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 September 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.)
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:
15,640,011 shares of Common Stock outstanding as of November 1, 1996.
Page 1 of 11
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
ALTERNATIVE RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
ASSETS
December 31, September 30,
1995 1996
------------ -------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 4,639 $ 6,803
Short-term investments 12,341 19,042
Trade accounts receivable, net of allowance
for doubtful accounts 24,621 29,118
Prepaid expenses 518 134
Other receivables 973 1,809
-------- --------
Total current assets 43,092 56,906
-------- --------
Property and equipment:
Office equipment 2,140 2,912
Furniture and fixtures 889 1,195
Software 363 397
Leasehold improvements 95 120
-------- --------
3,487 4,624
Less accumulated depreciation and amortization (1,433) (2,056)
-------- --------
Net property and equipment 2,054 2,568
-------- --------
Other assets:
Long-term investments 2,460 2,887
Other assets 205 205
-------- --------
Total other assets 2,665 3,092
-------- --------
Total assets $ 47,811 $ 62,566
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 437 $ 276
Payroll and related expenses 6,082 8,433
Accrued expenses 2,161 2,662
Income taxes payable 418 35
-------- --------
Total current liabilities 9,098 11,406
Deferred rent payable 252 294
-------- --------
Total liabilities 9,350 11,700
-------- --------
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 September 30, 1996,
respectively; 15,347,027 and 15,640,011 shares
issued and outstanding at December 31, 1995
and September 30, 1996, respectively 153 156
Additional paid-in capital 19,052 21,802
Unrealized loss on available-for-sale securities -- (19)
Cumulative translation adjustment (18) 21
Retained earnings 19,274 28,906
-------- --------
Total stockholders' equity 38,461 50,866
-------- --------
Total liabilities and stockholders' equity $ 47,811 $ 62,566
-------- --------
-------- --------
See accompanying Notes to Consolidated Financial Statements
Page 2 of 11
ALTERNATIVE RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
Three Months Nine Months
Ended September 30, Ended September 30,
---------------------- ---------------------
1995 1996 1995 1996
------- ------- -------- --------
(Unaudited) (Unaudited)
Revenue $40,042 $49,790 $109,719 $144,298
Cost of services 25,204 30,889 69,236 90,007
------- ------- -------- --------
Gross profit 14,838 18,901 40,483 54,291
Selling, general and administrative
expenses 10,451 13,096 29,030 38,520
------- ------- -------- --------
Income from operations 4,387 5,805 11,453 15,771
Other income, net 249 276 490 778
------- ------- -------- --------
Income before income taxes 4,636 6,081 11,943 16,549
Income taxes 1,954 2,542 4,948 6,917
------- ------- -------- --------
Net income $ 2,682 $ 3,539 $ 6,995 $ 9,632
------- ------- -------- --------
------- ------- -------- --------
Net earnings per share amounts:
Primary $0.17 $0.22 $0.44 $0.60
------- ------- -------- --------
------- ------- -------- --------
Fully diluted $0.17 $0.22 $0.44 $0.60
------- ------- -------- --------
------- ------- -------- --------
Weighted average common and common
equivalent shares outstanding:
Primary 16,155 16,104 15,750 16,115
------- ------- -------- --------
------- ------- -------- --------
Fully diluted 16,202 16,107 15,881 16,128
------- ------- -------- --------
------- ------- -------- --------
See accompanying Notes to Consolidated Financial Statements
Page 3 of 11
ALTERNATIVE RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine Months Ended
September 30,
-----------------------
1995 1996
-------- --------
(Unaudited)
Cash flows from operating activities:
Net income $ 6,995 $ 9,632
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 521 623
Deferred income tax benefit (326) --
Allowance for doubtful accounts, net 390 (226)
Change in assets and liabilities:
Trade accounts receivable (6,684) (4,271)
Prepaid expenses and other current assets (480) 384
Other receivables (151) (836)
Other assets (6) 39
Accounts payable (131) (161)
Payroll and related expenses 2,213 2,351
Accrued expenses 589 501
Income taxes payable 122 (383)
Deferred rent payable 66 42
-------- --------
Net cash provided by operating activities 3,118 7,695
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (1,388) (1,137)
Purchase of short-term and long-term investments (14,273) (18,758)
Maturities of short-term investments 8,346 11,611
-------- --------
Net cash used in investing activities (7,315) (8,284)
-------- --------
Cash flows from financing activities:
Payments received on stock options exercised 759 2,923
Repurchase of common stock under employee stock
purchase plan (397) (1,131)
Issuance of common stock under employee stock
purchase plan 329 961
Issuance of common stock 7,210 --
-------- --------
Net cash provided by financing activities 7,901 2,753
-------- --------
Net increase in cash and cash equivalents 3,704 2,164
Cash and cash equivalents at beginning of period 2,733 4,639
-------- --------
Cash and cash equivalents at end of period $ 6,437 $ 6,803
-------- --------
-------- --------
Supplemental disclosures:
Cash paid for interest $ -- $ --
Cash paid for income taxes 5,425 7,718
See accompanying Notes to Consolidated Financial Statements
Page 4 of 11
ALTERNATIVE RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 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 nine month
periods ended September 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 are reinvested in "available
for sale" securities. The Company reports available-for-sale securities at
fair value, with unrealized gains and losses excluded from earnings and
reported as a separate component of stockholders' equity.
RECLASSIFICATION. Certain 1995 amounts have been reclassified to conform
with the 1996 presentation.
Page 5 of 11
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 ResourcesSM, 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, however since 1992, Strategic Resources services
have increased as a percentage of total revenue. Management expects that
Strategic Resources will eventually account for the majority of the Company's
revenues.
The Company opened two new offices in the three month period ended
September 30, 1996, and seven new offices in the first nine months of 1996.
As of September 30, 1996, the Company had 49 offices in the United States and
Canada as compared to 42 offices at September 30, 1995.
THIRD QUARTER FISCAL 1996 COMPARED TO THIRD QUARTER FISCAL 1995
REVENUE. Revenue increased by 24.3% from $40 million in the third quarter
of 1995 to $49.8 million in the third 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 as well as the impact of a price increase in 1996.
GROSS PROFIT. Gross profit increased by 27.4% from $14.8 million in the
third quarter of 1995 to $18.9 million in the third quarter of 1996, again
primarily as a result of an increase in hours of service provided to clients.
Gross margin increased from 37.1% of revenue in the third quarter of 1995 to
38.0% in the third quarter of 1996, principally due to management's focus on
more profitable business opportunities.
Page 6 of 11
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased from $10.5 million in the third quarter of
1995 to $13.1 million in the third 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 26.1% in the third quarter of 1995 to 26.3%
in the third quarter of 1996.
INCOME FROM OPERATIONS. Income from operations increased from $4.4
million in the third quarter of 1995, or 11.0% of total revenue, to $5.8
million in the third quarter of 1996, or 11.7% of total revenue.
PROVISION FOR INCOME TAXES. The Company's provision for income taxes
increased from $2.0 million, or an effective tax rate of 42.1%, in the third
quarter of 1995 to $2.5 million, an effective tax rate of 41.8%, in the third
quarter of 1996.
NET INCOME. The Company's net income increased from $2.7 million in the
third quarter of 1995, or 6.7% of total revenue, to $3.5 million in the third
quarter of 1996, or 7.1% of total revenue.
FIRST NINE MONTHS FISCAL 1996 COMPARED TO FIRST NINE MONTHS FISCAL 1995
REVENUE. Revenue increased by 31.5% from $109.7 million in the first nine
months of 1995 to $144.3 million in the first nine months of 1996. Similar
to the results for the third 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 34.1% from $40.5 million in the
first nine months of 1995 to $54.3 million in the first nine months of 1996,
primarily as a result of an increase in hours of service provided to clients.
Gross margin increased from 36.9% of revenue in the first nine months of 1995
to 37.6% in the first nine months 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 $29.0 million in the first nine months
of 1995 to $38.5 million in the first nine 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 26.5% in the first nine months of 1995 to
26.7% in the first nine months of 1996.
Page 7 of 11
INCOME FROM OPERATIONS. Income from operations increased from $11.5
million in the first nine months of 1995, or 10.4% of total revenue, to $15.8
million in the first nine months of 1996, or 10.9% of total revenue.
PROVISION FOR INCOME TAXES. The Company's provision for income taxes
increased from $4.9 million, or an effective tax rate of 41.4%, in the first
nine months of 1995 to $6.9 million, or an effective tax rate of 41.8%, in
the first nine months of 1996.
NET INCOME. The Company's net income increased from $7.0 million in the
first nine months of 1995, or 6.4% of total revenue, to $9.6 million in the
first nine months of 1996, or 6.7% of total revenue.
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of 1996, cash flow generated from operations
was $7.7 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 $45.5 million at September 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 11
PART II - OTHER INFORMATION
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are furnished as an exhibit and numbered
pursuant to Item 601 of Regulation S-K:
Exhibit Number Description
-------------- -----------------------
27 Financial Data Schedule
(b) The registrant was not required to file any reports on Form 8-K
for the quarter.
Page 9 of 11
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: November 8, 1996 /s/ Bradley K. Lamers
-----------------------------------------
Bradley K. Lamers
Vice President, Chief Financial Officer,
Secretary, and Treasurer
Page 10 of 11
EXHIBIT INDEX
Exhibit Page
Number Description Number
- ------- ----------- -------
27 Financial Data Schedule N/A
Page 11 of 11