<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-Q


           QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 
                        SECURITIES EXCHANGE ACT OF 1934

                For the quarterly period ended September 30, 1998

                         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:

             15,957,498 shares of Common Stock outstanding as of November 6,
1998.

                                       1

<PAGE>

PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements

                        ALTERNATIVE RESOURCES CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                        (In thousands, except share data)
                                     ASSETS

<TABLE>
<CAPTION>

                                                                                              December 31,      September 30,
                                                                                                  1997               1998
                                                                                              --------------    ---------------
                                                                                                                   (Unaudited)
<S>                                                                                          <C>               <C>
Current assets:
     Cash and cash equivalents                                                                $         971      $           3
     Short-term investments                                                                           7,673                 --
     Trade accounts receivable, net of allowance for doubtful accounts                               83,124             66,567
     Prepaid expenses                                                                                   780                 39
     Other receivables                                                                                3,281              6,562
                                                                                              --------------    ---------------
         Total current assets                                                                        95,829             73,171
                                                                                              --------------    ---------------
Property and equipment:
     Office equipment                                                                                 7,783             12,034
     Furniture and fixtures                                                                           2,440              2,710
     Software                                                                                         4,835              8,862
     Leasehold improvements                                                                             730                799
                                                                                              --------------    ---------------
                                                                                                     15,788             24,405
     Less accumulated depreciation and amortization                                                 (6,562)            (8,693)
                                                                                              --------------    ---------------
         Net property and equipment                                                                   9,226             15,712
                                                                                              --------------    ---------------
Other assets:
     Long-term investments                                                                              502                 --
     Goodwill,  net of amortization                                                                  47,624             29,237
     Restricted cash held in escrow                                                                  20,000             20,000
     Other assets                                                                                     1,269              1,199
                                                                                              --------------    ---------------
         Total other assets                                                                          69,395             50,436
                                                                                              --------------    ---------------
Total assets                                                                                  $     174,450      $     139,319
                                                                                              ==============    ===============
                                       LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
      Accounts payable                                                                        $                  $       4,009
                                                                                                      8,261
      Payroll and related expenses                                                                   11,843             21,714
      Accrued expenses                                                                                9,357              7,330
      Income taxes payable                                                                              573                 68
                                                                                              --------------    ---------------
         Total current liabilities                                                                   30,034             33,121
Long-term debt                                                                                       73,500             57,000
Deferred rent payable                                                                                   271                267
                                                                                              --------------    ---------------
         Total liabilities                                                                          103,805             90,388
                                                                                              --------------    ---------------
Stockholders' equity:
     Preferred Stock, $.01 par value, 1,000,000 shares authorized, none issued and
        outstanding                                                                                      --                 --
     Common Stock, $.01 par value, 50,000,000 shares authorized, 15,777,564 and 15,957,347
        shares issued and outstanding at December 31, 1997 and September 30, 1998,
        respectively                                                                                    158                160
     Additional paid-in capital                                                                      23,886             26,249
     Retained earnings                                                                               46,581             25,652
     Accumulated other comprehensive income                                                             439               (37)
                                                                                              --------------    ---------------
                                                                                                     71,064             52,024
     Less: Treasury shares, at cost, 19,000 and 266,500 shares at December 31, 1997 and
       September 30, 1998,  respectively                                                                419              3,093
                                                                                              --------------    ---------------
         Total stockholders' equity                                                                  70,645             48,931
                                                                                              --------------    ---------------
Total liabilities and stockholders' equity                                                    $     174,450      $     139,319
                                                                                              ==============    ===============

</TABLE>

           See accompanying Notes to Consolidated Financial Statements
                        ALTERNATIVE RESOURCES CORPORATION

                                   Page 2

<PAGE>

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (In thousands, except per share data)

<TABLE>
<CAPTION>

                                                                    Three Months                        Nine Months
                                                                Ended September 30,                 Ended September 30,
                                                           -------------------------------    --------------------------------
                                                               1997             1998              1997             1998
                                                           --------------   --------------    --------------   --------------
                                                                    (Unaudited)                         (Unaudited)
<S>                                                        <C>             <C>                <C>             <C>
Revenue                                                          $66,586          $85,116          $187,147         $252,328
Cost of services                                                  43,233           56,697           122,520          168,267
                                                           --------------   --------------    --------------   --------------
Gross profit                                                      23,353           28,419            64,627           84,061
Selling, general and administrative expenses                      16,786           24,441            48,267           69,405
Restructuring and one-time charges                                    --           29,610                --           29,610
                                                           --------------   --------------    --------------   --------------
Operating expenses                                                16,786           54,051            48,267           99,015
                                                           --------------   --------------    --------------   --------------
Income (loss) from operations                                      6,567         (25,632)            16,360          (14,954)
Other income (expense), net                                          206          (1,014)               930          (2,555)
                                                           --------------   --------------    --------------   --------------
Income (loss) before income taxes                                  6,773         (26,646)            17,290         (17,509)
Income taxes                                                       2,574            (298)             6,722            3,420
                                                           --------------   --------------    --------------   --------------

Net income (loss)                                               $  4,199        $(26,348)          $ 10,568       $ (20,929)
                                                           ==============   ==============    ==============   ==============

Net earnings (loss) per share:
     Basic                                                      $   0.27        $  (1.67)          $   0.67       $   (1.33)
                                                           ==============   ==============    ==============   ==============
     Diluted                                                    $   0.26        $  (1.67)          $   0.66       $   (1.33)
                                                           ==============   ==============    ==============   ==============

Shares used to compute net earnings (loss) per share:
     Basic                                                        15,710           15,817            15,685           15,694
                                                           ==============   ==============    ==============   ==============
     Diluted                                                      16,284           15,817            15,960           15,694
                                                           ==============   ==============    ==============   ==============

</TABLE>

           See accompanying Notes to Consolidated Financial Statements

                                   Page 3

<PAGE>



                        ALTERNATIVE RESOURCES CORPORATION
                           CONSOLIDATED STATEMENTS OF
                              COMPRESHENSIVE INCOME
                                 (In thousands)

<TABLE>
<CAPTION>

                                                                         Three Months                     Nine Months
                                                                     Ended September 30,              Ended September 30,
                                                                -------------------------------  -------------------------------
                                                                    1997             1998            1997             1998
                                                                -------------    --------------  -------------   ---------------
                                                                         (Unaudited)                      (Unaudited)
<S>                                                             <C>             <C>              <C>            <C>
Net income (loss)                                                     $4,199         $(26,348)        $10,568         $(20,929)

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustment                                   22              (45)             20              (77)
Unrealized holding gains (losses) on
      marketable securities:
         Unrealized holding gains arising                                 39                --             26               382
                 during the period
          Less: reclassification adjustment for (gains)                   42                --             59             (781)
                  losses included in net income (loss)

                                                                -------------    --------------  -------------   ---------------
   Comprehensive income (loss)                                        $4,302         $(26,393)        $10,673         $(21,405)
                                                                =============    ==============  =============   ===============

</TABLE>

            See accompanying Notes to Consolidated Financial Statements

                                   Page 4

<PAGE>

                        ALTERNATIVE RESOURCES CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>

                                                                                                      Nine Months Ended
                                                                                                        September 30,
                                                                                              -----------------------------------
                                                                                                   1997                1998
                                                                                              ----------------    ---------------
                                                                                                          (Unaudited)
<S>                                                                                          <C>                 <C>
Cash flows from operating activities:
     Net income (loss)                                                                        $        10,568     $       (20,929)
     Adjustments to reconcile net income (loss) to net cash provided by
     operating activities:
          Depreciation and amortization                                                                 1,186                2,937
          Allowance for doubtful accounts, net                                                             90                  341
          Goodwill write-off                                                                               --               25,700
          Change in assets and liabilities:
              Trade accounts receivable                                                               (14,453)              16,216
              Prepaid expenses                                                                           (208)                 741
              Other receivables                                                                         1,621               (3,281)
              Other assets                                                                                 13                   (7)
              Accounts payable                                                                            (36)              (4,252)
              Payroll and related expenses                                                               3,646                9,871
              Accrued expenses                                                                           (496)              (4,527)
              Income taxes payable                                                                        (99)                (505)
              Deferred rent payable                                                                       (65)                  (4)
                                                                                              ----------------    -----------------
Net cash provided by operating activities                                                               1,767               22,301
                                                                                              ----------------    -----------------
Cash flows from investing activities:
     Purchases of property and equipment                                                               (3,914)              (8,617)
     Acquisitions                                                                                          --               (5,619)
     Purchases of available-for-sale securities                                                       (16,280)                (327)
     Redemption of available-for-sale securities                                                       15,613                8,103
     Redemption of held-to-maturity securities                                                          2,435                   --
                                                                                              ----------------    -----------------
Net cash used in investing activities                                                                  (2,146)              (6,460)
                                                                                              ----------------    -----------------

Cash flows from financing activities:
     Payments received on stock options exercised                                                         548                2,519
     Proceeds from long-term debt                                                                          --                1,500
     Payments on long-term debt                                                                            --              (18,000)
     Repurchase of common stock                                                                        (1,445)              (3,701)
     Issuance of common stock under employee stock purchase plan                                          872                  873
                                                                                              ----------------    -----------------
Net cash used in financing activities                                                                     (25)             (16,809)
                                                                                              ----------------    -----------------

Net decrease in cash and cash equivalents                                                                (404)                (968)
Cash and cash equivalents at beginning of period                                                        2,310                  971
                                                                                              ----------------    -----------------
Cash and cash equivalents at end of period                                                    $         1,906     $              3
                                                                                              ================    =================
Supplemental disclosures of cash flow information:
     Cash paid for interest                                                                   $            --     $          2,840
                                                                                              
     Cash paid for income taxes                                                                         5,298                5,586
                                                                                              
Supplemental disclosures of noncash financing activities:
     Acquisition accrual                                                                      $            --     $          2,500

</TABLE>

           See accompanying Notes to Consolidated Financial Statements

                                   Page 5

<PAGE>

                        ALTERNATIVE RESOURCES CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    BASIS OF PRESENTATION

      The interim consolidated financial statements presented are unaudited, but
in the opinion of management, have been prepared in conformity with generally
accepted accounting principles applied on a basis consistent with those of the
annual financial statements. Such interim consolidated financial statements
reflect all adjustments (consisting of normal recurring accruals) necessary for
a fair presentation of the financial position and the results of operations for
the interim periods presented. The results of operations for the interim periods
presented are not necessarily indicative of the results to be expected for the
year ending December 31, 1998. The interim consolidated financial statements
should be read in connection with the audited consolidated financial statements
for the year ended December 31, 1997, included in the December 31, 1997 Form
10-K of Alternative Resources Corporation (the "Company").

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

             COMPUTATION OF EARNINGS PER SHARE. Basic earnings per share is
based on the weighted average number of common shares outstanding for the
period. Diluted earnings per share is based on the weighted average number of
common shares outstanding and includes the dilutive effect of unexercised stock
options using the treasury stock method. Because the Company reported a net loss
for the three month and nine month periods ended September 30, 1998, per share
amounts for those periods have been presented under the basic method only.

             RECLASSIFICATIONS.  Certain 1997 amounts have been reclassified 
to conform with the 1998 presentation.

3.    RESTRUCTURING CHARGES.

      The Company incurred a restructuring charge totaling $3.9 million during
the third quarter of 1998.  The charge, which is reflected in "Restructuring
and One-time Charges" on the consolidated statements of operations, consists of
$1.9 million related to the recent management changes and expenses totaling $2.0
million associated with staff reductions and optimizing the Company's operating
model. The costs associated with the recent management changes consisted of
severance pay, relocation and other related expenses.  The expenses associated
with staff reductions and optimization of the Company's operating model consist
of severance pay and occupancy costs in connection with a consolidation of
branches. As of September 30, 1998, $2.0 million has been paid and substantially
all of the remaining restructing costs are expected to be paid by the end of
1998.  These optimization actions are expected to result in cost savings of
$3.5 and $4.0 million annually.

4.    GOODWILL IMPAIRMENT.

      In accordance with the requirements of Statement of Financial Accounting
Standards No. 121, the Company revalued goodwill during the third quarter of
1998 to reflect its appropriate carrying value.  This action resulted in a $25.7
million charge to expense during the third quarter of 1998 and is reflected
in "Restructuring and One-time Charges" on the consolidated statements of
operations.  The facts and circumstances leading to the impairment of goodwill
value are as follows:

      The Company acquired CGI Systems, Inc. (CGI) in the fourth quarter of 
1997.  During the process of integrating the acquired company as well as 
information obtained from an audit of CGI's opening balance sheet, it was 
determined that the revenue base and the profitability of the acquired 
business was lower than expected.  The Company used discounted cash flow 
projections over the estimated useful life of the acquired business to 
evaluate the appropriate carrying value of the CGI goodwill.  This review 
supported a CGI goodwill valuation of approximately $29.0 million which 
resulted in a write-off of excess goodwill totaling $21.0 million.

      During the first quarter of 1998, the Company acquired Writers, Inc. 
(Writers), a company which specialized in providing technical writing 
services.  After unsuccessful attempts to integrate this business into the 
Company's business model, management determined that this business was not 
strategic to the Company.  As a result, the Writers goodwill was revalued to 
reflect the projected discounted cash flows from the business that was 
acquired.  This evaluation resulted in a write-off of substantially all of 
Writers goodwill totaling $4.7 million.

                                   Page 6

<PAGE>

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 driven by
industry trends toward component-based outsourcing of information services
operations, increased penetration of existing clients, expansion into new
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 that offer the
benefits of outsourcing, while allowing information services operations managers
to retain strategic control of their operations.

      On November 7, 1997, ARC acquired CGI Systems, Inc. (CGI). The acquisition
represented a strategic expansion of ARC's service offerings in the Information
Technology (IT) staffing and managed services area that will allow for a broader
base of solutions to an increasingly sophisticated information technology
marketplace. Additional services, which the Company now provides as a result of
the acquisition, include programming services (formerly known as applications
support); network solutions, including network implementation and Lotus Notes
practices; applications development practices; and application consulting
practices for data warehousing and other applications.

      The acquired business has been assimilated into ARC's core business. 
The programming services components of the business include both the base of 
business that was acquired and the incremental business associated with the 
rollout of programming services to the Company's branch network. While 
management's discussion and analysis will include a comparison of the results 
of operations for the three month and nine month periods of 1997 and 1998, it 
is not possible to accurately identify what portion of the changes relate 
specifically to the base of business that was acquired, due to the 
aforementioned assimilation. On a go-forward basis, the Company's service 
lines will continue to be time and material staffing services and solutions 
projects, principally our Smartsourcing-Registered Trademark- Solutions and 
project-related work. These service lines will contain the Company's 
traditional operations support business as well as the newly added 
programming services business.

      The Company continues to adapt its business to a more solutions-based 
model. This is being accomplished through the Company's 
Smartsourcing-Registered Trademark- Solutions service offering. Under a 
Smartsourcing-Registered Trademark-arrangement, wherein the Company may take 
over an 

                                   Page 7

<PAGE>

entire portion of a client's IT operations, the Company may provide for 
flexibility in invoicing arrangements other than more traditional hourly 
billing. Such arrangements may include fixed price or per unit billing, as 
well as commitments made by the Company to meet specific service levels. 
Management believes that Smartsourcing-Registered Trademark- revenue is an 
important measure of clients' confidence and willingness to engage the 
Company to provide more comprehensive IT staffing solutions.

      The Company underwent significant changes in management during the third
quarter. On July 31, 1998, Larry Kane, the Company's Chairman and CEO, retired.
Mr. Kane remains as a member of the Company's Board of Directors. On August 1,
1998, Raymond Hipp was appointed as the Company's Chairman, CEO and President.
Mr. Hipp had been a member of the Company's Board of Directors for 4 years prior
to assuming the Chairman and Executive positions. On August 5, 1998, Steven
Purcell was appointed as the Company's Chief Financial Officer. There were
certain one-time charges incurred during the third quarter associated with these
and other changes. See "Restructuring and Other One-Time Charges" below.

      As of September 30, 1998, the Company had 54 offices in the United States
and Canada, as compared to 57 offices at September 30, 1997. The decrease in the
number of offices is the result of a consolidation of branches during the third
quarter of 1998. See "Restructuring and Other One-time Charges" below.


THIRD QUARTER FISCAL 1998 COMPARED TO THIRD QUARTER FISCAL 1997

      REVENUE. Revenue increased by 27.8% from $66.6 million in the third
quarter of 1997 to $85.1 million in the third quarter of 1998, 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, hours of service provided by new branch offices, the addition of the
CGI business, and the rollout of programming services to the Company's branch
network. The increase in average revenue per project hour reflects demand for
technical employees with higher skill levels as well as the addition of the
programming services business, which carries a higher hourly bill rate.

      GROSS PROFIT. Gross profit increased by 21.7% from $23.4 million in the 
third quarter of 1997 to $28.4 million in the third quarter of 1998, again 
primarily as a result of an increase in hours of service provided to clients. 
Gross margin decreased from 35.1% of revenue in the third quarter of 1997 to 
33.4% in the third quarter of 1998. The decrease in gross margin was 
primarily due to the inclusion of the lower margin business acquired from 
CGI. This business is being transitioned to higher margin alternatives as 
quickly as client relationships and business conditions warrant. Gross margin 
in the Company's 

                                   Page 8

<PAGE>

core service lines of operations support and Smartsourcing-Registered 
Trademark-Solutions were slightly higher in the third quarter of 1998 as 
compared with the third quarter of 1997.

         OPERATING EXPENSES. Operating expenses increased from $16.8 million in
the third quarter of 1997 to $54.1 million in the third quarter of 1998. A
significant portion of the increase is due to a charge of $29.6 million taken
during the third quarter of 1998 for restructuring and other one-time charges
(as discussed below under "Restructuring and Other One-time Charges"). Excluding
the restructuring and other one-time charges, selling, general and
administrative expenses increased from $16.8 million, or 25.2% of revenue in the
third quarter of 1997, to $24.4 million or 28.7% of revenue in the third quarter
of 1998. A portion of total selling, general and administrative expenses
normally increases as revenue increases. The types of expenses that are
dependent upon revenue are commissions, bonuses and certain branch related
expenses as the Company opens new offices and expands existing offices. While
these types of expenses impact the total amount expended on selling, general and
administrative expenses from one period to the next, they normally do not
significantly impact selling, general and administrative expenses as a
percentage of revenue.

         There were several factors that contributed to the increase in selling,
general and administrative expenses as a percentage of revenue in third quarter
of 1998. The Company's increasing cost structure prompted a management review of
the Company's operating model and supporting programs during the quarter. The
result was the consolidation of several branches, elimination of various
programs that were not considered strategic to the business and termination of
approximately 50 people (see "Restructuring and Other One-Time Charges" below).
The full benefit of these changes were not realized in the third quarter of
1998.

         The other factor that contributed to the increase in selling, general
and administrative expenses as a percentage of revenue during the quarter was an
increase in the Company's bad debt reserves. The charge for the third quarter of
1998, which was $1.1 million as compared to $100,000 in the third quarter of
1997, was the result of a thorough review of all accounts receivable by
management in an effort to resolve all past due amounts. Management believes
that all problem accounts have been identified and that the Company is now
adequately reserved to cover any potential collectibility problems.

         RESTRUCTURING AND OTHER ONE-TIME CHARGES. The Company incurred a
one-time charge totaling $29.6 million during the third quarter of 1998. The
charge, which is reflected in operating expenses, consists primarily of a
write-off of goodwill which was the result of an impairment review that was
performed in accordance with the guidelines set forth under Statement of
Financial Accounting Standards SFAS No. 121. The 

                                   Page 9

<PAGE>

goodwill was originally generated in conjunction with the acquisitions of CGI 
and Writers Inc. The writedown of goodwill represented $25.7 million of the 
$29.6 million charge.

         The balance of the one-time charge represents costs of $1.9 million 
related to the recent management changes and expenses totaling $2.0 million 
associated with staff reductions and optimizing the Company's operating 
model. The costs associated with the recent management changes consisted of 
severance pay, relocation and other related expenses. The expenses associated 
with staff reductions and optimization of the Company's operating model 
consist of severance pay and occupancy costs in connection with a 
consolidation of branches. These optimization actions are expected to result 
in between $3.5 and $4.0 million of cost savings annually.

      INCOME (LOSS) FROM OPERATIONS. Income from operations decreased from $6.6
million in the third quarter of 1997, or 9.9% of total revenue, to a loss of
$25.6 million in the third quarter of 1998, or (30.1)% of total revenue.
Excluding the restructuring and other one-time charges, income from operations
decreased from $6.6 million in the third quarter of 1997, or 9.9% of total
revenue, to $4.0 million in the third quarter of 1998, or 4.7% of total revenue.

      OTHER INCOME (EXPENSE). Other income (expense) for the third quarter of
1997 consisted of interest income earned on the Company's outstanding cash and
investment positions. For the third quarter of 1998, other income (expense)
consisted of interest expense related to the 3-year revolving line of credit
used to finance the acquisition of CGI (see "Liquidity and Capital Resources"
below).

      PROVISION (BENEFIT) FOR INCOME TAXES. The Company's provision for income
taxes decreased from $2.6 million, or an effective tax rate of 38.0%, in the
third quarter of 1997 to a benefit of $0.3 million, or an effective tax rate of
1.1%, in the third quarter of 1998. The amortization and write-off of goodwill,
which is not tax deductible, caused the effective tax rate to change.

      NET INCOME (LOSS). The Company's net income decreased from $4.2 million in
the third quarter of 1997, or 6.3% of total revenue, to a loss of $26.3 million
in the third quarter of 1998, or (31.0)% of total revenue. Excluding the
restructuring and other one-time charges, net income decreased from $4.2 million
in the third quarter of 1997, or 6.3% of total revenue, to $1.8 million in the
third quarter of 1998, or 2.1% of total revenue.


FIRST NINE MONTHS FISCAL 1998 COMPARED TO FIRST NINE MONTHS QUARTER FISCAL 1997

                                   Page 10

<PAGE>

      REVENUE. Revenue increased by 34.8% from $187.1 million in the first nine
months of 1997 to $252.3 million in the first nine months of 1998, 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, hours of service provided by new branch offices, the addition of
the CGI business, and the rollout of programming services to the Company's
branch network. The increase in average revenue per project hour reflects demand
for technical employees with higher skill levels as well as the addition of the
programming services business, which carries a higher hourly bill rate.

      GROSS PROFIT. Gross profit increased by 30.1% from $64.6 million in the
first nine months of 1997 to $84.1 million in the first nine months of 1998,
again primarily as a result of an increase in hours of service provided to
clients. Gross margin decreased from 34.5% of revenue in the first nine months
of 1997 to 33.3% in the first nine months of 1998. The decrease in gross margin
was primarily due to the inclusion of the lower margin business acquired from
CGI. This business is being transitioned to higher margin alternatives as
quickly as client relationships and business conditions warrant. Gross margin in
the Company's core service lines of operations support and Smartsourcing(R)
Solutions were slightly higher in the first nine months of 1998 as compared with
the first nine months of 1997.

         OPERATING EXPENSES. Operating expenses increased from $48.3 million in
the first nine months of 1997 to $99.0 million in the first nine months of 1998.
A significant portion of the increase is due to a charge of $29.6 million taken
during the third quarter of 1998 for restructuring and other one-time charges
(as discussed above under "Restructuring and Other One-time Charges" for the
third quarter fiscal 1998). Excluding the restructuring and other one-time
charges, selling, general and administrative expenses increased from $48.3
million, or 25.7% of revenue in the first nine months of 1997, to $69.4 million
or 27.5% of revenue in the first nine months of 1998. A portion of selling,
general and administrative expenses normally increases as revenue increases. The
types of expenses that are dependent upon revenue are commissions, bonuses and
certain branch related expenses as the Company opens new offices and expands
existing offices. While these types of expenses impact the total amount expended
on selling, general and administrative expenses from one period to the next,
they normally do not significantly impact selling, general and administrative
expenses as a percentage of revenue.

         There were several factors that contributed to the increase in selling,
general and administrative expenses as a percentage of revenue in the first nine
months of 1998. The Company's increasing cost structure prompted a management
review of the Company's operating model and supporting programs during the third
quarter. The result was the consolidation of several branches, elimination of
various programs that were not 

                                   Page 11

<PAGE>

considered strategic to the business and termination of approximately 50 
people (see "Restructuring and Other One-Time Charges" below). The full 
benefit of these changes were not realized in the the first nine months of 
1998.

         The other factor that contributed to the increase in selling, general
and administrative expenses as a percentage of revenue during the first nine
months was an increase in the Company's bad debt reserves. The charge for the
first nine months of 1998, which was $1.3 million as compared to $200,000 in the
first nine months of 1997, was the result of a thorough review of all accounts
receivable during the third quarter by management in an effort to resolve all
past due amounts. Management believes that all problem accounts have been
identified and that the Company is now adequately reserved to cover any
potential collectibility problems.

         RESTRUCTURING AND OTHER ONE-TIME CHARGES. The Company incurred a 
one-time charge totaling $29.6 million during the third quarter of 1998. The 
charge, which is reflected in selling, general and administrative expenses, 
consists primarily of a write-off of goodwill which was the result of an 
impairment review that was performed in accordance with the guidelines set 
forth under SFAS No. 121. The goodwill was originally generated in 
conjunction with the acquisitions of CGI and Writers Inc. The writedown of 
goodwill represented $25.7 million of the $29.6 million charge.

         The balance of the one-time charge represents costs of $1.9 million
related to the recent management changes and expenses totaling $2.0 million
associated with staff reductions and optimizing the Company's operating model.
The costs associated with the recent management changes consisted of severance
pay, relocation and other related expenses. The expenses associated with staff
reductions and optimization of the Company's operating model consist of
severance pay and occupancy costs in connection with a consolidation of
branches. These optimization actions are expected to result in between $3.5 and
$4.0 million of cost savings annually.

      INCOME (LOSS) FROM OPERATIONS. Income from operations decreased from $16.4
million in the first nine months of 1997, or 8.7% of total revenue, to a loss of
$15.0 million in the first nine months of 1998, or (5.9)% of total revenue.
Excluding the restructuring and other one-time charges, income from operations
decreased from $16.4 million in the first nine months of 1997, or 8.7% of total
revenue, to $14.7 million in the first nine months of 1998, or 5.8% of total
revenue.

      OTHER INCOME (EXPENSE). Other income (expense) for the first nine months
of 1997 consisted of interest income earned on the Company's outstanding cash
and investment positions. For the first nine months of 1998, other income
(expense) consisted of interest 

                                   Page 12

<PAGE>

expense related to the 3-year revolving line of credit used to finance the 
acquisition of CGI (see "Liquidity and Capital Resources" below). Interest 
expense was offset by interest income and by gains on the liquidation of 
investments during the first nine months as the Company converted its 
investment positions into cash.

      PROVISION FOR INCOME TAXES. The Company's provision for income taxes
decreased from $6.7 million, or an effective tax rate of 38.9%, in the first
nine months of 1997 to $3.4 million, on a pre-tax loss of $17.5 million in the
first nine months of 1998. The amortization and write-off of goodwill, which is
not tax deductible, caused the effective tax rate to change.

      NET INCOME (LOSS). The Company's net income decreased from $10.6 million
in the first nine months of 1997, or 5.6% of total revenue, to a loss of $(20.9)
million in the first nine months of 1998, or (8.3)% of total revenue. Excluding
the restructuring and other one-time charges, net income decreased from $10.6
million in the first nine months of 1997, or 5.6% of total revenue, to $7.2
million in the first nine months of 1998, or 2.9% of total revenue.


LIQUIDITY AND CAPITAL RESOURCES

      During the first nine months of 1998, cash flow generated from 
operations was $22.3 million resulting primarily from earnings net of the 
goodwill write-off, decreases in trade accounts receivable and increased 
accrued payroll expenses, partially offset by decreases in accounts payable 
and accrued expenses. A significant portion of the reduction in accounts 
receivable resulted from the collection of receivables acquired as part of 
the CGI acquisition. Working capital decreased from $65.8 million at December 
31, 1997, to $40.1 million at September 30, 1998 as cash provided by 
operations was used to repay a portion of long-term debt.

      During the first nine months of 1998 cash flows were used to make payments
on long-term debt of $18.0 million, to repurchase common stock of $3.7 million
and to make improvements to the Company's information systems infrastructure of
approximately $8.0 million.

      In connection with the acquisition of CGI, the Company established a $75
million, 3-year revolving line of credit that was used to finance the
acquisition. Total borrowings under the line at September 30, 1998 were $57.0
million. The Company believes its cash balances and funds provided by operations
will be sufficient to finance continued expansion of its office network and to
meet all of its anticipated cash requirements for at least the next twelve
months.

                                   Page 13

<PAGE>

YEAR 2000 CONSIDERATIONS


INTERNAL ACCOUNTING AND FINANCIAL SYSTEMS

      As part of an overall updating and enhancement of our Company's 
information systems, we are is in the process of replacing our entire 
accounting and financial reporting systems as well as our branch systems 
infrastructure which is used to support our recruiting and project management 
activities. During the process of updating our information systems the 
Company is also addressing the Year 2000 compliance issue. One of the 
criteria used in selecting the hardware and software which will replace the 
Company's existing systems was that it had to be Year 2000 compliant. When 
completed, these systems will support the Company's entire business 
processing needs as well as all financial reporting needs. A portion of the 
replacement systems are currently installed and functioning and management 
projects that the remainder will be installed and fully functional by 
mid-year 1999. As a result of this initiative, management believes that any 
Year 2000 issues that may arise with respect to the Company's internal 
financial and accounting systems will not have a material adverse effect.

CLIENTS

         The Company does not believe that there are significant Year 2000 risks
associated with its normal client business relations such as invoicing and
communication. There are sufficient alternatives available to prevent a complete
shutdown of these types of processes.

         With respect to the inability of one of the Company's clients to remain
in business because of Year 2000 compliance, approximately 40% of the Company's
revenue is derived from three very large customers; IBM, Hewlett Packard and
EDS. The Company has reviewed all available public disclosures of these
companies with respect to Year 2000 readiness and will continue to monitor such
disclosures and communicate with them as to their progress toward Year 2000
compliance.

         The Company is not heavily dependent upon any other client whose Year
2000 issue might significantly impact the Company's business.


VENDORS, SUPPLIERS AND BUSINESS PARTNERS

                                   Page 14

<PAGE>

      The Company's main "supplier" is its technical employees. As long as 
the Company has adequate internal resources in the form of system 
infrastructure to staff and manage projects (see "Internal Accounting and 
Financial Systems" section above), management believes that there are no 
material Year 2000 issues associated with this group. The Year 2000 issue 
presents a number of other risks and uncertainties relative to the Company's 
business including utilities failures, the nature of government responses to 
these issues and the competition for people who have the necessary skills to 
resolve such issues. While the Company believes that the Year 2000 issue will 
not have a material effect on its business, management is unable to determine 
the ultimate impact that this issue may have on the Company at this time.

RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS


      In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information,"
which is effective for the Company's 1998 annual financial statements. SFAS No.
131 establishes standards for reporting information about operating segments in
annual financial statements and requires selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. SFAS No. 131 supersedes SFAS No. 14,
"Financial Reporting for Segments of Business Enterprise," but retains the
requirement to report information about major customers.

      The Company is currently evaluating the impact this statement will have on
its financial statements.

                                   Page 15

<PAGE>

PART II - OTHER INFORMATION

ITEM 2. - CHANGES IN SECURITIES

         On October 15, 1998 the Board of Directors adopted a Shareholders'
         Rights Plan and declared a distribution of one Preferred Stock Purchase
         Right for each outstanding share of the Company's common stock.
         Reference is made to the Company's Form 8-K reports filed October 22,
         1998 and October 29, 1998 for additional information regarding the
         plan.


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:

<TABLE>
<CAPTION>

Exhibit Number   Description
--------------   -----------
<C>            <C>
   10.1          Executive Employment Agreement between Alternative Resources
                   Corporation and Raymond R. Hipp dated July 23, 1998.
   10.2          Executive Employment Agreement between Alternative Resources
                   Corporation and Steven Purcell dated August 1, 1998.
   10.3          Retirement Agreement between Alternative Resources Corporation and
                   Larry I. Kane dated July 23, 1998.
   27.1          Financial Data Schedule
   27.2          Restated Financial Data Schedule

</TABLE>

     (b)  The registrant was not required to file any reports on Form 8-K for
          the quarter.





                                   Page 16

<PAGE>

                                 SIGNATURES


      Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



                                     ALTERNATIVE RESOURCES CORPORATION





Date:  November 13, 1998              /s/  Steven Purcell
                                      ----------------------
                                      Steven Purcell
                                      Senior Vice President, Chief Financial 
                                      Officer, Treasurer and Secretary








                                   Page 17

<PAGE>




                                  EXHIBIT INDEX

<TABLE>
<CAPTION>

Exhibit
Number                              Description
--------                           -------------
<C>      <S>
10.1      Executive Employment Agreement between Alternative Resources
            Corporation and Raymond R. Hipp dated July 23, 1998.
10.2      Executive Employment Agreement between Alternative Resources
            Corporation and Steven Purcell dated August 1, 1998.
10.3      Retirement Agreement between Alternative Resources Corporation and
            Larry I. Kane dated July 23, 1998.
27.1      Financial Data Schedule
27.2      Restated Financial Data Schedule

</TABLE>






                                   Page 18