1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
Commission File Number 0-20540
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ON ASSIGNMENT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-4023433
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
26651 West Agoura Road
Calabasas, California 91302
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (818) 878-7900
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
------------------- ------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
(Title and Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements of the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the 3,373,755 shares of voting stock
(based on the closing price reported by the Nasdaq Stock Market on January 31,
1997) held by non-affiliates of the registrant as of January 31, 1997 was
approximately $118,925,000. For purposes of this disclosure, shares of common
stock held by persons who own 5% or more of the shares of outstanding common
stock and shares of common stock held by each officer and director have been
excluded in that such persons may be deemed to be "affiliates" as that term is
defined under the Rules and Regulations of the Act. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
As of January 31, 1997, the registrant had outstanding 5,171,262 shares
of Common Stock, $0.01 par value.
DOCUMENT INCORPORATED BY REFERENCE
Portions of the On Assignment, Inc. Proxy Statement for the Annual
Meeting of Stockholders to be held on June 9, 1997 are incorporated by reference
into Part III of this Report on Form 10-K.
Sequentially numbered page 1 of 54 pages
Exhibit index on sequentially numbered page 34
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PART I
ITEM 1. BUSINESS
On Assignment, Inc. (the "Company"), through its first operating
division, Lab Support, is a leading nationwide provider of temporary scientific
professionals to laboratories in the biotechnology, environmental, chemical,
pharmaceutical, food and beverage and petrochemical industries. In January 1994,
the Company established its second operating division, Finance Support, with the
acquisition of 1st Choice Personnel, Inc. The Finance Support division was
expanded in December 1994, with the acquisition of substantially all of the
assets, offices and operations of Sklar Resource Group, Inc. With a shift in
Finance Support's business development focus to medical billing and collections,
in January 1997 the name of the Finance Support division was changed to
Healthcare Financial Staffing. In March 1996, the Company established its third
operating division, EnviroStaff, with the acquisition of EnviroStaff, Inc. As of
December 31, 1996, the Company served 44 operational markets through a network
of 82 branch offices.
The Company's principal executive offices are located at 26651 West
Agoura Road, Calabasas, California 91302 and its telephone number is (818)
878-7900.
ON ASSIGNMENT'S APPROACH
The Company's strategy is to serve industries' needs for quality
assignments of temporary professionals. In contrast to the mass market approach
used for temporary office/clerical and light industrial personnel, the Company
believes effective assignments of temporary professionals require the person
making assignments to have significant knowledge of the client's industry and be
able to assess the specific needs of the client as well as the temporary
professionals' qualifications. As a result, the Company has developed a tailored
approach to the assignment process - the Account Manager System. Unlike
traditional approaches, the Account Manager System is based on the use of
experienced professionals, Account Managers, to manage the assignment process.
Account Managers meet with clients' managers to understand position descriptions
and workplace environments, and with temporary employee candidates to assess
their qualifications and interests. With this information, Account Managers can
make quality assignments of temporary professionals to clients, typically within
24 to 48 hours of client requests. The Company's corporate office performs many
functions that allow Account Managers to focus more effectively on the
assignment of temporary professionals. These functions include recruiting,
ongoing training and coaching, appointment making, business development and
administrative support. The corporate office also selects, opens and maintains
branch offices according to a standardized model.
Temporary personnel assigned to clients are employees of the Company,
though clients provide on-the-job supervisors for temporary personnel.
Therefore, clients control and direct the work of temporary personnel and
approve hours worked, while the Company is responsible for many of the
activities typically handled by the client's personnel department.
BRANCH OFFICE NETWORK
At December 31, 1996, the Company had 52 Lab Support branch offices, 13
Healthcare Financial Staffing branch offices, and 17 EnviroStaff branch offices.
Of this total of 82 branch offices, 22 branch offices involve shared office
space among divisions. Through this network of branch offices, the Company
served the following operational markets:
Atlanta, GA Kansas City, MO Princeton, NJ
Baltimore, MD Los Angeles, CA Raleigh-Durham, NC
Boston, MA Louisville, KY Richmond, VA
Buffalo, NY Memphis, TN Sacramento, CA
Charlotte, NC Miami, FL Salt Lake City, UT
Chicago, IL Milwaukee, WI San Antonio, TX
Cincinnati, OH Minneapolis, MN San Diego, CA
Cleveland, OH New Orleans, LA San Francisco, CA
Columbus, OH New York, NY San Jose, CA
Costa Mesa, CA Philadelphia, PA Seattle, WA
Dallas, TX Phoenix, AZ St. Louis, MO
Denver, CO Piscataway, NJ Tampa, FL
Detroit, MI Pittsburgh, PA Washington DC
Houston, TX Pleasanton, CA Westport, CT
Indianapolis, IN Portland, OR
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CLIENTS
Lab Support's clients include biotechnology, environmental, chemical,
pharmaceutical, food and beverage, petrochemical and manufacturing companies.
Healthcare Financial Staffing's clients include companies engaged in the
healthcare services industry. EnviroStaff's clients include companies in the
environmental services industry. During the year ended December 31, 1996, the
Company provided assignment professionals to approximately 3,100 clients. All
temporary assignments, regardless of their planned length, may be terminated
without prior notice by the client or the temporary employee.
THE TEMPORARY PROFESSIONAL
The skill and experience levels of Lab Support's temporary professional
employees range from scientists with bachelor and/or masters degrees and
considerable laboratory experience to technicians with some chemistry or biology
background and lab experience. The skills and experience levels of Healthcare
Financial Staffing's temporary professional employees typically include three or
more years of medical billing and collection experience. The skill and
experience of EnviroStaff's temporary professional employees' range from
engineers, geologists, industrial hygienists and safety professionals with
bachelor and/or masters degrees and several years of experience to field
technicians and heavy equipment operators with some applicable experience.
Hourly wage rates are established according to local market conditions.
The Company pays the related costs of employment including social security
taxes, federal and state unemployment taxes, workers' compensation insurance and
other similar costs. After minimum service periods and hours worked, the Company
also provides paid holidays, allows participation in the Company's 401(k)
Retirement Savings Plan and Employee Stock Purchase Plan, creates eligibility
for an annual bonus, and facilitates access to health insurance for its
temporary employees.
The Company maintains general liability insurance coverage. The Company
seeks to reduce liability for the acts of its temporary employees by providing
in its arrangements with clients that its temporary personnel work under the
client's supervision, control and direction.
EXPANSION IN EXISTING PROFESSIONS AND INTO OTHER PROFESSIONS
The Company intends to apply its approach to the assignment of
temporary professionals other than scientific, medical billing and collections,
and environmental service personnel and to expand its services in the
scientific, medical billing and collections and environmental fields it
currently serves. The Company believes that its experience with the Account
Manager System and centralized operational support will enable it to enter new
markets effectively. The Company continually reviews opportunities in various
industries, to evaluate the current volume and profitability of temporary
assignments, the length of assignments, the degree of specialization necessary
to be successful, the competitive environment and the applicability of its
Account Manager approach. If attractive markets are identified, the Company may
enter these markets through acquisition, internal growth or direct investment.
The Company's January 1994 acquisition of 1st Choice Personnel, Inc., December
1994 acquisition of substantially all of the assets of Sklar Resource Group,
Inc., and March 1996 acquisition of EnviroStaff, Inc. were consistent with this
ongoing activity, and the Company periodically engages in discussions with
possible acquisition candidates.
COMPETITION
The temporary services industry is highly competitive and fragmented
and has low barriers to entry. The Company believes its Lab Support division is
one of the few nationwide temporary service providers that specialize
exclusively in scientific laboratory personnel. Although other nationwide
temporary personnel companies compete with the Company with respect to
scientific, medical billing and collections and environmental personnel, many of
these companies focus on office/clerical and light and heavy industrial
personnel, which accounted for approximately 80% of the overall temporary
personnel services market. These companies include Manpower, Inc., Kelly
Services, Inc., The Olsten Corporation, ADIA Services, Inc., and Aerotech, Inc.,
each of which is larger and has substantially greater financial and marketing
resources than the Company.
The Company also competes with temporary personnel agencies on a
regional and local basis. Frequently, the strongest competition in a particular
market is a local company with established relationships. The Company also
competes with its clients that advertise or seek referrals of qualified
candidates.
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The principal competitive factors in attracting qualified candidates
for temporary employment are salaries and benefits, speed and quality of
assignments and responsiveness to the needs of employees. The Company believes
that many persons seeking temporary employment through the Company are also
pursuing employment through other means, including other temporary employment
service firms. Therefore, the speed and availability of appropriate
assignments is an important factor in the Company's ability to complete
assignments of qualified candidates. In addition to having high quality
temporary personnel to assign in a timely manner, the principal competitive
factors in obtaining and retaining clients in the temporary services industry
are correctly understanding the client's specific job requirements, the
appropriateness of the temporary personnel assigned to the client, the price of
services and the monitoring of client satisfaction. Although the Company
believes it competes favorably with respect to these factors, it expects
competition to increase.
EMPLOYEES
At December 31, 1996, the Company employed approximately 170 regular
employees, including Account Managers and corporate office employees. During
the year ended December 31, 1996, the Company employed approximately 9,800
temporary employees. None of the Company's employees, including its temporary
employees, are represented by a collective bargaining agreement. The Company
believes its employee relations are good.
REGULATION
The Company's operations are subject to applicable state and local
regulations governing the provision of personnel placement services which
require personnel companies to be licensed or separately registered. To date,
the Company has not experienced any material difficulties in complying with
such regulations. State mandated workers' compensation and unemployment
insurance premiums, which the Company pays for its temporary and regular
employees, have increased in recent years and have directly increased the
Company's cost of services. Federal legislative proposals for national health
insurance have included provisions extending health insurance benefits to
temporary employees and some states could impose sales taxes or raise sales tax
rates on temporary services.
PROPRIETARY RIGHTS
The Company has registered its Lab Support and EnviroStaff division's
service marks with the United States Patent and Trademark Office and applied
for registration of its Healthcare Financial Staffing division's service marks.
The Company has also registered its "Quality Assignment" logo with the United
States Patent and Trademark Office.
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company operates in a highly competitive environment that involves
a number of risks, some of which are beyond the Company's control. The
following discussion highlights some of the risks that may affect the Company
in future results.
Uncertainty of Future Operating Results, Quarterly Fluctuations and
Seasonality. Future operating results will depend on many factors, including
demand for the Company's services, the market's acceptance of price changes,
the productivity, recruitment and retention of Account Managers, the results of
the Company's expansion into new geographic markets, the degree and nature of
competition, the effectiveness of the Company's expansion into other
professions, and the Company's ability to control costs and manage its accounts
receivable. The Company and the temporary services industry as a whole
typically experience seasonal declines in demand from the year-end holiday
season through early February and during June, July and August. The Company
has experienced variability in the duration and depth of these seasonal
declines, which in turn have materially effected period-to-period and current
period-to-prior period comparisons of its financial and operating performance.
As a result of these and other factors, there can be no assurance that the
Company will be able to grow in future periods, sustain its past rate of
revenue growth or maintain profitability on a quarterly or annual basis.
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Expansion in Existing Professions and into Other Professions. The
Company plans to expand its services within the scientific, healthcare
financial and environmental fields it currently serves and to other
professional fields. The success of the Company's expansion efforts, including
its Healthcare Financial Staffing division and EnviroStaff, will depend on a
number of factors, including adapting On Assignment's approach used in its
current divisions to other industries and professions, recruiting and training
new Account Managers with the particular industry or professional experience,
establishing client relationships in new industries and successfully
recruiting, qualifying and orienting new temporary professionals. The Company
may decide to pursue future expansion by internal growth, direct investment or
acquisition. The rate at which the Company establishes new services may
significantly affect the Company's operating and financial results, especially
in the quarters of and immediately following expansion into new professional
markets or the integration of acquired operations. There can be no assurance
that the Company will be able to successfully develop its services for other
professional markets, that acquisitions by the Company will be successful or
that the Company will continue to grow.
Reliance on and Ability to Attract, Develop and Retain Account
Managers. The Company relies significantly on the performance of its Account
Managers, who have primary responsibility for all aspects of the process of
assigning the Company's temporary employees to clients. The Company is highly
dependent on its ability to hire, develop and retain qualified Account
Managers, as well as on the productivity of its Account Managers. The
available pool of qualified Account Manager candidates is limited. In
addition, prior to joining the Company, the typical Account Manager has no
prior experience in the temporary employment industry. The Company commits
substantial resources to the training, development and operational support of
its Account Managers. There can be no assurance that the Company will be able
to continue to recruit, train and retain qualified Account Managers.
Dependence on Availability of Qualified Temporary Professional
Employees. The Company is dependent upon continuing to attract qualified
science and financial personnel with a broad range of skills and experience in
order to meet client needs. The Company competes for such personnel with other
temporary personnel companies, as well as actual and potential clients, some of
which seek to fill positions with either regular or temporary employees. In
addition, the Company's temporary employees sometimes become regular employees
of the Company's clients. There can be no assurance that scientific, medical
billing and collections, and environmental services personnel will continue to
be available to the Company in adequate numbers.
Highly Competitive Market. The temporary services industry is highly
competitive and fragmented, with limited barriers to entry. The Company
competes in national, regional and local markets with full-service agencies and
in regional and local markets with specialized temporary services agencies.
Several of these companies have significantly greater marketing and financial
resources than those of the Company. As the Company expands into new
geographic markets, its success will depend in part on its ability to gain
market share from competitors. The Company expects that competition will
increase in the future and there can be no assurance that the Company will
remain competitive.
Effect of Fluctuations in the General Economy. Demand for temporary
services is significantly affected by the general level of economic activity.
As economic activity slows, many companies reduce their usage of temporary
employees before undertaking layoffs of their regular employees. As economic
activity increases, many clients convert their temporary employees to regular
employees, which, depending on the Company's agreement with the client and when
such conversion occurs, may result in conversion fee revenue for the Company.
The Company is unable to predict the level of economic activity at any
particular time and its effect on the Company's operating and financial
results.
Terminability of Client Arrangements. The Company's arrangements with
clients are terminable at will and do not require clients to use the Company's
services. All temporary assignments, regardless of their planned length, may
be terminated without advance notice. The loss of significant clients could
materially adversely affect the Company's business, operating results and
financial condition. There can be no assurance that existing clients will
continue to use the Company's services at historical levels, if at all.
Liability Insurance. The Company maintains general liability
insurance. This insurance does not extend to errors and omissions of temporary
employees on assignments with clients. The Company seeks to reduce any
liability for the acts of its temporary employees by providing in its
arrangements with clients that temporary personnel work under the client's
supervision, control and direction. There can be no assurance that such
arrangements will be enforceable or that, if enforceable, would be sufficient
to preclude liability as a result of the actions of its temporary personnel or
that insurance coverage will be available or adequate in amount to cover any
such liability.
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Workers' Compensation Expense. The Company maintains a partially
self-insured workers' compensation policy. In connection with this program,
the Company pays a base premium plus actual losses incurred, and is insured for
a maximum loss cap per occurrence and in the aggregate. The Company seeks to
minimize the impact of workers' compensation losses through an aggressive
claims management and accident reduction program. While current loss reserves
are reasonable based on claims filed and an estimate of claims incurred but not
yet reported, there can be no assurance that insurance coverage will be
adequate in amount to cover all workers' compensation claims.
Dependence on Key Officers. The Company's future success depends in
significant part upon the continued service of its key officers. Competition
for such personnel is intense and there can be no assurance that the Company
will retain its key officers or that it can attract or retain other highly
qualified managerial personnel in the future. The loss of any of its key
officers could have a material adverse effect upon the Company's business,
operating results and financial condition.
Government Regulations. In many states, the temporary services
industry is regulated, and firms such as the Company must be registered or
qualify for an exemption from registration. While these regulations have had
no material effect on the conduct of its business, there can be no assurance
that future regulations will not have such effect. State mandated workers'
compensation and unemployment insurance premiums, which the Company pays for
its temporary as well as its regular employees, have increased in recent years
thereby increasing the cost of services. Previous federal legislative
proposals for national health insurance have included provisions extending
health insurance benefits to temporary employees and some states could impose
sales taxes or raise sales tax rates on temporary services. Further increases
in such premiums or rates or the introduction of new regulatory provisions
could substantially raise the costs associated with hiring temporary employees
and there is no assurance that these increased costs could be passed on to
clients without a significant decrease in the demand for temporary employees.
ITEM 2. PROPERTIES
The Company has leased approximately 16,500 square feet of office
space through February 2004, for its corporate headquarters in Calabasas,
California. In addition, the Company leases office space in 60 branch office
locations in the metropolitan areas listed under the caption "Branch Office
Network" in Item 1 hereof. A branch office typically occupies approximately
1,200 square feet with lease terms that typically range from six months to five
years.
ITEM 3. LEGAL PROCEEDINGS
(a) There is no material legal proceeding to which the Company is a
party or to which its properties are subject.
(b) No material legal proceedings were terminated in the fourth
quarter of 1996.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company on December 31, 1996 were:
Name Age Position
---- --- --------
H. Tom Buelter................ 55 Chairman of the Board, President and Chief Executive Officer
Kathy J. West................. 45 Senior Vice President, Chief Operating Officer
Ronald W. Rudolph............. 53 Senior Vice President, Finance and Operations Support, and
Chief Financial Officer
Carrie S. Nebens.............. 39 Vice President and General Manager, Lab Support division
Robert J. LaBombard(1)........ 40 Vice President, Business Development, EnviroStaff, Inc.
Mark A. Vettese(2)............ 39 Vice President and General Manager, Healthcare Financial Staffing
division
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(1) Mr. LaBombard resigned as an officer and employee effective January 31,
1997.
(2) Mr. Vettese resigned as an officer and employee effective February 28,
1997.
H. TOM BUELTER has served as President, Chief Executive Officer and a
director of the Company since he joined the Company in March 1989. Mr. Buelter
was elected Chairman of the Company's Board of Directors in December 1992.
From 1983 to 1989, he was Senior Vice President of Kelly Services, Inc. ("Kelly
Services"), a temporary personnel firm, and Chief Operating Officer of Kelly
Assisted Living, a division of Kelly Services which provides temporary
home-care personnel.
KATHY J. WEST has served as Senior Vice President, Chief Operating
Officer since March 1995. From October 1993 through March 1995, Ms. West
served as the Company's Senior Vice President, Operations. From April 1993 to
October 1993, Ms. West served as the Company's Senior Vice President, Employee
and Business Services and, from January 1992 to April 1993, as the Company's
Vice President, Employee and Business Services. Ms. West joined the Company in
1990, as Director of Branch Operations. From 1987 to 1990, she served as the
founding principal of Performance Training Systems, a training services firm.
From 1973 to 1987, she was employed by Kelly Services, where she held a variety
of field operating and corporate positions. Her responsibilities included
field sales, corporate branch operations, training and developing international
sales and service schools.
RONALD W. RUDOLPH has served as Senior Vice President, Finance and
Operations Support, and Chief Financial Officer since October 1996. From
January 1996 through October 1996, Mr. Rudolph served as Senior Vice President,
Finance and Administration, and Chief Financial Officer. Mr. Rudolph joined
the Company in April 1995, as Vice President, Finance and Administration, and
Chief Financial Officer. From April 1987 to September 1994, Mr. Rudolph was
Vice President, Finance and Administration, and Chief Financial Officer of
Retix, a manufacturer of enterprise networking devices, and from June 1993 to
September 1994, Mr. Rudolph was a director of Retix.
CARRIE S. NEBENS has served as Vice President and General Manager, Lab
Support division since October 1996. From January 1996 through October 1996,
Ms. Nebens served as Vice President, Support Services. From April 1995 through
December 1996, she served as Vice President, Assignment Services and Training,
and was designated an executive officer of the company in September 1995. From
June 1993 to March 1995, she was Vice President, Field Operations for the
Company's Lab Support division. From January 1992 to May 1993, Ms. Nebens
served as Vice President, Operations of the Company. From 1991 to 1992, Ms.
Nebens served as Director, Branch Operations. Ms. Nebens joined the Company in
1988, as an Account Manager, served from 1988 to 1990, as the regional Manager
for the Chicago office, and in 1991, was promoted to Regional Director and
Director of Field Services.
ROBERT J. LABOMBARD served as Vice President, Business Development
from October 1996 through January 1997. Mr. LaBombard joined the Company in
March 1996 as Vice President and General Manager of EnviroStaff, Inc. upon the
Company's acquisition of EnviroStaff. From March 1993 through March 1996, Mr.
LaBombard served as Chairman of the Board and President of EnviroStaff, Inc.
From 1987 to 1993, he was employed by PACE, Inc., an environmental laboratory
firm. Mr. LaBombard resigned as an officer and employee of the Company
effective January 31, 1997.
MARK A. VETTESE served as Vice President and General Manager,
Healthcare Financial Staffing division from February 1996 through February
1997. From December 1992 through February 1996, Mr. Vettese served as a
Principal at Marsh & McLennan Company, a management consulting firm. From 1988
to 1992, he was employed by Ernst & Young, LLP in their Management Consulting
Practice. Mr. Vettese resigned as an officer and employee of the company
effective February 28, 1997.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock trades on the Nasdaq Stock Market under the
symbol ASGN. The following table sets forth the range of high and low sales
prices, as reported on the Nasdaq Stock Market for the period from January 1,
1995, to December 31, 1996. At January 31, 1997, the Company had approximately
130 holders of record of its Common Stock (although the Company has been
informed there are in excess of approximately 2,640 beneficial owners) and
5,171,262 shares outstanding.
Price Range of Common Stock
---------------------------
High Low
---- ---
Fiscal Year Ended December 31, 1995
First Quarter 20 15
Second Quarter 20-1/2 16
Third Quarter 26-1/8 18-1/4
Fourth Quarter 34-1/2 23-1/4
Fiscal Year Ended December 31, 1996
First Quarter 39-1/2 27-3/8
Second Quarter 44 31-1/2
Third Quarter 41-1/2 28-3/4
Fourth Quarter 35-1/4 27-3/4
Since inception, the Company has not declared or paid any cash
dividends on its Common Stock and currently plans to retain all earnings to
support the development and expansion of its business. The Company has no
present intention of paying any dividends on its Common Stock in the foreseeable
future. However, the Board of Directors of the Company will review the dividend
policy periodically to determine whether the declaration of dividends is
appropriate.
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ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected financial data of the Company.
This historical data should be read in conjunction with the consolidated
financial statements and notes thereto included elsewhere in this Form 10-K.
Years Ended December 31,
------------------------------------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
(in thousands, except per share data)
INCOME STATEMENT DATA
Revenues $ 32,662 $ 38,752 $ 53,617 $ 72,617 $ 88,188
Cost of services 22,742 27,100 37,343 50,812 61,231
---------- ---------- ---------- ---------- ----------
Gross profit 9,920 11,652 16,274 21,805 26,957
Operating expenses 7,131 7,737 10,661 14,950 17,699
---------- ---------- ---------- ---------- ----------
Operating income 2,789 3,915 5,613 6,855 9,258
Acquisition costs -- -- -- -- 401
---------- ---------- ---------- ---------- ----------
Income before interest and income taxes 2,789 3,915 5,613 6,855 8,857
Interest income, net 57 112 164 410 549
---------- ---------- ---------- ---------- ----------
Income before income taxes 2,846 4,027 5,777 7,265 9,406
Provision for income taxes 1,086 1,550 2,296 2,924 3,800
---------- ---------- ---------- ---------- ----------
Net income $ 1,760 $ 2,477 $ 3,481 $ 4,341 $ 5,606
========== ========== ========== ========== ==========
Earnings per share $ 0.37 $ 0.49 $ 0.68 $ 0.82 $ 1.03
========== ========== ========== ========== ==========
Weighted average number of
common and common
equivalent shares outstanding 4,816 5,070 5,124 5,265 5,449
BALANCE SHEET DATA
Cash, cash equivalents and current
portion of marketable securities $ 2,708 $ 4,692 $ 5,403 $ 6,892 $ 14,102
Working capital 6,033 8,801 11,255 14,772 23,848
Total assets 7,923 11,485 17,584 23,922 31,874
Long-term liabilities -- -- -- -- --
Stockholders' equity 6,933 10,245 14,829 20,148 27,635
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The discussion in this Report contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from those discussed herein. Factors that could cause or contribute
to such differences include, but are not limited to, the integration of
acquired operations, management of growth and other risks discussed in "Risk
Factors That May Affect Future Results" in Item 1 of this Annual Report,
beginning on page 4, as well as those discussed elsewhere in this Report and
from time to time in the Company's other reports filed with the Securities and
Exchange Commission, and the risks discussed in the "Risk Factors" section
included in the Company's Registration Statement on Form S-1 as declared
effective by the Securities and Exchange Commission on September 21, 1992 (Reg.
No. 33-50646).
SEASONALITY
The Company's results have historically been subject to seasonal
fluctuations. Demand for the Company's temporary employees typically declines
from the year-end holiday season through February, resulting in a corresponding
decrease in revenues, operating income and net income. Demand for the
Company's temporary employees also often declines in June, July and August due
to decreases in clients' activity during vacation periods and the availability
of students to perform temporary work. As a result, the Company has
experienced slower growth or declines in revenues, operating income and net
income from the second quarter to third quarter of prior years.
YEARS ENDED DECEMBER 31, 1995 AND 1996
REVENUES. Revenues increased by 21.4% from $72,617,000 in the year
ended December 31, 1995, to $88,188,000 in the year ended December 31, 1996,
primarily as a result of the increase in the number of temporary employees on
assignment in the Lab Support division and to a lesser extent from the increase
in revenues generated by EnviroStaff and the Healthcare Financial Staffing
division.
The growth of the Lab Support division's revenues were primarily
attributable to the strong performance in most of the markets in which the Lab
Support division has older, better established branches and to a lesser extent
the contribution of new Lab Support offices opened in the past year. However,
Lab Support's revenue growth was tempered by an unusually high number of
conversions of temporary employees to permanent status and the impact of severe
winter weather in several key markets during the first quarter of 1996.
Average hourly billing rates of the Lab Support division did not vary
significantly between the two periods.
The growth of EnviroStaff's revenues were primarily attributable to
the contribution of new EnviroStaff offices opened in the past year, as well as
the growth of most existing offices. Average hourly billing rates of
EnviroStaff did not vary significantly between the two periods.
The growth of the Healthcare Financial Staffing division's revenues
were primarily attributable to higher average hourly billing rates, which were
principally attributable to a concentration on new business with a higher price
structure, and to a lesser extent from the contribution of new offices opened
in the past year.
COST OF SERVICES. Cost of services consists solely of compensation
for temporary employees and payroll taxes and benefits paid by the Company in
connection with such compensation. Cost of services increased 20.5% from
$50,812,000 in 1995 to $61,231,000 in 1996. Cost of services as a percentage
of revenues decreased from 70.0% in 1995 to 69.4% in 1996. This decrease was
primarily attributable to an increase in conversion fee revenue of the Lab
Support division in the 1996 period. In addition, an increase in average gross
margins of the Healthcare Financial Staffing division in the 1996 period and an
increase in average gross margins of EnviroStaff as a result of a decrease in
average pay rates in the 1996 period, was partially offset by an increase in
employer payroll taxes and employer paid benefits.
OPERATING EXPENSES. Operating expenses 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 18.4% from $14,950,000 in 1995 to $17,699,000 in 1996. Operating
expenses as a percentage of revenues decreased from 20.6% in 1995 to 20.1% in
1996. This result was primarily attributable to the increased productivity of
the Account Managers in all three divisions.
10
11
ACQUISITION COSTS. Non-recurring acquisition costs consisted
principally of legal, accounting, financial advisory services and other
expenses related to the initial combination of EnviroStaff and the Company.
The combined companies incurred approximately $401,000 in non- recurring
acquisition costs during the first quarter of 1996.
INTEREST INCOME, NET. Interest income, net increased 33.9% from
$410,000 in 1995 to $549,000 in 1996, primarily as a result of interest earned
on higher interest-bearing cash, cash equivalent and marketable security
account balances, partially offset by interest expense charged on EnviroStaff's
line of credit borrowings in 1996.
PROVISION FOR INCOME TAXES. Income taxes increased 30.0% from
$2,924,000 in 1995 to $3,800,000 in 1996. The Company's effective tax rate
remained consistent at approximately 40% in 1995 and 1996.
11
12
YEARS ENDED DECEMBER 31, 1994 AND 1995
REVENUES. Revenues increased by 35.4% from $53,617,000 in the year
ended December 31, 1994, to $72,617,000 in the year ended December 31, 1995,
primarily as a result of the increase in the number of temporary employees on
assignment in the Lab Support division and to a lesser extent from the increase
in revenues generated by EnviroStaff and the Healthcare Financial Staffing
division.
The growth of the Lab Support division's revenues were primarily
attributable to the strong performance in most of the markets in which the Lab
Support division has older, better established branches and the contribution of
new Lab Support offices opened in the past year. Average hourly billing rates
of the Lab Support division did not vary significantly between the two periods.
The growth of EnviroStaff's revenues were primarily attributable to
the growth of existing offices, as well as the contribution of new EnviroStaff
offices opened in the past year. Average hourly billing rates of EnviroStaff
did not vary significantly between the two periods.
The growth of the Healthcare Financial Staffing division's revenues
were primarily attributable to the expansion of the Healthcare Financial
Staffing division with the acquisition of substantially all of the assets of
Sklar Resource Group, Inc. in December 1994, and to a lesser extent from the
contribution of new offices opened in the past year, and higher average hourly
billing rates which were primarily attributable to a concentration on new
business with a higher price structure.
COST OF SERVICES. Cost of services increased 36.1% from $37,343,000
in 1994 to $50,812,000 in 1995. Cost of services as a percentage of revenues
increased from 69.6% in 1994 to 70.0% in 1995. This increase was primarily
attributable to higher employer paid payroll taxes and benefits in 1995 and
premium refunds received from previous workers' compensation experience-based
premium plans in 1994. The increase was partially offset by an increase in
conversion fee revenue in 1995.
OPERATING EXPENSES. Operating expenses increased 40.2% from
$10,661,000 in 1994 to $14,950,000 in 1995. Operating expenses as a percentage
of revenues increased from 19.9% in 1994 to 20.6% in 1995, primarily
attributable to an increase in the hiring of new Account Managers for the
opening of new offices and the expansion of existing offices, partially offset
by a decrease in corporate office expenses as a percentage of revenues.
INTEREST INCOME, NET. Interest income, net increased 150.0% from
$164,000 in 1994 to $410,000 in 1995, reflecting higher interest-bearing cash,
cash equivalent and marketable security account balances and higher interest
rates in 1995, partially offset by interest expense charged on EnviroStaff's
line of credit borrowings in 1995.
PROVISION FOR INCOME TAXES. Income taxes increased 27.4% from
$2,296,000 in 1994 to $2,924,000 in 1995. The Company's effective tax rate
remained consistent at approximately 40% in 1994 and 1995.
12
13
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of cash in 1995 and 1996 were funds
provided by operating activities. In 1995, operating activities provided
$2,571,000 of cash compared to $5,678,000 in 1996. This increase was primarily
attributable to higher net income and a smaller increase in accounts receivable
in 1996 compared to 1995, which was principally due to an expected temporary
reduction in billing activity as a result of the conversion to a new payroll
processing and billing system in June 1995. In addition, an increase in accounts
payable and accrued expenses and a decrease in prepaid expenses and workers'
compensation deposits in 1996, contributed to net cash provided by operating
activities.
Cash used for investing activities totaled $2,509,000 in 1995 compared
to cash provided by investing activities of $1,404,000 in 1996. This was
primarily attributable to cash used to purchase marketable securities exceeding
cash proceeds from the maturity of marketable securities in 1995, partially
offset by greater purchases of equipment and investments in leasehold
improvements in 1996.
Cash provided by financing activities was $1,432,000 in 1995 compared
to $693,000 in 1996. The decrease was primarily attributable to repayments of
EnviroStaff's line of credit borrowings exceeding the related borrowings during
1996 compared to 1995, and the proceeds from the collection of officer loans
receivable in 1995. The decrease was partially offset by greater proceeds from
the issuance of common stock pursuant to the Company's Stock Option Plan and
Employee Stock Purchase Plan during 1996.
Effective September 30, 1996, the Company renewed its unsecured bank
line of credit. The maximum borrowings allowable under this agreement are
$7,000,000 and bear interest at the bank's reference rate (8.25% at December 31,
1996). The agreement expires on July 1, 1998. No borrowings were outstanding
under this credit line at December 31, 1996.
In addition, the Company's EnviroStaff subsidiary had a $1,000,000 line
of credit with a bank. Borrowings accrued interest at prime plus 1.25%. Advances
were secured by all of the assets of EnviroStaff and the agreement included
requirements for minimum operating ratios and tangible net worth and restricted
the payment of dividends. On April 19, 1996, the Company paid the outstanding
balance in full and the line of credit agreement was terminated.
The Company believes that its cash balances, together with the funds
from operations and its borrowing capacity, will be sufficient to meet its cash
requirements through at least the next twelve months.
13
14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
On Assignment, Inc.
We have audited the accompanying consolidated balance sheets of On
Assignment, Inc. and subsidiaries (the "Company") as of December 31, 1995 and
1996, and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the three years in the period ended December 31,
1996. Our audits also included the financial statement schedule listed at Item
14. These consolidated financial statements and financial statement schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
On Assignment, Inc. and subsidiaries as of December 31, 1995 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
Deloitte & Touche LLP
Los Angeles, California
January 24, 1997
14
15
ON ASSIGNMENT, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
------------------------------------
ASSETS 1995 1996
Current Assets: ----------- -----------
Cash and cash equivalents
(Note 1) $ 3,327,000 $11,102,000
Marketable securities (Note 1) 3,565,000 3,000,000
Accounts receivable, net of
allowance for doubtful
accounts of $435,000 (1995)
and $553,000 (1996) 10,144,000 12,264,000
Advances and deposits 111,000 72,000
Prepaid expenses 799,000 681,000
Deferred income taxes (Notes 1 and 8) 600,000 968,000
----------- -----------
Total current assets 18,546,000 28,087,000
Office Furniture, Equipment and
Leasehold Improvements, net
(Notes 1 and 2) 1,730,000 2,294,000
Marketable securities (Note 1) 2,000,000 --
Workers' compensation restricted
deposits (Note 6) 860,000 743,000
Goodwill, net (Note 4) 628,000 581,000
Other assets 158,000 169,000
----------- -----------
Total Assets $23,922,000 $31,874,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Note payable (Note 7) $ 475,000 $ --
Accrued payroll 1,647,000 2,397,000
Accounts payable 495,000 488,000
Accrued expenses 853,000 1,348,000
Income taxes payable (Notes 1 and 8) 304,000 6,000
----------- -----------
Total current liabilities 3,774,000 4,239,000
Commitments and Contingencies
(Notes 5 and 6) -- --
Stockholders' Equity (Notes 3 and 9):
Preferred Stock, $0.01 par
value, 1,000,000 shares
authorized, no shares issued or
outstanding in 1995 and 1996 -- --
Common Stock, $0.01 par value,
25,000,000 shares authorized,
5,024,461 issued and outstanding
in 1995 and 5,155,560 issued
and outstanding in 1996 50,000 52,000
Paid-in capital 6,898,000 8,777,000
Retained earnings 13,200,000 18,806,000
----------- -----------
Total stockholders' equity 20,148,000 27,635,000
----------- -----------
Total Liabilities and Stockholders'
Equity $23,922,000 $31,874,000
=========== ===========
See accompanying Notes to Consolidated Financial Statements
15
16
ON ASSIGNMENT, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
-----------------------------------------
1994 1995 1996
----------- ----------- -----------
Revenues(Note 1) $53,617,000 $72,617,000 $88,188,000
Cost of services 37,343,000 50,812,000 61,231,000
----------- ----------- -----------
Gross profit 16,274,000 21,805,000 26,957,000
Operating expenses 10,661,000 14,950,000 17,699,000
----------- ----------- -----------
Operating income 5,613,000 6,855,000 9,258,000
Acquisition costs -- -- 401,000
----------- ----------- -----------
Income before interest and
income taxes 5,613,000 6,855,000 8,857,000
Interest income, net
(Notes 1 and 7) 164,000 410,000 549,000
----------- ----------- -----------
Income before income taxes 5,777,000 7,265,000 9,406,000
Provision for incomes taxes
(Notes 1 and 8) 2,296,000 2,924,000 3,800,000
----------- ----------- -----------
Net income $ 3,481,000 $ 4,341,000 $ 5,606,000
=========== =========== ===========
Primary and fully diluted earnings
per share(Note 1) $ 0.68 $ 0.82 $ 1.03
====== ====== ======
Weighted average number of Common and
Common Equivalent Shares Outstanding 5,124,000 5,265,000 5,449,000
========= ========= =========
See accompanying Notes to Consolidated Financial Statements
16
17
ON ASSIGNMENT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Preferred Stock Common Stock
--------------- ------------------ Paid-In Retained
Shares Amount Shares Amount Capital Earnings Total
------ ------ --------- ------- ---------- ----------- -----------
Balance, January 1, 1994 0 $0 4,748,438 $47,000 $4,820,000 $ 5,378,000 $10,245,000
Exercise of common stock options - - 154,062 1,000 403,000 - 404,000
Issuance of common stock - - - - 475,000 - 475,000
Common stock issued -
Employee Stock Purchase Plan 8,741 - 85,000 - 85,000
Disqualifying dispositions - - - - 201,000 - 201,000
Officer loans receivable - - - - (63,000) - (63,000)
Net income - - - - - 3,481,000 3,481,000
--- --- --------- ------- ---------- ----------- -----------
Balance, December 31, 1994 0 0 4,911,241 48,000 5,921,000 8,859,000 14,828,000
Exercise of warrants - - 6,916 - - - -
Exercise of common stock options - - 96,373 2,000 534,000 - 536,000
Common stock issued -
Employee Stock Purchase Plan - - 9,931 - 121,000 - 121,000
Disqualifying dispositions - - - - 213,000 - 213,000
Officer loans receivable - - - - 109,000 - 109,000
Net income - - - - - 4,341,000 4,341,000
--- --- --------- ------- ---------- ----------- -----------
Balance, December 31, 1995 0 0 5,024,461 50,000 6,898,000 13,200,000 20,148,000
Exercise of common stock - - 124,696 2,000 1,017,000 - 1,019,000
Common stock issued -
Employee Stock Purchase Plan - - 6,403 - 149,000 - 149,000
Disqualifying dispositions - - - - 713,000 - 713,000
Net income - - - - - 5,606,000 5,606,000
--- --- --------- ------- ---------- ----------- -----------
Balance, December 31, 1996 0 $ 0 5,155,560 $52,000 $8,777,000 $18,806,000 $27,635,000
=== === ========= ======= ========== =========== ===========
See accompanying Notes to Consolidated Financial Statements
17
18
ON ASSIGNMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
--------------------------------------------------
1994 1995 1996
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,481,000 $ 4,341,000 $ 5,606,000
Adjustments to reconcile net income to net cash provided
by operating activities, net of acquisitions:
Depreciation and amortization 438,000 586,000 701,000
Increase in allowance for doubtful accounts 97,000 345,000 504,000
Increase in deferred income taxes (103,000) (203,000) (368,000)
Loss on disposal of furniture and equipment 5,000 - 1,000
Increase in accounts receivable (2,491,000) (2,909,000) (2,624,000)
Decrease in income taxes receivable 129,000 - -
Increase in accounts payable and accrued expenses 1,073,000 300,000 1,238,000
Increase in income taxes payable 262,000 456,000 415,000
Decrease (Increase) in workers' compensation (461,000) (9,000) 117,000
restricted deposits
Decrease (Increase) in prepaid expenses (283,000) (291,000) 118,000
Increase in other assets (20,000) (45,000) (30,000)
----------- ----------- -----------
Net cash provided by operating activities 2,127,000 2,571,000 5,678,000
=========== =========== ===========
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (4,395,000) (4,300,000) (1,000,000)
Proceeds from the maturity of marketable securities 2,875,000 2,580,000 3,565,000
Acquisition of furniture, equipment and leasehold (923,000) (802,000) (1,204,000)
improvements
Proceeds from sale of furniture and equipment 4,000 - 4,000
Decrease in advances and deposits 115,000 13,000 39,000
Acquisitions (Note 11) (1,251,000) - -
----------- ----------- -----------
Net cash provided by (used for) investing activities (3,575,000) (2,509,000) 1,404,000
=========== =========== ===========
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of common stock options and 404,000 536,000 1,019,000
warrants
Proceeds from issuance of common stock -
Employee Stock Purchase Plan 85,000 121,000 149,000
Proceeds from the issuance of common stock 475,000 - -
Disbursements for officer loans receivable (50,000) - -
Proceeds from collection of officer loans receivable - 300,000 -
Borrowings on line of credit - 1,587,000 450,000
Repayments of line of credit borrowings - (1,112,000) (925,000)
----------- ----------- -----------
Net cash provided by financing activities 914,000 1,432,000 693,000
----------- ----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents (534,000) 1,494,000 7,775,000
Cash and Cash Equivalents at Beginning of Period 2,367,000 1,833,000 3,327,000
----------- ----------- -----------
Cash and Cash Equivalents at End of Period $ 1,833,000 $ 3,327,000 $11,102,000
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
Tax benefit of disqualifying dispositions (Note 8) $ 201,000 $ 213,000 $ 713,000
=========== =========== ===========
Officer loans receivable (Note 3) $ (63,000) $ 109,000 $ -
=========== =========== ===========
Acquisitions (Note 11):
Fair value of assets acquired $ 924,000
Liabilities assumed (382,000)
Goodwill 709,000
-----------
Cash paid $ 1,251,000
===========
See accompanying Notes to Consolidated Financial Statements
18
19
ON ASSIGNMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
On Assignment, Inc. (the "Company"), through its Lab Support division,
provides temporary and permanent placement of scientific personnel with
laboratories and other institutions. EnviroStaff provides temporary and
permanent placement of environmental professionals to the environmental
services industry. The Company's Healthcare Financial Staffing division
provides temporary and permanent placement of medical billing and collection
professionals to the healthcare industry. Significant accounting policies are
as follows:
Principles of Consolidation. The Consolidated Financial Statements
include the accounts of the Company and 1st Choice Personnel, Inc., Finance
Support, Inc., and EnviroStaff, Inc., its wholly owned subsidiaries (see Note
11). All significant intercompany accounts and transactions have been
eliminated.
Cash Flows and Marketable Securities. For purposes of the
Consolidated Statements of Cash Flows, the Company considers all highly liquid
investments purchased with a maturity of three months or less to be cash
equivalents. Investments having a maturity of more than three months and less
than twelve months are classified under current assets as marketable
securities. Investments having a maturity of more than twelve months are
classified under non-current assets as marketable securities. Marketable
securities, which have been classified as held to maturity, are recorded at
amortized cost which approximated market at December 31, 1995 and 1996.
Cash paid for income taxes (net of refunds) for the years ended
December 31, 1994, 1995, and 1996 was $2,013,000, $2,671,000 and $3,739,000,
respectively.
Cash paid for interest for the years ended December 31, 1994, 1995,
and 1996 was $0, $25,000 and $15,000, respectively.
Office Furniture, Equipment and Leasehold Improvements and
Depreciation. Office furniture, equipment and leasehold improvements are
stated at cost. Depreciation and amortization are provided using the
straight-line method over the estimated useful lives of the related assets,
generally three to five years.
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets to be Disposed of." Long-lived assets and
certain identifiable intangibles are reviewed for impairment at least
quarterly. An impairment loss is recognized when the sum of the future cash
flows is less than the carrying amount of the asset. Adopting SFAS No. 121
during the year ended December 31, 1996 did not have a material effect on the
Company's financial statements.
Goodwill. Goodwill is being amortized on a straight-line basis over
fifteen years. The Company periodically reviews goodwill to assess
recoverability; impairments would be recognized in operating results if a
permanent diminution in value were to occur.
Income Taxes. Deferred taxes result from temporary differences
between the tax bases of assets and liabilities for financial and tax reporting
purposes. Deferred tax assets and liabilities represent future tax
consequences of these differences, which will either be taxable or deductible
when the assets and liabilities are recovered or settled.
Revenue Recognition. Revenue from temporary assignments is recognized
when earned, based on hours worked by the Company's temporary employees.
Permanent placement fees are recognized when earned, upon conversion of a
temporary employee to a client's regular employee.
Earnings per Share. Primary and fully diluted earnings per share are
computed based upon the weighted average number of common shares and dilutive
common share equivalents (consisting of incentive stock options, non-qualified
stock options, and warrants) outstanding during the periods using the treasury
stock method.
19
20
Stock-Based Compensation. In October 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation." The Company has adopted only the
disclosure portion of the statement (see Note 9).
Use of Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Concentration of Credit Risk. Financial instruments that potentially
subject the Company to credit risks consist primarily of cash and cash
equivalents, marketable securities, and trade receivables. The Company places
its cash and cash equivalents and marketable securities with quality credit
institutions, and limits the amount of credit exposure with any one
institution. Concentration of credit risk with respect to accounts receivable
are limited because of the large number of geographically disbursed customers,
thus spreading the trade credit risk. The Company performs ongoing credit
evaluations to identify risks and maintains an allowance to address these
risks.
Reclassifications. Certain reclassifications have been made to the
prior year consolidated financial statements to conform with the current year
consolidated financial statement presentation.
2. OFFICE FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS.
Office furniture, equipment and leasehold improvements at December 31,
1995 and 1996, consisted of the following:
1995 1996
----------- -----------
Furniture and fixtures $ 760,000 $ 930,000
Computers and related equipment 1,365,000 1,897,000
Machinery and equipment 442,000 668,000
Leasehold improvements 362,000 551,000
Construction in progress 204,000 280,000
----------- -----------
3,133,000 4,326,000
Less accumulated depreciation and amortization (1,403,000) (2,032,000)
----------- -----------
Total $ 1,730,000 $ 2,294,000
=========== ===========
Depreciation and amortization expense for the years ended December 31, 1994,
1995 and 1996 was $380,000, $511,000 and $634,000, respectively.
3. OFFICER LOANS RECEIVABLE.
In May 1995, two officers of the company paid in full $200,000 in
promissory notes plus accrued interest of $16,000. In July 1995, a former
officer of the company paid in full the remaining $100,000 promissory note plus
accrued interest of $11,000. A portion of the loans, amounting to $109,000,
were originally treated as a reduction in stockholders' equity for financial
reporting purposes. Therefore, the payoff of the notes resulted in a
corresponding increase in stockholders' equity in the accompanying Consolidated
Balance Sheets and Consolidated Statements of Stockholders' Equity.
20
21
4. GOODWILL.
Goodwill represents the excess of the purchase price over the fair
value of the net assets acquired (see Note 11). Goodwill is stated net of
accumulated amortization of $81,000 at December 31, 1995 and $128,000 at
December 31, 1996.
5. 401(K) RETIREMENT SAVINGS PLAN.
Effective January 1, 1995, the Company adopted the On Assignment, Inc.
401(k) Retirement Savings Plan under Section 401(k) of the Internal Revenue
Code, under which eligible employees may elect to have a portion of their
salary deferred and contributed to the plan. The amount of salary deferred is
not subject to Federal and State income tax at the time of deferral. The Plan
covers all eligible employees and provides for matching or discretionary
contributions at the discretion of the Board of Directors. The Company made no
contributions to the plan during the years ended December 31, 1995 and 1996.
6. COMMITMENTS AND CONTINGENCIES.
The Company leases its facilities and certain office equipment under
operating leases which expire at various dates through 2004. Certain leases
contain rent escalations and/or renewal options.
The following is a summary of future minimum lease payments by year:
Operating
Leases
----------
1997 $1,075,000
1998 835,000
1999 673,000
2000 395,000
2001 305,000
Thereafter 651,000
----------
Total Minimum Lease Payments $3,934,000
==========
Rent expense for the years ended December 31, 1994, 1995 and 1996 was $847,000,
$1,105,000, and $1,153,000, respectively.
Effective September 1, 1993, the Company became partially self-insured
for workers' compensation expense. In connection with this program, cash
deposits are required to be held by the reinsurer for the payment of losses and
as collateral amounting to $860,000 and $743,000 at December 31, 1995 and 1996,
respectively. These workers' compensation deposits are restricted as to
withdrawal and have therefore been classified as non-current assets in the
accompanying Consolidated Balance Sheets. These funds are invested primarily
in three-month treasury bills and are recorded at amortized cost which
approximated market at December 31, 1995 and 1996. In addition, the Company
has provided a stand-by letter of credit amounting to approximately $179,000
and $334,000 at December 31, 1995 and 1996, respectively, in connection with
this program. The self-insurance claim liability is determined based on claims
filed and an estimate of claims incurred but not yet reported.
The Company's EnviroStaff subsidiary was operating under a loss-retro
workers' compensation policy from July 1, 1995 through September 30, 1996. In
connection with this program, EnviroStaff paid a base premium with an excess
loss cap of $50,000 per occurrence. Medical and indemnity expenses are paid at
cost plus administration fees and taxes. The insurance claim liability is
determined based on claims filed and an estimate of claims incurred but not yet
reported. In addition, EnviroStaff has provided a standby letter of credit
amounting to approximately $120,000 at December 31, 1995 and 1996. This letter
of credit expires on July 1, 1997. Effective October 1, 1996, EnviroStaff was
added to the Company's workers' compensation program.
21
22
7. BORROWING ARRANGEMENTS.
Effective September 30, 1996, the Company renewed its unsecured bank
line of credit. The maximum borrowings allowable under this agreement are
$7,000,000 and bear interest at the bank's reference rate (8.25% at December
31, 1996). The agreement expires on July 1, 1998. No borrowings were
outstanding under this credit line at December 31, 1996.
In addition, the Company's EnviroStaff subsidiary had a $1,000,000
line of credit with a bank. Borrowings accrued interest at prime plus 1.25%.
Advances were secured by all of the assets of EnviroStaff and the agreement
included requirements for minimum operating ratios and tangible net worth and
restricted the payment of dividends. On April 19, 1996, the Company paid the
outstanding balance in full and the line of credit agreement was terminated.
8. INCOME TAXES.
The provision for income taxes consists of the following:
1994 1995 1996
---------- ---------- ----------
Federal:
Current $1,823,000 $2,406,000 $3,277,000
Deferred (98,000) (175,000) (296,000)
---------- ---------- ----------
1,725,000 2,231,000 2,981,000
---------- ---------- ----------
State:
Current 576,000 721,000 891,000
Deferred (5,000) (28,000) (72,000)
---------- ---------- ----------
571,000 693,000 819,000
---------- ---------- ----------
Total $2,296,000 $2,924,000 $3,800,000
========== ========== ==========
Deferred income taxes arise from the recognition of certain assets and
liabilities for tax purposes in periods different from those in which they are
recognized in the financial statements. These differences relate primarily to
state taxes, workers' compensation, bad debt, and depreciation and amortization
expenses.
Deferred assets and liabilities are classified as current and
non-current according to the nature of the assets or liabilities from which
they arose.
22
23
The components of deferred tax assets (liabilities) are as follows:
December 31, 1995 December 31, 1996
----------------------- ------------------------
Federal State Federal State
-------- ------- -------- --------
Deferred tax assets:
Allowance for doubtful accounts $132,000 $33,000 $187,000 $ 48,000
Depreciation and amortization expense 53,000 17,000 107,000 32,000
Vacation accrual 36,000 9,000 30,000 8,000
State taxes 223,000 -- 301,000 --
Net operating loss carryforward 74,000 12,000 52,000 5,000
Workers' compensation loss reserve -- -- 197,000 50,000
Other 20,000 -- -- --
-------- ------- -------- --------
Total deferred tax assets 538,000 71,000 874,000 143,000
Deferred tax liabilities:
Other (7,000) (2,000) (49,000) --
-------- ------- -------- --------
Net deferred tax asset $531,000 $69,000 $825,000 $143,000
======== ======= ======== ========
The net operating loss carryforwards included in the deferred tax asset at
December 31, 1995 and 1996, were acquired through the acquisition of 1st Choice
Personnel, Inc. (see Note 11). These carryforwards are available to offset
future taxable income, subject to annual limitations, through the year 2007.
The reconciliation between the amount computed by applying the U.S.
federal statutory tax rate of 35% in 1994, 1995 and 1996 to income before
income taxes and the actual income taxes follows:
Years Ended
-------------------------------------------
1994 1995 1996
---------- ---------- ----------
Income tax expenses at the statutory rate $2,022,000 $2,543,000 $3,292,000
State income taxes, net of federal income tax 336,000 422,000 534,000
Other (62,000) (41,000) (26,000)
---------- ---------- ----------
Total $2,296,000 $2,924,000 $3,800,000
========== ========== ==========
At December 31, 1995 and 1996, net income taxes payable and additional
paid-in capital include tax benefits amounting to $213,000 and $713,000,
respectively, resulting from disqualifying dispositions by officers and
employees of common stock of the company acquired through the exercise of stock
options.
23
24
9. STOCK OPTION PLAN AND EMPLOYEE STOCK PURCHASE PLAN.
Under its Stock Option Plan, the Company may grant employees,
contractors, and non-employee members of the Board of Directors incentive or
non-qualified stock options to purchase an aggregate of up to 1,500,000 shares
of Common Stock. Optionees, option prices, option amounts, grant dates and
vesting are established by the Compensation Committee of the Board of
Directors. The option prices may not be less than 85% of the fair market value
of the stock at the time the option is granted. Stock options granted to date
generally become exercisable over a pro rata period of four years, generally
beginning one year after the grant date, and have a maximum term of ten years
measured from the grant date.
Information with respect to the plan is summarized below:
Incentive Non-qualified Weighted Average
Stock Stock Exercise Price Exercise Price
Options Options Per Share Per Share
--------- ------------- ---------------- ----------------
Outstanding at January 1, 1994 547,372 73,108 $ 0.40 - $13.25 $ 5.24
Granted 223,070 163,500 $ 6.37 - $15.93 $12.19
Exercised (140,797) (13,265) $ 0.40 - $11.88 $ 2.63
Canceled (85,183) (165,567) $ 0.70 - $14.00 $10.37
-------- --------
Outstanding at December 31, 1994 544,462 57,776 $ 0.40 - $15.93 $ 8.26
Granted 206,090 88,870 $15.50 - $32.50 $24.42
Exercised (93,832) (2,541) $ 0.70 - $14.50 $ 5.55
Canceled (60,583) (5,792) $ 0.70 - $24.75 $14.33
-------- --------
Outstanding at December 31, 1995 596,137 138,313 $ 0.40 - $32.50 $14.61
Granted 217,162 53,320 $28.00 - $39.25 $33.15
Exercised (96,527) (28,169) $ 0.40 - $39.00 $ 8.39
Canceled (153,387) (2,609) $ 6.37 - $39.25 $28.14
-------- --------
Outstanding at December 31, 1996 563,385 160,855 $ 0.70 - $39.00 $20.11
======== ========
Exercisable at December 31, 1996 228,008 62,781 $ 0.70 - $39.00 $11.71
======== ========
The Employee Stock Purchase Plan allows eligible employees to purchase
Common Stock of the Company, through payroll deductions, at 85% of the lower of
the market price on the first day or the last day of the semi-annual purchase
period. Eligible employees may contribute up to 10% of their base earnings
toward the purchase of the stock. During 1994, 1995 and 1996, shares issued
under the plan were 8,741, 9,931 and 6,403, respectively.
The Company applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its Stock Option Plan and Employee Stock
Purchase Plan. Accordingly, no compensation cost has been recognized for its
stock option and purchase plans. Had compensation cost for the Company's Stock
Option Plan and its Employee Stock Purchase Plan been determined based on the
fair value at the grant dates for awards under those plans consistent with the
method of Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS No. 123), the Company's net income and earnings
per share for the years ended December 31, 1995 and 1996 would have been
reduced to the pro forma amounts indicated below:
Years ended December 31
---------------------------
1995 1996
---------- ----------
Net income
As reported $4,341,000 $5,606,000
Pro forma $4,163,000 $4,850,000
Earnings per share
As reported $0.82 $1.03
Pro forma $0.80 $0.91
24
25
Because the SFAS No. 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
The fair value of options granted under the Company's Stock Option Plan during
1995 and 1996 was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions used: (i)
no dividend yield in 1995 or 1996, (ii) expected volatility of approximately
47% in 1995 and 1996, (iii) risk-free interest rate of approximately 6.1% in
1995 and 6.3% in 1996, and (iv) expected lives of approximately 5 years in 1995
and 1996. Pro forma compensation cost of options granted under the Employee
Stock Purchase Plan is measured based on the discount from market value.
10. UNAUDITED QUARTERLY RESULTS.
The following table presents unaudited quarterly financial information
for each of the eight quarters ended December 31, 1996. In the opinion of
management, the quarterly information contains all adjustments, consisting only
of normal recurring accruals, necessary for a fair presentation thereof. The
operating results for any quarter are not necessarily indicative of the results
for any future period.
(Unaudited)
(in thousands, except per share data)
Quarter Ended
-------------------------------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31,
1995 1995 1995 1995 1996 1996 1996 1996
------- ------- -------- -------- -------- -------- --------- --------
Revenues $15,517 $17,812 $19,201 $20,087 $18,902 $21,438 $23,303 $24,545
Cost of services 10,878 12,420 13,486 14,028 13,129 14,919 16,244 16,939
------- ------- ------- ------- ------- ------- ------- -------
Gross profit 4,639 5,392 5,715 6,059 5,773 6,519 7,059 7,606
Operating expenses 3,338 3,753 3,923 3,936 4,070 4,332 4,554 4,743
------- ------- ------- ------- ------- ------- ------- -------
Operating income 1,301 1,639 1,792 2,123 1,703 2,187 2,505 2,863
Acquisition costs -- -- -- -- 401 -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Income before interest and
income taxes 1,301 1,639 1,792 2,123 1,302 2,187 2,505 2,863
Interest income 87 101 97 125 113 127 130 179
------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes 1,388 1,740 1,889 2,248 1,415 2,314 2,635 3,042
Provision for income taxes 546 705 746 927 557 944 1,062 1,237
------- ------- ------- ------- ------- ------- ------- -------
Net income $ 842 $ 1,035 $ 1,143 $ 1,321 $ 858 $ 1,370 $ 1,573 $ 1,805
======= ======= ======= ======= ======= ======= ======= =======
Earnings per share $ 0.16 $ 0.20 $ 0.21 $ 0.24 $ 0.16 $ 0.25 $ 0.29 $ 0.33
Weighted average number
of shares outstanding 5,208 5,251 5,328 5,400 5,428 5,460 5,449 5,429
25
26
11. ACQUISITIONS.
On January 31, 1994, the Company acquired all of the outstanding
shares of the capital stock of 1st Choice Personnel, Inc. ("1st Choice"), a
California corporation, which specialized in providing employees on temporary
assignments to the mortgage banking and financial services industries. 1st
Choice formed the core of the Company's second operating division: Finance
Support, which has been renamed to Healthcare Financial Staffing. This
acquisition has been accounted for using the purchase method of accounting.
Consideration for the stock purchase consisted solely of $513,000 in cash.
Effective as of May 17, 1995, the Company dissolved 1st Choice Personnel, Inc.
as a separate subsidiary and continued its operations as a division of the
company.
On November 29, 1994, the Company formed Finance Support, Inc.
("FSI"), a Delaware corporation and wholly-owned subsidiary of the company. On
December 5, 1994, FSI acquired substantially all of the assets of Sklar
Resource Group, Inc. ("SRG"), a firm that provided professional personnel for
temporary credit and collection assignments. The SRG offices and operations
acquired were added to the Company's Finance Support division, which was
subsequently renamed the Healthcare Financial Staffing division. This
acquisition has been accounted for using the purchase method of accounting.
Consideration for the purchase consisted of $738,000 in cash.
On March 27, 1996, the Company issued 171,579 shares of its common
stock for all of the outstanding common stock of EnviroStaff, Inc.
("EnviroStaff"), a Minnesota corporation, which specialized in providing
employees on temporary assignments to the environmental services industry. The
acquisition has been accounted for as a pooling-of-interests and, accordingly,
the Company's consolidated financial statements have been restated for all
periods prior to the acquisition to include the results of operations,
financial positions, and cash flows of EnviroStaff. Revenues, net income and
primary and fully diluted earnings per share for the individual entities are as
follows:
On Assignment EnviroStaff Combined
------------- ----------- --------
Three Months Ended
March 31, 1996
Revenues $16,379,000 $ 2,523,000 $ 18,902,000
Net income (loss) $ 1,086,000 $ (228,000) $ 858,000
Earnings (loss) per share $ 0.20 $ (0.04) $ 0.16
Year Ended
December 31, 1995
Revenues $62,042,000 $10,575,000 $ 72,617,000
Net income $ 4,330,000 $ 11,000 $ 4,341,000
Earnings per share $ 0.82 $ 0.00 $ 0.82
Year Ended
December 31, 1994
Revenues $48,402,000 $ 5,215,000 $ 53,617,000
Net income $ 3,348,000 $ 133,000 $ 3,481,000
Earnings per share $ 0.65 $ 0.03 $ 0.68
Acquisition costs of approximately $401,000 related to the acquisition
of EnviroStaff were charged to expense during the three-month period ended
March 31, 1996. The after-tax impact of these expenses on primary and fully
diluted earnings per share was $0.04 for the three- month period ended March
31, 1996. Acquisition costs include legal, accounting, financial advisory
services, and other costs of the acquisition.
26
27
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT.
Information regarding the Company's directors will be set forth under
the caption "Proposal One -- Election of Directors" in the Company's proxy
statement for use in connection with the Annual Meeting of Stockholders to be
held on June 9, 1997 (the "1997 Proxy Statement") and is incorporated herein by
reference. The 1997 Proxy Statement will be filed with the Securities and
Exchange Commission within 120 days after the end of the Company's fiscal year.
Information regarding the Company's executive officers is set forth in
Part I of this Annual Report on Form 10-K and is incorporated herein by
reference.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Information regarding compliance with Section 16(a) of the Exchange
Act will be set forth under the caption "Compliance with Section 16(a) of the
Securities Exchange Act of 1934" in the Company's 1997 Proxy Statement to be
filed within 120 days after the end of the Company's fiscal year and is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding remuneration of the Company's directors and
officers will be set forth under the captions "Proposal One -- Election of
Directors", "Proposal Two -- Approval and Ratification of Amendment to Restated
1987 Stock Option Plan", and "Executive Compensation and Related Information"
in the Company's 1997 Proxy Statement to be filed within 120 days after the end
of the Company's fiscal year and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners
and management will be set forth under the captions "General Information for
Stockholders -- Record Date, Voting and Share Ownership" in the Company's 1997
Proxy Statement to be filed within 120 days after the end of the Company's
fiscal year and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions
will be set forth under the caption "Executive Compensation and Related
Information -- Certain Relationships and Related Transactions" in the Company's
1997 Proxy Statement to be filed within 120 days after the end of the Company's
fiscal year and is incorporated herein by reference.
27
28
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) LIST OF DOCUMENTS FILED AS PART OF THIS REPORT
PAGE
1. Financial Statements:
Report of Independent Auditors 14
Consolidated Balance Sheets at December 31, 1995
and 1996 15
Consolidated Statements of Income for the Years
Ended December 31, 1994, 1995 and 1996 16
Consolidated Statements of Stockholders'
Equity for the Years Ended December 31, 1994,
1995 and 1996 17
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1994, 1995 and 1996 18
Notes to Consolidated Financial Statements 19
2. Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts 33
Schedules other than those referred to above have
been omitted because they are not applicable or not
required under the instructions contained in
Regulation S-X or because the information is included
elsewhere in the financial statements or notes
thereto.
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the three
months ended December 31, 1996.
28
29
(C) EXHIBITS
NUMBER DESCRIPTION
2.1 (1) Agreement and Plan of Reorganization dated
as of March 27, 1996 by and among the
Company, ESI Acquisition Corporation,
EnviroStaff, Inc. (ESI) and the stockholders
of ESI listed therein.
3.1 (2) Amended and Restated Certificate of
Incorporation of the Company.
3.2 (3) Amended and Restated Bylaws of the Company.
4.1 (3) Warrant Purchase Agreement dated March 28,
1991, by and between the Company and Silicon
Valley Bank; and Warrant to Purchase 15,000
Shares of Common Stock of the Company dated
March 28, 1991.
4.2 (3) Specimen Common Stock Certificate.
10.1 (3) Form of Indemnification Agreement.
10.2 Restated 1987 Stock Option Plan, as amended.
10.3 (4) 1992 Employee Stock Purchase Plan.
10.4 (3) Loan and Security Agreement dated February
12, 1991, by and between the Company and
Silicon Valley Bank; and Amendment to Loan
Agreement dated June 22, 1992.
10.5 (3) Series A and Series B Preferred Stock
Purchase Agreement dated March 6, 1986; and
Amendment No. 1 to Series A and Series B
Stock Purchase Agreement dated January 7,
1987.
10.6 (3) Series D Stock Purchase Agreement dated
October 14, 1987; Amendment No. 1 to the
Series D Stock Purchase Agreement dated as
of December 30, 1987; Amendment to
Registration Rights dated as of March 28,
1991 (Amendment No. 2); and Amendment No. 3
to Series D Stock Purchase Agreement dated
as of August 7, 1992.
10.7 (3) Standard Office Lease dated January 19,
1990, by and between the Company and Warner
North Associates; First Addendum to Lease
dated February 13, 1990; Letter Notice dated
April 18, 1990, from Warner North Associates
to the Company; Lease Addendum No. 2; Third
Addendum to Lease dated January 23, 1991,
and First Amendment to Lease dated December
19, 1991.
10.8 (5) Amendment to Loan Agreement dated July 27,
1993 to the Loan and Security Agreement
dated February 12, 1991 by and between the
Company and Silicon Valley Bank, as amended
by the Amendment to Loan Agreement dated
June 22, 1992.
10.9 (5) Office lease dated December 7, 1993, by and
between the Company and Malibu Canyon Office
Partners, LP
10.10 (6) Form of Loan Agreement between the Company
and executive officers of the Company,
including form of Demand Note as Exhibit A
thereto.
10.11 (6) Consulting Agreement date June 15, 1994
between the Company and Karen Brenner.
10.12 (6) Consulting Agreement dated January 25, 1995
between the Company and Karen Brenner.
10.13 (6) Settlement Agreement and General Release by
and between the Company and Tadeusz
Czyzewski dated March 24, 1995.
29
30
10.14 (6) Offer letter agreement by and between the
Company and Ronald W. Rudolph date March 27,
1995.
11.1 Statement regarding computation of earnings
per share.
24.1 Consent of Deloitte & Touche LLP.
25.1 Power of Attorney (see page 32).
- ---------
(1) Incorporated by reference from an exhibit filed with the Company's
Current Report on Form 8-K (File No. 0-20540) filed with the
Securities and Exchange Commission on April 10, 1996.
(2) Incorporated by reference from an exhibit filed with the Company's
Annual Report on Form 10-K (File No. 0-20540) filed with the
Securities and Exchange Commission on March 30, 1993.
(3) Incorporated by reference from an exhibit filed with the Company's
Registration Statement on Form S-1 (File No. 33-50646) declared
effective by the Securities and Exchange Commission on September 21,
1992.
(4) Incorporated by reference from an exhibit filed with the Company's
Registration Statement on Form S-8 (File No. 33-57078) filed with the
Securities and Exchange Commission on January 19, 1993.
(5) Incorporated by reference from an exhibit filed with the Company's
Annual Report on Form 10-K (File No. 0-20540) filed with the
Securities and Exchange Commission on March 24, 1994.
(6) Incorporated by reference from an exhibit filed with the Company's
Annual Report on Form 10-K (File No. 0-20540) filed with the
Securities and Exchange Commission on March 31, 1995.
30
31
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the
Securities and Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized, in
Calabasas, California on this 26th day of March, 1997.
ON ASSIGNMENT, INC.
By: /s/ H. Tom Buelter
---------------------------------------
H. Tom Buelter
Chairman of the Board, President and Chief
Executive Officer
31
32
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints H. Tom Buelter and Ronald W. Rudolph and
each of them, as his or her true and lawful attorneys-in-fact and agents, with
full power of substitution and re-substitution, for him or her and in his or her
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Report on Form 10-K, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated:
Signature Title Date
- --------- ----- ----
/s/ H. Tom Buelter Chairman of the Board, President and March 26, 1997
- ----------------------------
H. Tom Buelter Chief Executive Officer (Principal
Executive Officer)
/s/ Ronald W. Rudolph Senior Vice President, Finance and Operations March 26, 1997
- ----------------------------
Ronald W. Rudolph Support, and Chief Financial Officer (Principal Financial
and Accounting Officer)
/s/ Karen Brenner Director March 26, 1997
- ----------------------------
Karen Brenner
/s/ Jonathan S. Holman Director March 26, 1997
- ----------------------------
Jonathan S. Holman
/s/ Jeremy M. Jones Director March 26, 1997
- ----------------------------
Jeremy M. Jones
/s/ William E. Brock Director March 26, 1997
- ----------------------------
William E. Brock
32
33
ON ASSIGNMENT, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
Additions
---------------------
Balance at Charged to Charged to Balance at
beginning costs and other end
Description of period expenses accounts Deductions of period
----------- --------- -------- -------- ---------- ---------
Year ended December 31, 1994
Allowance for doubtful accounts 79,000 97,000 -- (16,000) 160,000
Year ended December 31, 1995
Allowance for doubtful accounts 160,000 345,000 -- (70,000) 435,000
Year ended December 31, 1996
Allowance for doubtful accounts 435,000 504,000 -- (386,000) 553,000
33
34
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------ ----------- ----
2.1 (1) Agreement and Plan of Reorganization dated as of March 27, 1996 by and among the Company, ESI -
Acquisition Corporation, EnviroStaff, Inc. (ESI) and the stockholders of ESI listed therein.
3.1 (2) Amended and Restated Certificate of Incorporation of the Company. -
3.2 (3) Amended and Restated Bylaws of the Company. -
4.1 (3) Warrant Purchase Agreement dated March 28, 1991, by and between the Company and Silicon Valley -
Bank; and Warrant to Purchase 15,000 Shares of Common Stock of the Company dated March 28, 1991.
4.2 (3) Specimen Common Stock Certificate. -
10.1 (3) Form of Indemnification Agreement. -
10.2 Restated 1987 Stock Option Plan, as amended. 36
10.3 (4) 1992 Employee Stock Purchase Plan. -
10.4 (3) Loan and Security Agreement dated February 12, 1991, by and between the Company and Silicon -
Valley Bank; and Amendment to Loan Agreement dated June 22, 1992.
10.5 (3) Series A and Series B Preferred Stock Purchase Agreement dated March 6, 1986; and Amendment No. -
1 to Series A and Series B Stock Purchase Agreement dated January 7, 1987.
10.6 (3) Series D Stock Purchase Agreement dated October 14, 1987; Amendment No. 1 to the Series D Stock -
Purchase Agreement dated as of December 30, 1987; Amendment to Registration Rights dated as of
March 28, 1991 (Amendment No. 2); and Amendment No. 3 to Series D Stock Purchase Agreement dated
as of August 7, 1992.
10.7 (3) Standard Office Lease dated January 19, 1990, by and between the Company and Warner North -
Associates; First Addendum to Lease dated February 13, 1990; Letter Notice dated April 18, 1990,
from Warner North Associates to the Company; Lease Addendum No. 2; Third Addendum to Lease dated
January 23, 1991, and First Amendment to Lease dated December 19, 1991.
10.8 (5) Amendment to Loan Agreement dated July 27, 1993 to the Loan and Security Agreement dated -
February 12, 1991 by and between the Company and Silicon Valley Bank, as amended by the
Amendment to Loan Agreement dated June 22, 1992.
10.9 (5) Office lease dated December 7, 1993, by and between the Company and Malibu Canyon Office -
Partners, LP
10.10 (6) Form of Loan Agreement between the Company and executive officers of the Company, including form -
of Demand Note as Exhibit A thereto.
10.11 (6) Consulting Agreement date June 15, 1994, between the Company and Karen Brenner. -
10.12 (6) Consulting Agreement dated January 25, 1995, between the Company and Karen Brenner. -
34
35
10.13 (6) Settlement Agreement and General Release by and between the Company and Tadeusz Czyzewski dated -
March 24, 1995.
10.14 (6) Offer letter agreement by and between the Company and Ronald W. Rudolph dated March 27, 1995. -
11.1 Statement regarding computation of earnings per share. 53
24.1 Consent of Deloitte & Touch LLP. 54
25.1 Power of Attorney (see page 32). -
(1) Incorporated by reference from an exhibit filed with the Company's Current
Report on Form 8-K (File No. 0-20540) filed with the Securities and
Exchange Commission on April 10, 1996.
(2) Incorporated by reference from an exhibit filed with the Company's Annual
Report on Form 10-K (File No. 0-20540) filed with the Securities and
Exchange Commission on March 30, 1993.
(3) Incorporated by reference from an exhibit filed with the Company's
Registration Statement on Form S-1 (File No. 33- 50646)
declared effective by the Securities and Exchange Commission
on September 21, 1992.
(4) Incorporated by reference from an exhibit filed with the Company's
Registration Statement on Form S-8 (File No. 33- 57078) filed
with the Securities and Exchange Commission on January 19, 1993.
(5) Incorporated by reference from an exhibit filed with the Company's Annual
Report on Form 10-K (File No. 0-20540) filed with the Securities and
Exchange Commission on March 24, 1994.
(6) Incorporated by reference from an exhibit filed with the Company's Annual
Report on Form 10-K (File No. 0-20540) filed with the Securities and
Exchange Commission on March 31, 1995.
35