EX-99.2 4 a07-10287_1ex99d2.htm EX-99.2

Exhibit 99.2

UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS

On Assignment, Inc., (“On Assignment”), entered into an Agreement and Plan of Merger, dated as of January 3, 2007, as amended January 30, 2007, (the “Agreement”), by and among On Assignment, On Assignment 2007 Acquisition Corp., a wholly-owned subsidiary of On Assignment, Oxford Global Resources, Inc. (“Oxford”) and Thomas F. Ryan, as Indemnification Representative, pursuant to which On Assignment acquired all of the outstanding shares of Oxford (the “Merger”). The Merger was completed on January 31, 2007. According to the terms of the Agreement, the purchase price paid by On Assignment was $190.1 million in cash and $10.0 million in common stock. The former stockholders of Oxford have the opportunity to achieve an earn-out of up to $12.0 million based on Oxford’s 2007 and 2008 performance. As a result of the Merger, Oxford became a wholly-owned subsidiary of On Assignment.

The Merger will be accounted for using the purchase method of accounting. The carrying values of Oxford’s assets and liabilities were changed to reflect the fair value of the assets and liabilities as of the acquisition date.

The acquisition price was comprised of the following:

Purchase price

 

$

200,072,000

 

Transaction costs

 

1,125,000

 

 

 

$

201,197,000

 

 

The preliminary purchase price allocation is as follows:

Acquisition price

 

$

201,197,000

 

Less: net assets acquired

 

57,557,000

 

Goodwill

 

$

143,640,000

 

 

On Assignment has elected to treat the Merger as an asset purchase for tax purposes.  Accordingly, goodwill associated with the Merger is expected to be deductible for tax purposes.

The following unaudited pro forma condensed combined balance sheet gives effect to the Merger as if it had occurred as of December 31, 2006. The unaudited pro forma condensed combined statements of income for the year ended December 31, 2006 assume the Merger took place as of January 1, 2006.

The pro forma information has been prepared for comparative purposes only, and does not purport to be indicative of On Assignment’s results of operations that would have actually occurred had the transaction been in effect as of the date or for the periods presented, or of results that may occur in the future. The unaudited pro forma condensed combined financial statements should be read in conjunction with On Assignment’s historical financial statements and related notes included in form 10K as filed on March 16, 2007 with the Securities and Exchange Commission.

The pro forma adjustments are based on On Assignment management’s preliminary estimates of the value of the tangible and intangible assets acquired, liabilities assumed, lease obligations and the related income tax impact of the purchase accounting adjustments. Actual adjustments may differ materially from those presented in these unaudited pro forma condensed combined financial statements upon the finalization of the purchase price allocation pursuant to Statement of Financial Accounting Standards No. 141, Business Combinations.

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UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS

As of December 31, 2006

 

 

On Assignment, Inc.

 

Oxford Global
Resources, Inc.

 

Pro Forma
Adjustments

 

Pro Forma
Combined

 

ASSETS

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

105,483,000

 

$

577,000

 

$

(45,072,000

)(a)

$

60,988,000

 

Restricted cash

 

4,678,000

 

 

 

4,678,000

 

Accounts receivable—net

 

39,107,000

 

22,371,000

 

 

61,478,000

 

Advances and deposits

 

343,000

 

 

 

343,000

 

Prepaid expenses

 

2,630,000

 

1,978,000

 

 

4,608,000

 

Income tax receivable

 

19,000

 

 

 

19,000

 

Deferred income taxes

 

3,624,000

 

 

 

3,624,000

 

Other current assets

 

41,000

 

900,000

 

(900,000

)(b)

41,000

 

 

 

155,925,000

 

25,826,000

 

(45,972,000

)

135,779,000

 

Property, plant and equipment, net

 

9,116,000

 

2,436,000

 

 

11,552,000

 

Goodwill, net

 

17,109,000

 

1,818,000

 

143,640,000

 (c)

162,567,000

 

Identifiable intangible assets, net

 

667,000

 

 

42,900,000

 (d)

43,567,000

 

Deferred income taxes, long-term

 

865,000

 

 

 

865,000

 

Other assets

 

3,313,000

 

1,213,000

 

(885,000

)(e)

3,641,000

 

Total Assets

 

$

186,995,000

 

$

31,293,000

 

$

139,683,000

 

$

357,971,000

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

2,867,000

 

$

2,199,000

 

$

240,000

 (a)

$

5,306,000

 

Line of credit

 

 

900,000

 

 

900,000

 

Accrued payroll

 

8,426,000

 

9,422,000

 

 

17,848,000

 

Deferred revenue

 

 

 

 

 

Deferred compensation

 

1,360,000

 

 

 

1,360,000

 

Deferred rent expense

 

94,000

 

 

 

94,000

 

Income taxes payable

 

876,000

 

440,000

 

 

1,316,000

 

Accrued workers’ compensation

 

3,551,000

 

 

 

3,551,000

 

Other accrued expenses

 

3,250,000

 

2,230,000

 

(320,000

)(f)

5,160,000

 

Due to stockholder

 

 

766,000

 

(766,000

)(g)

 

Current portion of long-term debt

 

 

 

1,450,000

 (a)

1,450,000

 

 

 

20,424,000

 

15,957,000

 

604,000

 

36,985,000

 

Deferred rent expense

 

627,000

 

 

 

627,000

 

Long-term debt, less current portion

 

 

 

143,550,000

 (a)

143,550,000

 

Other long-term liabilities

 

 

865,000

 

 

865,000

 

Total liabilities

 

21,051,000

 

16,822,000

 

144,154,000

 

182,027,000

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

 

Preferred stock

 

 

 

 

 

Common stock

 

367,000

 

131,000

 

(123,000

)(h)

375,000

 

Paid-in capital

 

199,355,000

 

8,493,000

 

1,499,000

 (h)

209,347,000

 

Retained earnings (deficit)

 

(11,860,000

)

5,976,000

 

(5,976,000

)(h)

(11,860,000

)

Accumulated other comprehensive income (loss)

 

1,562,000

 

(129,000

)

129,000

 (h)

1,562,000

 

Less: Treasury shares at cost

 

23,480,000

 

 

 

23,480,000

 

Total stockholders’ equity

 

165,944,000

 

14,471,000

 

(4,471,000

)

175,944,000

 

Total liabilities and stockholders’ equity

 

$

186,995,000

 

$

31,293,000

 

$

139,683,000

 

$

357,971,000

 

 

The accompanying notes are an integral part of the unaudited pro forma combined financial statements.

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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
For the Year Ended December 31, 2006

 

 

On Assignment, Inc.

 

Oxford Global
Resources, Inc.

 

Pro Forma
Adjustments

 

Pro Forma
Combined

 

Revenues

 

$

287,566,000

 

$

178,426,000

 

$

 

$

465,992,000

 

Cost of services

 

209,725,000

 

112,969,000

 

 

322,694,000

 

Gross profit

 

77,841,000

 

65,457,000

 

 

143,298,000

 

Selling, general and administrative expenses

 

67,900,000

 

50,539,000

 

12,192,000

(a)

130,631,000

 

Operating income (loss)

 

9,941,000

 

14,918,000

 

(12,192,000

)

12,667,000

 

Interest income

 

1,644,000

 

107,000

 

 

1,751,000

 

Interest expense

 

 

(497,000

)

(10,523,000

)(b)

(11,020,000

)

Income (loss) before income taxes

 

11,585,000

 

14,528,000

 

(22,715,000

)

3,398,000

 

Provision (benefit) for income taxes

 

541,000

 

686,000

 

(4,001,000

)(c)

(2,774,000

)

Net income (loss)

 

$

11,044,000

 

$

13,842,000

 

$

(18,714,000

)

$

6,172,000

 

Basic earnings per share

 

$

0.41

 

 

 

 

 

$

0.22

 

Weighted average number of shares outstanding

 

27,155,000

 

 

 

 

 

27,950,000

(d)

Diluted earnings per share

 

$

0.39

 

 

 

 

 

$

0.21

 

Weighted average number of shares and dilutive shares outstanding

 

28,052,000

 

 

 

 

 

28,847,000

(d)

 

The accompanying notes are an integral part of the unaudited pro forma combined financial statements.

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NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS

Note 1 Basis of Presentation

The unaudited pro forma condensed combined balance sheet gives effect to the merger with Oxford as if the merger had occurred as of December 31, 2006. The unaudited pro forma combined statements of operations for the year ended December 31, 2006 assume the acquisition took place as of January 1, 2006.

Note 2 Pro forma Adjustments

Pro forma adjustments to condensed combined balance sheets:

(a)            To record the cash portion of the purchase price of the Merger and accrue acquisition costs . On Assignment utilized the proceeds of $145,000,000 from a new $165,000,000 senior secured credit facility to finance a portion of the purchase price. The new facility includes a five year $20,000,000 revolving credit facility, which was undrawn at the time the Merger was completed, and a six year $145,000,000 term loan facility.

(b)           To adjust the notes receivable balance to reflect a note receivable that was not acquired by On Assignment.

(c)            To record estimated goodwill. The pro forma adjustments are based on On Assignment management’s preliminary estimates of value of the tangible and intangible assets acquired and the liabilities assumed, and the related income tax impact of the purchase accounting adjustments. Management is in the process of finalizing preliminary appraisals. As such, actual adjustments may differ materially from those presented in these unaudited pro forma combined financial statements.

(d)           To record estimated intangible assets relating to trademarks and tradename ($13,300,000), customer relationships ($8,400,000), staffing databases ($20,100,000), in-use software ($500,000) and covenant not to compete ($600,000). The values are based on preliminary estimates and management is in the process of finalizing preliminary appraisals. As such, actual adjustments may differ materially from those presented in these unaudited pro forma combined financial statements.

(e)            To reclassify merger related costs incurred by On Assignment that were included in the total purchase price.

(f)              To reduce other accrued expenses for a $320,000 deferred tax liability not assumed by On Assignment.

(g)           To adjust the due to stockholder balance as this liability was not assumed by On Assignment.

(h)           To eliminate the historical stockholders’ equity of Oxford, which was eliminated upon the completion of the Merger, and to record the issuance of 795,292 shares of On Assignment $.01 par value common stock.  The allocation of the common stock was $8,000 to common stock and $9,992,000 to paid-in capital.

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Pro forma adjustments to condensed combined statements of operations:

(a)            To record the estimated straight-line amortization of the customer relationship (3 years), covenant not to compete (3 years), in-use software (2 years) and the estimated accelerated depreciation of the staffing databases (7 years), and the estimated related income tax impact at the 40.0% federal and state tax rate. The weighted average amortization period of the intangible assets is approximately 2.0 years. If the intangible asset values were to increase or decrease by 20%, the pro forma amortization for the year ended December 31, 2006 would increase or decrease by approximately $2,438,000 (and the related income tax benefit would increase or decrease by approximately $975,000). Estimated amortization expense for the staffing databases is as follows:

2007

 

$

9,213,000

 

2008

 

5,444,000

 

2009

 

2,722,000

 

2010

 

1,361,000

 

2011

 

680,000

 

2012

 

340,000

 

2013

 

340,000

 

 

 

$

20,100,000

 

 

(b)           To remove $497,000 of historical interest expense relating to debt that was not assumed by On Assignment and to record $11,020,000 of estimated interest expense (and the corresponding income tax benefit) relating to the $145,000,000 term loan facility used to finance a portion of the purchase price.

(c)            To adjust provision (benefit) for income taxes as follows:

Record income tax benefit relating to the pro forma amortization of intangible assets

 

$

(4,877,000

)

Record income tax benefit relating to the pro forma net increase in interest expense

 

(4,209,000

)

Increase Oxford’s 2006 provision for income taxes from an S-Corporation tax rate to a 40% C-Corporation tax rate

 

5,085,000

 

 

 

$

(4,001,000

)

 

(d)           To adjust weighted average shares outstanding (basic and diluted) and the related earnings per share calculations as a result of the issuance of 795,292 shares of On Assignment $0.01 par value common stock.

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