-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D+jSM6ejlxbTHhX6SlO1DJN+0IMh0EdjbTS9AQyjWLnsuJKCBYlfRYivr250preN Bi6MBpEDSikHow8Jz4cU3w== 0001047469-98-001663.txt : 19980122 0001047469-98-001663.hdr.sgml : 19980122 ACCESSION NUMBER: 0001047469-98-001663 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971107 ITEM INFORMATION: FILED AS OF DATE: 19980121 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALTERNATIVE RESOURCES CORP CENTRAL INDEX KEY: 0000920521 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HELP SUPPLY SERVICES [7363] IRS NUMBER: 382791069 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-23940 FILM NUMBER: 98510517 BUSINESS ADDRESS: STREET 1: 100 TRI STATE INTERNATIONAL STREET 2: STE 300 CITY: LINCOLNSHIRE STATE: IL ZIP: 60069 BUSINESS PHONE: 7083171000 MAIL ADDRESS: STREET 1: 75 TRI STATE INTERNATIONAL STREET 2: STE 100 CITY: LINCOLNSHIRE STATE: IL ZIP: 60069 8-K/A 1 FORM 8-K/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A-1 CURRENT REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported) November 7, 1997 ALTERNATIVE RESOURCES CORPORATION (Exact name of registrant as specified in its charter) Delaware Commission file number 0-23940 38-2791069 - -------------- ------------------------------ ---------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 100 Tri-State International, Suite 300, Lincolnshire, IL 60069 (Address of principal executive offices) (Zip code) (847) 317-1000 (Registrant's telephone number, including area code) Item 7. Financial Statements and Exhibits (a) Financial Statements of business acquired. CGI SYSTEMS, INC. INDEX TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 Page ---- Independent Auditor's Report 2 Balance Sheets 3 Statements of Operations 6 Statements of Changes in Stockholders' Equity 7 Statements of Cash Flows 8 - 9 Notes to Financial Statements 10 - 17 - 1 - INDEPENDENT AUDITOR'S REPORT To the Board of Directors and Stockholders of CGI Systems, Inc. Malvern, PA We have audited the accompanying balance sheets of CGI Systems, Inc. (a majority-owned subsidiary of CGI Corporation) as of December 31, 1996 and 1995 and the related statements of operations, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above, present fairly, in all material respects, the financial position of CGI Systems, Inc., as of December 31, 1996 and 1995 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Leon Constantin & Co. New York, New York January 9, 1997 - 2 - CGI SYSTEMS, INC. BALANCE SHEETS DECEMBER 31, 1996 AND 1995 - 3 - CGI SYSTEMS, INC. BALANCE SHEETS DECEMBER 31, 1996 AND 1995 ASSETS 1996 1995 ---- ---- Current assets Cash and cash equivalents (Note 2) $ 372,756 $ 4,636,834 Marketable securities (Note 3) 1,171,189 1,455,952 Accounts receivable - Trade, less allowance for doubtful accounts of $400,000 in 1996 and $400,886 in 1995, respectively 14,264,431 10,223,662 - Affiliated companies (Note 4) 13,942,955 1,987,484 Advances to employees 96,501 58,674 Prepaid expenses 104,204 190,891 Educational material inventory (Note 1) 217,012 341,282 ------------ ------------ Total current assets 30,169,048 18,894,779 ------------ ------------ Property and equipment, net (Notes 1 and 5) 2,323,061 1,863,344 ------------ ------------ Other assets Deposits 359,649 575,453 Other intangible assets, net (Note 6) - 53,275 ------------ ------------ Total other assets 359,649 628,728 ------------ ------------ Total assets $ 32,851,758 $ 21,386,851 ============ ============ See accompanying notes to financial statements. 4 LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995 ---- ---- Current liabilities Bank overdrafts $ 1,395,898 $ 1,755,666 Accounts payable - trade 2,054,536 15,228 Accounts payable - affiliates (Note 7) 7,858,967 3,538,558 Accrued expenses 5,986,938 2,054,899 Accrued income taxes 59,400 565,024 Accrued payroll and payroll withholdings 15,307 67,266 Accrued vacation 343,011 287,491 Other taxes payable 21,972 55,381 Unearned revenue (Note 1) 935,173 661,750 ------------ ----------- Total current liabilities 18,671,202 9,001,263 ------------ ----------- Commitments (Notes 11 and 12) Stockholders' equity Common stock: Class A, $.01 par value, voting, 2,000,000 shares authorized, 772,840 issued and outstanding 7,729 7,729 Class B, $.01 par value, nonvoting, 200,000 shares authorized, 6,536 issued and outstanding 65 65 Additional paid in capital 19,524,335 19,524,335 Accumulated deficit (5,351,573) (7,146,541) ------------ ----------- Total stockholders' equity 14,180,556 12,385,588 ------------ ----------- Total liabilities and stockholders' equity $ 32,851,758 $ 21,386,851 ============ ============ 5
CGI SYSTEMS, INC. STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 1994 1995 1996 ---- ---- ---- Revenues (Notes 1 and 4) $ 33,328,986 $ 39,028,435 $ 56,553,933 Cost of services 25,399,526 28,408,279 42,856,438 ------------ ------------ ------------ Gross profit 7,929,460 10,620,156 13,697,495 Selling, general and administrative expense (Note 1) 6,731,545 8,627,230 12,210,562 ------------ ------------ ------------ Income from operations 1,197,915 1,992,926 1,486,933 Other income, net 122,300 124,702 267,224 ------------ ------------ ------------ Net income before taxes and discontinued operations 1,320,215 2,117,628 1,754,157 Provision for current income taxes (Notes 1 and 10) 554,186 1,001,556 670,949 ------------ ------------ ------------ Net income before discontinued operations 766,029 1,116,072 1,083,208 Discontinued operations, net of taxes (Note 14) 691,480 (184,970) 711,760 ------------ ------------ ------------ Net income $ 1,457,509 $ 931,102 $ 1,794,968 ============ ============ ============
See accompanying notes to financial statements. 6 CGI SYSTEMS, INC. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
1994 1995 1996 ---- ---- ---- CLASS A COMMON STOCK Balance, January 1, beginning $ 7,729 $ 7,729 $ 7,729 Activity - - - ------------ ------------- ------------- Balance, December 31, ending $ 7,729 $ 7,729 $ 7,729 ============ ============= ============= CLASS B COMMON STOCK Balance, January 1, beginning $ 65 $ 65 $ 65 Activity - - - ------------ ------------- ------------- Balance, December 31, ending $ 65 $ 65 $ 65 ============ ============= ============= ADDITIONAL PAID IN CAPITAL Balance, January 1, beginning $ 19,524,335 $ 19,524,335 $ 19,524,335 Activity - - - ------------ ------------- ------------- Balance, December 31, ending $ 19,524,335 $ 19,524,335 $ 19,524,335 ============ ============= ============= ACCUMULATED DEFICIT (Note 14) Balance, January 1, beginning $ (9,535,152) $ (8,077,643) $ (7,146,541) Net income for the year ended 1,457,509 931,102 1,794,968 ------------ ------------- ------------ Balance, December 31, ending $ (8,077,643) $ (7,146,541) $ (5,351,573) ============ ============= ============
See accompanying notes to financial statements. 7 CGI SYSTEMS, INC. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
1994 1995 1996 ---- ---- ---- Cash flows from operating activities Net income $ 1,457,509 $ 931,102 $ 1,794,968 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 590,485 527,277 867,225 Provision for bad debt 112,923 - - Gain (loss) on sale of fixed assets - (340) 4,360 (Increase) decrease in: Accounts receivable - Trade (831,433) (440,482) (4,060,769) - Affiliated companies (613,056) (969,746) (11,935,471) Prepaid expenses 1,241 21,693 86,687 Advances to employees 8,434 36,941 (37,827) Educational material inventory (179,270) (7,877) 124,270 Deposits 114,446 21,031 215,804 Increase (decrease) in: Bank overdraft - 1,755,666 (359,768) Accounts payable (222,524) (485,470) 2,039,308 Accounts payable - affiliates 995,446 910,189 4,320,409 Accrued expenses 744,848 227,414 3,932,039 Accrued payroll and payroll withholdings (8,718) 65,516 (51,959) Accrued vacation 69,875 (61,237) 55,520 Accrued income taxes (19,513) 565,024 (505,624) Other taxes payable (10,385) 20,623 (33,409) Unearned revenue 277,657 (304,076) 273,423 ---------- ----------- ------------ Net cash provided by (used in) operating activities 2,487,885 2,813,248 (3,270,814) ---------- ----------- ------------- Cash flows from investing activities Sale (purchases) of marketable securities (1,814,671) 358,719 284,763 Proceeds from sale of fixed assets - 3,847 - Purchases of fixed assets (518,260) (959,621) (1,278,027) ---------- ----------- ------------- Net cash used in investing activities $ (2,332,931) $ (597,055) $ (993,264) ---------- ----------- -------------
- Continued - 8 CGI SYSTEMS, INC. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 (Continued) 1994 1995 1996 ---- ---- ---- Net increase (decrease) in cash and cash equivalents $ 154,954 $ 2,216,193 $ (4,264,078) Cash and cash equivalents at beginning of year 2,265,687 2,420,641 4,636,834 ----------- ----------- ------------ Cash and cash equivalents at end of year $ 2,420,641 $ 4,636,834 $ 372,756 =========== =========== ============ Supplemental disclosure of cash flows information: Cash paid for income taxes $ 681,359 $ 1,062,502 $ 1,612,813 ----------- ----------- ------------ Interest paid $ 7,680 $ - $ - ----------- ----------- ------------ See accompanying notes to financial statements. 9 CGI SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND OPERATIONS CGI Systems, Inc. was incorporated in the State of Delaware on December 1, 1991 as a merger of the former CGI Systems, Inc., CGI Consulting, Inc., Yourdon, Inc. and Prodstar America, Inc. CGI Systems, Inc.(the Company) is a majority owned subsidiary of CGI Corporation, a US subsidiary of Compagnie Generale d'Informatique of France. Minority stockholders include officers and directors of the affiliated corporations as well as employees of the Company. On June 30, 1993, IBM acquired a controlling interest of Compagnie Generale d'Informatique. REVENUE RECOGNITION The Company recognizes revenue on software sales after a contract has been signed. Maintenance revenue is recognized upon renewal each year. Royalties are accrued in an amount equal to 45% of the PACBASE software sales and maintenance revenue. An additional 2% of royalties are paid on sales not directly related to IBM. The Company utilizes a hybrid percentage of completion method of accounting for fixed price contracts. This method limits the amount of revenue recognized and withholds five percent (5%) of the contract amount until the agreement has been completed. If any, the aggregate of labor expended and income recognized on uncompleted contracts in excess of related billings is shown as a current asset, and the aggregate of billings on uncompleted contracts in excess of expended labor and income recognized, is shown as a current liability. All other revenue, which consists of time and material contracts, are recognized as incurred. PROPERTY AND EQUIPMENT Property and equipment are carried at cost and are depreciated over the useful life of the related asset using the straight-line method. Leasehold improvements are amortized over a period of five years. 10 CGI SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 (Continued) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) INCOME TAXES The Company is included in a consolidated federal income tax return with CGI Corporation, but files individual state income tax returns. EDUCATIONAL MATERIAL INVENTORY Educational material inventory consists of Novell, Lotus Notes and Microsoft education kits, which are stated at the lower of cost or market. These kits are exchangeable for new kits when changes occur in technology. NOTE 2 CASH AND CASH EQUIVALENTS For the purposes of the statements of cash flows, the Company considers all highly liquid accounts with an original maturity of three months or less as cash equivalents. NOTE 3 MARKETABLE SECURITIES Marketable securities include amounts invested in short-term municipal bonds, the cost and market values at December 31, 1996 and 1995 are as follows: 1996 Cost Market ---- ----------- ----------- Wisconsin ST Muni-bond due 5-1-97 $ 303,189 $ 301,251 RP Sanwa - bond due 1-02-97 868,000 868,000 ----------- ----------- $ 1,171,189 $ 1,169,251 =========== =========== 11 CGI SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 (Continued) NOTE 3 MARKETABLE SECURITIES (Continued) 1995 Cost Market ---- ----------- ----------- Fort Worth, TX Muni-bond due 2-15-96 $ 302,757 $ 300,741 Wash. State Muni-bond due 9-1-96 418,820 411,608 Wisconsin ST Muni-bond due 5-1-97 303,819 303,360 Houston, TX Muni-bond 12-1-16 430,556 424,204 ----------- ----------- $ 1,455,952 $ 1,439,913 =========== =========== NOTE 4 ACCOUNTS RECEIVABLE - AFFILIATED COMPANIES As of December 31, 1996 and 1995, the receivables from affiliates in US dollars, consisted of amounts due from: 1996 1995 ------------ ----------- Logiciel SIRC (Canada) $ 150,877 $ 137,990 CGI de Mexico (Mexico) 250,320 47,153 Prodstar, SA (France) 5,297 11,831 CGI Systems-LS3 (England) 80,797 19,128 CGI Informatique (France) 3,703,445 342,770 IBM (USA) 9,417,563 1,149,555 CGI Corporation 297,085 269,757 CGI Informatica (Spain) 17,571 5,500 CGI Mexico (Mexico) 20,000 - CGI Softcycle (Belgium) - 3,800 ------------ ----------- $ 13,942,955 $ 1,987,484 ============ =========== Revenues from affiliates totaled $4,045,596, $5,444,160 and $21,516,672, respectively, for the years ended December 31, 1994, 1995 and 1996. 12 CGI SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 (Continued) NOTE 5 PROPERTY AND EQUIPMENT Property and equipment as of December 31, 1996 and 1995 is summarized as follows: Useful 1996 1995 life ----------- ----------- ----------- Office equipment $ 519,293 $ 966,108 5 years Office furniture 562,626 693,386 5 - 7 years Computer equipment 3,151,354 3,384,832 5 years Computer software 108,422 189,774 5 years Leasehold improvements 265,178 593,854 5 years ----------- ----------- 4,606,873 5,827,954 =========== =========== Less accumulated depreciation and amortization 2,283,812 3,964,610 ----------- ----------- $ 2,323,061 $ 1,863,344 =========== =========== For the years ended December 31, 1996 and 1995 depreciation and amortization expense on the property and equipment was $512,593, $453,613 and $813,950, respectively. NOTE 6 OTHER INTANGIBLE ASSETS As of December 31, 1996 and 1995, other intangible assets consisted of: 1996 1995 --------- --------- Transform Logic Software rights $ 390,200 $ 390,200 Acquisition costs 45,484 45,484 --------- --------- 435,684 435,684 Accumulated amortization 435,684 382,409 --------- --------- Net book value $ - $ 53,275 ========= ========= 13 CGI SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 (Continued) NOTE 6 OTHER INTANGIBLE ASSETS (Continued) Transform Logic Software rights cover the trademark and servicemark rights to "DesignAid", "DesignAid II", "Source/RE", "The Best Case Scenario", and "Life Cycle". Acquisition costs represent the legal and finders fees associated with the purchase of Encore Consulting and the First Micro Group. These costs are being amortized over a five year period. Intangible assets are being amortized over a five year life. The amortization expense recognized during the years ended December 31, 1994, 1995 and 1996 totaled $77,892, $73,664 and $53,275, respectively. NOTE 7 ACCOUNTS PAYABLE - AFFILIATES As of December 31, 1996 and 1995 the payables to affiliates consisted of the following: 1996 1995 ----------- ----------- CGI Systems-LS3 (England) $ 110,699 $ 85,909 CGI (Netherlands) 21,000 - CGI System (Spain) 86,944 - CGI Corporation (USA) 3,123,083 - CGI Interprogram (Germany) - 23,000 Logiciels SIRC (Canada) - 231,707 Prodstar Mexico (Mexico) 16,547 35,658 Prodstar, SA (France) 82,804 82,804 IBM (USA) 1,582,274 319,520 CGI Informatique 2,583,329 2,719,892 AD Consultant - 33,508 SIRC 231,707 - Others 20,580 6,560 ----------- ----------- $ 7,858,967 $ 3,538,558 =========== =========== Total expenses from transactions with affiliates recognized in the results of operations for the years ending December 31, 1994, 1995 and 1996, total $6,878,535, $6,648,526 and $6,304,042, respectively. 14 CGI SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 (Continued) NOTE 8 EMPLOYEE BENEFIT AND RETIREMENT PLAN The Company has a 401K plan for the benefit of eligible employees. Employees may contribute a specified percentage of their compensation into a basic contribution account and the Company will match a portion of that contribution. The maximum contribution percentage and the amount of employer matching contributions may be changed at the discretion of the Board of Directors. The Employer contributions charged to operations for the years ended December 31, 1994, 1995 and 1996 was approximately $133,650, $144,088 and $98,606, respectively. NOTE 9 PROFIT SHARING PLAN The Company maintains a profit sharing pool, which is based upon a percentage of certain salary compensation. At December 31, 1994, 1995 and 1996, the profit sharing pool was $351,500, $392,410 and $350,000, respectively. NOTE 10 INCOME TAXES The provision for income taxes for the years ended December 31, 1994, 1995 and 1996 are as follows: 1994 1995 1996 ----------- --------- ----------- Federal $ 746,000 $ 611,071 $ 808,179 State 288,706 226,455 299,010 ----------- --------- ----------- Total $ 1,034,706 $ 837,526 $ 1,107,189 =========== ========= =========== The income tax expense differs from the expected based on the statutory tax rates due to the deduction limits of meal and entertainment expenses incurred by employees and receipt of non-taxable interest income. 15 CGI SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 (Continued) NOTE 11 LEASE COMMITMENTS The Company leases office equipment and office facilities, which are accounted for as operating leases. These leases expire at various dates through 2004. The future minimum payments are as follows: Minimum rental For the years ending payments December 31, --------------------- --------------- 1997 $ 1,165,620 1998 1,208,519 1999 1,162,911 2000 and beyond 2,618,589 --------------- $ 6,155,639 Rental expenses charged to operations for the years ended December 31, 1994, 1995 and 1996 was $1,486,784, $1,515,340 and $1,840,905, respectively. NOTE 12 COMMITMENTS AND CONTINGENCY The Company had an employment agreement with an officer. The contract provides for an annual bonus to be paid at the discretion of the Board of Directors in an amount not to exceed 25% of the annual base salary from the preceding year. The agreement can be terminated at the discretion of the Board of Directors, provided that the officer's salary is continued six months after the contract termination date. The Company is presently involved in several legal suits. All cases are in their early stages and it is impossible to evaluate the likelihood of an unfavorable outcome. The Company is currently under audit by the IRS for the fiscal year ended August 31, 1993. This audit is in its early stage as of December 31, 1996. 16 CGI SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 (Continued) NOTE 13 SUBSEQUENT EVENTS DISCONTINUED OPERATIONS During September 1997, the Company entered into an agreement with its ultimate parent company, IBM Corporation, to transfer certain business segments within CGI to the control of IBM. These segments are the PACBASE software sales and maintenance; human resource software development (HR Access); education and training centers and the New York City Police Department project. The effective date of this transfer was September 30,1997. The presentation of these financial statements has been changed to reflect the effect of this transfer. The financial statements have been reissued to reflect this change. 17 CGI SYSTEMS, INC. BALANCE SHEETS (In thousands) ASSETS December 31, September 30, 1996 1997 ---- ---- (Unaudited) CURRENT ASSETS Cash and cash equivalents $ 373 $ 592 Marketable securities 1,171 - Accounts receivable, net of allowance for doubtful 28,207 40,883 Advances to employees 97 74 Prepaid expenses 321 707 --------- -------- Total current assets 30,169 42,256 --------- -------- PROPERTY AND EQUIPMENT Property and equipment 4,607 4,244 Accumulated depreciation (2,284) (2,329) --------- -------- Total property and equipment 2,323 1,915 --------- -------- OTHER ASSETS Deposits (Note 8) 360 356 --------- -------- Total assets $ 32,852 $ 44,527 ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 11,309 $ 18,159 Payroll and related expenses 358 571 Accrued expenses 5,988 11,189 Income and other taxes payable 81 - Unearned revenue 935 508 --------- -------- Total current liabilities 18,671 30,427 --------- -------- STOCKHOLDERS' EQUITY Common stock 8 8 Additional paid in capital 19,524 19,524 Accumulated deficit (5,351) (5,432) --------- -------- Total stockholders' equity 14,181 14,100 --------- -------- Total liabilities and stockholders' equity $ 32,852 $ 44,527 ========= ======== See accompanying notes to financial statements. 18 CGI SYSTEMS, INC. UNAUDITED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 (In thousands) 1996 1997 ---- ---- Revenues $ 37,689 $ 89,435 Cost of services 24,565 78,274 -------- -------- Gross profit 13,124 11,161 Selling, general and administrative expenses 12,128 10,169 -------- -------- Income from operations 996 992 Other income and (expenses) 201 (83) -------- -------- Net income before taxes and discontinued operations 1,197 909 Provision for income taxes 175 346 -------- -------- Net income before discontinued operations 1,022 563 Discontinued operations, net of taxes 416 (644) -------- -------- Net income (loss) $ 1,438 $ (81) ======== ======== See accompanying notes to financial statements. 19 CGI SYSTEMS, INC. UNAUDITED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 (In thousands) 1996 1997 ---- ---- Cash flows from operating activities Net income $ 1,438 $ (81) Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 650 843 (Increase) decrease in: Accounts receivable (6,764) (12,676) Prepaid expenses (91) (386) Other receivables (395) 23 Deposits 247 (1) Increase (decrease) in: Accounts payable 599 6,850 Accrued expenses 591 5,201 Payroll and related expenses 31 213 Income and other taxes payable (620) (81) Unearned revenue 867 (427) -------- -------- Net cash used in operating activities (3,447) (522) -------- -------- Cash flows from investing activities Sale of marketable securities 1,456 1,171 Purchases of fixed assets (1,225) (430) -------- -------- Net cash provided by investing activities 231 741 -------- -------- Net increase (decrease) in cash and cash equivalents (3,216) 219 Cash and cash equivalents at beginning of year 4,636 373 -------- -------- Cash and cash equivalents at end of period $ 1,420 $ 592 ======== ======== See accompanying notes to financial statements. 20 CGI SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS September 30, 1997 NOTE 1 BASIS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The interim financial statements presented are unaudited, but in the opinion of management, have been prepared in conformity with generally accepted accounting principles applied on a basis consistent with those of the annual financial statements. Such interim financial statements reflect all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the financial position and the results of operations for the interim periods presented. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the year ending December 31, 1997. The interim consolidated financial statements should be read in connection with the audited financial statements for the year ended December 31, 1996. NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND OPERATIONS CGI Systems, Inc. was incorporated in the State of Delaware on December 1, 1991 as a merger of the former CGI Systems, Inc., CGI Consulting, Inc., Yourdon, Inc. and Prodstar America, Inc. CGI System, Inc.(the Company) is a majority owned subsidiary of CGI Corporation, a US subsidiary of Compagnie Generale d'Informatique of France. Minority stockholders include officers and directors of the affiliated corporations as well as employees of the Company. On June 30, 1993 IBM acquired a controlling interest of Compagnie Generale d'Informatique. During January 1996, CGI Corp, the Company's parent, purchased 27 shares of Class A stock from a minority shareholder. Additionally, on August 15, 1996, CGI Corp., purchased all 6,536 outstanding shares of the Class B stock from the minority shareholders. CASH AND CASH EQUIVALENTS For the purposes of the statements of cash flows, the Company considers all highly liquid accounts with an original maturity of three months or less as cash equivalents. 21 CGI SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS September 30, 1997 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) REVENUE RECOGNITION The Company recognizes revenue on software sales after a contract has been signed. Maintenance revenue is recognized upon renewal each year. Royalties are accrued in an amount equal to 45% of the software sales and maintenance revenue. An additional 2% of royalties are paid on sales not directly related to IBM. The Company utilizes a hybrid percentage of completion method of accounting for fixed price contracts. This method limits the amount of revenue recognized and withholds five percent (5%) of the contract amount until the agreement has been completed. If any, the aggregate of labor expended and income recognized on uncompleted contracts in excess of related billings is shown as a current asset, and the aggregate of billings on uncompleted contracts in excess of expended labor and income recognized, is shown as a current liability. All other revenue, which consists of time and material contracts, are recognized as incurred. PROPERTY AND EQUIPMENT Property and equipment are carried at cost and are depreciated over the useful life of the related asset using the straight line method. Leasehold improvements are amortized over a period of five years. INCOME TAXES The Company is included in a consolidated federal income tax return with CGI Corporation, but files individual state income tax returns. 22 CGI SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS September 30, 1997 NOTE 3 SUBSEQUENT EVENT DISCONTINUED OPERATIONS During September 1997, the Company entered into an agreement with its ultimate parent company, IBM Corporation, to transfer certain business segments within CGI to the control of IBM. These segments are the PACBASE software sales and maintenance; human resource software development (HR Access); education and training centers and the New York City Police Department project. The effective date of this transfer was September 30,1997. The presentation of these financial statements has been changed to reflect the effect of this transfer. The financial statements have been reissued to reflect this change. 23 (b) Pro forma financial information The following pro forma data is filed herewith: Unaudited condensed pro forma balance sheet as of September 30, 1997 and unaudited condensed pro forma statements of operations for the year ended December 31, 1996 and nine months ended September 30, 1997. The unaudited condensed pro forma balance sheets reflect the acquisition of CGI Systems Inc. (CGI) on September 30, 1997. The unaudited condensed pro forma statements of operations reflect the acquisition of CGI as if such acquisition occurred on January 1, 1996. Since the financial statements set forth below are based upon the financial condition and operating results of CGI during periods when they were not under the control or management of Alternative Resources Corporation (ARC), the information presented may not be indicative of the results which would have actually been obtained had the acquisition been completed as of January 1, 1996 nor are they indicative of future financial or operating results. The acquisition has been accounted for by the purchase method. 24 ALTERNATIVE RESOURCES CORPORATION UNAUDITED CONDENSED PRO FORMA BALANCE SHEET AS OF SEPTEMBER 30, 1997 (1) (IN THOUSANDS)
Alternative Resources Pro Forma Corporation CGI Adjustments (2) Pro Forma ------------ -------- -------------------- --------- ASSETS CURRENT ASSETS: Cash and Cash Equivalents 1,906 592 - 2,498 Short-Term Investments 16,718 - (10,000) A 6,718 Accounts Receivable 47,570 40,883 (5,553) B 82,900 Other Current Assets 2,405 781 - 3,186 ------ ------ -------- ------- Total Current Assets 68,599 42,256 (15,553) 95,302 PROPERTY AND EQUIPMENT Property and Equipment 9,171 4,244 - 13,415 Accumulated Depreciation (3,562) (2,329) - (5,891) ------ ------ -------- ------- Total Property and Equipment 5,609 1,915 - 7,524 INTANGIBLE ASSETS - - 48,000 A 48,000 OTHER ASSETS Restricted cash - escrow account - - 20,000 A 20,000 Long-term investments 3,493 - - 3,493 Deposits and other assets 300 356 700 A 1,356 ------ ------ -------- ------- Total Other Assets 3,793 356 2,700 24,849 ------ ------ -------- ------- TOTAL ASSETS 78,001 44,527 53,147 175,675 ====== ====== ======== ======= LIABILITIES & STOCKHOLDERS' EQUITY CURRENT LIABILITIES Payroll and Related Expenses 9,615 571 - 10,186 Deferred Revenue - 508 - 508 Accounts Payable and Accrued Expenses 1,791 29,348 (5,553) B 25,586 ------ ------ -------- ------- TOTAL CURRENT LIABILITIES 11,406 30,427 (5,553) 36,280 OTHER LIABILITIES Deferred Rent Payable 280 - - 280 Bank Borrowings - - 72,800 A 72,800 ------ ------ -------- ------- TOTAL OTHER LIABILITIES 280 - 72,800 73,080 ------ ------ -------- ------- TOTAL LIABILITIES 11,686 30,427 67,247 109,360 TOTAL STOCKHOLDERS' EQUITY 66,315 14,100 (14,100) A 66,315 ------ ------ -------- ------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY 78,001 44,527 53,147 175,675 ====== ====== ======== =======
25 ALTERNATIVE RESOURCES CORPORATION UNAUDITED CONDENSED PRO FORMA STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 (3) (In Thousands, Except Per Share Data)
Alternative Resources Pro Forma Corporation CGI Adjustments (3) Pro Forma ------------ -------- -------------------- --------- Revenue $196,728 $56,554 ($16,443) A $236,839 Cost of services 124,268 42,856 (15,951) A 151,173 -------- ------- -------- -------- Gross profit 72,460 13,698 (492) 85,666 Selling, general and administrative expenses 51,538 12,211 (828) B 62,921 -------- ------- -------- -------- Income from operations 20,922 1,487 336 22,745 Other (income) expense (1,107) (267) 4,873 C 3,499 -------- ------- -------- -------- Income before income taxes and discontinued operations 22,029 1,754 (4,537) 19,246 Income Taxes 8,811 671 (1,337) E 8,145 -------- ------- -------- -------- Income before discontinued operations 13,218 1,083 (3,200) 11,101 Discontinued operations, net of taxes 712 (712) D - -------- ------- -------- -------- Net Income 13,218 1,795 (3,912) 11,101 ======== ======= ======== ======== Net income per share 0.83 0.69 ======== ======== Weighted average common and common equivalent shares outstanding 15,990 15,990 ======== ========
26 ALTERNATIVE RESOURCES CORPORATION UNAUDITED CONDENSED PRO FORMA STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (In Thousands, Except Per Share Data)
Alternative Resources Pro Forma Corporation CGI Adjustments (3) Pro Forma ------------ -------- -------------------- --------- Revenue $187,147 $89,435 ($48,037) A $228,545 Cost of services 122,520 78,274 (46,780) A 154,014 -------- ------- -------- -------- Gross profit 64,627 11,161 (1,257) 74,531 Selling, general and administrative expenses 48,267 10,169 (1,971) B 56,465 -------- ------- -------- -------- Income from operations 16,360 992 714 18,066 Other (income) expense (930) 83 3,328 C 2,481 -------- ------- -------- -------- Income before income taxes and discontinued operations 17,290 909 (2,614) 15,585 Income Taxes 6,722 346 (653) E 6,415 -------- ------- -------- -------- Income before discontinued operations 10,568 563 (1,961) 9,170 -------- ------- -------- -------- -------- ------- -------- -------- Discontinued operations, net of taxes (644) 644 D - -------- ------- -------- -------- Net Income 10,568 (81) (1,317) 9,170 ======== ======= ======== ======== Net income per share 0.67 0.58 ======== ======== Weighted average common and common equivalent shares outstanding 15,869 15,869 ======== ========
27 ALTERNATIVE RESOURCES CORPORATION Notes to Unaudited Condensed Pro Forma Financial Statements (1) The balance sheet as of the November 7, 1997 acquisition date is currently under audit. In accordance with the purchase agreement, any adjustments to the balance sheet amounts will be represented by a corresponding purchase price adjustment. (2) The pro forma balance sheet adjustments consist of: (A) Record the acquisition of CGI and related entries. The proceeds from the debt financing of $72,800,000 in addition to $10,000,000 of proceeds from the sale of short term investments were used as follows: (i) Initial payment of $60,000,000 to sellers. (ii) $20,000,000 held in an escrow account (iii) $2,800,000 for estimated acquisition related expenses. The amount in escrow can be earned by seller depending upon the achievement of certain volume targets contained in the purchase agreement. The debt financing represents a three year revolving credit agreement which bears interest at a rate based upon LIBOR. (B) Eliminate intercompany accounts receivable/payables between ARC and CGI. (3) Pro forma adjustments to the statements of operations include the following: (A) Pro forma revenue and cost of services adjustments consist of: (i) conversion of revenue and cost of services associated with pass thru business to fee-based recognition and (ii) the elimination of intercompany revenue and cost of services between ARC and CGI. 28 Pass thru business consists of processing invoices for services provided to IBM by various companies that are not IBM preferred vendors. CGI collects a small fee for this service. It is ARC's intention to record only the fees for these services as revenue, with the related costs of processing these invoices as cost of services. This adjustment represents the estimated amount of revenue and cost of services, for each period presented, that would not have been recorded had this business been recognized on a basis consistent with ARC's intention. The net impact of the adjustment can be summarized as follows: Nine Months Year Ended Ended 9/30/97 12/31/96 ------- -------- Revenue - ------- Netting of estimated pass thru costs against revenue ($35,805) ($14,006) Elimination of intercompany revenue (12,232) (2,437) -------- ------- Total revenue adjustment ($48,037) ($16,443) Cost of Services - ---------------- Netting of estimated pass thru costs against revenue ($35,805) ($14,006) Reclassification of estimated pass thru invoice processing costs from selling, general and administrative expenses to cost of services 1,257 492 Elimination of intercompany cost of services (12,232) (2,437) -------- ------- Total cost of services adjustment ($46,780) ($15,951) (B) Pro forma adjustments to selling, general and administrative expenses include the following: Nine Months Year Ended Ended 9/30/97 12/31/96 ------- -------- Reclassification of estimated pass thru invoice processing costs from selling, general and administrative expenses to cost of services ($1,257) ($ 492) Amortization of goodwill 896 1,194 Intercompany fees charged by IBM (1,614) (1,536) ------- -------- Total selling, general and administrative expense adjustment ($ 1,975) ($ 834) Goodwill is amortized over 40 years. The intercompany fees charged by IBM represent management and royalty fees paid to IBM which would not have been paid had CGI been under the ownership of ARC. 29 (C) Pro forma interest expense adjustments represent the estimated interest expense that ARC would have incurred on the bank loan during the assumed period of ownership. The assumed interest rate is 6.6%. (D) Discontinued operations relate to portions of CGI's business that were retained by the seller. (E) Income tax effect of pro forma adjustments. Goodwill amortization is not tax deductible. 30 (c) Exhibits *(2) Stock Purchase and Sale Agreement Dated as of October 6, 1997 Among Alternative Resources Corporation, Compagnie Generale d' Informatique, Joseph R. Ferrandino, Thomas K. Sheridan and International Business Machines Corporation. *(2a) Amendment Number One Dated as of November 7, 1997 to Stock Purchase and Sale Agreement Dated as of October 6, 1997 Among Alternative Resources Corporation, Compagnie Generale d'Informatique, Joseph R. Ferrandino, Thomas K. Sheridan and and International Business Machines Corporation. *(2b) I/T Staffing Revenues Escrow Agreement By and Among Compagnie Generale d'Informatique, Joseph R. Ferrandino, Thomas K. Sheridan, Alternative Resources Corporation and Harris Trust and Savings Bank Dated November 7, 1997. *(4) Credit agreement Dated November 7, 1997. (23) Consent of Independent Certified Pubic Accountants. *Previously filed 31 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ALTERNATIVE RESOURCES CORPORATION /s/ Bradley K. Lamers Date: January 21, 1998 ---------------------------------- Bradley K. Lamers Vice President, Chief Financial Officer, Secretary and Treasurer 32 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION - --------- ------------ 23 Consent of Independent Public Accountants EX-23. 2 EXHIBIT 23 The Board of Directors CGI Systems, Inc.: We consent to the inclusion of our report dated January 9, 1997, with respect to the balance sheets of CGI Systems, Inc. as of December 31, 1996 and 1995, and the related statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1996, which report appears in the Form 8-K of Alternative Resources Corporation dated January 21, 1998. Leon Constantine & Co. New York, New York January 21, 1998 -----END PRIVACY-ENHANCED MESSAGE-----