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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, 1997
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 (IRS 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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
(Title and 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 7,443,976 shares of voting stock
(based on the closing price reported by the Nasdaq Stock Market on February 27,
1998) held by non-affiliates of the registrant as of February 27, 1998 was
approximately $218,667,000. 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 February 27, 1998, the registrant had outstanding 10,790,407
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 18,
1998 are incorporated by reference into Part III of this Report on Form 10-K.
Sequentially numbered page 1 of 38 pages
Exhibit index on sequentially numbered page 34
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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 operating
division, Lab Support, is a leading nationwide provider of temporary scientific
professionals to laboratories in the biotechnology, environmental, chemical,
pharmaceutical, food and beverage and petrochemical industries. In January 1994,
the Company established its second operating division, Finance Support, with the
acquisition of 1st Choice Personnel, Inc. The Finance Support division 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 the Finance Support division was changed to
Healthcare Financial Staffing. In March 1996, the Company established its third
operating division, EnviroStaff, with the acquisition of EnviroStaff, Inc.,
which specializes in providing temporary environmental professionals to the
environmental services industry. 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. As of December 31, 1997, the Company served 50 operational
markets through a network of 100 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.
ON ASSIGNMENT'S APPROACH
The Company's strategy is to serve industries' needs 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
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, 1997, the Company had 56 Lab Support branch offices, 22
Healthcare Financial Staffing branch offices, and 22 EnviroStaff branch offices.
Of this total of 100 branch offices, 71 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 Costa Mesa, CA Memphis, TN Piscataway, NJ San Antonio, TX
Atlanta, GA Dallas, TX Miami, FL Pittsburgh, PA San Diego, CA
Baltimore, MD Denver, CO Milwaukee, WI Pleasanton, CA San Francisco, CA
Boston, MA Detroit, MI Minneapolis, MN Portland, OR San Jose, CA
Buffalo, NY Greenville, SC Nashville, TN Princeton, NJ Seattle, WA
Charlotte, NC Houston, TX New Orleans, LA Providence, RI St. Louis, MO
Chicago, IL Indianapolis, IN New York, NY Raleigh-Durham, NC Tampa, FL
Cincinnati, OH Kansas City, MO Oklahoma City, OK Richmond, VA Toronto, ON, Canada
Cleveland, OH Los Angeles, CA Philadelphia, PA Sacramento, CA Washington DC
Columbus, OH Louisville, KY Phoenix, AZ Salt Lake City, UT Westport, CT
CLIENTS
Lab Support's clients include biotechnology, environmental, chemical,
pharmaceutical, food and beverage, petrochemical and manufacturing companies.
Healthcare Financial Staffing's clients include companies engaged in the
healthcare services industry. EnviroStaff's clients include companies in the
environmental services industry. During the year ended December 31, 1997, the
Company provided assignment professionals to approximately 3,800 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 Lab Support's temporary professional
employees range from scientists with bachelor and/or masters degrees and
considerable laboratory experience to technicians with some chemistry or biology
background and lab experience. The skill and experience levels of Healthcare
Financial Staffing's temporary professional employees typically include three or
more years of medical billing and collection experience. The skill and
experience of EnviroStaff's temporary professional employees' range from
engineers, geologists, industrial hygienists and safety professionals with
bachelor and/or masters degrees and several years of experience to field
technicians and heavy equipment operators with some applicable 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 health insurance for its
temporary employees.
EXPANSION IN EXISTING PROFESSIONS AND INTO OTHER PROFESSIONS
The Company intends to expand its services in the scientific, medical
billing and collections, and environmental services 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, internal growth or direct investment.
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., and March 1996 acquisition of EnviroStaff, 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 its Lab Support division 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, medical billing and collections and environmental personnel, many of
these companies focus on office/clerical and light and heavy industrial
personnel, which accounted for approximately 80% of the overall temporary
personnel services market. These companies include Manpower, Inc., Kelly
Services, Inc., The Olsten Corporation, ADIA Services, Inc., and Aerotech, Inc.,
each of which is larger and has substantially greater financial and marketing
resources than the Company.
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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 and quality 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, 1997, the Company employed approximately 190 regular
employees, including Account Managers and corporate office employees. During the
year ended December 31, 1997, the Company employed approximately 10,700
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 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, have
increased in recent years and have directly increased the Company's cost of
services. 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.
PROPRIETARY RIGHTS
The Company has registered its Lab Support and EnviroStaff division's
service marks with the United States Patent and Trademark Office and applied for
registration of its Healthcare Financial Staffing division's service marks. The
Company has also registered its "Quality Assignment" logo with the United States
Patent and Trademark Office.
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 in 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 effected 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.
Expansion in Existing Professions and into Other Professions. The
Company plans to expand its services within the scientific, healthcare financial
and environmental fields it currently serves and to other professional fields.
The success of the Company's expansion efforts, including its Healthcare
Financial Staffing division and EnviroStaff, will depend on a number of factors,
including adapting On Assignment's approach used in its current divisions to
other industries and professions, recruiting and training
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new Account Managers with the particular industry or professional experience,
establishing client relationships in new industries and successfully recruiting,
qualifying and orienting new temporary professionals. The Company may decide to
pursue future expansion by internal growth, direct investment 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 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 management
attention on the acquisition and integration process will not have an adverse
effect on the Company's existing businesses.
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
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 qualified Account Managers.
Dependence on Availability of Qualified Temporary Professional
Employees. The Company is dependent upon continuing to attract qualified
scientific, healthcare financial and environmental services 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 scientific, medical billing and collections, and environmental
services 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 result in 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. The loss of significant clients could
materially adversely affect the Company's business, operating results and
financial condition. 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.
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Workers' Compensation Expense. The Company maintains a partially
self-insured workers' compensation policy. 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 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 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.
Government Regulations. In many states, 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 had no material effect
on the conduct of its business, there can be no assurance that future
regulations will not have such effect. State mandated workers' compensation and
unemployment insurance premiums, which the Company pays for its temporary as
well as its regular employees, have increased in recent years thereby increasing
the cost of services. Previous 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.
Year 2000. Many currently installed computer systems and software
products are coded to accept only two digit entries in the date code field.
These date code fields will need to accept four digit entries to distinguish
21st century dates from 20th century dates. As a result, in less than two years,
computer systems and/or software used by many companies, including those used to
pay temporary employees and bill clients for temporary employees, may need to be
upgraded to comply with such "Year 2000" requirements. The Company is in the
process of assessing Year 2000 issues as they relate to its systems, business
and operations. At this time, the Company cannot make a determination of the
impact, if any, of Year 2000 issues as they may relate to significant
relationships with clients or temporary employees. However, if any of the
Company's clients or temporary employees experience Year 2000 problems with
respect to their relationship with the Company, such clients or employees could
assert claims for damages against the Company. Any such litigation could result
in costs and diversion of the Company's resources, even if ultimately decided in
favor of the Company. The occurrence of any of the foregoing could have a
material adverse effect on the Company's business, operating results or
financial condition.
ITEM 2. PROPERTIES
The Company has leased approximately 19,300 square feet of office space
through February 2004, for its corporate headquarters in Calabasas, California.
In addition, the Company leases office space in 58 branch office locations in
the metropolitan areas listed under the caption "Branch Office Network" in Item
1 hereof. A branch office typically occupies approximately 1,200 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 1997.
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 on December 31, 1997 were:
Name Age Position
---- --- --------
H. Tom Buelter............. 56 Chairman of the Board and Chief Executive Officer
Kathy J. West.............. 46 President and Chief Operating Officer
Ronald W. Rudolph.......... 54 Senior Vice President, Finance and Operations Support, and
Chief Financial Officer
Carrie S. Nebens........... 40 Vice President and General Manager, Lab Support division
Jeffrey A. Evans........... 29 Vice President and General Manager, Healthcare Financial Staffing division
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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 Senior Vice President, Finance and
Operations Support, and Chief Financial Officer since October 1996. 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.
CARRIE S. NEBENS has served as Senior Vice President and General
Manager, Lab Support division since September 1997. From October 1996 through
September 1997, Ms. Nebens served as Vice President and General Manager, Lab
Support division. From January 1996 through October 1996, Ms. Nebens served as
Vice President, Support Services. From April 1995 through December 1996, she
served as Vice President, Assignment Services and Training, and was designated
an executive officer of the company in September 1995. From June 1993 to March
1995, she was Vice President, Field Operations for the Company's Lab Support
division. From January 1992 to May 1993, Ms. Nebens served as Vice President,
Operations of the Company. From 1991 to 1992, Ms. Nebens served as Director,
Branch Operations for the Company. Ms. Nebens joined the Company in 1988, as an
Account Manager, served from 1988 to 1990, as the regional Manager for the
Chicago office, and in 1991, was promoted to Regional Director and Director of
Field Services.
JEFFREY A. EVANS has served as Vice President and General Manager,
Healthcare Financial Staffing division since March 1997. From September 1996
through March 1997, Mr. Evans served as Director, Operations Central. From March
1996 through September 1996, Mr. Evans served as Director, Account Manager
Casting. From September 1995 through March 1996, Mr. Evans served as Director,
Business Development, Mergers and Acquisitions. From May 1995 through September
1995, Mr. Evans served as Director, Operations and Planning. From September 1992
through April 1994, Mr. Evans attended Duke University's Fuqua School of
Business where he received a Masters of Business Administration.
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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,
1996, to December 31, 1997. At February 27, 1998, the Company had approximately
115 holders of record of its Common Stock (although the Company has been
informed there are in excess of approximately 3,050 beneficial owners) and
10,790,407 shares outstanding.
Price Range of Common Stock
-------------------------------------------
High Low
-------------------- --------------------
Fiscal Year Ended December 31, 1996
First Quarter 19-3/4 13-11/16
Second Quarter 22 15-3/4
Third Quarter 20-3/4 14-3/8
Fourth Quarter 17-5/8 13-7/8
Fiscal Year Ended December 31, 1997
First Quarter 18-7/8 12-1/2
Second Quarter 20-5/16 12
Third Quarter 23-1/8 17-3/8
Fourth Quarter 29-5/8 20-3/8
On September 24, 1997, the Board of Directors authorized a two-for-one
stock split, effected as a 100 percent common stock dividend, distributed on
October 20, 1997 to shareholders of record on October 13, 1997. 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.
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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,
---------------------------------------------------------------------------
1993 1994 1995 1996 1997
----------- ----------- ----------- ----------- ------------
(in thousands, except per share data)
INCOME STATEMENT DATA
Revenues $ 38,752 $ 53,617 $ 72,617 $ 88,188 $ 107,849
Cost of services 27,100 37,343 50,812 61,231 74,748
----------- ----------- ----------- ----------- ------------
Gross profit 11,652 16,274 21,805 26,957 33,101
Operating expenses 7,737 10,661 14,950 17,699 20,714
----------- ----------- ----------- ----------- ------------
Operating income 3,915 5,613 6,855 9,258 12,387
Acquisition costs -- -- -- 401 --
----------- ----------- ----------- ----------- ------------
Income before interest and income taxes 3,915 5,613 6,855 8,857 12,387
Interest income, net 112 164 410 549
833
----------- ----------- ----------- ----------- ------------
Income before income taxes 4,027 5,777 7,265 9,406 13,220
Provision for income taxes 1,550 2,296 2,924 3,800 4,954
----------- ----------- ----------- ----------- ------------
Net income $ 2,477 $ 3,481 $ 4,341 $ 5,606 $ 8,266
=========== =========== =========== =========== ============
Basic earnings per share $ 0.27 $ 0.36 $ 0.44 $ 0.55 $ 0.78
=========== =========== =========== =========== ============
Weighted average number of
common shares outstanding 9,322 9,690 9,974 10,207 10,561
=========== =========== =========== =========== ============
Diluted earnings per share $ 0.24 $ 0.34 $ 0.41 $ 0.51 $ 0.75
=========== =========== =========== =========== ============
Weighted average number of common and
common equivalent shares outstanding 10,140 10,248 10,530 10,898 11,031
=========== =========== =========== =========== ============
BALANCE SHEET DATA
Cash, cash equivalents and current
portion of marketable securities $ 4,692 $ 5,403 $ 6,892 $ 14,102 $ 23,709
Working capital 8,801 11,255 14,772 23,848 35,407
Total assets 11,485 17,584 23,922 31,874 44,864
Long-term liabilities -- -- -- -- --
Stockholders' equity 10,245 14,829 20,148 27,635 39,272
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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, the integration of acquired
operations, management of growth and other risks discussed in "Risk Factors That
May Affect Future Results" in Item 1 of this Annual Report, beginning on page 4,
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, and
the risks discussed in the "Risk Factors" section included in the Company's
Registration Statement on Form S-1 as declared effective by the Securities and
Exchange Commission on September 21, 1992 (Reg. No. 33-50646).
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, 1996 AND 1997
REVENUES. Revenues increased by 22.3% from $88,188,000 in the year
ended December 31, 1996, to $107,849,000 in the year ended December 31, 1997, as
a result of the increased revenues of the Lab Support and the Healthcare
Financial Staffing divisions, partially offset by a decrease in the revenues of
the EnviroStaff division.
The growth of the Lab Support division's revenues were primarily
attributable to an increase in the number of temporary employees on assignment
and to a lesser extent to an increase in average hourly billing rates during
1997. The increase in the number of temporary employees on assignment in the Lab
Support division was primarily attributable to the strong performance in most of
the markets in which the Lab Support division has older, better established
branches and to a lesser extent the contribution of new offices opened in the
past year. Lab Support's revenue growth was tempered by an unusually high number
of conversions of temporary employees to permanent status in the fourth quarter
of 1997, primarily as a result of the tight domestic labor market.
The growth of the Healthcare Financial Staffing division's revenues
were primarily attributable to an increase in the number of temporary employees
on assignment and to a lesser extent to an increase in average hourly billing
rates during 1997, which were principally attributable to a concentration on new
business with a higher price structure. The increase in the number of temporary
employees on assignment in the Healthcare Financial Staffing division was
primarily attributable to the strong performance in most of the markets in which
the Healthcare Financial Staffing division has older, better established
branches and to a lesser extent the contribution of new offices opened in the
past year. Healthcare Financial Staffing's revenue growth was tempered by an
unusually high number of conversions of temporary employees to permanent status
in the fourth quarter of 1997, primarily as a result of the tight domestic labor
market.
The decrease in the EnviroStaff division's revenues were primarily
attributable to the continuing transition of the division's business away from
remediation and the resulting planned decline in remediation assignments,
partially offset by increases in revenue from the division's higher margin core
business and an increase in average hourly billing rates. In addition, severe
winter weather in several key markets contributed to the decrease in revenues in
1997.
COST OF SERVICES. Cost of services consists solely of compensation for
temporary employees and payroll taxes and benefits paid by the Company in
connection with such compensation. Cost of services increased 22.1% from
$61,231,000 in 1996 to $74,748,000 in 1997. Cost of services as a percentage of
revenues decreased from 69.4% in 1996 to 69.3% in 1997. This decrease was
primarily attributable to an increase in conversion fee revenue of the Lab
Support and Healthcare Financial Staffing divisions in 1997. In addition, an
increase in average gross margins of the EnviroStaff division was offset by an
increase in employer paid benefits and workers' compensation expense reserves.
10
11
OPERATING EXPENSES. Operating 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. Operating expenses increased
17.0% from $17,699,000 in 1996 to $20,714,000 in 1997. Operating expenses as a
percentage of revenues decreased from 20.1% in 1996 to 19.2% in 1997. This
result was primarily attributable to the increased productivity of the Account
Managers.
ACQUISITION COSTS. Acquisition costs consisted principally of legal,
accounting, financial advisory services and other expenses related to the
initial combination of EnviroStaff, Inc. and the Company in 1996. The combined
companies incurred approximately $401,000 in acquisition costs during the first
quarter of 1996.
INTEREST INCOME, NET. Interest income, net increased 51.7% from
$549,000 in 1996 to $833,000 in 1997, primarily as a result of interest earned
on higher interest-bearing cash, cash equivalent and marketable security account
balances in 1997, and the effect of interest expense charged on EnviroStaff,
Inc.'s line of credit borrowings in 1996.
PROVISION FOR INCOME TAXES. Provision for income taxes increased 30.4%
from $3,800,000 in 1996 to $4,954,000 in 1997. The Company's effective tax rate
decreased from 40.4% in 1996 to 37.5% in 1997. This decrease was primarily
attributable to the consolidation of divisional field operations into Assignment
Ready, Inc., a Delaware corporation and wholly-owned subsidiary of the Company,
which resulted in a lower overall effective state tax rate.
11
12
YEARS ENDED DECEMBER 31, 1995 AND 1996
REVENUES. Revenues increased by 21.4% from $72,617,000 in the year
ended December 31, 1995, to $88,188,000 in the year ended December 31, 1996,
primarily as a result of the increase in the revenues of the Lab Support
division and to a lesser extent from the increase in revenues generated by
EnviroStaff and the Healthcare Financial Staffing division.
The growth of the Lab Support division's revenues were primarily
attributable to the number of temporary employees on assignment. The increase in
the number of temporary employees on assignment in the Lab Support division was
primarily the result of the strong performance in most of the markets in which
the Lab Support division has older, better established branches and to a lesser
extent the contribution of new Lab Support offices opened in the past year.
However, Lab Support's revenue growth was tempered by a higher number of
conversions of temporary employees to permanent status in 1996 as compared to
1995, and the impact of severe winter weather in several key markets during the
first quarter of 1996. Average hourly billing rates of the Lab Support division
did not vary significantly between the two periods.
The growth of the Healthcare Financial Staffing division's revenues
were primarily attributable to higher average hourly billing rates, which were
principally attributable to a concentration on new business with a higher price
structure, and to a lesser extent from the contribution of new offices opened in
1996.
The growth of EnviroStaff's revenues were primarily attributable to the
contribution of new EnviroStaff offices opened in 1996, as well as the growth of
most existing offices. Average hourly billing rates of EnviroStaff did not vary
significantly between the two periods.
COST OF SERVICES. Cost of services increased 20.5% from $50,812,000 in
1995 to $61,231,000 in 1996. Cost of services as a percentage of revenues
decreased from 70.0% in 1995 to 69.4% in 1996. This decrease was primarily
attributable to an increase in conversion fee revenue of the Lab Support
division in the 1996 period. In addition, an increase in average gross margins
of the Healthcare Financial Staffing division in the 1996 period and an increase
in average gross margins of EnviroStaff as a result of a decrease in average pay
rates in the 1996 period, was partially offset by an increase in employer
payroll taxes and employer paid benefits.
OPERATING EXPENSES. Operating expenses increased 18.4% from $14,950,000
in 1995 to $17,699,000 in 1996. Operating expenses as a percentage of revenues
decreased from 20.6% in 1995 to 20.1% in 1996. This result was primarily
attributable to the increased productivity of the Account Managers.
ACQUISITION COSTS. The Company incurred approximately $401,000 in
acquisition costs during the first quarter of 1996, related to the initial
combination of EnviroStaff, Inc. and the Company.
INTEREST INCOME, NET. Interest income, net increased 33.9% from
$410,000 in 1995 to $549,000 in 1996, primarily as a result of interest earned
on higher interest-bearing cash, cash equivalent and marketable security account
balances in 1996, partially offset by interest expense charged on EnviroStaff's
line of credit borrowings in 1996.
PROVISION FOR INCOME TAXES. Provision for income taxes increased 30.0%
from $2,924,000 in 1995 to $3,800,000 in 1996. The Company's effective tax rate
remained consistent at approximately 40% in 1995 and 1996.
12
13
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of cash in 1996 and 1997 were funds
provided by operating activities. In 1996, operating activities provided
$5,678,000 of cash compared to $8,281,000 in 1997. This increase was primarily
attributable to higher net income and a larger increase in income taxes payable,
accounts payable and accrued expenses in 1997 compared to 1996, partially offset
by a larger increase in accounts receivable in 1997 compared to 1996, which was
principally due to the increase in revenues.
Cash provided by investing activities totaled $1,404,000 in 1996
compared to cash used for investing activities of $3,537,000 in 1997. This was
primarily attributable to cash used to purchase marketable securities exceeding
cash proceeds from the maturity of marketable securities in 1997.
Cash provided by financing activities was $693,000 in 1996 compared to
$2,497,000 in 1997. The increase was primarily attributable to greater proceeds
from the issuance of common stock pursuant to the Company's Stock Option Plan
and Employee Stock Purchase Plan during 1997, and repayments of EnviroStaff's
line of credit borrowings exceeding the related borrowings during 1996.
Effective November 25, 1997, the Company renewed its unsecured bank
line of credit. The maximum borrowings allowable under this agreement are
$7,000,000 and bear interest at the bank's reference rate (8.50% at December 31,
1997). The agreement expires on July 1, 1999. No borrowings were outstanding
under this credit line at December 31, 1997.
In addition, the Company's EnviroStaff subsidiary had a $1,000,000 line
of credit with a bank at the time of its acquisition by the Company. Borrowings
accrued interest at prime plus 1.25%. Advances were secured by all of the assets
of EnviroStaff and the agreement included requirements for minimum operating
ratios and tangible net worth and restricted the payment of dividends. On April
19, 1996, the Company paid the outstanding balance in full and the line of
credit agreement was terminated.
The Company believes that its cash balances, together with the funds
from operations and its borrowing capacity, will be sufficient to meet its cash
requirements through at least the next twelve months.
13
14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
On Assignment, Inc.
We have audited the accompanying consolidated balance sheets of On
Assignment, Inc. and subsidiaries (the "Company") as of December 31, 1996 and
1997, and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the three years in the period ended December 31,
1997. Our audits also included the financial statement schedule listed at Item
14. These consolidated financial statements and financial statement schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
On Assignment, Inc. and subsidiaries as of December 31, 1996 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles. 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 23, 1998
14
15
ON ASSIGNMENT, INC.
CONSOLIDATED BALANCE SHEETS
December 31
--------------------------------------
1996 1997
------------- ------------
ASSETS
Current Assets:
Cash and cash equivalents (Note 1) $ 11,102,000 $ 18,339,000
Marketable securities (Note 1) 3,000,000 5,370,000
Accounts receivable, net of allowance for doubtful
accounts of $553,000 (1996) and $734,000 (1997) 12,264,000 15,215,000
Advances and deposits 72,000 67,000
Prepaid expenses 681,000 679,000
Income taxes receivable -- 111,000
Deferred income taxes (Notes 1 and 8) 968,000 1,218,000
------------- --------------
Total current assets 28,087,000 40,999,000
------------- --------------
Office Furniture, Equipment and
Leasehold Improvements, net (Notes 1 and 2) 2,294,000 2,572,000
Workers' compensation restricted deposits (Note 6) 743,000 596,000
Goodwill, net (Note 4) 581,000 534,000
Other assets 169,000 163,000
------------- --------------
Total Assets $ 31,874,000 $ 44,864,000
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accrued payroll $ 2,397,000 $ 3,043,000
Accounts payable 488,000 414,000
Accrued expenses 1,348,000 2,135,000
Income taxes payable (Notes 1 and 8) 6,000 --
------------- --------------
Total current liabilities 4,239,000 5,592,000
------------- --------------
Commitments and Contingencies (Notes 5 and 6) -- --
Stockholders' Equity (Notes 3 and 9):
Preferred Stock, $0.01 par value, 1,000,000
shares authorized, no shares issued or
outstanding in 1996 and 1997 -- --
Common Stock, $0.01 par value, 25,000,000
shares authorized, 10,311,120 issued and
outstanding in 1996 and 10,727,235 issued
and outstanding in 1997 103,000 107,000
Paid-in capital 8,726,000 12,099,000
Retained earnings 18,806,000 27,072,000
Cumulative foreign currency translation adjustment 0 (6,000)
------------- --------------
Total stockholders' equity 27,635,000 39,272,000
------------- --------------
Total Liabilities and Stockholders' Equity $ 31,874,000 $ 44,864,000
============= ==============
See accompanying Notes to Consolidated Financial Statements
15
16
ON ASSIGNMENT, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
-------------------------------------------
1995 1996 1997
------------ ------------ ------------
Revenues (Note 1) $ 72,617,000 $ 88,188,000 $107,849,000
Cost of services 50,812,000 61,231,000 74,748,000
------------ ------------ ------------
Gross profit 21,805,000 26,957,000 33,101,000
Operating expenses 14,950,000 17,699,000 20,714,000
------------ ------------ ------------
Operating income 6,855,000 9,258,000 12,387,000
Acquisition costs -- 401,000 --
------------ ------------ ------------
Income before interest and income taxes 6,855,000 8,857,000 12,387,000
Interest income, net (Notes 1 and 7) 410,000 549,000 833,000
------------ ------------ ------------
Income before income taxes 7,265,000 9,406,000 13,220,000
Provision for income taxes (Notes 2,924,000 3,800,000 4,954,000
1 and 8) ------------ ------------ ------------
Net income $ 4,341,000 $ 5,606,000 $ 8,266,000
============ ============ ============
Basic earnings per share (Note 1) $ 0.44 $ 0.55 $ 0.78
============ ============ ============
Weighted average number of Common
Shares Outstanding 9,974,000 10,207,000 10,561,000
============ ============ ============
Diluted earnings per share (Note 1) $ 0.41 $ 0.51 $ 0.75
============ ============ ============
Weighted average number of Common
and Common Equivalent Shares Outstanding 10,530,000 10,898,000 11,031,000
============ ============ ============
See accompanying Notes to Consolidated Financial Statements
16
17
ON ASSIGNMENT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Preferred Stock Common Stock
Shares Amount Shares Amount
------------ ------------ ------------ ------------
Balance, January 1, 1995 0 $ 0 9,822,482 $ 96,000
Exercise of warrants -- -- 13,832 --
Exercise of common stock -- -- 192,746 4,000
options
Common stock issued --
Employee Stock Purchase -- -- 19,862 --
Plan
Disqualifying dispositions -- -- -- --
Officer loans receivable -- -- -- --
Net income -- -- -- --
------------ ------------ ------------ ------------
Balance, December 31, 1995 0 0 10,048,922 100,000
Exercise of common stock -- -- 249,392 3,000
options
Common stock issued --
Employee Stock Purchase -- -- 12,806 --
Plan
Disqualifying dispositions -- -- -- --
Net income -- -- -- --
------------ ------------ ------------ ------------
Balance, December 31, 1996 0 0 10,311,120 103,000
Exercise of common stock -- -- 402,563 4,000
options
Common stock issued --
Employee Stock Purchase -- -- 13,552 --
Plan
Disqualifying dispositions -- -- -- --
Translation adjustments -- -- -- --
Net income -- -- -- --
------------ ------------ ------------ ------------
Balance, December 31, 1997 0 $ 0 10,727,235 $ 107,000
============ ============ ============ ============
Cumulative
Foreign
Currency
Paid-In Retained Translation
Capital Earnings Adjustment Total
------------ ------------ ------------ ------------
Balance, January 1, 1995 $ 5,873,000 $ 8,859,000 $ 0 $ 14,828,000
Exercise of warrants -- -- -- --
Exercise of common stock 532,000 -- -- 536,000
options
Common stock issued --
Employee Stock Purchase 121,000 -- -- 121,000
Plan
Disqualifying dispositions 213,000 -- -- 213,000
Officer loans receivable 109,000 -- -- 109,000
Net income -- 4,341,000 -- 4,341,000
------------ ------------ ------------ ------------
Balance, December 31, 1995 6,848,000 13,200,000 0 20,148,000
Exercise of common stock 1,016,000 -- -- 1,019,000
options
Common stock issued --
Employee Stock Purchase 149,000 -- -- 149,000
Plan
Disqualifying dispositions 713,000 -- -- 713,000
Net income -- 5,606,000 -- 5,606,000
------------ ------------ ------------ ------------
Balance, December 31, 1996 8,726,000 18,806,000 0 27,635,000
Exercise of common stock 2,321,000 -- -- 2,325,000
options
Common stock issued --
Employee Stock Purchase 172,000 -- -- 172,000
Plan
Disqualifying dispositions 880,000 -- -- 880,000
Translation adjustments -- -- (6,000) (6,000)
Net income -- 8,266,000 -- 8,266,000
------------ ------------ ------------ ------------
Balance, December 31, 1997 $ 12,099,000 $ 27,072,000 $ (6,000) $ 39,272,000
============ ============ ============ ============
See accompanying Notes to Consolidated Financial Statements
17
18
ON ASSIGNMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
----------------------------------------------------
1995 1996 1997
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,341,000 $ 5,606,000 $ 8,266,000
Adjustments to reconcile net income to net cash provided by
operating activities, net of acquisitions:
Depreciation and amortization 586,000 701,000 815,000
Increase in allowance for doubtful accounts 345,000 504,000 451,000
Increase in deferred income taxes (203,000) (368,000) (250,000)
Loss on disposal of furniture and equipment -- 1,000 141,000
Increase in accounts receivable (2,909,000) (2,624,000) (3,403,000)
Increase in income taxes receivable -- -- (111,000)
Increase in accounts payable and accrued expenses 300,000 1,238,000 1,360,000
Increase in income taxes payable 456,000 415,000 873,000
(Increase) Decrease in workers' compensation
restricted deposits (9,000) 117,000 147,000
(Increase) Decrease in prepaid expenses (291,000) 118,000 2,000
Increase in other assets (45,000) (30,000) (10,000)
------------ ------------ ------------
Net cash provided by operating activities 2,571,000 5,678,000 8,281,000
============ ============ ============
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (4,300,000) (1,000,000) (7,250,000)
Proceeds from the maturity of marketable securities 2,580,000 3,565,000 4,880,000
Acquisition of furniture, equipment and leasehold
improvements (802,000) (1,204,000) (1,180,000)
Proceeds from sale of furniture and equipment -- 4,000 8,000
Decrease in advances and deposits 13,000 39,000 5,000
------------ ------------ ------------
Net cash provided by (used for) investing activities (2,509,000) 1,404,000 (3,537,000)
============ ============ ============
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of common stock options and warrants 536,000 1,019,000 2,325,000
Proceeds from issuance of common stock -
Employee Stock Purchase Plan 121,000 149,000 172,000
Proceeds from collection of officer loans receivable 300,000 -- --
Borrowings on line of credit 1,587,000 450,000 --
Repayments of line of credit borrowings (1,112,000) (925,000) --
------------ ------------ ------------
Net cash provided by financing activities 1,432,000 693,000 2,497,000
------------ ------------ ------------
Effect of exchange rate changes on cash and cash equivalents -- -- (4,000)
(Note 1) ------------ ------------ ------------
Net Increase in Cash and Cash Equivalents 1,494,000 7,775,000 7,237,000
Cash and Cash Equivalents at Beginning of Period 1,833,000 3,327,000 11,102,000
------------ ------------ ------------
Cash and Cash Equivalents at End of Period $ 3,327,000 $ 11,102,000 $ 18,339,000
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
Tax benefit of disqualifying dispositions (Note 8) $ 213,000 $ 713,000 $ 880,000
============ ============ ============
Officer loans receivable (Note 3) $ 109,000 $ -- $ --
============ ============ ============
See accompanying Notes to Consolidated Financial Statements
18
19
ON ASSIGNMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
On Assignment, Inc. (the "Company"), through its Lab Support division,
provides temporary and permanent placement of scientific personnel with
laboratories and other institutions. The Company's EnviroStaff division provides
temporary and permanent placement of environmental professionals to the
environmental services industry. The Company's Healthcare Financial Staffing
division provides temporary and permanent placement of medical billing and
collection professionals 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 (see Note 11). 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.
Cash Flows and Marketable Securities. For purposes of the Consolidated
Statements of Cash Flows, 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, which have been
classified as held to maturity, are recorded at amortized cost which
approximated market at December 31, 1996 and 1997.
Cash paid for income taxes (net of refunds) for the years ended
December 31, 1995, 1996, and 1997 was $2,671,000, $3,739,000 and $4,443,000,
respectively. Cash paid for interest for the years ended December 31, 1995,
1996, and 1997 was $25,000, $15,000 and $0, 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.
Pursuant to Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets to be Disposed of," the
Company reviews long-lived assets and certain identifiable intangibles for
impairment at least quarterly. An impairment loss is recognized when the sum of
the undiscounted future cash flows is less than the carrying amount of the
asset. Adopting SFAS No. 121 during the year ended December 31, 1996 did not
have a material effect on the Company's financial statements.
Goodwill. Goodwill is being amortized on a straight-line basis over
fifteen years. The Company periodically reviews goodwill to assess
recoverability; impairments would be recognized in operating results if a
permanent diminution in value were to occur.
Income Taxes. Deferred taxes result from temporary differences between
the tax 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 is recognized
when earned, based on hours worked by the Company's temporary employees.
Permanent placement fees are recognized when earned, upon conversion of a
temporary employee to a client's regular employee.
19
20
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 translation adjustments, a separate component of
stockholders' equity.
Earnings per Share. In December 1997, the Company adopted Statement of
Financial Accounting Standards No. 128, "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, non-qualified stock options,
and warrants) 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,
--------------------------------------
1995 1996 1997
---------- ---------- ----------
Weighted average number of shares outstanding
used to compute basic earnings per share 9,974,000 10,207,000 10,561,000
Dilutive effect of stock options and warrants 556,000 691,000 470,000
---------- ---------- ----------
Number of shares used to compute diluted earnings per share 10,530,000 10,898,000 11,031,000
========== ========== ==========
Recently Issued Accounting Pronouncements. In June 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 130, "Reporting for Comprehensive Income" and No. 131, "Disclosure about
Segments of an Enterprise and Related Information." These statements are
effective for financial statements issued for periods beginning after December
15, 1997. The Company has not yet determined the impact of adopting these
statements.
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 9).
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 disbursed customers, thus
spreading the trade credit risk. The Company performs ongoing credit evaluations
to identify risks and maintains an allowance to address these risks.
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,
1996 and 1997, consisted of the following:
1996 1997
----------- -----------
Furniture and fixtures $ 930,000 $ 1,018,000
Computers and related equipment 1,897,000 2,252,000
Machinery and equipment 668,000 859,000
Leasehold improvements 551,000 609,000
Construction in progress
280,000 450,000
----------- -----------
4,326,000 5,188,000
Less accumulated depreciation and amortization
(2,032,000) (2,616,000)
----------- -----------
Total $ 2,294,000 $ 2,572,000
=========== ===========
20
21
Depreciation and amortization expense for the years ended December 31, 1995,
1996 and 1997 was $511,000, $634,000 and $753,000, respectively.
3. OFFICER LOANS RECEIVABLE.
In May 1995, two officers of the company paid in full $200,000 in
promissory notes plus accrued interest of $16,000. In July 1995, a former
officer of the company paid in full the remaining $100,000 promissory note plus
accrued interest of $11,000. A portion of the loans, amounting to $109,000, were
originally treated as a reduction in stockholders' equity for financial
reporting purposes. Therefore, the payoff of the notes resulted in a
corresponding increase in stockholders' equity in the accompanying Consolidated
Balance Sheets and Consolidated Statements of Stockholders' Equity.
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 $128,000 at December 31, 1996 and $175,000 at
December 31, 1997.
5. 401(k) RETIREMENT SAVINGS 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,
1995, 1996 and 1997.
6. COMMITMENTS AND CONTINGENCIES.
The Company leases its facilities and certain office equipment under
operating leases which expire at various dates through 2004. Certain leases
contain rent escalations and/or renewal options.
The following is a summary of future minimum lease payments by year:
Operating
Leases
----------
1998 $1,105,000
1999 875,000
2000 600,000
2001 455,000
2002 389,000
Thereafter 421,000
----------
Total Minimum Lease Payments $3,845,000
==========
Rent expense for the years ended December 31, 1995, 1996 and 1997 was
$1,105,000, $1,153,000 and $1,433,000, 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.
21
22
Effective September 1, 1993, the Company became partially self-insured
for workers' compensation expense. In connection with this program, cash
deposits are required to be held by the reinsurer for the payment of losses and
as collateral amounting to $743,000 and $596,000 at December 31, 1996 and 1997,
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, 1996 and 1997. In addition, the Company has provided a
stand-by letter of credit amounting to approximately $334,000 at December 31,
1996 and 1997, in connection with this program. The self-insurance claim
liability is determined based on claims filed and an estimate of claims incurred
but not yet reported.
The Company's EnviroStaff subsidiary was operating under a loss-retro
workers' compensation policy from July 1, 1995 through September 30, 1996. In
connection with this program, EnviroStaff paid a base premium with an excess
loss cap of $50,000 per occurrence. Medical and indemnity expenses are paid at
cost plus administration fees and taxes. The insurance claim liability is
determined based on claims filed and an estimate of claims incurred but not yet
reported. In addition, EnviroStaff has provided a standby letter of credit
amounting to approximately $120,000 at December 31, 1996 and 1997. This letter
of credit expires on July 1, 1998. Effective October 1, 1996, EnviroStaff was
added to the Company's workers' compensation program.
7. BORROWING ARRANGEMENTS.
Effective November 25, 1997, the Company renewed its unsecured bank
line of credit. The maximum borrowings allowable under this agreement are
$7,000,000 and bear interest at the bank's reference rate (8.50% at December 31,
1997). The agreement expires on July 1, 1999. No borrowings were outstanding
under this credit line at December 31, 1996 and 1997.
In addition, the Company's EnviroStaff subsidiary had a $1,000,000 line
of credit with a bank. Borrowings accrued interest at prime plus 1.25%. Advances
were secured by all of the assets of EnviroStaff and the agreement included
requirements for minimum operating ratios and tangible net worth and restricted
the payment of dividends. On April 19, 1996, the Company paid the outstanding
balance in full and the line of credit agreement was terminated.
8. INCOME TAXES.
The provision for income taxes consists of the following:
1995 1996 1997
--------------------- --------------------- ---------------------
Federal:
Current $ 2,406,000 $ 3,277,000 $ 4,166,000
Deferred (175,000) (296,000) (271,000)
--------------------- --------------------- ---------------------
2,231,000 2,981,000 3,895,000
--------------------- --------------------- ---------------------
State:
Current 721,000 891,000 1,038,000
Deferred (28,000) (72,000) 21,000
--------------------- --------------------- ---------------------
693,000 819,000 1,059,000
--------------------- --------------------- ---------------------
Total $ 2,924,000 $ 3,800,000 $ 4,954,000
===================== ===================== =====================
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, 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.
22
23
The components of deferred tax assets (liabilities) are as follows:
December 31, 1996 December 31, 1997
--------------------------- ---------------------------
Federal State Federal State
----------- ----------- ----------- -----------
Deferred tax assets:
Allowance for doubtful accounts $ 187,000 $ 48,000 $ 249,000 $ 33,000
Depreciation and amortization expense 107,000 32,000 158,000 24,000
Vacation accrual 30,000 8,000 58,000 8,000
State taxes 301,000 -- 221,000 --
Net operating loss carryforward 52,000 5,000 45,000 2,000
Workers' compensation loss reserve 197,000 50,000 406,000 55,000
----------- ----------- ----------- -----------
Total deferred tax assets 874,000 143,000 1,137,000 122,000
Deferred tax liabilities:
Other (49,000) -- (41,000) --
----------- ----------- ----------- -----------
Net deferred tax asset $ 825,000 $ 143,000 $ 1,096,000 $ 122,000
=========== =========== =========== ===========
The net operating loss carryforwards included in the deferred tax asset at
December 31, 1996 and 1997, were acquired through the acquisition of 1st Choice
Personnel, Inc. (see Note 11). These carryforwards are available to offset
future taxable income, subject to annual limitations, through the year 2007.
The reconciliation between the amount computed by applying the U.S.
federal statutory tax rate of 35% in 1995, 1996 and 1997 to income before income
taxes and the actual income taxes follows:
Years Ended
-------------------------------------------
1995 1996 1997
----------- ----------- -----------
Income tax expenses at the statutory rate $ 2,543,000 $ 3,292,000 $ 4,627,000
State income taxes, net of federal income tax benefit 422,000 534,000 401,000
Other (41,000) (26,000) (74,000)
----------- ----------- -----------
Total $ 2,924,000 $ 3,800,000 $ 4,954,000
=========== =========== ===========
At December 31, 1996 and 1997, net income taxes payable and additional
paid-in capital include tax benefits amounting to $713,000 and $880,000,
respectively, resulting from disqualifying dispositions by officers and
employees of common stock of the Company acquired through the exercise of stock
options.
23
24
9. 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 an aggregate of up to 4,000,000 shares
of its Common Stock. 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, 1995, 1996 and 1997:
Weighted
Non- Average
Incentive qualified Exercise
Stock Stock Price
Options Options Per Share
--------------- ------------- --------------
Outstanding at January 1, 1995 1,088,924 115,552 $ 4.13
Granted 412,180 177,740 $ 12.21
Exercised (187,664) (5,082) $ 2.77
Canceled (121,166) (11,584) $ 7.16
-------------- -------------
Outstanding at December 31, 1995 1,192,274 276,626 $ 7.31
Granted 434,324 106,640 $ 16.58
Exercised (193,054) (56,338) $ 4.20
Canceled (306,774) (5,218) $ 14.07
-------------- -------------
Outstanding at December 31, 1996 1,126,770 321,710 $ 10.05
Granted 409,968 161,032 $ 20.46
Exercised (335,358) (67,201) $ 5.77
Canceled (405,573) (29,392) $ 14.14
-------------- -------------
Outstanding at December 31, 1997 795,807 386,149 $ 15.04
============== =============
The following summarizes pricing and term information for options
outstanding as of December 31, 1997:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ ---------------------
NUMBER WEIGHTED
OUTSTANDING AVERAGE WEIGHTED EXERCISABLE WEIGHTED
AT REMAINING AVERAGE AT AVERAGE
RANGE OF DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
EXERCISE PRICES 1997 LIFE PRICE 1997 PRICE
- ------------------ ----------- ------------ -------- ------------ --------
$ 0.35 to $ 7.25 .......... 244,190 5.5 years $ 4.32 232,837 $ 4.22
7.75 to 15.50 .......... 239,830 8.3 12.26 70,149 10.73
15.75 to 17.375 ......... 245,436 8.2 16.30 102,526 16.27
17.5625 to 22.50 ......... 184,500 9.2 19.92 61,083 19.18
22.75 to 24.75 ........... 268,000 10.0 22.77 -- 0.00
---------- --------
$ 0.35 to $24.75 ......... 1,181,956 8.2 $15.04 466,595 $ 9.81
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 1995, 1996 and 1997, shares issued
under the plan were 19,862, 12,806 and 13,552, 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. The Company has adopted the disclosure only provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123). Accordingly, no compensation cost has been
recognized for its stock option and purchase plans. The estimated fair value of
options granted during 1995, 1996 and 1997 pursuant to SFAS No. 123 was
approximately $3,533,000, $4,268,000 and $5,530,000, respectively, and the
estimated fair value of stock purchased under the Company's Employee Stock
Purchase Plan was approximately $41,000, $51,000 and $60,000, 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 $4,163,000, $4,850,000 and
$7,368,000 and pro forma earnings per share would have been $0.40, $0.45 and
$0.68 for 1995, 1996 and 1997, 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.
24
25
The fair value of options granted under the Company's Stock Option Plan during
1995, 1996 and 1997 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 1995, 1996 or 1997, (ii) expected volatility of
approximately 47% in 1995 and 1996, and 48% in 1997 (iii) risk-free interest
rate of approximately 6.1% in 1995, 6.3% in 1996, and 6.2% in 1997, and (iv)
expected lives of the options of approximately 5 years in 1995, 1996 and 1997.
Pro forma compensation cost of shares purchased under the Employee Stock
Purchase Plan is measured based on the discount from market value.
10. UNAUDITED QUARTERLY RESULTS.
The following table presents unaudited quarterly financial information
for each of the eight quarters ended December 31, 1997. 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,
1996 1996 1996 1996 1997 1997 1997 1997
------- ------- ------- ------- ------- ------- ------- -------
Revenues $18,902 $21,438 $23,303 $24,545 $23,570 $26,410 $28,854 $29,015
Cost of services 13,129 14,919 16,244 16,939 16,435 18,447 20,176 19,690
------- ------- ------- ------- ------- ------- ------- -------
Gross profit 5,773 6,519 7,059 7,606 7,135 7,963 8,678 9,325
Operating expenses 4,070 4,332 4,554 4,743 4,661 5,090 5,449 5,514
------- ------- ------- ------- ------- ------- ------- -------
Operating income 1,703 2,187 2,505 2,863 2,474 2,873 3,229 3,811
Acquisition costs 401 -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Income before interest and
income taxes 1,302 2,187 2,505 2,863 2,474 2,873 3,229 3,811
Interest income 113 127 130 179 155 203 227 248
------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes 1,415 2,314 2,635 3,042 2,629 3,076 3,456 4,059
Provision for income taxes 557 944 1,062 1,237 999 1,153 1,293 1,509
------- ------- ------- ------- ------- ------- ------- -------
Net income $ 858 $ 1,370 $ 1,573 $ 1,805 $ 1,630 $ 1,923 $ 2,163 $ 2,550
======= ======= ======= ======= ======= ======= ======= =======
Basic earnings per share $ 0.08 $ 0.13 $ 0.15 $ 0.18 $ 0.16 $ 0.18 $ 0.20 $ 0.24
======= ======= ======= ======= ======= ======= ======= =======
Weighted average number of 10,114 10,158 10,254 10,301 10,372 10,548 10,626 10,696
common shares outstanding ======= ======= ======= ======= ======= ======= ======= =======
Diluted earnings per share $ 0.08 $ 0.13 $ 0.14 $ 0.17 $ 0.15 $ 0.18 $ 0.20 $ 0.23
======= ======= ======= ======= ======= ======= ======= =======
Weighted average number of
common and common 10,856 10,920 10,898 10,858 10,860 10,956 11,092 11,163
equivalent shares outstanding ======= ======= ======= ======= ======= ======= ======= =======
25
26
11. ACQUISITIONS.
On January 31, 1994, the Company acquired all of the outstanding shares
of the capital stock of 1st Choice Personnel, Inc. ("1st Choice"), a California
corporation, which specialized in providing employees on temporary assignments
to the mortgage banking and financial services industries. 1st Choice formed the
core of the Company's second operating division: Finance Support, which has been
renamed to Healthcare Financial Staffing. This acquisition has been accounted
for using the purchase method of accounting. Consideration for the stock
purchase consisted solely of $513,000 in cash. Effective May 17, 1995, the
Company dissolved 1st Choice Personnel, Inc. as a separate subsidiary and
continued its operations as a division of the company.
On November 29, 1994, the Company formed Finance Support, Inc. ("FSI"),
a Delaware corporation and wholly-owned subsidiary of the company. On December
5, 1994, FSI acquired substantially all of the assets of Sklar Resource Group,
Inc. ("SRG"), a firm that provided professional personnel for temporary credit
and collection assignments. The SRG offices and operations acquired were added
to the Company's Finance Support division, which was subsequently renamed the
Healthcare Financial Staffing division. This acquisition has been accounted for
using the purchase method of accounting. Consideration for the purchase
consisted of $738,000 in cash. Effective January 1, 1997, FSI was merged with
and into ARI in accordance with the corporate reorganization (see Note 1).
On March 27, 1996, the Company issued 171,579 shares of its common
stock for all of the outstanding common stock of EnviroStaff, Inc. ("ESI"), a
Minnesota corporation, which specialized in providing employees on temporary
assignments to the environmental services industry. The acquisition has been
accounted for as a pooling-of-interests and, accordingly, the Company's
consolidated financial statements have been restated for all periods prior to
the acquisition to include the results of operations, financial positions, and
cash flows of ESI. Revenues, net income and primary and fully diluted earnings
per share for the individual entities are as follows:
On Assignment EnviroStaff Combined
------------------- ------------------- -------------------
Three Months Ended
March 31, 1996
Revenues $ 16,379,000 $ 2,523,000 $ 18,902,000
Net income (loss) $ 1,086,000 $ (228,000) $ 858,000
Earnings (loss) per share $ 0.20 $ (0.04) $ 0.16
Year Ended
December 31, 1995
Revenues $ 62,042,000 $ 10,575,000 $ 72,617,000
Net income $ 4,330,000 $ 11,000 $ 4,341,000
Earnings per share $ 0.82 $ 0.00 $ 0.82
Year Ended
December 31, 1994
Revenues $ 48,402,000 $ 5,215,000 $ 53,617,000
Net income $ 3,348,000 $ 133,000 $ 3,481,000
Earnings per share $ 0.65 $ 0.03 $ 0.68
Acquisition costs of approximately $401,000 related to the acquisition of ESI
were charged to expense during the three-month period ended March 31, 1996. The
after-tax impact of these expenses on primary and fully diluted earnings per
share was $0.04 for the three-month period ended March 31, 1996. Acquisition
costs include legal, accounting, financial advisory services, and other costs of
the acquisition. Effective January 1, 1997, ARI became a wholly owned subsidiary
of ESI in accordance with the corporate reorganization (see Note 1).
26
27
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 18, 1998 (the "1998 Proxy Statement") and is
incorporated herein by reference. The 1998 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 1998 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 1998 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 1998
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
1998 Proxy Statement to be filed within 120 days after the end of the Company's
fiscal year and is incorporated herein by reference.
27
28
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, 1996 and 1997 15
Consolidated Statements of Income for the Years Ended
December 31, 1995, 1996 and 1997 16
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1995, 1996 and 1997 17
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1996 and 1997 18
Notes to Consolidated Financial Statements 19
2. Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts 33
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, 1997.
28
29
(c) EXHIBITS
NUMBER DESCRIPTION
------ -----------
2.1 (1) Agreement and Plan of Reorganization dated as of March 27, 1996 by and among the Company, ESI
Acquisition Corporation, EnviroStaff, Inc. (ESI) and the stockholders of ESI listed therein.
3.1 (2) Amended and Restated Certificate of Incorporation of the Company.
3.2 (3) Amended and Restated Bylaws of the Company.
4.1 (4) Warrant Purchase Agreement dated March 28, 1991, by and between the Company and Silicon Valley
Bank; and Warrant to Purchase 15,000 Shares of Common Stock of the Company dated March 28, 1991.
4.2 (4) Specimen Common Stock Certificate.
10.1 (4) Form of Indemnification Agreement.
10.2 (5) Restated 1987 Stock Option Plan, as amended.
10.3 (6) 1992 Employee Stock Purchase Plan.
10.9 (7) Office lease dated December 7, 1993, by and between the Company and Malibu Canyon Office
Partners, LP
10.10 (8) Form of Loan Agreement between the Company and executive officers of the Company, including form
of Demand Note as Exhibit A thereto.
10.12 (8) Consulting Agreement dated January 25, 1995 between the Company and Karen Brenner.
10.13 (8) Settlement Agreement and General Release by and between the Company and Tadeusz Czyzewski dated
March 24, 1995.
10.14 (8) Offer letter agreement by and between the Company and Ronald W. Rudolph dated March 27, 1995.
11.1 Statement regarding computation of earnings per share.
21.1 Subsidiaries of the Registrant.
24.1 Consent of Deloitte & Touche LLP.
25.1 Power of Attorney (see page 32).
- ---------
(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 April 10, 1996.
(2) 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 30, 1993.
(3) 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.
29
30
(4) 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.
(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 28, 1997.
(6) 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.
(7) 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.
(8) 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 31, 1995.
30
31
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 report
to be signed on its behalf by the undersigned, thereunto duly authorized, in
Calabasas, California on this 27th day of March, 1998.
ON ASSIGNMENT, INC.
By: /s/ H. Tom Buelter
-------------------------
H. Tom Buelter
Chairman of the Board and
Chief Executive Officer
31
32
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints H. Tom Buelter and Ronald W. Rudolph and
each of them, as his or her true and lawful attorneys-in-fact and agents, with
full power of substitution and re-substitution, for him or her and in his or her
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Report on Form 10-K, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated:
Signature Title Date
------------------------------------ ----------------------------------------------- -----------------------------
/s/ H. Tom Buelter Chairman of the Board and March 27, 1998
- ------------------------------ Chief Executive Officer
H. Tom Buelter (Principal Executive Officer)
/s/ Ronald W. Rudolph Senior Vice President, Finance and Operations March 27, 1998
- ------------------------------ Support, and Chief Financial Officer (Principal
Ronald W. Rudolph Financial and Accounting Officer)
/s/ Karen Brenner Director March 27, 1998
- ------------------------------
Karen Brenner
/s/ Jonathan S. Holman Director March 27, 1998
- ------------------------------
Jonathan S. Holman
/s/ Jeremy M. Jones Director March 27, 1998
- ------------------------------
Jeremy M. Jones
/s/ William E. Brock Director March 27, 1998
- ------------------------------
William E. Brock
32
33
ON ASSIGNMENT, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
----------------------------------------------------------------------------------------
Balance at Charged to
beginning of costs and Charged to Balance at
Description period expenses other accounts Deductions end of period
- ----------------------------------- ------------ ------------ -------------- -------------- --------------
Year ended December 31, 1995
Allowance for doubtful accounts $160,000 345,000 -- (70,000) $435,000
Year ended December 31, 1996
Allowance for doubtful accounts $435,000 504,000 -- (386,000) $553,000
Year ended December 31, 1997
Allowance for doubtful accounts $553,000 451,000 -- (270,000) $734,000
33
34
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
-------------- -------------------------------------------------------------------------------------------- ---------------
2.1 (1) Agreement and Plan of Reorganization dated as of March 27, 1996 by and among the Company, ESI --
Acquisition Corporation, EnviroStaff, Inc. (ESI) and the stockholders of ESI listed therein.
3.1 (2) Amended and Restated Certificate of Incorporation of the Company. --
3.2 (3) Amended and Restated Bylaws of the Company. --
4.1 (4) Warrant Purchase Agreement dated March 28, 1991, by and between the Company and Silicon Valley --
Bank; and Warrant to Purchase 15,000 Shares of Common Stock of the Company dated March 28, 1991.
4.2 (4) Specimen Common Stock Certificate. --
10.1 (4) Form of Indemnification Agreement. --
10.2 (5) Restated 1987 Stock Option Plan, as amended. --
10.3 (6) 1992 Employee Stock Purchase Plan. --
10.9 (7) Office lease dated December 7, 1993, by and between the Company and Malibu Canyon Office --
Partners, LP
10.10 (8) Form of Loan Agreement between the Company and executive officers of the Company, including form --
of Demand Note as Exhibit A thereto.
10.12 (8) Consulting Agreement dated January 25, 1995, between the Company and Karen Brenner. --
10.13 (8) Settlement Agreement and General Release by and between the Company and Tadeusz Czyzewski dated --
March 24, 1995.
10.14 (8) Offer letter agreement by and between the Company and Ronald W. Rudolph dated March 27, 1995. --
11.1 Statement regarding computation of earnings per share. 36
21.1 Subsidiaries of the Registrant 37
24.1 Consent of Deloitte & Touche LLP. 38
25.1 Power of Attorney (see page 32). --
(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 April 10, 1996.
(2) 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 30, 1993.
(3) 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.
34
35
(4) 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.
(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 28, 1997.
(6) 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.
(7) 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.
(8) 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 31, 1995.
35