<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 JUNE 30, 1998
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 July 31, 1998, the total number of outstanding shares of the Company's Common
Stock ($0.01 par value) was 10,895,288.
<PAGE> 2
ON ASSIGNMENT, INC.
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE NUMBER
<S> <C>
Item 1 -Consolidated Financial Statements
Consolidated Balance Sheets at June 30, 1998
and December 31, 1997 3
Consolidated Statements of Income for the three months
ended June 30, 1998 and June 30, 1997 4
Consolidated Statements of Income for the six months
ended June 30, 1998 and June 30, 1997 5
Consolidated Statements of Cash Flows for the six months
ended June 30, 1998 and June 30, 1997 6, 7
Notes to Consolidated Financial Statements 8, 9, 10
Item 2 -Management's Discussion and Analysis of
Financial Condition and Results of Operations 11, 12, 13, 14, 15
PART II - OTHER INFORMATION
Item 4 -Submission of Matters to a Vote of Security-Holders 16
Item 5 -Other Information 16
Item 6 -Exhibits and Reports on Form 8-K 16
Signatures 17
Index to Exhibits 18
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
ON ASSIGNMENT, INC.
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 26,102,000 $ 18,339,000
Marketable securities, current 4,565,000 5,370,000
Accounts receivable, net (Note 4) 17,856,000 15,215,000
Advances and deposits 133,000 67,000
Prepaid expenses 958,000 679,000
Income taxes receivable -- 111,000
Deferred income taxes 1,407,000 1,218,000
------------ ------------
Total current assets 51,021,000 40,999,000
------------ ------------
Office Furniture, Equipment and
Leasehold Improvements, net (Note 5) 2,597,000 2,572,000
Workers' compensation deposits 703,000 596,000
Goodwill, net (Note 6) 510,000 534,000
Other assets 394,000 163,000
------------ ------------
TOTAL ASSETS $ 55,225,000 $ 44,864,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accrued payroll $ 5,015,000 $ 3,043,000
Accounts payable 637,000 414,000
Accrued expenses 2,759,000 2,135,000
Income taxes payable 151,000 --
------------ ------------
Total current liabilities 8,562,000 5,592,000
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock (Note 8) 0 0
Common stock (Note 9) 109,000 107,000
Paid-in capital (Note 9) 14,453,000 12,099,000
Retained earnings 32,115,000 27,072,000
Cumulative foreign currency translation adjustment (Note 10) (14,000) (6,000)
------------ ------------
Total stockholders' equity 46,663,000 39,272,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 55,225,000 $ 44,864,000
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
3
<PAGE> 4
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
ON ASSIGNMENT, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------
1998 1997
----------- -----------
<S> <C> <C>
REVENUES $32,508,000 $26,410,000
COST OF SERVICES 22,261,000 18,447,000
----------- -----------
GROSS PROFIT 10,247,000 7,963,000
OPERATING EXPENSES 6,230,000 5,090,000
----------- -----------
OPERATING INCOME 4,017,000 2,873,000
INTEREST INCOME 322,000 203,000
----------- -----------
INCOME BEFORE INCOME TAXES 4,339,000 3,076,000
PROVISION FOR INCOME TAXES 1,614,000 1,153,000
----------- -----------
NET INCOME $ 2,725,000 $ 1,923,000
=========== ===========
BASIC EARNINGS PER SHARE (Notes 9 and 12) $ 0.25 $ 0.18
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING (Notes 9 and 12) 10,842,000 10,548,000
=========== ===========
DILUTED EARNINGS PER SHARE (Notes 9 and 12) $ 0.24 $ 0.18
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING (Notes 9 and 12) 11,296,000 10,956,000
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
4
<PAGE> 5
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
ON ASSIGNMENT, INC.
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------------
1998 1997
----------- -----------
<S> <C> <C>
REVENUES $61,075,000 $49,980,000
COST OF SERVICES 42,015,000 34,882,000
----------- -----------
GROSS PROFIT 19,060,000 15,098,000
OPERATING EXPENSES 11,627,000 9,751,000
----------- -----------
OPERATING INCOME 7,433,000 5,347,000
INTEREST INCOME 624,000 358,000
----------- -----------
INCOME BEFORE INCOME TAXES 8,057,000 5,705,000
PROVISION FOR INCOME TAXES 3,014,000 2,152,000
----------- -----------
NET INCOME $ 5,043,000 $ 3,553,000
=========== ===========
BASIC EARNINGS PER SHARE (Notes 9 and 12) $ 0.47 $ 0.34
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING (Notes 9 and 12) 10,805,000 10,460,000
=========== ===========
DILUTED EARNINGS PER SHARE (Notes 9 and 12) $ 0.45 $ 0.33
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING (Notes 9 and 12) 11,252,000 10,906,000
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
5
<PAGE> 6
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
ON ASSIGNMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended June 30,
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,043,000 $ 3,553,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 441,000 375,000
Increase in allowance for doubtful accounts 237,000 210,000
Decrease in income taxes receivable 111,000 0
Increase in deferred income taxes (189,000) (61,000)
Loss on disposal of office furniture and equipment 17,000 36,000
Increase in accounts receivable (2,883,000) (577,000)
Increase in accounts payable and accrued expenses 2,821,000 1,207,000
Increase in income taxes payable 956,000 760,000
(Increase) Decrease in workers' compensation deposits (107,000) 124,000
(Increase) Decrease in prepaid expenses (279,000) 92,000
Increase in other assets (239,000) (1,000)
------------ ------------
Net cash provided by operating activities 5,929,000 5,718,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (1,995,000) (1,050,000)
Proceeds from the maturity of marketable securities 2,800,000 2,000,000
Acquisition of office furniture, equipment and
leasehold improvements (451,000) (592,000)
Proceeds from sale of office furniture and equipment 0 6,000
(Increase) Decrease in advances and deposits (66,000) 13,000
------------ ------------
Net cash provided by investing activities 288,000 377,000
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of common stock options 1,461,000 1,123,000
Proceeds from issuance of common stock -
Employee Stock Purchase Plan 90,000 85,000
------------ ------------
Net cash provided by financing activities 1,551,000 1,208,000
------------ ------------
Effect of exchange rate changes on cash and cash equivalents (5,000) 0
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 7,763,000 7,303,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 18,339,000 11,102,000
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 26,102,000 $ 18,405,000
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
6
<PAGE> 7
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
ON ASSIGNMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
- --------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
<TABLE>
<CAPTION>
Six Months Ended June 30,
1998 1997
--------------- --------------
<S> <C> <C>
Cash paid during the period for income taxes, net of refunds $ 2,136,000 $ 1,453,000
=============== ==============
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH
TRANSACTIONS:
<TABLE>
<CAPTION>
Six Months Ended June 30,
1998 1997
--------------- --------------
<S> <C> <C>
Tax benefit of disqualifying dispositions related to exercises of
common stock options $ 805,000 $ 300,000
=============== ==============
</TABLE>
7
<PAGE> 8
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
ON ASSIGNMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
- --------------------------------------------------------------------------------
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, 1997.
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 or the six months ended June
30, 1998 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 into one entity, to optimize
regional activities and achieve economies of scale.
3. The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
4. Accounts receivable are stated net of an allowance for doubtful accounts of
$948,000 and $734,000 at June 30, 1998 and December 31, 1997, respectively.
5. Office furniture, equipment and leasehold improvements are stated net of
accumulated depreciation and amortization of $3,001,000 and $2,616,000 at June
30, 1998 and December 31, 1997, respectively.
6. 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 $199,000 and
$175,000 at June 30, 1998 and December 31, 1997, respectively.
7. Effective January 1, 1998, the Company implemented the On Assignment, Inc.
Deferred Compensation Plan. The plan permits a select group of management or
highly compensated employees or directors to annually elect to defer up to 100
percent of base salary, annual bonus or fees on a pre-tax basis, and earn
tax-deferred interest on these amounts. Distributions from the plan are made at
retirement, death or termination of employment, in a lump sum, or over five, ten
or fifteen years. At June 30, 1998, the liability under the plan, which is
reflected in accrued expenses, was approximately $309,000. A life insurance
policy is maintained on the participants relating to the plan, whereby the
Company is the sole owner and beneficiary of such insurance.
8
<PAGE> 9
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
ON ASSIGNMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (continued)
- --------------------------------------------------------------------------------
In addition, a Master Trust Agreement has been established and, at least
annually, the Company will transfer assets for its respective future liabilities
created with respect to the annual deferral amounts and annual company
contribution amounts, if any, for such participants for all periods prior to the
transfer.
8. At June 30, 1998 and December 31, 1997, 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 June 30, 1998 and December 31, 1997, Common Stock at a par value of $0.01
per share consisted of 25,000,000 shares authorized and 10,879,636 and
10,727,235 shares issued and outstanding, respectively.
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 in the
accompanying consolidated financial statements to number of shares and per share
amounts of the Company's common stock have been retroactively restated to
reflect the increased number of common shares outstanding. In addition,
stockholders' equity has been restated to give retroactive recognition to the
stock split by reclassifying from paid-in capital to common stock the par value
of the additional shares arising from the split.
10. On May 12, 1997, the Company formed Assignment Ready Inc., a Canadian
corporation and wholly-owned subsidiary of the Company, and commenced operations
in Canada during the third quarter of 1997.
Assets and liabilities of foreign operations, where the functional currency is
the local currency, are translated into U.S. dollars at the rate of exchange in
effect on the balance sheet date. Income and expenses are translated at the
average rates of exchange prevailing during the period. The related translation
adjustments are recorded as cumulative foreign currency translation adjustments,
a separate component of stockholders' equity.
11. On February 12, 1998, the Company adopted the On Assignment, Inc. Change in
Control Severance Plan to provide severance benefits for officers and other
eligible employees who are terminated following an acquisition of the Company.
Under the plan, if an eligible employee is involuntarily terminated within 18
months of a Change in Control, as defined in the Severance Plan, then the
employee will be entitled to salary plus target bonus payable in a lump sum. The
amounts payable would range from one month to 18 months of salary and target
bonus depending on the employee's length of service and position with the
Company.
9
<PAGE> 10
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
ON ASSIGNMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (continued)
- --------------------------------------------------------------------------------
12. 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 and non-qualified stock options) outstanding during the
periods using the treasury stock method.
Following is a reconciliation of the shares used to compute basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- -----------------------------
1998 1997 1998 1997
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Weighted average number of shares
outstanding used to compute basic
earnings per share 10,842,000 10,548,000 10,805,000 10,460,000
Dilutive effect of stock options 454,000 408,000 447,000 446,000
============= ============= ============== =============
Number of shares used to compute diluted
earnings per share 11,296,000 10,956,000 11,252,000 10,906,000
============= ============= ============== =============
</TABLE>
13. In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS
No. 130), which is effective for fiscal years beginning after December 15, 1997.
SFAS No. 130 defines comprehensive income as the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from nonowner sources. SFAS No. 130 establishes standards for the reporting and
display of comprehensive income and its components (revenues, expenses, gains
and losses) in a full set of general purpose financial statements. SFAS No. 130
requires that an enterprise (i) classify items of other comprehensive income by
their nature in a financial statement and (ii) display the accumulated balance
of other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of the balance sheet. Disclosure in the
accompanying consolidated balance sheets and statements of income has not been
made as the nonowner transactions of the Company consist only of foreign
currency translation adjustments, which are insignificant to the consolidated
financial statements as of June 30, 1998 and December 31, 1997.
10
<PAGE> 11
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, the integration of acquired
operations, management of growth, risks inherent in expansion into new
professions and new domestic and international markets, the Company's ability to
attract, train and retain qualified Account Managers and temporary employees in
the laboratory, science, financial and environmental fields, and other risks
discussed in "Risk Factors That May Affect Future Results" in Item 1 of the
Company's Annual Report on Form 10-K for the year ended December 31, 1997, 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 JUNE 30,1998 AND
1997:
REVENUES - Revenues increased by 23.1% from $26,410,000 for the three months
ended June 30, 1997, to $32,508,000 for the three months ended June 30, 1998, 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 the 1998 period.
The increase in the number of temporary employees on assignment was primarily
attributable to the strong performance in most of the markets in which the Lab
Support division has older, better established branches and to a lesser extent
the contribution of new offices opened in the past year.
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 the 1998 period. The increase in the number of temporary employees on
assignment was primarily attributable to the strong performance in most of the
markets in which the Healthcare Financial Staffing division has older, better
established branches and to a lesser extent the contribution of new offices
opened in the past year.
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 during the 1998 period.
11
<PAGE> 12
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 JUNE 30, 1998 AND 1997:
- --------------------------------------------------------------------------------
COST OF SERVICES - Cost of services consists solely of compensation for
temporary employees and payroll taxes, benefits and employment related expenses
paid by the Company in connection with such compensation. Cost of services
increased 20.7% from $18,447,000 for the three months ended June 30, 1997, to
$22,261,000 for the three months ended June 30, 1998. Cost of services as a
percentage of revenues decreased from 69.8% in the 1997 period to 68.5% in the
1998 period. This decrease was primarily attributable to a decrease in workers'
compensation expense and employer payroll taxes and employer paid benefits in
all three divisions, and lower training and medical monitoring expenses in the
EnviroStaff division, primarily as a result of the transition of the division's
business away from remediation assignments.
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 22.4%
from $5,090,000 for the three months ended June 30, 1997, to $6,230,000 for the
three months ended June 30, 1998. Operating expenses as a percentage of revenues
decreased from 19.3% in the 1997 period to 19.2% in the 1998 period. This result
was primarily attributable to improved Account Manager productivity and
leveraging a more efficient centralized support system over a larger revenue
base.
INTEREST INCOME - Interest income increased 58.6% from $203,000 for the three
months ended June 30, 1997, to $322,000 for the three months ended June 30,
1998, primarily as a result of interest earned on higher interest-bearing cash,
cash equivalent and marketable security account balances in the 1998 period.
PROVISION FOR INCOME TAXES - Provision for income taxes increased 40.0% from
$1,153,000 for the three months ended June 30, 1997 to $1,614,000 for the three
months ended June 30, 1998. The Company's effective tax rate decreased from
37.5% in the 1997 period to 37.2% in the 1998 period.
12
<PAGE> 13
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CHANGES IN RESULTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997:
- --------------------------------------------------------------------------------
REVENUES - Revenues increased by 22.2% from $49,980,000 for the six months ended
June 30, 1997, to $61,075,000 for the six months ended June 30, 1998, 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 the 1998 period.
The increase in the number of temporary employees on assignment was primarily
attributable to the strong performance in most of the markets in which the Lab
Support division has older, better established branches and to a lesser extent
the contribution of new offices opened in the past year.
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 the 1998 period. The increase in the number of temporary employees on
assignment was primarily attributable to the strong performance in most of the
markets in which the Healthcare Financial Staffing division has older, better
established branches and to a lesser extent the contribution of new offices
opened in the past year.
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 during the 1998 period.
COST OF SERVICES - Cost of services increased 20.4% from $34,882,000 for the six
months ended June 30, 1997, to $42,015,000 for the six months ended June 30,
1998. Cost of services as a percentage of revenues decreased from 69.8% in the
1997 period to 68.8% in the 1998 period. This decrease was primarily
attributable to a decrease in workers' compensation expense and employer payroll
taxes and employer paid benefits in all three divisions, and an increase in
conversion fee revenue of the Lab Support and Healthcare Financial Staffing
divisions in the 1998 period. In addition, lower training and medical monitoring
expenses in the EnviroStaff division, primarily as a result of the transition of
the division's business away from remediation assignments, contributed to the
decrease in the 1998 period.
OPERATING EXPENSES - Operating expenses increased 19.2% from $9,751,000 for the
six months ended June 30, 1997, to $11,627,000 for the six months ended June 30,
1998. Operating expenses as a percentage of revenues decreased from 19.5% in the
1997 period to 19.0% in the 1998 period. This result was primarily attributable
to improved Account Manager productivity and leveraging a more efficient
centralized support system over a larger revenue base.
13
<PAGE> 14
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 SIX MONTHS ENDED JUNE 30, 1998 AND 1997:
INTEREST INCOME - Interest income increased 74.3% from $358,000 for the six
months ended June 30, 1997, to $624,000 for the six months ended June 30, 1998,
primarily as a result of interest earned on higher interest-bearing cash, cash
equivalent and marketable security account balances in the 1998 period.
PROVISION FOR INCOME TAXES - Provision for income taxes increased 40.1% from
$2,152,000 for the six months ended June 30, 1997 to $3,014,000 for the six
months ended June 30, 1998. The Company's effective tax rate decreased from
37.7% in the 1997 period to 37.4% in the 1998 period.
14
<PAGE> 15
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 six months ended June 30, 1997 and
1998 were funds provided by operating activities. For the six months ended June
30, 1997, operating activities provided $5,718,000 of cash compared to
$5,929,000 for the six months ended June 30, 1998. This increase was primarily
attributable to an increase in accounts payable and accrued expenses, and higher
net income. The increase was principally offset by an increase in accounts
receivable, prepaid expenses and other assets.
Cash provided by investing activities totaled $377,000 for the six months ended
June 30, 1997, compared to $288,000 for the six months ended June 30, 1998. This
was primarily attributable to lower net proceeds from the maturity of marketable
securities and an increase in advances and deposits in the 1998 period,
partially offset by lower investments in office furniture, equipment and
leasehold improvements.
Cash provided by financing activities was $1,208,000 for the six months ended
June 30, 1997, compared to $1,551,000 for the six months ended June 30, 1998.
The increase was attributable to greater proceeds from the issuance of common
stock pursuant to the Company's Stock Option Plan and Employee Stock Purchase
Plan during the 1998 period.
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 June 30, 1998). The
agreement expires on July 1, 1999. No borrowings were outstanding under this
credit line at June 30, 1998.
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.
YEAR 2000 DISCLOSURE:
- --------------------------------------------------------------------------------
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 has not made a
determination of the impact, if any, of Year 2000 issues as they may relate to
significant relationships with clients, temporary employees or vendors. However,
if any of the Company's clients, temporary employees or vendors experience Year
2000 problems with respect to their relationship with the Company, such clients,
employees or vendors could assert claims for damages against the Company. The
Company has not yet determined or quantified the costs involved in addressing
Year 2000 issues or the impact, if any, on its business, operating results or
financial condition.
15
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
The Company's 1998 annual meeting of stockholders was held on June 18, 1998.
H. Tom Buelter and William E. Brock, both of whom served as directors prior to
the annual meeting, were re-elected as directors by the stockholders. Of the
total shares voting on this matter, 7,962,414 shares voted for the election of
Mr. Buelter and Mr. Brock, and 3,914 shares withheld authority to vote. Karen
Brenner, Jonathan S. Holman and Jeremy M. Jones, all of whom were directors
prior to the annual meeting, continued to serve as directors after the annual
meeting.
The following additional matter was submitted to the stockholders for vote at
the annual meeting:
Ratification of the appointment of Deloitte & Touche LLP as independent
auditors of the Company for the fiscal year ending December 31, 1998. Of
the total shares voting on this matter, 7,787,729 shares voted for the
proposal, 172,538 shares voted against the proposal, 6,061 shares
abstained from such vote and there were no broker non-votes.
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.1 Statements regarding computation of basic and diluted
earnings per share
(b) Reports on Form 8-K
None
16
<PAGE> 17
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: August 12, 1998 By: /s/ H. Tom Buelter
---------------------- -----------------------
H. Tom Buelter
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date: August 12, 1998 By: /s/ Ronald W. Rudolph
---------------------- -----------------------
Ronald W. Rudolph
Sr. Vice President, Finance & Operations
Support, and Chief Financial Officer
(Principal Financial and Accounting
Officer)
17
<PAGE> 18
PART II - OTHER INFORMATION
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
11.1 Statements regarding computation of basic and diluted earnings per share
</TABLE>
18
<PAGE> 1
EXHIBIT 11.1
ON ASSIGNMENT, INC.
STATEMENTS OF COMPUTATION OF BASIC AND DILUTED
EARNINGS PER SHARE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- ---------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income used to compute basic and
diluted earnings per share $ 2,725,000 $ 1,923,000 $ 5,043,000 $ 3,553,000
=========== =========== =========== ===========
Basic earnings per share $ 0.25 $ 0.18 $ 0.47 $ 0.34
=========== =========== =========== ===========
Weighted average number of shares
outstanding used to compute basic
earnings per share 10,842,000 10,548,000 10,805,000 10,460,000
Dilutive effect of stock options 454,000 408,000 447,000 446,000
----------- ----------- ----------- -----------
Number of shares used to compute
diluted earnings per share 11,296,000 10,956,000 11,252,000 10,906,000
=========== =========== =========== ===========
Diluted earnings per share $ 0.24 $ 0.18 $ 0.45 $ 0.33
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FOR
THE QUARTERLY PERIOD ENDED JUNE 30, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 26,805,000
<SECURITIES> 4,565,000
<RECEIVABLES> 18,804,000
<ALLOWANCES> 948,000
<INVENTORY> 0
<CURRENT-ASSETS> 51,021,000
<PP&E> 5,598,000
<DEPRECIATION> 3,001,000
<TOTAL-ASSETS> 55,225,000
<CURRENT-LIABILITIES> 8,562,000
<BONDS> 0
0
0
<COMMON> 109,000
<OTHER-SE> 46,554,000
<TOTAL-LIABILITY-AND-EQUITY> 55,225,000
<SALES> 0
<TOTAL-REVENUES> 61,075,000
<CGS> 0
<TOTAL-COSTS> 42,015,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 237,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 8,057,000
<INCOME-TAX> 3,014,000
<INCOME-CONTINUING> 5,043,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,043,000
<EPS-PRIMARY> 0.47
<EPS-DILUTED> 0.45
</TABLE>
