<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number: 0-20540
ON ASSIGNMENT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-4023433
(State of Incorporation) (IRS Employer Identification No.)
26651 WEST AGOURA ROAD, CALABASAS, CA 91302
(Address of principal executive offices)
(Zip Code)
(818) 878-7900
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
At March 31, 1997, the total number of outstanding shares of the Company's
Common Stock ($0.01 par value) was 5,230,432.
Page 1 of 15 pages
Exhibit index on page 14
<PAGE> 2
ON ASSIGNMENT, INC.
INDEX
<TABLE>
<CAPTION>
PART 1 - FINANCIAL INFORMATION PAGE NUMBER
<S> <C>
Item 1 - Consolidated Financial Statements
Consolidated Balance Sheets at March 31, 1997
and December 31, 1996 (Unaudited) 3
Consolidated Statements of Income for the three months
ended March 31, 1997 and March 31, 1996 (Unaudited) 4
Consolidated Statements of Cash Flows for the three months
ended March 31, 1997 and March 31, 1996 (Unaudited) 5, 6
Notes to Consolidated Financial Statements (Unaudited) 7, 8
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 9, 10, 11
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security-Holders 12
Item 5 - Other Information 12
Item 6 - Exhibits and Reports on Form 8-K 12
Signatures 13
Index to Exhibits 14
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------------------------------------------------------------
ON ASSIGNMENT, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, December 31,
1997 1996
----------------- -----------------
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 16,232,000 $ 11,102,000
Marketable securities, current 1,500,000 3,000,000
Account receivable, net (note 5) 11,732,000 12,264,000
Advances and deposits 33,000 72,000
Prepaid expenses 612,000 681,000
Deferred income taxes 929,000 968,000
----------------- -----------------
Total current assets 31,038,000 28,087,000
----------------- -----------------
Office Furniture, Equipment and
Leasehold Improvements, net (note 6) 2,426,000 2,294,000
Workers' compensation deposits 716,000 743,000
Goodwill, net (note 7) 569,000 581,000
Other assets 165,000 169,000
----------------- -----------------
TOTAL ASSETS $ 34,914,000 $ 31,874,000
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued payroll $ 2,582,000 $ 2,397,000
Accounts payable 463,000 488,000
Accrued expenses 1,335,000 1,348,000
Income taxes payable 573,000 6,000
----------------- -----------------
Total current liabilities 4,953,000 4,239,000
----------------- -----------------
STOCKHOLDERS' EQUITY:
Preferred stock (note 8) 0 0
Common stock (note 9) 52,000 52,000
Paid-in capital 9,473,000 8,777,000
Retained earnings 20,436,000 18,806,000
----------------- -----------------
Total stockholders' equity 29,961,000 27,635,000
----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 34,914,000 $ 31,874,000
================= =================
</TABLE>
3
<PAGE> 4
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------------------------------------------------------------
ON ASSIGNMENT, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended March 31,
-------------------------------------------
1997 1996
----------------- -----------------
<S> <C> <C>
REVENUES $ 23,570,000 $ 18,902,000
COST OF SERVICES 16,435,000 13,129,000
----------------- -----------------
GROSS PROFIT 7,135,000 5,773,000
OPERATING EXPENSES 4,661,000 4,070,000
----------------- -----------------
OPERATING INCOME 2,474,000 1,703,000
ACQUISITION COSTS (Note 3) 0 401,000
----------------- -----------------
INCOME BEFORE INTEREST AND INCOME TAXES 2,474,000 1,302,000
INTEREST INCOME, NET 155,000 113,000
----------------- -----------------
INCOME BEFORE INCOME TAXES 2,629,000 1,415,000
PROVISION FOR INCOME TAXES 999,000 557,000
----------------- -----------------
NET INCOME $ 1,630,000 $ 858,000
================= =================
PRIMARY AND FULLY DILUTED
EARNINGS PER SHARE $ 0.30 $ 0.16
================= =================
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 5,430,000 5,428,000
================= =================
</TABLE>
4
<PAGE> 5
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ON ASSIGNMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------------------
Three Months Ended March 31,
-------------------------------------------
1997 1996
----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 1,630,000 $ 858,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 172,000 157,000
Increase (Decrease) in allowance for doubtful accounts 60,000 (49,000)
Decrease in deferred income taxes 39,000 25,000
Loss on disposal of furniture and equipment 7,000 0
Decrease in accounts receivable 472,000 284,000
Increase in accounts payable and accrued expenses 147,000 239,000
Increase in income taxes payable 667,000 349,000
Decrease in workers' compensation deposits 27,000 100,000
Decrease in prepaid expenses 69,000 112,000
Increase in other assets 0 (9,000)
----------------- -----------------
Net cash provided by operating activities 3,290,000 2,066,000
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (500,000) 0
Proceeds from the maturity of marketable securities 2,000,000 350,000
Acquisition of office furniture, equipment and
leasehold improvements (298,000) (349,000)
Proceeds from sale of furniture and equipment 3,000 0
Decrease in advances and deposits 39,000 71,000
----------------- -----------------
Net cash provided by investing activities 1,244,000 72,000
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of common stock options 511,000 431,000
Proceeds from issuance of common stock -
Employee Stock Purchase Plan 85,000 80,000
Borrowings on line of credit 0 450,000
Repayments of line of credit borrowings 0 (600,000)
----------------- -----------------
Net cash provided by financing activities 596,000 361,000
----------------- -----------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 5,130,000 2,499,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 11,102,000 3,327,000
----------------- -----------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 16,232,000 $ 5,826,000
================= =================
</TABLE>
5
<PAGE> 6
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ON ASSIGNMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (continued)
- -----------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Three Months Ended March 31,
-------------------------------------------
1997 1996
----------------- -----------------
<S> <C> <C>
Cash paid during the period for income taxes, net of refunds $ 293,000 $ 182,000
================= =================
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH
TRANSACTIONS:
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
----------------- -----------------
<S> <C> <C>
Tax benefit of disqualifying dispositions $ 100,000 $ 50,000
================= =================
</TABLE>
6
<PAGE> 7
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
ON ASSIGNMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
1. The accompanying consolidated financial statements have been prepared by the
Company, pursuant to the rules and regulations of the Securities and Exchange
Commission (SEC). This Report on Form 10-Q should be read in conjunction with
the Company's annual report on Form 10-K for the year ended December 31, 1996.
Certain information and footnote disclosures which are normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to SEC rules and regulations.
The information reflects all normal and recurring adjustments which, in the
opinion of Management, are necessary for a fair presentation of the financial
position of the Company and its results of operations for the interim periods
set forth herein. The results for the three months ended March 31, 1997 are not
necessarily indicative of the results to be expected for the full year or any
other period.
2. 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., a Delaware corporation and wholly-owned subsidiary of the company,
in order to centralize management functions to one entity to optimize regional
activities and achieve economies of scale.
3. On March 27, 1996, the Company issued 171,579 shares of its common stock for
all of the outstanding common stock of EnviroStaff, Inc. ("EnviroStaff"), 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 EnviroStaff.
Acquisition costs of approximately $401,000 related to the acquisition of
EnviroStaff 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.
4. The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
5. Accounts receivable are stated net of an allowance for doubtful accounts of
$592,000 and $553,000 at March 31, 1997 and December 31, 1996, respectively.
7
<PAGE> 8
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
ON ASSIGNMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (continued)
6. Office furniture, equipment and leasehold improvements are stated net of
accumulated depreciation and amortization of $2,179,000 and $2,032,000 at March
31, 1997 and December 31, 1996, respectively.
7. Goodwill represents the excess of the purchase price over the fair value of
the net assets acquired. It is being amortized on a straight-line basis over 15
years. Goodwill is stated net of accumulated amortization of $140,000 and
$128,000 at March 31, 1997 and December 31, 1996, respectively.
8. At March 31, 1997 and December 31, 1996, Preferred Stock at a par value of
$0.01 per share consisted of 1,000,000 shares authorized and 0 shares issued and
outstanding
9. At March 31, 1997 and December 31, 1996, Common Stock at a par value of $0.01
per share consisted of 25,000,000 shares authorized and 5,230,432 and 5,155,560
shares issued and outstanding, respectively.
10. In December 1997, the Company will be required to adopt Statement of
Financial Accounting Standards No. 128, "Earnings Per Share." The provisions of
this statement will require a change in the method of calculating earnings per
share. The Company has not yet determined the effect, if any, that this
statement will have on currently reported earnings per share.
8
<PAGE> 9
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The discussion in this Report contains forward-looking statements that involve
risks and uncertainties. The Company's actual results could differ materially
from those discussed herein. Factors that could cause or contribute to such
differences include, but are not limited to, management of growth and other
risks discussed in "Risk Factors That May Affect Future Results" in the Business
Section of the Company's Annual Report on Form 10-K for the year ended December
31, 1996, 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.
CHANGES IN RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND
1996:
REVENUES - Revenues increased by 24.7% from $18,902,000 for the three months
ended March 31, 1996, to $23,570,000 for the three months ended March 31, 1997,
primarily as a result of the increase in the number of temporary employees on
assignment in the Lab Support division and to a lesser extent from the increase
in revenues generated by the Healthcare Financial Staffing division.
The growth of the Lab Support division's revenues were primarily attributable to
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. Average hourly billing rates of
the Lab Support division increased slightly during the 1997 period.
The EnviroStaff division's revenues remained consistent between the two periods,
primarily as a result of the transition of the division's business away from
remediation and the resulting planned decline in remediation assignments offset
by increases in revenues from the division's higher margin core business. In
addition, as a result of seasonal variations, revenue growth was tempered by the
impact of severe winter weather in several key markets. Average hourly billing
rates of the EnviroStaff division increased slightly during the 1997 period.
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
the past year.
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 25.2% from
$13,129,000 for the three months ended March 31, 1996, to $16,435,000 for the
three months ended March 31, 1997. Cost of services as a percentage of revenues
increased from 69.5% in the 1996 period to 69.7% in the 1997 period. This
increase was primarily attributable to a decrease in conversion fee revenue of
the Lab Support and EnviroStaff divisions in the 1997 period.
9
<PAGE> 10
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CHANGES IN RESULTS OF OPERATIONS (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996:
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, including 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 14.5% from $4,070,000
for the three months ended March 31, 1996, to $4,661,000 for the three months
ended March 31, 1997. Operating expenses as a percentage of revenues decreased
from 21.5% in the 1996 period to 19.8% in the 1997 period. This result was
primarily attributable to improved Account Manager productivity in all three
divisions and increased leverage of the Company's operations support
infrastructure.
ACQUISITION COSTS - Acquisition costs consisted principally of legal,
accounting, financial advisory services and other expenses related to the
initial combination of EnviroStaff and the Company. The combined companies
incurred approximately $401,000 in acquisition costs during the three months
ended March 31, 1996.
INTEREST - Interest income, net increased 37.2% from $113,000 for the three
months ended March 31, 1996 to $155,000 for the three months ended March 31,
1997, primarily as a result of interest earned on higher interest-bearing cash,
cash equivalent and marketable security account balances in the 1997 period, and
interest expense charged on EnviroStaff's line of credit borrowings in the 1996
period.
PROVISION FOR INCOME TAXES - Income taxes increased 79.4% from $557,000 for the
three months ended March 31, 1996 to $999,000 for the three months ended March
31, 1997. The effective tax rate decreased from 39.4% in the 1996 period to
38.0% in the 1997 period. This decrease was primarily attributable to the
consolidation of divisional field operations into Assignment Ready, Inc., a
wholly-owned subsidiary of the company, which resulted in a lower overall
effective state tax rate.
10
<PAGE> 11
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES:
The Company's primary sources of cash for the three months ended March 31, 1997
were funds provided by operating activities. For the three months ended March
31, 1996, operating activities provided $2,066,000 of cash compared to
$3,290,000 for the three months ended March 31, 1997. This increase was
primarily attributable to higher net income. In addition, a decrease in accounts
receivable and an increase in income taxes payable in the 1997 period,
contributed to net cash provided by operating activities.
Cash provided by investing activities totaled $72,000 for the three months ended
March 31, 1996, compared to $1,244,000 for the three months ended March 31,
1997. This was primarily attributable to cash proceeds from the maturity of
marketable securities exceeding cash used to purchase marketable securities in
the 1997 period.
Cash provided by financing activities was $361,000 for the three months ended
March 31, 1996, compared to $596,000 for the three months ended March 31, 1997.
The increase was primarily attributable to repayments of EnviroStaff's line of
credit borrowings exceeding the related borrowings during the 1996 period, and
higher proceeds from the sale of common stock in connection with the exercise of
stock options and the Employee Stock Purchase Plan during the 1997 period.
Effective September 30, 1996, 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 (8.5% at March 31, 1997). The
agreement expires on July 1, 1998. No borrowings were outstanding under this
credit line at March 31, 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.
The Company believes that its cash balances, together with funds from operations
and its borrowing capacity, will be sufficient to meet its cash requirements
through at least the next twelve months.
11
<PAGE> 12
PART II - OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - 11.1
Statement regarding computation of earnings per share
(b) Reports on Form 8-K
None
12
<PAGE> 13
PART II - OTHER INFORMATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ON ASSIGNMENT, INC.
Date: May 12, 1997 By: /s/ H. Tom Buelter
-------------------- -------------------
H. Tom Buelter
Chairman of the Board, President
and Chief Executive Officer
(Principal Executive Officer)
Date: May 12, 1997 By: /s/ Ronald W. Rudolph
-------------------- ----------------------
Ronald W. Rudolph
Sr. Vice President, Finance & Operations Support,
and Chief Financial Officer
(Principal Financial and Accounting Officer)
13
<PAGE> 14
PART II - OTHER INFORMATION
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
11.1 Statement regarding computation 15
of earnings per share
</TABLE>
14
<PAGE> 1
EXHIBIT 11.1
ON ASSIGNMENT, INC.
STATEMENTS OF COMPUTATION OF NET EARNINGS PER
COMMON AND COMMON EQUIVALENT SHARES (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-------------------------------------------
1997 1996
----------------- -----------------
<S> <C> <C>
Net income used to compute primary and
fully diluted earnings per share $ 1,630,000 $ 858,000
================= =================
Weighted average number of shares outstanding 5,186,000 5,057,000
Dilutive effect of stock options and warrants 244,000 371,000
----------------- -----------------
Number of shares used to compute primary and fully
diluted earnings per share 5,430,000 5,428,000
================= =================
Net earnings per share $ 0.30 $ 0.16
================= =================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS (UNAUDITED) AND CONSOLIDATED STATEMENTS OF INCOME AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FOR THE QUARTERLY
PERIOD ENDED MARCH 31, 1997
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 16,948,000
<SECURITIES> 1,500,000
<RECEIVABLES> 12,324,000
<ALLOWANCES> 592,000
<INVENTORY> 0
<CURRENT-ASSETS> 31,038,000
<PP&E> 4,605,000
<DEPRECIATION> 2,179,000
<TOTAL-ASSETS> 34,914,000
<CURRENT-LIABILITIES> 4,953,000
<BONDS> 0
0
0
<COMMON> 52,000
<OTHER-SE> 29,909,000
<TOTAL-LIABILITY-AND-EQUITY> 34,914,000
<SALES> 0
<TOTAL-REVENUES> 23,570,000
<CGS> 0
<TOTAL-COSTS> 16,435,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 60,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,629,000
<INCOME-TAX> 999,000
<INCOME-CONTINUING> 1,630,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,630,000
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.30
</TABLE>
