form10q.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
xQUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the quarterly period ended March 31, 2009
OR
oTRANSITION
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
of Incorporation)
|
(I.R.S.
Employer Identification No.)
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|
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|
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26651
West Agoura Road, Calabasas, CA
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91302
|
|
(Address
of principal executive offices)
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(Zip
Code)
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|
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|
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(818)
878-7900
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(Registrant’s
telephone number, including area code)
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|
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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 for
the past 90 days. x
Yes o
No
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). oYes o No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer”, “accelerated filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer o
|
Accelerated
filer x
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|
Non-accelerated
filer o
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Smaller
reporting company o
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|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
o Yes x
No
At April
30, 2009, the total number of outstanding shares of the Company’s Common Stock
($0.01 par value) was 36,132,502.
ON
ASSIGNMENT, INC. AND SUBSIDIARIES
Index
PART
I – FINANCIAL INFORMATION
|
|
Item
1 – Condensed Consolidated Financial Statements
(unaudited)
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|
Condensed
Consolidated Balance Sheets at March 31, 2009 and December 31,
2008
|
|
Condensed
Consolidated Statements of Operations and Comprehensive Income for the
Three Months Ended March 31, 2009 and 2008
|
|
Condensed
Consolidated Statements of Cash Flows for the Three Months Ended March 31,
2009 and 2008
|
|
Notes
to Condensed Consolidated Financial Statements
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|
Item
2 – Management’s Discussion and Analysis of Financial Condition and
Results of Operations
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|
Item
3 – Quantitative and Qualitative Disclosures about Market
Risks
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Item
4 – Controls and Procedures
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PART
II – OTHER INFORMATION
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Item
1 – Legal Proceedings
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Item
1A – Risk Factors
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|
Item
2 – Unregistered Sales of Equity Securities and Use of
Proceeds
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Item
3 – Defaults Upon Senior Securities
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Item
4 – Submission of Matters to a Vote of Security Holders
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Item
5 – Other Information
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Item
6 – Exhibits
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|
Signatures
|
PART I
- FINANCIAL INFORMATION
Item
1 — Condensed Consolidated Financial Statements (Unaudited)
ON
ASSIGNMENT, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In
thousands, except share and per share data)
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|
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|
|
ASSETS
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
46,466 |
|
|
$ |
46,271 |
Accounts
receivable, net of allowance of $2,245 and
$2,443
|
|
|
61,868 |
|
|
|
78,370 |
Advances
and deposits
|
|
|
375 |
|
|
|
311 |
Prepaid
expenses
|
|
|
3,925 |
|
|
|
4,503 |
Prepaid
income taxes
|
|
|
3,415 |
|
|
|
3,759 |
Deferred
income tax assets
|
|
|
9,201 |
|
|
|
9,347 |
Other
|
|
|
2,449 |
|
|
|
2,162 |
Total
current assets
|
|
|
127,699 |
|
|
|
144,723 |
|
|
|
|
|
|
|
|
Property
and Equipment, net of depreciation of $17,702 and
$21,921
|
|
|
16,859 |
|
|
|
17,495 |
Goodwill
|
|
|
202,777 |
|
|
|
202,777 |
Identifiable
intangible assets
|
|
|
29,890 |
|
|
|
31,428 |
Other
assets
|
|
|
6,120 |
|
|
|
5,427 |
Total
Assets
|
|
$ |
383,345 |
|
|
$ |
401,850 |
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
5,297 |
|
|
$ |
5,204 |
Accrued
payroll and contract professional pay
|
|
|
15,519 |
|
|
|
19,836 |
Deferred
compensation
|
|
|
1,527 |
|
|
|
1,610 |
Workers’
compensation and medical malpractice loss reserves
|
|
|
10,385 |
|
|
|
9,754 |
Accrued
earn-out payments
|
|
|
10,168 |
|
|
|
10,168 |
Other
|
|
|
4,638 |
|
|
|
6,959 |
Total
current liabilities
|
|
|
47,534 |
|
|
|
53,531 |
|
|
|
|
|
|
|
|
Deferred
income taxes
|
|
|
1,997 |
|
|
|
1,997 |
Long-term
debt
|
|
|
110,913 |
|
|
|
125,913 |
Other
long-term liabilities
|
|
|
1,749 |
|
|
|
1,895 |
Total
liabilities
|
|
|
162,193 |
|
|
|
183,336 |
|
|
|
|
|
|
|
|
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, 39,142,528 and
38,816,844 issued
|
|
|
391 |
|
|
|
388 |
Paid-in
capital
|
|
|
229,192 |
|
|
|
227,522 |
Retained
earnings
|
|
|
17,863 |
|
|
|
16,215 |
Accumulated
other comprehensive income
|
|
|
284 |
|
|
|
800 |
|
|
|
247,730 |
|
|
|
244,925 |
Less:
Treasury Stock at cost, 3,133,755 and 3,097,364 shares,
respectively
|
|
|
26,578 |
|
|
|
26,411 |
Total
stockholders’ equity
|
|
|
221,152 |
|
|
|
218,514 |
Total
Liabilities and Stockholders’ Equity
|
|
$ |
383,345 |
|
|
$ |
401,850 |
|
|
|
|
|
|
|
|
See notes
to condensed consolidated financial statements.
ON
ASSIGNMENT, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(UNAUDITED)
(In
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
116,802 |
|
|
$ |
152,413 |
|
Cost
of services
|
|
|
79,818 |
|
|
|
104,985 |
|
Gross
profit
|
|
|
36,984 |
|
|
|
47,428 |
|
Selling,
general and administrative expenses
|
|
|
33,129 |
|
|
|
39,697 |
|
Operating
income
|
|
|
3,855 |
|
|
|
7,731 |
|
Interest
expense
|
|
|
(1,087 |
) |
|
|
(3,884 |
) |
Interest
income
|
|
|
56 |
|
|
|
273 |
|
Income
before income taxes
|
|
|
2,824 |
|
|
|
4,120 |
|
Provision
for income taxes
|
|
|
1,176 |
|
|
|
1,717 |
|
Net
income
|
|
$ |
1,648 |
|
|
$ |
2,403 |
|
|
|
|
|
|
|
|
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.05 |
|
|
$ |
0.07 |
|
Diluted
|
|
$ |
0.05 |
|
|
$ |
0.07 |
|
Number
of shares used to calculate earnings per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
35,840 |
|
|
|
35,266 |
|
Diluted
|
|
|
35,982 |
|
|
|
35,375 |
|
Reconciliation
of net income to comprehensive income:
|
|
|
|
|
|
|
Net
income
|
|
$ |
1,648 |
|
|
$ |
2,403 |
|
Foreign
currency translation adjustment
|
|
|
(516 |
) |
|
|
588 |
|
Comprehensive
income
|
|
$ |
1,132 |
|
|
$ |
2,991 |
|
|
|
|
|
|
|
|
|
|
See notes
to condensed consolidated financial statements.
ON
ASSIGNMENT, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In
thousands)
|
|
Three
Months Ended March 31,
|
|
|
|
|
|
|
|
|
Cash Flows from Operating
Activities:
|
|
|
|
|
|
|
Net
income
|
|
$ |
1,648 |
|
|
$ |
2,403 |
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
1,512 |
|
|
|
1,356 |
|
Amortization
of intangible assets
|
|
|
1,538 |
|
|
|
2,328 |
|
Provision
for doubtful accounts and billing adjustments
|
|
|
172 |
|
|
|
316 |
|
Deferred
income tax expense
|
|
|
13 |
|
|
|
13 |
|
Stock-based
compensation
|
|
|
1,145 |
|
|
|
1,585 |
|
Amortization
of deferred loan costs
|
|
|
148 |
|
|
|
148 |
|
Change
in fair value of interest rate swap
|
|
|
(660 |
) |
|
|
1,222 |
|
Loss
on officers’ life insurance policies
|
|
|
56 |
|
|
|
170 |
|
Gross
excess tax benefits from stock-based compensation
|
|
|
— |
|
|
|
(15 |
) |
Loss
on disposal of property and equipment
|
|
|
28 |
|
|
|
13 |
|
Workers’
compensation and medical malpractice provision
|
|
|
1,544 |
|
|
|
1,481 |
|
Changes
in operating assets and liabilities, net of effect of
acquisitions:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
16,146 |
|
|
|
(7,993 |
) |
Prepaid
expenses
|
|
|
571 |
|
|
|
147 |
|
Prepaid
income taxes
|
|
|
343 |
|
|
|
13 |
|
Accounts
payable
|
|
|
844 |
|
|
|
1,235 |
|
Accrued
payroll and contract professional pay
|
|
|
(4,283 |
) |
|
|
4,425 |
|
Deferred
compensation
|
|
|
(83 |
) |
|
|
52 |
|
Workers’
compensation and medical malpractice loss reserves
|
|
|
(913 |
) |
|
|
(786 |
) |
Other
|
|
|
(1,611 |
) |
|
|
(1,272 |
) |
Net
cash provided by operating activities
|
|
|
18,158 |
|
|
|
6,841 |
|
Cash
Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(1,638 |
) |
|
|
(2,531 |
) |
Increase
in other assets
|
|
|
(110 |
) |
|
|
(221 |
) |
Net
cash used in investing activities
|
|
|
(1,748 |
) |
|
|
(2,752 |
) |
Cash
Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Net
proceeds from stock transactions
|
|
|
291 |
|
|
|
826 |
|
Gross
excess tax benefits from stock-based compensation
|
|
|
— |
|
|
|
15 |
|
Deferred
loan costs
|
|
|
(1,065 |
) |
|
|
— |
|
Payments
of other long-term liabilities
|
|
|
(40 |
) |
|
|
(268 |
) |
Principal
payments of long-term debt
|
|
|
(15,000 |
) |
|
|
— |
|
Net
cash (used in) provided by financing activities
|
|
|
(15,814 |
) |
|
|
573 |
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
(401 |
) |
|
|
519 |
|
Net
Increase in Cash and Cash Equivalents
|
|
|
195 |
|
|
|
5,181 |
|
Cash
and Cash Equivalents at Beginning of Period
|
|
|
46,271 |
|
|
|
37,764 |
|
Cash
and Cash Equivalents at End of Period
|
|
$ |
46,466 |
|
|
$ |
42,945 |
|
(continued)
|
Three
Months Ended March 31,
|
|
|
|
|
|
Supplemental
Disclosure of Cash Flow Information:
|
|
|
|
|
Cash
paid for:
|
|
|
|
|
Income
taxes, net of refunds
|
$ |
747 |
|
|
$ |
2,789 |
Interest
|
$ |
2,679 |
|
|
$ |
2,486 |
|
|
|
|
|
|
|
Supplemental
Disclosure of Non-Cash Transactions:
|
|
|
|
|
|
|
Accrued
earn-out payments
|
$ |
— |
|
|
$ |
488 |
Acquisition
of property and equipment through accounts payable
|
$ |
526 |
|
|
$ |
603 |
See notes
to condensed consolidated financial statements.
ON
ASSIGNMENT, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Financial
Statement Presentation. The accompanying condensed consolidated financial
statements have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC). This Report on
Form 10-Q should be read in conjunction with the Company’s Annual Report on
Form 10-K for the year ended December 31, 2008. Certain information
and footnote disclosures, which are normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America, have been condensed or omitted pursuant to SEC
rules and regulations. The information reflects all normal and recurring
adjustments which, in the opinion of the Company’s management, are necessary for
a fair presentation of the financial position of the Company and its results of
operations for the interim periods set forth herein. The results for the three
months ended March 31, 2009 are not necessarily indicative of the results to be
expected for the full year or any other period.
2. Recent Accounting
Pronouncements. The disclosure
requirements of SFAS No. 157, “Fair Value Measurements” (SFAS 157), which took
effect on January 1, 2008, are presented in Note 4. On January 1, 2009, the
Company implemented the previously deferred provisions of SFAS 157 related to
non-financial assets and liabilities with no impact on the Company’s
consolidated financial position or results of operations.
The
accounting requirements of SFAS No. 141(R), “Business Combinations”, which took
effect on January 1, 2009, were adopted but had no impact on the Company’s
financial statements.
The
disclosure requirements of SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133,”
(SFAS 161), which took effect on January 1, 2009, are presented in Note
4.
In April
2009, the FASB issued FASB Staff Position No.107-1 and APB No. 28-1, “Interim
Disclosures about Fair Value of Financial Instruments,” (FSP 107-1 and APB
28-1), which requires fair value disclosures for any financial instruments that
are not currently reflected on the balance sheet at fair value. Prior
disclosure requirements only applied to annual financial statements. The
Company is evaluating the impact of adoption of FSP FAS 107-1 and APB 28-1,
which will require additional disclosure effective for the Company’s reporting
period ending June 30, 2009.
3. Long-Term
Debt. Long-term debt at
March 31, 2009 and December 31, 2008 consisted of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Senior
Secured Debt:
|
|
|
|
|
|
$20
million revolving credit facility, due January 2012
|
|
$ |
— |
|
|
$ |
— |
$145
million term loan facility, due January 2013
|
|
|
110,913 |
|
|
|
125,913 |
Total
|
|
$ |
110,913 |
|
|
$ |
125,913 |
|
|
|
|
|
|
|
|
On March
27, 2009, the Company entered into an amendment to its senior credit
facility that modified certain financial covenants. The maximum total
leverage ratio (total debt to adjusted earnings before interest, taxes,
depreciation and amortization, or EBITDA, as defined by the credit agreement for
the preceding 12 months) was increased to 3.25:1.00 for calendar year 2009,
3.00:1.00 for January 1, 2010 through September 30, 2010, 2.75:1.00 for October
1, 2010 through December 31, 2011, and 2.50:1.00 for January 1, 2012 and
thereafter, and the minimum interest coverage ratio (EBITDA to interest
expense, as defined by the credit agreement for the preceding 12 months) was
increased to 4.00:1.00 until maturity. The amendment also modified
the definition of the LIBOR rate to include a 3.0 percent floor and increased
the spread on revolving and term loans by 150 basis points to 3.75 percent. As a
condition to the effectiveness of the amendment, the Company paid down the
principal balance on the term loan $15.0 million. The credit facility
is secured by all of the assets of the Company. As of March 31, 2009, the
Company was in compliance with all covenants under its agreement with the credit
facility and expects to remain in compliance for the next 12
months.
The
principal payments made to date on the term loan were sufficient to cover
required payments under the credit facility, as well as all minimum quarterly
payments until maturity on January 31, 2013. On April 30, 2009, the
Company paid an additional $10.0 million against the principal balance of the
term loan. At the end of every year, the Company may need to make
payments related to excess cash flow as defined by the debt
agreement.
4. Fair Value of
Financial Instruments. The recorded values of cash and cash
equivalents, accounts receivable, accounts payable and accrued expenses
approximate their fair value based on their short-term
nature.
As of
March 31, 2009, the Company only had one derivative financial instrument, an
interest rate swap agreement, with a notional value of $73.0 million, entered
into to fix the underlying rate on a portion of its outstanding bank loan.
The interest rate swap was not designated as a hedging instrument under SFAS No.
133, “Accounting for Derivative Instruments and Hedging
Activities.”
On May 2,
2007, the Company entered into a transaction with a financial institution to fix
the underlying interest rate on $73.0 million of its outstanding bank loan for a
period of two years beginning June 30, 2007. This transaction, commonly known as
an interest rate swap, essentially fixes the Company’s base borrowing rate at
4.9425 percent as opposed to a floating rate, which resets at selected periods.
The current base rate on the loan balance in excess of $73.0 million, which will
be reset on June 30, 2009, is 3.75 percent plus LIBOR (subject to a 3.00 percent
LIBOR floor). On March 31, 2009 and 2008, the value of the swap was
marked-to-market, and the Company recorded a gain of $0.7 million and a loss of
$1.2 million, respectively, for the quarters then ended.
The fair
value of the interest rate swap is the estimated amount the Company would
receive to terminate the swap agreement at the reporting date, taking into
account current interest rates and the creditworthiness of the Company and the
swap counterparty depending on whether the swap is in an asset or liability
position, referred to as a credit valuation adjustment. The credit
valuation adjustment at March 31, 2009 and December 31, 2008 was not
significant. The Company’s fair value measurement as of March 31,
2009 and December 31, 2008 using significant other observable inputs (Level 2)
for the interest rate swap was a $0.7 million and $1.3 million, respectively,
and was included in the Consolidated Balance Sheets in other current
liabilities. The Company’s derivative instrument is a pay-fixed,
receive-variable interest rate swap based on a LIBOR swap rate. The LIBOR swap
rate is observable at commonly quoted intervals for the full term of the swap
and, therefore, is considered a Level 2 item. The Company does not
use derivative financial instruments for trading or speculative purposes, nor
does it use leveraged financial instruments. Credit risk related to the swap is
considered minimal and is managed by requiring high credit standards for the
counterparty and periodic settlements.
The
following table reflects the fair values of the derivative instrument as of
March 31, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
Derivative
|
|
Liability
Derivative
|
Derivative
not Designated as Hedging Instruments under SFAS No. 133
|
|
Balance Sheet
Location
|
|
Fair Value
|
|
Balance Sheet
Location
|
|
Fair Value
|
Interest
rate swap
|
|
—
|
|
$
|
—
|
|
Other
current liabilities
|
|
$
|
685
|
|
|
|
|
|
|
|
|
|
|
|
The
following table reflects the effect of derivative instruments on the
Consolidated Statements of Operations and Comprehensive Income for the quarter
ended March 31, 2009 (in thousands):
Derivative
not Designated as Hedging Instruments under SFAS No. 133
|
|
Location
of Gain (Loss) Recognized in Income on Derivative
|
|
Amount of Gain
(Loss)
Recognized in Income
on Derivative
|
Interest
rate swap
|
|
Interest
expense
|
|
$
|
660
|
Certain
assets and liabilities 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). At March 31, 2009, no fair value
adjustments were required for non-financial assets or liabilities.
5. Goodwill and
Identifiable Intangible Assets. The changes in the
carrying amount of goodwill for the three months ended March 31, 2009 are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2009
|
|
$ |
1,197 |
|
|
$ |
15,912 |
|
|
$ |
37,143 |
|
|
$ |
148,525 |
|
|
$ |
202,777 |
Purchase
price adjustment
|
|
|
― |
|
|
|
― |
|
|
|
― |
|
|
|
― |
|
|
|
― |
Balance
as of March 31, 2009
|
|
$ |
1,197 |
|
|
$ |
15,912 |
|
|
$ |
37,143 |
|
|
$ |
148,525 |
|
|
$ |
202,777 |
In
December 2008, the Company accrued for earn-outs related to Oxford and VISTA's
2008 financial performance. The VISTA earn-out of $5.3 million was paid in
April 2009. Oxford's earn-out of $4.8 million is expected to be paid in
the second quarter of 2009. VISTA's purchase price included a $4.1 million
holdback for potential claims indemnifiable by the selling shareholders.
The Company released $2.7 million of the $4.1 million holdback for potential
claims indemnifiable by the selling shareholders of VISTA in April of 2009. The
remaining $1.4 million has been held back pending the resolution of the
Company’s claims for indemnification which is expected to be settled within the
next twelve months.
As of
March 31, 2009 and December 31, 2008, the Company had the following
acquired intangible assets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
assets subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
relations
|
3
months - 7 years
|
|
$ |
17,615 |
|
|
$ |
15,155 |
|
|
$ |
2,460 |
|
|
$ |
17,615 |
|
|
$ |
14,387 |
|
|
$ |
3,228 |
Contractor
relations
|
3 -
7 years
|
|
|
26,012 |
|
|
|
20,876 |
|
|
|
5,136 |
|
|
|
26,012 |
|
|
|
20,134 |
|
|
|
5,878 |
Non-compete agreements
|
2 -
3 years
|
|
|
390 |
|
|
|
296 |
|
|
|
94 |
|
|
|
390 |
|
|
|
268 |
|
|
|
122 |
In-use
software
|
2
years
|
|
|
500 |
|
|
|
500 |
|
|
|
— |
|
|
|
500 |
|
|
|
500 |
|
|
|
— |
|
|
|
|
44,517 |
|
|
|
36,827 |
|
|
|
7,690 |
|
|
|
44,517 |
|
|
|
35,289 |
|
|
|
9,228 |
Intangible
assets not subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
|
|
22,200 |
|
|
|
— |
|
|
|
22,200 |
|
|
|
22,200 |
|
|
|
— |
|
|
|
22,200 |
Goodwill
|
|
|
|
202,777 |
|
|
|
— |
|
|
|
202,777 |
|
|
|
202,777 |
|
|
|
— |
|
|
|
202,777 |
Total
|
|
|
$ |
269,494 |
|
|
$ |
36,827 |
|
|
$ |
232,667 |
|
|
$ |
269,494 |
|
|
$ |
35,289 |
|
|
$ |
234,205 |
Amortization
expense for intangible assets with finite lives was $1.5 million and $2.3
million for the three months ended March 31, 2009 and 2008,
respectively. Estimated amortization for the remainder of 2009 is
$4.5 million. Estimated amortization for each of the years ended
December 31, 2010 through December 31, 2013 is $1.7 million, $0.7
million, $0.4 million and $0.4 million, respectively.
The
annual assessment of goodwill and other intangible assets with indefinite lives
has historically been completed as of December 31 of each year. To perform the
impairment test, the Company determined the fair value based upon discounted
cash flows prepared for each reporting unit. Cash flows were
developed for each reporting unit based on assumptions including revenue growth
expectations, gross margins, operating expense projections, working capital and
capital expense requirements and income tax rates. The principal
factors used in the discounted cash flow analysis requiring judgment were the
projected results of operations, weighted average cost of capital (WACC), and
terminal value assumptions. The WACC took into account the relative
weights of each component of the Company’s consolidated capital structure
(equity and debt) and represented the expected cost of new capital adjusted as
appropriate to consider lower risk profiles associated with longer term
contracts and barriers to market entry. The terminal value
assumptions were applied to the final year of the discounted cash flow
model. The Company previously determined that no impairment of
goodwill or intangible assets with indefinite lives existed as of December 31,
2008.
The
Company was also required to perform this assessment as of March 31, 2009
because the capital markets continued to tighten and general economic conditions
continued to deteriorate. These factors impacted the Company's
financial forecasts and the Company’s stock price dropped significantly in the
first quarter of 2009. Notwithstanding these changes, in performing
the interim impairment test for goodwill and other intangible assets with
indefinite lives no impairment was identified as of March 31,
2009.
Due to
the many variables inherent in the estimation of a business’s fair value and the
relative size of the Company’s recorded goodwill, changes in assumptions may
have a material effect on the results of the Company’s impairment analysis.
Downward revisions of the Company's forecast, extended delays in the economic
recovery and sustained decline of the Company's stock price resulting in market
capitalization significantly below book value could lead to an impairment of
goodwill or intangible assets with indefinite lives in future
periods.
6. Property and
Equipment. The Company has
capitalized costs related to its various technology initiatives. The net book
value of the property and equipment related to software development was $7.3
million and $7.6 million, as of March 31, 2009 and December 31, 2008,
respectively, which includes work-in-progress of $3.7 million and $3.5 million,
respectively. The Company has also capitalized website development costs of $0.2
million and $0.3 million as of March 31, 2009 and December 31,
2008, respectively, of which no costs were considered
work-in-progress.
7. Stock Option Plan
and Employee Stock Purchase Plan. In the first quarter of
2009, the Company granted a discrete set of stock-based awards to certain
officers that differ from generally stated terms.
The Chief
Executive Officer (CEO) was granted the following: 1)restricted stock units
(RSUs) valued at $0.5 million which vest on the third anniversary of the date of
grant, 2)restricted stock awards valued at $0.5 million, which vest on December
31, 2009, contingent upon meeting certain performance objectives (based on
EBITDA), and 3) RSUs valued at $0.5 million, which vest three years following
the grant date, contingent upon the Company meeting certain stock price
performance objectives relative to its peers over three years from the date of
grant. Compensation expense related to the time-based award is $0.3 million and
will be expensed over a remaining three years. Compensation expense for the
performance-based award is based on estimates of the probability that the
targets will be met. The maximum compensation expense related to this
award that may be recognized is $0.5 million expensed over the vesting term. The
Company is still in the process of determining the appropriate grant date fair
value of the market-based award. All awards are subject to the CEO’s continued
employment through such vesting dates. All awards may vest on an
accelerated basis in part or in full upon the occurrence of certain
events.
Additionally,
the Company granted RSUs to certain other executive officers which are forty
percent contingent upon the Company meeting certain performance objectives
and generally vest over one year and are subject to the respective
officer’s continued employment through such vesting dates. Compensation
expense for the performance-based awards is based on estimates of the
probability that the targets will be met. The maximum compensation
expense related to these awards that may be recognized is $0.3 million expensed
over the vesting term. The remaining sixty percent of the grant are subject
solely to the respective officer’s continued employment through such vesting
dates and generally vest over three years. Compensation expense
related to the time-based awards is $0.7 million, which will be expensed over
the vesting term beginning in 2009.
Compensation
expense charged against income related to stock-based compensation was $1.1
million and $1.6 million for the three months ended March 31, 2009 and 2008,
respectively, and is included in the Consolidated Statements of Operations and
Comprehensive Income in selling, general and administrative
expenses.
In
January 2009, the Company approved an Option Exchange Program that gave eligible
employees the opportunity to exchange options with an exercise price greater
than $8.00 per share that were granted on or after December 31, 2000, for a
reduced number of restricted stock units at an exchange
price. Certain executive officers and the Board of Directors were not
eligible to participate in the Option Exchange Program. As a result
of this Option Exchange Program, 603,700 stock options were cancelled and
exchanged for 87,375 RSU awards, which will vest 50 percent on January 22, 2011,
25 percent on January 22, 2012 and 25 percent on January 22, 2013 subject to the
employee's continued employment through such vesting
dates. Incremental compensation cost related to the Option Exchange
was not material to the Company’s financial statements.
All
shares authorized and available for issuance under the Company’s Employee Stock
Purchase Plan (ESPP) were allocated and purchased as of February 27, 2009 and
there is no authorization from the shareholders to replenish shares for the
program going forward. As a result, the Company has suspended the
ESPP program.
8. Commitments and
Contingencies. The Company is
partially self-insured for its workers’ compensation liability related to the
Life Sciences, Healthcare and IT and Engineering segments as well as its medical
malpractice liability in the Physician segment. 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. The self-insurance
claim liability was approximately $10.4 million and $9.8 million at March 31,
2009 and December 31, 2008, respectively. Additionally, the Company
has letters of credit outstanding to secure obligations for workers’
compensation claims with various insurance carriers. The letters of
credit outstanding at March 31, 2009 and December 31, 2008 were $3.5
million.
As of
March 31, 2009 and December 31, 2008, the Company has an income tax reserve in
other long-term liabilities related to uncertain tax positions of $0.3
million.
The
Company is involved in various legal proceedings, claims and litigation arising
in the ordinary course of business. However, based on the facts currently
available, we do not believe that the disposition of matters that are pending or
asserted will have a material adverse effect on our financial position, results
of operations or cash flows.
9. Earnings per
share. Basic earnings per
share are computed based upon the weighted average number of common shares
outstanding, and diluted earnings per share are computed based upon the weighted
average number of common shares outstanding and dilutive common share
equivalents (consisting of incentive stock options, non-qualified stock options,
restricted stock awards and units and employee stock purchase plan shares)
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):
|
|
Three
Months Ended
March
31,
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding used to compute basic earnings
per share
|
|
|
35,840 |
|
|
|
35,266 |
Dilutive
effect of stock-based awards
|
|
|
142 |
|
|
|
109 |
Number
of shares used to compute diluted earnings per share
|
|
|
35,982 |
|
|
|
35,375 |
|
|
|
|
|
|
|
|
The
following table outlines the weighted average share equivalents outstanding
during each period that were excluded from the computation of diluted earnings
per share because the exercise price for these options was greater than the
average market price of the Company’s shares of common stock during the
respective periods. Also excluded from the computation of diluted earnings per
share were other share equivalents that became anti-dilutive when applying the
treasury stock method (in thousands):
|
|
Three
Months Ended
March
31,
|
|
|
|
|
|
|
Anti-dilutive
common share equivalents outstanding
|
|
|
3,776 |
|
|
|
3,351 |
|
|
|
|
|
|
|
|
10. Income
Taxes. For the interim reporting periods, the Company prepares an
estimate of the full-year income and the related income tax expense for each
jurisdiction in which the Company operates. Changes in the geographical
mix, permanent differences or estimated level or annual pretax income can impact
our effective rate.
As of
March 31, 2009 and December 31, 2008, the recorded liability of the Company’s
uncertain tax positions was $0.5 million, which included penalties and interest,
of which $0.3 million was carried in other long-term liabilities and $0.2
million was carried as a reduction to non-current deferred tax assets. If the
Company’s positions are sustained by the taxing authority in favor of the
Company, the entire $0.5 million would reduce the Company’s effective tax
rate. The Company recognizes accrued interest and penalties related
to uncertain tax positions in income tax expense.
The
Company is subject to taxation in the United States and various states and
foreign jurisdictions. Open tax years related to federal, state and foreign
jurisdictions remain subject to examination but are not considered
material.
11. Segment
Reporting. The Company has four
reportable segments: Life Sciences, Healthcare, Physician and IT and
Engineering. The Company’s management evaluates the performance of each segment
primarily based on revenues, gross profit and operating income. The information
in the following table is derived directly from the segments’ internal financial
reporting used for corporate management purposes.
The
following table presents revenues, gross profit and operating income (loss) by
reportable segment (in thousands):
|
|
Three
Months Ended
March
31,
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
Life
Sciences
|
|
$ |
25,376 |
|
|
$ |
32,583 |
Healthcare
|
|
|
31,511 |
|
|
|
44,525 |
Physician
|
|
|
21,744 |
|
|
|
20,579 |
IT
and Engineering
|
|
|
38,171 |
|
|
|
54,726 |
Total
Revenues
|
|
$ |
116,802 |
|
|
$ |
152,413 |
Gross
Profit:
|
|
|
|
|
|
|
|
Life
Sciences
|
|
$ |
8,102 |
|
|
$ |
10,715 |
Healthcare
|
|
|
8,307 |
|
|
|
10,764 |
Physician
|
|
|
6,542 |
|
|
|
5,810 |
IT
and Engineering
|
|
|
14,033 |
|
|
|
20,139 |
Total
Gross Profit
|
|
$ |
36,984 |
|
|
$ |
47,428 |
Operating
Income (loss):
|
|
|
|
|
|
|
|
Life
Sciences
|
|
$ |
1,747 |
|
|
$ |
3,024 |
Healthcare
|
|
|
(422 |
) |
|
|
573 |
Physician
|
|
|
1,456 |
|
|
|
605 |
IT
and Engineering
|
|
|
1,074 |
|
|
|
3,529 |
Total
Operating Income
|
|
$ |
3,855 |
|
|
$ |
7,731 |
The
Company operates internationally, with operations mainly in the United States,
Europe, Canada, Australia and New Zealand. The following table presents revenues
by geographic location (in thousands):
|
|
Three
Months Ended
March
31,
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
Domestic
|
|
$ |
111,157 |
|
|
$ |
145,103 |
Foreign
|
|
|
5,645 |
|
|
|
7,310 |
Total
Revenues
|
|
$ |
116,802 |
|
|
$ |
152,413 |
|
|
|
|
|
|
Total
Assets:
|
|
|
|
|
|
Life
Sciences and Healthcare
|
|
$ |
102,024 |
|
|
$ |
115,458 |
Physician
|
|
|
71,850 |
|
|
|
72,940 |
IT
and Engineering
|
|
|
209,471 |
|
|
|
213,452 |
Total
Assets
|
|
$ |
383,345 |
|
|
$ |
401,850 |
Item
2 - Management’s Discussion and Analysis of Financial Condition and Results of
Operations
The
information in this discussion contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Such
statements are based upon current expectations that involve risks and
uncertainties. Any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. For example, the
words “believes,” “anticipates,” “plans,” “expects,” “intends,” and similar
expressions are intended to identify 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 herein. Factors that could cause or contribute
to such differences include, but are not limited to, the following: (1) the
negative impact of the current credit crisis and global economic slowdown;
(2) actual demand for our services, (3) our ability to attract, train
and retain qualified staffing consultants, (4) our ability to remain
competitive in obtaining and retaining temporary staffing clients, (5) the
availability of qualified contract nurses and other qualified contract
professionals, (6) our ability to manage our growth efficiently and
effectively, (7) continued performance of our information systems, and
(8) other risks detailed from time to time in our reports filed with the
Securities and Exchange Commission, including our Annual Report on
Form 10-K, under the section ”Risk Factors” for the year ended
December 31, 2008, as filed with the SEC on March 16, 2009. 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
Quarterly Report on Form 10-Q, and we assume no obligation to update any
forward-looking statement or the reasons why our actual results may
differ.
OVERVIEW
On
Assignment, Inc. is a diversified professional staffing firm providing
flexible and permanent staffing solutions in specialty skills market including
Laboratory/Scientific, Healthcare/Nursing, Physicians, Medical Financial,
Information Technology and Engineering. We provide clients in these markets with
short-term or long-term assignments of contract
professionals, contract-to-permanent placement and direct placement of
these professionals. Our business currently consists of four operating segments:
Life Sciences, Healthcare, Physician, and IT and Engineering.
The Life
Sciences segment includes our domestic and international life science staffing
lines of business. We provide locally-based, contract life science professionals
to clients in the biotechnology, pharmaceutical, food and beverage, medical
device, personal care, chemical, nutraceutical, materials science, consumer
products, environmental petrochemical and contract manufacturing industries. Our
contract professionals include chemists, clinical research associates, clinical
lab assistants, engineers, biologists, biochemists, microbiologists, molecular
biologists, food scientists, regulatory affairs specialists, lab assistants and
other skilled scientific professionals.
The
Healthcare segment includes our Nurse Travel and Allied Healthcare lines of
business. We offer our healthcare clients contract professionals, both
locally-based and traveling, from more than ten healthcare and allied healthcare
occupations. Our contract professionals include nurses, specialty nurses, health
information management professionals, dialysis technicians, surgical
technicians, imaging technicians, x-ray technicians, medical technologists,
phlebotomists, coders, billers, claims processors and collections
staff.
Our
Physician segment consists of VISTA Staffing Solutions, Inc. (VISTA) which is a
leading provider of physician staffing, known as locum tenens, and permanent
physician search services based in Salt Lake City, Utah. We provide short and
long-term locum tenens and coverage and full-service physician search and
consulting in the United States with capabilities in Australia and New Zealand.
VISTA works with physicians from nearly all medical specialties, placing them in
hospitals, community-based practices, and federal, state and local
facilities.
Our IT
and Engineering segment consists of Oxford Global Resources, Inc. (Oxford) which
delivers high-end consultants with expertise in specialized information
technology; software and hardware engineering; and mechanical, electrical,
validation and telecommunications engineering fields. We combine international
reach with local depth, serving clients through a network of Oxford
International recruiting centers in the United States and Europe, and Oxford
& Associates branch offices in major metropolitan markets across the United
States. Oxford is based in Beverly, Massachusetts.
First
Quarter 2009 Update
During
the first quarter, each of the markets we serve, except for the physician
staffing market, were severely impacted by economic and credit market
conditions. Demand for our Nurse Travel and Allied Healthcare lines of business
were impacted by hospital’s cash constraints and lower patient demand.
Demand for our Life Sciences and IT and Engineering segment decreased as
companies eliminated, reduced or deferred their capital
expenditures. However, our Physician segment demonstrated solid
performance as demand for their services increased and key indicators grew
year-over-year. Furthermore, during the first quarter, we were able
to expand our consolidated gross margins and hourly bill/pay spread and reduce
operating expenses compared to the prior year.
Looking
forward, we expect the operating environment to continue to be
challenging. However, we are starting to see signs that demand is
stabilizing for our Life Sciences and IT and Engineering segments and demand
continues for the Physician segment. Our focus will remain
on maintaining or expanding our operating and gross margins, generating
cash and growing our revenues faster than our competitors.
Seasonality
Demand
for our staffing services historically has been lower during the first and
fourth quarters due to fewer business days resulting from client shutdowns and a
decline in the number of contract professionals willing to work during the
holidays. Demand for our staffing services usually increases in the second and
third quarters of the year. In addition, our cost of services typically
increases in the first quarter primarily due to the reset of payroll
taxes.
RESULTS
OF OPERATIONS
The
following table summarizes selected statements of operations data expressed as a
percentage of revenues:
|
|
Three
Months Ended
March
31,
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
Revenues
|
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost
of services
|
|
|
68.3 |
|
|
|
68.9 |
|
Gross
profit
|
|
|
31.7 |
|
|
|
31.1 |
|
Selling,
general and administrative expenses
|
|
|
28.4 |
|
|
|
26.0 |
|
Operating
income
|
|
|
3.3 |
|
|
|
5.1 |
|
Interest
expense
|
|
|
(0.9 |
) |
|
|
(2.5 |
) |
Interest
income
|
|
|
— |
|
|
|
0.1 |
|
Income
before income taxes
|
|
|
2.4 |
|
|
|
2.7 |
|
Provision
for income taxes
|
|
|
1.0 |
|
|
|
1.1 |
|
Net
income
|
|
|
1.4 |
% |
|
|
1.6 |
% |
CHANGES
IN RESULTS OF OPERATIONS
FOR
THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008
Revenues
|
|
Three
Months Ended March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
% |
|
Revenues
by segment (in thousands):
|
|
|
|
Life
Sciences
|
|
$ |
25,376 |
|
|
$ |
32,583 |
|
|
$ |
(7,207 |
) |
|
|
(22.1 |
%) |
Healthcare
|
|
|
31,511 |
|
|
|
44,525 |
|
|
|
(13,014 |
) |
|
|
(29.2 |
%) |
Physician
|
|
|
21,744 |
|
|
|
20,579 |
|
|
|
1,165 |
|
|
|
5.7 |
% |
IT
and Engineering
|
|
|
38,171 |
|
|
|
54,726 |
|
|
|
(16,555 |
) |
|
|
(30.3 |
%) |
Total
Revenues
|
|
$ |
116,802 |
|
|
$ |
152,413 |
|
|
$ |
(35,611 |
) |
|
|
(23.4 |
%) |
Revenues
decreased $35.6 million, or 23.4 percent, as a result of weakened demand in
our IT and Engineering, Healthcare and Life Science segments.
Life
Sciences segment revenues decreased $7.2 million, or 22.1 percent. The decrease
in revenues was primarily attributable to a 20.3 percent decrease in the average
number of contract professionals on assignment, a $1.0 million, or 54.8 percent
decrease in direct hire and conversion fee revenues and the deteriorating
foreign exchange rate for the British Pound and the Euro combined with the
continued effect of the recession in the United Kingdom and the United
States. These decreases were partially offset by a 1.9 percent
increase in the average bill rate. The year-over-year decrease in revenues is a
direct result of our clients’ decisions to focus more on cost containment than
on completing projects, developing new products or enhancing existing product
lines during this challenging economic period.
The
decrease in Healthcare segment revenues, which include our Nurse Travel and
Allied Healthcare lines of business, consisted of a decrease in both the Nurse
Travel and Allied Healthcare lines of business revenues. Nurse Travel revenues
decreased $9.9 million, or 31.8 percent, to 21.3 million. The decrease in
revenues was primarily attributable to a 21.7 percent decrease in the average
number of nurses on assignment and $0.3 million, or 85.3 percent decrease in
reimbursable revenue for billable expenses. In addition, the Nurse Travel
revenues in our first quarter of 2008 included $2.4 million related to
supporting a long-standing customer that experienced a labor
disruption. Allied Healthcare revenues decreased $3.1 million, or
23.2 percent, due to a 17.5 percent decrease in the average number of contract
professionals on assignment, partially offset by a 2.0 percent increase in the
average bill rate. The year-over-year decrease in revenues is attributable to
less demand from hospitals and other healthcare facilities as a result of their
reduced usage of contract professionals in response to declining endowment
balances, charitable contributions and patient admissions.
Physician
segment revenues increased $1.2 million, or 5.7 percent, as demand for physician
staffing services remained strong and an increase of 8.7 percent in the average
bill rate. This increase was partially offset by $0.3 million, or a 19.0
percent, decrease in reimbursable revenue for billable expenses. The
year-over-year increase in revenues reflects the continuing shortage of
physicians, particularly in specialized disciplines.
The IT
and Engineering segment revenues decreased $16.6 million, or 30.3 percent.
The decrease in revenue was primarily due to a 29.0 percent decrease in
the average number of contract professionals on assignment, as well as a 4.4
percent decrease in the average bill rate. In addition, reimbursable
revenue for billable expenses decreased $0.8 million, or 39.4
percent. The year-over-year decrease in revenues is partly a result
of decreased demand from pharmaceutical companies, and firms in service-related
industries, who are deferring capital projects due to the downturn in the
economy.
Gross
profit and gross margin
|
|
Three
Months Ended March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit by segment (in thousands):
|
|
(Unaudited)
|
|
Life
Sciences
|
|
$ |
8,102 |
|
|
|
31.9 |
% |
|
$ |
10,715 |
|
|
|
32.9 |
% |
Healthcare
|
|
|
8,307 |
|
|
|
26.4 |
% |
|
|
10,764 |
|
|
|
24.2 |
% |
Physician
|
|
|
6,542 |
|
|
|
30.1 |
% |
|
|
5,810 |
|
|
|
28.2 |
% |
IT
and Engineering
|
|
|
14,033 |
|
|
|
36.8 |
% |
|
|
20,139 |
|
|
|
36.8 |
% |
Total
Gross Profit
|
|
$ |
36,984 |
|
|
|
31.7 |
% |
|
$ |
47,428 |
|
|
|
31.1 |
% |
The
year-over-year gross profit decrease was primarily due to the decrease in
revenues in the IT and Engineering, Life Sciences and Healthcare segments,
partially offset by a 55 basis points expansion in consolidated gross margin.
The increase in gross margin was primarily attributable to increases in margins
in the Healthcare and Physician segments.
Life
Sciences segment gross profit decreased $2.6 million, or 24.4 percent. The
decrease in gross profit was primarily due to a 22.1 percent decrease in the
segment revenues as well as a 96 basis points decrease in gross margin. The
decrease in gross margin was predominantly due to a $1.0 million decrease in
direct hire and conversion fee revenues. The decrease in gross margin was
partially offset by a 3.3 percent increase in the bill/pay spread as a result of
our continued focus on pricing policies.
Healthcare
segment gross profit decreased $2.5 million, or 22.8 percent. The decrease in
gross profit was due to a 29.2 percent decrease in the segment revenues,
partially offset by a 2.2 percent increase in gross margin. Gross margin for the
segment increased 219 basis points due in part to a 2.7 percent increase in the
bill/pay spread, $0.5 million or a 105.3 percent decrease in workers’
compensation expenses as a result of efforts in closely managing historical
claims, partially offset by an increase in other contract employee expenses.
This segment includes gross profit from the Nurse Travel and Allied Healthcare
lines of business. Allied Healthcare gross profit decreased 18.6 percent
and gross margin increased 185 basis points while Nurse Travel gross profit
decreased 25.4 percent and gross margin increased 202 basis points. Gross
margins in the first quarter of a year tend to be lower than the fourth quarter
of the preceding year due to the reset of certain payroll taxes.
Physician
segment gross profit increased $0.7 million, or 12.6 percent. The increase in
gross profit was primarily attributable to a 5.7 percent increase in revenues as
well as an increase in gross margin. Gross margin for the segment increased 185
basis points primarily due to a 20.1 percent increase in the bill/pay spread,
partially offset by increased medical malpractice expense, which included a
$0.6 million non-cash expense related to the Company’s adjustment of the
discount rate applied to our medical malpractice liability because of the
decrease in interest rates.
IT and
Engineering segment gross profit decreased $6.1 million, or 30.3 percent,
primarily due to a 30.3 percent decrease in revenues. Gross margin for the
segment were flat as compared to the margins for the quarter ended March 31,
2008.
Selling,
general and administrative expenses
Selling,
general and administrative (SG&A) expenses include field operating expenses,
such as costs associated with our network of staffing consultants and branch
offices for each of our four segments, including staffing consultant
compensation, rent and other office expenses, as well as marketing and
recruiting expenses for our contract professionals. SG&A expenses also
include our corporate and branch office support expenses, such as the salaries
of corporate operations and support personnel, recruiting and training expenses
for field staff, marketing staff expenses, expenses related to being a
publicly-traded company and other general and administrative
expenses.
For the
three months ended March 31, 2009, SG&A expenses decreased $6.6 million, or
16.5 percent, to $33.1 million from $39.7 million for the same period in 2008.
The decrease in SG&A was primarily due to a $4.0 million decrease in
compensation and benefits as a result of decreased headcount as compared
with the prior year. The decrease in SG&A expense was also due to
a $0.8 million decrease in amortization expense primarily related to a reduction
of the amortization amount for intangible assets beginning in late 2008.
Total SG&A as a percentage of revenues increased to 28.4 percent for the
three months ended March 31, 2009 from 26.0 percent in the same period in 2008,
primarily due to revenue decreasing faster than SG&A in the three months
ended March 31, 2009.
Interest
expense and interest income
Interest
expense was $1.1 million and $3.9 million for the three months ended March
31, 2009 and 2008, respectively. The decrease in interest expense was
primarily due to lower average debt balances in 2009 due to a $10.0 million
principal payment on our term loan in December 2008, and lower interest rates
during the first quarter of 2009 compared with the same period in 2008. Interest
expense included a $0.7 million gain and $1.2 million loss, for the three months
ended March 31, 2009 and 2008, respectively, for the mark-to-market
adjustment on our interest rate swap. The related liability of $0.7 million and
$1.3 million as of March 31, 2009 and December 31, 2008, respectively, is
included in the Consolidated Balance Sheets in other current
liabilities.
Interest
income was $56,000 and $0.3 million for the quarters ended March 31, 2009
and 2008, respectively. Interest income in the current period was also lower due
to lower average interest rates in 2009.
Provision for income taxes
The
provision for income taxes was $1.2 million for the three months ended March 31,
2009 compared with $1.7 million for the same period in the prior year. The
annual effective tax rate was 41.6 percent for the three months ended March 31,
2009 and 41.7 percent for the same period in 2008.
LIQUIDITY
AND CAPITAL RESOURCES
Our
working capital at March 31, 2009 was $80.2 million, including $46.5 million in
cash and cash equivalents. Our operating cash flows have been our primary source
of liquidity and historically have been sufficient to fund our working capital
and capital expenditure needs. Our working capital requirements consist
primarily of the financing of accounts receivable, payroll expenses and the
periodic payments of principal and interest on our term loan.
Net cash
provided by operating activities was $18.2 million for the three months ended
March 31, 2009 compared with $6.8 million in the same period in
2008. Net cash provided by operating activities in the three months
ended March 31, 2009 was higher compared with the same period in 2008, primarily
due to a decrease in accounts receivable and accrued payroll and contract
professional pay in the three months ended March 31, 2009 due to lower revenue
levels and improved days sales outstanding.
Net cash
used in investing activities decreased to $1.7 million in the three months ended
March 31, 2009 from $2.8 million in the same period in 2008, primarily due to
lower capital expenditures. Capital expenditures related to
information technology projects, leasehold improvements and various property and
equipment purchases for the three months ended March 31, 2009 totaled $1.6
million, compared with $2.5 million in the comparable 2008 period. We estimate
capital expenditures to be approximately $4.0 million for 2009.
Net cash
used in financing activities was $15.8 million for the year ended March 31,
2009, compared with net cash provided by financing activities of $0.6 million
for the same period in 2008. In March 2009, we paid down our term
loan facility $15.0 million and in April we paid down an additional $10.0
million.
Under the
terms of our credit facility, we are required to maintain certain financial
covenants, including a minimum total leverage ratio, a minimum interest coverage
ratio and a limitation on capital expenditures. The facility also restricts our
ability to pay dividends of more than $2.0 million per year. On March 27, 2009,
we entered into an amendment to our credit facility that modified certain
financial covenants. The maximum total leverage ratio (total debt to
adjusted earnings before interest, taxes, depreciation and amortization, or
EBITDA, as defined by the credit agreement for the preceding 12 months) was
increased to 3.25:1.00 for calendar year 2009, 3.00:1.00 for January 1, 2010
through September 30, 2010, 2.75:1.00 for October 1, 2010 through December 31,
2011, and 2.50:1.00 for January 1, 2012 and thereafter, and the minimum interest
coverage ratio (EBITDA to interest expense, as defined by the credit agreement
for the preceding 12 months) was increased to 4.00:1.00 until
maturity. The amendment also modified the definition of the LIBOR
rate to include a 3.0 percent floor and increased the spread on revolving and
term loans by 150 basis points to 3.75 percent. As a condition to the
effectiveness of the amendment, we paid down the principal balance on the
term loan $15.0 million. The principal payments made to date on the
term loan were sufficient to cover required payments under the credit facility,
as well as all minimum quarterly payments until maturity on January 31,
2013. On April 30, 2009, we paid an additional $10.0 million against
the principal balance of the term loan. Based on our current operating
plan, we believe we will maintain compliance with the covenants contained in our
credit facility for the next 12 months.
As of
March 31, 2009, we have accrued $5.3 million and $4.8 million for the payment of
the earn-outs related to the 2008 operating performance of VISTA and Oxford,
respectively. The VISTA earn-out was paid in April 2009 and the Oxford earn-out
is scheduled to be paid during the second quarter of 2009. We
have notified the selling shareholders of VISTA of certain claims for
indemnification, totaling $1.4 million, which was recorded as a decrease to
goodwill and an increase in other current assets as of December 31, 2008. We
anticipate that the final amount of the indemnification payments will be settled
by the agreement of all applicable parties to the terms and provisions related
to such payment.
We
continue to make progress on enhancements to our front-office and back-office
information systems. These enhancements include the consolidation of
back-office systems across all corporate functions, as well as enhancements to
and broader application of our front-office software across all lines of
business. The timing of the full integration of information systems used by
VISTA and Oxford will remain a consideration of management.
During
2008, certain stock-based awards issued under our approved stock option plan
vested. Under the provisions of this plan, a portion of the vested shares were
withheld by us in order to satisfy minimum payroll tax obligations of the
employee. The vested shares withheld have been recorded as treasury stock, a
reduction to stockholder’s equity, at the fair market value on the date that the
tax obligation was determined, which was also the vesting date of the awards. As
of March 31, 2009, there were 192,816 shares withheld related to stock-based
awards and included in treasury stock at a fair market value of $1.6
million.
We
believe that our working capital as of March 31, 2009, our credit facility and
positive operating cash flows expected from future activities will be sufficient
to fund future requirements of our debt obligations, accounts payable and
related payroll expenses as well as capital expenditure initiatives for the next
twelve months.
Recent
Accounting Pronouncements
See Note
2, Recent Accounting Pronouncements, of the Notes to the Condensed Consolidated
Financial Statements for a discussion of new accounting
pronouncements.
Critical
Accounting Policies
There
have been no significant changes to our critical accounting policies and
estimates during the three months ended March 31, 2009 compared with those
disclosed in Note 1 of the Notes to the Condensed Consolidated Financial
Statements in Item 8 of our Annual Report on Form 10-K for the year ended
December 31, 2008, as filed with the SEC on March 16, 2009.
Commitments
We have
not entered into any significant commitments or contractual obligations that
have not been previously disclosed in our Annual Report on Form 10-K for the
year ended December 31, 2008, as filed with the SEC on March 16,
2009.
Item
3 – 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
changes in interest rates. We are exposed to foreign currency risk from the
translation of foreign operations into U.S. dollars. Based on the relative size
and nature of our foreign operations, we do not believe that a ten percent
change in the value of foreign currencies relative to the U.S. dollar would have
a material impact on our financial statements. Our primary exposure to market
risk is interest rate risk associated with our debt instruments. See “Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations” for further description of our debt instruments. Excluding the
effect of our interest rate swap agreement, a 1 percent change in interest rates
on variable rate debt would have resulted in interest expense fluctuating
approximately $0.3 million during the three months ended March 31, 2009.
Including the effect of our interest rate swap agreement, a 1 percent change in
interest rates on variable debt would have resulted in interest expense
fluctuating approximately $0.2 million during the three months ended March 31,
2009. We have not entered into any market risk
sensitive instruments for trading purposes. See Note 4 to the
Condensed Consolidated Financial Statements in Part I, Item I of this report for
additional information on the rate swap agreement entered into by the
Company.
Item
4 – Controls and Procedures
As of the
end of the period covered by this report, we carried out an evaluation, under
the supervision and with the participation of our management, including our
Chief Executive Officer and Principal Financial and Accounting Officer, of the
effectiveness of our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934). Based on this
evaluation, our Chief Executive Officer and Principal Financial and Accounting
Officer have concluded that our disclosure controls and procedures are effective
as of the end of the period covered by this report. The term
“disclosure controls and procedures” means controls and other procedures of the
Company that are designed to ensure that information required to be disclosed by
the Company in the reports that it files or submits under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within
required time periods. We have established disclosure controls and
procedures to ensure that material information relating to the Company is
accumulated and communicated to management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure.
There
have been no changes in our internal control over financial reporting that
occurred during the three months ended March 31, 2009 that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
PART II
– OTHER INFORMATION
Item
1 – Legal Proceedings
The
information set forth above under Note 8, Commitments and Contingencies,
contained in Notes to Consolidated Condensed Financial Statements is
incorporated herein by reference.
There
have been no material changes in our risk factors from those disclosed in our
Annual Report on Form 10-K, under the Section “Risk Factors” for the year ended
December 31, 2008, as filed with the SEC on March 16, 2009.
Item
2 – Unregistered Sales of Equity Securities and Use of Proceeds
Item
3 – Defaults Upon Senior Securities
Item
4 – Submission of Matters to a Vote of Security Holders
Item
5 – Other Information
INDEX
TO EXHIBITS
|
|
|
|
|
3.1
|
|
(1)
|
|
Certificate
of Amendment of Restated Certificate of Incorporation of On Assignment,
Inc.
|
3.2
|
|
(2)
|
|
Restated
Certificate of Incorporation of On Assignment, Inc., as
amended.
|
3.3
|
|
(3)
|
|
Amended
and Restated Bylaws of On Assignment, Inc.
|
4.1
|
|
(4)
|
|
Specimen
Common Stock Certificate.
|
4.2
|
|
(5)
|
|
Rights
Agreement, dated June 4, 2003, between On Assignment, Inc. and U.S. Stock
Transfer Corporation as Rights Agent, which includes the Certificate of
Designation, Preferences and Rights of Series A Junior Participating
Preferred Stock as Exhibit A, the Summary of Rights to Purchase Series A
Junior Participating Preferred Stock as Exhibit B and the Form of Rights
Certificate as Exhibit C.
|
10.1*
|
|
|
|
First
Amendment to Amended and Restated Senior Executive Agreement between on
Assignment, Inc. and Peter Dameris, dated March 19, 2009.
†
|
10.2
|
|
(7)
|
|
Amendment
No. 1 to Credit Agreement among On Assignment, Inc., UBS Securities, LLC,
UBS AG, Stamford Branch, UBS Loan Finance, LLC and other parties thereto,
dated March 27, 2009.
|
10.3*
|
|
|
|
2009
Chief Executive Officer Incentive Compensation Plan. †
|
10.4*
|
|
|
|
2009
Executive Officer Incentive Compensation Plan. †
|
21.1
|
|
(6)
|
|
Subsidiaries
of the Registrant.
|
31.1*
|
|
|
|
Certification
of Peter T. Dameris, Chief Executive Officer and President pursuant to
Rule 13a-14(a) or 15d-14(a).
|
31.2*
|
|
|
|
Certification
of James L. Brill, Senior Vice President, Finance and Chief Financial
Officer pursuant to Rule 13a-14(a) or 15d-14(a).
|
32.1*
|
|
|
|
Certification
of Peter T. Dameris, Chief Executive Officer and President, and James L.
Brill, Senior Vice President, Finance and Chief Financial Officer pursuant
to 18 U.S.C. Section
1350.
|
†
|
These
exhibits relate to management contracts or compensatory plans, contracts
or arrangements in which directors and/or executive officers of the
Registrant may participate.
|
(1)
|
Incorporated
by reference from an exhibit filed with our Current Report on Form 8-K
(File No. 0-20540) filed with the Securities and Exchange Commission on
October 5, 2000.
|
(2)
|
Incorporated
by reference from an exhibit filed with our Annual Report on Form 10-K
(File No. 0-20540) filed with the Securities and Exchange Commission on
March 30, 1993.
|
(3)
|
Incorporated
by reference from an exhibit filed with our Current Report on Form 8-K
(File No. 0-20540) filed with the Securities and Exchange Commission on
May 3, 2002.
|
(4)
|
Incorporated
by reference from an exhibit filed with our Registration Statement on Form
S-1 (File No. 33-50646) declared effective by the Securities and Exchange
Commission on September 21, 1992.
|
(5)
|
Incorporated
by reference from an exhibit filed with our Current Report on Form 8-K
(File No. 0-20540) filed with the Securities and Exchange Commission on
June 5, 2003.
|
(6)
|
Incorporated
by reference from an exhibit filed with our Annual Report on Form 10-K
(File No. 0-20540) filed with the Securities and Exchange Commission on
March 16, 2009.
|
(7)
|
Incorporated
by reference from an exhibit filed with our Current Report on Form 8-K
(File No. 0-20540) filed with the Securities and Exchange Commission on
March 30, 2009.
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
ON
ASSIGNMENT, INC.
|
|
|
|
Date:
May 11, 2009
|
By:
|
/s/
Peter T. Dameris
|
|
|
Peter
T. Dameris
|
|
|
Chief
Executive Officer and President (Principal Executive
Officer)
|
|
|
|
Date:
May 11, 2009
|
By:
|
/s/
James L. Brill
|
|
|
James
L. Brill
|
|
|
Senior
Vice President of Finance and Chief Financial Officer
|
|
|
(Principal
Financial and Accounting
Officer)
|
Exhibit 31.1
CERTIFICATION
PURSUANT TO RULES 13a-14(a)
UNDER
THE SECURITIES EXCHANGE ACT OF 1934 AS ADOPTED PURSUANT TO
SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Peter
T. Dameris, certify that:
1. I have
reviewed this quarterly report on Form 10-Q of On
Assignment, Inc.;
2. Based
on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The
registrant’s other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the
registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under my supervision to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting;
and
5. The
registrant’s other certifying officer and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
(a) All
significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b) Any
fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant’s internal control over financial
reporting.
Date:
May 11, 2009
|
|
|
|
Peter
T. Dameris
|
Chief
Executive Officer and President
|
Exhibit 31.2
CERTIFICATION
PURSUANT TO RULES 13a-14(a)
UNDER
THE SECURITIES EXCHANGE ACT OF 1934 AS ADOPTED PURSUANT TO
SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, James
L. Brill certify that:
1. I have
reviewed this report on Form 10-Q of On Assignment, Inc.;
2. Based
on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The
registrant’s other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under my supervision to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting;
and
5. The
registrant’s other certifying officer and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
(a) All
significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b) Any
fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant’s internal control over financial
reporting.
Date:
May 11, 2009
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James
L. Brill
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Senior
Vice President of Finance and Chief Financial
Officer
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Exhibit 32.1
Certifications
of Chief Executive Officer and Controller
Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.
Section 1350)
The
undersigned, the Chief Executive Officer and the Chief Financial Officer of On
Assignment, Inc. (the “Company”), each hereby certifies that, to his
knowledge on the date hereof:
(a) the
Quarterly Report on Form 10-Q of the Company for the period ended March 31,
2009 filed on the date hereof with the Securities and Exchange Commission (the
“Report”) fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(b)
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.
Date:
May 11, 2009
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By:
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/s/
Peter T. Dameris
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Peter
T. Dameris
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Chief
Executive Officer and President
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Date:
May 11, 2009
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By:
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/s/
James L. Brill
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James
L. Brill
|
|
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Senior
Vice President of Finance and Chief Financial
Officer
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