| ON ASSIGNMENT INC Item 1A Risk Factors Our business is subject to a number of risks, including the following: Our results of operations may vary from quarter to quarter as a result of a number of factors, which may make it difficult to evaluate our business and could cause instability in the trading price of our common stock |
| Factors that may cause our quarterly results to fluctuate include: · the level of demand for our temporary staffing services and the efficiency with which we source and assign our contract professionals and support our Staffing Consultants in the execution of their duties; · changes in our pricing policies or those of our competitors; and · our ability to control costs and manage our accounts receivable balances |
| In addition, most temporary staffing companies typically experience seasonal declines in demand during the first and fourth quarters as a result of fewer business days and the fall off of the number of contract professionals willing to work during the holidays |
| Historically, we have experienced variability in the duration and depth of these seasonal declines, which in turn have materially affected our quarterly results of operation and made period-to-period comparisons of our financial and operating performance difficult |
| If our operating results are below the expectations of public market analysts or investors in a given quarter, the trading price of our common stock could decline |
| If we are unable to attract and retain qualified contract professionals for our Lab Support and Healthcare Staffing segments, our business could be negatively impacted |
| Our business is substantially dependent upon our ability to attract and retain healthcare and life science contract professionals who possess the skills, experience and, as required, licenses to meet the specified requirements of our clients |
| We compete for such contract professionals with other temporary staffing companies and with our clients and potential clients |
| Currently, there is a shortage of qualified nurses in most areas of the United States |
| Competition for nursing personnel is increasing and salaries and benefits have risen |
| Further, there can be no assurance that qualified healthcare and life science professionals will be available to us in adequate numbers to staff our operating segments |
| Moreover, our contract professionals are often hired to become regular employees of our clients |
| Attracting and retaining contract professionals depends on several factors, including our ability to provide contract professionals with attractive assignments and competitive benefits and wages |
| The cost of attracting and retaining contract professionals may be higher than we anticipate and, as a result, if we are unable to pass these costs on to our clients, our likelihood of achieving or maintaining profitability could decline |
| If we are unable to attract and retain a sufficient number of contract professionals to meet client demand, we may be required to forgo staffing and revenue opportunities, which may hurt the growth of our business |
| Growth of our businesses is substantially dependent upon our ability to attract, develop and retain qualified and skilled Staffing Consultants |
| A key component of our ability to grow our lines of business includes our ability to attract, develop and retain qualified and skilled Staffing Consultants, particularly persons with industry experience |
| The available pool of qualified Staffing Consultant candidates is limited |
| We cannot assure that we will be able to recruit, develop and retain qualified Staffing Consultants in sufficient numbers or that our Staffing Consultants will achieve productivity levels sufficient to enable growth of our business |
| Failure to attract and retain productive Staffing Consultants could adversely affect our business, financial condition and results of operations |
| 12 ______________________________________________________________________ If we lose a major client in our Nurse Travel line of business and are not able to replace the lost business quickly, our business could be negatively impacted |
| Our top ten clients in the Nurse Travel line of business accounted for 56dtta5prca of Nurse Travel revenues in 2005 |
| The loss of a major client in Nurse Travel and the failure to replace the lost business with existing or new clients could adversely affect our business, financial condition and results of operations |
| In 2005, we earned 13dtta7 percent of our consolidated revenues from several customers operating under a single contract with a local county government |
| The revenues from this contract are included in Healthcare segment revenues |
| Our business is dependent upon the proper functioning of our information systems in a cost effective manner |
| The operation of our business is dependent on the proper functioning of our information systems |
| In 2005, we continued to upgrade our information technology systems, including PeopleSoft, an enterprise-wide information system |
| Critical information systems used in daily operations identify and match staffing resources and client assignments, track regulatory credentialing, manage scheduling and also perform billing and accounts receivable functions |
| If the systems fail to perform reliably or otherwise does not meet our expectations, or if we fail to successfully complete the implementation of other modules of the system, we could experience business interruptions that could result in deferred or lost sales |
| Our information systems are vulnerable to fire, storm, flood, power loss, telecommunications failures, physical or software break-ins and similar events |
| If our information systems fail or are otherwise unavailable, these functions would have to be accomplished manually, which could impact our ability to identify business opportunities quickly, to pay our staff in a timely fashion and to bill for services efficiently |
| The temporary staffing industry is highly competitive and the success and future growth of our business depend upon our ability to remain competitive in obtaining and retaining temporary staffing clients |
| The temporary staffing industry is highly competitive and fragmented with limited barriers to entry |
| We compete in national, regional and local markets with full-service agencies and in regional and local markets with specialized temporary staffing agencies |
| Some of our competitors in the Nurse Travel line of business include AMN Healthcare Services, Inc |
| Some of our competitors in the Lab Support and MF&A lines of business include Kelly Services, Inc, Manpower, Inc, Adecco, SA, Kforce, Inc |
| Several of these companies have significantly greater marketing and financial resources than we do |
| Our ability to attract and retain clients is based on the value of the service we deliver, which in turn depends principally on the speed with which we fill assignments and the appropriateness of the match based on clients’ requirements and the skills and experience of our contract professionals |
| Our ability to attract skilled, experienced contract professionals is based on our ability to pay competitive wages, to provide competitive benefits and to provide multiple, continuous assignments, thereby increasing the retention rate of these employees |
| To the extent that competitors seek to gain or retain market share by reducing prices or increasing marketing expenditures, we could lose revenues and our gross and operating margins could decline, which could seriously harm our operating results and cause the trading price of our stock to decline |
| As we expand into new geographic markets, our success will depend in part on our ability to gain market share from competitors |
| We expect competition for clients to increase in the future, and the success and growth of our business depend on our ability to remain competitive |
| 13 ______________________________________________________________________ Because our contract staffing agreements may be terminated by clients and contract professionals at will, the termination of a significant number of such agreements would adversely affect our revenues and results of operations |
| Our arrangements with clients and contract professionals are terminable at will, without advance notice, regardless of the length of the agreed-upon term |
| There can be no assurance that existing clients will continue to use our services at historical levels, if at all |
| If clients terminate a significant number of our staffing agreements and we are unable to generate new contract staffing orders to replace lost revenues, our revenues and results of operations could be materially adversely affected |
| We are subject to business risks associated with international operations, which could make our international operations significantly more costly |
| We currently have international operations in the United Kingdom, the Netherlands and Belgium |
| We have limited experience in marketing, selling and, particularly, supporting our services outside of North America |
| Operations in certain markets are subject to risks inherent in international business activities, including: · fluctuations in currency exchange rates; · complicated work permit requirements; · varying economic and political conditions; · seasonal reductions in business activity during the summer months in Europe; · overlapping or differing tax structures; · difficulties collecting accounts receivable; and · regulations concerning pay rates, benefits, vacation, union membership, redundancy payments and the termination of employment |
| Our inability to effectively manage our international operations could result in increased costs and adversely affect our results of operations |
| Improper activities of our contract professionals could result in damage to our business reputation, discontinuation of our client relationships and exposure to liability |
| We may be subject to possible claims by our clients related to errors and omissions, misuse of proprietary information, discrimination and harassment, theft and other criminal activity, malpractice and other claims stemming from the improper activities or alleged activities of our contract professionals |
| There can be no assurance that our current liability insurance coverage will be adequate or will continue to be available in sufficient amounts to cover damages or other costs associated with such claims |
| Claims raised by clients stemming from the improper actions of our contract professionals, even if without merit, could cause us to incur significant expense associated with the costs or damages related to such claims |
| Further, such claims by clients could damage our business reputation and result in the discontinuation of client relationships |
| Claims against us by our contract professionals for damages resulting from the negligence or mistreatment by our clients could result in significant costs and adversely affect our recruitment and retention efforts |
| We may be subject to possible claims by our contract professionals alleging discrimination, sexual harassment, negligence and other similar activities by our clients |
| We cannot assure that our current liability insurance coverage will be adequate or will continue to be available in sufficient amounts to 14 ______________________________________________________________________ cover damages or other costs associated with such claims |
| Claims raised by our contract professionals, even if without merit, could cause us to incur significant expense associated with the costs or damages related to such claims |
| Further, any associated negative publicity could adversely affect our ability to attract and retain qualified contract professionals in the future |
| In 2004, we recorded a charge of dlra26dtta4 million related to impairment of goodwill and an impairment charge of dlra3dtta9 million related to our identifiable intangible assets |
| We did not record any such charges in 2005, however, we continue to have approximately dlra16dtta6 million in goodwill on our balance sheet at December 31, 2005, as well as dlra1dtta6 million in identifiable intangible assets |
| If we are required to further write down goodwill or identifiable intangible assets, the related charge could materially impact our reported net income or loss for the period in which the write down occurs |
| As part of the analysis of goodwill impairment, SFAS Nodtta 142, “Goodwill and Other Intangible Assets” (SFAS 142), requires the Company’s management to estimate the fair value of the reporting units on at least an annual basis |
| At December 31, 2005, we performed our annual impairment test and concluded that there was no further impairment of goodwill or identifiable intangible assets |
| Although a future impairment of the remaining dlra16dtta6 million in goodwill and dlra1dtta6 million in identifiable intangible assets on our balance sheet at December 31, 2005 would not affect our cash flow, it would negatively impact our operating results |
| If we are subject to material uninsured liabilities under our partially self-insured workers’ compensation program, our financial results could be adversely affected |
| In connection with this program, we pay a base premium plus actual losses incurred up to certain levels |
| We are insured for losses greater than certain levels, both per occurrence and in the aggregate |
| There can be no assurance that our loss reserves and insurance coverage will be adequate in amount to cover all workers’ compensation claims |
| If we become subject to substantial uninsured workers’ compensation liabilities, our results of operations and financial condition could be adversely affected |
| Our costs of providing travel and housing for nurses and other healthcare personnel may be higher than we anticipate and, as a result, our margins could decline |
| If our travel and housing costs, including the costs of airline tickets, rental cars, apartments and rental furniture for our nurses and other contract healthcare personnel exceed the levels we anticipate, and we are unable to pass such increases on to our clients, our margins may decline |
| If we cannot source a sufficient number of appropriate short-term leases in regional markets, or if, for any reason, we are unable to efficiently utilize the apartments we do lease, we may be required to pay rent for unutilized or underutilized housing |
| As we continue to expand our travel nurse business, effective management of travel costs will be necessary to prevent a decrease in gross profit and gross and operating margins |
| Demand for our services is significantly impacted by changes in the general level of economic activity and continued periods of reduced economic activity could negatively impact our business and results of operations |
| Demand for the temporary staffing services that we provide is significantly impacted by changes in the general level of economic activity, particularly any negative effect on healthcare, research and development and quality control spending |
| As economic activity slows, many clients or potential clients for our services reduce their usage of and reliance upon temporary professionals before laying off their regular, full-time employees |
| During periods of reduced economic activity, we may also be subject to increased competition for market share and pricing pressure |
| As a result, continued periods of reduced economic activity could have a material adverse impact on our business and results of operations |
| 15 ______________________________________________________________________ We do not have long-term or exclusive agreements with our temporary staffing clients and growth of our business depends upon our ability to continually secure and fill new orders |
| We do not have long-term agreements or exclusive guaranteed order contracts with our temporary staffing clients |
| Assignments for our Lab Support segment typically have a term of three to six months |
| Assignments for our Healthcare Staffing segment typically have a term of four to thirteen weeks |
| The success of our business depends upon our ability to continually secure new orders from clients and to fill those orders with our contract professionals |
| Our agreements do not provide for exclusive use of our services, and clients are free to place orders with our competitors |
| As a result, it is imperative to our business that we maintain positive relationships with our clients |
| If we fail to maintain positive relationships with these clients, we may be unable to generate new contract staffing orders, and the growth of our business could be adversely affected |
| Fluctuation in patient occupancy rates at client facilities could adversely affect demand for services of our Healthcare Staffing segment and our results of operations |
| Client demand for our Healthcare Staffing segment services is significantly impacted by changes in patient occupancy rates at our hospital and healthcare clients’ facilities |
| Increases in occupancy often result in increased client need for contract professionals before full-time employees can be hired |
| During periods of decreased occupancy, however, hospitals and other healthcare facilities typically reduce their use of contract professionals before laying off their regular, full-time employees |
| During periods of decreased occupancy, we may experience increased competition to service clients, including pricing pressure |
| Occupancy at certain healthcare clients’ facilities also fluctuates due to the seasonality of some elective procedures |
| Periods of decreased occupancy at client healthcare facilities could materially adversely affect our results of operations |
| The loss of key members of our senior management team could adversely affect the execution of our business strategy and our financial results |
| We believe that the successful execution of our business strategy and our ability to build upon the significant infrastructure investments and restructuring we have undertaken in the past year depends on the continued employment of key members of our senior management team |
| If any members of our senior management team become unable or unwilling to continue in their present positions, our financial results and our business could be materially adversely affected |
| Future changes in reimbursement trends could hamper our Healthcare Staffing segment clients’ ability to pay us |
| Many of our Healthcare Staffing segment clients are reimbursed under the federal Medicare program and state Medicaid programs for the services they provide |
| In recent years, federal and state governments have made significant changes in these programs that have reduced reimbursement rates |
| In addition, insurance companies and managed care organizations seek to control costs by requiring that healthcare providers, such as hospitals, discount their services in exchange for exclusive or preferred participation in their benefit plans |
| Future federal and state legislation or evolving commercial reimbursement trends may further reduce, or change conditions for, our clients’ reimbursement |
| Limitations on reimbursement could reduce our clients’ cash flows, hampering their ability to pay us |
| If our insurance costs increase significantly, these incremental costs could negatively affect our financial results |
| The costs related to obtaining and maintaining workers’ compensation insurance, professional and general liability insurance and health insurance for our contract professionals have been increasing |
| If the cost of carrying this insurance continues to increase significantly, this may have a negative effect on our gross and operating margins and financial results |
| 16 ______________________________________________________________________ Healthcare reform could negatively impact our business opportunities, revenues and gross and operating margins |
| The US and state governments have undertaken efforts to control increasing healthcare costs through legislation, regulation and voluntary agreements with medical care providers and drug companies |
| The proposals were generally intended to expand healthcare coverage for the uninsured and reduce the growth of total healthcare expenditures |
| While the US Congress did not adopt any comprehensive reform proposals, members of Congress may raise similar proposals in the future |
| If any of these proposals are approved, hospitals and other healthcare facilities may react by spending less on healthcare staffing, including nurses |
| If this were to occur, we would have fewer business opportunities, which could seriously harm our business |
| Furthermore, third-party payors, such as health maintenance organizations, increasingly challenge the prices charged for medical care |
| Failure by hospitals and other healthcare facilities to obtain full reimbursement from those third-party payors could reduce the demand or the price paid for our staffing services |
| We operate in a regulated industry and changes in regulations or violations of regulations may result in increased costs or sanctions that could reduce our revenues and profitability |
| Our organization is subject to extensive and complex federal and state laws and regulations including but not limited to; professional licensure, payroll tax regulations, conduct of operations, payment for services and payment for referrals |
| If we fail to comply with the laws and regulations that are directly applicable to our business, we could suffer civil and/or criminal penalties or be subject to injunctions or cease and desist orders |
| Extensive and complex laws that apply to our hospital and healthcare facility clients, including laws related to Medicare, Medicaid and other federal and state healthcare programs, could indirectly affect the demand or the prices paid for our services |
| For example, our hospital and healthcare facility clients could suffer civil and/or criminal penalties and/or be excluded from participating in Medicare, Medicaid and other healthcare programs if they fail to comply with the laws and regulations applicable to their businesses |
| In addition, our hospital and healthcare facility clients could receive reduced reimbursements or be excluded from coverage because of a change in the rates or conditions set by federal or state governments |
| In turn, violations of or changes to these laws and regulations that adversely affect our hospital and healthcare facility clients could also adversely affect the prices that these clients are willing or able to pay for our services |
| The trading price of our common stock has experienced significant fluctuations, which could make it difficult for us to access the public markets for financing or use our common stock as consideration in a strategic transaction |
| In 2005, the trading price of our common stock experienced significant fluctuations, from a high of dlra12dtta20 to a low of dlra3dtta99 |
| The closing price of our common stock on the NASDAQ National Market was dlra10dtta22 on March 8, 2006 |
| Our common stock may continue to fluctuate widely as a result of a large number of factors, many of which are beyond our control, including: · period to period fluctuations in our financial results; · failure to meet previously announced guidance or analysts’ expectations of our quarterly results; and · general economic and other external factors |
| The stock market has experienced extreme price and volume fluctuations that have affected the market prices of many companies involved in the temporary staffing industry |
| As a result of these 17 ______________________________________________________________________ fluctuations, we may encounter difficulty should we determine to access the public markets for financing or use our common stock as consideration in a strategic transaction |
| Provisions in our corporate documents and Delaware law may delay or prevent a change in control of On Assignment that stockholders consider favorable |
| Our certificate of incorporation and by-laws contain provisions that may discourage, delay or prevent a merger or acquisition involving us that our stockholders may consider favorable |
| For example, our certificate of incorporation and by-laws contain provisions requiring a 66 percent stockholder vote or a two-thirds vote of continuing Directors to effect certain amendments to such documents |
| Our certificate of incorporation also authorizes our Board of Directors to issue up to 1cmam000cmam000 shares of “blank check” preferred stock |
| Without stockholder approval, the Board of Directors has the authority to attach special rights, including voting and dividend rights, to this preferred stock |
| With these rights, preferred stockholders could make it more difficult for a third party to acquire us |
| In addition, our Board of Directors adopted a stockholder rights plan in June 2003 |
| The rights plan has certain anti-takeover effects and will cause substantial dilution to a person or group that attempts to acquire our company in a manner or on terms not approved by our Board of Directors |
| These features of our governing documents and the application of Delaware law may discourage, delay or prevent a third party from acquiring or merging with us |