<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, 2000
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 June 30, 2000, the total number of outstanding shares of the Company's Common
Stock ($0.01 par value) was 22,941,959.
<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, 2000
and December 31, 1999 3
Consolidated Statements of Income and Comprehensive Income
for the three months ended June 30, 2000 and June 30, 1999 4
Consolidated Statements of Income and Comprehensive Income
for the six months ended June 30, 2000 and June 30, 1999 5
Consolidated Statements of Cash Flows for the six months
ended June 30, 2000 and June 30, 1999 6-7
Notes to Consolidated Financial Statements 8-10
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-15
Item 3 - Quantitative and Qualitative Disclosures about Market Risk 15
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders 16
Item 5 - Other information 17
Item 6 - Exhibits and Reports on Form 8-K 17
Signatures 18
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
ON ASSIGNMENT, INC.
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 37,919,000 $ 24,120,000
Marketable securities 3,314,000 11,151,000
Accounts receivable, net (Note 3) 25,189,000 22,780,000
Advances and deposits 112,000 74,000
Prepaid expenses 1,702,000 1,800,000
Officer loan receivable 300,000 400,000
Income taxes receivable 405,000 681,000
Deferred income taxes 2,066,000 2,056,000
------------ ------------
Total current assets 71,007,000 63,062,000
------------ ------------
Office Furniture, Equipment and
Leasehold Improvements, net (Note 4) 3,393,000 3,510,000
Marketable securities 12,620,000 2,256,000
Deferred income taxes 231,000 274,000
Workers' compensation restricted deposits 235,000 169,000
Goodwill, net 1,406,000 1,468,000
Other assets 1,417,000 1,001,000
------------ ------------
TOTAL ASSETS $ 90,309,000 $ 71,740,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 793,000 $ 1,067,000
Accrued payroll 4,628,000 4,203,000
Deferred compensation 1,632,000 807,000
Accrued workers' compensation 1,473,000 1,447,000
Other accrued expenses 672,000 769,000
------------ ------------
Total current liabilities 9,198,000 8,293,000
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock 0 0
Common stock (Note 7) 229,000 223,000
Paid-in capital (Note 7) 26,809,000 17,903,000
Deferred compensation liability 294,000 294,000
Retained earnings 61,580,000 52,850,000
Accumulated other comprehensive income 11,000 (11,000)
------------ ------------
88,923,000 71,259,000
Less: Treasury shares, at cost (Note 8) 7,812,000 7,812,000
------------ ------------
Total stockholders' equity 81,111,000 63,447,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 90,309,000 $ 71,740,000
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
3
<PAGE> 4
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ON ASSIGNMENT, INC.
CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------------------------------------------------------
Three Months Ended June 30,
-------------------------------
2000 1999
----------- -----------
<S> <C> <C>
Revenues (Note 6) $47,817,000 $39,272,000
Cost of services 32,163,000 26,524,000
----------- -----------
Gross profit 15,654,000 12,748,000
Selling, general and administrative expenses 9,035,000 7,613,000
----------- -----------
Operating income 6,619,000 5,135,000
Interest income 571,000 411,000
----------- -----------
Income before income taxes 7,190,000 5,546,000
Provision for income taxes 2,666,000 2,063,000
----------- -----------
Net income $ 4,524,000 $ 3,483,000
=========== ===========
Basic earnings per share (Note 9) $ 0.20 $ 0.16
=========== ===========
Weighted average number of common
shares outstanding (Note 9) 22,177,000 22,108,000
=========== ===========
Diluted earnings per share (Note 9) $ 0.20 $ 0.15
=========== ===========
Weighted average number of common and common
equivalent shares outstanding (Note 9) 23,182,000 22,490,000
=========== ===========
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
-------------------------------------------------------------------------------------
<CAPTION>
Three Months Ended June 30,
------------------------------
2000 1999
---------- ----------
<S> <C> <C>
Net income $4,524,000 $3,483,000
Other comprehensive income:
Foreign currency translation adjustment 17,000 11,000
---------- ----------
Comprehensive income $4,541,000 $3,494,000
========== ==========
</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,
--------------------------
2000 1999
----------- -----------
<S> <C> <C>
Revenues (Note 6) $92,162,000 $74,061,000
Cost of services 62,062,000 50,093,000
----------- -----------
Gross profit 30,100,000 23,968,000
Selling, general and administrative expenses 17,225,000 14,404,000
----------- -----------
Operating income 12,875,000 9,564,000
Interest income 1,017,000 806,000
----------- -----------
Income before income taxes 13,892,000 10,370,000
Provision for income taxes 5,162,000 3,857,000
----------- -----------
Net income $ 8,730,000 $ 6,513,000
=========== ===========
Basic earnings per share (Note 9) $ 0.40 $ 0.30
=========== ===========
Weighted average number of common
shares outstanding (Note 9) 22,011,000 22,067,000
=========== ===========
Diluted earnings per share (Note 9) $ 0.38 $ 0.29
=========== ===========
Weighted average number of common and common
equivalent shares outstanding (Note 9) 22,903,000 22,589,000
=========== ===========
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
--------------------------------------------------------------------------------
<CAPTION>
Six Months Ended June 30,
-------------------------
2000 1999
---------- ----------
<S> <C> <C>
Net income $8,730,000 $6,513,000
Other comprehensive income:
Foreign currency translation adjustment 22,000 19,000
---------- ----------
Comprehensive income $8,752,000 $6,532,000
========== ==========
</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,
----------------------------
2000 1999
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,730,000 $ 6,513,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 659,000 548,000
Increase in allowance for doubtful accounts 256,000 352,000
Decrease in income taxes receivable 2,814,000 253,000
Decrease (Increase) in deferred income taxes 49,000 (231,000)
Loss on disposal of office furniture and equipment 28,000 0
Increase in accounts receivable (2,709,000) (1,600,000)
Increase in accounts payable and accrued expenses 927,000 2,421,000
Increase in income taxes payable 0 722,000
(Increase) Decrease in workers' compensation deposits (66,000) 2,000
Decrease (Increase) in prepaid expenses 97,000 (65,000)
------------ ------------
Net cash provided by operating activities 10,785,000 8,915,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (4,436,000) (5,495,000)
Proceeds from the maturity of marketable securities 1,909,000 2,855,000
Acquisition of office furniture, equipment and
leasehold improvements (508,000) (519,000)
Increase in advances and deposits (39,000) (30,000)
Repayments of (Disbursements for) officer loan receivable 100,000 (400,000)
Increase in other assets (418,000) (350,000)
------------ ------------
Net cash used for investing activities (3,392,000) (3,939,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of common stock options 6,245,000 1,156,000
Proceeds from issuance of common stock -
Employee Stock Purchase Plan 124,000 129,000
Repurchases of common stock 0 (4,804,000)
------------ ------------
Net cash provided by (used for) financing activities 6,369,000 (3,519,000)
------------ ------------
Effect of exchange rate changes on cash and cash equivalents 37,000 19,000
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 13,799,000 1,476,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 24,120,000 27,706,000
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 37,919,000 $ 29,182,000
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
6
<PAGE> 7
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ON ASSIGNMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
-----------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Six Months Ended June 30,
-------------------------
2000 1999
---------- ----------
<S> <C> <C>
Cash paid during the period for income taxes, net of refunds $2,316,000 $3,111,000
========== ==========
SUPPLEMENTAL DISCLOSURE OF NON-CASH
TRANSACTIONS:
<CAPTION>
Six Months Ended June 30,
-------------------------
2000 1999
---------- ----------
<S> <C> <C>
Tax benefit of disqualifying dispositions $2,543,000 $ 431,000
========== ==========
</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 SIX MONTHS ENDED JUNE 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, 1999.
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 six months
ended June 30, 2000 are not necessarily indicative of the results to be expected
for the full year or any other period.
2. 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.
3. Accounts receivable are stated net of an allowance for doubtful accounts of
$1,278,000 and $1,216,000 at June 30, 2000 and December 31, 1999, respectively.
4. Office furniture, equipment and leasehold improvements are stated net of
accumulated depreciation and amortization of $4,773,000 and $4,268,000 at June
30, 2000 and December 31, 1999, respectively.
5. 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 $413,000 and
$352,000 at June 30, 2000 and December 31, 1999, respectively.
6. Revenue from temporary assignments, net of credits and discounts, is
recognized when earned, based on hours worked by the Company's temporary
employees on a weekly basis. Permanent placement fees are recognized when
earned, upon conversion of a temporary employee to a client's regular employee.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB 101), which
provides additional guidance in applying generally accepted accounting
principles to revenue recognition in the financial statements. The Company has
evaluated the provisions of SAB 101 and believes its impact on their revenue
recognition policy is immaterial.
7. At June 30, 2000 and December 31, 1999, Common Stock, at a par value of $0.01
per share, consisted of 25,000,000 shares authorized and 22,941,959 and
22,325,050 shares issued and outstanding, respectively.
On March 7, 2000, the Board of Directors authorized a two-for-one-stock split,
effected as a 100 percent common stock dividend, to be distributed on April 3,
2000 to shareholders of record as of March 27, 2000. All references to number of
shares 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.
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, 2000 AND 1999 (continued)
--------------------------------------------------------------------------------
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 June 30,
2000 and December 31, 1999, the Company had repurchased 660,000 shares of its
common stock at a total cost of $7,812,000.
9. The following is a reconciliation of the shares used to compute basic and
diluted earnings per share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted average number of shares
outstanding used to compute basic
earnings per share 22,177,000 22,108,000 22,011,000 22,067,000
Dilutive effect of stock options 1,005,000 382,000 892,000 522,000
---------- ---------- ---------- ----------
Number of shares used to compute
diluted earnings per share 23,182,000 22,490,000 22,903,000 22,589,000
========== ========== ========== ==========
</TABLE>
10. Indicated below is the information required to comply with SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information.
Effective in the first quarter of 2000, management has decided to change the
composition of its reportable segments by reclassifying the Clinical Lab Staff
division from the Lab Support segment to the Healthcare Financial Staffing
segment as the division is managed and operated in the same manner as the
Healthcare Financial Staffing division. The Healthcare Financial Staffing
segment was renamed the Healthcare Staffing segment. The prior period segment
information has been retroactively restated to reflect the change in reportable
segments. As a result, the Company has two reportable operating segments: Lab
Support and Healthcare Staffing. The Lab Support operating segment includes the
combined results of the Lab Support and EnviroStaff 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 and scientific professionals to the biotechnology,
pharmaceutical, food and beverage, chemical and environmental industries. The
Healthcare Staffing segment includes the combined results of the Healthcare
Financial Staffing and Clinical Lab Staff divisions. The Healthcare Staffing
segment provides temporary and permanent placement services of medical billing
and collection and medical staffing professionals to the healthcare industry.
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, 2000 AND 1999 (continued)
--------------------------------------------------------------------------------
The Company's management evaluates performance of each segment primarily based
on revenues and operating income (before acquisition costs, interest and income
taxes). The Company's management does not evaluate, manage or measure
performance of segments using asset information, accordingly, asset information
by segment is not disclosed. The 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 Staffing segment.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Lab Support $34,503,000 $29,732,000 $66,581,000 $56,771,000
Healthcare Staffing 13,314,000 9,540,000 25,581,000 17,290,000
----------- ----------- ----------- -----------
$47,817,000 $39,272,000 $92,162,000 $74,061,000
=========== =========== =========== ===========
Gross Profit:
Lab Support $11,367,000 $ 9,620,000 $21,876,000 $18,316,000
Healthcare Staffing 4,287,000 3,128,000 8,224,000 5,652,000
----------- ----------- ----------- -----------
$15,654,000 $12,748,000 $30,100,000 $23,968,000
=========== =========== =========== ===========
Operating Income:
Lab Support $ 4,584,000 $ 3,574,000 $ 8,738,000 $ 6,798,000
Healthcare Staffing 2,035,000 1,561,000 4,137,000 2,766,000
----------- ----------- ----------- -----------
$ 6,619,000 $ 5,135,000 $12,875,000 $ 9,564,000
=========== =========== =========== ===========
</TABLE>
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 and scientific, environmental health and safety, medical billing and
collections and clinical laboratory and medical staffing 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, 1999, 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 JUNE 30, 2000 AND 1999:
--------------------------------------------------------------------------------
REVENUES - Revenues increased by 21.8% from $39,272,000 for the three months
ended June 30, 1999, to $47,817,000 for the three months ended June 30, 2000, as
a result of the increased revenues of the Lab Support and Healthcare Staffing
segments.
Lab Support segment's revenues increased by 16.0% from $29,732,000 for the three
months ended June 30, 1999, to $34,503,000 for the three months ended June 30,
2000. The increase in revenue was primarily attributable to a 10.7% increase in
the number of temporary employees on assignment and to a lesser extent to a 5.9%
increase in average hourly billing rates and a 113.3% increase in conversion fee
revenue during the 2000 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 by 1.9% from
$1,011,000 for the three months ended June 30, 1999 to $992,000 for the three
months ended June 30, 2000. The decrease 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
increased conversion fee revenue during the 2000 period.
Healthcare Staffing segment's revenues increased by 39.6% from $9,540,000 for
the three months ended June 30, 1999, to $13,314,000 for the three months ended
June 30, 2000. The increase in revenue was primarily attributable to a 35.1%
increase in the number of temporary employees on assignment and to a lesser
extent to a 4.1% increase in average hourly billing rates and a 56.0% increase
in conversion fee revenue during the 2000 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 Staffing segment has
older, more established branches and to a lesser extent the contribution of new
offices opened in the past year.
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 JUNE 30, 2000 AND 1999: (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 21.3% from $26,524,000 for the three months ended June 30, 1999, to
$32,163,000 for the three months ended June 30, 2000. The Lab Support segment's
cost of services as a percentage of segment revenues decreased by 0.5% from
67.6% in the 1999 period to 67.1% in the 2000 period. This decrease was
primarily attributable to a 1.1% decrease in temporary employee compensation and
payroll taxes, partially offset by a 0.5% increase in employer paid benefits and
training expenses and a 0.1% increase in workers' compensation expense. The
Healthcare Staffing segment's cost of services as a percentage of segment
revenues increased by 0.6% from 67.2% in the 1999 period to 67.8% in the 2000
period. This increase was primarily attributable to a 0.4% increase in employer
paid benefits and training expenses and a 0.2% increase in workers' compensation
expense. The increase in workers' compensation for both segments was primarily
due to higher insurance premiums in the 2000 period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - Selling, general and
administrative expenses include the costs associated with the Company's network
of Account Managers and branch offices, including Account Manager compensation,
rent, other office expenses and advertising for temporary employees, and
corporate office expenses, such as the salaries of corporate operations and
support personnel, management compensation, Account Manager recruiting and
training expenses, corporate advertising and promotion, rent and other general
and administrative expenses. Selling, general and administrative expenses
increased 18.7% from $7,613,000 for the three months ended June 30, 1999, to
$9,035,000 for the three months ended June 30, 2000. Operating expenses as a
percentage of revenues decreased from 19.4% in the 1999 period to 18.9% in the
2000 period. This result was primarily attributable to leveraging a more
efficient centralized support system over a larger revenue base, partially
offset by the hiring of new Account Managers for the opening of new offices and
the expansion of existing offices.
INTEREST INCOME - Interest income increased 38.9% from $411,000 for the three
months ended June 30, 1999, to $571,000 for the three months ended June 30,
2000. This increase was primarily the result of interest earned on higher
interest-bearing cash, cash equivalent and marketable security account balances
in the 2000 period.
PROVISION FOR INCOME TAXES - Provision for income taxes increased 29.2% from
$2,063,000 for the three months ended June 30, 1999, to $2,666,000 for the three
months ended June 30, 2000. The Company's effective tax rate decreased slightly
from 37.2% in the 1999 period to 37.1% in the 2000 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, 2000 AND 1999:
--------------------------------------------------------------------------------
REVENUES - Revenues increased by 24.4% from $74,061,000 for the six months ended
June 30, 1999, to $92,162,000 for the six months ended June 30, 2000, as a
result of the increased revenues of the Lab Support and Healthcare Staffing
segments.
Lab Support segment's revenues increased by 17.3% from $56,771,000 for the six
months ended June 30, 1999, to $66,581,000 for the six months ended June 30,
2000. The increase in revenue was primarily attributable to a 9.9% increase in
the number of temporary employees on assignment and to a lesser extent to a 4.9%
increase in average hourly billing rates, 2 additional working days in the six
month period and a 110.1% increase in conversion fee revenue during the 2000
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 by 16.6% from $2,142,000 for the six months
ended June 30, 1999 to $1,787,000 for the six months ended June 30, 2000. The
decrease 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, additional working days in the six
month period and increased conversion fee revenue during the 2000 period.
Healthcare Staffing segment's revenues increased by 48.0% from $17,290,000 for
the six months ended June 30, 1999, to $25,581,000 for the six months ended June
30, 2000. The increase in revenue was primarily attributable to a 43.5% increase
in the number of temporary employees on assignment and to a lesser extent to a
3.8% increase in average hourly billing rates, 2 additional working days in the
six month period and a 41.0% increase in conversion fee revenue during the 2000
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 Staffing segment has older, more established branches and to a
lesser extent the contribution of new offices opened in the past year.
COST OF SERVICES - Cost of services consists solely of compensation for
temporary employees and payroll taxes, benefits and employment related expenses
paid by the Company in connection with such compensation. Cost of services
increased 23.9% from $50,093,000 for the six months ended June 30, 1999, to
$62,062,000 for the six months ended June 30, 2000. The Lab Support segment's
cost of services as a percentage of segment revenues decreased by 0.6% from
67.7% in the 1999 period to 67.1% in the 2000 period. This decrease was
primarily attributable to a 1.0% decrease in temporary employee compensation and
payroll taxes, partially offset by a 0.3% increase in employer paid benefits
and training expenses and a 0.1% increase in workers' compensation expense. The
Healthcare Staffing segment's cost of services as a percentage of segment
revenues increased by 0.6% from 67.3% in the 1999 period to 67.9% in the 2000
period. This increase was primarily attributable to a 0.3% increase in workers'
compensation expense, a 0.2% increase in employee compensation and payroll taxes
and a 0.1% increase in employer paid benefits and training. The increase in
workers' compensation for both segments was primarily due to higher insurance
premiums in the 2000 period.
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 SIX MONTHS ENDED JUNE 30, 2000 AND 1999: (continued)
--------------------------------------------------------------------------------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - Selling, general and
administrative expenses include the costs associated with the Company's network
of Account Managers and branch offices, including Account Manager compensation,
rent, other office expenses and advertising for temporary employees, and
corporate office expenses, such as the salaries of corporate operations and
support personnel, management compensation, Account Manager recruiting and
training expenses, corporate advertising and promotion, rent and other general
and administrative expenses. Selling, general and administrative expenses
increased 19.6% from $14,404,000 for the six months ended June 30, 1999, to
$17,225,000 for the six months ended June 30, 2000. Operating expenses as a
percentage of revenues decreased from 19.4% in the 1999 period to 18.7% in the
2000 period. This result was primarily attributable to leveraging a more
efficient centralized support system over a larger revenue base, partially
offset by the hiring of new Account Managers for the opening of new offices and
the expansion of existing offices.
INTEREST INCOME - Interest income increased 26.2% from $806,000 for the six
months ended June 30, 1999, to $1,017,000 for the six months ended June 30,
2000. This increase was primarily the result of interest earned on higher
interest-bearing cash, cash equivalent and marketable security account balances
in the 2000 period.
PROVISION FOR INCOME TAXES - Provision for income taxes increased 33.8% from
$3,857,000 for the six months ended June 30, 1999, to $5,162,000 for the six
months ended June 30, 2000. The Company's effective tax rate remained unchanged
at 37.2% in the 1999 and 2000 periods.
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, 1999 and
2000 were funds provided by operating activities. For the six months ended June
30, 1999, operating activities provided $8,915,000 of cash compared to
$10,785,000 for the six months ended June 30, 2000. This increase was primarily
attributable to a decrease in income taxes receivable and a higher net income.
The increase was partially offset by a smaller increase in accounts payable and
accrued expenses and a larger increase in accounts receivable in the 2000
period.
Cash used for investing activities totaled $3,939,000 for the six months ended
June 30, 1999, compared to $3,392,000 for the six months ended June 30, 2000.
This decrease was primarily attributable to lower purchases of marketable
securities in the 2000 period and a partial repayment of an officer loan
receivable in the 2000 period compared with a disbursement in the 1999 period,
partially offset by lower proceeds from the maturity of marketable securities in
the 2000 period.
Cash used for financing activities was $3,519,000 for the six months ended June
30, 1999, compared to cash provided by financing activities of $6,369,000 for
the six months ended June 30, 2000. The increase was primarily attributable to
higher proceeds from the exercise of common stock options in the 2000 period and
repurchases of common stock in the 1999 period.
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.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to certain market risks arising from transactions in the
normal course of business, principally risks associated with interest rate and
foreign currency fluctuations. The Company is exposed to interest rate risk from
its held to maturity investments. The interest rate risk is not significant due
to the short maturity of those investments. The Company is exposed to foreign
currency risk from the translation of foreign operations into U.S. dollars.
Based on the relative size and nature of its foreign operations, the Company
does not believe that a ten percent change in foreign currency exchange rates
would have a material impact on its financial statements.
15
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's 2000 Annual Meeting of Stockholders was held on June 13, 2000,
pursuant to notice given to stockholders of record on April 17, 2000.
At the Annual Meeting, the following individuals were elected to the Board of
Directors of the Company for a term expiring in 2003:
Name Votes For Withheld
--------------------------------------------------------------
Karen Brenner 17,303,806 440,788
Jeremy M. Jones 17,303,806 440,788
The following individuals' terms of office as directors continued after the
Annual Meeting:
H. Tom Buelter
The Honorable William E. Brock
Jonathan S. Holman
At the Annual Meeting, the stockholders approved an amendment to the Company's
Restated Certificate of Incorporation to increase the authorized number of
shares of Common Stock from 25,000,000 to 75,000,000. The holders of 15,493,218
shares of Common Stock voted in favor of the amendment, the holders of 1,350,386
shares voted against, and the holders of 900,990 shares abstained.
At the Annual Meeting, the stockholders ratified the appointment of Deloitte &
Touche as the Company's independent public accountants for the fiscal year
ending December 31, 2000. The holders of 17,736,366 shares of Common Stock voted
in favor of the ratification, the holders of 2,780 shares voted against, and the
holders of 5,448 shares abstained.
Following the election of directors, amendment of the Restated Certificate of
Incorporation and ratification of the independent public accountants as
described above, the Annual Meeting was adjourned to June 27, 2000, for the sole
purpose of voting on a proposed amendment to the Company's Restated 1987 Stock
Option Plan to increase the shares of Common Stock reserved for issuance under
the Option Plan from 8,000,000 to 10,000,000. The Company had not received the
necessary votes from its institutional stockholders to approve this proposal at
the time of adjournment. On June 27, 2000, the Company was still in the process
of receiving the necessary votes from its institutional stockholders.
Accordingly, the Annual Meeting was further adjourned to July 11, 2000. On July
11, 2000, the stockholders approved an amendment to the Company's Restated 1987
Stock Option Plan to increase the shares of Common Stock reserved for issuance
under the Option Plan from 8,000,000 to 10,000,000. The holders of 11,322,189
shares of Common Stock voted in favor of the amendment, the holders of 2,254,929
shares voted against, and the holders of 954,790 shares abstained.
16
<PAGE> 17
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: August 14, 2000 By: /s/ H. Tom Buelter
------------------- ----------------------------------------
H. Tom Buelter
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date: August 14, 2000 By: /s/ Ronald W. Rudolph
------------------- ----------------------------------------
Ronald W. Rudolph
Executive Vice President, Finance
and Chief Financial Officer
(Principal Financial and Accounting
Officer)
