................................... 39,792 39,247
Other assets ............................................................. 1,404 1,438
--------- ---------
Total other assets ................................................... 41,196 40,685
--------- ---------
Total assets ................................................................ $ 137,955 $ 140,063
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Cash overdraft .......................................................... $ -- $ 2,706
Accounts payable ........................................................ 12,513 15,973
Payroll and related expenses ............................................ 13,179 14,928
Accrued expenses ........................................................ 7,562 6,440
--------- ---------
Total current liabilities ............................................ 33,254 40,047
Long-term debt .............................................................. 47,000 38,000
Other liabilities ........................................................... 1,698 170
Deferred income taxes ....................................................... 3,474 3,474
--------- ---------
Total liabilities .................................................... 85,426 81,691
--------- ---------
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, 15,957,498 and
16,015,942 shares issued at December 31, 1998
and June 30, 1999, respectively ....................................... 160 160
Additional paid-in capital ............................................... 26,647 27,038
Accumulated other comprehensive income (loss) ............................ (11) 24
Retained earnings ........................................................ 28,826 34,440
--------- ---------
55,622 61,662
Less: Treasury stock, at cost, 266,500 and 300,000 shares at
December 31, 1998 and June 30, 1999, respectively ..................... 3,093 3,290
--------- ---------
Total stockholders' equity ........................................... 52,529 58,372
--------- ---------
Total liabilities and stockholders' equity .................................. $ 137,955 $ 140,063
--------- ---------
--------- ---------
</TABLE>
See accompanying Notes to Consolidated Financial Statements
Page 2
<PAGE>
ALTERNATIVE RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------------ ------------------------
1998 1999 1998 1999
--------- --------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenue .................................... $ 84,383 $ 85,956 $ 167,212 $ 167,861
Cost of services ........................... 56,403 57,106 111,570 111,537
--------- --------- --------- ---------
Gross profit ............................... 27,980 28,850 55,642 56,324
Selling, general and administrative expenses 22,195 23,137 44,964 45,446
--------- --------- --------- ---------
Income from operations ..................... 5,785 5,713 10,678 10,878
Other expense, net ......................... (1,140) (707) (1,541) (1,394)
--------- --------- --------- ---------
Income before income taxes ................. 4,645 5,006 9,137 9,484
Income taxes ............................... 1,920 2,028 3,718 3,870
--------- --------- --------- ---------
Net income ................................. $ 2,725 $ 2,978 $ 5,419 $ 5,614
--------- --------- --------- ---------
--------- --------- --------- ---------
Net earnings per share:
Basic ................................. $ 0.17 $ 0.19 $ 0.34 $ 0.36
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted ............................... $ 0.17 $ 0.19 $ 0.34 $ 0.36
--------- --------- --------- ---------
--------- --------- --------- ---------
Shares used to compute earnings per share:
Basic ................................. 15,914 15,724 15,839 15,729
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted ............................... 16,115 15,767 16,170 15,794
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See accompanying Notes to Consolidated Financial Statements
Page 3
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ALTERNATIVE RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
(In thousands)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
---------------------- ---------------------
1998 1999 1998 1999
--------- --------- --------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net income ....................................... $ 2,725 $ 2,978 $ 5,419 $ 5,614
Other comprehensive income, net of tax:
Foreign currency translation adjustment .......... (37) 8 (32) 35
Unrealized holding gains on marketable securities:
Unrealized holding gains arising
during the period ...................... -- -- 382 --
Less reclassification adjustment for
gains included in net income ........... -- -- (781) --
------- ------- ------- -------
Comprehensive income .......................... $ 2,688 $ 2,986 $ 4,988 $ 5,649
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
See accompanying Notes to Consolidated Financial Statements
Page 4
<PAGE>
ALTERNATIVE RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------
1998 1999
---------- ----------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income ...................................................................... $ 5,419 $ 5,614
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization .............................................. 1,982 3,060
Realized net gain on sale of securities .................................... (781) --
Deferred income taxes ...................................................... (4) --
Provision for doubtful accounts ............................................ (234) 180
Change in assets and liabilities:
Trade accounts receivable .............................................. 12,181 (648)
Prepaid expenses ....................................................... (195) (708)
Other receivables ...................................................... 69 19
Other assets ........................................................... 1 (34)
Accounts payable ....................................................... (4,408) 3,460
Payroll and related expenses ........................................... 8,772 1,749
Accrued expenses and other liabilities ................................. (7,247) (2,650)
Income taxes ........................................................... (556) 2,765
-------- --------
Net cash provided by operating activities .......................................... 14,999 12,807
-------- --------
Cash flows from investing activities:
Purchases of property and equipment ............................................. (6,057) (5,816)
Payments for acquisitions ....................................................... (4,970) --
Purchases of available-for-sale securities ...................................... (327) --
Redemption of available-for-sale securities ..................................... 8,884 --
-------- --------
Net cash used in investing activities .............................................. (2,470) (5,816)
-------- --------
Cash flows from financing activities:
Payments received on stock options exercised .................................... 2,516 490
Proceeds from long-term debt .................................................... 1,500 3,000
Payments on long-term debt ...................................................... (13,000) (12,000)
Repurchase of Common Stock ...................................................... -- (197)
Payments to employee stock purchase plan ........................................ (103) (99)
Cash overdraft .................................................................. -- 2,706
-------- --------
Net cash used in financing activities .............................................. (9,087) (6,100)
-------- --------
Effect of exchange rate changes on cash and cash equivalents ....................... (32) 35
-------- --------
Net increase in cash and cash equivalents .......................................... 3,410 926
Cash and cash equivalents at beginning of period ................................... 971 2
-------- --------
Cash and cash equivalents at end of period ......................................... $ 4,381 $ 928
-------- --------
-------- --------
Supplemental disclosures of cash flow information:
Cash paid for interest .......................................................... $ 1,692 $ 1,792
Cash paid for income taxes ...................................................... 4,452 3,123
</TABLE>
See accompanying Notes to Consolidated Financial Statements
Page 5
<PAGE>
ALTERNATIVE RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 1999. The interim consolidated financial statements
should be read in connection with the audited consolidated financial statements
for the year ended December 31, 1998, included in the December 31, 1998 Form
10-K of Alternative Resources Corporation (the "Company").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
COMPUTATION OF EARNINGS PER SHARE. Basic earnings per share is based on the
weighted average number of common shares outstanding for the period. Diluted
earnings per share is based on the weighted average number of common shares
outstanding and includes the dilutive effect of unexercised stock options using
the treasury stock method.
RECLASSIFICATIONS. Certain 1998 amounts have been reclassified to conform
with the 1999 presentation.
3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued in June 1998 and pursuant to the deferral of the
effective date by the Financial Accounting Standards Board is effective for all
fiscal quarters of all fiscal years beginning after June 15, 2000. SFAS No. 133
establishes a comprehensive standard for the recognition and measurement of
derivative instruments and hedging activities. The Company is currently
evaluating the impact of SFAS No. 133 on its financial statements.
4. COMMITMENTS AND CONTINGENCIES
On April 29, 1999, the Company entered into an agreement to lease new
office space for its corporate offices. The new lease provides more square
footage to accommodate future growth of the Company and carries a term of 10
years commencing on the earlier of completion of the agreed-upon build out or
October 20, 1999 at a rental rate that is approximately $5 per square foot lower
than the per square foot rate on the Company's existing office lease. The
Company also entered into an agreement on April 29, 1999 to sublease its
existing corporate office space. The sublease agreement has a term of 4 years at
a rental rate that is approximately $3 per square foot less than what the
Company is currently paying for the space. The sublease agreement is cancelable
by the sublessee in the event the Company does not surrender possession of its
existing office space by October 31, 1999. Upon the earlier of change of
possession or October 31, 1999, any losses resulting from the sublease agreement
will be recognized. Future minimum payments associated with the new lease
agreement are approximately $1 million annually through expiration in 2009.
Page 6
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ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Essentially all of the Company's revenue is generated from information
technology services that offer the benefits of outsourcing, while allowing
information services operations managers to retain strategic control of their
operations.
During the first half of 1999 the Company continued to adapt and adjust the
new business model that was implemented in the last half of 1998. The new
business model has been implemented to focus our sales forces efforts and
control our operating costs. The Company continues to adapt its business to a
more solutions-based model. This is being accomplished through the Company's
technology management service offering. Under a technology management service
arrangement the Company may take over an entire portion of a client's IT
operations and make commitments to meet specific service levels. Management
believes that technology management service revenue is an important measure of
clients' confidence and willingness to engage the Company to provide more
comprehensive IT staffing solutions.
As of June 30, 1999, the Company had 52 offices in the United States and
Canada, as compared to 60 offices at June 30, 1998. The decrease in the number
of offices is the result of a consolidation of branches during the third quarter
of 1998.
SECOND QUARTER FISCAL 1999 COMPARED TO SECOND QUARTER FISCAL 1998
REVENUE. Revenue increased by 1.9% from $84.4 million in the second quarter
of 1998 to $86.0 million in the second quarter of 1999, primarily as a result of
an increase in services hours provided, partially offset by the phasing out of
approximately $4.4 million of unprofitable business inherited from the
acquisition of CGI Systems, Inc. (CGI), which was acquired during the fourth
quarter of 1997. The low margin business was identified in the first quarter of
1998 and eliminated during the second and third quarters of 1998.
GROSS PROFIT. Gross profit increased by 3.1% from $28.0 million in the
second quarter of 1998 to $28.9 million in the second quarter of 1999. Gross
margin increased from 33.2% of revenue in the second quarter of 1998 to 33.6% in
the second quarter of 1999. The increase in gross margin was primarily due to
phasing the lower margin business acquired from CGI.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased from $22.2 million in the second quarter of
1998 to $23.1 million in the second quarter of 1999. The increase in selling,
general and administrative expenses resulted primarily from the increased
expenditures for marketing programs and the amortization of the capitalized new
systems that have been implemented in the first and second quarters of 1999
partially offset by the savings incurred from the restructuring of operations,
which included branch consolidations and staff reductions, that were implemented
in the third quarter of 1998. The restructuring included modifications to the
Company's operating model that were designed to eliminate unnecessary costs and
create a more efficient sales and delivery system for the Company's services.
Marketing expenditures were approximately $1 million higher in the second
quarter of 1999 versus the second quarter of 1998 due to costs associated with
the Company's efforts to productize its various service lines. The costs
included expenses associated with designing and printing sales collateral as
well as costs related to changing the Company's logo.
INCOME FROM OPERATIONS. Income from operations decreased from $5.8 million
in the second quarter of 1998 to $5.7 million in the second quarter of 1999.
Operating margin decreased from 6.9% in the second quarter of 1998 to 6.6% in
the second quarter of 1999. The decrease in operating margin resulted from the
increased selling, general and administrative expenses detailed above.
OTHER EXPENSE. Other expense for the second quarter of 1998 consisted of
interest expense of $1.2 million offset by interest income of $105,000. For the
second quarter of 1999, other expense consisted of interest expense of $812,000
offset by interest income of $105,000. The decrease in interest expense in the
second quarter of 1999 is the result of the Company reducing its outstanding
debt during the last year. Long-term debt decreased from $62.0 million at June
30, 1998 to $38.0 million at June 30, 1999.
PROVISION FOR INCOME TAXES. The Company's provision for income taxes
increased from $1.9 million in the second quarter of 1998 to $2.0 million in the
second quarter of 1999. The effective tax rate decreased from 41.3% in the
second quarter of 1998 to 40.5% in the second quarter of 1999. The amount of
amortization of goodwill, which is not tax deductible, caused the effective tax
rate to change slightly.
NET INCOME. The Company's net income increased from $2.7 million in the
second quarter of 1998, or 3.2% of total revenue, to $3.0 million in the second
quarter of 1999, or 3.5% of total revenue.
Page 7
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FIRST SIX MONTHS FISCAL 1999 COMPARED TO FIRST SIX MONTHS FISCAL 1998
REVENUE. Revenue increased by 0.4% from $167.2 million in the first six
months of 1998 to $167.9 million in the first six months of 1999, primarily as a
result of an increase in service hours provided, partially offset by the phasing
out of approximately $9.0 million of unprofitable business inherited from the
acquisition of CGI Systems, Inc. (CGI), which was acquired during the fourth
quarter of 1997. The low margin business was identified in the first quarter of
1998 and eliminated during the second and third quarters of 1998.
GROSS PROFIT. Gross profit increased by 1.2% from $55.6 million in the
first six months of 1998 to $56.3 million in the first six months of 1999. Gross
margin increased from 33.3% of revenue in the first six months of 1998 to 33.6%
in the first six months of 1999. The increase in gross margin was primarily due
to phasing out the lower margin business acquired from CGI.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased from $45.0 million in the first six months of
1998 to $45.4 million in the first six months of 1999. The increase in selling,
general and administrative resulted from the increased expenditures for
marketing programs and the amortization of the capitalized new systems that have
been implemented in the first and second quarters of 1999 partially offset by
the savings incurred from the restructuring of operations, which included branch
consolidations and staff reductions, that were implemented in the third quarter
of 1998. The restructuring included modifications to the Company's operating
model that were designed to eliminate unnecessary costs and create a more
efficient sales and delivery system for the Company's services. Marketing
expenditures were higher in the second quarter of 1999 versus the second quarter
of 1998 due to costs associated with the Company's efforts to productize its
various service lines. The costs included expenses associated with designing and
printing sales collateral as well as costs related to changing the Company's
logo.
INCOME FROM OPERATIONS. Income from operations increased from $10.7 million
in the first six months of 1998 to $10.9 million in the first six months of
1999. Operating margin increased from 6.4% in the first six months of 1998 to
6.5% in the first six months of 1999. The increase in operating margin resulted
primarily by the savings from the restructuring of operations, which included
branch consolidations and staff reductions.
OTHER EXPENSE. Other expense for the first six months of 1998 consisted of
interest expense of $2.5 million offset by interest income of $203,000 and net
gains of $781,000 on the liquidation of investments as the Company converted its
investment positions into cash. For the first six months of 1999, other expense
consisted of interest expense of $1.6 million offset by $204,000 of interest
income. The decrease in interest expense in the second quarter of 1999 is the
result of the Company reducing its outstanding debt during the last year.
Long-term debt decreased from $62.0 million at June 30, 1998 to $38.0 million at
June 30, 1999.
PROVISION FOR INCOME TAXES. The Company's provision for income taxes
increased from $3.7 million in the first six months of 1998 to $3.9 million in
the first six months of 1999. The effective tax rate increased from 40.7% in the
first six months of 1998 to 40.8% in the first six months of 1999. The amount of
amortization of goodwill, which is not tax deductible, caused the effective tax
rate to change slightly.
NET INCOME. The Company's net income increased from $5.4 million in the
first six months of 1998, or 3.2% of total revenue, to $5.6 million in the first
six months of 1999, or 3.3% of total revenue.
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of 1999, cash flows generated from operations
was $12.8 million resulting primarily from earnings, increased accounts payable
and accrued payroll expenses, decreases in income tax receivables, partially
offset by decreases in accrued expenses. Cash flows were used to make net
payments on long-term debt of $9.0 million and to make improvements to the
Company's information systems infrastructure and fixed asset purchases
aggregating approximately $5.8 million. Working capital decreased from $45.4
million at December 31, 1998, to $38.0 million at June 30, 1999 as cash provided
by operations was used to repay a portion of long-term debt.
On April 27, 1999, the Company's Board of Directors authorized the
repurchase of up to one million shares of its outstanding stock. Purchases may
be made at the Company's option from time to time, subject to market conditions,
in open market transactions at prevailing prices or through privately negotiated
transactions. As of August 5, 1999, the Company has repurchased 100,000 shares
under this program.
In connection with the acquisition of CGI, the Company established a $75.0
million, 3-year revolving line of credit that was used to finance the
acquisition. Total borrowings outstanding under the line at June 30, 1999 were
$38.0 million.
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The Company believes its cash balances, available credit facility and funds
from operations will be sufficient to meet all of its anticipated cash
requirements for at least the next 12 months including funding requirements for
the completion of its system replacement activities.
YEAR 2000 CONSIDERATIONS
INTERNAL ACCOUNTING AND FINANCIAL SYSTEMS
During the process of replacing its information systems, the Company has
also considered the Year 2000 compliance issue. One of the criteria used in
selecting the hardware and software, which will replace the Company's existing
systems, was that it had to be Year 2000 compliant. When completed, these
systems will support the Company's entire business processing needs as well as
all financial reporting needs. A portion of the replacement systems are
currently installed and functioning, and management projects that the remainder
will be installed and fully functional by the end of the third quarter of 1999.
Although the replacement of the Company's enterprise wide systems is being done
for business purposes, it coincidentally addresses Year 2000 issues. As such,
management believes that the Company will not incur significant additional
expenditures, over and above the cost of installing the new systems, to address
Year 2000 issues associated with the Company's internal systems. It is estimated
that an additional $1 to $2 million will be expended in 1999 to complete the
aforementioned replacement systems.
VENDORS, SUPPLIERS AND BUSINESS PARTNERS
The Company's main "supplier" is its technical employees. As long as the
Company has adequate internal resources in the form of systems infrastructure to
staff and manage projects (See "Internal Accounting and Financial Systems"
section above), management believes that there are no material Year 2000 issues
associated with this group.
The Company also purchases products and services from third parties and is
in the process of receiving written assurances from its material vendors and
suppliers that there will be no interruption of service or acceptable product as
a result of the Year 2000 issue. Based in part on the assurances received or not
received, the Company intends to devise contingency plans to mitigate the
negative effects on the Company in the event the Year 2000 issue results in the
unavailability of products or services. The Company cannot assure that any
contingency plan will prevent product or service interruption by one or more of
the Company's third party vendors or suppliers from having a material adverse
effect on the Company. It is planned that these relationships will be evaluated
through all of 1999, and changes to the supply chain as are deemed by management
to be appropriate and feasible will be made.
The Company will be at risk from external infrastructure failures,
including electrical power, telephone, and transportation, among others.
Investigation and assessment of infrastructure is beyond the scope and resources
of the Company. Among the risks arising from these sources are the Company's
inability to conduct business in its offices or at client sites that lose
electrical power or experience failure of elevator, security, HVAC or other
building systems; downtime for billable personnel who are unable to travel to or
from engagement locations if airline or other transportation providers cannot
provide service; and disruption to the Company's business if telephone or
cellular communication is unavailable.
CLIENTS
In many instances the services that the Company provides to its clients are
performed at the client's site, and require the use of the client's information
systems. In the event that the Company's clients experience Year 2000 problems
that impair or prevent access to clients' systems, the Company may be impaired
in its ability to perform services at those client sites that experience such
problems. The Company's technical employees might, therefore, generate less
revenue during that period.
At this time, the Company is not able to assess the ultimate risk to the
Company with respect to potential Year 2000 issues of its clients. However,
aside from its three largest clients, which account for an aggregate of
approximately 40 percent of the Company's revenue, the Company is not heavily
dependent on any other single client. The Company has been monitoring, and will
continue to monitor, all available public disclosures of its three largest
clients in order to assess their progress in addressing their respective Year
2000 issues.
The Company's efforts to assess and address Year 2000 issues associated
with vendors, suppliers, business partners and clients are being accomplished
using the Company's internal resources. At this time, management does not
believe that the Company will incur material incremental costs in connection
with this initiative. This cost assessment is dependent in large part upon the
information received from these third parties. As such, the assessment of
incremental costs associated with the Company's Year 2000 initiative will be
updated throughout 1999.
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ITEM 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk inherent in the Company's financial instrument subject to
such risks is the potential market value loss associated with derivative
financial instruments and additional interest expense associated with
floating-rate debt resulting from adverse changes in interest rates.
The Company uses an interest rate swap agreement to reduce exposure to
interest rate fluctuations on its debt. At June 30, 1999, the Company had an
interest rate swap agreement that effectively converted a majority of its
outstanding bank debt from floating interest rates to a fixed interest rate of
6.3%. This interest rate swap agreement covers $35.0 million notional amount of
debt. At June 30, 1999, $38.0 million of debt was outstanding under its bank
line of credit. Since the interest rate for the portion of the debt that is
covered by the interest rate swap agreement is effectively fixed, changes in
interest rates would have no impact on future interest expense for that portion
of the debt. Therefore, there is no earnings or liquidity risk associated with
either the interest rate swap agreement or that portion of the debt to which the
swap agreement relates. The fair market value of the interest rate swap is the
estimated amount, based upon discounted cash flows, the Company would pay or
receive to terminate the swap agreement. At June 30, 1999, a 50 basis point
decrease in interest rates would result in an approximate $488,000 increase in
the current cost of $135,000 to terminate the swap agreement.
A portion of the Company's outstanding floating-rate debt, which totaled
$3.0 million as of June 30, 1999, is not covered by an interest rate swap
agreement. An adverse change in interest rates during the time that this portion
of the loan is outstanding would cause an increase in the amount of interest
paid. Although the Company may pay down the loan prior to the expiration of the
line of credit in November 2000, if this portion of the Company's borrowings
were to remain outstanding for the remaining term of the borrowing agreement, a
100 basis point increase in LIBOR as of June 30, 1999, would increase by $30,000
the amount of annual interest paid on this portion of the debt and annualized
interest expense recognized in the financial statements.
Page 10
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PART II - OTHER INFORMATION
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of stockholders of Alternatives Resources
Corporation was held on May 20, 1999.
(b) The individuals specified in (c) below were elected as directors
at the meeting and the terms of office of George B. Cobbe, A.
Donald Rully, Raymond R. Hipp, JoAnne Brandes, and Michael E.
Harris as directors continued after the meeting.
(c) Set forth below is the tabulation of the votes with respect to
the election of Syd N. Heaton, Steve Purcell and Bruce R. Smith
as Class II Directors.
<TABLE>
<CAPTION>
Withhold
Director For Authority
-------- --- ---------
<S> <C> <C>
Syd N. Heaton 11,833,408 1,693,705
Steve Purcell 11,833,408 1,693,705
Bruce R. Smith 11,833,408 1,693,705
</TABLE>
Set forth below is the tabulation of the votes on the motion to
approve an amendment to the Company's Employee Stock Purchase
Plan (the "Plan") increasing the number of shares of common stock
authorized to be sold pursuant to the Plan from 300,000 to
600,000.
<TABLE>
<CAPTION>
Broker
For Against Abstain Nonvotes
--- ------- ------- --------
<S> <C> <C> <C>
11,604,901 1,879,168 43,044 0
</TABLE>
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
-------------- -----------
27 Financial Data Schedule
(b) The registrant was not required to file any reports on Form 8-K
for the quarter.
Page 11
<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
Date: August 16, 1999 /s/ Steven Purcell
-------------------------------------------
Steven Purcell
Senior Vice President, Chief Financial Officer,
Treasurer and Secretary
Page 12
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
Page 13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOUND IN THE COMPANY'S 10-Q FOR THE SIX MONTH
PERIOD ENDED JUNE 30, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 928
<SECURITIES> 0
<RECEIVABLES> 71,356
<ALLOWANCES> 1,541
<INVENTORY> 0
<CURRENT-ASSETS> 78,007
<PP&E> 33,481
<DEPRECIATION> 12,110
<TOTAL-ASSETS> 140,063
<CURRENT-LIABILITIES> 40,047
<BONDS> 0
0
0
<COMMON> 160
<OTHER-SE> 58,212
<TOTAL-LIABILITY-AND-EQUITY> 140,063
<SALES> 0
<TOTAL-REVENUES> 167,861
<CGS> 0
<TOTAL-COSTS> 111,537
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 180
<INTEREST-EXPENSE> 1,394
<INCOME-PRETAX> 9,484
<INCOME-TAX> 3,870
<INCOME-CONTINUING> 5,614
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,614
<EPS-BASIC> 0.36
<EPS-DILUTED> 0.36
</TABLE>
