<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 SEPTEMBER 30, 1999
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 October 31, 1999, the total number of outstanding shares of the Company's
Common Stock ($0.01 par value) was 10,823,267.
<PAGE> 2
ON ASSIGNMENT, INC.
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE NUMBER
<S> <C>
Item 1 - Consolidated Financial Statements
Consolidated Balance Sheets at September 30, 1999
and December 31, 1998 3
Consolidated Statements of Income for the three months ended
September 30, 1999 and September 30, 1998 4
Consolidated Statements of Income for the nine months ended
September 30, 1999 and September 30, 1998 5
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1999 and September 30, 1998 6,7
Notes to Consolidated Financial Statements 8,9,10
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 11,12,13,14,15,16
Item 3 - Quantitative and Qualitative Disclosures about Market Risk 16
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security-Holders 17
Item 5 -Other information 17
Item 6 - Exhibits and Reports on Form 8-K 17
Signatures 18
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
ON ASSIGNMENT, INC.
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 24,345,000 $ 27,706,000
Marketable securities 11,750,000 2,760,000
Accounts receivable, net (Note 4) 21,317,000 18,578,000
Advances and deposits 123,000 70,000
Prepaid expenses 1,246,000 1,149,000
Officer loan receivable 400,000 0
Income taxes receivable 1,049,000 254,000
Deferred income taxes 1,575,000 1,310,000
------------ ------------
Total current assets 61,805,000 51,827,000
------------ ------------
Office Furniture, Equipment and
Leasehold Improvements, net (Note 5) 3,290,000 2,703,000
Marketable securities 3,060,000 5,325,000
Deferred income taxes 315,000 235,000
Workers' compensation restricted deposits 167,000 168,000
Goodwill, net (Note 6) 1,498,000 1,215,000
Other assets 1,028,000 555,000
------------ ------------
TOTAL ASSETS $ 71,163,000 $ 62,028,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,086,000 $ 309,000
Accrued payroll 4,461,000 4,552,000
Deferred compensation 914,000 319,000
Accrued workers' compensation 1,375,000 1,437,000
Other accrued expenses 1,010,000 1,185,000
------------ ------------
Total current liabilities 8,846,000 7,802,000
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock 0 0
Common stock (Notes 7 and 8) 109,000 109,000
Paid-in capital (Note 8) 13,537,000 15,752,000
Retained earnings 48,684,000 38,388,000
Accumulated other comprehensive income (13,000) (23,000)
------------ ------------
Total stockholders' equity 62,317,000 54,226,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 71,163,000 $ 62,028,000
============ ============
</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 September 30,
--------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Revenues $42,227,000 $35,535,000
Cost of services 28,450,000 24,192,000
----------- -----------
Gross profit 13,777,000 11,343,000
Operating expenses 8,177,000 6,966,000
----------- -----------
Operating income 5,600,000 4,377,000
Interest income 414,000 357,000
----------- -----------
Income before income taxes 6,014,000 4,734,000
Provision for income taxes 2,231,000 1,772,000
----------- -----------
Net income $ 3,783,000 $ 2,962,000
=========== ===========
Basic earnings per share (Note 10) $ 0.35 $ 0.27
=========== ===========
Weighted average number of common
shares outstanding (Note 10) 10,925,000 10,898,000
=========== ===========
Diluted earnings per share (Note 10) $ 0.34 $ 0.26
=========== ===========
Weighted average number of common and common
equivalent shares outstanding (Note 10) 11,143,000 11,361,000
=========== ===========
</TABLE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net income $ 3,783,000 $ 2,962,000
Other comprehensive loss:
Foreign currency translation adjustment (9,000) (8,000)
----------- -----------
Comprehensive income $ 3,774,000 $ 2,954,000
=========== ===========
</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>
Nine Months Ended September 30,
--------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Revenues $116,288,000 $ 96,610,000
Cost of services 78,543,000 66,207,000
------------ ------------
Gross profit 37,745,000 30,403,000
Operating expenses 22,581,000 18,593,000
------------ ------------
Operating income 15,164,000 11,810,000
Interest income 1,220,000 981,000
------------ ------------
Income before income taxes 16,384,000 12,791,000
Provision for income taxes 6,088,000 4,786,000
------------ ------------
Net income $ 10,296,000 $ 8,005,000
============ ============
Basic earnings per share (Note 10) $ 0.94 $ 0.74
============ ============
Weighted average number of common
shares outstanding (Note 10) 10,997,000 10,836,000
============ ============
Diluted earnings per share (Note 10) $ 0.92 $ 0.71
============ ============
Weighted average number of common and common
equivalent shares outstanding (Note 10) 11,244,000 11,292,000
============ ============
</TABLE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net income $10,296,000 $ 8,005,000
Other comprehensive income (loss):
Foreign currency translation adjustment 10,000 (16,000)
----------- -----------
Comprehensive income $10,306,000 $ 7,989,000
=========== ===========
</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>
Nine Months Ended September 30,
---------------------------------
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 10,296,000 $ 8,005,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 841,000 687,000
Increase in allowance for doubtful accounts 493,000 422,000
Decrease in income taxes receivable 20,000 42,000
Increase in deferred income taxes (343,000) (376,000)
Loss on disposal of office furniture and equipment 0 16,000
Increase in accounts receivable (3,216,000) (3,458,000)
Increase in accounts payable and accrued expenses 1,033,000 2,519,000
Increase in income taxes payable 0 1,070,000
Decrease (Increase) in workers' compensation deposits 1,000 (112,000)
Increase in prepaid expenses (97,000) (117,000)
Increase in other assets (485,000) (301,000)
------------ ------------
Net cash provided by operating activities 8,543,000 8,397,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (10,685,000) (3,530,000)
Proceeds from the maturity of marketable securities 3,960,000 5,410,000
Acquisition of office furniture, equipment and
leasehold improvements (1,337,000) (796,000)
Proceeds from sale of office furniture and equipment 0 1,000
(Increase) Decrease in advances and deposits (53,000) 6,000
Acquisition (Note 12) (360,000) (808,000)
------------ ------------
Net cash (used for) provided by investing activities (8,475,000) 283,000
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of common stock options 1,510,000 1,894,000
Proceeds from issuance of common stock -
Employee Stock Purchase Plan 264,000 206,000
Repurchases of common stock (4,804,000) 0
Disbursements for officer loan receivable (400,000) 0
------------ ------------
Net cash (used for) provided by financing activities (3,430,000) 2,100,000
------------ ------------
Effect of exchange rate changes on cash and cash equivalents 1,000 (9,000)
------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (3,361,000) 10,771,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 27,706,000 18,339,000
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 24,345,000 $ 29,110,000
============ ============
</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>
Nine Months Ended September 30,
-------------------------------
1999 1998
----------- ------------
<S> <C> <C>
Cash paid during the period for income taxes,
net of refunds $6,410,000 $4,050,000
========== ==========
Acquisition (Note 12):
Fair value of assets acquired $ 0 $ 58,000
Goodwill 360,000 750,000
---------- ----------
Cash paid $ 360,000 $ 808,000
========== ==========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH
TRANSACTIONS:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1999 1998
---------- -------------
<S> <C> <C>
Tax benefit of disqualifying dispositions $815,000 $1,025,000
======== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
7
<PAGE> 8
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
ON ASSIGNMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
- --------------------------------------------------------------------------------
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, 1998.
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 the Company's 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 nine
months ended September 30, 1999 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 domestic and foreign subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
4. Accounts receivable are stated net of an allowance for doubtful accounts of
$1,344,000 and $1,009,000 at September 30, 1999 and December 31, 1998,
respectively.
5. Office furniture, equipment and leasehold improvements are stated net of
accumulated depreciation and amortization of $4,199,000 and $3,451,000 at
September 30, 1999 and December 31, 1998, 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 $321,000 and
$243,000 at September 30, 1999 and December 31, 1998, respectively.
7. At September 30, 1999 and December 31, 1998, Common Stock at a par value of
$0.01 per share consisted of 25,000,000 shares authorized and 10,944,973 and
10,944,040 shares issued and outstanding, respectively.
8. On April 1, 1999, the Board of Directors authorized the Company to repurchase
up to $15,000,000 of its common stock. The Company plans to make such purchases
primarily in the open market, from time to time, at prevailing prices pursuant
to rules and regulations of the Securities and Exchange Commission. At September
30, 1999, the Company had repurchased 205,000 shares of its common stock at a
total cost of $4,804,000.
8
<PAGE> 9
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
ON ASSIGNMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (continued)
- --------------------------------------------------------------------------------
9. On February 2, 1999, the Company formed On Assignment UK Limited, a United
Kingdom corporation and wholly owned subsidiary of the Company. On February 16,
1999, On Assignment UK Limited formed Lab Support (UK) Limited, a United Kingdom
corporation and wholly owned subsidiary of On Assignment UK Limited, and
commenced operations as Lab Support UK during the first quarter of 1999.
10. The following is a reconciliation of the shares used to compute basic and
diluted earnings per share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted average number of shares
outstanding used to compute
basic earnings per share 10,925,000 10,898,000 10,997,000 10,836,000
Dilutive effect of stock options 218,000 463,000 247,000 456,000
---------- ---------- ---------- ----------
Number of shares used to compute
diluted earnings per share 11,143,000 11,361,000 11,244,000 11,292,000
========== ========== ========== ==========
</TABLE>
11. Indicated below is the information required to comply with SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information.
The Company has two reportable operating segments: Lab Support and Healthcare
Financial Staffing. The Lab Support operating segment includes the combined
results of the Lab Support, EnviroStaff and Clinical Lab Staff divisions, as
they have similar economic characteristics and they meet the aggregation
criteria of SFAS No. 131. The Lab Support segment provides temporary and
permanent placement services of laboratory, clinical and scientific
professionals to the biotechnology, environmental, chemical, pharmaceutical,
healthcare, food and beverage and petrochemical industries. The Healthcare
Financial Staffing segment provides temporary and permanent placement services
of medical billing and collection professionals to the healthcare industry.
The Company's management evaluates performance of each segment primarily based
on revenues and operating income (before acquisition costs, interest and income
taxes). The information in the following table is derived directly from the
segments' internal financial reporting used for corporate management purposes.
Certain corporate expenses have not been allocated from the Lab Support segment
to the Healthcare Financial Staffing segment.
9
<PAGE> 10
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
ON ASSIGNMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------- --------------------------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenues:
Lab Support $ 31,456,000 $ 29,363,000 $ 88,227,000 $ 81,695,000
Healthcare Financial Staffing 10,771,000 6,172,000 28,061,000 14,915,000
------------ ------------ ------------ ------------
$ 42,227,000 $ 35,535,000 $116,288,000 $ 96,610,000
============ ============ ============ ============
Gross Profit:
Lab Support $ 10,223,000 $ 9,298,000 $ 28,539,000 $ 25,508,000
Healthcare Financial Staffing 3,554,000 2,045,000 9,206,000 4,895,000
------------ ------------ ------------ ------------
$ 13,777,000 $ 11,343,000 $ 37,745,000 $ 30,403,000
============ ============ ============ ============
Operating Income:
Lab Support $ 3,674,000 $ 3,523,000 $ 10,470,000 $ 9,748,000
Healthcare Financial Staffing 1,926,000 854,000 4,694,000 2,062,000
------------ ------------ ------------ ------------
$ 5,600,000 $ 4,377,000 $ 15,164,000 $ 11,810,000
============ ============ ============ ============
</TABLE>
12. On July 20, 1998, the Company acquired substantially all of the assets of
LabStaffers, Inc., a provider of temporary science and medical laboratory
professionals through its branches in Greensboro and Charlotte, N.C. The
LabStaffers, Inc. offices and operations acquired have been added to the
Company's Lab Support division. This acquisition has been accounted for using
the purchase method of accounting. Pro Forma information is not presented as the
impact on revenues, net income and earnings per share are not significant.
Consideration for the purchase consisted of $808,000 in cash paid on the
purchase date. In addition, in July 1999 the Company paid an additional $360,000
in cash in accordance with the agreement, bringing the total consideration for
the purchase to $1,168,000 at September 30, 1999. This contingent consideration
has been added to goodwill in the accompanying Consolidated Balance Sheets.
Additional consideration not to exceed $480,000 may be paid 25 months after the
closing date, contingent on certain revenue targets, and any such contingent
consideration will also be added to goodwill.
10
<PAGE> 11
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information in this discussion contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Act of 1934, as amended. Such statements are based upon current
expectations that involve risks and uncertainties. Any statements contained
herein that are not statements of historical fact may be deemed to be
forward-looking statements. For example, the words "believes," "anticipates,"
"plans," "expects," "intends" and similar expressions are intended to identify
forward-looking statements. 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 Company's ability to attract,
train and retain qualified Account Managers and temporary employees in the
laboratory, science, financial and environmental fields, management of growth,
particularly in international markets, risks inherent in expansion into new
international markets and new professions, the integration of acquired
operations, 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, 1998, 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. All forward-looking statements in this document are based
on information available to the Company as of the date hereof and the Company
assumes no obligation to update any such forward-looking statements.
CHANGES IN RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998:
- --------------------------------------------------------------------------------
REVENUES - Revenues increased by 18.8% from $35,535,000 for the three months
ended September 30, 1998, to $42,227,000 for the three months ended September
30, 1999, as a result of the increased revenues of the Healthcare Financial
Staffing and the Lab Support segments.
The growth of the Healthcare Financial Staffing segment's revenues was 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
1999 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 segment has older, more established branches
and to a lesser extent the contribution of new offices opened in the past year.
The growth of the Lab Support segment's revenues was 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 1999 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 segment has older, more established branches and to a lesser extent the
contribution of new offices opened in the past year. The increase in the Lab
Support segment's revenues was partially offset by a decrease in the EnviroStaff
division's revenues, which was primarily attributable to the continuing
transition of the division's business away from serving clients in the
remediation business and the resulting planned decline in remediation
assignments, partially offset by increases in average hourly billing rates and
average weekly hours worked during the 1999 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
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998: (continued)
- --------------------------------------------------------------------------------
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 17.6% from $24,192,000 for the three months ended September 30, 1998,
to $28,450,000 for the three months ended September 30, 1999. Cost of services
as a percentage of revenues decreased from 68.1% in the 1998 period to 67.4% in
the 1999 period. This decrease was primarily attributable to a decrease in state
unemployment insurance and workers' compensation expense, and a decrease in
conversion fee revenue of both segments in the 1999 period.
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 17.4%
from $6,966,000 for the three months ended September 30, 1998, to $8,177,000 for
the three months ended September 30, 1999. Operating expenses as a percentage of
revenues decreased from 19.6% in the 1998 period to 19.4% in the 1999 period.
This result was primarily attributable to leveraging a more efficient
centralized support system over a larger revenue base, partially offset by
increased investments in Account Manager training and recruiting, expenses for
international expansion into Canada and the U.K., knowledge worker training
programs, and an increase in the hiring of new Account Managers for the opening
of new offices and the expansion of existing offices.
INTEREST INCOME - Interest income increased 16.0% from $357,000 for the three
months ended September 30, 1998, to $414,000 for the three months ended
September 30, 1999, primarily as a result of interest earned on higher
interest-bearing cash, cash equivalent and marketable security account balances
in the 1999 period, which was partially offset by cash used to repurchase the
Company's common stock.
PROVISION FOR INCOME TAXES - Provision for income taxes increased 25.9% from
$1,772,000 for the three months ended September 30, 1998, to $2,231,000 for the
three months ended September 30, 1999. The Company's effective tax rate
decreased from 37.4% in the 1998 period to 37.1% in the 1999 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 NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998:
- --------------------------------------------------------------------------------
REVENUES - Revenues increased by 20.4% from $96,610,000 for the nine months
ended September 30, 1998, to $116,288,000 for the nine months ended September
30, 1999, as a result of the increased revenues of the Healthcare Financial
Staffing and the Lab Support segments.
The growth of the Healthcare Financial Staffing segment's revenues was 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
1999 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 segment has older, more established branches
and to a lesser extent the contribution of new offices opened in the past year.
The growth of the Lab Support segment's revenues was 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 1999 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 segment has older, more established branches and to a lesser extent the
contribution of new offices opened in the past year. The increase in the Lab
Support segment's revenues was partially offset by a decrease in the EnviroStaff
division's revenues, which was primarily attributable to the continuing
transition of the division's business away from serving clients in the
remediation business and the resulting planned decline in remediation
assignments, partially offset by increases in average hourly billing rates and
average weekly hours worked during the 1999 period.
COST OF SERVICES - Cost of services increased 18.6% from $66,207,000 for the
nine months ended September 30, 1998, to $78,543,000 for the nine months ended
September 30, 1999. Cost of services as a percentage of revenues decreased from
68.5% in the 1998 period to 67.5% in the 1999 period. This decrease was
primarily attributable to a decrease in state unemployment insurance and
workers' compensation expense, partially offset by an increase in employer paid
benefits.
OPERATING EXPENSES - Operating expenses increased 21.4% from $18,593,000 for the
nine months ended September 30, 1998, to $22,581,000 for the nine months ended
September 30, 1999. Operating expenses as a percentage of revenues increased
from 19.2% in the 1998 period to 19.4% in the 1999 period. This increase was
primarily attributable to investments in Account Manager training and
recruiting, expenses for international expansion into Canada and the U.K.,
knowledge worker training programs, and an increase in the hiring of new Account
Managers for the opening of new offices and the expansion of existing offices.
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 FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998: (continued)
- --------------------------------------------------------------------------------
INTEREST INCOME - Interest income increased 24.4% from $981,000 for the nine
months ended September 30, 1998, to $1,220,000 for the nine months ended
September 30, 1999, primarily as a result of interest earned on higher
interest-bearing cash, cash equivalent and marketable security account balances
in the 1999 period, which was partially offset by cash used to repurchase the
Company's common stock.
PROVISION FOR INCOME TAXES - Provision for income taxes increased 27.2% from
$4,786,000 for the nine months ended September 30, 1998 to $6,088,000 for the
nine months ended September 30, 1999. The Company's effective tax rate decreased
from 37.4% in the 1998 period to 37.2% in the 1999 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 nine months ended September 30,
1998 and 1999 were funds provided by operating activities. For the nine months
ended September 30, 1998, operating activities provided $8,397,000 of cash
compared to $8,543,000 for the nine months ended September 30, 1999. This
increase was primarily attributable to higher net income and a smaller increase
in accounts receivable in the 1999 period. The increase was partially offset by
a smaller increase in accounts payable and accrued expenses and income taxes
payable in the 1999 period.
Cash provided by investing activities totaled $283,000 for the nine months ended
September 30, 1998, compared to cash used for investing activities of $8,475,000
for the nine months ended September 30, 1999. This was primarily attributable to
higher purchases of marketable securities in the 1999 period.
Cash provided by financing activities was $2,100,000 for the nine months ended
September 30, 1998, compared to cash used for financing activities of $3,430,000
for the nine months ended September 30, 1999. The decrease was primarily
attributable to repurchases of common stock and disbursements for an officer
loan receivable in the 1999 period.
On August 28, 1998, the Company had renewed its unsecured bank line of credit.
The maximum borrowings allowable under this agreement were $7,000,000 and
accrued interest at the bank's reference rate. The Company terminated the line
of credit on July 1, 1999.
The Company believes that its cash balances, together with funds from operations
and its borrowing ability, will be sufficient to meet its cash requirements
through at least the next twelve months.
YEAR 2000 READINESS DISCLOSURE:
- --------------------------------------------------------------------------------
The Company is continuing the process of assessing Year 2000 issues as they
relate to its systems, business and operations. The Year 2000 issue is the
result of computer systems designed and developed using two digits rather than
four to define the applicable year. Any programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a major system failure or miscalculations unless
corrective measures are taken.
The Company has developed a Year 2000 Readiness Plan to address the Year 2000
issues, particularly with respect to its critical systems. Critical systems are
those whose failure poses a risk of disruption to the Company's ability to
provide employment for its temporary employees and temporary staffing services
to its clients. The Company's plan includes five core phases; (1) initiating a
master plan and schedule in which key staff members are notified of their
responsibilities; (2) assessing the impact of mission-critical system failures
on core business processes by performing a complete inventory of software and
both information technology and non-information technology systems, such as
computer hardware containing embedded technology, implementing quality assurance
checks on vendors, and defining failure scenarios; (3) modifying, upgrading or
replacing hardware and software in order to meet compliance standards; (4)
identifying and documenting contingency plans and establishing resumption
procedures for each core business process; (5) validating all contingency plans
by preparing and executing tests. The Company has completed phases 1 and 2,
estimates that it has 90% completion on phase 3, 100% completion on phase 4 and
will be reviewing and testing contingency plans as needed.
15
<PAGE> 16
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
YEAR 2000 READINESS DISCLOSURE: (continued)
- --------------------------------------------------------------------------------
The Company does not believe that it will incur material costs or encounter
significant operational issues associated with Year 2000 issues; however, the
Company has not completed its Year 2000 Readiness Plan and there can be no
assurance Year 2000 issues will not result in material costs or significant
operational issues for the Company. In addition, the Company may experience
significant unanticipated problems and costs caused by errors or defects in
internal systems or Year 2000 issues with its customers or vendors. The
worst-case scenario if such problems occur, would be the Company's inability to
employ its temporary employees and record revenue. 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. While the Company
is not aware of any significant Year 2000 issues for which it will not be
adequately prepared, there can be no assurance that the Company's business,
operating results or financial condition will not be adversely affected by
issues surrounding the Year 2000 conversion. To date, the costs incurred by the
Company with respect to Year 2000 compliance have not been material. The Company
anticipates that the majority of costs associated to Year 2000 will be related
to ongoing scheduled software and hardware maintenance upgrades and licensing of
phone systems, PC operating systems and business applications. The Company
currently anticipates that the future costs to become Year 2000 compliant will
not be material; however, there can be no assurance that unforeseen events would
cause such costs to become material.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk inherent in the Company's market risk sensitive instruments and
positions is the potential loss arising from adverse changes in foreign currency
exchange and interest rates, which do not currently subject the Company to
material market risk exposure.
16
<PAGE> 17
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
None
(b) Reports on Form 8-K
None
17
<PAGE> 18
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: November 10, 1999 By: /s/ H. Tom Buelter
------------------------- ------------------------------------
H. Tom Buelter
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date: November 10, 1999 By: /s/ Ronald W. Rudolph
-------------------------- -------------------------------------
Ronald W. Rudolph
Senior Vice President, Finance
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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 SEPTEMBER 30, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 24,512,000
<SECURITIES> 14,810,000
<RECEIVABLES> 22,661,000
<ALLOWANCES> 1,344,000
<INVENTORY> 0
<CURRENT-ASSETS> 61,805,000
<PP&E> 7,489,000
<DEPRECIATION> 4,199,000
<TOTAL-ASSETS> 71,163,000
<CURRENT-LIABILITIES> 8,846,000
<BONDS> 0
0
0
<COMMON> 109,000
<OTHER-SE> 62,208,000
<TOTAL-LIABILITY-AND-EQUITY> 71,163,000
<SALES> 0
<TOTAL-REVENUES> 116,288,000
<CGS> 0
<TOTAL-COSTS> 78,543,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 493,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 16,384,000
<INCOME-TAX> 6,088,000
<INCOME-CONTINUING> 10,296,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,296,000
<EPS-BASIC> .94
<EPS-DILUTED> .92
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