10-K 1 a10-k2017.htm 10-K Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (the Act)
 For the fiscal year ended December 31, 2017
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 000-20540
ON ASSIGNMENT, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
95-4023433
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 26745 Malibu Hills Road
Calabasas, California 91301
(Address of Principal Executive Offices)
Registrant’s telephone number, including area code: (818) 878-7900
 Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Common Stock, $0.01 par value
 
New York Stock Exchange
 Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of 1933. Yes ý No o
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 o No ý
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 ý No o
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 ý   No o
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.  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  x
Accelerated filer o
Non-accelerated filer o
Smaller reporting company  o
Emerging growth company  o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
As of June 30, 2017, the aggregate market value of our common stock held by non-affiliates of the registrant was approximately $2,703,775,671.
As of February 23, 2018, the registrant had 52,175,939 outstanding shares of Common Stock, $0.01 par value.
DOCUMENTS INCORPORATED BY REFERENCE
We are incorporating by reference into Part III of this Annual Report on Form 10-K portions of the registrant’s proxy statement for the 2018 Annual Meeting of Stockholders, to be filed within 120 days of the close of the registrant’s fiscal year 2017.

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ON ASSIGNMENT, INC.
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2017
TABLE OF CONTENTS

PART I
 
Item 1.
 
Item 1A.
 
Item 1B.
 
Item 2.
 
Item 3.
 
Item 4.
 
 
 
PART II
 
Item 5.
 
Item 6.
 
Item 7.
 
Item 7A.
 
Item 8.
 
Item 9.
 
Item 9A.
 
Item 9B.
 
 
 
PART III
 
Item 10.
 
Item 11.
 
Item 12.
 
Item 13.
 
Item 14.
 
 
 
PART IV
 
Item 15.
 
 
 





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 (the “Exchange Act”). 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 such differences include, but are not limited to, the following: (1) actual demand for our services; (2) our ability to attract, train and retain qualified staffing consultants; (3) our ability to remain competitive in obtaining and retaining clients; (4) the availability of qualified contract professionals; (5) management of our growth; (6) continued performance and integration of our enterprise-wide information systems; (7) our ability to manage our litigation matters; (8) the successful integration of our acquired subsidiaries; and the factors described in Item 1A of this Annual Report on Form 10-K (2017 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 2017 10-K and we assume no obligation to update any forward-looking statement or the reasons why our actual results may differ.

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PART I
Item 1. Business

Overview and History

On Assignment, Inc. (NYSE: ASGN), is one of the foremost providers of in-demand, highly skilled professionals in the technology, digital, creative, healthcare technology, engineering and life sciences sectors. Through an integrated suite of professional staffing and information technology ("IT") solutions, On Assignment improves productivity and utilization among leading corporate enterprises.

We were incorporated in 1985 and commenced operation of our first contract staffing line of business, which is now our Apex Life Sciences, LLC subsidiary (“Apex Life Sciences”). Expansion into other professional staffing markets has been achieved through acquisitions and internal growth. The following is a summary of acquisitions in the past six years:

On August 8, 2017, we acquired StratAcuity Staffing Partners, Inc. ("Stratacuity"), a provider of specialized clinical/scientific staffing solutions headquartered in Portsmouth, NH. Stratacuity is a component of Apex Life Sciences and is included in the Apex operating segment.
On June 5, 2015, we acquired Creative Circle, LLC (“Creative Circle”), one of the largest privately held digital/creative staffing firms in North America that provides digital, marketing, advertising and creative talent to both ad agencies and corporate clients. Creative Circle, which is headquartered in Los Angeles, California, is included in the Apex operating segment.
On April 14, 2015, we acquired LabResource B.V. (“LabResource”), a provider of specialized clinical/scientific staffing solutions headquartered in Amsterdam, the Netherlands. LabResource is included in the Oxford operating segment.
On December 5, 2013, we acquired CyberCoders, Inc. (“CyberCoders”), a privately-owned provider of permanent placement services headquartered in Irvine, California. CyberCoders is included in the Oxford operating segment.
On May 15, 2012, we acquired Apex Systems, LLC (“Apex Systems”), a privately-owned provider of IT staffing and services headquartered in Richmond, Virginia. Apex Systems is included in the Apex operating segment.

Divestitures in the past six years include the sale of Vista Staffing Solutions, Inc. and subsidiaries, which comprised our Physician segment, on February 1, 2015, inclusive of Whitaker Medical, LLC which we had acquired on December 2, 2013, and the sale of our Nurse Travel and Allied Healthcare divisions in 2013. In this 2017 10-K, these businesses are presented as discontinued operations in our consolidated statements of operations and comprehensive income for all periods presented.

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 2017 10-K. We conduct approximately 95 percent of our business in the United States.

Our principal office is located at 26745 Malibu Hills Road, Calabasas, California 91301, and our telephone number is (818) 878-7900. We have approximately 156 branch offices within the United States and in six foreign countries, as of December 31, 2017.
 
Industry and Market Dynamics

On Assignment’s professional staffing and services capabilities deliver IT, digital, creative, healthcare technology, engineering and life sciences talent to our clients through our contingent labor and light deliverables-based professional services models with a combined addressable end market of $150 billion ($50 billion in professional staffing and $100 billion in IT services).

The Staffing Industry Analysts (“SIA”) September 2017 Industry Forecast report estimates the U.S. temporary staffing market will grow its revenues three percent a year in 2017 and 2018 to $140.7 billion and $145.1 billion, respectively. The largest industry segment, temporary staffing, is forecast to grow its revenues at an annual rate of three percent in 2018 to $125.6 billion, up from $122.1 billion in 2017. Within the temporary staffing segment, professional staffing is expected to grow its revenues five percent in 2018 to $74.5 billion, up from $71.3 billion in 2017. The temporary staffing industry is historically cyclical and typically has a strong correlation to employment and gross domestic product (“GDP”) growth. Permanent placement services revenues are forecast to grow five percent in 2018 to $19.5 billion, up from $18.6 billion in 2017.

On Assignment operates in the most attractive subsectors of the professional staffing market - IT, digital, creative, engineering and life sciences. SIA projects 2018 professional staffing revenue growth of four percent for IT, seven percent for digital and creative, three percent for engineering/design and four percent for clinical/scientific.

Adjacent to professional staffing is the large and growing IT services market. On Assignment serves this market by leveraging its expertise in contingent labor with a light deliverables-based professional services model whereby we perform certain project oversight functions. Through independent research, we estimate the size of this IT services market to be $100 billion based on the skill sets we provide.

We believe the rate of adoption of our contingent labor and light deliverables-based professional services models will continue to expand, driven by a number of factors including constant technology change and specialization, increase in adoption and use of mobile applications and smartphones, increasing cybersecurity threats, increasing compliance requirements and immigration/H-1B visa reform. We anticipate our clients will increase their use of contract labor to meet the need for increases in their workforce. By using contract labor, these clients will benefit from cost structure advantages, improved flexibility to address fluctuating demand in business, access to greater expertise and protection from the misclassification of contract employees hired as independent contractors.

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When clients use independent contractors, they face the potential risk of worker misclassification and the resulting liability of federal and state taxes, wage and hour, immigration, diversity, employee rights and other laws and regulations. By working with a reputable staffing firm like On Assignment, clients can ensure compliance with federal and state employment laws and avoid employee misclassification and the related lawsuits and financial penalties.

Clients

We serve our clients by effectively understanding their professional staffing and IT services needs and providing them qualified professionals with the unique combination of skills, experience and expertise to meet those needs. We believe effective engagements of contract IT, engineering, digital, creative and scientific 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 professional’s qualifications. During the year ended December 31, 2017, we provided contract professionals to approximately 14,500 clients. In 2017, no single client represented more than seven percent of our revenues.

Our clients set rigorous requirements for the talent they are seeking and we use our extensive databases and deep relationships with our contract professionals to quickly identify and pre-screen candidates whose qualifications meet those requirements. We are responsible for recruiting, verifying credentials upon request, hiring, administering pay and benefits, compliance and training as applicable. Clients select the candidate and control and direct the work of contract professionals and approve hours worked. Once on their assignment, contract professionals are generally our employees, although clients provide on-the-job supervision of these professionals.

Candidates

We recruit candidates with backgrounds in IT, engineering, digital, creative and life sciences who seek contract work or permanent placement opportunities.

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 their primary residence. For our contract 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/or hours worked, our contract employees are offered access to medical and other voluntary benefit programs (e.g., dental, vision, disability) and the right to participate in our 401(k) Retirement Savings Plan. Each contract professional’s employment relationship with us is terminable at will.

Professionals looking for a permanent placement may apply directly for open positions within a company or partner with a staffing agency to ensure they receive the best opportunities available in their industry. Candidates may work with one or more staffing companies during this process and often develop long-term relationships with their recruiter for future career advancement. Once placed in a permanent position, the professional is paid and receives benefits directly through the employer.

Strategy

On Assignment’s strategy is to identify, enter and be a dominant player in the most attractive subsectors of the professional staffing and IT services market through organic and acquisitive growth. We have set a revenue goal of $3.0 billion by 2018 while maintaining attractive gross and earnings before interest, taxes, depreciation and amortization (“EBITDA”) margins and earnings per share (“EPS”) growth. To achieve these goals we will continue to specialize in the large and growing technology, engineering, digital, creative and life sciences subsectors of the professional staffing market, reinforce our position as a dominant competitor in each, advance our pursuit of the IT services market with our light deliverables-based professional services model, invest primarily in domestic markets, and pursue further disciplined acquisitions.

Our strategic innovation efforts and technology investments focus on putting the best productivity tools in the hands of our account executives and recruiters which makes it easy for clients and consultants to work with us. We continually respond to emerging trends in digitization and candidate sourcing by using technology to better position our businesses and improve how we serve clients and consultants.

We consolidate our corporate support services (finance, accounting, human resources, legal, marketing and IT) in centralized locations where we can most effectively and efficiently perform these functions, allowing us to leverage our fixed costs and generate higher incremental earnings as our revenues grow. In addition, we invest in leasehold improvements as we expand, relocate and rationalize our branch facilities to increase the productivity of our staffing consultants. In 2017, we continued to focus on increasing market share in each of our businesses, expanded our service offerings and controlled our operating costs.

Competition

We compete with other large publicly-held and privately-owned professional staffing and IT services companies on a local, regional, national and international basis. Each of our businesses has unique competitors, and further details are provided within the Operating Segments section below.

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The principal competitive factors in attracting qualified candidates for temporary employment or permanent placements are contract rates, salaries and benefits; availability and variety of opportunities; quality, duration and location of assignments; and responsiveness to requests for placement. Many people seeking temporary employment or permanent placements through us are also pursuing employment through other means, including other staffing agencies. Therefore, the speed at which we assign prospective professionals and the availability of attractive and appropriate assignments are important factors in our ability to fill open positions. In addition to having high quality candidates to assign in a timely manner, the principal competitive factors in obtaining and retaining clients in the staffing industry are properly assessing the clients’ specific job and project requirements, the appropriateness of the professional assigned to the client, the price of services and monitoring our clients’ satisfaction. Although we believe we compete favorably with respect to these factors, we expect competition to continue to increase.

Trademarks

On Assignment and its subsidiaries maintain registered trademarks and service marks in the United States, as well as abroad, including but not limited to Canada and the European Union. Our registered marks in the United States include the following: On Assignment®, Apex Systems®, Apex Life Sciences®, Creative Circle®, CyberCoders®, Cyrus®, Lab Support®, Oxford Global Resources®, Oxford & Associates®, Oxford International®, Oxford Healthcare IT®, The Right Talent. Right Now.®, In Demand Talent For Today’s On Demand World®, Because People Are The Future Of Technology®, Staffing In Step With The Future®, and Talent For The Digital World®. Marks registered in the European Union include LabResource™, Valesta™, and Lab Support logo™. We believe these marks carry significant value, differentiate our brands in the marketplace, and are important to our business. In addition, we maintain other intangible property rights.

Operating Segments

On Assignment provides services through two operating segments, the Apex Segment and the Oxford Segment, with each addressing different sectors of the professional staffing and IT services market with distinct go-to-market strategies attuned to those sectors. Businesses in the Apex Segment predominately serve markets with a large and local talent pool, and provide a full range of skills through a network of local offices where clients most value quality of talent relationship, speed, reliability and price. Businesses in the Oxford Segment predominately serve markets with higher-end, specialized skills through a combination of national recruiting centers and local offices where clients most value the unique skill of the candidate and speed of response.

Apex Segment

The Apex Segment provides a broad spectrum of technical, digital, creative and scientific professionals for contract, contract-to-hire and permanent placement positions to Fortune 1000 and mid-market clients across the United States and Canada. The businesses in this segment include Apex Systems, Apex Life Sciences and Creative Circle. Apex Segment revenues for 2017 were $2.0 billion and represented 77.6 percent of our total revenues.

Apex Systems

Apex Systems provides IT staffing and services for clients across the United States and Canada. The sales and recruiting teams focus on 15 primary skill disciplines that cover the entire IT project life-cycle, including IT infrastructure, application development, project management and healthcare IT. These contract professionals encompass a wide variety of backgrounds and levels of experience within IT. The consulting services group provides light deliverables-based professional services to help clients drive better business performance. These service offerings include managed processes, such as support service centers and managed projects, such as software development. Clients primarily include organizations in the following industries: technology, financial services, healthcare, business services, telecommunications, government services and consumer/industrials. Assignments for Apex Systems typically vary from four months to a year.

Corporate support services for Apex Systems and Apex Life Sciences are based in Richmond, Virginia and there are 82 branch offices across the United States and one branch in Canada that support our sales, recruiting and field activities. Competitors include TEKsystems® (Allegis Group, Inc. (“Allegis”)), Randstad Technologies (Randstad Holding NV (“Randstad”)), Insight Global, LLC, Experis™ (ManpowerGroup Inc.) and Kforce, Inc.

Apex Life Sciences

Apex Life Sciences provides scientific, engineering and clinical research staffing and services for clients across the United States and Canada. Stratacuity was acquired in August 2017 and is included in Apex Life Sciences. The sales and recruiting teams match life sciences professionals for temporary and permanent assignments with clients in biotechnology, pharmaceutical, food and beverage, personal care, chemical, medical device, automotive, municipal, education, environmental and clinical research industries. Primary client contacts include 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. Life sciences 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 professionals. Their experience ranges from technicians with entry-level science, engineering, or clinical research backgrounds and experience to individuals with bachelors, masters and/or doctorate degrees and considerable experience. Assignments for Apex Life Sciences typically vary from one to six months. Main competitors include ManpowerGroup Inc., Kelly Services, Inc., Adecco Group AG (“Adecco”), Yoh Services LLC and Allegis.

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Creative Circle

Creative Circle provides creative, marketing, advertising and digital talent to a wide range of companies in North America. Consumers’ rapidly growing demand for real-time information and services requires an increase in both creative and technical professionals to support these digital platforms. To help our clients effectively respond to this demand, Creative Circle offers talent across the spectrum of traditional advertising and digital marketing skill sets. Creative Circle's professionals include account planners and strategists, information architects, content strategists, copywriters, interactive art directors, UX and UI specialists, designers and front-end developers. Creative Circle’s clients include advertising agencies and company marketing departments in retail, entertainment, technology, food and beverage, education and other industries. Assignments for Creative Circle typically vary from one to seven weeks. Creative Circle’s corporate support activities are based in Los Angeles, California and their field activities are located in 29 branch offices across the United States and one branch in Canada. Main competitors include Aquent LLC, 24 Seven LLC and The Creative Group (Robert Half International Inc. (“Robert Half”)).

Oxford Segment

The Oxford Segment provides specialized staffing and permanent placement services in select skill and geographic markets. The businesses in this segment include Oxford Global Resources, LLC (“Oxford”), CyberCoders and Life Sciences Europe. Segment revenues for 2017 were $588.8 million and represented 22.4 percent of our total revenues.
 
Oxford Global Resources

Oxford specializes in recruiting and delivering experienced IT, engineering and regulatory and compliance consultants to clients for temporary assignments and project engagements. These consultants typically have a great deal of knowledge and experience in specialized technical fields which make them uniquely qualified to fill a given assignment or project. Demand for Oxford's services is driven by a shortage of experienced consultants with specialized technical skills that organizations need quickly but cannot find on their own. Additionally, the push for adoption of health information technology, compliance with FDA regulations and increasing digitization of business processes is accelerating the demand for services. Services are provided to clients in a wide range of industries 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 small and mid-sized companies, such as a medical device manufacturer who needs a specialized hardware engineer. Assignments for Oxford typically vary from two months to a year.

Oxford's sales and recruiting activities are delivered through eight recruiting centers across the United States and two in Europe, along with 17 local offices serving major metropolitan markets in the United States. Corporate support activities for Oxford are based in Beverly, Massachusetts, Calabasas, California and Cork, Ireland. Oxford’s competition varies across their service lines, and includes local, regional and national specialty staffing companies as well as small boutique and large international IT and engineering consulting firms. Oxford’s competitors include Accenture PLC, Cap Gemini S.A., Robert Half Technology (Robert Half), Validant (Kinsale Holdings, Inc.), Nordic Consulting Partners, Inc. and K2 Partnering Solutions, Inc.

CyberCoders

CyberCoders specializes in recruiting professionals for permanent placements in technology, engineering, sales, executive, financial, accounting, scientific, legal and operations positions. CyberCoders’ proprietary software and unique matching algorithm combine to deliver an impressive turnaround time for employers and help candidates find jobs that truly fit their background and career goals. CyberCoders is based in Irvine, California, with corporate support activities in Beverly, Massachusetts and their field activities operated from four hub locations across the United States. Other companies that have large permanent placement divisions include Robert Half, Management Recruiters International, Inc., Allegis, Randstad and Adecco.

Life Sciences Europe

Life Sciences Europe includes the brands Lab Support, LabResource and Valesta, which provide locally-based contract and permanent life science professionals to clients with research and development projects in the biotechnology, pharmaceutical, food and beverage, personal care, chemical, medical device, automotive, municipal, education and environmental industries. Assignments for Life Sciences Europe typically vary from five to 18 months, although they can be longer. Life Sciences Europe sales and recruiting services are delivered from six local branch offices in the Netherlands, Belgium and Spain and the corporate services are based in Cork, Ireland. Competitors include Hays Life Sciences (Korn/Ferry International), Randstad Life Sciences (Randstad) and Science Recruitment Group Ltd.

Employees

At December 31, 2017, we employed approximately 3,800 internal employees, including staffing consultants, regional sales directors, account managers, recruiters and corporate office employees. Throughout 2017, we placed approximately 55,400 contract professionals who are our employees on assignments with clients. Those assignments varied in length as described in the Operating Segments discussion above.


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Government Regulation
 
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 internal employees and our contract professionals who are our employees. These expenses have a direct effect on our costs 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 2017 10-K.
 
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, Proxy Statements and all amendments to those reports and statements 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, Corporate Governance Guidelines 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 promptly after the amendment or waiver has been granted.


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Item 1A. Risk Factors

Our business is subject to a number of risks including, but not limited to, the following:

U.S. and 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 affected by global market and economic conditions. As economic activity slows, 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.

If we are not able to remain competitive in obtaining and retaining temporary staffing clients, our future growth will suffer. 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.

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. 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 with clients do not provide for exclusive use of our services and in some instances we provide services without entering into contracts. As such, clients are free to place orders with our competitors. Each contract professional’s employment with us is terminable at will. 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, the growth of our business could be adversely affected and our revenues and results of operations could be harmed. As a result, it is imperative to our business that we maintain positive relationships with our clients and contract professionals. We are expanding our light deliverables-based professional services model whereby we perform certain project oversight functions. If we are not able to comply with these performance requirements our revenues and our relationships with our clients might be adversely affected.

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 harm our operating results and cause the trading price of our stock to decline. 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. In addition, we participate in a 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 we are unable to meet our expectations for growth, our forecasted results and stock price are likely to be adversely affected.

Over the past several years, we have experienced revenue and earnings growth. There is no assurance that we will be able to continue this pace of growth in the future or meet our strategic objectives for growth. Our growth could be negatively affected by many factors, including future technology industry conditions, macroeconomic events, competition and labor market trends or regulations. If our growth rate slows, or if it fails to grow at the pace anticipated and we are unable to be successful in our growth initiatives and strategies, our financial results could be less than our expectations or those of investors or analysts and our stock price could be adversely affected.

Our business strategy also includes continuing efforts to integrate and optimize our organization, programs, technology and delivery of services to make us a more agile and effective competitor, to reduce the cost of operating our business and to increase our operating profit and operating profit margin. We may not be successful in our continuing integration and optimization efforts and they may fail to achieve the cost savings we anticipate or limit our ability to scale growth. Further, we may fail to prevent the return of costs eliminated in these efforts. If we are not successful in implementing our integration and optimization efforts, our business, financial condition and results of operations could be materially adversely affected.

If we are unable to attract and retain qualified contract professionals, our business could be negatively affected.

Our business is substantially dependent upon our ability to attract and retain contract professionals who possess the skills, experience and licenses which may be 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 professionals will be available to us in adequate numbers to staff our temporary assignments. 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 wages and benefits. The cost of attracting and retaining contract professionals in the future may be higher than we anticipate if there is an increase in competitive wages and benefits 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. In periods of low unemployment, there may be a shortage of, and significant competition for, the skilled contract professionals sought by our clients. 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.

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Although we directly employ a de minimis number of H-1B contract professionals, we utilize subcontractor firms who employ individuals with this visa classification. The H-1B visa classification is subject to legislative and administrative changes, as well as changes in the application of standards and enforcement. Immigration laws and regulations can be significantly affected by political developments and levels of economic activity. Current and future restrictions on the availability of such visas could limit our subcontractors’ ability to employ and/or retain the skilled professionals we need to meet our clients’ needs, which could have a material adverse impact on our business.

Our results of operations could be negatively affected if we cannot successfully keep pace with technological changes in the development and implementation of our services.

Our success depends on our ability to keep pace with rapid technological changes in the development and implementation of our services. We rely on a variety of technologies to support important functions in our business, including the recruitment, placement and monitoring of our contract professionals; billing; and candidate and client data analytics. If we do not sufficiently invest in new technology and industry developments, such as emerging job and resume posting services, appropriately implement new technologies, or evolve our business at sufficient speed and scale in response to such developments, or if we do not make the right strategic investments to respond to these developments, our services, results of operations and ability to develop and maintain our business could be negatively affected.

Reclassification of our subcontractors by tax or regulatory authorities could materially and adversely affect our business model and could require us to pay significant retroactive wages, taxes and penalties.

We may place individuals who work for their own corporations to provide services in connection with our business as subcontractors rather than employees. As such, we do not withhold or pay income or other employment related taxes, or provide workers’ compensation insurance for them. We believe that our classification of those individuals or their corporations as independent contractors is consistent with applicable guidelines from the U.S. Department of Labor and the Internal Revenue Service, but can nonetheless be challenged by the contractors themselves or by relevant taxing authorities. If federal or state taxing authorities determine that individuals employed by their own corporations engaged as independent contractors are employees, our business model could be adversely affected.

Our business is subject to government regulation, which in the future could restrict the types of employment services we are permitted to offer or result in additional or increased costs that reduce our revenues and earnings.

The temporary staffing services industry is regulated in the United States and other countries in which we operate. We are subject to federal, state and local laws and regulations governing the employer/employee relationship, such as those related to payment of federal, state and local payroll and unemployment taxes for our corporate employees and contractor professional employees, tax withholding, social security or retirement benefits, licensing, wage and hour requirements, paid sick leave, paid family leave and other leaves, employee benefits, pay equity, non-discrimination, sexual harassment, workers’ compensation, and we must further comply with immigration laws and a wide variety of notice and administrative requirements, such as record keeping, written contracts and reporting. We are also subject to U.S. laws and regulations relating to government contracts with federal agencies, as well as the requirements of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the “ACA”). In other countries, while we may not be considered the legal employers of our temporary personnel, we are still responsible for collecting taxes and social security deductions and transmitting these amounts to the taxing authorities.

In addition, we are subject to data privacy, protection and security laws and regulations, the most significant of which is the European General Data Protection Act (“GDPR”) that governs the personal information of European persons which we may collect, use and retain in the ordinary course of our business. This law will be effective on May 25, 2018, and will impact our U.S. operations as well as our European operations as it applies not only to third-party transactions, but also to transfers of information among the Company and its subsidiaries. The GDPR will impose more stringent operational requirements for entities processing personal information that is potentially confidential and/or personally identifiable and sensitive, such as stronger safeguards for data transfers to countries outside the European Union and stronger enforcement authorities and mechanisms. Complying with the enhanced obligations imposed by the GDPR and other current and future laws and regulations relating to data transfer, residency, privacy and protection may increase the Company’s operating costs and require significant management time and attention, while any failure by us to comply with applicable laws could result in governmental enforcement actions, fines, and other penalties that could potentially have an adverse effect on the Company’s operations and reputation.

Future changes in the laws or governmental regulations affecting our business may result in the prohibition or restriction of certain types of employment services that we are permitted to offer or the imposition of new or additional legal requirements that could increase our costs and reduce our revenues and earnings. Due to the substantial number of state and local jurisdictions in which we operate, there also is a risk that we may be unaware of, or unable to adequately monitor, actual or proposed changes in, or the interpretation of, the laws or governmental regulations of such states and localities. Any delay in our compliance with changes in such laws or governmental regulations could result in potential fines, penalties, or other sanctions for non-compliance. In addition, although we may elect to bill some or all of any additional costs to our customers, there can be no assurances that we will be able to increase the fees charged to our customers in a timely manner and in a sufficient amount to fully cover any increased costs as a result of future changes in laws or government regulations.

8




Significant legal actions and claims could subject us to substantial uninsured liabilities, result in damage to our business reputation, result in the discontinuation of our client relationships and adversely affect our recruitment and retention efforts.

We employ people internally and in the workplaces of other businesses. Our ability to control the workplace environment of our clients is limited. Further, many of the individuals that we place with our clients have access to client information systems and confidential information. As the employer of record of our contract professionals, we incur a risk of liability to our contract professionals for various workplace events, including claims of physical injury, discrimination, harassment or failure to protect confidential personal information. Other inherent risks include possible claims of errors and omissions; intentional misconduct; release, misuse or misappropriation of client intellectual property; employment of illegal aliens; criminal activity; torts; or other claims. We also have been subject to legal actions alleging vicarious liability, intentional torts, negligent hiring, discrimination, sexual harassment, retroactive entitlement to employee benefits, violation of wage and hour requirements and related legal theories. These types of actions could involve large claims and significant defense costs. We may be subject to liability in such cases even if the contribution to the alleged injury was minimal. Moreover, in most instances, we are required to indemnify clients against some or all of these risks and we could be required to pay substantial sums to fulfill our indemnification obligations. In addition, certain of our clients currently require, and other clients in the future may require, that we indemnify them against losses in the event that the client is determined to be non-compliant with the ACA.

A failure of any of our employees internally or contract professionals in client's workplaces to observe our policies and guidelines intended to reduce these risks could result in negative publicity, injunctive relief, criminal investigations and/or charges, payment of monetary damages or fines, or other material adverse impacts on our business. 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. Any associated negative publicity could adversely affect our ability to attract and retain qualified contract professionals in the future.

To protect ourselves from the costs and damages of significant legal actions and claims, we maintain workers’ compensation, 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 includes a retention amount and our insurance coverage may not cover all claims against us or continue to be available to us at a reasonable cost. In addition, we face various employment-related risks not covered by insurance, such as wage and hour laws and employment tax responsibility. If we do not maintain adequate insurance coverage or are made party to significant uninsured claims, we may be exposed to substantial liabilities that could have a material adverse impact on our results of operations and financial condition.

A loss or reduction in revenues from one or more large client accounts could have a material adverse impact on our business.

Our clients range in size from large national or multinational companies to small and mid-market businesses. Our ten largest clients represented approximately 21 percent of our revenues and no single client accounted for more than seven percent of our total revenues in 2017. Our large clients may enter into non-exclusive arrangements with several staffing firms and the client is generally able to terminate our contracts on short notice without penalty. The deterioration of the financial condition or business prospects of these large clients, or a change in their strategy around the use of our services, could reduce their need for our services and result in a significant decrease in the revenues and earnings we derive from them. The loss of one or more of our large national or multinational clients or a significant decrease in their demand for our services could have a material adverse impact on our results of operations.

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 and we have entered into a purchase agreement with the owners of ECS Federal, LLC ("ECS"), which is expected to close at the beginning of April 2018. We compete with other companies in the professional staffing and consulting industries for acquisition opportunities and there can be no assurance that we will be able to successfully identify suitable acquisition candidates or be able to complete future acquisitions on favorable terms, if at all. There also can be no assurance that we will realize the benefits expected from any transaction or receive a favorable return on investment from our acquisitions.

We may pay substantial amounts of cash or incur debt to finance our acquisitions, which could adversely affect our liquidity and capital resources. Specifically, we have announced our intention to amend our existing credit facility to provide for $1.6 billion in financing in conjunction with the acquisition of ECS. The incurrence of indebtedness would also result in increased interest expense and could also include covenants or other restrictions that would impede our ability to manage our operations. We may also issue equity securities to pay for acquisitions, which could result in dilution to our stockholders. In addition, any acquisitions we announce could be viewed negatively by investors, which may adversely affect the price of our common stock.

The integration of an acquisition involves a number of factors that may affect our operations. These factors include diversion of management’s attention from other business concerns, difficulties or delay in the integration of acquired operations, retention of key personnel, entry into unfamiliar markets, significant unanticipated costs or legal liabilities and tax and accounting issues. If we fail to accurately forecast the financial impact of an acquisition transaction, we may incur tax and accounting changes. Furthermore, once we have integrated an acquired business, the business may not achieve anticipated levels of revenue, profitability or productivity, or otherwise perform as expected. Any of these factors may have a material adverse effect on our results of operations and financial condition.

9




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 our business and acquisitions of new businesses depends on the continued employment of key members of our senior management team. We have provided short-term and long-term incentive compensation to our key management in an effort to retain them. However, if members of our senior management team become unable or unwilling to continue in their present positions, we could incur significant costs and experience business disruption related to time spent on efforts to replace them and our financial results and our business could be materially adversely affected.

Impairment of goodwill or identifiable intangible assets could materially affect future results of operations.

We review goodwill and indefinite-lived identifiable intangible assets (consisting entirely of trademarks) for impairment at least annually and when events or changes in circumstances indicate that the carrying value may not be recoverable. Intangible assets having finite lives are amortized over their useful lives and are tested for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Events and changes in circumstances indicating that the carrying value of goodwill and identifiable intangible assets may not be recoverable may include: (i) macroeconomic conditions, such as deterioration in general economic conditions, (ii) industry and market considerations, such as deterioration in the environment in which we operate, (iii) cost factors, such as increases in labor or other costs that have a negative effect on earnings and cash flows, (iv) our financial performance, such as negative or declining cash flows or a decline in actual or projected earnings, (v) sustained decreases in our market capitalization and (vi) other relevant entity-specific events, such as changes in management, key personnel, strategy or customers. We may be required to record a charge in our financial statements during the period in which we determine an impairment has occurred. Although an impairment charge 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.

Although we have limited experience in marketing, selling and supporting our services outside of the United States, we had international sales in Canada and Europe in 2017, and we are considering expanding our operations into additional foreign countries in 2018. Our international operations comprised approximately five percent of total sales in 2017. We also have offices and employees outside the United States. Our sales and operations outside the United States expose us to currency, operational, regulatory and political risks in the countries in which we operate. For example, our exposure to currency risks results in fluctuations in our results of operations. Our management of international operations also results in increased costs. If we are not able to manage these risks, our business and results of operations would be adversely affected.

An information technology system failure or security breach could materially and adversely affect our business.

Our information technology systems are used in daily business operations to, among other things, identify staffing resources, match personnel with client assignments and manage our accounting and financial reporting functions. In conducting our business, we routinely collect and retain personal information on our employees and contract professionals and their dependents including, without limitation, full names, social security numbers, addresses, birth dates and payroll-related information. Our information systems are vulnerable to fire, storm, flood, power loss, telecommunications failures, terrorist attacks and similar events. Although we use commercially available information security technologies and have implemented security controls to help protect the security and privacy of our business information, our information technology systems are subject to potential security breaches through employee negligence, fraud or misappropriation, and cybersecurity threats, including denial of service attacks, viruses or other malicious software programs and third parties gaining unauthorized access to our information technology systems for purposes of misappropriating assets or confidential information, corrupting data or causing operational disruption.

If our information technology systems and security controls do not provide sufficient protection from these threats, we could experience the loss or unauthorized disclosure of confidential data about us or our employees, contract professionals or customers, business interruptions or delays and increased costs that could materially and adversely affect our business and financial results. We may also be subject to liability and claims for monetary damages for any unauthorized disclosure of confidential information about our employees, contract professionals or customers, which could result in adverse publicity, reputational damage and a reduced demand for our services by clients and/or consultants. In addition, privacy breaches may require notification and other remedies, which can be costly, and which may have other serious adverse consequences for our business, including regulatory enforcement actions resulting in fines and penalties under laws that protect personal data and confidential information.

Failure of internal controls may leave us susceptible to errors and fraud.

Our management, including our Chief Executive Officer and Chief Financial Officer, 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, particularly in our acquired companies and international operations. If our internal controls are unsuccessful, our business and results of operations could be adversely affected.

10




As of December 31, 2017, we had $588.0 million of total debt, and upon closing the acquisition of ECS we expect to have approximately $1.4 billion in total debt, which could adversely affect our operating flexibility, and the restrictive covenants under our debt instruments could trigger prepayment obligations or additional costs.

Our level of debt and the limitations imposed on us by our credit agreements could have important consequences for investors, including the following:
we have to use a portion of our cash flow from operations for debt service rather than for our operations;
we may not be able to obtain additional debt financing for future working capital, capital expenditures or other corporate purposes or may have to pay more for such financing;
some or all of the debt under our current or future credit facilities may be at a variable interest rate, making us more vulnerable to increases in interest rates;
we could be less able to take advantage of significant business opportunities, such as acquisition opportunities and to react to changes in market or industry conditions; and
we may be disadvantaged compared to competitors with less leverage.

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. Further, the terms of our credit facility permit additional borrowings, subject to certain conditions. If new debt is added to our current debt levels, the related risks we now face could intensify.

We expect to obtain the money to pay our expenses and to repay borrowings under our credit facility primarily from our operations. Our ability to pay our expenses thus depends on our future performance, which will be affected by financial, business, economic and other factors. If we do not have enough money, we may be required to refinance all or part of our existing debt, sell assets or borrow additional funds. We may not be able to take such actions on terms that are favorable to us, if at all. 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 2017, the trading price of our common stock experienced significant fluctuations, ranging from a high of $65.73 to a low of $42.95. The closing price of our common stock on the NYSE was $78.79 on February 23, 2018. 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;
recommendations by securities analysts or changes in earnings estimates;
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 stockholders;
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.

Our results of operations may vary from quarter to quarter as a result of a number of factors, including, among other things, the level of demand for our temporary staffing services, changes in our pricing policies or those of our competitors, our ability to control costs and our ability to manage our accounts receivable balances, which may make it difficult to evaluate our business and could cause instability in the trading price of our common stock. In addition, 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 desire to access the public markets for financing or use our common stock as consideration in a strategic transaction.

A significant loss or suspension of our business with the federal government or government contractors could lead to a reduction in our revenues, cash flows and operating results.

We act as subcontractor to the U.S. federal government and its agencies. In these capacities, we must comply with complex laws and regulations relating to the formation, administration and performance of federal government contracts. These laws and regulations create compliance risk and may impose added costs on our business. If a government review, investigation or audit uncovers improper or illegal activities, we may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, harm to our reputation,

11



suspension of payments, fines and suspension or debarment from doing business with federal government agencies. Revenues from federal government agencies and government contractors were less than six percent of our total revenues in 2017. If we acquire ECS, our government business will increase, as substantially all of their revenues are derived from contracts with the U.S. government.

Changes in federal government fiscal or spending policies could materially adversely affect our government business; in particular, our business could be materially adversely affected by decreases in federal spending, including delays in the funding and timing of projects.

Some government contracts require us to maintain facility security clearances and require some of our employees to maintain individual security clearances. If our employees lose or are unable to timely obtain security clearances, or we lose a facility clearance, a government agency client may terminate the contract or decide not to renew it upon its expiration. In addition, a security breach by us could cause serious harm to our business, damage our reputation and prevent us from being eligible for further work on sensitive or classified systems for federal government clients.

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 impact 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 in the Board of Directors upon the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our Board of Directors until the next applicable annual meeting of stockholders.
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. Further, our Board of Directors is divided into three classes, and only one class is up for election each year. 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 us.
Our Board of Directors may issue, without stockholder approval, up to one 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 by, 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 three 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 impact 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.

Item 1B. Unresolved Staff Comments

Not applicable.
 
Item 2. Properties
 
As of December 31, 2017, we leased approximately 37,200 square feet of office space through November 2021 for our corporate headquarters in Calabasas, California. Additionally, we leased approximately 48,600 square feet of office space through December 2025 at our Oxford headquarters in Beverly, Massachusetts; and 55,900 square feet of office space through October 2024 at our Apex headquarters in Richmond, Virginia.
 
In addition, as of December 31, 2017, we leased approximately 831,000 square feet of total office space in approximately 156 branch office locations in the United States, Canada, the Netherlands, Belgium, Ireland, Switzerland and Spain. A branch office typically occupies space ranging from approximately 1,000 to 32,000 square feet with lease terms that range from six months to 11 years. We believe that our facilities are suitable and adequate for our current operations.

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.

12




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 is listed on the New York Stock Exchange, or NYSE, under the symbol ASGN. The following table sets forth the range of high and low sales prices as reported on the NYSE for each quarterly period within the two most recent years. At February 23, 2018 we had approximately 28 holders of record, approximately 23,500 beneficial owners of our common stock and 52,175,939 shares outstanding.
 
 
 
Price Range of
Common Stock
 
 
High
 
Low
Year Ended December 31, 2017
 
 
 
 
First Quarter 
 
$
49.12

 
$
42.95

Second Quarter                                   
 
$
55.15

 
$
45.69

Third Quarter                              
 
$
55.53

 
$
44.66

Fourth Quarter                                  
 
$
65.73

 
$
53.56

Year Ended December 31, 2016
 
 

 
 

First Quarter
 
$
43.98

 
$
29.34

Second Quarter                                   
 
$
39.24

 
$
33.73

Third Quarter                                
 
$
40.75

 
$
34.70

Fourth Quarter                                  
 
$
45.83

 
$
32.05


Dividend Information

Since inception, we have not declared or paid any cash dividends on our common stock and we have no present intention of paying any dividends on our common stock in the foreseeable future. We have implemented stock repurchase programs in the past and our Board of Directors authorized a $150.0 million share repurchase program in June 2016. Our Board of Directors periodically reviews our dividend policy to determine whether the declaration of dividends is appropriate. Terms of our credit facility restrict our ability to pay dividends. The restriction is variable based upon our leverage ratio and certain other circumstances, as outlined in the agreement.

 Common Stock Repurchases

On June 10, 2016, the Board of Directors approved a stock repurchase program, whereby we may repurchase up to $150.0 million of our common stock through June 2018. Purchases of our securities during the quarter ended December 31, 2017 are shown in the table below.

Period
Total Number of Shares Purchased
Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Maximum Number (or Approximate Dollar Value) of Shares That May Yet be Purchased Under the Plans or Programs
October
800

$
53.74

800

$
48,839,000

November

$


$

December

$


$

Total
800

$
53.74

800

$
48,839,000




13



Item 6. Selected Financial Data
 
The following table presents selected financial data that 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.
 
 
Year Ended December 31,
 
 
2017
 
2016
 
2015(1)
 
2014
 
2013
 
 
 
(in thousands, except per share data)
 
Summary Results of Operations:
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
$
2,625,924

 
$
2,440,413

 
$
2,065,008

 
$
1,724,741

 
$
1,523,101

 
Costs of services
 
1,775,851

 
1,645,230

 
1,386,263

 
1,167,306

 
1,068,226

 
Gross profit
 
850,073

 
795,183

 
678,745

 
557,435

 
454,875

 
Selling, general and administrative expenses
 
591,893

 
565,829

 
492,170

 
397,523

 
317,345

 
Amortization of intangible assets
 
33,444

 
39,628

 
34,467

 
22,130

 
20,943

 
Operating income
 
224,736

 
189,726

 
152,108

 
137,782

 
116,587

 
Interest expense
 
(27,643
)
 
(32,327
)
 
(26,444
)
 
(12,730
)
 
(13,931
)
 
Write-off of loan costs
 

 

 
(3,751
)
 

 
(14,958
)
 
Income before income taxes
 
197,093

 
157,399

 
121,913

 
125,052

 
87,698

 
Provision for income taxes
 
39,219

 
60,203

 
50,491

 
51,557

 
36,558

 
Income from continuing operations
 
157,874

 
97,196

 
71,422

 
73,495

 
51,140

 
Gain on sale of discontinued operations, net of income taxes(2)
 

 

 
25,703

 

 
30,840

 
Income (loss) from discontinued operations, net of income taxes
 
(199
)
 
5

 
525

 
3,689

 
2,532

 
Net income
 
$
157,675

 
$
97,201

 
$
97,650

 
$
77,184

 
$
84,512

 
 
 
 

 
 

 
 

 
 

 
 

 
Basic earnings per common share:
 
 
 
 
 
 
 
 
 
 
 
Continuing operations
 
$
3.01

 
$
1.83

 
$
1.37

 
$
1.38

 
$
0.96

 
Discontinued operations
 

 

 
0.50

 
0.06

 
0.62

 
Net income
 
$
3.01

 
$
1.83

 
$
1.87

 
$
1.44

 
$
1.58

 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted earnings per common share:
 
 
 
 
 
 
 
 
 
 
 
Continuing operations
 
$
2.97

 
$
1.81

 
$
1.35

 
$
1.35

 
$
0.94

 
Discontinued operations
 

 

 
0.49

 
0.07

 
0.61

 
Net income
 
$
2.97

 
$
1.81

 
$
1.84

 
$
1.42

 
$
1.55

 
Number of shares and share equivalents used to calculate earnings per share:
 
 

 
 

 
 

 
 

 
 

 
Basic
 
52,503

 
53,192

 
52,259

 
53,437

 
53,481

 
Diluted
 
53,205

 
53,747

 
53,005

 
54,294

 
54,555

 
 
 
 
 
 
 
 
 
 
 
 
 
Balance Sheet Data (at end of year):
 
 

 
 

 
 

 
 

 
 

 
Cash and cash equivalents
 
$
36,667

 
$
27,044

 
$
23,869

 
$
28,860

(3) 
$
35,024

(3) 
Working capital
 
332,806

 
275,025

 
253,858

 
201,271

 
167,768

 
Total assets
 
1,810,129

 
1,752,667

 
1,767,307

 
1,251,839

 
1,240,746

 
Long-term liabilities
 
652,021

 
721,229

 
822,163

 
452,676

 
433,040

 
Stockholders' equity
 
991,391

 
868,939

 
784,794

 
634,408

 
640,133

 
___________ 
(1)
Summary results of operations in 2015 included the results of Creative Circle from the date of its acquisition on June 5, 2015. Creative Circle contributed $167.2 million in revenues and $22.9 million in income before income taxes in 2015. Total assets at December 31, 2015 included $587.2 million from Creative Circle.

(2) Summary results of operations in 2015 included a gain of $25.7 million, net of tax, on the sale of our Physician Segment (see “Note 5. Discontinued Operations” in Item 8). Summary results of operations in 2013 included an after-tax gain of $16.4 million on the sale of our Allied Healthcare division and an after-tax gain of $14.4 million on the sale of our Nurse Travel division. The results of these businesses are included in discontinued operations for all periods presented.

(3)
Excludes cash and cash equivalents from the Physician Segment of $2.9 million and $2.3 million as of December 31, 2014 and 2013, respectively.

14



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 2017 10-K, including the Special Note on Forward-looking Statements and Part I, “Item 1A — Risk Factors.”

OVERVIEW
 
On Assignment provides services through two operating segments, the Apex Segment and the Oxford Segment, with each addressing different sectors of the professional staffing and IT services market with distinct go-to-market strategies attuned to those sectors. The Apex Segment provides a broad spectrum of technical, digital, creative and scientific professionals for contract, contract-to-hire and permanent placement positions to Fortune 1000 and mid-market clients across the United States and Canada. The businesses in this segment include Apex Systems, Apex Life Sciences and Creative Circle. The Oxford Segment provides specialized staffing and permanent placement services in select skill and geographic markets. The businesses in this segment include Oxford, CyberCoders and Life Sciences Europe.

Critical Accounting Policies
 
Our accounting policies are described in Note 1. Summary of Significant Accounting Policies, in Item 8 of this report. Our financial statements are prepared in conformity with accounting principles generally accepted in the United States (“GAAP”), 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.
 
Accounts Receivable Allowances. We estimate an allowance for (i) expected credit losses (the inability of customers to make required payments), (ii) assignment revenue billing adjustments (e.g., bill rate adjustments, time card adjustments, early pay discounts) and (iii) fallouts (permanent placement candidates that do not remain with the client through the contingency period, which is typically 90 days or less). Our estimates are based on a combination of past experience and current trends. In estimating the allowance for expected credit losses we consider the current aging of receivables and we perform a specific review for potential bad debts. The resulting bad debt expense is included in selling, general and administrative ("SG&A") expenses and assignment revenue billing adjustments and fallouts are reported as reductions to revenues in the consolidated statements of operations and comprehensive income. Receivables are written-off when deemed uncollectible. If we experience a significant change in collections, billing adjustment or fallout experience, our estimates of the recoverability of accounts receivable could change.

Business Combinations. Assets acquired and liabilities assumed are measured at their estimated fair values as of the acquisition date. The Company determines the estimated fair values after review and consideration of relevant information including discounted cash flows and estimates made by management. Accordingly, these can be affected by future performance and other factors, which may cause final amounts to differ materially from original estimates. The preliminary estimates of the fair value of assets acquired and liabilities assumed are subject to change during a one-year measurement period. Adjustments to these preliminary estimates that are identified during the one-year measurement period are recognized in the reporting period in which the adjustment amounts are determined.

The excess of consideration transferred over the fair value of the net identifiable tangible and intangible assets acquired and liabilities assumed is recognized as goodwill. Goodwill acquired in business combinations is assigned to the reporting units expected to benefit from the combination as of the acquisition date. Acquisition-related costs are expensed as incurred.

Goodwill and Identifiable Intangible Assets. Goodwill and indefinite-lived intangible assets (consisting entirely of trademarks) are evaluated for impairment at least on an annual basis as of October 31, our annual impairment review date. Interim testing of goodwill and indefinite-lived intangible assets for impairment is also required whenever an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit or asset below its carrying value.

Goodwill is tested at the reporting unit level which is generally an operating segment, or one level below the operating segment level, where a business operates and for which discrete financial information is available and reviewed by segment management. In analyzing the results of operations and business conditions of our reporting units (Step 0), it was determined that for two of the reporting units, a Step 1 impairment analysis was not necessary to determine if the reporting units' carrying values of equity exceeded their fair values as of October 31, 2017. We have several years of operating results experience for these reporting units and they had significant excess fair value over their carrying value of equity at the prior year impairment test date.

Our third reporting unit was recently acquired and as a result its fair value is closer to its carrying value of equity. For this reporting unit a Step 1 goodwill analysis was performed. The Step 1 analysis estimates and then compares the fair value of a reporting unit to the reporting unit's carrying value of equity. We determined the fair value of the reporting unit by weighting fair value estimates using three accepted valuation methodologies: (i) an income approach, specifically a discounted cash flow analysis, (ii) a market approach, specifically the guideline company method and (iii) another market approach, specifically the similar transactions method. Based on the result of the Step 1 goodwill impairment test there was excess fair value over the reporting unit's carrying value of equity as of October 31, 2017. Holding all other assumptions constant, an increase of 330 basis points, representing a 26 percent increase in the selected discount rate in the 2017 analysis, would not cause the fair value of the reporting unit to be below its carrying value of equity.


15



Based on the qualitative and quantitative analyses performed in 2017 there was excess fair value over the carrying value of equity at all of our reporting units and thus no impairment of goodwill. In 2016 and 2015 a Step 1 impairment test was completed for all of our reporting units and there was excess fair value over the carrying value of equity at all of our reporting units and thus no impairment of goodwill.

Step 2 of the goodwill impairment test was not necessary for any of the years 2017, 2016 and 2015 as all of the reporting unit fair values exceeded their respective carrying values of equity. When the fair value of any reporting unit does not exceed the carrying value of equity, a second step is performed to measure the amount of goodwill impairment by comparing the implied fair value of the respective reporting unit's goodwill after estimating the fair value of specifically identifiable intangible assets, with the carrying value of that goodwill. The implied fair value of goodwill is determined using the same approach utilized to estimate the amount of goodwill recognized in a business combination.

Due to the many variables inherent in the estimation of a reporting unit'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 or a decline of our stock price resulting in market capitalization significantly below book value could lead to an impairment of goodwill or trademarks in future periods.

A qualitative analysis was performed for trademarks to determine if there were any indicators that the carrying value might not be recovered. For five of our trademarks a further quantitative test was not necessary as the prior year's valuation demonstrated a significant excess fair value over carrying value and there were no indicators their fair value has decreased. For one of our most recently acquired trademarks we conducted an evaluation using an income approach, specifically a relief from royalty method. Principal factors used in the relief from royalty method that require judgment are projected net sales, discount rates, royalty rates and terminal growth assumptions. The estimated fair value of the trademark exceeded its carrying value. Holding all other assumptions constant, an increase of 280 basis points, representing a 22 percent increase in the selected discount rate in the 2017 analysis, would not cause the fair value of the trademark to be below its carrying value. There were no indications of impairment of our trademarks in 2017, 2016 and 2015.

Finite-lived intangible assets are amortized over their useful lives and are tested for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Customer relationships and favorable contracts are amortized based on the annual cash flows observed in the valuation of the asset which generally accelerates the amortization into the earlier years reflective of the economic life of the asset. Contractor relationships, non-compete agreements and in-use software are amortized using the straight-line method.


16



Results of Operations

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2017
COMPARED WITH THE YEAR ENDED DECEMBER 31, 2016
(Dollars in millions)

 
 
2017
 
2016
 
Year-Over-Year Growth Rates
 
 
 
 
 
 
 
 
 
Revenues by segment:
 
 
 
 
 
 
 
Apex:
 
 
 
 
 
 
 
Assignment
 
$
1,993.3

 
$
1,791.6

 
11.3
 %
 
Permanent placement
 
43.9

 
44.9

 
(2.3
)%
 
 
 
2,037.2

 
1,836.5

 
10.9
 %
 
Oxford:
 
 
 
 
 
 
 
Assignment
 
503.1

 
520.7

 
(3.4
)%
 
Permanent placement
 
85.7

 
83.2

 
3.0
 %
 
 
 
588.8

 
603.9

 
(2.5
)%
 
Consolidated:
 


 
 
 
 
 
Assignment
 
2,496.4

 
2,312.3

 
8.0
 %
 
Permanent placement
 
129.6

 
128.1

 
1.1
 %
 
 
 
$
2,626.0

 
$
2,440.4

 
7.6
 %
 
Percentage of total revenues:
 
 
 
 
 
 
 
Apex
 
77.6
%
 
75.3
%
 
 
 
Oxford
 
22.4
%
 
24.7
%
 

 
 
 
100.0
%
 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
Assignment
 
95.1
%
 
94.7
%
 

 
Permanent placement
 
4.9
%
 
5.3
%
 
 
 
 
 
100.0
%
 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
Domestic
 
95.0
%
 
95.3
%
 
 
 
Foreign
 
5.0
%
 
4.7
%
 
 
 
 
 
100.0
%
 
100.0
%
 

 
Revenues increased $185.6 million, or 7.6 percent year-over-year. Assignment revenues were $2.5 billion, up 8.0 percent year-over-year. Permanent placement revenues, comprised of direct hire and conversion fees, were $129.6 million, up 1.1 percent year-over-year. Permanent placement revenues accounted for 4.9 percent of total revenues in 2017, down from 5.3 percent in 2016. Revenues from our foreign operations accounted for 5.0 percent of total revenues in 2017, up from 4.7 percent in 2016. The financial statement effect of year-over-year changes in foreign exchange rates were not material.

Revenues from our Apex Segment were $2.0 billion, up 10.9 percent year-over-year. Assignment revenues were up 11.3 percent year-over-year mainly related to growth in IT services, which account for approximately 74.9 percent of the segment's revenues. IT services revenues were up 12.5 percent year-over-year, related to the continued trend of higher growth in top accounts. Creative/digital services revenues were up 8.6 percent year-over-year, which was below the growth rate in 2016. This decline in growth rate reflected, among other things, lower demand from advertising agencies. Life Sciences revenues were up 2.3 percent after the inclusion of a $7.5 million revenue contribution from Stratacuity, which was acquired in August 2017 (see “Note 4. Acquisitions” in Item 8).

Revenues from our Oxford Segment were $588.8 million, down 2.5 percent year-over-year, mainly related to a large customer project that was substantially completed in 2016. Assignment revenues were $503.1 million in 2017, down from $520.7 million in 2016. Permanent placement revenues in 2017 were $85.7 million (14.6 percent of the segment's revenues), up from $83.2 million (13.8 percent of the segment's revenues) in 2016.


17



Gross Profit and Gross Margins
 
 
 
2017
 
2016
 
Year-over-Year Growth Rates
 
 
 
 
 
 
 
Gross profit:
 
 
 
 
 
 
Apex
 
$
606.3

 
$
548.4

 
10.6
 %
Oxford
 
243.8

 
246.8

 
(1.2
)%
Consolidated
 
$
850.1

 
$
795.2

 
6.9
 %
Gross margin:
 
 
 
 
 
 
Apex
 
29.8
%
 
29.9
%
 
(0.1
)%
Oxford
 
41.4
%
 
40.9
%
 
0.5
 %
Consolidated
 
32.4
%
 
32.6
%
 
(0.2
)%

Gross profit was $850.1 million, up 6.9 percent in 2017. Gross margin was 32.4 percent, a compression of 20 basis points year-over-year primarily due to a lower mix of permanent placement revenues (4.9 percent in 2017 compared with 5.3 percent in 2016) and the shift in business mix related to the higher growth of the Apex Segment. Apex Segment accounted for 77.6 percent of consolidated revenues in 2017, up from 75.3 percent in 2016.

Apex Segment’s gross profit was $606.3 million, up 10.6 percent year-over-year. Gross margin for the segment was 29.8 percent, a compression of 10 basis points year-over-year primarily related to the lower mix of permanent placement revenues (2.2 percent of the segment’s revenues, down from 2.4 percent in 2016. Gross margin on assignment revenues (excludes permanent placement and conversion fees) was up 10 basis points year-over-year to 28.2 percent.

Oxford Segment’s gross profit was $243.8 million, down 1.2 percent year-over-year. Gross margin for the segment was 41.4 percent, an expansion of 50 basis points year-over-year. The expansion in gross margin was primarily related to a higher mix of permanent placement revenues (14.6 percent of the Segment’s revenues in 2017 compared with 13.8 percent in 2016). Gross margin on assignment revenues (excludes permanent placement and conversion fees), was 31.4 percent, the same as 2016.

Selling, General and Administrative Expenses. Selling, general and administrative expenses consist primarily of compensation for our field operations and corporate staff, rent, information systems, marketing, telecommunications, public company expenses and other general and administrative expenses.

SG&A expenses in 2017 were $591.9 million, or 22.5 percent of revenues, compared with $565.8 million, or 23.2 percent of revenues in 2016. The 70 basis points reduction in SG&A expenses as a percent of revenues primarily related to (i) lower growth in compensation expense for staffing consultants relative to revenue growth and (ii) lower acquisition, integration and strategic planning expenses ($4.1 million in 2017, down from $6.0 million in 2016) and lower stock-based compensation expense ($24.0 million in 2017, down from $27.0 million in 2016).

Amortization of Intangible Assets. Amortization of intangible assets was $33.4 million, compared with $39.6 million in 2016. The decrease is due to the accelerated amortization method for certain acquired intangibles, which have higher amortization rates at the beginning of their useful life.

Interest Expense. Interest expense was $27.6 million, down from $32.3 million in 2016. Interest expense was comprised of (i) interest on the credit facility of $21.3 million, (ii) amortization of deferred loan costs of $3.6 million and (iii) $2.7 million of third-party fees related to the amendments to our credit facility. Interest expense for 2016 was comprised of (i) interest on the credit facility of $26.7 million, (ii) amortization of deferred loan costs of $3.8 million, (iii) accretion of discount of $0.9 million on the contingent consideration liability related to acquisitions and (iv) $0.9 million third-party fees related to the August 5, 2016 amendment to our credit facility. The year-over-year reduction in interest expense related to a lower average interest rate related to the amendments to the credit facility and lower average outstanding borrowings under our facilities related to principal repayments.

Provision for Income Taxes. The provision for income taxes was $39.2 million compared with $60.2 million in 2016. The effective tax rate for 2017 was 19.9 percent, compared with 38.2 percent for 2016. This lower effective tax rate was primarily due to (i) a one-time, non-cash income tax benefit of $33.4 million, which was mainly the result of the revaluation of our net deferred income tax liabilities related to the recently enacted Tax Cuts and Jobs Act ("TCJA"), (ii) a provisional tax expense of $2.0 million related to the TCJA including a one-time deemed repatriation transition tax for certain foreign subsidiaries, (iii) a $4.5 million tax benefit related to stock-based compensation (which prior to 2017 was a direct adjustment to stockholders' equity, see Note 2. Accounting Standards Update in Item 8) and (iv) approximately $0.8 million in hiring-related tax credits related to a new employment category added in 2016.

Net Income. Net income was $157.7 million in 2017, compared with $97.2 million in 2016.


18




Results of Operations

Pro forma revenues and gross profit by segment are presented in the tables and discussion below to provide a more consistent basis for comparison between periods. Pro forma data were prepared as if the acquisitions of Creative Circle and LabResource (the “Acquisitions”) were consummated at the beginning of 2014. Although the pro forma segment data are considered non-GAAP measures, they were calculated in the same manner as the consolidated pro forma data, which are GAAP measures. The year-over-year fluctuations in foreign exchange rates had an immaterial effect on the revenue growth rates for the year ended December 31, 2016.



RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2016
COMPARED WITH THE YEAR ENDED DECEMBER 31, 2015
(Dollars in millions)

 
 
Reported
 
Pro Forma
 
Year-over-Year Growth Rates
 
 
2016
 
2015
 
2015
 
Reported
 
Pro Forma
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues by segment:
 
 
 
 
 
 
 
 
 
 
 
 
 
Apex:
 
 
 
 
 
 
 
 
 
 
 
 
 
Assignment
 
$
1,791.6

 
$
1,461.2

 
$
1,563.3

 
22.6
 %
 
 
 
14.6
 %
 
Permanent placement
 
44.9

 
32.4

 
41.7

 
38.8
 %
 
 
 
7.9
 %
 
 
 
1,836.5

 
1,493.6

 
1,605.0

 
23.0
 %
 
 
 
14.4
 %
 
Oxford:
 
 
 
 
 
 
 
 
 
 
 
 
 
Assignment
 
520.7

 
485.8

 
488.4

 
7.2
 %
 
 
 
6.6
 %
 
Permanent placement
 
83.2

 
85.6

 
85.6

 
(2.8
)%
 
 
 
(2.9
)%
 
 
 
603.9

 
571.4

 
574.0

 
5.7
 %
 
 
 
5.2
 %
 
Consolidated:
 
 
 
 
 
 
 
 
 
 
 
 
 
Assignment
 
2,312.3

 
1,947.0

 
2,051.7

 
18.8
 %
 
 
 
12.7
 %
 
Permanent placement
 
128.1

 
118.0

 
127.3

 
8.6
 %
 
 
 
0.6
 %
 
 
 
$
2,440.4

 
$
2,065.0

 
$
2,179.0

 
18.2
 %
 
 
 
12.0
 %
 
Percentage of total revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
Apex
 
75.3
%
 
72.3
%
 
73.7
%
 
 
 
 
 
 
 
Oxford
 
24.7
%
 
27.7
%
 
26.3
%
 
 
 
 
 
 
 
 
 
100.0
%
 
100.0
%
 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assignment
 
94.7
%
 
94.3
%
 
94.2
%
 
 
 
 
 
 
 
Permanent placement
 
5.3
%
 
5.7
%
 
5.8
%
 
 
 
 
 
 
 
 
 
100.0
%
 
100.0
%
 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Domestic
 
95.3
%
 
95.5
%
 
95.6
%
 
 
 
 
 
 
 
Foreign
 
4.7
%
 
4.5
%
 
4.4
%
 
 
 
 
 
 
 
 
 
100.0
%
 
100.0
%
 
100.0
%
 
 
 
 
 
 
 
Revenues on an as reported basis increased $375.4 million, or 18.2 percent year-over-year, as a result of (i) the contribution of revenues from Creative Circle, which was acquired in June 2015 and (ii) year-over-year revenue growth from virtually all other operating divisions. On a pro forma basis, revenues were up $261.4 million, or 12.0 percent, year-over-year.

Assignment revenues were $2.3 billion, up 18.8 percent year-over-year on an as reported basis and up 12.7 percent on a pro forma basis. Permanent placement revenues, comprised of direct hire and conversion fees, were $128.1 million, up 8.6 percent year-over-year on an as reported basis and 0.6 percent on pro forma basis. Permanent placement revenues accounted for 5.3 percent of total revenues in 2016, down from 5.7 percent in 2015.

Revenues from our Apex Segment were $1.8 billion, up 23.0 percent year-over-year on an as reported basis. This increase was a result of (i) the inclusion of Creative Circle for the full year 2016 (2015 included results only from the date of acquisition, June 5, 2015), which accounted for 17.7 percent of the segment's revenue and (ii) the high growth of Apex Systems, which accounted for 73.8 percent of the segment's revenues and had a year-over-year growth rate of 15.0 percent, reflecting the continued high demand from our large customer accounts. On a pro forma basis, revenues for the segment were up 14.4 percent year-over-year primarily related to the high growth rate for Apex Systems and Creative Circle. Creative Circle accounted for 17.7 percent of the segment's revenue and grew 17.0 percent year-over-year on a pro forma basis.

Revenues from our Oxford Segment were $603.9 million, up 5.7 percent year-over-year on an as reported basis due to growth in assignment revenues. Assignment revenues were $520.7 million in 2016, up from $485.8 million in 2015. Permanent placement revenues for 2016 were

19



$83.2 million (13.8 percent of the segment's revenues), down from $85.6 million (15.0 percent of the segment's revenues) in 2015. The year-over-year decline in permanent placement revenues reflects lower demand from technology-based clients, specifically early stage companies, the lengthening in the time our clients are taking to make hiring decisions and a tight candidate pool.

Gross Profit and Gross Margins
 
 
 
Reported
 
Pro Forma
 
Year-over-Year Growth Rates
 
 
2016
 
2015
 
2015
 
Reported
 
Pro Forma
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross profit:
 
 
 
 
 
 
 
 
 
 
 
 
 
Apex
 
$
548.4

 
$
439.6

 
$
487.0

 
24.8
 %
 
 
 
12.6
 %
 
Oxford
 
246.8

 
239.1

 
240.0

 
3.2
 %
 
 
 
2.8
 %
 
Consolidated
 
$
795.2

 
$
678.7

 
$
727.0

 
17.2
 %
 
 
 
9.4
 %
 
Gross margin:
 
 
 
 
 
 
 
 
 
 
 
 
 
Apex
 
29.9
%
 
29.4
%
 
30.3
%
 
0.5
 %
 
 
 
(0.4
)%
 
Oxford
 
40.9
%
 
41.9
%
 
41.8
%
 
(1.0
)%
 
 
 
(0.9
)%
 
Consolidated
 
32.6
%
 
32.9
%
 
33.4
%
 
(0.3
)%
 
 
 
(0.8
)%
 

Gross profit was $795.2 million, up 17.2 percent in 2016. Gross margin was 32.6 percent, a reduction of 30 basis points year-over-year on an as reported basis. This reduction primarily related to lower mix of permanent placement revenues, which was 5.3 percent of revenues for 2016, down from 5.7 percent in 2015. The gross margin on permanent placement revenues is over 90 percent. On a pro forma basis, gross margin was down 80 basis points year-over-year due to the lower mix of permanent placement revenues and higher relative growth in the large accounts of Apex Systems, which have lower gross margins.

Apex Segment’s gross profit was $548.4 million, up 24.8 percent year-over-year on an as reported basis. Gross margin for the segment was 29.9 percent, an expansion of 50 basis points year-over-year on an as reported basis due to the inclusion of Creative Circle for the full year (Creative Circle's assignment margin is higher than the other operating units of the Apex Segment). On a pro forma basis, gross margin for the segment was down approximately 40 basis points year-over-year, related to the shift in business mix toward high-volume, lower-margin accounts.

Oxford Segment’s gross profit was $246.8 million, up 3.2 percent year-over-year on an as reported basis. Gross margin for the segment was 40.9 percent, a compression of 100 basis points year-over-year due primarily to a lower mix of permanent placement revenues (13.8 percent of the segment's revenues in 2016, down from 15.0 percent in 2015). The gross margin on permanent placement revenues is over 90 percent.

Selling, General and Administrative Expenses. Selling, general and administrative expenses consist primarily of compensation for our field operations and corporate staff, rent, information systems, marketing, telecommunications, public company expenses and other general and administrative expenses. SG&A expenses in 2016 were $565.8 million, or 23.2 percent of revenues, up from $492.2 million, or 23.8 percent of revenues in 2015. The increase in SG&A expenses was due to a full year's SG&A expenses from the businesses acquired in 2015 (incrementally $33.4 million) and higher headcount and incentive compensation, both commensurate with growth in the business.

Amortization of Intangible Assets. Amortization of intangible assets was $39.6 million, compared with $34.5 million in 2015. The increase related to amortization from the Acquisitions.

Interest Expense. Interest expense was $32.3 million, up from $26.4 million in 2015. The increase in interest expense was due to higher debt levels related to the June 5, 2015 acquisition of Creative Circle, which was funded primarily from proceeds from borrowings. Interest expense was comprised of (i) interest on the credit facility of $26.7 million, (ii) amortization of deferred loan costs of $3.8 million, (iii) accretion of discount of $0.9 million on the contingent consideration liability related to acquisitions and (iv) $0.9 million third-party fees related to the August 5, 2016 amendment to our credit facility. Interest expense for 2015 was comprised of (i) interest on the credit facility of $22.3 million, (ii) amortization of deferred loan costs of $2.7 million and (iii) accretion of $1.4 million on the contingent consideration liability related to acquisitions. The effective interest rate was 4.2 percent in 2016 and 2015.

Write-Off of Loan Costs. Write-off of loan costs in 2015 was $3.8 million and related to the refinancing of our credit facility in June 2015.
 
Provision for Income Taxes. The provision for income taxes was $60.2 million compared with $50.5 million in 2015. The effective tax rate for 2016 was 38.2 percent, a decrease from 41.4 percent for 2015. This lower effective tax rate was primarily due to a lower percentage of non-deductible expense (mainly disallowed business meals and entertainment) and the benefit of higher tax credits (Research and Development and Work Opportunity Tax Credits).

Income from Continuing Operations. Income from continuing operations was $97.2 million compared with $71.4 million in 2015.

Discontinued Operations. The gain on sale of discontinued operations, net of income tax, was $25.7 million for 2015 for the sale of our Physician Segment.

20




Net Income. Net income was $97.2 million in 2016, compared with $97.7 million in 2015. Net income for 2015 included the net of tax gain of $25.7 million from the sale of the Physician Segment.

Liquidity and Capital Resources
 
Our working capital (current assets less current liabilities) at December 31, 2017 was $332.8 million and our cash and cash equivalents were $36.7 million, including $17.0 million held in foreign countries, which is not available to fund domestic operations as we do not intend to repatriate cash held in foreign countries. Our cash flows from operating activities and borrowings under our credit facilities have been our primary source of liquidity and have been sufficient to fund our working capital and capital expenditure needs. Our working capital requirements are primarily driven by the overall growth in our business and debt service requirements. We believe that our expected cash flows and availability under our revolving credit facility will be sufficient to meet our obligations, working capital requirements and capital expenditures for the next 12 months.

Net cash provided by operating activities was $196.4 million in 2017 compared with $199.3 million in 2016. Net cash provided by operating activities before changes in operating assets and liabilities was $256.8 million for 2017, up from $218.4 million in 2016. This increase was commensurate with the growth of the business. Changes in operating assets and liabilities (mainly changes in working capital) resulted in use of cash of $60.3 million compared with $19.1 million for 2016. The differences in year-over-year changes in working capital primarily related to the timing of period end compensation payments, higher growth in accounts receivable balances due to growth in the business and higher income tax prepayments. Upon the adoption of ASU 2016-09, excess tax benefits related to stock-based compensation are included in cash flows from operating activities. This presentation is applied retrospectively for all periods presented and resulted in an increase in cash flows from operating activities and a decrease in cash flows from financing activities of $3.1 million in 2016. The excess tax benefits related to stock-based compensation were $4.5 million in 2017 and are included in net income.

Net cash used in investing activities was $50.1 million in 2017 compared with $22.0 million in 2016. Net cash used in investing activities for 2017 was comprised of $25.9 million used for the purchase of Stratacuity (see “Note 4. Acquisitions” in Item 8) and $24.3 million used to purchase property and equipment. Net cash used in investing activities in 2016 was primarily comprised of $27.1 million used to purchase property and equipment and $6.0 million collected from the release of escrow from the sale of our Physician Segment.

Net cash used in financing activities was $138.5 million in 2017, compared with $174.1 million in 2016. Net cash used in financing activities for 2017 was primarily comprised of $68.0 million net cash used to pay down long-term debt, $60.1 million used for repurchases of our common stock (inclusive of $2.0 million cash settlement of stock repurchases from 2016) and $14.9 million used for payment of employment taxes related to the release of restricted stock units. Net cash used in financing activities in 2016 was primarily comprised of $129.0 million in principal payments of long-term debt, $41.1 million used for repurchases of our common stock and $16.8 million in payments of contingent considerations (total payment of $21.6 million, of which $16.8 million was cash used in financing activities and $4.8 million was cash used in operating activities).

In 2015, we entered into a $975.0 million credit facility consisting of (i) an $825.0 million seven-year term B loan facility and (ii) a $150.0 million revolving credit facility, which was subsequently amended four separate times.

The first amendment was on August 5, 2016, resulting in a reduction of 25 basis points in the interest rate for the term B loan facility and we incurred $0.9 million in third-party fees, which were included in interest expense in 2016. The second amendment was on February 21, 2017, which resulted in (i) a reduction of 50 basis points in the interest rate for the term B loan facility, (ii) an increase in the borrowing capacity of the revolving credit facility from $150.0 million to $200.0 million and (iii) extension of the maturity date for the revolving credit facility to February 21, 2022. The third amendment was on August 22, 2017, which resulted in a reduction of 25 basis points in the interest rate for the term B loan facility. The fourth amendment was on September 22, 2017, which resulted in (i) a reduction of 25 to 50 basis points in the interest rate on the revolving credit facility, depending on leverage levels and (ii) a reduction of five basis points on the commitment fee for the undrawn portion. Related to the 2017 amendments we incurred $3.3 million in third-party fees, of which $2.7 million was included in interest expense and the remainder was capitalized and will be amortized over the term of the revolving credit facility.

The outstanding balance on the facility at December 31, 2017 was $588.0 million (see “Note 7. Long-Term Debt” in Item 8). Under terms of the credit facility, we are required to make minimum quarterly payments of $2.1 million and mandatory prepayments from excess cash flow and with the proceeds of asset sales, debt issuances and specified other events, subject to specified exceptions. Due to principal payments made through December 31, 2017, no additional minimum quarterly payments are required. The credit facility is secured by substantially all of our assets and includes various restrictive covenants including the maximum ratio of consolidated funded debt to consolidated EBITDA, which steps down at regular intervals from 4.00 to 1.00 as of December 31, 2017, to 3.25 to 1.00 as of March 31, 2019 and thereafter. The credit facility also contains customary limitations including, among other terms and conditions, the Company's ability to incur additional indebtedness, engage in mergers and acquisitions and declare dividends.

At December 31, 2017, the Company was in compliance with all of its debt covenants, its ratio of consolidated funded debt to consolidated EBITDA was 1.89 to 1.00 and the Company had $195.6 million available borrowing capacity under its revolving credit facility.

On June 10, 2016, the Board of Directors approved a stock repurchase program whereby we may repurchase up to $150.0 million of our common stock through June 2018. During the year ended December 31, 2017, we purchased 1.2 million shares for $58.1 million ($47.24 average price per share). The remaining authorized amount under this program at December 31, 2017 is $48.8 million.

21




Pending acquisition of ECS Federal, LLC

On January 31, 2018, the Company entered into a definitive agreement to acquire ECS for $775.0 million in cash. ECS is one of the largest privately-held government services contractors and delivers cyber security, cloud, DevOps, IT modernization and advanced science and engineering solutions to government enterprises. The acquisition is subject to various customary regulatory approvals and closing conditions and is expected to close on April 2, 2018.

In connection with the pending acquisition, we entered into a commitment letter with Wells Fargo Bank, National Association (“WFB”) and Wells Fargo Securities, LLC. The commitment letter includes a $1.6 billion commitment from WFB for a credit facility to be comprised of a $200.0 million revolving credit facility (undrawn at close, other than for letters of credit) and a $1.4 billion term loan. The proceeds of the term loan will be used to finance the purchase price, amend the Company’s existing debt and pay for acquisition costs.

Commitments and Contingencies
 
We lease space for our corporate and branch offices. Rent expense was $26.4 million in 2017, $25.6 million in 2016 and $21.6 million in 2015.
 
The following table sets forth on an aggregate basis, excluding current liabilities on our consolidated balance sheets at December 31, 2017, the amounts of specified contractual cash obligations required to be paid in the future periods shown (in thousands):
 
Contractual Obligations
 
Less than 1 year
 
1-3 years
 
3-5 years
 
More than 5 years
 
Total
Long-term debt obligations (1)
 
$
20,986

 
$
41,971

 
$
617,730

 
$

 
$
680,687

Operating lease obligations
 
20,387

 
32,218

 
20,235

 
7,267

 
80,107

Related party leases
 
1,302

 
2,596

 
2,727

 
2,618

 
9,243

Purchase obligations
 
10,283

 
9,417

 

 

 
19,700

Total
 
$
52,958

 
$
86,202

 
$
640,692

 
$
9,885

 
$
789,737

 ____________
(1) Long-term debt obligations include interest calculated based on the rates in effect at December 31, 2017.

For additional information about these contractual cash obligations, see “Note 7. Long-Term Debt” and “Note 8. Commitments and Contingencies” in Item 8. Purchase obligations are non-cancelable job board service agreements, software maintenance and license agreements and software subscriptions.

We have large retention policies for our workers’ compensation liability exposures. The workers' compensation loss reserves are based upon an actuarial report obtained from a third party and 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, differences in estimates and actual payments for claims are recognized in the period that the estimates changed or the payments were made. The workers' compensation loss reserves were $2.1 million and $1.8 million, net of anticipated insurance and indemnification recoveries of $12.7 million and $14.0 million, at December 31, 2017 and 2016, respectively. 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, 2017 and 2016 were $4.4 million and $4.0 million, respectively.

At December 31, 2017 and 2016, we have an income tax reserve in other long-term liabilities related to uncertain tax positions of $0.4 million and $1.3 million, respectively. We have omitted this liability from the table above due to the inherent uncertainty regarding the timing and amount of payments related to uncertain tax positions. We are unable to make reasonably reliable estimates of the period of cash settlement since the statute of limitations might expire without examination by the respective tax authority.

Legal Proceedings

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.

Off-Balance Sheet Arrangements
 
As of December 31, 2017, we had no off-balance sheet arrangements.
 
Accounting Standards Updates
 
See Note 2. Accounting Standards Update in Item 8 for a discussion of new accounting pronouncements.

22



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.

Foreign Currency Fluctuations. Our exposure to fluctuations in foreign currency exchange rates relates primarily to our foreign subsidiaries. Exchange rates impact the U.S. dollar value of our reported earnings, investments in our foreign subsidiaries and intercompany transactions with our foreign subsidiaries. Fluctuations in currency exchange rates impact the U.S. dollar amount of our stockholders’ equity. The assets and liabilities of our non-U.S. subsidiaries are translated into U.S. dollars at the exchange rates in effect at period end. The resulting translation adjustments are recorded in stockholders’ equity as a component of accumulated other comprehensive income (loss). Based on the relative size and nature of our foreign operations, we do not believe that a 10 percent change in the value of foreign currencies relative to the U.S. dollar would have a material impact on our financial statements.

Interest Rate Risk. Our exposure to interest rate risk is associated with our debt instruments. See “Note 7. Long-Term Debt” in Part II, Item 8 of this 2017 10-K for a further description of our debt instruments. A hypothetical 100 basis point change in interest rates on variable rate debt would have resulted in interest expense fluctuating approximately $5.9 million based on $588.0 million of debt outstanding for any 12-month period. We have not entered into any market risk sensitive instruments for trading purposes.


23




Item 8. Financial Statements and Supplementary Data


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors of On Assignment, Inc.
Calabasas, California

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of On Assignment, Inc. and subsidiaries (the "Company") as of December 31, 2017 and 2016, the related consolidated statements of operations and comprehensive income, stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2017, and the related notes and the financial statement schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2018, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.


/s/ DELOITTE & TOUCHE LLP
Los Angeles, California
February 28, 2018

We have served as the Company's auditor since 1987.







24



ON ASSIGNMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
 

 
 
December 31,
 
 
2017
 
2016
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash, cash equivalents and restricted cash(1)
 
$
36,667

 
$
27,044

Accounts receivable, net of allowance of $9,909 and $8,093 respectively
 
428,536

 
386,858

Prepaid expenses and income taxes
 
18,592

 
6,331

Workers’ compensation receivable
 
12,702

 
14,001

Other current assets
 
3,026

 
3,290

Total current assets
 
499,523

 
437,524

Property and equipment, net
 
57,996

 
56,942

Goodwill
 
894,095

 
873,513

Identifiable intangible assets, net
 
352,766

 
377,730

Other non-current assets
 
5,749

 
6,958

Total assets
 
$
1,810,129

 
$
1,752,667

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 

 
 

Current liabilities:
 
 

 
 

Accounts payable
 
$
6,870

 
$
6,266

Accrued payroll and contract professional pay
 
114,832

 
111,596

Workers’ compensation loss reserves
 
14,777

 
15,784

Income taxes payable
 
1,229

 
1,260

Other current liabilities
 
29,009

 
27,593

Total current liabilities
 
166,717

 
162,499

Long-term debt
 
575,213

 
640,355

Deferred income tax liabilities
 
69,436

 
74,282

Other long-term liabilities
 
7,372

 
6,592

Total liabilities
 
818,738

 
883,728

Commitments and contingencies (Note 8)
 


 


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, 52,151,538 and 52,716,388 issued and outstanding, respectively
 
521

 
527

Paid-in capital
 
566,090

 
562,862

Retained earnings
 
428,419

 
315,573

Accumulated other comprehensive loss
 
(3,639
)
 
(10,023
)
Total stockholders’ equity
 
991,391

 
868,939

Total liabilities and stockholders’ equity
 
$
1,810,129

 
$
1,752,667

______
(1) Includes $2.2 million of restricted cash at December 31, 2017, related to the Company's deferred compensation plan. There was no restricted cash at December 31, 2016.
See "Note 12. Stock-Based Compensation and Other Employee Benefit Plans".

See notes to consolidated financial statements.

25




ON ASSIGNMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In thousands, except per share amounts)
 
 
 
Year Ended December 31,
 
 
2017
 
2016
 
2015
Revenues
 
$
2,625,924

 
$
2,440,413

 
$
2,065,008

Costs of services
 
1,775,851

 
1,645,230

 
1,386,263

Gross profit
 
850,073

 
795,183

 
678,745

Selling, general and administrative expenses
 
591,893

 
565,829

 
492,170

Amortization of intangible assets
 
33,444

 
39,628

 
34,467

Operating income
 
224,736

 
189,726

 
152,108

Interest expense
 
(27,643
)
 
(32,327
)
 
(26,444
)
Write-off of loan costs
 

 

 
(3,751
)
Income before income taxes
 
197,093

 
157,399

 
121,913

Provision for income taxes
 
39,219

 
60,203

 
50,491

Income from continuing operations
 
157,874

 
97,196

 
71,422

Gain on sale of discontinued operations, net of income taxes
 

 

 
25,703

Income (loss) from discontinued operations, net of income taxes
 
(199
)
 
5

 
525

Net income
 
$
157,675

 
$
97,201

 
$
97,650

 
 
 

 
 

 
 

Basic earnings per common share:
 
 
 
 
 
 
Continuing operations
 
$
3.01

 
$
1.83

 
$
1.37

Discontinued operations
 

 

 
0.50

Net income
 
$
3.01

 
$
1.83

 
$
1.87

 
 
 
 
 
 
 
Diluted earnings per common share:
 
 
 
 
 
 
Continuing operations
 
$
2.97

 
$
1.81

 
$
1.35

Discontinued operations
 

 

 
0.49

Net income
 
$
2.97

 
$
1.81

 
$
1.84

 
 
 
 
 
 
 
Number of shares and share equivalents used to calculate earnings per share:
 
 

 
 

 
 

Basic
 
52,503

 
53,192

 
52,259

Diluted
 
53,205

 
53,747

 
53,005

 
Reconciliation of net income to comprehensive income:
 
 
 
 
 
 
Net income
 
$
157,675

 
$
97,201

 
$
97,650

Foreign currency translation adjustment
 
6,384

 
(1,861
)
 
(3,714
)
Other
 

 

 
122

Comprehensive income
 
$
164,059

 
$
95,340

 
$
94,058


See notes to consolidated financial statements.


26



ON ASSIGNMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Dollars in thousands)
 
 
Common Stock
 
Paid-in Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Income (Loss)
 
Total
 
 
Shares
 
Par Value
 
 
 
 
Balance at December 31, 2014
 
51,386,693

 
$
514

 
$
483,902

 
$
154,562

 
$
(4,570
)
 
$
634,408

Exercise of stock options
 
329,502

 
3

 
3,469

 

 

 
3,472

Employee stock purchase plan
 
204,401

 
2

 
5,291

 

 

 
5,293

Stock repurchase and retirement of shares
 
(89,174
)
 
(1
)
 
(1,173
)
 
(2,645
)
 

 
(3,819
)
Stock-based compensation expense
 

 

 
23,471

 

 

 
23,471

Vesting of restricted stock units
 
398,850

 
4

 
(8,827
)
 

 

 
(8,823
)
Tax benefit from stock-based compensation(1)
 

 

 
6,551

 

 

 
6,551

Acquisition of Creative Circle
 
794,700

 
8

 
30,175

 

 

 
30,183

Fair value adjustment of derivatives, net of income tax
 

 

 

 

 
122

 
122

Translation adjustments
 

 

 

 

 
(3,714
)
 
(3,714
)
Net income
 

 

 

 
97,650

 

 
97,650

Balance at December 31, 2015
 
53,024,972

 
530

 
542,859

 
249,567

 
(8,162
)
 
784,794

Exercise of stock options
 
185,484

 
2

 
2,249

 

 

 
2,251

Employee stock purchase plan
 
242,303

 
2

 
7,505

 

 

 
7,507

Stock repurchase and retirement of shares
 
(1,133,553
)
 
(11
)
 
(11,885
)
 
(31,195
)
 

 
(43,091
)
Stock-based compensation expense
 

 

 
26,559

 

 

 
26,559

Vesting of restricted stock units
 
397,182

 
4

 
(7,164
)
 

 

 
(7,160
)
Tax benefit from stock-based compensation(1)
 

 

 
2,739

 

 

 
2,739

Translation adjustments
 

 

 

 

 
(1,861
)
 
(1,861
)
Net income
 

 

 

 
97,201

 

 
97,201

Balance at December 31, 2016
 
52,716,388

 
527

 
562,862

 
315,573

 
(10,023
)
 
868,939

Exercise of stock options
 
36,561

 

 
351

 

 

 
351

Employee stock purchase plan
 
214,466

 
2

 
7,402

 

 

 
7,404

Stock repurchase and retirement of shares
 
(1,229,249
)
 
(12
)
 
(13,229
)
 
(44,829
)
 

 
(58,070
)
Stock-based compensation expense
 

 

 
24,509

 

 

 
24,509

Vesting of restricted stock units
 
413,372

 
4

 
(15,805
)
 

 

 
(15,801
)
Translation adjustments
 

 

 

 

 
6,384

 
6,384

Net income
 

 

 

 
157,675

 

 
157,675

Balance at December 31, 2017
 
52,151,538

 
$
521

 
$
566,090

 
$
428,419

 
$
(3,639
)
 
$
991,391

___________
(1) Effective January 1, 2017, the Company adopted ASU No. 2016-09, Compensation - Stock Compensation (Topic 718). Under this standard, excess tax benefits and deficiencies are recognized as income tax benefit or expense in the consolidated statement of operations and comprehensive income, rather than within paid-in capital, see Note 2. Accounting Standards Update.


See notes to consolidated financial statements.

27



ON ASSIGNMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 
 
 Year Ended December 31,
 
 
2017
 
2016
 
2015
Cash Flows from Operating Activities:
 
 
 
 
 
 
Net income
 
$
157,675

 
$
97,201

 
$
97,650

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 

 
 

Depreciation and amortization
 
58,604

 
62,249

 
51,569

Provision for doubtful accounts and billing adjustments
 
12,050

 
10,788

 
10,486

Provision (benefit) for deferred income taxes
 
(5,140
)
 
12,834

 
11,549

Stock-based compensation
 
24,044

 
27,024

 
22,018

Workers’ compensation provision
 
2,908

 
2,693

 
2,117

Write-off of loan costs
 

 

 
3,751

Gain on sale of discontinued operations, net of income taxes

 

 

 
(25,703
)
Other
 
6,610

 
5,642

 
7,136

Changes in operating assets and liabilities:
 
 
 
 

 
 

Accounts receivable
 
(50,461
)
 
(43,289
)
 
(53,775
)
Prepaid expenses and income taxes
 
(11,861
)
 
6,433

 
100

Income taxes payable
 
613

 
3,346

 
(7,679
)
Accounts payable
 
315

 
(2,236
)
 
1,684

Accrued payroll and contract professional pay
 
1,040

 
23,556

 
242

Workers' compensation loss reserve
 
(2,616
)
 
(2,691
)
 
(901
)
Payments of earn-outs
 

 
(4,780
)
 

Other
 
2,665

 
561

 
3,800

Net cash provided by operating activities(1)
 
196,446

 
199,331

 
124,044

Cash Flows from Investing Activities:
 
 

 
 

 
 

Cash paid for property and equipment
 
(24,265
)