technology | healthcare | life sciences
Our Core,
Our Future
2011 Annual Report
Financial
Highlights
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Revenue by Segment for 2011
TECHNOLOGY SEGMENT*. . . . . . . . . . . . . . . $266,742,000
Oxford Global Resources
LIFE SCIENCES SEGMENT . . . . . . . . . . . . . . $155,324,000
Lab Support
Valesta
Engineering
Sharpstream
HEALTHCARE SEGMENT. . . . . . . . . . . . . . . . $94,598,000
Nurse Travel
Healthcare Staffing
H.I.M.
Allied Travel
PHYSICIAN SEGMENT . . . . . . . . . . . . . . . . . . $80,617,000
VISTA Staffing Solutions
Total Revenue $597,281,000
*Technology Segment is referenced as the IT & Engineering Segment in the 2011 10-K.
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2008 2009 2010 2011
20,000
Total Number of
Contract Professionals
15,000
10,000
5,000
0
9
3
2
,
6
1
0
3
2
,
4
1
3
8
8
,
2
1
8
2
3
,
2
1
2008 2009 2010 2011
7,000
5,250
3,500
1,750
0
Total Number of
Clients
3
1
3
,
6
7
4
3
,
5
4
6
8
,
4
7
0
8
,
4
2008 2009 2010 2011
To Our
Valued Shareholders
Dear Shareholders:
In 2010, as the economic winds began to change, our company
saw a slow and steady shift toward positive growth. With a winning
strategy and secular factors in our favor, we firmly established our
course for the future in 2011.
Our focus on higher-end math and science skills aligns with
the economic recovery, where specialized knowledge is a key
driver. Moreover, the verticals in which we operate – life sciences,
healthcare, and technology – are among the most robust sectors in
the economy and show encouraging professional staffing market
opportunities.
Our core, our future
With our core offerings of in-demand professional disciplines and
the structural changes in the U.S. labor market, our business will
continue to achieve unparalleled success well into the future. Our
strategy has shown its viability as On Assignment delivers some
of the fastest revenue growth and highest profit margins of any
publicly-traded staffing company.
In 2011, we surpassed our revenue growth goals during the
economic fluctuations of the recent past through organic growth
and tactical acquisitions. The success of our internal growth
initiatives are reflected in the following 2011 highlights:
• Achieved full-year revenues of $597.3 million, compared to
$438.1 million in 2010 – an increase of 36.3 percent.
• Achieved full-year gross margin of 33.5 percent, compared to
34.1 percent in 2010.
Positioned for unprecedented growth
With the right focus, strategy, and market conditions, we are
confident that On Assignment will continue to deliver outstanding
performance.
The shortage of skilled labor and our ability to meet this demand
has allowed us to charge attractive, yet competitive, bill rates.
The higher margin that this creates enables us to sustain a
stronger profit profile than most staffing companies.
To capitalize on the incredible opportunities and strengthen our
business, we are committed to building our sales and recruiting
personnel, which is a vital feature to continue our strong organic
growth.
Central to our growth strategy has been our five-year plan, set
forth in 2010, to reach $1 billion in revenues and $100 million in
EBITDA. We will reach this goal three years ahead of schedule
with the recent announcement regarding the acquisition of
Apex Systems, Inc., a leading information technology staffing
company. Privately-held Apex Systems was identified as the
sixth largest and one of the fastest growing IT staffing firms in
the United States in 2011. The transaction, when completed, will
make On Assignment one of the largest professional staffing
firms and the second largest IT staffing firm in the United States.
The past year was an important chapter in our company’s history.
With our record-setting revenues and earnings we are set to
continue this growth trend in 2012. On Assignment is positioned
to reach a whole new level of success, and I am thankful that you
have chosen to come along with us on this exciting journey.
• Achieved full-year net income of $24.3 million, compared to a net
loss of $9.9 million in 2010.
• Delivered results that made us ahead of plan to reach $1 billion in
Sincerely,
revenues and $100 million in EBITDA by mid-2015.
• Acquired Valesta, a clinical research staffing company in
Western Europe, to more fully support our multinational contract
research organizations (CROs) along with an expanded base of
pharmaceutical and biotech research clients.
• Acquired HealthCare Partners (HCP), a leading locum tenens and
physician staffing firm headquartered in Atlanta, to supplement
our subspecialties and geographic coverage in physician staffing.
Peter T. Dameris
President and
Chief Executive Officer
• Acquired Add-A-Tech, a healthcare staffing agency based in
Michigan that strengthens our overall position in the Midwest.
• Increased sales and recruiting headcount by 23 percent year-
over-year.
1
1
Technology
Segment*
Oxford Global Resources specializes in providing high-end IT and engineering consultants, project teams, and strategic
outsourcing services for mission-critical projects. Oxford combines international reach with local depth, serving clients
across North America and Europe through four distinct divisions.
Clients
1,510
Placements
3,410
Revenue
$266.7
million
% Revenue
44.7%
of total
(rounded)
O
XFORD
associates
&
A DIVISION OF OXFORD GLOBAL RESOURCES
O
XFORD
International
A DIVISION OF OXFORD GLOBAL RESOURCES
Oxford & Associates provides local IT and engineering
consultants to companies in major metropolitan
markets throughout the United States, supported by
the recruiting depth of Oxford International.
Oxford International delivers national and international
IT and engineering consultants to clients through
its 11 recruiting centers across North America and
Europe, supported by the local presence of Oxford &
Associates.
O
XFORD
Healthcare IT
A DIVISION OF ON ASSIGNMENT
Oxford Healthcare IT delivers seasoned professionals
to healthcare organizations for all phases of IT
development, implementation, and support projects,
specializing in revenue cycle, clinical systems, and
electronic medical records.
C A DIVISION OF OXFORD GLOBAL RESOURCES
ENTERPOINT
Centerpoint provides handpicked information
technology and engineering talent to fulfill clients’
direct staffing needs.
*Technology Segment is referenced as the IT & Engineering Segment in the 2011 10-K.
2011 On Assignment Corporate Milestones
Acquisition of Valesta
MAR 01
On Assignment Technology Division receives
2011 Cosgwell Award for Outstanding
Industrial Security Achievement
On Assignment appoints
Katie Hoffman-Abby as
President of Nurse Travel Division
Jun 27
Jul 28
Life Sciences
Segment
On Assignment’s Life Sciences Segment provides staffing service offerings in scientific, clinical research, engineering, and
executive search, with operations in the United States, Canada, and Europe. The four Life Sciences divisions provide highly
skilled professionals who are in demand for project-based, contract, contract-to-hire, and direct hire placement.
In 2011, the Life Sciences Segment expanded with the acquisition of Valesta. This segment now offers contract, contract-
to-hire, direct hire, and retained search options, allowing current and prospective clients to have confidence that they will
receive staffing services that meet their local, national, and international needs.
The Life Sciences Segment is 26.0 percent of On Assignment’s total revenue. Below is a breakdown of revenue for each
division within this segment.
Professionals placed include biochemists, chemists,
biologists, molecular biologists, food scientists,
environmental scientists, validation engineers, QA/QC
techs, clinical research associates, microbiologists,
food scientists, regulatory affairs specialists, lab
assistants, and technicians.
Engineers of all disciplines are placed in a diverse
range of industries, including biotech, pharmaceutical,
automotive, medical device, chemical and plastics,
environmental, electronics, entertainment, industrial,
construction, defense, aerospace, and consumer goods.
Clients
Placements
Revenue
1,519
5,018
$115.1
million
% Revenue
74.1%
of segment
(rounded)
Clients
Placements
79
221
Revenue
$6.1
million
% Revenue
3.9%
of segment
(rounded)
Professionals placed include medical writers, clinical
research associates, SAS programmers, drug safety
specialists, regulatory affairs specialists, biostatisticians,
project managers, and clinical scientists.
Provides global retained search services for mid- and
senior-level management positions in the pharmaceutical,
biotechnology, vaccines, and medical device industries,
filling roles across the entire value chain.
Clients
109
Placements
362
Revenue
$291
million
% Revenue
18.7%
of segment
(rounded)
Clients
n/A
Placements
n/A
Revenue
$5.2
million
% Revenue
3.3%
of segment
(rounded)
1Includes On Assignment Clinical Research. Valesta acquired 3/2011.
Acquisition of
HealthCare Partners
On Assignment Locum Tenens
Division, VISTA Staffing Solutions,
hires Christian Rutherford as President
Maine Hospital Association
exclusively endorses
On Assignment
On Assignment reports
record quarterly revenue
and earnings
Aug 01
Aug 10
Oct 27
Healthcare
Segment
On Assignment’s Healthcare and Physician Segments offer comprehensive staffing for most disciplines within the healthcare industry,
including physician, nursing, advanced practice, respiratory therapy, rehab therapy, pharmacy, office/administrative, dental, clinical
lab, diagnostic imaging, and health information management. Healthcare professionals are placed in contract, contract-to-hire, direct
hire, and travel positions at hospitals, physicians’ offices, clinics, reference laboratories, and managed healthcare organizations.
The Healthcare Segment is 15.8 percent of total revenue and includes the Nurse Travel, Healthcare Staffing, H.I.M, and Allied Travel
divisions. The breakdown below reflects revenue for each division within this segment. The Physician Segment is identified separately
below.
Professionals placed include nurse practitioners,
physician assistants, and RNs in all specialties,
including ICU, ER, OR, PEDS, NICU, and L&D.
Provides staffing solutions to meet the increased
demand for allied healthcare professionals across the
nation. Experienced travelers are placed in a variety of
assignments ranging from 4 to 26 weeks.
Clients
373
Placements
Revenue
% Revenue
1,581
$49.7
million
52.5%
of segment
(rounded)
Clients
Placements
71
107
Revenue
$3.8
million
% Revenue
4%
of segment
(rounded)
Allied healthcare professionals are placed in the areas
of nursing, clinical laboratory, therapy, diagnostic
imaging, respiratory care, office/administrative, dental,
and pharmacy.
Flexible coding and auditing staffing solutions are
provided to acute care facilities, utilizing local, regional,
and travel professionals.
Clients
960
Placements
Revenue
% Revenue
2,476
$28.8
million
30.5%
of segment
(rounded)
Clients
115
Placements
Revenue
214
$12.3
million
% Revenue
13%
of segment
(rounded)
Physician Segment
VISTA works with physicians from nearly every medical specialty, placing them in hospitals, clinics, urgent care centers,
community-based practices, and government facilities (VA).
Clients
*
611
Placements
Revenue
% Revenue
*
841
*
$80.6
million
*
13.5%
of total
(rounded)
*Includes Healthcare Partners acquired 8/2011.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
SECURITIES EXCHANGE ACT OF 1934
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
For the fiscal year ended December 31, 2011
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-20540
ON ASSIGNMENT, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
95-4023433
(I.R.S. Employer
Identification No.)
26745 Malibu Hills Road
Calabasas, California 91301
(Address of Principal Executive Offices)
Registrant’s telephone number, including area code: (818) 878-7900
Title of each class
Common Stock, $0.01 par value
Name of each exchange on which registered
The NASDAQ Stock Market, LLC
Securities registered pursuant to Section 12(b) of the Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No
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 No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to
submit and post such files). Yes 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
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the
definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
As of June 30, 2011, the aggregate market value of our common stock held by non-affiliates of the registrant was approximately $308,131,042.
As of March 9, 2012, the registrant had outstanding 37,400,313 shares of Common Stock, $0.01 par value.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s proxy statement for the 2012 Annual Meeting of Stockholders, to be filed within 120 days of the close of the registrant’s fiscal year
2011, are incorporated by reference into Part III of this Annual Report on Form 10-K.
1
ON ASSIGNMENT, INC.
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2011
TABLE OF CONTENTS
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
4
11
17
17
17
17
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 18
21
22
29
31
56
56
57
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions and Director Independence
Principal Accounting Fees and Services
Exhibits and Financial Statement Schedule
SIGNATURES
59
59
59
59
59
60
61
2
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are based upon current expectations, as well as
management’s beliefs and assumptions, and involve a high degree of risk and uncertainty. Any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Statements that include the words “believes,” “anticipates,” “plans,” “expects,”
“intends,” and similar expressions that convey uncertainty of future events or outcomes are forward-looking statements. Forward-looking statements
include statements regarding our anticipated financial and operating performance for future periods. Our actual results could differ materially from
those discussed or suggested in the forward-looking statements herein. Factors that could cause or contribute to these differences or prove our
forward-looking statements, by hindsight, to be overly optimistic or unachievable include, but are not limited to actual demand for our services, our
ability to attract, train, and retain qualified staffing consultants (which includes our sales and recruiting staff), our ability to remain competitive in
obtaining and retaining temporary staffing clients, the availability of qualified temporary nurses and other qualified contract professionals, our ability
to manage our growth efficiently and effectively, continued performance of our information systems and the factors described in Item 1A of this
Annual Report on Form 10-K under the Section titled ”Risk Factors.” Other factors also may contribute to the differences between our forward-
looking statements and our actual results. In addition, as a result of these and other factors, our past financial performance should not be relied on as
an indication of future performance. All forward-looking statements in this document are based on information available to us as of the date we file
this Annual Report on Form 10-K, and we assume no obligation to update any forward-looking statement or the reasons why our actual results may
differ.
3
Item 1. Business
Overview and History
PART I
On Assignment, Inc. (NASDAQ: ASGN), is a leading global provider of highly skilled, hard-to-find professionals in the growing life
sciences, healthcare, and technology sectors, where quality people are the key to success. The Company goes beyond matching résumés with job
descriptions to match people they know into positions they understand, for contract, contract-to-hire, and direct hire assignments. Our business
currently consists of four operating segments: Life Sciences, Healthcare, Physician, and IT and Engineering.
We were incorporated on December 30, 1985, and thereafter commenced operation of our Lab Support line of business (now included in our
Life Sciences operating segment), our first contract staffing line of business. Expansion within the Life Sciences segment and into other industries
has primarily been achieved through acquisitions, and utilizing our experience and unique approach in servicing our clients and contract
professionals. Since 1985, we have acquired 13 companies.
On April 16, 2010, we acquired The Cambridge Group Ltd., a Connecticut−based privately−held firm specializing in clinical research, IT,
and physician staffing services and accordingly, is included in each of our Life Sciences, IT & Engineering and Physician operating segments. On
July 19, 2010, the Company acquired Sharpstream Holdings Limited, a London-based privately−owned provider of executive search services in the
life sciences sector and is included in our Life Sciences segment. Sharpstream provides search services across Europe, Asia, and the United States.
On February 28, 2011, we acquired Valesta, a privately-owned provider of specialized clinical research staffing headquartered in
Belgium. Valesta is included in the Life Sciences operating segment. On July 31, 2011, we acquired HealthCare Partners (HCP), a privately-owned
provider of physician staffing headquartered in Atlanta, Georgia. HCP is included in our Physician segment.
Financial information regarding our operating segments and our domestic and international revenues is included under “Financial Statements
and Supplementary Data” in Part II, Item 8 of this Annual Report on Form 10-K.
Our principal executive office is located at 26745 Malibu Hills Road, Calabasas, California 91301 and our telephone number is (818) 878-
7900. We have approximately 76 branch offices in 24 states within the United States and in six foreign countries.
Industry and Market Dynamics
The U.S. employment projections published by the U.S. Bureau of Labor Statistics as of February 2012 estimates that total employment for
the next decade will grow by 20.5 million jobs, or 14 percent, between 2010 and 2020. By comparison, under the previous estimate for the 2008 to
2018 period, total employment was projected to grow by 10 percent. The increase in projected growth from the prior period is largely due to the
relatively lower starting base in 2010, compared to employment levels in 2008. Within the employment industries, the U.S. Bureau of Labor
Statistics, according to such projections, estimates that employment growth in the healthcare and social assistance sector will add the most jobs,
followed by the professional and business services sector.
The Staffing Industry Analysts: Staffing Industry Insight (dated September 2011), an independent staffing industry publication, estimates that
total staffing industry revenues were $114 billion in 2011 and are forecasted to be $122 billion in 2012, in each case, up from $103 billion in 2010.
The biggest industry segment, contract labor, is forecasted to grow at an annual rate of 7 percent in 2012 with revenues of $94 billion, while
permanent placement is forecasted to grow by 12 percent in 2012 with revenues of $6 billion. Within the contract help segment, professional staffing
is expected to grow at an annual rate of 10 percent in 2012 to revenues of $51 billion. The temporary staffing (or contract labor) industry is
historically cyclical and typically has a strong correlation to employment and GDP growth. We anticipate that our healthcare, life sciences and IT
clients will increase their use of outsourced labor through professional staffing firms to meet the need for increases in capacity of their workforce. By
using outsourced labor, these end users will benefit from cost structure advantages, improved flexibility to fluctuating demand in business and access
to greater expertise.
Sales and Fulfillment
Our strategy is to serve the needs of our targeted industries by effectively understanding and matching client staffing needs with qualified
contract professionals. In contrast to the mass market approach generally used for contract office/clerical and light industrial personnel, we believe
effective assignments of contract healthcare, life science, physician and IT and engineering professionals require the people involved in making
assignments to have significant knowledge of the client’s industry and the ability to assess the specific needs of the client as well as the contract
professionals’ qualifications. We believe that face-to-face selling in many circumstances is significantly more effective than the telephonic
solicitation of clients, a tactic favored by many of our competitors. We believe our strategy of using industry professionals to develop professional
relationships provides us with a competitive advantage in our industry which is recognized by our clients.
Our corporate offices are organized to perform many functions that allow staffing consultants and recruiters to focus more effectively on
business development and the assignment of contract professionals. These functions include the recruiting and hiring of staffing consultants,
recruiters and support staff, as well as ongoing training, coaching and administrative support. Our corporate offices also select, open and maintain
branch offices.
4
Clients
During the year ended December 31, 2011, we provided contract professionals to approximately 5,347 clients. In 2011, we had no single
customer that represented two percent or more of our revenues.
All contract assignments, regardless of their planned length, may be terminated with limited notice by the client or the contract professional.
The Contract Professional
Contract professionals often work with a number of staffing companies and develop relationships or loyalty based on a variety of factors,
including competitive salaries and benefits, availability and diversity of assignments, quality and duration of assignments and responsiveness to
requests for placement. Contract professionals seeking traveling positions are also interested in the quality of travel and housing accommodations as
well as the quality of the clinical experience while on assignment.
Hourly wage or contract rates for our contract professionals are established based on their specific skills and whether or not the assignment
involves travel away from the professional’s primary residence. Our staffing consultants are our employees or are subcontracted from other affiliated
corporate entities. For our consultant employees, we pay the related costs of employment including social security taxes, federal and state
unemployment taxes, workers’ compensation insurance and other similar costs. After achieving minimum service periods and hours worked, we also
provide our contract professional employees with paid holidays and allow participation in our 401(k) Retirement Savings Plan.
Strategy
We remain committed to growing our operations in the life science, healthcare, physician and IT and engineering markets that we currently
serve, primarily through supporting our core service offerings and growing our newer service lines of business. We will also continue to look at
acquisition opportunities which supplement our internal growth. In 2011 we acquired Valesta, a clinical staffing company headquartered in Belgium,
and HealthCare Partners, a physician staffing company headquartered in Georgia.
In 2011, we continued to focus on increasing market share in each of our segments, maintaining or increasing our gross margins, expanding
our service offerings and controlling our operating costs. We have increased interaction between our segments so that each can learn best practices
from the others.
As part of our initiative to improve our sales capabilities, field operations, and back office processing efficiency, we continue to make
strategic investments enhancing our primary business systems. Our front office system (RecruitMax) supports all domestic and European Lab
Support locations along with our Allied Healthcare and Nurse Travel operations. Deployment for these platforms began in 2004 and was principally
completed in 2008. Currently underway is our next major front-office development initiative supporting the IT and Engineering segment. The
RecruitMax application interfaces with the existing enterprise-wide information system, PeopleSoft, used in our Life Sciences, Nurse Travel and
Allied Healthcare, Physician and IT and Engineering lines of business and provides additional functionality, including applicant tracking and search
tools, customer and candidate contact management and sales management tools.
We continue to extend the use and capabilities of PeopleSoft in domestic and European operations. The Physician staffing segment was
migrated to the PeopleSoft platform in 2011. Our ongoing plan is to deploy a common front-office system integrated with the PeopleSoft platform
wherever efficiencies can be realized.
We improved our pay-bill processing efficiencies and services by deploying an on-line time collection and customer approval system. This
particular extension of PeopleSoft is fully operational in the IT and Engineering unit and the roll-out will continue by business segment. Life
Sciences and Allied Healthcare are nearing completion of the on-line time collection and customer approval system deployment as well.
Moderate investments are planned to keep our wide area network and computing platform running with high availability hardware. All
primary business operates from a secure data center.
We will continue to invest in leasehold improvements as we expand, relocate, and rationalize our branch facilities and leverage favorable
commercial real estate terms for cost savings.
We believe these improvements should continue to increase the productivity of our staffing consultants and streamline corporate operations.
During 2011, we substantially added to the number of recruiters and sales personnel employed by the company. Over the course of the year,
the average number of recruiters and sales personnel employed by the company increased 23.0 percent. In 2012, we anticipate that the markets we
serve will improve with the economy. We have made small investments in enhancing our permanent placement capabilities and we will continue to
invest in our existing businesses to support growth. In addition, we will continue to review acquisition opportunities that may enable us to leverage
our current infrastructure and capabilities, increase our service offerings and expand our geographic reach.
We will also continue to manage our capitalization over the next four years through the Company’s authorized stock repurchase plan.
Competition
Many of our competitors are larger than us and have substantially greater financial and marketing resources than we do. We also compete
with privately-owned temporary staffing companies on a regional and local basis. Frequently, the strongest competition in a particular market is a
privately-held local company with established relationships. These companies oftentimes are extremely competitive on pricing. While their pricing
strategies are not necessarily sustainable, they can be problematic for us in the short-term.
5
The principal competitive factors in attracting qualified candidates for temporary employment or engagements are salaries, contract rates and
benefits, availability and variety of assignments, quality and duration of assignments and responsiveness to requests for placement. We believe that
many people seeking temporary employment or engagements through us are also pursuing employment through other means, including other
temporary staffing. Therefore, the speed at which we place prospective contract professionals and the availability of appropriate assignments are
important factors in our ability to complete assignments of qualified candidates. In addition to having high quality contract professionals to assign in
a timely manner, the principal competitive factors in obtaining and retaining clients in the temporary staffing industry are properly assessing the
clients’ specific job requirements, the appropriateness of the contract professional assigned to the client, the price of services and the monitoring of
client satisfaction. Although we believe we compete favorably with respect to these factors, we expect competition to continue to increase.
Operating Segments
Life Sciences
Our Life Sciences segment includes our domestic and international life science staffing businesses, which operate from local branch offices in
the United States, United Kingdom, Netherlands, Belgium, Canada, Spain and China. At December 31, 2011, we had 45 Life Sciences segment
branch offices, of which 13 share office space with our Healthcare segment. Life Sciences segment revenues for 2011 were $155.3 million and
represented 26.0 percent of our total revenues. The Staffing Industry Analysts: Staffing Industry Insight (dated September 2011), states that the life
sciences professional staffing market will grow by 10 percent in 2012. Demand for staffing in our Life Sciences segment is driven primarily by
clients with research and development projects across a wide array of industries.
We provide locally-based, contract and permanent life science professionals to clients in the biotechnology, pharmaceutical, food and
beverage, personal care, chemical, medical device, automotive, municipal, education and environmental industries.
We have developed a tailored approach to the assignment-making process that utilizes staffing consultants. Unlike traditional approaches that
tend to be focused on telephonic solicitation, our Life Sciences staffing consultants are experienced professionals who work in our branch office
network to enable face-to-face meetings with clients and contract professionals. Most of our staffing consultants are either focused on sales and
business development or on fulfillment. Sales and business development staffing consultants meet with clients’ managers to understand client needs,
formulate position descriptions and assess workplace environments. Fulfillment staffing consultants meet with candidates to assess their
qualifications and interests and place these contract professionals on quality assignments with clients.
Our Life Sciences segment’s professionals include chemists, clinical research associates, clinical lab assistants, engineers, biologists,
biochemists, microbiologists, molecular biologists, biostatisticians, drug safety specialists, SAS programmers, medical writers, food scientists,
regulatory affairs specialists, lab assistants and other skilled scientific professionals. These contract professionals range from individuals with
bachelor’s and/or master’s degrees and considerable experience to technicians with limited chemistry or biology backgrounds and lab experience.
Contract professionals assigned to clients are generally our employees, although clients provide on-the-job supervisors for these professionals.
Therefore, clients control and direct the work of contract professionals and approve hours worked, while we are responsible for many of the activities
typically handled by the client’s human resources department.
Our primary contacts with our clients are a mix of end users and process facilitators. End users consist of lab directors, managers and
department heads. Facilitators consist of human resource managers, procurement departments and administrators. Facilitators are more price sensitive
than end users who typically are more focused on technical capabilities. Assignments in our Life Sciences segment vary from three to 12 months.
We believe our Life Sciences segment is one of the few nationwide temporary staffing providers specializing exclusively in the placement of
life science professionals. Although other nationwide temporary staffing companies compete with us with respect to scientific, clinical laboratory,
medical billing and collection personnel, many of these companies focus on office/clerical and light and heavy industrial personnel, which account
for a significant portion of the overall contract staffing market. These competitors include Manpower, Inc., Kelly Services, Inc., Adecco SA, Yoh
Company and the Allegis Group.
Healthcare
Our Healthcare segment includes our Nurse Travel and Allied Healthcare lines of business. Nurse Travel operates from our locations in
Cincinnati, Ohio, Tupelo, Mississippi and San Diego, California. Allied Healthcare operates from various locations in the United States. At
December 31, 2011, we had 24 Allied Healthcare branch offices in the United States, of which 13 share office space with the Life Sciences segment.
Healthcare segment revenues for 2011 were $94.6 million and represented 15.8 percent of our total revenues. The Staffing Industry Analysts: Staffing
Industry Insight (dated September 2011), estimates that the healthcare staffing market will grow by 9 percent in 2012. Within the healthcare staffing
industry, Nurse Travel and Allied Healthcare are anticipated to grow the fastest with estimated 2012 revenue growth of 15 percent and 10 percent,
respectively.
In prior years, nursing employment levels were affected by cutbacks in the use of agency workers by hospitals and medical groups and their
reluctance to pay market rates. Today, as a result of the economy, hospitals are seeing fewer admissions and procedures and are attempting to
minimize expenses, which in turn have impacted the demand for our services. Looking forward, contract nursing employment growth could
potentially be driven by various factors including a supply shortage of nurses, impacts of healthcare reform, more favorable nurse-patient ratios and
aging demographics.
The combination of healthcare clients facing shortages of operations-critical staff that limit their ability to generate revenues and increased
demand for health services and advances in life science and medical technology is expected to create significant demand for workers with specialized
science and medical skills. Also influencing the demand for these workers is the departure of mature professionals from the ranks of full-time
employment as they retire, reduced hours worked and the pursuit of other career opportunities. This is evidenced by the continued increase in the
average age of nurses in the workforce.
6
Our Healthcare segment provides locally-based and traveling contract professionals to healthcare clients, including hospitals, integrated
delivery systems, imaging centers, clinics, physician offices, reference laboratories, universities, managed care organizations, rehabilitation facilities,
long-term care facilities and third-party administrators. In doing so, we address occupations that require “high demand and highly-skilled” staff, such
as operating room nurses and health information professionals who are essential to the hospital’s ability to care for patients and maintain business and
revenues.
Our Nurse Travel sales, account management, and recruiting functions are aligned with traditional nurse travel companies with an added
emphasis on rapid response fulfillment. We employ regional sales directors and account managers to identify and sell a variety of nurse staffing
solutions to healthcare clients nationally. Our recruiters seek the most experienced, highly skilled nurses and place them on assignments as contract
professionals with healthcare providers. The critical nature of these occupations to drive revenue motivates clients to respond to our ability to rapidly
fill open positions with experienced nurses.
Our Allied Healthcare line of business has developed a tailored approach to the assignment-making process that utilizes staffing consultants.
Staffing consultants are experienced professionals who work in our branch offices and personally meet with clients and contract professionals. Our
staffing consultants are typically either focused primarily on sales and business development or on fulfillment. Sales and business development
staffing consultants meet with clients to understand their staffing needs, formulate position descriptions and assess workplace environments.
Fulfillment staffing consultants meet with candidates to assess their qualifications and interests and place these contract professionals on quality
assignments with clients.
Our Healthcare segment’s contract professionals include nurses, specialty nurses, health information management professionals, dialysis
technicians, surgical technicians, imaging technicians, x-ray technicians, medical technologists, medical assistants, pharmacists, pharmacy
technicians, respiratory therapists, phlebotomists, coders, billers, claims processors and collections staff, and dental professionals - including dental
assistants, hygienists and dentists and rehabilitation therapists. The nurses and contract professionals we assign to our clients are usually our
employees, although clients provide on-the-job supervisors for these nurses and professionals. Therefore, clients control and direct the work of nurses
and approve hours worked, while we are responsible for many of the activities typically handled by the client’s human resources department.
In our Healthcare segment, we serve a diverse collection of healthcare clients, as mentioned above. Assignments in our Healthcare segment
typically have a term of two to 13 weeks.
In the Nurse Travel line of business, our competitors include AMN Healthcare Services, Inc., Cross Country, Inc. and several privately-held
companies. In the Allied Healthcare line of business, our competitors include Cross Country, Inc., AMN Healthcare Services, Inc., Kforce Inc. and
the Allegis Group.
Physician
Our Physician segment consists of VISTA Staffing Solutions, Inc. (VISTA) and HealthCare Partners, Inc. (HCP), the leading providers of
physician staffing, known as locum tenens coverage, and permanent physician search services. The majority of our recruiters for Vista are located in
Salt Lake City, Utah and for HCP are located in Atlanta, Georgia. The Physician segment revenues for 2011 were $80.6 million and represented 13.5
percent of our total revenues. The Staffing Industry Analysts: Staffing Industry Insight (dated September 2011), states that the physician staffing
market will increase 9 percent in 2012. An ongoing shortage of physicians and potential impacts of healthcare reform could fuel future growth.
Our Physician staffing business places physicians in a wide range of specialties throughout the United States, as well as Australia and New
Zealand, under the brand VISTA, placing them in hospitals, community-based practices and federal, state and local facilities. We provide short and
long-term locum tenens services and full-service physician search and consulting services. The physician staffing market requires a high degree of
specialized knowledge about credentialing and qualifications, as well as unique insurance requirements that make it more difficult to replicate than
certain other types of staffing markets. Our Physician segment operates out of two primary recruitment centers with several branch offices.
The sales and fulfillment functions at our Physician segment are similar to those of our competitors. Our client sales specialists are organized
by geographic territories so that a single individual can handle a client’s physician staffing needs for all disciplines. Our recruiters and schedulers are
organized by physician specialty and identify physician candidates with the skills, experience and availability to meet our clients’ needs. In addition,
we have four branch locations that also carry out recruiting functions.
The physicians in our Physician segment come from 33 different specialties including emergency medicine, psychiatry, anesthesiology,
radiology, family practice, surgical specialties, internal medicine, pediatrics, obstetrics and gynecology. The physicians we place at clients are
independent contractors. Clients assign shifts and approve hours worked, while we are responsible for issuing payments to the physicians for services
rendered to our clients.
Clients in our Physician segment include hospitals, doctors’ practice groups, large healthcare systems and government agencies. We are
called on to supply temporary and permanent doctors because of the difficulty that healthcare providers have finding qualified practitioners.
Assignments in our Physician segment typically have a term of six weeks.
Like our Healthcare segment, our Physician segment competes in the healthcare market, serving hospitals, doctors’ practice groups and
private healthcare systems and government administrated healthcare agencies. Our competitors include CHG Healthcare Services, TeamHealth, Inc.,
Cross Country, Inc. and AMN Healthcare Services, Inc., along with several other privately-held companies providing locum tenens services.
IT and Engineering
Our IT and Engineering segment consists of Oxford Global Resources, Inc. (Oxford), based in Beverly, Massachusetts where all of the
segment’s back-office activities are located. Oxford combines international reach with local depth, serving clients through a network of recruiting
centers in North America and Europe, and branch offices in major metropolitan markets across the United States. IT and Engineering segment
7
revenues for 2011 were $266.7 million and represented 44.7 percent of our total revenues. The Staffing Industry Analysts: Staffing Industry Insight
(dated September 2011), estimates that the IT staffing market will increase 12 percent in 2012. Demand in our IT and Engineering business segment
is driven by a shortage of IT professionals with specialized skills. Additionally, the demand for project-based work has created an ideal climate to
boost the segment.
Our IT and Engineering segment places highly qualified professionals in select IT and engineering technical disciplines. Our IT specialties
include enterprise resource planning, business intelligence, customer relationship management, supply chain management, database administration,
and healthcare applications. Our engineering specialties include hardware, software, mechanical, electrical, validation, network, and
telecommunications. Assignments are highly diversified in that we average less than two contract placements per client.
The segment serves the market in two separate operating formats. The first operating format, Oxford International, consists of eight sales and
recruiting centers in the U.S. and one in Cork, Ireland that proactively recruit skilled IT and engineering professionals and fulfill client needs for
temporary consultants and permanent employees across North America and Europe. The right candidates for these assignments often reside in
locations that are remote from the client worksite and will travel away from their homes to perform the assignments. The second operating format,
Oxford and Associates, consists of 14 branch offices across the United States that typically receive orders from clients in their local metropolitan
market and fulfill those orders with professionals from that local market. In each of these formats, we employ both client-oriented sales people and
recruiters. Because our IT and Engineering segment concentrates in select disciplines within the IT and engineering markets, our sales people and
recruiters specialize in a given discipline. Our competitive advantage in this segment comes from our ability to respond very quickly with high
quality candidates to a client’s request.
Our IT and Engineering segment’s professionals are experts in specific information technology and engineering disciplines. Typically, they
have a great deal of knowledge and experience in a fairly narrow field which makes them uniquely qualified to fill a given assignment. Contract
professionals assigned to clients are generally our employees. Clients provide on-the-job supervisors for these professionals, control and direct their
work, and approve all hours worked. We are responsible for many of the activities typically handled by the client’s human resources department.
In our IT and Engineering segment, we supply services to clients in a wide range of industries. Our clients range from large companies that
may, for example, be installing new enterprise-wide computer systems and have a need for a subject matter expert with a specific technical and
industry-specific experience, to a mid-sized medical device manufacturer who needs specialized mechanical engineers. The IT disciplines in which
we specialize include enterprise resource planning, business intelligence, application development, IT infrastructure, IT security, and healthcare IT.
Our engineering specialties include software, hardware, mechanical, electrical, quality, validation, network, and telecommunication engineering.
Assignments in our IT and Engineering segment typically have a term of approximately five months.
Oxford’s competition ranges from local and regional specialty staffing companies to large IT consulting firms like Accenture, Inc. and
International Business Machines Corporation (IBM), and international staffing firms such as Aerotek and Robert Half International, Inc.
Seasonality
Demand for our staffing services historically has been lower during the first and fourth quarters due to fewer business days resulting from
client shutdowns, adverse weather conditions and a decline in the number of contract professionals willing to work during the holidays. As is
common in the staffing industry, we run special incentive programs to keep our contract professionals, particularly nurses, working through the
holidays. Demand for our staffing services usually increases in the second and third quarters of the year. In addition, our cost of services typically
increases in the first quarter primarily due to the reset of payroll taxes.
Employees
At December 31, 2011, we employed approximately 1,281 full-time regular employees, including staffing consultants, regional sales
directors, account managers, recruiters and corporate office employees. During 2011, we employed approximately 13,389 contract professionals and
841 locum tenens physicians.
Government Regulation
The healthcare industry is subject to extensive and complex federal and state laws and regulations related to professional licensure,
certification, conduct of operations, payment for services, payment for referrals and insurance. Our operations are subject to additional state and local
regulations that require temporary staffing companies placing healthcare personnel to be licensed or separately registered to an extent beyond that
required by temporary staffing companies that only place non-healthcare personnel. To date, we have not experienced any material difficulties in
complying with such regulations and obtaining required licensure.
Some states require state licensure with associated fees for businesses that employ and/or assign certain healthcare personnel at hospitals and
other healthcare facilities. We are currently licensed in all the states that require such licenses. In addition, many of the contract healthcare
professionals that we employ are required to be individually licensed and/or certified under applicable state laws. We take reasonable steps to ensure
that our contract professionals possess all current licenses and certifications required for each placement. We provide state mandated workers’
compensation insurance, unemployment insurance and professional liability insurance for our contract professionals who are employees and our
regular employees. We provide medical malpractice insurance for the non-physician placements through On Assignment Healthcare Staffing. We
provide separate medical malpractice insurance coverage for our locum tenens physicians placed through VISTA and HCP. These expenses have a
direct effect on our cost of services, margins and likelihood of achieving or maintaining profitability.
For a further discussion of government regulation associated with our business, see “Risk Factors” within Item 1A of Part I of this Form 10-
K.
8
Executive Officers of the Company
The executive officers of On Assignment, Inc. are as follows:
Name
Peter T. Dameris
James L. Brill
Emmett B. McGrath
Christian Rutherford
Mark S. Brouse
Michael J. McGowan
Katie Hoffman-Abby
Christina Gibson
Age
52
60
50
38
58
58
50
41
Position
Chief Executive Officer and President
Senior Vice President, Finance and Chief Financial Officer
President, Life Sciences and Allied Healthcare
President, VISTA Staffing Solutions, Inc.
President, VISTA Staffing Solutions, Inc. (until January 4, 2012)
President, Oxford Global Resources, Inc.
President, Nurse Travel
Vice President of Finance and Corporate Controller
Peter T. Dameris joined the Company in November 2003 as Executive Vice President, Chief Operating Officer and was promoted to
President and Chief Executive Officer in September 2004. He was appointed to the Board of Directors of the Company in February 2005. From
February 2001 through October 2002, Mr. Dameris served as Executive Vice President and Chief Operating Officer of Quanta Services, Inc. (NYSE:
PWR), a leading provider of specialized contracting services for the electric and gas utility, cable and telecommunications industries. From
December 1994 through September 2000, Mr. Dameris served in a number of different positions at Metamor Worldwide, Inc., an international,
publicly-traded IT consulting/staffing company, including Chairman of the Board, President and Chief Executive Officer, Executive Vice President,
General Counsel, Senior Vice President and Secretary. In June 2000, Mr. Dameris successfully negotiated the sale of Metamor for $1.9 billion. From
November 2002 to January 2006, Mr. Dameris was a member of the Board of Directors of BindView Corporation (acquired by Symatec Corporation
in January 2006). Mr. Dameris holds a Juris Doctorate from the University of Texas Law School and a Bachelor’s in Business Administration from
Southern Methodist University.
James L. Brill joined the Company in January 2007 as Senior Vice President, Finance and Chief Financial Officer. Mr. Brill was Vice
President, Finance and Chief Financial Officer of Diagnostic Products Corporation, a manufacturer of immuno-diagnostic kits, from July 1999 until it
was acquired by Siemens in July 2006. From August 1998 to June 1999, Mr. Brill served as Chief Financial Officer of Jafra Cosmetics International,
a marketing and direct-selling company in the skin care and beauty industry, and as Vice President of Finance and Administration and Chief
Financial Officer of Vertel Corporation, a provider of middleware for the telecommunications industry, from 1996 to 1998. Mr. Brill also served as
Senior Vice President, Finance and Chief Financial Officer of Merisel, Inc., a computer hardware and software distributor, from 1988 to 1996. Mr.
Brill has been a member of the Board of Directors of Onvia Inc. since March 2004. He holds a Bachelor’s of Science degree from the United States
Naval Academy and a Master’s of Business Administration degree from the University of California Los Angeles.
Emmett B. McGrath joined the Company in September 2004 as President, Life Sciences U.S., and in August 2005, Mr. McGrath was
appointed as President of Life Sciences Europe. Mr. McGrath was appointed as President of Allied Healthcare in November 2007. From
February 1985 through August 2004, Mr. McGrath worked at Yoh Company, a privately-held IT staffing firm. During his tenure at Yoh,
Mr. McGrath held various staffing positions, including Technical Recruiter, Account Manager, Branch and District Management, Vice President and
Regional President. As Regional President, Mr. McGrath was responsible for core lines of businesses, including Scientific, Information Technology,
Engineering, Healthcare, Telecommunications and Vendor on Premise (VOP) programs. In addition, Mr. McGrath served on Yoh’s Executive
Committee and the Chairman’s Board of the Day & Zimmermann Group, Yoh’s parent company. Mr. McGrath received a Bachelor’s of Science
degree in Business Administration, with an emphasis in Human Resources, from California State University, Northridge in 1991.
Christian Rutherford is President of VISTA Staffing Solutions, On Assignment’s physician staffing division. Mr. Rutherford is an 18-year
veteran of the U.S. staffing industry. From January 2004 through December 2008, Mr. Rutherford held senior leadership roles at CompHealth, the
largest locum tenens company in the nation, including President of Weatherby Locums and President of RN Network. In February 2009, Mr.
Rutherford began working for Medfinders, a large, national healthcare staffing company. There, he served as President of Linde Healthcare, Kendall
and Davis.In November 2009, Mr. Rutherford was promoted to Chief Operating Officer and Board member of Medfinders and in the fourth quarter
of 2010, Medfinders was sold to AMN Healthcare. Prior to joining as President of VISTA, Mr. Rutherford served as a consultant to On Assignment.
Mr. Rutherford holds a Bachelor’s of Science degree in Business from the University of Utah.
Mark S. Brouse served as President of VISTA since January 2007, when Vista was acquired by On Assignment. From November 1, 2011 to
January 4, 2012, Mr. Brouse transitioned responsibilities related to the position of President of VISTA to Mr. Rutherford. Mr. Brouse began his
career in pharmaceutical sales in 1980, and in 1986 joined CompHealth, a locum tenens staffing company, where he led specialty teams serving
psychiatry and internal medicine clients before co-founding VISTA in 1990. Mr. Brouse holds a Bachelor’s of Arts degree in Chemistry from
California State, Dominguez Hills, and is a member of the Boards of Directors of the YMCA of Greater Salt Lake and PEHR Technologies, an
electronic medical records company.
Michael J. McGowan is President of Oxford Global Resources, Inc., On Assignment’s IT and Engineering segment. He has held this
position since 1998. He joined Oxford in May of 1997 as Chief Operating Officer. Formerly, Mr. McGowan was Senior Vice President and General
Manager for Kelly Services’ Middle Markets Division, a provider of staffing solutions. Prior to that time he was Vice President & General Manager
for The MEDSTAT Group, a healthcare information firm, and held increasingly senior positions for Automatic Data Processing (ADP), a provider of
human resources, payroll and tax and benefits administration solutions, during a sixteen year tenure. Mr. McGowan holds a Bachelor’s of Science
degree in Electrical Engineering from Michigan State University and a Master’s of Business Administration degree from the Eli Broad Graduate
School of Management, also at Michigan State University. Mr. McGowan joined On Assignment as a result of the Company’s acquisition of Oxford
in January 2007.
Katie Hoffman-Abby is President of Nurse Travel. She has over 25 years of experience in healthcare staffing and is one of the first VISTA
executives tapped to lead other areas within the On Assignment family. Ms. Hoffman-Abby joined the Company in January 2007, as a result of the
9
Company’s acquisition of VISTA. Prior to joining the Company, Ms. Hoffman-Abby worked as a physician recruiter for CompHealth, a large locum
tenens staffing company for more than five years and then co-founded VISTA in 1990. She served as executive vice president for VISTA since
March 2010 and in July of 2011 was appointed as President of the Nurse Travel Division. Ms. Hoffman-Abby is an experienced operations manager
and contributes to division-wide training, mentoring, and management programs as well. She helped develop the standards for physician recruitment,
credentials review, and matching with appropriate practices that shape the entire locum tenens industry to this day. Ms. Hoffman-Abby is on the
Board of Directors for Utah Healthcare Institute/St. Mark’s Hospital Graduate Medical Education. Ms. Hoffman-Abby is past president of the
National Association of Locum Tenens Organizations (NALTO), an association she helped found to establish and enforce standards for ethics and
sound business practices within the locum tenens industry. She is a member of the board of directors of International Volunteers in Urology, an
organization that provides education and health care worldwide. Ms. Hoffman-Abby holds a Bachelors of Science degree in nutrition and food
science from the University of Utah.
Christina Gibson joined the Company in May 2007 as Vice President of Finance and Corporate Controller. Ms. Gibson is responsible for the
day-to-day accounting operations of the Company and its subsidiaries, managing Sarbanes-Oxley compliance, and external and internal financial
reporting for the Company. Prior to joining the Company, Ms. Gibson was the Vice President and Controller for Digital Insight, an internet banking
software company from April 2005 to May 2007. From May 2000 through April 2005, Ms. Gibson worked at Tekelec , a telecommunications
equipment provider. During her tenure at Tekelec, Ms. Gibson served as the Director of Finance as well as the Assistant Vice President and
Corporate Controller. She holds a Bachelors of Science degree in accounting from the University of Southern California and is a Certified Public
Accountant.
Available Information and Access to Reports
We electronically file our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments
to those reports with the Securities and Exchange Commission (SEC). You may read and copy any of our reports that are filed with the SEC in the
following manner:
• At the SEC’s Public Reference Room at 100 F Street NE, Washington, DC 20549. You may obtain information on the operation of the
Public Reference Room by calling the SEC at (800) SEC-0330;
• At the SEC’s website, http://www.sec.gov;
• At our website, http://www.onassignment.com; or
• By contacting our Investor Relations Department at (818) 878-7900.
Our reports are available through any of the foregoing means and are available free of charge on our website as soon as practicable after such
material is electronically filed with or furnished to the SEC. Also available on our website (http://www.onassignment.com), free of charge, are copies
of our Code of Ethics for the Principal Executive Officer and Senior Financial Officers, Code of Business Conduct and Ethics and the charters for the
committees of our Board of Directors. We intend to disclose any amendment to, or waiver from, a provision of our Code of Ethics for Principal
Executive Officer and Senior Financial Officers on our website within five business days following the date of the amendment or waiver.
10
Item 1A. Risk Factors
Our business is subject to a number of risks including, but not limited to, the following:
Global market and economic developments could adversely affect our business, financial condition and results of operations.
Demand for the contract staffing services that we provide is significantly impacted by global market and economic conditions. As economic
activity slows, particularly any negative effect on healthcare, research and development and quality control and capital spending, many clients or
potential clients reduce their use of and reliance upon contract professionals. During periods of reduced economic activity, we may also be subject to
increased competition for market share and pricing pressure. As a result, a recession or periods of reduced economic activity could harm our business
and results of operations.
While we saw improvements in the economy during 2011, economic conditions remain uncertain. Concerns continue about the systemic
impact of a double dip recession, energy costs, geopolitical issues, low consumer confidence, high unemployment and underemployment, and the
global housing and mortgage markets. As a result of these market conditions, the cost and availability of credit has been and may continue to be
adversely affected by illiquid credit markets and wider credit spreads. Continued turbulence in the U.S. and international markets and economies may
adversely affect our liquidity and financial condition, as well as the liquidity and financial condition of our lenders and clients. This could impact our
ability to draw on all, or a substantial portion, of our credit facilities, refinance maturing liabilities and access the capital markets to meet liquidity
needs, as well as expose us to risks in collecting our accounts receivable.
If we are not able to remain competitive in obtaining and retaining temporary staffing clients, our future growth will suffer.
The contract staffing industry is highly competitive and fragmented with limited barriers to entry. We compete in national, regional and local
markets with full-service agencies, and in regional and local markets with specialized contract staffing agencies. Some of our competitors in the
Nurse Travel line of business include AMN Healthcare Services, Inc., Cross Country, Inc. and several privately-held companies. Some of our
competitors in the Life Sciences segment and Allied Healthcare line of business include Kelly Services, Inc., Kforce Inc., Manpower, Inc., Adecco
SA, Yoh Company, and Allegis Group. Competitors for the Physician segment include CHG Healthcare Services, Cross Country, Inc., TeamHealth,
Inc. and AMN Healthcare Services, Inc., along with several other privately-held companies specializing in locum tenens services. Competitors of our
IT and Engineering segment include Robert Half International, Accenture, and Aerotek. Many of these companies have significantly greater
marketing and financial resources than we do. Our ability to attract and retain clients is based on the value of the service we deliver, which in turn
depends principally on the speed with which we fill assignments and the appropriateness of the match based on clients’ requirements and the skills
and experience of our contract professionals. Our ability to attract and retain skilled, experienced contract professionals is based on our ability to pay
competitive wages or contract rates, to provide competitive benefits and provide multiple, continuous assignments. To the extent that competitors
seek to gain or retain market share by reducing prices or increasing marketing expenditures, we could lose revenues and our margins could decline,
which could seriously harm our operating results and cause the trading price of our stock to decline. As we expand into new geographic markets, our
success will depend in part on our ability to gain market share from competitors. We expect competition for clients to increase in the future, and the
success and growth of our business depends on our ability to remain competitive.
We do not have long-term or exclusive agreements with our temporary staffing clients and growth of our business depends upon our ability to
continually secure and fill new orders.
We do not have long-term agreements or exclusive guaranteed order contracts with our temporary staffing clients. Assignments for our Life
Sciences segment typically have a term of three to six months. Assignments for our Healthcare segment typically have a term of two to thirteen
weeks. Assignments for our Physician segment typically have a term of six weeks. Assignments for our IT and Engineering segment typically have a
term of approximately five months. The success of our business depends upon our ability to continually secure new orders from clients and to fill
those orders with our contract professionals. Our agreements do not provide for exclusive use of our services, and clients are free to place orders with
our competitors. As a result, it is imperative to our business that we maintain positive relationships with our clients. If we fail to maintain positive
relationships with these clients, we may be unable to generate new contract staffing orders, and the growth of our business could be adversely
affected.
Agreements may be terminated by clients and contract professionals at will and the termination of a significant number of such agreements
would adversely affect our revenues and results of operations.
Each contract professional’s employment or independent contractor’s relationship with us is terminable at will. A locum tenens physician
may generally terminate his or her contract for non-emergency reasons upon 30 or 60 days notice. The duration of agreements with clients are
generally dictated by the contract. Usually, contracts with clients may be terminated with 30 days notice by us or by the clients and, oftentimes,
assignments may be terminated with less than one week’s notice. We cannot assure that existing clients will continue to use our services at historical
levels, if at all. In addition, we continue to participate in an increasing number of third party contracts as a subcontractor and that requires us to
participate in vendor management contracts, which may subject us to greater risks or lower margins. If clients terminate a significant number of our
staffing agreements or assignments and we are unable to generate new contract staffing orders to replace lost revenues or a significant number of our
contract professionals terminate their employment with us and we are unable to find suitable replacements, our revenues and results of operations
could be adversely affected.
Fluctuation in patient occupancy rates at client facilities could adversely affect demand for services of our Healthcare and Physician segments
and our results of operations.
Client demand for our Healthcare and Physician segment services is significantly impacted by changes in patient occupancy rates at our
hospital and healthcare clients’ facilities. Increases in occupancy often result in increased client need for contract professionals before full-time
employees can be hired. During periods of decreased occupancy, however, hospitals and other healthcare facilities typically reduce their use of
contract professionals before laying off their regular, full-time employees. During periods of decreased occupancy, we may experience increased
11
competition to service clients, including pricing pressure. Occupancy at certain healthcare clients’ facilities also fluctuates due to the seasonality of
some elective procedures and patients declining elective procedures. Periods of decreased occupancy at client healthcare facilities could materially
adversely affect our results of operations.
If we cannot attract, develop and retain qualified and skilled sales and recruiting staff, our business growth will suffer.
A key component of our ability to grow our business is our ability to attract, develop and retain qualified and skilled sales and recruiting staff,
particularly persons with industry experience. The available pool of qualified staffing consultant candidates is limited, and further constrained by the
industry practice of entering into non-compete agreements with these employees, which may restrict their ability to accept employment with other
staffing firms, including us. We cannot assure that we will be able to recruit, develop and retain qualified sales and recruiting staff in sufficient
numbers, or that our staffing consultants will achieve productivity levels sufficient to enable growth of our business. Failure to attract and retain
productive sales and recruiting staff could adversely affect our business, financial condition and results of operations.
If we are unable to attract and retain qualified contract professionals for our Life Sciences, Healthcare, Physician and IT and Engineering
segments, our business could be negatively impacted.
Our business is substantially dependent upon our ability to attract and retain contract professionals who possess the skills, experience, and
licenses, as required, to meet the specified requirements of our clients. We compete for such contract professionals with other temporary staffing
companies and with our clients and potential clients. There can be no assurance that qualified healthcare, nursing, life sciences, physician, IT and
engineering professionals will be available to us in adequate numbers to staff our operating segments. Moreover, our contract professionals are often
hired to become regular employees of our clients. Attracting and retaining contract professionals depends on several factors, including our ability to
provide contract professionals with desirable assignments and competitive benefits and wages. The cost of attracting and retaining contract
professionals may be higher than we anticipate and, as a result, if we are unable to pass these costs on to our clients, our likelihood of achieving or
maintaining profitability could decline. In periods of high unemployment, contract professionals frequently opt for full-time employment directly
with clients and, due to a large pool of available candidates, clients are able to directly hire and recruit qualified candidates without the involvement
of staffing agencies. If we are unable to attract and retain a sufficient number of contract professionals to meet client demand, we may be required to
forgo staffing and revenue opportunities, which may hurt the growth of our business.
Reclassification of our independent contractors by tax authorities could materially and adversely affect our business model and could require us
to pay significant retroactive wages, taxes and penalties.
We consider our locum tenens physicians to be independent contractors rather than employees. As such, we do not withhold or pay income or
other employment related taxes, or provide workers’ compensation insurance for them. Our classification of locum tenens physicians as independent
contractors is consistent with general industry standard, but can nonetheless be challenged by the contractors themselves or by, relevant taxing
authorities. If federal or state taxing authorities determine that locums tenens physicians engaged as independent contractors are employees, our
business model for that segment would be materially and adversely affected. Although we believe we would qualify for safe harbor under the
provisions of Section 530 of the Revenue Act of 1978, Pub. L. No. 95−600, and any similar applicable state laws, we could incur significant liability
for past wages, taxes, penalties and other employment benefits if we could not so qualify. In addition, many states have laws that prohibit
non−physician owned companies from employing physicians. If our independent contractor physicians are classified as employees, we could be
found in violation of such state laws, which could subject us to liability in those states and thereby negatively impact our profitability.
Our costs of providing travel and housing for traveling contract professionals may be higher than we anticipate and, as a result, our margins
could decline.
If our travel and housing costs, including the costs of airline tickets, rental cars, apartments and rental furniture for our traveling contract
professionals exceed the levels we anticipate, and we are unable to pass such increases on to our clients, our margins may decline. To the extent the
length of our apartment leases exceed the terms of our staffing contracts, we bear the risk that we will be obligated to pay rent for housing we do not
use. If we cannot source a sufficient number of appropriate short-term leases in regional markets, or if, for any reason, we are unable to efficiently
utilize the apartments we do lease, we may be required to pay rent for unutilized or underutilized housing. Effective management of travel costs will
be necessary to prevent a decrease in gross profit and gross and operating margins.
Future changes in reimbursement trends could hamper our Healthcare and Physician segments clients’ ability to pay us, which would harm our
financial results.
Many of our Healthcare and Physician segments’ clients are reimbursed under the federal Medicare program and state Medicaid programs for
the services they provide. In recent years, federal and state governments have made significant changes in these programs that have reduced
reimbursement rates. In addition, insurance companies and managed care organizations seek to control costs by requiring that healthcare providers,
such as hospitals, discount their services in exchange for exclusive or preferred participation in their benefit plans. Future federal and state legislation
or evolving commercial reimbursement trends may further reduce, or change conditions for, our clients’ reimbursement. Limitations on
reimbursement could reduce our clients’ cash flows, thereby hampering their ability to pay us.
If our insurance costs increase significantly, these incremental costs could negatively affect our financial results.
The costs related to obtaining and maintaining workers’ compensation insurance, medical malpractice insurance, professional and general
liability insurance and health insurance for our contract professionals have been increasing. If the cost of carrying this insurance continues to increase
significantly, this may reduce our gross and operating margins and affect our financial results.
We may be subject to increases in payroll-related costs and unemployment insurance taxes, resulting in lower margins.
We currently pay federal, state and local payroll costs and taxes for our corporate employees and contract professional employees. If we are
12
subject to significant increases in costs associated with payroll and unemployment taxes, we may not be able to increase client bill rates to cover the
additional expense and this may reduce our gross and operating margins and affect our financial results.
Improper activities of our contract professionals could result in damage to our business reputation, discontinuation of our client relationships
and exposure to liability.
We may be subject to possible claims by our clients related to errors and omissions, misuse of proprietary information, breach of
confidentiality, discrimination and harassment, theft and other criminal activity, malpractice and other claims stemming from the improper activities
or alleged activities of our contract professionals. We cannot assure that our current liability insurance coverage will be adequate or will continue to
be available in sufficient amounts to cover damages or other costs associated with such claims. Claims raised by clients stemming from the improper
actions of our contract professionals, even if without merit, could cause us to incur significant expense associated with the costs or damages related to
such claims. Further, such claims by clients could damage our business reputation and result in the discontinuation of client relationships.
Claims against us by our contract professionals for damages resulting from the negligence or mistreatment by our clients could result in
significant costs and adversely affect our recruitment and retention efforts.
We may be subject to possible claims by our contract professionals alleging discrimination, sexual harassment, negligence and other similar
activities. Our physicians, nurses and healthcare professionals may also be subject to medical malpractice claims. We cannot assure that our current
liability insurance coverage will be adequate or will continue to be available in sufficient amounts to cover damages or other costs associated with
such claims. Claims raised by our contract professionals, even if without merit, could cause us to incur significant expense associated with the costs
or damages related to such claims. Further, any associated negative publicity could adversely affect our ability to attract and retain qualified contract
professionals in the future.
If we are subject to material uninsured liabilities under our partially self-insured workers’ compensation program and medical malpractice
coverage, our financial results could be adversely affected.
We maintain a partially self-insured workers’ compensation program and medical malpractice coverage. In connection with these programs,
we pay a base premium plus actual losses incurred up to certain levels. We are insured for losses greater than certain levels, both per occurrence and
in the aggregate. There can be no assurance that our loss reserves and insurance coverage will be adequate in amount to cover all workers’
compensation or medical malpractice claims. If we become subject to substantial uninsured workers’ compensation or medical malpractice liabilities
or there is a significant change in the circumstances related to claims, our results of operations and financial condition could be adversely affected.
Significant legal actions could subject us to substantial uninsured liabilities.
In recent years, we have been subject to an increasing number of legal actions alleging malpractice, vicarious liability, intentional torts,
negligent hiring, discrimination or related legal theories. We may be subject to liability in such cases even if the contribution to the alleged injury was
minimal. Many of these actions involve large claims and significant defense costs. In addition, we may be subject to claims related to torts or crimes
committed by our corporate employees or contract professionals. In most instances, we are required to indemnify clients against some or all of these
risks. A failure of any of our corporate employees or contract professionals to observe our policies and guidelines intended to reduce these risks;
relevant client policies and guidelines or applicable federal, state or local laws, rules and regulations could result in negative publicity, payment of
fines or other damages.
To protect ourselves from the cost of these types of claims, we maintain workers’ compensation, medical malpractice, errors and omissions,
employment practices and general liability insurance coverage in amounts and with deductibles that we believe are appropriate for our operations.
Our coverage is, in part, self-insured and our insurance coverage may not cover all claims against us or continue to be available to us at a reasonable
cost. If we are unable to maintain adequate insurance coverage, we may be exposed to substantial liabilities.
We operate in a regulated industry and changes in regulations or violations of regulations may result in increased costs or sanctions that could
reduce our revenues and profitability.
Our organization is subject to extensive and complex federal and state laws and regulations including but not limited to laws and regulations
related to professional licensure, payroll tax, conduct of operations, payment for services and payment for referrals. If we fail to comply with the laws
and regulations that are directly applicable to our business, we could suffer civil and/or criminal penalties or be subject to injunctions or cease and
desist orders.
Extensive and complex laws that apply to our hospital and healthcare facility clients, including laws related to Medicare, Medicaid and other
federal and state healthcare programs, could indirectly affect the demand or the prices paid for our services. For example, our hospital and healthcare
facility clients could suffer civil and/or criminal penalties and/or be excluded from participating in Medicare, Medicaid and other healthcare
programs if they fail to comply with the laws and regulations applicable to their businesses. In addition, our hospital and healthcare facility clients
could receive reduced reimbursements or be excluded from coverage because of a change in the rates or conditions set by federal or state
governments. In turn, violations of or changes to these laws and regulations that adversely affect our hospital and healthcare facility clients could also
adversely affect the prices that these clients are willing or able to pay for our services.
Recent U.S. healthcare legislation could negatively impact our results of operations.
In March 2010, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively,
the Acts) were signed into U.S. law. The Acts represent comprehensive healthcare reform legislation that, in addition to other provisions, will require
that we provide healthcare coverage to our temporary employees in the United States or incur penalties. Although our intent is to bill these costs to
our customers, there can be no assurance that we will be able to increase client bill rates in a sufficient amount to cover the increased costs. This may
reduce our gross and operating margins and negatively impact our financial results. Additionally, since significant provisions of the Acts will not
13
become effective until 2014, possible future changes to the Acts could significantly impact any estimates we develop during that period. While we
are unable at this time to estimate the net impact of the Acts, we believe the net financial impact on our results of operations could be significant.
We may not successfully make or integrate acquisitions, which could harm our business and growth.
As part of our growth strategy, we intend to opportunistically pursue selected acquisitions. We compete with other companies in the
professional staffing and consulting industries for acquisition opportunities, and we cannot assure that we will be able to affect future acquisitions on
commercially reasonable terms or at all. To the extent we enter into acquisition transactions in the future, we may experience:
• delays in realizing or a failure to realize the benefits, cost savings and synergies that we anticipate;
• difficulties or higher-than-anticipated costs associated with integrating any acquired companies into our businesses;
• attrition of key personnel from acquired businesses;
• diversion of management’s attention from other business concerns;
• inability to maintain the business relationships and reputation of the acquired companies;
• difficulties in integrating the acquired companies into our information systems, controls, policies and procedures;
• additional risks relating to the businesses or industry of the acquired companies that are different from ours;
• unexpected liabilities, costs or charges;
• unforeseen operating difficulties that require significant financial and managerial resources that would otherwise be
available for the ongoing development or expansion of our existing operations; and
• impairment related to goodwill and other identifiable intangible assets acquired
To undertake more transactions, additional financing may be necessary and, if used, would result in additional debt, dilution of outstanding
equity, or both. We may face unexpected contingent liabilities arising from these or future acquisitions that could harm our business.
Impairment of goodwill could materially impact future results of operations.
We have approximately $229.2 million in goodwill at December 31, 2011. As part of the analysis of goodwill impairment, Accounting
Standards Codification Topic 350, Intangibles - Goodwill and Other, requires the Company’s management to estimate the fair value of the reporting
units on at least an annual basis and more frequently if events or changes in circumstances indicate that the carrying amount may not be recoverable.
We determine the fair value based upon discounted cash flows prepared for each reporting unit. Cash flows are developed for each reporting unit
based on assumptions including revenue growth expectations, gross margins, operating expense projections, working capital, capital expense
requirements and tax rates. The multi-year financial forecasts for each reporting unit used in the cash flow models considered several key business
drivers such as new product lines, historical performance and industry and economic trends, among other considerations. There are inherent
uncertainties related to the factors, and management’s judgment in applying these factors. At December 31, 2011, we performed our annual goodwill
impairment test and concluded that there was no impairment. Future declines in our market capitalization or any other impairment indicators
subsequent to the balance sheet date could be an early indication that remaining goodwill may become impaired in the future. Although a future
impairment of goodwill and indefinite lived identifiable intangible assets would not affect our cash flow, it would negatively impact our operating
results.
We are subject to business risks associated with international operations, which could make our international operations significantly more
costly.
During 2011, we had international sales in all countries in the European Union, in Canada, the Virgin Islands, New Zealand and Australia. In
2011, our international operations comprised approximately 11.4 percent of total sales compared with 7.0 percent and 5.5 percent in 2010 and 2009,
respectively. We have limited experience in marketing, selling and supporting our services outside of North America.
Operations in certain markets are subject to risks inherent in international business activities, including:
• fluctuations in currency exchange rates;
• complicated work permit requirements;
• varying economic and political conditions;
• seasonal reductions in business activity during the summer months in Europe and Asia;
• overlapping or differing tax structures;
• difficulties collecting accounts receivable; and
• regulations concerning pay rates, benefits, vacation, union membership, redundancy payments and the termination of employment.
Our inability to effectively manage our international operations could result in increased costs and adversely affect our results of operations.
Adverse results in tax examinations could subject us to unforeseen liabilities and impact our financial results.
We are subject to periodic tax audits. Adverse findings or assessments made by taxing authorities as the result of an audit could have an
adverse effect on our financial results, if we are unable to sustain our position with the relevant jurisdiction.
14
If our information systems do not function in a cost effective manner, our business will be harmed.
The operation of our business is dependent on the proper functioning of our information systems. In 2011, we continued to upgrade our
information technology systems, including our PeopleSoft and Recruitmax Technology enterprise-wide information systems used in daily operations
to identify and match staffing resources and client assignments, track regulatory credentialing, manage scheduling, and perform billing and accounts
receivable functions. If the systems fail to perform reliably or otherwise do not meet our expectations, or if we fail to successfully complete the
implementation of other modules of the systems, we could experience business interruptions that could result in deferred or lost sales. Our
information systems are vulnerable to fire, storm, flood, power loss, telecommunications failures, physical or software break-ins and similar events.
Our network infrastructure is currently located at our facility in Salt Lake City, Utah. As a result, any system failure or service outage at this primary
facility could result in a loss of service for the duration of the failure of the outage. Our location in Southern California is susceptible to earthquakes
and has experienced power shortages and outages in the past, which could result in system failures or outages. If our information systems fail or are
otherwise unavailable, these functions would have to be accomplished manually, which could impact our ability to respond to business opportunities
quickly, to pay our staff in a timely fashion and to bill for services efficiently.
The loss of key members of our senior management team could adversely affect the execution of our business strategy and our financial results.
We believe that the successful execution of our business strategy and our ability to build upon the significant recent investments in our
business and acquisitions of new businesses depends on the continued employment of key members of our senior management team. If any members
of our senior management team become unable or unwilling to continue in their present positions, our financial results and our business could be
materially adversely affected.
Failure of internal controls may leave us susceptible to errors and fraud.
Our management, including our CEO and CFO, does not expect that our disclosure controls and internal controls will prevent all errors and
all fraud. A control system, no matter how well conceived and operated, can provide only reasonable assurance that the objectives of the control
system are met. Furthermore, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, would be detected.
Failure to comply with restrictive covenants under our debt instruments could trigger prepayment obligations or additional costs.
Our failure to comply with restrictive covenants under our credit facilities and other debt instruments could result in an event of default,
which, if not cured or waived, could result in the requirement to repay such borrowings before their due date. Some covenants are tied to our
operating results and thus may be breached if we do not perform as expected. The lenders may require fees and expenses to be paid or other changes
to terms in connection with waivers or amendments. If we are forced to refinance these borrowings on less favorable terms, our results of operations
and financial condition could be adversely affected by increased costs and/or rates.
The trading price of our common stock has experienced significant fluctuations, which could make it difficult for us to access the public markets
for financing or use our common stock as consideration in a strategic transaction.
In 2011, the trading price of our common stock experienced significant fluctuations, ranging from a high of $11.94 to a low of $6.27. The
closing price of our common stock on The NASDAQ Global Select Market was $13.55 on March 9, 2012. Our common stock may continue to
fluctuate widely as a result of a large number of factors, many of which are beyond our control, including:
• period to period fluctuations in our financial results or those of our competitors;
• failure to meet previously announced guidance or analysts’ expectations of our quarterly results;
• announcements by us or our competitors of acquisitions, significant contracts, commercial relationships or capital commitments;
• commencement of, or involvement in, litigation;
• any major change in our board or management;
• changes in government regulations, including those related to Medicare and Medicaid reimbursement policies;
• recommendations by securities analysts or changes in earnings estimates;
• announcements about our earnings that are not in line with analyst expectations;
• the volume of shares of common stock available for public sale;
• announcements by our competitors of their earnings that are not in line with analyst expectations;
• sales of stock by us or by our shareholders;
• short sales, hedging and other derivative transactions in shares of our common stock; and
• general economic conditions, slow or negative growth of unrelated markets and other external factors.
The stock market has experienced extreme price and volume fluctuations that have affected the trading prices of the common stock of many
companies involved in the temporary staffing industry. As a result of these fluctuations, we may encounter difficulty should we determine to access
the public markets for financing or use our common stock as consideration in a strategic transaction.
Our results of operations may vary from quarter to quarter as a result of a number of factors, which may make it difficult to evaluate our
business and could cause instability in the trading price of our common stock.
Factors that may cause our quarterly results to fluctuate include:
• the level of demand for our temporary staffing services and the efficiency with which we source and assign our contract
professionals and support our staffing consultants in the execution of their duties;
• changes in our pricing policies or those of our competitors; and
15
• our ability to control costs and manage our accounts receivable balances.
Most temporary staffing companies experience seasonal declines in demand during the first and fourth quarters, as a result of fewer business
days and the reduced number of contract professionals willing to work during the holidays. Historically, we have experienced variability in the
duration and depth of these seasonal declines, which in turn have materially affected our quarterly results of operations and made period-to-period
comparisons of our financial and operating performance difficult.
If our operating results are below the expectations of public market analysts or investors in a given quarter, the trading price of our common
stock could decline.
Future sales of our common stock and the future exercise of options may cause the market price of our common stock to decline and may result
in substantial dilution.
We cannot predict what effect, if any, future sales of our common stock, or the availability of our common stock for sale will have on the
market price of our common stock. Sales of substantial amounts of our common stock in the public market by management or us, or the perception
that such sales could occur, could adversely affect the market price of our common stock and may make it more difficult for you to sell your common
stock at a time and price which you may deem appropriate.
We have adopted anti-takeover measures that could prevent a change in our control.
In June 2003, we adopted a shareholder rights plan that has certain anti-takeover effects and will cause substantial dilution to a person or
group that attempts to acquire us in a manner or on terms that have not been approved by our board of directors. This plan could delay or impede the
removal of incumbent directors and could make more difficult a merger, tender offer or proxy contest involving us, even if such events could be
beneficial, in the short-term, to the interests of our shareholders. In addition, such provisions could limit the price that some investors might be
willing to pay in the future for shares of our common stock. Our certificate of incorporation and bylaws contain provisions that limit liability and
provide for indemnification of our directors and officers, and provide that our stockholders can take action only at a duly called meeting of
stockholders. These provisions and others also may have the affect of deterring hostile takeovers or delaying changes in control or management.
Provisions in our corporate documents and Delaware law may delay or prevent a change in control that our stockholders consider favorable.
Provisions in our certificate of incorporation and bylaws could have the effect of delaying or preventing a change of control or changes in our
management. These provisions include the following:
• Our board of directors has the right to elect directors to fill a vacancy created by the expansion of the board of directors or the
resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors.
• Our stockholders may not act by written consent. In addition, a holder or holders controlling a majority of our capital stock would not
be able to take certain actions without holding a stockholder’s meeting, and only stockholders owning at least 50 percent of our entire
voting stock must request in writing in order to call a special meeting of stockholders (which is in addition to the authority held by our
board of directors to call a special stockholder meeting).
• Stockholders must provide advance notice to nominate individuals for election to the board of directors or to propose matters that can
be acted upon at a stockholders’ meeting. These provisions may discourage or deter a potential acquirer from conducting a solicitation
of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of our company.
• Our board of directors may issue, without stockholder approval, up to 1 million shares of undesignated or “blank check” preferred
stock. The ability to issue undesignated or “blank check” preferred stock makes it possible for our board of directors to issue preferred
stock with voting or other rights or preferences that could impede the success of any attempt or make it more difficult for a third party
to acquire us.
As a Delaware corporation, we are also subject to certain Delaware anti-takeover provisions, including Section 203 of the Delaware General
Corporation Law. Under these provisions, a corporation may not engage in a business combination with any large stockholders who hold 15 percent
or more of our outstanding voting capital stock in a merger or business combination unless the holder has held the stock for 3 years, the board of
directors has expressly approved the merger or business transaction or at least two-thirds of the outstanding voting capital stock not owned by such
large stockholder approve the merger or the transaction. These provisions of Delaware law may have the effect of delaying, deferring or preventing a
change of control, and may discourage bids for our common stock at a premium over its market price. In addition, our board of directors could rely
on these provisions of Delaware law to discourage, prevent or delay an acquisition of us.
16
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
As of December 31, 2011, we leased approximately 37,200 square feet of office space through November 2021 for our field support and
corporate headquarters in Calabasas, California. Additionally, we leased 16,600 square feet of office space through February 2016 for our field
support offices in Blue Ash, Ohio. As of December 31, 2011, we leased approximately 56,000 square feet of office space through December 2016 at
our VISTA headquarters in Salt Lake City, Utah, and 48,300 square feet of office space through December 2015 at our Oxford headquarters in
Beverly, Massachusetts.
In addition, as of December 31, 2011, we lease approximately 225,300 square feet of total office space in approximately 76 branch office
locations in the United States, United Kingdom, Netherlands, Belgium, Ireland, Spain, China and Canada. A branch office typically occupies space
ranging from approximately 1,000 to 5,000 square feet with lease terms that typically range from six months to five years.
Item 3. Legal Proceedings
We are involved in various legal proceedings, claims and litigation arising in the ordinary course of business. However, based on the facts
currently available, we do not believe that the disposition of matters that are pending or asserted will have a material effect on our financial
position, results of operations or cash flows.
Item 4. Mine Safety Disclosures
Not applicable.
17
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Price Range of Common Stock
Our common stock trades on The NASDAQ Global Select Market under the symbol ASGN. The following table sets forth the range of high
and low sales prices as reported on The NASDAQ Global Select Market for each quarterly period within the two most recent fiscal years. At
March 9, 2012, we had approximately 40 holders of record, approximately 4,600 beneficial owners of our common stock and 37,400,313 shares
outstanding.
Price Range of
Common Stock
High
Low
Year Ended December 31, 2011
$
First Quarter
Second Quarter
$
Third Quarter $
$
Fourth Quarter
Year Ended December 31, 2010
$
First Quarter
$
Second Quarter
Third Quarter $
$
Fourth Quarter
10.87
11.67
11.25
11.94
7.89
7.75
5.75
8.85
$
$
$
$
$
$
$
$
7.77
8.06
6.27
6.68
6.47
4.17
4.18
5.06
Since inception, we have not declared or paid any cash dividends on our common stock, and we currently plan to retain all earnings to support
the development and expansion of our business and we have no present intention of paying any dividends on our common stock in the foreseeable
future. However, the board of directors periodically reviews our dividend policy to determine whether the declaration of dividends is appropriate.
Terms of our senior credit facility restrict our ability to pay dividends of more than $2.0 million per year.
18
Stock Performance Graph
The following graph compares the performance of On Assignment’s common stock price during the period from December 31, 2006 to
December 31, 2011 with the composite prices of companies listed on the NASDAQ Stock Market and of companies included in the SIC Code No.
736—Personnel Supply Services Companies Index. The companies listed in the SIC Code No. 736 include peer companies in the same industry or
line of business as On Assignment.
The graph depicts the results of investing $100 in On Assignment’s common stock, the NASDAQ Stock Market composite index and an
index of the companies listed in the SIC Code No. 736 on December 31, 2006 and assumes that dividends were reinvested during the period.
The comparisons shown in the graph below are based upon historical data, and we caution stockholders that the stock price performance
shown in the graph below is not indicative of, nor intended to forecast, potential future performance.
On Assignment, Inc.
SIC Code No. 736 Index—Personnel
Supply Services Company Index
NASDAQ Stock Market Index
2011
$ 95.13
2010
$ 69.35
2009
$ 60.85
2008
$ 48.25
2007
$ 59.66
2006
$ 100.00
Year Ended December 31,
$ 57.79
$ 113.16
$ 80.50
$ 114.06
$ 63.86
$ 96.54
$ 43.80
$ 66.41
$ 74.51
$ 110.66
$ 100.00
$ 100.00
19
Common Stock Repurchases
On Assignment purchases of equity securities during the quarter ended December 31, 2011 were as follows:
Total Number of
Shares Purchased
Average Price Paid per
Share
Total Number of Shares
Purchased as Part of
Publically Announced Plans
or Programs
Maximum Number of Shares (or
Approximated Dollar Value) of
Shares That May Yet be Purchased
Under the Plans or Programs
-
-
-
$ 18,000,000
-
-
-
$ 18,000,000
-
-
-
$ 18,000,000
-
-
-
$ 18,000,000
-
-
-
$ 18,000,000
-
-
-
$ 18,000,000
-
-
-
$ 18,000,000
Period
January
February
March
April
May
June
July
August
10,300
$ 6.99
10,300
$ 17,900,000
September
283,853
$ 6.86
283,853
$ 16,000,000
October
29,208
$ 6.97
29,208
$ 15,800,000
November
-
-
-
$ 15,800,000
December
-
-
-
$ 15,800,000
Total
323,361
$ 6.87
323,361
$ 15,800,000
On June 15, 2001, the Company’s Board of Directors authorized the repurchase of up to 2,940,939 shares of common stock. As of
December 31, 2009, the Company had repurchased and retired the entire amount of the authorized repurchase shares of its common stock at a total
cost of $25.0 million for such 2,940,939 shares.
On October 25, 2010, the Board of Directors authorized additional corporate stock repurchases subject to an overall repurchase cost limitation
of $20.0 million. Under this program, the Company, through a third party, may repurchase shares in open market purchases or in privately negotiated
transactions over a four year period. In 2010, the Company repurchased and retired 291,212 shares of its common stock at a total cost of $2.0 million.
In 2011, the Company repurchased and retired 323,361 shares of its common stock at a total cost of $2.2 million. The Company’s remaining
authorized cost limitation to repurchase its common stock was $15.8 million as of December 31, 2011.
20
Item 6. Selected Financial Data
The following table presents selected financial data of On Assignment. This selected financial data should be read in conjunction with the
consolidated financial statements and notes thereto included under “Financial Statements and Supplementary Data” in Part II, Item 8 of this report.
Revenues
Cost of services
Gross profit
Selling, general and administrative expenses
Impairment of goodwill
Operating income
Interest expense
Interest income
Income (loss) before income taxes
Provision for income taxes
Net income (loss)
Earnings (loss) per share:
Basic
Diluted
Number of shares and share equivalents used to calculate
earnings (loss) per share:
Basic
Diluted
Balance Sheet Data (at end of period):
Cash and cash equivalents
Working capital
Total assets
Long-term liabilities
Stockholders' equity
2011
$ 597,281
397,176
200,105
155,706
-
44,399
(2,975)
39
41,463
17,166
$ 24,297
2010
Year Ended December 31,
2009
(in thousands, except per share data)
2008
$ 438,065
288,609
149,456
130,830
15,399
3,227
(8,309)
141
(4,941)
4,956
$ (9,897)
$ 416,613
280,245
136,368
121,141
-
15,227
(6,612)
170
8,785
4,078
$ 4,707
$ 618,058
418,602
199,456
155,942
-
43,514
(9,998)
715
34,231
15,261
$ 18,970
2007
$ 567,180
387,643
179,537
151,942
-
27,595
(12,174)
1,394
16,815
7,493
$ 9,322
$ 0.66
$ (0.27)
$ 0.13
$ 0.53
$ 0.27
$ 0.64
$ (0.27)
$ 0.13
$ 0.53
$ 0.26
36,876
37,758
36,429
36,429
36,011
36,335
35,487
35,858
35,138
35,771
$ 17,739
74,705
410,665
107,513
246,743
$ 18,409
50,596
341,116
76,579
219,487
$ 25,974
62,238
343,462
84,847
226,661
$ 46,271
91,192
401,850
129,805
218,514
$ 37,764
79,009
384,680
140,803
193,034
21
Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the other sections of this Annual Report on Form 10-K, including Special Note on
Forward-looking Statements and Part I, "Item 1A — Risk Factors".
OVERVIEW
On Assignment, Inc. is a leading global provider of highly skilled, hard-to-find professionals in the growing life sciences, healthcare, and
technology sectors, where quality people are the key to success. The Company goes beyond matching résumés with job descriptions to match people
they know into positions they understand, for contract, contract-to-hire, and direct hire assignments. Our business currently consists of four operating
segments: Life Sciences, Healthcare, Physician, and IT and Engineering.
The Life Sciences segment provides contract and permanent life science professionals to clients in the biotechnology, pharmaceutical, food
and beverage, personal care, chemical, medical device, automotive, municipal, education and environmental industries. Our contract professionals
include chemists, clinical research associates, clinical lab assistants, engineers, biologists, biochemists, microbiologists, molecular biologists,
biostatisticians, drug safety specialists, SAS programmers, medical writers, food scientists, regulatory affairs specialists, lab assistants and other
skilled scientific professionals.
The Healthcare segment, comprised of our Nurse Travel and Allied Healthcare lines of business provides contract professionals, both locally-
based and traveling, from a number of healthcare and allied healthcare occupations. Our contract professionals include nurses, specialty nurses,
health information management professionals, dialysis technicians, surgical technicians, imaging technicians, x-ray technicians, medical
technologists, medical assistants, pharmacists, pharmacy technicians, respiratory therapists, phlebotomists, coders, billers, claims processors and
collections staff, and dental professionals - including dental assistants, hygienists and dentists and rehabilitation therapists.
Our Physician segment includes our physician staffing and permanent physician search services, which provides short and long-term locum
tenens coverage and full-service physician search and consulting in the United States with capabilities in Australia and New Zealand. We work with
physicians from nearly all medical specialties, placing them in hospitals, community-based practices, and federal, state and local facilities.
Our IT and Engineering segment includes our IT and Engineering line of business, which provides high-end consultants with expertise in
specialized information technology and engineering fields. We combine international reach with local depth, serving clients through a network of
recruiting centers in North America and Europe, and branch offices in major metropolitan markets across the United States.
Results of Operations
The following table summarizes selected statement of operations data expressed as a percentage of revenues:
Revenues
Cost of services
Gross profit
Selling, general and administrative expenses
Impairment of goodwill
Operating income
Interest expense
Interest income
Income (loss) before income taxes
Provision for income taxes
Net income (loss)
* Columns may not foot due to rounding.
2011
100.0 %
66.5
33.5
26.1
-
7.4
(0.5)
-
6.9
2.9
4.1 %
Year Ended December 31,
2010
100.0 %
65.9
34.1
29.9
3.5
0.7
(1.9)
-
(1.2)
1.1
(2.3) %
2009
100.0 %
67.3
32.7
29.1
-
3.7
(1.6)
-
2.1
1.0
1.1 %
22
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2011 COMPARED WITH THE YEAR ENDED DECEMBER 31,
2010
Revenues
Revenues by segment (in thousands):
Life Sciences
Healthcare
Physician
IT and Engineering
Total
Year Ended December 31,
2011
2010
Change
$
%
$ 155,324
94,598
80,617
266,742
$ 597,281
$ 109,495
76,287
73,595
178,688
$ 438,065
$ 45,829
18,311
7,022
88,054
$ 159,216
41.9 %
24.0 %
9.5 %
49.3 %
%
36.3
Revenues increased $159.2 million, or 36.3 percent, mainly due to growth in all four segments which was partially due to our acquisitions of
Cambridge, Sharpstream, Valesta and HCP. Cambridge and Sharpstream were acquired in 2010, Valesta was acquired during the first quarter of 2011
and HCP was acquired on July 31, 2011. Cambridge is reported under the Life Sciences, IT and Engineering and Physician segments; Sharpstream
and Valesta are reported under the Life Sciences segment and HCP is reported under the Physician segment. Consolidated revenues for the
year ended December 31, 2011 included $48.1 million related to our Cambridge, Sharpstream, Valesta and HCP acquisitions compared with $9.9
million related to the Cambridge and Sharpstream acquisitions in 2010.
Life Sciences segment revenues increased $45.8 million, or 41.9 percent, comprised of a $42.4 million increase in staffing revenues and a
$3.4 million, or 46.7 percent increase in direct hire and conversion fees. The increase in staffing revenues resulted from a 29.1 percent increase in the
average number of contract professionals on assignment and a 7.8 percent increase in average bill rate. The year-over-year increase in revenues was
primarily attributable to increased demand for our service offerings as our clients’ end markets have improved in 2011 with the progressing economic
recovery and an increase in revenues of $24.8 million from the business acquired in 2010 and 2011.
Revenues for our Healthcare segment (comprised of our Nurse Travel and Allied Healthcare lines of business) increased $18.3 million, or
24.0 percent. The increase in revenues in the Healthcare segment was attributable to improved economic trends in the healthcare sector, which
contributed to the increase in the number of contract professionals on assignment, open orders and average bill rates and supporting customers who
were undergoing system conversions. Although the Healthcare segment remains soft, we continue to see signs of improvement in demand. Nurse
Travel revenues increased $12.9 million, or 35.1 percent, to $49.6 million, comprised of a 29.5 percent increase in the average number of nurses on
assignment and a 2.0 percent increase in the average bill rate. Revenues related to staffing resulting from labor disruptions at customer sites included
$7.1 million in 2011 and $5.0 million in 2010. Allied Healthcare revenues increased $5.4 million, or 13.7 percent, to $45.0 million, comprised of a
5.9 percent increase in average number of contract professionals on assignment and a 2.5 percent increase in the average bill rate. The Allied
Healthcare operating environment continued to demonstrate signs of improvement as economic trends in our end markets showed signs of
stabilization and growth as evidenced by year-over-year growth in the number of contractors and clients on billing, average bill rate, permanent
placement activity and billable hours.
Physician segment revenues increased $7.0 million, or 9.5 percent, comprised of a 16.5 percent increase in the average number of physicians
on assignment, a 1.9 percent decrease in average bill rate and a $0.3 million, or 8.5 percent decrease in direct hire and conversion fees revenue
Physician segment revenues for year ended December 31, 2011 included $11.4 million related to our HCP and Cambridge acquisitions. The legacy
physician staffing business decreased year over year. We attribute this to continued uncertainty related to healthcare reform, fewer physicians
deciding to retire, current economic conditions and high unemployment which have reduced the number of elective procedures and lowered patient
census at client facilities.
IT and Engineering segment revenues increased $88.1 million, or 49.3 percent, comprised of a 41.0 percent increase in the average number of
contract professionals on assignment and a 5.8 percent increase in average bill rate. The increase in revenue was also due to a $0.9 million, or 46.4
percent increase in direct hire and conversion fee revenues. IT and Engineering segment revenues for the year ended December 31, 2011 included
$4.3 million in revenue from our Cambridge acquisition in April 2010, compared with $2.2 million in 2010. Because many of our placements involve
capital projects, we believe that one of the reasons the demand for our services has increased with the progressing economic recovery is that more
companies have increased their capital spending.
23
Gross Profit and Gross Margins
Gross Profit by segment (in thousands):
Life Sciences
Healthcare
Physician
IT and Engineering
Total
Year Ended December 31,
2011
2010
Gross Profit
Gross Margin
Gross Profit
Gross Margin
$ 52,643
26,637
25,858
94,967
$ 200,105
33.9 %
28.2 %
32.1 %
35.6 %
33.5 %
$ 37,776
23,058
23,847
64,775
$ 149,456
34.5 %
30.2 %
32.4 %
36.3 %
34.1 %
The year-over-year gross profit increase was primarily due to higher revenues, which was partially offset by a 62 basis point contraction in
consolidated gross margin. The contraction in gross margin was primarily due to margin contraction in the Healthcare and IT and Engineering
segments.
Life Sciences segment gross profit increased $14.9 million, or 39.4 percent. The increase in gross profit was primarily due to a 41.9 percent
increase in revenues, offset by a 61 basis point contraction in gross margin. The contraction in gross margin was mainly due to a benefit in 2010 from
employment tax credits related to the HIRE Act, which expired on December 31, 2010, higher European payroll tax rates and holiday pay related to
Valesta employees and an increase in unemployment insurance expenses. This contraction was partially offset by a $3.4 million increase in direct
hire and conversion fee revenues mainly from our Sharpstream acquisition and an 11.4 percent increase in bill/pay spread.
Healthcare segment gross profit increased $3.6 million, or 15.5 percent. The increase in gross profit was due to a 24.0 percent increase in
revenues, partially offset by a 207 basis point contraction in gross margin. The contraction in gross margin was mainly due to an abnormally high
gross margin in Nurse Travel in 2010, related to supporting a customer with labor disruptions when we did not have to have nurses travel and thus
the related costs, a $1.8 million increase in travel related expenses, a $1.9 million increase in other employee expenses, and a $0.7 million increase in
unemployment insurance expense. The contraction in gross margin was partially offset by an 8.1 percent increase in bill/pay spread. Within this
segment, Allied Healthcare gross profit increased 11.0 percent while gross margin decreased 77 basis points and Nurse Travel gross profit increased
21.3 percent while gross margin decreased 283 basis points.
Physician segment gross profit increased $2.0 million, or 8.4 percent. The increase in gross profit was due to a $7.0 million, or 9.5 percent,
increase in revenues, partially offset by a 32 basis point contraction in gross margin. The contraction in gross margin was primarily due to a 7.0
percent decrease in bill/pay spread, in part a result of the acquisition of HCP which has a higher concentration of lower gross margin government
business, and a $0.3 million, or 8.5 percent decrease in direct hire revenue and conversion fee revenues, partially offset by a $1.5 million decrease in
medical malpractice insurance expense primarily due to favorable claims development.
IT and Engineering segment gross profit increased $30.2 million, or 46.6 percent, primarily due to an $88.1 million, or 49.3 percent, increase
in revenues, partially offset by a 65 basis point contraction in gross margin. The contraction in gross margin was in part due to a $4.7 million, or 35.2
percent, increase in other employee expenses, and a benefit in 2010 from employment tax credits related to the HIRE Act, which expired on
December 31, 2010, partially offset by a $0.9 million increase in direct hire and conversion fee revenues and a 5.0 percent increase in bill/pay spread.
Selling, General and Administrative Expenses. Selling, general and administrative (SG&A) expenses include field operating expenses, such
as costs associated with our network of staffing consultants and branch offices for each of our four segments, including staffing consultant
compensation, rent, other office expenses, marketing and recruiting expenses for our contract professionals. SG&A expenses also include our
corporate and branch office support expenses, such as the salaries of corporate operations and support personnel, recruiting and training expenses for
field staff, marketing staff expenses, expenses related to being a publicly-traded company and other general and administrative expenses.
For the year ended December 31, 2011, SG&A expenses increased $24.9 million, or 19.0 percent, to $155.7 million in 2011. The increase in
SG&A expenses was primarily due to a $20.1 million, or 21.1 percent, increase in compensation and benefits. The increase in compensation and
benefits was due to (i) an $11.7 million increase in compensation expenses primarily as a result of increased headcount related to the Cambridge,
Sharpstream, Valesta and HCP acquisitions and headcount additions to support anticipated high growth in certain segments, (ii) an $8.4 million
increase in bonuses and commissions as a result of increased revenue and the anticipated attainment of incentive compensation targets, and (iii) a
$0.5 million increase in acquisition costs primarily related to the recent acquisitions. Additionally, non-compensation and benefits related SG&A
expenses increased $2.9 million as a result of the Valesta and HCP acquisitions which were both completed in 2011. This increase in SG&A
expenses was partially offset by a $1.9 million gain related to the settlements of the Cambridge earn-out and Sharpstream earn-out. Total SG&A
expenses as a percentage of revenues decreased to 26.1 percent for the year ended December 31, 2011 compared with 29.9 percent in the same period
in 2010.
Impairment of Goodwill. We recognized a goodwill impairment charge of $15.4 million related to Nurse Travel during 2010. The goodwill
impairment charge for Nurse Travel was a result of the decreased fair value of the reporting unit due to lowered growth expectations in the later years
because of uncertainty regarding the timing of the recovery of the Nurse Travel industry.
Interest Expense. Interest expense was $3.0 million for the year ended December 31, 2011 compared with $8.3 million in 2010. This
decrease was related to the $2.8 million write-off of unamortized capitalized loan costs in 2010, related to the old borrowing facility that was paid in
full in December 2010, as well as lower interest rates in 2011.
Provision for Income Taxes. The provision for income taxes was $17.2 million for the year ended December 31, 2011 compared with $5.0
million in 2010. The annual effective tax rate was 41.4 percent for the year ended December 31, 2011 and 47.4 percent in 2010 excluding the impact
of the goodwill impairment charge. The decrease in the tax rate in 2011 was primarily related to the year-over-year increase in income before income
24
taxes for 2011 while permanent differences increased, but not as much as the increase to the income before income taxes, which lowered the annual
effective rate. Refer to Note 8 for detailed information reconciling the statutory tax rate to the effective tax rate.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2010 COMPARED WITH THE YEAR ENDED DECEMBER 31,
2009
Revenues
Revenues by segment (in thousands)
Life Sciences
Healthcare
Physician
IT and Engineering
Total
Year Ended December 31,
Change
2010
2009
$
%
$
$
109,495 $
76,287
73,595
178,688
438,065 $
93,664
97,137
87,719
138,093
416,613
$
$
15,831
(20,850 )
(14,124 )
40,595
21,452
16.9 %
(21.5) %
(16.1) %
29.4 %
5.1 %
Revenues increased $21.5 million, or 5.1 percent, as a result of improved operating environments in our IT and Engineering and Life Sciences
segments and our acquisitions of Cambridge and Sharpstream, offset by continued weak demand for our services in our Healthcare and Physician
segments. Consolidated revenues for the year ended December 31, 2010 include $7.3 million related to our Cambridge acquisition in the second
quarter of 2010 and $2.6 million related to the Sharpstream acquisition in the third quarter of 2010.
Life Sciences segment revenues increased $15.8 million, or 16.9 percent, primarily due to an 11.3 percent increase in contract professionals
on assignment and a $4.4 million, or 156.2 percent increase in direct hire and conversion fees. The increase in revenues was primarily due to the
increase in demand for Life Sciences service offerings as our clients’ end markets have improved with the economic recovery beginning in the
second quarter of 2010 and the Cambridge and Sharpstream acquisitions.
Healthcare segment revenues (comprised of our Nurse Travel and Allied Healthcare lines of business) decreased $20.9 million, or 21.5
percent. Nurse Travel revenues decreased $18.9 million, or 34.0 percent, to $36.7 million, which included $5.0 million of revenue in 2010 generated
from supporting customers that experienced labor disruptions. The decrease was primarily due to a 40.6 percent decrease in the average number of
nurses on assignment and a 3.6 percent decrease in the average bill rate. Allied Healthcare revenues decreased $2.0 million, or 4.7 percent, to $39.5
million due to an 11.6 percent decrease in the average number of contract professionals on assignment and a $0.5 million decrease in direct hire and
conversion fee revenues. These decreases were partially offset by a 2.8 percent increase in the average bill rate. Based on our research and client
feedback, we believe the decrease in revenues was attributable to continued adverse economic trends in the healthcare sector, which contributed to
the decrease in number of travelers on assignment, open orders, and average bill rates. While the Allied Healthcare operating environment continued
to demonstrate signs of improvement, growth was constrained by (i) a continued reduction in demand for elective procedures, (ii) a greater number of
patients choosing more cost effective forms of treatment such as self-medication, (iii) hospitals reduced usage of contract professionals in response to
declining cash balances and patient admissions and (iv) reduced demand for less critical allied skill modalities and a dramatic decline in demand for
flu vaccine as compared to the H1N1 pandemic we faced the prior year.
Physician segment revenues decreased $14.1 million, or 16.1 percent. The decrease in revenues was primarily attributable to a 16.9 percent
decrease in the average number of physicians on assignment. These decreases were partially offset by a $0.6 million, or 32.5 percent increase in
direct hire revenues. The average bill rate for the Physician segment was flat. Based on industry research and client feedback, we believe the decrease
in revenues was primarily due to the economic conditions and high unemployment which have reduced the number of elective procedures and
lowered patient census at client facilities.
IT and Engineering segment revenues increased $40.6 million, or 29.4 percent. The increase in revenues was primarily due to a 34.1 percent
increase in the average number of contract professionals on assignment and a $1.2 million increase in direct hire and conversion fee revenues. These
increases were partially offset by a 4.4 percent decrease in the average bill rate. Because many of our placements involve capital projects, we believe
that one of the reasons the demand for our IT and Engineering services has increased with the economic recovery is that more companies have
increased their capital spending.
Gross Profit and Gross Margins
Gross Profit by segment (in thousands):
Life Sciences
Healthcare
Physician
IT and Engineering
Total
Year Ended December 31,
2010
Gross Profit Gross Margin
2009
Gross Profit
Gross Margin
$
$
37,776
23,058
23,847
64,775
149,456
34.5 %
30.2 %
32.4 %
36.3 %
34.1 %
$
$
30,470
27,329
28,545
50,024
136,368
32.5 %
28.1 %
32.5 %
36.2 %
32.7 %
The year-over-year gross profit increase was primarily due to a 139 basis point expansion in consolidated gross margin and a 5.1 percent
improvement in total revenue. The increase in gross margin was primarily attributable to an increase in the percent of revenues related to the IT and
Engineering reporting unit, which has highest gross margin of all the segments and margin expansion in the Healthcare and Life Sciences segments.
25
Life Sciences segment gross profit increased $7.3 million, or 24.0 percent. The increase in gross profit was primarily due to a 16.9 percent
increase in the segment revenues and a 197 basis point expansion in gross margin. The expansion in gross margin was due to a $4.4 million, or 156.2
percent, increase in direct hire and conversion fee revenues, partially offset by a 2.4 percent decrease in bill/pay spread.
Healthcare segment gross profit decreased $4.3 million, or 15.6 percent. The decrease in gross profit was due to a 21.5 percent decrease in the
segment revenues, partially offset by a 210 basis point expansion in gross margin. The expansion in gross margin was primarily due to Nurse Travel
revenues of $5.0 million at gross margins of 53.5 percent related to supporting customers with labor disruptions in 2010. The expansion in gross
margin was partially offset by a 7.6 percent decrease in the bill/pay spread and an increase in billable expenses and workers’ compensation insurance
expense. Within this segment, Allied Healthcare gross profit decreased 5.8 percent while gross margin decreased 39 basis points and Nurse Travel
gross profit decreased 25.5 percent while gross margin increased 312 basis points which was primarily due to the high gross margins on supporting
customers with labor disruptions in 2010 described above.
Physician segment gross profit decreased $4.7 million, or 16.5 percent. The decrease in gross profit was due to a $14.1 million, or 16.1
percent, decrease in the segment revenues as well as a 14 basis point contraction in gross margin. The contraction in gross margin was primarily due
to a 3.2 percent decrease in bill/pay spread, partially offset by a $0.6 million increase in direct hire revenues.
IT and Engineering segment gross profit increased $14.8 million, or 29.5 percent. The increase in gross profit was primarily due to a $40.6
million, or 29.4 percent increase in revenues.
Selling, General and Administrative Expenses. Selling, general and administrative (SG&A) expenses include field operating expenses, such
as costs associated with our network of staffing consultants and branch offices for each of our four segments, including staffing consultant
compensation, rent, other office expenses, marketing and recruiting expenses for our contract professionals. SG&A expenses also include our
corporate and branch office support expenses, such as the salaries of corporate operations and support personnel, recruiting and training expenses for
field staff, marketing staff expenses, expenses related to being a publicly-traded company and other general and administrative expenses.
For the year ended December 31, 2010, SG&A expenses increased $9.7 million, or 8.0 percent, to $130.8 million from $121.1 million for the
same period in 2009. The increase in SG&A expenses was primarily due to a $12.9 million increase in compensation and benefits. The increase in
compensation and benefits was due to a $9.4 million increase in bonuses, commissions and stock-based compensation as a result of increased
revenue and the attainment of incentive compensation targets as well as a $3.2 million increase in compensation expenses as a result of increased
headcount related to the Cambridge and Sharpstream acquisitions. The increase in SG&A expenses was also due to a $0.9 million increase in travel
expenses for acquisition-related activities in 2010. The increase in SG&A expenses was partially offset by a $4.0 million decrease in amortization
expense as certain intangible assets became fully amortized in the first quarter of 2010. Total SG&A expenses as a percentage of revenues increased
to 29.9 percent for the year ended December 31, 2010 from 29.1 percent in the same period in 2009.
Impairment of Goodwill. We recognized a goodwill impairment charge of $15.4 million related to Nurse Travel during 2010. The goodwill
impairment charge for Nurse Travel was a result of the decreased fair value of the reporting unit due to lowered growth expectations in the later years
because of uncertainty regarding the timing of the recovery of the Nurse Travel industry.
Interest Expense and Interest Income. Interest expense was $8.3 million for the year ended December 31, 2010 compared with $6.6 million
in 2009. This increase was primarily due to the write-off of unamortized capitalized loan costs of $2.8 million related to the old borrowing facility
that was paid in full in December 2010 as well as a $1.3 million gain in 2009 for the mark-to-market adjustment on our interest rate swap, which
expired on June 30, 2009, partially offset by lower average debt balances in 2010.
Interest income decreased to $0.1 million for the year ended December 31, 2010 compared with $0.2 million in 2009 due to lower account
balances invested in interest-bearing accounts and lower average interest rates.
Provision for Income Taxes. The provision for income taxes was $5.0 million for the year ended December 31, 2010 compared with $4.1
million in 2009. Excluding the impact of the goodwill impairment charge, the effective tax rate was 47.4 percent in 2010 compared with 46.4 percent
in 2009.
Liquidity and Capital Resources
Our working capital at December 31, 2011 was $74.7 million and our cash and cash equivalents were $17.7 million, of which $6.8 million
was held in foreign countries. Cash held in foreign countries are not available to fund domestic operations unless repatriated, which would require the
accrual and payment of taxes. We do not intend to repatriate cash held in foreign countries. Our operating cash flows have been our primary source
of liquidity and historically have been sufficient to fund our working capital and capital expenditure needs. Our working capital requirements consist
primarily of the financing of accounts receivable, payroll expenses and the periodic payments of principal and interest on our loans.
Net cash provided by operating activities was $23.4 million for 2011 compared with $26.9 million for 2010. Cash provided by operating
activities in 2011 were primarily driven by income from operations, an increase in accrued payroll and contract professional pay, offset by an
increase in accounts receivable. Cash provided by operating activities in 2010 were primarily driven by income from operations, a decrease in
prepaid income taxes and an increase in accrued payroll and contract professional pay, offset by an increase in accounts receivable.
Net cash used in investing activities was $41.1 million during 2011 compared with $16.6 million during 2010. Cash paid for acquisitions was
approximately $32.8 million and capital expenditures for information technology projects, leasehold improvements and various property and
equipment purchases increased $2.1 million to $8.4 million in 2011. We estimate that capital expenditures for 2012 will be approximately $8 million.
Net cash provided by financing activities was $17.5 million for 2011, compared with $16.6 million used in financing activities in
2010. During 2011, principal payments of long-term debt were $20.5 million, versus $79.2 million paid down during 2010. Proceeds from new
borrowings on the term loan and line of credit were $40.5 million and $68.0 million in 2011 and 2010, respectively.
26
Under terms of the credit facility, the term loan facility is repayable at the minimum rate of $1.3 million per quarter and we are required to
reduce the term loan by up to 50 percent of our excess cash flow based on leverage ratios, as defined by the agreement for each year end over the
next five years. We are required to maintain certain financial covenants, including a maximum leverage ratio and a minimum fixed charge coverage
ratio. As of December 31, 2011, we were in compliance with all such covenants. Additionally, the agreement, which is secured by substantially all of
our assets, provides for certain limitations on our ability to, among other things, incur additional debt, offer loans, declare dividends and incur capital
expenditures.
We continue to make progress on enhancements to our front-office and back-office information systems. These enhancements include the
consolidation of back-office systems across all corporate functions, as well as enhancements to and broader application of our front-office software
across all lines of business.
We believe that our working capital as of December 31, 2011, our credit facility and positive operating cash flows expected from future
activities will be sufficient to fund future requirements of our debt repayment obligations, accounts payable and related payroll expenses, as well as
capital expenditure initiatives for the next twelve months.
Commitments and Contingencies
We lease space for our corporate and branch offices. Rent expense was $8.6 million in 2011, $8.4 million in 2010 and $8.2 million in 2009.
The following table sets forth, on an aggregate basis, at December 31, 2011, the amounts of specified contractual cash obligations required to
be paid in the periods shown (in thousands):
Contractual Obligations
Long-term debt obligations
Operating lease obligations
Total
2012
$ 5,000 $
7,028
$ 12,028 $
2013
2014
2015
2016
Thereafter
Total
5,000 $
6,079
11,079 $
5,000 $
5,558
10,558 $
71,750 $
4,955
76,705 $
― $
3,203
3,203 $
― $
5,954
5,954 $
86,750
32,777
119,527
For additional information about these contractual cash obligations, see Note 7 to our Consolidated Financial Statements appearing in Part II,
Item 8 of this report. Interest payments related to our bank debt are not set forth in the table above.
We are partially self-insured for our workers' compensation liability related to the Life Sciences, Healthcare and IT and Engineering segments
as well as the medical malpractice liability related to the Physician segment. In connection with this program, we pay a base premium plus actual
losses incurred up to certain levels and are insured for losses greater than certain levels per occurrence and in the aggregate. The self-insurance claim
liability is determined based on claims filed and claims incurred but not yet reported. We account for claims incurred but not yet reported based on
estimates derived from historical claims experience and current trends of industry data. Changes in estimates, differences in estimates and actual
payments for claims are recognized in the period that the estimates changed or payments were made. The self-insurance claim liability was
approximately $10.4 million and $10.2 million at December 31, 2011 and 2010, respectively. Additionally, we have unused stand-by letters of credit
outstanding to secure obligations for workers’ compensation claims with various insurance carriers. The unused stand-by letters of credit at
December 31, 2011 and 2010 were $2.4 million and $2.8 million, respectively.
As of December 31, 2011 and 2010, we have an income tax reserve in other long-term liabilities related to our uncertain tax positions of $0.3
million.
We are involved in various other legal proceedings, claims and litigation arising in the ordinary course of business. However, based on the
facts currently available, we do not believe that the disposition of matters that are pending or asserted will have a material effect on our consolidated
financial statements.
We are subject to earn-out obligations entered into in connection with acquisitions. If the acquired businesses meet predetermined targets, we
are obligated to make additional cash payments in accordance with the terms of such earn-out obligations. At December 31, 2011, the Company has
potential future earn-out obligations of approximately $10.2 million through 2013.
Off-Balance Sheet Arrangements
As of December 31, 2011, the Company had no significant off-balance sheet arrangements other than operating leases and unused stand-by
letters of credit outstanding.
Accounting Standards Updates
See Note 1, Summary of Significant Accounting Policies, to the Consolidated Financial Statements in Part II, Item 8 of this report for a
discussion of new accounting pronouncements.
27
Critical Accounting Policies
Our accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements in Part II, Item 8 of this report. We prepare
our financial statements in conformity with accounting principles generally accepted in the United States, which require us to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the year. Actual results could differ from those estimates. We consider the
following policies to be most critical in understanding the judgments that are involved in preparing our financial statements and the uncertainties that
could impact our results of operations, financial condition and cash flows.
Allowance for Doubtful Accounts and Billing Adjustments. We estimate an allowance for doubtful accounts as well as an allowance for billing
adjustments related to trade receivables based on our analysis of historical collection and adjustment experience. We apply actual collection and
adjustment percentages to the outstanding accounts receivable balances at the end of the period. Impaired receivables, or portions thereof, are
charged off when deemed uncollectible. If we experience a significant change in collections or billing adjustment experience, our estimates of the
recoverability of accounts receivable could change by a material amount.
Workers’ Compensation and Medical Malpractice Loss Reserves. We are partially self-insured for our workers’ compensation liability related
to the Life Sciences, Healthcare and IT and Engineering segments as well as our medical malpractice liability related to the Physician segment. In
connection with these programs, we pay a base premium plus actual losses incurred, not to exceed certain stop-loss limits. We are insured for losses
above these limits, both per occurrence and in the aggregate. The self-insurance claim liability is determined based on claims filed and claims
incurred but not reported. We account for claims incurred but not yet reported based on estimates derived from historical claims experience and
current trends of industry data. Changes in estimates and differences in estimates and actual payments for claims are recognized in the period that the
estimates changed or the payments were made.
Contingencies. We record an estimated loss from a loss contingency when information available prior to issuance of our financial statements
indicates it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements, and the amount of the
loss can be reasonably estimated. Accounting for contingencies, such as legal settlements, workers’ compensation matters and medical malpractice
insurance matters, requires us to use our judgment. While we believe that our accruals for these matters are adequate, if the actual loss from a loss
contingency is significantly different than the estimated loss, results of operations may be over or understated.
Income taxes. We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance if it is more likely than
not that a portion of the deferred tax asset will not be realized.
We make a comprehensive review of our uncertain tax positions regularly. In this regard, an uncertain tax position represents our expected
treatment of a tax position taken in a filed return, or planned to be taken in a future tax return or claim that has not been reflected in measuring
income tax expense for financial reporting purposes. In general, until these positions are sustained by the taxing authorities or statutes expire for the
year that the position was taken, we do not recognize the tax benefits resulting from such positions and report the tax effects as a liability for
uncertain tax positions in our consolidated balance sheets.
Goodwill and Identifiable Intangible Assets. Goodwill and other intangible assets having an indefinite useful life are not amortized for
financial statement purposes. Goodwill and intangible assets with indefinite lives are reviewed for impairment on an annual basis as of December 31,
and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
Intangible assets with indefinite lives consist of trademarks. In order to test the trademarks for impairment, we determine the fair value of the
trademarks and compare such amount to its carrying value. We determine the fair value of the trademarks using a projected discounted cash flow
analysis based on the relief-from-royalty approach. The principal factors used in the discounted cash flow analysis requiring judgment are projected
net sales, discount rate, royalty rate and terminal value assumption. The royalty rate used in the analysis is based on transactions that have occurred in
our industry. Intangible assets having finite lives are amortized over their useful lives and are reviewed to ensure that no conditions exist indicating
the recorded amount is not recoverable from future undiscounted cash flows. We did not have any impairment of indefinite-lived intangibles in 2011,
2010, or 2009.
Goodwill is tested for impairment using a two-step process that begins with an estimation of the fair value of a reporting unit, which is
generally an operating segment or one level below the operating segment level for which discrete financial information is available and reviewed by
segment management. This first step is a screen for impairment and compares the fair value of a reporting unit to its carrying value. We determine
the fair value of each reporting unit based upon a weighted average calculation using the fair value derived from a discounted cash flow analysis and
a market approach analysis. Discounted cash flows are developed for each reporting unit based on assumptions including revenue growth
expectations, gross margins, operating expense projections, working capital, capital expense requirements and tax rates. The multi-year financial
forecasts for each reporting unit used in the cash flow models considered several key business drivers such as new product lines, historical
performance and industry and economic trends, among other considerations. The market approach considers multiples of financial metrics, primarily
EBITDA, based on trading multiples of a group of guideline public companies in the staffing industry, which multiples are then applied to the
corresponding financial metrics of our reporting units to derive an indication of fair value.
If after performing the first step of the impairment test, the fair value of the reporting unit does not exceed its carrying value, we perform a
second step for that reporting unit. The second step measures the amount of goodwill impairment by comparing the implied fair value of the impacted
reporting unit goodwill with the carrying value of that goodwill. The implied fair value of goodwill is determined under the same approach utilized to
estimate the amount of goodwill recognized in a business combination. This approach requires we allocate the fair value of the impacted reporting
unit as calculated in the first step of the goodwill impairment test to the reporting unit assets, including identifiable intangible assets, which typically
28
includes tradenames, staffing databases and customer relationships, and liabilities, based on the estimated fair values of such assets and liabilities,
with any excess reporting unit fair value representing the implied fair value of goodwill for that reporting unit. The reporting unit goodwill
impairment loss, if any, is measured as the amount by which the carrying value of goodwill exceeds the implied fair value of goodwill calculated in
the second step of the goodwill impairment test.
The principal factors used in the discounted cash flow analysis requiring judgment are the projected results of operations, discount rate, and
terminal value assumptions. The discount rate is determined using the weighted average cost of capital (WACC). The WACC takes into account the
relative weights of each component of an average market participant’s capital structure (equity and debt). It also considers our risk-free rate of return,
equity market risk premium, beta and size premium adjustment. A single discount rate is utilized across each reporting unit since we do not believe
that there would be significant differences by reporting unit. Additionally, the selection of the discount rate accounts for any uncertainties in the
forecasts. The terminal value assumptions are applied subsequent to the tenth year of the discounted cash flow model.
We performed the step one analyses for each reporting unit as of December 31, 2011 as this is our annual impairment test date. No
impairment was noted for any of the reporting units as of December 31, 2011. The fair value of all reporting units exceeded their respective carrying
values by approximately 30 percent or more. The discount rate used in the cash flow analysis was 14.6 percent.
We recognized a goodwill impairment charge of $15.4 million in the fourth quarter of 2010. Goodwill for the Company’s impaired reporting
unit, Nurse Travel, with a carrying amount of $15.4 million was written down to the implied fair value of $0 resulting in an impairment charge of
$15.4 million. There was no goodwill impairment as of December 31, 2009, based upon the analysis as of that date.
The discounted cash flows and the resulting fair value estimates of our reporting units are sensitive to changes in other assumptions which
includes an increase of less than 10 percent in the discount rate of a reporting unit. Such change could cause the fair value of certain significant
reporting units to be below their carrying value. Additionally, we have assumed that there will be an economic recovery at the beginning of 2012 for
the Physician reporting unit. Changes in the timing of the recovery and the impact on our operations and costs may also affect the sensitivity of the
projections including achieving future cost savings resulting from initiatives which contemplate further synergies from system and operational
improvements in infrastructure and field support which were included in our forecasts. Ultimately, future changes in these assumptions may impact
the estimated fair value of a reporting unit and cause the fair value of the reporting unit to be below its carrying value, which would require a step
two analysis and may result in impairment of goodwill.
Due to the many variables inherent in the estimation of a business’s fair value and the relative size of recorded goodwill, changes in
assumptions may have a material effect on the results of our impairment analysis. Downward revisions of our forecasts, extended delays in the
economic recovery, or a sustained decline of our stock price resulting in market capitalization significantly below book value could lead to an
impairment of goodwill or intangible assets with indefinite lives in future periods.
Impairment or Disposal of Long-Lived Assets. We evaluate long-lived assets, other than goodwill and identifiable intangible assets with
indefinite lives, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. An
impairment loss is recognized when the sum of the undiscounted future cash flows is less than the carrying amount of the asset, in which case a
write-down is recorded to reduce the related asset to its estimated fair value. There was no impairment of long-lived assets as of December 31, 2011,
2010 or 2009.
Business Combinations. The purchase price of an acquisition is allocated to the underlying assets acquired and liabilities assumed based upon
their estimated fair values at the date of acquisition. To the extent the purchase price exceeds the fair value of the net identifiable tangible and
intangible assets acquired and liabilities assumed, such excess is allocated to goodwill. We determine the estimated fair values after review and
consideration of relevant information including discounted cash flows, quoted market prices and estimates made by management. Accordingly, these
can be affected by contract performance and other factors over time, which may cause final amounts to differ materially from original estimates. We
adjust the preliminary purchase price allocation, as necessary, up to one year after the acquisition closing date if we obtain more information
regarding asset valuations and liabilities assumed.
Goodwill acquired in business combinations is assigned to the reporting unit(s) expected to benefit from the combination as of the acquisition
date. Acquisition related costs are recognized separately from the acquisition and are expensed as incurred.
Stock-Based Compensation. We record compensation expense for restricted stock awards and stock units based on the fair market value of the
awards on the date of grant. Market-based awards, which are based on achievement of targets indexed to our share price, are valued using a Monte
Carlo simulation model. Compensation expense for performance-based awards is measured based on the amount of shares ultimately expected to
vest, estimated at each reporting date based on management’s expectations regarding the relevant performance criteria. We account for stock options
granted and ESPP shares based on an estimated fair market value using a Black-Scholes option valuation model. This methodology requires the use
of subjective assumptions, including expected stock price volatility and the estimated life of each award. The fair value of equity-based compensation
awards less the estimated forfeitures is amortized over the service period of the award.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to certain market risks arising from transactions in the normal course of business, principally risks associated with foreign
currency fluctuations and interest rates. We are exposed to foreign currency risk from the translation of foreign operations into U.S. dollars. Based on
the relative size and nature of our foreign operations, we do not believe that a ten percent change in the value of foreign currencies relative to the U.S.
dollar would have a material impact on our financial statements. Our primary exposure to market risk is interest rate risk associated with our debt
instruments. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further description of our
debt instruments.
On May 2, 2007, we entered into an interest rate swap with a financial institution, which expired on June 30, 2009 in accordance with the
terms of the agreement. Prior to the expiration of the interest rate swap on June 30, 2009, the Company entered into a one-year interest rate cap
29
contract effective July 1, 2009, in order to mitigate the interest rate risk as required by the prior credit facility agreement. The interest rate cap
contract was for a notional amount of $51.0 million with a one-month LIBOR cap of 3.0 percent. The interest rate cap agreement expired on July 1,
2010. Prior to its expiration, the interest rate cap contract had the effect of capping the effective one month LIBOR rate at 3.0 percent. Following the
expiration of the interest rate cap agreement, the fair value of the long-term debt effectively became subject to market interest rate volatility until
such time that the credit facility was replaced with a new senior secured credit agreement on December 3, 2010.
On February 18, 2011, we entered into another interest rate swap agreement to hedge a portion of our interest rate exposure on our senior secured
credit agreement. The swap has a notional amount of $25.0 million and fixes a portion of our base borrowing rate, which is a floating rate based on a LIBOR
swap rate that resets periodically.
As of December 31, 2011, we had $86.8 million of principal outstanding under the senior secured credit agreement, $61.8 million of which
bears interest at variable-rates. We have the option to determine the variable interest rate as the Eurodollar rate or the base rate (which is the highest
of the bank’s prime rate, one-half of 1.0 percent in excess of the overnight federal funds rate, and 1.0 percent in excess of the one-month Eurodollar
rate), plus in each case, an applicable margin.
Excluding the effect of our interest rate swap agreement, a hypothetical 1.0 percent change in interest rates on variable rate debt would have
resulted in interest expense fluctuating approximately $0.9 million based on $86.8 million of debt outstanding for any twelve month period. Including
the effect of our interest rate swap agreement, a 1.0 percent change in interest rates on variable debt would have resulted in interest expense
fluctuating approximately $0.6 million based on $86.8 million of debt outstanding for any twelve month period.
We have not entered into any market risk sensitive instruments for trading purposes.
30
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of On Assignment, Inc.
Calabasas, California
We have audited the accompanying consolidated balance sheets of On Assignment, Inc. and subsidiaries (the “Company”) as of December 31, 2011
and 2010, and the related consolidated statements of operations and comprehensive income (loss), stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 2011. Our audits also included the financial statement schedule listed in the Index at Item 15. These
financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion
on these financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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, such consolidated financial statements present fairly, in all material respects, the financial position of On Assignment, Inc. and
subsidiaries as of December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the three years in the period ended
December 31, 2011, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal
control over financial reporting as of December 31, 2011, based on the criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 14, 2012 expressed an unqualified opinion on the
Company's internal control over financial reporting.
/s/ Deloitte & Touche LLP
Los Angeles, California
March 14, 2012
31
ON ASSIGNMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
ASSETS
Current Assets:
Cash and cash equivalents
Accounts receivable, net of allowance for doubtful accounts and billing adjustments of $2,777 and
$
17,739
$
18,409
December 31,
2011
2010
$
$
$
$
93,925
218
3,718
2,927
9,271
3,316
131,114
18,057
229,234
30,206
2,054
410,665
5,000
4,112
24,948
1,896
10,401
—
3,488
6,564
56,409
14,856
81,750
6,368
4,539
163,922
62,518
480
3,555
494
8,784
1,406
95,646
15,818
199,720
25,170
4,762
341,116
5,000
5,392
15,727
2,198
10,244
1,496
800
4,193
45,050
10,156
61,750
2,900
1,773
121,629
—
—
370
229,377
19,034
(2,038 )
246,743
410,665
$
365
224,139
(5,021 )
4
219,487
341,116
$
$2,175, respectively
Advances and deposits
Prepaid expenses
Prepaid income taxes
Deferred income tax assets
Other
Total current assets
Property and equipment, net
Goodwill
Identifiable intangible assets, net
Other long-term assets
Total Assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Current portion of long-term debt
Accounts payable
Accrued payroll and contract professional pay
Deferred compensation
Workers’ compensation and medical malpractice loss reserves
Income taxes payable
Current portion of accrued earn-outs
Other
Total current liabilities
Deferred income tax liabilities
Long-term debt
Accrued earn-outs
Other long-term liabilities
Total liabilities
Commitments and Contingencies
Stockholders’ Equity:
Preferred Stock, $0.01 par value, 1,000,000 shares authorized, no shares issued
Common Stock, $0.01 par value, 75,000,000 shares authorized, 37,012,250 and 36,398,811 issued
and outstanding, respectively
Paid-in capital
Retained earnings (accumulated deficit)
Accumulated other comprehensive income (loss)
Total stockholders’ equity
Total Liabilities and Stockholders’ Equity
See notes to consolidated financial statements.
32
ON ASSIGNMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(In thousands, except per share data)
Revenues
Cost of services
Gross profit
Selling, general and administrative expenses
Impairment of goodwill
Operating income
Interest expense
Interest income
Income (loss) before income taxes
Provision for income taxes
Net income (loss)
Earnings (loss) per share:
Basic
Diluted
Number of shares and share equivalents used to calculate earnings
(loss) per share:
Basic
Diluted
$
$
$
$
Reconciliation of net income (loss) to comprehensive income (loss):
Net income (loss)
Changes in fair value of derivative, net of income tax of $227
Foreign currency translation adjustment
Comprehensive income (loss)
$
$
2011
Year Ended December 31,
2010
2009
597,281
397,176
200,105
155,706
-
44,399
(2,975 )
39
41,463
17,166
24,297
0.66
0.64
36,876
37,758
24,297
(380 )
(1,662 )
22,255
$
$
$
$
$
$
$
$
$
$
438,065
288,609
149,456
130,830
15,399
3,227
(8,309 )
141
(4,941 )
4,956
(9,897 )
(0.27 )
(0.27 )
36,429
36,429
(9,897 )
-
(1,122 )
(11,019 )
$
$
416,613
280,245
136,368
121,141
-
15,227
(6,612 )
170
8,785
4,078
4,707
0.13
0.13
36,011
36,335
4,707
-
326
5,033
See notes to consolidated financial statements.
33
ON ASSIGNMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share data)
Balance at December 31, 2009
36,262,810
Balance at January 1, 2009
Exercise of common stock options
Employee stock purchase plan
Stock-based compensation expense
Vesting of restricted stock units and
restricted stock awards
Tax deficiency from stock-based
compensation
Retirement of treasury stock
Translation adjustments
Net income
Exercise of common stock options
Stock repurchase and retirement of shares
Stock-based compensation expense
Vesting of restricted stock units and
restricted stock awards
Tax deficiency from stock-based
compensation
Translation adjustments
Net loss
Balance at December 31, 2010
Exercise of common stock options
Employee stock purchase plan
Stock repurchase and retirement of shares
(323,361)
Stock-based compensation expense
—
Vesting of restricted stock units and
restricted stock awards
Tax benefit from stock-based compensation
Fair value adjustment of derivatives, net of
income tax
Translation adjustments
Net income
455,871
—
—
—
—
Common Stock
Paid-in Capital
Shares
38,816,844
17,925
227,784
—
Amount
$ 388
—
2
—
$ 227,522
98
455
5,015
297,621
3
(1,073)
—
—
(1,386)
(3,097,364)
(30)
(10,549)
359,013
4
(1,309)
—
—
68,200
(291,212)
—
—
—
—
36,398,811
293,893
187,036
—
—
363
1
(3)
—
—
—
220,082
332
(1,783)
7,151
—
—
—
365
2
2
(3)
—
4
—
—
—
—
(334)
—
—
224,139
1,722
975
(1,985)
5,868
(2,223)
881
—
—
—
Retained
Earnings
(Accumulated
Deficit)
Accumulated
Other
Comprehensive
Income
Treasury Stock
Total
Shares
Amount
$ 16,215
$ 800
(3,097,364)
$(26,411)
$218,514
—
—
—
—
—
(15,832)
—
4,707
5,090
—
(214)
—
—
—
—
(9,897)
(5,021)
—
—
(242)
—
—
—
—
—
24,297
—
—
—
—
—
—
326
—
1,126
—
—
—
—
—
(1,122)
—
4
—
—
—
—
—
—
(380)
(1,662)
—
—
—
—
—
—
—
—
—
98
457
5,015
—
(1,070)
—
(1,386)
3,097,364
26,411
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
326
4,707
226,661
333
(2,000)
7,151
—
—
—
—
—
—
—
(1,305)
—
—
—
—
—
—
—
—
—
—
—
—
—
(334)
(1,122)
(9,897)
219,487
1,724
977
(2,230)
5,868
(2,219)
881
(380)
(1,662)
24,297
$ —
$ 246,743
Balance at December 31, 2011
37,012,250
$ 370
$ 229,377
$ 19,034
$ (2,038)
See notes to consolidated financial statements.
34
ON ASSIGNMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash Flows from Operating Activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Year Ended December 31,
2011
2010
2009
$ 24,297
$ (9,897)
$ 4,707
Depreciation
Amortization of intangible assets
Provision for doubtful accounts and billing adjustments
Deferred income tax provision
Stock-based compensation
Amortization of deferred loan costs
Write-down of deferred loan costs
Change in fair value of interest rate swap
(Gain) loss on officers’ life insurance policies
Gross excess tax benefits from stock-based compensation
Impairment of goodwill
(Gain) loss on disposal of property and equipment
Change in accrued earn-outs
Workers’ compensation and medical malpractice provision
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable
Prepaid expenses
Prepaid income taxes
Accounts payable
Accrued payroll and contract professional pay
Income taxes payable
Deferred compensation
Workers’ compensation and medical malpractice loss reserves
Tenant improvement allowances
Other
Net cash provided by operating activities
Cash Flows from Investing Activities:
Cash paid for property and equipment
Cash paid for acquisitions, net of cash acquired
Proceeds from insurance settlements
Other
Net cash used in investing activities
Cash Flows from Financing Activities:
Principal payments of long-term debt
Proceeds from term debt
Proceeds from stock transactions
Payment of employment taxes related to release of restricted stock awards
Gross excess tax benefits from stock-based compensation
Repurchase of Common Stock
Debt issuance or amendment costs
Payments of other long-term liabilities
Other
Net cash provided by (used in) financing activities
6,505
2,346
1,127
3,748
6,927
460
—
—
183
(1,113)
—
61
(2,009)
3,196
(25,079)
(1,633)
(1,292)
(1,812)
6,400
(1,231)
(303)
(1,467)
1,308
2,800
23,419
(8,411)
(32,818)
—
109
(41,120)
(20,500)
40,500
2,701
(2,214)
1,113
(2,230)
(87)
(1,731)
(43)
17,509
5,881
2,115
644
2,274
7,749
961
2,208
—
(212)
(205)
15,399
(3)
—
4,310
(10,532)
(501)
4,223
1,032
3,880
856
128
(3,948)
—
499
26,861
(6,302)
(10,458)
42
137
(16,581)
(79,163)
68,000
333
(1,955)
205
(2,000)
(1,938)
(52)
(44)
(16,614)
5,731
6,075
296
4,287
5,007
894
—
(1,345)
(478)
(34)
—
(246)
—
4,283
28,024
1,076
(958)
(695)
(9,017)
—
460
(3,688)
—
(2,366)
42,013
(4,673)
(10,239)
512
572
(13,828)
(48,000)
—
555
(325)
34
—
(1,065)
(156)
—
(48,957)
Effect of exchange rate changes on cash and cash equivalents
(478)
(1,231)
475
Net Decrease in Cash and Cash Equivalents
Cash and Cash Equivalents at Beginning of Year
Cash and Cash Equivalents at End of Year
(670)
18,409
(7,565)
25,974
$ 17,739
$ 18,409
(20,297)
46,271
$ 25,974
(continued)
See notes to consolidated financial statements.
35
ON ASSIGNMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Supplemental Disclosure of Cash Flow Information
Cash paid (refunds received) for:
Income taxes
Interest
Acquisitions:
Goodwill
Identifiable intangible assets acquired
Net tangible assets acquired
Year Ended December 31,
2011
2010
2009
$
$
$
16,163
$
(2,578)
2,659
$
5,478
30,504
7,726
4,934
$
10,458
1,761
—
$
$
$
1,230
8,564
—
170
44
Fair value of assets acquired, net of cash received
$
43,164
$
12,219
$
214
Non-Cash Investing and Financing Activities:
Payable for employment taxes withheld related to release of restricted stock awards
Accrued earn-out payments
Acquisition through notes payable
Acquisition of property and equipment through accounts payable
$
$
$
$
—
10,346
—
324
$
$
$
$
96
3,700
—
383
$
$
$
745
—
143
$
555
(concluded)
See notes to consolidated financial statements.
36
ON ASSIGNMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies.
Principles of Consolidation. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.
All intercompany accounts and transactions have been eliminated.
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.
Revenue Recognition. Revenues from contract assignments, net of sales adjustments and discounts, are recognized when earned, based on
hours worked by the Company’s contract professionals on a weekly basis. Conversion and direct hire fees are recognized when earned, upon
conversion or direct hire of a contract professional to a client’s regular employee. In addition, the Company records a sales allowance against
consolidated revenues, which is an estimate based on historical billing adjustment experience. The sales allowance is recorded as a reduction to
revenues and an increase to the allowance for billing adjustments. The billing adjustment reserve includes an allowance for fallouts. Fallouts are
direct hire and conversion fees that do not complete the contingency period. The contingency period is typically 90 days or less. The Company
includes reimbursed expenses, including those related to travel and out-of-pocket expenses, in revenues and the associated amounts of reimbursable
expenses in cost of services.
The Company generally records revenue on a gross basis as a principal versus on a net basis as an agent in the consolidated statements of
operations. The key indicators supporting the Company’s conclusion that it acts as a principal in substantially all of its transactions are that the
Company (i) has the direct contractual relationships with its customers, (ii) bears the risks and rewards of the transactions, and (iii) has the discretion
to select the contract professionals and establish their price. To the extent that the Company concludes that it does not act as the principal in the
arrangement, revenues are recorded on a net basis.
Income Taxes. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance if it is more likely than
not that a portion of the deferred tax asset will not be realized.
The Company makes a comprehensive review of its uncertain tax positions regularly. In this regard, an uncertain tax position represents the
Company’s expected treatment of a tax position taken in a filed return, or planned to be taken in a future tax return or claim that has not been
reflected in measuring income tax expense for financial reporting purposes. In general, until these positions are sustained by the taxing authorities or
statutes expire for the year that the position was taken, the Company does not recognize the tax benefits resulting from such positions and reports the
tax effects as a liability for uncertain tax positions in its consolidated balance sheets.
Foreign Currency Translation. The functional currency of the Company’s foreign operations is their local currency, and as such, their assets
and liabilities are translated into U.S. dollars at the rate of exchange in effect on the balance sheet date. Revenue and expenses are translated at the
average rates of exchange prevailing during each monthly period. The related translation adjustments are recorded as cumulative foreign currency
translation adjustments in accumulated other comprehensive income as a separate component of stockholders’ equity. Gains and losses resulting from
foreign currency transactions, which are not material, are included in SG&A expenses in the Consolidated Statements of Operations and
Comprehensive Income (Loss).
Cash and Cash Equivalents. The Company considers all highly liquid investments with a maturity of three months or less on the date of
purchase to be cash equivalents.
Allowance for Doubtful Accounts and Billing Adjustments. The Company estimates an allowance for doubtful accounts and an allowance for
billing adjustments related to trade receivables based on an analysis of historical collection and billing adjustment experience. The Company applies
actual historical collection and adjustment percentages to the outstanding accounts receivable balances at the end of the period. Impaired receivables,
or portions thereof, are written-off when deemed uncollectible.
Property and Equipment. Property and equipment 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. Leasehold improvements are amortized over the shorter of
the life of the related asset or the remaining term of the lease. Costs associated with customized internal-use software systems that have reached the
application stage and meet recoverability tests are capitalized. Such capitalized costs include external direct costs utilized in developing or obtaining
the applications and payroll and payroll-related expenses for employees who are directly associated with the applications.
Goodwill and Identifiable Intangible Assets. Goodwill and other intangible assets having an indefinite useful life are not amortized for
financial statement purposes. Goodwill and intangible assets with indefinite lives are reviewed for impairment on an annual basis as of December 31,
and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
Intangible assets with indefinite lives consist of trademarks. In order to test the trademarks for impairment, the Company determines the fair
value of the trademarks and compares such amount to its carrying value. Intangible assets having finite lives are amortized over their useful lives and
are reviewed to ensure that no conditions exist indicating the recorded amount is not recoverable from future undiscounted cash flows.
37
Goodwill is tested for impairment using a two-step process that begins with an estimation of the fair value of a reporting unit, which is
generally an operating segment or one level below the operating segment level, for which discrete financial information is available and reviewed by
segment management. This first step is a screen for impairment and compares the fair value of a reporting unit to its carrying value. The second step
measures the amount of impairment by comparing the implied fair value of the impacted reporting unit’s goodwill with the carrying value of that
goodwill. The impairment loss is measured by the amount the carrying value of goodwill exceeds the implied fair value of goodwill.
The Company performed the step one analyses for each reporting unit as of December 31, 2011 as this is the annual impairment test date. The
Company noted no impairment for any of the reporting units as of December 31, 2011.
Impairment or Disposal of Long-Lived Assets. The Company evaluates long-lived assets, other than goodwill and identifiable intangible
assets with indefinite lives, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be
recoverable. An impairment loss is recognized when the sum of the undiscounted future cash flows is less than the carrying amount of the asset, in
which case a write-down is recorded to reduce the related asset to its estimated fair value.
Workers’ Compensation and Medical Malpractice Loss Reserves. The Company partially self-insures its workers’ compensation liability and
medical malpractice liability exposure. In connection with these programs, the Company pays a base premium plus actual losses incurred, not to
exceed certain stop-loss limits. The Company is insured for losses above these limits, both per occurrence and in the aggregate. The self-insurance
claim liability is determined based on claims filed and claims incurred but not reported. The Company accounts for claims incurred but not yet
reported based on estimates derived from historical claims experience and current trends of industry data. Changes in estimates and differences in
estimates and actual payments for claims are recognized in the period that the estimates changed or the payments were made.
Contingencies. The Company records an estimated loss from a loss contingency when information available prior to issuance of its financial
statements indicates it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements, and the
amount of the loss can be reasonably estimated. Accounting for contingencies, such as legal settlements, workers’ compensation matters and medical
malpractice insurance matters, requires the Company to use judgment.
Business Combinations. The purchase price of an acquisition is allocated to the underlying assets acquired and liabilities assumed based upon
their estimated fair values at the date of acquisition. To the extent the purchase price exceeds the fair value of the net identifiable tangible and
intangible assets acquired and liabilities assumed, such excess is allocated to goodwill. The Company determines the estimated fair values after
review and consideration of relevant information including discounted cash flows, quoted market prices and estimates made by
management. Accordingly, these can be affected by contract performance and other factors over time, which may cause final amounts to differ
materially from original estimates. The Company adjusts the preliminary purchase price allocation, as necessary, up to one year after the acquisition
closing date if it obtains more information regarding asset valuations and liabilities assumed.
Goodwill acquired in business combinations is assigned to the reporting unit(s) expected to benefit from the combination as of the acquisition
date. Acquisition related costs are recognized separately from the acquisition and are expensed as incurred.
Stock-Based Compensation. The Company records compensation expense for restricted stock awards and stock units based on the fair market
value of the awards on the date of grant. Market-based awards, which are based on achievement of targets indexed to the Company’s share price, are
valued using a Monte Carlo simulation model. Compensation expense for performance-based awards is measured based on the amount of shares
ultimately expected to vest, estimated at each reporting date based on management’s expectations regarding the relevant performance criteria. The
Company accounts for stock options granted and ESPP shares based on an estimated fair market value using a Black-Scholes option valuation
model. This methodology requires the use of subjective assumptions including expected stock price volatility and the estimated life of each
award. The fair value of equity-based compensation awards less the estimated forfeitures is amortized over the vesting period of the award.
Concentration of Credit Risk. Financial instruments that potentially subject the Company to credit risks consist primarily of cash, cash
equivalents and trade receivables. The Company places its cash and cash equivalents in low risk investments with quality credit institutions and limits
the amount of credit exposure with any single institution above FDIC insured limits. For the Life Sciences, Physician, IT and Engineering segments,
and the Nurse Travel and the Allied Healthcare lines of businesses, concentration of credit risk with respect to accounts receivable is limited because
of the large number of geographically dispersed customers, thus spreading the trade credit risk. The Company performs ongoing credit evaluations to
identify risks and maintains an allowance to address these risks.
Fair Value of Financial Instruments. The recorded values of cash and cash equivalents, accounts receivable, accounts payable and accrued
expenses approximate their fair value based on their short-term nature. Long-term debt recorded in the Company’s Consolidated Balance Sheets at
December 31, 2011 was $86.8 million. The fair value of the long-term debt, based on Level 2 inputs including the yields of comparable companies
with similar credit characteristics, was $86.0 million. The fair value of the interest rate swap is based upon market interest rates, using a discounted
cash flow model and an adjustment for counterparty risk. See Note 13 for further information.
Derivative Instruments. The Company utilizes derivative financial instruments to manage interest rate risk. The Company does not use
derivative financial instruments for trading or speculative purposes, nor does it use leveraged financial instruments.
Advertising Costs. Advertising costs, which are expensed as incurred, were $3.2 million in 2011, $3.1 million in 2010, and $3.5 million in
2009.
Accounting Standards Updates. In December 2011, the Financial Accounting Standards Board (FASB) issued FASB Accounting Standards
Update (ASU) No. 2011-11, Balance Sheet (Topic 210)—Disclosures about Offsetting Assets and Liabilities. ASU 2011-11 requires an entity to
disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those
arrangements on its financial position. Entities are required to disclose both gross and net information about these instruments. ASU 2011-11 is
effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The adoption of this
38
ASU is not expected to have a material impact on the Company's financial statements.
In September 2011, the FASB issued ASU No. 2011-08, Testing Goodwill for Impairment (Topic 350) — Intangibles—Goodwill and Other
(ASU 2011-08), to allow entities to use a qualitative approach to test goodwill for impairment. ASU 2011-08 permits an entity to first perform a
qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If so, it is
necessary to perform the currently prescribed two-step goodwill impairment test. Otherwise, the two step goodwill impairment test is not required.
ASU 2011-08 is effective for the Company in the first quarter of fiscal 2013 and earlier adoption is permitted. The adoption of ASU 2011-08 will not
have a material impact on the consolidated financial statements.
In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income (Topic 220) — Comprehensive Income (ASU 2011-05), to
require an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a
single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 eliminates the option to present the
components of other comprehensive income as part of the statement of equity. ASU 2011-05 is effective for the Company in the first quarter of fiscal 2013
and should be applied retrospectively. In December 2011, the FASB issued ASU 2011-12, Deferral of the Effective Date for Amendments to the
Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05, which
defers certain aspects of ASU 2011-05 related to the presentation of reclassification adjustments. The adoption of ASU 2011-05 will not have an
impact on the consolidated financial statements.
In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements
in U.S.GAAP and International Financial Reporting Standards (Topic 820) — Fair Value Measurement (ASU 2011-04), to provide a consistent
definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. Generally Accepted
Accounting Principles and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles and
enhances the disclosure requirements particularly for Level 3 fair value measurements. ASU 2011-04 is effective for the Company in the first quarter
of fiscal 2012 and should be applied prospectively. The adoption of ASU 2011-04 will result in expanded fair value disclosures.
2. Property and Equipment.
Property and equipment at December 31, 2011 and 2010 consisted of the following (in thousands):
Furniture and fixtures
Computers and related equipment
Computer software
Machinery and equipment
Leasehold improvements
Work-in-progress
2011
2010
$ 4,304
$ 3,551
5,414
27,306
1,472
4,633
4,751
47,880
4,950
24,649
1,062
3,463
4,412
42,087
Less accumulated depreciation and amortization
(29,823)
(26,269)
Total
$ 18,057
$ 15,818
Depreciation and amortization expense related to property and equipment was $6.5 million in 2011, $5.9 million in 2010 and $5.7 million in
2009.
The Company has capitalized costs related to its various technology initiatives. The net book value of the property and equipment related to
software development was $8.5 million as of December 31, 2011 and $7.9 million as of December 31, 2010, which includes work-in-progress of $3.9
million and $3.0 million, respectively.
3. Acquisitions.
On April 16, 2010, the Company acquired all of the outstanding shares of The Cambridge Group Ltd. and Cambridge Contract Staffing
Group, Inc. (Cambridge), a Connecticut-based privately-held provider of specialized staffing services. The primary reasons for the Cambridge
acquisition were to expand our Life Sciences, IT and Engineering, and Physician business operations and to leverage the Company’s infrastructure.
The purchase price totaled $7.6 million, comprised of $5.3 million in cash paid at closing, plus potential future earn-out consideration of up to $2.3
million. Acquisition costs of $0.1 million related to the purchase were expensed in 2010. Goodwill is not deductible for tax purposes. The results of
operations for the acquisition have been combined with those of the Company since the acquisition date. Cambridge’s revenues and net income
included in the Statement of Operations for the year ended December 31, 2010 were $7.3 million and $186,000, respectively.
On July 19, 2010, the Company acquired all of the outstanding shares of Sharpstream Holdings Limited (Sharpstream), a privately-owned
provider of search services for executives to middle managers in the life sciences sector. The primary reasons for the Sharpstream acquisition were to
expand our Life Sciences business operations, further expand our global presence and to leverage the Company’s infrastructure. The purchase price
totaled $8.6 million, comprised of $7.2 million in cash paid at closing, plus potential future earn-out consideration of up to $1.4 million. Acquisition
costs of $0.1 million related to the purchase were expensed in 2010. Goodwill is not deductible for tax purposes. The results of operations for the
acquisition have been combined with those of the Company since the acquisition date. Sharpstream’s revenues and net income included in the
Statement of Operations for the year ended December 31, 2010 were $2.6 million and $500,000, respectively.
39
On February 28, 2011, the Company acquired all of the outstanding shares of Valesta, a privately-owned provider of specialized clinical
research staffing headquartered in Belgium. The primary reasons for the acquisition were to expand the Life Sciences business operations and to
leverage the Company’s infrastructure. The purchase price for Valesta totaled $23.7 million comprised of $16.8 million in cash paid at closing, plus
potential future earn-out consideration of $6.9 million (the maximum earn-out is capped at a Euro value of 5.0 million or approximately $6.5 million
at December 31, 2011 exchange rates) based on estimated financial performance of Valesta through 2013. Acquisition costs related to this transaction
totaled approximately $0.4 million and were expensed in 2011. Goodwill is not deductible for tax purposes. The results of operations for the
acquisition have been combined with those of the Company since the acquisition date. Valesta’s revenues and net income included in the Statement
of Operations for the year ended December 31, 2011 were $20.4 million and $744,000, respectively.
On July 31, 2011, the Company acquired all of the outstanding shares of HealthCare Partners (HCP), a privately-owned provider of physician
staffing headquartered in Atlanta, Georgia. The primary reasons for the acquisition were to expand the Physician segment business operations
geographic coverage and to leverage the Company’s infrastructure. The estimated purchase price for HCP was approximately $19.1 million
comprised of $15.7 million in cash paid at closing, plus potential future earn-out consideration of $3.4 million (the maximum earn-out is capped at
$3.7 million) based on estimated financial performance of HCP through 2013. Acquisition costs related to this transaction totaled approximately
$57,000 and were expensed in 2011. Goodwill is deductible for tax purposes. The results of operations for the acquisition have been combined with
those of the Company since the acquisition date. HCP’s revenues and net income included in the Statement of Operations for the year ended
December 31, 2011 were $11.2 million and $116,000, respectively.
Assets and liabilities of the acquired companies have been recorded at their estimated fair values at the dates of acquisition. The excess
purchase price over the fair value of net tangible assets and identifiable intangible assets acquired has been allocated to goodwill. The fair value
assigned to identifiable intangible assets was determined primarily by using a discounted cash flow method. The Company intends to discontinue the
use of the HCP tradename during 2012. The Company’s allocation of the purchase price for HCP and Valesta is preliminary, as the amounts related
to working capital and income taxes are still being finalized. Any measurement period adjustments will be recorded retrospectively to the acquisition
date.
The fair value of earn-out obligations is based on the present value of the expected future payments to be made to the sellers of the acquired
businesses in accordance with the respective purchase agreements. See Note 13 for further information regarding the fair value of earn-outs and the
level 3 rollforward disclosure.
The following table summarizes (in thousands) the purchase price allocation, subject to finalization during the allocation period, of the
purchase price for the acquisitions of Cambridge, Sharpstream, HCP and Valesta:
2011 Acquisitions
2010 Acquisitions
HCP
Valesta
Total
Cambridge
Sharpstream
Total
Current assets
$ 3,941
$ 6,332
$ 10,273
$ 1,472
$ 3,437
$ 4,909
Property and equipment
Goodwill
Identifiable intangible assets
123
14,407
1,784
Long-term deposits
13
299
16,097
5,679
26
422
-
-
-
30,504
7,463
6,591
746
39
32
5,714
1,015
18
12,305
1,761
50
Total assets acquired
$ 20,268
$ 28,433
$ 48,701
$ 8,841
$ 10,184
$ 19,025
Current liabilities
$ 1,070
$ 4,774
$ 5,844
$ 731
$ 1,175
$ 1,906
Other long-term liabilities
49
-
49
525
383
908
Total liabilities assumed
1,119
4,774
5,893
1,256
1,558
2,814
Total purchase price
$ 19,149
$ 23,659
$ 42,808
$ 7,585
$ 8,626
$ 16,211
40
Intangible assets allocated in connection with the preliminary purchase allocation, subject to finalization during the measurement period as
necessary, consisted of the following amounts (in thousands):
Contractor relations
Customer relations
Useful Life
2 – 3 years
2 - 10 years
Non-compete agreements
2 years
Trademarks
Total intangible assets
acquired
Intangible Asset Value
2011 Acquisitions
2010 Acquisitions
HCP
Valesta
Total
Cambridge
Sharpstream
Total
$ 814
$ 266
$ 1,080
$ 550
$ 530
$ 1,080
indefinite
-
950
20
2,395
440
2,578
3,345
460
96
100
5
30
101
130
2,578
-
450
450
$ 1,784
$5,679
$7,463
$ 746
$ 1,015
$ 1,761
The summary below (in thousands, except for per share data) presents pro forma consolidated results of operations for the years ended
December 31, 2011 and 2010 as if the acquisitions of HCP and Valesta occurred on January 1, 2010. The acquisitions in 2010 and 2009 were not
material to the Company, therefore pro-forma information related to these acquisitions has not been presented. The pro forma financial information
gives effect to certain adjustments, including: the amortization of intangible assets and interest expense on acquisition-related debt and changes in the
management fees as a result of the acquisition. Acquisition-related costs of $0.4 million and $57,000, which were expensed in the three months ended
March 31, 2011 and the three months ended September 30, 2011, respectively, are assumed to have occurred in 2010. The pro-forma financial
information is not necessarily indicative of the operating results that would have occurred if the acquisition had been consummated as of the date
indicated, nor are they necessarily indicative of future operating results.
Revenues
Operating income
Net income
Basic earnings per share
Diluted earnings per share
Year Ended December 31,
2011
2010
$ 614,383
$ 478,356
$ 45,584
$ 3,872
$ 24,785
$ (9,789)
$ 0.67
$ (0.27)
$ 0.66
$ (0.27)
Weighted average number of shares outstanding
Weighted average number of shares and dilutive shares outstanding
36,876
37,758
36,429
36,429
4. Long-Term Debt.
Long-term debt at December 31, 2011 and 2010 consisted of the following (in thousands):
December 31, 2011
December 31, 2010
Senior Secured Debt:
$75 million revolving credit facility, due December 2015
$ 43,000
$ 18,000
$50 million term loan facility, due December 2015
43,750
48,750
Total
$ 86,750
$ 66,750
On December 3, 2010, the Company replaced its $145 million term loan facility (the Old Term Loan Facility) with a new senior secured
credit agreement (the New Term Loan Facilities), which consists of a $50.0 million, five-year term loan facility, a $75.0 million, five-year revolving
loan facility and a $10.0 million sublimit for letters of credit, as well as the ability to increase the loan facilities for up to an additional $50.0 million,
subject to receipt of lender commitments and satisfaction of specified conditions. In connection with the extinguishment of the Old Term Loan
Facility, the Company expensed and included in interest expense in 2010 the unamortized capitalized loan costs of $2.8 million of that facility.
Borrowings under the new credit agreement bear interest through maturity at a variable rate based upon, at the Company’s option, either the
Eurodollar rate or the base rate (which is the highest of the administrative agent’s prime rate, one-half of 1.0 percent in excess of the overnight
federal funds rate, and 1.0 percent in excess of the one-month Eurodollar rate), plus in each case, an applicable margin. The applicable margin for
Eurodollar rate loans ranges, based on the applicable leverage ratio, from 2.0 percent to 3.25 percent per annum and the applicable margin for base
rate loans ranges, based on the applicable leverage ratio, from 1.0 percent to 2.25 percent per annum. The Company is required to pay a commitment
fee equal to 0.5 percent per annum on the undrawn portion available under the revolving loan facility if its leverage ratio is less than 3.0:1.0 and a
commitment fee equal to 0.625 percent per annum if its leverage ratio is equal to or greater than 3.0:1.0. Additionally, the Company is required to
pay variable per annum fees equal to the applicable margin for Eurodollar rate loans in respect of outstanding letters of credit.
41
The Company made principal reducing payments to the New Term Loan Facilities of $20.5 million and $1.3 million for the years ended
December 31, 2011 and 2010, respectively. The Company made principal reducing payments related to the Old Term Loan Facility of $77.9 million
for the year ended December 31, 2010. During the five years after the closing date, the Company is required to make quarterly amortization payments
on the term loan facility in the amount of $1.3 million. The Company is required to make mandatory prepayments of loans under the new credit
agreement, subject to specified exceptions, from excess cash flow, and with the proceeds of asset sales, debt issuances and specified other events.
The Company’s obligations under the New Term Loan Facilities are guaranteed by substantially all of its direct and indirect domestic
subsidiaries, which are secured by a lien on substantially all of the Company’s tangible and intangible property, and by a pledge of all of the shares of
stock, partnership interests and limited liability company interests of its direct and indirect domestic subsidiaries.
In addition to other covenants, the New Term Loan Facilities place limits on the Company’s and its subsidiaries’ ability to incur liens, incur
additional indebtedness, make loans and investments, engage in mergers and acquisitions, engage in asset sales, declare dividends or redeem or
repurchase capital stock, alter the business conducted by the Company and its subsidiaries, transact with affiliates, make capital expenditures, prepay,
redeem or purchase subordinated debt and amend or otherwise alter debt agreements.
The New Term Loan Facilities contain financial covenants requiring the Company to (i) maintain a maximum ratio of consolidated funded
debt to consolidated EBITDA of 3.0 to 1.0, with a one-time election, upon notice to the administrative agent, to temporarily increase the maximum
ratio to 3.25 to 1.0; (ii) maintain a minimum consolidated fixed charge coverage ratio of consolidated EBITDA to consolidated interest charges of
1.25 to 1.0 as of the end of any fiscal quarter of the Company ending on or before March 31, 2011 and 1.5 to 1.0 as of the end of any fiscal quarter
ending on or after June 30, 2011; and (iii) to limit its operating lease payments to not more than $10.0 million in 2010 and 2011, $10.5 million in
2012, $11.0 million in 2013, $11.5 million in 2014 and $12.0 million in any fiscal year thereafter. A failure to comply with these covenants could
permit the lenders under the new credit agreement to declare all amounts borrowed under the new credit agreement, together with accrued interest
and fees, to be immediately due and payable. As of December 31, 2011 and 2010 the Company was in compliance with all of its financial covenants,
including minimum quarterly principal payment requirements.
5. Goodwill and Other Identifiable Intangible Assets.
The changes in the carrying amount of goodwill for the years ended December 31, 2011 and 2010 are as follows (in thousands):
Balance as of January 1, 2010
Gross goodwill
Accumulated impairment loss
Cambridge acquisition (see Note 3)
Sharpstream acquisition (see Note 3)
Goodwill impairment
Balance as of December 31, 2010
Gross goodwill
Accumulated impairment loss
Valesta acquisition (see Note 3)
HCP acquisition (see Note 3)
Translation adjustment
Balance as of December 31, 2011
Gross goodwill
Accumulated impairment loss
Life Sciences
Healthcare
Physician
IT and
Engineering
Total
$ 1,197
-
1,197
5,650
5,714
$ 122,230
(106,318)
15,912
-
-
-
(15,399)
12,561
-
12,561
16,097
-
(990)
122,230
(121,717)
513
-
-
-
$ 37,163
-
37,163
-
-
-
37,163
-
37,163
-
14,407
-
$ 148,542
-
148,542
941
-
-
149,483
-
149,483
-
-
-
$ 309,132
(106,318)
202,814
6,591
5,714
(15,399)
321,437
(121,717)
199,720
16,097
14,407
(990)
27,668
-
$ 27,668
122,230
(121,717)
$ 513
51,570
-
$ 51,570
149,483
-
$ 149,483
350,951
(121,717)
$ 229,234
The goodwill impairment charge in 2010 related to the Nurse Travel reporting unit.
42
As of December 31, 2011 and December 31, 2010, the Company had the following acquired intangible assets (in thousands):
December 31, 2011
December 31, 2010
Estimated
Useful Life
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Subject to amortization:
Customer relations
Contractor relations
Non-compete
agreements
In-use software
3 months -
10 years
3 - 7 years
2 - 3 years
2 years
Not subject to amortization:
Trademarks
Goodwill
Total
$ 11,077
27,276
$ 7,891
25,599
$ 3,186
1,677
$ 7,740
26,111
$ 6,830
24,600
$ 910
1,511
899
500
39,752
604
500
34,594
295
—
5,158
470
500
34,821
371
500
32,301
99
—
2,520
25,048
229,234
$ 294,034
—
—
$ 34,594
25,048
229,234
$ 259,440
22,650
199,720
$ 257,191
—
—
$ 32,301
22,650
199,720
$ 224,890
Identifiable intangible assets are amortized on an accelerated or straight-line basis over their respective useful lives depending on the
intangible asset. Amortization expense for intangible assets with finite lives was $2.3 million, $2.1 million, and $6.1 million for the years ended
December 31, 2011, 2010 and 2009, respectively. Estimated amortization for each of the next five fiscal years and thereafter are as follows (in thousands):
2012
2013
2014
2015
2016
Thereafter
$ 2,315
1,425
469
227
194
528
$ 5,158
Goodwill and other intangible assets having indefinite useful lives are not amortized for financial statement purposes. Goodwill and
intangible assets with indefinite lives are reviewed for impairment on an annual basis as of December 31, and whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable.
6. 401(k) Retirement Savings Plan, Deferred Compensation Plan and Change in Control Severance Plan.
Under the Company’s 401(k) Retirement Savings Plan, which covers eligible employees of On Assignment and its wholly-owned
subsidiaries, Assignment Ready Inc., On Assignment Staffing Services, Inc., VISTA, and Oxford, eligible employees may elect to have a portion of
their salary deferred and contributed to the plans. The amount of salary deferred, up to certain limits set by the IRS, is not subject to federal and state
income tax at the time of deferral, but together with any earnings on deferred amounts, is subject to taxation upon distribution. The plan covers all
eligible employees and permits matching or other discretionary contributions at the Company’s discretion. Eligible employees may enroll once they
complete three months of service prior to the next quarterly offering. The Company pledged to make contributions to the 401(k) plan of $1.1 million
in 2011 and made contributions of $0.4 million and $0 in 2010 and 2009, respectively.
Effective January 1, 1998, the Company implemented the On Assignment, Inc. Deferred Compensation Plan. The plan permits a select group
of management and highly compensated employees and directors that contribute materially to the continued growth, development and future business
success of the Company to annually elect to defer up to 100 percent of their base salary, annual bonus, stock option gain or fees on a pre-tax basis
and earn tax-deferred returns on these amounts. On September 4, 2008, effective as of January 1, 2008, the Company amended the On Assignment
Deferred Compensation Plan so that it applies to deferrals made before January 1, 2005 only (hereinafter referred to as the 1998 Deferred
Compensation Plan) and, also effective January 1, 2008, adopted a new plan, called the On Assignment Deferred Compensation Plan – Effective
January 1, 2008, applicable to deferrals made on or after January 1, 2005 (referred to herein as the 2008 Deferred Compensation Plan). On April 20,
2011, the Company’s Board of Directors authorized and directed the termination of the 1998 Deferred Compensation Plan and the 2008 Deferred
Compensation Plan (collectively referred to as the Plans), effective May 2, 2011. Pursuant to the terms of the Plans, the Company may terminate at
any time and immediately distribute the accrued account balances held in the Plans in accordance with the provisions of the Plans and applicable law
including, but not limited to, Section 409A of the Internal Revenue Code. The Board of Directors believes termination of the Plans is in the best
interest of the Company due to low participation and the cost of maintaining the Plans. The Company does not incur any costs or penalties in
connection with termination of the Plans. The plans were not intended to be “qualified” within the meaning of IRS Code Section 401(a), rather, the
plans were “unfunded and maintained by an employer primarily for the purpose of providing deferred compensation for a select group of
management or highly compensated employees” within the meaning of the Employee Retirement Income Security Act of 1974, as amended
(ERISA), Sections 201(2), 301(a)(3) and 401(a)(1).
43
Distributions from the 1998 Deferred Compensation Plan are commenced within 60 days after the participant’s retirement, death or
termination of employment, in a lump sum, or over five, ten or fifteen years, except that payments made upon termination (other than due to death or
retirement), are paid in a lump sum if the participant’s account balance at the time of termination is less than $25,000. Furthermore, if the Company
determines in good faith prior to a change in control that there is a reasonable likelihood that any compensation paid to a participant for a taxable year
of the Company would not be deductible by the Company solely by reason of the limitation under IRS Code Section 162(m), (Section 162(m)) then
the Company may defer all or any portion of a distribution until the earliest possible date, as determined by the Company in good faith, on which the
deductibility of compensation paid or payable to the participant for the taxable year of the Company during which the distribution is made will not be
limited by Section 162(m), or if earlier, the effective date of a change in control.
Distributions from the 2008 Deferred Compensation Plan are commenced within 60 days following the participant’s termination of
employment, in a lump sum or in annual installments of up to fifteen years, except that if the participant’s account balance is less than the applicable
dollar amount specified in IRS Code Section 402(g)(1)(B), in effect for the year in which the distribution is to occur, payment shall be made in a
lump sum. Notwithstanding the foregoing, in compliance with certain requirements of IRS Code Section 409A, plan distributions to “specified
employees” will commence the first day after the end of the six month period immediately following the date on which the participant experiences a
termination of employment. Furthermore, if the Company reasonably anticipates that the Company’s deduction with respect to any distribution from
the 2008 Deferred Compensation Plan would be limited or eliminated by application of Section 162(m), then to the extent permitted by applicable
treasury regulations, payment shall be delayed until the earliest date the Company reasonably anticipates that the deduction of the payment will not
be limited or eliminated by application of Section 162(m).
The deferred compensation liability under the deferred compensation plans was approximately $1.9 million and $2.2 million at December 31,
2011 and 2010, respectively. Life insurance policies are maintained as a funding source to the plans, under which the Company is the sole owner and
beneficiary of such insurance. At December 31, 2011, the cash surrender value of these life insurance policies was $2.1 million, reflected in other
current assets in the accompanying Consolidated Balance Sheets. At December 31, 2010, the cash surrender value of these life insurance policies was
$2.3 million, reflected in other long-term assets in the accompanying Consolidated Balance Sheets. The Company intends to terminate the life
insurance policies in 2012.
The Company adopted the On Assignment, Inc. Change in Control Severance Plan (the CIC Plan) to provide severance benefits for officers
and certain other employees who are terminated following an acquisition of the Company. This CIC Plan was adopted on February 12, 1998 and
amended on August 8, 2004, January 23, 2007, May 21, 2009, December 10, 2009 and May 20, 2010. Under the CIC Plan, if an eligible employee is
involuntarily terminated within eighteen months after a change in control, as defined in the CIC Plan, then the employee will be entitled to (i) a
payment equal to the employee’s annual salary plus the employee’s target bonus, payable in a lump sum, and (ii) a lump sum payment representing
the cost of continuation of health and welfare benefits, under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) for periods of
time ranging from nine months to eighteen months, for employees with titles of vice president or higher. Severance benefits under the plan range
from one month to eighteen months of salary and target bonus, depending on the employee’s length of service and position with the Company.
The Company entered into an Amended and Restated Executive Change of Control Agreements with the Chief Executive Officer and the
Chief Financial Officer on December 11, 2008, primarily for the purpose of causing their existing agreements to meet the requirements of Code
Section 409A. These agreements supersede the CIC Plan with respect to these officers and provide, in the event of an involuntary termination
occurring within six months and ten days following a change of control of the Company, for the following benefits (i) a lump-sum payment equal to
three times (for the Chief Executive Officer’s salary plus target bonus) or two and a half times (for the Chief Financial Officer) the sum of the
officer’s base salary plus target bonus, (ii) eighteen months continuation of the officer’s health and welfare benefits and car allowance, (subject to
limitations in connection with subsequent employment), (iii) cash payments equal to insurance premiums and retirement and deferred compensation
contributions that the Company would have paid (in each case, if any), over a period of eighteen months following termination, and (iv) payment of
up to $15,000 of the cost of outplacement services. Additionally, under the arrangements, immediately prior to a change of control, all outstanding
Company stock options, restricted stock and stock units held by the officer will become fully vested (and, in the case of options, remain exercisable
for an extended period), subject, in the case of certain performance-vesting awards, to any express limitations contained in the officer’s employment
or other governing agreement. In addition, the agreements entitle the executives to tax gross-up payments in the event that any payments to the
executives are subject to “golden parachute” excise taxes under IRS Code Section 280G.
7. Commitments and Contingencies.
The Company leases its facilities and certain office equipment under operating leases, which expire at various dates through 2021. Certain
leases contain rent escalations and/or renewal options. Rent expense for all significant leases is recognized on a straight-line basis. At December 31,
2011 and 2010, the balance of the deferred rent liability reflected in other current liabilities in the accompanying Consolidated Balance Sheets was
$0.3 million and $0.2 million, respectively and the balance reflected in other long-term liabilities was $2.1 million and $0.6 million, respectively.
The following is a summary of specified contractual cash obligation payments by the Company as of December 31, 2011 (in thousands):
2012
2013
2014
2015
2016
Thereafter
Total
Long-Term Debt
$
$
5,000
5,000
5,000
71,750
―
―
86,750
$
Operating Leases
$
7,028
6,079
5,558
4,955
3,203
5,954
32,777
Total
12,028
11,079
10,558
76,705
3,203
5,954
119,527
$
$
Rent expense, which is included in SG&A expenses, was $8.6 million for 2011, $8.4 million for 2010, and $8.2 million for 2009.
44
As discussed in Note 1, the Company is partially self-insured for its workers’ compensation liability and its medical malpractice liability. The
Company accounts for claims incurred but not yet reported based on estimates derived from historical claims experience and current trends of
industry data. Changes in estimates, differences in estimates and actual payments for claims are recognized in the period that the estimates changed
or the payments were made. The self-insurance claim liability was approximately $10.4 million and $10.2 million at December 31, 2011 and 2010,
respectively. Additionally, the Company has unused stand-by letters of credit outstanding to secure obligations for workers’ compensation claims
with various insurance carriers. The unused stand-by letters of credit at December 31, 2011 and December 31, 2010 were $2.4 million and $2.8
million, respectively.
The Company is subject to earn-out obligations entered into in connection with its acquisitions. If the acquired businesses meet predetermined
targets, the Company is obligated to make additional cash payments in accordance with the terms of such earn-out obligations. As of December 31,
2011, the Company has potential future earn-out obligations of approximately $10.2 million through 2013.
As of December 31, 2011 and 2010, the Company has an income tax reserve in other long-term liabilities related to uncertain tax positions of
$0.3 million.
Legal Proceedings
The Company is involved in various legal proceedings, claims and litigation arising in the ordinary course of business. However, based on the
facts currently available, the Company does not believe that the disposition of matters that are pending or asserted will have a material effect on its
consolidated financial statements.
8. Income Taxes.
The provision for income taxes consists of the following (in thousands):
2011
Year Ended December 31,
2010
2009
Current:
Federal
State
Foreign
Deferred:
Federal
State
Foreign
Change in Valuation Allowance
$
$
9,814
1,447
1,465
12,726
3,759
488
(261 )
3,986
454
$
1,748
522
412
2,682
2,271
-
(212 )
2,059
215
Total
$
17,166
$
4,956
$
Income (loss) before provision for income taxes consists of the following (in thousands):
(736 )
75
452
(209 )
3,852
427
(98 )
4,181
106
4,078
2011
Year Ended December 31,
2010
2009
United States
Foreign
$
$
37,405
4,058
41,463
$
$
(6,071 )
1,130
(4,941 )
$
$
7,602
1,183
8,785
45
The components of deferred tax assets (liabilities) are as follows (in thousands):
Deferred income tax assets (liabilities):
Current:
Allowance for doubtful accounts
Employee related accruals
State taxes
Workers’ compensation loss reserve
Medical malpractice loss reserve
Net operating loss carry-forwards
Prepaid insurance
Other
Total current deferred income tax assets
Non-current:
Net operating loss carry-forwards
Stock-based compensation
Purchased intangibles
Depreciation and amortization expense
Employee related accruals
Other
Total non-current deferred income tax
liabilities
December 31, 2011
Federal
State
December 31, 2010
Federal
State
$
$
909
2,690
534
671
3,274
—
(297 )
803
8,584
—
3,243
(14,180 )
(3,574 )
—
661
(13,850 )
98
233
—
325
7
52
(22 )
(6 )
687
384
185
(1,379 )
(293 )
—
97
(1,006 )
$
$
698
3,114
178
615
2,990
—
(281 )
749
8,063
—
2,244
(9,294 )
(2,778 )
(72 )
108
(9,792 )
73
246
—
69
236
75
(21 )
43
721
578
133
(822 )
(265 )
(9 )
21
(364 )
Total deferred income tax assets (liabilities)
$
(5,266 )
$
(319 )
$
(1,729 )
$
357
The reconciliation between the amount computed by applying the U.S. federal statutory tax rate of 35.0 percent for 2011 and 34.0 percent for
2010 and 2009 to income before income taxes and the income tax provision is as follows (in thousands):
Income tax provision at the statutory rate
State income taxes, net of federal benefit
Impairment of goodwill
Permanent difference – (gain)/loss on cash surrender value of life
$
insurance
Permanent difference – non deductible items
Permanent difference – settlement of earn-out
Valuation allowance
Income tax contingency
Return to provision adjustment
Foreign tax rate differential
Other
Total
$
2011
Year Ended December 31,
2010
2009
14,512
1,527
—
13
1,263
(445 )
454
(91 )
—
(222 )
155
17,166
$
$
(1,680 )
460
5,236
(72 )
901
—
215
(16 )
—
(181 )
93
4,956
$
$
3,075
471
—
(178 )
614
—
106
(232 )
280
46
(104 )
4,078
As of December 31, 2011, the Company had no federal net operating losses and total combined state net operating losses of $9.3 million. The
state net operating losses can be carried forward up to 20 years and begin expiring in 2013. The Company has recorded a valuation allowance of
approximately $0.7 million and $0.2 million at December 31, 2011 and December 31, 2010, respectively, related to state and foreign net operating
loss carryforwards and credits.
At December 31, 2011, the Company had accumulated net foreign earnings of $10.7 million. The Company intends to reinvest the
undistributed earnings of its foreign subsidiaries and, therefore, no U.S. income tax has been provided on the foreign earnings. The determination of
additional deferred taxes that have not been provided is not practicable.
The Company had gross deferred tax assets of $14.4 million and $12.7 million and gross deferred tax liabilities of $19.9 million and $10.3
million at December 31, 2011 and 2010, respectively. Foreign deferred tax assets and liabilities were not material as of December 31, 2011 and 2010.
The Company receives a tax deduction for stock-based awards upon exercise of a non-qualified stock option or as the result of disqualifying
dispositions made by directors, officers and employees. A disqualifying disposition occurs when stock acquired through the exercise of incentive
stock options or the Employee Stock Purchase Plan is disposed of prior to the required holding period. The Company also receives a tax deduction
upon the vesting of restricted stock units or restricted stock awards. The Company received tax deductions of $7.5 million and $3.8 million,
respectively, from stock-based awards in 2011 and 2010.
As of December 31, 2011, the estimated value of the Company’s uncertain tax positions is a liability of $0.2 million, which includes penalties
and interest, all of which was carried in other long-term liabilities. If the Company’s positions are sustained by the taxing authority in favor of the
46
Company, the entire $0.2 million would reduce the Company’s effective tax rate. The Company recognizes accrued interest and penalties related to
uncertain tax positions in income tax expense.
The following is a reconciliation of the total amounts of unrecognized tax benefits (in thousands):
Unrecognized Tax Benefit beginning of year
Gross Decreases - tax positions in prior year
Reductions for tax positions as a result of a lapse of the applicable statute of
limitations
Unrecognized Tax Benefit end of year
Year Ended December 31,
2011
2010
2009
$
$
358 $
—
(107 )
$
251
$
397
(39 )
—
358
$
812
—
(415 )
397
During 2011, 2010 and 2009, the Company recognized ($5,000), $5,000 and $8,000, respectively, in interest on unrecognized tax benefits.
Accruals for interest and penalties totaled $43,000 at December 31, 2011 and $61,000 at December 31, 2010.
The Company believes that there will be no significant increases or decreases to unrecognized tax benefits within the next twelve months.
The Company is subject to taxation in the United States and various states and foreign jurisdictions. The IRS has examined and concluded all
tax matters for years through 2006.The IRS has commenced an examination of the Company’s U.S. income tax returns for the 2009 tax year. Open
tax years related to federal, state and foreign jurisdictions remain subject to examination but are not considered material.
9. Earnings per Share.
Basic earnings per share are computed based upon the weighted average number of shares outstanding and diluted earnings per share are
computed based upon the weighted average number of shares and dilutive share equivalents (consisting of incentive stock options, non-qualified
stock options, restricted stock units, restricted stock awards and employee stock purchase plan contributions) outstanding during the periods using the
treasury stock method.
The following is a reconciliation of the shares used to compute basic and diluted earnings per share (in thousands):
Year Ended December 31,
2011
2010
2009
Weighted average number of common shares
36,876
36,429
36,011
Dilutive effect of stock-based awards
882
-
324
Number of shares used to compute diluted earnings per share
37,758
36,429
36,335
The following table presents the weighted average share equivalents outstanding during each period that were excluded from the computation
of diluted earnings per share because the exercise price for these options was greater than the average market price of the Company’s shares of
common stock during the respective periods. Also excluded from the computation of diluted earnings per share were other share equivalents that
became anti-dilutive when applying the treasury stock method.
Year Ended December 31,
2011
2010
2009
Anti-dilutive common share equivalents outstanding
1,039
1,339
2,660
10. Stock-based Compensation: Incentive Award Plan and Employee Stock Purchase Plan.
The Company believes that stock-based compensation better aligns the interests of its employees and directors with those of its shareholders
versus exclusively providing cash-based compensation. Stock-based compensation provides incentives to retain and motivate executive officers and
key employees responsible for driving Company performance and maintaining important relationships that contribute to the growth of the Company.
Compensation expense charged to operations related to stock-based compensation was $6.9 million, $7.7 million, and $5.0 million for each of
the years ended December 31, 2011, 2010 and 2009, respectively, and is included in the Consolidated Statements of Operations and Comprehensive
Income (Loss) in selling, general and administrative expenses. The Company has recognized an income tax benefit of $2.5 million, $2.9 million, and
$1.9 million for the years ended December 31, 2011, 2010 and 2009, respectively in the consolidated statements of operations for stock-based
compensation arrangements.
Effective June 3, 2010, the shareholders approved the adoption of the On Assignment, Inc. 2010 Incentive Award Plan (the 2010 Plan), which
replaced the Company’s Restated 1987 Stock Option Plan. The 2010 Plan permits the grant of stock options, including incentive stock options,
nonqualified stock options, restricted stock awards (RSAs), dividend equivalent rights, stock payments, deferred stock, restricted stock units (RSUs),
performance shares and other incentive awards, stock appreciation rights and cash awards to its employees, directors and consultants for up to
2,184,983 shares of common stock, which included the 884,983 shares that remained available for issuance under the 1987 Plan as of June 3, 2010.
The 2010 Plan allows for stock option awards to be granted with an exercise price equal to the closing market price of the Company’s stock at the
47
date of grant. Stock option awards generally vest over four years of continuous service with the Company and generally have ten-year contractual
terms. RSUs and RSAs generally vest over a three year continuous service period, though individual award vesting terms vary within these
parameters. Certain stock option awards and RSUs and RSAs provide for accelerated vesting in the event of a change in control (see Note 6). Options
or awards that are cancelled or forfeited are added back to the pool of shares available for issuance under the 2010 Plan. As of December 31, 2011,
there were 1,606,921 shares available for issuance under the 2010 Plan.
The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model that incorporates
assumptions disclosed in the table below. Expected volatility is based on historical volatility of the underlying stock for a period consistent with the
expected lives of the stock options as the Company believes this is a reasonable representation of future volatility. Additionally, the Company
analyzes historical stock option exercise behavior and vesting patterns for RSUs and RSAs in order to estimate employee turnover rates (i.e.
forfeiture rates). The forfeiture rate, set by management, is used to estimate the number of options and awards that will eventually vest and the
associated impact on stock-based compensation expense. The expected life, or term, of options granted is derived from historical exercise behavior
and represents the period of time that stock option awards are expected to be outstanding. The Company has selected a risk-free rate based on the
implied yield available on U.S. Treasury Securities with a maturity equivalent to the options’ expected term. For RSUs and RSAs, the Company
records compensation expense based on the fair market value of the awards on the grant date.
Officer Awards
The preceding paragraphs describe the general terms of most stock-based incentive awards granted by the Company. However, the Company
has granted a discrete set of stock-based awards to its Chief Executive Officer (CEO) and other corporate officers that differ from those generally
stated terms. The grant-date fair-value of these awards, which was determined by applying certain provisions of the stock compensation guidance
relative to performance-based and market-based awards, is generally being expensed over the vesting term. The impact of these awards is reflected in
the detailed RSU and RSA disclosures below. All awards are subject to the officer’s continued employment through such vesting dates, however, the
vesting of certain awards will accelerate upon the occurrence of a change in control of the Company and/or upon certain qualifying terminations of
employment.
In March 2011, the CEO was awarded the following incentive equity grants: (i) On March 8, 2011, the CEO was awarded a number of RSUs
that will be determined by dividing $0.5 million by the closing price of the Company’s stock on each of February 1, 2013 and February 1, 2014
contingent upon the Company meeting certain financial performance objectives measured over the twelve month period between January 1, 2011 and
December 31, 2011, which were met. Certain provisions of ASC Topic 480, Distinguishing Liabilities from Equity, require the Company to classify
and account for this award as a liability award until the number of shares is determined. The associated liability related to this award included in the
Consolidated Balance Sheets in other long-term liabilities was $1.0 million as of December 31, 2011; and (ii) 58,754 RSUs granted on March 8, 2011
with a grant date fair market value of $0.6 million, which will vest in two equal components of $0.3 million on January 1, 2012 and January 1, 2013,
contingent upon the Company achieving certain performance objectives based on adjusted EBITDA approved by the Compensation Committee over
the twelve-month period ending December 31, 2011, which were met and approved. The grant-date fair value of the RSUs described in this
paragraph is being expensed over the vesting term, based on an estimate of the percentage achievement of the applicable performance targets. All
awards were subject to the CEO’s continued employment through applicable vesting dates. All awards may vest on an accelerated basis in part or in
full upon the occurrence of certain events.
In the first quarter of 2011, the Company granted RSUs to certain other executive officers with an aggregate grant-date fair value of $1.6
million. Of the $1.6 million, $0.9 million will vest in three annual increments subject to continued employment on each succeeding grant-date
anniversary. The remaining $0.7 million vested on January 3, 2012, as certain performance objectives approved by the Compensation Committee
were attained. The Company records stock-based compensation expense over the vesting period of the awards based on the probability that the
performance objectives will be met and that the executives will maintain their employment through the respective vesting dates.
On June 3, 2010, the CEO was awarded a number of RSUs that will be determined by dividing $0.5 million by the closing price of the
Company’s stock on February 1, 2013 contingent upon the Company meeting certain stock price performance objectives measured over the thirty-six
month period between January 1, 2010 and December 31, 2012. As of December 31, 2011, the fair value of the award was $0.5 million and is being
expensed over a derived service period of 2.6 years, determined by applying certain provisions relative to market-based awards in ASC Topic 718,
Stock Compensation. Furthermore, certain provisions of ASC Topic 480, Distinguishing Liabilities from Equity, require the Company to classify and
account for this award as a liability award until the number of shares is determined and the fair value of the award is remeasured at each reporting
period until the award is settled. Fluctuations in the fair value of the liability award and its derived service period are recorded as increases or
decreases to stock-based compensation cost. The associated liability related to this award included in the Consolidated Balance Sheets in other long-
term liabilities was $0.3 million as of December 31, 2011.
On March 17, 2010, the CEO was granted 67,568 RSUs, with a grant-date fair value of $0.5 million, of which 33,784 RSUs vested on
February 1, 2011 and the remaining 33,784 RSUs vested on February 1, 2012. As of December 31, 2011, the performance targets had been fully
achieved and the grant-date fair value was expensed over the respective vesting periods for each of the two components. All awards were subject to
the CEO’s continued employment through applicable vesting dates and may have vested on an accelerated basis in part or in full upon the occurrence
of certain qualifying terminations of employment and/or corporate events.
In the first quarter of 2010, the Company granted RSUs to certain other executive officers with an aggregate grant-date fair value of $1.2
million. Sixty percent of the total RSU award will vest in three annual increments subject to continued employment on each succeeding grant-date
anniversary. Forty percent of the awards will vest in three consecutive annual installments contingent upon the officer attaining certain performance
objectives approved by the Compensation Committee. Accordingly, the Company records stock-based compensation expense over the vesting period
of these awards based on the probability that the performance objectives will be met and that the executives will maintain their employment through
the respective vesting dates.
On November 4, 2009, we entered into an employment agreement with our Chief Executive Officer that provides for three annual stock
award grants with grant-date values of $0.8 million each, based on performance objectives for 2010 through 2012 that vest and become payable,
48
subject to continued employment, on February 1, 2011, January 1, 2012, and January 1, 2013, respectively, contingent upon achieving positive
adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) during the thirteen month period ending on February 1 the year
following the grant for the 2010 award, and the twelve month period ending January 1 the year following the grant for the 2011 and 2012 awards.
On January 2, 2009, the Chief Executive Officer was granted (1) 90,252 RSUs valued at $0.5 million which vest on the third anniversary of
the date of the grant, (2) 90,252 RSAs valued at $0.5 million, which were to vest on December 31, 2009, but did not vest because the performance
objectives approved by the Compensation Committee (based on adjusted EBITDA) were not met, and (3) 90,252 RSUs valued at $0.5 million, which
vested December 30, 2011.
On January 2, 2008, the Chief Executive Officer was granted (1) 78,369 RSUs valued at $0.5 million which vest on the third anniversary of
the date of the grant, (2) 78,369 RSAs valued at $0.5 million, which vested December 31, 2009 when the Company met the performance objectives
approved by the Compensation Committee (based on adjusted EBITDA), and (3) 78,369 RSUs valued at $0.5 million, which were to vest on
December 31, 2010, subject to the Company meeting certain stock price performance objectives relative to its peers, however, only 75,615 shares, or
96.5 percent of the original award, vested on December 31, 2010.
Stock Options
The following table displays the weighted average assumptions that have been applied to estimate the fair value of stock option awards on the
date of grant:
Year Ended December 31,
2011
2010
2009
Dividend yield
Risk-free interest rate
Expected volatility
Expected lives
—
0.92%
75.67%
3.6 years
—
1.47%
73.26%
3.6 years
—
1.64%
73.09%
3.5 years
The following summarizes pricing and term information for options outstanding as of December 31, 2011:
Options Outstanding
Options Exercisable
Range of Exercise Prices
$
2.82 ─ $
5.13 ─
7.39 ─
10.69 ─
18.63 ─
5.11
7.31
10.46
13.31
19.86
Number
Outstanding at
December 31,
2011
588,429
478,524
453,241
714,561
28,450
$
2.82 ─ $
19.86
2,263,205
Weighted
Average
Remaining
Contractual
Life (years)
3.2 years
5.2 years
9.0 years
5.1 years
0.4 years
5.3 years
Weighted Average
Exercise Price
Number
Exercisable at
December 31,
2011
Weighted Average
Exercise Price
$
$
4.87
6.21
9.36
12.41
19.75
8.62
$
553,712
380,031
37,503
710,361
28,450
1,710,057
$
4.91
6.00
8.88
12.42
19.75
8.60
The following table is a summary of stock option activity under the Plan as of December 31, 2011 and changes for the year then ended:
Incentive
Non-
Qualified
Stock Options
Stock Options
Weighted
Average
Exercise Price
Per Share
Weighted
Average
Remaining
Contractual
Term (Years)
Aggregate
Intrinsic Value
Outstanding at January 1, 2011
Granted
Exercised
Canceled
Outstanding at December 31, 2011
341,836
―
(110,310 )
(10,060 )
221,466
1,904,767 $
424,854 $
(183,583 ) $
(104,300 ) $
2,041,738 $
8.32
9.42
5.87
12.75
8.62
5.3 $
3,655,000
5.3 $
6,928,000
Vested and Expected to Vest at December 31, 2011
221,334
1,893,333 $
8.59
5.1 $
6,620,000
Exercisable at December 31, 2011
221,235
1,488,822 $
8.60
4.2 $
5,539,000
The table above includes 54,000 and 90,000 non-employee director stock options outstanding as of December 31, 2011 and January 1, 2011,
49
respectively.
The weighted-average grant-date fair value of options granted during the years ended December 31, 2011, 2010 and 2009 was $5.04, $3.80,
and $3.45 per option, respectively. The total intrinsic value of options exercised during the years ended December 31, 2011, 2010 and 2009 was $1.3
million, $0.2 million, and $27,000.
As of December 31, 2011 there was unrecognized compensation expense of $1.6 million related to unvested stock options based on options
that are expected to vest. The unrecognized compensation expense is expected to be recognized over a weighted-average period of 3.11 years.
In January 2009, the Company implemented a stock option exchange program that gave eligible employees the opportunity to exchange
options with an exercise price greater than $8.00 per share that were granted on or after December 31, 2000, for a reduced number of restricted stock
units at an exchange price with a fair value approximately equivalent to the fair value of the cancelled options. Certain executive officers and the
Board of Directors were not eligible to participate in the stock option exchange program. As a result of this stock option exchange program, 603,700
stock options were cancelled and exchanged for 87,375 RSUs which vested 50.0 percent on January 22, 2011, and 25.0 percent on January 22, 2012
and will vest 25.0 percent on January 22, 2013 subject to the employee’s continued employment through such vesting dates. Incremental
compensation cost related to the option exchange was not significant to the Company’s financial statements.
Restricted Stock Units and Restricted Stock Awards
A summary of the status of the Company’s unvested RSUs and RSAs as of December 31, 2011 and changes during the year then ended are
presented below:
Unvested RSUs and RSAs outstanding at January 1, 2011
Granted
Market value share count adjustment for liability awards
Vested
Forfeited
Unvested RSUs and RSAs outstanding at December 31, 2011
Unvested and expected to vest RSUs and RSAs outstanding at December 31, 2011
Restricted Stock
Units / Awards
Weighted Average
Grant-Date Fair Value
Per Unit / Award
1,205,851
776,922
(25,564 )
(699,421 )
(49,622 )
1,208,166
1,117,839
$ 7.15
9.51
11.02
6.41
7.76
$ 8.99
$ 9.12
The number of shares vested in the table above includes 243,551 shares surrendered by the employees to the Company for payment of
minimum tax withholding obligations. Shares of stock withheld for purposes of satisfying minimum tax withholding obligations are again available
for issuance under the Plan.
Additionally, the table above includes 27,272 RSUs that were awarded to non-employee directors on August 9, 2011, of which 13,636 shares
vested immediately upon issuance and the remaining shares will vest on August 9, 2012. The weighted average grant-date fair value of these awards
was $8.80. There was unrecognized compensation expense of $73,000 as of December 31, 2011 related to these RSUs that will be recorded over the
remaining term of approximately seven months.
The weighted-average grant-date fair value of RSUs and RSAs granted during the years ended December 31, 2011, 2010 and 2009 was $9.18,
$7.26 and $5.62 per award, respectively. The total intrinsic value of RSUs and RSAs vested during the years ended December 31, 2011, 2010 and
2009 was $6.4 million, $3.7 million and $2.9 million, respectively.
As of December 31, 2011, there was unrecognized compensation expense of $3.7 million related to unvested RSUs and RSAs based on
awards that are expected to vest. The unrecognized compensation expense is expected to be recognized over a weighted-average period of 1.8 years.
Employee Stock Purchase Plan
Effective June 3, 2010 when the shareholders approved the On Assignment 2010 Employee Stock Purchase Plan (the ESPP), the Company
reinstated the employee stock purchase program for issuance of up to 3,500,000 shares of common stock with the first offering periods. The ESPP
allows eligible employees to purchase common stock of the Company, through payroll deductions, at 85.0 percent of the lower of the market price on
the first day or the last day of semi-annual purchase periods. The ESPP is intended to qualify as an “employee stock purchase plan” under IRS Code
Section 423. Eligible employees may contribute up to a certain percentage set by the plan administrator of their eligible earnings toward the purchase
of the stock (subject to certain IRS limitations). Previously, the Company maintained a shareholder-approved Employee Stock Purchase Plan which
was originally adopted by the Board of Directors on March 1, 1993 (the Prior ESPP). The pool of shares available for issuance under the Prior ESPP
was fully depleted on February 27, 2009. As a result, the Prior ESPP was terminated and no additional shares will be issued under the Prior ESPP.
In accordance with the ESPP, shares of common stock are transferred to participating employees at the conclusion of each six month
enrollment period, which now end on the last business day of the month in March and September each year. The Company issued 187,036 shares of
common stock in 2011 under the ESPP. In 2010, no shares were issued under the ESPP or the Prior ESPP. In 2009, the Company issued 227,784
shares of common stock under the Prior ESPP plan.
Compensation expense of shares purchased under the ESPP is measured based on a Black-Scholes option-pricing model. The model accounts
for the discount from market value and applies an expected life in line with each six month purchase period. The weighted average fair value of stock
50
purchased under the ESPP was $2.10 for the year ended December 31, 2011. The weighted average fair value of stock purchased under the Prior
ESPP was $2.67 per share for the year ended December 31, 2009. The amount of stock-based compensation expensed related to the ESPP was $0.4
million for the year ended December 31, 2011 and less than $0.1 million for the years ended December 31, 2010 and 2009.
11. Business Segments.
The Company has four reportable segments: Life Sciences, Healthcare, Physician and IT and Engineering. The Life Sciences segment
provides contract, contract-to-permanent and direct placement services of laboratory and scientific professionals to the biotechnology,
pharmaceutical, food and beverage, medical device, personal care, chemical and environmental industries. These contract staffing specialties include
chemists, clinical research associates, clinical lab assistants, engineers, biologists, biochemists, microbiologists, molecular biologists, food scientists,
regulatory affairs specialists, lab assistants and other skilled scientific professionals.
The Healthcare segment includes the combined results of the Nurse Travel and Allied Healthcare lines of business. The lines of business have
been aggregated into the Healthcare segment based on similar economic characteristics, end-market customers and management personnel. The
Healthcare segment provides contract, contract-to-permanent and direct placement of professionals from a number of healthcare, medical financial
and allied occupations. These contract staffing specialties include nurses, specialty nurses, respiratory therapists, surgical technicians, imaging
technicians, x-ray technicians, medical technologists, phlebotomists, coders, billers, claims processors and collections staff.
The Physician segment provides contract and direct placement physicians to healthcare organizations. The Physician segment works with
nearly all medical specialties, placing locum tenens physicians in hospitals, community-based practices, and federal, state and local facilities.
The IT and Engineering segment provides high-end contract and direct placement services of information technology and engineering
professionals with expertise in specialized information technology; software and hardware engineering; and mechanical, electrical, validation and
telecommunications engineering fields.
The Company’s management evaluates the performance of each segment primarily based on revenues, gross profit and operating income. The
information in the following table is derived directly from the segments’ internal financial reporting used for corporate management purposes.
The following table represents revenues, gross profit and operating income by reportable segment (in thousands):
Revenues:
Life Sciences
Healthcare
Physician
IT and Engineering
Total Revenues
Gross Profit:
Life Sciences
Healthcare
Physician
IT and Engineering
Total Gross Profit
Operating Income (Loss):
Life Sciences
Healthcare
Physician
IT and Engineering
Total Operating Income
Year Ended December 31,
2011
2010
2009
$ 155,324
94,598
80,617
266,742
$ 597,281
$ 52,643
26,637
25,858
94,967
$ 200,105
$ 10,727
(3,491)
5,347
31,816
$ 44,399
$ 109,495
76,287
73,595
178,688
$ 438,065
$ 37,776
23,058
23,847
64,775
$ 149,456
$ 5,305
(20,998)
5,010
13,910
$ 3,227
$ 93,664
97,137
87,719
138,093
$ 416,613
$ 30,470
27,329
28,545
50,024
$ 136,368
$ 6,176
(3,074)
8,214
3,911
$ 15,227
51
The Company does not report Life Sciences and Healthcare segments’ total assets separately as the operations are largely centralized. The
following table represents total assets as allocated by reportable segment (in thousands):
December 31, 2011
December 31, 2010
December 31, 2009
Total Assets:
Life Sciences and Healthcare
$ 107,915
$ 74,979
$ 78,645
Physician
IT and Engineering
Total Assets
83,940
218,810
63,908
202,229
69,912
194,905
$ 410,665
$ 341,116
$ 343,462
The Company does not report all assets by segment for all reportable segments. The following table represents identifiable assets by
reportable segment (in thousands):
Gross Accounts Receivable:
Life Sciences
Healthcare
Physician
IT and Engineering
December 31, 2011
December 31, 2010
December 31, 2009
$ 21,727
$ 14,107
$ 10,548
11,568
15,749
47,658
9,628
10,233
30,725
9,722
12,453
19,399
Total Gross Accounts Receivable
$ 96,702
$ 64,693
$ 52,122
The Company operates internationally, with operations in the United States, Europe, Canada, Australia, and New Zealand. The following
table represents revenues by geographic location (in thousands):
Revenues:
Domestic
Foreign
Total Revenues
Year Ended December 31,
2011
2010
2009
$ 529,150
$ 407,317
$ 393,846
68,131
30,748
22,767
$ 597,281
$ 438,065
$ 416,613
The following table represents long-lived assets by geographic location (in thousands):
Long-lived Assets:
Domestic
Foreign
December 31, 2011
December 31, 2010
December 31, 2009
$ 19,078
$ 19,826
$ 20,364
1,033
754
569
Total Long-lived Assets
$ 20,111
$ 20,580
$ 20,993
12. Derivative Instruments.
The Company utilizes derivative financial instruments to manage interest rate risk. The Company does not use derivative financial instruments for
trading or speculative purposes, nor does it use leveraged financial instruments. The Company reports its derivative instruments separately as assets and
liabilities unless a legal right of set-off exists under a master netting agreement enforceable by law. The Company’s derivative instruments are recorded at
their fair value, and are included in other long-term liabilities and other liabilities in the Consolidated Balance Sheets.
On May 2, 2007, the Company entered into a transaction with a financial institution to fix the underlying interest rate on $73.0 million of its
then outstanding bank loan for a period of two years beginning June 30, 2007 (the 2007 Interest Rate Swap). This transaction essentially fixed the
Company’s base borrowing rate at 4.9425 percent as opposed to a floating rate, which reset at selected periods. On June 30, 2009, the 2007 Interest
Rate Swap expired in accordance with the terms of the agreement, thus there was no related fair value measurement as of December 31, 2010 or
December 31, 2009. The Company recorded a gain of $1.3 million for the year ended December 31, 2009 for the change in fair value of the 2007
Interest Rate Swap. The 2007 Interest Rate Swap was not designated as a hedging instrument for accounting purposes.
Effective July 1, 2009, pursuant to terms of the amended credit agreement, the Company entered into an interest rate cap contract, in order to
mitigate the interest rate risk. The interest rate cap contract was for a notional amount of $51.0 million with a one-month LIBOR cap of 3.0 percent
for a term of one year and expired on July 1, 2010, thus there was no related fair value measurement as of December 31, 2010. As this agreement was
not designated as a hedging instrument, changes in the fair value of this agreement increased or decreased interest expense.
52
On February 18, 2011, the Company entered into an interest rate swap agreement to hedge a portion of its interest rate exposure on its senior secured
debt (the 2011 Interest Rate Swap). The 2011 Interest Rate Swap has a notional amount of $25.0 million and fixes a portion of the Company’s base borrowing
rate, which is a floating rate based on a LIBOR swap rate that resets periodically. The 2011 Interest Rate Swap was designated as a hedging instrument for
accounting purposes and is accordingly accounted for as a cash flow hedge. Any unrealized losses on the 2011 Interest Rate Swap agreement are included in
accumulated other comprehensive income until the periodic interest settlements occur, at which time they will be recorded as interest expense in the
Consolidated Statements of Operations and Comprehensive Income (Loss). The Company expects to reclassify losses of $0.3 million (pretax) from
accumulated other comprehensive income to interest expense in the Consolidated Statements of Operations and Comprehensive Income (Loss) within the
next twelve months.
As a result of the use of derivative instruments, the Company is exposed to risk that the counterparties will fail to meet their contractual obligations.
To mitigate the counterparty credit risk, the Company only enters into contracts with carefully selected major financial institutions based upon their credit
ratings and other factors, and continually assesses the creditworthiness of counterparties. As of December 31, 2011, the counterparty to the 2011 Interest Rate
Swap had investment grade ratings and has performed in accordance with their contractual obligations.
The fair values of derivative instruments in the Consolidated Balance Sheets are as follows (in thousands):
Derivative designated as hedging instrument under ASC 815
Balance Sheet Classification
December 31, 2011
December 31, 2010
2011 Interest Rate Swap - current portion
Other liabilities
$ 310
$ -
2011 Interest Rate Swap - long-term portion
Other long-term liabilities
298
-
$ 608
$ -
The following tables reflect the effect of derivative instruments on the Consolidated Statements of Operations and Comprehensive Income (Loss) for
the years ended December 31, 2011, 2010 and 2009 (in thousands):
Derivatives in Cash Flow Hedging Relationships
Amount of Gain(Loss) Recognized in Accumulated Other
Comprehensive Income on Derivative, net of tax
2011 Interest Rate Swap
$ (380)
$ -
$ -
Year Ended December 31,
2011
2010
2009
Derivatives in Cash Flow Hedging
Relationships
Location of Gain/Loss Reclassified from
Accumulated Other Comprehensive
Income into Income
Amount of Gain/Loss Reclassified from Accumulated
Other Comprehensive Income into Income
Year Ended December 31,
2011
2010
2009
2011 Interest Rate Swap
Interest expense
$ 310
$ -
$ -
The following table reflects the effect of derivative instruments on the Consolidated Statements of Operations and Comprehensive Income
(Loss) for the years ended December 31, 2011, 2010, and 2009 (in thousands):
Derivates Not Designated as
Hedging Instruments
Location of Gain/Loss Recognized in
Income on Derivate
2007 Interest Rate Swap
Interest rate cap
Interest expense
Interest expense
13. Fair Value Measurements.
Amount of Gain/Loss Recognized in
Income on Derivative
Year Ended December 31,
2011
2010
2009
$ -
$ -
$ 1,345
$ -
$ -
$ -
The valuation techniques utilized are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from
independent sources, while unobservable inputs reflect internal market assumptions. These two types of inputs create the following fair value
hierarchy:
53
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
The assets and liabilities measured at fair value on a recurring basis are as follows (in thousands):
As of December 31, 2011
Fair Value Measurements Using
Quoted Prices in
Active Markets for
Identical Assets
Significant Other
Observable Inputs
Significant
Unobservable
Inputs
(Level 1)
(Level 2)
(Level 3)
Total
$ -
$ 608
$ -
$ 608
2011 Interest Rate Swap
Contingent consideration to be paid in cash for
the acquisitions
$ -
$ -
$ 9,856
$ 9,856
As of December 31, 2010
Fair Value Measurements Using
Quoted Prices in
Active Markets for
Identical Assets
Significant Other
Observable Inputs
Significant
Unobservable
Inputs
Contingent consideration to be paid in cash for
the acquisitions
$ -
$ -
$ 3,700
$ 3,700
(Level 1)
(Level 2)
(Level 3)
Total
The 2011 Interest Rate Swap liability is measured using the income approach. The fair value reflects the estimated amounts that the Company would
pay or receive based on the present value of the expected cash flows derived from market rates and prices. As such, this derivative instrument is classified
within Level 2. There were no derivative instruments outstanding as of December 31, 2010.
The Company has obligations, to be paid in cash, to the former owners of acquired companies if certain future financial goals are met. The fair value
of this contingent consideration is determined using an expected present value technique. Expected cash flows are determined using the probability - weighted
average of possible outcomes that would occur should certain financial metrics be reached. There is no market data available to use in valuing the contingent
consideration, therefore, the Company developed its own assumptions related to the future financial performance of the businesses to evaluate the fair value of
these liabilities. As such, the contingent consideration is classified within Level 3. The liabilities for the contingent consideration were established at the time
of the acquisition and are evaluated at each reporting period. The current liability is included in the Consolidated Balance Sheets in the current portion of
accrued earn-outs and the non-current portion is included in accrued earn-outs.
Reconciliations of liabilities measured and carried at fair value on a recurring basis with the use of significant unobservable inputs (Level 3) are as
follows (in thousands):
Year Ended December 31,
2011
2010
Contingent consideration for acquisitions
Balance at beginning of year
$ 3,700
$ -
Additions for acquisitions
10,346
3,700
Payments on contingent consideration
(1,731)
-
Settlements of contingent consideration
(1,369)
-
Fair value adjustments
(640)
-
Foreign currency translation adjustment
(450)
-
Balance at end of year
$ 9,856
$ 3,700
54
During 2011, there were no fair value measurements of assets or liabilities on a non-recurring basis. The following table summarizes the fair value
measurements of assets measured on a non-recurring basis during 2010 (in thousands):
As of December 31, 2010
Fair Value Measurements Using
Quoted Prices in
Active Markets for
Identical Assets
Significant Other
Observable Inputs
Significant
Unobservable Inputs
(Level 1)
(Level 2)
(Level 3)
Total
Total Losses
Goodwill
$ -
$ -
$ 199,720
$ 199,720
$ 15,399
The Company determines the fair value of its reporting units primarily based on level 3 inputs such as discounted cash flows which are not observable
from the market, directly or indirectly. The Company recognized a goodwill impairment charge of $15.4 million in the fourth quarter of 2010.
14. Unaudited Quarterly Results.
The following tables present unaudited quarterly financial information for each of the four quarters ended December 31, 2011 and
December 31, 2010. In the opinion of the Company’s 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 periods. In the fourth quarter of 2010, the Company recognized goodwill impairment of $15.4 million related to its Nurse Travel reporting
unit.
Revenues
Gross profit
Net income
Earnings per share:
Basic
Diluted
Revenues
Gross profit
Net income
Earnings per share:
Basic
Diluted
2011
Dec. 31,
Sep. 30,
Jun. 30,
Mar. 31,
(in thousands, except per share data)
$ 161,790
$ 53,629
$ 7,501
$ 162,370
$ 54,528
$ 7,767
$ 143,683
$ 48,794
$ 5,865
$ 129,438
$ 43,154
$ 3,164
$ 0.20
$ 0.21
$ 0.16
$ 0.09
$ 0.20
$ 0.21
$ 0.16
$ 0.08
2010
Dec. 31,
Sep. 30,
Jun. 30,
Mar. 31,
(in thousands, except per share data)
$ 121,152
$ 42,234
$ 116,141
$ 41,103
$ (13,698)
$ 3,163
$ 104,459
$ 35,296
$ 940
$ 96,313
$ 30,823
$ (302 )
$ (0.38)
$ 0.09
$ 0.03
$ (0.01 )
$ (0.38)
$ 0.09
$ 0.03
$ (0.01 )
55
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, the Company’s management carried out an evaluation, under the supervision and with the
participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of our disclosure controls and procedures (as
defined in Rule 13a-15(e) of the Securities Exchange Act of 1934). Based on this evaluation, our Principal Executive Officer and Principal Financial
Officer have concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report. The term
“disclosure controls and procedures” means controls and other procedures of the Company that are designed to ensure that information required to be
disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. “Disclosure controls and procedures”
include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it
files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the Company’s management, including its principal
executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required
disclosure.
56
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) of
the Securities Exchange Act of 1934) for the Company. The term “internal control over financial reporting” is defined as a process designed by, or
under the supervision of, the Company’s principal executive and principal financial officers, or persons performing similar functions, and effected by
the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those
policies and procedures that:
• Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the Company;
• Provide reasonable assurance that the transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance
with authorizations of management and directors of the Company; and
• Provide reasonable assurance regarding prevention of timely detection of unauthorized acquisition, use, or disposition of the
Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the
degree of compliance with policies or procedures may deteriorate.
Management, under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, assessed the
effectiveness of the Company’s internal control over financial reporting as of December 31, 2011. In making this assessment, management used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework. Based on
our assessment and those criteria, management believes that the Company maintained effective internal control over financial reporting as of
December 31, 2011. Our independent registered public accounting firm, Deloitte & Touche LLP, has included an attestation report on our internal
control over financial reporting, which is included below.
Changes in Internal Controls
There were no changes in the Company’s internal control over financial reporting that occurred during the Company’s fourth quarter that
have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B. Other Information
None.
57
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of On Assignment, Inc.
Calabasas, California
We have audited the internal control over financial reporting of On Assignment, Inc. and subsidiaries (the “Company”) as of December 31, 2011,
based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing
such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and
principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other
personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management
override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any
evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based
on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated
financial statements and financial statement schedule as of and for the year ended December 31, 2011 of the Company and our report dated March
14, 2012 expressed an unqualified opinion on those financial statements and financial statement schedule.
/s/ Deloitte & Touche LLP
Los Angeles, California
March 14, 2012
58
Item 10. Directors, Executive Officers and Corporate Governance
PART III
Information responsive to this item will be set forth in the Company’s proxy statement for use in connection with its 2012 Annual Meeting of
Stockholders (the 2012 Proxy Statement) and is incorporated herein by reference. The 2012 Proxy Statement will be filed with the SEC within 120
days after the end of the Company’s fiscal year. The information under the heading “Executive Officers of the Registrant” in Part I, Item 1 of this
Form 10-K is also incorporated by reference in this section.
Item 11. Executive Compensation
Information responsive to this item will be set forth in the 2012 Proxy Statement to be filed with the SEC 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 and Related Stockholder Matters
Information responsive to this item will be set forth in the 2012 Proxy Statement to be filed with the SEC 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 and Director Independence
Information responsive to this Item will be set forth in the 2012 Proxy Statement to be filed with the SEC within 120 days after the end of the
Company’s fiscal year and is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
Information responsive to this Item will be set forth in the 2012 Proxy Statement, to be filed with the SEC within 120 days after the end of the
Company’s fiscal year and is incorporated herein by reference.
59
Item 15. Exhibits and Financial Statement Schedules
(a) List of documents filed as part of this report
1. Financial Statements:
PART IV
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at December 31, 2011 and 2010
Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years Ended December 31, 2011, 2010 and
2009
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2011, 2010 and 2009
Consolidated Statements of Cash Flows for the Years Ended December 31, 2011, 2010 and 2009
Notes to Consolidated Financial Statements
2. Financial Statement Schedule:
Schedule II—Valuation and Qualifying Accounts
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) Exhibits
See Index to Exhibits.
60
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 to
report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 14th day of March 2012.
ON ASSIGNMENT, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities indicated and on the dates indicated.
Signature
Title
Date
Peter T. Dameris
Chief Executive Officer and President
Peter T. Dameris
Chief Executive Officer, President and Director
(Principal Executive Officer)
March 14, 2012
James L. Brill
/s/ William E. Brock
William E. Brock
/s/ Jonathan S. Holman
Jonathan S. Holman
/s/ Edward L. Pierce
Edward L. Pierce
/s/ Jeremy M. Jones
Jeremy M. Jones
Senior Vice President, Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)
Director
Director
Director
Director
March 14, 2012
March 14, 2012
March 14, 2012
March 14, 2012
March 14, 2012
61
ON ASSIGNMENT, INC. AND SUBSIDIARIES
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
Year Ended December 31, 2011, 2010 and 2009
(In thousands)
Description
beginning of year Provisions
Balance at
Deductions
from reserves
Balance at
end of year
Year ended December 31, 2011
Allowance for doubtful accounts and billing
adjustments
Workers’ compensation and medical
malpractice loss reserves
Year ended December 31, 2010
Allowance for doubtful accounts and billing
adjustments
Workers’ compensation and medical
malpractice loss reserves
Year ended December 31, 2009
Allowance for doubtful accounts and billing
adjustments
Workers’ compensation and medical
malpractice loss reserves
$
$
$
$
$
$
2,175
1,127
(525 ) $
2,777
10,244
2,339
(2,182 ) $
10,401
1,949
644
(418 ) $
2,175
10,349
4,310
(4,415 ) $
10,244
2,443
296
(790 ) $
1,949
9,754
4,283
(3,688 ) $
10,349
62
Number
3.1
3.2
3.3
4.1
4.2
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
Footnote
(1)
(2)
(3)
(4)
(6)
(10)
(9)
(10)
(9)
(12)
(9)
(9)
(16)
(17)
(14)
INDEX TO EXHIBITS
Description
Certificate of Amendment of Restated Certificate of Incorporation of On Assignment, Inc.
Restated Certificate of Incorporation of On Assignment, Inc., as amended.
Amended and Restated Bylaws of On Assignment, Inc.
Specimen Common Stock Certificate.
Rights Agreement, dated June 4, 2003, between On Assignment, Inc. and U.S. Stock Transfer Corporation as Rights
Agent, which includes the Certificate of Designation, Preferences and Rights of Series A Junior Participating
Preferred Stock as Exhibit A, the Summary of Rights to Purchase Series A Junior Participating Preferred Stock as
Exhibit B and the Form of Rights Certificate as Exhibit C.
Form of Indemnification Agreements. †
Restated 1987 Stock Option Plan, as amended and restated April 7, 2006. †
First Amendment to Restated 1987 Stock Option Plan, dated January 23, 2007. †
Second Amendment to the Restated 1987 Stock Option Plan, dated April 17, 2007. †
Third Amendment to the Restated 1987 Stock Option Plan, dated December 11, 2008. †
2010 Employee Stock Purchase Plan, dated March 18, 2010. †
On Assignment, Inc. 2010 Incentive Award Plan, dated March 18, 2010. †
Office Lease, dated August 18, 2010, by and between On Assignment, Inc. and Calabasas BDC, Inc.
On Assignment, Inc. Amended and Restated Change in Control Severance Plan and Summary Plan Description. †
Amended and Restated Senior Executive Agreement between On Assignment, Inc. and Peter Dameris, dated
December 11, 2008. †
10.11
(15)
First Amendment to Amended and Restated Senior Executive Agreement between On Assignment, Inc. and Peter
Dameris, dated March 19, 2009. †
10.12
10.13
(17)
(18)
Senior Executive Agreement between On Assignment, Inc. and Peter Dameris, dated November 4, 2009. †
First Amendment to Senior Executive Agreement, dated March 30, 2010 by and between On Assignment, Inc. and
Peter Dameris. †
10.14
(14)
Amended and Restated Employment Agreement between Oxford Global Resources, Inc., On Assignment, Inc. and
Michael J. McGowan dated December 30, 2008. †
10.15
(20)
Second Amended and Restated Employment Agreement between VISTA Staffing Solutions, Inc., On Assignment,
Inc. and Mark S. Brouse, dated August 1, 2011. †
10.16
(20)
Employment Agreement between VISTA Staffing Solutions, Inc., On Assignment, Inc. and Christian Rutherford,
dated August 1, 2011. †
10.17
(14)
Amended and Restated Senior Executive Agreement between On Assignment, Inc. and Emmett McGrath, dated
December 11, 2008. †
10.18
(14)
Amended and Restated Executive Change in Control Agreement between On Assignment, Inc. and Peter T. Dameris,
dated December 11, 2008. †
10.19
(14)
Amended and Restated Executive Change in Control Agreement between On Assignment, Inc. and James L. Brill,
(5)
(7)
(8)
(10)
(13)
(19)
10.20
10.21
10.22
10.23
10.24
10.25
10.26*
10.27*
10.28*
10.29*
10.30*
21.1*
dated December 11, 2008. †
Form of Option Agreements.
Executive Incentive Compensation Plan. †
Form of Restricted Stock Unit Agreements.
Form of On Assignment, Inc. Stock Option Agreement †
Form of On Assignment, Inc. Restricted Stock Unit Award Agreement †
Credit Agreement, dated as of December 3, 2010, among On Assignment, Inc., Bank of America, N.A., as
administrative agent, swing line lender and letter of credit issuer, Wells Fargo Bank, N.A., as syndication agent,
Union Bank, N.A. and BBVA Compass as co-documentation agents and the lenders party thereto.
Amendment No. 1 to Security and Credit Agreement, dated as of January 27, 2011, by and among On Assignment,
Inc. and Bank of America, N.A., as administrative agent and the lenders party thereto.
Consent, Waiver and Amendment No. 2 to Credit Agreement, dated as of February 17, 2011, by and among On
Assignment, Inc. and Bank of America, N.A., as administrative agent and the lenders party thereto.
Third Amendment to Senior Executive Agreement, dated March 8, 2011 by and between On Assignment, Inc. and
Peter Dameris. †
Fourth Amendment to Senior Executive Agreement, dated March 25, 2011 by and between On Assignment, Inc. and
Peter Dameris. †
Indemnification Agreement, dated November 1, 2011 by and between On Assignment, Inc. and Christian Rutherford.
Subsidiaries of the Registrant.
63
23.1*
31.1*
31.2*
32.1*
101.INS*
101.SCH*
101.CAL*
101.DEF*
101.LAB*
101.PRE*
*
†
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
Consent of Independent Registered Public Accounting Firm.
Certification of Peter T. Dameris, Chief Executive Officer and President pursuant to Rule 13a-14(a) or 15d-14(a).
Certification of James L. Brill, Senior Vice President, Finance and Chief Financial Officer pursuant to Rule 13a-14(a)
or 15d-14(a).
Certification of Peter T. Dameris, Chief Executive Officer and President, and James L. Brill, Senior Vice President,
Finance and Chief Financial Officer pursuant to 18 U.S.C. Section 1350.
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
Filed herewith.
These exhibits relate to management contracts or compensatory plans, contracts or arrangements in which directors
and/or executive officers of the Registrant may participate.
Incorporated by reference from an exhibit filed with our Current Report on Form 8-K (File No. 0-20540) filed with
the Securities and Exchange Commission on October 5, 2000.
Incorporated by reference from an exhibit filed with our Annual Report on Form 10-K (File No. 0-20540) filed with
the Securities and Exchange Commission on March 30, 1993.
Incorporated by reference from an exhibit filed with our Current Report on Form 8-K (File No. 0-20540) filed with
the Securities and Exchange Commission on May 3, 2002.
Incorporated by reference from an exhibit filed with our Registration Statement on Form S-1 (File No. 33-50646)
declared effective by the Securities and Exchange Commission on September 21, 1992.
Incorporated by reference from an exhibit filed with our Annual Report on Form 10-K (File No. 0-20540) filed with
the Securities and Exchange Commission on March 16, 2005.
Incorporated by reference from an exhibit filed with our Current Report on Form 8-K (File No. 0-20540) filed with
the Securities and Exchange Commission on June 5, 2003.
Incorporated by reference from an exhibit filed with our Current Report on Form 8-K (File No. 0-20540) filed with
the Securities and Exchange Commission on April 1, 2005.
Incorporated by reference from an exhibit filed with our Current Report on Form 8-K (File No. 0-20540) filed with
the Securities and Exchange Commission on August 8, 2005.
Incorporated by reference from our Proxy Statement on Schedule 14A filed with the Securities and Exchange
Commission on April 27, 2010.
Incorporated by reference from an exhibit filed with our Annual Report on Form 10-K (File No. 0-20540) filed with
the Securities and Exchange Commission on March 16, 2007.
Incorporated by reference from an exhibit filed with our Current Report on Form 8-K (File No. 0-20540) filed with
the Securities and Exchange Commission on December 22, 2006.
Incorporated by reference from an exhibit filed with our Current Report on Form 8-K (File No. 0-20540) filed with
the Securities and Exchange Commission on December 16, 2008.
Incorporated by reference from an exhibit filed with our Current Report on Form 8-K (File No. 0-20540) filed with
the Securities and Exchange Commission on March 30, 2009.
Incorporated by reference from an exhibit filed with our Annual Report on Form 10-K (File No. 0-20540) filed with
the Securities and Exchange Commission on March 16, 2010.
Incorporated by reference from an exhibit filed with our Current Report on Form 8-K (File No. 0-20540) filed with
the Securities and Exchange Commission on May 11, 2009.
Incorporated by reference from an exhibit filed with our Quarterly Report on Form 10-Q (File No. 0-20540) filed
with the Securities and Exchange Commission on November 8, 2010.
Incorporated by reference from an exhibit filed with our Annual Report on Form 10-K (File No. 0-20540) filed with
the Securities and Exchange Commission on March 16, 2010.
Incorporated by reference from an exhibit filed with our Quarterly Report on Form 10-Q (File No. 0-20540) filed
with the Securities and Exchange Commission on May 10, 2010.
Incorporated by reference from an exhibit filed with our Current Report on Form 8-K (File No. 0-20540) filed with
the Securities and Exchange Commission on December 8, 2010.
Incorporated by reference from an exhibit filed with our Current Report on Form 8-K (File No. 0-20540) filed with
the Securities and Exchange Commission on August 5, 2011.
64
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Assignment Ready, Inc., a Delaware corporation
On Assignment Staffing Services, Inc., a Delaware corporation
VSS Holding, Inc., a Nevada corporation
VISTA Staffing Solutions, Inc., a Utah corporation
VISTA Physician Search and Consulting, Inc., a Utah corporation
VISTA Staffing International, Inc., a Nevada corporation
VISTA Holdings (Hong Kong) Limited, a Hong Kong corporation
Oxford Global Resources, Inc., a Delaware corporation
Other subsidiaries of the Registrant are omitted from this exhibit pursuant to Regulation S-K 601(b)(21)(ii)
65
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-38849, 333-61998, 333-106203, 333-143907, 333-148000, and
333-168041 on Form S-8 and 333-13065, 333-88034, 333-134479 and 333-142382 on Form S-3 of our reports dated March 14, 2012 relating to the
financial statements and financial statement schedule of On Assignment, Inc. and the effectiveness of On Assignment, Inc.’s internal control over
financial reporting, appearing in this Annual Report on Form 10-K of On Assignment, Inc. for the year ended December 31, 2011.
/s/ Deloitte & Touche LLP
Los Angeles, California
March 14, 2012
66
Exhibit 31.1
CERTIFICATION PURSUANT TO RULES 13a-14(a) AND 15d-14(a)
UNDER THE SECURITIES EXCHANGE ACT OF 1934 AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Peter T. Dameris, certify that:
1. I have reviewed this annual report on Form 10-K of On Assignment, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered
by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-
15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: March 14, 2012
Peter T. Dameris
Chief Executive Officer and President
67
Exhibit 31.2
CERTIFICATION PURSUANT TO RULES 13a-14(a) AND 15d-14(a)
UNDER THE SECURITIES EXCHANGE ACT OF 1934 AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, James L. Brill, certify that:
1. I have reviewed this annual report on Form 10-K of On Assignment, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered
by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-
15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: March 14, 2012
James L. Brill,
Senior Vice President, Finance and Chief Financial Officer
68
Exhibit 32.1
Written Statement of Chief Executive Officer and Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)
The undersigned, the Chief Executive Officer and the Chief Financial Officer of On Assignment, Inc. (the Company), each hereby certifies
that, to his knowledge on the date hereof:
(a) the Annual Report on Form 10-K of the Company for the period ended December 31, 2011 filed on the date hereof with the
Securities and Exchange Commission (the Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934; and
(b) information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Date: March 14, 2012
Date: March 14, 2012
Peter T. Dameris
Chief Executive Officer and President
James L. Brill
Senior Vice President, Finance and Chief Financial Officer
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting
the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the
Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
The foregoing certification is being furnished to the Securities and Exchange Commission as an exhibit to the Annual Report on Form 10-K and shall
not be deemed to be considered filed as part of the Annual Report on Form 10-K.
69
Our Profile
On Assignment, Inc. (NASDAQ: ASGN), is a leading global
provider of highly-skilled, hard-to-find professionals in the
growing life sciences, healthcare, and technology sectors,
where quality people are the key to success. We go beyond
matching résumés with job descriptions to match people
we know into positions we understand for temporary,
contract-to-hire, and direct hire assignments. Clients
recognize On Assignment for our quality candidates, quick
response, and successful assignments. Professionals
think of us as career-building partners with the depth and
breadth of experience to help them reach their goals.
On Assignment was founded in 1985 and went public in
1992. Corporate headquarters are located in Calabasas,
California, with a network of approximately 76 branch
offices throughout the United States, Canada, United
Kingdom, Netherlands, Ireland, Belgium, and Spain.
Additionally, physician placements are made in Australia
and New Zealand. The corporate offices are organized to
perform many functions that allow staffing consultants
and recruiters to focus more effectively on business
development and successful matching of professionals.
Our Mission
On Assignment’s mission is to help organizations thrive and
people build rewarding careers by putting highly-skilled
professionals to work exactly when and where they are
needed.
Our Business Model
Our business model reflects our focus on highly-skilled,
hard-to-find professionals in the growing life sciences,
technology, and healthcare fields, and is as follows:
• Strong revenue growth
• Significant investment in our people and support systems
• Profit margins that are at the top of the staffing industry
• Leadership in our core segments through specialized
divisions
• Leveraging of our branch network
• Growth into new sectors that fit this profile
Common Stock
On Assignment, Inc. common stock is traded on the
NASDAQ Stock Market under the symbol ASGN.
Independent Accountants
Deloitte & Touche LLP
Los Angeles, CA
Legal Counsel
Latham & Watkins LLP
Los Angeles, CA
Transfer Agent
Computershare
Canton, MA
About
On Assignment
Board of Directors
Jeremy Jones 2, 3, 4
Chairman of the Board, On Assignment, Inc.
Named Executive Officers
Peter T. Dameris
President and Chief Executive Officer
Peter T. Dameris 1
President and Chief Executive Officer,
On Assignment, Inc.
Senator William E. Brock 3, 4
Chairman of Nominating and Corporate
Governance Committee
Board Member of Strayer Education, Inc.
Board Member of ResCare
Jonathan Holman 2, 3, 4
Chairman of Compensation Committee
President, The Holman Group, Inc.
Edward L. Pierce 2
Chairman of Audit Committee
Mark Brouse
President,
VISTA Staffing Solutions
Michael McGowan
President,
Oxford Global Resources
Emmett McGrath
President,
Life Sciences and Allied Healthcare
Jim Brill
Senior Vice President,
Finance and Chief Financial Officer
Senior Management Team
Peter T. Dameris
President and Chief Executive Officer
Jim Brill
Senior Vice President,
Finance and Chief Financial Officer
Michael Payne
Senior Vice President,
Shared Services and Chief Information Officer
Michael McGowan
President,
Oxford Global Resources
Emmett McGrath
President,
Life Sciences and Allied Healthcare
Christian Rutherford
President,
VISTA Staffing Solutions
Kathryn Hoffman-Abby
President,
Nurse Travel
Christina Gibson
Vice President,
Finance and Corporate Controller
Tarini Ramaprakash
Vice President and
General Counsel
Karen Keppel
Vice President,
Support Services
Angela Kolarek
Vice President,
Human Resources
Carol McNamara
Vice President,
Recruiting
Form 10-K
Additional copies of our Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 14, 2012, are available
without charge upon request to:
On Assignment, Inc.
Investor Relations Department
26745 Malibu Hills Road
Calabasas, CA 91301
Telephone: 818.878.7900
1 Member of the Stock Option Committee
2 Member of the Audit Committee
3 Member of the Compensation Committee
4 Member of the Nominating and
Corporate Governance Committee
Putting People First since 1985.
NASDAQ: ASGN
26745 Malibu Hills Road, Calabasas, CA 91301
818.878.7900 | www.onassignment.com