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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
Commission File Number 0-20540
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ON ASSIGNMENT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-4023433
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
26651 West Agoura Road
Calabasas, California 91302
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (818) 878-7900
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
(Title of Class)
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 of the past 90
days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the 22,463,630 shares of voting stock
(based on the closing price reported by the Nasdaq Stock Market on January 31,
2001) held by non-affiliates of the registrant as of January 31, 2001 was
approximately $603,710,000. For purposes of this disclosure, shares of common
stock held by persons who own 5% or more of the shares of outstanding common
stock and shares of common stock held by each officer and director have been
excluded in that such persons may be deemed to be "affiliates" as that term is
defined under the Rules and Regulations of the Act. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
As of January 31, 2001, the registrant had outstanding 22,486,162 shares
of Common Stock, $0.01 par value.
DOCUMENT INCORPORATED BY REFERENCE
Portions of the On Assignment, Inc. Proxy Statement for the
registrant's Annual Meeting of Stockholders scheduled to be held on June 7, 2001
are incorporated by reference into part III of this Report on Form 10-K.
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PART I
ITEM 1. BUSINESS
This Annual Report on Form 10-K contains forward-looking statements
regarding the future financial condition and results of operations and the
Company's business operations. The words "believes," "anticipates," "plans,"
"expects," and similar expressions are intended to identify forward-looking
statements. Such statements involve risks and uncertainties. The Company's
actual results could differ materially from those discussed herein. Factors that
could cause or contribute to such differences include, but are not limited to,
those discussed in "Risk Factors that May Affect Future Results" in item 1 of
this report, as well as those discussed elsewhere in this report and the
registrant's other filings with the Securities and Exchange Commission.
GENERAL
On Assignment, Inc. (the "Company"), through its first temporary
service, Lab Support, is a leading nationwide provider of temporary scientific
professionals to laboratories in the biotechnology, pharmaceutical, food and
beverage, chemical and environmental industries. In July 1998, the Company
acquired substantially all of the assets, offices and operations of LabStaffers,
Inc., which were added to the Lab Support temporary service. On May 12, 1997,
the Company formed Assignment Ready Inc., a Canadian corporation and wholly
owned subsidiary of the Company, and commenced operations in Toronto as Lab
Support Canada, during the third quarter of 1997. On February 2, 1999, the
Company formed On Assignment UK Limited, a UK corporation and wholly owned
subsidiary of the Company. On February 16, 1999, On Assignment UK Limited formed
Lab Support (UK) Limited, a UK corporation and wholly owned subsidiary of On
Assignment UK Limited, and commenced operations as Lab Support UK during the
first quarter of 1999. On June 5, 2000, the Company formed On Assignment Lab
Support B.V., a Netherlands corporation and wholly owned subsidiary of the
Company, and commenced operations during the second quarter of 2000. On August
25, 2000, the Company formed On Assignment Lab Support N.V., a Belgium
corporation and wholly owned subsidiary of the Company, and commenced operations
during the third quarter of 2000. On November 15, 2000, the Company formed On
Assignment Lab Support A.G., a Switzerland corporation and wholly owned
subsidiary of the Company, and commenced operations during the fourth quarter of
2000. In January 1994, the Company established its second temporary service,
Finance Support, with the acquisition of 1st Choice Personnel, Inc. Finance
Support was expanded in December 1994, with the acquisition of substantially all
of the assets, offices and operations of Sklar Resource Group, Inc. With a shift
in Finance Support's business development focus to medical billing and
collections, in January 1997 the name of Finance Support was changed to
Healthcare Financial Staffing. In March 1996, the Company established its third
temporary service with the acquisition of EnviroStaff, Inc., which specializes
in providing temporary environmental professionals to the environmental services
industry. In the third quarter of 1999, the Company established its fourth
temporary service, Clinical Lab Staff, which provides scientific and medical
professionals to hospitals, physicians' offices, clinics, reference laboratories
and HMOs. The Company has two operating segments: Lab Support and Healthcare
Staffing. The Lab Support operating segment includes the combined results of Lab
Support and EnviroStaff. The Healthcare Staffing segment includes the combined
results of Healthcare Financial Staffing and Clinical Lab Staff. The different
temporary services were grouped under these two operating segments as they have
similar economic characteristics and they meet the aggregation criteria of SFAS
No. 131. As of December 31, 2000, the Company served 82 operational markets
through a network of 176 branch offices.
The Company's principal executive offices are located at 26651 West
Agoura Road, Calabasas, California 91302 and its telephone number is (818)
878-7900. The Company was incorporated on December 30, 1985.
ON ASSIGNMENT'S APPROACH
The Company's strategy is to serve the needs of targeted industries for
quality assignments of temporary professionals. In contrast to the mass market
approach used for temporary office/clerical and light industrial personnel, the
Company believes effective assignments of temporary professionals require the
person making assignments to have significant knowledge of the client's industry
and be able to assess the specific needs of the client as well as the temporary
professionals' qualifications. As a result, the Company has developed a tailored
approach to the assignment process - the Account Manager System. Unlike
traditional approaches, the Account Manager System is based on the use of
experienced professionals, Account Managers, to manage the assignment process.
Account Managers meet with clients' managers to understand position descriptions
and workplace environments, and with temporary employee candidates to assess
their qualifications and interests. With this information, Account Managers can
make quality assignments of temporary professionals to clients, typically within
24 to 48 hours of client requests. The Company's corporate office performs many
functions that allow Account Managers to focus more effectively on the
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assignment of temporary professionals. These functions include recruiting,
ongoing training and coaching, appointment making, business development and
administrative support. The corporate office also selects, opens and maintains
branch offices according to a standardized model. Temporary personnel assigned
to clients are employees of the Company, though clients provide on-the-job
supervisors for temporary personnel. Therefore, clients control and direct the
work of temporary personnel and approve hours worked, while the Company is
responsible for many of the activities typically handled by the client's
personnel department.
BRANCH OFFICE NETWORK
At December 31, 2000, the Company had 104 Lab Support segment branch
offices and 72 Healthcare Staffing segment branch offices. Of this total of 176
branch offices, 137 branch offices involve shared office space among divisions.
Through this network of branch offices, the Company served the following
operational markets:
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Allentown, PA Dallas, TX Las Vegas, NV Phoenix, AZ Seattle, WA
Ann Arbor, MI Dayton, OH Leeds, United Kingdom Piscataway, NJ St. Petersburg, FL
Antwerp, Belgium Denver, CO London, United Kingdom Pittsburgh, PA St. Louis, MO
Atlanta, GA Des Moines, IA Los Angeles, CA Pleasanton, CA Tampa, FL
Austin, TX Detroit, MI Louisville, KY Portland, OR Toronto, ON, Canada
Baltimore, MD Edmonton, AB, Canada Madison, WI Princeton, NJ Tulsa, OK
Birmingham, United Kingdom Ft. Lauderdale, FL Manchester, United Kingdom Providence, RI Utrecht, Netherlands
Boston, MA Ft. Worth, TX Memphis, TN Raleigh-Durham, NC Vancouver, BC, Canada
Buffalo, NY Glasgow, Scotland Miami, FL Richmond, VA Ventura, CA
Cambridge, United Kingdom Grand Rapids, MI Milwaukee, WI Riverside, CA Washington, DC
Charlotte, NC Greensboro, NC Minneapolis, MN Rotterdam, Netherlands Westport, CT
Chicago, IL Greenville, SC Montreal, QC, Canada Sacramento, CA White Plains, NY
Cincinnati, OH Harrisburg, PA Nashville, TN Salt Lake City, UT Worcester, MA
Cleveland, OH Houston, TX New Orleans, LA San Antonio, TX Zurich, Switzerland
Columbus, OH Indianapolis, IN Oklahoma City, OK San Diego, CA
Concord, CA Jacksonville, FL Orlando, FL San Francisco, CA
Costa Mesa, CA Kansas City, MO Philadelphia, PA San Jose, CA
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CLIENTS
The Lab Support operating segment includes the combined results of Lab
Support and EnviroStaff. The Lab Support segment's clients primarily include
biotechnology, pharmaceutical, food and beverage, chemical and environmental
companies. The Healthcare Staffing operating segment includes the combined
results of Healthcare Financial Staffing and Clinical Lab Staff. The Healthcare
Staffing segment's clients include companies engaged in the healthcare industry.
During the year ended December 31, 2000, the Company provided assignment
professionals to approximately 6,000 clients. All temporary assignments,
regardless of their planned length, may be terminated without prior notice by
the client or the temporary employee.
THE TEMPORARY PROFESSIONAL
The skill and experience levels of the Lab Support segment's temporary
professional employees range from scientists, engineers, geologists, industrial
hygienists and safety professionals with bachelor and/or masters degrees and
considerable experience to technicians with limited chemistry or biology
background and lab experience and environmental field technicians with some
applicable experience. The skill and experience levels of the Healthcare
Staffing segment's temporary professional employee range from medical and
laboratory clinical technologists to phlebotomists and medical assistants or
they typically have two or more years of medical billing and collection
experience.
Hourly wage rates are established according to local market conditions.
The Company pays the related costs of employment including social security
taxes, federal and state unemployment taxes, workers' compensation insurance and
other similar costs. After minimum service periods and hours worked, the Company
also provides paid holidays, allows participation in the Company's 401(k)
Retirement Savings Plan and Employee Stock Purchase Plan, creates eligibility
for an annual bonus, and facilitates access to and supplements the cost of
health insurance for its temporary employees.
EXPANSION IN EXISTING PROFESSIONS AND INTO OTHER PROFESSIONS
The Company intends to expand its services internationally in the
laboratory and scientific field and domestically in the laboratory and
scientific, clinical laboratory, medical staffing
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and medical billing and collections fields it currently serves and to apply its
approach to the assignment of temporary professionals in other fields. The
Company believes that its experience with the Account Manager System and
centralized operational support will enable it to enter new markets effectively.
The Company continually reviews opportunities in various industries, evaluating
the current volume and profitability of temporary assignments, the length of
assignments, the degree of specialization necessary to be successful, the
competitive environment and the applicability of its Account Manager approach.
If attractive markets are identified, the Company may enter these markets
through acquisition or internal growth. The Company's January 1994 acquisition
of 1st Choice Personnel, Inc., December 1994 acquisition of substantially all of
the assets of Sklar Resource Group, Inc., March 1996 acquisition of EnviroStaff,
Inc., and July 1998 acquisition of substantially all of the assets of
LabStaffers, Inc. were consistent with this ongoing activity, and the Company
periodically engages in discussions with possible acquisition candidates.
COMPETITION
The temporary services industry is highly competitive and fragmented and
has low barriers to entry. The Company believes Lab Support is one of the few
nationwide temporary service providers that specialize exclusively in scientific
laboratory personnel. Although other nationwide temporary personnel companies
compete with the Company with respect to scientific, clinical laboratory and
medical technologist, environmental services and medical billing and collecting
personnel, many of these companies focus on office/clerical and light and heavy
industrial personnel, which account for approximately 80% of the overall
temporary personnel services market. These companies include Manpower, Inc.,
Kelly Services, Inc., Adecco, and Aerotech, Inc., each of which is larger and
has substantially greater financial and marketing resources than the Company.
The Company also competes with temporary personnel agencies on a
regional and local basis. Frequently, the strongest competition in a particular
market is a local company with established relationships. The Company also
competes with its clients that directly advertise or seek referrals of qualified
candidates on their own behalf.
The principal competitive factors in attracting qualified candidates for
temporary employment are salaries and benefits, speed, quality and duration of
assignments and responsiveness to the needs of employees. The Company believes
that many persons seeking temporary employment through the Company are also
pursuing employment through other means, including other temporary employment
service firms. Therefore, the speed and availability of appropriate assignments
is an important factor in the Company's ability to complete assignments of
qualified candidates. In addition to having high quality temporary personnel to
assign in a timely manner, the principal competitive factors in obtaining and
retaining clients in the temporary services industry are correctly understanding
the client's specific job requirements, the appropriateness of the temporary
personnel assigned to the client, the price of services and the monitoring of
client satisfaction. Although the Company believes it competes favorably with
respect to these factors, it expects competition to increase.
EMPLOYEES
At December 31, 2000, the Company employed approximately 295 regular
employees, including Account Managers and corporate office employees. During the
year ended December 31, 2000, the Company employed approximately 18,000
temporary employees. None of the Company's employees, including its temporary
employees, are represented by a collective bargaining agreement. The Company
believes its employee relations are good.
REGULATION
The Company's operations are subject to applicable state and local
regulations, both domestically and internationally, governing the provision of
personnel placement services which require personnel companies to be licensed or
separately registered. To date, the Company has not experienced any material
difficulties in complying with such regulations. State mandated workers'
compensation and unemployment insurance premiums, which the Company pays for its
temporary and regular employees, can have a direct effect on the Company's cost
of services and thereby, profitability.
PROPRIETARY RIGHTS
The Company has registered its Lab Support and EnviroStaff service marks
with the United States Patent and Trademark Office and applied for registration
of its Healthcare Financial Staffing and Clinical Lab Staff service marks. The
Company has also registered "The Quality Assignment" mark with the United States
Patent and Trademark Office. The Company has also registered its Lab Support
service mark in Canada, the UK and Switzerland and has applied for the use of
the Lab Support service mark in the Netherlands and Belgium. The Company has
also obtained European Community registration for its "On Assignment Employer of
Knowledge Workers" logo and for "On Assignment Lab Support Science Professionals
On Assignment" logo. The
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Company has rights in other trademarks used in connection with its business and
has other applications pending for the international use of its service marks.
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company operates in a highly competitive environment that involves a
number of risks, many of which are beyond the Company's control. The following
discussion highlights some of the risks that may affect the Company's future
results.
Uncertainty of Future Operating Results, Quarterly Fluctuations and
Seasonality. Future operating results will depend on many factors, including
demand for the Company's services, the market's acceptance of price changes, the
productivity, recruitment and retention of Account Managers, the results of the
Company's expansion into new geographic markets, the degree and nature of
competition, the effectiveness of the Company's expansion into other
professions, and the Company's ability to control costs and manage its accounts
receivable. The Company and the temporary services industry as a whole typically
experience seasonal declines in demand from the year-end holiday season through
early February and during June, July and August. The Company has experienced
variability in the duration and depth of these seasonal declines, which in turn
have materially affected period-to-period and current period-to-prior period
comparisons of its financial and operating performance. As a result of these and
other factors, there can be no assurance that the Company will be able to grow
in future periods, sustain its past rate of revenue growth or maintain
profitability on a quarterly or annual basis. If in some future quarter or
quarters the Company's operating results are below the expectations of public
market analysts or investors, the market price of its common stock may decline
significantly.
Reliance on and Ability to Attract, Develop and Retain Account Managers.
The Company relies significantly on the performance of its Account Managers, who
have primary responsibility for all aspects of the process of assigning the
Company's temporary employees to clients. The Company is highly dependent on its
ability to hire, develop and retain qualified Account Managers, as well as on
the productivity of its Account Managers. The available pool of qualified
Account Manager candidates is limited. In addition, prior to joining the
Company, the typical Account Manager has no prior experience in the temporary
employment industry. The Company commits substantial resources to the
recruitment, training, development and operational support of its Account
Managers. There can be no assurance that the Company will be able to continue to
recruit, train and retain sufficient numbers of qualified Account Managers or
that Account Managers will achieve desired productivity levels. Failure to
achieve planned numbers of Account Managers or productivity of Account Managers
could result in a material adverse effect on the Company's financial condition,
results of operations and business.
Expansion in Existing Professions and into Other Professions. The
Company plans to expand its services domestically and internationally within the
laboratory and scientific, clinical laboratory and medical staffing, and medical
billing and collections fields it currently serves and to other professional
fields. The success of the Company's expansion efforts will depend on a number
of factors, including the Company's ability to adapt the Account Manager system
used in its divisions to other industries and professions, recruit and train new
Account Managers with the particular industry or professional experience,
establish client relationships in new industries and successfully recruit,
qualify and orient new temporary professionals. The ability to manage these
factors may be more difficult or take more resources than the Company
anticipates, particularly since they may involve industries, clients and
professionals that the Company has no experience with. The Company may decide to
pursue future expansion by internal growth or acquisition. The rate at which the
Company establishes new services may significantly affect the Company's
operating and financial results, especially in the quarters of and immediately
following expansion into new domestic and international professional markets or
the integration of acquired operations. There can be no assurance that the
Company will be able to successfully expand its services in the fields it
currently serves, identify new professional fields suitable for expansion or
continue to grow. Furthermore, in the event the Company pursues an acquisition,
there can be no assurance that the Company will identify suitable acquisition
candidates on reasonable terms, that the Company will be able to successfully
integrate acquisitions, that anticipated benefits of the acquisition will be
achieved, or that diversion of management attention to the acquisition and
integration process will not have an adverse effect on the Company's existing
businesses.
Planned International Operations Face Special Risks. In the first
quarter of 1999, the Company expanded its operations to the UK and during 2000,
the Company expanded into the Netherlands, Belgium and Switzerland. The Company
intends to expand its operations to other countries in Europe in the future. The
Company has limited experience in marketing, selling, and particularly,
supporting its services outside of North America. Development of such skills may
be more difficult or take longer than the Company anticipates, especially due to
the fact that its centralized support functions in Calabasas, California will
not be able to provide the same level of
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support to operations outside of North America as it does to its current North
American operations. In addition to establishing operations support functions
outside North America, the Company will have to address language barriers and
different regulations of temporary employment. Moreover, international
operations are subject to a variety of additional risks associated with
conducting business internationally that could seriously harm the Company's
financial condition and results of operations. These risks may include the
following: problems in collecting accounts receivable; the impact of recessions
in economies outside the United States; unexpected changes in regulatory
requirements; fluctuations in currency exchange rates; seasonal reductions in
business activity during the summer months in Europe; and potentially adverse
tax consequences.
Dependence on Availability of Qualified Temporary Professional
Employees. The Company is dependent upon continuing to attract qualified
laboratory and scientific, clinical laboratory and medical technologist,
environmental services and medical billing and collecting personnel with a broad
range of skills and experience in order to meet client needs. The Company
competes for such personnel with other temporary personnel companies, as well as
actual and potential clients, some of which seek to fill positions with either
regular or temporary employees. In addition, the Company's temporary employees
sometimes become regular employees of the Company's clients. There can be no
assurance that qualified laboratory and scientific, clinical laboratory and
medical technologist, environmental services, and medical billing and
collections personnel will be available to the Company in adequate numbers.
Highly Competitive Market. The temporary services industry is highly
competitive and fragmented, with limited barriers to entry. The Company competes
in national, regional and local markets with full-service agencies and in
regional and local markets with specialized temporary services agencies. Several
of these companies have significantly greater marketing and financial resources
than those of the Company. As the Company expands into new geographic markets,
its success will depend in part on its ability to gain market share from
competitors. The Company expects that competition will increase in the future
and there can be no assurance that the Company will remain competitive.
Effect of Fluctuations in the General Economy. Demand for temporary
services is significantly affected by the general level of economic activity. As
economic activity slows, many companies reduce their usage of temporary
employees before undertaking layoffs of their regular employees. As economic
activity increases, many clients convert their temporary employees to regular
employees which, depending on the Company's agreement with the client and when
such conversion occurs, may not result in any conversion fee revenue for the
Company. The Company is unable to predict the level of economic activity at any
particular time and its effect on the Company's operating and financial results.
Terminability of Client Arrangements. The Company's arrangements with
clients are terminable at will and do not require clients to use the Company's
services. All temporary assignments, regardless of their planned length, may be
terminated without advance notice. There can be no assurance that existing
clients will continue to use the Company's services at historical levels, if at
all.
Employment Liability Risks. The Company employs and assigns temporary
employees to the workplaces of other businesses. Inherent risks of such activity
include possible claims of errors and omissions, misuse of customers'
proprietary information, discrimination and harassment, theft of client
property, and other criminal activity or torts by temporary employees. The
Company seeks to reduce its liability for the acts of its temporary employees by
providing in its arrangements with most clients that temporary personnel work
under the client's supervision, control and direction. There can be no assurance
that such arrangements will be enforceable or that, if enforceable, would be
sufficient to preclude liability as a result of the actions of the Company's
temporary personnel. In addition, there can be no assurance that current
liability insurance coverage will be adequate or will continue to be available
in sufficient amounts.
Workers' Compensation Expense. The Company maintains a partially
self-insured workers' compensation program. In connection with this program, the
Company pays a base premium plus actual losses incurred up to certain levels,
and is insured for losses greater than certain levels per occurrence and in the
aggregate. The Company seeks to minimize the impact of workers' compensation
losses through a proactive claims management and accident reduction program.
While the Company believes that current loss reserves are reasonable based on
claims filed and an estimate of claims incurred but not yet reported, there can
be no assurance that loss reserves and insurance coverage will be adequate in
amount to cover all workers' compensation claims.
Dependence on Key Officers. The Company's future success depends in
significant part upon the continued service of its key officers. Competition for
such personnel is intense and there can be no assurance that the Company will
retain its key officers or that it can attract or retain other highly qualified
managerial
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personnel in the future. The loss of any of its key officers could have a
material adverse effect upon the Company's business, operating results and
financial condition.
On February 14, 2001 the Company announced that H. Tom Buelter, its
Chief Executive Officer and Chairman of the Board intends to retire during 2001
as Chief Executive Officer once a successor to his position has been hired. Mr.
Buelter will continue as Chairman of the Board for up to one year to ensure a
smooth transition of leadership.
Government Regulations. In many states and foreign countries, the
temporary services industry is regulated, and firms such as the Company must be
registered or qualify for an exemption from registration. While these
regulations have not materially affected the conduct of the Company's business
to date, there can be no assurance that future domestic or foreign regulations
will not have such effect. Mandated workers' compensation and unemployment
insurance premiums, which the Company pays for its temporary as well as its
regular employees in both its domestic and international operations, can have a
direct effect on cost of services and thereby, profitability. In the past,
federal legislative proposals for national health insurance have included
provisions extending health insurance benefits to temporary employees and some
states could impose sales taxes or raise sales tax rates on temporary services.
Further increases in such premiums or rates or the introduction of new
regulatory provisions could substantially raise the costs associated with hiring
temporary employees and there is no assurance that these increased costs could
be passed on to clients without a significant decrease in the demand for
temporary employees.
ITEM 2. PROPERTIES
The Company has leased approximately 30,500 square feet of office space
through March 2004, for its corporate headquarters in Calabasas, California. In
addition, the Company leases office space in 94 branch office locations in the
metropolitan areas listed under the caption "Branch Office Network" in Item 1
hereof. A branch office typically occupies space ranging from approximately
1,500 to 2,500 square feet with lease terms that typically range from six months
to five years.
ITEM 3. LEGAL PROCEEDINGS
(a) There is no material legal proceeding to which the Company is a
party or to which its properties are subject.
(b) No material legal proceedings were terminated in the
fourth quarter of 2000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company and their ages as of January 31,
2001 were:
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Name Age Position
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H. Tom Buelter 59 Chairman of the Board and Chief Executive Officer (1)
Kathy J. West 49 President and Chief Operating Officer
Ronald W. Rudolph 57 Executive Vice President, Finance and Chief Financial Officer
Dr. Volkmar G. Hable 34 Executive Vice President, Operations (2)
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(1) On February 14, 2001, Mr. Buelter announced his intention to retire
during 2001 as Chief Executive Officer once a search to hire his
successor is completed.
(2) Hired effective March 5, 2001
H. TOM BUELTER has served as Chief Executive Officer and a director of
the Company since he joined the Company in March 1989. Mr. Buelter was elected
Chairman of the Company's Board of Directors in December 1992. Mr. Buelter also
held the title of President from March 1989 to September 1997. From 1983 to
1989, he was Senior Vice President of Kelly Services, Inc. ("Kelly Services"), a
temporary personnel firm, and Chief Operating Officer of Kelly Assisted Living,
a division of Kelly Services which provides temporary home-care personnel.
KATHY J. WEST has served as President and Chief Operating Officer since
September 1997. From March 1995 to September 1997, Ms. West served as the
Company's Senior Vice President, Chief Operating Officer. From October 1993 to
March 1995, Ms. West served as the Company's Senior Vice President, Operations.
From April 1993 to October 1993, Ms. West served as the Company's Senior Vice
President, Employee and Business Services and, from January 1992 to April 1993,
as the Company's Vice President, Employee and Business Services. Ms. West joined
the Company in 1990, as Director of Branch Operations. From 1987 to 1990, she
served as the founding principal of Performance Training Systems, a training
services firm. From 1973 to 1987, she was employed by Kelly Services, where she
held a variety of field operating and corporate positions. Her responsibilities
included field sales, corporate branch operations, training and developing
international sales and service schools.
RONALD W. RUDOLPH has served as Executive Vice President, Finance and
Chief Financial Officer since March 13, 2000. From January 1, 1999 through March
12, 2000, Mr. Rudolph served as Senior Vice President, Finance and Chief
Financial Officer. From October 1996 through December 1998, Mr. Rudolph served
as Senior Vice President, Finance and Operations Support, and Chief Financial
Officer. From January 1996 through October 1996, Mr. Rudolph served as Senior
Vice President, Finance and Administration, and Chief Financial Officer. Mr.
Rudolph joined the Company in April 1995, as Vice President, Finance and
Administration, and Chief Financial Officer. From April 1987 to September 1994,
Mr. Rudolph was Vice President, Finance and Administration, and Chief Financial
Officer of Retix, a manufacturer of enterprise networking devices, and from June
1993 to September 1994, Mr. Rudolph was a director of Retix.
DR. VOLKMAR G. HABLE was hired March 5, 2001 to serve as Executive Vice
President, Operations. From 1997 to 2000, Dr. Hable was Senior Executive of
Adecco S.A., responsible for operations in ten European countries, as well as a
Senior Project Manager for Adecco's European IT projects. Dr. Hable's prior
industry experience includes chemical, pharmaceutical, geophysics, geology and
medicine. Dr. Hable has a doctorate in geosciences from the University of
Innsbruck, Austria, and he is fluent in five languages.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock trades on the Nasdaq Stock Market under the
symbol ASGN. The following table sets forth the range of high and low sales
prices, as reported on the Nasdaq Stock Market for the period from January 1,
1999 to December 31, 2000. At January 31, 2001, the Company had approximately 78
holders of record of its Common Stock (although the Company has been informed
there are in excess of approximately 3,000 beneficial owners) and 22,486,162
shares outstanding.
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Price Range of Common Stock
High Low
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Fiscal Year Ended December 31, 1999
First Quarter 19-1/4 11-31/32
Second Quarter 15-15/16 10-25/32
Third Quarter 16-3/4 22
Fourth Quarter 14-15/16 11-1/2
Fiscal Year Ended December 31, 2000
First Quarter 22-1/2 13-3/4
Second Quarter 34-5/16 22-1/4
Third Quarter 33 25-1/16
Fourth Quarter 32-1/4 21-3/4
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On March 7, 2000, the Board of Directors authorized a two-for-one stock
split, effected as a 100 percent common stock dividend, to be distributed on
April 3, 2000 to shareholders of record as of March 27, 2000. All references to
number of shares, sales prices and per share amounts of the Company's common
stock have been retroactively restated to reflect the increased number of common
shares outstanding.
Since inception, the Company has not declared or paid any cash dividends
on its Common Stock and currently plans to retain all earnings to support the
development and expansion of its business. The Company has no present intention
of paying any dividends on its Common Stock in the foreseeable future. However,
the Board of Directors of the Company periodically reviews the Company's
dividend policy to determine whether the declaration of dividends is
appropriate.
9
10
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected financial data of the Company.
This historical data should be read in conjunction with the consolidated
financial statements and notes thereto included elsewhere in this Form 10-K.
- -------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,
(in thousands, except per share data) 1996 1997 1998 1999 2000
- -------------------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA
Revenues $ 88,188 $107,849 $132,741 $159,473 $195,080
Cost of services 61,231 74,748 90,705 107,652 131,351
----------------------------------------------------------------------------
Gross profit 26,957 33,101 42,036 51,821 63,729
Selling, general and
administrative expenses 17,699 20,714 25,308 30,428 35,532
----------------------------------------------------------------------------
Operating income 9,258 12,387 16,728 21,393 28,197
Acquisition costs 401 -- -- -- --
----------------------------------------------------------------------------
Income before interest and income taxes 8,857 12,387 16,728 21,393 28,197
Interest income, net 549 833 1,336 1,635 2,442
----------------------------------------------------------------------------
Income before income taxes 9,406 13,220 18,064 23,028 30,639
Provision for income taxes 3,800 4,954 6,748 8,566 11,392
----------------------------------------------------------------------------
Net income $ 5,606 $ 8,266 $ 11,316 $ 14,462 $ 19,247
----------------------------------------------------------------------------
Basic earnings per share $ 0.27 $ 0.39 $ 0.52 $ 0.66 $ 0.87
----------------------------------------------------------------------------
Weighted average number of
common shares outstanding 20,413 21,123 21,721 21,907 22,193
----------------------------------------------------------------------------
Diluted earnings per share $ 0.26 $ 0.37 $ 0.50 $ 0.65 $ 0.83
----------------------------------------------------------------------------
Weighted average number of common
and common equivalent shares outstanding 21,793 22,063 22,604 22,372 23,080
----------------------------------------------------------------------------
BALANCE SHEET DATA
Cash, cash equivalents and current
portion of marketable securities $ 14,102 $ 23,709 $ 30,466 $ 35,271 $ 63,122
Working capital 23,709 35,225 43,987 54,769 84,717
Total assets 31,874 44,864 62,028 71,740 105,556
Long-term liabilities -- -- -- -- --
Stockholders' equity 27,635 39,272 54,226 63,447 95,291
- -------------------------------------------------------------------------------------------------------------------------------
10
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The discussion in this Report contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from those discussed herein. Factors that could cause or contribute
to such differences include, but are not limited to, management of growth,
particularly in international markets, risks inherent in expansion into new
international markets and new professions, the integration of acquired
operations, the Company's ability to attract, train and retain qualified Account
Managers and temporary employees in the laboratory, science, financial and
environmental fields, and other risks discussed in "Risk Factors That May Affect
Future Results" in Item 1 of this Annual Report, beginning on page 5, as well as
those discussed elsewhere in this Report and from time to time in the Company's
other reports filed with the Securities and Exchange Commission.
SEASONALITY
The Company's results have historically been subject to seasonal
fluctuations. Demand for the Company's temporary employees typically declines
from the year-end holiday season through February, resulting in a corresponding
decrease in revenues, operating income and net income. Demand for the Company's
temporary employees also often declines in June, July and August due to
decreases in clients' activity during vacation periods and the availability of
students to perform temporary work. As a result, the Company has experienced
slower growth or declines in revenues, operating income and net income during
the first quarter and from the second quarter to third quarter of prior years.
YEARS ENDED DECEMBER 31, 1999 AND 2000
REVENUES. Revenues increased by 22.3% from $159,473,000 in the year
ended December 31, 1999, to $195,080,000 in the year ended December 31, 2000, as
a result of the increased revenues of the Lab Support and the Healthcare
Staffing segments.
The Lab Support segment's revenues increased by 17.0% from $119,668,000
in the year ended December 31, 1999, to $139,986,000 in the year ended December
31, 2000. The increase in revenue was primarily attributable to a 10.6% increase
in the number of temporary employees on assignment from December 31, 1999 to
December 31, 2000 and to a lesser extent to a 5.2% increase in average hourly
billing rates during 2000. The increase in the number of temporary employees on
assignment was primarily attributable to the strong performance in most of the
markets in which the Lab Support segment has older, better established branches
and to a lesser extent the contribution of new offices opened in the past year.
The Healthcare Staffing segment's revenues increased by 38.4% from
$39,805,000 in the year ended December 31, 1999 to $55,094,000 in the year ended
December 31, 2000. The increase in revenue was primarily attributable to a 36%
increase in the number of temporary employees on assignment and to a lesser
extent to a 5.2% increase in average hourly billing rates during 2000. The
increase in the number of temporary employees on assignment was primarily
attributable to the strong performance in most of the markets in which the
Healthcare Staffing segment has older, better established branches and to a
lesser extent the contribution of new offices opened in the past year.
COST OF SERVICES. Cost of services consists solely of compensation for
temporary employees and payroll taxes, benefits and employment related expenses
paid by the Company in connection with such compensation. Cost of services
increased 22.0% from $107,652,000 in 1999 to $131,351,000 in 2000. The Lab
Support segment's cost of services as a percentage of revenues decreased by 0.4%
from 67.5% in 1999 to 67.1% in 2000. This decrease was primarily attributable to
a 0.9% decrease in temporary employee compensation and payroll taxes, partially
offset by a 0.4% increase in workers' compensation and a 0.1% increase in
employer paid benefits in 2000. The Healthcare Staffing segment's cost of
service as a percentage of revenues increased by 0.4% from 67.5% in 1999 to
67.9% in 2000. This increase was attributable to an increase in workers'
compensation expense. The increase in workers' compensation expense in both
segments resulted from an increase in actual workers' compensation claims
reported and estimated incurred but not yet reported claims in 2000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses include the costs associated with the Company's network
of Account Managers and branch offices, including Account Manager compensation,
rent, other office expenses and advertising for temporary employees, and
corporate office expenses, such as the salaries of corporate operations and
support personnel, management compensation, Account Manager recruiting and
training expenses, corporate advertising and promotion, rent and other general
and administrative expenses. Selling, general and administrative expenses
increased 16.8% from $30,428,000 in 1999 to
11
12
$35,532,000 in 2000. Selling, general and administrative expenses as a
percentage of revenues decreased from 19.1% in the 1999 period to 18.2% in the
2000 period. This result was primarily attributable to leveraging a centralized
support system over a larger revenue base, offset by investments in Account
Manager training and recruiting, expenses for international expansion into
Europe, and an increase in the hiring of new Account Managers for the opening of
new offices and the expansion of existing offices.
INTEREST INCOME. Interest income increased 49.4% from $1,635,000 in 1999
to $2,442,000 in 2000, primarily as a result of interest earned on higher
interest-bearing cash, cash equivalent and marketable security account balances
in 2000.
PROVISION FOR INCOME TAXES. Provision for income taxes increased 33.0%
from $8,566,000 in 1999 to $11,392,000 in 2000. The Company's effective tax rate
remained unchanged at 37.2% in 1999 and 2000.
YEARS ENDED DECEMBER 31, 1998 AND 1999
REVENUES. Revenues increased by 20.1% from $132,741,000 in the year
ended December 31, 1998, to $159,473,000 in the year ended December 31, 1999, as
a result of the increased revenues of the Lab Support and the Healthcare
Staffing segments.
The Lab Support segment's revenues increased by 8.2% from $110,644,000
in the year ended December 31, 1998, to $119,668,000 in the year ended December
31, 1999. The increase in revenue was primarily attributable to a 4.4% increase
in the number of temporary employees on assignment from December 31, 1998 to
December 31, 1999 and to a lesser extent to a 3.5% increase in average hourly
billing rates during 1999. The increase in the number of temporary employees on
assignment was primarily attributable to the strong performance in most of the
markets in which the Lab Support segment has older, better established branches
and to a lesser extent the contribution of new offices opened in the past year.
The Healthcare Staffing segment's revenues increased by 80.1% from
$22,097,000 in the year ended December 31, 1998 to $39,805,000 in the year ended
December 31, 1999. The increase in revenue was primarily attributable to a 79.1%
increase in the number of temporary employees on assignment and to a lesser
extent to a 3.8% increase in average hourly billing rates during 1999. The
increase in the number of temporary employees on assignment was primarily
attributable to the strong performance in most of the markets in which the
Healthcare Staffing segment has older, better established branches and to a
lesser extent the contribution of new offices opened in the past year.
COST OF SERVICES. Cost of services consists solely of compensation for
temporary employees and payroll taxes, benefits and employment related expenses
paid by the Company in connection with such compensation. Cost of services
increased 18.7% from $90,705,000 in 1998 to $107,652,000 in 1999. The Lab
Support segment's cost of services as a percentage of revenues decreased by 1.1%
from 68.6% in 1998 to 67.5% in 1999. This decrease was primarily attributable to
a 0.8% decrease in temporary employee compensation and payroll taxes and a 0.5%
decrease in workers' compensation in 1999, partially offset by a 0.2% increase
in employer paid benefits. The Healthcare Staffing segment's cost of service as
a percentage of revenues increased by 0.5% from 67.0% in 1998 to 67.5% in 1999.
This increase was primarily attributable to a 0.6% increase in temporary
employee compensation and payroll taxes, and a 0.2% increase in employer paid
benefits in 1999, partially offset by a 0.4% decrease in workers' compensation
expense. The decrease in workers' compensation expense in both segments resulted
from a decline in actual workers' compensation claims reported and estimated
incurred but not yet reported claims in 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses include the costs associated with the Company's network
of Account Managers and branch offices, including Account Manager compensation,
rent, other office expenses and advertising for temporary employees, and
corporate office expenses, such as the salaries of corporate operations and
support personnel, management compensation, Account Manager recruiting and
training expenses, corporate advertising and promotion, rent and other general
and administrative expenses. Selling, general and administrative expenses
increased 20.2% from $25,308,000 in 1998 to $30,428,000 in 1999. Selling,
general and administrative expenses as a percentage of revenues remained
consistent at 19.1% in the 1998 and 1999 periods. This result was primarily
attributable to leveraging a centralized support system over a larger revenue
base, offset by investments in Account Manager training and recruiting, expenses
for international expansion into Canada and the UK, and an increase in the
hiring of new Account Managers for the opening of new offices and the expansion
of existing offices.
INTEREST INCOME. Interest income increased 22.4% from $1,336,000 in 1998
to $1,635,000 in 1999, primarily as a result of interest earned on higher
interest-bearing cash, cash equivalent and marketable security account balances
in 1999.
12
13
PROVISION FOR INCOME TAXES. Provision for income taxes increased 26.9% from
$6,748,000 in 1998 to $8,566,000 in 1999. The Company's effective tax rate
remained relatively unchanged from 37.4% in 1998 compared to 37.2% in 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of cash in 1999 and 2000 were funds provided by
operating activities. In 1999, operating activities provided $10,110,000 of cash
compared to $21,406,000 in 2000. This increase was primarily attributable to a
higher net income, an increase in income taxes payable and a larger increase in
accounts payable and accrued expenses. This increase was partially offset by a
larger increase in accounts receivable.
Cash used for investing activities totaled $7,934,000 in 1999 compared to
$3,155,000 in 2000. This decrease was primarily attributable to lower purchases
of marketable securities, lower purchases of furniture, equipment, and leasehold
improvements and a repayment of an officer loan receivable in 2000 compared to a
disbursement in 1999.
Cash used for financing activities was $5,770,000 in 1999 compared to cash
provided by financing activities of $8,820,000 in 2000. The increase was
primarily attributable to higher proceeds from the exercise of common stock
options in 2000 and repurchases of common stock in 1999.
The Company believes that its cash balances, together with the funds from
operations will be sufficient to meet its cash requirements through at least the
next twelve months.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to certain market risks arising from transactions in the
normal course of business, principally risks associated with interest rate and
foreign currency fluctuations. The Company is exposed to interest rate risk from
its held to maturity investments. The interest rate risk is immaterial due to
the short maturity of those investments. The Company is exposed to foreign
currency risk from the translation of foreign operations into U.S. dollars.
Based on the relative size and nature of its foreign operations, the Company
does not believe that a ten percent change in foreign currencies would have a
material impact on its financial statements.
13
14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
On Assignment, Inc.
Calabasas, California
We have audited the accompanying consolidated balance sheets of On
Assignment, Inc. and subsidiaries (the "Company") as of December 31, 1999 and
2000, and the related consolidated statements of income, comprehensive income,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 2000. Our audits also included the financial statement
schedule listed at Item 14. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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, such consolidated financial statements present fairly,
in all material respects, the financial position of On Assignment, Inc. and
subsidiaries as of December 31, 1999 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000 in conformity with accounting principles generally accepted in
the United States of America. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ Deloitte & Touche LLP
- --------------------------
Deloitte & Touche LLP
Los Angeles, California
January 24, 2001
14
15
ON ASSIGNMENT, INC.
CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------------------------------------
December 31,
1999 2000
- -----------------------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 24,120,000 $ 51,202,000
Marketable securities 11,151,000 11,920,000
Accounts receivable, net of allowance for doubtful
accounts of $1,216,000 (1999) and $1,460,000 (2000) 22,780,000 27,679,000
Advances and deposits 74,000 232,000
Prepaid expenses 1,800,000 1,626,000
Officer loan receivable (Note 3) 400,000 --
Income taxes receivable 681,000 --
Deferred income taxes (Note 7) 2,056,000 2,323,000
------------------------------------
Total current assets 63,062,000 94,982,000
------------------------------------
Office Furniture, Equipment and
Leasehold Improvements, net (Note 2) 3,510,000 3,338,000
Marketable securities 2,256,000 3,413,000
Deferred income taxes (Note 7) 274,000 375,000
Workers' compensation restricted deposits (Note 6) 169,000 237,000
Goodwill, net (Note 4) 1,468,000 1,693,000
Other assets (Note 5) 1,001,000 1,518,000
------------------------------------
Total Assets $ 71,740,000 $ 105,556,000
------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,067,000 $ 701,000
Accrued payroll 4,203,000 4,854,000
Income taxes payable -- 430,000
Deferred compensation (Note 5) 807,000 1,423,000
Accrued workers' compensation (Note 6) 1,447,000 1,753,000
Other accrued expenses 769,000 1,104,000
------------------------------------
Total current liabilities 8,293,000 10,265,000
------------------------------------
Commitments and Contingencies (Notes 5 and 6) -- --
Stockholders' Equity (Note 8):
Preferred Stock, $0.01 par value, 1,000,000 shares
authorized, no shares issued or outstanding
in 1999 and 2000 -- --
Common Stock, $0.01 par value, 25,000,000 shares
authorized, 22,325,050 issued and outstanding in
1999 and 75,000,000 shares authorized, 23,136,618
issued and outstanding in 2000 223,000 231,000
Paid-in capital 17,903,000 30,466,000
Deferred compensation liability (Note 5) 294,000 294,000
Retained earnings 52,850,000 72,097,000
Accumulated other comprehensive (loss) income (11,000) 15,000
------------------------------------
71,259,000 103,103,000
Less: Treasury Stock at cost, 660,000 shares in 1999
and 2000 7,812,000 7,812,000
------------------------------------
Total stockholders' equity 63,447,000 95,291,000
------------------------------------
Total Liabilities and Stockholders' Equity $ 71,740,000 $ 105,556,000
------------------------------------
- -----------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements
15
16
ON ASSIGNMENT, INC.
CONSOLIDATED STATEMENTS OF INCOME
- ------------------------------------------------------------------------------------------------------
Years Ended December 31,
1998 1999 2000
- ------------------------------------------------------------------------------------------------------
Revenues $132,741,000 $159,473,000 $195,080,000
Cost of services 90,705,000 107,652,000 131,351,000
------------------------------------------------------
Gross profit 42,036,000 51,821,000 63,729,000
Selling, general and administrative
expenses 25,308,000 30,428,000 35,532,000
------------------------------------------------------
Operating income 16,728,000 21,393,000 28,197,000
Interest income, net 1,336,000 1,635,000 2,442,000
------------------------------------------------------
Income before income taxes 18,064,000 23,028,000 30,639,000
Provision for income taxes (Note 7) 6,748,000 8,566,000 11,392,000
------------------------------------------------------
Net income $ 11,316,000 $ 14,462,000 $ 19,247,000
------------------------------------------------------
Basic earnings per share $ 0.52 $ 0.66 $ 0.87
------------------------------------------------------
Weighted average number of Common
Shares Outstanding 21,721,000 21,907,000 22,193,000
------------------------------------------------------
Diluted earnings per share $ 0.50 $ 0.65 $ 0.83
------------------------------------------------------
Weighted average number of Common and
Common Equivalent Shares Outstanding 22,604,000 22,372,000 23,080,000
------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
- -----------------------------------------------------------------------------------------------------------
Years Ended December 31,
1998 1999 2000
- -----------------------------------------------------------------------------------------------------------
Net income $ 11,316,000 $ 14,462,000 $ 19,247,000
Other comprehensive (loss) income:
Foreign currency translation adjustment (17,000) 12,000 26,000
-------------------------------------------------------
Comprehensive income $ 11,299,000 $ 14,474,000 $ 19,273,000
-------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements
16
17
ON ASSIGNMENT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------------------------------
Preferred Stock Common Stock Deferred
Paid-in Compensation Retained
Shares Amount Shares Amount Capital Liability Earnings
- --------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 1998 -- $ -- 21,454,470 $215,000 $ 11,991,000 $ -- $27,072,000
Exercise of common stock options -- -- 414,582 4,000 2,263,000 -- --
Common stock issued--
Employee Stock Purchase Plan -- -- 19,028 -- 205,000 -- --
Disqualifying dispositions -- -- -- -- 1,183,000 -- --
Other comprehensive income--
Translation adjustments -- -- -- -- -- -- --
Net income -- -- -- -- -- -- 11,316,000
-------------------------------------------------------------------------------------
Balance, December 31, 1998 -- -- 21,888,080 219,000 15,642,000 -- 38,388,000
Exercise of common stock options -- -- 436,886 4,000 1,774,000 -- --
Repurchases of Common Stock -- -- -- -- -- -- --
Deferred Compensation Liability -- -- (19,764) -- (294,000) 294,000 --
Common stock issued--
Employee Stock Purchase Plan -- -- 19,848 -- 264,000 -- --
Disqualifying dispositions -- -- -- -- 517,000 -- --
Other comprehensive income--
Translation adjustments -- -- -- -- -- -- --
Net income -- -- -- -- -- -- 14,462,000
-------------------------------------------------------------------------------------
Balance, December 31, 1999 -- -- 22,325,050 223,000 17,903,000 294,000 52,850,000
Exercise of common stock options -- -- 793,261 8,000 8,551,000 -- --
Common stock issued--
Employee Stock Purchase Plan -- -- 18,307 -- 261,000 -- --
Disqualifying dispositions -- -- -- -- 3,751,000 -- --
Other comprehensive income--
Translation adjustments -- -- -- -- -- -- --
Net income -- -- -- -- -- -- 19,247,000
Balance December 31, 2000 -- $ -- 23,136,618 $231,000 $ 30,466,000 $294,000 $72,097,000
-------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
Accumulated
Other Treasury Stock
Comprehensive
(Loss) Income Shares Amount Total
- ---------------------------------------------------------------------------------------------
Balance, January 1, 1998 $ (6,000) -- $ -- $ 39,272,000
Exercise of common stock options -- -- -- 2,267,000
Common stock issued--
Employee Stock Purchase Plan -- -- -- 205,000
Disqualifying dispositions -- -- -- 1,183,000
Other comprehensive income--
Translation adjustments (17,000) -- -- (17,000)
Net income -- -- -- 11,316,000
----------------------------------------------------------
Balance, December 31, 1998 (23,000) -- -- 54,226,000
Exercise of common stock options -- -- -- 1,778,000
Repurchases of Common Stock -- (660,000) (7,812,000) (7,812,000)
Deferred Compensation Liability -- -- -- --
Common stock issued--
Employee Stock Purchase Plan -- -- -- 264,000
Disqualifying dispositions -- -- -- 517,000
Other comprehensive income--
Translation adjustments 12,000 -- -- 12,000
Net income -- -- -- 14,462,000
----------------------------------------------------------
Balance, December 31, 1999 (11,000) (660,000) (7,812,000) 63,447,000
Exercise of common stock options -- -- -- 8,559,000
Common stock issued--
Employee Stock Purchase Plan -- -- -- 261,000
Disqualifying dispositions -- -- -- 3,751,000
Other comprehensive income--
Translation adjustments 26,000 -- -- 26,000
Net income -- -- -- 19,247,000
Balance December 31, 2000 $ 15,000 (660,000) $(7,812,000) $ 95,291,000
----------------------------------------------------------
- ---------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements
17
18
ON ASSIGNMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ---------------------------------------------------------------------------------------------------------
Years Ended December 31,
1998 1999 2000
- ---------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 11,316,000 $ 14,462,000 $ 19,247,000
Adjustments to reconcile net income to net cash
provided by operating activities, net of
acquisitions:
Depreciation and amortization 948,000 1,158,000 1,392,000
Tax benefit of disqualifying dispositions 1,183,000 517,000 3,751,000
Increase in allowance for doubtful accounts 593,000 738,000 699,000
Increase in deferred income taxes (327,000) (785,000) (339,000)
Loss on disposal of furniture and equipment 215,000 7,000 28,000
Increase in accounts receivable (3,934,000) (4,927,000) (5,644,000)
Decrease (Increase) in income taxes receivable (143,000) (431,000) 681,000
Increase in accounts payable and accrued expenses 2,215,000 484,000 1,579,000
Increase in income taxes payable -- -- 425,000
Decrease (Increase) in workers' compensation
restricted deposits 428,000 (1,000) (68,000)
Decrease (Increase) in prepaid expenses (470,000) (651,000) 174,000
Increase in other assets (402,000) (461,000) (519,000)
----------------------------------------------
Net cash provided by operating activities 11,622,000 10,110,000 21,406,000
----------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (10,345,000) (10,777,000) (7,121,000)
Proceeds from the maturity of marketable securities 7,630,000 5,455,000 5,195,000
Acquisition of furniture, equipment and leasehold
improvements (1,193,000) (1,849,000) (1,111,000)
Proceeds from sale of furniture and equipment 2,000 1,000 --
Increase in advances and deposits (2,000) (4,000) (158,000)
Acquisition (Note 11) (808,000) (360,000) (360,000)
(Disbursements for) Repayments of officer loan
receivable (Note 3) -- (400,000) 400,000
----------------------------------------------
Net cash used for investing activities (4,716,000) (7,934,000) (3,155,000)
----------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of common stock options 2,267,000 1,778,000 8,559,000
Proceeds from issuance of common stock --
Employee Stock Purchase Plan 205,000 264,000 261,000
Repurchases of common stock -- (7,812,000) --
----------------------------------------------
Net cash provided by (used for) financing
activities 2,472,000 (5,770,000) 8,820,000
----------------------------------------------
Effect of exchange rate changes on cash and cash
equivalents (Note 1) (11,000) 8,000 11,000
----------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 9,367,000 (3,586,000) 27,082,000
Cash and Cash Equivalents at Beginning of Period 18,339,000 27,706,000 24,120,000
----------------------------------------------
Cash and Cash Equivalents at End of Period $ 27,706,000 $ 24,120,000 51,202,000
----------------------------------------------
Acquisition (Note 11):
Fair value of assets acquired $ 58,000 $ -- $ --
Goodwill 750,000 360,000 360,000
----------------------------------------------
Cash paid $ 808,000 $ 360,000 $ 360,000
----------------------------------------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
Tax benefit of disqualifying dispositions (Note 7) $ 1,183,000 $ 517,000 $ 3,751,000
----------------------------------------------
See accompanying Notes to Consolidated Financial Statements
18
19
ON ASSIGNMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
On Assignment, Inc. (the "Company"), has two operating segments: Lab
Support and Healthcare Staffing. The Lab Support operating segment includes the
combined results of Lab Support and EnviroStaff. The Lab Support segment
provides temporary and permanent placement of scientific personnel with
laboratories and other institutions, and environmental professionals to the
environmental health and safety fields. The Healthcare Staffing segment includes
the combined results of Healthcare Financial Staffing and Clinical Lab Staff.
The Healthcare Staffing segment provides temporary and permanent placement of
medical billing and collection professionals and laboratory and medical staffing
personnel to the healthcare industry. Significant accounting policies are as
follows:
Principles of Consolidation. The Consolidated Financial Statements
include the accounts of the Company and its wholly owned domestic and foreign
subsidiaries. All significant intercompany accounts and transactions have been
eliminated.
On January 1, 1997, the Company effected a corporate reorganization
resulting in a consolidation of the Company's divisional field operations into
Assignment Ready, Inc. ("ARI"), a Delaware corporation and wholly owned
subsidiary of the Company, in order to centralize management functions into one
entity, to optimize regional activities and achieve economies of scale.
On May 12, 1997, the Company formed Assignment Ready Inc., a Canadian
corporation and wholly owned subsidiary of the Company, and commenced operations
in Toronto as Lab Support Canada during the third quarter of 1997.
On February 2, 1999, the Company formed On Assignment UK Limited, a UK
corporation and wholly owned subsidiary of the Company. On February 16, 1999, On
Assignment UK Limited formed Lab Support (UK) Limited, a UK corporation and
wholly owned subsidiary of On Assignment UK Limited, and commenced operations as
Lab Support UK during the first quarter of 1999.
On June 5, 2000, the Company formed On Assignment Lab Support B.V., a
Netherlands corporation and wholly owned subsidiary of the Company, and
commenced operations during the second quarter of 2000.
On August 25, 2000, the Company formed On Assignment Lab Support N.V., a
Belgium corporation and wholly owned subsidiary of the Company, and commenced
operations during the third quarter of 2000.
On November 15, 2000, the Company formed On Assignment Lab Support A.G.,
a Switzerland corporation and wholly owned subsidiary of the Company, and
commenced operations during the fourth quarter of 2000.
Cash and Cash Equivalents and Marketable Securities. The Company
considers all highly liquid investments purchased with a maturity of three
months or less to be cash equivalents. Investments having a maturity of more
than three months and less than twelve months are classified under current
assets as marketable securities. Investments having a maturity of more than
twelve months are classified under non-current assets as marketable securities.
Marketable securities consist principally of Tax Exempt Municipal Bonds
and Debt Securities issued by U.S. Government Agencies with maturity dates
greater than three months when purchased. All marketable securities are
classified as held to maturity and are recorded at amortized cost which
approximated market at December 31, 1999 and 2000. Non-current marketable
securities are expected to mature during 2002.
19
20
The amortized cost and estimated fair value of marketable securities at
December 31, 1999 and 2000 are as follows:
- -----------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
- -----------------------------------------------------------------------------------------
1999:
Current marketable securities $11,151,000 $ 9,000 $(159,000) $11,001,000
Non-current marketable securities 2,256,000 8,000 (19,000) 2,245,000
----------------------------------------------------
Total $13,407,000 $ 17,000 $(178,000) $13,246,000
----------------------------------------------------
2000:
Current marketable securities $11,920,000 $ 41,000 $ (66,000) 11,895,000
Non-current marketable securities 3,413,000 59,000 (7,000) 3,465,000
----------------------------------------------------
Total $15,333,000 $100,000 $ (73,000) $15,360,000
----------------------------------------------------
- -----------------------------------------------------------------------------------------
Cash paid for income taxes (net of refunds) for the years ended December
31, 1998, 1999, and 2000 was $6,035,000, $9,262,000 and $6,906,000,
respectively.
Accounts Receivable. Accounts receivable are stated net of allowance for
doubtful accounts of approximately $1,216,000 and $1,460,000 at December 31,
1999 and 2000, respectively. Allowance for doubtful accounts is established and
maintained based on estimates made by management through its review of specific
accounts and historical collection activity. The Company recorded bad debt
expense of approximately $593,000, $738,000 and $699,000 for the years ended
December 31, 1998, 1999 and 2000, respectively.
Office Furniture, Equipment and Leasehold Improvements and Depreciation.
Office furniture, equipment and leasehold improvements are stated at cost.
Depreciation and amortization are provided using the straight-line method over
the estimated useful lives of the related assets, generally three to five years.
Impairment of Long-Lived Assets. The Company evaluates long-lived assets
and certain identifiable intangibles for impairment whenever events or changes
in circumstances indicate that the carrying value of an asset may not be
recoverable. An impairment loss is recognized when the sum of the undiscounted
future cash flows is less than the carrying amount of the asset, in which case a
write-down is recorded to reduce the related asset to its estimated fair value.
No such impairment losses have been recognized as of December 31, 2000.
Income Taxes. Deferred taxes result from temporary differences between
the bases of assets and liabilities for financial and tax reporting purposes.
Deferred tax assets and liabilities represent future tax consequences of these
differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled.
Revenue Recognition. Revenue from temporary assignments, net of credits
and discounts, is recognized when earned, based on hours worked by the Company's
temporary employees on a weekly basis. Permanent placement fees are recognized
when earned, upon conversion of a temporary employee to a client's regular
employee.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB
101), which provides additional guidance in applying generally accepted
accounting principles to revenue recognition in the financial statements. The
Company has implemented the provisions of SAB 101 and its impact on their
revenue recognition policy is immaterial.
Cost of Services. Cost of services consist of compensation for temporary
employees and the related payroll taxes and benefits incurred with respect to
such compensation. Cost of services are recognized when incurred based on hours
worked by the Company's temporary employees.
20
21
Foreign Currency Translation. Assets and liabilities of foreign
operations, where the functional currency is the local currency, are translated
into U.S. dollars at the rate of exchange in effect on the balance sheet date.
Income and expenses are translated at the average rates of exchange prevailing
during the period. The related translation adjustments are recorded as
cumulative foreign currency translation adjustments in accumulated other
comprehensive income as a separate component of stockholders' equity.
Earnings per Share. Basic earnings per share are computed based upon the
weighted average number of common shares outstanding and diluted earnings per
share are computed based upon the weighted average number of common shares
outstanding and dilutive common share equivalents (consisting of incentive stock
options and non-qualified stock options) outstanding during the periods using
the treasury stock method. Following is a reconciliation of the shares used to
compute basic and diluted earnings per share:
- ------------------------------------------------------------------------------------------
Years Ended December 31,
1998 1999 2000
- ------------------------------------------------------------------------------------------
Weighted average number of shares outstanding
used to compute basic earnings per share 21,721,000 21,907,000 22,193,000
Dilutive effect of stock options 883,000 465,000 887,000
-------------------------------------
Number of shares used to compute diluted earnings
per share 22,604,000 22,372,000 23,080,000
-------------------------------------
- ------------------------------------------------------------------------------------------
On April 1, 1999, the Board of Directors authorized the Company to
repurchase up to $15,000,000 of its common stock. The Company plans to make such
purchases primarily in the open market, from time-to-time, at prevailing prices
pursuant to rules and regulations of the Securities and Exchange Commission. At
December 31, 2000, the Company had repurchased 660,000 shares of its common
stock at a total cost of $7,812,000.
On March 7, 2000, the Board of Directors authorized a two-for-one stock
split, effected as a 100 percent common stock dividend, to be distributed on
April 3, 2000 to shareholders of record as of March 27, 2000. All references to
number of shares, sales prices and per share amounts of the Company's common
stock have been retroactively restated to reflect the increased number of common
shares outstanding.
On August 24, 2000, the Company filed a Certificate of Amendment of
Restated Certificate of Incorporation (The "Certificate of Amendment") with the
Secretary of the State of Delaware. The Certificate of Amendment increased the
authorized number of shares of common stock from 25,000,000 to 75,000,000 and
increased the combined authorized number of shares of preferred and common stock
from 26,000,000 to 76,000,000. The Certificate of Amendment was approved by the
Company's stockholders on June 13, 2000.
Stock-Based Compensation. In October 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation." The Company has adopted only the
disclosure portion of the statement (see Note 8).
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Concentration of Credit Risk. Financial instruments that potentially
subject the Company to credit risks consist primarily of cash and cash
equivalents, marketable securities, and trade receivables. The Company places
its cash and cash equivalents and marketable securities with quality credit
institutions, and limits the amount of credit exposure with any one institution.
Concentration of credit risk with respect to accounts receivable are limited
because of the large number of geographically dispersed customers, thus
spreading the trade credit risk. The Company performs ongoing credit evaluations
to identify risks and maintains an allowance to address these risks.
Fair Value of Financial Instruments. The recorded values of cash and
cash equivalents, marketable securities, accounts receivable, accounts payable
and accrued expenses approximate their fair value based on their short-term
nature. The fair values of marketable securities were estimated using quoted
market prices.
21
22
Derivative Instruments and Hedging Activities. Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities," is effective for all fiscal years beginning after June 15,
2000. SFAS 133, as amended, establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. Under SFAS 133, certain contracts
that were not formerly considered derivatives may now meet the definition of a
derivative. The Company has adopted SFAS No. 133 effective January 1, 2001. The
adoption of SFAS No. 133 does not have a significant impact on the financial
position, results of operations, or cash flows of the Company.
Reclassifications. Certain reclassifications have been made to the prior
year consolidated financial statements to conform with the current year
consolidated financial statement presentation.
2. OFFICE FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS.
Office furniture, equipment and leasehold improvements at December 31,
1999 and 2000, consisted of the following:
- -----------------------------------------------------------------------------
1999 2000
- -----------------------------------------------------------------------------
Furniture and fixtures $ 1,674,000 $ 1,296,000
Computers and related equipment 3,276,000 3,158,000
Machinery and equipment 1,368,000 1,192,000
Leasehold improvements 1,041,000 1,055,000
Construction in progress 419,000 26,000
---------------------------
7,778,000 6,727,000
Less accumulated depreciation and amortization (4,268,000) (3,389,000)
---------------------------
Total $ 3,510,000 $ 3,338,000
---------------------------
- -----------------------------------------------------------------------------
Depreciation and amortization expense for the years ended December 31, 1998,
1999 and 2000 was $860,000, $1,035,000 and $1,254,000, respectively.
3. OFFICER LOANS RECEIVABLE.
In June 1999, the Company loaned an officer of the Company $400,000,
bearing interest at 4.92%, compounded semi-annually. Principal and interest were
payable on December 10, 2000. The note was paid in full on December 7, 2000.
4. GOODWILL.
Goodwill represents the excess of the purchase price over the fair value
of the net assets acquired (see Note 11). Goodwill is stated net of accumulated
amortization of $352,000 at December 31, 1999 and $486,000 at December 31, 2000.
Goodwill is being amortized on a straight-line basis over fifteen years. The
Company periodically reviews the value of its goodwill to determine if an
impairment has occurred. The Company measures the potential impairment of
recorded goodwill by the undiscounted value of expected future cash flows in
relation to its net capital investment of the net assets acquired. Based on its
review, the Company does not believe that an impairment of its goodwill had
occurred as of December 31, 1999 and 2000.
5. 401(k) RETIREMENT SAVINGS PLAN, DEFERRED COMPENSATION PLAN AND CHANGE
IN CONTROL SEVERANCE PLAN.
Effective January 1, 1995, the Company adopted the On Assignment, Inc.
401(k) Retirement Savings Plan under Section 401(k) of the Internal Revenue
Code, under which eligible employees may elect to have a portion of their salary
deferred and contributed to the plan. The amount of salary deferred is not
subject to Federal and State income tax at the time of deferral. The Plan covers
all eligible employees and provides for matching or discretionary contributions
at the discretion of the Board of Directors. The Company made no matching or
discretionary contributions to the plan during the years ended December 31,
1998, 1999 and 2000.
22
23
Effective January 1, 1998, the Company implemented the On Assignment,
Inc. Deferred Compensation Plan. The plan permits a select group of management
or highly compensated employees or directors to annually elect to defer up to
100 percent of their base salary, annual bonus, stock option gain or fees on a
pre-tax basis, and earn tax-deferred interest on these amounts. Distributions
from the plan are made at retirement, death or termination of employment, in a
lump sum, or over five, ten or fifteen years. At December 31, 1999 and 2000, the
liability under the plan was approximately $807,000 and $1,423,000,
respectively. A life insurance policy is maintained on the participants relating
to the plan, whereby the Company is the sole owner and beneficiary of such
insurance. The cash surrender value of this life insurance policy, which is
reflected in other assets, was approximately $754,000 and $1,201,000 at December
31, 1999 and 2000, respectively.
During 1999, a participant in the Deferred Compensation Plan performed a
stock-for-stock exercise resulting in a gain to the participant of approximately
$294,000. A stock certificate for 19,764 shares was issued into a rabbi trust in
the Company's name. The employer stock held by the rabbi trust has been
classified in equity in the same manner as treasury stock, with a reduction in
shares outstanding and a corresponding reduction to Additional Paid-in Capital.
The corresponding deferred compensation liability is also shown as a separate
component in equity. There is no effect on the Consolidated Statements of Income
as a result of this transaction.
On February 12, 1998, the Company adopted the On Assignment, Inc. Change
in Control Severance Plan ("the Plan") to provide severance benefits for
officers and other eligible employees who are terminated following an
acquisition of the Company. Under the Plan, if an eligible employee is
involuntarily terminated within 18 months of a change in control, as defined in
the Plan, then the employee will be entitled to salary plus target bonus payable
in a lump sum. The amounts payable would range from one month to 18 months of
salary and target bonus depending on the employee's length of service and
position with the Company.
6. COMMITMENTS AND CONTINGENCIES.
The Company leases its facilities and certain office equipment under
operating leases which expire at various dates through 2006. Certain leases
contain rent escalations and/or renewal options.
The following is a summary of future minimum lease payments by year:
Operating
Leases
-----------
2001 $1,901,000
2002 1,620,000
2003 1,438,000
2004 923,000
2005 545,000
Thereafter 56,000
----------
Total Minimum Lease Payments $6,483,000
----------
Rent expense for the years ended December 31, 1998, 1999 and 2000 was
$1,593,000, $2,342,000 and $2,995,000, respectively.
The Company and its subsidiaries are involved in various legal
proceedings, claims and litigation arising in the ordinary course of business.
However, based on the facts currently available, management believes that the
disposition of matters that are pending or asserted will not have a materially
adverse effect on the financial position of the Company.
The Company is partially self-insured for workers' compensation expense.
In connection with this program, the Company pays a base premium plus actual
losses incurred up to certain levels, and is insured for losses greater than
certain levels per occurrence and in the aggregate. The Company is required to
maintain cash deposits for the payment of losses and as collateral amounting to
$169,000 and $237,000 at December 31, 1999 and 2000, respectively. These
workers' compensation deposits are restricted as to withdrawal and have
therefore been classified as non-current assets in the accompanying Consolidated
Balance Sheets. These funds are invested primarily in three-month treasury bills
and are recorded at amortized cost which approximated market at December 31,
1999 and 2000. The self-insurance claim liability is determined based on claims
filed and claims incurred but not yet reported. The Company accounts for claims
incurred but not yet reported based on actuarial reports prepared by an
independent third party who reviews historical experience and current trends of
industry data. Changes in estimates and differences in estimates and actual
payments for claims are recognized in
23
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the period which the estimates changed or payments were made. The self-insurance
claim liability amounted to approximately $1,447,000 and $1,753,000 at December
31, 1999 and 2000, respectively.
7. INCOME TAXES.
The provision for income taxes consists of the following:
- -----------------------------------------------------------------------------------
Years Ended December 31,
1998 1999 2000
- -----------------------------------------------------------------------------------
Federal:
Current $ 6,164,000 $ 8,196,000 $ 10,328,000
Deferred (290,000) (707,000) (429,000)
------------------------------------------------------
5,874,000 7,489,000 9,899,000
------------------------------------------------------
State:
Current 911,000 1,155,000 1,432,000
Deferred (37,000) (78,000) 61,000
------------------------------------------------------
874,000 1,077,000 1,493,000
------------------------------------------------------
Total $ 6,748,000 $ 8,566,000 $ 11,392,000
------------------------------------------------------
- -----------------------------------------------------------------------------------
Deferred income taxes arise from the recognition of certain assets and
liabilities for tax purposes in periods different from those in which they are
recognized in the financial statements. These differences relate primarily to
workers' compensation, state taxes, bad debt, deferred compensation, and
depreciation and amortization expenses.
Deferred assets and liabilities are classified as current and
non-current according to the nature of the assets or liabilities from which they
arose.
The components of deferred tax assets (liabilities) are as follows:
- --------------------------------------------------------------------------------------------------------------
December 31, 1999 December 31, 2000
Federal State Federal State
- --------------------------------------------------------------------------------------------------------------
Deferred tax assets:
Current:
Allowance for doubtful accounts $ 416,000 $ 62,000 $ 483,000 $ 42,000
Employee related accruals 515,000 76,000 632,000 56,000
State taxes 385,000 -- 507,000 --
Workers' compensation loss reserve 524,000 78,000 512,000 45,000
Other -- -- 46,000 --
---------------------------------------------------------------
Total current deferred tax assets 1,840,000 216,000 2,180,000 143,000
---------------------------------------------------------------
Non-current:
Depreciation and amortization
expense 139,000 21,000 239,000 21,000
Other 114,000 -- 103,000 12,000
---------------------------------------------------------------
Total deferred tax assets $2,093,000 $237,000 $2,522,000 $176,000
---------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
The net operating loss carryforwards included in other non-current deferred tax
assets at December 31, 1999 and 2000, were acquired through the 1994 acquisition
of 1st Choice Personnel, Inc. These carryforwards are available to offset future
taxable income, subject to annual limitations, through the year 2007.
24
25
The reconciliation between the amount computed by applying the U.S.
federal statutory tax rate of 35% in 1998, 1999 and 2000 to income before income
taxes and the actual income taxes is as follows:
- -------------------------------------------------------------------------------------------------------------
Years Ended December 31,
1998 1999 2000
- -------------------------------------------------------------------------------------------------------------
Income tax expenses at the statutory rate $ 6,322,000 $ 8,060,000 $ 10,724,000
State income taxes, net of federal income tax
benefit 575,000 1,119,000 1,449,000
Tax-free interest and other (149,000) (613,000) (781,000)
------------------------------------------------------
Total $ 6,748,000 $ 8,566,000 $ 11,392,000
------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
The Company receives a tax deduction as the result of disqualifying
dispositions made by directors, officers and employees. A disqualifying
disposition occurs when stock acquired through the exercise of incentive stock
options or the Employee Stock Purchase Plan is disposed of prior to the required
holding period or upon exercise of a non-qualified stock option. At December 31,
1998, 1999 and 2000, net income taxes payable and additional paid-in capital
include tax benefits amounting to $1,183,000, $517,000 and $3,751,000,
respectively, resulting from disqualifying dispositions by directors, officers
and employees.
8. STOCK OPTION PLAN AND EMPLOYEE STOCK PURCHASE PLAN.
Under its Stock Option Plan, the Company may grant employees,
contractors, and non-employee members of the Board of Directors incentive or
non-qualified stock options to purchase shares of its common stock. On June 13,
2000, the Company's stockholders approved an amendment to the Stock Option Plan
that increased the number of shares of common stock reserved for issuance under
the Stock Option Plan from 8,000,000 shares to 10,000,000 shares. Optionees,
option prices, option amounts, grant dates and vesting are established by the
Compensation Committee of the Board of Directors. The option prices may not be
less than 85% of the fair market value of the stock at the time the option is
granted. Stock options granted to date generally become exercisable over a pro
rata period of four years and have a maximum term of ten years measured from the
grant date.
The following summarizes stock option activity for the years ended
December 31, 1998, 1999 and 2000:
- ----------------------------------------------------------------------------------------
Weighted
Non- Average
Incentive Qualified Exercise
Stock Stock Price
Options Options Per Share
- ----------------------------------------------------------------------------------------
Outstanding at January 1, 1998 1,591,614 772,298 $ 7.52
Granted 680,384 285,916 $16.19
Exercised (273,686) (140,896) $ 5.47
Canceled (399,568) (3,000) $10.77
------------------------------
Outstanding at December 31, 1998 1,598,744 914,318 $10.67
Granted 837,822 337,078 $13.43
Exercised (420,884) (29,526) $ 4.50
Canceled (396,060) (20,894) $13.99
------------------------------
Outstanding at December 31, 1999 1,619,622 1,200,976 $12.32
Granted 536,906 199,294 $25.11
Exercised (406,886) (390,483) $10.82
Canceled (366,988) (22,348) $15.99
------------------------------
Outstanding at December 31, 2000 1,382,654 987,439 $16.19
------------------------------
- ---------------------------------------------------------------------------------------
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The following summarizes pricing and term information for options
outstanding as of December 31, 2000:
- -------------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
-------------------------------------------- -----------------------------
Weighted
Number Average Weighted Weighted
Outstanding at Remaining Average Exercisable at Average
Range of December 31, Contractual Exercise December 31, Exercise
Exercise Prices 2000 Life Price 2000 Price
- -------------------------------------------------------------------------------------------------------
$ 2.50 to $ 11.375 594,595 6.1 years $ 9.51 483,743 $ 9.11
11.50 to 13.6875 535,682 8.8 years 13.09 193,058 12.82
13.8125 to 16.219 558,210 8.1 years 15.58 228,910 15.70
16.3125 to 26.625 476,606 9.6 years 23.17 40,385 19.11
26.875 to 33.00 205,000 9.6 years 29.05 10,582 28.64
------------------------------------------------------------------------
$ 2.50 to 33.00 2,370,093 8.2 years $ 16.19 956,678 $ 12.07
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
The Employee Stock Purchase Plan allows eligible employees to purchase
common stock of the Company, through payroll deductions, at 85% of the lower of
the market price on the first day or the last day of the semi-annual purchase
period. Eligible employees may contribute up to 10% of their base earnings
toward the purchase of the stock. During 1998, 1999 and 2000 shares issued under
the plan were 19,028, 19,848 and 18,307, respectively.
The Company applies Accounting Principles Board Opinion No. 25 and
related interpretations in accounting for its Stock Option Plan and Employee
Stock Purchase Plan and accordingly, no compensation cost has been recognized
for its stock option and purchase plans. The Company has adopted the disclosure
only provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS No. 123). The estimated fair
value of options granted during 1998, 1999 and 2000 pursuant to SFAS No. 123 was
approximately $7,342,000, $7,693,000 and $9,443,000, respectively, and the
estimated fair value of stock purchased under the Company's Employee Stock
Purchase Plan was approximately $72,000, $93,000 and $94,000, respectively. Had
compensation cost for the Company's Stock Option Plan and its Employee Stock
Purchase Plan been determined based on the fair value at the grant dates for
awards under those plans consistent with the method of SFAS No. 123, the
Company's pro forma net income would have been $9,771,000, $11,993,000 and
$16,784,000 and pro forma earnings per share would have been $0.44, $0.54 and
$0.74 for 1998, 1999 and 2000, respectively. Because the SFAS No. 123 method of
accounting has not been applied to options granted prior to January 1, 1995, the
resulting pro forma compensation cost may not be representative of that to be
expected in future years.
The fair value of options granted under the Company's Stock Option Plan
during 1998, 1999 and 2000 was estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used: (i) no dividend yield in 1998, 1999 or 2000, (ii) expected
volatility of approximately 49% in 1998, 50% in 1999 and 54% in 2000, (iii)
risk-free interest rate of approximately 5.0% in 1998, 5.8% in 1999 and 5.9% in
2000, and (iv) expected lives of the options of approximately 5 years in 1998,
1999 and 2000. Pro forma compensation cost of shares purchased under the
Employee Stock Purchase Plan is measured based on the discount from market
value.
9. BUSINESS SEGMENTS.
Indicated below is the information required to comply with SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information.
The Company has two reportable operating segments: Lab Support and
Healthcare Staffing. The Lab Support operating segment includes the combined
results of Lab Support and EnviroStaff, as they have similar economic
characteristics and they meet the aggregation criteria of SFAS No. 131. The Lab
Support segment provides temporary and permanent placement services of
laboratory and scientific professionals to the biotechnology, pharmaceutical,
food and beverage, chemical and environmental industries. The Healthcare
Staffing segment includes the combined results of Healthcare Financial Staffing
and Clinical Lab Staff. The Healthcare Staffing segment provides temporary and
permanent placement services of medical billing and collection professionals,
and laboratory and medical staffing personnel to the healthcare industry.
26
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The Company's management evaluates performance of each segment primarily
based on revenues and operating income (before acquisition costs, interest and
income taxes). The Company's management does not evaluate, manage or measure
performance of segments using asset information, accordingly, asset information
by segment is not disclosed. The accounting policies of the segments are the
same as those described in the Summary of Significant Accounting Policies (see
Note 1). The information in the following table is derived directly from the
segments' internal financial reporting used for corporate management purposes.
Certain corporate expenses are not allocated to and/or among the operating
segments.
- ------------------------------------------------------------------------------------------
Years Ended December 31,
1998 1999 2000
- ------------------------------------------------------------------------------------------
Revenues:
Lab Support $110,644,000 $119,668,000 $139,986,000
Healthcare Staffing 22,097,000 39,805,000 55,094,000
------------------------------------------------------
$132,741,000 $159,473,000 $195,080,000
------------------------------------------------------
Gross Profit:
Lab Support $ 34,750,000 $ 38,866,000 $ 46,021,000
Healthcare Staffing 7,286,000 12,955,000 17,708,000
------------------------------------------------------
$ 42,036,000 $ 51,821,000 $ 63,729,000
------------------------------------------------------
Operating Income:
Lab Support $ 13,532,000 $ 14,830,000 $ 19,353,000
Healthcare Staffing 3,196,000 6,563,000 8,844,000
------------------------------------------------------
$ 16,728,000 $ 21,393,000 $ 28,197,000
------------------------------------------------------
- ------------------------------------------------------------------------------------------
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10. UNAUDITED QUARTERLY RESULTS.
The following table presents unaudited quarterly financial information
for each of the eight quarters ended December 31, 2000. In the opinion of
management, the quarterly information contains all adjustments, consisting only
of normal recurring accruals, necessary for a fair presentation thereof. The
operating results for any quarter are not necessarily indicative of the results
for any future period.
- -----------------------------------------------------------------------------------------------------------------------------
(Unaudited)
(in thousands, except per share data)
Quarter Ended
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31,
1999 1999 1999 1999 2000 2000 2000 2000
- -----------------------------------------------------------------------------------------------------------------------------
Revenues $34,789 $39,272 $42,227 $43,185 $44,345 $47,817 $51,109 $51,808
Cost of services 23,569 26,524 28,450 29,109 29,899 32,163 34,328 34,961
-------------------------------------------------------------------------------------------
Gross profit 11,220 12,748 13,777 14,076 14,446 15,654 16,781 16,847
Selling, general and
administrative expenses 6,791 7,613 8,177 7,847 8,190 9,035 9,347 8,959
-------------------------------------------------------------------------------------------
Operating income 4,429 5,135 5,600 6,229 6,256 6,619 7,434 7,888
Interest income 395 411 414 415 446 571 679 746
-------------------------------------------------------------------------------------------
Income before income taxes 4,824 5,546 6,014 6,644 6,702 7,190 8,113 8,634
Provision for income taxes 1,794 2,063 2,231 2,478 2,496 2,666 3,018 3,212
-------------------------------------------------------------------------------------------
Net income $ 3,030 $ 3,483 $ 3,783 $ 4,166 $ 4,206 $ 4,524 $ 5,095 $ 5,422
-------------------------------------------------------------------------------------------
Basic earnings per share $ 0.14 $ 0.16 $ 0.17 $ 0.19 $ 0.19 $ 0.20 $ 0.23 $ 0.24
-------------------------------------------------------------------------------------------
Weighted average number of
common shares outstanding 22,026 22,108 21,839 21,678 21,846 22,177 22,312 22,434
-------------------------------------------------------------------------------------------
Diluted earnings per share $ 0.13 $ 0.15 $ 0.17 $ 0.19 $ 0.19 $ 0.20 $ 0.22 $ 0.23
-------------------------------------------------------------------------------------------
Weighted average number
of common and common
equivalent shares
outstanding 22,679 22,490 22,274 22,050 22,476 23,182 23,233 23,217
-------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
11. ACQUISITIONS.
On July 20, 1998, the Company acquired substantially all of the
assets of LabStaffers, Inc., a provider of temporary science and medical
laboratory professionals through its branches in Greensboro and Charlotte, N.C.
The LabStaffers, Inc. offices and operations acquired have been added to the
Company's Lab Support division. This acquisition has been accounted for using
the purchase method of accounting. The results of operations of the acquired
company are included in the Consolidated Statements of Income from the date of
acquisition. Pro Forma information is not presented as the impact on revenues,
net income and earnings per share are not significant. Consideration for the
purchase consisted of $808,000 in cash paid on the purchase date. The excess of
the purchase price over the fair value of the net assets acquired has been
allocated to goodwill. In addition, in July 1999 and July 2000 the Company paid
an additional $360,000 in cash in accordance with the agreement, bringing the
total consideration for the purchase to $1,168,000 and $1,528,000 at December
31, 1999 and December 31, 2000. This contingent consideration has been added to
goodwill in the accompanying Consolidated Balance Sheets. No additional
contingent consideration is required in accordance with the agreement.
28
29
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT
Information regarding the Company's directors will be set forth under
the caption "Proposal One -- Election of Directors" in the Company's proxy
statement for use in connection with its Annual Meeting of Stockholders
scheduled to be held on June 7, 2001 (the "2001 Proxy Statement") and is
incorporated herein by reference. The 2001 Proxy Statement will be filed with
the Securities and Exchange Commission within 120 days after the end of the
Company's fiscal year.
Information regarding the Company's executive officers is set forth in
Part I of this Annual Report on Form 10-K and is incorporated herein by
reference.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Information regarding compliance with Section 16(a) of the Exchange Act
will be set forth under the caption "Compliance with Section 16(a) of the
Securities Exchange Act of 1934" in the Company's 2001 Proxy Statement to be
filed within 120 days after the end of the Company's fiscal year and is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding remuneration of the Company's directors and
officers will be set forth under the captions "Proposal One -- Election of
Directors," and "Executive Compensation and Related Information" in the
Company's 2001 Proxy Statement to be filed within 120 days after the end of the
Company's fiscal year and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners
and management will be set forth under the captions "General Information for
Stockholders -- Record Date, Voting and Share Ownership" in the Company's 2001
Proxy Statement to be filed within 120 days after the end of the Company's
fiscal year and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions
will be set forth under the caption "Executive Compensation and Related
Information -- Certain Relationships and Related Transactions" in the Company's
2001 Proxy Statement to be filed within 120 days after the end of the Company's
fiscal year and is incorporated herein by reference.
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30
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) LIST OF DOCUMENTS FILED AS PART OF THIS REPORT
PAGE
1. Financial Statements:
Report of Independent Auditors 14
Consolidated Balance Sheets at December 31, 1999
and 2000 15
Consolidated Statements of Income and Comprehensive
Income for the Years Ended December 31, 1998, 1999 and
2000 16
Consolidated Statements of Stockholders' Equity for
the Years Ended December 31, 1998, 1999 and 2000 17
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1998, 1999 and 2000 18
Notes to Consolidated Financial Statements 19
2. Financial Statement Schedule:
Schedule II -- Valuation and Qualifying Accounts 32
Schedules other than those referred to above have been
omitted because they are not applicable or not required
under the instructions contained in Regulation S-X or
because the information is included elsewhere in the
financial statements or notes thereto.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the three months ended
December 31, 2000.
30
31
(c) EXHIBITS
- --------------------------------------------------------------------------------------------
NUMBER FOOTNOTE DESCRIPTION
- --------------------------------------------------------------------------------------------
3.1 (1) Amended and Restated Certificate of Incorporation of the Company.
3.2 (2) Amended and Restated Bylaws of the Company.
4.2 (3) Specimen Common Stock Certificate.
10.1 (3) Form of Indemnification Agreement.
10.2 Restated 1987 Stock Option Plan, as amended.
10.3 (4) 1992 Employee Stock Purchase Plan.
10.9 (5) Office lease dated December 7, 1993, by and between the Company
and Malibu Canyon Office Partners, LP.
21.1 Subsidiaries of the Registrant.
24.1 Consent of Deloitte & Touche LLP.
25.1 Power of Attorney.
- --------------------------------------------------------------------------------------------
(1) Incorporated by reference from an exhibit filed with the Company's
Current Report on Form 8-K (File No. 0-20540) filed with the Securities
and Exchange Commission on October 5, 2000.
(2) Incorporated by reference from an exhibit filed with the Company's
Current Report on Form 8-K (File No. 0-20540) filed with the Securities
and Exchange Commission on February 4, 1998.
(3) Incorporated by reference from an exhibit filed with the Company's
Registration Statement on Form S-1 (File No. 33-50646) declared
effective by the Securities and Exchange Commission on September 21,
1992.
(4) Incorporated by reference from an exhibit filed with the Company's
Registration Statement on Form S-8 (File No. 33-57078) filed with the
Securities and Exchange Commission on January 19, 1993.
(5) Incorporated by reference from an exhibit filed with the Company's
Annual Report on Form 10-K (File No. 0-20540) filed with the Securities
and Exchange Commission on March 24, 1994.
31
32
ON ASSIGNMENT, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
- -------------------------------------------------------------------------------------------------------------
Balance at
beginning Charged to Charged to Balance at
of costs and other end of
Description period expenses accounts Deductions period
- -------------------------------------------------------------------------------------------------------------
Year ended December 31, 1998
Allowance for doubtful accounts $734,000 593,000 -- (318,000)
$1,009,000
Year ended December 31, 1999
Allowance for doubtful accounts $1,009,000 738,000 -- (531,000)
$1,216,000
Year ended December 31, 2000
Allowance for doubtful accounts $1,216,000 699,000 -- (455,000) $1,460,000
- -------------------------------------------------------------------------------------------------------------
32
33
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the
Securities and Exchange Act of 1934, the Registrant has duly caused this to
report to be signed on its behalf by the undersigned, thereunto duly authorized,
in Calabasas, California on this 29th day of March 2001.
ON ASSIGNMENT, INC.
By: /s/ H. Tom Buelter
-------------------------------------
H. Tom Buelter
Chairman of the Board and
Chief Executive Officer
33
34
INDEX TO EXHIBITS
- ------------------------------------------------------------------------------------------------------
Exhibit Page
Number Footnote Description Number
- ------------------------------------------------------------------------------------------------------
3.1 (1) Amended and Restated Certificate of Incorporation of the Company.
3.2 (2) Amended and Restated Bylaws of the Company.
4.2 (3) Specimen Common Stock Certificate.
10.1 (3) Form of Indemnification Agreement.
10.2 Restated 1987 Stock Option Plan, as amended. 35
10.3 (4) 1992 Employee Stock Purchase Plan.
10.9 (5) Office lease dated December 7, 1993, by and between the Company and
Malibu Canyon Office Partners, LP.
21.1 Subsidiaries of the Registrant. 54
24.1 Consent of Deloitte & Touche LLP. 55
25.1 Power of Attorney. 56
- ------------------------------------------------------------------------------------------------------
(1) Incorporated by reference from an exhibit filed with the Company's
Current Report on Form 8-K (File No. 0-20540) filed with the Securities
and Exchange Commission on October 5, 2000.
(2) Incorporated by reference from an exhibit filed with the Company's
Current Report on Form 8-K (File No. 0-20540) filed with the Securities
and Exchange Commission on February 4, 1998.
(3) Incorporated by reference from an exhibit filed with the Company's
Registration Statement on Form S-1 (File No. 33-50646) declared
effective by the Securities and Exchange Commission on September 21,
1992.
(4) Incorporated by reference from an exhibit filed with the Company's
Registration Statement on Form S-8 (File No. 33-57078) filed with the
Securities and Exchange Commission on January 19, 1993.
(5) Incorporated by reference from an exhibit filed with the Company's
Annual Report on Form 10-K (File No. 0-20540) filed with the Securities
and Exchange Commission on March 24, 1994.
34