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On Assignment Reports Results For Fourth Quarter 2012

Stocks in this article: ASGN

Selling, general and administrative expenses (excludes amortization of intangible assets) were $82.7 million, up from $79.2 million in Q3 and below the high-end of our estimates for the quarter. The sequential increase included costs of added headcount and other expenses in the operating divisions to drive growth in 2013 and in the corporate departments to enhance our platform to support the larger organization.

Amortization of intangible assets (which is not included in SG&A) was $11.9 million, up from $3.3 million in Q3. The increase was attributable to adjustments made in Q4 for differences between the finalized asset valuation and amortization rates for the customer relationship intangible asset related to the acquisition of Apex Systems and the preliminary determinations reflected in Q2 and Q3. These adjustments are on a retrospective basis to the purchase date and Q4 includes an adjustment of $5.0 million related to Q2 and Q3. The customer relationship asset final valuation was $92.1 million and is being amortized on an accelerated basis over a 10-year period using the customer relationship attrition rate used in valuing the asset.

Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization of identifiable intangible assets plus equity-based compensation expense, impairment charges and acquisition-related costs), was $44.3 million, up from $17.7 million in the fourth quarter of 2011 and down from the $45.5 million in the third quarter of 2012. The Adjusted EBITDA margin (Adjusted EBITDA as a percentage of revenues) was 11.0 percent compared with 10.9 percent for the fourth quarter of 2011 and 11.7 percent in the third quarter of 2012 (which had included $1.0 million benefit from the write-down of an earnout obligation).

The effective tax rate for the quarter was 45.4 percent compared with 42.3 percent for Q3 2012. The increase in the effective tax rate related to higher than expected meals and entertainment expense (which are subject to a 50 percent disallowance) from Apex Systems and the effects of full valuation allowances on deferred tax assets of certain of our foreign subsidiaries. This higher rate resulted in approximately $0.6 million increase ($0.01 per share) in the provision for income taxes. The effective tax rate for the full year is 43.1 percent, up from 41.4 percent in 2011 mainly due to the inclusion of Apex Systems.

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