NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Principles of Consolidation.
The consolidated financial statements include the accounts of On Assignment, Inc. and its wholly-owned subsidiaries (the “Company”). All intercompany accounts and transactions have been eliminated.
Use of Estimates.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition.
Revenues from contract assignments, net of billing adjustments and discounts, are recognized when earned, based on hours worked by the Company’s contract professionals. Permanent placement revenues (direct hire and conversion fees) are recognized as revenues when employment candidates or contract professionals begin permanent employment. The Company records a sales allowance against consolidated revenues for estimated billing adjustments based on historical experience. The billing adjustment reserve includes an allowance for fallouts, which are permanent placement candidates that do not remain with the client through the contingency period, which is typically 90 days or less. When a fallout occurs the Company will generally find a replacement candidate at no additional cost to the client. The Company includes reimbursed expenses in revenues and the associated amounts of expenses in costs of services.
The Company has direct contractual relationships with its customers, bears the risks and rewards of the transactions and has the discretion to select the contract professionals and establish the price of services provided, as such the Company is a principal and recognizes revenues on a gross basis.
Costs of Services.
Costs of services include direct costs of contract assignments consisting primarily of payroll, payroll taxes and benefit costs for the Company’s contract professionals. Costs of services also include assignment expenses, many of which are reimbursable by the client.
Income Taxes.
Income taxes are accounted for using the liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that a portion of the deferred tax asset will not be realized.
The Company makes a comprehensive review of its uncertain tax positions regularly. An uncertain tax position represents the Company’s expected treatment of a tax position taken in a filed return, or planned to be taken in a future tax return or claim that has not been reflected in measuring income tax expense for financial reporting purposes. The Company recognizes the tax benefit from an uncertain tax position when it is more-likely-than-not that the position will be sustained upon examination on the basis of the technical merits or the statute of limitations for the relevant taxing authority to examine and challenge the tax position has expired.
Foreign Currency Translation.
The functional currency of the Company’s foreign operations is their local currency, and as such, their assets and liabilities are translated into U.S. dollars at the rate of exchange in effect on the balance sheet date. Revenues and expenses are translated at the average rates of exchange prevailing during each monthly period. The related translation adjustments are recorded as cumulative foreign currency translation adjustments in accumulated other comprehensive income (loss) as a separate component of stockholders’ equity. Gains and losses resulting from foreign currency transactions, which are not material, are included in selling, general and administrative (“SG&A”) expenses in the consolidated statements of operations and comprehensive income.
Cash, Cash Equivalents and Restricted Cash.
The Company considers all money market funds and highly liquid investments with maturities of three months or less when purchased to be cash equivalents, and from time to time it may include restricted cash related to the Company's deferred compensation plan.
Accounts Receivable Allowances.
The Company estimates 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 placements that do not complete the contingency period, which is typically 90 days or less). These estimates are based on a combination of past experience and current trends. In estimating the allowance for expected credit losses consideration is given to the current aging of receivables and a specific review for potential bad debts. The resulting bad debt expense is included in 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.
Leases.
Office space leases range from
six months
to
11 years
. Rent expense is recognized on a straight-line basis over the lease term. Differences between the straight-line rent expense and amounts payable under the leases are recorded as deferred rent which is included in other current liabilities and other long-term liabilities, as appropriate, in the consolidated balance sheets. This includes the impact of both scheduled rent increases and free or reduced periods. Allowances provided by landlords for leasehold improvements are included in deferred rent.
Property and Equipment.
Property and equipment are stated at cost. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the related assets, generally three to five years. Leasehold improvements are amortized over the shorter of the life of the related asset or the remaining term of the lease. Costs associated with customized internal-use software systems that have reached the application development stage and meet recoverability tests are capitalized and include external direct costs utilized in developing or obtaining the applications and payroll and payroll-related expenses for employees who are directly associated with the application development.
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 adjustments 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 tested for impairment on an annual basis as of October 31. Interim testing of goodwill and indefinite-lived intangible assets for impairment also occurs 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. The Company may first assess qualitative factors (Step 0) to determine whether it is necessary to perform a quantitative goodwill impairment test. If it is determined that a quantitative test is required (Step 1), the Company determines the fair value of each 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. If after performing Step 1 of the goodwill impairment test, the fair value of equity of any reporting unit does not exceed the carrying value of equity, the Company performs a second step (“Step 2”) of the goodwill impairment test for that reporting unit. Step 2 measures 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.
A qualitative analysis is performed for trademarks to determine if there were any indicators that the carrying value might not be recovered. A quantitative analysis may be performed in order to test the trademarks for impairment. If a quantitative analysis is necessary, an income approach, specifically a relief from royalty method, is used to estimate the fair value of the trademarks. 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 each trademark is compared to its carrying value to determine if impairment exists.
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.
There were no impairments of goodwill, trademarks or finite-lived intangible assets in
2017
,
2016
and
2015
.
Impairment or Disposal of Long-Lived Assets.
The Company evaluates long-lived assets, other than goodwill and identifiable intangible assets with indefinite lives, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. An impairment loss is recognized when the sum of the undiscounted future cash flows is less than the carrying amount of the asset, in which case a write-down is recorded to reduce the related asset to its estimated fair value. There were no significant impairments of long-lived assets in
2017
,
2016
and
2015
.
Workers’ Compensation Loss Reserves.
The Company carries retention policies for its workers’ compensation liability exposures. Under these policies, the Company pays a base premium plus actual losses incurred, not to exceed certain stop-loss limits. The Company is insured for losses above these limits, both per occurrence and in the aggregate. The Company estimates its workers' compensation loss reserves based on a third party actuarial study based on claims filed and claims incurred but not reported. The Company accounts for claims incurred but not yet reported based on estimates derived from historical claims experience and current trends of industry data. Changes in estimates and differences in estimates and actual payments for claims are recognized in the period that the estimates changed or the payments were made.
Contingencies.
The Company records an estimated loss from a loss contingency when information available prior to issuance of its financial statements indicates it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated. Accounting for contingencies, such as legal settlements and workers’ compensation matters, requires the Company to use judgment.
Stock-Based Compensation.
The Company records compensation expense for restricted stock awards and restricted stock units based on the fair market value of the awards on the date of grant. Compensation expense for performance-based awards is measured based on the amount of shares ultimately expected to vest, estimated at each reporting date based on management’s expectations regarding the relevant performance criteria. The Company accounts for stock options granted and employee stock purchase plan shares based on an estimated fair market value using a Black-Scholes option valuation model. This methodology requires the use of subjective assumptions including expected stock price volatility and the estimated life of each award. The fair value of equity-based compensation awards less the estimated forfeitures is amortized over the vesting period of the award.
Concentration of Credit Risk.
Financial instruments that potentially subject the Company to credit risks consist primarily of cash, cash equivalents and restricted cash and trade receivables. The Company places its cash and cash equivalents in low risk investments with quality credit institutions and limits the amount of credit exposure with any single institution above FDIC insured limits. Concentration of credit risk with respect to accounts receivable is limited because of the large number of geographically dispersed customers, thus spreading the trade credit risk. The Company performs ongoing credit evaluations to identify risks and maintains an allowance to address these risks.
2.
Accounting Standards Update
Recently Adopted Accounting Pronouncements
Effective January 1, 2017, the Company adopted Accounting Standards Update ("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 in the consolidated balance sheet within additional paid-in capital. This change in accounting for excess tax benefits and deficiencies is applied prospectively to the consolidated statements of operations and comprehensive income. The Company elected to present retrospectively its gross excess tax benefits as cash flows from operating activities in the consolidated statements of cash flows. The adoption of ASU 2016-09 did not have an impact on the opening balance of retained earnings. The Company elected to continue to estimate expected forfeitures to determine the amount of stock-based compensation expense to be recognized. During 2017, the Company recognized net excess tax benefits of
$4.5 million
(
$0.09
per diluted share), which reduced the provision for income taxes and increased income from continuing operations and net income. In the years ended December 31, 2016 and 2015, the Company reclassified
$3.1 million
and
$6.6 million
, respectively, gross excess tax benefits related to stock-based compensation out of cash flows from financing activities and into cash flows from operating activities.
Effective December 31, 2017, the Company adopted ASU No. 2016-18,
Statement of Cash Flows (Topic 230)
. This standard prescribes amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning and end-of-period total amounts shown on the statement of cash flows. Prior to this standard there was no specific guidance on the cash flow classification and presentation of changes in restricted cash or restricted cash equivalents. This standard should be applied using a retrospective transition method for each period presented. The adoption of this standard did not have a significant impact on the Company’s financial statements.
Accounting Pronouncements Not Yet Adopted
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
, which outlines a comprehensive new revenue recognition model designed to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard also requires additional quantitative and qualitative disclosures. The Company has completed its analysis and adopted the new standard effective January 1, 2018 using the modified retrospective method. The modified retrospective method requires entities to apply the new revenue standard only to the current-year in which the standard is first implemented. Upon adoption, the Company did not have an opening retained earnings adjustment. The Company will change its presentation of the allowance for fallouts (permanent placement candidates that do not remain with the client through the contingency period, which is typically 90 days or less) on its consolidated balance sheets, which is currently included in accounts receivable allowances and the balance is
$1.5 million
as of December 31, 2017; under the new standard these are considered contract liabilities and upon adoption of the standard they will be presented as liabilities on the Company’s consolidated balance sheet. Aside from this change, the adoption of this standard is not expected to have a material impact on its consolidated financial statements and disclosures.
In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842)
, which is intended to improve financial reporting about leasing transactions. This standard requires a lessee to record on the balance sheet the assets and liabilities for the rights and obligations created by lease terms of more than 12 months. The Company is required to adopt this standard effective January 1, 2019. The Company commenced its assessment of the new standard during the fourth quarter of 2017, developed a project plan to guide the implementation and is evaluating the impact the new standard will have on its consolidated financial statements.
In January 2017, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2017-01,
Business Combinations (Topic 805) Clarifying the Definition of a Business
. The amendments in this update clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill and consolidation. The Company adopted this standard on January 1, 2018 and its application did not have a material impact on its consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04,
Intangibles-Goodwill and Other (Topic 350) Simplifying the Test for Goodwill Impairmen
t. The new guidance eliminates Step 2 of the goodwill impairment test which requires companies to calculate the implied fair value of goodwill, determined in the same manner as the amount of goodwill recognized in a business combination and using a hypothetical purchase price allocation. Under the new guidance, goodwill impairment will now be measured as the amount by which a reporting unit’s carrying value exceeds its fair value. The Company is required to adopt this standard on January 1, 2020, and early adoption is permitted. The Company does not expect the adoption of this guidance will have a material impact on its consolidated financial statements.
In May 2017, the FASB issued ASU No. 2017-09,
Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting
. This ASU provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting. An entity would not apply modification accounting if the fair value, vesting conditions and classification of the awards are the same immediately before and after the modification. The amendments in this ASU will be applied prospectively to awards modified on or after the adoption date. The Company adopted this standard on January 1, 2018 and its application did not have a material impact on its consolidated financial statements.
3. Property and Equipment
Property and equipment at
December 31, 2017
and
2016
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
Computer hardware and software
|
|
$
|
115,444
|
|
|
$
|
96,138
|
|
Furniture, fixtures and equipment
|
|
17,556
|
|
|
14,956
|
|
Leasehold improvements
|
|
16,628
|
|
|
12,670
|
|
Work-in-progress
|
|
4,565
|
|
|
5,522
|
|
|
|
154,193
|
|
|
129,286
|
|
Less -- accumulated depreciation
|
|
(96,197
|
)
|
|
(72,344
|
)
|
|
|
$
|
57,996
|
|
|
$
|
56,942
|
|
Depreciation expense related to property and equipment was
$25.2 million
in
2017
,
$22.6 million
in
2016
and
$16.8 million
in
2015
and is included in SG&A expenses.
The Company has capitalized costs related to its various technology initiatives. At
December 31, 2017
and
2016
, the net book value of the property and equipment related to computer software was
$33.3 million
and
$31.8 million
, respectively, which included work-in-progress of
$3.2 million
and
$3.1 million
, respectively.
4. Acquisitions
Assets and liabilities of all acquired companies are recorded at their estimated fair values at the dates of acquisition. The fair value assigned to identifiable intangible assets is determined primarily by using a discounted cash flow method (a non-recurring fair value measurement based on Level 3 inputs). Goodwill represents the expected synergies with our existing business, the acquired assembled workforce, potential new customers and future cash flows after the acquisition.
Stratacuity Acquisition
On
August 8, 2017
, the Company acquired all of the outstanding shares of
StratAcuity Staffing Partners, Inc.
("Stratacuity")
headquartered in New Hampshire
for
$25.9 million
. Acquisition expenses of approximately
$0.5 million
were expensed in 2017 and included in SG&A expenses. Stratacuity
was purchased to expand the Company's specialized clinical/scientific staffing solutions for biotechnology and pharmaceutical organizations
. Goodwill associated with this acquisition totaled
$17.5 million
and is deductible for income tax purposes. Identifiable intangible assets related to this acquisition totaled
$7.6 million
. The results of operations for this acquisition have been combined with those of the Company from the acquisition date. Revenues and income before income taxes from Stratacuity of
$7.5 million
and
$0.6 million
, respectively, were included in the consolidated statement of operations and comprehensive income for 2017. The purchase accounting for this acquisition has been finalized. Stratacuity is included in the Apex segment.
LabResource Acquisition
On
April 14, 2015
, the Company acquired all of the outstanding shares of
LabResource B.V.
(“LabResource”)
headquartered in Amsterdam, the Netherlands
for
$12.7 million
. Acquisition expenses of approximately
$0.4 million
were expensed in 2015 and included in SG&A expenses. LabResource
was purchased to expand the Company's life sciences staffing business in Europe
. Goodwill associated with this acquisition totaled
$6.4 million
and is not deductible for income tax purposes. Identifiable intangible assets related to this acquisition totaled
$7.5 million
. The results of operations for this acquisition have been combined with those of the Company from the acquisition date. Revenues and income before income taxes from LabResource of
$7.7 million
and
$1.0 million
, respectively, were included in the consolidated statement of operations and comprehensive income for 2015. The purchase accounting this acquisition has been finalized. LabResource is included in the Oxford segment.
Creative Circle Acquisition
On
June 5, 2015
, the Company acquired all of the outstanding shares of the holding company for
Creative Circle, LLC
(“Creative Circle”). Creative Circle, which
is headquartered in Los Angeles, California
,
was purchased to expand the Company’s technical and creative staffing services
. The purchase price consisted of
$540.0 million
in cash,
$30.2 million
of common stock (
794,700
shares of the Company’s common stock) and estimated future contingent consideration which was valued at
$13.8 million
. Acquisition expenses of approximately
$5.7 million
were expensed in 2015 and included in SG&A expenses. Goodwill related to this acquisition totaled
$358.0 million
and is deductible for income tax purposes. The results of operations for Creative Circle have been combined with those of the Company from the acquisition date. Revenues and income before income taxes from Creative Circle of
$167.2 million
and
$22.9 million
, respectively, were included in the consolidated statement of operations and comprehensive income for 2015. Creative Circle is included in the Apex segment.
The final value of the contingent consideration for Creative Circle was
$15.8 million
, an increase of
$2.0 million
from the initial valuation. This increase consisted of (i) accretion of discount, as the initial value was recorded on a discounted basis and (ii) an increase in the obligation due to higher than expected post-acquisition performance of the acquired business. The
$15.8 million
obligation was paid in 2016, of which
$13.8 million
was included in cash used in financing activities and
$2.0 million
in cash used in operating activities.
The purchase accounting for the Creative Circle acquisition has been finalized and the
following table summarizes the consideration paid, a
ssets acquired and liabilities assumed
(in thousands):
|
|
|
|
|
|
Cash
|
|
$
|
4,840
|
|
Accounts receivable
|
|
34,386
|
|
Prepaid expenses and other current assets
|
|
4,462
|
|
Property and equipment
|
|
5,077
|
|
Goodwill
|
|
358,029
|
|
Identifiable intangible assets
|
|
194,500
|
|
Other
|
|
651
|
|
Total assets acquired
|
|
$
|
601,945
|
|
|
|
|
Total liabilities assumed
|
|
12,254
|
|
|
|
|
Total purchase price
(1)
|
|
$
|
589,691
|
|
______
|
|
(1)
|
Excluding cash acquired and a $0.9 million adjustment for net working capital in excess of the targeted amount (thereby increasing the actual purchase price paid), the purchase price for Creative Circle was $584.0 million as described in the discussion above.
|
The following table summarizes the Creative Circle acquired identifiable intangible assets (in thousands):
|
|
|
|
|
|
|
|
Useful life
|
|
|
Contractor relationships
|
2 - 4 years
|
|
$
|
29,500
|
|
Customer relationships
|
2 - 10 years
|
|
90,700
|
|
Non-compete agreements
|
2 - 6 years
|
|
7,300
|
|
Favorable contracts
|
5 years
|
|
900
|
|
Trademarks
|
indefinite
|
|
66,100
|
|
Total identifiable intangible assets acquired
|
|
$
|
194,500
|
|
5. Discontinued Operations
On February 1, 2015, the Company completed the sale of its Physician Segment for
$123.0 million
and recognized a gain on the sale of
$25.7 million
(net of income taxes of
$14.4 million
). The operating results of this segment are presented as discontinued operations in the consolidated statements of operations and comprehensive income for all periods presented.
Cash flows from discontinued operations are included in the accompanying consolidated statements of cash flows. There were no significant cash flows from operating activities related to discontinued operations during 2017 and
2016
. The net cash used in operating activities that is attributable to the Physician Segment for the year ended
December 31, 2015
was
$1.8 million
.
There were no significant operating results from discontinued operations during 2017 and
2016
. The following is a summary of the operating results of all of the Company's discontinued operations for the year ended
December 31, 2015
(in thousands):
|
|
|
|
|
|
Revenues
|
|
$
|
12,068
|
|
Costs of services
|
|
8,653
|
|
Gross profit
|
|
3,415
|
|
Selling, general and administrative expenses
|
|
2,385
|
|
Amortization of intangible assets
|
|
155
|
|
Income before income taxes
|
|
875
|
|
Provision for income taxes
|
|
350
|
|
Income from discontinued operations, net of income taxes
|
|
$
|
525
|
|
6. Goodwill and Other Identifiable Intangible Assets
The changes in the carrying amount of goodwill for the years ended
December 31, 2017
and
2016
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apex
|
|
Oxford
|
|
Total
|
Balance as of December 31, 2015
|
$
|
644,617
|
|
|
$
|
230,289
|
|
|
$
|
874,906
|
|
Translation adjustment
|
—
|
|
|
(1,393
|
)
|
|
(1,393
|
)
|
Balance as of December 31, 2016
|
$
|
644,617
|
|
|
$
|
228,896
|
|
|
$
|
873,513
|
|
Stratacuity acquisition
|
17,467
|
|
|
—
|
|
|
17,467
|
|
Translation adjustment
|
|
|
|
3,115
|
|
|
3,115
|
|
Balance as of December 31, 2017
|
$
|
662,084
|
|
|
$
|
232,011
|
|
|
$
|
894,095
|
|
As of
December 31, 2017
and
2016
, the Company had the following acquired intangible assets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
|
Estimated Useful Life
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
Subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
2 - 10 years
|
|
$
|
202,588
|
|
|
$
|
119,272
|
|
|
$
|
83,316
|
|
|
$
|
196,204
|
|
|
$
|
98,804
|
|
|
$
|
97,400
|
|
Contractor relationships
|
|
2 - 5 years
|
|
71,121
|
|
|
59,174
|
|
|
11,947
|
|
|
69,721
|
|
|
50,528
|
|
|
19,193
|
|
Non-compete agreements
|
|
2 - 7 years
|
|
11,850
|
|
|
6,600
|
|
|
5,250
|
|
|
10,861
|
|
|
4,922
|
|
|
5,939
|
|
In-use software
|
|
6 years
|
|
18,900
|
|
|
12,816
|
|
|
6,084
|
|
|
18,900
|
|
|
9,666
|
|
|
9,234
|
|
Favorable contracts
|
|
5 years
|
|
900
|
|
|
673
|
|
|
227
|
|
|
900
|
|
|
453
|
|
|
447
|
|
|
|
|
|
305,359
|
|
|
198,535
|
|
|
106,824
|
|
|
296,586
|
|
|
164,373
|
|
|
132,213
|
|
Not subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
|
|
245,942
|
|
|
—
|
|
|
245,942
|
|
|
245,517
|
|
|
—
|
|
|
245,517
|
|
Total
|
|
|
|
$
|
551,301
|
|
|
$
|
198,535
|
|
|
$
|
352,766
|
|
|
$
|
542,103
|
|
|
$
|
164,373
|
|
|
$
|
377,730
|
|
Amortization expense for intangible assets with finite lives w
as
$33.4 million
in
2017
,
$39.6 million
in
2016
and
$34.5 million
in
2015
. Estimated amortization for each of the next five years and thereafter follows (in thousands):
|
|
|
|
|
2018
|
$
|
30,322
|
|
2019
|
23,287
|
|
2020
|
15,613
|
|
2021
|
12,753
|
|
2022
|
8,044
|
|
Thereafter
|
16,805
|
|
|
$
|
106,824
|
|
7. Long-Term Debt
At
December 31, 2017
and
2016
, long-term debt consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
$200 million revolving credit facility, due February 21, 2022
|
$
|
—
|
|
|
$
|
—
|
|
Term B loan facility, due June 5, 2022
|
588,000
|
|
|
656,000
|
|
|
588,000
|
|
|
656,000
|
|
Unamortized deferred loan costs
|
(12,787
|
)
|
|
(15,645
|
)
|
|
$
|
575,213
|
|
|
$
|
640,355
|
|
In 2015, the Company 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.
The facility was 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 the Company 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 the Company 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.
Borrowings under the term B loan bear interest at LIBOR plus
2.00 percent
. Borrowings under the revolving credit facility bear interest at LIBOR plus
1.25
to
2.25 percent
, or the bank’s base rate plus
0.25
to
1.25 percent
, depending on leverage levels. A commitment fee of
0.20
to
0.35 percent
is payable on the undrawn portion of the revolving credit facility. At
December 31, 2017
, the interest rate on the term B loan was
3.6 percent
and there were no borrowings under the revolving credit facility.
Under terms of the credit facility, the Company is 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 includes various restrictive covenants including the maximum ratio of consolidated funded debt to consolidated earnings before interest, taxes, depreciation and amortization ("EBITDA") (
4.00
to 1.00 as of
December 31, 2017
, and steps down at regular intervals to
3.25
to 1.00 on March 31, 2019). The credit facility also contains certain 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 its debt covenants; its ratio of consolidated funded debt to consolidated EBITDA was
1.89
to 1.00, and it had
$195.6 million
available borrowing capacity under its revolving credit facility.
8. Commitments and Contingencies
The Company leases its facilities and certain office equipment under operating leases, which expire at various dates through 2025. Certain leases contain rent escalations or renewal options or both. Rent expense for all significant leases is recognized on a straight-line basis. Rent expense is included in SG&A expenses and was
$26.4 million
,
$25.6 million
and
$21.6 million
in
2017
,
2016
and
2015
, respectively. The balance of the deferred rent liability reflected in other current liabilities in the accompanying consolidated balance sheets was
$1.2 million
and $
0.6 million
at December 31,
2017
and
2016
, respectively, and the balance reflected in other long-term liabilities was
$5.0 million
and
$5.2 million
, at December 31,
2017
and
2016
, respectively.
The following is a summary of the Company's specified contractual cash obligations as of
December 31, 2017
, excluding current liabilities that are included in the consolidated balance sheet (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
Related Party Leases
|
|
Purchase Obligations
|
|
Total
|
2018
|
|
$
|
20,387
|
|
|
$
|
1,302
|
|
|
$
|
10,283
|
|
|
$
|
31,972
|
|
2019
|
|
17,520
|
|
|
1,282
|
|
|
8,362
|
|
|
27,164
|
|
2020
|
|
14,698
|
|
|
1,314
|
|
|
1,055
|
|
|
17,067
|
|
2021
|
|
12,146
|
|
|
1,347
|
|
|
—
|
|
|
13,493
|
|
2022
|
|
8,089
|
|
|
1,380
|
|
|
—
|
|
|
9,469
|
|
Thereafter
|
|
7,267
|
|
|
2,618
|
|
|
—
|
|
|
9,885
|
|
Total
|
|
$
|
80,107
|
|
|
$
|
9,243
|
|
|
$
|
19,700
|
|
|
$
|
109,050
|
|
As a result of the Apex Systems acquisition, the Company leases
two
properties owned by certain board members and an executive of the Company. Rent expense for these two properties wa
s
$1.3 million
f
or each of the years
2017
,
2016
and
2015
.
Purchase obligations are non-cancelable job board service agreements, software maintenance and license agreements and software subscriptions.
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. The Company has unused stand-by letters of credit outstanding to secure obligations for workers’ compensation claims with various insurance carriers. The unused stand-by letters of credit at
December 31, 2017
and
December 31, 2016
were
$4.4 million
and
$4.0 million
, respectively.
Certain employees participate in the Company’s Amended and Restated Change in Control Severance Plan, or have separate agreements that provide for certain benefits in the event of termination at the Company's convenience or following a change in control, as defined by the plan or agreement. Generally, these benefits are based on the employee’s position with the Company and include severance, continuation of health insurance and a pro rata bonus.
Legal Proceedings
The Company is involved in various legal proceedings, claims and litigation arising in the ordinary course of business. The Company does not believe that the disposition of matters that are pending or asserted will have a material effect on its consolidated financial statements.
9. Income Taxes
On December 22, 2017, the U.S. government enacted comprehensive tax legislation referred to as the Tax Cuts and Jobs Act (“TCJA”). In the fourth quarter of 2017, the Company recorded an estimated net tax benefit of
$31.4 million
for the impact of the TCJA, which is included in the provision for income taxes in the consolidated statement of operations and comprehensive income. The estimate is provisional and includes a net benefit of
$33.4 million
for the re-measurement of deferred tax assets and liabilities, offset by a charge of
$1.6 million
for the transition tax on the deemed dividend on foreign earnings and a charge of
$0.4 million
related to certain other impacts of the TCJA. The Company will continue to evaluate and analyze the impact of the legislation. The
$31.4 million
is provisional and may be materially adjusted based on additional analysis and guidance from the U.S. Department of Treasury.
The provision for income taxes consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
Current:
|
|
|
|
|
|
|
Federal
|
|
$
|
33,623
|
|
|
$
|
38,103
|
|
|
$
|
31,295
|
|
State
|
|
7,717
|
|
|
6,685
|
|
|
5,837
|
|
Foreign
|
|
2,725
|
|
|
2,672
|
|
|
2,048
|
|
|
|
44,065
|
|
|
47,460
|
|
|
39,180
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal and State
|
|
(4,726
|
)
|
|
13,169
|
|
|
11,520
|
|
Foreign
|
|
(120
|
)
|
|
(426
|
)
|
|
(209
|
)
|
|
|
(4,846
|
)
|
|
12,743
|
|
|
11,311
|
|
|
|
$
|
39,219
|
|
|
$
|
60,203
|
|
|
$
|
50,491
|
|
Income from continuing operations before income taxes consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
United States
|
|
$
|
184,168
|
|
|
$
|
148,402
|
|
|
$
|
116,011
|
|
Foreign
|
|
12,925
|
|
|
8,997
|
|
|
5,902
|
|
|
|
$
|
197,093
|
|
|
$
|
157,399
|
|
|
$
|
121,913
|
|
The components of deferred tax assets (liabilities) are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2017
|
|
2016
|
Intangibles
|
|
$
|
(73,921
|
)
|
|
$
|
(88,832
|
)
|
Depreciation expense
|
|
(9,851
|
)
|
|
(14,383
|
)
|
Allowance for doubtful accounts
|
|
2,615
|
|
|
3,185
|
|
Employee-related accruals
|
|
2,616
|
|
|
10,156
|
|
Stock-based compensation
|
|
4,766
|
|
|
9,300
|
|
Other
|
|
4,339
|
|
|
6,239
|
|
Net operating loss carryforwards
|
|
1,255
|
|
|
1,262
|
|
Valuation allowance
|
|
(1,255
|
)
|
|
(1,209
|
)
|
|
|
$
|
(69,436
|
)
|
|
$
|
(74,282
|
)
|
The reconciliation between the amount computed by applying the U.S. federal statutory tax rate of
35.0 percent
to income before income taxes and the income tax provision is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
Income tax provision at the statutory rate
|
|
$
|
68,983
|
|
|
$
|
55,089
|
|
|
$
|
42,669
|
|
State income taxes, net of federal benefit
|
|
6,751
|
|
|
4,873
|
|
|
4,559
|
|
Disallowed meals and entertainment expenses
|
|
1,854
|
|
|
1,814
|
|
|
1,718
|
|
Excess stock-based compensation benefit
|
|
(4,241
|
)
|
|
(165
|
)
|
|
(168
|
)
|
Impact of TCJA
|
|
(31,420
|
)
|
|
—
|
|
|
—
|
|
Other
|
|
(2,708
|
)
|
|
(1,408
|
)
|
|
1,713
|
|
|
|
$
|
39,219
|
|
|
$
|
60,203
|
|
|
$
|
50,491
|
|
As of
December 31, 2017
, the Company had
no
federal net operating losses,
no
state net operating losses, and
$5.7 million
of foreign net operating losses which begin to expire in 2021. The foreign net operating losses in the United Kingdom and Spain can be carried forward indefinitely. The Company has recorded a valuation allowance of approximately
$1.2 million
at
December 31, 2017
and
2016
, related to net operating loss carryforwards.
The Company has not provided deferred income taxes on undistributed earnings of its foreign subsidiaries as it intends to reinvest these earnings indefinitely. At
December 31, 2017
, undistributed earnings of foreign subsidiaries were
$7.9 million
. Upon repatriation of those earnings, in the form of dividends or otherwise, the Company would be subject to state income and foreign withholding taxes. Determination of the amount of unrecognized deferred income tax liability is not practicable due to the complexities associated with this hypothetical calculation.
The Company had gross deferred tax assets of
$18.6 million
and
$34.4 million
and gross deferred tax liabilities of
$86.8 million
and
$107.5 million
at
December 31, 2017
and
2016
, respectively. Management has determined the gross deferred tax assets are realizable, with the exception of foreign net operating losses discussed above.
At
December 31, 2017
,
2016
and
2015
, there were
$0.4 million
,
$1.3 million
and
$0.8 million
of unrecognized tax benefits, respectively, that if recognized would affect the annual effective tax rate. The gross unrecognized tax benefits are included in other long-term liabilities. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. The amount of interest and penalties recognized in the financial statements is not significant. The Company believes that it is reasonably possible that a decrease of
$0.1 million
in unrecognized tax benefits may be recognized by the end of 2018 as a result of a lapse in the statute of limitations. The following is a reconciliation of the total amounts of unrecognized tax benefits (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
Unrecognized tax benefit beginning of year
|
|
$
|
1,293
|
|
|
$
|
814
|
|
|
$
|
848
|
|
Gross increases - tax positions in current year
|
|
71
|
|
|
—
|
|
|
—
|
|
Gross increases - tax positions in prior year
|
|
—
|
|
|
479
|
|
|
—
|
|
Gross decreases - tax positions in prior year
|
|
(254
|
)
|
|
—
|
|
|
(34
|
)
|
Lapse of the statute of limitations
|
|
(680
|
)
|
|
—
|
|
|
—
|
|
Unrecognized tax benefit end of year
|
|
$
|
430
|
|
|
$
|
1,293
|
|
|
$
|
814
|
|
The Company is subject to taxation in the United States and various states and foreign jurisdictions. The IRS has completed an examination of the Company's U.S. income tax return for 2014, resulting in no changes. The Company remains subject to U.S. federal income tax examinations for 2014 and subsequent years. For major U.S. states, with few exceptions, and generally for the foreign tax jurisdictions, the Company remains subject to examination for 2013 and subsequent years.
10. Earnings per Share
Basic earnings per share are computed using the weighted average number of shares outstanding and diluted earnings per share are computed using the weighted average number of shares and dilutive share equivalents (consisting of non-qualified stock options, restricted stock units and employee stock purchase plan contributions) outstanding during the periods using the treasury stock method.
The following is a reconciliation of the shares used to compute basic and diluted earnings per share (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
Weighted average number of common shares outstanding used to compute basic earnings per share
|
|
52,503
|
|
|
53,192
|
|
|
52,259
|
|
Dilutive effect of stock-based awards
|
|
702
|
|
|
555
|
|
|
746
|
|
Number of shares used to compute diluted earnings per share
|
|
53,205
|
|
|
53,747
|
|
|
53,005
|
|
There were no significant share equivalents outstanding as of
December 31, 2017
,
2016
and
2015
that were anti-dilutive when applying the treasury stock method.
11. Stockholders' Equity
On January 16, 2015, the Company's Board of Directors approved a
$100.0 million
share repurchase program. During 2015, the Company repurchased
43,000
shares of its common stock at a cost of
$1.6 million
. All shares repurchased under this program were retired, which resulted in a reduction of
$0.4 million
in paid-in capital and a reduction of
$1.2 million
in retained earnings.
The Company's stock-based compensation plans accept shares of the Company's common stock as payment for the exercise price of stock options. During 2015 the Company received
46,174
shares, with a
$2.2 million
value, as payment for the exercise of stock options. Those shares were retired upon receipt, which resulted in a reduction of
$0.8 million
in paid-in capital and a reduction of
$1.4 million
in retained earnings.
On June 5, 2015, the Company issued
0.8 million
shares of its common stock valued at
$30.2 million
, in connection with the acquisition of Creative Circle.
On June 10, 2016, the Board of Directors approved a
$150.0 million
, two-year stock repurchase program. This program superseded the previous
$100.0 million
repurchase authorization. During 2016, the Company repurchased
1.1 million
shares of its common stock at a cost of
$43.1 million
. All shares repurchased under this program were retired, which resulted in a reduction of
$11.9 million
in paid-in capital and a reduction of
$31.2 million
in retained earnings.
During 2017, the Company repurchased
1.2 million
shares of its common stock at a cost of
$58.1 million
under the existing stock repurchase program. All shares repurchased under this program were retired, which resulted in a reduction of
$13.2 million
in paid-in capital and a reduction of
$44.8 million
in retained earnings. The remaining authorized amount under the repurchase program at
December 31, 2017
is
$48.8 million
.
The balances of accumulated other comprehensive income (loss) at December 31, 2017, 2016 and 2015 and the activity within those years was primarily comprised of foreign currency translation adjustments.
12. Stock-Based Compensation and Other Employee Benefit Plans
Effective June 3, 2010, the stockholders of the Company approved the adoption of the On Assignment, Inc. 2010 Incentive Award Plan, (the “2010 Plan”). This plan permits the grant of stock options, including incentive stock options, nonqualified stock options, restricted stock awards, dividend equivalent rights, stock payments, deferred stock, restricted stock units (“RSUs”), performance shares and other incentive awards, stock appreciation rights and cash awards to its employees, directors and consultants. As of
December 31, 2017
, there were
2,130,289
shares available for issuance under the 2010 Plan.
Effective May 15, 2012, the Board of Directors adopted the 2012 Employment Inducement Incentive Award Plan, (the “2012 Plan”). This plan allows for grants of stock to employees as employment inducement awards pursuant to New York Stock Exchange rules. The terms of the 2012 Plan are similar to the 2010 Plan. As of
December 31, 2017
, there were
191,392
shares available for issuance under the 2012 Plan.
The Company believes that stock-based compensation aligns the interests of its employees and directors with those of its stockholders. Stock-based compensation provides incentives to retain and motivate executive officers and key employees responsible for driving Company performance and maintaining important relationships that contribute to the growth of the Company.
Stock-based compensation expense was
$24.0 million
,
$27.0 million
and
$22.0 million
for the years ended December 31,
2017
,
2016
and
2015
, respectively, and is included in SG&A expenses.
Effective January 1, 2017, the Company adopted ASU No. 2016-09,
Compensation - Stock Compensation (Topic 718).
Under this standard, excess tax benefits and deficiencies related to stock-based compensation are recognized as income tax benefit or expense in the consolidated statement of operations and comprehensive income, rather than in paid-in capital. This change in accounting for excess tax benefits and deficiencies was applied prospectively. The Company recognized
$4.5 million
of excess tax benefits in its 2017 consolidated statement of operations and comprehensive income. The Company recognized
$2.7 million
and
$6.6 million
of excess tax benefits in its consolidated statements of stockholders' equity for
2016
and
2015
, respectively.
Restricted Stock Units
The fair value of each RSU is based on the fair market value of the awards on the grant date and the Company records compensation expense based on this value, net of a forfeiture rate. The forfeiture rate estimates the number of awards that will eventually vest and is based on historical vesting patterns for RSUs.
A summary of the status of the Company’s unvested RSUs as of
December 31, 2017
and changes during the year then ended are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service Conditions
|
|
Performance and Service Conditions
|
|
Total
|
|
Weighted Average Grant-Date Fair Value Per Unit
|
Unvested RSUs outstanding at December 31, 2016
|
|
279,262
|
|
|
916,593
|
|
|
1,195,855
|
|
|
|
$
|
38.78
|
|
|
Granted
|
|
120,914
|
|
|
320,406
|
|
|
441,320
|
|
|
|
$
|
49.62
|
|
|
Vested
|
|
(179,223
|
)
|
|
(525,517
|
)
|
|
(704,740
|
)
|
|
|
$
|
38.84
|
|
|
Forfeited
|
|
(13,182
|
)
|
|
(59,280
|
)
|
|
(72,462
|
)
|
|
|
$
|
40.82
|
|
|
Unvested RSUs outstanding at December 31, 2017
|
|
207,771
|
|
|
652,202
|
|
|
859,973
|
|
|
|
$
|
44.29
|
|
|
Unvested and expected to vest RSUs outstanding at December 31, 2017
|
|
191,205
|
|
|
615,460
|
|
|
806,665
|
|
|
|
$
|
44.15
|
|
|
The total number of shares vested in the table above includes
291,368
shares surrendered by the employees to the Company for payment of income taxes. The surrendered shares are available for issuance under the 2010 Plan.
In December 2017, the Company converted certain RSUs for 11 executive officers to Restricted Stock Awards ("RSAs") and accelerated the vesting of these RSAs and certain other RSUs. The original vesting dates for these awards were in early January 2018. The awards were accelerated as a tax planning strategy and there was no incremental stock-based compensation expense as a result of this acceleration.
The weighted-average grant-date fair value of RSUs granted during
2017
,
2016
and
2015
was
$49.62
,
$36.07
and
$40.49
per award, respectively. The fair value of RSUs that vested during
2017
,
2016
and
2015
, was
$37.8 million
,
$21.7 million
and
$24.3 million
, respectively.
As of
December 31, 2017
, there was unrecognized compensation expense of
$21.5 million
related to unvested RSUs based on awards that are expected to vest. The unrecognized compensation expense is expected to be recognized over a weighted-average period of
two
years.
Liability Awards
The Company's outstanding liability awards have a performance component and vest in one year from the date of grant. The performance goals are approved by the Compensation Committee of the Company’s Board of Directors. The Company classifies these awards as liabilities until the number of shares is determined, in accordance with the grant. The number of shares is determined by dividing the final award liability balance by the Company’s closing stock price on the settlement dates. This liability is included in other accrued expenses
in the accompanying consolidated balance sheets
.
The following table summarizes the balance of liability awards and expense during the years presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
Balances of liability awards at beginning of year
|
|
$
|
465
|
|
|
$
|
—
|
|
|
$
|
1,453
|
|
Expense for grants
|
|
470
|
|
|
465
|
|
|
—
|
|
Settled
|
|
(935
|
)
|
|
—
|
|
|
(1,453
|
)
|
Balance of liability awards at end of year
|
|
$
|
—
|
|
|
$
|
465
|
|
|
$
|
—
|
|
There was no unrecognized compensation expense for liability awards as of
December 31, 2017
.
Stock Options
The Company has not granted any stock options since 2012. The fair value of stock option grants was estimated on the grant date using the Black-Scholes option pricing model. The Company records compensation expense based on this value. The following summarizes pricing and term information for options outstanding as of
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
|
Number Outstanding at
|
|
Weighted Average Remaining Contractual Life (years)
|
|
Weighted Average Exercise Price
|
|
Number Exercisable at
|
|
Weighted Average Exercise Price
|
Range of Exercise Prices
|
|
December 31, 2017
|
|
|
|
December 31, 2017
|
|
$
|
4.44
|
|
|
-
|
|
$
|
7.31
|
|
|
25,653
|
|
|
1.6
|
|
|
$
|
6.25
|
|
|
|
25,653
|
|
|
|
$
|
6.25
|
|
|
$
|
7.39
|
|
|
-
|
|
$
|
7.39
|
|
|
3,500
|
|
|
2.3
|
|
|
$
|
7.39
|
|
|
|
3,500
|
|
|
|
$
|
7.39
|
|
|
$
|
8.26
|
|
|
-
|
|
$
|
8.26
|
|
|
12,023
|
|
|
3.0
|
|
|
$
|
8.26
|
|
|
|
12,023
|
|
|
|
$
|
8.26
|
|
|
$
|
10.46
|
|
|
-
|
|
$
|
10.46
|
|
|
16,494
|
|
|
3.9
|
|
|
$
|
10.46
|
|
|
|
16,494
|
|
|
|
$
|
10.46
|
|
|
$
|
16.51
|
|
|
-
|
|
$
|
16.51
|
|
|
75,000
|
|
|
4.7
|
|
|
$
|
16.51
|
|
|
|
75,000
|
|
|
|
$
|
16.51
|
|
|
$
|
4.44
|
|
|
-
|
|
$
|
16.51
|
|
|
132,670
|
|
|
3.8
|
|
|
$
|
12.79
|
|
|
|
132,670
|
|
|
|
$
|
12.79
|
|
|
The following table is a summary of stock option activity during
2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- Qualified Stock Options
|
|
Weighted Average Exercise Price Per Share
|
|
Weighted Average Remaining Contractual
Term (Years)
|
|
Aggregate Intrinsic Value
|
Outstanding at December 31, 2016
|
|
169,919
|
|
|
$
|
12.10
|
|
|
|
4.3
|
|
|
$
|
5,448,000
|
|
Exercised
|
|
(36,561
|
)
|
|
$
|
9.60
|
|
|
|
|
|
|
|
|
Canceled
|
|
(688
|
)
|
|
$
|
12.19
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2017
|
|
132,670
|
|
|
$
|
12.79
|
|
|
|
3.8
|
|
|
$
|
6,830,000
|
|
Vested and Expected to Vest at December 31, 2017
|
|
132,670
|
|
|
$
|
12.79
|
|
|
|
3.8
|
|
|
$
|
6,830,000
|
|
Exercisable at December 31, 2017
|
|
132,670
|
|
|
$
|
12.79
|
|
|
|
3.8
|
|
|
$
|
6,830,000
|
|
The total intrinsic value of options exercised during
2017
,
2016
and
2015
was
$1.5 million
,
$4.7 million
and
$10.9 million
, respectively.
Employee Stock Purchase Plan
Effective June 3, 2010, the stockholders of the Company approved the On Assignment 2010 Employee Stock Purchase Plan (the “ESPP”) for issuance of up to
3,500,000
shares of common stock. The ESPP allows eligible employees to purchase common stock of the Company, through payroll deductions, at a
15 percent
discount of the lower of the market price on the first day or the last day of the semi-annual purchase periods. The ESPP is intended to qualify as an employee stock purchase plan under the Internal Revenue Service (“IRS”) Code Section 423. Eligible employees may contribute up to a certain percentage set by the plan administrator of their eligible earnings toward the purchase of the stock (subject to certain IRS limitations). As of
December 31, 2017
, there were
2,085,855
shares available for issuance under the ESPP.
Shares of common stock are transferred to participating employees at the conclusion of each six-month offering period, which ends on the last business day of the month in March and September each year. Compensation expense is measured using a Black-Scholes option-pricing model. The table below presents the average fair value per share of shares purchased and the compensation expense under the ESPP (dollars in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
Average fair value per share
|
|
Shares
|
|
Expense
|
|
2017
|
|
$9.71
|
|
214,466
|
|
$
|
2,092
|
|
|
2016
|
|
$9.05
|
|
242,303
|
|
$
|
2,497
|
|
|
2015
|
|
$7.77
|
|
204,401
|
|
$
|
1,586
|
|
|
Deferred Compensation Plan
The Company has a Deferred Compensation Plan (the "Plan") that became effective on June 1, 2017, pursuant to which eligible management and highly compensated key employees, as defined by IRS regulations, may elect to defer a portion of their compensation to later years. These deferrals are immediately vested and are subject to investment risk and a risk of forfeiture under certain circumstances. Participants may choose from various investment options representing a broad range of asset classes. The Company established a rabbi trust to fund the Plan and at December 31,
2017
there was
$2.2 million
of deferred compensation in the rabbi trust, which is included in cash, cash equivalents and restricted cash, with a corresponding balance in other current liabilities in the accompanying consolidated balance sheet.
Employee Defined Contribution Plans
The Company maintains various 401(k) retirement savings plans for the benefit of our eligible U.S. employees. Under terms of these plans, eligible employees are able to make contributions to these plans on a tax-deferred basis. The Company makes matching contributions, some of which are discretionary. The Company made contributions to the 401(k) plans of
$7.5 million
,
$5.6 million
and
$7.6 million
for the years ended December 31,
2017
,
2016
and
2015
, respectively.
13. Business 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. 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.
The Company’s management evaluates the performance of each segment primarily based on revenues, gross profit and operating income. The information in the following tables is derived directly from the segments’ internal financial reporting used for corporate management purposes. The Company's management does not evaluate, manage or measure performance of segments using asset information and such information is not readily available. Accordingly, assets by reportable segment are not disclosed.
The following tables present revenues, gross profit, operating income and amortization by reportable segment (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2017
|
|
Apex
|
|
Oxford
|
|
Corporate
(1)
|
|
Total
|
Revenues
|
$
|
2,037,154
|
|
|
$
|
588,770
|
|
|
$
|
—
|
|
|
$
|
2,625,924
|
|
Gross profit
|
606,294
|
|
|
243,779
|
|
|
—
|
|
|
850,073
|
|
Operating income
|
222,010
|
|
|
53,787
|
|
|
(51,061
|
)
|
|
224,736
|
|
Amortization
|
29,361
|
|
|
4,083
|
|
|
—
|
|
|
33,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2016
|
|
Apex
|
|
Oxford
|
|
Corporate
(1)
|
|
Total
|
Revenues
|
$
|
1,836,488
|
|
|
$
|
603,925
|
|
|
$
|
—
|
|
|
$
|
2,440,413
|
|
Gross profit
|
548,421
|
|
|
246,762
|
|
|
—
|
|
|
795,183
|
|
Operating income
|
195,133
|
|
|
51,294
|
|
|
(56,701
|
)
|
|
189,726
|
|
Amortization
|
34,359
|
|
|
5,269
|
|
|
—
|
|
|
39,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2015
|
|
Apex
|
|
Oxford
|
|
Corporate
(1)
|
|
Total
|
Revenues
|
$
|
1,493,608
|
|
|
$
|
571,400
|
|
|
$
|
—
|
|
|
$
|
2,065,008
|
|
Gross profit
|
439,586
|
|
|
239,159
|
|
|
—
|
|
|
678,745
|
|
Operating income
|
151,450
|
|
|
59,059
|
|
|
(58,401
|
)
|
|
152,108
|
|
Amortization
|
28,371
|
|
|
6,096
|
|
|
—
|
|
|
34,467
|
|
|
|
(1)
|
Corporate expenses primarily consist of consolidated stock-based compensation expense, compensation for corporate employees, acquisition, integration and strategic planning expenses, public company expenses and depreciation expense for corporate assets.
|
The following table presents revenues by type (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
Revenues:
|
|
|
|
|
|
|
Assignment
|
|
$
|
2,496,314
|
|
|
$
|
2,312,271
|
|
|
$
|
1,947,001
|
|
Permanent placement
|
|
129,610
|
|
|
128,142
|
|
|
118,007
|
|
|
|
$
|
2,625,924
|
|
|
$
|
2,440,413
|
|
|
$
|
2,065,008
|
|
The Company operates internationally, with operations in the United States, Europe and Canada. The following table presents revenues by geographic location (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
Revenues:
|
|
|
|
|
|
|
Domestic
|
|
$
|
2,494,446
|
|
|
$
|
2,324,713
|
|
|
$
|
1,972,888
|
|
Foreign
|
|
131,478
|
|
|
115,700
|
|
|
92,120
|
|
|
|
$
|
2,625,924
|
|
|
$
|
2,440,413
|
|
|
$
|
2,065,008
|
|
The following table presents long-lived assets by geographic location (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2017
|
|
2016
|
Long-lived assets:
|
|
|
|
|
Domestic
|
|
$
|
56,137
|
|
|
$
|
55,801
|
|
Foreign
|
|
1,859
|
|
|
1,141
|
|
|
|
$
|
57,996
|
|
|
$
|
56,942
|
|
14. Fair Value Measurements
The carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued payroll and contractor professional pay approximate their fair value based on their short-term nature. Long-term debt recorded in the Company’s consolidated balance sheets at
December 31, 2017
was
$575.2 million
(net of
$12.8 million
of unamortized deferred loan costs, see
“Note 7. Long-Term Debt”
). The fair value of the term B loan was determined using Level 1 inputs (quoted prices in active markets for identical liabilities) from the fair value hierarchy. The fair value of the term B loan was
$591.7 million
as of
December 31, 2017
.
Certain acquisitions included obligations to pay contingent consideration in cash if specific performance targets were met. There were no remaining contingent consideration obligations as of December 31, 2016. The following table summarizes the changes in the balance of contingent consideration for the year ended December 31,
2016
(in thousands):
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
(20,981
|
)
|
Additions for acquisitions
|
|
—
|
|
Payments on contingent consideration
|
|
21,594
|
|
Fair value adjustments
|
|
(613
|
)
|
Balance at end of year
|
|
$
|
—
|
|
Certain assets and liabilities, such as goodwill and trademarks, are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (e.g., when there is evidence of impairment).
For
2017
and
2016
, no fair
value adjustments were required for non-financial assets or liabilities.
15. Unaudited Quarterly Results
The following tables present unaudited quarterly financial information (in thousands, except per share amounts). In the opinion of the Company’s management, the quarterly information contains all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation thereof. The operating results for any quarter are not necessarily indicative of the results for any future periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Year Ended Dec. 31,
|
2017
|
|
Mar. 31,
|
|
June 30,
|
|
Sept. 30,
|
|
Dec. 31,
(1)
|
|
|
|
|
|
|
Revenues
|
|
$
|
626,528
|
|
|
$
|
653,313
|
|
|
$
|
667,048
|
|
|
$
|
679,035
|
|
|
$
|
2,625,924
|
|
Gross profit
|
|
198,144
|
|
|
212,937
|
|
|
218,315
|
|
|
220,677
|
|
|
850,073
|
|
Income from continuing operations
|
|
22,382
|
|
|
33,236
|
|
|
34,879
|
|
|
67,377
|
|
|
157,874
|
|
Income (loss) from discontinued operations, net of income taxes
|
|
9
|
|
|
(139
|
)
|
|
(23
|
)
|
|
(46
|
)
|
|
(199
|
)
|
Net income
|
|
$
|
22,391
|
|
|
$
|
33,097
|
|
|
$
|
34,856
|
|
|
$
|
67,331
|
|
|
$
|
157,675
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share income from continuing operations and net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.43
|
|
|
$
|
0.63
|
|
|
$
|
0.66
|
|
|
$
|
1.29
|
|
|
$
|
3.01
|
|
Diluted
|
|
$
|
0.42
|
|
|
$
|
0.62
|
|
|
$
|
0.66
|
|
|
$
|
1.28
|
|
|
$
|
2.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Year Ended Dec. 31,
|
2016
|
|
Mar. 31,
|
|
June 30,
|
|
Sept. 30,
|
|
Dec. 31,
(2)
|
|
|
|
|
|
|
Revenues
|
|
$
|
582,040
|
|
|
$
|
608,088
|
|
|
$
|
629,401
|
|
|
$
|
620,884
|
|
|
$
|
2,440,413
|
|
Gross profit
|
|
187,782
|
|
|
202,086
|
|
|
207,120
|
|
|
198,195
|
|
|
795,183
|
|
Income from continuing operations
|
|
17,348
|
|
|
26,013
|
|
|
29,775
|
|
|
24,060
|
|
|
97,196
|
|
Income (loss) from discontinued operations, net of income taxes
|
|
53
|
|
|
(9
|
)
|
|
(7
|
)
|
|
(32
|
)
|
|
5
|
|
Net income
|
|
$
|
17,401
|
|
|
$
|
26,004
|
|
|
$
|
29,768
|
|
|
$
|
24,028
|
|
|
$
|
97,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share income from continuing operations and net income:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.33
|
|
|
$
|
0.49
|
|
|
$
|
0.56
|
|
|
$
|
0.45
|
|
|
$
|
1.83
|
|
Diluted
|
|
$
|
0.32
|
|
|
$
|
0.48
|
|
|
$
|
0.55
|
|
|
$
|
0.45
|
|
|
$
|
1.81
|
|
______
|
|
(1)
|
On December 22, 2017, the U.S. government enacted comprehensive tax legislation, the TCJA. In the fourth quarter of 2017, the Company recorded an estimated net tax benefit of $31.4 million for the impact of the TCJA, which is included in the provision for income taxes in the consolidated statement of operations and comprehensive income, see “Note 9. Income Taxes”.
|
|
|
(2)
|
The fourth quarter of 2016 included out-of-period adjustments of $5.6 million for costs of services that were understated in prior quarters. As a result, costs of services for the fourth quarter of 2016 were overstated by $5.6 million and gross profit, net income and diluted earnings per common share were understated by $5.6 million, $3.4 million and $0.06, respectively.
|
16. Subsequent Events
On January 31, 2018, the Company entered into a definitive agreement to acquire ECS Federal, LLC, a Delaware limited liability company (“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, the Company 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.