Company Quick10K Filing
Quick10K
ASGN
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$67.57 53 $3,560
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-04-02 Officers
8-K 2019-02-13 Earnings, Exhibits
8-K 2019-01-28 Earnings, Other Events
8-K 2019-01-28 Earnings, Other Events
8-K 2018-10-24 Earnings, Exhibits
8-K 2018-07-25 Earnings, Exhibits
8-K 2018-06-18 Shareholder Vote
8-K 2018-05-03 Officers, Exhibits
8-K 2018-04-25 Earnings, Exhibits
8-K 2018-04-02 Enter Agreement, M&A, Off-BS Arrangement, Amend Bylaw, Other Events, Exhibits
8-K 2018-03-15 Amend Bylaw, Other Events, Exhibits
8-K 2018-02-14 Earnings, Exhibits
8-K 2018-02-05 Regulation FD, Exhibits
8-K 2018-01-31 Enter Agreement, Earnings, Regulation FD, Exhibits
8-K 2018-01-05 Other Events, Exhibits
JPM JPMorgan Chase 360,410
LIN Linde 98,420
GPRE Green Plains 722
PICO Pico Holdings 224
VIRC Virco Mfgoration 66
ALRN Aileron Therapeutics 46
ZIVO Zivo Bioscience 0
BFGC Bullfrog Gold 0
BCDA Biocardia 0
PWCO PwrCor 0
ASGN 2018-12-31
Part I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
Part II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions and Director Independence
Item 14. Principal Accounting Fees and Services
Part IV
Item 15. Exhibits and Financial Statement Schedule
EX-10.8 exhibit108amendedandrestat.htm
EX-10.9 exhibit109asgnincorporated.htm
EX-10.20 exhibit10202012employmenti.htm
EX-10.39 exhibit1039georgewilsonemp.htm
EX-21.1 a12312018ex211subsofthereg.htm
EX-23.1 a12312018ex231consent.htm
EX-31.1 a12312018ex311ceocertifica.htm
EX-31.2 a12312018ex312cfocertifica.htm
EX-32.1 a12312018ex321writtenstate.htm
EX-32.2 a12312018ex322writtenstate.htm

ASGN Earnings 2018-12-31

ASGN 10K Annual Report

Balance SheetIncome StatementCash Flow

10-K 1 a10-k2018.htm 10-K Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (the Act)
 For the fiscal year ended December 31, 2018
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 000-20540
ASGN Incorporated
(Exact name of registrant as specified in its charter)
Delaware
 
95-4023433
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 26745 Malibu Hills Road
Calabasas, California 91301
(Address of Principal Executive Offices)
Registrant’s telephone number, including area code: (818) 878-7900
 Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Common Stock, $0.01 par value
 
New York Stock Exchange
 Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of 1933. Yes ý No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements of the past 90 days.  Yes ý No o
Indicate by check mark whether the registrant has submitted electronically 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 such files).    Yes ý   No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  x
Accelerated filer o
Non-accelerated filer o
Smaller reporting company  o
Emerging growth company  o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
As of June 29, 2018, the aggregate market value of our common stock (based upon the closing price of the stock on the New York Stock Exchange)  held by non-affiliates of the registrant was approximately $3,914,732,709.
As of February 20, 2019, the registrant had 52,655,248 outstanding shares of Common Stock, $0.01 par value.
DOCUMENTS INCORPORATED BY REFERENCE
We are incorporating by reference into Part III of this Annual Report on Form 10-K portions of the registrant’s definitive proxy statement for the 2019 Annual Meeting of Stockholders, to be filed within 120 days of the close of the registrant’s fiscal year 2018.




ASGN INCORPORATED
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2018
TABLE OF CONTENTS

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





SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
 
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such statements are based upon current expectations, as well as management’s beliefs and assumptions and involve a high degree of risk and uncertainty. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Statements that include the words “believes,” “anticipates,” “plans,” “expects,” “intends,” and similar expressions that convey uncertainty of future events or outcomes are forward-looking statements. Forward-looking statements include statements regarding our anticipated financial and operating performance for future periods. Our actual results could differ materially from those discussed or suggested in the forward-looking statements herein. Factors that could cause or contribute to such differences include, but are not limited to, the following: (1) actual demand for our services; (2) the availability of qualified contract professionals and our ability to attract, train and retain them; (3) our ability to remain competitive in obtaining and retaining clients; (4) management of our growth; (5) continued performance and integration of our enterprise-wide information systems; (6) our ability to manage our litigation matters; (7) the successful integration of our acquired subsidiaries; (8) maintenance of our ECS Segment contract backlog; and the factors described in Item 1A of this Annual Report on Form 10-K (2018 10-K) under the section titled “Risk Factors.” Other factors also may contribute to the differences between our forward-looking statements and our actual results. In addition, as a result of these and other factors, our past financial performance should not be relied on as an indication of future performance. All forward-looking statements in this document are based on information available to us as of the date we file this 2018 10-K and we assume no obligation to update any forward-looking statement or the reasons why our actual results may differ.

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PART I
Item 1. Business

Overview and History

ASGN Incorporated (the "Company") (NYSE: ASGN) is one of the foremost providers of information technology ("IT") and professional staffing services in the technology, digital, creative, engineering and life sciences fields across commercial and government sectors. Operating through our Apex, Oxford and ECS segments, we help leading corporate enterprises and government organizations develop, implement and operate critical IT and business solutions through our integrated offering of professional staffing and IT solutions.

We were incorporated in 1985 and commenced operation of our first contract staffing line of business in the life sciences sector. Expansion into other professional staffing markets has been achieved through acquisitions and internal growth. The following is a summary of acquisitions in the past five years:

On April 2, 2018, we acquired ECS Federal, LLC ("ECS"), headquartered in Fairfax, Virginia. ECS delivers advanced solutions in cloud, cybersecurity, artificial intelligence, machine learning, software development, IT modernization and science and engineering and is primarily focused on federal government activities. ECS is reported as a separate operating segment.
On August 8, 2017, we acquired StratAcuity Staffing Partners, Inc. ("Stratacuity"), a provider of specialized clinical/scientific staffing solutions headquartered in Portsmouth, NH. Stratacuity is included in the Apex operating segment.
On June 5, 2015, we acquired Creative Circle, LLC ("Creative Circle"), one of the largest digital/creative staffing firms in North America that provides digital, marketing, advertising and creative talent to both advertising agencies and corporate clients. Creative Circle, which is headquartered in Los Angeles, California, is included in the Apex operating segment.
On April 14, 2015, we acquired LabResource B.V. ("LabResource"), a provider of specialized clinical/scientific staffing solutions headquartered in Amsterdam, the Netherlands. LabResource is included in the Oxford operating segment.

Our Physician segment was sold on February 1, 2015.

Financial information regarding our operating segments and our domestic and international revenues is included under “Financial Statements and Supplementary Data” in Part II, Item 8 of this 2018 10-K. We conduct approximately 95 percent of our business in the United States.

Our principal office is located at 26745 Malibu Hills Road, Calabasas, California 91301, and our telephone number is (818) 878-7900. We have approximately 170 branch offices within the United States and in six foreign countries.
 
Industry and Market Dynamics

ASGN delivers IT and professional staffing services in the technology, digital, creative, engineering and life sciences fields across commercial and government sectors to clients through contingent labor and light deliverables-based professional services models with a combined addressable end market of $280.0 billion ($51.0 billion in professional staffing, $100.0 billion in commercial IT consulting/services and $129.0 billion in Federal IT and professional services).

The Staffing Industry Analysts (“SIA”) September 2018 Industry Forecast report estimates the U.S. staffing industry will grow its revenues four percent in 2018 and three percent in 2019 to $147.8 billion and $152.4 billion, respectively. The largest industry segment, temporary staffing, is forecast to grow its revenues at an annual rate of three percent in 2019 to $131.3 billion, up from $127.6 billion in 2018. Within the temporary staffing segment, professional staffing is expected to grow its revenues four percent in 2019 to $78.5 billion, up from $75.8 billion in 2018. The temporary staffing industry is historically cyclical and typically has a strong correlation to employment and gross domestic product (“GDP”) growth. Permanent placement services revenues are forecast to grow five percent in 2019 to $21.2 billion, up from $20.3 billion in 2018.

ASGN operates in the most attractive subsectors of the professional staffing market - technology, digital, creative, engineering and life sciences. SIA projects 2019 professional staffing revenue growth of three percent for IT, seven percent for digital and creative, four percent for engineering, four percent for clinical/scientific and five percent for permanent placement services.

Adjacent to professional staffing is the large and growing IT services market. ASGN serves this market by leveraging its expertise in contingent labor with a light deliverables-based professional services model whereby we perform certain project oversight functions. Through independent research, we estimate the size of this IT services market to be $100.0 billion based on the skill sets we provide.

Finally, the ECS acquisition expanded ASGN’s addressable end market as we now compete in the Federal IT and professional services sector. Independent research estimates the size of this market to be $129.0 billion based on the skill sets we provide. The Federal IT and professional services sector consists of both Civilian and Defense and is estimated to be $65.0 and $64.0 billion, respectively in 2018.


2



We believe the rate of adoption of our contingent labor and light deliverables-based professional services models will continue to expand, driven by a number of factors including constant technology change and specialization, increase in adoption and use of mobile applications and smartphones, increasing cybersecurity threats, increasing compliance requirements and immigration/H-1B visa reform. We anticipate our clients will increase their use of contract labor to meet the need for increases in their workforce. By using contract labor, these clients will benefit from cost structure advantages, improved flexibility to address fluctuating demand in business, access to greater expertise and protection from the misclassification of contract employees hired as independent contractors. Entry into the Federal IT and professional services sector nearly doubles
our addressable end market and ECS’s highly specialized skill sets reinforce our positioning as a premium human capital provider and complements our highly technical IT offerings.

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

Clients

We serve our clients by effectively understanding their IT and professional services needs and providing them qualified professionals with the unique combination of skills, experience and expertise to meet those needs. We believe effective engagements of contract IT, engineering, digital, creative and scientific professionals require the people involved in making assignments to have significant knowledge of the client’s industry and the ability to assess the specific needs of the client as well as the contract professional’s qualifications. During the year ended December 31, 2018, we provided services to approximately 15,000 clients, including U.S. government agencies. In 2018, no single client represented more than six percent of our consolidated revenues. Contracts with the U.S. Army generated approximately 32 percent of our ECS Segment revenues.

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

Candidates

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

Hourly wage or contract rates for our contract professionals, both employees and subcontractors, are established based on their specific skills and whether or not the assignment involves travel away from their primary residence. For our contract professionals who are our employees, we pay the related costs of employment including social security taxes, federal and state unemployment taxes, workers’ compensation insurance and other similar costs. After achieving minimum service periods and/or hours worked, our contract employees are offered access to medical and other voluntary benefit programs (e.g., dental, vision, disability) and the right to participate in our 401(k) Retirement Savings Plan. Each contract professional’s employment relationship with us is terminable at will.

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

Strategy

ASGN's strategy is to identify, enter and be a dominant player in the most attractive subsectors of the IT and professional staffing services markets through organic and acquisitive growth. We have set a revenue goal of $5.0 billion by 2022 while maintaining an attractive gross margin, earnings before interest, taxes, depreciation and amortization (“EBITDA”) margin and earnings per share (“EPS”) growth. To achieve these goals we will continue to specialize in the large and growing technology, engineering, digital, creative and life sciences markets, reinforce our position as a dominant competitor in each, advance our pursuit of the IT services market with our light deliverables-based professional services model, invest primarily in domestic markets, and pursue further disciplined acquisitions.

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

We consolidate our corporate support services (finance, accounting, human resources, legal, marketing and IT) in centralized locations where we can most effectively and efficiently perform these functions, allowing us to leverage our fixed costs and generate higher incremental earnings as our revenues grow. In addition, we invest in leasehold improvements as we expand, relocate and rationalize our branch facilities to increase the productivity of our staffing consultants. In 2018, we continued to focus on increasing market share in each of our businesses, expanded our service offerings and controlled our operating costs.

3




Competition

We compete with other large publicly-held and privately-owned providers of human capital in the IT and professional staffing services segments on a local, regional, national and international basis across commercial and government sectors.

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

Trademarks

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

Operating Segments

ASGN operates through its Apex, Oxford and ECS segments. The Apex Segment provides technical, scientific, digital and creative services and solutions to Fortune 1000 and mid-market clients across the United States and Canada. The businesses in this segment include Apex Systems, LLC ("Apex Systems"), Apex Life Sciences and Creative Circle. The Oxford Segment provides hard-to-find technical, digital, engineering and life sciences resources and consulting services in select skill and geographic markets. The businesses in this segment include Oxford Global Resources, LLC ("Oxford"), CyberCoders, Inc. ("CyberCoders") and Life Sciences Europe. The ECS Segment delivers advanced solutions in cloud, cybersecurity, artificial intelligence, machine learning, software development, IT modernization and science and engineering and is primarily focused on federal government activities.

Apex Segment

The Apex Segment provides a broad spectrum of technical, digital, creative and scientific professionals for contract, contract-to-hire and permanent placement positions to Fortune 1000 and mid-market clients across the United States and Canada. The businesses in this segment include Apex Systems, Apex Life Sciences and Creative Circle. Apex Segment revenues for 2018 were $2.3 billion and represented 67.7 percent of our total revenues.

Apex Systems

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

Corporate support services for Apex Systems and Apex Life Sciences are based in Richmond, Virginia and there are 82 branch offices across the United States and two in Canada that support our sales, recruiting and field activities.

4




Apex Life Sciences

Apex Life Sciences provides scientific, engineering and clinical research staffing and services for clients across the United States and Canada. Stratacuity was acquired in August 2017 and is included in Apex Life Sciences. The sales and recruiting teams match life sciences professionals for temporary and permanent assignments with clients in biotechnology, pharmaceutical, food and beverage, personal care, chemical, medical device, automotive, municipal, education, environmental and clinical research industries. Primary client contacts include a mix of end users and process facilitators. End users consist of lab directors, managers and department heads. Facilitators consist of human resource managers, procurement departments and administrators. Life sciences professionals include chemists, clinical research associates, clinical lab assistants, engineers, biologists, biochemists, microbiologists, molecular biologists, biostatisticians, drug safety specialists, SAS programmers, medical writers, food scientists, regulatory affairs specialists, lab assistants and other skilled professionals. Their experience ranges from technicians with entry-level science, engineering, or clinical research backgrounds and experience to individuals with bachelors, masters and/or doctorate degrees and considerable experience. Assignments for Apex Life Sciences typically range from one to six months.

Creative Circle

Creative Circle provides creative, marketing, advertising and digital talent to a wide range of companies in North America. Consumers’ rapidly growing demand for real-time information and services requires an increase in both creative and technical professionals to support these digital platforms. To help our clients effectively respond to this demand, Creative Circle offers talent across the spectrum of traditional advertising and digital marketing skill sets. Creative Circle's professionals include account planners and strategists, information architects, content strategists, copywriters, interactive art directors, UX and UI specialists, designers and front-end developers. Creative Circle’s clients include advertising agencies and company marketing departments in retail, entertainment, technology, food and beverage, education and other industries. Assignments for Creative Circle typically range from one to seven weeks. Creative Circle’s corporate support activities are based in Los Angeles, California and their field activities are located in 28 branch offices across the United States and one in Canada.

Oxford Segment

The Oxford Segment provides specialized staffing and permanent placement services in select skill and geographic markets. The businesses in this segment include Oxford, CyberCoders and Life Sciences Europe. Segment revenues for 2018 were $606.5 million and represented 17.8 percent of our total revenues.
 
Oxford Global Resources

Oxford specializes in recruiting and delivering experienced IT, engineering and regulatory and compliance consultants to clients for temporary assignments and project engagements. These consultants typically have a great deal of knowledge and experience in specialized technical fields which make them uniquely qualified to fill a given assignment or project. Demand for Oxford's services is driven by a shortage of experienced consultants with specialized technical skills that organizations need quickly but cannot find on their own. Additionally, the push for adoption of health information technology, compliance with FDA regulations and increasing digitization of business processes is accelerating the demand for services. Services are provided to clients in a wide range of industries from large companies that may, for example, be installing new enterprise-wide computer systems and have a need for a subject matter expert with a specific technical and industry-specific experience, to small and mid-sized companies, such as a medical device manufacturer who needs a specialized hardware engineer. Assignments for Oxford typically range from two months to 13 months.

Oxford's sales and recruiting activities are delivered through seven recruiting centers across the United States and two in Europe, along with 15 local offices serving major metropolitan markets in the United States. Corporate support activities for Oxford are based in Beverly, Massachusetts, Calabasas, California and Cork, Ireland.

CyberCoders

CyberCoders specializes in recruiting professionals for permanent placements in technology, engineering, sales, executive, financial, accounting, scientific, legal and operations positions. CyberCoders’ proprietary software and unique matching algorithm combine to deliver an impressive turnaround time for employers and help candidates find jobs that truly fit their background and career goals. CyberCoders is based in Irvine, California, with corporate support activities in Beverly, Massachusetts. Their field activities are operated from four hub locations across the United States.

Life Sciences Europe

Life Sciences Europe includes the brands Lab Support, LabResource and Valesta, which provide locally-based contract and permanent life science professionals to clients with research and development projects in the biotechnology, pharmaceutical, food and beverage, personal care, chemical, medical device, automotive, municipal, education and environmental industries. Assignments for Life Sciences Europe typically range from five to 18 months, although they can be longer. Life Sciences Europe sales and recruiting services are delivered from six branch offices in the Netherlands, Belgium and Spain and the corporate support services are based in Cork, Ireland.

5




ECS Segment

The ECS Segment delivers advanced solutions in cloud, cybersecurity, artificial intelligence, machine learning, software development, IT modernization and science and engineering and is primarily focused on federal government activities. ECS maintains relationships with the world’s leading cyber and cloud technology organizations, bringing high-end, mission critical technology solutions that address multi-faceted challenges. Revenues are derived from a mix of firm-fixed-price, time and materials and cost-plus-fixed-fee contracts across Department of Defense and Intelligence Agencies, Federal Civilian, and Commercial customers. Contracts with ECS’s clients typically average five years in length. Corporate support activities for ECS are based in Fairfax, Virginia and their field activities are supported through 18 branch offices located throughout the United States.

ECS has a backlog of awarded contracts. This contract backlog represents the estimated amount of future revenues to be recognized under awarded contracts including task orders and options. Contract backlog as of December 31, 2018 was $1.4 billion. For a further discussion of contract backlog see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II of this Annual Report on Form 10-K.

Employees

At December 31, 2018, we employed approximately 4,300 internal employees, including staffing consultants, regional sales directors, account managers, recruiters and corporate office employees. Throughout 2018, we placed approximately 61,900 contract professionals who are our employees on assignments/contracts with clients. Those assignments/contracts varied in length as described in the Operating Segments discussion above.

Government Regulation
 
We take reasonable steps to ensure that our contract professionals possess all current licenses and certifications required for each placement. We provide state-mandated workers’ compensation insurance, unemployment insurance and professional liability insurance for our internal employees and our contract professionals who are our employees. These expenses have a direct effect on our costs of services, margins and likelihood of achieving or maintaining profitability.
 
For a further discussion of government regulation associated with our business, see “Risk Factors” within Item 1A of Part I of this 2018 10-K.
 
Available Information and Access to Reports
 
We electronically file our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements and all amendments to those reports and statements with the Securities and Exchange Commission (“SEC”). The SEC maintains an internet site sec.gov that contains reports, proxy and information statements, and other information technology regarding issuers that file electronically with the SEC. You may also read and copy any of our reports that are filed with the SEC by visiting:
 
Our website, asgn.com; or
By contacting our Investor Relations Department at (818) 878-7900.

Our reports are available through any of the foregoing means and are available free of charge on our website as soon as practicable after such material is electronically filed with or furnished to the SEC. Also available on our website are copies of our Code of Ethics for the Principal Executive Officer and Senior Financial Officers, Code of Business Conduct and Ethics, Corporate Governance Guidelines and the charters for the committees of our Board of Directors. We intend to disclose any amendment to, or waiver from, a provision of our Code of Ethics for Principal Executive Officer and Senior Financial Officers on our website promptly after the amendment or waiver has been granted.


6



Item 1A. Risk Factors

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

U.S. and global market and economic developments could adversely affect our business, financial condition and results of operations.

Demand for the contract staffing services that we provide is significantly affected by global market and economic conditions. As economic activity slows, many clients or potential clients reduce their use of and reliance upon contract professionals. During periods of reduced economic activity, we may also be subject to increased competition for market share and pricing pressure. As a result, a recession or periods of reduced economic activity could harm our business and results of operations.

If we are not able to remain competitive in obtaining and retaining temporary staffing clients, our future growth will suffer. Agreements may be terminated by clients at will and the termination of a significant number of such agreements would adversely affect our revenues and results of operations.

The contract staffing industry is highly competitive and fragmented with limited barriers to entry. We compete in national, regional and local markets with full-service agencies and in regional and local markets with specialized contract staffing agencies. The success of our business depends upon our ability to continually secure new orders from clients and to fill those orders with our contract professionals.

Our agreements with clients do not provide for exclusive use of our services and in some instances we provide services without entering into contracts. As such, clients are free to place orders with our competitors. If clients terminate a significant number of our staffing agreements or do not use us for future assignments and we are unable to generate new contract staffing orders to replace lost revenues, the growth of our business could be adversely affected and our revenues and results of operations could be harmed. As a result, it is imperative to our business that we maintain positive relationships with our clients. We are expanding our light deliverables-based professional services model whereby we perform certain project oversight functions. If we are not able to comply with these performance requirements, our revenues and relationships with our clients may be adversely affected.

To the extent that competitors seek to gain or retain market share by reducing prices or increasing marketing expenditures, we could lose revenues and our margins could decline, which could harm our operating results and cause the trading price of our stock to decline. We expect competition for clients to increase in the future and the success and growth of our business depends on our ability to remain competitive. In addition, we participate in a number of third-party contracts as a subcontractor and that requires us to participate in vendor management contracts, which may subject us to greater risks or lower margins.

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

Our business is substantially dependent upon our ability to attract and retain contract professionals who possess the skills, experience and licenses which may be required to meet the specified requirements of our clients. We compete for such contract professionals with other temporary staffing companies and with our clients and potential clients. There can be no assurance that qualified professionals will be available to us in adequate numbers to staff our temporary assignments. Moreover, our contract professionals are often hired to become regular employees of our clients, and their employment is terminable at will. Attracting and retaining contract professionals depends on several factors, including our ability to provide contract professionals with desirable assignments and competitive wages and benefits. The cost of attracting and retaining contract professionals in the future may be higher than we anticipate if there is an increase in competitive wages and benefits and, as a result, if we are unable to pass these costs on to our clients, our likelihood of achieving or maintaining profitability could decline. In periods of low unemployment, there may be a shortage of, and significant competition for, the skilled contract professionals sought by our clients. If we are unable to attract and retain a sufficient number of contract professionals to meet client demand, we may be required to forgo staffing and revenue opportunities, which may hurt the growth of our business. In periods of high unemployment, contract professionals frequently opt for full-time employment directly with clients and, due to a large pool of available candidates, clients are able to directly hire and recruit qualified candidates without the involvement of staffing agencies.

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

If we are unable to meet our expectations for growth, our forecasted results and stock price are likely to be adversely affected.

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

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

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

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

In addition, we are subject to data privacy, protection and security laws and regulations, the most significant of which is the European General Data Protection Act (“GDPR”) that governs the personal information of European persons which we may collect, use and retain in the ordinary course of our business. This law impacts our U.S. operations as well as our European operations as it applies not only to third-party transactions, but also to transfers of information among the Company and its subsidiaries. The GDPR imposes more stringent operational requirements for entities processing personal information that is potentially confidential and/or personally identifiable and sensitive, such as stronger safeguards for data transfers to countries outside the European Union and stronger enforcement authorities and mechanisms. California has recently enacted the California Consumer Privacy Act of 2018 which goes into effect in 2020 and models the GDPR in part. Any inadvertent non-compliance of the GDPR or other data privacy laws could result in governmental enforcement actions, fines, and other penalties that could potentially have an adverse effect on the Company’s operations and reputation.

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

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

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

A failure of any of our employees internally or contract professionals in client's workplaces to observe our policies and guidelines intended to reduce these risks could result in negative publicity, injunctive relief, criminal investigations and/or charges, payment of monetary damages or fines, or other material adverse impacts on our business. Claims raised by clients stemming from the improper actions of our contract professionals, even if without merit, could cause us to incur significant expense associated with the costs or damages related to such claims. Further, such claims by clients could damage our business reputation and result in the discontinuation of client relationships. Any associated negative publicity could adversely affect our ability to attract and retain qualified contract professionals in the future.

We proactively address many of these issues with our robust compliance program. Further, to protect ourselves from the costs and damages of significant legal actions and claims, we maintain workers’ compensation, errors and omissions, employment practices and general liability insurance coverage in amounts and with deductibles that we believe are appropriate for our operations. Our coverage includes a retention amount and our insurance coverage may not cover all claims against us or continue to be available to us at a reasonable cost. In addition, we face various employment-related risks not covered by insurance, such as wage and hour laws and employment tax responsibility. If we do not maintain adequate insurance coverage or are made party to significant uninsured claims, we may be exposed to substantial liabilities that could have a material adverse impact on our results of operations and financial condition.

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

Our clients range in size from large national or multinational companies to small and mid-market businesses. In 2018, no single client represented more than six percent of our consolidated revenues. Contracts with the U.S. Army generated approximately 32 percent of our ECS Segment revenues. Our large clients may enter into non-exclusive arrangements with several staffing firms and the client is generally able to terminate our contracts on short notice without penalty. The deterioration of the financial condition or business prospects of these large clients, or a change in their strategy around the use of our services, could reduce their need for our services and result in a significant decrease in the revenues and earnings we derive from them. The loss of one or more of our large national or multinational clients, or a significant decrease in their demand for our services, could have a material adverse impact on our results of operations.

We may not successfully make or integrate acquisitions, which could harm our business and growth.

As part of our growth strategy, we intend to opportunistically pursue selected acquisitions. We compete with other companies in the professional staffing and consulting industries for acquisition opportunities and there can be no assurance that we will be able to successfully identify suitable acquisition candidates or be able to complete future acquisitions on favorable terms, if at all. There also can be no assurance that we will realize the benefits expected from any transaction or receive a favorable return on investment from our acquisitions.

We may pay substantial amounts of cash or incur debt to finance our acquisitions, which could adversely affect our liquidity and capital resources. The incurrence of indebtedness would also result in increased interest expense and could also include covenants or other restrictions that would impede our ability to manage our operations. We may also issue equity securities to pay for acquisitions, which could result in dilution to our stockholders. In addition, any acquisitions we announce could be viewed negatively by investors, which may adversely affect the price of our common stock.

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

The loss of key members of our senior management team could adversely affect the execution of our business strategy and our financial results.

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

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

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

We are subject to business risks associated with international operations, which could increase our costs, cause our results of operations to fluctuate, and adversely affect our business.

Although we have limited experience in marketing, selling and supporting our services outside of the United States, we had international sales in Canada and Europe in 2018. Our international operations comprised approximately five percent of total sales in 2018. We also have offices and employees outside the United States. Our sales and operations outside the United States expose us to currency, operational, regulatory and political risks in the countries in which we operate. With respect to currency risks, significant changes in the value of the U.S. dollar in relation to foreign currencies could adversely affect our costs and operating margins and could result in exchange losses or otherwise have a material effect on our business, financial condition, and results of operations. Other risks associated with our international operations include, among other things, the effects of local economic and political conditions, competition from local companies, lack of brand recognition, increased costs, difficulty in establishing staffing and managing foreign operations, changes in foreign labor laws and regulations affecting our ability to hire and retain contract professionals and employees, trade protectionism, restrictions on the transfer of capital across borders, U.S. relations with the governments of foreign countries in which we operate, difficulty in complying with foreign law, and changes in tax laws. If we are not able to manage these risks, our business and results of operations would be adversely affected.

On March 29, 2017, the Prime Minister of the United Kingdom (“UK”) officially triggered Article 50 of the Treaty of Lisbon, signaling the start of a two-year period in which the UK will negotiate the terms for its exit from the European Union (“EU”) (commonly known as “Brexit”). Political negotiations are ongoing, however, there is a significant lack of clarity over the terms of the UK's exit from the EU and the terms of the UK's future relationship with the EU. While it is difficult to predict the effect of Brexit on the European and global economy, uncertainty regarding new or modified arrangements between the UK and the EU has created uncertainties affecting business operations in the UK and the EU. Until the terms of the UK's exit from the EU are determined, including any transition period, it is difficult to predict its impact. It is possible that the withdrawal could, among other things, affect the legal and regulatory environments to which our businesses are subject, impact trade between the UK and the EU and other parties, and create economic and political uncertainty in the region.

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

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

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

Our information technology systems are used in daily business operations to, among other things, identify staffing resources, match personnel with client assignments and manage our accounting and financial reporting functions. In conducting our business, we routinely collect and retain personal information on our employees and contract professionals and their dependents including, without limitation, full names, social security numbers, addresses, birth dates and payroll-related information. Our information systems are vulnerable to fire, storm, flood, power loss, telecommunications failures, terrorist attacks and similar events. Although we use commercially available information security technologies and have implemented security controls to help protect the security and privacy of our business information, our information technology systems are subject to potential security breaches through employee negligence, fraud or misappropriation, business email compromise, and cybersecurity threats, including denial of service attacks, viruses or other malicious software programs and third parties gaining unauthorized access to our information technology systems for purposes of misappropriating assets or confidential information, corrupting data or causing operational disruption. Because the techniques used in cyberattacks change frequently and may be difficult to detect for periods of time, we may face difficulties in anticipating and implementing adequate preventative measures. All of these risks are also applicable wherever we rely on outside vendors to provide services.

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

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

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable assurance that the objectives of the control system are met. Furthermore, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, would be detected, particularly in our acquired companies and international operations. If our internal controls are unsuccessful, our business and results of operations could be adversely affected.

As of December 31, 2018, we had $1.1 billion of total debt, which could adversely affect our operating flexibility, and the restrictive covenants under our debt instruments could trigger prepayment obligations or additional costs.

Our level of debt and the limitations imposed on us by our credit agreements could have important consequences for investors, including the following:

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

Our failure to comply with restrictive covenants under our credit facilities and other debt instruments could result in an event of default, which, if not cured or waived, could result in the requirement to repay such borrowings before their due date. Some covenants are tied to our operating results and thus may be breached if we do not perform as expected. Further, the terms of our credit facility permit additional borrowings, subject to certain conditions. If new debt is added to our current debt levels, the related risks we now face could intensify.

We expect to obtain the money to pay our expenses and to repay borrowings under our credit facility primarily from our operations. Our ability to pay our expenses thus depends on our future performance, which will be affected by financial, business, economic and other factors. If we do not have enough money, we may be required to refinance all or part of our existing debt, sell assets or borrow additional funds. We may not be able to take such actions on terms that are favorable to us, if at all. The lenders may require fees and expenses to be paid or other changes to terms in connection with waivers or amendments. If we are forced to refinance these borrowings on less favorable terms, our results of operations and financial condition could be adversely affected by increased costs and/or rates.

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

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

We derive significant revenues from contracts and task orders awarded through a competitive bidding process. Our revenues and profitability may be adversely impacted if we fail to compete effectively in such processes.
Our contracts and task orders with the federal government are typically awarded through a competitive bidding process, which creates significant competition and pricing pressure. We spend time and resources to prepare bids and proposals for contracts. Some of these contracts may not be awarded to us, or if awarded we may not receive meaningful task orders under these contracts. We may encounter delays and additional expenses if our competitors protest or challenge contracts awarded to us in competitive bidding and any such protest or challenge could result in the resubmission of bids on modified specifications, or in the termination, reduction or modification of the awarded contract. If we are unable to win particular contracts, we may be prevented from providing to customers services that are purchased under those contracts for a number of years. In addition, upon the expiration of a contract, if the customer requires further services of the type provided by the contract, there is frequently a competitive rebidding process. There can be no assurance that we will win any particular bid, or that we will be able to replace business lost upon expiration or completion of a contract and the termination or non-renewal of any of our significant contracts could cause our actual results to differ materially and adversely from those anticipated.
Our earnings and profitability may vary based on the mix of our contracts and may be adversely affected by our failure to accurately estimate and manage costs, time and resources.
Our ECS Segment generates revenues under various types of contracts: firm-fixed-price, cost-plus-fixed-fee and time and materials. Our earnings and profitability may vary materially depending on changes in the proportionate amount of revenues derived from each type of contract, the costs incurred in their performance and the nature of services or solutions provided. Under firm-fixed-price contracts, we perform specific tasks and services for a fixed price. Compared to cost-plus-fixed-fee, firm-fixed-price contracts generally offer higher margin opportunities, but involve greater financial risk because we bear the impact of cost overruns. When making proposals on firm-fixed-price contracts, we rely heavily on our estimates of costs and timing for completing the associated projects. Failure to accurately estimate costs, resources and technology needed to perform our contracts or to effectively manage and control our costs during the performance of work could result in reduced profits or in losses. Under cost-plus-fixed-fee contracts, we are reimbursed for allowable costs plus a profit margin or fee. These contracts generally have lower profitability and less financial risk. Under time and materials contracts, we are reimbursed for labor at negotiated hourly billing rates and for certain expenses. We assume financial risk on time and materials contracts because we assume the risk of performing those contracts at negotiated hourly rates.
We are required to comply with numerous laws and regulations related to government contracts, some of which are complex and our failure to comply could result in fines or civil or criminal penalties, or suspension or debarment, which could materially and adversely affect our results of operations.
We must comply with laws and regulations relating to the formation, administration and performance of federal government contracts. These laws and regulations affect how we conduct business with our federal government customers. Such laws and regulations may potentially impose added costs on our business and our failure to comply with them may lead to civil or criminal penalties, termination of our U.S. government contracts and/or suspension or debarment from contracting with U.S. government agencies. All of our U.S. government contracts can be terminated by the U.S. government either for its convenience or if we default by failing to perform under the contract. Termination for convenience provisions provide only for our recovery of costs incurred or committed settlement expenses and profit on the work completed prior to termination. Termination for default provisions provide for the contractor to be liable for excess costs incurred by the U.S. government in procuring undelivered items from another source and could damage our reputation and impair our ability to compete for future contracts. Failure to comply with regulations and required practices and procedures could harm our reputation or influence the award of new contracts.
Audits by U.S. government agencies for contracts with federal government clients could result in unfavorable audit results that could subject us to a variety of penalties and sanctions and could harm our reputation and relationships with our customers and adversely impact results of operations.
Federal government agencies, including the Defense Contract Audit Agency ("DCAA") and the Defense Contract Management Agency ("DCMA"), routinely audit and investigate government contracts and government contractors’ administrative processes and systems. These agencies review our performance on contracts, pricing practices, cost structure and compliance with applicable laws, regulations and standards. Any costs found to be improperly allocated to a specific contract will not be reimbursed, while such costs already reimbursed must be refunded. If a government audit uncovers improper or illegal activities, we may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines and suspension or debarment from doing business with federal government agencies.
Changes in U.S. government spending or budgetary priorities, the failure of government budgets to be approved on a timely basis, or delays in contract awards and other procurement activity may significantly and adversely affect our future financial results.
Our business depends upon continued U.S. government expenditures on intelligence, defense, homeland security, federal health IT and other programs that we support. The U.S. government conducts periodic reviews of U.S. defense strategies and priorities which may shift Department of Defense budgetary priorities, reduce overall spending or delay contract or task order awards for defense-related programs from which we would otherwise expect to derive a significant portion of our future revenues. Any of these changes could impair our ability to obtain new contracts or contract renewals. Any new contracting requirements or procurement methods could be costly or administratively difficult for us to implement. Our revenues, cash flows and operating results could be adversely affected by spending caps or changes in budgetary priorities, as well as by delays in the government budget process, program starts or the award of contracts or task orders under contracts.
We may not realize the full value of our ECS Segment contract backlog, which may result in lower revenues than anticipated.
Contract backlog is a useful measure of potential future revenues for our ECS Segment. Our ECS Segment contract backlog consists of contracts for which funding has been formally awarded (funded backlog), and unfunded backlog, which represents the estimated future revenues to be earned from negotiated contract awards for which funding has not been awarded and from unexercised contract options.
The U.S. government's ability to not exercise contract options or to modify, curtail or terminate our contracts makes the calculation of our ECS Segment backlog subject to numerous uncertainties. Due to the uncertain nature of our contracts with the U.S. government, we may never realize revenue from some of the engagements that are included in our contract backlog. Our unfunded backlog, in particular, contains amounts that we may never realize as revenue because the maximum contract value specified under a U.S. government contract or task order awarded to us is not necessarily indicative of the revenue that we will realize under that contract.

Our business may be materially affected by changes to fiscal and tax policies that could adversely affect our results of operations and cash flows.

Our business is subject to taxation in the United States and the foreign jurisdictions where we operate. Due to economic and political conditions, tax rates in various jurisdictions may be subject to significant change. The company’s future effective tax rates could be affected by changes in the mix of earnings in countries with differing statutory tax rates or by changes in the tax laws or their interpretation.

In the U.S., the Tax Cuts and Jobs Act was signed into law on December 22, 2017. The legislation significantly changes U.S. tax law by, among other things, lowering corporate income tax rates, implementing a dividends received deduction for dividends from foreign subsidiaries, imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries, a minimum tax on foreign earnings, limitations on deduction of business interest expense and limits on deducting compensation to certain executive officers.

Various levels of government also are increasingly focused on tax reform and other legislative action to increase tax revenue. Further changes in tax laws in the U.S. or foreign jurisdictions where we operate, or in the interpretation of such laws, could have a material adverse effect on our business, results of operations, financial condition or cash flows.

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 2018, the trading price of our common stock experienced significant fluctuations, ranging from a high of $94.25 to a low of $51.05. The closing price of our common stock on the NYSE was $65.86 on February 20, 2019. Our common stock may continue to fluctuate widely as a result of a large number of factors, many of which are beyond our control, including:

period to period fluctuations in our financial results or those of our competitors;
failure to meet previously announced guidance or analysts’ expectations of our quarterly results;
announcements by us or our competitors of acquisitions, significant contracts, commercial relationships or capital commitments;
commencement of, or involvement in, any significant litigation matter;
any major change in our board or management;
changes in government regulations;
recommendations by securities analysts or changes in earnings estimates;
the volume of shares of common stock available for public sale;
announcements by our competitors of their earnings that are not in line with analyst expectations;
sale or purchase of stock by us or by our stockholders;
short sales, hedging and other derivative transactions in shares of our common stock; and
general economic conditions, slow or negative growth of unrelated markets and other external factors.

Our results of operations may vary from quarter to quarter as a result of a number of factors, including, among other things, the level of demand for our temporary staffing services, changes in our pricing policies or those of our competitors, our ability to control costs and our ability to manage our accounts receivable balances, which may make it difficult to evaluate our business and could cause instability in the trading price of our common stock. In addition, the stock market has experienced extreme price and volume fluctuations that have affected the trading prices of the common stock of many companies involved in the temporary staffing industry.

As a result of these fluctuations, we may encounter difficulty should we desire to access the public markets for financing or use our common stock as consideration in a strategic transaction.

Provisions in our corporate documents and Delaware law may delay or prevent a change in control that our stockholders consider favorable.

Provisions in our certificate of incorporation and bylaws could have the impact of delaying or preventing a change of control or changes in our management. These provisions include the following:

Our Board of Directors has the right to elect directors to fill a vacancy in the Board of Directors upon the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our Board of Directors until the next applicable annual meeting of stockholders.
Stockholders must provide advance notice to nominate individuals for election to the Board of Directors or to propose matters that can be acted upon at a stockholders’ meeting. Further, our Board of Directors is divided into three classes, and only one class is up for election each year. These provisions may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us.
Our Board of Directors may issue, without stockholder approval, up to one million shares of undesignated or “blank check” preferred stock. The ability to issue undesignated or “blank check” preferred stock makes it possible for our Board of Directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt by, or make it more difficult for, a third- party to acquire us.

As a Delaware corporation, we are also subject to certain Delaware anti-takeover provisions, including Section 203 of the Delaware General Corporation Law. Under these provisions, a corporation may not engage in a business combination with any large stockholders who hold 15 percent or more of our outstanding voting capital stock in a merger or business combination unless the holder has held the stock for three years, the Board of Directors has expressly approved the merger or business transaction, or at least two-thirds of the outstanding voting capital stock not owned by such large stockholder approves the merger or the transaction. These provisions of Delaware law may have the impact of delaying, deferring, or preventing a change of control and may discourage bids for our common stock at a premium over its market price. In addition, our Board of Directors could rely on these provisions of Delaware law to discourage, prevent, or delay an acquisition of us.

Item 1B. Unresolved Staff Comments

Not applicable.
 

7



Item 2. Properties
 
As of December 31, 2018, we leased approximately 37,200 square feet of office space through November 2021 for our corporate headquarters in Calabasas, California. Additionally, we leased approximately 67,600 square feet of office space through December 2025 at our Oxford headquarters in Beverly, Massachusetts; 58,000 square feet of office space through October 2024 at our Apex headquarters in Richmond, Virginia; and 53,400 square feet of office space through June 2024 at our ECS headquarters in Fairfax, Virginia.
 
In addition, as of December 31, 2018, we leased approximately 934,300 square feet of total office space in approximately 170 branch office locations in the United States, Canada, the Netherlands, Belgium, Ireland, Switzerland and Spain. A branch office typically occupies space ranging from approximately 1,000 to 41,000 square feet with lease terms that range from 6 months to 11 years. We believe that our facilities are suitable and adequate for our current operations.

Item 3. Legal Proceedings
 
We are involved in various legal proceedings, claims and litigation arising in the ordinary course of business. However, based on the facts currently available, we do not believe that the disposition of matters that are pending or asserted will have a material effect on our financial position, results of operations or cash flows.

Item 4. Mine Safety Disclosures

Not applicable.

PART II


Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Price Range of Common Stock
 
Our common stock is listed on the New York Stock Exchange, or NYSE, under the symbol ASGN. At February 20, 2019 we had approximately 24 holders of record, approximately 32,784 beneficial owners of our common stock and 52,655,248 shares outstanding.

Dividend Information

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

Recent Sales of Unregistered Securities

None.


8



Item 6. Selected Financial Data
 
The following table presents selected financial data that should be read in conjunction with the consolidated financial statements and notes thereto included under “Financial Statements and Supplementary Data” in Part II, Item 8 of this report.
 
 
Year Ended December 31,
 
 
2018 (1)
 
2017
 
2016
 
2015 (2)
 
2014
 
 
 
(in thousands, except per share data)
 
Summary Results of Operations:
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
$
3,399,781

 
$
2,625,924

 
$
2,440,413

 
$
2,065,008

 
$
1,724,741

 
Costs of services
 
2,376,130

 
1,775,851

 
1,645,230

 
1,386,263

 
1,167,306

 
Gross profit
 
1,023,651

 
850,073

 
795,183

 
678,745

 
557,435

 
Selling, general and administrative expenses
 
704,997

 
591,893

 
565,829

 
492,170

 
397,523

 
Amortization of intangible assets
 
58,506

 
33,444

 
39,628

 
34,467

 
22,130

 
Operating income
 
260,148

 
224,736

 
189,726

 
152,108

 
137,782

 
Interest expense
 
(55,973
)
 
(27,643
)
 
(32,327
)
 
(26,444
)
 
(12,730
)
 
Write-off of loan costs
 

 

 

 
(3,751
)
 

 
Income before income taxes
 
204,175

 
197,093

 
157,399

 
121,913

 
125,052

 
Provision for income taxes
 
46,191

 
39,219

 
60,203

 
50,491

 
51,557

 
Income from continuing operations
 
157,984

 
157,874

 
97,196

 
71,422

 
73,495

 
Gain on sale of discontinued operations, net of income taxes(3)
 

 

 

 
25,703

 

 
Income (loss) from discontinued operations, net of income taxes
 
(278
)
 
(199
)
 
5

 
525

 
3,689

 
Net income
 
$
157,706

 
$
157,675

 
$
97,201

 
$
97,650

 
$
77,184

 
 
 
 

 
 

 
 

 
 

 
 

 
Basic earnings per common share:
 
 
 
 
 
 
 
 
 
 
 
Continuing operations
 
$
3.02

 
$
3.01

 
$
1.83

 
$
1.37

 
$
1.38

 
Discontinued operations
 

 

 

 
0.50

 
0.06

 
Net income
 
$
3.02

 
$
3.01

 
$
1.83

 
$
1.87

 
$
1.44

 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted earnings per common share:
 
 
 
 
 
 
 
 
 
 
 
Continuing operations
 
$
2.98

 
$
2.97

 
$
1.81

 
$
1.35

 
$
1.35

 
Discontinued operations
 

 

 

 
0.49

 
0.07

 
Net income
 
$
2.98

 
$
2.97

 
$
1.81

 
$
1.84

 
$
1.42

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

 
 

 
 

 
 

 
 

 
Basic
 
52,333

 
52,503

 
53,192

 
52,259

 
53,437

 
Diluted
 
53,061

 
53,205

 
53,747

 
53,005

 
54,294

 
 
 
 
 
 
 
 
 
 
 
 
 
Balance Sheet Data (at end of year):
 
 

 
 

 
 

 
 

 
 

 
Cash and cash equivalents
 
$
41,826

 
$
36,667

 
$
27,044

 
$
23,869

 
$
28,860

 
Working capital (current assets less current liabilities)
 
378,123

 
332,806

 
275,025

 
253,858

 
201,271

 
Total assets
 
2,687,851

 
1,810,129

 
1,752,667

 
1,767,307

 
1,251,839

 
Long-term liabilities
 
1,197,540

 
652,021

 
721,229

 
822,163

 
452,676

 
Stockholders' equity
 
1,182,062

 
991,391

 
868,939

 
784,794

 
634,408

 
___________ 
(1)
Includes the operating results of ECS from the date of its acquisition on April 2, 2018. ECS contributed $493.0 million in revenues and $14.2 million in income before income taxes in 2018. Total assets at December 31, 2018 included $865.6 million from ECS.

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

(3) Gain (net of income taxes) from the sale of our Physician Segment in 2015.


9



Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
The following discussion should be read in conjunction with the other sections of this 2018 10-K, including the Special Note on Forward-looking Statements and Part I, “Item 1A — Risk Factors.”

OVERVIEW
 
ASGN operates through its Apex, Oxford and ECS segments. The Apex Segment provides technical, scientific, digital and creative services and solutions to Fortune 1000 and mid-market clients across the United States and Canada. The businesses in this segment include Apex Systems, Apex Life Sciences and Creative Circle. The Oxford Segment provides hard-to-find technical, digital, engineering and life sciences resources and consulting services in select skill and geographic markets. The businesses in this segment include Oxford, CyberCoders and Life Sciences Europe. The ECS Segment delivers advanced solutions in cloud, cybersecurity, artificial intelligence, machine learning, software development, IT modernization and science and engineering and is primarily focused on federal government activities.

Critical Accounting Policies
 
Our accounting policies are described in Note 1 Summary of Significant Accounting Policies, in Item 8 of this report. Our financial statements are prepared in conformity with accounting principles generally accepted in the United States (“GAAP”), which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. Actual results could differ from those estimates. We consider the following policies to be the most critical in understanding the judgments that are involved in preparing our financial statements and the uncertainties that could impact our results of operations, financial condition and cash flows.
 
Business Combinations and Related Acquired Intangible Assets and Goodwill. We record all tangible and intangible assets acquired and liabilities assumed in a business combination at fair value as of the acquisition date in accordance with Accounting Standards Codification ("ASC") 805 Business Combinations. Acquisition date fair value represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as measured on the acquisition date. The valuations are based on information that existed as of the acquisition date. During the measurement period, which shall not exceed one year from the acquisition date, we may adjust provisional amounts recorded for assets acquired and liabilities assumed to reflect new information that we have subsequently obtained regarding facts and circumstances that existed as of the acquisition date. Such fair value assessments require judgments and estimates, which may cause final amounts to differ materially from original estimates.

We acquired ECS on April 2, 2018 for $775.0 million and it is a separate reporting unit and operating segment. As part of the transaction, we acquired certain identifiable intangible assets, which are valued as of the acquisition date using a discounted cash flow (“DCF”) model. Key assumptions in the DCF model include (i) future revenues, (ii) earnings before interest, taxes depreciation and amortization ("EBITDA") and (iii) the weighted average cost of capital discount rate. Estimated future revenues include assumptions about our ability to renew contracts in a competitive bidding process. We assigned probability rates for winning contracts based on ECS’ historical win rates and available industry information. There can be no assurance that we will win any particular bid, or that we will be able to replace or continue business with a client upon completion of a contract. Estimated gross and EBITDA margins are based on ECS’ historical results and forecasts prepared by management. Unexpected increases in costs may affect these margins. A decrease in revenues or gross and EBITDA margins may adversely affect the value of identifiable intangible assets. The discount rate focuses on rates of return for equity and debt and is calculated using public information from selected guideline companies. The magnitude of the discount rate reflects the perceived risk of an investment. A change in the estimated risk of the acquired company cash flows would change the discount rate, which in turn could significantly affect the valuation of acquired identifiable intangible assets.

The excess amount of the aggregated purchase consideration paid over the fair value of the net of assets acquired and liabilities assumed is recorded as goodwill. Goodwill is evaluated for impairment annually or more frequently if an event occurs or circumstances change, such as material deterioration in performance that would indicate an impairment may exist. We perform an annual impairment assessment as of October 31st for each of our four reporting units. When evaluating goodwill for impairment, we may first perform a qualitative assessment (“step zero” of the impairment test) to determine whether it is more likely than not that a reporting unit is impaired. If we decide not to perform a qualitative assessment, or if we determine that it is more likely than not the carrying amount of a reporting unit exceeds its the fair value, then we perform a quantitative assessment (“step one” of the impairment test) and calculate the estimated fair value of the reporting unit. If the carrying amount of the reporting unit exceeds the estimated fair value, an impairment charge would be recorded to reduce the carrying amount to its estimated fair value. The decision to perform a qualitative impairment assessment in a given year is influenced by a number of factors, including the significance of the excess of the reporting units’ estimated fair value over carrying amount at the last quantitative assessment date, the amount of time in between quantitative fair value assessments, and the date of our acquisitions.

Given the low risk of impairment identified in the prior year, and the recent valuation of ECS, we performed a qualitative assessment for the October 31, 2018 annual impairment evaluation for all reporting units. By review of macroeconomic conditions, industry and market conditions, cost factors, overall financial performance compared with prior projections, and other relevant entity-specific events, we determined it was more likely than not that the fair value of each reporting unit exceeded its carrying amount, therefore it was concluded there were no indicators of impairment. No indicators of impairment were identified from the date of our annual impairment test through December 31, 2018. We performed a quantitative assessment for one reporting unit and qualitative assessments for the rest of our reporting units for the 2017 annual impairment test. We performed quantitative assessments for all reporting units for our 2016 annual impairment test. At each year it was determined that there were no impairments of goodwill.

A qualitative assessment is performed for trademarks to determine if there are any indicators that the carrying amount might not be recovered. A quantitative analysis may be performed in order to test the trademarks for impairment. If a quantitative analysis is necessary, an income approach, specifically a relief from royalty method, is used to estimate the fair value of the trademarks. Principal factors used in the relief from royalty method that require judgment are projected net sales, discount rates, royalty rates and terminal growth assumptions. The estimated fair value of each trademark is compared to its carrying amount to determine if impairment exists. If the carrying amount of a trademark exceeds the estimated fair value, an impairment charge would be recorded to reduce the carrying amount of the trademark. Given the low risk of impairment identified in the prior year, in 2018 a qualitative assessment was performed for our trademarks. In 2017 and 2016 a quantitative assessment was performed for certain of our trademarks and qualitative assessments were performed for the rest of the trademarks. At each year it was determined that there were no impairments of our trademarks.


10



Results of Operations

Pro forma revenues and gross profit by segment are presented in the tables and discussion below to provide a more consistent basis for comparison among periods. Pro forma data were prepared as if the acquisition of ECS occurred at the beginning of 2017. Although the pro forma segment data are considered non-GAAP measures, they were calculated in the same manner as the consolidated pro forma data, which are GAAP measures.


RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2018
COMPARED WITH THE YEAR ENDED DECEMBER 31, 2017
(Dollars in millions)

 
 
Reported
 
 
 
Pro Forma
 
 
 
 
2018
 
2017
 
% Change
 
2018
 
2017
 
% Change
Revenues by segment:
 
 
 
 
 
 
 
 
 
 
 
 
Apex:
 
 
 
 
 
 
 
 
 
 
 
 
Assignment
 
$
2,244.5

 
$
1,993.3

 
12.6
%
 
$
2,244.5

 
$
1,993.3

 
12.6
%
Permanent placement
 
55.8

 
43.9

 
27.0
%
 
55.8

 
43.9

 
27.0
%
 
 
2,300.3

 
2,037.2

 
12.9
%
 
2,300.3

 
2,037.2

 
12.9
%
Oxford:
 
 
 
 
 
 
 
 
 
 
 
 
Assignment
 
516.0

 
503.1

 
2.6
%
 
516.0

 
503.1

 
2.6
%
Permanent placement
 
90.5

 
85.7

 
5.5
%
 
90.5

 
85.7

 
5.5
%
 
 
606.5

 
588.8

 
3.0
%
 
606.5

 
588.8

 
3.0
%
ECS
 
493.0

 

 

 
642.1

 
587.6

 
9.3
%
Consolidated
 
$
3,399.8

 
$
2,626.0

 
29.5
%
 
$
3,548.9

 
$
3,213.6

 
10.4
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues by type:
 
 
 
 
 
 
 
 
 
 
 
 
Assignment
 
$
2,760.5

 
$
2,496.4

 
10.6
%
 
$
2,760.5

 
$
2,496.4

 
10.6
%
Permanent placement
 
146.3

 
129.6

 
12.8
%
 
146.3

 
129.6

 
12.8
%
ECS
 
493.0

 

 

 
642.1

 
587.6

 
9.3
%
 
 
$
3,399.8

 
$
2,626.0

 
29.5
%
 
$
3,548.9

 
$
3,213.6

 
10.4
%
Percentage of total revenues:
 
 
 
 
 
 
 
 
 
 
 
 
Apex
 
67.7
%
 
77.6
%
 
 
 
64.8
%
 
63.4
%
 
 
Oxford
 
17.8
%
 
22.4
%
 
 
 
17.1
%
 
18.3
%
 
 
ECS
 
14.5
%
 

 
 
 
18.1
%
 
18.3
%
 
 
 
 
100.0
%
 
100.0
%
 
 
 
100.0
%
 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assignment
 
81.2
%
 
95.1
%
 
 
 
77.8
%
 
77.7
%
 
 
Permanent placement
 
4.3
%
 
4.9
%
 
 
 
4.1
%
 
4.0
%
 
 
ECS
 
14.5
%
 

 
 
 
18.1
%
 
18.3
%
 
 
 
 
100.0
%
 
100.0
%
 
 
 
100.0
%
 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Domestic
 
95.4
%
 
95.0
%
 
 
 
95.5
%
 
95.9
%
 
 
Foreign
 
4.6
%
 
5.0
%
 
 
 
4.5
%
 
4.1
%
 
 
 
 
100.0
%
 
100.0
%
 
 
 
100.0
%
 
100.0
%
 
 
Revenues on a reported basis increased $773.8 million, or 29.5 percent year-over-year, comprised of (i) the contribution of $493.0 million from ECS, which was acquired on April 2, 2018 and (ii) year-over-year growth of $280.8 million, or 10.7 percent, from our other operating divisions. Excluding the contribution from ECS in 2018, revenues were $2.9 billion, up 10.7 percent year-over-year. On a pro forma basis, revenues were up $335.3 million, or 10.4 percent, year-over-year.

Revenues from our Apex Segment, which accounted for 67.7 percent of consolidated revenues for 2018, were $2.3 billion, up 12.9 percent year-over-year. Assignment revenues, which accounted for 97.6 percent of the segment's revenues, were up 12.6 percent year-over-year, primarily related to growth in hours billed and to a lesser extent, growth in average bill rates.

IT services, which accounted for approximately 75.4 percent of total revenues of the Apex Segment, grew 13.8 percent year-over-year with all seven industry verticals reporting growth, four of which (consumer industrial, technology, financial services and healthcare) grew double-digits. Creative/digital services revenues, which accounted for 16.9 percent of the segment's revenues, grew 9.8 percent year-over-year mainly as a result of growth in corporate business accounts and top accounts. Life sciences revenues, which accounted for 7.7 percent of the segment's revenues, were up 11.5 percent year-over-year, primarily related to the $22.7 million contribution from Stratacuity, which was acquired in August 2017.

Revenues from our Oxford Segment, which accounted for 17.8 percent of consolidated revenues for 2018, were $606.5 million, up 3.0 percent year-over-year. Assignment revenues were $516.0 million up from $503.1 million in 2017. The growth in assignment revenues related primarily to an increase in the number of hours billed as average bill rates were only slightly higher than 2017. Growth mainly came from its European operations, which accounted for 25.2 percent of the segment's assignment revenues in 2018. This growth included a $5.0 million benefit from favorable foreign exchange rates. Permanent placement revenues were up 5.5 percent year-over-year related to growth in the number of placements as the average fee per placement was flat relative to 2017.

Revenues from our ECS Segment, which accounted for 14.5 percent of consolidated revenues for 2018, were $493.0 million on a reported basis. On a pro forma basis, ECS revenues were up 9.3 percent for 2018. This growth was largely from projects under which ECS delivers artificial intelligence and machine learning ("AI/ML") solutions, which generally include a higher complement of third-party hardware, software and subcontracted labor as part of the customer solution than other more labor-concentrated projects. Federal spending is expected to continue to increase in the near term, particularly in the higher-end AI/ML, cybersecurity and cloud solutions areas in which ECS has extensive expertise. Projects in these areas are typically larger and more focused on providing integrated solutions rather than just expert staff.

Gross Profit and Gross Margins
 
 
 
Reported
 
 
 
Pro Forma
 
 
 
 
2018
 
2017
 
% Change
 
2018
 
2017
 
% Change
Gross profit:
 
 
 
 
 
 
 
 
 
 
 
 
Apex
 
$
687.9

 
$
606.3

 
13.5
 %
 
$
687.9

 
$
606.3

 
13.5
 %
Oxford
 
248.9

 
243.8

 
2.1
 %
 
248.9

 
243.8

 
2.1
 %
ECS
 
86.9

 

 

 
113.6

 
111.9

 
1.5
 %
Consolidated
 
$
1,023.7

 
$
850.1

 
20.4
 %
 
$
1,050.4

 
$
962.0

 
9.2
 %
Gross margin:
 
 
 
 
 
 
 
 
 
 
 
 
Apex
 
29.9
%
 
29.8
%
 
0.1
 %
 
29.9
%
 
29.8
%
 
0.1
 %
Oxford
 
41.0
%
 
41.4
%
 
(0.4
)%
 
41.0
%
 
41.4
%
 
(0.4
)%
ECS
 
17.6
%
 

 

 
17.7
%
 
19.0
%
 
(1.3
)%
Consolidated
 
30.1
%
 
32.4
%
 
(2.3
)%
 
29.6
%
 
29.9
%
 
(0.3
)%

Gross profit is comprised of revenues less costs of services, which consist primarily of compensation for our contract professionals, other direct costs and reimbursable out-of-pocket expenses. Gross profit for 2018 was $1.0 billion, up 20.4 percent year-over-year on a reported basis, as a result of growth in the business and the contribution from ECS from the date of acquisition. Excluding the contribution from ECS, gross profit was $936.8 million, up 10.2 percent year-over-year. On a pro forma basis, gross profit was $1.1 billion, up 9.2 percent.

Gross margin on a reported basis was 30.1 percent, compared with 32.4 percent in 2017. The change in gross margin was primarily due to the inclusion of ECS, which has lower margins than our Apex and Oxford segments. Excluding ECS, our gross margin was 32.2 percent, compared with 32.4 percent in 2017. On a pro forma basis, our gross margin was 29.6 percent compared with 29.9 percent for 2017. The year-over-year compression mainly related to changes in business mix at our Oxford and ECS segments.

Our Apex Segment accounted for 67.2 percent of consolidated gross profit for 2018. Its gross profit was $687.9 million, up 13.5 percent year-over-year. Gross margin for the segment was 29.9 percent, an expansion of 10 basis points year-over-year, related to a higher mix of permanent placement revenues as the gross margin on assignment revenues was flat relative to 2017.

Our Oxford Segment accounted for 24.3 percent of consolidated gross profit for 2018. Its gross profit was $248.9 million, up 2.1 percent year-over-year. Gross margin for the segment was 41.0 percent, compared with 41.4 percent in 2017. The compression in gross margin reflected a higher mix of revenues from European operations (which have lower gross margins than its domestic operations), and other changes in business mix, which was partially offset by a slightly higher mix of permanent placement revenues in 2018.

Our ECS Segment accounted for 8.5 percent of consolidated gross profit for 2018 on a reported basis. Its gross profit was $113.6 million, up 1.5 percent year-over-year on a pro forma basis. As a solutions provider, gross profit and gross margin for ECS have more period-to-period variability than our Apex and Oxford segments. The fluctuations in gross margin are caused by a number of factors including (i) changes in contract types and (ii) changes in the mix between revenues from direct labor and that from third-party hardware, software and subcontracted labor. The year-over-year change in gross margin related to a higher mix of revenues from artificial intelligence and machine learning solutions. These solutions included a high complement of third-party hardware, software and subcontracted labor. Although these solutions have lower gross margins, they require less overhead support and, thus, a lower level of SG&A expense.

Selling, General and Administrative Expenses. Selling, general and administrative ("SG&A") expenses consist primarily of compensation expense for our field operations and corporate staff, rent, information systems, marketing, telecommunications, public company expenses and other general and administrative expenses. SG&A expenses in 2018 were $705.0 million, or 20.7 percent of revenues, compared with $591.9 million, or 22.5 percent of revenues in 2017. The increase in SG&A expenses is primarily due to (i) an increase in compensation expenses commensurate with growth in the business, (ii) the inclusion of ECS, which had $43.3 million of SG&A expenses from the date of acquisition and (iii) acquisition, integration and strategic planning expenses of $16.6 million, up from $4.1 million in 2017 (increase mainly related to the ECS acquisition).

Amortization of Intangible Assets. Amortization of intangible assets was $58.5 million, compared with $33.4 million in 2017. The increase is related to the intangible assets from the ECS acquisition.

Interest Expense. Interest expense was $56.0 million, up from $27.6 million in 2017. Interest expense was comprised of (i) interest on the credit facility of $44.5 million up from $21.3 million in 2017, (ii) $6.2 million of costs related to the amendment to our credit facility, up from $2.7 million in 2017 and (iii) amortization of deferred loan costs of $5.3 million, up from $3.6 million in 2017. The year-over-year increase in interest expense resulted from the new borrowings and the costs of amending our credit facility to fund the acquisition of ECS on April 2, 2018.

Provision for Income Taxes. The provision for income taxes was $46.2 million compared with $39.2 million in 2017. The effective tax rate for 2018 was 22.6 percent, compared with 19.9 percent for 2017. The effective rate included excess tax benefits on stock-based compensation of $2.7 million in 2018, compared with $4.5 million in 2017. The effective tax rate for 2017 included a one-time, non-cash benefit of $31.4 million related to the re-measurement of our net deferred income tax liabilities as a result of the tax reform.

Net Income. Net income was $157.7 million in 2018, compared with $157.7 million in 2017.

ECS Segment Contract Backlog

Contract backlog is a useful measure of potential future revenues for our ECS Segment. Contract backlog represents the estimated amount of future revenues to be recognized under awarded contracts including task orders and options. Contract backlog does not include potential value from contract awards that have been protested by competitors until the protest is resolved in our favor. Contract backlog does not include any estimate of future work expected under indefinite delivery, indefinite quantity ("IDIQ") contracts or U.S. General Services Administration ("GSA") schedules. ECS segregates contract backlog into funded contract backlog and negotiated unfunded contract backlog, which together make up total contract backlog.

Funded contract backlog for contracts with U.S. government agencies primarily represents contracts for which funding has been formally awarded less revenues previously recognized on these contracts and does not include the unfunded portion of contracts where funding is incrementally awarded or authorized by the U.S. government even though the contract may call for performance over a number of years. Funded contract backlog for contracts with non-government agencies represents the estimated value of contracts, which may cover multiple future years, less revenue previously recognized on these contracts.

Negotiated unfunded contract backlog represents the estimated future revenues to be earned from negotiated contract awards for which funding has not yet been awarded or authorized and from unexercised priced contract options.

Contract backlog estimates are subject to change and may be affected by the execution of new contracts, the extension or early termination of existing contracts, the non-renewal or completion of current contracts, and adjustments to estimates for previously included contracts. Changes in the funded contract backlog are also affected by the funding cycles of the government.
(in millions)
 
December 31, 2018
 
March 31, 2018(1)
Funded Contract Backlog
 
$
350.0

 
$
309.3

Negotiated Unfunded Contract Backlog
 
1,096.6

 
1,057.7

Contract Backlog
 
$
1,446.6

 
$
1,367.0

_________
(1) Backlog at March 31, 2018, (closely approximates the Backlog as of the acquisition date of April 2, 2018).


11



Results of Operations

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

 
 
2017
 
2016
 
% Change
Revenues by segment:
 
 
 
 
 
 
Apex:
 
 
 
 
 
 
Assignment
 
$
1,993.3

 
$
1,791.6

 
11.3
 %
Permanent placement
 
43.9

 
44.9

 
(2.3
)%
 
 
2,037.2

 
1,836.5

 
10.9
 %
Oxford:
 
 
 
 
 
 
Assignment
 
503.1

 
520.7

 
(3.4
)%
Permanent placement
 
85.7

 
83.2

 
3.0
 %
 
 
588.8

 
603.9

 
(2.5
)%
Consolidated:
 
 
 
 
 
 
Assignment
 
2,496.4

 
2,312.3

 
8.0
 %
Permanent placement
 
129.6

 
128.1

 
1.1
 %
 
 
$
2,626.0

 
$
2,440.4

 
7.6
 %
Percentage of total revenues:
 
 
 
 
 
 
Apex
 
77.6
%
 
75.3
%
 
 
Oxford
 
22.4
%
 
24.7
%
 
 
 
 
100.0
%
 
100.0
%
 
 
 
 
 
 
 
 
 
Assignment
 
95.1
%
 
94.7
%
 
 
Permanent placement
 
4.9
%
 
5.3
%
 
 
 
 
100.0
%
 
100.0
%
 
 
 
 
 
 
 
 
 
Domestic
 
95.0
%
 
95.3
%
 
 
Foreign
 
5.0
%
 
4.7
%
 
 
 
 
100.0
%
 
100.0
%
 
 
Revenues increased $185.6 million, or 7.6 percent year-over-year. Assignment revenues were $2.5 billion, up 8.0 percent year-over-year. Permanent placement revenues, comprised of direct hire and conversion fees, were $129.6 million, up 1.1 percent year-over-year. Permanent placement revenues accounted for 4.9 percent of total revenues in 2017, down from 5.3 percent in 2016. Revenues from our foreign operations accounted for 5.0 percent of total revenues in 2017, up from 4.7 percent in 2016. The financial statement effect of year-over-year changes in foreign exchange rates were not material.

Revenues from our Apex Segment were $2.0 billion, up 10.9 percent year-over-year. Assignment revenues were up 11.3 percent year-over-year mainly related to growth in IT services, which account for approximately 74.9 percent of the segment's revenues. IT services revenues were up 12.5 percent year-over-year, related to the continued trend of higher growth in top accounts. Creative/digital services revenues were up 8.6 percent year-over-year, which was below the growth rate in 2016. This decline in growth rate reflected, among other things, lower demand from advertising agencies. Life Sciences revenues were up 2.3 percent after the inclusion of a $7.5 million revenue contribution from Stratacuity, which was acquired in August 2017 (see Note 3 Acquisitions in Part II, Item 8).

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


12



Gross Profit and Gross Margins
 
 
 
2017
 
2016
 
% Change
Gross profit:
 
 
 
 
 
 
Apex
 
$
606.3

 
$
548.4

 
10.6
 %
Oxford
 
243.8

 
246.8

 
(1.2
)%
Consolidated
 
$
850.1

 
$
795.2

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

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

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

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

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

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

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

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

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

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


13



Liquidity and Capital Resources
 
Our cash flows from operating activities have been our primary source of liquidity and have been sufficient to fund our working capital and capital expenditure needs. Our working capital (current assets less current liabilities) requirements are primarily driven by the overall growth in our business and debt service requirements. We believe that our expected operating cash flows and availability under our revolving credit facility will be sufficient to meet our obligations, working capital requirements and capital expenditures for the next 12 months.

Our working capital at December 31, 2018 was $378.1 million and our cash and cash equivalents were $41.8 million, of which $19.7 million was held in foreign countries and not available to fund domestic operations unless repatriated. We do not intend to repatriate cash held in foreign countries at this time.

Net cash provided by operating activities was $287.5 million in 2018, compared with $196.4 million in 2017. Net cash provided by operating activities before changes in operating assets and liabilities was $313.9 million for 2018, up from $256.8 million in 2017. The increase was due to year-over-year growth and the inclusion of ECS from the date of acquisition. Changes in operating assets and liabilities resulted in the use of cash of $26.5 million in 2018, compared with $60.3 million in 2017. This change was primarily related to (i) the timing of period end compensation, (ii) an increase in accounts payable in 2018 mainly due to year end purchases of software and equipment for certain customer projects at ECS and (iii) higher income tax prepayments in 2017. These items were partially offset by the growth of accounts receivable at ECS related to the timing of customer payments and the high level of revenues in December 2018.
 
Net cash used in investing activities was $788.7 million in 2018, compared with $50.1 million in 2017. Net cash used in investing activities for 2018 included $760.2 million used for the acquisition of ECS on April 2, 2018 and $28.7 million used to purchase property and equipment. Net cash used in investing activities in 2017 was primarily comprised of $25.9 million used for the purchase of Stratacuity and $24.3 million used to purchase property and equipment.

Net cash provided by financing activities was $507.8 million in 2018, compared with net cash used in financing activities of $138.5 million in 2017. Net cash provided by financing activities for 2018 was primarily comprised of (i) $822.0 million of proceeds from our credit facility, (ii) $286.0 million in principal payments of long-term debt and (iii) $22.5 million of debt issuance and amendment costs. Net cash used in financing activities in 2017 was primarily comprised of (i) $105.0 million in principal payments of long-term debt, (ii) $60.1 million used for repurchases of our common stock and (iii) $14.9 million used for payment of employment taxes related to the release of restricted stock units.

On April 2, 2018, in connection with the acquisition of ECS, we amended our credit facility mainly to add an $822.0 million tranche to the term B loan facility that matures on April 2, 2025. The amendment also provided for the ability to increase the loan facilities by an amount not to exceed the sum of (i) $300.0 million, (ii) the aggregate principal of voluntary prepayments of the term B loans and permanent reductions of the revolving commitments, and (iii) additional amounts so long as the pro forma consolidated secured leverage ratio is no greater than 3.25 to 1.00. The revolving credit facility was also amended to extend the maturity date to March 31, 2023. We incurred $22.5 million of debt issuance and amendment costs, of which $15.3 million were presented in the consolidated balance sheet as a reduction of outstanding debt and are being amortized over the term of the credit facility, $6.2 million were expensed as incurred and presented in interest expense, and the remaining fees were presented in other current assets and other non-current assets and are being amortized over the term of the credit facility.

The outstanding balance on the facility at December 31, 2018 was $1.1 billion (see Note 6 Long-Term Debt in Part II, Item 8). For the term B loan that matures on June 5, 2022, there are no required minimum payments until its maturity date. For the term B loan that matures on April 2, 2025, the Company is required to make minimum quarterly payments of $2.1 million; however, as a result of principal payments made through December 31, 2018, the first required minimum quarterly payment of $2.1 million is not due until September 30, 2022. We are also required to make mandatory prepayments on our term loans from excess cash flow and with the proceeds of asset sales, debt issuances and specified other events, subject to certain exceptions. The credit facility is secured by substantially all of our assets and includes various restrictive covenants including the maximum ratio of consolidated secured debt to consolidated earnings before interest, taxes, depreciation and amortization ("EBITDA"), which steps down at regular intervals from 4.75 to 1.00 as of December 31, 2018, to 3.75 to 1.00 as of September 30, 2021 and thereafter. The credit facility also contains certain customary limitations including, among other terms and conditions, our ability to incur additional indebtedness, engage in mergers and acquisitions, and declare dividends.

At December 31, 2018, we were in compliance with our debt covenants, our ratio of consolidated secured debt to consolidated EBITDA was 2.69 to 1.00, and it had $195.6 million available borrowing capacity under its revolving credit facility.

14



Commitments and Contingencies
 
We lease space for our corporate and branch offices. Rent expense was $32.7 million in 2018, $26.4 million in 2017 and $25.6 million in 2016.
 
The following table sets forth on an aggregate basis the amounts of specified contractual cash obligations required to be paid in the future periods shown (in thousands):
 
Contractual Obligations
 
Less than 1 year
 
1-3 years
 
3-5 years
 
More than 5 years
 
Total
Long-term debt obligations (1)
 
$
50,832

 
$
101,663

 
$
427,091

 
$
819,167

 
$
1,398,753

Operating lease obligations
 
29,664

 
43,865

 
23,121

 
6,285

 
102,935

Related party leases
 
1,285

 
2,667

 
2,801

 
1,082

 
7,835

Purchase obligations
 
23,162

 
9,039

 

 

 
32,201

Total
 
$
104,943

 
$
157,234

 
$
453,013

 
$
826,534

 
$
1,541,724

 ____________
(1) Long-term debt obligations include interest calculated based on the rates in effect at December 31, 2018.

For additional information about these contractual cash obligations, see Note 6 Long-Term Debt and Note 7 Commitments and Contingencies in Part II, Item 8. Purchase obligations are non-cancelable job board service agreements, software maintenance and license agreements and software subscriptions.

We have retention policies for our workers’ compensation liability exposures. The workers' compensation loss reserves are based upon an actuarial report obtained from a third-party and determined based on claims filed and claims incurred but not reported. We account for claims incurred but not yet reported based on estimates derived from historical claims experience and current trends of industry data. Changes in estimates, differences in estimates and actual payments for claims are recognized in the period that the estimates changed or the payments were made. The workers' compensation loss reserves were $2.4 million and $2.1 million, net of anticipated insurance and indemnification recoveries of $15.0 million and $12.7 million, at December 31, 2018 and 2017, respectively. We have unused stand-by letters of credit outstanding to secure obligations for workers’ compensation claims with various insurance carriers. The unused stand-by letters of credit at December 31, 2018 and 2017 were $4.4 million.

The Company’s deferred compensation plan liability was $6.2 million at December 31, 2018, and was included in other long-term liabilities. The Company established a rabbi trust to fund the deferred compensation plan (see Note 14 Fair Value Measurements in Part II, Item 8).

Legal Proceedings

We are involved in various other legal proceedings, claims and litigation arising in the ordinary course of business. However, based on the facts currently available, we do not believe that the disposition of matters that are pending or asserted will have a material effect on our consolidated financial statements.

Off-Balance Sheet Arrangements
 
As of December 31, 2018, we had no off-balance sheet arrangements.
 
Accounting Standards Updates
 
See Note 2 Accounting Standards Update in Part II, Item 8 for a discussion of new accounting pronouncements.

15



Item 7A. Quantitative and Qualitative Disclosures about Market Risk
 
We are exposed to certain market risks arising from transactions in the normal course of business, principally risks associated with foreign currency fluctuations and interest rates.

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

Interest Rate Risk. Our exposure to interest rate risk is associated with our debt instruments. See Note 6 Long-Term Debt in Part II, Item 8 for a further description of our debt instruments. A hypothetical 100 basis point change in interest rates on variable rate debt would have resulted in interest expense fluctuating approximately $11.2 million based on $1.1 billion of debt outstanding for any 12-month period. We have not entered into any market risk sensitive instruments for trading purposes.


16




Item 8. Financial Statements and Supplementary Data


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of ASGN Incorporated
Calabasas, California

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of ASGN Incorporated and subsidiaries (the "Company") as of December 31, 2018 and 2017, the related consolidated statements of operations and comprehensive income, stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2018, and the related notes and the financial statement schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2019, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

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

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


/s/ DELOITTE & TOUCHE LLP

Los Angeles, California
February 28, 2019

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




17



ASGN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
 

 
 
December 31,
 
 
2018
 
2017
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
41,826

 
$
36,667

Accounts receivable, net
 
613,825

 
428,536

Prepaid expenses and income taxes
 
11,446

 
18,592

Workers’ compensation receivable
 
15,011

 
12,702

Other current assets
 
4,264

 
3,026

Total current assets
 
686,372

 
499,523

Property and equipment, net
 
79,123

 
57,996

Identifiable intangible assets, net
 
488,691

 
352,766

Goodwill
 
1,421,076

 
894,095

Other non-current assets
 
12,589

 
5,749

Total assets
 
$
2,687,851

 
$
1,810,129

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 

 
 

Current liabilities:
 
 

 
 

Accounts payable
 
$
43,125

 
$
6,870

Accrued payroll and contract professional pay
 
194,807

 
114,832

Workers’ compensation loss reserves
 
17,382

 
14,777

Income taxes payable
 
3,411

 
1,229

Other current liabilities
 
49,524

 
29,009

Total current liabilities
 
308,249

 
166,717

Long-term debt
 
1,100,424

 
575,213

Deferred income tax liabilities
 
79,833

 
69,436

Other long-term liabilities
 
17,283

 
7,372

Total liabilities
 
1,505,789

 
818,738

Commitments and contingencies (Note 7)
 


 


Stockholders’ equity:
 
 

 
 

Preferred stock, $0.01 par value, 1,000,000 shares authorized, no shares issued
 

 

Common stock, $0.01 par value, 75,000,000 shares authorized, 52,511,440 and 52,151,538 shares issued
 
525

 
521

Paid-in capital
 
601,754

 
566,090

Retained earnings
 
586,125

 
428,419

Accumulated other comprehensive loss
 
(6,342
)
 
(3,639
)
Total stockholders’ equity
 
1,182,062

 
991,391

Total liabilities and stockholders’ equity
 
$
2,687,851

 
$
1,810,129


See notes to consolidated financial statements.

18




ASGN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In thousands, except per share amounts)
 
 
 
Year Ended December 31,
 
 
2018
 
2017
 
2016
Revenues
 
$
3,399,781

 
$
2,625,924

 
$
2,440,413

Costs of services
 
2,376,130

 
1,775,851

 
1,645,230

Gross profit
 
1,023,651

 
850,073

 
795,183

Selling, general and administrative expenses
 
704,997

 
591,893

 
565,829

Amortization of intangible assets
 
58,506

 
33,444

 
39,628

Operating income
 
260,148

 
224,736

 
189,726

Interest expense
 
(55,973
)
 
(27,643
)
 
(32,327
)
Income before income taxes
 
204,175

 
197,093

 
157,399

Provision for income taxes
 
46,191

 
39,219

 
60,203

Income from continuing operations
 
157,984

 
157,874

 
97,196

Income (loss) from discontinued operations, net of income taxes
 
(278
)
 
(199
)
 
5

Net income
 
$
157,706

 
$
157,675

 
$
97,201

 
 
 

 
 

 
 

Earnings per share:
 
 
 
 
 
 
Basic
 
$
3.02

 
$
3.01

 
$
1.83

Diluted
 
$
2.98

 
$
2.97

 
$
1.81

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

 
 

 
 

Basic
 
52,333

 
52,503

 
53,192

Diluted
 
53,061

 
53,205

 
53,747

 
Reconciliation of net income to comprehensive income:
 
 
 
 
 
 
Net income
 
$
157,706

 
$
157,675

 
$
97,201

Foreign currency translation adjustment
 
(2,703
)
 
6,384

 
(1,861
)
Comprehensive income
 
$
155,003

 
$
164,059

 
$
95,340


See notes to consolidated financial statements.


19



ASGN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Dollars in thousands)
 
 
Common Stock
 
Paid-in Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Income (Loss)
 
Total
 
 
Shares
 
Par Value
 
 
 
 
Balance at December 31, 2015
 
53,024,972

 
$
530

 
$
542,859

 
$
249,567

 
$
(8,162
)
 
$
784,794

Vesting of restricted stock units
 
397,182

 
4

 
(7,164
)
 

 

 
(7,160
)
Employee stock purchase plan
 
242,303

 
2

 
7,505

 

 

 
7,507

Exercise of stock options
 
185,484

 
2

 
2,249

 

 

 
2,251

Stock-based compensation expense
 

 

 
26,559

 

 

 
26,559

Tax benefit from stock-based compensation
 

 

 
2,739

 

 

 
2,739

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

 
(43,091
)
Translation adjustments
 

 

 

 

 
(1,861
)
 
(1,861
)
Net income
 

 

 

 
97,201

 

 
97,201

Balance at December 31, 2016
 
52,716,388

 
527

 
562,862

 
315,573

 
(10,023
)
 
868,939

Vesting of restricted stock units
 
413,372

 
4

 
(15,805
)
 

 

 
(15,801
)
Employee stock purchase plan
 
214,466

 
2

 
7,402

 

 

 
7,404

Exercise of stock options
 
36,561

 

 
351

 

 

 
351

Stock-based compensation expense
 

 

 
24,509

 

 

 
24,509

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

 
(58,070
)
Translation adjustments
 

 

 

 

 
6,384

 
6,384

Net income
 

 

 

 
157,675

 

 
157,675

Balance at December 31, 2017
 
52,151,538

 
521

 
566,090

 
428,419

 
(3,639
)
 
991,391

Vesting of restricted stock units
 
155,029

 
2

 
(4,697
)
 

 

 
(4,695
)
Employee stock purchase plan
 
160,407

 
2

 
8,823

 

 

 
8,825

Exercise of stock options
 
44,466

 

 
547

 

 

 
547

Stock-based compensation expense
 

 

 
30,991

 

 

 
30,991

Translation adjustments
 

 

 

 

 
(2,703
)
 
(2,703
)
Net income
 

 

 

 
157,706

 

 
157,706

Balance at December 31, 2018
 
52,511,440

 
$
525

 
$
601,754

 
$
586,125

 
$
(6,342
)
 
$
1,182,062


See notes to consolidated financial statements.

20



ASGN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 
 
 Year Ended December 31,
 
 
2018
 
2017
 
2016
Cash Flows from Operating Activities:
 
 
 
 
 
 
Net income
 
$
157,706

 
$
157,675

 
$
97,201

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

 
 

Depreciation and amortization
 
94,975

 
58,604

 
62,249

Provision for accounts receivable allowances
 
3,292

 
12,050

 
10,788

Provision (benefit) for deferred income taxes
 
11,215

 
(5,140
)
 
12,834

Stock-based compensation
 
31,488

 
24,044

 
27,024

Workers’ compensation provision
 
3,577

 
2,908

 
2,693

Other
 
11,651

 
6,610

 
5,642

Changes in operating assets and liabilities, net of effects of acquisitions:
 
 
 
 

 
 

Accounts receivable
 
(90,668
)
 
(50,461
)
 
(43,289
)
Prepaid expenses and income taxes
 
14,776

 
(11,861
)
 
6,433

Income taxes payable
 
2,135

 
613

 
3,346

Accounts payable
 
23,320

 
315

 
(2,236
)
Accrued payroll and contract professional pay
 
25,427

 
1,040

 
23,556

Workers' compensation loss reserve
 
(3,282
)
 
(2,616
)
 
(2,691
)
Payments of earn-outs
 

 

 
(4,780
)
Other
 
1,839

 
2,665

 
561

Net cash provided by operating activities
 
287,451

 
196,446

 
199,331

Cash Flows from Investing Activities:
 
 

 
 

 
 

Cash paid for property and equipment
 
(28,701
)
 
(24,265
)
 
(27,138
)
Cash paid for acquisitions, net of cash acquired
 
(760,216
)
 
(25,940
)
 

Cash received from sale of discontinued operations, net
 

 

 
6,000

Other
 
184

 
88

 
(846
)
Net cash used in investing activities