ASGN INC
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended June 30, 2022
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
Commission file number: 001-35636
(Exact name of registrant as specified in its charter)
(State of Incorporation) | (I.R.S. Employer Identification No.) | ||||||||||||||||
(Address, including zip code, of Principal Executive Offices)
(888 ) 482-8068
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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.
☒ | Accelerated filer | ☐ | ||||||||||||
Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||
Emerging growth company | ||||||||||||||
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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
At August 4, 2022, the total number of outstanding shares of the Common Stock of ASGN Incorporated (the "Company") ($0.01 par value) was 50.2 million.
ASGN INCORPORATED AND SUBSIDIARIES
INDEX
2
PART I — FINANCIAL INFORMATION
Item 1 — Condensed Consolidated Financial Statements (Unaudited)
ASGN INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in millions, except share data)
| June 30, 2022 | December 31, 2021 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Accounts receivable, net | |||||||||||
| Prepaid expenses and income taxes | |||||||||||
| Other current assets | |||||||||||
| Total current assets | |||||||||||
| Property and equipment, net | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Identifiable intangible assets, net | |||||||||||
| Goodwill | |||||||||||
| Other non-current assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued payroll | |||||||||||
| Operating lease liabilities | |||||||||||
| Other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt | |||||||||||
| Operating lease liabilities | |||||||||||
| Deferred income tax liabilities | |||||||||||
| Other long-term liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies | |||||||||||
| Stockholders’ equity: | |||||||||||
Preferred stock, $ | |||||||||||
Common stock, $ | |||||||||||
| Paid-in capital | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
See notes to condensed consolidated financial statements.
3
ASGN INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Unaudited)
(in millions, except per share data)
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Revenues | $ | $ | $ | $ | |||||||||||||||||||
| Costs of services | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||||||||
| Amortization of intangible assets | |||||||||||||||||||||||
| Operating income | |||||||||||||||||||||||
| Interest expense | ( | ( | ( | ( | |||||||||||||||||||
| Income before income taxes | |||||||||||||||||||||||
| Provision for income taxes | |||||||||||||||||||||||
| Income from continuing operations | |||||||||||||||||||||||
| Income (loss) from discontinued operations, net of income taxes | ( | ( | |||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Earnings per share: | |||||||||||||||||||||||
| Basic — | |||||||||||||||||||||||
| Continuing operations | $ | $ | $ | $ | |||||||||||||||||||
| Discontinued operations | ( | ||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
| Diluted — | |||||||||||||||||||||||
| Continuing operations | $ | $ | $ | $ | |||||||||||||||||||
| Discontinued operations | ( | ||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
| Shares and share equivalents used to calculate earnings per share: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
| Reconciliation of net income to comprehensive income: | |||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Foreign currency translation adjustment | ( | ( | ( | ||||||||||||||||||||
| Comprehensive income | $ | $ | $ | $ | |||||||||||||||||||
See notes to condensed consolidated financial statements.
4
ASGN INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)
(in millions)
| Common Stock | Paid-in Capital | Retained Earnings | Other | Total | ||||||||||||||||||||||||||||||||||
| Shares | Par Value | |||||||||||||||||||||||||||||||||||||
| Three Months Ended June 30, 2022 | ||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2022 | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Tax withholding on restricted stock vesting | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||
| Stock repurchases and retirement of shares | ( | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||
| Other | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | ||||||||||||||||||||||||||||||||||
Balance at June 30, 2022 | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||
| Three Months Ended June 30, 2021 | ||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2021 | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Tax withholding on restricted stock vesting | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||
| Other | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | ||||||||||||||||||||||||||||||||||
Balance at June 30, 2021 | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||
| Common Stock | Paid-in Capital | Retained Earnings | Other | Total | ||||||||||||||||||||||||||||||||||
| Shares | Par Value | |||||||||||||||||||||||||||||||||||||
| Six Months Ended June 30, 2022 | ||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2021 | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Issuances under equity plans | — | — | — | |||||||||||||||||||||||||||||||||||
| Tax withholding on restricted stock vesting | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||
| Stock repurchase and retirement of shares | ( | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||
| Other | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | ||||||||||||||||||||||||||||||||||
Balance at June 30, 2022 | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||
| Six Months Ended June 30, 2021 | ||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2020 | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Issuances under equity plans | — | — | — | |||||||||||||||||||||||||||||||||||
| Tax withholding on restricted stock vesting | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||
| Other | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | ||||||||||||||||||||||||||||||||||
Balance at June 30, 2021 | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||
See notes to condensed consolidated financial statements.
5
ASGN INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in millions)
| Six Months Ended | |||||||||||
| June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash Flows from Operating Activities | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Stock-based compensation | |||||||||||
| Other | |||||||||||
| Changes in operating assets and liabilities, net of effects of acquisitions and divestiture: | |||||||||||
| Accounts receivable | ( | ( | |||||||||
| Prepaid expenses and income taxes | |||||||||||
| Accounts payable | ( | ||||||||||
| Accrued payroll and contract professional pay | |||||||||||
| Income taxes payable | |||||||||||
| Other | ( | ( | |||||||||
| Net cash provided by operating activities | |||||||||||
| Cash Flows from Investing Activities | |||||||||||
| Cash paid for property and equipment | ( | ( | |||||||||
| Cash paid for acquisitions, net of cash acquired | ( | ||||||||||
| Cash received from sale of the Oxford business | |||||||||||
| Other | |||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash Flows from Financing Activities | |||||||||||
| Proceeds from option exercises and employee stock purchase plan | |||||||||||
| Repurchases of common stock | ( | ||||||||||
| Payment of employment taxes related to release of restricted stock awards | ( | ( | |||||||||
| Payment of contingent consideration | ( | ||||||||||
| Debt issuance and amendment costs | ( | ||||||||||
| Net cash provided by (used in) financing activities | ( | ||||||||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ( | |||||||||
| Net increase (decrease) in cash and cash equivalents | ( | ||||||||||
| Cash and cash equivalents at beginning of year | |||||||||||
| Cash and cash equivalents at end of period | $ | $ | |||||||||
| Supplemental Disclosure of Cash Flow Information | |||||||||||
Cash paid for — | |||||||||||
| Income taxes | $ | $ | |||||||||
| Interest | $ | $ | |||||||||
| Operating leases | $ | $ | |||||||||
Noncash transactions — | |||||||||||
| Operating lease right of use assets obtained in exchange for operating lease liabilities | $ | $ | |||||||||
See notes to condensed consolidated financial statements.
6
ASGN INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. General
2. Acquisitions
3. Goodwill and Identifiable Intangible Assets
The following table summarizes the activity related to the carrying amount of goodwill by reportable segment since December 31, 2020 (in millions).
| Commercial | Federal Government | Total | |||||||||||||||
Balance as of December 31, 2020 | $ | $ | $ | ||||||||||||||
2021 acquisitions | |||||||||||||||||
| Purchase price adjustments | |||||||||||||||||
| Translation adjustment | ( | ( | |||||||||||||||
Balance as of December 31, 2021 | |||||||||||||||||
| Purchase price adjustments | ( | ( | |||||||||||||||
| Translation adjustment | ( | ( | |||||||||||||||
Balance as of June 30, 2022 | $ | $ | $ | ||||||||||||||
________________________________
Approximately $127.2 million of the goodwill for the 2021 acquisitions is deductible for income tax purposes.
Acquired identifiable intangible assets consisted of the following (in millions):
| June 30, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||||||||
| Estimated Useful Life in Years | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||||||||||||||||||||||
| Customer and contractual relationships | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Contractor relationships | |||||||||||||||||||||||||||||||||||||||||
| Contract Backlog | |||||||||||||||||||||||||||||||||||||||||
| Non-compete agreements | |||||||||||||||||||||||||||||||||||||||||
| Not subject to amortization: | |||||||||||||||||||||||||||||||||||||||||
| Trademarks | — | — | |||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
7
Estimated future amortization expense follows (in millions):
| Remainder of 2022 | $ | ||||
| 2023 | |||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| Thereafter | |||||
| $ | |||||
4. Discontinued Operations
On August 17, 2021, the Company sold its Oxford business to an affiliate of H.I.G. Capital for $525.0 million. The gain on the sale was $216.9 million ($168.8 million net of income taxes). The financial results of that business are reported as discontinued operations in the accompanying condensed consolidated statements of operations.
There were no significant operating results from discontinued operations subsequent to December 31, 2021. The following table summarizes the results of operations of the Oxford business (in millions):
| Three Months Ended | Six Months Ended | ||||||||||
| June 30, 2021 | June 30, 2021 | ||||||||||
| Revenues | $ | $ | |||||||||
| Costs of services | |||||||||||
| Gross profit | |||||||||||
| Selling, general and administrative expenses | |||||||||||
| Amortization of intangible assets | |||||||||||
| Income before income taxes | |||||||||||
| Provision for income taxes | |||||||||||
| Income from discontinued operations, net of income taxes | $ | $ | |||||||||
During the six months ended June 30, 2022, the Company received $9.8 million related to the finalization of the purchase price, which mainly related to the settlement of net working capital. The following table provides select cash flow information related to the Oxford business for the six months ended June 30, 2021 (in millions):
| Net cash provided by operating activities | $ | ||||
| Net cash used in investing activities | $ | ( | |||
5. Long-Term Debt
Long-term debt consisted of the following (in millions):
| June 30, 2022 | December 31, 2021 | ||||||||||
| Senior Secured Credit Facility: | |||||||||||
| Borrowings under $250 million revolving credit facility, due 2024 | $ | — | $ | — | |||||||
| Term B loan facility, due 2025 | |||||||||||
| Unsecured Senior Notes, due 2028 | |||||||||||
| Unamortized deferred loan costs | ( | ( | |||||||||
| $ | $ | ||||||||||
8
6. Commitments and Contingencies
7. Income Taxes
8. Earnings per Share
The following table shows the calculation of basic and diluted earnings per share (in millions, except per share data).
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Income from continuing operations | $ | $ | $ | $ | |||||||||||||||||||
| Income (loss) from discontinued operations, net of income taxes | ( | ( | |||||||||||||||||||||
Net income | $ | $ | $ | $ | |||||||||||||||||||
Weighted-average number of common shares outstanding — basic | |||||||||||||||||||||||
| Dilutive effect of common share equivalents | |||||||||||||||||||||||
Weighted-average number of common shares and share equivalents outstanding — diluted | |||||||||||||||||||||||
| Basic earnings per share: | |||||||||||||||||||||||
| Continuing operations | $ | $ | $ | $ | |||||||||||||||||||
| Discontinued operations | ( | ||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
| Diluted earnings per share: | |||||||||||||||||||||||
| Continuing operations | $ | $ | $ | $ | |||||||||||||||||||
| Discontinued operations | ( | ||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
9
9. Segment Reporting
ASGN provides IT services and solutions and creative digital marketing services across the commercial and government sectors. ASGN operates through its Commercial and Federal Government segments. Virtually all of the Company's revenues are generated in the United States.
The Commercial Segment provides IT services and solutions, and creative digital marketing services to Fortune 1000 and mid-market clients across the United States, Canada and Europe. The Federal Government Segment delivers advanced solutions in cloud, cybersecurity, artificial intelligence, machine learning, application and IT modernization, science and engineering to defense, intelligence and federal civilian agencies. Management evaluates the performance of each segment primarily based on revenues, gross profit and operating income derived directly from internal financial reporting of the segments used for corporate management purposes, which is presented below by segment (in millions):
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
| Commercial | ||||||||||||||||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||||||||||||
| Gross profit | ||||||||||||||||||||||||||
| Operating income | ||||||||||||||||||||||||||
| Depreciation | ||||||||||||||||||||||||||
| Amortization | ||||||||||||||||||||||||||
| Federal Government | ||||||||||||||||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||||||||||||
| Gross profit | ||||||||||||||||||||||||||
| Operating income | ||||||||||||||||||||||||||
| Depreciation | ||||||||||||||||||||||||||
| Amortization | ||||||||||||||||||||||||||
| Consolidated | ||||||||||||||||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||||||||||||
| Gross profit | ||||||||||||||||||||||||||
| Operating income | ||||||||||||||||||||||||||
| Depreciation | ||||||||||||||||||||||||||
| Amortization | ||||||||||||||||||||||||||
| _______ | ||||||||||||||||||||||||||
Consolidated operating income includes corporate operating expenses, which are not allocated to the segments. These include stock-based compensation expense, depreciation expense, compensation for corporate employees, acquisition, integration and strategic planning expenses and public company expenses. | ||||||||||||||||||||||||||
10
Virtually all of the revenues from the Commercial Segment are generated from time-and-materials ("T&M") contracts where payments are based on fixed hourly rates for each direct labor hour expended and reimbursements for allowable material costs and out-of-pocket expenses. Revenues from the Federal Government Segment are generated from: (i) firm-fixed-price, (ii) T&M and (iii) cost reimbursable contracts. Virtually all of the Company's revenues are recognized over time. Revenues by segment and by type are as follows (in millions):
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
| Commercial | ||||||||||||||||||||||||||
| Assignment | $ | $ | $ | $ | ||||||||||||||||||||||
| Consulting | ||||||||||||||||||||||||||
| Federal Government | ||||||||||||||||||||||||||
| Firm-fixed-price | ||||||||||||||||||||||||||
| Time and materials | ||||||||||||||||||||||||||
| Cost reimbursable | ||||||||||||||||||||||||||
| Consolidated | $ | $ | $ | $ | ||||||||||||||||||||||
Federal Government Segment revenues by customer type are as follows (in millions):
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
| Department of Defense and Intelligence Agencies | $ | $ | $ | $ | ||||||||||||||||||||||
| Federal Civilian | ||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
10. Fair Value Measurements
Recurring Fair Value Measurements — The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued payroll and contract professional pay approximate their fair value based on their short-term nature. The carrying amount of long-term debt recorded in the Company’s balance sheet at June 30, 2022 was $1.0 billion (see Note 5. Long-Term Debt) and its fair value was $1.0 billion, which was determined using quoted prices in active markets for identical liabilities (Level 1 inputs ).
Certain acquisitions contain provisions requiring the Company to pay contingent consideration in the event the acquired business achieves certain specified earnings results in 2021 or obtains specified contract awards. Contingent consideration liabilities had a fair value of $15.1 million at December 31, 2021. In the six months ended June 30, 2022, $8.1 million of that liability was paid and is reflected in cash flows from financing activities in the accompanying condensed consolidated statement of cash flows and the remaining fair value was reduced to zero as a measurement period adjustment, with no effect on results of operations. There were no contingent consideration liabilities at June 30, 2022.
11
11. Subsequent Events
On July 6, 2022, the Company acquired GlideFast, an Elite ServiceNow provider, for total cash consideration of $350.0 million. The results of operations of GlideFast will be included in the Commercial Segment from the date of acquisition.
On July 27, 2022, the Company's Board of Directors approved a new stock repurchase program under which the Company may repurchase up to $400.0 million of its common stock over the next two years. Under terms of the program, purchases can be made in the open market or under a Rule 10b5-1 trading plan. The stock repurchase program does not obligate the Company to acquire any particular amount of the Company's stock and may be suspended at any time at the Company's discretion. The new program replaces the Company's previous $350.0 million stock repurchase program.
12
Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations
The information in this discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are based upon current expectations, 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. 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 those described in Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2021 ("2021 10-K"). 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 filing date of this Quarterly Report on Form 10-Q and we assume no obligation to update any forward-looking statements or the reasons why our actual results may differ.
OVERVIEW
ASGN provides IT services and solutions and creative digital marketing services across the commercial and government sectors. ASGN operates through its Commercial and Federal Government segments. Virtually all of the Company's revenues are generated in the United States.
The Commercial Segment provides IT services and solutions, and creative digital marketing services to Fortune 1000 and mid-market clients across the United States, Canada and Europe. The Federal Government Segment delivers advanced solutions in cloud, cybersecurity, artificial intelligence, machine learning, application and IT modernization, science and engineering to defense, intelligence and federal civilian agencies.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2022 COMPARED WITH THE THREE MONTHS ENDED JUNE 30, 2021
Revenues
Revenues for the quarter were $1.1 billion, up 17.1 percent over the second quarter of last year. Revenues for the quarter included approximately $36.3 million from businesses acquired in 2021 accounting for 3.7 percentage points of the year-over-year growth rate. The table below shows our revenues by segment for the three months ended June 30, 2022 and 2021 (in millions).
| % of Total | ||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | Change | 2022 | 2021 | Change | |||||||||||||||||||||||||||||||||
| Commercial | ||||||||||||||||||||||||||||||||||||||
| Assignment | $ | 628.4 | $ | 568.1 | 10.6 | % | 55.0 | % | 58.3 | % | -3.3 | % | ||||||||||||||||||||||||||
| Consulting | 222.2 | 144.4 | 53.9 | % | 19.5 | % | 14.8 | % | 4.7 | % | ||||||||||||||||||||||||||||
| 850.6 | 712.5 | 19.4 | % | 74.5 | % | 73.1 | % | 1.4 | % | |||||||||||||||||||||||||||||
| Federal Government | 291.2 | 262.4 | 11.0 | % | 25.5 | % | 26.9 | % | -1.4 | % | ||||||||||||||||||||||||||||
| Consolidated | $ | 1,141.8 | $ | 974.9 | 17.1 | % | 100.0 | % | 100.0 | % | ||||||||||||||||||||||||||||
Commercial Segment — Revenues from our Commercial Segment (74.5 percent of total revenues) were up 19.4 percent over the second quarter of last year. Assignment revenues totaled $628.4 million (73.9 percent of the segment's revenues), up 10.6 percent year-over-year. Consulting services revenues were $222.2 million (26.1 percent of the segment's revenues), up 53.9 percent year-over-year. Consulting services revenues included approximately $8.8 million revenues from a business acquired in 2021.
All commercial divisions (IT services and solutions, creative digital marketing and permanent placement) and revenue streams had double-digit growth over the second quarter of last year with the highest growth coming from our commercial consulting, creative digital marketing and permanent placement services. All five industry verticals: (i) financial services, (ii) consumer and industrials, (iii) healthcare, (iv) technology, media and telecom and (v) business and government services, were also up double-digit year-over-year.
Within the Commercial Segment, IT services and solutions revenues, which accounted for 83.1 percent of the segment's revenues in the quarter, were up 19.1 percent over the second quarter of last year driven by high growth in consulting services and high single-digit growth in assignment revenues. Creative digital marketing and permanent placement revenues, which combined accounted for 16.9 percent of the segment's revenues in the quarter, were up 20.6 percent over the second quarter of last year.
Federal Government Segment — Revenues from our Federal Government Segment (25.5 percent of revenues) were up 11.0 percent year-over-year. Revenues for the second quarter included $27.5 million from businesses acquired in the third quarter of last year. Revenues also included $16.0 million from a customer-directed, third-party license purchase under a cost reimbursable contract that had been expected to occur in the second half of the year. The second quarter of last year benefited from approximately $11.8 million in low margin revenues under a web services resale program the segment elected not to renew in the third quarter of last year.
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Gross Profit and Gross Margin
The table below shows gross profit and gross margin by segment for the three months ended June 30, 2022 and 2021 (in millions).
| Gross Profit | Gross Margin | |||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | Change | 2022 | 2021 | Change | |||||||||||||||||||||||||||||||||
| Commercial | $ | 281.7 | $ | 228.3 | 23.4 | % | 33.1 | % | 32.0 | % | 1.1 | % | ||||||||||||||||||||||||||
| Federal Government | 62.3 | 48.0 | 29.8 | % | 21.4 | % | 18.3 | % | 3.1 | % | ||||||||||||||||||||||||||||
| Consolidated | $ | 344.0 | $ | 276.3 | 24.5 | % | 30.1 | % | 28.3 | % | 1.8 | % | ||||||||||||||||||||||||||
Gross profit is comprised of revenues less costs of services, which consist primarily of compensation for our contract professionals, allowable materials and reimbursable out-of-pocket expenses. Consolidated gross profit was up 24.5 percent on revenue growth of 17.1 percent.
Gross margin was 30.1 percent, an expansion of 180 basis points over the second quarter of 2021. Both business segments and all operating divisions reported year-over-year expansion in gross margin. The expansion in gross margin of the Commercial Segment was driven by the double-digit growth of its high-margin services (commercial consulting, creative digital marketing and permanent placement). The expansion in gross margin of the Federal Government Segment was driven by changes in business mix, including the contribution of high-margin businesses acquired in 2021, a lower mix of revenues from low-margin services and higher profitability under certain firm fixed price contracts.
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 were $220.4 million (19.3 percent of revenues), compared with $176.4 million (18.1 percent of revenues) in the second quarter of 2021. This increase was commensurate with the growth in the business, including growth of high-margin commercial revenue streams (which carry a higher SG&A expense component than IT staffing and federal government services revenues).
Amortization of Intangible Assets
Amortization of intangible assets was $13.5 million, up from $12.0 million in the second quarter of 2021. This increase relates to the effects of the three businesses acquired in 2021.
Interest Expense
Interest expense was $10.1 million and was comprised of $3.3 million of interest on the senior secured credit facility, $6.3 million of interest on the unsecured senior notes, and $0.5 million in amortization of deferred loan costs. The weighted-average outstanding borrowings for the quarter were $1.0 billion and the weighted-average interest rate was 3.7 percent.
Provision for Income Taxes
The provision for income taxes was $27.4 million, up from $21.2 million in the second quarter of 2021, related to the growth in income before income taxes as the effective tax rate for the current quarter was only slightly higher than the second quarter of 2021.
Income from Continuing Operations
Income from continuing operations was $72.6 million, up from $57.3 million in the second quarter of 2021 driven by the growth in the business and the expansion of our gross margin.
Net Income
Net income of $72.5 million was comprised of income from continuing operations of $72.6 million and loss from discontinued operations of $0.1 million.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2022 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 2021
Revenues
Revenues for the first half of the year were $2.2 billion, up 18.6 percent year-over-year as a result of double-digit organic growth and the revenue contribution of $76.5 million from businesses acquired during 2021. Excluding the contributions from acquisitions, revenues were up 14.6 percent year-over-year. The table below shows our revenues by segment for the six months ended June 30, 2022 and 2021 (in millions).
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| % of Total | ||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | Change | 2022 | 2021 | Change | |||||||||||||||||||||||||||||||||
| Commercial | ||||||||||||||||||||||||||||||||||||||
| Assignment | $ | 1,256.6 | $ | 1,099.8 | 14.3 | % | 56.3 | % | 58.5 | % | -2.2 | % | ||||||||||||||||||||||||||
| Consulting | 426.9 | 261.9 | 63.0 | % | 19.1 | % | 13.9 | % | 5.2 | % | ||||||||||||||||||||||||||||
| 1,683.5 | 1,361.7 | 23.6 | % | 75.4 | % | 72.4 | % | 3.0 | % | |||||||||||||||||||||||||||||
| Federal Government | 549.3 | 520.2 | 5.6 | % | 24.6 | % | 27.6 | % | -3.0 | % | ||||||||||||||||||||||||||||
| Consolidated | $ | 2,232.8 | $ | 1,881.9 | 18.6 | % | 100.0 | % | 100.0 | % | ||||||||||||||||||||||||||||
Commercial Segment — Revenues from our Commercial Segment (75.4 percent of total revenues) were up 23.6 percent over the first half of last year. Assignment revenues totaled $1.3 billion (74.6 percent of the segment's revenues), up 14.3 percent year-over-year. Consulting services revenues were $426.9 million (25.4 percent of the segment's revenues), up 63.0 percent year-over-year. Consulting services included approximately $20.7 million in revenues from a business acquired in 2021.
All commercial divisions (IT services and solutions, creative digital marketing and permanent placement) and revenue streams had double-digit growth over the first half of last year with the highest growth coming from our commercial consulting, creative digital marketing and permanent placement services. All five industry verticals: (i) financial services, (ii) consumer and industrials, (iii) healthcare, (iv) technology, media and telecom and (v) business and government services, were also up double-digit year-over-year.
Within the Commercial Segment, IT services and solutions revenues, which accounted for 82.9 percent of the segment's revenues in the first half of 2022, were up 22.3 percent over the first half of last year driven by high growth in consulting services and low double-digit growth in assignment revenues. Creative digital marketing and permanent placement revenues, which combined accounted for 17.1 percent of the segment's revenues, were up 30.3 percent over the first half of last year.
Federal Government Segment — Revenues from our Federal Government Segment (24.6 percent of revenues) were up 5.6 percent year-over-year. Revenues for the first half of 2022 included $55.8 million from businesses acquired in the third quarter of last year. Revenues also included $16.0 million from a customer-directed, third-party license purchase under a cost reimbursable contract that had been expected to occur in the second half of the year. Last year benefited from higher spending levels on certain cost reimbursable contracts and revenues from a low-margin web services contract that the segment elected to not renew in the third quarter of last year.
Gross Profit and Gross Margin
The table below shows gross profit and gross margin by segment for the six months ended June 30, 2022 and 2021 (in millions).
| Gross Profit | Gross Margin | |||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | Change | 2022 | 2021 | Change | |||||||||||||||||||||||||||||||||
| Commercial | $ | 554.3 | $ | 426.9 | 29.8 | % | 32.9 | % | 31.4 | % | 1.5 | % | ||||||||||||||||||||||||||
| Federal Government | 116.3 | 93.1 | 24.9 | % | 21.2 | % | 17.9 | % | 3.3 | % | ||||||||||||||||||||||||||||
| Consolidated | $ | 670.6 | $ | 520.0 | 29.0 | % | 30.0 | % | 27.6 | % | 2.4 | % | ||||||||||||||||||||||||||
Consolidated gross profit was up 29.0 percent on revenue growth of 18.6 percent. Gross margin was 30.0 percent, an expansion of 240 basis points over the first half of 2021. Both segments reported expansion in gross margin. The expansion in gross margin of the Commercial Segment was driven by the double-digit growth of its high-margin services (commercial consulting, creative digital marketing and permanent placement services). The expansion in gross margin of the Federal Government Segment was driven by changes in business mix, including the contribution of high-margin businesses acquired in 2021, a lower mix of revenues from low-margin services and higher profitability under certain firm fixed price contracts.
Selling, General and Administrative Expenses
SG&A expenses were $432.5 million (19.4 percent of revenues), compared with $340.7 million (18.1 percent of revenues) in the first six months of 2021. This increase was commensurate with the growth in the business, including growth of high-margin commercial revenue streams (which carry a higher SG&A expense component than IT staffing and federal government services revenues).
Amortization of Intangible Assets
Amortization of intangible assets was $27.4 million, up from $24.0 million in the first six months of 2021. This increase relates to the effects of the three businesses acquired in 2021.
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Interest Expense
Interest expense was $19.4 million and was comprised of $5.7 million of interest on the senior secured credit facility, $12.7 million of interest on the unsecured senior notes, and $1.0 million in amortization of deferred loan costs. The weighted-average borrowings outstanding for the first six months of 2022 were approximately $1.0 billion and the weighted-average interest rate was 3.5 percent.
Provision for Income Taxes
The provision for income taxes was $51.1 million, up from $36.6 million in the first six months of 2021, related to the growth in income before taxes as the effective tax rate for the first six months of the year was slightly lower than the first six months of 2021.
Income from Continuing Operations
Income from continuing operations was $140.2 million, up from $100.1 million for the first six months of 2021 driven by the growth in the business and the expansion of our gross margin.
Net Income
Net income of $139.3 million was comprised of income from continuing operations of $140.2 million and loss from discontinued operations of $0.9 million.
Commercial Segment - Consulting Metrics
Commercial consulting bookings are defined as the value of new contracts entered into during a specified period, including adjustments for the effects of changes in contract scope and contract terminations. The underlying contracts are terminable by the client on short notice with little or no termination penalties. The book-to-bill ratio for our commercial consulting revenues is the ratio of our commercial consulting bookings to the commercial consulting revenues for a specified period. The average duration of commercial consulting projects is one year.
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||||||||
(dollars in millions) | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||
| Bookings | $ | 340.6 | $ | 217.7 | $ | 638.1 | $ | 399.7 | ||||||||||||||||||
| Book-to-Bill Ratio | 1.5 to 1.0 | 1.5 to 1.0 | 1.5 to 1.0 | 1.5 to 1.0 | ||||||||||||||||||||||
Federal Government Segment Metrics
Contract backlog for our Federal Government Segment represents the estimated amount of future revenues to be recognized under awarded contracts including task orders and options. These 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) | June 30, 2022 | December 31, 2021 | June 30, 2021 | |||||||||||||||||
| Funded Contract Backlog | $ | 455.5 | $ | 529.2 | $ | 449.1 | ||||||||||||||
| Negotiated Unfunded Contract Backlog | 2,395.2 | 2,472.0 | 2,272.5 | |||||||||||||||||
| Contract Backlog | $ | 2,850.7 | $ | 3,001.2 | $ | 2,721.6 | ||||||||||||||
The book-to-bill ratio for our Federal Government Segment was 0.9 to 1.0 for the trailing-twelve-months ended June 30, 2022. The book-to-bill ratio was calculated as the sum of the change in total contract backlog during the period plus revenues for the period, divided by revenues for the period. The contract backlog coverage ratio (backlog at June 30, 2022 divided by trailing-twelve-months of Federal Government Segment revenues) was 2.5 to 1.0.
Liquidity and Capital Resources
Our working capital at June 30, 2022 was $873.9 million, and our cash and cash equivalents were $490.6 million. 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. At June 30, 2022, we had full availability under our $250.0 million revolving credit facility. We believe that our cash and cash equivalents on hand, expected operating cash flows and availability under our revolving credit facility will be sufficient to fulfill our obligations, working capital requirements and capital expenditures for the next 12 months.
Net cash provided by operating activities was $144.4 million for the first half of 2022, compared with $204.7 million in the first half of last year. Net cash provided by operating activities before changes in operating assets and liabilities was $208.2 million, up from $180.2 million in
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the first half of last year. Changes in operating assets and liabilities resulted in net cash usage of $63.8 million, compared with net cash generation of $24.5 million in the first half of last year. This change mainly related to the revenue growth in the Commercial Segment and an increase in accounts receivable days sales outstanding.
Net cash used by investing activities was $6.1 million for the first half of 2022 and included $9.8 million in cash received related to the finalization of the purchase price for the sale of the Oxford business and $18.4 million in capital expenditures. Net cash used in investing activities in the first half of last year was $103.4 million and was comprised of $85.8 million for acquisitions and $17.6 million for capital expenditures.
Net cash used in financing activities was $177.1 million for the first half of 2022, compared with net cash provided of $0.1 million in the first half of last year. Net cash used in financing activities for the first half of 2022 was primarily comprised of $168.1 million to repurchase the Company's common stock. There were no repurchases of common stock in the first half of last year.
Senior Secured Credit Facility — The senior secured credit facility consists of a term B loan and a $250.0 million revolving credit facility. At June 30, 2022, the Company had $490.8 million outstanding under the term B loan and no outstanding borrowings under the revolver. Borrowings under the term B loan bear interest at LIBOR plus 1.75 percent, or the bank’s base rate plus 0.75 percent. Borrowings under the revolver bear interest at LIBOR plus 1.25 to 2.25 percent, or the bank’s base rate plus 0.25 to 1.25 percent, depending on leverage levels. A commitment fee of 0.20 to 0.35 percent is payable on the undrawn portion of the revolver. There are no required minimum principal payments on the facility until maturity. The facility is secured by substantially all of the Company's assets and includes various restrictive covenants. In July 2021, the Company amended its facility to, among other things, permit the sale of its Oxford business and allow the net sale proceeds (approximately $0.4 billion) to be used for future acquisitions and other permitted investments. With the acquisition of GlideFast on July 6, 2022 (see Note 11. Subsequent Events), and other investments of the net cash proceeds, required prepayments, if any, are expected to be insignificant.
Unsecured Senior Notes — The Company has $550.0 million of unsecured senior notes due in 2028, which bear interest at 4.625 percent payable semiannually in arrears on May 15 and November 15. These notes are unsecured obligations and subordinate to the senior secured credit facility. These notes contain certain customary limitations including, among other terms and conditions, our ability to incur additional indebtedness, engage in mergers and acquisitions, transfer or sell assets and make certain distributions.
Recent Accounting Pronouncements
There have been no recent accounting pronouncements that significantly impact the Company.
Critical Accounting Policies
There were no significant changes to our critical accounting policies and estimates during the second quarter of 2022 compared with those disclosed in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2021 10-K.
Commitments
There were no material changes to the significant commitments or contractual obligations that were disclosed in our 2021 10-K.
Item 3 — Quantitative and Qualitative Disclosures about Market Risks
With respect to our quantitative and qualitative disclosures about interest rates risks, there have been no material changes to the information included in our 2021 10-K. A hypothetical 100 basis-point change in interest rates on variable-rate debt would have resulted in an interest expense fluctuation of approximately $4.9 million based on $490.8 million of debt outstanding for any 12-month period.
Item 4 — Controls and Procedures
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Principal Financial and Accounting Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act). Based on this evaluation, our Chief Executive Officer and Principal Financial and Accounting Officer have concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report. The term "disclosure controls and procedures" means controls and other procedures of the Company that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within required time periods. We have established disclosure controls and procedures to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Principal Financial and Accounting Officer, as appropriate, to allow timely decisions regarding required disclosure.
There were no changes in our internal controls over financial reporting that occurred during the three months ended June 30, 2022 that have materially affected, or are reasonably likely to affect, our internal control over financial reporting.
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PART II — OTHER INFORMATION
Item 1 — 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 1A — Risk Factors
There have been no material changes to the risk factors previously described in our 2021 10-K.
Item 2 — Unregistered Sales of Securities and Use of Proceeds
On December 9, 2021, the Board of Directors approved a two-year stock repurchase program under which the Company may repurchase up to $350.0 million of its common stock. On July 27, 2022, the Company's Board of Directors approved a new stock repurchase program under which the Company may repurchase up to $400.0 million of its common stock over the next two years. Under terms of the program, purchases can be made in the open market or under a Rule 10b5-1 trading plan. The stock repurchase program does not obligate the Company to acquire any particular amount of the Company's stock and may be suspended at any time at the Company's discretion. The new program replaces the Company's previous $350.0 million stock repurchase program.
The Company's repurchases of its common stock during the three months ended June 30, 2022 are shown in the table below.
| Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) of Shares That May Yet be Purchased Under the Plans or Programs (in millions) | ||||||||||
| April | 234,187 | $ | 115.39 | 234,187 | $ | 230.6 | ||||||||
| May | 199,464 | $ | 108.30 | 199,464 | $ | 209.0 | ||||||||
| June | 501,936 | $ | 87.96 | 501,936 | $ | 164.9 | ||||||||
| Total | 935,587 | $ | 99.16 | 935,587 | $ | 164.9 | ||||||||
In connection with our stock-based compensation plans, during the three months ended June 30, 2022, 21,892 shares of our common stock with an aggregate value of $2.5 million were tendered by employees for payment of applicable statutory tax withholding. These shares are excluded from the table above.
Item 3 — Defaults Upon Senior Securities
None.
Item 4 — Mine Safety Disclosures
None.
Item 5 — Other Information
None.
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Item 6 — Exhibits
INDEX TO EXHIBITS
| Number | Description | |||||||
| 3.1 | ||||||||
| 3.2 | ||||||||
| 3.3 | ||||||||
| 4.1 | Specimen Common Stock Certificate (P) | |||||||
| 31.1* | ||||||||
| 31.2* | ||||||||
| 32.1* | ||||||||
| 32.2* | ||||||||
| 101 | The following material from this Quarterly Report on Form 10-Q of ASGN Incorporated, Part I, Item 1 of this Form 10-Q formatted in Inline XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Operations and Comprehensive Income; (iii) Condensed Consolidated Statement of Stockholders’ Equity; (iv) Condensed Consolidated Statements of Cash Flows; and (v) related notes to these financial statements. | |||||||
| 104 | Cover page interactive data file (formatted in Inline XBRL and contained in Exhibit 101) | |||||||
| * | Filed herewith. | |||||||
| (P) | This exhibit originally filed in paper format. Accordingly, a hyperlink has not been provided. | |||||||
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SIGNATURE
Pursuant to the requirements of the Exchange Act, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| ASGN Incorporated | ||||||||
| Date: August 8, 2022 | By: | /s/ Edward L. Pierce | ||||||
| Edward L. Pierce | ||||||||
| Executive Vice President and Chief Financial Officer | ||||||||
| (Principal Financial and Accounting Officer and Duly Authorized Officer) | ||||||||
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TABLE OF CONTENTS
Part IItem 1 Condensed Consolidated Financial Statements (unaudited)Note 11. Subsequent EventsNote 5. Long-term DebtItem 2 Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 2, Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3 Quantitative and Qualitative Disclosures About Market RisksItem 4 Controls and ProceduresPart II Other InformationPart IIItem 1 Legal ProceedingsItem 1A Risk FactorsItem 2 Unregistered Sales Of Securities and Use Of ProceedsItem 3 Defaults Upon Senior SecuritiesItem 4 Mine Safety DisclosuresItem 5 Other InformationItem 6 Exhibits