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, 2000
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.)
600 HART ROAD, SUITE 300, BARRINGTON, IL 60010
(Address of principal executive offices) (Zip code)
(847) 381-6701
--------------
(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:
16,036,442 shares of Common Stock outstanding as of August 4, 2000.
Page 1
PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
ALTERNATIVE RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
December 31, June 30,
1999 2000
------------ ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 374 $ 1,338
Trade accounts receivable, net of allowance for doubtful accounts 71,797 60,087
Prepaid expenses 886 2,265
Income taxes receivable 9,969 8,094
Other receivables 421 240
Deferred income taxes 534 534
------------ ------------
Total current assets 83,981 72,558
------------ ------------
Property and equipment:
Office equipment 11,086 11,297
Furniture and fixtures 1,935 1,902
Software 16,740 17,762
Leasehold improvements 1,474 1,556
------------ ------------
31,235 32,517
Less accumulated depreciation and amortization (8,319) (11,544)
------------ ------------
Net property and equipment 22,916 20,973
------------ ------------
Other assets:
Goodwill, net of amortization 38,432 37,924
Other assets 1,193 1,860
------------ ------------
Total other assets 39,625 39,784
------------ ------------
Total assets $146,522 $133,315
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Cash overdraft $ 4,422 $ 1,336
Short-term debt 52,000 52,000
Accounts payable 12,726 12,857
Payroll and related expenses 14,724 12,580
Accrued expenses 8,954 4,816
------------ ------------
Total current liabilities 92,826 83,589
Other liabilities 455 253
Deferred income taxes 2,391 2,391
------------ ------------
Total liabilities 95,672 86,233
------------ ------------
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,
16,015,942 and 16,034,940 shares issued at December 31, 1999
and June 30, 2000, respectively 160 160
Additional paid-in capital 27,000 26,982
Accumulated other comprehensive income 12 12
Retained earnings 28,381 24,725
------------ ------------
55,553 51,879
Less: Treasury stock, at cost, 500,000 and 585,800 shares at
December 31, 1999 and June 30, 2000, respectively (4,703) (4,797)
------------ ------------
Total stockholders' equity 50,850 47,082
------------ ------------
Total liabilities and stockholders' equity $146,522 $133,315
============ ============
See accompanying Notes to Consolidated Financial Statements
Page 2
ALTERNATIVE RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three Months Six Months
Ended June 30, Ended June 30,
-------------------------------- -------------------------------
1999 2000 1999 2000
-------------- -------------- -------------- --------------
(Unaudited) (Unaudited)
Revenue $85,956 $65,856 $167,861 $136,376
Cost of services 57,106 45,513 111,537 97,295
-------------- -------------- -------------- --------------
Gross profit 28,850 20,343 56,324 39,081
Operating expenses
Selling, general and administrative expenses 21,494 20,005 42,386 39,905
Depreciation and amortization 1,643 1,875 3,060 3,733
-------------- -------------- -------------- --------------
Total operating expenses 23,137 21,880 45,446 43,638
-------------- -------------- -------------- --------------
Income (loss) from operations 5,713 (1,537) 10,878 (4,557)
Other expense, net (707) (154) (1,394) (1,183)
-------------- -------------- -------------- --------------
Income (loss) before income taxes 5,006 (1,691) 9,484 (5,740)
Income taxes 2,028 (543) 3,870 (2,084)
-------------- -------------- -------------- --------------
Net income (loss) $ 2,978 $(1,148) $ 5,614 $(3,656)
============== ============== ============== ==============
Net earnings (loss) per share:
Basic $ 0.19 $ (0.07) $ 0.36 $ (0.24)
============== ============== ============== ==============
Diluted $ 0.19 $ (0.07) $ 0.36 $ (0.24)
============== ============== ============== ==============
Shares used to compute earnings (loss) per share:
Basic 15,724 15,498 15,729 15,509
============== ============== ============== ==============
Diluted 15,767 15,498 15,794 15,509
============== ============== ============== ==============
See accompanying Notes to Consolidated Financial Statements
Page 3
ALTERNATIVE RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
(In thousands)
Three Months Six Months
Ended June 30, Ended June 30,
------------------------------ -------------------------------
1999 2000 1999 2000
------------- --------------- ------------- ---------------
(Unaudited) (Unaudited)
Net income (loss) $ 2,978 $(1,148) $ 5,614 $(3,656)
Other comprehensive income:
Foreign currency translation adjustment 8 -- 35 --
------------- --------------- ------------- ---------------
Comprehensive income (loss) $ 2,986 $(1,148) $ 5,649 $(3,656)
============= =============== ============= ===============
See accompanying Notes to Consolidated Financial Statements
Page 4
ALTERNATIVE RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six Months Ended
June 30,
----------------------------------
1999 2000
-------------- --------------
(Unaudited)
Cash flows from operating activities:
Net income (loss) $ 5,614 $ (3,656)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization 3,060 3,733
Gain on sale of interest rate swap -- (1,100)
Provision for doubtful accounts 180 --
Change in assets and liabilities:
Trade accounts receivable (648) 11,710
Prepaid expenses (708) (1,379)
Other receivables 19 181
Other assets (34) (667)
Accounts payable 3,460 131
Payroll and related expenses 1,749 (2,144)
Accrued expenses and other liabilities (2,650) (4,340)
Income taxes 2,765 1,875
-------------- --------------
Net cash provided by operating activities 12,807 4,344
-------------- --------------
Cash flows from investing activities:
Purchases of property and equipment (5,816) (1,282)
-------------- --------------
Net cash used in investing activities (5,816) (1,282)
-------------- --------------
Cash flows from financing activities:
Payments received on stock options exercised 490 52
Proceeds from short-term debt -- 4,400
Payments on short-term debt -- (4,400)
Proceeds from long-term debt 3,000 --
Payments on long-term debt (12,000) --
Proceeds from sale of interest rate swap -- 1,100
Repurchase of Common Stock (197) (94)
Contributions to employee stock purchase plan (99) (70)
Cash overdraft 2,706 (3,086)
-------------- --------------
Net cash used in financing activities (6,100) (2,098)
-------------- --------------
Effect of exchange rate changes on cash and cash equivalents 35 --
-------------- --------------
Net increase in cash and cash equivalents 926 964
Cash and cash equivalents at beginning of period 2 374
-------------- --------------
Cash and cash equivalents at end of period $ 928 $ 1,338
============== ==============
Supplemental disclosures of cash flow information:
Cash paid for interest $ 1,792 $ 2,198
Cash paid for income taxes 3,123 246
See accompanying Notes to Consolidated Financial Statements
Page 5
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, 2000. The interim
consolidated financial statements should be read in connection with the
audited consolidated financial statements for the year ended December 31,
1999, included in the December 31, 1999 Form 10-K of Alternative Resources
Corporation (the "Company").
2. RESTRUCTURING CHARGE - 1999
During the fourth quarter of 1999, the Company incurred a $4.2 million
restructuring charge representing real estate and severance costs associated
with re-engineering the Company's sales, recruiting and delivery models. This
action was a natural extension of the changes announced in 1998, which were
designed to optimize the existing branch field model, and entails a
comprehensive shift to a model organized along the functional lines of sales,
recruiting and delivery. The new model is expected to be more efficient in
terms of meeting the demands of the Company's clients at a lower cost.
The primary components of the restructuring charge can be summarized as
follows:
Total 1999 Balance at 2000 Balance at
Initial Cash December Cash June
In thousands Reserve Payments 31, 1999 Payments 31, 2000
- ---------------------------------------------------------------------------------------------
Real estate costs $3,538 $ (30) $ 3,508 $ (765) $ 2,743
Severance 630 (416) 214 (184) 30
- ---------------------------------------------------------------------------------------------
Total $4,168 $(446) $3,722 $ (949) $ 2,773
=============================================================================================
The portion of the charge related to real estate costs, which totaled
$3.5 million, relates to lease costs associated with vacating offices as the
Company downsizes its office space requirements. Through a combination of
adopting a more virtual office model and eliminating administrative functions
that had been performed in the field offices, the Company will be able to
relocate from most of its existing leased office space to smaller office
space that will require 60% less square footage than what is currently used.
The costs associated with this charge relate primarily to the present value
of ongoing lease obligations for vacated offices net of anticipated sublease
income. A portion of the charge also relates to broker commissions and
estimated leasehold improvement costs necessary to sublease vacated offices.
Most of the Company's office locations were targeted for relocation. As of
June 30, 2000, the relocation of all targeted office locations was
substantially complete. The majority of the unpaid restructuring reserve as
of June 30, 2000 relates to future lease obligations which will be paid over
the next 5 years.
The $0.6 million severance charge relates to head-count reductions
associated with automating and centralizing field administrative processes as
part of the re-engineering exercise. A total of 88 positions were eliminated,
49 in the fourth quarter of 1999, 37 in the first quarter of 2000, and 2
employees in the second quarter of 2000. The largest group of positions
eliminated was branch administrators with the remainder of positions being a
mix of employees across the Company.
3. RESTRUCTURING CHARGE - 1998
The 1998 restructuring charge consists of expenses associated with
reorganizing the Company's management structure as well as expenses related
to a restructuring of the Company's operating model. Of the $3.9 million
restructuring charge, $1.9 million represents severance pay and other
employment-related expenses connected with reorganizing the management
structure. The remaining $2.0 million of the restructuring charge represents
costs associated primarily with staff reductions and consolidation of sales
offices as management implemented a plan to reduce operating costs and
optimize the Company's operating model.
Page 6
The primary components of the restructuring charge can be summarized as
follows:
Balance Balance Balance
Total 1998 at 1999 at 2000 at
Initial Cash December Cash December Cash June
In thousands Reserve Payments 31, 1998 Payments 31, 1999 Payments 30, 2000
- -------------------------------------------------------------------------------------------------
MANAGEMENT CHANGES:
Severence $1,372 $(1,272) $ 100 $ (100) $ - $ - $ -
Other employment-
related expenses 685 (547) 138 (88) 50 (5) 45
- -------------------------------------------------------------------------------------------------
Total charges related to
management changes 2,057 (1,819) 238 (188) 50 (5) 45
OPERATING MODEL CHANGES:
Severence 1,209 (793) 416 (399) 17 (17) -
Office consolidation 644 (305) 339 (157) 182 (44) 138
- -------------------------------------------------------------------------------------------------
Total charges related to
operating model changes 1,853 (1,098) 755 (556) 199 (61) 138
- -------------------------------------------------------------------------------------------------
Total $3,910 $(2,917) $ 993 $ (744) $ 249 $ (66) $ 183
=================================================================================================
The Company's plan to reduce operating costs and optimize the business
model consisted of the elimination of certain programs and positions that
were not considered strategic to the business. In addition, the Company
closed six sales offices and consolidated their operations with other offices
in order to gain operating efficiencies. In conjunction with these
activities, 43 positions which consisted of management and staff primarily
related to non-strategic functional areas were eliminated. Most of the
expense associated with office consolidation relates to ongoing lease
obligations for these unused locations, net of sublease income. The unpaid
restructuring reserve as of June 30, 2000, relates to lease obligations and
other employment-related expenses, most of which should be paid in 2000.
Page 7
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.
RESTRUCTURING CHARGE - 1999
The Company recorded a restructuring charge, which totaled $4.2 million,
in the fourth quarter of 1999. This restructuring charge represents real
estate and severance costs associated with re-engineering the Company's
sales, recruiting and delivery models. This action was a natural extension of
the restructuring announced in 1998, which was designed to optimize the
existing branch field model, and entails a comprehensive shift to a model
organized along the functional lines of sales, recruiting and delivery. The
new model is expected to be more efficient in terms of meeting the demands of
the Company's clients at a lower cost.
A majority of the $4.2 million restructuring charge relates to lease
costs associated with vacating offices as the Company downsizes its office
space requirements. Through a combination of adopting a more virtual office
model and eliminating administrative functions that had been performed in the
field offices, the Company relocated from most of its existing leased office
space to smaller office space requiring 60% less square footage than what was
previously used. The net impact is anticipated to lower the Company's annual
fixed occupancy costs by approximately $1.8 million without a loss in
geographic coverage or functionality of workspace. Of the $4.2 million
restructuring charge, $3.5 million represents the present value of ongoing
lease obligations for vacated offices, net of anticipated sublease income, as
well as estimated broker commissions and leasehold improvement costs
necessary to sublease vacated offices. As of June 30, 2000, the relocation of
all targeted office locations was substantially complete.
The remaining $0.6 million of the $4.2 million restructuring charge
relates to severance costs associated with automating and centralizing field
administrative processes as part of the re-engineering exercise. A total of
88 positions were eliminated, 49 in the fourth quarter of 1999, 37 in the
first quarter of 2000, and 2 in the second quarter of 2000. Management
estimates that the 1999 restructuring initiative will result in savings in
operating expenses of approximately $8.0 million on an annual basis when
fully implemented.
RESTRUCTURING CHARGE - 1998
The Company recorded a restructuring charge, which totaled $3.9 million,
in the third quarter of 1998. This restructuring charge consists of expenses
associated with reorganizing the Company's management structure as well as
expenses related to a restructuring of the Company's operating model. Of the
$3.9 million restructuring charge, $1.9 million represents severance pay and
other employment-related expenses connected with reorganizing the management
structure. The remaining $2.0 million of the restructuring charge represents
costs associated primarily with staff reductions and consolidation of sales
offices as management implemented a plan to reduce operating costs and
optimize the Company's operating model.
SECOND QUARTER FISCAL 2000 COMPARED TO SECOND QUARTER FISCAL 1999
REVENUE. Revenue decreased by 23.4% from $86.0 million in the second
quarter of 1999 to $65.9 million in the second quarter of 2000, primarily as
a result of a 21.6% decrease in staff augmentation revenue and a 27.2%
decrease in Technology Management Solutions revenue. Revenue in the second
quarter of 1999 included $1.4 million from the Pacbase consulting business,
which was sold in September 1999. The Pacbase consulting business, which was
acquired in 1997 as part of the CGI Systems, Inc. acquisition, focused on
supporting a specific software product which was not considered strategic to
the Company's business. Excluding Pacbase revenue, the Technology Management
Solutions revenue decreased 23.2% in the second quarter of 2000. The
restructuring of operations that disrupted normal business activities was the
principal reason for the revenue reduction. In addition, the industry-wide
softness in demand for information technology staffing services that was
evident in the first quarter of 2000 continued through the second quarter of
2000. Also contributing to the revenue decline was the time spent on
extensive training of the entire field force during the second quarter of
2000 on process and use of recently implemented new technology.
GROSS PROFIT. Gross profit decreased by 29.5% from $28.9 million in the
second quarter of 1999 to $20.3 million in the second quarter of 2000. The
decrease in gross profit was primarily due to the lower revenue in the second
quarter of 2000 as compared to the second quarter of 1999. Gross margin
decreased from 33.6% of revenue in the second quarter of 1999 to 30.9% in the
second quarter of 2000. The decrease in gross margin was due primarily to
lower gross margin on a major
Page 8
project and increased benefits expense for Technical Consultants. The
decrease in gross margin on the project was primarily due to under
utilization of technical resources caused by changes in processes at both the
client and within the Company. The changes, which occurred in the latter half
of 1999, have been the focus of management and the client in the first and
second quarters of 2000. Delivery changes and contract modifications
implemented near the end of the first quarter of 2000 returned the project to
historical levels of profitability by the end of the second quarter of 2000.
The increase in benefits expense resulted from changes in the Technical
Consultants' benefits plan implemented near the end of the first quarter of
1999. The changes, which increased benefits coverage for Technical
Consultants, were partially offset by the elimination of one of the Company's
formal education incentive programs which was accounted for as part of the
Company's selling, general and administrative expenses.
OPERATING EXPENSES. Operating expenses decreased from $23.1 million in
the second quarter of 1999 to $21.9 million in the second quarter of 2000.
The decrease in operating expenses resulted primarily from the savings
realized from the restructuring of operations, which included re-engineering
the Company's sales, recruiting and delivery models. The savings resulted in
lower compensation and occupancy expenses. The decrease in operating expenses
was partially offset by increased expenditures for additional training for
all field personnel and the amortization of new IT systems capitalized in
1999.
INCOME (LOSS) FROM OPERATIONS. Income from operations decreased from
$5.7 million or 6.6% of revenue in the second quarter of 1999 to a loss of
$1.5 million or (2.3%) of revenue in the second quarter of 2000. The loss
from operations resulted primarily from the decrease in gross profit
partially offset by the decrease in operating expenses detailed above.
OTHER EXPENSE. Other expense, net, decreased from $0.7 million in the
second quarter of 1999 to $0.2 million in the second quarter of 2000. The
decrease in other expense from the second quarter of 1999 to the second
quarter of 2000 is primarily the result of a gain of $1.1 million on the sale
of an interest rate swap agreement, partially offset by an increase in
interest expense. The increase in interest expense resulted from an increase
in debt levels from an average of $40.5 million in the second quarter of 1999
to an average of $52.1 million in the second quarter of 2000 and an increase
in interest rates on the outstanding debt.
PROVISION FOR INCOME TAXES. The Company's provision for income taxes
decreased from $2.0 million in the second quarter of 1999 to a benefit of
$0.5 million in the second quarter of 2000. The effective tax rate was 40.5%
in the second quarter of 1999 and 32.1% in the second quarter of 2000. The
change in effective tax rates primarily resulted from the amortization of
goodwill, which is not tax deductible.
NET INCOME (LOSS). The Company's net income decreased from $3.0 million
in the second quarter of 1999, or 3.5% of total revenue, to a loss of $1.1
million in the second quarter of 2000, or (1.7%) of total revenue.
FIRST SIX MONTHS FISCAL 2000 COMPARED TO FIRST SIX MONTHS FISCAL 1999
REVENUE. Revenue decreased by 18.8% from $167.9 million in the first
six months of 1999 to $136.4 million in the first six months of 2000,
primarily as a result of a 18.1% decrease in staff augmentation revenue and
an 20.2% decrease in Technology Management Solutions revenue. Revenue in the
first six months of 1999 included $3.0 million from the Pacbase consulting
business, which was sold in September 1999. The Pacbase consulting business,
which was acquired in 1997 as part of the CGI Systems, Inc. acquisition,
focused on supporting a specific software product which was not considered
strategic to the Company's business. Excluding Pacbase revenue, the
Technology Management Solutions revenue decreased 15.2% in the first six
months of 2000. The restructuring of operations that disrupted normal
business activities was the principal reason for the revenue reduction. Also
contributing to the decline in revenue was an industry wide softness in
demand, which started in the latter half of 1999 and continued through the
first six months of 2000. Also contributing to the revenue decline was the
time spent on extensive training of the entire field force during the second
quarter of 2000 on process and use of recently implemented new technology.
GROSS PROFIT. Gross profit decreased by 30.6% from $56.3 million in the
first six months of 1999 to $39.1 million in the first six months of 2000.
The decrease in gross profit was primarily due to the lower revenue in the
first six months of 2000 as compared to the first six months of 1999. Gross
margin decreased from 33.6% of revenue in the first six months of 1999 to
28.7% in the first six months of 2000. The decrease in gross margin was due
primarily to lower gross margin on a major project and increased benefits
expense for Technical Consultants. The decrease in gross margin on the
project was primarily due to under utilization of technical resources caused
by changes in processes at both the client and within the Company. The
changes, which occurred in the latter half of 1999, have been the focus of
management and the client in the first six months of 2000. Delivery changes
and contract modifications have been implemented near the end of the first
quarter of 2000 to return the project to its historical levels of
profitability at the end of the second quarter of 2000.
Page 9
The increase in benefits expense resulted from changes in the Technical
Consultants' benefits plan near the end of the first quarter of 1999. The
changes, which increased benefits coverage for Technical Consultants, were
partially offset by the elimination of one of the Company's formal education
incentive programs which was accounted for as part of the Company's selling,
general and administrative expenses.
OPERATING EXPENSES. Operating expenses decreased from $45.4 million in
the first six months of 1999 to $43.6 million in the first six months of
2000. The decrease in operating expenses resulted primarily from the savings
realized from the restructuring of operations, which included re-engineering
the Company's sales, recruiting and delivery models. The savings resulted in
lower compensation and occupancy expenses. The decrease in operating expenses
was partially offset by increased expenditures for additional training for
all field personnel and the amortization of new IT systems that were
capitalized in 1999.
INCOME (LOSS) FROM OPERATIONS. Income from operations decreased from
$10.9 million or 6.5% of revenue in the first six months of 1999 to a loss of
$4.6 million or (3.3%) of revenue in the first six months of 2000. The loss
from operations resulted primarily from the decrease in gross profit
partially offset by the decrease in operating expenses detailed above.
OTHER EXPENSE. Other expense, net, decreased from $1.4 million in the
first six months of 1999 to $1.2 million in the first six months of 2000. The
decrease in other expense from the first six months of 1999 to the first six
months of 2000 is primarily the result of a gain of $1.1 million on the sale
of an interest rate swap agreement, partially offset by an increase in
interest expense. The increase in interest expense resulted from an increase
in debt levels from an average of $43.7 million in the first six months of
1999 to an average of $52.0 million in the first six months of 2000 and an
increase in interest rates on the outstanding debt.
PROVISION FOR INCOME TAXES. The Company's provision for income taxes
decreased from $3.9 million in the first six months of 1999 to a benefit of
$2.1 million in the first six months of 2000. The effective tax rate was
40.8% in the first six months of 1999 and 36.3% in the first six months of
2000. The change in effective tax rates primarily resulted from the
amortization of goodwill, which is not tax deductible.
NET INCOME (LOSS). The Company's net income decreased from $5.6 million
in the first six months of 1999, or 3.3% of total revenue, to a loss of $3.7
million in the first six months of 2000, or (2.7%) of total revenue.
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of 2000, cash flows provided by operations
were $4.3 million resulting primarily from decreased accounts receivables,
and an income tax refund, partially offset by decreased accrued expenses and
accrued payroll expenses, an increase in prepaid expenses and a net loss.
As of December 31, 1999 and June 30, 2000, the total borrowings under
the line of credit were $52.0 million. Current liabilities exceeded current
assets by $8.8 million and $11.0 million at December 31, 1999 and June 30,
2000, respectively. Current liabilities include $52.0 million of outstanding
borrowings against the Company's line of credit which has a maturity date of
December 31, 2000. As of June 30, 2000, the Company was in default of certain
loan covenants resulting in an increase in the interest rate on the
outstanding debt to the prime rate plus 225 basis points. The lenders are
under no contractual obligation to advance additional funds beyond the
current outstanding debt balance as long as the defaults remain uncured. The
Company is currently negotiating the refinancing of its outstanding debt to
include an extension of the maturity date and to provide additional borrowing
capacity. The Company anticipates that it will successfully complete the
refinancing of its outstanding debt, however there can be no guarantee that
it will be completed. Should this refinancing not be completed, the Company
will pursue other financing alternatives. In July 2000, the Company paid down
$1.0 million of borrowings against the line of credit reducing the
outstanding balance to $51.0 million.
The Company believes that cash provided by operations will be
sufficient to meet anticipated cash requirements for both operations and
investing activities for at least the next 12 months. The refinancing of the
Company's outstanding debt will be required to fund all of its financing
activities for the next 12 months.
ITEM 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk inherent in the Company's financial instrument subject
to such risk is the additional interest expense associated with floating-rate
debt resulting from adverse changes in interest rates.
The Company's had outstanding $52.0 million of floating-rate debt as of
June 30, 2000. An adverse change in interest rates during the time that this
loan is outstanding would cause an increase in the amount of interest paid.
Although the Company may pay down the loan prior to the
Page 10
expiration of the line of credit on December 31, 2000, if the Company's
borrowings were to remain outstanding for the remaining term of the borrowing
agreement, a 100 basis point increase in the prime rate as of June 30, 2000,
would increase by $0.5 million the amount of annual interest due on this
portion of the debt and annualized interest expense recognized in the
financial statements.
Page 11
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 23, 2000.
(b) The individuals specified in (c) below were elected as directors
at the meeting and the terms of office of JoAnne Brandes, Syd N.
Heaton, Steve Purcell, and Bruce R. Smith as directors continued
after the meeting.
(c) Set forth below is the tabulation of the votes with respect to
the election of A. Donald Rully as a Class I Director and George
B. Cobbe and Raymond R. Hipp as Class III Directors.
Withhold
Director For Authority
--------------- ---------- ---------
A. Donald Rully 13,761,364 267,071
George B. Cobbe 13,780,114 248,321
Raymond R. Hipp 13,742,495 285,940
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) The following document is 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 12
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 14, 2000 /s/ Steven Purcell
---------------------------------------------
Steven Purcell
Senior Vice President, Chief Financial Officer,
Treasurer and Secretary
Page 13
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
27 Financial Data Schedule
Page 14