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, 1996
Commission file number 0-23940
ALTERNATIVE RESOURCES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 38-2791069
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
75 Tri-State International, Suite 100, Lincolnshire, IL 60069
(Address of principal executive offices) (Zip code)
(847) 317-1000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES X NO .
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
15,562,320 shares of Common Stock outstanding as of August 1, 1996.
Page 1 of 28
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
ALTERNATIVE RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
ASSETS
December 31, June 30,
1995 1996
------------ -----------
Current assets: (Unaudited)
Cash and cash equivalents $ 4,639 $ 4,236
Short-term investments 12,341 17,651
Trade accounts receivable, net
of allowance for doubtful accounts 24,621 27,293
Prepaid expenses 518 580
Other receivables 973 1,815
------------ -----------
Total current assets 43,092 51,575
------------ -----------
Property and equipment:
Office equipment 2,140 2,767
Furniture and fixtures 889 1,068
Software 363 360
Leasehold improvements 95 114
------------ -----------
3,487 4,309
Less accumulated depreciation
and amortization (1,433) (1,793)
------------ -----------
Net property and equipment 2,054 2,516
------------ -----------
Other assets:
Long-term investments 2,460 2,980
Other assets 205 202
------------ -----------
Total other assets 2,665 3,182
------------ -----------
Total assets $47,811 $57,273
------------ -----------
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 437 $ 397
Payroll and related expenses 6,082 7,774
Accrued expenses 2,161 2,505
Income taxes payable 418 --
------------ -----------
Total current liabilities 9,098 10,676
Deferred rent payable 252 282
------------ -----------
Total liabilities 9,350 10,958
------------ -----------
Stockholders' equity:
Preferred Stock, $.01 par value,
1,000,000 shares authorized, none
issued and outstanding -- --
Common Stock, $.01 par value, 20,000,000
and 50,000,000 shares authorized at
December 31, 1995 and June 30, 1996,
respectively; 15,347,027 and 15,561,782
shares issued and outstanding at
December 31, 1995 and June 30, 1996,
respectively 153 156
Additional paid-in capital 19,052 20,826
Unrealized loss on
available-for-sale securities -- (35)
Cumulative translation adjustment (18) 1
Retained earnings 19,274 25,367
------------ -----------
Total stockholders' equity 38,461 46,315
------------ -----------
Total liabilities and stockholders' equity $47,811 $57,273
------------ -----------
------------ -----------
See accompanying Notes to Consolidated Financial Statements
Page 2 of 28
ALTERNATIVE RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
Three Months Six Months
Ended June 30, Ended June 30,
-------- -------- -------- -------
1995 1996 1995 1996
-------- -------- -------- -------
(Unaudited) (Unaudited)
Revenue $36,711 $48,674 $69,677 $94,508
Cost of services 23,112 30,049 44,032 59,118
-------- -------- -------- -------
Gross profit 13,599 18,625 25,645 35,390
Selling, general and administrative expenses 9,686 13,035 18,579 25,424
-------- -------- -------- -------
Income from operations 3,913 5,590 7,066 9,966
Other income, net 118 243 241 502
-------- -------- -------- -------
Income before income taxes 4,031 5,833 7,307 10,468
Income taxes 1,654 2,438 2,994 4,375
-------- -------- -------- -------
Net income $2,377 $3,395 $4,313 $6,093
-------- -------- -------- -------
-------- -------- -------- -------
Net earnings per share amounts:
Primary $0.15 $0.21 $0.28 $0.38
-------- -------- -------- -------
-------- -------- -------- -------
Fully diluted $0.15 $0.21 $0.27 $0.38
-------- -------- -------- -------
-------- -------- -------- -------
Weighted average common and common
equivalent shares outstanding:
Primary 15,690 16,315 15,602 16,117
-------- -------- -------- -------
-------- -------- -------- -------
Fully diluted 15,816 16,318 15,770 16,204
-------- -------- -------- -------
-------- -------- -------- -------
See accompanying Notes to Consolidated Financial Statements
Page 3 of 28
ALTERNATIVE RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six Months Ended
June 30,
----------------------
1995 1996
--------- ---------
(Unaudited)
Cash flows from operating activities:
Net income $ 4,313 $ 6,093
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 310 360
Deferred income tax benefit (49) --
Allowance for doubtful accounts, net 360 28
Change in assets and liabilities:
Trade accounts receivable (4,282) (2,700)
Prepaid expenses and other current assets (988) (62)
Other receivables (49) (842)
Other assets (1) 22
Accounts payable (236) (40)
Payroll and related expenses 962 1,692
Accrued expenses 413 344
Income taxes payable (49) (418)
Deferred rent payable 41 30
--------- ---------
Net cash provided by operating activities 745 4,507
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment (1,014) (822)
Purchase of short-term and long-term investments (10,672) (12,271)
Maturities of short-term investments 10,716 6,406
--------- ---------
Net cash used in investing activities (970) (6,687)
--------- ---------
Cash flows from financing activities:
Payments received on stock options exercised 244 1,886
Repurchase of common stock under employee
stock purchase plan (114) (724)
Issuance of common stock under employee
stock purchase plan 96 615
Issuance of common stock 7,210 --
--------- ---------
Net cash provided by financing activities 7,436 1,777
--------- ---------
Net increase (decrease) in cash and cash equivalents 7,211 (403)
Cash and cash equivalents at beginning of period 2,733 4,639
--------- ---------
Cash and cash equivalents at end of period $ 9,944 $ 4,236
--------- ---------
--------- ---------
Supplemental disclosures:
Cash paid for interest -- --
Cash paid for income taxes $ 3,749 $ 5,237
--------- ---------
Supplemental disclosure of noncash financing activities:
Cancelled stock registration rights $ 275 $ --
--------- ---------
See accompanying Notes to Consolidated Financial Statements
Page 4 of 28
ALTERNATIVE RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
1. BASIS OF PRESENTATION
The interim consolidated financial statements presented are unaudited, but
in the opinion of management, have been prepared in conformity with generally
accepted accounting principles applied on a basis consistent with those of the
annual financial statements. Such interim consolidated financial statements
reflect all adjustments (consisting of normal recurring accruals) necessary for
a fair presentation of the financial position and the results of operations for
the interim periods presented. The results of operations for the interim
periods presented are not necessarily indicative of the results to be expected
for the year ending December 31, 1996. The interim consolidated financial
statements should be read in connection with the audited financial statements
for the year ended December 31, 1995.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The operations of Alternative Resources
Corporation (the "Company") are conducted through a parent holding company and
two operating subsidiaries, which reflects a natural division of the Company's
service lines. The accompanying financial statements include the consolidated
financial position and results of operations of the Company and its subsidiaries
with all intercompany transactions eliminated in their entirety.
COMPUTATION OF EARNINGS PER SHARE. Earnings per common and common
equivalent share is based on the average number of common shares and dilutive
common share equivalents outstanding for the three month and six month periods
ended June 30, 1995 and 1996. The amount of dilution is computed using the
treasury stock method.
INVESTMENT SECURITIES. The Company classified all its investment
securities as "held-to-maturity" at December 31, 1995 under the provisions of
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". As held-to-maturity securities
mature in 1996, the proceeds of such securities will be reinvested in "available
for sale" securities. The Company reports available-for-sale securities at fair
value, with unrealized gains and losses excluded from earnings and reported as a
separate component of stockholders' equity.
RECLASSIFICATION. Certain 1995 amounts have been reclassified to conform
with the 1996 presentation.
Page 5 of 28
Item 2. - Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
The Company has experienced substantial growth in revenue and earnings
driven by industry trends toward outsourcing of Information Services
operations, increased penetration of existing clients and markets, increased
productivity of existing branch offices, the opening of new branch offices
and the introduction of new services. Essentially all of the Company's
revenue is generated from technical resource services (either Tactical or
Strategic) that offer the benefits of outsourcing while allowing Information
Services operations managers to retain strategic control of their operations.
Tactical Resources-SM- provides clients with maximum flexibility as clients
may start and stop projects at any time. Under Strategic Resources-SM-, the
Company provides a comprehensive benefits package to the technical employee
without increasing the client's hourly bill rate. Clients typically select
Strategic Resources on projects expected to extend one year or longer where
technical employee continuity is required. While the gross margin on
Strategic Resources is lower than Tactical Resources, because of the costs of
providing additional benefits, Strategic Resources projects carry lower
administrative costs because of the longer term commitments made by the
client. Historically, revenue from Tactical Resources services provided most
of the Company's revenue. The Company expects that Tactical Resources
services will continue to represent the majority of its revenue. Since 1992,
Strategic Resources services have increased as a percentage of total revenue,
however management expects the rate of this increase to slow.
The Company opened one new office in the three month period ended June 30,
1996, and five new offices in the first six months of 1996. As of June 30,
1996, the Company had 47 offices in the United States and Canada as compared to
40 offices at June 30, 1995.
SECOND QUARTER FISCAL 1996 COMPARED TO SECOND QUARTER FISCAL 1995
REVENUE. Revenue increased by 32.6% from $36.7 million in the second
quarter of 1995 to $48.7 million in the second quarter of 1996, primarily as a
result of an increase in the hours of service provided and, to a lesser extent,
from an increase in the average revenue per project hour. The increase in hours
of service was primarily due to increased productivity of existing branch
offices and hours of service provided by new branch offices. The increase in
average revenue per project hour reflects demand for Technical Employees with
higher skill levels.
Page 6 of 28
GROSS PROFIT. Gross profit increased by 37.0% from $13.6 million in the
second quarter of 1995 to $18.6 million in the second quarter of 1996, again
primarily as a result of an increase in hours of service provided to clients.
Gross margin increased from 37.0% of revenue in the second quarter of 1995 to
38.3% in the second quarter of 1996, principally due to management's focus on
more profitable business opportunities.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased from $9.7 million in the second quarter of
1995 to $13.0 million in the second quarter of 1996, primarily due to increased
commissions, bonuses and staffing expenses associated with revenue and
profitability growth, an increased number of offices and their related operating
costs and start-up expenses associated with several new growth initiatives for
1996. Selling, general and administrative expenses increased as a percentage of
revenue from 26.4% in the second quarter of 1995 to 26.8% in the second quarter
of 1996.
INCOME FROM OPERATIONS. Income from operations increased from $3.9 million
in the second quarter of 1995, or 10.7% of total revenue, to $5.6 million in the
second quarter of 1996, or 11.5% of total revenue.
PROVISION FOR INCOME TAXES. The Company's provision for income taxes
increased from $1.7 million, or an effective tax rate of 41.0%, in the second
quarter of 1995 to $2.4 million, an effective tax rate of 41.8%, in the second
quarter of 1996.
NET INCOME. The Company's net income increased from $2.4 million in the
second quarter of 1995, or 6.5% of total revenue, to $3.4 million in the second
quarter of 1996, or 7.0% of total revenue.
FIRST SIX MONTHS FISCAL 1996 COMPARED TO FIRST SIX MONTHS FISCAL 1995
REVENUE. Revenue increased by 35.6% from $69.7 million in the first six
months of 1995 to $94.5 million in the first six months of 1996. Similar to the
results for the second quarter, the increase in revenue is primarily a result of
an increase in the hours of service provided and, to a lesser extent, from an
increase in the average revenue per project hour. The increase in hours of
service was primarily due to increased productivity of existing offices and
hours of service provided by new branch offices.
GROSS PROFIT. Gross profit increased by 38.0% from $25.6 million in the
first six months of 1995 to $35.4 million in the first six months of 1996,
primarily as a result of an increase in hours of service provided to clients.
Gross margin increased from 36.8% of revenue in the first six months of 1995 to
37.4% in the first six months of 1996, principally due to management's focus on
more profitable business opportunities.
Page 7 of 28
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased from $18.6 million in the first six months
of 1995 to $25.4 million in the first six months of 1996, primarily due to
increased commissions, staffing expenses and bonuses associated with revenue
and profitability growth, an increased number of offices and their related
operating costs and start-up expenses associated with several new growth
initiatives for 1996. Selling, general and administrative expenses increased
as a percentage of revenue from 26.7% in the first six months of 1995 to
26.9% in the first six months of 1996.
INCOME FROM OPERATIONS. Income from operations increased from $7.1
million in the first six months of 1995, or 10.1% of total revenue, to $10.0
million in the first six months of 1996, or 10.5% of total revenue.
PROVISION FOR INCOME TAXES. The Company's provision for income taxes
increased from $3.0 million, or an effective tax rate of 41.0%, in the first
six months of 1995 to $4.4 million, or an effective tax rate of 41.8%, in the
first six months of 1996.
NET INCOME. The Company's net income increased from $4.3 million in the
first six months of 1995, or 6.2% of total revenue, to $6.1 million in the
first six months of 1996, or 6.4% of total revenue.
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of 1996, cash flow generated from operations
was $4.5 million resulting primarily from increased earnings and accrued
payroll expenses, partially offset by a significant increase in accounts
receivable. The increase in accounts receivable reflects the significantly
increased volume of business during 1996. Working capital increased from
$34.0 million at December 31, 1995, to $40.9 million at June 30, 1996.
The Company believes its cash balances and funds from operations will be
sufficient to fund continued expansion of its office network and to meet all
of its anticipated cash requirements for at least the next twelve months.
Page 8 of 28
PART II - OTHER INFORMATION
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of stockholders of Alternative Resources
Corporation was held on April 26, 1996.
(c) Set forth below is the tabulation of the votes with respect to the
election of Larry I. Kane and Bruce R. Smith as Class II Directors:
Withhold
Director For Authority
------------ --------- ---------
Larry I. Kane 12,231,996 418,567
Bruce R. Smith 12,232,014 418,549
Set forth below is the tabulation of the vote on approval of an
amendment to the Company's Amended and Restated Certificate of
Incorporation to increase the number of shares of common stock
authorized from 20,000,000 to 50,000,000.
Broker
For Against Abstain Nonvotes
--------- --------- ------- --------
8,903,669 3,548,808 9,786 138,300
Set forth below is the tabulation of votes on approval of an amendment
to the Company's Amended and Restated Incentive Stock Option Plan
increasing the number of shares of common stock available for grant
thereunder by 1,200,000 shares to a total of 3,264,000 shares.
Broker
For Against Abstain Nonvotes
--------- --------- ------- --------
7,287,977 3,835,672 18,583 1,508,331
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
-------------- -----------
3 Amended and Restated Certificate of Incorporation
of Alternative Resources Corporation, as amended.
10 Amended and Restated Incentive Stock Option Plan
27 Financial Data Schedule
(b) The registrant was not required to file any reports on Form 8-K for
the quarter.
Page 9 of 28
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/ Larry I. Kane
---------------------------------
Larry I. Kane
President, Chief Executive Officer, and
Chairman of the Board
Date: August 13, 1996
/s/ Bradley K. Lamers
---------------------------------
Bradley K. Lamers
Vice President, Chief Financial Officer,
Secretary, and Treasurer
Page 10 of 28
EXHIBIT INDEX
Exhibit Page
Number Description Number
------ ----------- -------
3 Amended and Restated Certificate 12
of Incorporation of Alternative
Resources Corporation, as amended
10 Amended and Restated Incentive 20
Stock Option Plan
27 Financial Data Schedule N/A
Page 11 of 28